[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
HEALTH REFORM IN THE 21ST CENTURY: INSURANCE MARKET REFORMS
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HEARING
before the
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
APRIL 22, 2009
__________
Serial 111-14
__________
Printed for the use of the Committee on Ways and Means
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COMMITTEE ON WAYS AND MEANS
CHARLES B. RANGEL, New York, Chairman
FORTNEY PETE STARK, California DAVE CAMP, Michigan
SANDER M. LEVIN, Michigan WALLY HERGER, California
JIM MCDERMOTT, Washington SAM JOHNSON, Texas
JOHN LEWIS, Georgia KEVIN BRADY, Texas
RICHARD E. NEAL, Massachusetts PAUL RYAN, Wisconsin
JOHN S. TANNER, Tennessee ERIC CANTOR, Virginia
XAVIER BECERRA, California JOHN LINDER, Georgia
LLOYD DOGGETT, Texas DEVIN NUNES, California
EARL POMEROY, North Dakota PATRICK J. TIBERI, Ohio
MIKE THOMPSON, California GINNY BROWN-WAITE, Florida
JOHN B. LARSON, Connecticut GEOFF DAVIS, Kentucky
EARL BLUMENAUER, Oregon DAVID G. REICHERT, Washington
RON KIND, Wisconsin CHARLES W. BOUSTANY, JR.,
BILL PASCRELL, JR., New Jersey Louisiana
SHELLEY BERKLEY, Nevada DEAN HELLER, Nevada
JOSEPH CROWLEY, New York PETER J. ROSKAM, Illinois
CHRIS VAN HOLLEN, Maryland
KENDRICK B. MEEK, Florida
ALLYSON Y. SCHWARTZ, Pennsylvania
ARTUR DAVIS, Alabama
DANNY K. DAVIS, Illinois
BOB ETHERIDGE, North Carolina
LINDA T. SANCHEZ, California
BRIAN HIGGINS, New York
JOHN A. YARMUTH, Kentucky
Janice Mays, Chief Counsel and Staff Director
Jon Traub, Minority Staff Director
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C O N T E N T S
__________
Page
Advisory as of April 15, 2009 announcing the hearing............. 2
WITNESSES
Uwe E. Reinhardt, Ph.D., James Madison Professor of Political
Economy and Professor of Economics and Public Affairs,
Princeton University, Princeton, New Jersey.................... 7
Bill Vaughan, Senior Policy Analyst, Consumers Union............. 19
William D. Hobson, Jr., MS, President and CEO, Watts Healthcare
Corporation, Los Angeles, California........................... 29
David Borris, Owner, Hel's Kitchen Catering, Northbrook, Illinois 34
Kenneth L. Sperling, Global Health Management Leader, Hewitt
Associates, on behalf of National Coalition on Benefits........ 38
Linda Blumberg, Ph.D., Principal Research Associate, The Urban
Institute...................................................... 49
SUBMISSIONS FOR THE RECORD
America's Health Insurance Plans, Statement...................... 110
David C. Goering, M.D., Letter................................... 114
Petaluma Health Center, Letter................................... 115
Phil Caper, M.D. and Joe Lendvai, Letter 2....................... 116
Phil Caper, M.D. and Joe Lendvai, Letter......................... 117
The American Academy of Actuaries, Statement..................... 118
The American Medical Association, Statement...................... 120
The National Association of Health Underwriters, Statement....... 123
HEALTH REFORM IN THE 21ST CENTURY: INSURANCE MARKET REFORMS
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WEDNESDAY, APRIL 22, 2009
U.S. House of Representatives,
Committee on Ways and Means,
Washington, DC.
The Committee met, pursuant to notice, at 10:09 a.m., in
room 1100, Longworth House Office Building, Hon. Charles B.
Rangel [Chairman of the Committee] presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
April 15, 2009
FC-7
Health Reform in the 21st Century:
Insurance Market Reforms
House Ways and Means Chairman Charles B. Rangel (D-NY) announced
today that the Committee will hold another hearing in the series on
reforming the health insurance market. The hearing will take place at
10:00 a.m. on Wednesday, April 22, 2009, in the main committee hearing
room, 1100 Longworth House Office Building.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only. However,
any individual or organization not scheduled for an oral appearance may
submit a written statement for consideration by the Committee and for
inclusion in the printed record of the hearing.
BACKGROUND:
While more than 253 million Americans have insurance coverage
through their employer, Medicare, Medicaid and other
programs,i the U.S. health insurance market fails to provide
affordable, quality health insurance for everyone. Growth in health
plan premiums far outpaces increases in family incomes,ii
and in the past year, roughly one-quarter of American households
postponed getting needed health care because of cost
concerns.iii Almost 46 million people were uninsured at some
point in 2007, many from working families.iv
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\i\ U.S. Census Bureau. ``Health Insurance Coverage: 2007.'' August
2008. Accessed at http://www.census.gov/prod/2008pubs/p60-235.pdf.
\ii\ Kaiser Family Foundation. ``Employer Health Benefits 2008
Annual Survey.'' September 2008. Accessed at http://ehbs.kff.org/.
\iii\ Kaiser Family Foundation. ``Kaiser Health Tracking Poll.''
February 2009. Accessed at http://www.kff.org/kaiserpolls/upload/
7866.pdf.
\iv\ U.S. Census Bureau. ``Health Insurance Coverage: 2007.''
August 2008. Accessed at http://www.census.gov/prod/2008pubs/p60-
235.pdf.
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Those individuals who do not have coverage through an employer are
able to seek insurance in the individual market. However, many policies
in this market are characterized by high administrative costs and poor
benefits. Furthermore, it is nearly impossible for consumers to gauge
the quality of these plans or choose the plan that best meets their
needs. Insurance companies have every financial incentive to avoid sick
enrollees, and use benefit designs and pricing strategies to attract
the young and healthy, and/or refuse to cover people with pre-existing
conditions. Bringing reforms to the U.S. health insurance market that
will guarantee affordable health care for everyone is a vital step
toward restoring the economic health of the country and ensuring a
stable future. Making the health insurance market work for consumers
will require major reforms, such as requiring insurance companies to
offer coverage to everyone, regardless of health status, and limiting
rating strategies that can dramatically increase prices for consumers.
Other important changes include making health insurance portable,
increasing transparency, and giving consumers the ability to make
informed decisions about health insurance options. Creating a health
insurance ``exchange'' that offers consumers high quality, affordable
public and private health insurance options may begin to solve some of
the serious problems with the current insurance marketplace. In
announcing the hearing, Chairman Rangel said, ``America's health
insurance market is dysfunctional. This is evident by the 87 million
people who went without health insurance during the past two years and
the millions more who have insurance that is increasingly unaffordable
or inadequate. I am pleased to hold this hearing to examine the
problems in our health insurance market and explore long-term solutions
for reform.''
FOCUS OF THE HEARING:
The hearing will focus on strategies to reform the health insurance
market to ensure greater accessibility and affordability.
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Chairman RANGEL. The Committee will come to order. And
without objection, the Chairman of the Trade Subcommittee, the
gentleman from Michigan, is recognized.
Mr. LEVIN. Mr. Chairman, I want to wait till more of our
colleagues--just give us 10 seconds--sit down.
Mr. Chairman, we have been notified officially by the House
historian that as of April 10th of this year, that you and Mr.
Stark became the longest-serving Members in the history of the
Ways and Means Committee; in the history of our Committee. And
we all want to congratulate you.
[Applause.]
Chairman RANGEL. Well, it is not true that when we came
here, that George Washington had black hair. That is just not
so.
[Laughter.]
Chairman RANGEL. But thank you. Thank you so much.
The Committee will come to order. This is the third of a
series of Committee hearings on health reform. There is no
question in my mind that this is not a Democratic Party issue
or Republican Party issue.
Our constituents are frustrated in getting access to health
care, paying too much for health care, not knowing what is
covered by health care, the frustration of not knowing what is
in the private sector planned, not knowing where their
government is--it has been a very costly experience and a very
painful experience.
Peter Stark has worked very hard in making certain that we
come up with an overall plan. I have assured the Ranking
Member, David Camp, that on issues of health, that we are going
to get together starting with staff, starting with Subcommittee
chairmen, and making certain that at the end of the day, we may
differ in how we resolve the problem, but we are darned sure
going to agree that this is a very, very serious national
problem.
I would like to yield to the chairman of the Health
Subcommittee and thank him publicly for the work that he has
done over the years, and congratulate him that we have a
President that is now prepared to move in the direction that
you had always hoped and dreamed for.
Chairman Stark.
Mr. STARK. Well, as your noble twin at today's celebration,
I appreciate your yielding, Mr. Chairman. And I want to restate
that this is an important hearing. This isn't just moving ahead
to somehow mess around with the private market, despite some
feeling by people that that is our motivation.
Health reform has been a priority of the American public
for decades, and precisely because the private marketplace
doesn't work in the health insurance field today. That is why
we have Medicare. The health private market wasn't there, and
the government had to step in. That was not an easy
accomplishment.
It isn't an optional consumer product. It is something that
each of us will need at some point in our lives. And in the
current system, those who need it most are the ones who have
the most trouble being able to obtain it.
Private health insurance companies make their money by
avoiding risk, not managing it. And we will hear today from a
number of witnesses who will talk about the problems of our
existing system, and the way to fix those problems in order to
assume that every person in America has access to affordable,
quality health care.
Professor Uwe Reinhardt needs no introduction. He is a
renowned health economist, Princeton professor. And he has been
trying to help reform the American health system as long as I
can remember, which may not be a resounding endorsement. And as
a matter of fact, there are some of us who traveled to Uwe's
native state of Germany years ago to have him show us the
German system, and found that he has been a great source for
this Committee for a long time.
Linda Blumberg is here from the Urban Institute, and she
will explain the problems of the existing marketplace and her
thoughts on the best avenues toward reform.
We are also going to hear from David Borris, who has a
small business in Northbrook, Illinois. Is it Hel's Kitchen?
Mr. BORRIS. Hel's Kitchen.
Mr. STARK. Hel's Kitchen. All right. And so we are going to
hear about the problems that Hel's Kitchen has.
We are going to hear from Bill Vaughan, who is well-known
to most Members of this Committee. He is with Consumers Union,
and he will emphasize the problems consumers face in today's
system and what key reforms would help them obtain the coverage
they need.
I believe that the--Mr. Ken Sperling is a Republican
witness. Am I correct?
Mr. CAMP. Yes.
Mr. STARK. Yes. And he is a Global Health Management
Leader, and has been published in numerous trade and financial
journals and often quoted in the New York Times. And he will
talk to us about services for large employers and the retiree
issues.
So we have a good panel. I look forward to hearing from
each of our witnesses. And with that, I would yield to the
distinguished Ranking Member, Mr. Camp.
Chairman RANGEL. I want to make it clear again.
Mr. STARK. Oh, I am sorry. Well, I missed Mr. Hobson, and I
apologize. He is the president and chief executive of the Watts
Healthcare Corporation in Los Angeles, and he directs a staff
of 300 people, manages a budget of $26 million, and has had
many senior management positions in health services. We welcome
you. I am sorry, Mr. Hobson.
Chairman RANGEL. Let me make it clear that although Mr.
Camp and I hope that we can achieve a goal of a bipartisan
agreement, the fact that that may be unattainable is not going
to deter us from listening to each other and getting positions
or ideas from the witnesses.
And I would want anyone in the audience that has ideas how
we can make certain that we have the broadest universal
coverage, good coverage at less expense to our Nation, that
that is what we both--that is what both parties would want to
achieve.
I yield now to Mr. Camp.
Mr. CAMP. Well, thank you, Mr. Chairman, for yielding. And
congratulations to you and to Mr. Stark on your distinguished
tenure in the Congress and certainly on this Committee. That is
a milestone, a tremendous achievement.
Last night I had a telephone town hall meeting with my
constituents in northern Michigan, and it was about health care
reform. And I just want to begin by sharing the concerns of one
of the many people I spoke to last night. And this one
particular woman was very--they all were compelling, but one in
particular. And I just want to mention what she said to me.
She said, ``We are a small business, and of course we pay
very high rates for our medical insurance. I am concerned
because I am a 44-year-old woman that is scheduled for surgery
on Friday, and it is a bad surgery. I guess I am worried that
the government or socialized health care or anything that
Canada does--I mean, the people that support those types of
programs, I have to wonder.
I have to ask: Have they ever been through months and
months of doctors and testing, and wondering whether or not you
are going to be chosen for surgery, chosen to live? I don't
want to be one of those choices.
We choose to pay for our health plan. It is not perfect. We
don't get a lot. We have a high deductible. I will be honest, I
am terrified. I don't know how we are going to pay for our
medical costs we are racking up right now. But I choose to
live. We have to do it. There is no other choice.''
Well, Mr. Chairman, there ought to be a choice, and it is
up to you and me and the Members of this Committee, our
colleagues in the Senate, and the President to come with that
choice. The time for comprehensive reform is overdue, and I am
committed, along with the Members of this Committee, to help
making it a reality this year.
In the press advisory announcing today's hearing, Mr.
Chairman issued a quote that reads, and I am quoting,
``America's health insurance market is dysfunctional. This is
evident by the 87 million people who went without health
insurance during the past 2 years and the millions more who
have insurance that is increasingly unaffordable or inadequate.
I am pleased to hold this hearing to examine the problems in
our health insurance market and explore long-term solutions for
reform.''
That is well said. I would like you to know, the Committee
Members to know, our witnesses and those in the audience to
know, that is a statement I would put my name on any day of the
week, and yes, twice on Sunday.
The individual health insurance market is dysfunctional,
and costs for both families and businesses and taxpayers are
far too high. It says a great deal that Americans such as the
woman I spoke to last night are willing to pay these exorbitant
costs and are still left with a mountain of bills It says even
more that having the Federal Government dictate their health
care decisions scares them even more than, and I quote, ``bad
surgery.''
I am confident we can work together on this issue, and I
hope we can begin to do just that. Health insurance must be
portable. That is, if you change your job or lose your job, you
should not lose your health insurance. Transparency is
critical, both on the pricing side as well as the quality side.
We must address preexisting conditions, and we must make
health insurance more accessible and affordable. On these
issues and many others, I think there is bipartisan agreement.
The American people want results with regard to health care
reform, but they want the right results. As we meet, our Senate
colleagues are working collaboratively and in bipartisan manner
to produce comprehensive health care reform, and I would like
this Committee to do the same.
I think it is time, as we discussed just before this
hearing, for our staff to start meeting and begin those
discussions, and hopefully begin negotiating. If we do so, I
see no reason why we cannot solve this problem in the coming
months.
If we do not do so, I fear the debate will disintegrate
into the familiar though not necessarily partisan arguments
that have prevented comprehensive reform from becoming a
reality.
So, Mr. Chairman, I want to take you up on your suggestion.
And I also propose that we begin this hearing and that we start
talking, our staffs start taking, and more importantly, we
start writing a bill that will give every American access to
quality affordable health care.
And with that, I yield back the balance of my time.
Chairman RANGEL. The outstanding team of experts that Mr.
Stark has suggested, we want to thank you individually and
collectively for taking your time to help us through this very
complex but important problem that we face.
And we will start off with Dr. Reinhardt, who is a
professor of political economy and economics and public affairs
at Princeton. We thank you for coming. As you know, we would
like to have as much time for questions by the Members as
possible, so therefore we have the parliamentary restrictions
of 5 minutes. And without objection, your full statements will
be entered into the record.
Dr. Reinhardt, let us hear from you.
STATEMENT OF UWE E. REINHARDT, PH.D., JAMES MADISON PROFESSOR
OF POLITICAL ECONOMY AND PROFESSOR OF ECONOMICS AND PUBLIC
AFFAIRS, PRINCETON UNIVERSITY, PRINCETON, NEW JERSEY
Mr. REINHARDT. Thank you, Mr. Chairman and Members of this
panel, for inviting me to this Committee and to participate in
this important hearing. My full remarks are in the statement
which, as you said, will be submitted into the record.
I begin that statement by listing the five basic functions
a health system must perform--financing, risk pooling,
purchasing, producing health care, and regulating it. And the
question is, who should perform each of these functions, the
government or the private sector?
As far as I know, this hearing is really about the first
three functions. Who should organize and control the financing,
the pooling, and the purchasing of health care? Should it be
private insurers only? Should it be government only? Or could
there be a mixture of the two?
I might as well say ahead of time that I favor a mixture of
the two. As Congressman Camp said, there should be choice. And
a choice of a public plan strikes me as one of the choices the
American people should be offered, along with the choice of
private insurers, which, of course Canadians do not have. A
private insurance for services covered by Canadian Medicare are
not allowed in Canada. But we, of course, would in fact allow
it.
To return to the question of who should perform the five
functions mentioned above? It depends on the social goals you
pose for health care, particularly the social distributive
ethic. If you treat, as many Americans want to, health care
like a private good--like food, for example--then there is a
strong bias in leaving that all to the private sector.
If, on the other hand, it is the wish of the American
people to treat health care like a social good, like elementary
education or secondary education, then it is unavoidable that
government pretty much has to control or run the financing and
the risk pooling functions, although it could delegate the
purchasing functions to private insurance, we do with Medicaid
Managed Care or with Medicare Advantage.
So those are the options. But the risk pooling would have
to be controlled by the government.
Most OECD countries and Taiwan treat health care as a
social good, like elementary education, and they build their
systems off that ethic. They have stated their social goal for
health care in writing--explicitly. The Romanow report of
Canada, for example, puts the social ethic up front.
In the U.S. we do not have a shared, common ethic for
health care. Some Americans say it is a purely private good
that should be rationed by price and ability to pay. Others say
it is a purely social good, like elementary education. And in
between, you have incredible intellectual confusion.
Let me illustrate this confusion. I hear nothing but bad-
mouthing of socialized medicine in this country. Yet that is
exactly the system we Americans preserve for our veterans. My
son is a veteran, and I always tease him: We don't like you
guys, because we put you into socialized medicine, the VA
system. That to me represents a severe case of cognitive
dissonance. It is very unhelpful in formulating health reform.
The same cognitive dissonance is manifest when people say
that no one has the right to impose a mandate to buy health
insurance on individuals, but people have the right to get very
expensive health care even if I can't pay for it, should they
fall critically ill. That is very confusing to anyone who
didn't grow up in this country.
Now, from President Obama's statements, I infer that he
leans toward the social-good ethic for healthcare. He would
like health care financed primarily by ability to pay, and see
it distributed on roughly equal terms. If that be the social
ethic we want to pursue, then it can be fairly said, and I
think industry members would agree, that the private insurance
industry does not now own up to that ethic, nor can it.
I don't think of that industry as evil. Vilifying it, I
think, is not the right approach. You just have to recognize
that a private insurer has to be actuarially sound. From that
it follows that private insurers have to charge higher premium
to sicker people. From that it follows that private insurers of
the things the industry does that look cruel really are just
the business that they are in. They have to deny coverage to
very sick people. They have to deny claims that they believe
are not covered. That just comes with the turf in which they
operate.
So if you want President Obama's social ethic (that many
Members of this Committee share) then you really have to take a
hold of the financing and risk pooling functions of the health
system. You have to very much regulate this industry with
community writing, with guaranteed issue, and so on.
But if you put those two mandates on the industry, you must
also mandate the individual to be insured or the market will
blow up, as it has in New Jersey. There is famous literature
that led to a Nobel laureate that shows these markets will
destroy if you do not couple a mandate to be insured with
mandated community rating and guaranteed issue.
Now, I don't have time to go into all of the details of my
statement. But I hear there is a problem that if you added a
public health plan to provide insurers in a reorganized market,
that the public plan would have a comparative advantage because
it could pay providers the lower rates Medicaid offers.
If you look at my testimony, you will see the range of
prices paid by private insurers varies by a factor of six. You
have one insurer in a state. Call them up and say, what do you
pay for a colonoscopy, and what they pay, depending on which
hospital it is, can vary by a factor of six.
So I would flatly assert there is no private payor level.
There isn't one. There is only a huge, wide range of thousands
of private payer levels--every hospital gets a different fee
from different insurers, and every insurer pays different
hospitals differently. And sometimes one insurer will pay the
same hospital five different rates depending on what the
insurance product is--HMO, PPO, indemnity and so on.
So when you say you want to adapt the payment level of a
public plan to that of the private industry, I would ask to
which level? The lowest? The highest? The median? The average?
The weighted average? What region do you average over? That is
a huge can of worms. It is not easy to do.
If you took the average, then roughly half the private
insurance plans would be advantaged vis a vis the public plan
because their prices would be lower than those the public plan
must pay. So this is very difficult to do. And it requires a
lot more thought.
In conclusion, I would say I believe that after having
their retirement--retiree health care blown away, 401(k)
savings melt away and seeing once revered companies march
toward bankruptcy, along with the debauchment in the financial
center that is just nothing short of unspeakable, it could well
be that the American people have lost faith in the private
sector's ability to provide financial security to individuals
and families. Americans might well yearn for a government-run
plan that is stable, permanent, and always there for them. That
possibility should be considered in debating the fate of the
public plan.
After all--I have said it in another Committee--in this
country, when the going gets tough, the tough do run to the
government. Some jet down here from New York. Some drive cars
from Detroit. But they do come to Washington for help because,
in the end, government is the only institution Americans truly
trust. That tendency implicitly makes the case of the public
plan.
So, to deprive Americans of the choice of a public plan
would seem to me to require a very strong rationale and
defense.
[The prepared statement of Mr. Reinhardt follows:]
Prepared Statement of Uwe E. Reinhardt, Ph.D., James Madison Professor
of Political Economy and Professor of Economics and Public Affairs,
Princeton University, Princeton, New Jersey
My name is Uwe E. Reinhardt. I am Professor of Economics and Public
Affairs at Princeton University, Princeton, New Jersey. My research
work during the past several decades has been focused primarily on
health-care economics and policy.
I would like to thank you, Chairman and your colleagues on this
Committee for inviting me to present a statement on the problems of
structuring a market for individually purchased health insurance in the
United States.
After some remarks on the interface between social ethics and
health reform, my statement will focus for the most part of ways of
reforming the market for health insurance.
I. INTRODUCTION
Any modern health system, regardless of its structure, must perform
the following five major functions:
1. FINANCING health care, that is, extracting the requisite funds
for the health system from individuals and households, who ultimately
pay for all of health care. (Government, employers and private insurers
are merely pumping stations in the flow of funds from individuals and
households to the providers of health care).
2. POOLING RISKS for the purpose of protecting individuals and
households from the uncertain financial cost of needed health care.
3. PURCHASING health care from its providers (doctors, hospitals,
and so on), which includes negotiating or setting the prices to be paid
for health care and determining the set of goods and services actually
needed for the efficient, evidence-based best treatment of given
medical conditions (including disease management and chronic care).
4. PRODUCING the goods and services required for the proper
treatment of given medical conditions, including their diagnosis.
5. REGULATING the various clinical and economic activities
involved in the operation of the nation's health system so that it
works consistently towards socially desired ends.
As I understand it, this hearing is about the allocation of the
first three functions between the private and the public sectors. The
fifth function, of course, is the natural preserve of government,
especially after the financial markets have demonstrated at such great
cost to the rest of the world that private markets cannot be trusted to
be self-regulating and working in society's interest, a point now
grasped even by economists, including libertarian Alan Greenspan.
The allocation of the first three functions between government and
the private sector, however, is not so clear-cut. It depends crucially
on the social goals society wishes to posit for its health system,
including how the financial burden of ill health is to be allocated to
members of society and how care is to be distributed among them. I
shall therefore offer a few remarks on that facet of a health system.
II. THE SOCIAL GOALS OF HEALTH SYSTEMS
Most industrialized nations in the OECD, along with Taiwan, seek to
operate their health systems on the Principle of Social Solidarity. It
means to them that health care is to be viewed as a so-called ``social
good,'' like elementary and secondary education in the United States.
That perspective, in turn, implies that the financial burden of health
care for the nation as a whole should be allocated to individual
members of society roughly in accordance with the individual's ability
to pay, and that needed health care should be available to all members
of society on toughly equal terms.
If the health system is to operated subject to this distributive
social ethic, it requires that government either operate the financing,
risk-pooling and purchasing functions directly (as is the case in
Canada, Taiwan and the UK, for example) or that government tightly
regulate all three functions, even if they are actually performed by
private institutions outside of government proper (as is the case in
Germany, the Netherlands and Switzerland).
Unfortunately, the United States never has been able to evolve a
widely shared consensus on the distributive social ethic that ought to
govern the U.S. health system. The bewildering American health system
reflects that lack of consensus.
At one end of the ideological spectrum, many Americans appear to
believe that health care ought to be treated as a private consumer good
that should be distributed on the basis market principles. This means
that the financing of health care ought to be viewed primarily as the
responsibility of the individual, and only the poorest members of
society ought to be given public assistance in procuring a bare-bones
package of health care. In other words, these Americans believe that,
for the most part, health care should be rationed among members of
American society on the basis of price and ability to pay, like other
basic consumer goods, such as housing, clothing and food.
At the other end of the ideological, just as many other Americans
share the ethical precepts of other nations in the OECD. These
Americans, too, believe that our health system ought to be operated on
the Principle of Social Solidarity, that is, that health care should be
viewed a social good. If rationing of health care there must be, then
it ought to be on principles other than price and ability to pay.
In between these distinct but coherent views reigns massive
intellectual confusion.
To illustrate, the same citizens and politicians who look askance
at ``socialized medicine'' \1\ reserve the purest form of socialized
medicine--the VA health system--for the nation's allegedly much admired
veterans. A foreigner may be forgiven for finding this cognitive
dissonance bizarre.
---------------------------------------------------------------------------
\1\ The formal definition of ``socialism,'' according to my
American Heritage Desk Dictionary, is a system in which government owns
the means of production. ``Socialized medicine'' thus is a system in
which government owns, operates and finances health care, as in the VA
health system. It is not the same as ``social insurance,'' which merely
is an arrangement under which individuals transfer financial risks they
face to a larger collective body, often the government. The limited
liability shareholders of corporations enjoy, for example, is one of
the oldest forms of social insurance, as is the Federal Government's
assistance to states struck by natural disasters, as is the many
guarantees government extends to the financial sector and as is, of
course, Medicare and Medicaid.
---------------------------------------------------------------------------
Similarly, there are many Americans, who believe that government
does not have the right to impose on them a mandate to have health
insurance, all the while considering it their moral right as Americans
to receive even horrendously expensive tertiary health care in case of
critical need, even if the recipients have no hope of financing that
care with their own resources. Foreigners may be forgiven for shaking
their heads at this immature and asocial entitlements mentality, which
would be rare in their home countries.
Finally, a good many citizens and politicians who accept with
equanimity the rationing of health care by price and ability in this
country openly deplore the rationing of health by administrative means
in other countries, perhaps not realizing that textbooks in economics
explicitly ascribe to market prices the role of rationing scarce
resources among unlimited want \2\ Why the latter form of rationing is
superior to the former is not obvious.
---------------------------------------------------------------------------
\2\ As two well-known authors put it: ``Bread must be rationed
somehow; and the price system accomplishes this in the following way:
Everyone who is willing to pay the equilibrium price gets the good, and
everyone who is not, does not.'' See Michael L. Katz and Harvey S.
Rosen, Microeconomics, (1991): 15.
---------------------------------------------------------------------------
A much mouthed mantra in our debate on health policy is that ``we
all want the same thing in health care, but merely quibble over the
means to get there.'' Nothing could be further from the truth. That
debate has been and continues to be a tenacious ideological fight over
the social ethic that ought to govern American health care; but we
camouflage it as a technical debate strictly over means.
My plea before this Committee and to the Congress is that any
health reform proposal put before the American people be preceded with
a preamble that clearly articulates the social goals our health system
is supposed to pursue and the social ethic it is to observe. Policy
makers in other nations routinely do so and accept the constraints that
this preamble imposes on their design of health reform. It would be
helpful to have a clearly articulated statement on the social ethics
for American health care as well.
With these preliminary remarks, I would now like to turn to the
structure of the market for health insurance.
III. THE MARKET FOR PRIVATE HEALTH INSURANCE
The value a health insurance system offers society is the ability
to pool the financial risks faced by individuals in order to protect
members of that risk pool from uncertainty over the financial inroads
of high medical bills in case of illness. In return for receiving that
value, individuals make a financial contribution to the risk pool, in
the form of taxes (e.g., payroll taxes) or premiums.
Many economists view this risk pooling as the sole proper function
of health insurance per se. To them, for example, the segmentation of a
free market for private health insurance by risk class, with relatively
higher insurance premiums charged to patients expected to be relatively
sicker over the insured future period, is not only an inevitable
outcome of such a market, but is viewed perfectly acceptable. Such
premiums are called ``actuarially fair.'' On this view, if society
wants greater equity in the financing of health care, then government
should provide risk-adjusted subsidies toward the purchase of
actuarially priced private insurance.
As a practical matter, however, most people seem to believe that
both private and public insurers should not only protect individuals
from the variance of their own health spending likely to be incurred by
that individual over time, but also incorporate in its premium
structure hidden cross subsidies from chronically healthy to
chronically sick members of society. Most health insurance systems in
the world actually do that, including the Medicare and Medicaid
programs in the United States and the private employment-based health
insurance system.
A. Employment-Based Insurance
In the market for employment-based group health-insurance, the
insurance premium paid the insurer by the employer typically is
``experienced rated'' over the group of employees being insured. It
means that the premium reflects the average expected (actuarial) cost
of the health care likely to be used collectively by all of that
employer's employees, plus a markup-up for the cost of marketing and
administration and profits.
In effect, then, the bulk of the risk pooling for employment-based
health insurance actually is performed by the employer, not the
insurer. The insurer bears only a small fraction of the total risk, a
fraction that varies inversely with the size of the insured group.
This is even clearer when the employer overtly self-insures, as
most large employers in the United States now do. In that case, the
employer bears all of the financial risk of the employees' illness, and
private insurance carriers are engaged by the employer merely perform
the purchasing function (the third function above) on behalf of the
employer-run risk pool, including claims processing.
Economists are persuaded by both theory and empirical evidence
that, over the longer run, the full cost of the employer's contribution
to the employees' group health insurance is shifted back somehow to
employees in the form of lower take-home pay or a reduction in other
fringe benefits. The arrangement typically does force chronically
healthier employees to cross-subsidize chronically sicker employees,
because the reduction in take-home pay within a given skill level is
independent of the individual employee's health status.
In a sense, then, employment-based insurance is a form of ``social
insurance.'' One may call it ``private social insurance,'' especially
for larger employers, as distinct from government-run social insurance.
It is one reason that the employment-based system has such strong
support among people who would like to see American health care
governed by the Principle of Social Solidarity. The feature of
employment-based insurance that attracts them is the pooling of risks
in that system.
A problem, of course, is that this principle is vastly eroded, the
smaller the number of employees is over which premiums are experience-
rated. For very small firms, employment-based insurance approximates
individually purchased insurance.
B. The Market for Individual Insurance
In the market for individually purchased insurance, risk pooling
necessarily must take place at the level of the insurance company.
As is well known from a distinguished literature in economics, a
price-competitive market of individually sold health insurance will
naturally segment itself by risk class. By economic necessity--and not
a mean spirit--insurers in such a market have no choice but to engage
in ``medical underwriting'' if they want to survive.
This means that private insurers must (a) determine as best they
can the health status and likely future cost to the risk pool that an
individual prospective customer will cause and (b) charge the
individual a premium that covers that anticipated cost (the
``actuarially fair premium'') plus a mark-up for the risk pool's cost
of marketing and administration and for desired profits. The size of
this mark-up is constrained through price competition. As the Lewin
Group estimated in a recent report, this mark-up averages 31.7% for
private insurers in the individual market.\3\
---------------------------------------------------------------------------
\3\ The Lewin group, The Cost and Coverage Impacts of a Public
Plan: Alternative Design Options, Staff Working Paper # 44, April 6,
2009.
---------------------------------------------------------------------------
The general public and the media that informs the public seem
insufficiently cognizant of the horrendously complex product insurers
sell. A health insurance policy is a so-called ``contingent contract''
under which the insurer is obligated to pay the insured a specified
amount of money--or, alternatively, to purchase for the insured
specified medical benefits--should that contingency arise.
The problem has always been to define that ``contingency'' so that
it does not trigger disputes on whether or not the contingency has
occurred--e.g., whether a medical procedure was called for on clinical
grounds. Furthermore, it should be clear that both sides to the
contract--the insured and the insurer--have the opportunity to cheat on
the contract, if they are so inclined. It is the reason why these types
of contingent contracts typically are subject to penetrating government
regulation and oversight.
There is a tendency among the critics on the private health
insurance industry to vilify it. I find that unfair and unproductive.
The important question is whether that industry, as it is currently
structured, can serve the social objectives American society may wish
to posit for it and, if not, what regulation of the industry would be
required to make it march toward the desired social goal.
C. Marrying a Purely Private Insurance Sector to the Principle of
Social Solidarity
If the social objective of our health reform is to make health
insurance available to all Americans on equal terms--as President
Obama's campaign statements clearly imply--then the current private
market for individual insurance has three major shortcomings.
The first is the practice of medical underwriting, that is, the
practice of inquiring deeply into the personal health status of
individual applicants for insurance and basing the quoted premium on
the individual's health status. This practice could be eliminated by
forcing every insurance company to charge the same premium to every one
of its customers, with the possible exception of age. Every insurer
would charge so-called community-rated premiums, although these could
vary competitively among insurers.
A second practice at odds with the President's stated social goal
for American health care is the practice of denying health insurance to
anyone whose expected future medical bills exceed the premium that can
be charged the individual, or to rescind insurance ex post when medical
claims have piled up and he insurer cancels the policy over some flaw
belatedly found in the original application for insurance. This
practice can be eliminated by imposing ``guaranteed issue'' on the
industry. It means every insurer must accept all applicants seeking to
buy coverage at the insurer's quoted community-rated premium and may
not cancel policies ex post.
But as both the theoretical and the empirical literature on this
market clearly demonstrate, imposition of community-rated premiums and
guaranteed issue on a market of competing private health insurers will
inexorably drive that market into extinction, unless these two features
are coupled with a third, highly controversial requirement, namely, a
mandate on individual to be insured for a at lest a specified minimum
package of health benefits.\4\
---------------------------------------------------------------------------
\4\ For a report on how private insurance markets implode when the
mandate to be insured is not imposed in a community-rated market with
guaranteed issue, see Alan C. Monheit, Joel C. Cantor, Margaret Koller,
and Kimberley S. Fox, ``Community Rating And Sustainable Individual
Health Insurance Markets In New Jersey: Trends in New Jersey 's
Individual Health Coverage Program reveal troubled times for the
program,'' Health Affairs, July/August 2004; 23(4): 167-175.
---------------------------------------------------------------------------
A mandate upon the individual to be insured, however, is likely to
be disobeyed by large numbers of low-income individuals unless the
government is willing and able to grant those individuals sufficient
public subsidies toward the purchase of health insurance. One way to
assess the adequacy of these subsides is to reach a political consensus
on the maximum percentage X that the individual's (or family's) total
outlay for health insurance premiums and out-of-pocket health-care
spending takes out of the unit's discretionary income (disposable
income minus outlays for other basic necessities, such as food,
housing, clothing, etc.). That maximum percentage X probably would have
to rise with income. Its proper size is a political call. It would be
helpful if Congress could agree on such a number.
With these four features--(1) community rating, (2) guaranteed
issue, (3) mandated insurance and (4) adequate public subsidies--a
private, strictly monitored health insurance market for individually
purchased health insurance probably could be made to march fairly
closely in step with the distributive social ethic professed by the
President and by many Members of Congress. It would require very tight
regulations and supervision of the industry, however, most likely
through the National Health Insurance Exchange provided for in the
President's health-reform proposal. Within their ranks of enrollees,
both the Medicare Advantage program and the Medicaid Managed Care
program are tightly regulated and supervised in roughly this fashion.
IV. THE POTENTIAL ROLE OF A NEW PUBLIC HEALTH PLAN
During his presidential campaign, President Obama firmly and quite
explicitly promised not only to reform the market for private,
individually sold health insurance--along the lines outlined above--but
to include among the insurance options in this market a new public plan
for non-elderly Americans. This public plan would have to compete with
private health insurers for enrollees.
A. Why might a Public Plan be attractive to Americans?
One could imagine a sizeable latent demand among the American
public for such a public health plan, even in the absence of any
significant cost advantage that such a public plan might have.
In recent years, Americans have seen retiree health benefits once
promised them by private corporations melt away. They have seen their
401(k) savings in the private sector similarly melt down severely and
the value of any other private pension plan vastly eroded. They have
lost their employer-based health insurance with their job or, if they
have not yet lost it, they fear of losing it. They have seen once
revered and seemingly indestructible American corporations stumble
toward bankruptcy and extinction, either at the hand of global
competition or as a result of mismanagement. Finally, they have seen
the once revered leaders of the financial sector behave in so
irrational and destructive a manner as to make a mockery of received
economic theory, with its instinctive belief in the economic
superiority of private markets \5\.
