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


 
   MAKING HEALTHCARE WORK FOR AMERICAN FAMILIES: ENSURING AFFORDABLE 
                                COVERAGE

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 17, 2009

                               __________

                           Serial No. 111-16


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



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                    COMMITTEE ON ENERGY AND COMMERCE

                 HENRY A. WAXMAN, California, Chairman

JOHN D. DINGELL, Michigan            JOE BARTON, Texas
  Chairman Emeritus                    Ranking Member
EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
RICK BOUCHER, Virginia               FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
BART GORDON, Tennessee               NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
GENE GREEN, Texas                    STEVE BUYER, Indiana
DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
  Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California               MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
JANE HARMAN, California              LEE TERRY, Nebraska
TOM ALLEN, Maine                     MIKE ROGERS, Michigan
JAN SCHAKOWSKY, Illinois             SUE WILKINS MYRICK, North Carolina
HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
JIM MATHESON, Utah                   PARKER GRIFFITH, Alabama
G.K. BUTTERFIELD, North Carolina     ROBERT E. LATTA, Ohio
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin 
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont

                                  (ii)
                         Subcommittee on Health

                FRANK PALLONE, Jr., New Jersey, Chairman
JOHN D. DINGELL, Michigan            NATHAN DEAL, Georgia,
BART GORDON, Tennessee                   Ranking Member
ANNA G. ESHOO, California            RALPH M. HALL, Texas
ELIOT L. ENGEL, New York             BARBARA CUBIN, Wyoming
GENE GREEN, Texas                    HEATHER WILSON, New Mexico
DIANA DeGETTE, Colorado              JOHN B. SHADEGG, Arizona
LOIS CAPPS, California               STEVE BUYER, Indiana
JAN SCHAKOWSKY, Illinois             JOSEPH R. PITTS, Pennsylvania
TAMMY BALDWIN, Wisconsin             MARY BONO MACK, California
MIKE ROSS, Arkansas                  MIKE FERGUSON, New Jersey
ANTHONY D. WEINER, New York          MIKE ROGERS, Michigan
JIM MATHESON, Utah                   SUE WILKINS MYRICK, North Carolina
JANE HARMAN, California              JOHN SULLIVAN, Oklahoma
CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
JOHN BARROW, Georgia                 MICHAEL C. BURGESS, Texas
DONNA M. CHRISTENSEN, Virgin 
    Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
  


                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Frank Pallone, Jr., a Representative in Congress from the 
  State of New Jersey, opening statement.........................     1
    Prepared statement...........................................     3
Hon. Nathan Deal, a Representative in Congress from the State of 
  Georgia, opening statement.....................................     5
Hon. Anna G. Eshoo, a Representative in Congress from the State 
  of California, opening statement...............................     5
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................     6
Hon. Lois Capps, a Representative in Congress from the State of 
  California, opening statement..................................     7
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................     8
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     9
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, opening statement..............................    10
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................    11
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................    11
Hon. Kathy Castor, a Representative in Congress from the State of 
  Florida, opening statement.....................................    12
Hon. Betty Sutton, a Representative in Congress from the State of 
  Ohio, opening statement........................................    12
Hon. Tammy Baldwin, a Representative in Congress from the State 
  of Wisconsin, opening statement................................    13
Hon. Tim Murphy, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................    13
Hon. Jim Matheson, a Representative in Congress from the State of 
  Utah, opening statement........................................    14
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................   153
Hon. Roy Blunt, a Representative in Congress from the State of 
  Missouri, prepared statement...................................   158
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, prepared statement..............................   160

                               Witnesses

Uwe Reinhardt, Ph.D., Professor of Political Economy, Economics 
  and Public Affairs, Princeton University.......................    15
    Prepared statement...........................................    18
Sally C. Pipes, B.A., President and Chief Executive Officer, 
  Pacific Research Institute.....................................    31
    Prepared statement...........................................    33
Judy Feder, Ph.D., Senior Fellow, Center for American Progress 
  Action Fund....................................................    36
    Prepared statement...........................................    38
Mila Kofman, J.D., Superintendent of Insurance, State of Maine 
  Bureau of Insurance............................................    92
    Prepared statement...........................................    95
Jon Kingsdale, Ph.D., Executive Director, Commonwealth Health 
  Insurance Connector Authority..................................   100
    Prepared statement...........................................   103
Karen Pollitz, M.P.P., Research Professor, Georgetown University 
  Health Policy Institute........................................   107
    Prepared statement...........................................   109
Katherine Baicker, Ph.D., Professor of Health Economics, Harvard 
  School of Public Health........................................   116
    Prepared statement...........................................   119
Edmund F. Haislmaier, B.A., Senior Research Fellow, Center for 
  Health Policy Studies with the Heritage Foundation.............   128
    Prepared statement...........................................   130


   MAKING HEALTHCARE WORK FOR AMERICAN FAMILIES: ENSURING AFFORDABLE 
                                COVERAGE

                              ----------                              


                        TUESDAY, MARCH 17, 2009

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:15 a.m., in 
room 2123 of the Rayburn House Office Building, Hon. Frank 
Pallone, Jr. (chairman) presiding.
    Members present: Representatives Pallone, Dingell, Eshoo, 
Green, DeGette, Capps, Schakowsky, Baldwin, Weiner, Matheson, 
Harman, Gonzalez, Barrow, Christensen, Castor, Murphy, Sutton, 
Braley, Waxman (ex officio), Deal, Whitfield, Shimkus, Shadegg, 
Blunt, Pitts, Rogers, Burgess, Blackburn, Gingrey, and Barton 
(ex officio).
    Staff present: Phil Barnett, Staff Director; Karen Nelson, 
Deputy Staff Director for Health; Karen Lightfoot, 
Communications Director; Purvee Kempf, Counsel; Tim Gronniger, 
Professional Staff Member; Bobby Clark, Senior Political 
Analyst; Jon Donenberg, Health Fellow; Virgil Miller, 
Legislative Assistant; Caren Auchman, Communications Associate; 
Alli Corr, Special Assistant; Alvin Banks, Special Assistant; 
Caitlin Sanders, Staff Assistant; Brandon Clark, Professional 
Staff; Marie Fishpaw, Professional Staff; Clay Alspach, 
Counsel; Chad Grant, Legislative Analyst; and Aarti Shah, 
Counsel.

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE 
            IN CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Pallone. The subcommittee hearing is called to order. 
Good morning and welcome to our witnesses on the first panel. 
This is a second in our series of hearings on health reform. 
Today the subcommittee will examine issues surrounding the 
affordability of health coverage.
    Now more than ever securing quality health care coverage at 
an affordable price is not possible for millions of American 
families. First and foremost, health insurance has become too 
expensive. As health insurance premiums continue to outpace 
wages every year, people can no longer expect to pay a 
reasonable price for health coverage.
    And as we talk about health care reform, we have to ask 
ourselves what should we expect to pay for health care coverage 
and what should that coverage include. Cheap plans that offer 
little protection, such as high deductible plans, are not a 
solution in my opinion. We need real reform that makes quality 
health care coverage affordable to every American, and in order 
to do that, we need to change the rules which govern the way 
people obtain health care coverage, particularly within the 
individual market.
    I am particularly interested to hear from our witnesses 
today about new ideas like a health exchange or connector, 
similar to the one in Massachusetts, a public plan option, and 
an individual mandate that can help provide individual's access 
to affordable options for meaningful coverage.
    I also think it is important that, as we talk about making 
coverage on the individual market more affordable, we don't do 
anything to disrupt the affordability of coverage in other 
sectors. There was talk last week and in the media about 
eliminating or cutting back on the tax exclusion for health 
benefits offered by employers. This was an idea promoted by 
former President George Bush and was a key component of Senator 
McCain's health care proposal during his presidential campaign, 
but obviously this is controversial as well.
    The employer market is already declining. It is becoming 
increasingly difficult for both employers and employees to 
afford health care coverage, and eliminating those tax 
incentives may further exacerbate the affordability problems we 
already face with employer-sponsored insurance and not 
necessarily do anything to improve the affordability of 
coverage in the individual market.
    Again these are all issues that I think we need to discuss. 
Looking at places like Massachusetts, public plan options, 
individual mandates, and the tax exclusion for health benefits. 
Not that I am taking a position on any of those right now, but 
I think these are important things that we have to look at.
    I want to thank our witnesses again for being here today. I 
know we have a very distinguished panel.
    [The prepared statement of Mr. Pallone follows:]

    [GRAPHIC] [TIFF OMITTED] T7813.001
    
    [GRAPHIC] [TIFF OMITTED] T7813.002
    
    Mr. Pallone. And I will now call on Mr. Deal for opening 
statements, and then we will have opening statements from other 
members, both Democrat and Republican. Thank you.

  OPENING STATEMENT OF HON. NATHAN DEAL, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Deal. Thank you, Mr. Chairman. Thank you for holding 
the hearing today, and thanks to the witnesses for being here, 
and I believe we have two panels of them. So we are going to be 
here a while, I suppose.
    Obviously as we broach this subject of how to reform the 
health delivery system in this country, it is a difficult task 
and one that has many facets to it. Dr. Reinhardt, I was 
interested in reading your article that appeared back in 
January in the ``New York Times'' on the question of pricing.
    As you probably know, this is an issue that has been 
important to me in the area of transparency of pricing. It is 
probably one of the most difficult issues to understand and try 
to get a handle on. We have so much difference in pricing of 
health care of services in this country that it is, in fact, I 
think, one of those issues we have to begin to wrestle with if 
we are going to decide how we are going to approach the 
delivery of health care because pricing obviously has a lot to 
do with it.
    I look forward to the testimony of the witnesses. There are 
a lot of issues that we have not talked about in previous 
hearings, and I am sure that these two panels today will broach 
some of those subjects that we have yet to explore. And thank 
you for being here, and I look forward to your testimony. I 
yield back.
    Mr. Pallone. Thank you, Mr. Deal. The gentlewoman from 
California, Ms. Eshoo.

