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




 
    BETWEEN YOU AND YOUR DOCTOR: THE BUREAUCRACY OF PRIVATE HEALTH 
                            INSURANCE--DAY 1

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON DOMESTIC POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 16, 2009

                               __________

                           Serial No. 111-127

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                   EDOLPHUS TOWNS, New York, Chairman
PAUL E. KANJORSKI, Pennsylvania      DARRELL E. ISSA, California
CAROLYN B. MALONEY, New York         DAN BURTON, Indiana
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
WM. LACY CLAY, Missouri              JOHN J. DUNCAN, Jr., Tennessee
DIANE E. WATSON, California          MICHAEL R. TURNER, Ohio
STEPHEN F. LYNCH, Massachusetts      LYNN A. WESTMORELAND, Georgia
JIM COOPER, Tennessee                PATRICK T. McHENRY, North Carolina
GERRY E. CONNOLLY, Virginia          BRIAN P. BILBRAY, California
MIKE QUIGLEY, Illinois               JIM JORDAN, Ohio
MARCY KAPTUR, Ohio                   JEFF FLAKE, Arizona
ELEANOR HOLMES NORTON, District of   JEFF FORTENBERRY, Nebraska
    Columbia                         JASON CHAFFETZ, Utah
PATRICK J. KENNEDY, Rhode Island     AARON SCHOCK, Illinois
DANNY K. DAVIS, Illinois             BLAINE LUETKEMEYER, Missouri
CHRIS VAN HOLLEN, Maryland
HENRY CUELLAR, Texas
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
PETER WELCH, Vermont
BILL FOSTER, Illinois
JACKIE SPEIER, California
STEVE DRIEHAUS, Ohio
------ ------

                      Ron Stroman, Staff Director
                Michael McCarthy, Deputy Staff Director
                      Carla Hultberg, Chief Clerk
                  Larry Brady, Minority Staff Director

                    Subcommittee on Domestic Policy

                   DENNIS J. KUCINICH, Ohio, Chairman
ELIJAH E. CUMMINGS, Maryland         JIM JORDAN, Ohio
JOHN F. TIERNEY, Massachusetts       MARK E. SOUDER, Indiana
DIANE E. WATSON, California          DAN BURTON, Indiana
JIM COOPER, Tennessee                MICHAEL R. TURNER, Ohio
PATRICK J. KENNEDY, Rhode Island     JEFF FORTENBERRY, Nebraska
PETER WELCH, Vermont                 AARON SCHOCK, Illinois
BILL FOSTER, Illinois
MARCY KAPTUR, Ohio
                    Jaron R. Bourke, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on September 16, 2009...............................     1
Statement of:
    Gendernalik, Mark, father of Sidney Gendernalik, Los Angeles, 
      CA; Erinn Ackley, daughter of William Ackley, Red Lodge, 
      MT; Mel Stern, pediatrician, Highland, MD; Linda Peeno, 
      former review physician for Humana, Louisville, KY; and 
      Wendell Potter, former head of corporate communications for 
      Cigna, Philadelphia, PA....................................    16
        Ackley, Erinn............................................    30
        Gendernalik, Mark........................................    16
        Peeno, Linda.............................................    47
        Potter, Wendell..........................................    79
        Stern, Mel...............................................    38
    Pollitz, Karen, project director, Health Policy Institute, 
      Georgetown University, Washington, DC; and Michael Cannon, 
      director, Health Policy Studies, CATO Institute, 
      Washington, DC.............................................   113
        Cannon, Michael..........................................   124
        Pollitz, Karen...........................................   113
Letters, statements, etc., submitted for the record by:
    Ackley, Erinn, daughter of William Ackley, Red Lodge, MT, 
      prepared statement of......................................    32
    Cannon, Michael, director, Health Policy Studies, CATO 
      Institute, Washington, DC, prepared statement of...........   125
    Gendernalik, Mark, father of Sidney Gendernalik, Los Angeles, 
      CA, prepared statement of..................................    19
    Jordon, Hon. Jim, a Representative in Congress from the State 
      of Ohio, prepared statement of.............................    11
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio, prepared statement of...................     4
    Peeno, Linda, former review physician for Humana, Louisville, 
      KY, prepared statement of..................................    49
    Pollitz, Karen, project director, Health Policy Institute, 
      Georgetown University, Washington, DC, prepared statement 
      of.........................................................   116
    Potter, Wendell, former head of corporate communications for 
      Cigna, Philadelphia, PA, prepared statement of.............    82
    Stern, Mel, pediatrician, Highland, MD, prepared statement of    40
    Watson, Hon. Diane E., a Representative in Congress from the 
      State of California, prepared statement of.................   144


    BETWEEN YOU AND YOUR DOCTOR: THE BUREAUCRACY OF PRIVATE HEALTH 
                            INSURANCE--DAY 1

                              ----------                              


                     WEDNESDAY, SEPTEMBER 16, 2009

                  House of Representatives,
                   Subcommittee on Domestic Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis J. 
Kucinich (chairman of the subcommittee) presiding.
    Present: Representatives Kucinich, Cummings, Tierney, 
Watson, and Jordan.
    Staff present: Jaron R. Bourke, staff director; Yonatan 
Zamir, counsel; Jean Gosa, clerk; Charisma Williams, staff 
assistant; Leneal Scott, information systems manager, full 
committee; Adam Hodge, deputy press secretary, full committee; 
Dan Blankenburg, minority director of outreach and senior 
adviser; Adam Fromm, minority chief clerk and Member liaison; 
Ashley Callen, minority senior counsel; and Molly Boyl, 
minority professional staff member.
    Mr. Kucinich. Good morning. The Domestic Policy 
Subcommittee of the Oversight and Government Reform Committee 
will now come to order.
    Today's hearing will examine how the bureaucracy of the 
private health insurance industry influences the relationship 
between physicians and their patients. This hearing is divided 
into two parts. Today the subcommittee will hear testimony from 
patients and health care providers with personal experiences. 
The subcommittee will also hear from a former health insurance 
executive who will testify about internal practices of the 
industry, and two individuals whose focus is on health policy. 
Tomorrow the subcommittee will hear testimony from top 
executives of the six largest health insurance companies in the 
United States.
    Now, without objection, the Chair and ranking minority 
member will have 5 minutes to make opening statements followed 
by opening statements not to exceed 3 minutes by any other 
Member who seeks recognition.
    And without objection, Members and witnesses may have 5 
legislative days to submit a written statement or extraneous 
materials for the record.
    An observer of the public debate on reform of the health 
insurance industry would draw three conclusions, all of which 
are false. The first is that Government does not play a role in 
insuring health care today in America. The truth is that tens 
of millions of Americans get their health insurance right now 
through government-run health insurance: Medicare, Medicaid, VA 
and TRICARE.
    The second myth is that government-run health care is 
inefficient and wasteful compared to private insurance. The 
truth is that government-run health care has lower prices and 
much lower administrative costs than private insurance. 
Government-run insurance negotiates harder bargains with 
pharmaceutical companies to get lower prices; it has no 
multimillion-dollar executives, no corporate jets, no dividends 
to pay, no lobbying expenses, no campaign contributions, no 
front groups to pay for, and no television advertising. Private 
insurers pay for all of these expensive things out of the 
premium dollars they collect, and these things have nothing to 
do with improving health care outcomes.
    The third myth is that bureaucracy is solely a governmental 
problem. The truth is that for millions of Americans, there are 
layers of corporate bureaucrats standing between them and their 
doctors, often on matters of life and death, and those 
bureaucrats work for the private health insurance industry. The 
hearing we will hold today and tomorrow will examine the 
nature, costs, techniques and consequences of the bureaucracy 
of the private health insurance industry.
    Wall Street considers paying for your cancer treatment as a 
loss, and they want to see health insurers keep those losses to 
a minimum. They have a statistic known as the medical loss 
ratio [MLR], that keeps track of how effectively private health 
insurance bureaucrats achieve that financial objective of 
keeping losses at a minimum. To please Wall Street, private 
health insurers have to deny medical claims, raise premiums, or 
both. Even as the rate of inflation of medical prices has 
increased, the share of premium dollars spent on medical care 
has come down to around 83 percent, from over 90 percent in the 
early 1990's.
    The State regulatory record and civil litigation dockets 
are replete with recent findings of wrongful denial and delay 
of health care by private insurance bureaucrats. For instance, 
in 2008, PacifiCare, a subsidiary of United HealthCare, paid a 
$3\1/2\ million fine, $25 million in waived premiums and 
reimbursements of medical expenses, and restoration of health 
care to nearly 1,000 patients to resolve violations of 
California law including wrongful denial of 130,000 claims, 
incorrect payment of claims, failure to acknowledge receipt of 
claims in a timely manner, and for imposing the hassle of 
multiple requests for documentation already provided. Similar 
regulatory actions exist for nearly every private insurer.
    Private health insurance bureaucrats play with the lives of 
people, our constituents, when they are at their most 
vulnerable, when they have a life-threatening injury, when 
their children develop severe diseases, when their parents are 
battling cancer. This is when the pressure that insurance 
companies can bring is the greatest.
    From the insurer's perspective, people who really need 
their health insurance to cover life-saving medical treatment 
threaten the company with medical losses, and investors want 
medical losses to be minimized in order to maximize profits, 
pure and simple. The fact is that in America today, you don't 
know if your health insurance will take care of your serious 
medical bills until you become seriously ill or injured. By 
then it is too late to shop around.
    You buy health insurance on blind faith that coverage will 
be afforded to you when you really need it, but you receive no 
guarantees from private health insurers, especially if you get 
very sick. And that contradicts the purpose of health insurance 
in the first place, to spread the cost of illness, especially 
serious illness requiring expensive care.
    We will hear today how the private health insurance 
bureaucrats have become more sophisticated at denying expensive 
treatment and more effective at wearing down doctors and 
patients, conditioning them to choose to pay for the treatment 
themselves or to go without, rather than insist that their 
insurer pay.
    In the business of private health insurance, corporate 
bureaucrats may put profits before people, thereby becoming as 
noxious as disease itself. Such was the conclusion of the Ohio 
Supreme Court when it upheld the largest jury award in Ohio's 
history against Anthem for denying life-saving treatment to 
Esther Dardinger. From the court decision, ``Then came the 
bureaucracy. Anthem had worn''--talking about the Dardingers--
``Anthem had worn the Dardingers down as surely as the cancer 
had. Like the cancer, Anthem relentlessly followed its own 
course, uncaring, oblivious to what it destroyed, seeking only 
to have its way,'' from the Ohio Supreme Court in the case 
involving Anthem.
    [The prepared statement of Hon. Dennis J. Kucinich 
follows:]

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[GRAPHIC] [TIFF OMITTED] T4917.002

[GRAPHIC] [TIFF OMITTED] T4917.003

[GRAPHIC] [TIFF OMITTED] T4917.004

[GRAPHIC] [TIFF OMITTED] T4917.005

    Mr. Kucinich. At this time I recognize the ranking member 
from Ohio, the Honorable Mr. Jordan. You may proceed.
    Mr. Jordan. Thank you, Mr. Chairman. I appreciate you 
having this hearing, and I want to thank our witnesses for 
participating. I look forward to hearing their unique 
perspectives on this important topic. I know many of them have 
tragic stories to share with us, and you certainly have our 
sympathy.
    The ongoing health care debate is extraordinary. Americans 
who were not previously engaged in politics are now attending 
town halls, rallies, tea parties. During August and September, 
I had the opportunity to meet with many of our constituents in 
Ohio. Each and every person I talked to expressed grave concern 
about a government-run health care system, but no one denied 
that our current system needs reform, and that's what I hope we 
can gather from the next 2 days, the kind of reforms that are 
actually going to make sense and help families, help small 
business owners, help Americans.
    Health care spending is out of control, and we're not 
covering many of the most vulnerable. Medicare alone accounts 
for 3\1/2\ percent of the gross domestic product. The 
Congressional Budget Office projects that by 2080, without 
intervention, it will be as high as 13\1/2\ percent. Total 
health care spending in 2007 exceeded $2.2 trillion, which 
represents over 16 percent of GDP.
    In the debate there are areas of agreement between 
Republicans and the President. In fact, last week during the 
speech to the joint session of Congress, the President said, 
``let me set the record straight. My guiding principle is, and 
always has been, that consumers do better when there is choice 
and competition. That's how the market works.''
    Mr. Chairman, on this point I agree with the President. In 
fact, we have cosponsored a piece of legislation, H.R. 3400, 
that I believe relies on free-market approaches and tax credits 
to incentivize Americans to buy their own plans, instead of 
mandates and surtaxes which are part of the current House bill 
that passed out of committee.
    Our bill allows individuals and businesses to purchase 
insurance across State lines, increasing their insurance 
choices from perhaps a dozen carriers to over 1,300. In 
contrast, the bill being discussed decreases competition by 
installing a government-subsidized public option into the 
marketplace to crowd out the private sector. Real competition 
in the private market helps reduce prices. A government-run 
monopoly will cost all of us, especially our children and 
grandchildren.
    Rather than the Federal Government serving as an 
intermediary, my colleagues and Irealize that individuals and 
families are best served when there is a strong relationship 
between them as a patient and their primary and specialty 
health care providers. Our plan strengthens that relationship 
by reducing the practice of defensive medicine brought about by 
lawsuits. Enacting medical liability reform will help reduce 
the price of medical malpractice insurance in defensive 
medicine, both of which are passed on to consumers through 
increased costs and higher insurance premiums.
    By establishing health courts, capping noneconomic, and 
creating best practice measures, we will eliminate frivolous 
lawsuits that harm physicians, while also ensuring that justice 
is done to true victims.
    Mr. Chairman, I hope that commonsense solutions are not 
ignored. I believe Americans trust their health care 
professionals more than they trust politicians and Federal 
Government bureaucrats. They want to keep what they like best 
about their current plan, while addressing some of the problems 
with cost, access and portability.
    My trust rests in the ingenuity and compassion of the 
American people and with the professionalism and competence of 
our health care professionals.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    [The prepared statement of Hon. Jim Jordan follows:]