---------------------------------------------------------------------------
\5\ See, for example, George A. Akerlof and Robert J. Shiller, How
human Psychology Drives the Economy, and Why it Matters for Global
Capitalism, Princeton University Press, 2009.
---------------------------------------------------------------------------
After all of this turbulence, destruction and self-immolation in
the once hallowed private sector of the economy, many Americans may now
seek the comfort of permanence that a fully portable, reliable and
permanent government-run health insurance plan would offer them, side
by side with the possibility of choosing a private health insurance
plan instead. To deny them that opportunity would require a compelling
justification.
Advantages of a Public Plan: A public health insurance plan for
non-elderly Americans could offer society a number of advantages.
First, it would be likely to have the advantage of large economies
of scale. Therefore, it could economically use expensive and powerful
health-information technology to simplify claims processing, lower the
cost of prudent purchasing ad quality monitoring, and engage in disease
management, if it were allowed to do so.
Although a few large private insurers dominate the market in many
areas, overall the market for private health insurance remains
remarkably splintered, with many insurers carrying on somehow with very
small enrollments, often below 20,000 insured \6\ It is not clear how
such small insurers can harvest the economies of scale of marketing and
administration, and especially the benefits of health information
technology. One must wonder what features in this market have allowed
them to survive to this point. Presumably, the market for private
insurance would have to consolidate significantly in a reformed
insurance market.
---------------------------------------------------------------------------
\6\ See, for example, Allan Baumgarten, Texas Managed Care Review
2006 (available at http://www.allanbaumgarten.com/images/presentations/
TX_ManagedCareReview_2006.pdf) and similar reports by that author for
other states.
---------------------------------------------------------------------------
Second, a public plan would not have to include in its premiums an
allowance for profits and probably have low or no marketing costs. The
previously cited Lewin Group sees that as a significant cost advantage
of the public plan, reducing administrative costs as a percent of
medical claims to about 13%, relative to 31% for private insurers. That
advantage, however, may be exaggerated if private insurers offered
their policies through a formal insurance exchange, reducing the cost
of commissions to insurance brokers.
A third advantage could be the ability of a public plan to innovate
in paying the providers of health care. Medicare already has been
remarkably innovative on that front. The case-based DRG system for
hospital payment, now being copied around the world, is Medicare's
creation, and so is the development of the Resource-Based-Relative-
Value Scale (RBRVS) which now forms the basis of negotiations over fees
between physicians and private health insurers.
The next step in payment reform has to be a move away from the
time-honored but inefficient fee-for-service system that dominates in
both the private and public insurance sectors, and round the world,
towards bundled, case-based payments for evidence based, clinically
integrated care \7\ Along with Medicare, a new public plan for non-
elderly Americans could play a role in the development of this payment
method as, of course, could private insurance plans.
---------------------------------------------------------------------------
\7\ See, for example, the website of Prometheus Payment'
Inc., http://www.prometheuspayment.org/
---------------------------------------------------------------------------
Finally, government has already contributed substantially to the
measurement of the quality of health care and websites that disseminate
such information to the market place and has fielded demonstration
projects for disease management, once again side by side with the
private sector.
Problems with a Public Plan: As I see it, the main problems with
the addition of a public health insurance plan to a menu of competing
private insurance options are political, rather than technical.
There is in the realm of politics the overarching question whether
government should perform functions that the private sector could also
perform, even if the private-sector would use more resources--be more
costly--to achieve the same end. We see that question debated now in
connection with student loans \8\ which, according to the Congressional
Budget Office \9\, cost taxpayers considerably more when channeled
through the private banking sector than when loans are made directly by
government to students. The outcome of the current debate over student
loans may be an augury for the course of health reform.
---------------------------------------------------------------------------
\8\ http://www.washington monthly.com/archives/individual/2009_04/
017728.php
\9\ http://studentlending analytics.typepad.com/
student_lending_analytics/2009/03/cbo-
significantly-ups-cost-savings-estimate-from-eliminating-ffelp-.html
---------------------------------------------------------------------------
But even if the answer to the previous question were ``Yes''--that
government may indeed intrude as a competitor on economic turf
traditionally held by the private sector--there is the question of what
would constitute a level playing field in a proposed competition of
private insurers with a new public plan.
Private insurers argue that if they are forced to compete with a
public plan that can piggy-back its payment system onto the
administratively set Medicare fees, they are forced to play on an
uneven playing field tilted unfavorably in their direction. This
suggests a scenario in which the private insurance plans would be
pushed to the wall until eventually the U.S. ends up with a single-
payer system. The long queues in Canada for certain types of health
care, the low fees paid doctors and tight budgets for hospitals there,
along with and the much sparser endowment of Canada's health system
with certain high-tech equipment are cited as the inevitable
destination of a single-payer system.
At this stage, this scenario is mere conjecture, and I have some
difficulties following it.
In Canada, private insurance for services covered by the
government-run system is prohibited. It would not be in the United
States. Thus, if a public health insurance plan for non-elderly
Americans really began to deprive American patients of what they desire
in health care, the private insurance industry offering superior
benefits at higher premiums would not melt away or, if it had, it would
quickly be reborn, just as we now see providers starting to refuse the
allegedly low fees paid by large private insurer and resorting again to
the indemnity insurance model. Markets work that way.
There does, however, remain the issue of the level playing field,
which I would not brush aside so easily. In what follows, I shall offer
some comments on that issue.
V. DEFINING A LEVEL PLAYING FIELD
Two major facets define the evenness of the playing field on which
insurance companies compete with one another: (1) the risk pool with
which the insurer ends up and (2) the level of fees at which the
insurer can procure health care from its providers.
Risk Pool: At this time roughly two thirds of the American
population obtains health insurance from private insurance carries; but
collectively private insurers account for only slightly more than one
third of total national health spending. It is so because through its
Medicare and Medicaid programs, government covers much higher risks on
average than do private carriers.
It is not clear how the allocation of risks to private carriers and
a new public plan would work out in a market for individual insurance.
Chances are that a somewhat sicker risk pool would gravitate toward the
public plan, which by itself would put it at a competitive disadvantage
vis a vis the private plans, other things being equal.
Whatever the case may turn out to be, this facet of the playing
field should be recognized in the debate on health reform. To mitigate
any tilting of the playing field by that factor, one would ultimately
have to install a differential-risk compensation mechanism, such as
those operated in Germany, the Netherlands and Switzerland.
Payment Levels: The previously cited report by the Lewin Group
projects that, if a new public health plan for non-elderly American
paid Medicare fees, and if the overhead of such a plan were less than
half of that experienced by private competitors, then the premiums of
the public plan would be 21% below those charged by the private plans.
Assuming a premium-elasticity of the demand for health insurance of
-2.47 (meaning a 1% decrease in the premium of the public plan vis a
vis the premium of private insurers would trigger a 2.47% migration
from private to public insurance), the Lewin Group simulates that some
119 million Americans would shift from private insurance to the public
plan, a large fraction of whom would be Americans hitherto covered by
employment-based insurance in smaller firms. In fact, the Lewin Group
estimates that if the public plan were forced to pay at what it calls
``private payer levels,'' enrollment in private insurance would decline
only by 12.5 million, rather than 119 million.''
Any such simulation, however, is merely the product of a computer
algorithm into which researchers feed assumptions that largely drive
the predictions. I, for one, believe that the assumed differential of
administrative overhead may be too large, if private insurers sold
their policies through an organized exchange, rather than through
brokers. Furthermore, research based on the Dutch and Swiss experience
suggests considerable stickiness of insurance choices, suggesting that
the premium-elasticity assumed by the Lewin Group may be too high. In
Switzerland, in particular, very large differences in insurance
premiums charged by private insurers for the same package in the same
Canton exist with only minimal switching by consumers among plans in
response to such differentials. A similar experience has been observed
in the Netherlands.\10\
---------------------------------------------------------------------------
\10\ See http://www.commonwealthfund.org/ /media/Files/
Publications/Fund%20Report/2009/Jan/
The%20Swiss%20and%20Dutch%20Health%20Insurance%20Systems%20%20Universal%
20
Coverage%20and%20Regulated%20Competitive%20Insurance/
Leu_swissdutchhltinssystems_1220%20pdf.pdf
---------------------------------------------------------------------------
Be that as it may, there is the question what the Lewin Group means
by ``private payment level.'' Is there actually such a thing? If so,
how is it defined and measured?
Table 6.3 below, taken directly from the Final Report of the New
Jersey Commission on Rationalizing Health Care Resources (2008), \11\
illustrates the variance of actual payments made by one large health
insurer to different providers for a standard colonoscopy. Table 6.4
exhibits the variation in actual payments made to different New Jersey
hospitals for identical hospital services. Finally, table 6.5 below
exhibits similar variances for the same procedures paid by a different,
large insurer to different hospitals in California.
---------------------------------------------------------------------------
\11\ http://www.nj.gov/health/rhc/finalreport/index.shtml
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Cost Shifting: Medicare and Medicaid stand accused of shifting
costs to private insurers by paying providers, especially hospitals,
low prices, often below costs. In a study commissioned by the insurance
industry, published in December of 2008, Milliman Inc. estimated the
size of this cost shift for 2007 at $51 billion for hospitals and $37.8
billion for physicians, for a total of $88.8 billion.\12\
---------------------------------------------------------------------------
\12\ Will Fox and John Pickering, ``Hospital and Physician Cost
Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial
Payers,'' (December, 2008) http://www.milliman.com/expertise/
healthcare/publications/rr/pdfs/hospital-physician-cost-shift-RR12-01-
08.pdf
---------------------------------------------------------------------------
Although the phenomenon of the cost shift seems real to hospital--
and insurance executives, it is less obvious to many economists who
have debated the existence of the cost shift for decades among
themselves. Indeed, with appeal to empirical data bearing on the issue,
Congress' own Medicare Payment Advisory Commission (MedPAC) has cast
doubt on the existence of a cost shift before this very Committee in a
Statement for the Record dated March 2009.\13\
---------------------------------------------------------------------------
\13\ See also MedPAC, Medicare Payment Policy: MedPAC's March 2009
Report to Congress: 57-67 available at www.medpac.gov.
---------------------------------------------------------------------------
But even if one agreed that there actually were such a cost shift
from the public to the private insurance sectors, Tables 6.3 to 6.5
presented above that there must be an even larger cost shift within the
private insurance sector among private insurers. It raises the question
whether the playing field is level even within that sector. As Michael
A. Porter and Elizabeth Olmsted Teisberg rightly observe on this point
in their book Redefining Health Care: \14\
---------------------------------------------------------------------------
\14\ Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining
Health Care, Harvard Business School Press, 2006: 66.
---------------------------------------------------------------------------
``Within the private sector, patients enrolled in large health
plans are perversely subsidized by members of smaller groups, the
uninsured and out-of-network patients. . . . The dysfunctional
competition that has been created by price discrimination far outweighs
any short term advantages that individual system participants gain from
it, even for those participants who currently enjoy the biggest
discounts.'' \15\
---------------------------------------------------------------------------
\15\ For a proposal to begin to reduce this price discrimination
see Uwe E. Reinhardt, ``A More Rational Approach to Hospital pricing,''
http://economix.blogs.nytimes.com/2009/01/30/a-more-rational-approach-
to-hospital-pricing/ and Uwe E. Reinhardt, ``The Pricing Of U.S.
Hospital Services: Chaos Behind A Veil Of Secrecy,'' Health Affairs,
January/February 2006; 25(1): 57-69.
---------------------------------------------------------------------------
What, then, is the Private Payer Level?: Any proposal to force a
new public health plan for non-elderly Americans to pay providers at
``private payer levels''--the words used by the Lewin Group--would
immediately run into the problem of the rampant price discrimination
within the private sector, that is, and the huge variation in fees this
price discrimination begets. Every insurer pays vastly different fees
to different providers for the same service, and every provider bills
different insurers different fees for the same service.
What in the chaos begotten by this system would the ``private payer
level'' be to which a new public health plan should adjust. Would it be
the average or the median of the prices paid by private insurers? Would
they be simple or weighted averages and medians? If the latter,
weighted by what? Over what geographic areas would these averages or
medians be calculated?
Finally, if the public plan would have to pay such average or
median fees, would it not by sheer arithmetic endow private insurers
below that average or median with playing field tilted in its favor?
VI. MAKING THE PUBLIC PLAN FUNCTION LIKE A PRIVATE PLAN
In a recent position paper, Len Nichols and John A. Bertko of the
New America Foundation have gone to some length to design a level
playing field for private insurers and a new public plan.\16\
---------------------------------------------------------------------------
\16\ Len Nichols and John M. Bertko, ``A Modest proposal for a
Competing Public Health Plan, The New America Foundation, (March 11,
2009) http://www.newamerica.net/files/CompetingPublicHealthPlan.pdf
---------------------------------------------------------------------------
Nichols' and Bertko's proposal is inspired by the thirty or so
state governments that offer their employees a choice between (a)
traditional private insurance plans and (b) and a self-insured public
plan operated by the state. The authors would subject the competing
private and the public plans to exactly the same rules, monitored by an
entity other than the government itself. The public plan would have to
be actuarially independent and not get any public subsidies not also
available to the private plans. Like the private plans, the public plan
would have to negotiate its own fees with providers.
Presumably, unlike Medicare, it would be allowed to exclude
particular providers from its network of providers and would be allowed
to engage in disease management and other strategies designed to
enhance value for the dollar.
The advantage the authors can claim for that proposal is that it
might find bi-partisan approval. A drawback, however, would be the high
administrative cost of forcing the new public plan to negotiate fees
with each and every provider.
Furthermore, this approach would perpetuate the rampant price
discrimination that should, at some time in the future, be replaced
with a more efficient and fairer payment system--perhaps even an all-
payer system, such as those used in Germany and Switzerland. As Michael
Porter and Elizabeth Olmsted Teisberg \17\ and others have argued, it
is hard to detect any social value in the chaotic price-discrimination
that now characterizes the private health insurance market in the
United States.
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\17\ Michael E. Porter and Elizabeth Olmsted Teisberg, Redefining
Health Care, Harvard Business School Press, 2006: 66.
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VII. A MARKET COMPOSED SOLELY OF PRIVATE INSURERS
In the end, the idea of the promised new public plan may be
sacrificed on the altar of bipartisan political horse trading. In that
case, if one wanted to offer Americans the stability and permanence
they are likely to crave and run the market for health insurance on the
Principle of Social Solidarity, one might structure the market for
individually purchased insurance along the lines now used in Germany
\18\, the Netherlands and Switzerland \19\, all of whom seek to marry
the Principle of Social Solidarity with a system of private, non-profit
insurance carriers (Germany and Switzerland) or a mixture of non-profit
and for-profit insurers (the Netherlands).
---------------------------------------------------------------------------
\18\ See http://www.commonwealthfund.org/ /media/Files/Resources/
2008/Health%20Care%20
System%20Profiles/Germany_Country_Profile_2008_2%20pdf.pdf and http://
content.
healthaffairs.org/cgi/content/abstract/27/3/
771?ijkey=DsTX9syExLZLc&keytype=ref&siteid
=healthaff
\19\ See http://content.healthaffairs.org/cgi/content/full/27/3/
w204) and (http://www.
commonwealthfund.org/E/media/Files/Publications/Fund%20Report/2009/
Jan/The%20Swiss%20
and%20Dutch%20Health%20Insurance%20Systems%20%20Universal%20Coverage%20a
nd%20
Regulated%20Competitive%20Insurance/Leu_swiss
dutchhltinssystems_1220%20pdf.pdf and http://www.allhealth.org/
BriefingMaterials/JAMA-Uwe-1183.pdfhttp://content.healthaffairs.org/
cgi/content/full/27/3/w204) (http://www.commonwealthfund.org/ /media/
Files/Publications/Fund%20Report/2009/Jan/
The%20Swiss%20and%20Dutch%20Health%20Insurance%20Systems
%20%20Universal%20Coverage%20and%20Regulated%20Competitive%20Insurance/
Leu_swissdutchhltinssystems_1220%20pdf.pd and http://www.allhealth.org/
Briefing Materials/JAMA-Uwe-1183.pdf
---------------------------------------------------------------------------
As already noted in the introduction, in these systems the first
two functions of a health system--financing and risk pooling--is
basically under the control of government, either directly or through
tight regulation. The purchasing function, however, is delegated to
private, competing entities, albeit under tight regulation as well.
In Germany and Switzerland these systems operate on the basis of an
all-payer system, in which fees are negotiated, at the regional level
of the state (Land) between associations of insurers and associations
of providers, where after the negotiated fees apply to all payers and
providers within the region. In the Netherlands, fees paid can vary
among insurers; but the variance across plans is relatively small by
American standards.
VIII. CONCLUSION
Even the opponents of a new public health plan for non-elderly
Americans will probably concede that the private market for
individually purchased health insurance remains underdeveloped and
needs a restructuring before it can serve the needs of the American
people better than it has heretofore.
As was argued in Sections III and VII above, even if Congress in
the end decided not to permit the establishment of a new public health
plan, a rather daunting set of new regulations would have to be imposed
on that market to meet the social goals posited for our health system
by President Obama. It would also require a mandate on individuals to
have basic coverage, a proposal eschewed by the President during the
election campaign, albeit not by his Democratic rivals.
Chairman RANGEL. Thank you, Doctor.
We would now like to hear from Bill Vaughan. I join with
Chairman Stark in congratulating you and Consumers Union for
the contribution you have made to our Congress over the years.
And we would like to hear you.
STATEMENT OF WILLIAM VAUGHAN, SENIOR POLICY ANALYST, CONSUMERS
UNION
Mr. VAUGHAN. Well, thank you very much, sir, and thank you
for inviting us to testify. Consumers Union is the independent,
nonprofit publisher of Consumer Reports, and we don't just test
toasters. We try to help people with health issues, and we are
big, big fans of comparative effectiveness research, which we
are using to save people, we think, millions of dollars in
getting the most effective, safest, best buy drugs out there.
If Dante were alive writing about the independent health
insurance market, it would be in the eighth circle just above
where the uninsured are stuck. And it is exhibit number one for
what is wrong with American health care.
I was going to go into that, but I think the opening
statements of Mr. Camp, Mr. Stark, that is coals to Newcastle.
Our statement documents why it is all goofed up, and has some
very moving, heart-rending horror stories from people around
the country stuck in that market.
It is easy to see why it is a dysfunctional market. First,
you have basically for-profit insurance companies, whose
fiduciary duty is to make money for their stockholders. That is
just a fact. And then you have the distribution of health care
costs.
Let's pretend that this Ways and Means Committee is the
entire American health care system. The 40 of you are it. And
we are going to spend $2.4 trillion this year taking care of
you guys.
And let's say the 50 percent of you who are the healthiest,
Mr. Rangel over to Mr. Pomeroy, Mr. Camp over to Ms. Brown-
Waite, would be 20 of you, 50 percent healthiest. We would
spend 3 percent, $72 billion, on you 20.
And, God forbid, I hope it never happens, but let me pick
on the junior Members, Mr. Yarmuth, Mr. Roskam. Let's say if
you were the 5 percent least healthy, we would spent $1,200
billion on you two. $1.2 trillion on you two, $72 billion on
the 20 in the upper row. It is the privilege of seniority, I
guess.
But you can try to regulate that. You could try to get
these for-profit insurers to try to cover you. It is like
leading a horse to water. They won't always drink. It will
always be a hassle. It is like, for a consumer point of view,
you lose frequently. It is like a constant game of Whack-a-
Mole, and it is just no fun.
And that is why Consumers Union would like to see a public
plan option out there, somebody whose fiduciary duty is to you
in Congress, to the American public, and who would be delighted
to insure you two.
Switching subjects a little bit, I have to say,
unfortunately, on behalf of consumers, most of us are lousy
insurance shoppers. We don't get a good deal. The evidence is
everywhere--in FEHBP, in Part D. This is not something you go
tripping off on a Saturday afternoon: Let's go insurance
shopping. We don't do a good job.
If you want to have consumers help drive this system toward
value and savings and quality, we are going to need some help
big time. Our statement gets into it, but basically, we are
looking for an office that can help with what is the quality of
insurers; a place where you can go to complain, find out what
others are complaining about; a place where you can get cost
comparisons; and very, very important, we need a place--maybe
it is NAIC--but the definitions of these terms.
Our current magazine issue has the story of a couple.
Thought they had hospitalization. Fine print: Starts on the
second day, after the lab tests, after the surgical room fees.
They get stuck with a big bill. Hospitalization should be
hospitalization. Drug coverage should mean drug coverage,
chemotherapy, anti-emetic, the common sense stuff that
consumers need. And we need to define those carefully so the
public knows them.
The most important thing you can do is give us a manageable
number of choices, not this 40, 50, 60, even 80 choices of
minor little differences that just confuse the marketplace. We
need something like Medigap, which has A through L. Even that
is too much.
Get it down to some meaningful choices--and yes, Mr. Camp,
choices. But they could be A through G, meaningful choices. And
before a person signs up and becomes eligible in whatever plan
you guys put together, the person has to see the cost and the
quality ratings of the comparable plans that are out there. I
bet you CBO would give you a ton of scorings savings for that.
Let me conclude but just say I hope this Congress can
become one of the great historical Congresses of our nation's
history by finally, after an almost 100-year struggle, bringing
every American affordable, secure, health care. Thank you very
much.
[The prepared statement of Mr. Vaughan follows:]
Prepared Statement of Bill Vaughan, Senior Policy Analyst,
Consumers Union
Thank you for inviting Consumers Union to testify on insurance
market reforms and in particular, problems in the individual insurance
market. Consumers Union is the independent, non-profit publisher of
Consumer Reports.\1\
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\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.
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We not only evaluate consumer products like cars and toasters, we
rate various health care providers and insurance products, and we apply
comparative effectiveness research to save consumers millions and
millions of dollars by purchasing the safest, most effective brand and
generic drugs.\2\ Our May 2009 issue features an article on ``hazardous
health plans,'' and points out that many policies are ``junk
insurance'' with coverage gaps that leave you in big trouble.
---------------------------------------------------------------------------
\2\ See www.ConsumerReportsHealth.org/BBD
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The Problem of the Individual Insurance Market
The individual insurance market is Exhibit A for why America needs
health reform. It is the epitome of everything wrong with the system
(and when you think about it, the very term ``individual insurance'' is
really an oxymoron):
-- if it provides good coverage, it is too expensive for many who
need it most;
-- pre-existing condition exclusions and medical underwriting mean
it often doesn't cover the costs consumers are most likely to incur;
-- many policies have gaps in coverage, that consumers often don't
understand;
--all too often it is a hassle to collect on a policy, and
-- all too often, if you use it, you lose it, because of future
huge increases in premiums.
Real Examples of Problems with the Individual Insurance Market
Appendix 1 to my statement documents these points.
Last summer, Consumers Union collected over 5,000 `stories' and
traveled around the country documenting why our nation needs
fundamental health care reform. Appendix 1 is a tiny sample of those
stories, focusing on the particular problems of high cost, inadequate
benefits, pre-existing condition exclusions, and administrative hassles
in the individual insurance market.
If you only look at one, as a Medicare Committee, look at the first
one: Tom from Hutchinson, Minnesota, who delays--at considerable pain
and extra cost--hip surgery until he is on Medicare. An amazing number
of these stories include people saying, ``I'll just have to tough it
out until I'm eligible for Medicare.'' If you enact legislation
insuring all Americans, CBO ought to give you some savings in Medicare!
Why the Individual Insurance Market is so Flawed
For decades, individual insurance has been what economists call a
`residual' market--something to buy only when you have run out of other
options. The problem is that the high cost of treatment in the U.S.,
which has the world's most expensive health-care system, puts truly
affordable, comprehensive coverage out of the reach of people who don't
have either deep pockets or a generous employer. Insurers tend to
provide this choice: comprehensive coverage with a high monthly premium
or skimpy coverage at a low monthly premium within the reach of
middle--and low-income consumers. Particularly in this recession, more
and more consumers are forced to choose the skimpy coverage/low premium
policies.
It is understandable why the insurance market, particularly the
individual insurance market, behaves the way it does. Most big insurers
are for-profit or quasi-for-profit and have a fiduciary duty to their
stockholders to return a profit. Historically, the least healthy 10
percent of the population consumes about 64 percent of the health
dollar. The healthiest 50 percent of the population uses only 3
percent.\3\ You don't need an MBA to figure out that the best way to
make your shareholders happy is to avoid those sickest ten percent or
charge them a very very high premium to cover their expected high
costs. Add this basic economic fact to uneven and weak regulation of
insurers, and consumers who need health insurance are constantly
vulnerable.
---------------------------------------------------------------------------
\3\ AHRQ, Issue #19, June 2006.
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Solutions
We hope that this year Congress will enact reform legislation to
ensure that a comprehensive package of benefits is always available and
affordable for every American. That legislation will mean a number of
big changes, including insurance reform: no pre-existing conditions and
no waiting periods
Assuming you enact that kind of reform, it will probably include
some form of initial and annual open enrollment period in some type of
`marketplace' or `connector' where private and--we hope--a public plan
could compete for consumers.
It is in that marketplace of enrollment that we ask you to provide
critical consumer protection and assistance.
Why Consumers Need Help Shopping for Insurance
The honest, sad truth is that many of us are terrible shoppers when
it comes to insurance.
The proof is all around you. While provider network and local
pharmacy and reputation are all factors, the fact is that many us spend
more money than we have to on insurance products that are similar or
even inferior to other products in the marketplace.
-- 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.\4\
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\4\ Washington Consumers' Checkbook Guide to Health Plans, 2008
edition, p. 5.
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-- 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.\5\
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\5\ See also, TheStreet.com Ratings: Medigap Plans Vary in Price,
9/15/06.
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-- 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.\6\
---------------------------------------------------------------------------
\6\ Jonathan Gruber, ``Choosing a Medicare Part D Plan: Are
Medicare Beneficiaries Choosing Low-Cost Plans?'' (prepared for the
Henry J. Kaiser Foundation) March, 2009.
---------------------------------------------------------------------------
-- 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.\7\
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\7\ SeniorJournal.com, March 29, 2009.
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.\8\ Yet consumers
are expected to understand ``actuarial value,'' ``co-insurance'' versus
``co-payment,'' etc., ad nauseum.
---------------------------------------------------------------------------
\8\ HHS Office of Disease Prevention and Health Promotion
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If Congress wants an efficient, effective marketplace that can help
hold down costs, you need to provide a structure to that marketplace.
Consumers Union recommends including the following in any
legislation you enact:
Empower Consumers in a New Health Insurance Marketplace
A new Office of Consumer Health Insurance Education and Information
that will:
Provide general and comparative information about
insurance issues and policies using consumer-friendly formats.
We need a Medicare Compare-type website (with some improvements)
applied to all health insurance sectors where policies can be compared
on price and quality. Extending this comparison site to all insurance
would help stop the waste in the Medigap market where seniors are
talked into buying a standard policy that may be up to 1600 percent of
the cost of the low-cost plan in their state.
Require standardization of insurance definitions and
forms so consumers can easily compare policies on an ``apples-to-
apples' basis.
This is key. Hospitalization should mean hospitalization. Drug
coverage should mean drug coverage, etc. In our May magazine article,
we describe a policy in which the fine-print excluded the first day of
hospitalization--usually or often the most expensive day when lab and
surgical suite costs are incurred.
NAIC could be charged with developing these definitions, backed up
by the Secretary if they fail to act.
Require insurers to clearly state (in standardized
formats) what's covered and what's not in every policy offering, and to
estimate out-of-pocket costs under a set of 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.\9\
---------------------------------------------------------------------------
\9\ Op. cit., p. 68.
Maintain an insurance information and complaint hotline,
and compile Federal and state data on insurance complaints and report
---------------------------------------------------------------------------
this data publicly.
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 all
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 all consumers, not just
the Medicare population.
These programs need to be greatly expanded if you want the
marketplace/connector to work. The SHIPs should be further
professionalized, with increased training and testing of the quality of
their responses to the public. Instead of roughly a $1 per Medicare
beneficiary for the SHIPs, the new program should be funded at roughly
the level that employers provide for insurance counseling. We
understand that can range from $5 to $10 or more per employee.
An insurance ``exchange'' or ``connector,'' offering a choice of
plans, that will:
Like Medigap, include an optimal number of plan choices--
not too few and not too many.
Limit excessive variations in benefit design so that
plans compete more on price and quality.
Consumers want choice of doctor and hospital. We do not believe
that they are excited by an unlimited choice of middlemen insurers.\10\
Fewer offerings of meaningful insurance 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.\11\ 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 make
rational, advantageous economic changes during the open enrollment
period.
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\10\ ``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.
\11\ Mechanic, David. Commentary, Health Affairs, ``Consumer Choice
Among Health Insurance Options,'' Health Affairs, Spring, 1989, p. 138.
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It is shocking that CMS allowed roughly 1400 Part C plans with less
than 10 members to continue to clutter the marketplace. What a waste of
time and money for all concerned. Reform legislation should set some
guidance on preventing the proliferation of many plans with tiny
differences that just serve to confuse a consumer's ability to shop on
price and quality.
We hope you will enact a core package which all Americans will
always have. If people want to buy additional coverage, there would be
identical packages of extra coverage (as in the Medigap program) that
many different companies could offer for sale. Consumers would have to
be shown the pricing and quality ratings of those different packages
before purchase. (Chairman Stark's AmeriCare bill includes much of this
concept.\12\)
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\12\ HR 193, Sec. 2266(c)(2) SIMPLIFICATION OF BENEFITS--
``(A) IN GENERAL--Each AmeriCare supplemental policy shall only
offer benefits consistent with the standards, promulgated by the
Secretary, that provide--
``(i) limitations on the groups or packages of benefits,
including a core group of basic benefits and not to exceed 9 other
different benefit packages, that may be offered under an AmeriCare
supplemental policy;
``(ii) that a person may not issue an AmeriCare supplemental
policy without offering such a policy with only the core-group of basic
benefits and without providing an outline of coverage in a standard
form approved by the Secretary;
``(iii) uniform language and definitions to be used with respect
to such benefits; and
``(iv) uniform format to be used in the policy with respect to
such benefits.
``(B) INNOVATION--The Secretary may approve the offering of new
or innovative and cost-effective benefit packages in addition to those
provided under subparagraph (A).
We believe standard benefit packages (and definitions) are the key
to facilitating meaningful competition.\13\
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\13\ Center on Budget and Policy Priorities, ``Rules of the Road:
How an Insurance Exchange Can Pool Risk and Protect Enrollees,'' by
Sarah Lueck, March 31, 2009.
Require information on price and quality to be presented
---------------------------------------------------------------------------
in consumer-friendly formats.
Medicare law requires a pharmacist to tell consumers if there is a
lower-priced generic available in their plan. A similar concept in the
insurance market might be scored by CBO as driving savings. That is,
before you enroll in a plan, you must be told if there is an insurer
with equal or better quality ratings offering the same standard
structured package.
Require plans to provide year-long benefit, price, and
provider network stability.
In Medicare Part D, we saw plans advertise certain costs during the
autumn open enrollment period, and then by February or March increase
prices on various drugs so much that the consumer's effort to pick the
most economical plan for their drugs was totally defeated. This type of
price change--where the consumer has to sign up for the year and the
insurer can change prices anytime--is a type of bait and switch that
should be outlawed.
Protect against marketing abuses and punish insurers that
mislead consumers.
We urge stronger penalties against sales abuses. Any reform bill
must include the best possible risk adjustment so as to reduce
insurers' constant efforts to avoid the least healthy individuals
(e.g., rewarding sales forces for signing up healthy individuals). This
would have the added benefit of encouraging development of best
practices for efficient treatment of these complex cases--which is a
key part of controlling costs over time.
Ensure that consumer co-payments for out-of-network care
are based on honest, audited data.
The recent report by the NY Attorney General is a shocking
indictment of the nation's major insurers: ``The current industry model
for reimbursing out-of-network care is fraudulent.'' \14\ The Attorney
General calls for an independent, verifiable system of determining
usual and customary charges so that consumers and doctors are not gamed
out of millions of dollars a year in out-of-network payments. In
addition, such usual and customary data should be transparent--
available on a website--so consumers have some advance idea of what
their out-of-network costs are likely to be.
---------------------------------------------------------------------------
\14\ `` Health Care Report: The Consumer Reimbursement System is
Code Blue,'' State of NY, Office of the Attorney General, January 13,
2009.
Make consumers fully aware of their rights to register
complaints about health plan service, coverage denials, and balance-
---------------------------------------------------------------------------
billing and co-pay problems, and to appeal coverage denials.
We urge you to require the standardization and simplification of
grievance and appeals processes, so that it is easier for consumers to
get what they are paying for.
Many are worrying that comparative effectiveness research may lead
to limits of what is covered. We believe CER will help us all get the
best and safest care. It makes sense to give preference to those items
which objective, hard science says are the best. But if a drug, device,
or service does not work for an individual, then that individual must
be able to try another drug, device, or service. The key to this is
ensuring that the nation's insurers have honest, usable appeals
processes in place. This legislative effort is where we should be
putting our energy to address the otherwise legitimate concern of many
people about CER.
Conclusion
We thank you again for this opportunity to testify. The American
health care system can be fixed, but consumers need tools to help drive
the system toward quality and cost savings. The reforms we have
suggested are keys to this goal.
Appendix I
Examples of why America needs comprehensive health care reform
This is a small sample of the 5000-plus stories we have collected.
The sample concentrates on cost, pre-existing condition exclusion, and
poor coverage problems in the individual market, along with examples of
what it means to be uninsured because one cannot afford a policy. All
of these individuals are willing to be contacted upon request for
further discussion.
``Insurance'' with adequate benefits and coverage
Tom from Hutchinson, MN
Tom and his wife own their own pottery studio and have paid for
their own health insurance over the years. About five years ago, Tom
developed a debilitating hip condition. The pain got so bad that his
doctor recommended that he undergo hip replacement surgery. Under his
insurance policy, Tom would have had to pay $10,000 for the surgery,
which he could not afford. He ended up putting off his surgery for
three years until he qualified for Medicare. Two days after he turned
65, Tom had his surgery and his costs under Medicare were just one-
third of what he would have paid under his individual insurance plan.
Delaying the procedure had its own cost: his muscles atrophied
considerably and it took him longer to recover from his surgery.
Gina from St. Joseph, MO
Gina and her husband own their own delivery company and have
purchased an individual health insurance policy for their family. Gina
recently had a miscarriage and decided not to seek medical treatment
because they have a high $3,500 deductible and she couldn't afford to
see the doctor. When Gina gave birth to her son a few years ago, the
insurance company refused to pay for her C-section because they
maintained it was elective (even though her son was born breeched). She
had to fight with the insurance company to get them to pay for these
medical costs. In the meantime, the insurance company sent their bill
to collections. The insurance company eventually paid six months after
Gina had paid her full deductible.
Kristin from Beaverton, OR
``I am a single mom who has been out of work for almost a year. I
started working 2 months ago and was diagnosed with Interstitial
Cystitis last week. I went to fill my prescription of ``Elmiron'' and
to my horror found out that AFTER my insurance discount, I will still
have to pay $283/mo. for my medication. I also take buproprion and
effexor xr. This means that I will be paying $420/mo for medication
alone. I already pay almost $400 for my insurance. I live on $1000/mo
after paying my mortgage (which I currently can't do anything about due
to the market) payment. Now I will live on $200???? Yet, because I took
a contract position until the end of the year, I make too much money
for any assistance programs. I am very frustrated with the system and
I'm tired of being taken advantage of for insurance and medication that
I need. Maybe I would be better off not working and getting assistance.
This is a serious problem with our society! Sometimes not working and
depending on assistance is the ONLY way to get our medications. . .what
else can I do?''
Molly from Nashville, TN
After being diagnosed with uterine cancer last year, Molly had to
undergo three surgeries and six months of chemotherapy and was unable
to work for about eight months. Her insurance policy covered
catastrophic medical expenses, but she still had about $25,000 in out-
of-pocket medical expenses for the care she received. Her friends were
able to help her pay many of her bills, but she was left with about
$12,000 in unpaid medical debt and a damaged credit record. ``The
stress of my illness was enough for me to deal with, but then seeing
all the bills I had to pay was just too much for me to handle,'' Molly
says.
Tina from Pittsburgh, PA
When Tina was pregnant a couple of years ago she found out that her
individual health insurance policy did not cover any of her maternity
expenses. She developed preclampsia and diabetes during her pregnancy
and none of the care she required for these conditions was covered.
Tina faced the prospect of having to pay nearly $50,000 in pregnancy-
related expenses out of pocket. Fortunately, a local journalist took up
her cause and contacted the insurance company. Her insurer agreed to
cover her expenses through her baby's one-month appointment. Her policy
was then cancelled but now her husband has a new job that provides
coverage for her family.
Sandra from Portland, ME
Sandra is disabled with chronic fatigue syndrome and needs a
scooter to get around. At first, her insurance company decided to only
provide partial payment for her scooter and then later said it would
only pay for a manual wheelchair. Sandra had to provide further
documentation from her doctor that she couldn't use a wheelchair. The
appeals process with her insurance company took more than one year.