 OPENING STATEMENT OF HON. ANNA G. ESHOO, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Eshoo. Thank you, Mr. Chairman, for holding not only 
today's hearing but the series that you have planned as we work 
to bring health care to every American.
    One of the biggest problems in health coverage is including 
those who are left out of group coverage and must purchase 
insurance in the private market. These very same people not 
only face tougher access and higher cost issues, but they are 
also taxed on these plans.
    Any individual who receives coverage through their employer 
gets their plan tax-free. I think it is very important that 
everyone has the option to buy into a group plan that would 
mitigate costs and not discriminate based on pre-existing 
conditions. We don't want to upset the health insurance for 
people who have it and who like it. We want to expand 
affordable comprehensive health care options to those who don't 
or those who want better coverage.
    So I look forward to our very distinguished panel's 
testimony today, and I hope we are able to discuss the tax 
treatment of health insurance and how we might address that as 
well. Thank you.
    Mr. Pallone. Ranking member of the full committee, Mr. 
Barton.
    Mr. Barton. Thank you, Mr. Chairman. I have an excellent 
statement that my staff has prepared. I am going to submit it 
for the record, but in the interest of time, I am going to just 
submit it.
    The main thing that is in the statement that I think we 
need to put before yourself and the members of the committee is 
that the Republicans do want to work in a bipartisan fashion 
this year. We are willing to work with you and the full 
committee chairman and other members on the majority side to 
enact comprehensive health care reform if it really is reform.
    So this is not an issue where we are going to try to rope-
a-dope the committee. We are prepared to work if it is 
something that is in the middle and can be done and maintain 
the private health care plans of Americans.
    [The prepared statement of Mr. Barton appears on page 153.]
    Mr. Pallone. Thank you, Mr. Barton. I appreciate what you 
said, and I think it is crucial that we work in a bipartisan 
fashion. And that is certainly our intention. Thank you. The 
gentleman from Texas, Mr. Green.

   OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Green. Thank you, Mr. Chairman. I want to thank you for 
holding this second hearing on health care reform. Our state of 
Texas has the unfortunate distinction of having the largest 
number of uninsured in the United States, nearly 5.4 million 
Texans or 25 percent of the population in Texas without health 
insurance coverage, and nearly 1.4 million children are 
uninsured. Of that 1.4 million, 900,000 children in Texas are 
S-CHIP eligible.
    We need a national system designed so that every American 
should be covered, either employer-based plan, an individual 
plan, or a public plan no matter what state they live. The 
largest rate of growth in the uninsured and underinsured are 
middle class families who make too much to qualify for public 
plans but don't make enough money to pay costly premiums under 
the private plans, and those who work in low-wage jobs without 
employer-based insurance.
    Ultimately, the large number of uninsured Americans create 
a vicious cycle by driving up health care costs which increases 
the number of people who can't afford insurance.
    Mr. Chairman, I ask unanimous consent to have the remainder 
of my statement be placed in the record.
    Mr. Pallone. Without objection, so ordered, and thank you. 
The gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Thank you, Chairman Pallone, and I am going 
to waive an opening statement.
    Mr. Pallone. Next is the gentlewoman from Colorado, our 
full committee vice chair, Ms. DeGette. Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman. I too am excited 
about getting into this debate, basically how do we make sure 
we get insurance for those who have no insurance. So my focus 
has always been affordable, portable, and access. I do believe 
that the market-based system, which encourages price 
transparency and shopping around is the best method. I do fear 
a government backstop plan of action which the government 
controls, and I am deadly in opposition to a one-payer system, 
which I hope we don't segue into when this fight really gets 
going. I do not want bureaucrats picking health care decisions 
in the end.
    So having said that, it is great to be back on this 
committee. As I said, Mr. Chairman, I look forward to working 
with you. I yield back.
    Mr. Pallone. Thank you. Our subcommittee vice chair, Ms. 
Capps.

   OPENING STATEMENT OF HON. LOIS CAPPS, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Ms. Capps. Thank you, Chairman Pallone. Since today's 
hearing is about ensuring affordable coverage, I want to 
quickly set the stage with a story about my constituent, Terry 
Terpin. Her story was featured in the Ventura County Star 
yesterday, and I would like unanimous consent to enter the 
article for the record.
    She, like so many others, recently lost her job when her 
employer filed for bankruptcy. Unfortunately, Terry had just 
been diagnosed with a relapse of cancer only a month earlier. 
COBRA would have cost her well over $500 a month, so she 
applied for coverage in the individual market but never heard 
back because of her pre-existing condition.
    Luckily, Ventura County has a wonderful public health 
system where she was able to get access to oncology treatment. 
Not everybody lives in a community that provides that backup. 
At the bottom line is that patients shouldn't have to switch 
providers in the middle of treatment because they lose their 
job.
    So I look forward to discussing today how we can improve 
access to affordable coverage for everyone. I yield back.
    Mr. Pallone. Gentleman from Missouri, Mr. Blunt.
    Mr. Blunt. Thank you, Mr. Chairman. I have a statement for 
the record. I do look forward to working with you and with Mr. 
Deal and the subcommittee to find a solution to this question 
of affordability.
    I think we can find common sense solutions. In fact, the 
Medicare Part D program that has been in place now for several 
years is an example of a program where, for the first time, the 
government organized a private, competitive-driven system 
rather than try to operate a system. The cost is lower. 
Satisfaction is higher. Seniors have more options. In fact, 
competition works, and it puts patients and health care 
providers in control.
    There is no government-run program offered under Medicare 
Part D, and in fact, there is no government run plan offered 
for members of Congress or any other federal employee. And I 
think there is a good reason for that. People want choices, and 
choices bring greater satisfaction. I look forward to the 
testimony today, Mr. Chairman.
    [The prepared statement of Mr. Blunt appears on page 158.]
    Mr. Pallone. Thank you. The chairman emeritus, Mr. Dingell.

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Thank you for your courtesy. I commend you for 
this hearing. First of all, this is an important hearing on 
affordable coverage. Addressing affordability is a crucial 
piece of health care reform debate. This hearing will help 
guide us in our future deliberations.
    The amount that workers pay for health insurance has 
greatly outpaced the rate of inflation and certainly has risen 
faster than stagnant wages and incomes. The statistics are 
frightening. The share of family income spent on health 
insurance increased from 7.3 percent in 1987 to 16.8 percent in 
2006. In 2006, one-fifth of the nation spent more than 10 
percent of their income on out-of-pocket medical expenses.
    In 2007, 69 percent of the people who went without medical 
care or delayed needed medical care cited worries about cost, a 
3.8 percentage increase from 2003. The average cost of 
employer-based family insurance policy in 2008 was $12,680, an 
amount almost equal to the annual earnings of a full-time 
minimum wage job.
    It is not just the uninsured population that suffers from 
the high cost of health care. More than 42 million people with 
health insurance report having problems paying medical bills. 
Of those who face medical bankruptcies, almost three-quarters 
had health insurance at the time of the illness that left them 
financially unstable.
    Without any action, the expected cost of full family 
employer health insurance will increase to more than $24,000 in 
2016, and the average deductible will reach nearly $2,700. This 
means that in only seven years, almost half of American 
households will spend more than one-third of their income on 
health insurance.
    It comes as no surprise to anyone that families are 
literally going bankrupt. The high cost of health care causes a 
bankruptcy every 30 seconds. At the end of the year, it will 
cost 1.5 millions the homes which they cherish. Furthermore, as 
health care costs dominate budgets, families will have less to 
spend on food, education, and necessities.
    As we continue the debate, we must ensure that every 
American has coverage, but we can't stop there. Increasing 
costs alone will get us nowhere if we don't find ways to reduce 
the cost of health insurance and health care delivery as a 
whole.
    Access to health insurance does not mean that individuals 
can utilize available services. They are also kept out of the 
circle of care due to high premiums, deductibles, and other 
out-of-pocket costs. I look forward to working with my 
colleagues and working with the leadership here and the 
administration. There are a number of worthy options being 
debated. I think public option is something that should be 
seriously considered as we move forward on health reform. While 
we have not decided the specifics of what a public option 
should look like, I believe that such option must be 
affordable, and it must have suitable benefits. And it must 
provide healthy competition in the marketplace.
    Insurance market has a nasty habit of gaming the system, of 
building barriers to affordable coverage, of excluding coverage 
all together, or coverage for pre-existing conditions, and 
charging higher premiums for certain individuals, cherry 
picking, and other games that make insurance unavailable to our 
people.
    I am confident if we weigh our options with an eye towards 
the end goal of providing quality coverage for Americans, we 
can pass a reform that benefits all of our Americans. We must 
do so because the consequences of not doing so are terrifying. 
Thank you, Mr. Chairman.
    Mr. Pallone. Thank you, Chairman Dingell. Next is the 
gentleman from Pennsylvania, Mr. Pitts.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Pitts. Thank you, Mr. Chairman, for convening this 
hearing. Recently the Pennsylvania Insurance Department 
released a survey of Pennsylvania health insurance. Let me just 
share a couple of results. Overall in 2008, 15.3 percent of 
Pennsylvanians did not get some type of needed medical care 
during the past 12 months due to its cost. This represents 
about 1.9 million residents. Currently 8.2 percent of 
Pennsylvania residents are uninsured. That is about a little 
over one million residents.
    According to the survey, the cost of health insurance 
remains the primary barrier to coverage. I believe any health 
reform plan must contain several key principles to empower the 
consumer. Among them, in-tax policies that discriminate against 
an individual who purchases private health insurance on their 
own rather than through their employers make it easier to de-
couple health insurance from employers. Those who own their 
coverage should be able to take their plan with them with they 
change jobs or quit working and one they can take to another 
state. They should be able to buy from another state. Also 
risk-pooling within a state or across state plans. People 
should be able to choose the plan and doctors and services they 
want. And insurance and providers are accountable to them, not 
their employer or government bureaucrats.
    The bottom like is privately owned health insurance will 
lead to competition among plans, lower costs, higher quality, 
more choices, and more transparency. I thank all the witnesses 
for testifying, look forward to hearing their thoughts, and 
yield back my time.
    Mr. Pallone. Thank you. The gentlewoman from Chicago, Ms. 
Schakowsky.
    Ms. Schakowsky. Thank you, Mr. Chairman. I will put my 
entire statement in the record, but I wanted to make a couple 
of points. One, this debate about cost should not be about 
providing access to health insurance. It must be about 
providing access to health care. Too many insured Americans 
find that having an insurance policy is no guarantee that they 
or a loved one will be able to afford care when they need it.
    And finally I want to point to a new report by the Illinois 
Main Street Alliance in which 56 percent of small business 
owners in the state support a choice between a public insurance 
option and a private option. Those are the small businesses in 
our state.
    And finally, Mr. Chairman, I would like to submit for the 
record a report from the Institute for America's Future, 
Massachusetts Health Reform, Near Universal Coverage but No 
Cost Controls or Guarantee of Quality Affordable Health Care 
For All, if I may submit it for the record.
    Mr. Pallone. Without objection, so ordered.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    Mr. Pallone. Next is the gentleman from Texas, Mr. Burgess.