    [GRAPHIC] [TIFF OMITTED] T4917.006
    
    [GRAPHIC] [TIFF OMITTED] T4917.007
    
    Mr. Kucinich. The Chair recognizes the gentleman from 
Maryland Mr. Cummings.
    Mr. Cummings. I want to thank the chairman for convening 
this hearing. It is a very important hearing.
    One of the things that I want us to keep in mind is that 
insurance companies are making life-and-death decisions every 
single day. Folks talk about government, worrying about 
government coming in and making decisions. Insurance companies 
are making life-and-death decisions every day.
    There's a gentleman in my neighborhood who had a swelling 
on his leg, I guess, maybe about 2 years ago. I see him almost 
every day. I live in Baltimore, 40 miles away from here. And he 
went in and he found out that it was cancerous. He had surgery, 
then he had radiation, and then he had chemo. And then the 
cancer apparently spread to other parts of his body.
    And he had been a hardworking American, working for the 
city of Baltimore, and he had moved into a disability status. 
And he used to tell me about his problems in that the copay for 
the chemo left him in a position where he had to choose between 
eating and paying the copay. And I would see him almost every 
day, and I just think our society is better than that.
    This is a point in time where we must leave politics at the 
door and address the problems of all Americans. We need to keep 
in mind, as the President said the other night, over the last 2 
years, one out of every three Americans have had a gap in their 
insurance coverage. And what does that say? What that says is 
if you've got a gap in your insurance coverage, that means 
you've got to get some more insurance at some point.
    Well, this is a bulletin coming over the wire. The older we 
get, the more likely it is that we're going to have a 
preexisting condition, and if you haven't gotten there yet, you 
just keep on living. And the fact is that we've got to deal 
with these preexisting conditions. We've got to deal with this 
rescission where a person gets sick, they've been doing 
everything they're supposed to do, working hard, paying their 
premiums, and when it comes time for the insurance company to 
help them, they suddenly find they have no insurance.
    We've got to deal with the high cost of insurance going up. 
The President said it, and we have said it. We want people to 
keep what they have, but guess what? If it is too expensive, 
you won't be able to afford it anyway. That's a major problem.
    And so I am glad that--and I had a town hall meeting, and 
it went well, and I have listened to--seen what has happened 
across the country with regard to town hall meetings. But I 
think we need to hear not only from the people who are opposed, 
we need to hear from everyday American citizens who have been 
placed in a position where they cannot get the coverage they 
need.
    And so, Mr. Chairman, I applaud you for these two hearings, 
and I look forward to the testimony.
    Mr. Kucinich. I thank the gentleman.
    Mr. Kucinich. The Chair recognizes the gentleman from 
Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chairman. I thank all the 
witnesses for being here today.
    You know, this idea of competition is great, and it's 
interesting to hear people say they want these corporations to 
be able to go across States. I think many of them see that just 
as an opportunity to avoid State regulation, and we have to 
make sure that if that happens, and companies are allowed to go 
across States, that they do not get to avoid State regulation, 
just going to the lowest common denominator on this. They're 
seeking to avoid competition with any plan that essentially 
will do things other than their way. That's one of the reasons 
that they're so avidly fighting this public option. They're 
happy to compete with any other insurance company that does the 
things that they do: pay really excessive and exorbitant 
salaries to executives; pay a lot of money for underwriting to 
figure out ways not to cover people with health care; and give 
dividends that are just not reasonable, but that are extremely 
excessive to shareholders, who actually punish them when they 
spend too much of the premium dollar on health care delivery.
    It's a little shocking to me as we watch what goes on 
around the country throughout these town meetings that so many 
people who consider themselves out there fighting for the 
people wittingly or unwittingly are out there shilling for 
insurance and prescription drug companies, that they're really 
for the status quo. And that's just a little bit amazing. If 
they were really populists, they would be out there saying 
there is a point in time where government ought to step between 
corporations that go to the excess, between corporations that 
use their power and their bureaucracy to deprive us of what we 
pay our premiums for, and you step in with a little regulation, 
and we're making sure that competition really does work.
    That doesn't seem to be the message that's going around out 
there at all, and it's sort of surprising.
    When you look at this medical loss ratio that the chairman 
mentioned earlier, essentially I think Mr. Potter you discussed 
this on interviews as well. Companies get punished when they 
show their medical loss ratio too high. In the 1990's, it was 
common for medical loss ratios to be 95 percent. Out of every 
$100 spent, $95 would go to health care, and $5 would go toward 
salaries and overhead and profits, and the companies were doing 
well; they were doing extremely well. Well, studies now show 
that in some instances that medical loss ratio is 57 percent, 
57 percent of your premium dollar going for care and the rest 
of it going to them.
    I'd be on the streets pounding away saying, why isn't my 
Government out there doing something to stop that? That's 
what's ridiculous. You want to go out and yell and scream and 
take a town hall meeting, go where the culprit is. They're the 
ones that are taking our premium dollars, and what do they give 
us in return? Rescission. You're in the middle of your care, 
and they go back and scrub your records to find out, ah, 
there's a reason we don't have to pay the claim; making sure 
that you have a preexisting condition where you don't get 
coverage at all, or putting a cap on it, a cap on it. Sixty 
percent of the bankruptcies in this country are directly or 
indirectly related to medical expenses families are 
experiencing, and 85 percent of those families have health 
insurance.
    That's what we should be on the streets protesting about, 
and that's why this bill should directly look in there and say, 
look, we need to put in some regulation. No more rescission, no 
more unreasonable caps, no more incredibly high deductibles and 
copays, no more telling people preexisting conditions are going 
to keep them off, and no more getting away with spending less 
than a reasonable amount of our premium dollars on actual 
health care services.
    You can have a decent profit, you can have a decent salary, 
but $80,000 a day, as some executives were getting, and 
millions of dollars plus bonuses plus stock options is not a 
good way to spend our premium dollar, and that's why this 
health care reform package ought to be as much about health 
insurance reform as anything else.
    We have to move in that direction. Yes, there should be an 
option out there where people say, I don't want to go to that 
private company that gives us that kind of bad coverage; I'll 
take another option, a public option, and that maybe will 
inspire these people to do the right thing. Maybe when they see 
that there's somebody not playing their game, that we're not 
just going to let people into the game who do it the way they 
do it, that they will have to behave a little better. And 
that's what this is about, and hopefully that's what the 
American people are going to understand this is about, and 
we'll move in that direction.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    We're now going to hear testimony from the witnesses, and 
the first two witnesses are sharing a personal narrative with 
us, which I think that when we in Congress tend to expound on 
these weighty matters, we're always much more informed when we 
hear what people have to say about their own experience. And so 
two of our witnesses will provide us with information about 
their personal experience. It is important that we pay careful 
attention.
    Now, there are no additional opening statements, so we will 
receive testimony from our witnesses. I would like to introduce 
our first panel. Mr. Mark Gendernalik. Is that right?
    Mr. Gendernalik. Gendernalik, hard G.
    Mr. Kucinich. OK. Mr. Gendernalik is a teacher from Los 
Angeles, CA, where he lives with his wife and three children. 
His daughter Sidney suffers from a rare neurological disorder 
known as infantile spasms.
    Ms. Erinn Ackley is a resident of Montana where she lives 
with her husband and their daughter. In 2006, Ms. Ackley 
assisted her father William Ackley in his struggle to obtain 
approval from his private health insurer for prescribed medical 
treatment.
    Dr. Melvin Stern, M.D., has been in solo practice as a 
private care pediatrician in Highland, MD, for the last 28 
years. In addition to direct patient care, Dr. Stern has been 
continuously involved in teaching medical students, pediatric 
residents and physician extenders, such as physician 
assistants. Dr. Stern has served on the medical faculty of the 
Maryland chapter of the American Academy of Pediatrics, and has 
also previously served as the chairman of the Maryland State 
Medical Society's legislative committee.
    Dr. Linda Peeno, M.D., is a physician and medical ethicist 
who consults and educates on issues related to health system 
operations, managed care and ethics. Dr. Peeno has worked in 
executive positions in a variety of health care organizations 
and as a physician reviewing hospital requests for admission at 
the insurance company Humana. Dr. Peeno is now a nationally 
recognized expert on various issues related to health system 
operations and ethics, particularly managed care and insurance 
practices.
    And finally, Mr. Wendell Potter. Mr. Potter has served 
since May 2009 as the Center for Media and Democracy's senior 
fellow on health care. Previously Mr. Potter spent 20 years in 
a variety of communications positions for private health 
insurance companies. Mr. Potter was the chief corporate 
spokesman for CIGNA insurance company.
    I want to thank each and every one of the witnesses for 
appearing before the subcommittee today.
    It's the policy of the Committee on Oversight and 
Government Reform to swear in all witnesses before they 
testify. I would ask that at this time if you could rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you very much. Let the record reflect 
that each of the witnesses has answered in the affirmative.
    I now want to ask each of the witnesses to give a brief 
summary of your testimony. I want you to keep in mind that it's 
helpful to have this summary no more than 5 minutes in 
duration. Your complete written statement will be included in 
the hearing record. So if you're worried about not getting in a 
certain word, just know it's going to be in the record of the 
hearing, and all Members will have access to that.
    We're going to start with Mr. Gendernalik. You're going to 
be our first witness, and we'd like you to proceed at this 
time. And before you begin, I would like to recognize and 
welcome the distinguished gentlelady from California 
Congresswoman Watson. Thank you for being here. You may 
proceed.

 STATEMENTS OF MARK GENDERNALIK, FATHER OF SIDNEY GENDERNALIK, 
LOS ANGELES, CA; ERINN ACKLEY, DAUGHTER OF WILLIAM ACKLEY, RED 
LODGE, MT; MEL STERN, PEDIATRICIAN, HIGHLAND, MD; LINDA PEENO, 
FORMER REVIEW PHYSICIAN FOR HUMANA, LOUISVILLE, KY; AND WENDELL 
  POTTER, FORMER HEAD OF CORPORATE COMMUNICATIONS FOR CIGNA, 
                        PHILADELPHIA, PA

                 STATEMENT OF MARK GENDERNALIK

    Mr. Gendernalik. Mr. Chairman, members of the committee, I 
want to thank you for inviting me here today to share my 
daughter's story with you. I hope it will inform you about the 
human side of the business of health care in America.
    As an American, it is an honor to be a part of this 
democratic process at such an important time, and like many 
Americans, I'm unashamedly guilty of the swagger that comes 
with that heartfelt feeling that I live in the best country on 
Earth. Unfortunately, that swagger wears a little thin when we 
don't deliver, when we come up short, and health care is one 
such area where we are not the best in the world. Most will 
agree we are paying far too much for health care and getting 
far less than we are entitled to, far less than the American 
people deserve, far less than my daughter Sidney deserves, and 
that less has consequences, real consequences, for people, 
especially my infant daughter Sidney.
    Early one afternoon when Sidney was just 3 months old, as I 
walked down the steps of the living room in my home, Sidney's 
arm suddenly struck out at an awkward angle, her head cocked 
over to the side. Her eyes looked odd and distant. She was 3 
months old. I was concerned and alarmed at that point. I 
thought, well, that's odd, and then we had a few more and a few 
more and went and saw a pediatrician, and we started what was 
going to be the beginning of what may be Sidney's lifelong 
struggle.
    We're here today not only to help my little girl, but the 
families who have to fight beyond exhaustion just to receive 
the care that their hard-earned dollars were supposed to have 
provided them when they bought their insurance.
    Since Sidney was sent to a pediatrician--or from the 
pediatrician to a neurologist, that neurologist ordered an MRI 
with contrast dye and an EEG. He conducted his own EEG in his 
office, sent out for the MRI to be done at UCLA Medical Center. 
The insurance company denied the medical center he wished to 
send her to, which was UCLA Children's Hospital.
    She was then sent to an imaging center, which was pretty 
much a storefront operation that just does X-rays, MRIs, 
images. Their staff were incapable of injecting my small 
daughter with the dye necessary to create the contrast to give 
my neurologist the images he needed. The end result was my 
neurologist didn't get the images he needed to accurately 
diagnose my daughter, but the medical group got to save a 
little money.
    In all of the struggle through, we made the best we could 
out of it. We reached a point where he was coming to the point 
we understood her diagnosis to be infantile spasms. It's a 
syndrome. It's diagnosed by an index of symptoms. We sent out 
for a second opinion just to be prudent. We ordered a second 
opinion. The insurance company authorized Children's Hospital 
L.A. to conduct a second opinion, and then refused to authorize 
the neurologist there to do any of the diagnostics to inform 
and form the second opinion.
    My wife took the day off work. She went to the neurologist 
at Children's Hospital, waited, was seen. That neurologist went 
to order the standard panel of diagnostics, was denied. We were 
then sent to UCLA, where they didn't even have a room for us. 
We were sent there by the insurance company's telephone agent 
saying, hey, go there, they're ready for you, your 
authorization has been faxed. They weren't ready for us. My 
wife and my daughter spent the day, without food other than the 
hospital snacks, in the emergency room.
    When I finally got off work, they were able to tell us--I 
joined them at the hospital. They were able to tell us that 
they weren't able to service my daughter that day; they had no 
beds; they didn't know we were coming. When they finally were 
able to admit us 2 days later, they immediately did their panel 
of diagnostics. Those diagnostics confirmed the diagnosis of 
infantile spasms. They set out the first course of treatment. 
The universally recommended course of treatment is a drug 
called ACTH.
    The medical group would not return a phone call to the 
whole pediatric neurology department at UCLA, a prestigious 
medical center. They would give them answers like, we'll call 
back today by 5, it's under review. After 6 days of being 
inpatient at UCLA, my wife and I were living with my daughter 
in the hospital room, the doctors came in and said, we're going 
to have to discharge you; we can't get any response from your 
insurance company--from your medical group.
    After crying, I got angry. I tried calling the insurance 
company myself. I was hung up on twice for only asking for a 
supervisor in the tone of voice like I'm speaking to you today.
    Finally, I called the State regulatory agency. They looked 
into it on my behalf, and we were able to mysteriously get an 
authorization over the telephone to UCLA and to my wife. No 
explanation, no written documentation, no anything. Clearly 
their plan was to exhaust us, to wear us out.
    My time is coming to an end here. I have to just conclude 
with a final statement, if you will indulge me. Sidney's mom 
and I have spent so much time fighting to ensure her proper 
care that all too often I feel like her medical manager instead 
of her daddy. I need you people to let me be a daddy.
    I understand there's a lot of talk and a lot of ideas. The 
Consumers Union is here today with their own ideas on ways we 
can put consumers back into this competition scheme I hear 
about because we're disenfranchised right now. All I want to do 
is go home and be a dad.
    Thank you.
    [The prepared statement of Mr. Gendernalik follows:]

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    Mr. Kucinich. The Chair recognizes Ms. Ackley.
    Thank you, Mr. Gendernalik.

                   STATEMENT OF ERINN ACKLEY

    Ms. Ackley. Mr. Chairman, members of the committee, thank 
you for inviting me to participate in today's hearing on health 
reform. I am honored to have the opportunity to convey my 
family's struggle with the administrative measures and 
protocols used by my father's private health insurer and the 
lengths we went through to obtain his doctor-prescribed 
treatment in the form of a bone marrow transplant.
    This is an abbreviated version of our emotional journey as 
my dad fought for his life when his insurance company set up 
one bureaucratic roadblock after another.
    My father Bill Ackley dedicated 31 years of his life to the 
children of Montana as a public schoolteacher and 
administrator. In 2003, he retired to Florida, trusting his 
group health insurance, Blue Cross Blue Shield of Montana, 
would continue to pay, as they had for 16 years, for the 
medically necessary treatment of his chronic lymphocytic 
leukemia.
    In 2005, my dad's doctor determined that he needed a bone 
marrow transplant because his chemotherapy regimen was no 
longer effectively managing his cancer. My father was accepted 
into a transplant program, and on December 11, 2005, an 
unrelated donor match was found.
    In January 2006, my dad began two rounds of intensive chemo 
to suppress the disease in preparation for his transplant; 4\1/
2\ months after finding a donor, we were euphoric on April 14th 
when my dad's transplant doctor gave him the news that his 
disease had responded well to the treatments, and he was ready 
to proceed with a mini transplant. However, we marked this as 
day 1 of our unexpected and emotional struggle with Blue Cross 
Blue Shield of Montana.
    Because his insurance had paid for all of the treatments 
leading up to the transplant, including the donor search and 
testing, you can imagine how shocked and heartbroken we were a 
week later when his insurance notified the hospital, not my 
parents, that it was denying the mini transplant, claiming the 
procedure as investigational.
    For the next 60 days, we continued to run around in circles 
with the insurance company, never actually speaking to a human 
who could discuss my dad's case, to obtain approval for my 
father's prescribed treatments while his body was still 
receptive to a transplant. On the surface this might not seem 
like a long time, but when a loved one is going through a life-
or-death struggle, you can hear the clock ticking every minute.
    My dad's doctor submitted a different request for a full 
transplant, which had been performed for nearly 20 years, but 
that, too, was denied on grounds that it was investigational. 
It is important to note that both transplant protocols were 
approved treatments under Medicare.
    Neither of the two time-consuming approval processes my dad 
went through in an effort to overturn the denials were 
completed in the promised timeframe, and during this agonizing 
time we reached out to the Montana Insurance Commissioner's 
Office, who persisted in keeping the insurance company in 
compliance. We enlisted the help of countless friends and 
families to hold the insurance company accountable on my 
father's behalf, and we then consulted an attorney who had 
experience litigating transplant denial cases.
    On day 48, my Dad was readmitted for another round of 
intensive chemo as his cancer was growing rapidly again because 
we were waiting for transplant approval. We were emotionally 
exhausted, frustrated and devastated that we had to continue 
focusing our time and energy on holding this insurance company 
accountable instead of spending quality time with my father and 
concentrating our efforts on his care.
    Due to his persistence and refusal to accept that 
unreasonable insurance company denials would be the deciding 
factor in his life-and-death struggle with the disease he had 
lived with for 20 years, my dad was finally transplanted with 
the stem cells of a selfless anonymous donor on August 17th, 
126 days after the first transplant request.
    What would have happened if the first transplant request 
had been approved? We will never know. We do know that he never 
returned home. We spent Christmas with him in his hospital 
room, and he did make it to the new year. My dad passed away on 
January 3, 2007, at the age of 59, leaving behind a grieving 
widow and daughter and missing the chance to share his joy of 
life with his only grandchild Eliza, born 17 months later.
    My written testimony includes a very detailed timeline of 
our struggle with my father's insurance company, and I 
sincerely hope that you will read it and consider the 
implications of how an agonizing and bureaucratic denial and 
appeal process changed the course of my father's treatment and 
affected his chance for a successful life-saving transplant.
    Thank you.
    Mr. Kucinich. Thank you for your testimony.
    [The prepared statement of Ms. Ackley follows:]

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    Mr. Kucinich. The Chair recognizes Dr. Stern.