Sandra continues to incur major out-of-pocket medical expenses,
including $25,000 last year.
Catherine from San Francisco, CA
``Four years ago I was diagnosed with breast cancer. As a 31 year
old freelance documentary producer, I barely had enough money to pay my
bills and eat, let alone afford the private health insurance that
allowed me access the to quality, but high-cost health care that I
believe saved my life. I signed up for insurance because I was afraid
I'd get hurt snowboarding, not managing a long-term illness. Private
health insurance covered the basics, but I still paid over $50,000 for
all the care I received. I'm still paying it off. Sometimes I wonder
how bad off I would be if I hadn't gotten it in the first place.''
Sarah from Los Angeles, CA
``In 2001, I paid $135 per month for individual health insurance
coverage. Co-pays were $20.00 per visit and $5.00 for Rx. Now, I pay
$603.00 per month, $40.00 co-pay per visit and $10. per RX, and a $4000
per year deductible. I have no chronic health problems. Three years ago
I suffered a bout of severe sciatica (I had never experienced this
before) which sent me to the ER for 12 hours. My insurance company
refused to cover the ambulance bill and refused 50% of the ER fees. My
out of pocket expenses for that one episode came to over $2,500.00.
This after paying $549.00 per month (at that time) for coverage.
Consequently, I never got the full PT that I probably needed and as a
result have some permanent nerve damage in my leg.''
High cost of individual market insurance
Melinda from Lakewood, OH
``I'm a 46 year old self-employed woman. I have not had health
insurance since 2002 or 2003. As a company of one/an individual, I am
denied more favorable underwriting/rates/cost savings and benefits
afforded to companies of 2 or more. I have pre-existing conditions.
From 2003 through 2007, I estimate I paid (out of pocket) an average of
$7,000 per year in medical expenses. Most of these payments have been
made using funds saved for retirement. The last ``best'' proposal I
received for individual health insurance included a $10,000 deductible
and an annual premium of over $5,000. Most of my $7,000 in annual
medical expenses would be considered uncovered and would not count
towards meeting my deductible. From my perspective, I would need to
receive benefits in excess of $22,000 before I would ``break even''. If
I work, I can make very good money, often grossing in excess of $75,000
per year. As far as I know, this income would exclude me from
participation in any existing or proposed program supporting guaranteed
access to health care. I have never benefited from government supported
programs. No scholarships or loans, worker's comp, unemployment or
Social Security. I have always planned on providing for myself--
including paying for my health care during both my working and
retirement years. I do not expect a ``free ride''. I want guaranteed
access to competitively priced health care/insurance and I am willing
to pay for it. I just need help leveling the playing field. No denial
of coverage. No exorbitant premiums. No limited benefits--just because
I am an individual with pre-existing conditions.''
Jamie from Clio, MI
``With the faltering economy my small cell phone business of 12
years is slowly sinking. I had Blue Cross Blue Shield of Michigan. In
1999, it cost $450.00 a month to cover myself, my husband and our three
daughters. When I could no longer afford the coverage it was up to
$1600.00 per month for my husband and I and only two of our college age
daughters. Same coverage, an 80/20 split, so there were some 'out of
pocket' expenses too. I have also been unable to maintain my term life
insurance policy of 10 years. I still can't believe after 12 years in
business that I wouldn't be able to pay my bills. It is very heart
wrenching. Especially when we had to cut our daughters off while they
were still in college.''
Joel from Brooklyn, NY
``I am among the uninsured. I cannot afford health insurance. I am
a published, prize-winning novelist and I have been, among other
things, in chronic pain for about seven years, in both knees. I also
have other health problems I cannot see to, even though I know that
this is dangerous, especially at the age of 61. I make enough money not
to qualify for Medicaid, or even New York State's budget/help-out plan,
but I am far from being able to afford health insurance at anything
approaching the current rate. I'm in trouble and do not know if there
is anything I can do about it. How's that for a story?``
Jan from Lebanon, CT
``My husband and I were squeezed out of our jobs as we approached
the age of 60. We moved to a less expensive area, and are now self-
employed. At age 62 we spend as much on our monthly health care
premiums as we used to spend on our mortgage. Together we pay over
$1300/mo. for premiums and the co-pays we are responsible for are
higher. Having health insurance tied to employment does not make sense
in the present atmosphere of job insecurity. We feel caught in a
financial bind until we reach Medicare age.''
Grace from Danielson, CT
``I work for a healthcare services company. In short, I do provide
necessary services to disabled and elderly clients who would not
otherwise be able to remain in their homes. They all have Social
Security or Disability income that provides for doctor visits and
medications and emergency surgeries when necessary. I have no health
insurance from the company for whom I work. In 2006 I had to have an
incisional hernia surgery. I waited until it had started to strangle
itself. I received help through a Federal program to pay my hospital
bill. But there was no program to pay for my anesthesia bill or my
doctor bill. The total bill was somewhere between $10,000 and $12,000
with about $7600 being paid on the hospital bill. The doctor has been
real good to me and not pushed the issue. The anesthesia bill went to
collection and is now registered with the credit reporting agencies.
There is nothing I can do about this. This is a non-profit company. My
weekly hours are less than 40 and I live in Connecticut which is the
2nd or 3rd most expensive state to live in. Every penny I make is tied
up in survival. My rent has gone up $50 since the operation. My gas for
the car (I pay all but a $50 stipend) has tripled, my electric bill has
nearly doubled and my grocery bill has tripled. I am 58 years old and
am having a hard time finding a good paying job. I got a $.25 raise in
February and already the groceries and a recent raise in the electric
bill have eaten that raise and next year's as well. I could very easily
be homeless by this time next year. If it were not for help with
heating oil I would already be there. Not because I don't work for a
living but because what I make is less than an existence at this point.
I suspect my electric will be shut off in May due to my inability to
pay. If I become seriously ill I have nothing to help me with expenses
or medical bills. I make nearly $20,000 per year. Unless something is
done to change this I am going under. I need help for a lot of things
but I have no where to turn. According to the State of Connecticut I
make too much money. Once upon a time I could have done well on this
but not now.''
Bea from Charlotte, NC
After she was laid off from her county social worker job, Bea
opened her own practice but has struggled to afford adequate health
insurance. She can only afford catastrophic coverage which does not
cover her pre-existing conditions, including her arthritis. ``I quickly
realized that the American dream of owning your business is only for
the young and healthy.''
Pre-existing Conditions: the Cost of Exclusions
Keith from Lakewood, OH
``My wife and I are retired, more by reason of lost employment than
anything else. We are not yet eligible for Medicare. When our coverage
under COBRA was soon to end, I searched high and low for affordable
health insurance. I called agents. I searched over the internet. I
called insurance companies directly. What I found is that, because I
have high blood pressure (which has been under control for years) and
she has Type 2 diabetes (also under control), we are unable to buy a
private policy for anything less than $3000 a month, for each of us!
And even at that price, I couldn't get a firm commitment without paying
three months premiums in advance. That's $18,000! As a result, my wife
was forced to find another job (she's an RN, and therefore much more
employable than I am) just for the health insurance. So instead of
traveling the U.S. in our RV, as we had hoped, she's working the night
shift at a local hospital, and I'm picking up odd jobs as I can while
we wait for Medicare.''
Neil from Pepper Pike, OH
``Due to pre-existing conditions, I have been relegated to few
choices for insurance coverage, and all at extremely high costs.
Premiums for my wife and myself, with $1000 deductibles, have been
exceeding $24,000 per year for many years! I have not been able to find
insurers willing to cover us at a reasonable cost. Regulated, universal
coverage is the only answer to provide health coverage for all persons
without bankrupting so many.''
Carolyn from Media, PA
``After my COBRA coverage ended, I applied for health insurance as
an individual. I decided to work for myself and I am 53 years old. A
couple of companies rejected me but finally I received coverage but
with exclusions for depression, migraines, and high cholesterol and a
high deductible. All of these conditions are treated with medication.
Originally, the rate was about $350, which I thought was reasonable.
Unfortunately, after just 4 years my rate is now over $512. My agent
tells me the plan has closed which means that my premiums will continue
to skyrocket since no new members will be added to the pool. I applied
for insurance again and was rejected for the same reasons. I see these
conditions as somewhat common and assume that only someone in perfect
health can receive an individual health plan. On the other hand,
someone with cancer can obtain insurance as long as they are employed
(typically). Since I have many years before I am eligible for Medicare,
this situation is a big concern. I do not understand why individuals
cannot have guaranteed access like employed people since the insurance
company's overall risk is still spread. But, I suppose the rate they
would charge would be astronomical. I wish there was some organization
that individuals could join and gain coverage as part of a large pool.
One other issue is the treatment of these costs at tax time. My total
costs run about $10,000 which is a large percentage of income. If costs
do skyrocket, I might have to lower my standard of living. The overall
health care situation in this country is astonishing given our supposed
wealth as a nation. We claim to have the best health care but this is
not borne out by surveys and studies. Certain politicians scare the
populace with terms such as ````socialized medicine ``' and drown out
other voices of reason. Shame on us.''
Michael from Iowa City, IA
``I wanted to switch to a healthcare policy with the highest
deductible in order to lower my premiums. My individual policy was with
Wellmark of Iowa and I also got my current policy with Wellmark. In
order to get virtually the same policy, except with a higher
deductible, they called me and said that I would have to agree to waive
coverage for mental health, anything to do with my eyes, and anything
to do with my G.I. tract. Their request for the waivers surprised me
because I had had very little problems with those things. I agree to
sign the waivers in order to save money because of the lower premiums
that come with the high deductible policy.''
Kim, from Minneapolis, MN
Kim's husband was having a difficult time sleeping so he saw his
doctor who sent him home with a 3 week sample pack of anti-depressants.
Her husband had no previous history of depression, but five weeks later
he took his own life. After her husband's death, Kim saw a therapist
for grief counseling. Kim ended up leaving her job in advertising to
devote her time to drug safety advocacy and do freelance work. She paid
for 18 months of COBRA coverage and then shopped around for an
individual health plan. Since she had no serious health issues in her
past, she expected her coverage would be affordable. But the insurer
she had received coverage through previously refused to issue her an
individual policy because they said that her participation in grief
counseling was an indication of possible mental illness. Kim was able
to get coverage through a second insurer but only on the condition that
she would not file any claims for counseling for two years.
The ``gotcha'' of out-of-network limitations
John from Pelham, AL
This twenty-three year old young father had an accident on a four
wheel vehicle in a rural area. When the ambulance arrived, the EMT
decided he needed to be taken to the hospital by helicopter. John spent
three days in the hospital recovering from his injuries and left with a
$9,000 bill because his insurance company said the ambulance and
helicopter were not preferred providers.
Charles from Alma, GA
Charles (``Buddy'') was diagnosed with prostate cancer but his
insurance company denied payment for the services from the doctor who
diagnosed him. While the doctor's office on the first floor is part of
his insurance company's network, the second floor where biopsies are
done is not part of the network. When Charles needed surgery he had a
very difficult time finding doctors that belonged to his insurer's
network who could perform the surgery in hospitals that were also part
of the network. It was only after his state legislator intervened on
his behalf that Charles was able to resolve his issues with his
insurance company. ``It's not the cancer that is going to kill me, it's
the insurance company.''
Andrea from Murphy, TX
Andrea's son was having difficulty breathing shortly after he was
born and was rushed to the hospital's Neo-Natal Intensive Care Unit
(NICU) for treatment. Two days later he was doing fine and discharged
to go home. Andrea was then informed by her insurance company that the
Doctor who treated her son in the NICU was not part of the insurer's
network. Less than half of the $1,145 NICU bill was covered by her plan
even though he needed emergency care. When she had to bring her son
back a second time to the ER, she was charged $600 for his care. Andrea
discovered that there are no hospital emergency rooms in Texas that
will take her insurance. Her family spends $7,000 annually on health
insurance.
Chairman RANGEL. Mr. Hobson, President and CEO of Watts
Healthcare Corporation from Los Angeles. Thank you so much for
making that trip to be with us this morning.
STATEMENT OF WILLIAM D. HOBSON, JR., M.S., PRESIDENT AND CEO,
WATTS HEALTHCARE CORPORATION, LOS ANGELES, CALIFORNIA
Mr. HOBSON. Thank you and good morning, Chairman Rangel,
Ranking Member Camp, and distinguished Members of the
Committee, you have received a copy of my written testimony, so
I will be brief with my remarks.
My name again is William Hobson, and I am president and CEO
of the Watts Healthcare Corporation in South Los Angeles, where
we operate the historic Watts Health Center, one of the very
first community health centers in the country.
Over the past 40 years, which has been my entire
professional career, I have worked with the community health
centers across the country, starting in Cincinnati, Ohio,
moving to Seattle, and most recently to California. And I have
worked on the development and implementation of high-quality
health care services for the uninsured and at-risk populations
in those communities.
For 2 years I oversaw the Federal health center program at
the Department of Health and Human Services as well. I had
several years of Federal service.
On behalf of the 18 million patients served by community
health centers nationwide, I would like to take this
opportunity to thank you for the Committee's unyielding support
for the national health centers program. In this time of
enormous challenges to our health care system and our economy,
your faith in us and your support through the Recovery Act will
allow us to rise and meet these challenges and continue to
excel.
My testimony today will focus on health centers' role in
the health care delivery system for the publicly insured, and
on the experiences of safety net providers in the insurance
market.
Last year the Watts Health Center was a health care home to
more than 23,000 patients, and we provided 98,600 medical,
dental, mental health, and other specialty medical visits at
three sites. Approximately 55 percent of our patients are
African American, and approximately 40 percent are Latino. A
total of 96 percent of our patients have incomes below 200
percent of poverty, which is quite poor when you look at the
cost of living in Los Angeles County.
Our public hospital recently closed, so the community has
lost access to specialty care providers and an emergency room.
So now we see patients coming to us sicker and with more
complex health problems than ever before.
Of the more than 23,000 patients that we saw in 2008,
approximately 62 percent had no insurance coverage. These
uninsured patients pay what they can out of their own pocket,
and we use Federal, state, and local grant funding and private
donations to supplement the cost of their primary health care
coverage.
Less than 1 percent of our patients had any form of private
insurance coverage, and when they did have private insurance
coverage, it mostly covered hospitalization and really did not
cover primary care at all. The rest of our patients are covered
by public programs such as Medicaid, Medicare, and SCHIP. These
programs reimburse our health centers at very close to the cost
of care through a health center-specific payment rate.
From the perspective of the nation's health centers, our
current public programs--Medicare, Medicaid, and SCHIP--are
uniquely qualified to meet the needs of the most vulnerable
communities. Not only are our current public programs the only
insurers that cover services necessary to meet the unique
health needs of low income and underserved people, they are
also quite often the only payors that recognize the unique role
of the safety net providers like health centers, and the only
insurance that pays them adequately.
By contrast, nationwide the private insurance market pays
health centers less than 50 cents on the dollar for the care
that they furnish to the 3 million people nationwide that our
health center program sees that are privately insured.
For all of these reasons, we believe that there is a real
value in including a public health insurance plan as a part of
any health care reform effort that this Committee undertakes.
The current third party insurance payment structure
disincentivizes many health care providers from offering
patients coordinated case management and other enabling
services which quite often make the difference as to whether
the care that is provided is effective.
By contrast, the prospective payment system under which
health centers operate appropriately and predictably reimburses
health centers for the comprehensive care that we provide. The
same should be required in any expanded health insurance model,
whether public or private.
In Los Angeles County, we have formed an independent
practice association to provide Medicaid managed care services.
Through that, we hold contracts with most of the HMOs that
provide Medicaid managed care in the county. Though we are paid
reasonable rates for our services by the county-owned plan,
almost all of the private plans pay lower rates and are much
more difficult business partners, from my perspective.
The private plans often move to exclude both hospitals and
specialty networks that are the most geographically accessible
for our patients. We also experience poor customer service and
difficult patient care management protocols with most of the
private plans.
In conclusion, I would say that in my opinion there is a
need for a public health insurance plan to assure that the most
vulnerable populations and communities are not marginalized or
redlined.
I believe that Members of this Committee recognize the
health center program as an unprecedented health care delivery
success, improving patient outcomes and reducing health
disparities in communities nationwide while at the same time
providing quality care and estimated cost savings of
approximately $18 billion annually to our health care system
and to taxpayers.
I hope that as you examine potential reforms, you will look
to health centers as a model and consider the unique challenges
health centers and other safety net providers face in the
health insurance marketplace.
Thank you for your time. I look forward to taking any
questions that you might have.
[The prepared statement of Mr. Hobson follows:]
Prepared Statement of William D. Hobson, Jr., MS, President and CEO,
Watts Healthcare Corporation, Los Angeles, California
Chairman Rangel, Ranking Member Camp, and Distinguished Members of
the Committee thank you for this opportunity to address you today:
My name is William Hobson and I am the President/CEO of Watts
Health Care Corporation in South Los Angeles where we operate the
historic Watts Health Center, one of the first community health centers
in the country. I have worked with community health programs
professionally since 1970 and have focused my entire career on the
development and implementation of high quality health care services for
uninsured and at-risk populations.
As this committee has jurisdiction over programs under the Social
Security Act, including Medicare, my testimony today will focus on
health centers' role in the health delivery system for the publicly
insured.
On behalf of the 18 million patients served by community health
centers nationwide, as well as the volunteer board members, staff, and
countless members of the health center movement, I want to thank you
for this Committee's unyielding support for health centers and your
dedication to the health center mission of providing affordable,
accessible primary health care to all Americans. In this time of
enormous challenges to our health care system and our economy, your
faith in us and your support through the Recovery Act will allow us to
rise and meet these challenges and continue to excel. With your ongoing
support, our cost-effective, high quality system of care can continue
to expand, reaching our goal of serving 30 million Americans by 2015,
and eventually every individual in need of a health care home.
Community Health Centers and Health Reform
Over the past 43 years, the Health Centers program has grown from a
small demonstration project to an essential element of our nation's
primary care infrastructure. Today, health centers serve as the primary
health care safety net in thousands of communities and, thanks to
bipartisan support in Congress and the current and past administration,
the Federal Health Centers program enables more low-income and
uninsured patients to receive care each year. Health centers currently
serve as the family doctor and health care home for one in eight
uninsured individuals, and one in every five low-income children.
Health centers are helping thousands of communities to address a range
of increasingly costly health problems including prenatal and infant
health development, childhood obesity, chronic illnesses, mental
health, substance addiction, oral health, domestic violence and HIV/
AIDS.
Federal law requires that every health center be governed by a
patient majority board, which means that care is truly patient-centered
and patient-driven. Each health center must be located in a federally
designated Medically Underserved Area (MUA), and must provide
comprehensive primary care services to anyone who comes in the door,
regardless of ability to pay. Because of these characteristics, the
insurance status of health center patients differs dramatically from
those of other primary care providers. As a result, the role of public
revenues is substantial. Federal grant dollars, which make up roughly
twenty-one percent of health centers' operating revenues on average, go
toward covering the costs of serving uninsured patients and delivering
care effectively to our medically underserved patients and communities.
Just over 40% of health centers' revenues are from reimbursement
through Federal insurance programs, principally Medicare and Medicaid.
The balance of revenues come from State and community partnerships,
privately insured individuals, and low-income uninsured patients'
sliding-fee payments.
In discussions about reforming the health care system, one element
remains constant across all platforms and proposals; the need to invest
in accessible, affordable, high-quality primary care for all as a down
payment on a more effective and efficient health care system.
Currently, 60 million people nationwide lack access to primary care
because of shortages of physicians and other providers in their
communities; we refer to these individuals as ``medically
disenfranchised.'' They and millions of others who confront additional
barriers to care require a source of regular, continuous, primary and
preventive care, a ``health care home,'' to maximize the value of our
investments in health reform.
From the perspective of the nation's health centers, our current
public programs--Medicare, Medicaid and CHIP--are uniquely qualified to
meet the needs of our most vulnerable communities. Patients can access
not just primary care, but a full spectrum of services tailored to meet
their individual and family needs including case management,
transportation and language assistance as well as dental care, mental
health services and prescription assistance programs. Community Health
Centers strongly support expanding Medicaid to cover at least everyone
with incomes up to the Federal poverty level without restriction, and
higher if possible. These are the very people who most need the
services and benefits offered through Medicaid. But as coverage
expands, we must also ensure patients have access to doctors who will
treat them. Health centers support adequate and reliable primary care
provider reimbursement by all public and private payers to reflect the
value--in system-wide cost savings and improved health outcomes--that
these doctors provide. We also support making Medicare coverage
available to those over age 55 or even age 50, who do not have access
to employer or other public coverage, on a ``buy-in'' basis. This
generation is currently the fastest-growing age group of health center
patients, and far too many have NO access to affordable coverage.
For all of these reasons, there is a real value to including a
public plan option as part of any health care reform effort this
Committee undertakes. Not only, as noted above, are current public
programs the ONLY insurers that cover services necessary to meet the
unique health care needs of low-income and underserved people. They are
also the ONLY payers that both recognized the unique role of safety net
providers like Health Centers in serving their beneficiaries and the
only insurers that pay them adequately. By contrast, nationwide, the
private insurance market pays health centers less than 50 cents on the
dollar for the care they furnish to the 3 million privately-insured
individuals they serve.
Watts Health Center: A Health Care Home for the Underserved
Watts Health Center is a ``health care home'' for 23,000 patients,
providing 98,600 medical, dental, mental health and other specialty
care visits at 3 sites. Approximately 55% of our patients are African-
American and 40% are Latino. Approximately 96% of our patients have
incomes below 200% of the Federal Poverty Level. Over 3,000 of our
patients have diabetes and other chronic conditions and our health
centers provide case management, translation and other enabling
services, as well as health education and preventive screenings and
treatment. We pride ourselves on the bilingual health education
sessions that we offer each week that cover everything from smoking
cessation, to diabetes management to exercise. Our public hospital
closed recently, so our community has lost access to specialty care
providers and an emergency room and our patients are coming to us
sicker, with more complex health problems.
Of our 23,284 patients in 2008, approximately 62% had no insurance
coverage. These uninsured patients pay what they can out of their own
pocket and we use state, Federal and local grant funding and private
donations to supplement the cost of their primary care. Less than 1
percent of our patients had any private insurance coverage. Third-party
insurance typically pays our health center about half the cost of these
patients' care and, like the uninsured, we supplement the cost of care
to these patients with Federal, state and local dollars and donations.
The rest of our patients are covered by public programs--either
Medicaid, Medicare or CHIP. These programs reimburse our health centers
at or very close to the cost of care through the FQHC Prospective
Payment System, allowing us to provide the full spectrum of services
our patients need.
Health Center Participation and Payment in Public and Private Insurance
Plans
America's health centers provide care to more than one million
medically underserved Medicare beneficiaries, and that number is
increasing rapidly. Our health center, like health centers nationwide,
has seen an increase in our Medicare patient population in recent
years, as well as an upsurge in `near-elderly' patients--those between
the ages of 45 and 64. Medicare patients are now between 8-20% of all
health center patients--a number that will only continue to increase
over time.Many of the residents of our community do not live long
enough to be Medicare eligible and those that do often have no personal
automobile and have multiple chronic diseases. We offer free patient
transportation services to both our facilities and to specialty
referrals including dialysis centers. Our Internal Medicine Department
is highly skilled in treating the elderly many of whom have been Watts
Health Center patients for 40-years. We offer podiatry, physical
therapy, radiology and ophthalmology services on site so that our
senior patients can receive ``comprehensive'' health services in a
single location. We essentially subsidize much of the service that we
provide to our Medicare clients as much of the case management and care
coordination services that we provide are not reimbursable but I am
sure that they save the Medicare program costly visits to the emergency
room and unnecessary hospitalizations.
The PPS structure ensures that health centers receive adequate
payment through an all-inclusive per-visit payment rate that balances
both higher and lower costs for all of the services they provide to the
publicly insured patients they see. The current third-party insurance
payment structure dis-incentivizes many health care providers from
offering patients coordinated case management and other enabling
services, as well as the cost-effective preventive care that health
centers provide, and which has been proven to save the health care
system money overall. The PPS structure for health centers
appropriately and predictably reimburses health centers for the
comprehensive care we provide. The same should be ensured in any
expanded insurance model, whether public or private.
Many of the health centers in Los Angeles County have formed an
Independent Practice Association (IPA) to more efficiently contract for
the provision of Medicaid managed care services. Our IPA holds
contracts with most of the HMOs that provide Medicaid managed care
services in LA County. Although we are paid reasonable rates for our
services by the County-owned (public) plan almost all of the private
plans pay lower rates and are ``difficult'' business partners. The
private plans often move to exclude both hospitals and specialty
networks that are the most geographically-accessible to our patients.
We also experience poor customer service and difficult patient care
management protocols with most private plans. In my opinion there is a
need for a public plan to assure that the most vulnerable populations
and the most difficult to serve communities are not marginalized under
any new system established by your efforts at health reform. The only
alternative would be strict network adequacy standards to ensure that
insurers would not be able to redline communities, denying or
restricting their access to care.
Our history with private plans has not been particularly good with
respect to cost containment, quality improvement and customer
relations. I feel that the use of a private plan as an alternative can
assist in moving us toward a more patient-friendly, high-quality and
evidence-based medicine driven system.
And, lest I leave you thinking that we're only asking for a hand-
out, allow me to point to the literally dozens of studies done over the
past 25 years, right up to this past year, which conclude that health
center patients are significantly less likely to use hospital emergency
rooms or to be hospitalized for ambulatory care-sensitive (that is,
avoidable) conditions, and are therefore less expensive to treat than
patients treated elsewhere.i In fact, a recent national
study done in collaboration with the Robert Graham Center found that
people who use health centers as their usual source of care have 41%
lower total health care expenditures than people who get most of their
care elsewhere.ii As a result, health centers saved the
healthcare system up to $18 billion last year alone. Thus, in effect,
the investment in primary and preventive care that Medicaid and CHIP,
and for the most part Medicare, make in paying health centers
adequately for their care yields significant savings to the health care
system and to taxpayers as well. Under a reliable and fair payment
structure, health centers stand ready to provide low-cost, highly
effective care to millions more individuals and families in need.
Health centers also look forward to health reform, and we are eager to
do our part to ensure that with improved coverage, there is also access
to care. Reimbursing health center providers appropriately for the
comprehensive, coordinated care we provide will help to grow the
primary care infrastructure that is essential to ensuring that
investments in health reform translate into improved health and
wellness for the nation.
---------------------------------------------------------------------------
\i\ McRae T. and Stampfly R. ``An Evaluation of the Cost
Effectiveness of Federally Qualified Health Centers (FQHCs) Operating
in Michigan.'' October 2006 Institute for Health Care Studies at
Michigan State University. www.mpca.net. Falik M, Needleman J, Herbert
R, et al. ``Comparative Effectiveness of Health Centers as Regular
Source of Care.'' January--March 2006 Journal of Ambulatory Care
Management 29(1):24-35. Falik M, et al. ``Ambulatory Care Sensitive
Hospitalizations and Emergency Visits: Experiences of Medicaid Patients
Using Federally Qualified Health Centers.'' 2001 Medical Care
39(6):551-56.
\ii\ NACHC and the Robert Graham Center. Access Granted: The
Primary Care Payoff. August 2007. www.nachc.com/access-reports.cfm.
---------------------------------------------------------------------------
Conclusion
I know that the Members of this Committee are well aware that the
Health Centers program is an unprecedented health care success story,
improving patient outcomes and reducing health disparities in
communities nationwide. Entities ranging from OMB to IOM to GAO
recognize the efficiency and effectiveness of our model, which hinges
on our ability to provide comprehensive primary care to all patients.
We believe that health reform should strive to achieve universal
coverage that is available and affordable to everyone, especially low
income individuals and families. We believe this care must be
comprehensive, including medical, dental and mental health services
with an emphasis on prevention and primary care. And we believe that
reform must strive to guarantee that everyone--especially the 60
million medically disenfranchised Americans--has access to a medical or
health care home where they can receive high quality, cost-effective
care for their health needs.
Thank you for your time, and I'll look forward to taking your
questions.
Chairman RANGEL. Thank you. And you might want to share
with us what it is with the community health centers that make
you so popular so that when you do come to Washington, I am
amazed at the bipartisan support that the Congress gives what
you do. And so the quality of care, but most importantly, the
consumer sense of credibility of those that service them is
absolutely amazing.
David Borris, the owner of Hel's Kitchen Catering from
Illinois. I look forward to seeing the connection. Thank you
for coming.
STATEMENT OF DAVID BORRIS, OWNER, HEL'S KITCHEN CATERING,
NORTHBROOK, ILLINOIS
Mr. BORRIS. Thank you, Chairman Rangel, Ranking Member
Camp, distinguished Members of the Committee, for the
invitation to testify this morning on my experience with health
insurance as a small businessowner. My name is David Borris,
and I am the owner of Hel's Kitchen Catering, a 24-year-old
off-premise catering company located along suburban Chicago's
north shore in Northbrook, Illinois.
Our business was born in a 900-square-foot storefront with
one employee, my wife, myself, and a handful of my mother's and
my wife's recipes. My wife and I both left good-paying jobs in
the hospitality industry to take our shot at the American dream
of owning our own business.
Believe me, there were times--mopping the floor at the end
of a 16-hour day, with one baby and then two in the playpen in
the office, when we weren't sure we had made the right
decision. But 24 years and three grown children later, we have
a thriving business that now occupies 8,000 square feet. I
would say it has worked out pretty darn well.
I now employ 25 full-time employees, and have been offering
health insurance to my staff since 1992. When we began offering
this benefit, we had grown to eight full-time employees, and
felt a moral obligation to do right by the people who were
making our life's work theirs as well. Employees contributed 50
percent of the premium in their first year of coverage, and
Hel's Kitchen picked up the entire premium after that.
Beginning around 2002, though, we began to experience a
series of annual premium increases that, taken together, now
have us paying double per employee what we paid then--2004, 21
percent; 2005, 10 percent; 2006, 16 percent; and 2007, 17
percent, and a change in carriers to avoid the quoted 26
percent renewal fee. In 2008, we were finally forced to ask
long-time employees to again begin paying a portion of the
premiums, as the 17-percent increase was simply too much for us
to absorb.
I currently insure only 13 of my 25 full-time employees. I
spent 13 percent of my covered employees' payroll on health
insurance premiums last year, and have no idea what the renewal
is going to look like when it comes due this November.
Undoubtedly, we will be forced to increase employees'
contributions again, an effective pay cut only further reducing
their disposable income. This is no way to run a growing
business.
Six weeks ago I was speaking with a number of my fellow
businessowners at a Chamber of Commerce networking function,
and I was in the process of negotiating a renewal of our lease
at the same time. I asked them, when we work on these lease
deals, we look at three-year, 5-year, 10-year, 20-year terms.
How many of us would sign a lease with a landlord who said,
I will tell you what. I will give you a one-year lease, and
after 11 months, I will let you know how much your rent is
going to be for next year. Maybe it will go up 3 percent, maybe
22 percent. I don't know. I will let you know then. How many of
us would sign a deal like that?
Well, you can imagine their response. And yet that is
precisely the situation we have with health insurance every
year. I will pay approximately the same amount of money to
insure half of my full-time staff as I pay in rent in 2009.
Surely this is deeply broken. There must be a better way.
The small group insurance market is simply not working for
small business. Let me share with you how the premium renewal
shopping game works in the current all-private health insurance
market for small business.
About four to 6 weeks before the year is up, our broker
brings us quotes from five or six insurers. We go over the
benefit differences and the quoted premiums, and we choose the
plan that we hope will work best for a majority of our
employees.
Then we are asked to collect and submit health histories
from those employees. Two to 3 weeks later we get the real
premium. It could be 10 percent, 20 percent, or 66 percent
more. We are not supposed to know why.
But we are small businesses. Our employees are like our
family. We know. We know that our 62-year-old general manager's
wife has a kidney problem. We know that the chef's son is
taking human growth hormone for his condition. We know.
Because of the industry's routine discrimination against
employees with health issues, small business owners like myself
are faced with a moral dilemma that should not be ours to bear.
Are we to measure retention and hiring now with a yardstick
that includes health insurance costs? Is a valued employee's
job to be less secure because they have the misfortune to have
a sick child or a wife with cancer? These sorts of choices in
the wealthiest nation in the world, it is unconscionable.
I want to make one thing perfectly clear as I conclude. As
a small businessowner, I am willing to contribute to get good
health coverage for my employees. But leaving cost containment
and reform in the hands of the private health insurance
industry, we have tried that and it has failed.
We need a public plan that will re-energize true
competition in the marketplace, set the bar for comprehensive
benefits and cost controls, provide a quality alternative if
the private market doesn't meet our needs. The choice of a
public health insurance plan can put the focus back on health
outcomes and the quality of life, not profits and corporate
bonuses.
It can reinforce the best of what America has to offer, the
promise that we all have responsibilities toward each other. We
have waited long enough. The American economic recovery, the
prosperity of businesses like mine, and our commitment to the
employees that make our businesses what they are, all hang in
the balance.
Thank you.
[The prepared statement of Mr. Borris follows:]
Prepared Statement of David Borris, Owner, Hel's Kitchen Catering,
Northbrook, Illinois
Chairman Rangel, Ranking Member Camp, and Members of the Committee,
thank you for the invitation to testify this morning on my experience
with health insurance as a small business owner.
My name is David Borris and I am the owner of Hel's Kitchen
Catering, a 24 year old off-premise catering company located along
suburban Chicago's north shore in Northbrook, Illinois.
Our business was born in a 900 square foot storefront with one
employee, my wife, myself and a handful of my mother and my wife's
recipes. My wife and I both left good paying jobs in the hospitality
industry to take our shot at the American dream of owning our own
business. Believe me, there were times mopping the floor at the end of
a 16 hour day, with a baby and then two in the playpen in the office,
when we weren't sure we had made the right decision. But 24 years
later, with three grown children, and a thriving business that now
occupies 8,000 square feet--I would say it's worked out pretty darn
well.
I now employ 25 full time employees, and have been offering health
insurance to my staff since 1992. When we began offering this benefit,
we had grown to 8 full time employees, and felt a moral obligation to
do right by the people who were making our life's work theirs as well.
We implemented a structure whereby employees would contribute 50% of
the premium in their first year of coverage, and Hel's Kitchen would
pick up the entire premium thereafter. We continued to grow and expand
and this structure worked well for some time.
Beginning around 2002, though, we began to experience a series of
annual premium increases that, taken together, now have us paying
double per employee what we paid then. In 2004, it was a 21% increase;
in 2005,10%; 2006, 16%; 2007, 17% and a change in carriers to avoid the
quoted 26% increase. And in 2008, we were finally forced to ask long
time employees to recontribute as the 17% increase was simply too much
for us to absorb. I currently insure only 13 of my 25 full time
employees--the other 12 cannot afford the 50% in the first year--and we
could not afford to maintain our current structure if they all opted
in. I spent almost 13% of my covered employees' payroll on health
insurance premiums last year ($79,494 / $625,448)--and have no idea
what the annual renewal will look like when it comes due this November.
Undoubtedly, we will be forced to increase employees' contributions
once again--an effective pay cut only further reducing their disposable
income in an already critically contracted economy. This is no way to
run a growing business.
Six weeks ago, I was speaking with a number of my fellow business
owners at a Chamber of Commerce networking function, and I was in the
process of negotiating a renewal of our lease at the same time. I asked
them, ``When we work on these lease deals, we look at 3 year, 5 year,
10 or 20 year terms. How many of us would sign a lease with a landlord
who said, `I'll give you a one year lease, and then after 11 months,
with only 4 weeks to go, I'll let you know how much your rent will be
for the next year. It might go up 3%, or 8%, or 22%--I'll just let you
know then.' How many of us would sign a deal like that?'' You can
imagine their response. And yet, that is precisely the situation we
have with health insurance premiums every year. I will pay
approximately the same amount to insure half of my full time staff as I
pay in rent in 2009. Surely, this is deeply broken. There must be a
better way.
The figures for rising costs are only one measure of the problems
we face as small businesses in the current small group insurance
market. A major part of this cost problem stems from the fact that we
as small businesses, and our employees, are subject to routine (and
perfectly legal) discrimination in the small group market.
Let me share with you how the premium renewal/shopping game works
in the current all-private health insurance market for small
businesses. Approximately 4-6 weeks before the term is up, our broker
brings us quotes from 5 or 6 insurers. We go over the benefit
differences and the quoted premiums and we choose the plan that we hope
will work best for a majority of our employees. Then we are asked to
collect and submit health histories from each employee. About 2-3 weeks
later--the clock is ticking and our current policy will expire in less
than a month--we get the real premium, which could be 10%, 20% or as
high as 66% more. We're not supposed to know why--but we are small
businesses, our employees are like our family, we know. We know that
our 62 year old general manager's wife has a kidney problem. We know
that the chef's son is taking human growth hormone for his condition.
We know.
And so we as small business owners must face our employees with a
moral dilemma that should not be ours to bear--we face them with the
predicament of now measuring retention with a yardstick that includes
their health insurance costs simply because they had the misfortune of
having a wife with a disease or a sick child. These sorts of choices--
in the wealthiest nation in the world--it's unconscionable.