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A REPRESENTATIVE 
              IN CONGRESS FROM THE STATE OF TEXAS

    Mr. Burgess. Thank you, Mr. Chairman. I was astonished a 
couple weeks ago to be invited to the White House to a forum. I 
still haven't figured that out, but I was grateful to be there, 
and I heard the President observe that he just wants to figure 
out what works. And I am certainly prepared to help him.
    Now, I always get a little bit discouraged on these panels 
and discussions. We end up talking a lot about cost and 
coverage. After all, as a physician, I can tell you it is about 
taking care of people in the final analysis.
    One of the things the President also told us was that the 
status quo is not an option. I would also observe that very 
little is static in the field of medicine, and in fact, in the 
15 years since the last major attempt at reform was undertaken, 
medicine has changed drastically.
    Now, the President wants to figure out what works. We are 
going to hear a lot of about former Governor Romney's proposal 
in Massachusetts that has now had a couple of years to go 
through a couple of iterations. It is a bold experiment. It 
deals with a connector. It deals with mandates. But maybe we 
should also look at Wal-Mart, which in the past four years now, 
covers without mandates 95 percent of its employees with 
affordable coverage. If we want to learn from what works, maybe 
we ought to include that in our broad-based discussion.
    You know you look at the cost increases. It was referenced 
by former Chairman Dingell, the cost for indemnity insurance, 
PPO. In fact Medicare and Medicaid all are going up in excess 
of 7 percent a year.
    Look at consumer-directed health plans though, and they are 
rising at a rate of a little over 2 percent a year. It seems to 
me it would make sense that if we are going to deal with issues 
of cost and coverage, we would give a close look to those 
things that are working particularly how Wal-Mart has provided 
affordable coverage to its employees and how consumer-directed 
health plans have held the line on cost increases. I will yield 
back the balance of my time.
    Mr. Pallone. Thank you. Gentlewoman from California, Ms. 
Harman.
    Ms. Harman. Thank you, Mr. Chairman. Health care reform 
can't wait. It is an integral part of any economic recovery 
strategy, and I think it is very good news that both the Obama 
Administration, this Congress, and this committee know that.
    Let me just make three brief points. First I am new to this 
subcommittee but not new to this issue, and I welcome the 
opportunity to be a player at some level as we craft 
legislation.
    Second, I urge that all of the expertise on this committee, 
starting with our chairman emeritus, but including every other 
member of the committee, Democrat and Republican, be tapped as 
we draft a bill.
    Third, of special interest to me is the lack of surge 
capacity in our health care system. Should we have another 
major terrorist attack or near simultaneous attacks, I would 
bet that all of our trauma centers will be full to capacity 
even before the latest victims get there.
    And finally, let me say that both wellness and preventive 
care are the cheapest options for health care, and I hope we 
feature both as we craft a bill. Thank you very much.
    Mr. Pallone. Thank you. The gentlewoman from Tennessee, Ms. 
Blackburn.

OPENING STATEMENT OF HON. MARSHA BLACKBURN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF TENNESSEE

    Ms. Blackburn. Thank you, Mr. Chairman. Thank you for the 
hearing, and welcome to our guests today. You know there is a 
saying nothing in life is free, and in Tennessee we have 
figured this out with our Tenn Care system. It has become proof 
of that. We have learned that comprehensive health care 
packages for all cannot be affordable. Government's resources 
to provide care are fixed, and as we learned, intervention can 
exacerbate rather than control the growing cost of health care. 
And Tenn Care has been very problematic for our state.
    Tenn Care kept a blind eye to rising costs and over 
generosity. It imposed no limits on days in the hospital or 
number of prescriptions that were allowed each month, and in 
the mid '90s, each Tenn Care enrollee received an average of 30 
prescripts per year. However, health outcomes in the state did 
not improve.
    So to control costs and expand care, we must look to market 
forces, not look past them. And while the private sector is in 
need of reform, it is more effective than the proposed 
government-run options being floated to bring about more 
efficient, higher quality, and more effective health care.
    This hearing is entitled ``Ensuring Affordable Coverage.'' 
I believe it should be entitled ``Ensuring Access to Affordable 
Health Care Options,'' and I say that because of the experience 
we have had in our state. The nation will achieve high quality 
care at a lower cost when Americans are empowered to make 
choices and become prudent health care consumers.
    Thank you, Mr. Chairman, and I yield back my time.
    Mr. Pallone. Thank you. The gentleman from Texas, Mr. 
Gonzalez. Mr. Gingrey.

  OPENING STATEMENT OF HON. PHIL GINGREY, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF GEORGIA

    Mr. Gingrey. Mr. Chairman, thank you. Ensuring affordable 
quality health care for all Americans is a worthy goal indeed, 
a necessary goal. We should work to ensure that low-income 
families, those with disabilities or chronic diseases, and all 
who purchase health care on their own, have the same 
opportunity to access health care as their neighbors.
    But access to an insurance card, no matter if that card is 
for a family health plan or a government program, it does not 
guarantee access to quality health care. In my state of 
Georgia, the number of general physicians has declined over 15 
percent in the past 10 years. Unfortunately Georgia is not an 
isolated case.
    Mr. Chairman, access to quality health care should mean 
that all Americans are able to see a qualified medical 
professional and receive a life-saving treatment or drug when 
they need it. Going forward, Mr. Chairman, it is my hope that 
this subcommittee will not lose sight of the fact that we will 
destroy, not improve, but destroy health care if we take 
actions to reform the system that drive doctors out of the 
practice. Thank you, Mr. Chairman. I yield back.
    Mr. Pallone. Thank you. The gentlewoman from the Virgin 
Islands, Ms. Christensen.
    Ms. Christensen. Thank you, Mr. Chairman. I waive my 
opening statement.
    Mr. Pallone. Gentlewoman from Florida, Ms. Castor.

  OPENING STATEMENT OF HON. KATHY CASTOR, A REPRESENTATIVE IN 
               CONGRESS FROM THE STATE OF FLORIDA

    Ms. Castor. Thank you, Chairman Pallone. Our neighbors and 
folks all across this country are depending on us to tackle 
this health care reform effort and help make health care more 
affordable for their families. So we need your expert testimony 
now more than ever. The stakes are very high in my home state 
of Florida that has the second highest rate of uninsured.
    In fact, I was going through the comment cards in my office 
last night, and health care is the number one issue. They know 
that it is not just their well-being. It is their economic 
well-being in a very difficult time.
    One constituent shared a story. I guess they felt so 
compelled. They were so offended by the fact they were waiting 
in line at the pharmacy behind a woman who was picking up 
insulin for a relative, and the pharmacist had to say I am 
sorry. Your private HMO has declined coverage. We cannot 
provide the insulin. And they said there is no other option? 
No, there is no other option for this expensive insulin. We 
cannot provide it to you. So that person, that neighbor waiting 
behind felt so compelled to write to their member of Congress 
to say this just is not acceptable in our country.
    The proof of dysfunction is legion. Now, what we need are 
the solutions. So I look forward to your testimony very much, 
and I know that this committee will act expeditiously this year 
on health care reform. Thank you.
    Mr. Pallone. Thank you. The gentlewoman from Ohio, Ms. 
Sutton.

  OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF OHIO

    Ms. Sutton. Thank you, Mr. Chairman, for holding this 
important hearing. I am particularly interested in today's 
topic of making health care affordable for working families. 
Unfortunately our current system is far from affordable, and 
every day we wait, there are consequences.
    Ask Tammy Whit from Ohio. She was diagnosed with stage 
three breast cancer in April of 2006 and had to undergo a 
mastectomy and nine months of radiation. Tammy was receiving 
what she thought was comprehensive health insurance from her 
job, but Tammy's low annual insurance benefit caps left her 
with unaffordable medical debt that eventually caused her to 
declare bankruptcy.
    Like Tammy, far too many Americans have to worry about 
facing bankruptcy when they become ill because of the cost of 
health care. We can do better, Mr. Chairman, by Tammy and 
families across this country. We have to do what we can to rein 
in costs and make health care more accessible and affordable. 
And I look forward to hearing from our panelists today.
    Mr. Pallone. Gentleman from Iowa, Mr. Braley. Ms. Baldwin.

 OPENING STATEMENT OF HON. TAMMY BALDWIN, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF WISCONSIN

    Ms. Baldwin. Thank you, Mr. Chairman. I hear from my 
constituents every single day about the high cost of health 
care, whether they are insured or not. Brenda, a constituent of 
mine, was self-employed as a children's book author. Her small 
income disqualified her from being eligible for Wisconsin's 
public health insurance program, and she couldn't afford to 
purchase health care in the individual market.
    Last year, Brenda got a small kidney stone, but because she 
was uninsured and could not afford health care, she delayed 
getting it treated to the point that she had to be hospitalized 
with severe infections and internal bleeding. She is no longer 
able to work and receives insurance from the public health 
insurance program now.
    We absolutely must tackle this issue if our reform is to 
succeed at all, and we must ensure that individuals like Brenda 
are able to access the care they need when they need it.
    In my last couple of seconds, Mr. Chairman, I just wanted 
to respond to some of the comments we have heard about having 
public sector options along with private sector options. 
Medicare Part D is used as an example frequently. I would note 
that in the state of Wisconsin, I think we are the only state 
that has a public sector option in the Medicare Part D program. 
It is very, very successful, and I hope that we will be able to 
study it further as we have this debate about whether there 
should be both public and private sector options available to 
our constituents.
    Mr. Pallone. Thank you. Gentleman from Connecticut, Mr. 
Murphy.

   OPENING STATEMENT OF HON. TIM MURPHY, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    Mr. Murphy of Connecticut. Thank you, Mr. Chairman. I hope 
that we spend some time this morning talking about the fact 
that just because you have health care insurance doesn't 
necessarily mean you have health care. This is an important 
distinction that needs to be at the center of this debate.
    For instance, in Connecticut, we have a very generous 
Medicaid program, but because it doesn't pay doctors enough to 
be part of it, we have Medicaid recipients that can't find a 
psychiatrist or can't find an orthopedic surgeon no matter 
where they go. Before I came here, we had to pass a law in 
Connecticut that cracked down on private insurers that were 
charging $200 copays for MRIs, basically putting the entire 
burden of that procedure on the consumer.
    Universal health care insurance and universal health care 
are potentially very different things, and I hope that this 
hearing will push Congress towards passing a health care reform 
bill that guarantees that every American gets quality health 
care that they can afford, not just a claim of coverage or 
phantom access. I thank the panel for being here, and I look 
forward to hearing from you today.
    Mr. Pallone. Thank you. Gentleman from Utah, Mr. Matheson.