                  STATEMENT OF MELVIN S. STERN

    Dr. Stern. Thank you, Chairman Kucinich, members of the 
committee, for this opportunity to appear before you today. I 
am here on behalf of the patients and families that I take care 
of, the American Academy of Pediatrics, the Maryland chapter, 
and the National Physician Alliance.
    As has already been noted, I've been in practice in primary 
care pediatrics for approximately 30 years in Maryland and have 
spent a fair amount of that time advocating for my patients and 
my families in the public policy arena. And one of the 
templates that I utilize for reviewing public policy is if it 
makes sense for children, it makes sense for the community. If 
it doesn't make sense for children, we better go back and 
reexamine it, and based on that, go forward with the remainder 
of my evaluation here.
    We've discussed the bureaucracy, the bureaucracy of both 
the private insurer, the for-profit, as well as the not-for-
profit.
    In 2003, Steffie Woolhandler observed that 30 percent of 
our health care budget, 30 percent of the dollars that we sent 
in, is now spent on administration, and that's in the private 
sector.
    As an example of what goes on and how that impacts and has 
resulted in what happens in the private office, when I started 
private practice over 30 years ago, there were two full-time 
equivalents that were supporting me. One was a nurse who was 
fully involved in patient care, did nothing in terms of 
administration, and the other was a secretary-receptionist who 
basically handled the scheduling and the billing.
    Today I'm still the solo practitioner. I have four full-
time equivalents in the office. I am the only one who is 
exclusively involved in patient care. The other individuals are 
involved in chasing after insurance companies; doing things 
like referrals, prior authorizations; and arguing for benefits 
for my families, certainly a dramatic increase in bureaucratic 
meddling, as it were, in the office procedures.
    For the bureaucracy that we see in the private sector, the 
impact, as you've already heard--and I'll give you a scenario 
in my office of a newborn with a tumor. This baby was born with 
a tumor at a world-class hospital in Baltimore and was insured 
by a for-profit insurer. From the time the baby was born, this 
insurer required referrals.
    Now, recognize, I had never seen this baby. I was not 
medically in charge of this baby. For me to begin to refer this 
baby for additional services at an institution that had world 
authorities in regards to what should be done and how this 
tumor should be handled was just sheer nonsense and an 
obstruction for the care. It obstructed it to the point where 
there were therapies and evaluations that were remiss, were not 
obtained in a timely manner. But in the end, those therapies 
went forward initially.
    The administrative burden was very real. The institution 
itself had people working in conjunction with my office to get 
the referrals, to do the paperwork; not to do the medical care, 
but to do the paperwork to get this child the care that she 
needed.
    Following the inpatient treatment, which required surgery, 
the child underwent--began outpatient chemotherapy. It was at 
that point that the insurance company became obstructionist 
and, utilizing the Milliman and Robertson criteria for 
evaluation of whether this service should be paid for, denied 
inpatient chemotherapy services for this infant.
    Now, you need to understand, there are no Milliman and 
Robertson criteria for infants with tumors, but they refused to 
recognize that and proceeded to say, no, they were not going to 
permit this baby to have inpatient services.
    The only reason that we're able to move forward with that 
is I bluntly told them, look, either provide this infant with 
what are clearly standard treatments in the hospital, or we 
will have to go public. This is a beautiful baby, it will 
attract a great deal of attention; you can either deal with 
this in the media or deal with this appropriately. And they 
chose at that point to say, OK, we'll get things organized.
    That's not the way we need to run the health care system. 
That's not the way I need to be spending my time. This invasion 
and obstruction is not very productive.
    And finally, I'd like to leave you with a notion or the 
issue of two things. One, this is not really an issue of 
insurance coverage. Please understand, this is an issue of 
access to quality health care, and Mr. Cummings is painfully 
aware of a youngster in our community, Deamonte Driver, who had 
coverage but did not have care and died in this very city as a 
result of lack of care because providers weren't available.
    The last thing is at the current way--we know the 
liabilities that we're generating in the health care area are 
being left at the feet of our children. Let us make sure as we 
move forward that the assets are in their hands.
    Thank you very much.
    Mr. Kucinich. Thank you very much, Doctor.
    [The prepared statement of Dr. Stern follows:]

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    Mr. Kucinich. I want to acknowledge what you said about 
mentioning Deamonte Driver. Mr. Cummings and I have had an 
ongoing conversation about that young man's death, and I think 
that before the end of the day, we'll have a chance to recount 
what happened with him and this system.
    Dr. Peeno, you may proceed.

                    STATEMENT OF LINDA PEENO

    Dr. Peeno. Mr. Chairman, members of the committee and 
staff, I appreciate the opportunity to be here.
    I am a former company doctor who made those kinds of life-
and-death decisions Mr. Cummings referred to. In fact, one of 
my prior appearances here was in 1996 to talk about how company 
doctors cause harm and death to patients, and the fact that 
little has happened is evidenced by the fact that a quote of 
that hearing has resurfaced and is very timely still.
    After 1996, I continued to work on health care issues, and 
I've worked on more than 150 legal cases on behalf of patients 
and assisted patients in appeals. So I have a wealth of 
acquired information about the inner workings of the health 
insurance companies.
    The one thing that I think, in summary of my experience 
which I've detailed in my written comments, is that this has 
never been a more deadly time for patients in terms of 
insurance practices. They've become more sophisticated and more 
expert in achieving the cost cutting and saving goals.
    The four areas that I would like to talk about 
specifically, at least to address and make you aware of, the 
first has to do with claims. And I see a lot of insurance 
rhetoric that says that they're kinder and gentler, and they 
deny fewer claims, but a recent study in California showed that 
at least in that study, as much as--as many as 40 percent were 
denied.
    But the more interesting thing is what we don't know, 
because the evolution of managed care has been to shift the 
process of limitation, denial and substitution more 
prospectively. So if you can co-opt the treating physician in 
the office or the bedside, we can create conditions like we 
have already heard today where you will obstruct and delay and 
wear people down. Then those are things that are never 
recorded. There's no data or statistics we can go to to show 
the amount of care that has been altered through those 
processes.
    The second thing is that the shift in health care has been 
to move everything more technical. So the goal over the past 
decade has been to eliminate the independent medical judgment 
of physicians and of the health care professionals, to 
normalize through criteria and other scientific-based ways, and 
to eliminate the patient particulars.
    Coinciding with that is the attempt to make other agents 
the denial factors by, one, co-opting physicians and altering 
their medical ethics to achieve the goal of the company, but 
more disturbing is making patients themselves the agents of 
their own denials through economic changes.
    The fourth one, I think, has kind of been touched on 
already by several remarks here, and that is the expert use of 
terms like ``medical necessity,'' ``investigational,'' and 
``experimental.'' I actually testified in a case that you 
mentioned, Mr. Kucinich, on the Dardinger case, which was a 
very interesting case because the definition of 
``experimental'' changed as it went through layers of review in 
order to constantly shift--justify the denial. And, in fact, 
part of the e-mail communication that came out in that case is 
that the health plan employees were deliberately delaying 
because they knew Mrs. Dardinger was going to die soon, so they 
were avoiding making a decision to avoid even dealing with the 
issue of paying for it in hopes that she would die before they 
would have to address it.
    The recent attention on medical criteria and evidence-based 
medicine, it sounds wonderful to talk about best practices. We 
should be focused on that, but there is a layer of rhetoric 
there that hides what goes on underneath. Companies--you know, 
for example, the criteria for the appropriateness of a 
hysterectomy should be the same whether it's in, you know, 
Boston or Los Angeles. It should be the same whether it's 
Humana or CIGNA, and yet these tools are used and wielded. 
They're proprietary. A company would never purchase criteria 
that would cause it to be more generous and to spend more 
money. So these criteria are used deliberately to justify 
denials and to limit care and--and these tools are being 
developed using public research and should be transparent and 
should be publicly available.
    There are so many things that I could go into that I have 
seen in all the cases. As I said, I went into detail in the 
written remarks, but I think the last two things I would like 
to sum up is that patients are not mere anecdotes, and that's 
the way the insurance company would like to dismiss any claims 
of adverse affects on patients' well-being or health.
    And the last thing is that they operate in a medical--in an 
ethical and legal void. There's no medical ethics when you're 
working on behalf of stockholders, and the legal situation is 
that most Americans have no legal recourse because of ERISA and 
other complications holding these companies accountable.
    So I personally believe we will have no health reform 
unless we reform the health insurance industry to a system that 
is ethical and patient-centered.
    Thank you very much.
    Mr. Kucinich. Thank you, Doctor.
    [The prepared statement of Dr. Peeno follows:]

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    Mr. Kucinich. Mr. Potter, you may proceed. Thank you.

                  STATEMENT OF WENDELL POTTER

    Mr. Potter. Thank you, Chairman Kucinich, Ranking Member 
Jordan and members of the committee for this opportunity.
    The title of today's hearing serves as an important 
antidote to some of the rhetoric about who or what stands 
between a patient and his or her doctor. I know there are many 
who fear the idea of a government bureaucrat in that space, but 
the alternative has proved much more fearsome. The status quo 
for most Americans is that health insurance bureaucrats stand 
between them and their doctors right now, and maximizing profit 
is the mandate that has simply overtaken this industry.
    As Members discuss the various compromises that undoubtedly 
will be floated in the coming weeks, I encourage you to look 
very closely at the role of for-profit insurance companies in 
particular and the role that they play in making our health 
care system both the most expensive and one of the most 
dysfunctional in the world.
    I know this hearing and others you are holding will help 
Members of Congress look beyond the misleading and destructive 
rhetoric making the rounds and the headlines and help provide a 
real sense of what life would be like for most of us if the 
kind of so-called reform the insurers are lobbying for is 
enacted.
    An estimated 25 million Americans are now underinsured for 
two principal reasons. This is in addition to 45 million people 
who are uninsured. First, the high deductible plans that many 
of us have been forced to accept require us to pay more out of 
our own pockets for medical care, whether or not we can afford 
it. Second, the number of underinsured people has increased, 
and far more have fallen victim to deceptive marketing 
practices and bought what essentially is fake insurance.
    The industry is insistent on being able to retain the so-
called benefit design flexibility so insurers can continue to 
market these kinds of often worthless policies. The big 
insurers have spent millions of dollars acquiring companies 
that specialize in what they call limited benefit plans. An 
example of such a plan that is marketed by one of the big 
insurance companies is under the name of Starbridge Select. Not 
only are the benefits extremely limited, but the underwriting 
criteria established by this insurer essentially guarantees big 
profits. Preexisting conditions are not covered under the first 
6 months. The employer must have an annual turnover rate of at 
least 70 percent. So most workers don't even stay on the 
payroll long enough to use their benefits, and the average age 
of employees must not be higher than 40, and no more than 65 
percent of the work force can be female.
    I'm sure you've all heard insurance executives say over the 
past few months that they are bringing solutions to the table 
this time to help you address the problems of the uninsured and 
the underinsured. If they were to be completely honest, 
however, they would tell you that the solutions they really 
have in mind are moving millions more of us into high-
deductible and limited-benefit plans. If Congress goes along 
with these solutions, the bill it sends to the President might 
as well be called the Insurance Industry Profit Protection and 
Enhancement Act.
    That said, the executives you will hear from tomorrow 
rarely use the term ``insurance'' to describe their businesses 
these days. They refer to their companies now as health benefit 
companies or health solutions companies, and for a very good 
reason. They have been moving rapidly away from the risk that 
insurers used to assume for their customers and toward a 
business model that enables them to administer benefits for 
large self-insured companies, and also to shift the financial 
burden of health care to individual workers if their employers 
are not big enough to self-insure.
    If I were a member of this subcommittee, I would ask the 
executives tomorrow about this trend. I would ask them what has 
been happening to their fully insured books of business in 
recent years. If they're honest, they will tell you that it has 
been shrinking, and that they have been taking deliberate 
actions to make it shrink.
    According to a recent story in The Wall Street Journal, the 
seven largest for-profit health insurance companies have seen a 
decline of 5 million members in their fully insured books of 
business just since 2007. I would ask the executives why this 
has happened, and if they expect this trend to continue, and I 
would ask them what kind of businesses are fully insured these 
days. Again, if they're honest, they will tell you that they 
are primarily small to midsize customers that are not large 
enough to self-insure. And that does not bode well for the 
future of this country or our economy as most of the job growth 
in the United States is occurring in small to midsize 
businesses.
    I would ask the executives what kind of health benefits--
health benefit plans they're marketing now to small businesses 
and to businesses with a high rate of turnover among employees. 
If they're honest, they will tell you they're marketing 
limited-benefits or high-deductible plans to these businesses.
    I would ask Aetna and CIGNA in particular why they are 
sponsoring the first annual voluntary benefits and limited 
medical conference in Los Angeles next month. And I would ask 
them what ``voluntary'' really means. If they're honest, they 
will tell you that workers enrolled in voluntary benefit plans 
pay the full premium as well as high out-of-pocket expenses. 
Their employees do not have to pay a dime--their employers 
don't have to pay a dime toward their employees' health care 
benefits. Many of these plans actually prohibit employers from 
subsidizing the premiums.
    As the organizer of the Los Angeles conference notes on its 
Web site, voluntary benefits and limited medical plans are a 
multibillion-dollar industry and one of the fastest-growing 
segments in the health insurance industry.
    Another question you might consider asking is how much 
money insurance companies make from investments by delaying 
payments to health care providers. As you know, doctors now 
have staff members dedicated solely to trying to get insurance 
companies to pay claims that have been denied. The longer an 
insurance company can avoid paying a claim, the more interest 
it can earn from the float.
    Mr. Chairman and members of the subcommittee, this is the 
current state of the inadequately regulated free-market system 
the health care companies want to preserve. We already have 25 
million Americans who are underinsured. If the insurance 
industry gets what it wants out of this forum, that number will 
grow very, very fast in the years ahead. People you know, your 
constituents, maybe even your sons and daughters and your 
grandchildren, will be joining the ranks of the underinsured, 
and they will be forced by law to pay private insurance 
companies for their lousy coverage, and you and I and other 
taxpayers will have to subsidize the premiums for those who 
cannot afford them. I implore you not to let that happen.
    Thank you for considering my views.
    Mr. Kucinich. Thank you very much, Mr. Potter, for your 
testimony and also your expression of civic consciousness.
    [The prepared statement of Mr. Potter follows:]