The American entrepreneurial spirit has created the most powerful
economic engine the world has ever known--and self employed
entrepreneurs and small business will ultimately be the ones to lead us
out of this crippling recession. But we need to be able to count on a
premium schedule that is predictable if we are to create the 2.4
million private sector jobs we need to in the next 18-24 months. We
need to be able to make hiring and retention decisions based on merit
and performance, and not have to consider health history as a primary
determinant.
I know my story of crushing premium increases and being forced to
pass on more costs to employees is by no means unique. The annual
Kaiser Family Foundation survey released in September of 2008 reported
that the average worker contributed nearly $3,400 to their health
insurance premiums--$1,600 more than they did in 1999, and 12 percent
more than they did just one year prior, in 2007. And just six weeks
ago, Hewitt Associates released a survey stating nearly 1/5 of U.S.
employers will stop offering health benefits in the next 3-5 years if
current trends continue--that's more than 5 times the number that
reported that just last year. The health care system we have now is not
working for American business, large or small.
I want to make one thing perfectly clear: as a small business
owner, I'm willing to contribute to get good health coverage for my
employees. I want to be able to do that, but it's becoming all too
obvious for me that I'm not going to be able to keep doing it alone.
That's why I support the idea of a system of shared responsibility--
where businesses, employees, government, providers--where we all pitch
in to make it work.
As small businesses, we desperately need more choices--good
choices--in health care. We already have enough bad choices--high-
deductible, low-benefit plans that are barely worth the paper they're
written on. We need good choices. That's why I believe we should have a
choice between private and public health insurance plans. Let us decide
what works for us: keeping what we've got, or opting for something new.
For businesses that don't have good options now, offer the choice of a
public health insurance plan. This will give us greater bargaining
power and encourage competition among insurers to make costs
affordable.
Leaving cost containment and quality improvements solely in the
hands of the private health insurance industry--we've tried that and
it's failed. As a small business, the success of my business is built
on trust. But the insurance industry has broken our trust. And so for
me, the solution is clear. We need a public plan that will reenergize
true competition in the marketplace, set the bar for comprehensive
benefits and cost controls, provide a backup if the private market
doesn't offer something that works for us, and push private insurers to
reexamine their profit models.
In combination with other reforms, the choice of a public health
insurance plan can help drive innovation in health care and put the
focus back on health and quality of life, not profits and corporate
bonuses. It can reinforce the best of what America has to offer--the
promise that we all have responsibilities toward each other--the innate
understanding that our strength, both as a community and as an economy,
is greater than the mere sum of its parts.
It is time for comprehensive reform in health care. Small
businesses have waited long enough, and the cost we truly cannot afford
now is the cost of inaction. The American economic recovery, the
prosperity of businesses like mine, and our commitment to the employees
that make our businesses what they are--all are hanging in the balance.
Chairman RANGEL. Thank you so much.
I look forward to the testimony of Kenneth Sperling on
behalf of the National Coalition on Benefits. It may appear as
though the witnesses outnumber your view, but I intend to spend
a little time I have in giving you an opportunity to express
yourself beyond your testimony.
STATEMENT OF KENNETH L. SPERLING, GLOBAL HEALTH MANAGEMENT
LEADER, HEWITT ASSOCIATES, ON BEHALF OF NATIONAL COALITION ON
BENEFITS
Mr. SPERLING. Thank you, Mr. Chairman, Ranking Member Camp,
and Members of the Committee. Thank you for the opportunity to
testify at this important hearing on insurance market reform.
My name is Ken Sperling, and I lead Hewitt Associates' global
health care consulting practice. Hewitt Associates is a human
resources company serving more than 2,000 U.S. employers from
offices in 30 states.
I have been asked to testify on behalf of the National
Coalition on Benefits, a group of 180 employers and business
trade associations who have joined together to work with
Congress to enact reforms that preserves ERISA and maintains
uniform health and retirement benefits to employees and
retirees across state and local boundaries.
We will discuss some of the issues we encourage you to
think about as you consider rules governing the health
insurance marketplace. We thank the Committee for your
leadership in preserving the employer-based system, and we
appreciate your acknowledgment that many Americans want and
should be able to keep the coverage that they have today.
NCB supports the need for health reform, but believes that
reform should be careful not to disrupt or destabilize existing
employer-sponsored coverage that most Americans rely on.
Nationwide, the majority of Americans--177 million--participate
in employer-sponsored health care plans.
This model works well because it allows broad pooling of
risk, enables participation by all regardless of health status,
and creates efficient large-scale purchasing. Even more
important, employers have a vested interest in the health and
productivity of their workforce, and use the employer-based
system to consistently produce innovative health care solutions
that improve productivity, reduce absence from work, and lower
disability costs.
But as good as it is, this system is increasingly at great
risk, given the combination of cumulative increases in health
care costs and the current economic downturn. Despite the
positive actions of many employers, there are many problems yet
to solve.
Federal health care reform must focus on several important
priorities.
First, preserve and promote the employer-based health care
system. Reform should seek to both protect and expand the
number of employers who provide health care benefits for their
employees.
The employer-based system has encouraged companies to be
innovators of health care solutions, and recent examples
include extensive health coaching programs, incentives for
wellness and pharmaceutical compliance, and efforts to improve
cost and quality transparency. There are promising outcomes
emerging from programs that encourage people to engage in
healthy activities, understand their risks, and manage their
illness.
Employees also understand and appreciate the employer's
role in offering and financing health care benefits. And a
recent survey showed that three out of every four respondents
valued health insurance as their most important employee
benefit, and an equal number said they would prefer to have
their employer provide this benefit rather than being provided
a salary increase to purchase health coverage on their own.
Second, preserve and strengthen Federal ERISA preemption of
state laws to promote uniformity in coverage and reduce
administrative costs. Approximately 55 percent of employees who
participate in employer-sponsored plans are in self-insured
arrangements, and 45 percent are in insured programs.
All of these plans are covered by ERISA. Many of the
employers who voluntarily sponsor these plans operate across
state lines, and they must be able to continue to offer uniform
benefit packages to their employees. Requiring employers to
comply with a multitude of state--and/or local government-
imposed administrative requirements and benefit mandates would
raise employer costs even further, and result in unequal
benefits for employees.
ERISA preemption gives each employer the flexibility to
design coverage that meets the changing needs and disease
burden of their unique workforce, and apply these programs
efficiently to all work locations.
Third, reform the insurance marketplace so that individuals
and small employers can have access to affordable insurance
products. Insurance market reform is necessary so that small
businesses and individuals can find affordable health insurance
coverage.
Many large employers fear that rising health care costs may
encourage smaller businesses to drop health coverage, and such
a trend would lead to large employers assuming an even greater
economic burden through increased cost-shifting.
And fourth, build on the efficiencies that will come from
continued investment in health information technology,
including the adoption of uniform Federal standards to improve
efficiency and patient safety.
In closing, on behalf of the National Coalition on
Benefits, we support the employment-based system and the
preservation of ERISA so that employers have the ability to
offer and maintain comprehensive and uniform benefit plans. We
believe that employers should remain an integral part of the
U.S. health care system, and that reforms that lead to lower
health care costs will go a long way toward keeping American
companies competitive.
Congress has the challenge of sorting through the details
of how that would be accomplished, with many competing views.
As a member of the National Coalition on Benefits and
independently, Hewitt would be pleased to offer its expertise,
data, and tools to help the Committee evaluate the impact of
detailed reform plans on coverage provided by employers today.
Thank you for your interest, and I would be pleased to
respond to your questions.
[The prepared statement of Mr. Sperling follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. Well, thank you for your invitation of
making a contribution to try to unwind some of the complex
issues we are faced with dealing with energy and commerce, and
also dealing with the Senate.
I do hope that you might submit a paper, as I invite all of
the witnesses to, as you see the direction that we are going--
not that we are going to adopt it, but if we see that there is
a sharp conflict and we have alternatives, I wish you would
submit a paper and not wait to be called. And that goes for all
of you, but especially your organization that has such a wide
membership.
Linda Blumberg, Dr. Blumberg, who is a senior fellow at the
Urban Institute. Thank you for being with us.
STATEMENT OF LINDA BLUMBERG, PH.D., PRINCIPAL RESEARCH
ASSOCIATE, THE URBAN INSTITUTE
Ms. BLUMBERG. Mr. Chairman and distinguished Members of the
Committee, thank you for inviting me to share my views on
health insurance markets and health care reform. The views I
express are mine alone and should not be attributed to the
Urban Institute, its funders, or its trustees.
Current health insurance markets suffer from many
shortcomings. I am going to focus my remarks on three that I
believe are central, and what I think we might be able to do
under reform to address them.
First, private health insurance markets are not very
organized, making it difficult for individuals and employers to
effectively compare options based on price, benefits, and
quality of service.
Second, individuals and employers voluntarily participate
as purchasers. But too often, those who would like to buy
coverage face barriers to doing so, including problems of
affordability and discrimination based on health status.
Third, there is little competition between insurers, a
consequence of a substantial amount of consolidation among
insurers and health care providers in recent years, fueling the
growth in insurance premiums.
Insurance market reforms and subsidies to make coverage
affordable for the modest income population within the context
of a more organized health insurance market are essential
strategies to address these problems.
A health insurance exchange can be developed to organize
the insurance market and to provide guidance and oversight in
achieving reform goals. Making a public health insurance option
available to purchasers can further promote competition in
insurance markets, and could be an effective strategy for
slowing health care cost growth.
Competition in private health insurance markets today
focuses largely on obtaining the lowest-risk enrollees.
Insurance market regulations are required to prevent risk-
selecting behavior by insurers. States allow insurers to risk-
select to varying degrees today so that they can protect
themselves from the inherent nature of a voluntary insurance
market, where individuals who expect to use significant health
care services are those that are most likely to seek coverage.
However, the consequences of allowing insurers to use such
strategies are that many who need coverage cannot obtain it,
and many who have some type of insurance may not have adequate
coverage to meet their health care needs.
In the context of a health care system that is universal,
where everyone is insured all of the time, there would no
longer be any reason to allow discrimination by health status,
and coverage denials, benefit riders, preexisting condition
exclusions, and medical underwriting can be prohibited, with
the costs of those with high medical needs spread broadly
across the population.
In such a context, an exchange can penalize or exclude from
participation companies that violate insurance market
regulations, establishing market conduct rules to prevent
evasion of regulations. An exchange can also provide for risk
adjustment to account for any uneven distribution of risk
across insurers.
Exchanges can also be designed to efficiently deliver
health insurance subsidies, an essential element of reform
intended to make coverage affordable for all incomes.
Centralizing into a single agency, such as an exchange, the
subsidy determination and the payments of subsidies to insurers
would be a much more efficient approach to administration that
under the HCTC experience we are having today. The exchange
could exclude plans not meeting minimum coverage standards,
ensuring that all have access to meaningful coverage.
Exchanges can also play an important role in cost
containment. The lack of competitive pressures in the current
insurance market leads to higher prices and less cost-efficient
practice patterns. An exchange can be given the authority to
negotiate with health insurers over premiums.
Other cost-containment strategies would include requiring
similar benefit packages be offered within an exchange to make
it easier for consumers to compare prices for like policies,
providing improved information materials, and incentives to
choose lower-cost plan options. An exchange could also reduce
administrative costs due to lower churning across insurance
plans.
Adding a public plan option to those offered within an
exchange would significantly increase the cost containment
potential of reform. A public plan could be modeled after the
traditional Medicare Program, paying providers based upon the
payment systems Medicare uses, but with different cost-sharing
rules and possibly some differences in covered benefits.
Payment rates could be set between Medicare and private rates.
Medicare payment policies have been shown to reduce cost
growth relative to private insurers. A public plan could create
competitive pressures necessary to induce private insurers to
be tougher negotiators with the providers and their plans.
The public plan could also be an innovator in the
development of other cost-containment mechanisms. It would also
create a lower-administrative-cost option for purchasers,
putting pressure on private insurers to hold down their own
costs.
I do not believe that a public plan option would destroy
the private insurance market or lead to a government takeover
of insurance, as some fear. Those plans that offer high-quality
services and good access to providers would survive. Those that
innovate and offer limited networks may even be able to offer
lower-cost plans than the public option.
I consider the public plan a very promising catalyst for
cost containment, and one that I think would be considerably
less of a dramatic change than other effective options, such as
having the exchange negotiate rates on behalf of all
participating plans, or moving to an all-payor rate-setting
system.
Thank you very much, and I am happy to answer any questions
that you might have.
[The prepared statement of Ms. Blumberg follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman RANGEL. Thank you.
Mr. Sperling, does your general testimony support a public
plan option?
Mr. SPERLING. First, let me clarify, Mr. Chairman, that the
National Coalition on Benefits does, to my knowledge, not have
a position on a public plan.
I can speak from our experience at Hewitt working with
large employers, and employers are generally wary of a public
plan option because of the potential there is for cost-shifting
from public to private if such a public plan option's
reimbursements were set at current public plan rates. And the
details----
Chairman RANGEL. Well, I would have thought that your
group, with all of the complexities and conflicts we have with
an honest attempt to give the broadest possible, best service
at the least amount of expense, that your group would have--not
you, but--not just employers, but that you would have given us
the benefit of your group's feeling so that if you could
persuade us to not have a public plan, that we would have
solidarity or whatever.
But let me ask you, then, if you are speaking for the
employers, that if we have a transportation problem, say, that
we have in the city and state of New York, and we are fighting
desperately hard to have a set rate so that everybody would be
able to go from one location to the other with quality service
at the least consumer cost; and then we had a private limousine
service that said, we can kick up the quality of service, but
you have to pay more--is that a poor analogy as relates to
health care, that someone really wants to get the quality care
at a community health center because it has a great reputation,
but others may not want to be seen at a public place, and so
they want to pay higher but to get a different quality or feel
more comfortable with it, and they would go to an unregulated
limousine service, that its whole design is to make a profit. I
mean, that is their job.
What it wrong with that analogy in saying that you stick
with what you feel comfortable with; if you want your own
services that you feel you are entitled to, pay for it?
Mr. SPERLING. Mr. Chairman, I am probably the wrong person
to ask because when I am in New York, I take the subway. And I
really enjoy it.
Chairman RANGEL. But you enjoy knowing that if you want to
take a cab or a limo, it is there for you.
Mr. SPERLING. Yes, Mr. Chairman. I think the difference is
that if the fact that I might want to take a limousine service
and others want to take a subway, if the cost of my limousine
service goes up because the subsidy toward the subway is not
enough to cover its cost, then I might have a problem with
that.
And that is the issue that employers have, is whether or
not their costs are going to go up by the existence of a public
plan that might not----
Chairman RANGEL. What bothers me, though, and I did want to
give you all of my time, is that you don't represent employers.
That is what bothers me, really. So I don't really think you
are the best person to ask the question as: Does an alternative
plan adversely affect the private sector in what they do, and
for some, do very well as opposed to one size fits all with a
public plan that they just may resent the whole idea.
In any event, what group of employers would you suggest we
go to to allay their fears that the price would go up by the
private sector if there was a responsible, competitive public
alternative? Who would I go to that talks to you so that you
feel comfortable in expressing their view?
Mr. SPERLING. Here, Mr. Chairman, we have relationships
with mainly large employers. And those large employers would be
an important constituency to speak to about potential
objections to a public plan.
Chairman RANGEL. But how would I invite the larger players
without knowing who they are? That is okay. That is all right.
Mr. SPERLING. I am sorry. I am not sure I can answer that
question, Mr. Chairman.
Chairman RANGEL. But it is kind of hard to say that that is
your view about employers. But we all have different views, and
I just want to make certain that our Republican friends who
have real serious problems with a public plan would be able to
bring those who have talked with employers or those who really
believe that it threatens the health delivery system so that
there could be not just debate with politician lawmakers, but
so that the public would have a better understanding of the
difference in views or combination of those things.
So I appreciate your testimony. I yield to Mr. Camp.
Mr. CAMP. Well, thank you.
Chairman RANGEL. And I would like to ask Mr. Stark to
provide the direction for the witnesses. Mr. Camp.
Mr. CAMP. Well, thank you, Mr. Chairman. And just for the
record, Mr. Sperling is here on behalf of the National
Coalition of Benefits. They represent 180 employers.
But I want to go to another point. We are beginning these
hearings on health care reform. We had one before the recess.
The majority chose six of the seven witnesses. We got one. The
majority again is choosing at this hearing five of the six
witnesses. We have one.
And I would say on this issue--and that may have been the
tradition of this Committee. But I would say on this issue, at
this time, on health care only, why don't we try to have a more
balanced panel. I mean, actually, there are things that Mr.
Vaughan and Mr. Hobson said that I agree with, particularly
with regard to transparency, Mr. Vaughan; community health
centers, Mr. Hobson.
But for the chairman to then say we don't have the
employers here to talk to when we are only given one witness--
so I guess I would propose let's do things differently. I know
that the chairman has been on the Committee a long time. I know
we have done it, when we were in the majority, a certain way.
But we have had this historic opportunity on this important of
an issue.
And perhaps some more balance. We could have more debate. I
mean, clearly whether there is a government-run plan or private
option, it is a very contentious issue. Even the White House
has signaled that they are not wedded to a public plan in the
health care reform issue. So there are a lot of concerns.
I would like to vet that in a more thorough way, simply
than us only being able to have one witness who had to cover
many other issues. But let me just say----
Chairman RANGEL. Would you yield on that point?
Mr. CAMP. I would be happy to yield.
Chairman RANGEL. Let me say that you are right. I have been
stuck by the tradition of the Committee, whether it is
Republican or Democrat. But I want you to get your people that
are opposed to a so-called public plan, and we would arrange to
meet in the library, to invite Republican and Democratic
Members to listen.
Mr. CAMP. Yes. The public record would be nice as well. But
I would be happy to join the chairman in the library.
Chairman RANGEL. But you selected--this is not--I don't
want to use your time at all. But the major issue has been not
that we all don't want quality health care, but there has been
opposition to the public plan. And I really mistakenly thought
that since the witness you selected represented employers, that
he would cover it.
So whether it is public record or not, I will do all I can
to make certain that we get broader representation on those
people who oppose the public plan because I want to make
certain I feel comfortable and include them.
Mr. CAMP. Yes.
Chairman RANGEL. Whatever time I have taken----
Mr. LEWIS. Would the ranking Member----
Mr. CAMP. Well, and your comment was--I am reclaiming my
time, thank you.
Mr. LEWIS. Will you?
Mr. CAMP. Just in a moment.
Mr. LEWIS. Will you yield?
Mr. CAMP. I will in a minute. But let me just say, Mr.
Chairman, you said, the witnesses outnumber your view, to Mr.
Sperling. Well, clearly they do because you were able to get
the five witnesses.
But look. We have a number of hearings on this. I think we
should also focus on some of those areas where we can maybe
work together--transparency in pricing and quality. I think Dr.
Blumberg mentioned that. That is something that I think we can
come together on.
Obviously, preexisting condition. Prevention. Wellness.
Care coordination. What does that look like? How is that
defined? I think those are areas I think some--if we could have
some more diverse testimony, I think it would be helpful.
Clearly, information technology is something all of us on both
sides have talked about.
But let me just say there is a lot of concern with regard
to this because look at Medicare's high readmission rates. The
government doesn't always do it perfectly. Most seniors have
Medigap because the ``public option'' isn't quite adequate--65
percent, for example.
Most insurers--many insurers in many states require that
their insurance companies be nonprofit. We still have high
costs. We still have all of the problems that have been
mentioned.
So I guess I would say, as we move forward, I hope that we
can have a greater approach. And then, Mr. Lewis, I would be
happy to yield to my friend from Georgia.
Mr. LEWIS. Mr. Camp, thank you for yielding. Just sitting
here thinking. In the past, did you ever raise the question
with--when we were in the minority with Mr.----
Mr. CAMP. Yes.
Mr. LEWIS. And maybe you--wouldn't this be a little bit----
Mr. CAMP. Let me finish. No. Mr. Lewis, what I said was it
has been the tradition of this Committee--I wasn't in charge of
it, frankly--to have the minority have only one or two
witnesses. But this, I think, is a different issue. And I am
suggesting for health care only.
So on tax issues, on human services issues, still do the
five to one or the six to one or the seven to one. But how
about on health care----
Mr. LEWIS. We had a----
Mr. CAMP. How about on this issue only? Let's do something
only----
Mr. LEWIS. I think Mr. Stark will correct me here, and
maybe Mr. Rangel. How about Medicare? How did you go about
doing Medicare? How many witnesses did we have?
Mr. CAMP. I am suggesting on health care reform, let's try
something--look, you are in change. You can do what you want.
But let me just ask--I have a couple questions I would like to
ask.
Mr. Borris, I appreciate your efforts in trying to provide
health insurance to your employees and how difficult that must
be. And I thought your testimony was very good. I have heard
from a number of small businessowners just like you who are
finding it very difficult to pay for their health insurance
because it is more unaffordable.
I know in your testimony you suggested a choice between
private and public plans. So you still would like to have a
private plan available to your employees, if they so choose. Is
that correct?
Mr. BORRIS. A choice.
Mr. CAMP. A choice. But that private choice that they have,
would those costs come down if maybe you were able to team up
with other catering companies in Chicago to offer health
insurance options to your employees? Do you think that would
help you reduce costs for those who chose the private plan?
Mr. BORRIS. Well, we have--I actually had a guy in my
office who was talking to me about, you know, could we get some
sort of an association together. Would we be interested? I
shared with him that I would certainly be interested in looking
at it.
But I don't know that getting that together necessarily
gives us any benefit in how we really control the costs either
in the provider costs or in the costs of our premiums coming
down. Nothing has been put in front of me yet that has shown me
clearly where that would be a benefit.
Mr. CAMP. But if small businesses were able to join
together and pool their risk, is that something--is that a type
of reform--I am not saying the only reform, but is that the
type of reform you might support?
Mr. BORRIS. My concern is that we have been sufficient
under this for about the last--well, for a couple of decades,
but particularly in the last six or 8 years.
Mr. CAMP. Yes. Not to the exclusion of other reforms that
may be out there, but is this one of many reforms that could
occur?
Mr. BORRIS. I would have to look at it and see. But leaving
this solely in the hands of the private insurance industry
hasn't worked yet, and I am quite skeptical that it will work.
Mr. CAMP. Thank you very much.
I would like to ask Mr. Sperling, you know, we have studies
that show that a government-run plan could force as many as 120
million Americans out of their current held employer-sponsored
insurance. And obviously, if we have choices, you obviously
need to have a private plan as well.
How would the creation of a plan impact the costs of
providing employer-provided insurance? And would it exacerbate
the so-called cost shift that we have heard about, and how
would employer risk pools be affected?
Mr. SPERLING. Yes, Mr. Camp. The studies I think you are
referring to, there were several. There was one that was done
by the Lewin Group. There was another one that was done by
Milliman. They have tried to quantify the cost shift that
exists in the current system from uncompensated care in public
plans to private payors.
Some estimates quantify that uncompensated care burden as 2
to 3 percent, and the cost shift currently from public to
private cost shift as much larger. And those studies assume
that a public plan would use Medicare as a basis for
reimbursement.
So a new public plan that might draw as much as 120 million
Americans into kind of a Medicare-based reimbursement would
certainly exacerbate the degree of cost-shifting that goes on
today. Lewin estimated that that cost shift might be as much as
30 percent, and put the private plans at a significant cost
disadvantage to a public plan.
Now, I can't speak to the accuracy of those numbers. But if
this kind of gap were to exist, it would significantly impact
the viability of the employer-based system and call into
question some employers' ability to be able to continue to
offer those kind of benefits to their employees.
Mr. CAMP. Thank you very much. I see my time is expired.
Thank you, Mr. Chairman.
Mr. STARK [presiding]. I am going to pass for now. Mr.
McDermott, would you like to inquire?
Mr. McDERMOTT. Thank you, Mr. Chairman.
It seems to me that we have assumed for today's hearing
that there will be a public option. That may not be true, but
let's talk about it as though there is going to be a public
option.
My problem with a public option is how to design it so that
it does not become a dumping ground for the problem cases of
the insurance industry that they want to get rid of. And I
would like to ask whomever--maybe Dr. Reinhardt or Bill can
start--if Medicare was made the public option, what would be
necessary in national insurance regulation to prevent the
private companies who want to dump their people who are
problematic into--either the private insurance companies or the
private manufacturers--into the government plan? What would you
have to do to make that so it would actually work?
Mr. REINHARDT. Well, most other nations that have only
private insurance options use a risk adjustment mechanism.
Germany quite explicitly does that. So after the enrollment
period is over, they assess the risks that each plan ended up
with, and then have compensation payments. That is, plans that
end up with younger people, healthier people, make a payment to
this risk equalization fund, and plans with sicker people get a
payment from that fund.
So if you had an insurance market with a public plan and
private plans, you would use that same mechanism. The Dutch do
it. The Germans do it. I think the Swiss do it as well. And the
risk adjusters you needed for that are pretty well understood
now by health services researchers.
That is the most practical way to do it. So if the public
plan actually ended up with a sicker risk pool, private plans
with a healthier pool would have to make a payment so that the
risk would be equalized. Among plans, I actually refer to that
in my statement.
The level playing-field issue is not just about payment of
providers. It is also about the risk pool health plans end up
with. Those are the two things. And the risk pool gets
equalized in these other countries by having this compensation
mechanism.
Mr. McDERMOTT. Is it your view that the creation of a
public option like Medicare for all would be a--would force
people out of the private industry? We heard this number, 30
percent, would be forced out of their private plan and into the
public plan. Is that your understanding of such a plan?
Mr. REINHARDT. Well, that is the language that gets used.
The Lewin Group doesn't use it but imply it. What that would
mean is that many, many employers simply say, we will no longer
offer employer-based insurance. Of course, those employees then
would still have a choice of the public plan and private plans
that sell individually based insurance.
So I find that argument specious. I don't think the word
``forced'' is the correct English here because yes, you
wouldn't get it from the employer any more. But you would still
be able to buy private insurance in the individual market,
restructured market.
I have never understood this scenario. I don't simply buy
the scenario that a public plan would ultimately squish the
private plans out of existence. I have heard that argument made
by Galen Institute-- that the public plan will then deteriorate
and give very low quality care, and we end up with the Canadian
system.
But if there is the option of a private plan, even if they
had shrunk initially, they would grow again. These critics of a
public plan don't seem to understand how markets work. And I am
an economist. I cannot believe that if a public plan really
didn't play well by the American people, that you wouldn't have
immediately a private insurance industry growing out of the
ground, offering Americans a better deal. Isn't that how
markets work?
So somehow, there seems to be a lack of faith in the
market.
Mr. McDERMOTT. Mr. Vaughan.
Mr. VAUGHAN. Well, just--the thought is it does become a
bit self-correcting, and that Medicare can't get too out of
line with the private sector or you get access problems. And I
think you guys have done a great job trying to protect
Medicare.
The doctor fix that goes on year after year--you are not
going to let doctor pay get too far below where it is--and
sure, it is below. But it doesn't get too far out. And if it
started to, you guys would come in and protect the Medicare
beneficiaries.
So in a sense, there is a limit to how much Medicare can
become cheaper and so attractive to people that they will all
leave the employer system.
Mr. McDERMOTT. Thank you, Mr. Chairman.
Mr. STARK. Thank you.
Mr. Herger, would you like to inquire?
Mr. HERGER. I would. Thank you, Mr. Chairman. And before I
get in my questioning, I just have to say that I share the
incredible concern by Congressman Camp, the fact that an issue
that is so incredibly important to our Nation, health care,
that we have a panel that is basically totally biased in one
area.
And just saying, that is the way we have always done it, I
don't think is the adequate excuse for what we are hearing here
this morning. And I just can't state that strongly enough,
particularly on an issue when we talk about a public plan, i.e.
a government-run plan, and we see what takes place in Canada
and every place they have a government plan, how you--how can a
private plan complete with that?
But to not hear virtually any testimony on the other side,
Mr. Chairman, I think is completely unacceptable on an issue
that is this important. And then to come back and say that we
are going to meet in the library, in a private area, is there
something that the majority party would like to keep from the
American public that you want to keep it private? That is my
question. But----
Mr. STARK. Would the gentleman yield?
Mr. HERGER. Not at this point. Later I will.
Mr. Hobson, I want you to know that I appreciate all the
work that you are doing to provide care to the uninsured and
underserved in Los Angeles. And I have been a proud supporter
of community health centers for many years, and like you, I
believe health centers play a critical role in our health care
system and serve as a point of care of those who need it the
most.
You state in your testimony that Medicare and Medicaid pay
community health centers adequately, while private insurers
reimburse you below cost. That runs counter to everything we
have heard from hospitals and physicians. So I think it is
important for the Committee to understand that the payment
system for health centers is really quite unusual.
Specifically, I believe Medicaid is required by law to pay
community health centers on a cost basis, which is far better
treatment than most providers receive. In fact, in our own
state of California, which has the lowest Medicaid rate in the
nation, many health care providers get about 50 cents on the
dollar. I have critical access hospitals in my district who
actually get paid based on cost on Medicare, yet are barely
able to stay open because their Medicaid payments are so low.
Mr. Hobson, if Medicaid payments to your center were cut by
50 percent--and again, I think Members should understand that
is exactly the situation in which many California health care
providers find themselves--how would that affect your budget
and your ability to deliver these critically needed medical
services to our underserved communities?
Mr. HOBSON. Well, first of all, thank you for your support
of our program, Congressman. Congress established a prospective
system that allows us to receive what is called a reasonable
cost that is developed on a formula basis for reimbursement,
for patient visits, for people that are on the MediCal program
in our case in California.
What this does is that it leaves the Federal grant dollars
that are made available to us for the uninsured to actually go
to care for the uninsured. And this program is really designed
to serve as a bulwark against a cost shift in the other
direction, so to speak.
So if we weren't able to receive a full reasonable-cost
reimbursement for our Medicaid patients, then what would happen
is that our ability to see a lot of the underinsured and
uninsured patients would be diminished. And so that would
really be the net effect of, essentially, a change in the
reimbursement methodology that we have.
I hope that answers your question.
Mr. HERGER. That does. In other words, you wouldn't be able
to continue functioning if you were paid the same way our
hospitals are in California. You wouldn't be able to continue
the services you have if you had that same type of
reimbursement?
Mr. HOBSON. Yes. Right, particularly to the uninsured.
Basically, this allows us--when we are able to capture a
reasonable cost for the patients who are covered, then we
essentially can--our grant dollars then are focused, if you
will, on our uninsured patients.
And that is really what Congress intended--at least, that
is my understanding--with the grant program that we have for
Community Health Centers nationwide. It is really to help
provide resources for care of the uninsured. So this is just
one methodology that essentially Congress adopted that tried to
make sure that the Federal grant dollars are really maximized
for care for the uninsured.
Mr. HERGER. Thank you, Mr. Chairman.
Mr. Stark.
Mr. STARK. Thank you, Mr. Herger.
You have an unanimous consent request?
Mr. McDERMOTT. Yes. Mr. Chairman, I ask unanimous consent
to enter into the record a letter from the Business Coalition
for Benefit Tax Equity. It has to do with the benefits for
marital partners, and it represents a number of organizations
that are already providing and want some changes in the tax
law.
Mr. STARK. Without objection.
[The information follows:]
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Mr. STARK. Before I recognize Mr. Lewis, I just want the
record--because I am afraid Mr. Lewis is going to be upset that
we don't have more witnesses representing his issues.
I have not heard from Mr. Camp or Mr. Herger about
requesting an additional witness or more witnesses, nor has our
staff heard from the minority staff requesting an additional
witness. And I find it somewhat disingenuous to raise that
issue at this point.
Mr. Lewis.
Mr. CAMP. Will the gentleman yield?
Mr. STARK. Pardon.
Mr. CAMP. Will the gentleman yield?
Mr. STARK. Yes.
Mr. CAMP. We did, through staff, request more witnesses.
Mr. STARK. The hell you did.
Mr. CAMP. Yes, we did. And we would be glad to get
everybody together----
Mr. STARK. That is a lie. You did not.
Mr. CAMP. We did. And if not for this hearing, we will for
the future. Let's move forward, then----
Mr. STARK. It would be better if you did it as we have
always done it instead of raising the issue here as a political
issue in what otherwise was designed to be an informative
hearing.
Mr. CAMP. Mr. Chairman? Mr. Chairman, the chairman said,
the witnesses outnumber your view, in the opening statement. He
is the one who brought this issue up.
Mr. BECERRA. Mr. Chairman, may I just----
Mr. CAMP. And my point really is that this is----
Mr. BECERRA. Mr. Chairman, there are many of us who would
like to ask questions.
Mr. STARK. I just wanted to let the record show----
Mr. CAMP. Let the record show that we did request
additional witnesses.
Mr. STARK. Tell me requested, of whom.
Mr. CAMP. Both our health staff and also through the staff
directly.
Mr. STARK. I deny that.
Mr. LEWIS. Thank you, Mr. Chairman.
Let me thank each of the witnesses for being here today.
[Pause.]
Mr. LEWIS. Mr. Chairman, I want to thank each of the
witnesses for being here today.
Dr. Reinhardt, I want to thank you for your brilliant,
well-stated statement of your views, this idea of the social
good, the common good, that we are all in this thing together.
I just think the time has come for us to do more than talk the
talk. It is time for us to walk the walk. It is time for us to
act.
So I want to ask you: What if we don't pass universal
health care coverage? What are the costs if we fail to achieve
universal coverage?
Mr. REINHARDT. What are the costs?
Mr. LEWIS. Yes.
Mr. REINHARDT. Well, there are two costs. The first one is
that individual families bear incredible financial agony and
possibly physical pain as well. There was a front-page story in
the New York Times yesterday about a couple that both lost
their jobs and have a child with cancer and can't get care. My
wife read me the language, and I found it revolting. So there
are--and there are too many of these cases. I travel a lot
abroad. I speak in Berlin and Beijing, et cetera. And if one
relates to them those sad American stories, they cannot believe
this happens in America. But it does. I am ashamed of those
stories.
And then there is of course the cost that people postpone
early, timely, intervention and get to the emergency room only
when they are very sick. And that also is, of course, a major
cost.
Finally, the third cost is the ``job lock'' inherent in
employment-based insurance. I am not generally known as an
enthusiast of the employer-based system, because a system where
you lose your health insurance when you lose your job is really
not a very reliable insurance system. In Canada, there is much
greater job mobility because you can switch jobs and you don't
lose your insurance. Here you don't have that.
So there are these three costs.
Mr. LEWIS. Furthermore, do you accept the idea, the
concept, that health care is a right, is a right that should be
guaranteed by our government?
Mr. REINHARDT. I certainly believe that certain kinds of
health care are a right--obviously, not everything; is cosmetic
plastic surgery. But there is a presumption in this country
that certain critically needed care is in fact a right or
Congress wouldn't have passed EMTALA. But Congress did.
So yes, the bulk of health care that, for example, the kind
Members of Congress and their families have, is viewed as a
moral right, although a constitutional right. Mind you, I am
biased. I grew up in postwar Germany and in Canada. So my soul
was programmed substantially there as afar as the social ethic
for health care is concerned.
Mr. LEWIS. Would other members of the panel care to
comment? Mr. Vaughan.
Mr. VAUGHAN. We certainly agree it is a right. And it is
time that it got fixed. I thought you might enjoy, for just 1
second, we wrote our subscribers that, ``There is now no doubt
of the growing wave of popular sentiment in favor of an
efficient public health program. 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.''
I am afraid, sir, that is from our 1939 auto issue. I think
we analyze cars better than we do the political situation. We
supported the Wagner and Dingle bill, and we are still waiting
after 70 years. And the sadness is that the Institute of
Medicine is half right on the number of deaths that you have
because some people are uninsured. They said about 18,000 a
year. If they are half right, more Americans have died since we
wrote this than were killed in World War II. And that is kind
of sad.
Mr. LEWIS. Dr. Blumberg.
Ms. BLUMBERG. From my personal perspective, I do believe
that access to affordable, adequate medical care for necessary
services should be an ethical right in this country. I think we
get caught not so much on the ethics; we get caught on the
financing.
And that is really where the rubber meets the road because
whenever we are going to make change of the type that we are
discussing, it is going to involve a tremendous amount of
redistribution. And who is going to pay and how much they are
going to pay is really what catches us, not so much the notion
that we want people to get the kind of care that they need.
Because I think we could all agree to that.
Mr. LEWIS. Thank you. Thank you, Mr. Chairman.
Mr. STARK. Thank you.
Mr. Johnson, would you like to inquire?
Mr. JOHNSON. Thank you, Mr. Chairman.
You know, I have said before it is our goal to get every
American in this country access to affordable health care. That
is universal coverage. Health care coverage of their choice. In
order to accomplish that goal, Congress needs to look at the
insurance market to see what is keeping everyday Americans from
being able to afford health care coverage.
When looking at the demographics of those currently
uninsured in this country, we see they are all uninsured for
different reasons. Therefore, our solution needs to address
each of these problems. It can't be one size fits all.