  OPENING STATEMENT OF HON. JIM MATHESON, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF UTAH

    Mr. Matheson. Thank you, Mr. Chairman. Cost is the issue, 
and today we are talking about affordability for families. We 
should be talking about affordability for everyone, the 
American families, businesses, the effect on small business. 
There is a lot of talk about access and making sure everyone 
has access to health care. If we give access to everyone under 
our current system and don't take steps to create reform in our 
system and make it more efficient, we are going to drive off 
the financial cliff even more quickly than we are headed right 
now.
    So I encourage this committee to continue to look at ways 
to make this system better. The good news is there is 
tremendous opportunity to make it better without spending more 
money. The current system is inefficient. It is not productive. 
It has perverse incentives built throughout its structure. It 
has a bloated administrative component that I can't believe we 
have put up with as a country. So I think there are great 
opportunities for this committee to act in the best traditions 
of the Energy and Commerce Committee in a bipartisan way to be 
substantive, to look at multiple variables that really need to 
be addressed if we want to reform our health care system.
    That is what this committee ought to do, and I look forward 
to this hearing and additional hearings in the future. Thanks, 
Mr. Chairman.
    Mr. Pallone. Thank you, and I want to thank all of our 
members for their opening statements, and now we will turn to 
our witnesses and welcome to all of you. We have a very 
distinguished panel with us today, and I am going to introduce 
them from left to right. And then we will have five-minute 
statements from each of you.
    First again to my left is Dr. Uwe Reinhardt, who is a 
professor of political economy, economics and public affairs at 
Princeton University in home state. Thank you very being here 
today. We have Ms. Sally Pipes who is president and chief 
executive officer of the Pacific Research Institute, and then 
we have Dr. Judy Feder, who is senior fellow of the Center for 
American Progress Action Fund. She also has been before our 
committee many times in the past, our subcommittee.
    So thank you all, and if we could start with Dr. Reinhardt. 
Is your mike on? I am not sure. You pressed the button?
    Mr. Reinhardt. High tech.
    Mr. Pallone. That is good.

  STATEMENTS OF UWE REINHARDT, PH.D., PROFESSOR OF POLITICAL 
 ECONOMY, ECONOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSITY; 
 SALLY C. PIPES, B.A., PRESIDENT AND CHIEF EXECUTIVE OFFICER, 
   PACIFIC RESEARCH INSTITUTE; AND JUDY FEDER, PH.D., SENIOR 
        FELLOW, CENTER FOR AMERICAN PROGRESS ACTION FUND

                   STATEMENT OF UWE REINHARDT

    Mr. Reinhardt. I am from rural New Jersey, as you know, and 
I have to learn these things.
    I have submitted a statement to the committee. It falls 
into three parts, and the first one I briefly visit the issue 
of cost, just to remind Americans how expensive our system is. 
The second one, I look at what this cost does to American 
families, looking sort of at the median American family. And 
then in the final, I have some perspectives on proposals before 
the nation to fix this problem.
    Now, it is well known that we spend on a per capita basis 
in purchasing power parity a lot more than other nations, 56 
percent more than Switzerland, which is viewed as a very high 
quality health care system, and 83 percent more than Canadians 
do. And yet if you look at health statistics, you will not find 
that much different. In fact, I find it an intellectual 
breakthrough of major proportions that the business roundtable, 
which used to be the staunch defender of our system as the best 
in the world, now comes out with a report just last week 
talking about a 20 percent value gap, saying relative to other 
nations, Americans get 20 percent less value for their health 
care dollar than other nations. That is a very important 
recognition by these important people.
    I also remind people of what we call the Winberg 
variations, for example, that under Medicare, it costs more 
than twice as much per elderly in Miami than it does in San 
Francisco, which is an issue, I believe, that Congress should 
begin to look into, fund research to say why should it cost 
twice as much in one part of the country than in others. But it 
is not just in Medicare. You will find the same in private 
insurance as well.
    So I believe cost effectiveness analysis, which is a dirty 
word yet on the Hill, at some point does have to be embraced. 
It is just called operations research. There is no other 
industry that wouldn't look at cost per unit of output. Health 
care is really the only one.
    But I also would urge Congress not to say let us do cost 
control first and then universal coverage because we have said 
this for 30 years. We have never done the former, and I don't 
think you can fool God that long with the excuse that we cannot 
afford it. We have said this now for 30 years. It is time to go 
to universal coverage.
    In the second section, I look at the American family. I use 
for this not health insurance premiums, which is a very 
misleading indicator. I use the Milliman medical index, which 
includes the premium for health insurance for the family plus 
their out-of-pocket spending. But you can always make premiums 
go down or slower just by cutting the benefit package, raising 
deductibles, and so on.
    So you really should look at the Milliman medical index. 
Last year, on average, for a family of four, it costs $15,600 
for health care in America. It would be now $16,500. Now, 
compare that to the median household income in America in 2007 
was $51,000. So if one had the view that people should be 
responsible for their own health care, you would be saying for 
a median American family that they should spend $16,000 out of 
their $51,000. That is an awful heavy burden. Now, for lower 
income families, as your statement correctly says, 30 percent 
of available discretionary income goes for health care.
    So what I predict that in the next decade--I have a little 
table here. I use a family here with a wage base of $50,000 and 
say if that wage base grows at 3 percent and health care 
spending per capita by 8 percent, which is what it has been, 
for the next decade, then half that family's wage base would be 
chewed up by health care 10 years from now, half.
    Even if you make very optimistic assumption that health 
spending grows only 4 percent and wages 5 percent--it is even 
unthinkable given what we are facing right now. But even if you 
make that, 30 percent of that family's wage base would be 
chewed up. So we are sailing into a perfect storm, and the 
Congress at some point faces the following question. Either 
taxes have to be raised on those of us fortunate to be in the 
upper part of the income distribution, myself included, or--and 
then you could have a roughly egalitarian health system. Or you 
seriously have to redesign the system to ration health care by 
income class, which is, of course, what we have been doing 
already. And this is a sort of mischievous piece of mythology 
that government run systems like Canada's ration health care 
and private markets don't.
    If you have a specialty drug that costs $100,000 a year and 
you ask somebody to pay a 30 percent co-insurance for getting 
that drug, you are rationing that person out of that specialty 
drug if their income is $50,000. I mean it is just--every 
textbook in economics will tell you that prices ration. It is 
just one other form of rationing. So this is what the Congress 
faces.
    And then look in the last section at the individual market 
and presents several models. I don't have time to go into it, 
but there is the issue of the public health plan. Given what 
the American people have witnessed, they have seen great 
American companies, AIG, GM, CitiGroup, go under. Given the 
shock they have received, one could imagine that Americans 
would yearn for an option that is government because I believe 
in the end it is the government Americans trust because that is 
where they always run to when they get in trouble, whether they 
are big bankers, or whether it is FEMA or whoever it is. When 
the going gets tough, the tough run to the government. That is 
the slogan, and I have observed it for 40 years in this 
country.
    So therefore I believe that people say we shouldn't have a 
public option have a tall order to explain to the American 
people why they should be deprived of a choice that they may 
yearn to have. And I then go through later on how one could 
make that a level playing field. It is after all only a choice. 
You don't have to choose it. You can go private. But it should 
be, in my view, I as a citizen would love to have that option, 
and I might even take it. Thank you very much.
    [The prepared statement of Mr. Reinhardt follows:]

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    Mr. Pallone. Thank you, Dr. Reinhardt. I want to make sure 
I got this quote. When the going gets tough, the tough run to 
the government?
    Mr. Reinhardt. Yes.
    Mr. Pallone. OK.
    Mr. Reinhardt. That is the marching order of the rugged 
individualist.
    Mr. Pallone. Thank you. Ms. Pipes.

                  STATEMENT OF SALLY C. PIPES

    Ms. Pipes. And that is probably me. Thank you very much for 
the opportunity to testify. I think we would all agree that all 
Americans want affordable, accessible quality health care. The 
question is how do we achieve that goal? And there are two 
competing visions for reforming health care and achieving 
universal coverage in this country.
    One focuses on patient-centered solutions, empowering 
doctors and patients, and encouraging innovation in new 
pharmaceuticals and medical devices. The other vision is 
focusing on increasing the role of government in our health 
care through higher taxes, mandates, and subsidies. This vision 
for greater government involvement is on the rise today, and I 
think we need to focus on the fact 47 percent of health care in 
this country today is in the hands of government through 
Medicare, Medicaid, S-CHIP, and the VA system.
    The long-term goal of the new administration and many 
Democrats in Congress is Medicaid for all. As has been pointed 
out, the U.S. today spends 16 percent of GDP on health care, 
about $2.3 trillion, and many people say that that is too much. 
And if we are going to get that percentage down and achieve 
universal coverage, how do we reduce the number of uninsured 
from the 46 million Americans?
    Canada, my country of birth and where I spent most of my 
career working as an economist, spends 10 percent of GDP on 
health care and does have universal coverage. If Canada has 
universal coverage and only spends 10 percent of GDP, why can 
we not duplicate that model? The Canadian government took over 
the Canadian health care system in 1974 and banned any private 
health care for procedures provided under the Canada Health 
Act.
    Of course, the demand for health care was much greater than 
could be provided by government. As a result, Canadians suffer 
from long waiting lists for care, rationed care, and a lack of 
access to the latest technological equipment.
    A few statistics: 750,000 Canadians are on a waiting list, 
waiting for procedures; 3.2 million Canadians, out of a 
population of 32 million, are waiting to get a primary care 
doctor. The average wait today from seeing a primary care 
doctor to getting treatment by a specialist is 17.3 weeks. That 
is over four months. Canada ranks 14th out of 25 countries 
within the OECD on MRI machines and 19th out of 26 countries in 
CT scanners.
    When the government is the monopoly provider of health 
care, people wait and wait. When they get tired of waiting or 
are too sick to wait further, they flee if they can, and many 
come to the United States for treatment.
    Belinda Stronick, former member of Parliament in Canada, 
opposed opening up the Canadian health care system to any 
private side, but when she was diagnosed with breast cancer in 
June 2007, she came to UCLA and had her breast cancer surgery 
done and paid for it out of pocket.
    A woman in Calgary, Alberta, expecting quadruplets last 
year, there was not a single neonatal unit in Calgary, in 
Alberta, or in Canada where she could deliver her quads. She 
was air lifted to Great Falls, Montana, a city of 55,000, and 
her quads were successfully delivered.
    I have many, many stories of people in my family. My mother 
couldn't get a colonoscopy at her age and died within two weeks 
when she was hemorrhaging in the emergency room. Dr. Brian Day, 
orthopedic surgeon and former president of the Canadian Medical 
Association, told the ``New York Times'' ``Canada is a country 
where a pet--a dog can get a hip replacement within two weeks. 
A Canadian citizen has to wait two to three years.''
    In June 2005, the Canadian Supreme Court ruled on a case 
for the province of Quebec that the ban on private health care 
and private insurance is illegal because of the long wait 
times. Madame Chief Justice Beverly McLaughlin said access to a 
waiting list is not access to health care. Canada is opening up 
its system while the U.S., it seems to me, is moving more 
towards a government-administered system.
    President Obama has said that employers would have to 
provide coverage or pay a payroll tax so that employees can get 
coverage within a new government-run insurance plan, which 
would be part of a newly created national insurance exchange.
    The exchange would also include private insurers. I think 
the government insurance and the private plans would have to 
have guaranteed issue, community rating, and many mandates 
which will make them even more expensive.
    My view is that the government plan will be priced lower 
than the private plans. I see ultimately crowding out of 
private plans and taking American down a fateful road to 
Medicaid for all. We would then have universal coverage. We 
would not have universal access. Care will be rationed. Taxes 
will increase significantly, and the entrepreneurial spirit of 
this country will be weakened.
    When we get totally socialized health care in America, 
where are we going to go? We can change the tax code, as has 
been mentioned, by removing the tax advantage to those who get 
their insurance through their employer. We could offer, as 
McCain suggested, a refundable tax credit for everyone. We want 
to empower patients. We want to reduce state mandates, which 
add between 20 and 50 percent to the cost of an insurance plan.
    I think people should be able to purchase insurance across 
state lines. We need med now reform, and if we do all that, we 
can reduce costs and significantly reform and reduce the number 
of uninsured in this country. Universal choice will lead to 
universal coverage for all Americans, and then we will have 
affordable, accessible quality health care for all.
    As P.J. O'Rourke, my friend, says if you think health care 
is expensive now, just wait until it is free. Thank you.
    [The prepared statement of Ms. Pipes follows:]

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    Mr. Pallone. Thank you. Dr. Feder.