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    Mr. Kucinich. I want just--before I begin my questions, I 
just want to say how deeply moved I was to hear the testimony 
of Mr. Gendernalik and Ms. Ackley.
    How's your daughter?
    Mr. Gendernalik. She's improving gradually. Her condition 
is--it is hard to treat seizures. It's hard to treat seizure 
disorders. We've been through many pharmaceuticals, and 
currently she's now on what is called a ketogenic diet. It's a 
diet designed to alleviate seizures. We're having some success, 
but she's way off her benchmarks. If we don't arrest the 
seizures, her cognitive development will leave her severely 
mentally retarded.
    Mr. Kucinich. Well, your family shall remain with our 
thoughts.
    I just also want to say to Ms. Ackley, I had the chance to 
read the exhibits, but in particular the obituary of your dad, 
who was obviously a wonderful person, and I can imagine what 
it's like for you to testify.
    I have to tell you when I was listening to both your 
testimony, I'm sure this is true of other Members, I wasn't 
just hearing the words, I could feel it in my heart. And this 
is the kind of testimony I think that can move the country, 
and, you know, I just--you can feel this. Thank you for being 
here, and our condolences to your family. From your experience, 
perhaps Congress will become better informed about the actions 
that we need to take.
    I want to thank Dr. Stern for sharing with us his 
testimony, as well as Dr. Peeno for her understanding of the 
inner workings of the industry.
    Now, I want to begin questioning with Mr. Potter, who, as I 
said earlier, is the former head of corporate communications 
for CIGNA in Philadelphia. First, I want to ask Mr. Potter 
about the business profit model of the private insurance 
industry. What is the business model of the insurance 
companies? How do they make money?
    Mr. Potter. They make money by avoiding as much risk as 
possible, and often by dumping people who are sick, and they do 
this through a variety of means. One is delaying or denying 
care. Another is to rescind policies that we've read about in 
the news and has been the subject of some subcommittee hearings 
in which people who have been paying their premiums for many 
years, when they get sick and have high medical bills, the 
insurance company will review their original applications, and 
if they find any reason to cancel it, they will; and also 
purging small businesses.
    Mr. Kucinich. Doing what?
    Mr. Potter. Purging small businesses. They deliberately 
look to see if there are small businesses and midsize 
businesses that are customers whose medical claims are higher 
than was otherwise expected, and they will jack those rates up, 
the premium rates, when those books--when those customers' 
accounts come up for renewal, and they will jack them up so 
high that these businesses have no alternative but to drop 
their insurance coverage. They can't afford--that's why we've 
had such a drop in the number of small businesses over the 
years. It's declined from 67 percent in the 1990's to just 
about 38 percent now.
    Mr. Kucinich. And you've talked about the denial reduction 
of coverage. Would you explain to this subcommittee what is 
policy rescission, and how widespread was that practiced while 
you were in the industry?
    Mr. Potter. Policy rescission happens. This is in the 
individual market, not so much in the market in which people 
get their coverage from, through their employer. Many people 
don't have the option of getting their coverage through the 
employer. And you have to fill out an application if you want 
to get coverage, of course. And you have to include in that 
application whether or not you have been sick in the past, why 
you've gone to the doctor if you have been hospitalized; in 
other words, what preexisting conditions do you have that we 
should know about? And if you are--and in many cases, a 
preexisting condition will mean you can't get coverage at any 
cost. And also, children who are born with birth defects 
ultimately will not be able to get coverage in this system we 
have now.
    So it is a means of being able to again cull the sick, to 
avoid paying claims. And if you fail to disclose something and 
you get sick and there are high medical bills that are sent for 
payment to your insurance company, they'll look at your 
application, and they'll look to see if maybe you have 
inadvertently or even purposefully not disclosed something.
    Mr. Kucinich. One of the things that we have been hearing 
in the past few weeks is how the private insurance industry 
uses special interest groups to craft market and send a message 
that the industry wants to send. Could you explain how this 
happens, and can you comment on how the industry wants us to 
believe that they are there to help us to get healthier? What 
do they think they are doing? And, you know, who are they 
talking to?
    Mr. Potter. The industry, and I know this from having 
worked in a lot of trade association committees over the years 
and serving on strategic communications committees; they plan 
and carry out duplicitous PR campaigns. One is, I call the 
charm offensive, in which they will come here and they will 
tell you that they are in favor of reform and will be working 
with you as good-faith partners and with the President. And 
they will say the same thing they said in 1993 and 1994, that 
they are in favor of getting rid of the preexisting condition 
clauses and in favor of avoiding or making--or of the cherry 
picking that goes on.
    Mr. Kucinich. So they will say one thing and do another.
    Mr. Potter. Exactly.
    Mr. Kucinich. Do they do that consistently?
    Mr. Potter. They do it consistently. They say what they 
want you to hear, and that is the charm offensive that they 
carry out. And they will talk about how much they are in favor 
of bipartisan reform, for example. Behind the scenes, they will 
be conducting these covert PR campaigns, and they work through 
big Washington-based PR firms or New York-based PR firms that 
set up front groups for them. Like in the 1990's, a group 
called the Health Benefits Coalition was set up, and it was 
presumably a business coalition but the funding came largely 
from health insurance companies, and the soul purpose was to 
kill the Patients Bill of Rights.
    Mr. Kucinich. When you say front groups, you mean they are 
groups that are then mobilized to try to present themselves as 
representative of public opinion?
    Mr. Potter. That is right. And they employ a lot of PR 
tactics, and they work also with the media and with Members on 
Capitol Hill. But with the media, the PR people who have 
connections with producers and reporters will feed messages to 
them, talking points, and there are a lot of reporters and 
producers and pundits who are very sympathetic to them.
    Mr. Kucinich. I am looking forward to having a chance to 
ask Mr. Potter some more questions, but my time has expired, 
and I want to, before I recognize Mr. Jordan, I want to 
acknowledge the presence of the gentlelady from Ohio, Ms. 
Kaptur, who has joined us.
    And, Mr. Jordan, you may proceed for 5 minutes.
    Mr. Jordan. Thank you, Mr. Chairman.
    And I apologize to the committee and to our witnesses. I 
have to jump out. I am in another committee next door.
    Mr. Kucinich. Mr. Jordan, we are always in awe of how you 
can be in two committees at one time. But we are glad you are 
here.
    Mr. Jordan. Thank you for this important hearing and for 
the witnesses' testimony.
    And to Mr. Gendernalik and Ms. Ackley, your stories--I 
think every single American would agree what you went through 
is wrong. You pay your premiums. You're honest when you sign up 
for your contract. You should not have to go through the 
harassment and the things. I mean, this is coming from a 
conservative Republican who says what happened there is wrong.
    Americans, it seems this whole health care debate as it has 
unfolded over the last several months, Americans hate being 
told what to do. And this idea that somebody is going to get 
between them and their family and their doctor, whether it is 
the insurance company or, frankly, whether it is the 
Government, it is just something that just doesn't sit well 
with them. So I think there are things that we have to focus on 
that empowers the family and doesn't have what you described 
take place.
    I liked what I think Dr. Stearns said earlier, and I am old 
enough to remember as well when I was a kid going into the 
family doc, and there was typically one person out front, and 
in those days, it was typically a lady, taking care of things 
and the reception work, and maybe she was--that individual was 
a nurse as well. Today, there are more people out front 
complying with all the bureaucracy, whether it is government or 
insurance; there are more people out front than there are in 
the back trying to get you well. And that's a problem, and that 
is what is so frustrating to so many Americans.
    Let me just walk through some of the things I outlined in 
my opening statement and just see. And I'll go to Dr. Stern, if 
I could. Do you think we need some liability reform in our 
current health care system? Do you think that is appropriate?
    Dr. Stern. The short answer is, very definitely, yes.
    Mr. Jordan. Do you think there is the need for more 
empowerment, say, health savings accounts, association health 
plans? I can remember, just 2 weeks ago I was giving a speech. 
Before I even talked to the group, had a husband and wife walk 
up to me, small business owners. They own the business, and 
they have two employees.
    And they said, ``Congressman, we would love the ability to 
pool together with other similarly situated--other small 
business owners and use the economies of scale.'' Do you think 
that makes sense in our health savings accounts, association 
health plans, as part of a way to empower people and help with 
our costs and help with our system?
    Dr. Stern. There is a conflict there. The issue of pooling 
together and generating much larger insurance pools makes an 
infinite amount of sense, and in fact, in Maryland, we do have 
a small business pool.
    The issue of the health savings account and the notion that 
the consumer can be empowered to spend that dollar more wisely 
just flies in the face of what the actual market is. Medicine 
is not a free market.
    Mr. Jordan. I agree with that.
    Dr. Stern. No way. A free market demands the free flow of 
information both ways.
    Mr. Jordan. And I was going to go there. So how do we get 
that? How do we get that transparency? How do we get to where--
there's a great piece, at least I read on the plane flying in 
this week, in The Atlantic about a businessman who talks about 
the experience his father went through getting an infection in 
the hospital. And he outlines what he thinks needs to happen in 
health care, and he talks about the fact that it is not a free 
market, and it is always somebody else paying the bill, and 
that is a fundamental problem. So tell me what you think needs 
to happen so we do get the transparency we need to get the 
right market out there.
    Dr. Stern. The transparency has to be within the health 
care system itself, to have the broker. The insurance companies 
are not in the health care business; they are a broker. I am in 
the health care business; I deal directly with the patient. The 
University of Maryland is in the health care business; they 
deal with the patient. Johns Hopkins is in the health care 
business; they deal with the patient.
    To have the broker intercede in that interaction is simply 
not productive. And you have in my written testimony some very 
specific actions that we have had to take. One of those is a 
bill that I worked on in the Maryland General Assembly and 
moved, fortunately, moved forward on the national scene, was 
the issue of the mandated benefit for maternity care. There is 
no way to have the private insurer intercede and make that 
determination that a child and a mother should be going home at 
such and such a time. That is a medical decision. It should be 
left to the medical authorities.
    Mr. Jordan. I agree.
    Dr. Stern. If there is malfeasance in that, it is the 
medical profession that should be taking care of it. And we do.
    Mr. Jordan. OK.
    Dr. Stern. But to assume that this is a marketplace issue I 
think simply isn't going to fix the problem. That is how we 
have been dealing with it. It is not a free market. And we 
don't have--the consumer doesn't have the information that they 
need to make that analysis. Even if they had the information, 
they don't have the understanding. I mean, I went to medical 
school. I did additional training just to be able to make 
that----
    Mr. Jordan. Well, I don't know that's always the case. I'll 
use my--our--we have a health savings account in our family, a 
high deductible health savings account. I did what so many of 
my colleagues do, every couple of years go for the physical 
that they offer here with the doc on Capitol Hill. Did the 
blood work, did everything. He says, ``You know what? We can 
have you--we can schedule you for a colonoscopy as well.'' I 
said, ``I'll think about it,'' and decided I would rather do it 
at home.
    Found out our insurance doesn't cover it. But I also know 
I'm 45, and 50 is kind of the recommended time you do this. So 
I could have depleted our account, or I can just wait, and we 
decided to wait. So there was a situation where we made the 
decision as a family, or I made the decision, that we would 
just wait. So I do think it can work and has a place.
    But what I am interested in getting at is a more--what we 
need to do so that we empower the patient, the consumer, the 
family as much as we can and eliminate this bureaucracy, 
whether it is the government or the insurance companies that 
gets between the patient and the caregiver.
    And my time went way too fast, Mr. Chairman. So I will I 
yield back.
    Mr. Kucinich. I thank my colleague from Ohio.
    Before I introduce Mr. Cummings for questions, I want to 
acknowledge the presence in the audience of some visitors who 
have come to Capitol Hill to indicate their concern about the 
reimbursement policies with respect to prosthetics.
    So I want to acknowledge your presence. I see the young man 
in the front row. We are glad that you are here. Maybe some day 
you will be on the other side of this dais here. So thank you 
so much for being here.
    At this time, we'd like to recognize Mr. Cummings of 
Maryland for 5 minutes of questioning.
    Mr. Cummings. Dr. Potter, first of all, thank all of you 
for your testimony. It's been very eye opening and very 
helpful.
    Dr. Potter, one of the things that really bothers me is 
that when you talk about insurance companies, the media--health 
insurance companies, the media--and you complain about them, 
the media it seems to bend in the direction of saying that you 
are beating up on them. And that really bothers me, because 
when I listen to your testimony--and I can tell you as a 
lawyer, the things that you talked about to me are, if not 
fraudulent, are very, very close and are criminal.
    In other words, when you say that you are going to--when a 
person or an insurance company has people paying, say, for 16 
years, and when it comes time--they are loyal in paying their 
payments. But when it comes time for them to get what they are 
due--and that is a simple concept of contract law: You bargain 
for something, and you get back something. But when they come 
to get it, what they are saying, I mean, listening to the 
testimony here, when you hear Dr. Stern, basically what he said 
is that he has to fight to get what he needs for his patients. 
And not everybody is a Dr. Stern. I know there are 99 million 
great doctors. But he has to fight, and he has to double and--
to double the number of employees in the fight.
    So I am trying to figure out, do you think it is an unfair 
statement when--do you think it's a fair statement when you say 
you are beating up on the insurance companies?
    Mr. Potter. Absolutely not. It is part of the PR campaign 
of the industry to protest that they are being demonized. And 
as someone who was in PR for the industry for 20 years as part 
of what I did when I was there, they want you to see them as, 
again, good-faith partners and working with Congress and with 
the President, and behind the scenes doing all they can through 
a lot of ways of essentially laundering money through big PR 
firms and setting up groups that they don't want anyone to know 
that they have any association with but which they are funding 
to try to gut reform or to shape it in ways that will benefit 
them more than Americans.
    One thing that's happened over the years, and I saw this 
from my role initially as a journalist but then later as a PR 
guy, our media has changed a lot. The newsrooms are shrinking. 
There is very little investigative reporting. And reporters are 
so stretched for time that they'd often just take a statement 
that I would write and go with it and say, ``Well, I've got the 
insurance company's point of view here.'' The insurance 
companies and other industries of the special interests have 
really benefited from the change in the way that the media 
operates and the growth in power of corporate public relations.
    Mr. Cummings. Dr. Peeno, I am wondering, when I listen to 
testimony here and then I watch some of the town hall meetings 
where people were loudly protesting--and that is all well and 
good. But I sat there and I wondered how many people, if they 
really read the legislation, would understand that this 
probably would help them. And I get the impression--I know 
there are many reasons that have been given for these protests, 
but I get the impression that part of it must be what I call, 
``It won't happen to me'' syndrome; in other words, that people 
assume that, oh, that happened over there in Indiana. That 
happened over there in Baltimore, but it won't happen to my 
family. It won't happen to my friends. I won't have a similar 
experience as Ms. Ackley.
    And so, I mean, so how--so I take it that this, the things 
that you are talking about are pretty widespread.
    Dr. Peeno. Absolutely. And I think you are right. I mean, 
people assume that this isn't going to happen to me until 
something tragic does. But I can tell you, as one of those 
doctors that sat there and put the nod on pieces of paper, that 
it did not make any difference what somebody's income level 
was, whether they were Democrat or Republican, rich, poor, 
black, white, yellow, green, or whatever. The only thing that 
made a difference was what they were costing and how quickly we 
could avoid any cost or claim that was going to hurt profits. I 
mean, I was told when I was first hired that I was to use my MD 
degree to give economic justification to the company's 
decisions.
    Mr. Cummings. And were you rewarded for that? In other 
words, was that part of your evaluation?
    Dr. Peeno. I was significantly rewarded. I mean, I quit one 
company before I got my bonus because we were put on a bonus 
system. But when I went to another company, we--my job 
evaluation depended upon the number of denials and how much 
cost savings I generated. And, you know, the 150 cases that I 
worked on as an expert witness, you know, I have read 
depositions and seen documents, internal documents, that will 
never see the light of day because they are sealed that show 
the reward system and the compensation system for the medical 
doctors that work for the insurance company.
    Mr. Cummings. Just one last question. Is there anything 
that you have seen to make you, over--since you left the 
system--I think--when did you leave the system, the last 
insurance company?
    Dr. Peeno. 1990, 1991.
    Mr. Cummings. Is there anything that you have seen in your 
present work that would indicate that things are better in that 
regard that you just talked about?
    Dr. Peeno. Absolutely not. It is far worse. Everything is 
more evolved, more sophisticated, more technical. The methods--
the difference between the methods I used to deny care and the 
methods that are used now is the difference between surgery 
with a kitchen knife and a laser gamma knife now. It is just 
that much more expert.
    Mr. Cummings. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Kucinich. The Chair recognizes Mr. Tierney.
    You may proceed.
    Mr. Tierney. Thank you very much.
    Mr. Gendernalik and Ms. Ackley, I can't think of any 
question for either of you that would do a better job than what 
your testimony did in laying out what some of the issues are. I 
do want to thank you for being with us here today. I know how 
difficult it must be on that.
    Mr. Potter, I want to go back to you again, because I--
someone is going to get between the patient and their medical 
provider one way or the other the way our system is set up. Not 
everybody in my district, certainly not even a majority of the 
people in my district, can afford to put money into an account 
of some sort. And, if they do, they are still going to have an 
insurance company somewhere involved in that. So clearly that 
is not the answer that we are talking about here.
    We can regulate, or we can try to regulate prohibiting 
rescission, prohibiting a cap on the insurance, and perhaps 
prohibiting exclusion for preexisting conditions, but we would 
have to be pretty good at policing to make sure the companies 
don't just do it anyway, or that they don't try to pay fewer 
claims in some other way.
    It would seem to me that one way to do it is to just say 
that a certain percentage of a premium dollar has to be spent 
on medical services, so the medical loss ratio--maybe go back 
to where it was in the 1990's, to 95 percent. That would be one 
way of going at it. Do you agree?
    Mr. Potter. I do agree.
    Mr. Tierney. And the second is competition with somebody or 
something that doesn't play by the rules that they play. Right 
now, they are happy with competition. Let's have competition as 
long as we are all in on this game of trying to make sure our 
medical loss ratio is low, our salaries are high, our profits 
are high, and we have these different ways of excluding 
coverage. And I think--would you agree that's where the public 
option comes in? That if you don't have something like that, we 
are never really going to get at the crux of this?
    Mr. Potter. Absolutely. There is some competition, but it 