Mr. Vaughan, as part of your testimony, you recommend a
health care reform plan to include a core package of health
benefits that must be offered to every single American, a
national standard, if you will, for health insurance.
Since I am assuming this national standard would be decided
by government bureaucrats sitting around a table in D.C., do
you have any advice about what services and providers should be
included in this standard? And since you were in the staff
earlier, you may have tried to push some of those plans
earlier. I don't know.
Mr. VAUGHAN. Yes, sir. Thank you. There are bills out there
that say--and this resonates pretty well, that everybody should
have access to a health plan kind of like what your Member of
Congress gets. I think in the Americare bill, one of the bills
put in, it is Blue Cross Blue Shield standard, which is a
pretty good package. It is not as good actuarially as the
Fortune top 50/Fortune 100. But it is your most popular FEHBP
plan.
The other thing to do is turn it over to NAIC. Give them 6
months to--the National Association of Insurance Commissioners.
Give it to them for 6 months to come up with a package. But no,
I wouldn't expect----
Mr. JOHNSON. They got a lot of money to do that with now.
Mr. VAUGHAN. Oh, they would want a contract to do some
bowling and get people in. But yes, sir, it has to be flexible.
It has to evolve as technology evolves. But----
Mr. JOHNSON. Yes. But there are things that are covered in
some plans that aren't covered in others. I mean, how about
mandating every insurance policy cover the cost of orthotic or
prosthetic devices, for example? This is already mandated in
New Jersey and California.
Mr. VAUGHAN. And it is covered in Medicare. The thing is,
the thought--and in my testimony--there would be this core
package that everybody would have as a sense of security, that
they wouldn't lose their house, they wouldn't go bankrupt, with
this core package.
Mr. JOHNSON. Well, I understand that. But what kind of
deals are we going to cover? I mean, would we mandate every
policy to cover acupuncture, for example?
Mr. VAUGHAN. No. No. But you could buy. In this market I
was talking about where we would have some number, A through L
or hopefully fewer, A through G, perhaps, you would have
packages of extra. In Massachusetts, I think--was it a bronze,
silver, and gold package. And one is not too much value, and
one is middle, and one is a Cadillac.
Mr. JOHNSON. Well, how can you have a public plan that has
various prices?
Mr. VAUGHAN. Oh, that is the core, sir. Everybody----
Mr. JOHNSON. For example, I think a 25-year-old male can
purchase an insurance policy for under $1,000 in Kentucky, and
that same policy would cost $6,000 in New Jersey.
Mr. VAUGHAN. Yes, sir. Be careful of that Kentucky one. We
have done some articles that it doesn't cover too much,
perhaps.
But again, sir, the core security. And then, yes, go into
the marketplace and buy extra packages and compete on those
extras. But everybody at least has a foundation. I hope that
makes sense.
Mr. JOHNSON. Thank you.
Mr. VAUGHAN. Thank you, sir.
Mr. JOHNSON. Mr. Hobson, you stated in your testimony that
60 million Americans lack access to primary care because of
physician shortage. I have heard from my constituents,
doctors--I had a doctors meeting just this week, or last week--
it is true in Texas for Medicare.
Recently, I think, the doctors, the seniors in my district,
have told me stories where it has taken almost a year to find a
doctor that would take them, and then under certain conditions.
You know, the Medicare Program is getting to the program where
doctors just don't want to take part in it because they don't
get reimbursed. Can you talk to that for me?
Mr. HOBSON. Yes, sir. One of the things that we have to do
as a community health center in the modern world is provide
managed care services. And one of our obligations is to put
together a network of specialists that we have to refer our
clients to. We do that both for about 600 seniors that we have
in a Medicare Advantage plan, and we have about 14,000
individuals in Medicaid managed care plans.
We have a very difficult time trying to find various
specialists who will accept Medicaid rates for the services
that are really offered. We have to address, in my opinion, as
a part of any managed care plan, any kind of health care reform
plan is a way of making sure that we can provide a reasonable
level of reimbursement for a lot of the providers that we
really need to make sure that we have got an integrated system
of care operating--with primary care connected to specialty
care, to subspecialty care--in treating at least the most
difficult-to-treat patients.
And I feel we are spending a lot of money in the system we
have today. I think that there are a lot of efficiencies that
really can be had in our system that would allow us to pay a
lot of the providers better.
Yes, I saw the article in the Wall Street Journal about the
fact that there are a number of providers that are dropping out
of Medicare today. What that really tells me, though, is that
Medicare is in drastic need of a tuneup and modernization----
Mr. JOHNSON. Medicaid is worse.
Mr. HOBSON. Medicaid is even worse--that program as well in
order to make it in today's health care marketplace. Some low-
income individuals on Medicaid essentially just can't get
specialists available to them.
Mr. JOHNSON. Well, Medicaid being worse, that is a public
plan, you know.
Mr. HOBSON. Yes, it is.
Mr. JOHNSON. Thank you, Mr. Chairman. I appreciate the
time.
Mr. STARK. Thank you.
Mr. Becerra, would you like to inquire?
Mr. BECERRA. Thank you, Mr. Chairman. And thank you to all
the panelists for your testimony. As usual, it is enlightening.
Many of you have been saying much of what we heard today for
quite some time, but we are pleased to have you come here and
once again see if we can get it right.
Let me begin with a question to Mr. Hobson. First, by the
way, congratulations on the work that you have done over the
years. In Los Angeles, we recognize that without some of the
work that has been done by your clinic, the foundation, there
would be a lot more Americans who would be in far worse
condition healthwise. And so we thank you and all those who, at
the nonprofit level with very little money, figure out a way to
serve people who otherwise have no alternative.
Mr. Hobson, cost-shifting. We hear that there is a big
concern about cost-shifting going on in Medicare. You have very
little Medicare that you deal with because most of the folks
you see don't have insurance or have very little insurance.
Mr. HOBSON. That's correct.
Mr. BECERRA. And I would like to ask you: Do you have any
sense about whether you see cost-shifting as a community
clinic?
Mr. HOBSON. Well, as I mentioned during my testimony, the
rates that we are paid by private insurance really requires us
to cost-shift in the other direction, to other sources of
revenue, because we can't get paid what it really takes to take
care of them. And most of our patients that we have through
that are in the managed care area. But essentially, we have--we
have very, very few privately insured patients.
But my concern is, really, that we come up with a way of
reimbursement for health care services that really recognizes
what it really takes to get people well. And if an individual
really requires more health care navigation, health care
coaching, some of the kinds of things that have been shown
through studies that are most successful in preventing the kind
of readmission rate that we wind up having in other programs,
then we can really address that problem.
Certainly some cost-shifting really occurs. But as I
mentioned a little bit earlier, I think that is because some of
our systems really need a serious tuneup, to sort of level the
playingfield. And I agree with Dr. Reinhardt that basically we
have got a situation where we have got the tools and skills in
the risk adjustment area that I think could be a major avenue
or approach for dealing with this.
Mr. BECERRA. And in essence, we have a system which almost
encourages a provider, whether a public insurer, a private
insurer, a for-profit insurer, a nonprofit insurer, to figure
out how to shift very heavy costs away from them. Otherwise,
they won't hang around.
Mr. HOBSON. That's correct.
Mr. BECERRA. And so I think that's where most of us agree
with what most of you have said, that we need figure out a
system that, one, includes everyone so you can't figure out
ways to game the system if you are insurer, and two, which does
it in a way that controls the costs that are involved.
Let me ask you all a quick question. Choice. Should someone
who has a decent health insurance policy have to be at risk of
losing that through some kind of reform done by the Congress,
working with the President? Most of us believe that no, if you
have got something you really like, we are here to try to
improve it, not take it away. So you should have the choice of
keeping what you have got.
Is there any reason why we should limit choice--and as Dr.
Reinhardt said, meaningful choice, not just a maze of choices
but meaningful choice--so that the consumers decide, based on
good information which hopefully will get them to become more
educated about health care and its costs, but that the
consumers make the choice about which plan to use.
And so does anyone disagree with the notion that if we are
going to have choice or limit choice, it is the consumer who
should limit the choice by the decision he or she makes on what
provider to work with? Does anyone disagree with that?
[No response.]
Mr. BECERRA. Okay. Disagree? I don't want to--with my time
really short, I don't need you to agree with me. I just want to
hear any disagreement. You need your microphone.
Ms. BLUMBERG. I am sorry. I would say that you have to be
careful about how much choice you provide.
Mr. BECERRA. I agree, and I said that earlier. You have got
to have--as Dr. Reinhardt said, meaningful choice. But
otherwise, agree that consumers should have a choice? We should
not limit them from the get-go on what choices they have?
Ms. BLUMBERG. I think we need to be careful about choice in
insurance markets because when you have a great deal of choice,
while there should be some options available to individuals,
risk selection becomes a huge problem.
Mr. BECERRA. Okay. Dr. Blumberg, we are not disagreeing. I
agree. If you give them a choice, as we have seen so often with
Medicare Part D, the prescription drug plan, where there were
so many choices people didn't understand what the differences
were; and by the time they got into them, some of the plans
decided to kill the program. And all of a sudden people had
applied to a program because they thought it was the best, it
now doesn't exist, and now they have to go through the whole
maze of figuring out what's best. That I understand.
But just the notion of choice, but notion of choice
belonging to the consumer, not to the government, not to the
insurance companies, but to the consumer--does anyone agree
with residing the choice in the hands of the consumer?
[No response.]
Mr. BECERRA. No. Good. And so Mr. Chairman, I know my time
is expired, so I'll just ask one quick question of Dr.
Reinhardt.
So then if we should have this choice reside with
consumers, is there any reason why we would think that the
consumers would not be able to make an informed decision on
whether to have a plan that is based on a private nonprofit
insurer, a private for-profit insurer, or a public health
insurance option?
Mr. REINHARDT. No. That is exactly my point. I think that
choice should be made available. The analog by not making it
available would be to tell the American people, you can't have
your elementary and secondary school public any more. You must
choose among only private schools. I would consider that
limiting choice and wonder what the American people would think
of it.
I would have the faith in the consumer to regulate that. If
the public plan does not behave well, it would lose customers
in this country, particularly if we had the transparency on
prices and everything we crave for. It seems to me almost
daunting to tell the American people, we don't really care what
you want, but you are not going to get this choice of a public
plan. So I agree with you.
Mr. BECERRA. Thank you. Thank you, Mr. Chairman.
Mr. STARK. Thank you.
Ms. Brown-Waite, would you like to inquire?
Ms. BROWN-WAITE. Yes, I would, sir. Thank you.
First of all, I want you to know I love community health
centers. They are--Mr. Hobson, you know, your model is
duplicated in so many of our congressional districts, and you
do such a great job. Community health centers are a great
resource, and my hat is off to you.
Mr. Vaughan, as I read through your testimony and I saw the
six pages of stories from people having health insurance
policies where they had problems with them--and I don't know
how much of this you include in the article in Consumer
Reports--but as I read through them, so many of them can and
should be resolved through a plan's appeals process.
Mr. VAUGHAN. You would think so, yes.
Ms. BROWN-WAITE. But it is almost like the rest of the
story isn't told, like you told part of the story, and the
question is, was the appeals process used. One of your
statements, it said that a state legislator had to intervene.
And I am sure every member of this panel has occasionally had
to do that, including which I had to do this past week with the
VA.
Mr. VAUGHAN. Sure.
Ms. BROWN-WAITE. Which I know the first panelist mentioned.
I mean, I had to do that with the VA in a health care issue
relating to a veteran.
So I don't think that any of the plans out there right now
are perfect, and I believe that Americans want and deserve
better health care and better access to health care. But I
just--I question whether or not--and believe me, as a state
legislator, I fought for appeals panels and having the absolute
right of consumers to be able to have that right.
I am not sure how many other states have laws as pro-
consumer as Florida does when it comes to health insurance
appeals. But I just have a concern that a lot of these could
have and should have been resolved.
So I think my question to you is: Is this the end of the
story, or is this the middle of the story? And could you
document your comments?
Mr. VAUGHAN. I will certainly get you and your staff the
complete story. We went around the country and we collected
these, and we asked people to send in stories in their own
writing. The only thing I changed was a few grammatical
mistakes and typing mistakes.
So those are what I got from our field staff. And I will
get you the full story. Yes, that poor guy got in an auto
accident, and the air ambulance took him to a hospital. And
then he was told it wasn't a preferred air ambulance. He said,
wait a minute, you know. That had to be--there had to be a way
to fight that through.
Ms. BROWN-WAITE. And sir, I want to point out to you that
in clearly the majority of states, that is there because it is
up to the ambulance driver, the EMTs, to say, this is a
critical situation. We need the nearest available
transportation. Insurance companies have to follow through if
that medical determination is made.
Mr. VAUGHAN. But that is part of, I think, the lesson in
these stories, that the pretty well educated people who
responded felt so hassled, felt unable to do it themselves or
didn't find a way to get it resolved. The system is so hassle-
prone and so I use the term Whack-a-Mole.
We need help by Congress, really, in setting some standards
for what grievance and appeals systems should be. And 30
percent--also in the statement--30 percent of the American
public is considered health-illiterate. You have got to do
things at the sixth grade level, and when an insurance company
starts hassling them, a whole lot of people just throw up their
hands and give up.
Ms. BROWN-WAITE. Sir, I have to--reclaiming my time, I have
to personally agree that we need more education on health
insurance, the same way we need on auto insurance or any other
kind of insurance. And I come from Florida. We have very high
homeowners' insurance rates.
Which brings me to my next question. Mr. Borris, you
mentioned the fact that in seeking health coverage for your
employees--I'm sorry, Mr. Heller's head is in the way; I don't
want to not look directly at you----
Mr. BORRIS. I can see you.
Ms. BROWN-WAITE. In seeking health insurance coverage for
your employees, they would only give you a one-year rate. I
assume you, like most Americans, have homeowners or renters
insurance and/or auto insurance?
Mr. BORRIS. Sure.
Ms. BROWN-WAITE. And, you know, I don't know about where
you live in Illinois. But I can't--and Illinois is certainly
the home of lots of insurance companies. Most insurance doesn't
give you a 2-year rate on auto or home or anything, or a 5-year
rate you mentioned, or a 10-year rate. That is not going to
happen because it is risk-adjusted.
Mr. BORRIS. Except that our experience, at least my
experience, hasn't been--with the auto policies that we have
for the fleet of five vehicles that we run, with our general
liability coverage that we have for our business that contains
content coverage as well as our liability coverage for the food
that we bring out to people, we have not seen the kinds of
premium increases over the past several years that we have seen
in health insurance.
So if there is a conversation about reforming auto
insurance and general liability and homeowners insurance, maybe
I am not the guy to be here.
Ms. BROWN-WAITE. I think that we fundamentally agree that
you can't get a two--or a 5-year insurance policy anyplace for
any kind of coverage. Would that be an accurate statement?
Mr. BORRIS. When I----
Ms. BROWN-WAITE. Disregarding cost.
Mr. BORRIS. I understand. But when I am making hiring
decisions, right, health care insurance is part of that hiring
decision. When I hire people, I know I am going to pay 7.65
percent to my FICA and Medicare. It is a cost that I can count
on. It is a cost that I know is there.
If I had a public option that I could count on and
understand that there is percentage of my payroll that
perhaps--and this would be my choice; I mean, I could leave
myself in the private health insurance market--but if I had
this choice where I could pay a percentage of my payroll, cover
all my employees, not just half my employees, but understand
that up front--this was my point--I know--would know what my
costs are.
Ms. BROWN-WAITE. But sir, you need to also realize people
thought that with Medicare. And their yearly rates go up. So
that is a ``government plan'' and those rates go up. That is
not fixed. That is not locked in for three or 5 years, believe
me. And somebody with a very high percentage of constituents on
Medicare, I hear about it all the time.
Mr. BORRIS. Is their contribution like double what it was
in 2002?
Ms. BROWN-WAITE. Health care costs are going up
substantially. And I have owned a small business, sir, and I
know exactly where you are. You want to help your employees.
And every--the majority of small businessowners want to be
exactly there.
Mr. BORRIS. So you are saying that we can solve this
problem strictly in the private--I mean, is that----
Ms. BROWN-WAITE. No. I think that we can come to a
reasonable solution to this without totally freezing out and
having taxes go through the roof to subsidize health insurance
in the private plan. That is what my constituents say they
don't want because what it will do is put small businessowners
like you and like I previously was out of business. That is
what my constituents are concerned about.
Mr. BORRIS. Well, I would agree that----
Ms. BROWN-WAITE. Thank you, and I yield back the balance of
my time.
Mr. STARK. Thank you.
Mr. Pomeroy, would you like to inquire?
Mr. POMEROY. Yes, Mr. Chairman. Thank you. I want to begin
by complimenting the panel. And Mr. Borris, if your catering is
anything like your testimony, you have got a wonderful
business. I hope to be able to sample your wares some time. You
have done a tremendous job this morning.
Mr. BORRIS. Thank you.
Mr. POMEROY. Appreciate it.
Mr. BORRIS. Thank you.
Mr. POMEROY. And Dr. Reinhardt, I used to be an insurance
commissioner in the 1980s. I have enjoyed you and your opining
on health care for 20 years. And you haven't lost a step.
Mr. REINHARDT. Thank you.
Mr. POMEROY. So thank you for guiding us.
Bill, good to see you in the Ways and Means Committee
again. Okay. Better get to the question.
You know, you try and find--I guess I am going to go off
the topic of public plan. I am fascinated about community
health centers. I think there has just been so much good
accomplished with community health centers, I am surprised
health reform debate has not looked at that platform as a way
of expanding cost-effective care options to people that are
uncovered or to people that are paying premiums that might be
able to insure on a community health center and get, therefore,
a lower-cost premium because it is a lower-cost provider.
But we really haven't been talking about it. I am not sure
why. Mr. Hobson, do you think that there is something there in
the framework of community health centers as a care delivery
format that could be more broadly applied in this health reform
debate?
Mr. HOBSON. Well, thank you very much for those
observations. I am here, really, today to essentially--make the
point that any kind of health reform option that you consider
should make sure that there is a clear place for community
health centers in that option because I think that all of the
studies that have been done show that we are both cost-
effective successful in terms of managing the clinical care of
patients----
Mr. POMEROY. I believe that--just because my time is going
to run--I would love to have heard a longer part of that
answer. But to follow, I agree with you in terms of what you
have achieved. I mean, basically if there is a medical home in
operation, it is in community health centers.
Mr. HOBSON. Yes.
Mr. POMEROY. If there is chronic care being provided in a
coordinated way, it is in community health centers. Many of the
innovations we hope to advance through payment reform into
health care delivery in this country for the purpose of
elevating health care delivery and improving outcomes are
already being done in community health centers.
Mr. HOBSON. Absolutely.
Mr. POMEROY. But I have heard at least the thought that
maybe mandated insurance, you get everybody coverage, they
don't go to community health centers any more. They go to the
places that are doing all the elaborate marketing.
Have you seen a dropoff at all in Massachusetts, for
example, in utilization of community health centers as people
have coverage and are going elsewhere?
Mr. HOBSON. Well, I know in Massachusetts there has been a
major increase in the number of patients at community health
centers since they adopted their health care reform plan. But I
can speak best to Los Angeles County.
Basically, people on Medicaid have an option of a Kaiser
plan, a Blue Cross plan, a Molina plan, several different plan
options through which they can get care. And so they basically
can access any providers that will take a Medicaid patient.
But we have got a very large number of patients in that
system voting with their feet, continuing to go to community
health centers because, essentially, that is where they feel
that they are really best served.
Mr. POMEROY. Professor Reinhardt, do you view--are we
missing something here? Why aren't we looking at community
health centers more robustly as part of the health reform and
coverage answer?
Mr. REINHARDT. I think for a lot of people, that is
actually a very good option, particularly if they are endowed
with modern health information systems so we can monitor them
on cost and quality. In fact, my wife and I help consult with
China on health reform. We advised them that for their urban
population, those centers are actually a highly efficient way
to treat people. You just have to make sure they get adequate
funding.
Mr. POMEROY. Right.
Mr. REINHARDT. That is the important thing.
Mr. POMEROY. That is the key.
Mr. REINHARDT. The other thing, in New Jersey, I know, our
centers are also very excellent. But they have the same problem
of access to specialist care. They are usually very, very good
in primary care, but at least in our state, but there isn't the
backup with specialist care, which you could either put into
the centers or you have to have a referral system.
Mr. POMEROY. In Medicare, we are seeing, for example--we
are getting killed with uncoordinated specialty care that
proliferates in some places in this country and adds a cost
factor almost double to where you don't have such a specialist-
prone environment.
But in community health centers, another place where we are
federally paying dollars, there is no access to specialists.
That is very interesting.
Mr. REINHARDT. Well, there is this ``nouvelle vague,'' the
medical home. The community health centers are natural medical
homes that could coordinate this care better than the fee-for-
service, any fee-for-service plan normally would. So yes, I am
very supportive of these centers, too.
Mr. POMEROY. I thank the gentleman. Well, as long as the
chairman is preoccupied, I am going to keep going here.
[Laughter.]
Mr. POMEROY. Dr. Blumberg, your observations?
Ms. BLUMBERG. I agree with what Dr. Reinhardt said. I mean,
one of the big issues for many of the community health centers
is making sure that they get integrated with specialty care and
inpatient care, and that when health care reform is done and
there is greater financing for those in low-income populations,
that could be an infusion into these health centers to help
them to do even better work and more work. And we are certainly
seeing that in Massachusetts.
Mr. POMEROY. You know, if it was to be structured in a way,
Mr. Borris could get a very substantial premium reduction if he
is directing, as a preferred provider, the community health
center at their lower reimbursement rates.
I see my time is elapsed, Mr. Chairman. I yield back.
Mr. STARK. Thank you.
Mr. Brady, would you like to inquire?
Mr. BRADY. Yes, I would, Mr. Chairman. If you would like to
go on and read that book while I do my questioning, I would
like a few extra minutes as well.
I think it is important to have this discussion. I do
think--I wish it were more balanced. The truth is, we do need
serious efforts on reform in health care. And I do believe,
though, that the public has serious concerns about a
government-run shadow plan that would go with whatever reforms
we are trying to make here.
And I am not convinced that Medicare is necessarily the
model we should be following. I mean, just take a look at it as
it is today. It has serious quality issues to go with its care.
It is rampant with fraud; some believe 20 to 30 percent of
the funding is waste within it. It is bankrupt, actuarially
unsound, bankrupt here in the next 10 years, making promises it
can't possibly hope to keep. Making underpayments to not just
providers, not just to doctors, but to hospitals as well that
results in cost-shifting to private plans that we all
acknowledge.
The cost is not being held down; it is expected to triple
over the years. So there is no cost containment as far as
price. And no transparency whatsoever. Ask any senior about
their Medicare bill, they will tell you about it. And we have
had a number of people testifying, sitting in those very same
seats, who say that the procedures-based health care package
under Medicare is the problem, not the solution, to health care
reform in America.
So I have real concerns about a government-run shadow
program. And I also, just from a free enterprise system, you
know, you wonder, you know, why don't we have government-run
options for catering companies? Not all businesses can afford
those catering costs, and if we had a government-run option,
you wouldn't have to make a profit. They wouldn't have to pay
pesky taxes. They wouldn't have to even be actuarially sound;
the taxpayers could pick it up. And there would be no overhead
because that is just part of the government.
Truth is, I think there are very serious concerns about a
government-run plan. Rationing, perhaps, maybe the fear that
most people have, that the government will be making decisions
on their behalf, especially end-of-life decisions.
Mr. Reinhardt, I know you have testified today that what we
need is a more logical form of rationing. Given that other
countries' initiatives and government rationing hasn't slowed
cost growth, you know, why do you think rationing health care
rather than providing medically necessary care is the best
option for Americans?
Mr. REINHARDT. Well, there are two forms of rationing. One
is by price and ability to pay. As every economics textbook
will tell you, the role of prices in a market economy is to
ration. And that is one approach which we are using in this
country to ration health care.
And the other approach to rationing is to do is through
some non-price mechanism, as the Canadians do it. Canada spends
only half as much per capita on health care as we do. For that
half, you have to admit, you give them high marks for what they
do deliver, in spite of the fact that they ration. But yes,
they do ration healthcare.
Mr. BRADY. Mr. Reinhardt, Doctor, can I ask you this: Do
you see some semblance of rationing already in our current
Medicare system? In the sense that if you look at MedPAC's
recommendations each year on physician reimbursements, they
don't really measure what the cost of those equipment,
medicines, and staff would be.
They determine what they think the overall usage should be
and utilization of physician services, and then they ration
back the price by cutting it 3, 5, 10, 21 percent in order to
fit the model that they want to have. The result of that price
reimbursement rationing is fewer and fewer physicians willing
to see our Medicare patients. So don't we already have a model
on rationing occurring in the government-run program we have
today?
Mr. REINHARDT. Well, the number I look at is not the price.
I look at how much money does the taxpayer give physicians
collectively per Medicare beneficiary year after year? And I
looked at 1995 to 2005. That amount rose, per year, at 5.8
percent compound over the period--faster than GDP per capita.
So that is not a bad growth rate. It is just simply the volume
expands so much that the prices have to be kept lower to keep a
growth of 5.8 percent per Medicare beneficiary.
Mr. BRADY. But that is my point. In effect, through MedPAC
we are rationing reimbursements based on what we believe that
dollar amount should be. And I think there is fear that we will
do the exact same thing with patient care under a government-
run plan that we do today.
And perhaps that can be resolved, but I think it is one of
the issues--as we move forward, there is so much in health care
we need to improve that we can make better. That is one of
those areas I think we have to be especially cautious on.
Mr. REINHARDT. But as Mr. Vaughan said, there is a limit to
which fees can be held down. If I could refer you to page 14,
13 and 14, of my testimony. You look at the huge variation here
as a California insurer and look at what they pay different
hospitals for an appendectomy. Hospital A gets $1800. Hospital
E gets $13,000. Now, is that insurer rationing?
Mr. BRADY. Yes.
Mr. REINHARDT. Is that insurer rationing?
Mr. BRADY. So are you thinking that within the Medicare
system, where we have vastly different payments from county to
county, that that is really a model we ought to be pursuing?
Mr. REINHARDT. Well, you have exactly the same in the
private sector. They just don't publish their numbers because
they are proprietary. No, I----
Mr. BRADY. So it is not a good model if it occurs in the
private system, but it is acceptable if it is in----
Mr. REINHARDT. No. It is neither.
Mr. BRADY. Let me just----
Mr. REINHARDT. What we actually as researchers now are
looking at is bundled payments, like the DRG, for example,
which is half bundled, at least for the hospital. Very
innovative. Copied around the world. And ideally, we would like
to have bundled payments for everything.
And once you had bundled payments, you could then compare
how much the different regions charge. And I think those
bundled payments would sort of converge on a more uniform
level.
Mr. BRADY. Mr. Chairman, we ran out of time. One of the
points you made, until we move away from this procedures-based
reimbursement and align toward the patient, I don't think we
will ever get exactly where we want to. So thank you.
Mr. STARK. Thank you, Mr. Brady.
Mr. Thompson, would you like to inquire?
Mr. THOMPSON. I would. Thank you, Mr. Chairman, and thanks
to all the witnesses for being here today.
Dr. Blumberg, you mentioned, in your testimony, the issue
of meaningful coverage, and Mr. Hobson talked about preventive
health care and how important that is, and that's something
that I care a great deal about, and so I'd like to direct my
questions to the two of you, to begin with.
I believe that preventive health care needs to be a
critical component of any health care reform that we do.
I think it's extremely important, and very soon I'm going
to be introducing a bill that would require preventive health
care for kids from birth through 18 years of age, absent any
co-payments or any deductibles that would make that prohibitive
for families to provide that type of coverage.
As I say, I think it's the right thing to do, and I think
the data clearly shows that it saves a lot of money, for a
whole bunch of reasons, everything from catching a problem
before it becomes acute, saves money no matter how old you are,
and with kids, it saves even more money.
We've seen that preventive health care can provide smoking
cessation, successful smoking cessation, intervention, and
detect drug use.
I mean, there's just all kinds of reasons why it makes good
sense to do that.
I'd like to know from the two of you if you believe it's
important to set minimum benefit standards to ensure quality
coverage, and whether or not preventive care should be part of
that, and then, maybe Dr. Blumberg, from you, how you would
suggest we best establish preventive health care standards for
kids.
Ms. BLUMBERG. Well, I'll start by saying that preventive
care can provide a great deal of value, and increase quality of
life, so no doubt it's important to be considering that.
We do need to remember that not all preventive care is
cost-reducing. Some of it's cost-increasing. It doesn't
necessarily mean it's a bad thing to do. It may be the very
right thing to do. But there's a lot of variation in terms of
the cost savings. Certain types of preventive care will be cost
savings and others will not.
So I just didn't want to lead you astray. The literature is
quite variable on that, depending upon the type of preventive
care we're talking about.
I do believe that reforms should have minimum standards to
make sure that individuals have adequate benefits. Those
standards should include necessary care.
To the extent that we leave particular components of
medical care out, we leave that to be financed individually by
those who need it the most. Once we include it in a package, we
spread the risk of that care very broadly, and we allow
individuals to get the care that they need for a low marginal
cost instead of the cost being left on those who need the care
the most.
I do believe we should have particular components of
preventive care in that package. I'm not an expert on
prevention, and so I wouldn't want to be the one to be telling
you which pieces ought to be in and which pieces ought to be
out----
Mr. THOMPSON. Is there someplace that we should look to
establish what those standards should be?
Ms. BLUMBERG. I definitely think that this ought to be a
discussion that's done in conjunction with the organizations--I
can provide you with some names afterward, if you like--that
focus on preventive care, and also, particularly since you're
concerned with children, the American Academy of Pediatrics.
Mr. THOMPSON. Thank you. Mr. Hobson.
Mr. HOBSON. Yes. I concur with many of the comments that
have been made.
I think that it's really essential that we make sure that
the basic preventive services are part of any benefit package
that's really adopted under health care reform.
I feel that, to make sure that we have pediatricians that
are really involved in establishing the preventive services for
kids, that we have specialists in adult medicine that basically
can look at the various age groups and establish essential
preventive services, so that the list that would come out of
that kind of analysis really wouldn't include everything, but
really would include those kinds of things that, based on
evidence-based medicine, that you really would not want to
leave out.
And it's just been our experience that, all the time, that
these items are not necessarily covered, but in addition to
that, the kind of information that we can make available by
health education classes, like we have every single day of
every week at our program, I think are of immense benefit,
particularly to patients who are at risk of diabetes and
patients who don't basically have the resources for, say for
instance, exercise classes. We basically have exercise classes
available for our patients free of charge every Thursday at our
health center.
Mr. THOMPSON. I don't want to minimize the importance of
preventive care for adults. That's important, too, and I'm a
proponent of that, but I did want to focus primarily on the
kids' stuff.
So thank you both very much. Thank you, Mr. Chairman.
Mr. STARK. Mr. Davis, would you like to inquire?
Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman.
I appreciate the time that all of you have taken to prepare
and come in today.
I think in particular, when Mr. Vaughan made his comment on
Kentucky, I owned a small business, provided a Cadillac plan,
100 percent paid for by me, and when Kentucky House Bill 250
was enacted in 1996, it had the nickname ``Hillary Light'' in
the business community.
It actually drove people off of health insurance, because
of the increased state mandates, and in fact, 44 of 47 carriers
left the state. I watched my rates nearly triple by the time I
came to Congress.
And that was one of the things that made me a political
activist, frankly, was the inefficiency of the government plans
that actually drove costs up and many people found themselves
uninsured as a result of that.
But just shifting over, I appreciate Mr. Borris's comments,
as well. Being a businessowner, I think we've shared some of
the same things. You tend to get active on the issues you care
about. It certainly influenced me.
But just for the record, I just would like to confirm one
thing. Are you a Democratic Committeeman back in Illinois?
Mr. BORRIS. Yeah, back in Illinois we have, in our little
lake county, in my marine township precinct, yeah, I am a
Democratic precinct Committeeman.
Mr. DAVIS OF KENTUCKY. Okay, thank you. I just wanted to
confirm for the record that you were in fact an activist, as I
was, before I ran for Congress.
Mr. BORRIS. However, I also want to share with you that my
customers are both Republicans and Democrats.
Mr. DAVIS OF KENTUCKY. It's always good to maintain
bipartisanship in business. I agree with that.
Mr. BORRIS. Right.
Mr. DAVIS OF KENTUCKY. Actually, just shifting over, coming
back to the business side for a moment, my question actually is
to Mr. Sperling, with the Coalition on Business Benefits.
The Consumer Union supports restricting employers' ability
to tailor health care coverage to best meet the needs of
employees.
This concerned me, certainly, as a businessowner. I faced
many challenges to tailor a plan that we wanted, that didn't
necessarily fit with the state mandates, actually different
types of coverage.
What do you think about such a proposal, on restricting
that flexibility for employers? Do you think maintaining
flexibility is important?
Mr. SPERLING. Thank you, Congressman. The coalition that I
represent feels very strongly that maintaining the flexibility
that ERISA provides is probably their number one issue, and
that having state mandates and having to deal with the costs of
those state mandates, and the cost of administering and
complying with those mandates would cause problems for
employers.
It would cause a multitude of issues, moving employees from
location to location, because there would be winners and
losers. They would want to see equal treatment for all
employees.
At the very worst, it would drive employers to make
decisions on where they wanted to do business, to states that
might have the least burdensome mandates. And at some point,
employers would start to rethink whether to continue offering
health care benefits at all.
I think your question also gets to kind of standard
benefits, if I'm correct, or minimum benefits.
Speaking from a Hewitt standpoint, working with many large
employers, employers really value the flexibility that they
have in designing their plans tailored specifically to their
workforce needs and health concerns, and I think a lot of
employers would want to preserve that flexibility and that
choice, and prescribing a standard benefit plan would be
concerning to many employers, because they don't think of their
health care benefits as one size fits all.
In some cases, they have identified health risks in their
populations, like cardiovascular risk or diabetes risk, and
improved benefits for those types of conditions, to make sure
that there is no financial barrier to access care, and
employers like having that flexibility.
Mr. DAVIS OF KENTUCKY. Would anybody else on the panel like
to comment on that issue of restricting flexibility?
Mr. VAUGHAN. And, sir, our hope would be that there is a
minimum level of health care for everybody in this country, and
most ERISA plans, I think, I wouldn't--we wouldn't affect, or
you wouldn't be in this marketplace I was talking about.
We're talking about for the people who don't have adequate
coverage, or are in and out of the market, or whatever. They
would have a chance to select among a range of plans, but
enough that, or not so many as to be confusing, enough to have
choice, enough choice where there could be competition between
these plans and people would get a better price.
But for the good ERISA plans, I don't see anything we're
saying that would change that, but we do hope there's a
minimum.
Mr. DAVIS OF KENTUCKY. I do know my concern with the
inefficiencies in the process, the way funding for health care
works.
If I look at Center for Medicare Services, for example,
part B premiums have doubled since 2001, and we're going to be
dealing with spiraling cost increases there, as well.
Would you agree that the Center for Medicare Services
doesn't simply need more money, but it needs to be
significantly re-engineered to be more efficient in service
delivery?
Mr. VAUGHAN. Sir, I think it's the whole American health
care system. Medicare just sort of fluctuates around what the
private sectors do. We're all in trouble.
Mr. DAVIS OF KENTUCKY. I would disagree with you. I would
suggest that every medical provider that I know in my district,
which are many, many doctors, hospitals, secondary care, other
forms of professional care, are all constrained by the
structure that's imposed upon them by the Center for Medicare
Services.
Their billing, their overhead, the regulatory framework
that produces costs--you know, we could go on and on. And so
those costs are going to be carried.
Mr. Borris's business had that, had to deal with that
indirectly. My business had to, Ms. Brown-Waite's business.
Wouldn't you agree, though, that if we're going to move
into a dialog about improving it overall, that very substantive
changes would need to be made to the actual process by which
CMS functions to make it more entrepreneurial, that a person in
the private sector could actually understand.
Mr. VAUGHAN. I would urge everyone go back and read the
MEDPAC testimony, that an eighth of the nation's hospitals,
those that are the best hospitals in terms of not killing us
and of giving us the best care, they make money on Medicare.
It's the other seven eighths whose costs have been
unrestrained, and the insurers are not holding costs.
The question is not so much, is Medicare underpaying as
that, why aren't these big insurance companies in this country
doing a better job of restraining costs?
Mr. DAVIS OF KENTUCKY. Having seen it firsthand with my own
mother's death, as she was processed through the Medicare
system, I would suggest to you that it's not simply an academic
matter, that the reality, what I observed personally, and
hundreds of other folks my age, and middle-aged, watching their
parents go through the end of life decisions that you
mentioned--I think was maybe two of us up here, would consume
the majority of costs--the thing that I witnessed, which comes
back to this issue of driving costs, were procedures that were
driven, that drove costs, and this was entirely within the
framework of Medicare. It wasn't in private insurance.
I know I've exceeded my time, and I'll yield back to the
chairman. Thank you for your gracious indulgence.