                    STATEMENT OF JUDY FEDER

    Ms. Feder. Thank you, Chairman Pallone and Congressman Deal 
and members of the committee. It is a pleasure to be with you 
today to talk about the critical need for affordable health 
care for all Americans.
    As I listened to Ms. Pipes, I wonder whether she is truly 
following the plight of Americans who can't afford health care 
and whether she is following the kind of American health reform 
that we are really talking about. You mentioned President 
Obama's campaign plan. He has talked about his commitment of 
the choice of health plan, of quality care, and affordability 
for all Americans. So I would like to get our attention back to 
the problems Americans are facing as 14,000 Americans are 
estimated every day to be losing their health insurance as they 
lose their jobs and as benefits are shrinking even for those 
Americans who have health insurance.
    The problem of unaffordability is most apparent for the now 
probably more than 47 million Americans who lack health 
insurance, most of whom have incomes below twice the federal 
poverty level, about $44,000 per family of four. And if they 
don't get health insurance through their employers, as most of 
them don't until most of them are working, they simply can't 
afford the $13,000 roughly 2008 cost of a comprehensive health 
insurance policy.
    But affordability, as you have noted, is increasingly a 
problem even for people who have health insurance. In 2007, for 
example, the Commonwealth Fund identified 25 million people 
under-insured or economically threatened due to high out-of-
pocket costs up from 15 million. So that is 15 up to 25 million 
in only four years.
    Similarly, the number of Americans who report problems 
facing paying medical bills has risen. It has jumped from one 
in seven Americans under age 65 in 2003 to one in five 
Americans by 2007. Not surprisingly, low income families face 
the greatest problems, and sadly, our valuable Medicaid and 
CHIP programs do not necessarily prevent these problems. No 
matter how low their incomes, working aged adult who are not 
parents of dependent children or are not disabled aren't 
eligible for Medicaid in most states. And even the populations 
they do cover, Medicaid and CHIP have been modified in recent 
years to give less protection in terms of out-of-pocket costs 
to low-income families.
    Finally, not really surprisingly but ironically, 
affordability problems are the biggest problem for people when 
they get sick. In particular, individuals who are older, have 
an activity limitation, a chronic condition like diabetes or 
heart disease are most likely to be underinsured. And if they 
don't get coverage through an employer-sponsored health plan or 
if they lose this coverage, they are going to have one heck of 
a time getting it from a non-group market that systematically 
denies coverage, limits benefits, or charges excessive premiums 
to individuals with pre-existing conditions or whom insurers 
believe are likely to need health care.
    Now, I have been talking here about money problems, but we 
all know that affordable health care is a problem of your money 
and your life. There is lots of evidence and the Institute of 
Medicine has come out with a new report documenting once again 
that people without health insurance are more likely than 
people who have health insurance to delay care, to get less 
care, and actually to die when they get sick.
    Sadly, evidence suggests that increasingly people who are 
underinsured are facing similar problems. One report shows that 
they are postponing care, skipping recommended medical visit or 
treatment, not filling prescriptions, and skipping doses or 
cutting pills. The underinsured not only struggle medically to 
survive, their medical struggle, as we have heard from some of 
you and you hearing from your constituents is forcing them into 
bankruptcy and increasingly into foreclosure.
    Even people with insurance just can't afford to get sick. 
But we are gathered here today to address these problems, and, 
Mr. Chairman, we are counting on you in the coming months to do 
exactly that. So let me give you four principles to keep your 
eye on as the committee and the Congress moves forward.
    First, keep your eye on families' total health spending, as 
Dr. Reinhardt said, not just premium contributions but also on 
deductibles, cost sharing, and spending for other service. You 
have to watch out for a desire to keep those premiums low by 
keeping the cost sharing high. The result is going to be 
insurance that doesn't work when you get sick.
    Second and related, remember that benefits matter. Health 
insurance worthy of the name has to work for people when they 
are sick. So despite claims that I have heard and I am sure you 
have heard that any insurance is better than no insurance, 
insurance that leaves people without the ability to buy the 
services that their doctors and practitioners prescribe is just 
not good enough. Like members of Congress, all Americans need 
adequate benefit packages with a defined set of services. It is 
a critical linchpin for affordability.
    Third, affordability clearly depends on income, and low-
income families need special protections.
    And finally, insurance must stop discriminating against 
sick people. As long as insurers can deny coverage, limit 
benefits, or charge higher rates based on people's age or 
health status, insurance is going to remain unaffordable for 
people who need health care.
    Meaningful health reform cannot fail to ensure that health 
insurance is affordable for people who have been or whom 
insurers believe are likely to become sick.
    We know that enacting health reform is a challenging task, 
but now is the time. I commend you for your efforts and look 
forward to working with you to get affordable coverage for 
every American this year. Thanks.
    [The prepared statement of Ms. Feder follows:]