is far less now than there was back in the 1990's. That's one 
reason why the medical loss ratio has been able to drop so 
much. There is such power concentrated in the hands of now 
seven very large for-profit insurance companies that one out of 
every three of us is enrolled in some kind of a benefit plan 
managed by one of those seven big companies.
    They are accountable to Wall Street; they are not 
accountable, really, to you and me. And we can become victims 
of their striving to meet Wall Street's relentless profit 
expectations. There is no counter to that right now. They are 
all playing by the rules that they establish in a marketplace. 
There is no government benchmark. They set the rules. They 
determine what kinds of policies we'll be able to have, what 
kinds of policies your employer will offer to you. They run the 
show. They have an enormously tight grip on our health care 
system, far, far more now than they did in 1993, 1994. And they 
are richer and stronger and more powerful and more influential 
than ever before. A public option is absolutely, absolutely 
vital.
    Mr. Tierney. I would think that people on the streets 
ranting and raving would be ranting and raving about that kind 
of practices that we're talking about engaged in by the 
insurance companies. I mean, that would really get your blood 
boiling. Now, that would be a populous motion. People would be 
out in the streets saying, ``Why is our government letting them 
get away with that? Why aren't they stepping in and protecting 
us?''
    So on the Oversight Committee here, we're used to following 
the money. So we know where the money is going: It is going to 
Wall Street. It is going to the people who invest in these 
companies. What role do you think those companies are playing 
in inciting people to go in and, instead of railing against bad 
insurance bureaucracy practices, trying to tell how bad their 
government is?
    Mr. Potter. I was speaking at a town hall meeting a few 
days ago, and a woman--and I was describing how this works, how 
the PR firms work for the industry and feed pundits talking 
points.
    And she came up, and she said, ``No one paid me to come 
here.'' And I said--I was thinking, well, no one had to. You 
don't get the money. That is not where the money goes. The 
money goes into the big PR firms who have the influence to 
manipulate public opinion. That's how it happens.
    And I did ask her, to Congressman Cummings' point, are you 
absolutely certain that tomorrow your insurance is going to be 
there, that your son or daughter is going to be enrolled in a 
benefit plan that provides protection? And she didn't have a 
good answer to that, because there is no guarantee. You do not 
know if you are going to have your insurance coverage tomorrow. 
You do not know if you are going to be losing it because you 
lose your job, or if you are going to be forced into a plan 
that makes you pay so much out of your own pocket that you 
might as well--you will be forced, in some scenarios, to buy 
insurance from private insurance companies, but your benefits 
may be so limited that you will be sending in money every month 
for almost nothing.
    Mr. Tierney. Which has been going on.
    Just, I'll tell you one little anecdote from an individual 
that came into my office, just ranting and raving about the 
public option. And I tried to explain what that would do.
    He said, ``Look, I like my company now.''
    I said, ``Fine, then stay with your company.''
    And then he said, ``Well, except if I get really sick or 
someone in my family gets really sick, I don't use the company; 
I go to the VA, because if I use the company, they will jack up 
my premiums.''
    Case in point.
    Thank you, Mr. Chairman.
    Mr. Kucinich. I thank the gentleman.
    The Chair recognizes the gentlelady from Ohio, Ms. Kaptur.
    Ms. Kaptur. I thank the chairman very much, and compliment 
him for his steadfast efforts to try to bring health insurance 
at affordable prices and quality care to all the American 
people. I'm very, very proud to serve with you.
    I wanted to say to the panel that I view my job as 
defending our citizenry against those who might harm or exploit 
them or our Republic. And these are very important hearings 
today.
    As I have listened to your testimony, I keep thinking about 
pharmaceutical companies being the third most profitable sector 
in our economy. In the district that I represent, you can't 
turn the TV on without being besieged by all these ads from the 
pharmaceutical companies. I don't know if that is true in every 
district in the country, but they are sure spending a lot of 
money on advertising. I keep asking myself, if you have a 
doctor, what do you need all those ads for on the television?
    It is very curious what has happened. That wasn't true 20 
years ago. It is true today. And I can see, with the kind of 
profits they are making, where they are putting some of those 
dollars.
    Yet, I have people in my district, I border Canada up in 
northern Ohio, and I can't tell you how many people from my 
district have to go to Canada because they cannot afford 
medicine in the United States of America. Yet, I see these ads 
on television, and I am thinking, what doesn't fit here? How 
are these dollars being used versus what the need is?
    The insurance companies are the ninth most profitable 
industry in this country, and, Mr. Potter, I think you talked 
about seven companies now having a third of the market?
    Mr. Potter. Yes. That's right.
    Ms. Kaptur. And we heard that yesterday at a hearing by the 
former head of CIGNA Corp., who I believe will be before this 
committee this week.
    I remember, back to our beloved Uncle Skip from our family, 
and he used to confide in me as he became older and had 
infirmities. He said, ``Marcy, here's all my insurance.'' Now, 
this is a man that was on Medicare. And he emptied out his 
billfold, and he pulled out all these policies, Art Linkletter 
policy and this policy and that.
    And I said, ``Uncle Skip, why do you have these policies? 
You don't need these policies. You have a supplemental, and you 
have your Medicare.''
    He says, ``Well, just in case.''
    And I keep thinking to myself, I thought, ``Uncle Skip, why 
didn't you tell me about this before? You don't need to spend 
your money on these.'' I said, and, ``frankly, with some of the 
exclusions, this wouldn't give you anything.''
    But he really didn't know. He was not an uninformed person, 
but he was afraid. He did not have a college degree. And I 
asked myself, how many Uncle Skips are out there in our country 
who are buying unnecessary policies that are duplicative? And 
even with our offices on aging and so forth, we can't reach 
every citizen to help them make wise insurance choices.
    So my questions to you really are, the bill that the 
President has proposed has language that only encourages for 
the pharmaceutical companies price negotiation for the cost of 
prescription drugs. Within the VA, within the Department of 
Defense, we actually negotiate. It is mandatory.
    I want to ask you to comment on the language that is in the 
base bill that merely encourages negotiation, and what that 
might mean down the road. And, No. 2, on the insurance 
companies and the fact that seven control so much, can you give 
us a sense of what you see happening in the insurance market in 
our country? Is it consolidating like we see happening in other 
segments of our industry, the banking industry, mega banks that 
just caused this huge implosion in our economy, these very big 
private companies that seem to be terribly irresponsible? Could 
you give us a sense of what is happening in the insurance 
market?
    Anyone that wants to respond on the pharmaceutical question 
or on that would be much appreciated.
    Mr. Potter. I think that encouraging is not strong enough. 
You are exactly right. Another gentleman I heard was talking 
about he got his care through the VA, and he needed medication 
that cost him a modest amount of money. But he needed it. And 
in private insurance, he would have to pay about $300 for this 
medication. He was able to pay through the VA a small fraction 
of that. So it makes a big difference.
    And in the lives of people who are--the median household in 
this country is just $50,000. The average price of a premium 
that you get through the workplace for a family is $12,500. So 
you are shifting more of the financial burden for either drugs 
or care for the doctor, whatever, there's not much money left 
over to pay the rent or buy the groceries.
    To your point about the seven large companies that control 
the industry. They have become so big through mergers and 
acquisitions over the years, and I think a part or a lot of 
that--or managing communications around them. There are far 
fewer companies than there used to be. There is not nearly as 
much competition as the industry would like you to believe. 
They say on their Web site and they will say in testimony that 
there are 1,300 insurance companies that compete. There's 
nothing like that. If you look closer on their Web site, you 
might see, if you can count up, 287. And then that includes 
vendors to these companies. So it's a fabrication.
    There's been so much consolidation in the industry that 
last year alone $250 billion flowed through the seven--just 
these seven companies in revenues. So you have enormous 
concentration of power. It is really a cartel of large 
companies. And they are so big that small companies--and 
there's been talk about maybe establishing co-ops--there's not 
a chance that a co-op, a fledgling co-op could ever get the 
resources or have the clout in the marketplace to compete 
against these big companies.
    Ms. Kaptur. You are talking about the insurance companies.
    Mr. Potter. I am.
    Ms. Kaptur. Do you see the same concentration in the 
pharmaceutical industry?
    Mr. Potter. Absolutely. The power of the pharmaceutical 
companies is--absolutely is great, and they are gigantic 
companies that are very, very profitable.
    Ms. Kaptur. Could I ask, sir, if there are any of the 
witnesses that have any articles that you could reference that 
we could incorporate in the hearing record on the nature of 
that concentration, I personally would appreciate it very much.
    Mr. Potter. Certainly. We'll do that.
    Ms. Kaptur. Anyone else want to comment on pharmaceutical 
profits and insurance company consolidation?
    Mr. Gendernalik. Very briefly.
    My daughter's delay in treatment at UCLA, the first 
significant delay we received was because the pharmaceutical 
she required is a drug called ACTH. There was one manufacturer 
who produced it, Questcorps. They have been the subject of 
Senate hearings due to what they did with their pricing scheme.
    In doing my parental due diligence, I went online to look 
up what this drug was that they were going to put in my child, 
stumbled across investment journals, online investment 
journals, where one of the corporate officers from Questcorps 
was speaking freely to investors. So he wasn't speaking--I 
wasn't the intended audience.
    His remarks were that the drug was an underutilized asset; 
and because they were the sole manufacturer, they could change 
their pricing strategy and significantly increase the company's 
portfolio, which they would then be able to put into--he tried 
to cast a noble light on--other FDA approvals and such.
    The drug went in July 2007 from roughly $1,000 a vial to 
over $23,000 a vial based on published reports. My insurance 
company doesn't let me see what the actual costs are. So, 
published reports, multiple published reports had it at that 
point, when my daughter needed it in December 2007, $23,000 a 
vial. And just to get to how ludicrous this is, we had to order 
it from out of State; we had to inject it ourselves. Two 
untrained people had to inject our daughter nightly with this. 
We had a syringe explode. We thought, how many thousands of 
dollars just exploded over dad's face? They had a delivery man 
in a beat-up Nissan probably making $8 an hour deliver four 
vials of this stuff to my house. And I thought, wow, does he 
know what he has? He can quit this job, drive across to Mexico 
and sell this stuff.
    Clearly we've had our brush with the pharmaceutical 
industry. My solid opinion is that they delayed service to my 
daughter because of the hit they were going to take. Now, that 
is the HMO medical group.
    The pharmaceutical company on the other hand knew by the 
open drug status they had the leverage. There was no 
competition in the marketplace for this drug that serves a 
minority of people. Very few children are afflicted with my 
daughter's disorder. Their primary market for that drug are MS 
patients, and, therefore, they leveraged it, as the man was 
candidly speaking in investment journals, up to 23,000.
    Other published reporters after my daughter's required time 
period on the drug, we were on it for 4 months, I don't know, 
estimated cost was $80,000 to $100,000. The drug went up to 
over $40,000 a vial. Absolutely exacerbating and unwarranted 
and immoral. Thank you.
    Ms. Kaptur. Thank you.
    Mr. Chairman, may I just say, if there are any witnesses 
that have any kind of a study on the advertisements paid for by 
pharmaceutical companies across this country in order of the 
most, the biggest buys, for which drugs, and then in rank 
order, I would love to have that for the record.
    Mr. Kucinich. I want to say in response to the gentlelady's 
question, I think that as we begin preparing for the continued 
work of this committee, that would be a proper subject for a 
separate hearing. And I want to thank the gentlelady for making 
that suggestion.
    Ms. Kaptur. Thank you.
    Mr. Kucinich. We are going to go to a second round of 
questions of the witnesses before we go to our second panel. 
And given the fact that we are going to be holding a hearing 
tomorrow with top insurance executives in this same 
subcommittee and the fact that we have two distinguished 
individuals here who have had direct experience working inside 
the industry, we are going to hopefully be able to engage a 
little bit more in this second round.
    I want to start with Dr. Linda Peeno, who is the former 
review physician for Humana, Inc., out of Louisville, KY.
    Dr. Peeno, the evidence on which evidence-based medicine is 
supposed to rely is by its nature public, peer-review journals, 
for example. But the detailed standards of care used by private 
health insurance companies are proprietary, meaning that it is 
their business and not ours. If the coverage decisions are 
based on publicly available evidence, why doesn't it follow 
that the standards these companies use to determine care should 
also be public? Why aren't they? And what is the reason?
    Dr. Peeno. Well, the main reason is that their basic 
purpose is to be able to deny or limit care. So what happens--
and this has been a part of the evolution of managed care. 
Twenty years ago, one of the real difficulties for an insurance 
company back when I was functioning as a medical director was 
having some sort of objective grounds to deny something. So, 
for example, if we wanted to deny a hysterectomy, we needed 
criteria to do that. And that was very labor-intensive for a 
company to develop. So these companies emerged that would 
actually develop criteria, like we've heard Milliman & 
Robertson, Dr. Stern referred to them, which is now Milliman 
USA, and other companies that have gotten into the business of 
developing criteria specifically for health care companies to 
have--it is like a filter, you know, and the tighter the 
threads of the filter, the more you can limit or deny care.
    Mr. Kucinich. So you're saying the criteria is set up on 
denying care.
    Dr. Peeno. Right. I mean, it's like I said in my testimony 
here, you don't purchase criteria in order to provide more care 
or more generous care. You know, the reason these companies 
spend millions and millions of dollars to buy the criteria, to 
set up the computer system, is to enable, as requests are made 
for the more costly or the more frequent and costly services, 
is for nurses up front, or not even nurses sometimes, to be 
able to say, well, this doesn't meet our criteria, and we can't 
authorize it.
    Mr. Kucinich. So the standards are proprietary. But are 
these standards based on evidence? Or are they just basically 
accounting devices to try to whittle away the claims?
    Dr. Peeno. Well, they are loosely based on evidence. I 
mean, there is material that is available and research that 
comes out of academic centers that say you take this 
information, that is public and has been developed using public 
funds, and then you tweak it as an accounting denial tool.
    Mr. Kucinich. Now, Dr. Stern, you wanted to get in on this?
    Dr. Stern. The criteria in one case has a focus that is the 
standard criteria, the standard practice, that are publicly 
available has a sole criteria of cost-effective quality care. 
That is the criteria.
    Milliman & Robertson is focused on cost reduction. That is 
the criteria. And everything that is generated in that criteria 
is to support the cost reduction. It is a highly different 
mission.
    Mr. Kucinich. So let me ask Dr. Peeno and Dr. Stern, if you 
want to join in on this. I understand, Dr. Peeno, that insurers 
pay subcontractors to do utilization review as well as handle 
specific appeals of denials of coverage. Do insurance companies 
carve out any specific disease for internal special reviews or 
for outside contractors to review?
    Dr. Peeno. Oh, yes. And----
    Mr. Kucinich. Why?
    Dr. Peeno. They kind of carve out--or, outsourcing is 
increasing.
    Mr. Kucinich. Why? I mean, under what circumstances?
    Dr. Peeno. It began, one of the earliest carve-outs were 
mental health management, you know, where you could carve out 
the amount of premium that was used for mental health and you 
subcontract it out to a for-profit mental health management 
company. You capitate them, so you fix your costs. I mean, they 
have to take care of all the medical conditions within that. 
And then that has slowly emerged and grown into now we have 
disease management companies that will manage a single disease 
like congestive heart failure or asthma or diabetes or other 
conditions.
    Mr. Kucinich. Say a whole industry that is set up around 
trying to figure out how to lessen the amount of claims.
    Dr. Peeno. Exactly.
    Mr. Kucinich. I have a limited time here to just ask one 
final question. A person signs up with an insurance company. 
They receive a policyholder's book that describes all the 
procedures and costs that are supposed to be covered. Does this 
mean an insured person will then be covered for all the things 
listed in the book? Yes or no?
    Dr. Peeno. No.
    Mr. Kucinich. And is it one standard of medical necessity 
across the industry?
    Dr. Peeno. No. It can even differ within the same company 
and the same plan.
    Mr. Kucinich. Is there any one standard of medical 
necessity within each company?
    Dr. Peeno. No.
    Mr. Kucinich. OK.
    My time has expired. I am going to now go to Mr. Jordan.
    Mr. Jordan. Thank you, Mr. Chairman.
    Let me ask Mr. Gendernalik and then Ms. Ackley. The 
harassment that you went through dealing with the insurance 
companies, are you in favor of a single-payer system, 
government-run system, public option that has received so much 
discussion of late? Or do you think that just replaces one--
instead of having the insurance companies give you harassment, 
you now have the government? We know from many countries that 
have this, at least from what I have read, there are waiting 
lists. There are difficulties. There is rationing of care 
eventually when you go there.
    So do you want us to fix what happened in your situation, 
make the insurance companies do what they said they were going 
to do when you bought your policy, paid your premiums, did 
everything right? Or are you in favor of like throwing it all 
out and going to a single-payer, government-run system?
    And, I mean, you obviously know where I am coming from. I 
look at this, the most recent example of government starting a 
big program. I just talked with a car dealer the other day. 
He's still waiting on 75 percent of the dollars that the Cash 
For Clunker program was supposed to get to him. And I think 
there's lots of examples where you have bureaucracy that don't 
meet the customers' needs and demands at least in a timely 
fashion. So fill me in.
    Ms. Ackley. Well, I am in support of a public system. But 
from our experience, things that would have been beneficial 
with the private industry would include Federal oversight of 
that.
    You know, the appeals process that we went through, 
supposedly once my dad's appeals went to the reviewing 
foundation, we were supposed to get a decision within 48 hours. 
The first appeals process----
    Mr. Jordan. Was that a State review? Was that through the 
State insurance commissioner?
    Ms. Ackley. That was coming from the insurance company 
itself.
    Mr. Jordan. Internal. OK.
    Ms. Ackley. That we would get a response.
    The first appeal process, the hospital received the 
decision 6 days later, and then my dad received the decision 9 
days later.
    On the second appeal process, the insurance commissioner's 
office received a decision 10 days later, and then my parents 
received it 13 days later. So there was nothing to hold them 
accountable for that.
    Some other things we encountered was the foundation who was 
reviewing my dad's case is getting paid directly by the 
insurance company. So, I don't know, that seems a little odd.
    Mr. Jordan. But Ms. Ackley, your short answer is you think 
a single-payer, government-run system--you would be for moving 
completely to that type of system?
    Ms. Ackley. I think there are benefits with a public-run 
system. But I don't see the private industry being eliminated.
    Mr. Jordan. OK. I guess my question, you don't think we 
substitute one set of hassles for another if we go in that 
direction?
    I'll go to you, Mr. Gendernalik.
    Mr. Gendernalik. Thank you for the chance to address the 
question.
    I think to revert to what you were speaking about earlier, 
health savings accounts as a sole measure for health care, are 
woefully inadequate.
    Mr. Jordan. I am not saying they----
    Mr. Gendernalik. I don't believe putting things totally in 