Mr. VAUGHAN. Thank you.
Mr. STARK. Thank you.
Mr. Larson, would you like to inquire?
Mr. LARSON. Yes, I would, Mr. Chairman.
And congratulations on your longevity, and quite a
remarkable achievement, Mr. Chairman, and I have a couple of
questions for Dr. Blumberg and for Mr. Sperling, and they're in
this context.
Of course, the whole notion, as you suggest in your
testimony, Dr. Blumberg, about innovation, is something that is
very promising for the whole field of health care, and one of
the things that has been highlighted is, the creation of a
public auction within an insurance exchange will, as you
indicate, force insurers to innovate.
Could you elaborate on that, or could you give me any kind
of specific illustrative example of what innovations we might
see?
Ms. BLUMBERG. Sure. In most markets, what we're finding is
that there is very little competitive pressure on private
insurers.
There's been a great deal of consolidation, both at the
insurer level and at the provider level in recent years, and
that has helped to push further the growth in health insurance
premiums.
And when we don't have a real competitive market, putting
in a public plan actually could be a catalyst for competition,
because suddenly then there's a competitor in the marketplace
that has the potential, through a number of avenues, through
payment rules, through lower administrative costs, to provide a
potentially lower cost option in the marketplace.
This should then get those entrepreneurial, creative juices
going in the private sector, that have been allowed to atrophy
for lack of need, because the growing costs have been able to
have been pushed back on purchasers. It allows us to say, ``In
order to maintain your market share, you're going to have to
think about what's going into your administrative costs, what
can you do to hold them down, it's time to get really serious
about your negotiations with providers; it's time to look at
management techniques that are going to help to lower costs,
it's time to be serious about managing high-cost medical
cases.''
So I think there really are a number of avenues that we
value private insurers on, but that we really haven't been able
to take advantage of in the marketplace of late----
Mr. LARSON. Mr. Sperling, would you have a different take
or would you agree with Dr. Blumberg's assessment?
Mr. SPERLING. I would add, from a Hewitt perspective,
working with large employers, where 55 percent of employees are
covered by self-insured plans, we're not talking about
insurance company money here, we're talking about the money of
the corporation, and these companies push their insurance
companies extremely hard, and they take it upon themselves to
innovate, and we've seen a tremendous amount of innovation
coming out of the private sector in terms of health care with,
as I mentioned in my testimony, with coaching programs,
consumer-oriented designs, value-based benefits.
These innovations have been coming through the private
sector to try to improve the health and productivity of the
workforce and to try to control costs, and the--I'd say that
the employer marketplace supports the concepts that are evident
in the large marketplace that work well, like large pooling, to
spread risk and purchase efficiently, and if that will end up
increasing access to small companies and individuals, those
concepts should be considered very seriously, because that
works in the private sector.
Mr. LARSON. Well, in Mr. Borris's testimony, he talks, and
what I hear most frequently when I'm back in Connecticut, is
how small businesses--you mentioned large corporations, but
when you talk about a small business, how will this innovation,
in essence, help out the small business man?
Will the competition work, or do we, as Mr. Borris suggests
in his testimony, does he need to be part of a pooling
mechanism that allows him to join with, let's say,
municipalities or states, or be able to pool resources in a way
that you can lower rates?
Would you agree, disagree? How do we help Mr. Borris out?
Mr. SPERLING. Certainly, mechanisms that would allow small
businesses and individuals to come together and purchase like
large businesses would be valuable, because it ends up creating
more efficiencies in the system.
But the innovations that the private sector has driven, by
largely large corporations, find themselves into the small
business marketplace, because they're adopted by insurance
companies as standard practice.
Mr. LARSON. Dr. Blumberg.
Ms. BLUMBERG. I think that what we need to remember with
the small businesses is that they are at a number of
disadvantages.
Number one, they have higher administrative costs than the
larger businesses, and that affects their premiums.
They also have a much lower ability to pool health care
risk than the large businesses who are self-insuring do.
And we also know that they have, by and large, a lower-wage
workforce.
And so, really, you need a multi-pronged approach to help
the small businesses.
What an exchange can do for you, which an association
health care plan cannot, is to bring together a significant
portion of the population, the small businesses, the
individuals, to pool risk very broadly, not to select based on
risk as we see now, not to have prices varying, as Mr. Borris
had experienced, as a function of the health status of his
particular employees.
And then we also need the support of low-income subsidies,
because a lot of these workers are low-wage----
Mr. LARSON. In the final analysis, doesn't the government
have to take stock or at least be aggressive in pursuing, if we
want to make sure that all pre-existing conditions are
covered----
Ms. BLUMBERG. I completely agree.
Mr. LARSON [continuing]. And if we want to make sure that
catastrophic care, which of course accounts for the great
actuarial swings that people experience, is taken care of, if
government takes care of those pieces, can't we allow the
entrepreneurial and innovation to take over in the private
sector and join collectively with an option plan?
Ms. BLUMBERG. I think what we've seen, by the dominance of
a very small number of insurers in most markets, and the
consolidation of providers and their strengthening power in the
marketplace to avoid having to negotiate rates with the
insurance plans, is that we're not really seeing true
competition in these private insurance markets that's why I
think something more aggressive, such as the introduction of a
public plan, could catalyze that.
I think that the public plan option is less aggressive than
other options that we might have to pursue down the line if we
don't go there, such as all-payer rate-setting.
Mr. LARSON. Thank you. I'm sorry, Mr. Chairman, for----
Mr. STARK. Thank you.
Mr. Reinhardt, would you like to inquire?
Mr. REICHERT. Yes. Thank you, Mr. Chairman.
I thank all of you for your time today.
We all come from, obviously, different backgrounds. My
experience in the health care world is from my previous law
enforcement experience as the sheriff in the Seattle area.
And with 1,100 employees, and watching my insurance costs
go up, trying to provide service to King County, insurance
costs were increasing by about 17 percent a year.
So you have to try and balance the budget that's allowed to
you by the county council, and of course, all those employees
wanting to be covered by health care, and all sorts of
questions, and it's now, you know, great to have the
opportunity to be here to ask some experts about what their
thoughts are on behalf of those people that are back in King
County, and Pearce County in Washington State.
Dr. Blumberg, you mentioned cost management. Can you kind
of expand on that just a little bit for me?
Ms. BLUMBERG. Sure. For example, we saw that when there
were greater financial pressures on the health care system,
about 10, 15 years ago, when we saw a greater presence of
managed care in the markets, that the insurers took great
attention at innovating to finding ways to reduce cost growth
in order to gain market share.
So we know that insurers can innovate, they can create
management systems that are both going to address the way that
care is delivered and the extent to which it's delivered
efficiently. They can look at high-cost cases--in particular
the largest share of health care dollars are going to a very
small segment of the population. How can we better manage those
cases efficiently? But right now, there really isn't a lot of
incentive for them to do so. But I do----
Mr. REICHERT. Now, we do know that some hospitals are
engaged in cost management.
Are you aware of some hospitals and insurance companies, in
working with--I just visited last week Children's Hospital in
Seattle, who have been frequent visitors over the last year to
Japan, to the Toyota productionline there, and looking at how
they efficiently run--it sounds a little bit bizarre, but they
apply the cost-effective ways of examining their business and
how they manage their productionline, and they've applied some
of those things to Children's Hospital in Seattle.
Are you aware of any insurance companies or other hospitals
that might be engaged in that same sort of process, in looking
at sort of a process mapping adventure?
Ms. BLUMBERG. There certainly are hospitals and insurance
companies that are thinking about costs, but what I'm
suggesting is that the way the market is structured right now,
there really isn't a strong incentive for them to do that in a
lot of markets.
Some markets are very different. We see certain markets
where there is a lot more competition, but the majority of
them, there isn't. And so that's why I think we need to do
something in order to give them a bit of a stronger incentive
to do just what you're discussing.
Mr. REICHERT. In your testimony, you suggested a new
government-run plan should implement price controls to keep
provider reimbursements under control. Is that correct?
Ms. BLUMBERG. I do believe that we could hold down provider
payments below the levels at which they are, and still provide
high-quality care, yes.
Mr. REICHERT. But studies, some studies have shown that 120
million Americans could lose their employer-based health
coverage if a government plan was created. Are you concerned
about that?
Ms. BLUMBERG. I think that what you're referring to is the
cost shift argument; is that correct?
Mr. REICHERT. Yes.
Ms. BLUMBERG. Okay. Well, the literature, the economic
research literature really does not empirically support the
existence of a significant cost-shift.
The Medicare Payment Advisory Commission has just recently
come out with a study in March, which looked precisely at this,
and also confirmed results of other researchers, colleagues of
mine at the Urban Institute, that had done research in this
area a number of years ago, and what they found is really that
those hospitals that have high costs are those hospitals that
are not in areas in which the financial pressure----
Mr. REICHERT. But that's only for hospitals, right? What
about physicians?
Ms. BLUMBERG. Whether there's a specific literature on
cost-shift on physicians, I'm not aware, but the big dollars
are in the hospital sector. We really----
Mr. REICHERT. The price controls in Medicare, don't they--
--
Ms. BLUMBERG [continuing.] Find any evidence of price shift
in the hospitals.
Mr. REICHERT. Excuse me. In price in Medicare, aren't they
expected to result in a 21 percent cut in physician
reimbursements for next year?
Ms. BLUMBERG. Well, I think the issue of the sustainable
growth rate is an important one, where we think politically
about----
Mr. REICHERT. Let me ask you one more question.
Do you believe that a key principle for health reform is
that people shouldn't lose what they already have?
Ms. BLUMBERG. I think people should have access to high-
quality medical care----
Mr. REICHERT. What about the people that have an insurance
program that they already have, that they want to stay with; do
you believe that that's a reform--that that should be included
in any reform?
Ms. BLUMBERG. I believe that there should be broader-based
risk pooling than we have today, and by allowing some people--
--
Mr. REICHERT. Do you believe that people should be able to
keep their current insurance policy that they have, if they
choose to keep that insurance policy as a part of a reform, yes
or no?
Ms. BLUMBERG. I don't believe that every person needs to
have the precise insurance policy that they have today, no.
Mr. REICHERT. So that's a no. Thank you.
Mr. STARK. Thank you.
Mr. Blumenauer, would you like to inquire?
Mr. BLUMENAUER. Thank you, Mr. Chairman.
I was intrigued, Dr. Reinhardt. Your line that you casually
offered early in the hearing, where you talked about the health
care that we provide our veterans is socialized, by any
definition of the term, yet it doesn't appear to be attacked by
people. They're either quiet, or in some cases, they are
actually out there boosting, helping, protecting.
You talked about a cognitive dissidence here, and I'm
curious if you have some sense of why that is. Why do people
who get so worked up about Canada or Great Britain and
socialized medicine somehow don't--are not concerned about our
veterans' health, and its cost control, and its high quality?
Mr. REINHARDT. I really can't answer it. I've asked that
many, many times, in a letter in the Wall Street Journal, and
people just sidestep it. And it does puzzle me, for sure.
Mr. BLUMENAUER. It is. It's fascinating. I wonder, after
having sat through gazillions of hearings, having an earlier
life being involved with employee benefits for organizations
that I was responsible for, I wonder if some of this complexity
that we have layered on our system is just a result of trying
to protect some of the aberrant results, that if we really cut
to the chase, that it really doesn't have to be this complex,
dealing with things like giving people information for end-of-
life decisions, for not getting caught up in some of this.
The point of rationing, I mean, we are already rationing
right now, by price, by availability, by information. There's a
very uneven flow, isn't there, of who gets medical attention in
this country, based on factors?
Mr. REINHARDT. There's no question. The Urban Institute
scholars that were just mentioned, in their most recent paper,
it showed that the uninsured people get roughly about half the
health care that equivalently insured Americans get, and then,
as an economics teacher, I say that clearly is the effect of
rationing by price.
Mr. BLUMENAUER. Well, it's interesting to me that we have
people who--there's rationing because of how health insurance
policies operate, pricing, as you--another version of pricing;
in terms of availability and shifts in the market.
Mr. Vaughan, I was intrigued with some of the data that is
provided in your testimony about how hard it is for people to
be informed consumers of insurance.
Meaningful choice, we're familiar with you don't sell as
much jam with 26 varieties as you do with six. People are
confused. In some cases, they go into a shut-down mode. In
others, they make poor decisions.
Mr. VAUGHAN. Deer in the headlights kind of effect, yeah.
Mr. BLUMENAUER. Or just, people are overloaded. They've got
lots of choices on an ongoing basis, and for some reason, this
appears one that people sidestep.
I appreciate your talking about having some specific
elements that would be included in all insurance policies, and
something that struck me in your testimony that I don't know if
it was written or whether you articulated it, but the notion of
requiring that people get examples of how the health insurance
policy would apply for specific real-life examples, so people
know what in the dickens they're getting.
Can you elaborate on that for me?
Mr. VAUGHAN. Yes, sir.
Washington Consumers' Checkbook Guide to Health Plans
includes questions like: are you fairly healthy, what this plan
will cost, covering your premiums, if you have sort of moderate
level of illness, what it will cost, and if you have something
horrific, cancer or so forth. And you'll see how the plan
actually works.
But even in this feed plan, for educated workers, the
editor has to say, unfortunately, the reimbursement structure
for many plans is so complicated there is no simple way to
present or compare these payments.
So, as you work on legislation, you need to make it--you
need to make it simpler. And in the May issue that we just came
out with, we compared two plans: one in Massachusetts, monthly
premium of $399, and an annual deductible of $2,200; and then
in California, a $1,000 deductible and $246 a month premium.
So you'd say, geez, California is going to be better,
right? Lower deductible, lower premiums.
If you had breast cancer, if you had a serious cancer, the
Massachusetts plan that didn't seem very good, you'd only be
out of pocket $7,668. That California plan, you'd be out of
pocket $37,767.
So the poor consumer looks at a plan, and it seems like a
no-brainer, ``Oh, let's go with this California one.'' But if
you get sick, a whole different story.
We've got to get that information to consumers.
Mr. BLUMENAUER. I really appreciate the thrust of the
panels, from small business to the academic, in terms of
providing the context for the types of decisions that this
Committee may be helping to drive with our decisions, and I
think you've helped demystify it a little bit.
I hope we can translate that into our legislative product.
Mr. STARK. Thank you.
Mr. Boustany, would you like to inquire?
Mr. BOUSTANY. Thank you.
Mr. Borris, congratulations on your entrepreneurial spirit,
and working to feed the American dream, and certainly you've
benefited from a market-based economy.
And my question, to start with, is, suppose right across
the street, a government-run catering program that could
undercut you on cost, prices, wages, and so forth. Can you
compete?
Mr. BORRIS. It's an interesting question. Mr. Brady
mentioned that in his comments, but didn't have too many
comments on it.
I would say that one fundamental difference is that with
catering companies, catering a party is not a fundamental human
right, so I don't know that we can apply the same market
conversation to people----
Mr. BOUSTANY. Reclaiming my time, I think you're dodging
the question. We're not talking about whether this is right or
not, because there are some disputes.
I'm a medical practitioner, and I do understand the
personal responsibility side of health care as well. We can
talk about that in the limited time we have. But put that aside
for a moment.
Could you--it's a simple question.
Mr. BORRIS. It's a false question. I mean, yeah, I would
work toward competing at that, to answer the question for you,
until that thing opened, until we really saw what the
parameters of it were, and I could make decisions about----
Mr. BOUSTANY. I think you're dodging----
Mr. BORRIS [continuing]. Where my supplies--I'm not dodging
the question.
Mr. BOUSTANY. Sir, you're dodging the question.
Mr. BORRIS. Are they going to pay the same amount for
chicken and lettuce as I'm going to pay for? If they are, then
I could probably compete----
Mr. BOUSTANY. But if they could undercut you on the cost--
--
Mr. BORRIS. Pardon.
Mr. BOUSTANY. If they could undercut you on those costs,
could you compete?
Mr. BORRIS. The question is, how would they undercut me?
Mr. BOUSTANY. Because they control the price.
Mr. BORRIS. If somebody opens up a business that has access
to things that I don't have access to, would it be more
difficult?
Mr. BOUSTANY. What I'm trying to--reclaiming my time, what
I'm trying to highlight is that there are a number of concerns
and questions that we have about a government-run option, that
being one, whether it is fair competition, and second, whether
there are mechanisms in that type of approach that would
actually bring down costs and maintain quality.
Certainly given what we've seen with Medicare and Medicaid,
where we do have uncontrollable costs, we do have quality
issues, we have access problems, and then a whole host of
problems.
So I guess the point I'm trying to make here is that we're
looking at one particular path that we will look at, that we're
going down on health reform without looking at a whole number
of other options.
Mr. BORRIS. Could I----
Mr. BOUSTANY. For instance, Dr. Blumberg, I think we were
talking--you were mentioning earlier about the need for a
connector as being a better source for small businesses. But
why not combine a connector with associated health plans?
Ms. BLUMBERG. The problem with the association health
plans, sir, is that they tend to create lower prices by risk-
selecting, by taking in certain groups that are going to be
lower-cost. What that does is take the lower-cost groups out of
the mainstream commercial insurance, increasing the cost there.
Now, if you want to spread risk more broadly, that's not
the way to do it.
Mr. BOUSTANY. Reclaiming my time, I think the point again
is, we're not looking at all the options.
We're not putting all the options on the table, and we're
using unfair standards of judgment as we go forward in looking
at the positive sides, solely, of the government-run option,
and not looking at the positives on some of these other
options.
There are many other options that would create an actual
real, functioning market in health care, which I will tell you
from personal experience, we do not have.
Dr. Reinhardt, do you want to comment?
Mr. REINHARDT. Well, actually, in my statement, I looked at
an option of having private insurers only, but then I say the
regulation you would need would amaze you.
In fact, I think Bill Thomas, Congressman Thomas, at one
point had a plan like that, and he told me privately, there's a
lot of regulation of the insurance industry, and to describe
what it is--community rates, guaranteed issue, you have to
mandate people to be insured.
Look to Germany, look to the Netherlands and Switzerland.
Those are functioning markets that work without a public plan.
But unless you're willing to impose that strict regulation
on the insurance industry, you would still have the uninsured,
you would still have policies, you find out what they cover
only when you're sick, and so on.
Plus, it is true that Medicare has very low administrative
costs itself, but imposes costs on providers, but everyone who
serves on the board of a hospital will tell you that the
managed care bureaucracy that that causes is much, much higher,
because Medicare pays pretty punctually, and the other plans
don't.
So one would have to seriously think about reducing the
administrative costs of the private system, which are simply
disproportionately high.
I think the president of Johns Hopkins mentioned in a
speech that this academic health center deals 700 distinct
private health insurance (managed care) contracts. I serve on
the board of the Duke Health Systems, and we also have that
problem, and huge administrative claims processing, which with
Medicare is simple, it's automatic, it comes in----
Mr. BOUSTANY. That claims processing----
Mr. REINHARDT. Yes, that's----
Mr. BOUSTANY [continuing]. And that would work, I've seen
that in my own practice, where I had to deal with many, many
different types of claims processing, but that could be
simplified.
Mr. REINHARDT. It should. I tell my friends in the private
insurance industry that is their challenge, to reduce the
administrative burden they have and they impose on the
providers of health care.
McKenzie had a report out showing how much more we pay in
administration relative to other countries, and McKenzie
attributed the bulk of it to private insurers. And they should
have common claims forms, electronic billing, and all of these
things. I hope they will, in this decade, go that way.
Mr. BOUSTANY. Thank you.
Mr. Chairman, I know my time is up, but I wanted to ask Dr.
Reinhardt if he could offer a clarification on his tables on
Page 14.
Mr. STARK. Certainly.
Mr. BOUSTANY. If that's okay.
In looking at the coronary artery bypass grafting column,
and you have different payout rates for hospitals, are those
averages or actual individual episodes?
Mr. REINHARDT. No, no. Those are what this large insurer
pays, the average for a whole bunch----
Mr. BOUSTANY. I see. Okay.
Mr. REINHARDT [continuing]. Of these, and these are not
charges, they're actual payments.
Mr. BOUSTANY. Okay. And I guess the other question that
follows on that is, did you consider the different cost
structure for those hospitals?
In other words, some hospitals employ the surgeons and the
anesthesiologists and other services. Others have those
separately, where the charges would go separately to those
providers.
Mr. REINHARDT. That is a good question. I don't know if
it's in here.
Mr. BOUSTANY. That might account for the discrepancy in
numbers.
Mr. REINHARDT. Well, I doubt it, because not that many
hospitals employ surgeons. They're mainly affiliated.
Mr. BOUSTANY. That's not necessarily true in cardiac
surgery. Anyway, thank you, sir.
Mr. STARK. Thank you.
Mr. REINHARDT. Good question, though.
Mr. STARK. Let's see. Mr. Pascrell, would you like to
inquire?
Mr. PASCRELL. Thank you, Mr. Chairman.
Mr. Sperling, I read your--listened to your testimony and
read your testimony, and I agree with a lot of what your
testimony is, and even though you're supposed to be one of
many, but you made a lot of sense in what you're talking about.
One thing you made sense, I believe, in is you said on Page
5 that, ``Our health care system rewards physicians when they
provide more services for sick care, rather than rewarding them
equally for spending time to help patients avoid the 80 percent
of illnesses that are lifestyle related.''
I think that's a mouthful. I would agree with you. Much of
the debate on health care over the past 15 years has gone to
finding money to cover people, rather than getting folks to
understand what they're paying for and how we could prevent
these kinds of situations. And if that's at the basis of our
health care system in the future, we will not be on this one-
path that my good friend, Congressman Boustany, talked about
very briefly.
I don't agree with you at all on your ERISA comments. I
believe they need not only renovation and review, but
revamping. A tremendous amount of changes need to happen in
those ERISA laws, for us to get on equal footing.
Dr. Reinhardt, there's no debate that the current market
for health insurance is failing folks looking to buy health
insurance on their own, and small businesses.
Back in 1992, in New Jersey--you're very familiar with New
Jersey--New Jersey adopted sweeping health insurance market
reforms. We standardized the standardization plan options for
small businesses and individuals. We ended discrimination
against sick people. And we provided subsidies to people who
could not afford to purchase individual coverage. We did a lot
of other things, but I think they were the main things that
happened in that so-called reform.
These are some of the most progressive policies,
supposedly, in the nation. However, healthier individuals
disproportionately enrolled in the cheaper, more bare bones
options, or dropped coverage altogether. That's a fact. I'm not
making this up. It's not conjecture. The numbers indicate that
that's exactly what happened. You tell me if I'm missing
something.
The premiums quickly began to increase. The subsidies
disappeared. And overall enrollment declined.
So I think there's an important lesson here, and if you
could define that New Jersey thing very quickly, because that's
not my question. Two questions, besides the questions of
affordability.
With the experiences of Jersey in mind, and I think it's a
good basis here to get off on our discussion about how we're
going to change health policy in the country, what are the key
pieces of health reform that ensures that healthy and sick
people are optimally pooled together and that long-term
affordability is sustained; and could you explain to us clearly
and concisely the economic need for more standardization and a
minimum benefit in terms of risk spreading and adverse
selection? But give us a very brief point about why the plan in
New Jersey, I think, failed.
Mr. REINHARDT. It failed because it wasn't accompanied by a
mandate to be insured for a defined package. It doesn't have to
be Cadillac. It should, however, cover what is necessary.
There was an initial study of it by Cathy Schwartz of
Harvard, who reported that the New Jersey system worked well,
but we, her colleagues argued, ``This cannot be true, this will
unravel.'' And sure enough, it did unravel, and I quote a paper
here by Monheit et al and others that showed what happened to
the New Jersey scheme. It imploded.
Mr. PASCRELL. I'm very proud of the fact that I'm the only
legislator that voted against it in New Jersey at the time, and
my worst analysis came true, unfortunately.
Mr. REINHARDT. You must be an economist, thought like one,
because if those three things don't go together, markets will
unravel. It's simply predictable. Young people will not insure,
and wait until they can throw themselves on the mercy of a
community-rated product.
That's why I favor a mandate, and there are various ways to
rig this. One could tell people, ``Look, if you postpone
insurance and then want to join, you have to have a long
waiting period, or your premiums will be higher.''
In this country, we invite people to play games with
adverse risk selection, because we allow people to change every
year or even more frequently. If I had my druthers, I would not
allow Medicare beneficiaries to join the private plan and come
back within a year. I would say, ``You have to do this for
five-year periods,'' somehow to eliminate these games.
But that is what happened in New Jersey, so this is why, in
my testimony, I stress those three things do have to go
together: guaranteed issue, community rating, and a mandate to
be insured, which of course, means you're forcing healthy young
people to subsidize older, sicker people.
Mr. PASCRELL. Can I just continue, just for a second?
Mr. Sperling, what would your reaction be to Dr. Reinhardt
on the three basic points that this reform of health care must
have within it as ingredients, in order to--in Italian we say
[Italian word]--in order for this stew to work?
Mr. SPERLING. Congressman, I've been in this business for
30 years. One of the first things I learned is never to argue
with Dr. Reinhardt.
[Laughter.]
Mr. SPERLING. The concept of having everybody in, in order
to have risk pooling, is something that is unassailable. He's
absolutely right.
Mr. PASCRELL. So you agree with that?
Mr. SPERLING. He's absolutely right.
Mr. PASCRELL. You agree with that point?
Mr. SPERLING. Yes.
Mr. PASCRELL. Go ahead. What else?
Mr. SPERLING. Well, I think there's several aspects of the
self-insured marketplace that work and can be applied as we try
to expand access to----
Mr. PASCRELL. My point is this, that we can come to an
agreement. This does not have to be us against them, whoever us
is and whoever them is.
We can come to some real, basic common ground here, if we
listen to one another, because I think you've said many good
things in your presentation, and you were not just a corporate
head here. You are listening to our needs, our concerns.
And Dr. Reinhardt does not want to provide a doorway into
socialized medicine, but we do have to understand what the
imperatives are today.
And on a simple thing like this, Mr. Chairman, we've lost
out. When this country moves away from manufacturing, in those
jobs, in those particular jobs, there was coverage. The more we
moved into the service industries, there was less coverage, and
therefore, affected everybody.
There are a lot of particulars here that make it complex,
but I think we can come together. That's my opinion. Maybe
I'm----
Mr. STARK. Thank you.
Mr. PASCRELL [continuing]. That's what I think.
Mr. STARK. Ms. Schwartz, would you like to inquire?
Ms. SCHWARTZ. Thank you.
And I appreciate the prior dialog, because I do think that
there is some agreement. There are lots of specifics that we
have yet to really hammer out, and I think that's where some of
the different agreements may come.
But I was interested in following up on several of the
points that were just made, and ask a few more specifics. I've
been sitting here a long time, so I appreciate that, and your
willingness to work with us.
But I am interested in the market reforms that we have some
agreement on and some that are a little more uncertain.
Many of you talked about everyone being in. I appreciate
that. We certainly talked about pre-existing condition
exclusions being fairly unacceptable. I think even David Camp
put that on his list of what he agrees on, which is huge, for
many of my constituents. They can't find insurance.
Or obviously it's a huge issue for small businesses.
Somebody gets sick, and it changes it dramatically.
Community rating, talked about that would change things for
small businesses, as well. You wouldn't be just the 20
employees you have and the illnesses they may have. It's really
very important.
And the ability to have some transparency, that you can
really compare apples to apples, if you're looking at different
plans, so that, as a recent report showed, someone who got
catastrophic coverage, got cancer, thought that was
catastrophic, but what catastrophic coverage meant was
hospitalization, and most of her care was out-patient, and
therefore, not covered. That's pretty unacceptable in this
environment, going forward.
My question was a couple that didn't come up, and it has to
do very much with people who are employed, who don't take their
coverage, and I want to know what you thought about this.
There are people who have waiting periods. Their employer
says you have to be employed for 6 months before you can get
coverage. I can understand some of that, because people come in
and out of jobs, and they're not covered then for 6 months.
There are others who say you have to sign up in 30 or 60
days, otherwise you can't sign up in the future, ever again.
There are some who say you can sign up if you have a life
change--unless you have a life-changing incident, you get
married, divorced, someone dies.
So that even those who are employed and want to take
coverage can't now get it if they make one little error, sort
of. You know, they don't sign up in time. They have a pre-
existing condition. Or they move jobs too often. They could
have huge gaps in coverage.
So my question for you is, what do you think of requiring
those who are employed to sign up? Now, they can opt out if
they have coverage elsewhere, or if they want to--but actually
making it automatic that when you're employed, you sign up;
that's one question.
We did that with 401Ks, by the way, and it changed
participation rates by double. It doubled the number of
participation rates for 401K plans.
Just say, ``You don't have to sign up, we're not going to
make it complicated, you're in. You're employed. You know, you
get a lunch break and you get health insurance if we provide
it.'' Not saying that employers have to provide it. That's a
different question.
So one is, you opt in. What do you think about ending
waiting periods? You know, what do you think about, you know
the--and of course, we already talked about pre-existing
conditions.
And if you do think that we should do all of these changes
in the market, are you talking about just making these changes
and requirements for those who are in the exchange, or is it
for everyone?
So even if you are an employer who decides to continue to
provide coverage, and we expect most will, will these market
changes, will these consumer protections, however you want to
look at it, be true for them, as well?
Because with our constituents, I think that they feel very
strongly that they want this insurance to be meaningful and
they want--this is a huge struggle for them, coming in and out
of their employer situations, and--as we know, more and more
employees are going to change jobs over time.
Many of us who got the same job, stayed in the same
business for 35 years, and then retired with a pension, it's
kind of not the way of the world for the future. People are
going to move around in jobs, certainly young people do.
So maybe just really quickly, I would like to start with
Dr. Blumberg. Mr. Vaughan, I'd like you to talk about this, and
Dr. Reinhardt, if we have time. It would be great to just have
a sort of quick response on what do you think about these
additional consumer protections, market reforms, and should
they apply to everyone, every insurance company, every
employer?
Ms. BLUMBERG. I think that we're talking ideally about a
context where we have an individual mandate, that everyone is
required to have insurance of at least a minimum acceptable
amount, and in that context, if everyone is required to be
covered, there should be no reason to have situations where you
have waiting periods. Everybody is covered. They should be
covered all of the time.
So, along with pre-existing conditions, we should be able
to get rid of that.
In terms of open enrollment periods, which is the signing
up within the 30 to 60 days, I think what we need to do is to
make sure that we're making it as easy as possible for people
to comply with the mandate.
So doing that would require that we use employers, because
we know that people have very high rates of participation in
the employment setting, with health insurance.
So to the extent that even if the employer is not
contributing, we can use the employer to help facilitate that
enrollment, I think we should do that.
If somebody does not enroll in coverage within a determined
period of time, and then we look back and say, ``Well, you
should have signed up at the beginning of the year, but you
haven't been covered for the last 2 months,'' we need to think
about at how to create incentives to make sure people are
complying at least in the longer term, if not right away after
the reform is in place. We----
Ms. SCHWARTZ. Well, you're still saying that if someone did
forget to sign up for 30 days--in those 30 days, how do they
get in?
Ms. BLUMBERG. We have to let them in, but I think we need
to have incentives for them to do it in a timely way so we
don't have risk selection problems.
So maybe if I signed up three months late and I went
without coverage for 3 months, I have to pay those back three
months in premiums. Depending upon my income, I might be
subsidized, I wouldn't have to pay the whole thing, but I'd
have to pay that back premium----
Ms. SCHWARTZ. So you don't think just having people sign up
and then you can opt out if you want to, wouldn't it just be
easier to have people signed up?
Ms. BLUMBERG. We need to make it easy for people to sign
up, but then we also have to enforce the requirements, and--
that is going to require some kind of penalties, but I think we
never exclude people under this type of reform.
Ms. SCHWARTZ. Any other quick comments?
Mr. VAUGHAN. I just want to thank you very much for your
sponsorship of that bill to eliminate pre-existing conditions
on children, which to have children denied care is crazy. So
thank you. And agree with what was just said.
Other than a lot of people, the co-pays and their share of
premiums in some companies can be high enough that a very low-
paid worker just says, ``Wow, I can't afford my car.''
And so in whatever reform plan is adopted, hopefully
everybody has at least a minimum, and it's affordable. And
whether that's 5 percent of adjusted gross income, or 10, or
something, that's between you and CBO and what you can work
out, but it has to be affordable, as well as signing up.
Ms. SCHWARTZ. I think that we hear stories all the time--
young people, and I think Dr. Reinhardt referred to the young
people thinking that they are not at risk, you know, and they
don't sign up, because they also don't think that they can
afford the $20 a week, or $40 a week. If they never saw it,
maybe they could afford it.
So some of it is helping people to know that they actually
can participate in a way that is affordable, and just suddenly
getting it, than getting sick and having a bill for $10,000,
$20,000, $40,000, that they can never repay is a huge risk to
them. I think a lot of people don't understand the risk-benefit
to them personally, economically, as well as in terms of
getting the right kind of health care.
So I just encourage you to think about this. I want to
pursue this a bit more, just so we make sure that when we say
everyone is in, they really are, and we make it easier, is the
best way, but I think sometimes a lot is on your plate, and
people don't sign up, and we ought to make it a whole lot
easier for people to sign up by assuming they want health
insurance, they get it through their employer, and we don't
create obstacles 3 months, 6 months down the road.
Mr. STARK. Thank you.
Mr. Etheridge, would you like to inquire?
Mr. ETHERIDGE. Thank you, Mr. Chairman.
Let me thank each of you. I know you've been seated there a
long time, and you've noticed we've been moving around and
you've been in the seats, so I thank you for that.
Mr. Vaughan, let me ask you a question very quickly.
You know, we talk about access and others, but it seems to
me that, in this country, if you want to drive an automobile,
we require you to have car insurance. You know, it varies,
depending on what you feel like you can afford and what your
exposure might be.
And yet, for our own health care, maintaining our own
bodies, we don't require that. It's sort of interesting.
But my question to you is, and probably one of the most
complex problems with the health care insurance market is that
insurers don't generally--really aren't in the business, I
guess, of dealing with people who have the most costly and
complex conditions.
By and large, as a result, people who tend to have the
worst health care needs, people don't really want to insure
them if you're already in, and if you're in, we're going to
find a way to get out at some point.
Mr. VAUGHAN. That's the way you compete, if you're----
Mr. ETHERIDGE. I understand that. Rules are written that
way, and I'm not blaming the insurance companies, but that's
sort of the way the rules are written.
Mr. VAUGHAN. That's capitalism, yeah.
Mr. ETHERIDGE. And you got to be actuarially sound, or you
can't make it, and if at some point you have diabetes or breast
cancer or heart disease, the companies really don't have a
great incentive to share their excellence in management or the
cost of the way they help work it in, because there are some
excellent things that happen, but it's not in their best
interest to go out and share that data, because if they do,
they're going to attract more people who have the same
condition and----
Mr. VAUGHAN. Amen.
Mr. ETHERIDGE [continuing]. Just sort of, we're sort of
working against ourselves.
So my question is this. What can be done to encourage best
practices? Because I mean, that's really what we're arguing
about, and we aren't doing it. We don't do it just because our
system is set up differently?
And number one, it would benefit the consumer if we had
access to this information. And the private market has shown
sort of an unwillingness to do it, simply because the rules are
stacked against them, and it's not in their best interest to do
it.
So how do we do that in terms of making it a better deal
for the private sector so they can be in, and benefit all of us
who are the consumers?
Mr. VAUGHAN. To the extent that you do get a mandate that
everybody has to have a basic package, that gets rid of any
need for pre-existing conditions. You'd get rid of that. And
you'd risk adjust.
Now, risk adjustment isn't perfect, so they're still going
to try to avoid the very sick example.
Mr. ETHERIDGE. Sure.
Mr. VAUGHAN. And this is a long-range solution, but in the
comparative effectiveness research, the 1.1 billion you did
this winter, and hopefully some more, some of the research
requests that are coming in, we understand, might be on systems
of how do you best treat complex cases.
And we've got, there must be 1,000 flowers blooming out
there of different ways to treat the chronically ill, and we
don't have a real good answer in the best one.
And I know research--manana, manana--you know, you want a
quick answer, but I think we need some more data.
Mr. ETHERIDGE. I agree. I was in a rural health clinic the
other day, where they're moving along with IT tied to one of
our major hospitals, Wake Med, and there are some very
promising stuff there, as we start to gather that data. It's
very early, but they've already seen this driving some of their
costs down in that regard, and I think that's the whole
problem.
Mr. Hobson, in the limited time I have, let me move to
another one, because in the past 2 years, my home state of
North Carolina, the uninsured numbers have climbed to 22.5
percent, which is one of the biggest jumps in the nation.
And according to the analysis done by the North Carolina
Institute of Medicine, nationwide, about 22 percent of adults
do not have health insurance. In my home state, it's about 25
percent. As a result of the unemployment numbers climbing,
we're the fourth highest in the nation now being unemployed.
That means that all these numbers are getting even worse.
There's about 10.7 percent.
So my question is, we're using rural health clinics in our
state, and they're now seeing their numbers climb markedly,
simply because people who are uninsured are finding this is an
avenue to go, and we are, at the Federal level, putting some
money in to help offset some of that, and at the same time, it
doesn't totally offset.