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    Mr. Pallone. Thank you, Dr. Feder, and thank all of you 
really for your statements. Now, the way we work it, we have 
questioning now from members of the committee, and I will start 
by recognizing myself for 5 minutes.
    And my question really is to both Dr. Reinhardt and Dr. 
Feder. I would like to get your thoughts on the addition of a 
new public plan, which you actually did discuss a new public 
plan to a menu of health care tools available for expanding 
coverage.
    Obviously we want to build on existing programs like S-CHIP 
and Medicare and Medicaid. But the fact remains that with 46 
million uninsured people in this country, we will need to build 
significant new capacity in our insurance system.
    Now, you know, we have talked about having the government 
do a health care marketplace. Massachusetts is sometimes cited 
as an example where the government would go out to private 
plans and, you know, see what their benefits are, their 
premiums perhaps, negotiate both those standards and premiums 
and offer group plans to people as an alternative to the 
individual market.
    But in the context of that is this possibility of an option 
to enroll in a new quality affordable public plan. And the goal 
of that would be to create healthy competition with private 
insurers, lowering overall costs and at the same time expanding 
access across the health care system. So I wanted to start with 
Dr. Feder and ask what you think about creating a new public 
plan, and is that a good idea in the context of some kind of 
health marketplace, national health marketplace?
    Ms. Feder. Mr. Chairman, I think you posed the question 
exactly right. It is very important to remember that what you 
put forward and what is being talked about is a choice for 
Americans and in choice of private and public plans, not 
characterized as a public takeover or Medicaid for all. That is 
completely incorrect. We are talking about choice.
    And the importance of that choice is actually to set a 
model, and insurance companies are no model for running this 
system efficiently, private insurance companies. And they are 
not getting us good deals and getting us adequate protection. 
So establishing a public plan that is a choice and that 
operates on a level playing field with private insurers can 
actually serve as a push to get more competition. I think 
competition is a goal that all of us have, effective 
competition, to get efficiency in the health care system.
    Mr. Pallone. OK, thank you. Dr. Reinhardt, do the 
experiences of other countries that have successfully built 
universal health care systems suggest that a new public plan 
could be helpful to America, to the U.S.?
    Mr. Reinhardt. I think certainly it could. Not a lot of 
countries actually have this sort of mixture. The only one that 
comes close is Germany. They don't really have a public plan, 
but they have privately managed sickness funds, nonprofit, that 
work a little bit like Medicaid managed care where the 
government collects the taxes essentially but lets private 
competing health plan purchase the health care but under 
unbelievably tight regulation. So it almost is like a 
government plan.
    I too share the view that if choice is the mantra, and many 
Americans really do like choice, then having a public plan that 
people might like seems to be something that should be done 
because by what rights would one deprive the American people of 
a choice they might favor? Now, where would I get this idea 
that they might favor a government plan?
    Well, two. The first one is we do have Medicare, and the 
elderly do have a choice to go into private health plans or to 
stay in the government-run plan. And I don't know what the--I 
think 75 percent still choose the government plan in spite of 
the fact that the private health plans get--the taxpayer pays 
them 14 percent more to be able to offer a benefit. To me, that 
suggests there is a strong latent demand among the American 
people for a private health plan.
    And then people say well, that is socialized medicine, and 
I would urge the committee not to use that term anymore. And 
the reason I do is I will tell a little vignette. People will 
tell me socialized medicine is just terrible, and it is awful. 
And then I will say OK, I will accept it. Why do you not like 
my son? And then they look. What have you got to say--my son? I 
say my son is a veteran, a decorated U.S. Marine Corps veteran 
with a purple heart, and yet you give him socialized medicine 
called the VA.
    So why do Americans run down this concept? We are not even 
talking socialized medicine--we are talking about social 
insurance--run it down and yet give the very contract to the 
veterans, and I am a father of one.
    And I would like sometime if somebody in this room write to 
me and explain this paradox to an immigrant like me why do you 
give veterans socialized medicine when it is so bad.
    Mr. Pallone. Thank you. Mr. Deal.
    Mr. Deal. Thank you, Mr. Chairman. As I indicated in my 
opening statement, transparency of pricing is important to me, 
and I have introduced a bill. And I would like to give you some 
of the components of that and see what your reaction to it 
would be.
    First of all, the bill would allow uninsured patients and 
other patients who pay out of pocket for certain health care 
costs to be able to go to an HHS Web site, enter their families 
income and the health care services they need, and find out the 
prices they will be charged for these services by all the 
health care providers in their area.
    Second, it would allow doctors and hospitals to use the 
same Web site to find out what a particular insurance company 
will pay them for a particular item or service before it is 
delivered, and it will allow these providers to find out what 
their patients' copays will be.
    Third it would allow the insured patients to make better 
informed decisions by allowing them to use the same Web site to 
find out what their copayments would be for particular health 
care services in their area, depending on who the health care 
provider was.
    And finally, it would require HHS to publicly disclose all 
of their Medicaid data in a way that protects individual's 
privacy but allows the public to join in the fight against 
Medicaid fraud and allow patient advocates to make sure that 
Medicaid patients, for example, are getting the care that they 
need. It would allow citizens to know whether or not young 
children who are enrolled in their state's Medicaid program are 
getting their well child checkups, and whether older patients 
are getting their annual cancer screenings.
    Would a piece of legislation like that be something that 
each of you might support? And I will just ask you 
individually. Dr. Reinhardt?
    Mr. Reinhardt. As a general principle, price transparency 
is essential if you ever want to have models based on choice 
and competition. And, of course, the health system has been 
uniquely opaque in this regard. Now, there is a problem with 
posting prices. Hospital charge masters has close to 20,000 
items, and a physician fee schedule has 7,000 items in it. So 
prices would have to be reconfigured to be for complete 
procedures.
    I had in a paper proposed, in Health Affairs, that maybe 
the way to go is to say let us use the DRG system for all 
patients, no matter who the insurer is, because it is a 
relative value scale. But each hospital has the right to set 
its own conversion factor to monetize the thing, and they have 
to advertise that. And only one number would give you the 
prices of a hospital.
    Or one could have research that bundles all the services 
that go into a treatment like a coronary bypass graft or a hip 
replacement and then give you the price per procedure with 
everything bundled in.
    But I think the idea of transparency is one I would 
wholeheartedly support.
    Mr. Deal. Thank you. Ms. Pipes.
    Ms. Pipes. Yes, and I too support price transparency. We 
have price transparency in most aspects of our life, whether it 
is what service we use or what bank we use. I would be against 
government mandating price transparency. I think, you know, in 
consumer patient-centered health care, we have seen--we will 
see, if we encourage that and support it, I think we will see 
price transparency because when you put doctors and patients in 
charge of your health care, prices will be negotiated.
    I think if we change the tax code, as I mentioned, so that 
individuals can by health insurance, as Ms. Eshoo said, on the 
same level playing field that those who get the tax benefit 
through their employer-based coverage. I think we will see much 
more competition. We will see new entrance into the insurance 
market, and when we have more competition, we will see prices 
being negotiated.
    I think even in Medicare, you know, we could open up to 
empowering Medicare patients and doctors, and we will see 
people negotiating. And we will get price transparency as we 
have in all other aspects of American life.
    Mr. Deal. I take that as a qualified yes?
    Ms. Pipes. Yes.
    Mr. Deal. Dr. Feder.
    Ms. Feder. I think that your proposal, Congressman Deal, 
makes a great deal of sense. I haven't seen it in all its 
details, but transparency in what--getting inside the black box 
of insurance is critical as a customer, as a taxpayer, every 
other way. And so I applaud your efforts, and I am happy to be 
of what help I can.
    Mr. Deal. Thank you. Let me explore very briefly because my 
time is running out. If we go to a government option proposal 
that would be offered as part of a package, would you 
anticipate that that government option would also have to take 
into account state mandates on what must be offered, which vary 
obviously from state to state, and would it also therefore take 
into account community pricing? And if it does all of that, 
don't we wind up with a system where a public plan would cost 
significantly more depending on where you lived? And how do we 
deal with that inequity in terms of explaining that to the 
public? Or would it simply be a uniform premium that you would 
anticipate that public plan would offer?
    Ms. Pipes. So I pointed that out in my testimony that 
things like guaranteed issue, community rating, and a lot of 
mandates add significantly, 20 to 50 percent, to the cost of a 
premium. And if, within this national insurance exchange, there 
is going to be a public plan and all of those things are going 
to be added onto it, you are right. We are going to see the 
cost of insurance go up rather than going down. And that is 
going to crowd more people out of getting covered and reducing 
that number of uninsured.
    So under the health saving account patient-based health 
care, it is not for everyone, but we have seen prices come down 
as Mr., I think, Burgess mentioned. We have also seen that 
people who have HSAs are 30 percent more likely to get an 
annual checkup and be engaged in prevention because they don't 
want to be facing significant cost once they have a degree. And 
that work was done by McKinsey and Company.
    So I think we have to be very careful. I am very worried. 
New Jersey, New York, Massachusetts have community rating, 
guaranteed issue. Their insurance is very expensive, and if we 
do this plan, it is going to crowd out private insurers, and 
that is my main concern.
    Mr. Deal. I am sorry I can't have any time. I have already 
exceeded my time, and I am afraid I can't let the rest of you 
answer. But maybe we can get to it later. Thank you.
    Mr. Pallone. Thank you, Mr. Deal. Ms. Eshoo.
    Ms. Eshoo. Well, I want to thank the witnesses, each one 
coming from their own place and stating their case really 
forthrightly. I enjoyed your testimony, and I think that, while 
I might not agree with everything that I have heard, I like the 
way you have framed it and presented it to us.
    Since today is St. Patrick's Day and the one day where we 
are all Irish, Ms. Pipes--is it, yes, Pipes. You quote P.J. 
O'Rourke. And you say if you think health care is expensive 
now, just wait until it is free. Where, in anything, is anyone 
talking about free?
    Ms. Pipes. Well, Michael Moore----
    Ms. Eshoo. I mean where does this come from?
    Ms. Pipes. Well, because people, as Michael Moore said in 
his movie ``Sicko''----
    Ms. Eshoo. We are not talking about movies. We are talking 
about reality.
    Ms. Pipes. Right.
    Ms. Eshoo. So when you say in congressional testimony if 
you think health care is expensive now, wait until it is free, 
who has suggested that health care is free? We are faced with 
12 and 14 percent increases every year. It simply is 
unsustainable. We know that people are left out. We know that 
it is a system that is fractured. We know that we are spending 
too much as a nation and not getting back for people what they 
should have. And so I really think that the notion to say just 
wait until it is free is--it really doesn't belong here. I 
just--I feel strongly about that. I don't know if--you might 
not regret having said it, but I don't think it is really part 
of this.
    I mean you can defend it, but do you have a defense for it?
    Ms. Pipes. Yes.
    Ms. Eshoo. Yes.
    Ms. Pipes. So thank you for that comment. What it means is 
when government takes over the total supply of health care, 
people think it is free because----
    Ms. Eshoo. Well, we can get into a real debate here. This 
is not a discussion about the government taking it over. This 
is about the government rewriting the rules of this because so 
much of it is not working, and we know that it is not. Insurers 
say that. Families say that, and so there is consensus on that.
    So now, let me move on and just as a few questions. I 
really want to kind of drill down on this whole issue of tax 
treatment. And while this is not the Weighs and Means 
Committee, you are all experts, and I really would like to hear 
your views on this and what your opinions are on the tax 
treatment of employer-sponsored insurance plans.
    As you know, those who get their insurance through work pay 
no tax, while those that purchase insurance without a group 
plan do. Do you think that all plans should be taxed? Do you 
think they should be taxed in part for certain services? What 
is your view on all of this? It is not a subject matter that is 
often discussed, and I am curious about it. So Dr. Feder, do 
you want to start?
    Ms. Feder. Sure. You raised it in your opening remarks----
    Ms. Eshoo. Right.
    Ms. Feder [continuing]. That it is concerning to you. And 
our employer-sponsored health insurance has grown up as the 
development preceded the special tax treatment, but that has 
strengthened it. And there is a concern about inequities 
because better off people get a better break than low income 
and certainly than low insured because it varies with your tax 