the hands of government is the solution. I believe that a 
public option is a necessity to provide a baseline. I think--as 
a Member of the Republican Party myself, I think we talk out of 
both corners of our mouth when we express concerns about 
government inefficiencies on one hand not being able to get it 
done, and on the other hand, we say that if the government 
provided a public option, we would undercut, low-ball the price 
in health care and run the private sector out. Which is it? 
It's one way or the other. It isn't both, unless we are not 
dealing direct.
    I think there's a desperate need for regulations so that 
the consumer, the end consumer, the end user, has recourse. We 
have none now. The way it is set up now, our employers largely 
negotiate with a limited pool of providers to figure out what 
choices we have. Then the employee gets to select from that 
menu. And then we get to subselect a doctor who is covered 
under that.
    Now, I did it backward. I found good doctors and then went 
up the chain of command. I am fortunate. I work at a huge 
bureaucracy with 80,000 employees, and the employees pick our 
contracts. If I worked at a small mom-and-pop who is nice 
enough to give us coverage, I wouldn't have had that luxury, or 
we would have been audited repeatedly. And we have some of the 
most effective policies in this country, thanks to the employee 
unions who negotiated it.
    That all said, my doctor is handcuffed because they do--
they determine through their best judgment what the proper care 
is, and it is constantly meddled and interfered with by people 
who are looking at one thing: How can they do this less 
expensively?
    I don't believe that for the United States a single-payer 
government system is what would be best in this point in 
history.
    I do believe that it is incumbent upon all of you to survey 
the world, just like a business would, if you want to continue 
on the business model. If I want to know how my competition is 
beating me, I am going to go find out what they're doing; I'm 
going to take their best ideas and make it work within my----
    Mr. Jordan. Let me ask you this question, because I think 
your statements sort of beg this question; if in fact the 
government's running it, what is our recourse then if we don't 
like what they decide? You get hassled. What is our recourse 
then?
    Mr. Gendernalik. I can tell you that the services I do get 
through the Government for my daughter, we have had almost no 
problem with. And when we do, there is a clearly identified 
appeal process with a clearly identified timetable with a 
clearly identified resolution. Nobody is going to be happy all 
the time. That is just not realistic.
    As the proud son of a Dutch mother, I can tell you that the 
waiting lists that you speak about are not a reality in the 
Netherlands. And it hurts me as a father and an American, and 
my relatives have offered to take my daughter and I in because 
we wouldn't be facing the delays and denials that we are here.
    As the proud husband of a Belizean American, when we travel 
to Belize, a third-world Central American country, my daughter 
got sick on the flight over. We were hospitalized for 4 days. 
The bill was $7; $7 in a country where children don't have 
shoes to go to school. A proud country, a beautiful country. I 
certainly don't want anyone to take out of context and malign 
any country, but clearly a poverty-stricken nation, 4 days of 
hospital care with medication, $7.
    Mr. Tierney. Mr. Chairman, let me just--15 seconds by 
unanimous consent. I think the answer to the gentleman's 
question clearly is, what happens if you don't like the 
government doing it? It's government. You have a vote, and you 
change it. That's where the people get to have a part in it. We 
don't get that vote with the insurance companies, and that's 
the problem. We can rant and we can rave and we can do it, but 
all we get to do is go to another company with the same bad 
practices if we don't like the first one.
    Mr. Jordan. I appreciate the gentleman. But we can also 
change the law and make it--we do have a say in this as well. 
We can make the system work better and do one that doesn't turn 
it all over to the government as well. That's Congress. I mean, 
I agree with you. We can act.
    Mr. Tierney. If the gentleman's for strict regulation, we 
can all get there pretty soon.
    Mr. Kucinich. I want to thank both of my colleagues for 
that exchange. A great thing about this committee is that we 
like to hear what each other has to say.
    Mr. Cummings, you are recognized.
    Mr. Cummings. Mr. Gendernalik, I think you are saying what 
I am feeling. I just want us to have an effective and efficient 
system that also has an element of empathy.
    The President used to talk about, and I guess he still 
does, a society where we have an empathy deficit, because we 
can put all of the rules and regulations in place, but if we 
don't have people in those places that see people as more than 
a number or more than a statistic or not worrying about a bonus 
over the life of a person, it won't make a lot of difference. 
So I agree with you.
    Mr. Potter, what is the--I mean, let's put you in the place 
in your old position. And somebody walked in to your office and 
said, ``Potter, we've got a problem. Those folks over there on 
Capitol Hill, they have come up with this thing called a public 
option. What do we do about that?''
    I mean, in other words, I am trying to figure out, what I 
hear the insurance companies on the one hand say that they are 
worried about being--not being able to compete, but on the 
other hand saying that there are certain things that they have 
to have in order--well, the first thing they don't want is a 
public option. And I am trying to figure out, what would be the 
concern? What are those concerns?
    And then I would like to hear from you, Ms. Peeno, also. Go 
ahead.
    And are they legitimate?
    Mr. Potter. The insurance industry actually has had this 
concern and has been preparing for opposition to the public 
plan since before Barack Obama was elected President. And I was 
there during a lot of the meetings in which we reviewed every 
Presidential candidate's platform for health care reform. And 
as you probably know, President Obama, Senator Clinton, and 
Senator Edwards all had the public option as a central 
component of their campaign platform. So the industry had a 
long time to develop a strategy to try to oppose that, and what 
we are seeing now is it being carried out.
    And they have been saying the things that we've been 
hearing that make no sense: that it will put them out of 
business because it will be run too efficiently, on the one 
hand; or, that we should oppose it because it is a government-
run system.
    They want to try to make--they want to defame it and make 
it seen as if this is a government takeover of a health care 
system. Those are the terms that they use. That's part of the 
strategy that was developed a long time ago. It has been an 
ever-green phrase that works for them every time there is an 
attempt to reform the health care system.
    What are they afraid of? They are afraid of having 
something that might take a little bit of revenue from them. If 
there's no public option and if you have an individual mandate, 
look what happens, everybody has to buy their product. And if 
the person can't afford that product, then you and I and other 
taxpayers will have to pay the subsidies. And those subsidies, 
the premium dollars that the people will pay and the tax 
dollars that subsidize them, will flow right into those for-
profit companies--or all those companies for that matter--and 
then a lot of that will be taken away and go into shareholders' 
pockets.
    That is what they--they don't want to have another 
competitor. They have been consolidating for many, many years, 
taking the small players out, gaining control of markets and 
market share. So of course they are going to try to oppose 
anything that would compete with them, but certainly anything 
that could operate more efficiently.
    Mr. Cummings. What I see and what I see and I hear the 
insurance companies say, we are ready to come to the table, we 
will get rid of the preexisting conditions; we will get rid of 
the rescissions. And they go through all of that. It makes it 
sound as if they are basically admitting that this stuff is 
wrong.
    Mr. Potter. Absolutely. And they said exactly the same 
thing in testimony before Congress in 1993, and I can point you 
to it. They know it is wrong. But after the plan failed, the 
Clinton plan failed, did you see them coming here to Congress 
and asking them to change the laws? No. Of course, they didn't. 
They have thrived. They've made tons and tons--they made 
billions of dollars with the system that we have now. They are 
not sincere. It's just rhetoric.
    They would agree to it if--they could thrive in a system in 
which these things are made illegal, but they know how to make 
money. It is kind of like squeezing a balloon. You could make 
them do certain things, you can regulate them, but what you 
would have is pressure from Wall Street to figure out ways, 
unique ways for them to deny care or to shift more of the 
financial burden to consumers.
    Mr. Cummings. Without a public option, do you see any way 
where we can control costs? In other words, costs of premiums?
    Mr. Potter. In a word, no. In two words, absolutely no.
    Mr. Cummings. Can I just hear from Dr. Peeno, just real 
quick?
    Mr. Kucinich. The gentlelady may respond briefly.
    Please go ahead, Dr. Peeno.
    Dr. Peeno. Well, a general question about why they would 
oppose the public option is because I think, you know, Mr. 
Potter referred to them as a cartel and that it's a cartel that 
works with very secret hidden practices that suddenly would 
possibly be disclosed if they had to compete with a real 
competitor. So, all of these methods, these secret hidden 
methods for profit maximization would become more public.
    And they could come to the table, and they could say, oh, 
well, we will give up preexisting conditions; we'll give up 
rescission. But that is only because they have so refined all 
of the other methods behind the scenes. And I see this in case 
after case after case where I've worked as an expert witness, 
where after all of the labor of finally getting documents that 
have to be compelled by a judge, and we see the inner 
practices. You know, these systems are so refined. And they 
could give up these other things and still have the methods to 
maximize profits. That's why they no longer worry about 
possibly having all of these other persons who are uninsured, 
because they now can control the cost of the people who are 
going to be costly. You know, it's a process that's been 
refined over the past decade in ways that are just unimaginable 
and would take days to explain how all these devious methods 
work.
    Mr. Cummings. Thank you very much.
    Mr. Kucinich. I would say that it would probably be to the 
great benefit of Congress to have still another hearing of this 
subcommittee where we actually would go into great detail about 
how all these meetings and ways are used to deny coverage.
    The Chair recognizes Ms. Kaptur for 5 minutes.
    Ms. Kaptur. Thank you, Mr. Chairman.
    Mr. Potter, do you have the ability to put on the record 
the profit margins of the largest insurance companies that you 
have been referencing?
    Mr. Potter. Sure. I can get that data.
    Ms. Kaptur. How would it compare to the profits that are 
made, let's say, by the supermarket industry, the food 
industry, or the clothing industry? I mean, how would you 
compare, from your knowledge of the industry?
    Mr. Potter. The profit margin is higher than grocery 
stores. And I haven't compared all the other sectors of the 
economy. In fact, I just heard this week that the insurance 
industry was putting out propaganda saying that only 3 percent 
of the premium dollar goes to profits or something like that.
    It varies widely from company to company and product to 
product. Some of these products are extraordinarily profitable, 
and the ones that they want to move us all in to, these high 
deductible plans and similar plans, profit margins will expand 
greatly. They can make tons and tons of money on this. So 
that's what they want to do in the future. That's why the trend 
is the way it is.
    But think of it this way. Let's assume that it is 3 
percent, and let's assume--and that's not an assumption, that's 
the truth, that $250 billion of the money that we spend on 
health care flowed through those seven companies last year 
alone in revenue, 3 percent of that is a ton of money. That is 
a lot of money in profit. So they will use sometimes small 
numbers to make you think that it is inconsequential, but it is 
a huge, huge amount of money.
    Ms. Kaptur. Let me go back to my example of Uncle Skip. How 
much duplication--how do we get a handle on how much money is 
wasted in the system because consumers are innocently or 
fearfully buying numerous plans to cover themselves when 
they're unneeded? How do we get at that? What's the mechanism 
to get at that? I know the standard benefit plan; that's one of 
the goals of the reform legislation, to have a benefit plan 
that people know they can depend upon. But how does one get at 
that waste inside the system?
    Mr. Potter. There's a lot of waste. McKenzie & Co., which 
does a lot of consulting work for big insurance companies and 
other large corporations, did a study of health care systems 
and compared our system with those abroad, and I think the 
doctor noted that 30 percent of the money we spend here is on 
administration that is not spent in other countries. And that 
is not just because you have that much inside the insurance 
industry, but it's caused by the industry. The multipayer 
system we have now, there's an enormous amount of 
administration that goes on within these companies, but it 
requires doctors and hospitals to hire big staffs just to deal 
with them. So that is 30 percent.
    Ms. Kaptur. I understand the administrative point or about 
a third of the money. But I am talking about citizens who--
millions of them out there in our country who are buying 
policies they don't need because they are victims in the 
marketplace, in essence. They are fearful of the future. They 
don't believe that what they have is secure. How much money is 
being wasted on that?
    Mr. Potter. I think that would be a good research project. 
I haven't seen the data myself on that because it is not so 
easily found. But you would need to look at the kinds of 
policies that the companies are selling, what benefits they 
have, and whether or not they are really worth a dime.
    And then you can also look at the policies that are being 
spent on fake insurance or--that I have talked about. These big 
companies are now getting into that. It's not just fly by-
nights that are doing that. And these are plans that people--
it's not just supplemental. It's what is being sold as the 
choice that they have available to them that's affordable.
    Keep this in mind: Don't be blinded by just this talk about 
affordable premiums, because they will sell you--they'll market 
something that has the premiums being affordable, but the 
benefits will be so lousy you might as well not be insured.
    Ms. Kaptur. If there are senior citizens listening today, 
if they have a Medicare policy with a supplemental plan that is 
recognized by the Department of Health and Human Services, do 
they need extra catastrophic coverage?
    Mr. Potter. I don't think they would. I mean, the basic 
Medicare benefits are pretty good. If you've got a reasonably 
good supplemental plan, then I can't imagine why you would need 
to shell out a lot more of your scarce resources.
    Ms. Kaptur. And where the fault line is, is the public--
large numbers in the public don't understand that.
    Mr. Potter. Exactly, they don't.
    Ms. Kaptur. So there are people that play that portion of 
the market. There are firms that play that portion of the 
market, and they force product on people that is really 
unnecessary. And I can't think of a place--I know we have a 
State Insurance Commissioner in the State of Ohio; you can call 
that number. But this issue of consumer protection and 
insurance plan buying is very important, and money is being 
wasted all over this country by people who are so scared that 
they are buying what is unnecessary. We really need to look at 
that arena. It's huge.
    Mr. Potter. It is. And it brings up a point that I would 
like to make in the inadequacy of State regulation. They do 
review marketing materials, but they don't have the resources 
to do an appropriate job. That's why you have stuff like this 
going on. The regulators are well intentioned, but they just 
don't have the resources. States are not wealthy enough to 
provide all the resources that are needed to regulate this 
industry that is so bent on taking advantage of consumers.
    Ms. Kaptur. I thank you very much.
    I know, Mr. Chair, my time has expired.
    Mr. Kucinich. I want to thank the gentlelady. And as she 
has pursued twice in her line of questioning, the issue of 
people, particularly seniors, buying policies beyond their 
basic Medicare extra policies that they may not need and which 
in fact may represent kind of a consumer fraud that people are 
trying to sell to seniors, I just want the gentlelady to know 
that I have just talked to staff, and that is something that we 
are interested in pursuing to the level of a hearing to work 
with the gentlelady.
    And perhaps we could get Uncle Skip here to testify.
    Ms. Kaptur. Thank you very much.
    Mr. Kucinich. You are welcome. And I just want to say, this 
is the Ohio committee now. We have Mr. Jordan from Ohio, myself 
from Ohio, and also Ms. Kaptur. So Ohio is very concerned on 
this. Some of our colleagues may be rejoining us momentarily.
    I want to thank this panel. Each one of you has made a 
contribution through your testimony here today, some of it 
heart-wrenching, and other of the testimony infuriating. We 
will continue with our investigation tomorrow. But I will say 
that the testimony that came today was very helpful in 
preparing us for tomorrow as well as to remind the American 
people that I think it's good to communicate with each other 
about our experience. It's not theoretical.
    You know, Mr. Gendernalik has real experience with the 
system.
    Ms. Ackley, your family has some real experience with the 
system.
    We need to hear those stories, not anecdotes; what really 
happens. And, as Dr. Stern told his experience as well. So this 
is very important. I think, frankly, whatever kind of system we 
end up with, the transformation is going to be driven by the 
power of the narratives which we hear from across the country.
    So, with that, I want to thank each and every one of you 
and also to salute Mr. Potter and Dr. Peeno for your courage in 
coming forward and giving an insider's point of view that we 
rarely get a chance to hear. And so I just want to thank you 
personally and on behalf of the committee for being here, and 
we look forward to your continued work and cooperation. This 
panel is now dismissed.
    Mr. Kucinich. We're going to ask our second panel to come 
forward.
    As the staff is getting the table ready, I just want to 
remind everyone that this is the Domestic Policy Subcommittee 
of Oversight and Government Reform. The topic of today's 
hearing: Between You and Your Doctor: The Private Health 
Insurance Bureaucracy. I'm joined by the ranking member, Mr. 
Jordan of Ohio. We have Ms. Kaptur from Ohio and other Members 
who have been here throughout the hearing.
    We want to thank the first panel. We're now going to go to 
the second panel. We're fortunate to have an outstanding second 
panel of witnesses. I would like to first introduce Ms. Karen 
Pollitz; is that correct? Welcome.
    Ms. Pollitz is the project director of the Health Policy 
Institute at Georgetown University here in Washington. She's 
also an adjunct professor of Georgetown's graduate public 
policy school. Professor Pollitz directs research on health 
insurance reform issues as they affect consumers and patients, 
focusing on the regulation of private health insurance plans 
and markets, managed care consumer protections and access to 
affordable health insurance.
    Ms. Pollitz is a member of the National Academy of Social 
Insurance. She's also a member of the advisory board of the 
California Health Benefits Review Program and has served on the 
board of directors of the Maryland Health Insurance Plan, as 
well as the National Committee on Quality Assurance. 
Previously, Professor Pollitz served as Deputy Assistant 
Director for Health Education at the U.S. Department of Health 
and Human Services from 1993 through 1997, acting as the 
Secretary's legislative liaison on all Federal health care 
issues, including national health care reform, Medicare and 
Medicaid, and U.S. Public Health Service agencies and programs.
    Mr. Michael Cannon. Welcome, Mr. Cannon. Mr. Cannon is the 
CATO Institute's director of health policy studies. Previously 
he served as a domestic policy analyst for the U.S. Senate 
Republican Policy Committee under Chairman Larry Craig, where 
he advised the Senate leadership on health, education, labor, 
welfare and the Second Amendment. He coauthored a book on 
competition in health care. Mr. Cannon has had his work 
published in numerous national media publications and has also 
appeared as a commentator on television and radio.
    I want to thank you, Mr. Cannon and Ms. Pollitz, for 
appearing before the subcommittee today. It is the policy of 
the Committee on Oversight and Government Reform to swear in 
witnesses before they testify. I would ask that you rise and 
raise your right hands.
    [Witnesses sworn.]
    Mr. Kucinich. Thank you very much.
    Let the record reflect that the witnesses have answered in 
the affirmative.
    I'm going to, as we did with the first panel, ask each 
witness to a give summary of his or her testimony and to keep 
the summary under 5 minutes in duration. Keep in mind your 
complete written statement will be included in the hearing 
record.
    Professor Pollitz, you will be our first witness for this 
panel. You may proceed. We'll get your testimony in, and maybe 
we'll be able to hear from both of you before we run to votes. 
Go ahead.