So my question is, as we look at CHCs as a possible
ingredient in all this, we don't--someone mentioned it
earlier--we don't talk about it a lot, but whatever we do, we
have a lot of rural, isolated areas, who invariably are going
to be uninsured or under-insured, no matter what we do, because
we don't have enough primary care physicians, and more and more
people want to move to rural areas.
Is this an avenue for the CHCs to at least have a role in
this process?
Mr. HOBSON. Absolutely. I think that rural health centers
play a role of a key access point as medical homes, in some of
the areas where fewer options are available to all of our
citizens.
And when I talk to my colleagues, both from rural and urban
parts of California, we're starting to see a greater percentage
of people coming in who had some insurance coverage through
their employment, but basically lost it during the past year,
either because they lost their jobs, or because the economy has
driven their employer to drop the health insurance option.
So I really feel that we may look at down the road is
essentially that the resources that we have on the table for
health centers might get stretched with this increasing new
population of patients who seem to be finding their way to our
doors, given the state of the economy that we're seeing today.
Mr. ETHERIDGE. Thank you.
Thank you, Mr. Chairman. I yield.
Mr. STARK. Mr. Yarmuth, would you like to inquire?
Mr. YARMUTH. Thank you, Mr. Chairman.
I may be in bad shape, but I hung around long enough to ask
questions.
There's a point that's been made here a couple of times,
and it's been used to make--or in fact, a prediction that has
been used to support two arguments that I don't quite get.
One, and this is the idea that if we have a public plan,
that 120 million or so people are going to move from the
private insurance arena into the public plan.
Mr. Boustany used it to support saying that private
insurers can't compete with the government, which I think is
kind of ironic, because many times, my colleagues on that side
are making the argument that the private sector is the ultimate
competitor. They're saying they can't compete with the
government.
But Mr. Sperling also used it to talk about how it would
increase costs on the private employer-based plans.
But I also wonder whether, if it's true that a huge
proportion of people who are now insured in the private arena
moved to the public plan, doesn't that undermine your point
that the private employer-based system is so popular?
And doesn't it underscore the need for a public plan, if so
many people would move to a public plan? Doesn't that kind of,
prima facie, support the case for a public plan?
Mr. SPERLING. Well, speaking on behalf of Hewitt and our
experience with employers, sir, I think the study that Lewin
and others have done, looking at a public plan, modeled those
enrollment shifts based on the fact that the public plan and
the private plan are not competing on an equal footing.
So it's comparable coverage, but people would move to a
public plan because the cost is so much lower, not because it's
more efficient----
Mr. YARMUTH. And that's a bad thing?
Mr. SPERLING [continuing]. But because it's paying the
providers less.
Mr. YARMUTH. Isn't that one of the objectives that we're
trying, presumably all of us are interested in achieving, is
lower cost?
Mr. SPERLING. Well, I think we're trying for greater
efficiency, but I think the study that was done looks at the
fact that the reimbursements under the public plan would be so
much lower that those two programs would not compete on a level
playingfield and would undermine the employer system----
Mr. YARMUTH. Okay. I don't actually argue with that.
Second question. You talked about the polls that show that
people prefer their coverage coming through their employer.
And I've talked to pollsters about the first question, are
they satisfied with their insurance; and basically, they're
satisfied that they have insurance, not necessarily that it
comes through their employer.
And isn't one reason they prefer to have it through their
employer is because they doubt if they're not getting it
through their employer, that they can get good insurance? Isn't
that a possibility, anyway?
Mr. SPERLING. What we hear from employees is that employees
look to their employers to do some of the decisionmaking for
them, because the insurance marketplace is fairly complex.
Mr. YARMUTH. Right.
Mr. SPERLING. So having that----
Mr. YARMUTH. I don't argue that----
Mr. SPERLING [continuing]. Ability of the experts to make
those choices is something that employees value.
Mr. YARMUTH. I don't argue that, either.
One other question about a point you made, and that was
that, and I agree, many private insurance plans, employer-based
plans, do promote wellness and exercise and smoking cessation
programs, and so forth.
You wouldn't argue that those things are impossible to do
outside of an employer-based system, are they?
Mr. SPERLING. No.
Mr. YARMUTH. You don't make that argument.
I had a young woman who worked for me several years ago,
and she was--had just gotten out of college, and just become--
she's aged out of her family policy.
She had a lifelong allergy situation which required her to
take medication that was $500 or more a month, and when she
went into the private system, the only insurance she could get
anywhere in Kentucky was something that excluded her
medications.
Would you say that she would be in better shape with the
existence of a public plan, in a competitive situation
involving a public plan, or under a system that resembles the
current system that we have now?
Dr. Reinhardt, Dr. Vaughan--I mean, Mr. Vaughan, would you
specifically respond to that?
Mr. VAUGHAN. I think she would, and again, though, if the
core benefit package is pharmaceuticals and hospitalization,
the private sector may have to provide it, too.
Again, if she's real expensive, there will be an effort to
hassle her to go somewhere else, and that's where it would be
nice to have the public plan that would welcome her with open
arms.
Mr. YARMUTH. Dr. Reinhardt.
Mr. REINHARDT. Yes, of course, in its present shape, the
private market for individual policies really doesn't serve the
needs of the American people, so there would have to be very
stringent reforms, including a defined benefit package, in this
case. This probably would be in there.
I just want to comment on this idea, that the Lewin study,
which I actually have here, that people somehow would lose
their private insurance. When I married my wife, I didn't lose
all these other women. I chose my wife.
[Laughter.]
Mr. REICHERT. So I'm an immigrant, and I don't speak
English too good, but I don't understand the word ``lose'' in
this case.
The idea is that people would favor the public plan,
because not only the money, they might because it's permanent,
that if they lose their job, they lose. I'm a unique American,
because I'm a tenured Ivy League professor. I'm not really part
of the American experience. And therefore, this has never faced
me.
But I look at all kinds of people. When they lose their
employment, the minute you lose your employment coverage, the
employer no longer cares about you, whether you're well or not.
That's it.
And that kind of insurance, I think, cannot forever be
preferred by people. They would want to have an insurance that,
even if they lost a job in X Corporation, they would still have
insurance. But now they don't.
And I think that's the big challenge of the employer, how
could you provide some sense of permanence here, so that when
you're down, the worst time in your life--I met two journalists
the other day. Both lost their jobs, and they don't have
insurance, and they just had a baby.
Now, I think that's a terrible situation for them, in this
fix where they don't have income, also not to have insurance.
And this is why, in general, I think there has to be a
stable plan, and if the private insurance industry could
guarantee it, good for them, but if they can't, you have to
ultimately own up to this public plan.
Mr. YARMUTH. I agree totally with you. Thank you for your
testimony. I thank all of you.
Thank you, Mr. Chairman.
Mr. STARK. Thank you, and I want to thank all witnesses for
your patience, your endurance, as we ground through this all
today. It was very helpful.
And I hope you'll continue to give us your input as you
hear from time to time which direction we're going over the
next couple of months, as we attempt to come up with some kind
of a plan that will provide affordable, quality health care to
every American.
Thank you all very much. The hearing is adjourned.
[Whereupon, at 1:22 p.m., the Committee was adjourned.]
[Submissions for the Record follow:]
America's Health Insurance Plans, Statement
Introduction
America's Health Insurance Plans (AHIP) is the national association
representing approximately 1,300 health insurance plans that provide
coverage to more than 200 million Americans. Our members offer a broad
range of health insurance products in the commercial marketplace and
also have demonstrated a strong commitment to participation in public
programs.
We thank the committee for holding this hearing on the topic of
insurance market reforms, and we appreciate this opportunity to outline
our proposals for addressing this critically important issue. We also
applaud President Obama for laying out a bold framework for
comprehensive health care reform. We believe that legislation needs to
be enacted and signed into law this year, and we are committed to
playing a productive role in this debate.
In December 2008, AHIP announced a comprehensive proposal for
moving the nation toward a restructured health care system that
achieves universal coverage, reduces the growth of health care costs,
and improves the quality of medical care. In March 2009, we announced
our support for additional steps with respect to rating reforms,
addressing the needs of small businesses, achieving cost containment,
and reforming delivery and payment structures. Recognizing that the
issues of coverage, affordability, and quality are interconnected, we
believe they must be addressed simultaneously with market reforms that
build upon the strengths of the current system and recognize that both
the private sector and public programs have a role to play in meeting
these challenges.
AHIP's proposals are the culmination of three years of policy work
by our Board of Directors, which has focused on developing workable
solutions to the health care challenges facing the nation. They also
respond to the concerns and incorporate the ideas that were raised by
the American people during a nationwide listening tour we conducted
last year as part of AHIP's ``Campaign for an American Solution.'' This
listening tour included roundtable discussions involving Americans from
all walks of life, including people with and without insurance, small
business owners and their employees, union leaders and members, elected
officials, and community leaders.
The statement we are submitting for this hearing discusses
insurance market reforms we are proposing in an effort to ensure that
no one falls through the cracks of the U.S. health care system. These
policy changes, if implemented in coordination with strategies to
contain costs and enhance value, will help build a high quality,
affordable health care system for all Americans.
II. Ensuring Portability and Continuity of Coverage for Consumers in
the Individual Market
We are proposing to combine guarantee-issue coverage with an
enforceable individual health insurance requirement and premium
assistance to make coverage affordable, while eliminating preexisting
condition exclusions and eliminating rating based on health status in
the individual market.
We envision a rating system based on the following demographic
factors: geography, age, and benefit design (or product type). We
encourage Congress to provide flexibility for plans to offer premium
discounts to individuals who make healthy choices, such as not smoking,
participating in wellness programs, and adhering to treatment programs
for chronic conditions. We also are exploring the development of a
risk-spreading mechanism to protect consumers from the unintended
consequences associated with these reforms.
Another key element of our proposal calls for premium assistance to
ensure that coverage is affordable for lower-income individuals and
working families. We are proposing refundable, advanceable tax credits
that would be available on a sliding scale basis for those earning less
than 400 percent of the Federal Poverty Level.
This approach recognizes that for guarantee-issue to work, it is
necessary to bring everyone into the system. It demonstrates that
health insurance plans have taken responsibility to advance reforms. At
the same time, consumers have a personal responsibility to obtain
coverage and the government has a responsibility to provide assistance
to make coverage affordable.
Developments in the states demonstrate why it is important for
individual market reforms to be pursued in conjunction with universal
coverage. A report by Milliman, Inc. found that the enactment of
guarantee issue and rating restrictions in the absence of an individual
coverage requirement encourages people to defer seeking coverage until
they have health problems--a situation which unfairly penalizes those
who are currently insured and pay higher premiums because the costs of
caring for the uninsured are shifted by providers to people who have
coverage. According to the Milliman report, states that implemented
these guarantee issue and rating restriction laws without adopting a
policy that requires all individuals to participate in the system,
experienced a rise in insurance premiums, a reduction of individual
insurance enrollment, and no significant decrease in the number of
uninsured.
III. Helping Small Business Provide Health Care Coverage More
Affordably
Small business owners find themselves in an increasingly difficult
marketplace for health insurance because of constantly rising health
care costs and the limited ability of most small businesses to bear
risks, contribute a substantial share of costs, or support
administrative functions. In March 2009, AHIP's Board of Directors
approved a policy statement outlining solutions to help small business
based on the following three core principles:
Affordability
Essential Benefits Plan: As discussed below, we propose
the creation of new health plan options that are affordable for small
employers and their employees. These ``essential benefits plans'' would
be available nationwide and provide comprehensive coverage for
prevention and wellness as well as chronic and acute care. In addition,
these plans would be subject to state regulation, but would not be
subject to varying and conflicting state benefit mandates that result
in increased costs to small businesses (and that do not apply to the
generally larger employers that enter into self-funded health care
coverage arrangements).
Tax Credits or Other Incentives to Assist Small Business:
We support the establishment of Tax Code incentives or other types of
assistance that encourage both small business owners to offer coverage
to their employees and employees to take up coverage. We recognize the
special challenges, both administrative and financial, that small
businesses face in offering contributions toward their employees'
coverage. Providing assistance can encourage these contributions and
help enable employees to take up coverage which improves predictability
and stability in the small group market.
Improving Coordination of Private and Public Programs
Strengthens Small Group Coverage: Premium or other assistance offered
to low-income individuals and working families can be applied to and
work with employer-sponsored coverage. This is important whether the
assistance is provided through Medicaid, the Children's Health
Insurance Program (CHIP), or other expanded programs designed to help
individuals and families obtain coverage. Improved coordination allows
workers to take up coverage offered by small businesses by leveraging
both public and private sources of assistance, and benefits the firms'
employees as a whole by increasing rates of participation in the small
group plan.
Flexibility
We are committed to working with the small business community to
ensure that small businesses have access to a range of options and
tools that better assist them in helping their employees obtain health
care coverage. One size does not fit all, as the needs of diverse small
firms vary greatly.
Micro-firms: As an example, ``micro-firms'' (those with
fewer than 10 employees) face special challenges in offering coverage.
Statistics show that only about one-third of these firms offer
coverage. This reflects the administrative, financial, and logistical
challenges many micro-firms face in setting up and establishing plans
and offering and contributing to their employees' coverage. To help
these firms meet these challenges, enhanced tools could be developed
that would allow those micro-firms that have found it impractical to
offer coverage, to contribute to coverage purchased on a pre-tax basis
by individual employees. As part of comprehensive health care reform,
employees could then use these contributions to help purchase coverage
in a reshaped health care system that combines an individual
requirement to obtain coverage with reforms in the individual market.
One-stop information source: All small firms will benefit
from collaborative efforts between health plans and the public sector
(e.g., insurance commissioners) to ensure that small employers and
individuals have one-stop access to clear, organized information that
allows them to compare coverage options. This ``one-stop shop'' could
also allow individuals to confirm eligibility for tax credits or other
assistance and even provide a mechanism to aggregate premium
contributions from multiple sources. By providing a mechanism to
combine even modest contributions from multiple sources (public and
private), this new one-stop shop could be especially helpful to
employees who may hold multiple jobs.
Simplicity
Small businesses may find the current system difficult to navigate
with a lack of simple, streamlined information about multiple coverage
and care options and related assistance programs. We propose
modifications to introduce greater simplicity to the system through
technology and regulatory reform and the creation of a one-stop
information source as described above. These proposed efforts will
benefit all participants in the health care system, including the small
business community.
Technological advances: In our December 2008 Board
statement, we emphasized that any health care reform proposal should
include recommendations to streamline administrative processes across
the health care system. Success will require advances in automating
routine administrative procedures, expanding the use of decision
support tools in clinical settings, and implementing interoperable
electronic health records. Using technology to help streamline
administrative processes will improve care delivery, enhance the
provider and patient experience, and speed claims submission and
payment. Done right, streamlining can also help reduce costs system-
wide, leading to improved affordability.
Regulatory reform: Regulatory structures should be
rethought so that they work better and provide for a more consistent
approach in areas such as external review, benefit plan filings, and
market conduct exams. In a reformed market, policymakers should be
driven by striking a balance between the traditional roles of the
Federal Government and the states, and the objectives of achieving
clearer and ``smarter'' regulation that promotes competition and avoids
duplication of existing functions. Greater consistency in regulation
and focusing on what works best will enhance consumer protections
across states and help improve quality, increase transparency, and
increase efficiency leading to reduced administrative costs.
IV. Strengthening the Large Group Market
We support building upon the existing employer-based system, which
currently covers 177 million Americans according to the U.S. Census
Bureau. It is a key part of our economic fabric. Although the employer-
based system faces challenges, more than 90 percent of employers report
that offering high-quality coverage is important to their ability to
recruit and retain valuable workers and enhance employee morale. Thus,
as a first priority, the nation's reform agenda should be committed to
a policy that ``first does no harm'' to that system and limits
strategies that would reduce employer coverage. Focus should be placed
on retaining a national structure for the large group market that
continues to promote uniformity and ensures the smooth functioning of
the employer-based system.
At the same time, the nation's economic uncertainties and job
losses underscore the need for new strategies to assist individuals who
become unemployed or are transitioning from job to job. While a
Congressional Budget Office (CBO) study found that nearly 50 percent of
the uninsured go without coverage for four months or less, additional
protections are still needed. We propose ensuring that tax credits are
available to individuals on an advanceable basis to help them through
job transitions along with access during these times to more affordable
coverage options consistent with our proposal for a basic benefits
plan.
V. Establishing an Essential Benefits Plan
Individuals and small businesses should have access to an
affordable ``essential benefits plan'' available in all states that
provides coverage for prevention and wellness as well as acute and
chronic care. To maintain affordability, the essential benefits plan
should not be subject to varying and conflicting state benefit
mandates.
An essential benefits plan should include coverage for primary
care, preventive care, chronic care, acute episodic care, and emergency
room and hospital services. Alternatively, it should include coverage
that is at least actuarially equivalent to the minimum Federal
standards for a high-deductible health plan sold in connection with a
health savings account, along with the opportunity to include
enhancements such as wellness programs, preventive care, and disease
management.
Allowing benefit packages to vary based on actuarial equivalence is
crucial to ensure that any package can evolve based upon new
innovations in benefit design and the latest clinical evidence.
VI. Confronting the Cost-Shifting Surtax and Moving Toward a System
That Pays for Value Rather than Volume
As part of any national health care reform initiative, Congress
must address the fact that reducing outlays in one area inevitably
means shifting costs elsewhere. Underpayment of physicians and
hospitals by public programs shifts tens of billions in annual costs to
those with private insurance. A December 2008 study by Milliman, Inc.
projects that this cost shifting essentially imposes a surtax of $88.8
billion annually on privately insured patients, increasing their
hospital and physician costs by 15 percent. This study concluded that
annual health care spending for an average family of four is $1,788
higher than it would be if all payers paid equivalent rates to
hospitals and physicians. The transfer of these costs to those with
private coverage cannot be sustained and is critical to addressing
concerns over affordability.
The impact of cost-shifting is dramatically illustrated by the
tables below, which use real data showing that hospitals in California
recorded significant losses in 2007 by serving Medicare and Medicaid
beneficiaries. These losses are offset, however, by higher costs
charged to commercial payers. This cost shifting translates into higher
premiums for working families and employers.
WAITING FOR RESPONSE FROM COMMITTEE RE: TABLES
In addition, the U.S. currently spends approximately $50 billion
each year to provide health services to those without coverage, leading
to high levels of uncompensated care. This too results in cost-shifting
to those with coverage in the form of higher premiums and other related
costs. According to a 2005 Families USA study, the cost-shift due to
uncompensated care adds $922 annually to family premiums. When these
costs associated with uncompensated care are combined with the cost
shifting that results from the underfunding of Medicare and Medicaid,
the impact for families with private coverage is an overall surtax of
$2,710 annually due to cost-shifting.
Ultimately, the success of health reform and getting all Americans
covered will depend upon implementation of strategies that enhance
value by improving quality and reducing costs, in conjunction with key
insurance market reforms. Only by realigning incentives that drive
improved outcomes will the system be placed on a long-term sustainable
path. A recent monograph released by AHIP, entitled ``Innovations in
Recognizing and Rewarding Quality,'' highlights key private sector
initiatives that have been implemented throughout the country to move
the system toward a value-based structure. This publication
demonstrates that innovative care coordination programs that enhance
outcomes and reform payment incentives are in place in a private market
with appropriate infrastructure, which is often lacking in public
programs, to reform the health care system.
VII. Conclusion
AHIP appreciates this opportunity to outline our suggestions for
enacting insurance market reforms as part of a comprehensive health
care reform package. Our complete set of policy proposals--including
innovative strategies to contain costs and improve quality--are
outlined in a series of Board statements we have released since
December 2008. We are strongly committed to working with Committee
Members and other stakeholders to develop solutions for ensuring that
all Americans have access to high quality, affordable health care
coverage.
David C. Goering, M.D., Letter
Dear Congressman Rangel,
As the health of our economy continues to worsen by the day, the
deteriorating health of our citizens is overshadowed by the panic of
the moment. As millions of Americans become unemployed--and uninsured--
the need for reform is vital. Every year, more than 20,000 uninsured
adults die because of delayed or denied health care due to unaffordable
premiums or pre-existing conditions. There is indeed a golden
opportunity to transform our health care system, and there may never
again occur the confluence of a Democratic majority in Congress and a
brilliant, progressive President who could guarantee the health care
needs of all of our citizens.
President Obama has promised to sign health care financing
legislation that will ensure access to affordable health care for all
Americans. But how will this be accomplished? Thus far, there have been
several ``Healthcare Summits'' held in Washington and around the
nation. There has been a predominance of opinions from those in the
private sector who are offering their expertise which is too often
self-serving. Sadly, these ``experts'' have excluded the voices of tens
of thousands of health care providers and millions of citizens who are
calling for justice in health care financing. This would start with the
elimination of the profit motive by corporations and their executives
who are lavished with multimillion-dollar salaries derived from the
premium payments of individuals and business.
President Obama was brought into power on the promise of change and
the reduction of influence in government by wealthy individuals and
corporations. Indeed, this influence, coupled with very reactionary
conservative ideals, has obstructed the achievement of universal health
care access in our Nation for decades. Our dysfunctional health care
system, much of which is dependent on employer-based private insurance
plans, is unable to control escalating costs, and has little incentive
to do so, as the private insurance industry has for years simply passed
on higher costs to consumers by raising the premiums by large
percentages each year. Furthermore, private insurance companies are
inherently inefficient, with overheads between 15% and 30%, due to
costs of advertising, underwriting, layers of bureaucratic management,
highly paid executive and expectant investors in the case of for-profit
insurance companies.
A single payer system would be far more efficient, modeled after
Medicare, which has an overhead of about 3%. A single payer system
would be equitable, treating all citizens with the same dignity and
respect. A single payer system would give the government tremendous
power to negotiate with providers in order to control health care
costs. A single payer system would allow freedom of choice of providers
by the patient who would not be restricted to certain panels of
``preferred providers.'' A single payer system would relieve the
mounting burden on business and industry that is wearing down our
economy and hampering our ability to compete with foreign nations that
have no anachronistic obligations of their employers. A single payer
system would markedly reduce the complexity and expense that every
provider, from the smallest physician practice to the largest hospital
system, must endure in the current system of thousands of private
insurance companies and multiple plans therein.
A single payer plan would be publicly financed, but privately
delivered, just as Medicare is today. The Medicare payment system does
not dictate how a physician practices medicine, but rather facilitates
the adoption of quality measures and practices that lead to greater
patient safety and improved health. President Obama does not have to
draft this legislation, as there are already proposals in Congress that
would provide the needed mechanisms to reform our health care system
that is fragmentary and inefficient, and which allows hard-earned
dollars from individuals and businesses to support, through premiums
and tax subsidies, a private industry that puts profits before
patients. This is not only unfair, but is immoral. Furthermore, the
public sector collectively pays, through entitlement programs, tax
subsidies and tax deductions, for over 60% of the 2.3 trillion dollar
national health care expenditures.
Therefore, a transition to a single payer system would simply
provide all citizens with the same health care benefits, and ensure,
not insure, access to health care: everyone in, no one left out. The
ultimate fair solution is clearly a single-payer system of financing
that would be modeled after Medicare, an American system of publicly
financed, privately delivered health care that has served our nation
for over 40 years. In our current weakened economy, single-payer
financing would save billions of dollars while providing coverage for
all Americans. I respectfully suggest that Congress and President Obama
strongly consider endorsing, promoting and passing legislation for
single payer health care financing reform in our Nation.
Sincerely,
David C. Goering, M.D.
Kansas Health Care For All
Petaluma Health Center, Letter
Dear Honorable Members of the Committee on Ways and Means,
The Board, Staff and 14,000 patients of the Petaluma Health Center
would like to provide some insight about how health care reform could
affect our community and ensure greater accessibility and affordability
of health care services locally.
A recent survey revealed that 12,000 people, or 10% of our
community residents, have no health insurance and no medical home.
These residents currently use the emergency room at our local hospital
for episodic care.
Another 10% of our community have annual deductibles of between
$1,000-5,000 per year. Most of our patients who have these very high
deductibles face significant financial barriers to engaging in a
``medical home'' model of care. They can only afford to seek care when
they have an illness that incapacitates them, or is catastrophic.
We have two full-time staff members who do nothing but help
patients apply for Medicaid and various other programs that pay for
episodic services. They are overwhelmed and need additional support
during these difficult economic times.
Our community desperately needs health reform. We need all members
of our community to have access to care:
1) In a real medical home like we offer at the Petaluma Health
Center.
2) With a full range of services including primary medical, dental
and men1al health care,
3) That is culturally and linguistically appropriate,
4) And without large deductibles and co-pays that become barriers
to care.
We urge you to support Federally Qualified Health Centers to serve
as a foundation of community health care services in every community,
and tailor a health reform package that ensures access for all.
Sincerely,
Kathryn E. Powell, MA, MSHA
Chief Executive Officer
Phil Caper M.D. and Joe Lendvai, Letter 2
Health Care Reform--Build on What Works!
H.R. 676 The ``Expanded and Improved Medicare for All Act''
On January 26th, 2009 Representative John Conyers (D-Michigan)
introduced HR 676, The Expanded and Improved Medicare for All Act. The
legislation would create a publicly funded, privately delivered health
care system that improves and expands the already existing Medicare
program to all U.S. residents. Perhaps its most reassuring feature is
that it builds on Medicare, a program that already works, and is one of
the most popular Federal programs in existence. It's not an experiment.
It's a known, successful quantity.
The goal of the legislation is to ensure that all Americans will
have access, guaranteed by law, to high quality cost effective health
care services regardless of their employment, income or health care
status. This program will cover all medically necessary services,
including primary care, inpatient care, outpatient care, emergency
care, prescription drugs, durable medical equipment, hearing services,
long term care, palliative care, podiatric care, mental health
services, dentistry, eye care, chiropractic, and substance abuse
treatment. Patients have their choice of physicians, providers,
hospitals, clinics, and practices. There are no co-pays or deductibles
under this act.
Families will pay less under the new U.S. National Health Care Act,
but equally important, so will businesses. Employer Health Benefits
2006 Annual Survey states that health insurers charged employers an
average of $11,500 for a health plan for a family of four. On average,
the employer paid 74% of this premium, or $8,510 per year. This figure
does not include the additional 1.45% payroll tax levied on employers
for Medicare. Under H.R. 676, employers would pay a 4.75% payroll tax
for all health care costs. For an employee making the median family
income of $56,200 per year, the employer would pay about $2,700.
Annual savings from enacting HR 676 are estimated at $387 billion.
By focusing on illness prevention, simplified access to services,
integrated chronic care, unified administration, electronic patient
records, reduction of medical errors, less liability litigation,
automated billing, and elimination of waste, enormous savings will be
realized.
Expanded coverage can be almost completely financed through the
savings listed above, and those achieved by eliminating the
administrative costs, profits, marketing, claims payment and
adjudication costs imposed on employers, employees and individual
policyholders as well as providers by the existing private health
insurance system. Those costs are estimated by credible sources to be
as much as forty percent of total insurance company revenues and are
one significant factor in explaining why Americans pay almost 50% more
per-capita than the residents of any other country for medical care.
Profits from private health insurance alone are estimated to be $150
billion a year. Not only that, but ``Improved Medicare For All'' will
relieve both doctors and sick patients of the tremendous physical and
emotional burden of fighting insurance company exclusions and denials.
Our Representatives in Congress need our help in resisting the
financial and political power of the insurance lobby, and assuring that
a publicly administered option to the private insurance market is an
integral part of any reform package. Widespread support for HR 676 will
provide that help. To that end, at their March 19 meeting the Hancock
County Democratic Committee expressed its support and voted unanimously
for a resolution that calls upon Federal legislators to co-sponsor HR
676, and work towards its enactment within the current Congress.
At this writing HR676 has 69 co-sponsors, including Maine's newly
elected Representative Chelly Pingree, with many more expected in the
coming weeks. Given the current composition of the Senate, we here in
Maine have a special responsibility to persuade the remaining three
members of our congressional delegation, Congressman Michaud and
Senators Collins and Snowe (a similar bill has been introduced in the
Senate by Senator Sanders), to support ``Medicare For All'' in order to
make our existing profit-driven, fragmented health care system a thing
of the past, and put our health care crisis behind us once and for all.
The best part and greatest benefit of enacting HR 676 is that we,
as a nation, will finally solve our health care crises. For the same
total dollar amount we're now spending, an estimated $2.3 trillion in
2008, we will provide guaranteed health care to all Americans,
including the 47 million uninsured and 50 million underinsured, many of
whom are one unexpected illness away from personal bankruptcy or even
homelessness.
It is time to make real change in our health care system, a change
that works, a change that is fair and affordable and serves all
Americans. Ask your representatives to be a co-sponsor for HR 676, The
Expanded and Improved Medicare for All Act.
For more details about HR 676 please visit Congressman John Conyers
website http://conyers.house.gov or www.pnhp.org or
www.guaranteedhealthcare.org.
Phil Caper M.D.
Joe Lendvai
This Commentary appeared in the Ellsworth American on April 1,
2009.
Phil Caper, M.D. and Joe Lendvai, Letter
The health reform bandwagon is rolling in Washington. Committees in
both houses of Congress are at work on health care reform, and many
politicians are saying ``now is the time.'' But meaningful reform is
about a lot more than getting a few more people ``covered.'' It must
also be about reigning in the out-of-control cost, making sure health
care is affordable and accessible by everyone and assuring that the
right number and types of health professionals are there to care for
the millions who are doing without decent health care.
Some in Congress want to require every American to buy private
health insurance as a way to reach the goal of universal coverage. But
private for-profit insurance is the wrong way to finance a universal
system of health care. The insurance model is simply incompatible with
the goals described above. Contrary to their branding efforts, health
insurance companies are not really in the health care business. They
are financial services companies. Their business model resembles those
of banks more than of health care companies.
As if they were trying to prove this, when Maine enacted
legislation some years ago requiring insurers to accept anybody who
applied (guaranteed issue) and charge all policyholders in the same
class the same premiums (community rating), most health insurers
withdrew from the state. Anthem, Maine's only remaining for-profit
insurer offering policies to individual policy holders, is now asking
for permission to raise premiums between 17% and 34% above their
already high levels.
Health insurers lack the capacity to control underlying medical
costs. They also lack the will to do so, as their profitability is
closely linked to their cash flow--the more money they process, the
higher their opportunities for profits.
They maximize profits by ``managing risk,'' that is by avoiding
insuring sick people, and by denying the claims for payment of people
they do insure. That is not an aberration, but is core part of their
business model. That business model is fundamentally incompatible with
the goals of a humane health care system.
America needs a system that does not rely on the insurance industry
to provide basic health care. We need a system more like Canada's. Even
though there is some minor grumbling by a few Canadians about waiting
times for some discretionary services, their system is enormously
popular. No Canadian faces crushing health care bills or bankruptcy due
to unexpected medical costs. Canadians proudly view their health care
system as being ``the highest expression of caring for each other.''
We already spend almost twice as much per person as the Canadians.
That should be enough to provide high quality health care to all
Americans. Sixty percent of the total costs of the dysfunctional U.S.
health care system is already publicly financed. This figure includes
huge tax subsidies that now amount to over $250 billion a year for the
purchase of private insurance, but only if it is a fringe benefit of
employment.
Only a simple tax-based system administered by an independent
national healthcare trust fund is capable of controlling overall health
care costs. The fund would negotiate standard, reasonable and timely
payments with all health care providers. No exclusions, no denials, no
hassle. Everyone would have access to guaranteed health care. Instead
of wasting time arguing with insurance companies about payments,
doctors and nurses could focus on providing services to patients. A
publicly financed, privately delivered system would also make the real
costs of our system more visible and make true accountability possible.
Caring for each other. It is time for the American health care
system to return to its roots--driven by mission rather than money.
There are proposals in the Congress that would begin to move us toward
that goal and rescue our failing health care system. They are the
Conyers bill, H.R. 676 in the House, and the Sanders bill, S. 703 in
the Senate. Congresswoman Pingree is already a co-sponsor of HR 676. We
urge you to contact Congressman Michaud and ask him to join her as a
co-sponsor of H.R. 676, and Senators Snowe and Collins to urge them to
cosponsor S. 703.
In that way, we can join every other industrial country in the
world in making access to affordable health care a right.
Phil Caper, M.D.
Joe Lendvai
Brooklin, Maine
This commentary appeared in the Bangor Daily News on April 17,
2009.
The American Academy of Actuaries, Statement
The American Academy of Actuaries is a 16,000-member professional
association whose mission is to serve the public on behalf of the U.S.
actuarial profession. The Academy assists public policymakers on all
levels by providing leadership, objective expertise, and actuarial
advice on risk and financial security issues. The Academy also sets
qualification, practice, and professionalism standards for actuaries in
the United States.
As Congress considers various proposals to reform the individual
health insurance market, the American Academy of Actuaries' \1\ Health
Practice Council appreciates this opportunity to submit written
testimony outlining an actuarial perspective on market reforms.
According to the latest estimates from the U.S. Census Bureau, about 45
million Americans under age 65, or 17 percent of the nonelderly
population, lacked health insurance in 2007. The economic downturn has
most likely led to an increase in the number of uninsured. Increasing
access to health insurance coverage depends on making insurance more
affordable, to individuals as well as to states and the Federal
Government. Instituting health insurance market reforms are
increasingly viewed as a method of increasing the availability of
affordable insurance coverage. Although the potential impact of any
given reform will depend on its specific details, actuarial
considerations will be vital when determining whether particular
proposals will lead to improved markets with increased access to
affordable coverage. In particular:
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\1\ The American Academy of Actuaries is a 16,000-member
professional association whose mission is to serve the public on behalf
of the U.S. actuarial profession. The Academy assists public
policymakers on all levels by providing leadership, objective
expertise, and actuarial advice on risk and financial security issues.
The Academy also sets qualification, practice, and professionalism
standards for actuaries in the United States.
For insurance markets to be viable, they must attract a
broad cross section of risks.
Market competition requires a level playing field.
For long-term sustainability, health spending growth must
be reduced.
Insurance markets must attract a broad cross section of risks
For health insurance markets to be viable, they must attract a
broad cross section of risks. In other words, they must not enroll only
high risks; they must enroll low risks as well. If an insurance plan
draws only those with high expected health care spending, otherwise
known as adverse selection, then premiums will be higher than average
to reflect this higher risk. Adverse selection is a byproduct of a
voluntary health insurance market. People can choose whether or not to
purchase insurance coverage, depending in part on how their
expectations for health care needs compare to the insurance premium
charged. The higher premiums that result from adverse selection, in
turn, may lead to more low risks opting out of coverage, which would
result in even higher premiums. This process is typically referred to
as a premium spiral. Avoiding such spirals requires minimizing adverse
selection and instead attracting a broad base of low-risk individuals,
over which the costs of high-risk individuals can be spread. Attracting
healthier individuals will ultimately help keep premiums more
affordable and stable.
How the various rules and regulations that apply to health
insurance markets are defined can affect the degree of adverse
selection. For instance, guaranteed-issue provisions can exacerbate
adverse selection concerns, by giving individuals the ability and
incentive to delay purchasing insurance until they have health care
needs.\2\ Likewise, pure community rating and adjusted community rating
rules can raise the premiums for healthy individuals, relative to what
they would pay if health status could be used as a rating factor.\3\
This could cause healthy individuals to opt out of coverage, leaving a
higher-risk insured population. Allowing insurers to deny coverage or
to charge higher premiums to high-risk individuals can help reduce
adverse selection by making insurance more attractive to healthy risks,
but at the cost of reduced access to coverage and higher premiums for
the higher-risk population.
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\2\ Guaranteed issue provisions require that all health insurance
applicants must be offered coverage, regardless of their health status
or likelihood of large medical expenditures.
\3\ Under pure community rating, every insured under a particular
insurance plan pays the same premium; premiums cannot vary by factors
such as age, gender, and health status. Under modified (or adjusted)
community rating, premiums are allowed to vary, often within limits, by
certain characteristics, such as age and gender. However, premiums are
not allowed to vary by health status.
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Increasing overall participation in health insurance plans could be
an effective way to minimize adverse selection. Requiring individuals
to have insurance coverage is one way to increase participation rates,
especially among low-risk individuals, and thereby reduce adverse
selection risk. Other types of incentives are also available to
increase participation, including: limiting open-enrollment periods
with penalties for delayed enrollment, subsidizing premiums, and
instituting automatic enrollment (i.e., opt-out rather than opt-in
provisions). Medicare Parts B and D include some of these incentives.
Nevertheless, an effective and enforceable individual mandate would
likely achieve higher participation rates than these types of voluntary
incentives.
In the absence of universal coverage, some degree of adverse
selection is inevitable. And even with universal coverage, some
insurance plans could end up with a disproportionate share of high-risk
individuals. If plan premiums do not reflect this, the plan could be at
risk for large losses. As a result, plans could develop strategies to
avoid enrolling less healthy individuals. Risk adjustment could be used
to adjust plan payments to take into account the health status of plan
participants. This would reduce the incentive an insurer might have to
avoid enrolling higher-risk individuals. In addition, some type of
reinsurance mechanism could limit insurers' downside risk by protecting
against unexpected high-cost claims.