bracket. And so there are concerns about that.
    But I am very concerned about doing anything that 
undermines the employer-sponsored health insurance system 
because although it has significant limitations, it does create 
the groups, and you talked about ensuring access to group 
insurance. It creates those groups that enables us to pool risk 
rather than having everybody on his own, which we see in the 
non-group market.
    So I think that there are concerns about it. I think as we 
develop a system, we want it to be fair and share 
responsibility, whether it is through the tax system or other 
mechanisms for everybody. But I am very concerned about 
proposals to eliminate the tax break because it essentially 
does undermine the insurance system, the employer-sponsored. 
And also anything that would shift, that would make it come 
apart and throw everybody into the non-group market.
    Ms. Eshoo. Um-hum, thank you. Dr. Reinhardt.
    Mr. Reinhardt. Well----
    Ms. Eshoo. Well, you posed a question about socialized. It 
is a political phrase to scare people.
    Mr. Reinhardt. Yes.
    Ms. Eshoo. That is what it is.
    Mr. Reinhardt. Yes, but it is----
    Ms. Eshoo. It is a bumper sticker.
    Mr. Reinhardt. It is really peculiar when you----
    Ms. Eshoo. It is peculiar.
    Mr. Reinhardt [continuing]. Are the father of a veteran to 
have that----
    Ms. Eshoo. Well, how about members of Congress receiving 
Social Security?
    Mr. Reinhardt. Yes, or a----
    Ms. Eshoo. Right.
    Mr. Reinhardt. Who are on Social Security as you know.
    Ms. Eshoo. Right.
    Mr. Reinhardt. No, the issue of taxing employer-provided 
benefits, most economists in theory would be for that, but 
there is always the concern, and I have written a paper on the 
balance sheet for employment-based insurance. At the moment, it 
is the only really functioning risk pooling mechanism in the 
private sector and actually, for all its flaws, has worked and 
served Americans reasonably well.
    So an alternative might be to go and say well, self-
employed people should have the same tax privileges, anything 
tax-wise that would cost that much money. And that seems fair 
to do, but there still is an issue of giving people in high 
income brackets a bigger tax break than in low income brackets, 
which you really sense with the flexible spending account, 
where when I get a tool drilled it costs me half, and the gas 
station attendant pays 85 cents on the dollar.
    So there are ways to deal with it. For example, one could 
say harvest some of the money. I am a full professor at an Ivy 
League university. I really don't need this tax break to get 
health insurance. I could be asked to pay taxes on it, and I 
think I would. So you could say if you are making less than 
$75,000, you won't be taxed on it. If you make between $75,000 
and maybe $150,000, we will take half what the employer pays 
and add it to your W-4. And if it is over $150,000 or over 
$200,000 the whole thing is taxed. Then you say you are 
punishing the rich. Well, I don't consider that punishment. I 
consider asking me, who is so lucky to have a tenured job at 
Princeton, to pay for my own health care, I don't call that an 
imposition. I don't really need that subsidy from the gas 
station attendant, which I now have.
    So that is one way you could harvest some of the money 
without hurting the rank and file.
    Ms. Eshoo. Thank you very much to each one.
    Mr. Pallone. Gentleman from Kentucky, Mr. Whitfield.
    Mr. Whitfield. Thank you very much, and thank you all so 
much for your testimony today. We appreciate it very much. When 
we think about Medicare, Medicaid, the VA, S-CHIP, we know that 
that represents about 48 or 49 percent of the total health care 
delivery system in the U.S.
    And I think most people view those as government programs, 
which is providing a valuable service, but we also know that 
those programs are contributing greatly to the escalating costs 
in health care. Every time you visit with the Concord or a lot 
of groups, they say with Medicare increasing costs every year 
and Medicaid increasing costs every year and Social Security 
increasing costs every year, that we are going to have a 
financial disaster 22, 23, 24 years down the road on top of our 
already economic crisis that we face today.
    So when we talk about reforming health care, I think many 
of us on this side of the aisle view it as the government 
taking it over. I mean and the government already runs 
Medicare, Medicaid, S-CHIP, the Veterans' health care system. 
And I know, Dr. Reinhardt, you mentioned that we--I had to 
leave during your testimony, but I think you said we need 
universal health coverage.
    And, Dr. Feder, I don't know that you said that, but I 
believe you set out certain principles that you had to consider 
to----
    Ms. Feder. And I do favor universal coverage.
    Mr. Whitfield. Yes, so if the government plan that is in 
operation today, I mean the ones that I mentioned, the costs 
are escalating every year. We can't control those costs. If we 
allow government to be basically responsible for the other 50 
percent, why are we encouraged that the government could 
control those costs better than the way we are controlling 
costs today?
    Ms. Feder. Well, Congressman, I don't think we are 
proposing having government take over those other costs, and I 
actually think, as you look at the share the government is 
spending, some talk about it as a shifting from the private 
sector to the public sector because our public programs are 
taking care of older Americans, disable Americans. And 
Medicaid, the bulk of the spending in Medicaid is for people 
with disabilities and older people and long-term care. So they 
have particular responsibilities and have left the healthiest 
population to the private sector.
    And when you talk about the overall cost growth, we have 
lots of evidence--and I know that former CBO director Peter 
Orzack presented that to you as CBO director, and now as OMB 
director, he makes the same point. And that is that our public 
health insurance programs are not growing faster than the cost 
of health care in general. Everybody is buying in the same 
market; although, Medicaid really buys on the cheap.
    Mr. Whitfield. Yes.
    Ms. Feder. But the costs are growing in general so that the 
only way to get a handle on the growing costs, which you 
rightly recognize, of Medicare, Medicaid, Veterans, any health 
insurance program that we have, is to pursue slower cost growth 
through investment in primary care and prevention and a host of 
other mechanisms----
    Mr. Whitfield. Right.
    Ms. Feder [continuing]. That affect the entire system and 
to make sure that everybody has coverage all the time so that 
we can promote prevention and better treatment.
    Mr. Whitfield. Now, you know, as you were talking--and, Dr. 
Reinhardt, I will give you an opportunity to reply also. But as 
you were talking, another government program that I think has 
worked very well is the community health centers. I mean I 
think the community health centers addressing the primary 
health care issue have worked very well. And basically they are 
paid for by the federal government working with local entities. 
And I always thought that community health centers and a 
partnership in the private sector with gigantic employers might 
be a way to expand accessibility too.
    Ms. Feder. Well, I share your view of the excellent 
performance and the value of community health centers, and they 
certainly are a part of the system in making sure that, as many 
have said, people don't just have access to health insurance, 
they have access to care.
    Mr. Whitfield. Right.
    Ms. Feder. But the community health centers, when less 
people have insurance coverage, they face tremendous problems 
once anybody gets beyond primary care.
    Mr. Whitfield. Right.
    Ms. Feder. They can't find specialists.
    Mr. Whitfield. Right.
    Ms. Feder. People need insurance coverage.
    Mr. Whitfield. Now, Dr. Reinhardt, if you will take about 
30 seconds to reply, if you can, then I want to make one other 
comment.
    Mr. Reinhardt. The first point I want to support, if you 
look in November '07, Peter Orzack published a beautiful report 
on health care cost growth. And it is figure four. You can 
actually really see how each sector, public, private, is 
growing. And in fact, on a per capita basis, Medicare has grown 
less rapidly than the private sector. On the community health 
center----
    Mr. Whitfield. On the cost of it?
    Mr. Reinhardt. On the cost. You have to do it per 
beneficiary, and Marilyn Moon has done a lot of research.
    Mr. Whitfield. OK.
    Mr. Reinhardt. And that is well understood. On the 
community health center, I think they are an important part of 
the landscape in American health care because they are so 
accessible, and they do a great job for the money they have 
used. But we had a commission on rationalizing New Jersey 
health care and looked at these centers, and this theme that 
they are great in primary care, but then they are not multi-
specialty. Getting access to specialists was the Achilles heel. 
So yes, I think we should have them. It should stay, and the 
Congress might worry about how to have a larger range of 
services provided.
    Mr. Whitfield. Fine. Mr. Chairman, I would just make one 
other comment. Another thing that bothers a lot of people 
though when you talk about universal health coverage and you 
think about the Canada system and the Great Britain system and 
so forth, and Ms. Pipes went over this in her testimony. Maybe 
you all can address it later. But if it is true 750,000 
Canadians are waiting for procedures and 3.2 million out of the 
population are waiting to get a primary care doctor and Canada, 
the average wait for seeing a primary care doctor for getting 
treatment by a specialist was 17.3 weeks and the 
rationalization of health care, that is a real concern to a lot 
of people.
    And you can't respond to it now, but later on I am sure we 
will have an opportunity to address that in more detail. Thank 
you.
    Mr. Pallone. Thank you. Gentleman from Texas, Mr. Green.
    Mr. Green. Thank you, Mr. Chairman, and following up on my 
colleague from Kentucky, I have a district, a very urban 
district in Houston. It is an under, underserved district. We 
have actually four community based health centers, and they are 
in financial trouble right now because so much of that we 
depend on is foundation funding. And foundation funding, 
because of the economy, is cratering. So we need more of them, 
but we also need to look at, you know, our authorization 
levels, that we upped the authorization to five-year 
authorization last time. Even with the stimulus money that was 
in there, in the Houston area, fourth largest city in the 
country, it helped two of our FQHCs. So, you know, we need to 
be better on the community based health centers. And hopefully 
whatever plan we have will make them where the rubber meets the 
road literally for the uninsured and the underserved. I mean it 
is a great program. It has been around for almost 50 years now, 
I guess, since President Johnson.
    And I would like to ask the panel how do you see these 
FQHCs because of the--my problem is the disparity of the 
location. Great example, Chicago is fortunate to have 81 
community health centers, and in Houston, Harris County, we 
have 10. And we are trying to create more even though we are 
the fourth largest city and may pass Chicago in the census.
    But we have a disparity in where these centers are located 
because of the local networks.
    Ms. Feder. It seems to me, Mr. Green, and I would have to 
look into it further as to what the problem is under the 
circumstances, but the best way that you can promote those 
delivery systems is to get everybody health insurance because 
then every patient who comes into a community health center is 
carrying money. They are not dependent on the federal grants. 
So the bottom line is that we need health insurance in order to 
enable the delivery systems to prosper.
    Mr. Green. Well, the problem FQHCs have is just like the 
problems of hospitals and doctors. You have a lot of 
uncompensated care.
    Ms. Feder. Exactly.
    Mr. Green. Even though people have to pay something, they 
don't pay enough that covers the cost of the service.
    Ms. Feder. Right, and valuable as they are, and as Mr. 
Whitfield said, is that even expanding community health centers 
is not a substitute for getting people insurance. They are a 
valuable part of the delivery system and should be supported by 
everyone having health insurance coverage.
    Ms. Pipes. I would just like to add that I support 
community hospitals, and Michelle Obama, during the campaign, 
you know, said being at the University of Chicago, people 
shouldn't be turning up at the University of Chicago emergency 
rooms for very, very expensive care. She supported the 
community hospitals. So that was a very good point.
    Just a point on the hidden tax. People keep saying that the 
uninsured are adding a tremendous burden to the cost of those 
who have private insurance. The work done by Dan Kessler at 
Stanford, he shows that the uninsured are adding about 1 
percent to the cost of premium for those who have private 
insurance.
    The 10 percent cost addition to private payers' premiums 
comes from Medicare and Medicaid from the lower reimbursement 
rates paid by the government. So I think that we really need to 
focus on, you know, how, you know, if we are going to go down 
to the path to more Medicare, more Medicaid expanding these 
programs, reimbursement rates are low and as we see now, one in 
three new Medicare eligible patients is having trouble finding 
a primary care doc.
    Because in systems like Canada, when the government took 
over the health care, people talked about there would be a lot 
of increase in primary care, but in fact, med students didn't 
go into primary care because when the government determines how 
much you are paid, they would rather go into specialties. So 
that is why we have a tremendous shortage in Canada of primary 
care docs.
    Mr. Green. Well, I will give you an example of the FQHC 
doctors can't make a decent living there. You know, you can get 
$135,000 or a family practice in a community based health 
center. The problem is that it is not, you know, not the 
specialties. And we know how high the specialties are. Dr. 
Reinhardt?
    Mr. Reinhardt. I would want to stress Dr. Feder's point. 
The important thing is to endow people with purchasing power to 
get health care because the trouble with institutional grants 
is you can have community health centers that are angelic. They 
have the budget. And you have others that are not, and to get 
performance is measured is not easy. But when customers can 
walk, competition will actually take care of it. That is why in 