 STATEMENTS OF KAREN POLLITZ, PROJECT DIRECTOR, HEALTH POLICY 
 INSTITUTE, GEORGETOWN UNIVERSITY, WASHINGTON, DC; AND MICHAEL 
   CANNON, DIRECTOR, HEALTH POLICY STUDIES, CATO INSTITUTE, 
                         WASHINGTON, DC

                   STATEMENT OF KAREN POLLITZ

    Ms. Pollitz. Thank you, Mr. Chairman, members of the 
subcommittee. I just want to open by saying I'm also from Ohio. 
I grew up in the Cleveland area when you were mayor, Mr. 
Chairman, so it's very nice to be here today.
    Mr. Kucinich. Thank you.
    Ms. Pollitz. I want to thank you for holding this very 
important hearing.
    I hope and expect that health care reform when it is 
enacted will create rules to prohibit or at least limit a lot 
of the practices that you heard about this morning on the first 
panel, but rules will not be enough. There will always be a 
strong incentive in a competitive insurance market for 
insurance companies to try to avoid risks, avoid enrolling, 
keeping them enrolled, or avoid paying their claims. And so 
transparency and accountability in insurance is essential, and 
it's very important that health reform try to accomplish that 
as well.
    Transparency in insurance will involve a number of key 
changes, and the most important of these will be data 
reporting. When I was invited to testify at this hearing, I was 
asked could I provide data on how often practices like these 
happen, and the answer was I could not, and neither can the 
regulators or other policymakers, but the information is 
knowable.
    Regulators need to have ongoing, detailed information about 
marketing and enrollment practices and about how coverage is 
administered so that it will be possible to see when insurers 
are avoiding risk that they are supposed to cover. We don't do 
that today. The Federal Government collects no data on health 
insurance consumer protections, even though Federal law 
requires certain important protections already, including 
guaranteed renewability of coverage.
    For the most part, States don't collect a lot of data on 
consumer protection and health insurance either. Instead, most 
data collected on an ongoing basis by State insurance 
departments relates to financial solvency, and regulators rely 
largely on consumer complaints as an indicator of problems. 
However, a body of research shows that rarely do consumers 
lodge formal complaints with regulators, even about serious 
health insurance problems that cost them a lot of money or that 
delay their access to care.
    A series of hearings about health insurance rescissions 
that were initiated in this committee provides a sobering case 
study of how little we know about how well health insurance 
works for consumers and how vulnerable they are to 
discrimination.
    This committee asked all 50 State regulators what data they 
collect on health insurance rescissions, and in response only 4 
States could provide any data on the number of rescissions that 
had occurred. Only 10 could provide the number of individual 
insurance policies that were enforced in their States, and more 
than a third of States could not supply a complete list of 
companies that sell individual health insurance within their 
borders.
    The NAIC pulled all 50 State insurance departments and 
provided summary complaints data about health insurance 
rescissions. They found a total of 181 complaints about health 
insurance rescissions had been lodged over a 5-year period. By 
contrast, when this committee asked just 3 insurance companies 
how many policies they had rescinded over the same period, the 
answer was almost 20,000.
    A new approach to health insurance regulation must require 
ongoing and detailed reporting by insurers of data that will 
enable regulators to evaluate how the market works, especially 
for the sickest consumers. That would include data on 
enrollment, retention, disenrollment, on rating practices at 
issue, and at renewal.
    Regulators must also track measures of coverage 
effectiveness to see what medical bills are paid and how many 
are left for consumers to pay on their own. That means insurers 
also need to report data on provider participation fees, 
insurer reimbursement levels, health insurance policy 
lossratios, and data regarding claims payments and utilization 
review practices. If regulators have access to this kind of 
information, patterns of problems that affect the sickest 
consumers won't be as easy to hide.
    Finally, Mr. Chairman, health insurance must also be held 
accountable for compliance with market rules and consumer 
protections. As Ms. Kaptur talked about her uncle buying 
additional policies, that is illegal. So it's not enough to 
have rules. We have to enforce the rules, and that requires 
resources for oversight and enforcement.
    In addition, it's time for the Federal Government to take a 
more proactive role in health insurance regulation. Current 
Federal capacity for private health insurance oversight and 
regulation is practically nonexistent. Last year a witness from 
CMS testified that agency dedicated only four part-time staff 
to HIPAA private health insurance matters for the entire 
Nation.
    Further, despite press reports alleging abuse of rescission 
practices in violation of Federal law, the agency did not 
investigate or even make inquiries as to whether Federal 
guaranteed renewability protections were being adequately 
enforced. This outcome is not surprising.
    When you enacted HIPAA in 1996, Congress created important 
Federal rights for consumers, but limited Federal enforcement 
authority. Instead, Congress opted to rely primarily on State 
enforcement by adopting a so-called Federal fallback 
enforcement structure. Federal enforcement is triggered only as 
a last resort once a finding is made that States have not 
adopted and substantially enforced Federal minimum standards. 
Under the structure it's not surprising that the Federal 
Government lacks oversight and enforcement capacity. It doesn't 
make sense to build and maintain capacity that you don't expect 
to use. So you rely on the States instead, but unfortunately, 
limited regulatory capacity is a problem at the State level as 
well. Insurance department staff have been cut, and States are 
overworked.
    It's time for the Federal Government to assume an active 
and effective role in enforcement of Federal health insurance 
standards and to require transparency so that we can see how 
coverage works.
    Mr. Kucinich. I thank the gentlelady.
    [The prepared statement of Ms. Pollitz follows:]

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    Mr. Kucinich. Mr. Cannon, you may proceed for 5 minutes.

                  STATEMENT OF MICHAEL CANNON

    Mr. Cannon. Thank you, Mr. Chairman, for this opportunity 
to present my perspective on providing secure health insurance 
to American consumers.
    How do we ensure that insurance plans honor their 
commitments to care for the sick? It's a problem whether we're 
talking about private insurance plans or government plans. 
Private plans, whether through indifference or incompetence, do 
sometimes shirk on those commitments. So does government.
    In 2007, a 12-year-old Maryland boy named Deamante Driver 
died because his mother could not access the care that Deamante 
was supposedly guaranteed under a government health plan. As 
former Senate Majority Leader Tom Daschle acknowledges, even if 
we achieve universal coverage, some percentage of patients will 
fall through the cracks. Health care is a human endeavor. That 
means perfection is not an option. Our task is to find a set of 
rules that least often leaves Americans in the position of 
Deamante Driver and his family.
    In my written testimony, I cite a growing body of economic 
literature that finds that rightly regulated insurance markets 
perform actually much better than critics suggest, providing 
secure coverage to millions of Americans with high-cost 
illnesses. And I also express my concerns with the four 
measures that Congress is considering. For example, legislation 
before the House would compel tens of millions of Americans to 
purchase private health insurance and would shower private 
insurance companies with billions of dollars in taxpayer 
subsidies, and not, I would add, because insurance companies 
are doing a fantastic job.
    Another provision of the legislation would impose price 
controls on private health insurance premiums. As President 
Obama's economic adviser Larry Summers has said, ``price 
controls inevitably create harmful economic distortions. An 
example of one of those distortions, if you think insurers try 
to avoid the sick now, wait until the government price controls 
force insurers to sell a $50,000 policy for just $10,000.''
    It is worth noting that the insurance lobby supports both 
the proposal to make health insurance compulsory and the 
proposed price controls because they would subsidize and 
protect private insurance companies from competition. Whether 
we support a new government health program or oppose it, I 
think we should all be able to agree that we don't need to 
further subsidize and protect private insurance companies from 
competition.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Cannon follows:]