Market competition requires a level playing field
For health insurance markets to be viable, plans trying to enroll
the same participants must operate under the same rules. If one set of
plans or insurers operate under rules that are more advantageous to
high-risk individuals, then they will migrate to those plans; low-risk
individuals will migrate to the plans more advantageous to them. In
other words, the plans that have rules more amenable to high-risk
individuals will suffer from adverse selection. Over time, the premiums
for these plans will increase to reflect this, leading to more adverse
selection and threatening the viability of those plans.
For example, if a regional health exchange or connector is created,
and plans are offered inside and outside the exchange, the rules
governing plans inside and outside of the exchange need to be the same.
Otherwise either the plans inside the exchange or outside the exchange
could get a disproportionate share of high-risk individuals, depending
on which set of plans is subject to rules that are more advantageous to
those in poorer health.
Similarly, adverse selection can occur when insurance is allowed to
be purchased across state lines. High-risk individuals will purchase
plans from states with stricter regulations (e.g., those mandating
guaranteed issue and community rating), and low-risk individuals will
purchase plans from states with looser regulations (e.g., allowing
underwriting and premium variations by health status). Premiums for the
plans in states with stricter regulations will increase accordingly,
which could lead to even fewer insurance purchases among the low-risk
population.
For long-term sustainability, health spending growth must be reduced
According to National Health Expenditure data, health care spending
increased 6.1 percent in 2007. Although this is the lowest growth rate
in a decade, it far exceeds the rate of inflation, and exceeds the
growth in the overall economy as well. If health spending continues to
grow at this pace, as projected, health insurance premiums will
continue to increase as well. Unless health care costs are controlled,
efforts to achieve universal coverage may be in vain. Reining in health
insurance premiums in the near term will be for naught if rising health
spending means that premiums will return to their original levels
within a few years, and continue to rise rapidly thereafter. Therefore,
to have the potential for sustainable success, health reform proposals
need to focus on controlling the rate of health spending growth. And
because there is mounting evidence that the money being spent for
health care is not providing enough value and that the vast variations
in health spending across the country aren't correlated with variations
in health care outcomes, spending growth should be addressed within the
context of quality and value reforms.
Several factors contribute to the growth in health spending, and
there are options to address many of them, each offering promising
opportunities to improve quality while reducing costs. The introduction
of new technology and treatments can increase health care spending by
increasing utilization, particularly of higher-intensity services. More
comparative effectiveness research should be conducted to better ensure
that new technologies and treatments add value, not just costs. Another
driver of health spending growth is that current provider payment
systems do not align provider financial incentives with the goal of
maximizing the quality and value of health care provided. Instead, the
most common provider payment mechanisms reward more care, and more
intense care. Restructuring provider payment systems could result in
more coordinated, cost-effective, and quality care.
Comprehensive insurance benefits, by lowering the cost of care to
the insured, can also result in increased utilization of health care
services. Although some of the utilization increases are for necessary
care, some are not. Benefit design features such as cost-sharing
requirements can be used to encourage more effective use of health care
services. However, any incentives to make the insured, particularly
those with chronic conditions, more sensitive to benefit costs should
be balanced so that individuals are not discouraged from seeking needed
care. Value Based Insurance Design (VBID), a relatively new concept in
insurance benefit design, attempts to better target cost-shsaring
requirements so they more effectively encourage needed care, yet
discourage unnecessary care.
Conclusion
Health insurance market reforms have the potential to increase the
availability of affordable health insurance coverage and, thereby
reduce the number of uninsured Americans. However, for reforms to be
viable, they must adhere to actuarial principles. In particular,
insurance markets must attract a broad cross section of risks,
especially low-risk individuals. Otherwise, adverse selection will
result, potentially leading to a premium spiral. In addition, market
competition requires a level playing field. Subjecting market
competition to the same rules and regulations will help minimize
adverse selection between plans and markets. And finally, health
spending growth must be curtailed in order to ensure long-term
sustainability.
The American Medical Association, Statement
The American Medical Association (AMA) appreciates the opportunity
to present the views of our physician and medical student members
regarding reforming the health insurance market to ensure greater
accessibility and affordability. We commend Chairman Rangel, Ranking
Member Camp, and members of the Ways and Means Committee for your
leadership in recognizing the need to examine the problems in the
health insurance market. The AMA agrees that major reforms are required
to make the health insurance market work better for both physicians and
their patients.
Covering the uninsured is a top priority of the AMA. The AMA
believes that we must enact comprehensive health system reform that
will cover the uninsured, improve our health care delivery system, and
place affordable, high quality care within reach of all Americans. As
advocates for patients, physicians have a particular stake in finding
viable, effective approaches to these issues, especially the challenge
of covering the uninsured. The AMA's comprehensive proposal to expand
health insurance coverage and choice addresses the needs of all
patients, regardless of income, and builds on the current employer-
based system to promote individual choice and ownership of health
insurance coverage.
The AMA proposal allows for the continuation of employment-based
insurance in the private sector, while encouraging new sources of
health insurance that would be available to both the uninsured and the
currently insured. Under our proposal, individuals who are satisfied
with their existing coverage will be able to maintain that coverage.
Those who are uninsured or dissatisfied with their current coverage
will be able to purchase the coverage they want. One of the goals of
our proposal is to give patients more control over their choice of
health coverage and their own care and to preserve and improve the
patient-physician relationship.
The AMA proposal is based on three pillars designed to expand
health insurance coverage and choice: 1) helping people buy health
insurance through tax credits or vouchers; 2) choice for individuals
and families in what health plan to join; and 3) fostering insurance
market reforms that establish fair ground rules and encourage the
creation of innovative and affordable health insurance options. In
addition, the AMA supports individual responsibility for Americans who
have incomes of more than 500 percent of the Federal poverty level and
can afford to purchase coverage. Those who cannot afford it and do not
qualify for public programs should receive tax credits for the purchase
of health insurance. Once affordable, everyone should have the
responsibility to obtain health insurance.
The AMA proposes streamlined, more uniform health insurance market
regulation, in tandem with targeted government subsidies for coverage
of high-risk patients. Market regulations must establish fair ground
rules in order for the private insurance market to function properly
while also protecting high-risk patients without driving up health
insurance premiums for the rest of the population. The sheer number and
variety of state and Federal market regulations make it unnecessarily
costly to provide health insurance in many markets. There should be
greater national uniformity of market regulation across health
insurance markets, regardless of type of submarket (i.e., large group,
small group, individual), geographic location, or type of health plan.
Appropriate regulations would permit market experimentation to find the
most attractive combinations of plan benefits, patient cost-sharing,
and premiums. Limited state variation in market regulation should be
permitted as long as it does not drive up the number of uninsured,
unduly hamper the development of multi-state group purchasing alliances
or create adverse selection across states.
Health Insurance Exchanges
The AMA supports the creation of new opportunities to buy health
insurance individually or as part of a group, such as health insurance
exchanges modeled after the Federal Employees Health Benefits Program
(FEHBP), small employer purchasing alliances, or health plans offered
through professional, trade, religious, or alumni organizations.
Insurance must be portable and individuals must have a choice among
insurance options that best suit their needs. For those individuals who
do not have access to or do not select employer-based insurance, the
AMA supports establishing a health insurance purchasing exchange to
increase choice, facilitate plan comparisons, and streamline enrollment
that will assist individuals in choosing coverage that best suits their
needs. Insurers should provide understandable and comparable
information about their policies, benefits, and costs to empower
patients, employers, and other purchasers and consumers to make more
informed decisions about plan choice.
Modified Community Rating
Strict community rating should be replaced with modified community
rating. By allowing some degree of premium variation based on
individual risk factors, but limiting premium differences within
specified risk bands, modified community rating strikes a balance
between protecting high-risk individuals and the rest of the
population. Some degree of age rating is acceptable, as are lower
premiums for nonsmokers, but an individual's genetic information should
not be used to determine premiums or eligibility for coverage.
Guaranteed Renewability
The AMA supports the replacement of guaranteed issue regulations
with guaranteed renewability. Guaranteed issue requires insurers to
accept all applicants regardless of pre-existing conditions, even if
they are uninsured. Similarly, prohibiting insurers from imposing pre-
existing condition limitations means that insurers must offer the same
level of benefits coverage to all applicants. In the context of the
current market, which does not have an individual mandate, these
regulations permit people to ``free-ride'' by waiting until they need
medical attention to buy health insurance, exposing insurers and all
those who have maintained their insurance coverage to unfair risk (once
everyone has coverage through individual responsibility or an
individual mandate, the concern about guaranteed issue is resolved). As
an alternative, the AMA supports guaranteed renewability. Guaranteed
renewability would protect individuals from losing coverage or being
singled out for premium hikes due to changes in health status,
rewarding people for obtaining and maintaining coverage. Similarly,
people who wish to switch health plans should face limited underwriting
and pre-existing condition limitations, compared with those who are
newly seeking coverage.
Individual Responsibility
The AMA supports requiring individuals and families who can afford
coverage to obtain health insurance. Those earning greater than 500
percent of the Federal poverty level should be required to obtain at
least catastrophic and preventive coverage, or face adverse tax
consequences. The requirement would extend to people of all incomes
only after implementation of subsidies for those who need financial
assistance obtaining coverage (i.e., sliding-scale, refundable tax
credits or vouchers to buy insurance). A requirement to have insurance
would enable insurers to move toward community rating. Simplified,
automated underwriting would result in de facto modified community
rating, as the natural byproduct of market function rather than as a
result of market regulation.
Targeted Subsidies for High-Risk Individuals
The AMA believes that insurance market reform must include
protections for high-risk patients. The AMA advocates explicit,
targeted government subsidies to help high-risk people obtain coverage
without paying prohibitively high premiums. Risk-based subsidies make
high-risk patients more attractive to insurers without driving up
premiums for the general population. Such subsidies can take the form
of high-risk pools, reinsurance, and risk adjustment. For example,
providing subsidized coverage through high-risk pools gives insurers
reassurance that they are unlikely to insure an unfavorable selection
of high-cost enrollees in the regular market, allowing them to offer
lower premiums and making coverage attractive to the young and healthy.
Financing risk-based subsidies with general tax revenues rather than
through premiums avoids the unintended consequences of driving up
premiums and distorting health insurance markets.
Health Insurer Transparency
We believe that health insurance market reform must include efforts
to improve transparency for patients and physicians. The AMA has long
supported efforts to promote transparency in health care. We believe
that empowering patients with understandable price information and
incentives to make prudent choices will strengthen the health care
market. To that end, we believe that all methods of physician payment
should incorporate mechanisms to foster increased cost-awareness by
both providers and recipients of service. Disclosure of price
information, however, can only be meaningful if, in addition to
disclosure of physician fees, there is disclosure of insurance claims
processing and payment practices. Without transparency on the part of
health plans and insurers, both patients and physicians suffer.
Insurers must make available to enrollees and prospective enrollees
information, in a standard format, about the amount of payment provided
toward each type of service identified as a covered benefit. In
addition, health plans and insurers should make medical payment
policies, claim edits, and benefit plan provisions embedded in their
fee schedules or ``negotiated rates'' available to patients. Physicians
must also have access to health plan pricing information. Without this
information, it is impossible for patients to know what their costs
will be.
It is critical that employers and consumers have a clear
understanding of how health care premiums are allocated by health
insurance companies, and in particular how much of their premium dollar
is spent on health care services as opposed to administration, profit,
or other purposes. Full transparency of how health care insurance
premiums are spent will empower patients, employers, and other health
insurance purchasers to make more informed decisions, foster
competition, and reward companies that minimize administrative waste.
Clarifying and illuminating health care claims payment and
adjudication is the only way to ensure that patients will have
accurate, current information at their disposal. Such information will
enable them to make informed decisions about the most priceless thing
in life--their health. Moreover, bringing health care pricing
information out of the dark will allow physicians to regain some
control over their practices and focus on what they were trained for--
treating and healing their patients.
There are a number of claims processing and payment issues that
have contributed to the incredibly difficult climate for physicians
attempting to be paid promptly, accurately, and fairly by insurers.
Failure to comply with state prompt payment claims and attempts to
delay and improperly discount physician payments can financially
debilitating effects on small physician practices and can severely
limit patient access. Yet often, patients and physicians have little,
if any, recourse to challenge health plan actions.
Efforts should be made to deal with prompt payment and other
critical insurer payment practices. One-sided contract terms, lack of
transparency or conformity in payer payment rules, repricing of
physician claims, refusal to accept valid assignments of benefits, and
other manipulative payment practices represent egregious business
practices. These practices would be unacceptable in any other business
context and should not be permitted to continue and flourish in the
health insurance industry.
In conclusion, the AMA looks forward to working with you and your
colleagues in Congress as you develop health system reform legislation.
Thank you again for your strong leadership in this important endeavor.
The National Association of Health Underwriters, Statement
The National Association of Health Underwriters (NAHU) is a
professional trade association representing more than 20,000 health
insurance agents, brokers and employee benefit specialists all across
America. Our members work on a daily basis to help individuals and
employers of all sizes purchase health insurance coverage. They also
help their clients use their coverage effectively and make sure they
get the right coverage at the most affordable price.
All of this experience gives our membership a unique perspective on
the health insurance market place. Our members are intimately familiar
with the needs and challenges of health insurance consumers, and they
also have a clear understanding of the economic realities of the health
insurance business, including both consumer and employer behavioral
responses to public policy changes. They have had the chance to observe
the health insurance market reform experiments that have been tried by
the states and private enterprise, and are in a unique position to
report on which of these efforts have worked the best.
NAHU strongly feels that any health reform effort should be
centered around employer sponsored plans, which efficiently provide
comprehensive coverage to over 160 million Americans. However,
employer-sponsored coverage is not the right choice for everyone;
approximately 14.5 million Americans have private health insurance
coverage that is not connected with an employer-sponsored plan.\1\
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\1\ Urban Institute and Kaiser Commission on Medicaid and the
Uninsured estimates based on the Census Bureau's March 2007 and 2008
Current Population Survey (CPS: Annual Social and Economic Supplements)
http://www.statehealthfacts.org/comparebar.jsp?ind=125&cat=3
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In terms of needed health insurance market reforms, NAHU believes
the current individual health insurance marketplace is not always
serving consumers in the most effective manner. In our work helping
consumers from all over the country obtain private health coverage, we
have observed that problems relating to access, pre-existing conditions
and affordability are prevalent nationwide. Since each state's
individual market is uniquely regulated, consumers in some states are
faring better than in others, but no state's individual health
insurance market is problem-free.
Coverage for Everyone
One of the greatest problems with individual health insurance today
is that not all Americans are able to purchase coverage. In some
states, people with serious medical conditions who do not have access
to employer-sponsored plans cannot buy individual coverage at any
price.
One of the simplest ways to address the access issue in the
individual market would be to require that all individual health
insurance policies be issued on a guaranteed issue basis, without
regard to pre-existing medical history. However, in addition to being
accessible to all Americans, individual coverage also must be
affordable. It would be unwise to require insurers to guarantee issue
individual coverage to all applicants unless a system where nearly all
Americans have coverage and full participation in the insurance risk
pool has been achieved. Due to their small size and the propensity
towards adverse selection, state individual health insurance markets
are very fragile and price sensitive. Also, there currently is no
controlled means of entry and exit into the individual health insurance
market independent of health status, like there is with employer-group
coverage. Without near universal participation, a guaranteed-issue
requirement in this market would have the perverse effect of
encouraging individuals to forgo buying coverage until they are sick or
require sudden and significant medical care. This, in turn, would
undermine the core principle of insurance--spreading risk amongst a
large population. The result would be exorbitant premiums like we
currently see in states that already require guaranteed issue of
individual policies, but do not require universal coverage or have a
financial backstop in place.
Great care needs to be taken when implementing market reforms on a
national level to not inadvertently cause costly damage to the existing
private-market system. No matter how ``fair'' a market-reform idea
might seem on its surface, it's not at all ``fair'' if it also prices
people out of the marketplace.
Recommendations to Achieve Near Universal Coverage
To bring everyone into the health coverage system, NAHU believes
that Congress would be wise to look at our existing system for holes
and examine what the states have done to successfully fill those
coverage gaps. A few simple reform measures would go a long way toward
extending health insurance coverage to millions of Americans. State
small group health insurance markets and consumers ultimately benefited
from the passage of Federal Health Insurance Portability and
Accountability Act of 1996 (HIPAA); a similar measure that preserves
state regulation and consumer protections for individual-market
consumers but would also make coverage options more consistent and
affordable is warranted.
Such requirements could either be enacted as part of a transition
process to complete guaranteed issuance of coverage or they could be
stand-alone requirements. In either case, NAHU believes that the
following policy recommendations would have a profoundly positive
impact on individual health insurance market access and affordability
nationwide.
Recommendation 1: Require Guarantee Access to Individual Coverage with
Qualified State-level Financial Back-stops for Catastrophic
Risks to Keep Coverage Affordable
Federal access protections in HIPAA ensure that small-group health
insurance customers and individuals leaving group health insurance
coverage under specified circumstances must have at least one
guaranteed-purchasing option. But these Federal protections do not
apply to everyone. People purchasing coverage in the traditional
private individual health insurance market who are not transitioning
from an employer's plan do not have Federal guaranteed-issue rights.
That means right now, in a number of states, there are people with
serious medical conditions who cannot buy health insurance at any
price.
Furthermore, in many of the 45 states \2\ that have independently
established at least one mandatory guaranteed-purchasing option for
individual-market consumers with serious health problems, there are
still access problems due to design flaws. For example, some states
have required that all people be guaranteed access to all coverage on
an immediate basis, without regard to health status. Unfortunately,
merely requiring guaranteed issuance of individual coverage has led to
adverse selection and, consequently, very high premium rates that
create a barrier to entry for most consumers. On the other hand, in
some states that allow for the consideration of health status, there
can be a great deal of inconsistency in what types of risks are deemed
to be uninsurable by individual carriers. Also, states with a high-risk
health insurance pool often have funding difficulties that can result
in high premiums and pool instability, both of which can be a barrier
to entry.
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\2\ The states without a guaranteed access mechanism are Arizona,
Delaware, Georgia, Nevada and Hawaii. Furthermore, Florida's high-risk
pool has been closed to new applicants since 1992, so it effectively
also has no access mechanism for new medically uninsurable individuals.
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While the mechanism for access to health care coverage may vary
from state to state, access should not be denied to any American. The
Federal Government should immediately require that all states have at
least one guaranteed-purchasing option for all individual health
insurance market consumers. But, beyond that, the Federal Government
should also stipulate that a guaranteed-issue mandate, a designated
carrier of last resort or a high-risk health insurance or reinsurance
pool alone may not be a sufficient means of providing guaranteed
access.
The best solution is a partnership between the private individual
market and the mechanism for guaranteed access. A state's high-risk
pool or reinsurance mechanism could serve as a backstop to insulate the
traditional market against catastrophic claims costs. The Federal
Government should establish broad guidelines for qualified state-level
financial backstops (i.e., capped rates for high-risk individuals) to
allow for state innovation but also ensure consistency of access and
affordability.
Several states have been able to successfully combine a guaranteed-
issue approach with universal underwriting criteria for all carriers
and either a traditional high-risk pool or a reinsurance mechanism.
When establishing state guarantee access requirements coupled with a
financial backstop, two states in particular should be looked at as
potential models:
Idaho
One of the most interesting arrangements is from Idaho. It is a
hybrid arrangement--the only one of its kind--known as an individual
high-risk reinsurance pool. Although the idea of reinsurance isn't new,
Idaho is using it in a manner that is different than what has been done
before. In Idaho, if a person's health status based on a medical
questionnaire meets a certain threshold, the carrier can cede a large
part of the financial risk for the individual to the reinsurance pool.
Individuals who are insured in this manner are still issued a policy
through the insurer they applied for coverage with, but must select one
of four standard options. The coverage is still comprehensive, but the
more limited benefit choices make administration of the reinsurance
mechanism simpler. The carrier pays a premium to the pool in exchange
for the pool taking on the risk of the individual's high claims. The
individual consumer pays premiums to the insurer and has coverage
issued by that insurer, not the pool itself. So the reinsurance
mechanism is largely invisible to the consumer, although the premium is
somewhat higher than the consumer would have otherwise paid. This
program is funded through several mechanisms. First, the state's
premium tax, paid by all insurers in the state, is the primary funding
source and this is considered a stable funding source since it is not a
state appropriation. In addition, when a carrier cedes risk to the
pool, it pays a premium to the pool. Finally, the pool has the ability
to assess insurance carriers for funding but, so far, it hasn't needed
to do so. The Idaho pool is one of the few state programs that has more
than enough funds to operate on a consistent basis.
New York
Another twist on the reinsurance concept is New York with its
Healthy New York program. Small employers, sole proprietors and
uninsured working individuals, regardless of health status, who meet
set eligibility criteria and participation rules can purchase a limited
range of comprehensive coverage options offered through private
carriers and backstopped with a state-level reinsurance pool for
extraordinary claims. This is a different kind of reinsurance than in
Idaho, since it works on a retrospective basis but it is a great
example of why a backstop can increase affordability. Although New York
is a guaranteed issue state, it still uses this mechanism to spread the
risk of higher risk participants. If we compare the rates for similar
coverage in New Jersey, also a guaranteed issue state but with no
financial backstop, it becomes clear that although premiums are higher
than in non-guarantee issue states, the financial backstop provided by
the reinsurance mechanism has improved affordability there.
Recommendation 2: Give Pre-existing Condition Credit for Prior
Individual Market Coverage to Ensure True Heath Insurance
Portability
The issue of pre-existing conditions and individual market coverage
portability has been repeatedly identified as a problem. And it's not
just a problem for people who have a serious medical condition when
they apply for coverage. People who have obtained individual coverage
when healthy and then acquired medical conditions over time can be
limited in their ability to switch coverage plans due to pre-existing
conditions and medical underwriting requirements.
To solve this problem, individual market health insurance carriers
should be required to give individual health insurance market consumers
credit for prior individual coverage, when changing insurance plans, if
there is no greater than a 63-day break in coverage, just as is
required in the group market by HIPAA. This means that existing
individual-market consumers who wanted to switch health insurance
products and/or health insurance carriers would be given credit against
any pre-existing condition look-back or exclusionary periods equal to
the amount of prior coverage they have. Furthermore, NAHU believes that
the 63-day coverage window provisions should be amended to specify
credit should be granted as long as the individual applies for coverage
within 63-days, to protect individuals in cases where coverage cannot
be issued immediately upon application.
However, to protect against adverse selection, a provision would
also need to be included to address situations where individual-market
consumers were substantially changing their level of coverage and/or
benefits. In these cases, while credit for prior coverage would be
applicable, carriers would still be able to assess for insurable risk
when determining initial premium rates.
Recommendation 3: Standardize State-Level Requirements Regarding the
Consideration of Pre-existing Conditions
Right now, state exclusionary and look-back periods for pre-
existing conditions in the individual market range from none at all to
five years. NAHU believes greater standardization could easily be
achieved in a similar way as was done relative to the small-group
market in HIPAA when a Federal maximum look-back window of six months
and a 12-month exclusionary period was established for the states.
Having a pre-existing conditions rule that is consistent in both the
individual and group model would also be much simpler for consumers to
understand.
In the absence of a fully implemented and enforceable individual
purchase mandate, plans and high-risk options must be able to look back
at a new applicant's medical history and impose reasonable waiting
periods in order to mitigate adverse selection. Until implementation is
complete, greater standardization of limitations is necessary and
warranted.
Recommendation 4: Improve Federal Group-to-Individual Coverage
Portability Protections So that People Can Transition Directly
From Employer Coverage to Individual without Hurdles
HIPAA attempts to provide individuals who are leaving group health
insurance coverage with portability protections to make it easier for
them to purchase coverage in the individual market. Unfortunately, the
protections are confusing and many consumers unintentionally invalidate
their HIPAA guarantee issue rights without realizing it and then risk
being denied coverage when they apply for individual coverage.
Under current law, individuals who are leaving group coverage must
exhaust either COBRA continuation coverage or any state-mandated
continuation of coverage option if COBRA is not applicable before they
have any group-to-individual rights under HIPAA. Once the consumer
exhausts these options if available, then he or she can purchase
certain types of individual coverage on a guaranteed-issue basis,
provided that there is no more than a 63-day break in coverage. Each
state was required under HIPAA to develop a mechanism for providing
this coverage. The two most common state elections are to either allow
HIPAA-eligible people to purchase coverage through a state high-risk
health insurance pool, or to require all individual market carriers to
guarantee issue HIPAA-eligible consumers at least two products, which
are often priced higher than traditional individual coverage.
Most people who leave group coverage are unaware of all of the
stipulations required to receive Federal portability of coverage
protections. Faced with high COBRA or state continuation premiums, many
individuals decline such coverage either initially or after a few
months. Then, depending on their health status or a family member's,
they may experience extreme difficulty obtaining individual market
coverage. To solve this problem, the HIPAA requirement to exhaust state
continuation coverage or COBRA before Federal guarantees are available
should be rescinded, and individuals leaving group coverage should be
able to exercise their Federal group-to-individual portability rights
immediately, provided that there is no more than a 63-day break in
coverage.
Recommendation 5: Stabilize Individual Market Rates by Requiring More
Standardization as to How Individual Market Carriers Determine
Pricing
Another inconsistency among both individual and small-group state
individual health insurance markets is the way that premium rates are
determined at the time of application. Most states allow for the use of
medical history or health status as an underwriting factor. In a few
states, the laws require that rates be the same for everyone regardless
of gender, age, health status or geographic location (community
rating). In a number of others, rating factors are determined by the
state but are limited in nature (i.e., age, gender, industry, wellness,
etc.), which is known as modified community rating. However, even in
states with modified community rating, the rating factors and how they
may be applied vary significantly by state. It is NAHU's view that
state individual health insurance markets would benefit from greater
standardization as to how premium rates are determined.
The first step to greater standardization would be for states to
adopt a uniform application for applying for individual insurance
coverage. A clear and understandable uniform application would assure
full disclosure of accurate and consistent information when individuals
apply for coverage. It would also be easier for consumers when applying
for coverage with several different insurance carriers.
The Federal Government could also require that all states meet a
minimum standard of rate stabilization by requiring modified community
rating instead of health status rating. However, this would need to be
undertaken slowly in order to protect against extreme rate shock to
some populations, especially younger individuals. Additionally, it is
extremely important that wide adjustments be allowed for non-health
measures. At a minimum, variations need to be allowed for applicant age
of at least five to one (meaning that the rate of the oldest applicant
may be no more than five times the rate of the youngest applicant). In
addition to age, variations in premium rates should be allowed for
other factors such as wellness plan participation, smoking status,
industry, family composition and geography. Since we know that up to 50
percent of health status is determined by personal behavior choices
\3\, in order to have effective cost containment, we need to be able to
reward healthy behavioral choices.
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\3\ Mercer Management Journal 18. ``The Case for Consumerism in
Health Care'' http://www.oliverwyman.com/ow/pdf_files/
MMJ18_Case_Consumerism_Healthcare.pdf
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Recommendation 6: Increase Consumer Protections Regarding Individual
Market Coverage Rescissions
All states should be required to develop an independent medical
review process to resolve disputes concerning policy rescissions and/or
pre-existing condition determinations. In addition, health plans should
be required to limit rescissions to only material omissions and
misrepresentations on the uniform insurance application. Health plans
should be responsible for reviewing all applications received for
clarity and completeness at the time off application and not after the
policy is issued. If a carrier does not conduct a review of listed
medical conditions on the application upon submission, it should not be
allowed to use any subsequently obtained health information as a
standard for a rescission, unless fraud or deceit has occurred. Health
plan consumers should be clearly informed of their rights relative to
rescissions and pre-existing condition determinations. Consumers also
should be informed of their obligation to provide complete and accurate
responses on health plan applications and to provide additional
information at the time of application upon request of the health plan.
Recommendation 7: Making it Easier for Employers to Help People
Purchase Individual Coverage
One of the biggest complaints about the individual market is that
coverage is too difficult to purchase independently, and one of the
greatest advantages of employer-group coverage is its ease of
enrollment and payment. Many employers would like to offer their
employees traditional health insurance coverage but simply can't afford
to do so under current economic conditions or have an employee base
that is difficult to cover under a traditional group scenario. As an
alternative, employers should be allowed to work with licensed
insurance agents and brokers to help employees purchase and pay for
individual coverage by setting up a Section 125 plan, deducting
premiums from wages, aggregating premiums and sending them to the
insurer, and possibly providing a defined contribution. This would be a
particularly appropriate coverage option for certain types of
businesses that are rarely able to offer benefits to all employees (for
example, restaurants and some small retail establishments) and for
employees who may not be eligible for an employer's group plan, such as
part-time or contract workers. This could help to draw many uninsured
individuals into the private health coverage system. In addition, it
could expand the size of the individual market, making it less fragile
and, therefore, less costly.
However, current Federal law requires that all individual health
insurance policies sold in a group setting are subject to ERISA and all
of the HIPAA consumer protections relative to group health insurance
plans, including the group guaranteed-issue and pre-existing
requirements and all nondiscrimination provisions. Under current market
conditions, practically no individual market policies can meet all of
the HIPAA small-group protections since they are not designed for a
product that is marketed to individual consumers. In addition, the sale
of list-billed policies, which are individual policies where the
employer agrees to payroll-withhold individual health insurance
premiums on behalf of its employees and send the premium payments to
the insurance carrier but does not contribute to the cost of the
premium, is specifically prohibited by some states.
Congress should overturn state bans of the sale of list-billed
policies and clarify that individual health insurance policies
purchased by employees are not the same as group health insurance
policies and are not subject to the group insurance requirements
specified in HIPAA or ERISA but rather the newly reformed rules for the
individual market In addition, employees own these policies and they
stay in force when workers leave their job. In particular, the Federal
requirements regarding individual policies sold on a list-bill basis
need to be clarified, since even minimal involvement on the part of the
employer could trigger group health plan requirements.
Congress should also establish that all individual health insurance
policies sold under a list-billed arrangement are subject to all
insurance regulations governing the issuance of traditional individual
insurance policies in the state in which the policy was sold. This
would include rating requirements, issuing requirements and the
requirement that such products only be sold by licensed health
insurance producers, among other consumer protections.
Recommendation 8: Provide Federal Financial Assistance to Keep
Individual Health Insurance Coverage Affordable
The most critical problem that we see in state individual health
insurance markets is affordability, particularly for those individuals
who have medical conditions. The high cost of coverage for these people
often doubles as an access barrier.
There are clear broad-scale solutions that NAHU supports relative
to coverage affordability. The most important of these is acting on the
true underlying problem with our existing system: the cost of medical
care. Health care delivery costs are the key driver of rising health
insurance premiums, and they are putting the cost of health insurance
coverage beyond the reach of many Americans. \4\ Addressing the cost of
care and its impact on the cost of coverage is critical in every
market.
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\4\ PricewaterhouseCoopers. ``The Factors Fueling Rising Health
Care Costs, 2008.'' http://www.americanhealthsolution.org/assets/
Uploads/risinghealthcarecostsfactors2008.pdf
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However, there are other affordability reforms that could be
crafted that would specifically help individual market health insurance
purchasers. Some changes need to be made in our tax system simply to
provide equity for individual market consumers with their counterparts
in employer-sponsored plans. For example, removing the 7.5 percent of
adjusted gross limit of medical expenses on tax filers' itemized
deduction Schedule A form and allowing the deduction of individual
insurance premiums as a medical expense in itemized deductions would
help many people who are part-time workers or who work for employers
that don't offer health insurance coverage. And to put self-employed
individuals who are sole proprietors or who have Sub-S corporations on
a level playing field with businesses organized as ``C'' corporations,
their current deduction from gross income should be changed to a full
deductible business expense on Schedule C.
NAHU also supports targeted premium-assistance programs for low-
income individuals purchasing private coverage, and we feel that the
Federal Government should help finance such programs. A subsidy program
could be national in scope, or each state could be required to create
one that suits the unique needs of its citizens in partnership with the
Federal Government. Several states like Oregon and Oklahoma have
already created successful subsidy programs and their existing
structures could be used as a model framework for a national reform.
Finally, we support even more targeted means of providing Federal
affordability assistance to individual market consumers, particularly
to individuals with serious medical conditions. Since in any insurance
pool of risk a small number of insureds incur the majority of claims,
NAHU's access solutions alone, by guaranteeing that the highest-risk
individuals are covered in a financially separate private-market pool
will help lower costs for all consumers. But even more could be done to
help lower costs.
Current limited Federal grant funds for high-risk pools have
enabled a number of state high-risk pools to lower premiums and even
start low-income subsidy programs. NAHU believes this funding should
not only continue, but it should also be increased and expanded to the
new qualified access mechanisms outlined in Recommendation 1.
Funding could be conditional upon a state's ability to meet
federally established broad criteria regarding the framework of a
qualified program. This may be the biggest bargain for Federal dollars
that exists. A small amount of funding will go a long way, and the
current $75 million grant has helped many pools establish low-income
subsidy programs and disease management and other important programs
for pool participants. New funding would be used to help subsidize
premiums for the high-risk beneficiaries because, regardless of the
backstop option the state creates, premiums alone in a state high-risk
option will never be enough to satisfy claims, and premiums for
participants in these programs must be at reasonable levels to ensure
adequate participation. Funding could also be used as an additional
backstop to state high-risk options that meet specified requirements
for those rare individuals whose medical expenses are so great they
would exceed high-risk pool lifetime caps.
Recommendation 9: Getting Everyone Covered
NAHU believes that implementing recommendations 1 through 8 will
bring our country much closer to all Americans having health coverage.
But an additional way to achieve the standard of near-complete coverage
that is necessary for stand-alone guarantee issuance of coverage as
well as controlled entry and exit into the individual insurance market
is through the implementation of an enforceable and effective
individual mandate.
NAHU has historically approached the idea of an individual mandate
to obtain health insurance coverage with great caution. Similar
mandates for auto insurance coverage have failed to reduce the number
of uninsured motorists. \5\ Also, subsidies, as well as benefit
standards and enforcement mechanisms, would need to be created to
fairly implement such a mandate. However, if such barriers could be
overcome, enough people would be covered to mitigate the problem of
adverse selection and its resulting cost consequences.
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\5\ Insurance Research Council. ``IRC Estimates that more than 14
Percent of Drivers are Uninsured.'' http://www.ircweb.org/news/
20060628.pdf
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If the Federal Government were to require an individual mandate to
obtain coverage, NAHU feels that it must be structured appropriately.
The following elements are crucial to an effective and enforceable
individual mandate:
While the mandate may need to be phased in over time,
starting with perhaps select populations like children age 25 and
under, ultimately it must apply to all populations equally.
An individual mandate must be accompanied by a national
qualified guarantee access mechanism with a financial backstop as
described in Recommendation 1 so that all individuals have cost-
effective private health coverage options available to them. This is
especially critical during the transition period, where the mandate is
being put into place and the entire population is not yet insured.
An individual mandate should not be accompanied by overly
rigid coverage standards that would make coverage unaffordable and
inhibit private plan design innovations.
Subsidies in the form of direct private coverage premium
assistance or refundable advanceable tax credits for the purchase of
private coverage must be made available to low-income consumers.
An effective coverage verification system must be
created, with multiple points of verification.
An effective enforcement mechanism would need to be
implemented with multiple enforcement points and effective penalties
for noncompliance.
Each state must be responsible for enforcement of the
mandate for its own population. The United States is too large and
diverse a country for such a mandate to work otherwise.
Recommendation 10: Allow State Implementation with a Federal Fallback
Enforcement Mechanism
States should be given a finite timeframe of several years to
achieve these reforms through legislative or regulatory means. If a
state cannot adopt the necessary reforms in the timeframe allotted,
Federal enforcement through CMS should be the fallback, similar to the
way CMS serves as the Federal fallback enforcement authority for
HIPAA's small-group market requirements.
Conclusion
NAHU members work on a daily basis to help individuals and
employers of all sizes purchase health insurance coverage. We also help
clients use their coverage effectively and make sure they get the right
coverage at the most affordable price.
All of this experience gives our membership a unique perspective on
the health insurance market place. Our members are intimately familiar
with the needs and challenges of health insurance consumers, and they
also have a clear understanding of the economic realities of the health
insurance business, including both consumer and employer behavioral
responses to public policy changes. We have had the chance to observe
the health insurance market reform experiments that have been tried by
the states and private enterprise, and we have based these individual
market health reform policy recommendations on what we believe would be
the most beneficial changes for individual health insurance consumers.
The NAHU membership urges Congress to carefully consider these
ideas to improve individual health insurance coverage options for
consumers nationwide. Our private health insurance plans are
innovative, flexible and efficient, and our marketplace is up to the
task of responding to well-structured reforms. We look forward to
working with Federal and state policymakers to fill the gaps in our
nation's coverage system and to make private individual health
insurance coverage more affordable and accessible for all Americans.