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    Mr. Kucinich. I want to thank Mr. Cannon and Ms. Pollitz 
for their testimony.
    We have votes that are on right now, and I just would like 
to invite you to do one of two things, and this is up to you. 
You can either respond to written questions from members of 
this subcommittee, and they will be included in the record, or 
you can come back probably in about 45 minutes at the 
conclusion of the votes, and then we can go through a second 
round of questioning of the panel here. So what would you 
prefer?
    Mr. Cannon. I would be happy to come back in 45 minutes.
    Mr. Kucinich. Can you do that? OK. OK. My colleague 
suggests it might be, let's say, a half hour. So let's say--
let's come back in a half hour then, and we'll go to questions. 
I thank you for your patience. We're going to go vote right 
now.
    The committee is in recess for the vote. We'll be back in a 
half hour.
    [Recess.]
    Mr. Kucinich. The committee will come to order. I'd like to 
thank the witnesses for remaining, and I'd like to begin by 
asking Mr. Cannon, under what circumstances do you see that 
making private health insurance compulsory represents a bailout 
to the insurance industry? How would you explain that view? 
Hold the mic a little bit closer.
    Mr. Cannon. Mr. Chairman, in order to help Americans comply 
with what they call the individual mandate in the legislation 
before the House and in the legislation before the Senate as 
well, Congress has decided it would--or the legislation would 
offer subsidies to Americans to help them purchase health 
insurance. Simply mandating that people purchase health 
insurance doesn't mean that they will be able to. A lot of 
people won't be able to afford it, and so Congress would be, in 
its legislation, offering subsidies to a lot of people who 
cannot afford health insurance on their own and to a lot of 
people who can afford health insurance on their own, because 
the subsidies, as I understand them, would go up to 300 or 400 
percent of the Federal poverty level, which for a family of 
four is somewhere around $60,000 to $80,000 per year.
    Those subsidies offered to people who can afford health 
insurance already and to people who cannot would--would 
essentially help people purchase more health insurance and give 
the insurance industry really a guaranteed customer base and a 
guaranteed source of revenue.
    So I think that essentially what that legislation would do 
is akin to a bailout of the health insurance industry. I don't 
think that what we should be doing is giving more to this--to 
this sector or to this industry. I think we should be demanding 
more from it, and I think the way to do that is to preserve the 
freedom to choose whether or not to purchase health insurance 
as well as the freedom to choose what goes into your health 
insurance policy. And the way to do that, in my view, is to let 
consumers control the money that government and employers now 
control to purchase health insurance on their behalf, and they 
will--they will economize on health insurance. They will--they 
will most likely purchase less health insurance than they do 
right now, and they will hold health insurers accountable in a 
way that they cannot when their employers are making those 
decisions for them.
    Mr. Kucinich. So let's go 4 years down the road. Let's say 
that a health care plan is enacted which requires that people 
have private insurance. Let's say there's no public option--
that's kind of the way it looks like right now--and people--
there will be tens of millions of Americans who will be faced 
with a decision to either purchase private insurance or pay a 
fine. Would you like to comment on that?
    Mr. Cannon. I think that what that really highlights is 
that this proposal for--to mandate people purchase health 
insurance, this proposal to make health insurance compulsory in 
the United States, amounts to a tax on a lot of middle-class 
families. If they purchase the health insurance, as President 
Obama's economic adviser Larry Summers acknowledges, then the 
government forces people to purchase something that they don't 
value or pay more than the market would demand, values in 
itself are taxed, and if they don't purchase the mandatory 
level of coverage and they have to pay what we euphemistically 
call a fine or a penalty, that's a tax as well.
    In the House legislation, there would be a tax on the 
individual equal to 2\1/2\ percent of income--of adjusted gross 
income, and if the individual's employer does not offer them 
coverage, there would be a tax equal to 8 percent of payroll. 
Now, Mr. Summers and the Congressional Budget Office and 
economists broadly acknowledge that 8 percent payroll tax would 
be paid for by the worker because it reduces their earnings. So 
what you're talking there is a 10\1/2\ percent tax----
    Mr. Kucinich. Is that axiomatic?
    Mr. Cannon. It is.
    Mr. Kucinich. So you're saying that if workers have a 
health care benefit, they're in effect paying for it?
    Mr. Cannon. Absolutely, and I think, in fact, that is why--
I think that's the great--the biggest drawback or the biggest 
problem with the tax preference for employer-sponsored 
insurance.
    The, ``employer contribution'' to the average family plan 
in this country amounts to $10,000. That's $10,000 of the 
worker's earnings that the worker doesn't get to control. The 
government, by creating this tax preference for employer-
sponsored insurance, essentially takes that $10,000 out of the 
worker's hands, gives it to the employer, and lets the employer 
make the worker's health insurance decisions for the worker.
    So, yes, I think that economists--in fact, there was a 
survey of health economists recently, and the broadest area of 
agreement was on the question of whether health benefits 
actually come out of wages or profits or something else. Ninety 
percent of economists--health economists acknowledge or agreed 
with the proposition that, yes, workers pay for those health 
benefits through reduced wages, and the same is true of any tax 
penalties that Congress might impose.
    Mr. Kucinich. Thank you, Mr. Cannon.
    Professor Pollitz, I want to speak to you about how 
government can help the public make better choices about health 
insurance. In your testimony, you pointed out something that 
many people may not realize, ``The primary purpose of health 
insurance data collected by State regulators today is to 
monitor the solvency of private health insurers, and that, 
quote, enforcement of consumer protections in health insurance 
today is largely triggered by complaints.''
    I think the average person is or would be surprised to hear 
this. So who does monitor things like accessibility, 
affordability, or security of private health insurers or how 
accurately do they pay out on claims?
    Ms. Pollitz. It is not well monitored or consistently 
monitored today. I think State insurance regulators strive 
mightily to protect consumers as best they can. Their resources 
are limited.
    Mr. Kucinich. Would you describe the State regulators as 
reactive to consumer complaints rather than proactive?
    Ms. Pollitz. A lot of it is reactive. A lot of times in 
response to a complaint, as little as one complaint, a State 
regulator may initiate a broader investigation of a company or 
of a pattern of practices. So I don't mean to suggest that 
State regulators aren't out there giving it their best effort, 
but they are very strapped in terms of resources. They are very 
broad in terms of the jurisdiction that they need to keep an 
eye on, and with limited resources--I mean, if I were one, and 
I had the limited resources, I would probably start with 
solvency myself, because if a company goes under, then no 
claims will be paid for anybody. So that's not an illogical 
place to start, but there are not enough resources to monitor 
closely what needs to be monitored. And with health insurance, 
that's a very transaction-heavy task to accomplish.
    Mr. Kucinich. Do private health insurers themselves keep 
data on complaints made against them that can be reviewed?
    Ms. Pollitz. That can be reviewed?
    Mr. Kucinich. Yeah.
    Ms. Pollitz. I don't actually know what data they would 
keep. All insurance companies have a compliance office with a 
lot of attorneys, and I'm sure they at least have a pretty good 
idea of what complaints are being filed, and they have to keep 
records. I mean, this is why you get urged to put everything in 
writing when you're communicating with your insurance company 
so that there will be a record somewhere.
    Mr. Kucinich. My time is expired. I'm going to go to my 
colleague for 5 minutes, and then we'll go to one more--one 
final round of questioning.
    Mr. Jordan. Thank you. Thank you, Mr. Chairman.
    Mr. Cannon and Ms. Pollitz, thank you for being here.
    Mr. Cannon, let me ask you about this idea of interstate 
insurance broadening the field, increasing the market, 
increasing competition. In the first panel, I believe Dr. Peeno 
and Mr. Potter talked about the cartel that exists in the 
insurance market right now. Their solution was to have the 
Government compete; you know, to increase competition by having 
this so-called public option. The approach I prefer is this 
interstate market.
    Mr. Jordan. Tell me your thoughts on that, what the 
research shows us getting. This is now being debated a lot and 
talked about as a possible improvement. Let me hear your 
thoughts there.
    Mr. Cannon. Well, I think the insurance markets in most 
States are not unlike a cartel, and I think the reason is 
that--is because each State sets up barriers to competition to 
protect their domestic insurers.
    What those are are essentially State licensing laws. Now, 
there's nothing wrong with a State licensing law per se, but 
what these laws do is they say unless your insurance policy is 
licensed by this State, say the Commonwealth of Virginia, then 
you may not sell it to residents of this State. And so what 
that means is that residents of Virginia cannot purchase a 
health insurance policy that's available in Maryland or North 
Carolina.
    That's particularly cruel, I think, to residents of New 
Jersey, who face some of the highest health insurance premiums 
in the country. They cannot purchase health insurance from 
across the Delaware River in Pennsylvania where it's often less 
expensive.
    So what happens--so I do think there is insufficient 
competition in insurance markets. The President and other 
supporters of a new government program have said that they--
that a new competitor can keep insurance companies honest. If 
that's the case, then I think that dozens of new competitors 
would do an even better job, so that if Congress, using its 
power under the interstate commerce clause of the Constitution, 
were to say, look, you know, States can license health 
insurance, but they cannot prohibit their residents from 
purchasing health insurance licensed by another State, what 
that would do is it would bring new entrants into the markets 
in each State, give individuals and employers a lot more 
choices of health insurance plans and increased competition.
    What it would also do is it would give individuals and 
employers the power to avoid unwanted costly State regulations. 
A lot of State regulations are, in fact, consumer protections. 
Solvency standards that Ms. Pollitz was talking about, I think, 
are a prime example. But when you start looking at how the 
States require consumers to purchase 30 different types of 
mandated benefits that they may not want or need, or try to 
impose hidden taxes on the healthy in order to subsidize the 
sick, those are increase--those are regulations that increase 
the cost of insurance and make it unaffordable for some people.
    So you can't really call them consumer protections if 
they're keeping people from purchasing health insurance, and I 
think that letting people purchase insurance across State lines 
would allow people to----
    Mr. Jordan. Thank you. Thank you.
    Ms. Pollitz.
    Ms. Pollitz. The proposals to allow sale across State lines 
that have been in the Congress to date are really a 
prescription for insurance fraud. There would be little 
practical ability of the licensing State to regulate insurance 
sold across the 50 States. Imagine if the Ohio commissioner had 
to keep track of policies that were sold in California and 
Texas and New York. They're not set up for that.
    The notion of escaping mandated benefits is a total red 
herring. The reason that health insurance costs more in New 
Jersey compared to Maryland, where I live, which has been cited 
as the champion of mandated benefits--supposedly we have more 
in Maryland than anywhere--is that in New Jersey everybody has 
to be offered health insurance. You can't be turned down 
because you have cancer, and in Maryland you can. So it's 
cheaper and insurance----
    Mr. Jordan. I think the chairman talked about that in his 
previous question.
    Ms. Pollitz. I think we have to come back to what is the 
basis of competition in health insurance right now, and it is 
competition to avoid sick people and their costs. And the more 
you dilute oversight and regulation, the more easy that will be 
and the more----
    Mr. Jordan. Let me get a response from Mr. Cannon.
    Mr. Cannon. Karen raises a couple of important issues. One 
of them is how do you enforce these rules that are written by 
an out-of-State legislature or insurance commissioner, and I 
think there's a fairly straightforward way of doing that. You 
have those regulations, whatever they may be, incorporated in 
the insurance contract, which could then be enforced in the 
purchaser's home State and in their courts, and then the 
domestic--the purchaser's insurance commissioner could even 
play a role there.
    What's important is that the individual consumer or the 
employer be able to choose the rules, and they could be 
enforced at home without having to rely on an out-of-State 
insurance commissioner.
    As for the cost of mandated benefits, the cost estimates 
vary, but the Commonwealth of Massachusetts recently estimated 
that the benefits that are mandated in that State add 12 
percent to the cost of premiums. So that's a substantial chunk 
of money.
    Mr. Jordan. Sure.
    Mr. Chairman, looks like just you and me. I yield back to 
you.
    Mr. Kucinich. Just you and me. This town is big enough for 
both of us.
    I'd like to go back to Ms. Pollitz. I'd like to talk to you 
about standards of care and a possible scenario. Are you aware 
of any data on the inconsistent application of standards of 
care by private insurers? Is it possible that within two--
taking two different people with the same illness, who are 
insured by the same private health insurer, that they will be 
treated differently by the insurance company; is that possible?
    Ms. Pollitz. I believe it's possible, yes.
    Mr. Kucinich. And so is there any guarantee that if a 
person buys coverage, it will guarantee coverage?
    Ms. Pollitz. Not an ironclad guarantee, no.
    Mr. Kucinich. Pardon?
    Ms. Pollitz. Not an ironclad guarantee, no. There is a 
contract, but it----
    Mr. Kucinich. But there are no guarantees.
    Ms. Pollitz. That's correct.
    Mr. Kucinich. I'd like to ask about lack of transparency in 
private health insurance as compared to Medicare.
    Congress and the general public are able to examine and 
debate the reasoning behind how Medicare pays for medical care, 
but the private health insurers keep their decisionmaking 
process and guidelines hidden behind books of confusing 
terminology. In other words, Medicare's actions are 
transparent, but private insurers are not, but they provide the 
same service ostensibly to cover medical expenses. Now, is 
there any justification to keeping insurance company 
definitions of medical necessity proprietary?
    Ms. Pollitz. I don't think so, no.
    Mr. Kucinich. And why would the insurance company want to 
keep that information proprietary?
    Ms. Pollitz. I believe they will argue so that doctors and 
other providers don't try to game the system and sort of code 
their billing so that it matches up what the--you know, what 
the guidelines would be. But I think you heard testimony on the 
earlier panel that there is also an effort to just, you know, 
kind of try to hide the ball and try to, you know, create 
options for the insurance company to deny claims if they feel 
like they want to do that.
    Mr. Kucinich. Are there any data nationally about either 
the frequency of wrongful denials of claims or of unjustified 
reviews or appeals?
    Ms. Pollitz. There are not good, consistent data. I tried a 
couple of years ago to study the results of even external 
appeals programs, and the data was very sparse.
    What you can find is--suggests that we need to be doing a 
better job and looking much more carefully and not relying on 
the sort of end result of a patient having to go through all of 
the steps and appeals before they can get to a system where 
records will be kept.
    Mr. Kucinich. Anything else you want to add about that you 
haven't told this committee about the data collection?
    Ms. Pollitz. I really do think, Mr. Chairman, that we need 
to think carefully about the ways that insurance companies 
compete now to avoid paying claims. Certainly there are reasons 
why we don't want to pay for care that's not medically 
necessary. We don't want to pay for fraud. I mean, there are 
reasons for vigilance for sure, but I think we need to think 
from the patient's perspective about what we need to track so 
that we can make sure that decisions are justified, that 
they're backed up, that they're consistent, and that they're in 
the patient's best interests, and then build our data-reporting 
requirements from that exercise.
    I think we need a much more proactive and propatient 
approach to data gathering from health insurance companies, and 
I hope that will be a central part of any health reform 
legislation that gets enacted.
    Mr. Kucinich. I'd like to ask a question of Mr. Cannon. 
You're here representing the CATO Institute, and I've always 
found very handy this Constitution of the United States which 
comes from the CATO Institute, including its introduction.
    Under our Constitution, you know, the general welfare 
clause, which there's been a lot of discussion about, there are 
some of us who believe that both the Preamble to the 
Constitution and Article I, section 8, in describing the 
general welfare, that as we evolve as a Nation and have 
specified health care, retirement security as part of the 
general welfare, that a logical extension of that would be to 
have health care for all, guided by the principle enunciated in 
the Constitution, both in Article I, section 8 and the 
Preamble. You know, tell me what--how you see that.
    Mr. Cannon. The question is about the general welfare 
clause of the Constitution? There is a difference of opinion 
among legal scholars about what that means. I'm not a 
constitutional scholar, but let me give you my best take on 
what that disagreement is.
    There's some that believe that is an expansive grant of 
power that would, say, give Congress the power, the 
constitutional authority to enact, say, a single-payer system 
or make health insurance compulsory for all Americans. I think 
that the perspective of CATO's constitutional scholars is that 
if that were true, if the--if the Framers of the Constitution 
meant for the general welfare clause to be such a sweeping, 
broad, comprehensive grant of power from the States to the 
Federal Government, then the rest of the Constitution would be 
superfluous. They wouldn't have had to enumerate all the other 
powers in the Constitution, because the general welfare clause 
would have taken care of everything. So the very structure of 
the Constitution itself, I think, argues against a broad or the 
sort of expansive interpretation of the general welfare clause 
that you suggest.
    Mr. Kucinich. One of the things that I've always been 
impressed with is the Preamble which CATO provides to the 
declaration and the Constitution. And one of the things they 
say in there, my colleague, is that it's not--it's not 
political will, but moral reasoning which is the foundation of 
the political system.
    And some of the issues that are being brought to us about 
conditions relating to health care in America are laden with 
moral consequences and moral overtones, and it's like an 
underlying reality of whether health care--if health care's a 
privilege based on ability to pay, or is health care a 
fundamental right in a democratic society.
    There's like this arc where you go from--from economics, 
which can be amoral, to the imperatives of a democracy that 
relate directly to morality. And I just--you know, that's--in a 
way, that's part of the backdrop of this national discussion 
we're having right now, is it a right or is it a privilege, you 
know, and this is part of our unfolding democracy here, trying 
to decipher what the meaning of this document is, and also 
doing it within the context of what our present-day needs are 
and what--the various human conditions we find ourselves in and 
the underlying morality--you know, is it immoral for somebody 
to be denied care when they're paying for it?
    These are questions that we are to deal with here. I 
appreciate having the chance to share that with you.
    Mr. Jordan, you can conclude this hearing.
    Mr. Jordan. All right. Thank you, Mr. Chairman.
    Let me just go to the premise. Many of the witnesses in the 
first panel, the premise was that the government can do it 
better. We know that there's been problems with the way 
insurance companies deal with patients and sometimes some of 
the things that take place, but to say that government can do 
it better, I'd like your thoughts on that in light of the 
Congressional Research Service said of over the 1 billion 
claims submitted each year to Medicare, 10 percent of those 
claims are denied.
    Attorney General Holder said, ``by all accounts every year 
we lose tens of billions of dollars in Medicare and Medicaid 
funds to fraud.''
    So, your thoughts on--you know, we met with health care 
professionals. We did health care roundtables in our district 
over the recess, and, you know, we had so many people tell us 
that government's already 50 percent of the health care market 
right now, and that providers don't get compensated fully for 
the care they provide when they treat folks under the Medicare 
and Medicaid system, and therefore the folks who are in the 
private insurance have to pay more because that's just the way 
the system is set up right now.
    So I'd like both your thoughts. I'd start with Mr. Cannon 
on this premise that has been so--kind of underlies the entire 
hearing today on how somehow the government can do it better, 
because, as you can gather, I have real reservations about 
that.
    Mr. Cannon. Well, I think, Congressman, that the state of 
America's health care sector right now is pretty good evidence 
that the government does not do a very good job of managing 
health care. And I'll give you a couple of examples.
    You brought up the Medicare program. That program, it has 
been estimated that one-third of Medicare spending does 
absolutely nothing to improve the health or--improve the health 
of patients or improve patient satisfaction, provides no value 
to them whatsoever. It's often cited that we have--so that's an 
enormous amount of waste, much--even larger than the estimates 
of fraud in the Medicare program.
    It has been estimated that as many as 100,000 Americans die 
every year due to medical errors in hospitals. I submit that 
probably Medicare is the biggest reason for that because 
Medicare's payment system actually penalizes doctors and 
hospitals when they succeed in reducing medical errors. It 
makes it a losing business proposition. Rather than have 
competition between different payment systems that bring out 
different dimensions that would improve all dimensions of 
quality, Medicare gives us good marks on some dimensions of 
quality, but absolutely horrible marks on other dimensions.
    One of the biggest problems that the President talks about 
is the problem of preexisting conditions, people with high-cost 
illnesses who lose their coverage and then cannot afford the 
premiums that they're charged on the individual market. That is 
a problem that has been fueled by government for 60 years, and 
the reason is that 60 years ago the government created a tax 
preference for employer-sponsored insurance coverage that has 
given us the employer-based system that we have right now that 
is so cruel and, to use the chairman's words, immoral that it 
takes insurance away from people the moment they need it most. 
And they lose their jobs, they lose their incomes, and if those 
people are sick, then they've got a preexisting condition. They 
are not going to be able to get coverage.
    And if I may finish, one of the studies that I cite in my 
written testimony finds--looks at the empirical--looks at the 
data and finds that people who purchase insurance directly from 
an insurance company, people with high-cost illnesses who do 
so, are half as likely to end up uninsured as people who 
purchase--high-cost patients who purchase health insurance from 
a small employer.
    Mr. Jordan. One of the things we should deal with in the 
legislation I have cosponsored is for the families who have to 
go out and buy it on their own in the market, they should get 
the same tax advantages that we give to employers to provide to 
employees.
    Mr. Cannon. That problem has been in place for 60 years 
now----
    Mr. Jordan. That is one of the key things we have to--Ms. 
Pollitz, I'm sorry, go ahead.
    Ms. Pollitz. No problem. I think the real--two real 
differences. One is about accountability, and there is a 
different level of accountability for government than there is 
for the private sector. There just is. I think we should try to 
enhance and strengthen accountability in the private sector 
with much stronger oversight and regulation and enforcement. 
Regardless of how you end up structuring health reform, I think 
that's essential.
    But government programs will always be accountable in a 
different way to--directly to the voters. They will always be 
open in a different way compared to commercial plans. That's 
the way we've set up our government----
    Mr. Jordan [continuing]. These and others and Mr. Cannon 
and many of us that a real marketplace, you're accountable 
directly to the consumer.
    Ms. Pollitz. Well, but that's my second point.
    Mr. Jordan. That's where we needed to be headed is to a 
true marketplace.
    Ms. Pollitz. That's my second point. A marketplace of 
competing insurance companies will always, always in health 
insurance compete to avoid sick people. That is the 
overpowering incentive. It beats everything, and it always 
will. Even in a more regulated marketplace, even in a more 
transparent place, you're always going to be trying to catch up 
with that.
    Introducing a public component to that, it's kind of a 
funny notion. It's not like the government is going to compete 
to make more profits than Blue Cross or WellPoint. It's that 
the government will be there offering a choice that is the----
    Mr. Jordan. If there is a public option, eventually the 
public option will dominate. Even Congressman Frank has said 
that a public option will lead to a single-payer system. This 
idea that somehow it's not going to do that, I just--I don't 
think flies. I think most Americans have already figured that 
out, and that's why they're concerned about this plan.
    Ms. Pollitz. Mr. Jordan, I was on the board for several 
years of a public program in my State where I ran our State 
high-risk pool, and it was administered by a private insurance 
company, and so, you know, they know how to administer claims, 
and that is definitely its own art and its own skill.
    And as the consumer rep on the board, I would ask 
questions: Why do we have so many denials of preauthorization, 
for example, for mental health services? That turned out to be 
one of the biggest services that any of our patients used. Even 
though that wasn't the major diagnosis, it's very stressful to 
be sick; people need help. And one of our leading sources of 
complaints had to do with denials for mental health service.
    And so I said, why is that? Why are we denying all this 
care? Well, it turned out it was paperwork. People were 
supposed to jump through all these hoops and get 
preauthorization. They had to do it within a certain number of 
days, and it was just a load of hoops that they had to jump 
through.
    And I said, well, OK, once they go through all these hoops, 
how many of them are actually denied--and there were thousands 
of denials--and they said, seven. And I said really? Then why 
are you doing this? Why are you making them jump through all 
these hoops? Oh, they said, this is saving you a lot of money. 
I said, I don't want you to save us a lot of money. We're here 
to pay for care. We're a high-risk pool. They're sick. No one 
else will take care of them. This is our job. This is what the 
taxpayers have given us tax dollars to do. Let's stop doing 
that. We did that.
    I can't imagine that would happen in the company that Ms. 
Peeno--Dr. Peeno used to work for. It's just a different 
incentive. It competes in a different way, and I think we need 
to create a different standard for covering health care. And if 
private insurance companies can't compete against that and 
survive, well, so what? I mean, we took care of the patients 
who were sick, and isn't that what this has to be about 
primarily? It seems to me that has to be where we start the 
discussion.
    Mr. Kucinich. We thank the gentlelady.
    I want to thank Mr. Jordan for his participation in this 
hearing, and thank both the witnesses from the second panel for 
their participation.
    As my friend is leaving the room, I just wanted to 
comment--and staff can relate this to him--that some--there are 
some cases, I suppose, where a public option may lead to a 
single-payer system at some point. I mean, I actually am the 
coauthor of a bill to create a single-payer system, and I'd 
like to see a single-payer system. We have 85 Members of the 
House who have signed on to a bill, H.R. 676, the bill I 
drafted with Mr. Conyers. That bill, in its fullness, is not 
likely to have hearings, and whether there might be a vote on 
it, it needs a movement behind it. That needs a little more 
strength.
    So while some public options may lead to single payer, I 
would just like to offer the opinion that it's unlikely that 
the current status of the public option that is suggested in 
H.R. 3200 would lead to single payer.
    The CBO has said in one of its studies that 9 million 
people at most would be covered by--by any kind of a public 
option; that the first iteration of that plan was to have 129 
million people covered by it. So you have 9 million people, 
that particular plan may not pose much of a risk or, frankly, a 
competitive position vis-a-vis the private insurers. I just 
wanted to mention that since we were talking about public 
options.
    You're much appreciated for the time that you have spent, 
for your patience, and this committee stands adjourned. I want 
to remind people that tomorrow we will hear from executives 
from six of the major health insurance companies so that we can 
followup and ask them some of the questions that were raised in 
today's hearing. We're all very appreciative of your presence. 
The committee stands adjourned.
    [Whereupon, at 1:30 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Diane E. Watson and 
additional information submitted for the hearing record 
follow:]

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