general community health centers, as a delivery device are 
good. But I think it would be good that if their clients 
brought their own purchasing power with them.
    On this issue of cost shift, this is actually an 
interesting thing. People who believe in markets should not 
believe in my view that just because Medicaid or Medicare pays 
hospitals too little, private payers have to pay more. That is 
not true in a hotel. If somebody gets a discount, they don't 
call you up in the middle of the night and say hey, Smith just 
registered. We gave him a discount. We are going to raise your 
rate. So if you actually believe the private market works, why 
are private insurers not following Nancy Reagan's advice, just 
say no--
    Mr. Green. Well----
    Mr. Reinhardt [continuing]. We are not going to take it. So 
I don't believe this cost shift story of private payers picking 
up what Medicare doesn't pay. I don't believe in that story.
    Mr. Green. Well, Mr. Chairman, I know we have a situation 
in our country, Medicare pays so much. Medicare actually pays 
less, but in some cases, if you have a military base, got to 
see Champus and TriCare, don't even pay what Medicare makes in 
reimbursement. And we have run into that problem in a very 
urban area with our number of activations. So you are right. We 
need to look at the reimbursement rate to make sure they 
actually do fit the cost of the service. Thank you, Mr. 
Chairman.
    Mr. Pallone. Thank you. The gentleman from Texas, Mr. 
Burgess.
    Mr. Burgess. Thank you, Mr. Chairman. Let me just ask a 
question. I hate to do this because it is beyond the scope of 
this panel. But Mr. Green brought up in his opening statement 
that Texas has 25 percent uninsured. When Massachusetts did 
their program several years ago, they made a decision that they 
were not going to factor in or they were not going to include 
in their factoring any cost for people who were in the country 
without the benefit of a Social Security number. Of the 
uninsured in Texas, there are a significant number. We could 
never ignore that number of people who are in the country 
without the benefit of a Social Security number.
    So we failed on several attempts since my short tenure in 
Congress to deal with this issue. Can we really get to the 
point where we are talking about the type of reform that you 
three are discussing if we don't deal, in some way, with the 
problem we have with immigration and people who are in the 
country again without the benefit of citizenship?
    Mr. Reinhardt. Well, I served on the board of a Texas-based 
hospital company, and we had this very problem. On the front 
lines, you cannot tell when people come in bleeding or pregnant 
about to deliver. You cannot send them away. So we served them 
one way or the other.
    Mr. Burgess. And, in fact, you are required to under 
federal law under IMTALLA.
    Mr. Reinhardt. IMTALLA, yes. And in New Jersey, it is even 
more. The whole thing has to be delivered. So most of the 
immigrants are actually working or have families where somebody 
works. And it seems to me we have let employers in this country 
off the hook much too easily. They should pay for the social 
services that the immigrants and their families consume, 
whether it is schooling or--they should be made to pay Social 
Security. And that includes even people who do shrubbery as 
they do in Princeton. One ought to be required by law to pay a 
prorated contribution to these people's social services. But we 
have never actually done that. Quite a few people who employ 
undocumented aliens pay nothing into Social Security and get 
away with it. They have them as a subcontract, and God knows. 
So yes, I think you cannot not give health care to these 
families, particularly the children because, whether you like 
it or not, these children will one day be Americans.
    Mr. Burgess. Well, many of them in fact are by virtue of 
the fact of the----
    Mr. Reinhardt. That they were born here.
    Mr. Burgess [continuing]. They were born here. Again I am 
not seeing from congressional leadership or from the White 
House any serious attempt at dealing with this issue. And I 
just think it is--I stipulate the points you made, Dr. 
Reinhardt, are accurate. But it is just going to be very, very 
difficult for us to deal with us this issue when we have that 
larger looming problem in Texas, New Mexico, Arizona, and 
California where it is just going to be very, very difficult to 
overcome.
    Mr. Reinhardt. Well, there is a moral problem. If you make 
this great American health care available to people, people 
will flock here ever more.
    Mr. Burgess. And that was the argument.
    Mr. Reinhardt. That is why the Congress sometimes says let 
us not do this because we are creating a magnet. But----
    Mr. Burgess. But we did that in S-CHIP. We essentially said 
that we are going to remove some of the barriers. And we have 
turned off the jobs magnet to some degree, but we have to be 
careful not to turn on the benefits magnet.
    Mr. Reinhardt. In the end, there is a doctor and a nurse 
and a hospital looking at this human being, and they cannot say 
no.
    Mr. Burgess. Dr. Reinhardt, I will just stipulate that that 
is correct, and practically every night of my practice life, I 
was called to do just a delivery because IMTALLA said I would 
have a $50,000 fine and some serious questions to answer if I 
did not respond within 30 minutes, and yet at the same time 
that same federal government failed to secure the borders. And 
the consequence, we in the hospitals are left on the front 
line.
    I didn't mean to get so far down into that. I did want to 
ask a couple of questions about the federally qualified health 
center issues that Mr. Green brought up because the 
distributional issues are significant. While he has four or 
what did he say? How many did he have in Houston? It was way 
too many, whatever he said. We only have four in Dallas County, 
one in Tarrant County, none in Denton County where I represent 
significant numbers of people. The infant mortality rate in 
Tarrant County in some of the zip codes is phenomenally high, 
and we only have one federally qualified health center, not in 
the neighborhoods with those zip codes. So there it is not a 
question of access. We have a good county hospital in Tarrant 
County. The question is utilization. We have not put the 
clinics where the people are so that they will use them, and 
that is one of the great inequities.
    I have often wondered why we reimburse at a higher rate for 
Medicaid reimbursement for a federally qualified health center, 
and we won't do the same thing for a physician in practice in 
the community to keep that physician involved and in practice. 
So, Dr. Reinhardt, you almost went there with the money should 
follow the individual. Can you expound upon that just a little 
bit?
    Mr. Reinhardt. Yes, I think in general, certainly in my 
profession, economics, we believe in competition. And therefore 
whether it is--scholarships should never be given to a medical 
school or a university. It should travel with the client, and 
that is why ideally people should have the same insurance. A 
doctor should get paid the same, no matter where they work. You 
are reimbursing a professional service, and it shouldn't really 
depend on what location you do that. And so I sympathize very 
much with your thought.
    Mr. Burgess. And what are the mechanisms----
    Mr. Pallone. We----
    Mr. Burgess [continuing]. That money could follow the 
individual?
    Mr. Pallone. Mr. Burgess, we----
    Mr. Reinhardt. Universal----
    Mr. Pallone. You are over. This will be the last question.
    Mr. Reinhardt. Universal insurance is, in fact, the 
mechanism. That is why some of us are so much for it. That if 
people have purchasing power, like a Canadian has a credit 
card, and with the credit card, every doctor gets paid the 
same, whether it is a poor child or a rich child. While in New 
Jersey, we have Medicaid $30 for a pediatric visit, and for the 
commercial, $120. Canadians don't do this. This is why I think 
the Canadian story is not really relevant to us at this time. 
They have a different social ethic. They look at life 
differently than we do.
    If you did a survey now in Canada, Canadians are not 
stupid. They are highly educated. They watch American TV. They 
have a democracy, and yet if you had a referendum whether they 
would want our system or keep theirs, overwhelmingly, I would 
bet a lot of AIG stock on that, overwhelmingly, you would 
find--well, it is still worth something.
    Mr. Burgess. We will see to that actually. We will 
stipulate to that.
    Mr. Reinhardt. I will put real money on it, real New Jersey 
money. The Canadians would vote for their system. There are, of 
course, some who are not happy, and they can come here and do 
research. But by and large, when I go up--I am a Canadian too. 
When I go up there, by and large, people are very proud of 
their system. And I invite you to do it. Go to the airport. 
Talk to anyone.
    Mr. Burgess. Yes, my father was a refugee from Canada so I 
understand.
    Mr. Pallone. All right, we have to move on here. Next is 
Ms. DeGette.
    Ms. DeGette. Thank you, Mr. Chairman. Dr. Feder, I was 
wondering if you wanted to respond very briefly to this issue 
of the undocumented immigrants coming in and taking advantage 
of our system.
    Ms. Feder. Thank you, Ms. DeGette. You saw me chomping at 
the bit.
    Ms. DeGette. I did.
    Ms. Feder. I will be brief. I just wanted to make very 
clear that, although immigration is a very serious problem that 
does create serious problems for health providers, particularly 
in some areas, that the problem that we are talking about is we 
should not ever think that the bulk of people without health 
insurance coverage or the bulk of people who are facing 
affordability problems are immigrants, whether they are here 
legally or not legally.
    And I also believe that when we are talking about--we asked 
universal coverage or were talking about universal coverage, we 
are talking about universal coverage for people who are 
Americans and are here legally. And I just didn't want that 
issue to get confused.
    Ms. DeGette. So if you were structuring the universal 
health care program, you wouldn't necessarily structure it so 
that we were inviting people to come in and enroll.
    Ms. Feder. I think that is absolutely true, and we have 
seen that people, as Dr. Reinhardt said, people are coming here 
as long as employers want to hire them and we don't enforce our 
rules.
    Ms. DeGette. Right.
    Ms. Feder. And with the decline in the economy, they are 
not coming in those numbers anymore.
    Ms. DeGette. Right.
    Ms. Feder. Although it is a very serious problem that I 
wouldn't minimize and faces some institutions in particular 
ways, it would be a mistake to hold the whole health care 
system and all Americans hostage to that problem.
    Ms. DeGette. Thank you. What I really want to talk to this 
panel about is this issue of a public plan alternative because 
I think that frankly as we move forward with drafting 
legislation in this committee, that is going to be one of the 
top issues of discussion and debate. And some people say well, 
we shouldn't have a public alternative, I guess, because it 
leads us down a slippery slope towards socialized medicine or 
single payer or so on.
    But we actually do have one of our largest public health 
care systems right now has a public option and a private 
option. That is Medicare, and the Medicare fee-for-service 
option is the most popular option, and people like that. But 
more importantly, I think, if we didn't retain the fee-for-
service option when we did Medicare Advantage, we would have 
never realized that we weren't getting more efficiencies in the 
private option that we had adopted. And frankly I was here when 
we did Medicare Advantage, and I thought that when we did the 
private alternative that it would save us money and it would 
cause us to revamp our fee-for-service program to get more 
efficiencies in that program.
    We all know now that, of course, it has not been the case, 
and that we are spending far more in the private alternative 
then we would have in the public. And so I guess maybe, Dr. 
Feder, I will start with you. I would like your comments on why 
you think it is important to have a public option if we are 
going to maintain the private competition that we have.
    Ms. Feder. Yes, I think you nailed it, Congresswoman 
DeGette, when you said that essentially the public system can 
keep the private system honest. But we have evidence that 
private insurers are not negotiating effectively in terms of 
getting affordable health care. And if we have a public health 
insurance option, and remember because I think it gets 
misrepresented, as a choice, then we, you, the public can hold 
that plan accountable for bargaining effectively with 
providers, for delivering quality care, for being transparent, 
for all the things that we need insurance to be. And 
essentially it puts some pressure and makes a market that 
claims to be competitive but is not, it can make it work.
    Ms. DeGette. And just to follow up on something, Ms. Pipes. 
I never try to misconstrue what people who I disagree with say, 
but what I had heard Ms. Pipes saying is part of the way in 
Medicare and part of the way it would happen in this system 
that you would get the efficiencies is by ratcheting down 
reimbursement for medical services, and doctors wouldn't want 
to provide those services. What would your response be to that, 
Doctor?
    Ms. Feder. Well, I find these claims fascinating at a time 
when the Congress is responding to concerns about physicians in 
the Medicare program and responding to access problems by 
raising physician fee. And in Medicare, we make an extra effort 
to make certain that we are paying appropriately, but that when 
access problems arise, that we, essentially you, enact higher 
rates.
    And we are talking about then a responsiveness to--people 
need access to care, and your constituents hold you responsible 
for that. So I don't think this concern that somehow it is 
going to go to nothing or Medicare for all is--I don't know 
where this is coming from.
    Ms. DeGette. Dr. Reinhardt.
    Mr. Reinhardt. Yes, I agree. I served on the physician 
payment review commission, your commission, and we every year 
did a survey of the elderly and asked do you have access to 
health care--and that is still part of what Med Pac does--and 
monitored it very, very closely. And we have rules of thumb; 
when we saw access becoming even a small problem, we would 
recommend to the Congress to raise rates. So that, in the 
Medicare program has, I think, been pretty well modulated.
    But there is another thing that really I find puzzling 
around the business roundtable. On the one hand, they complain 
that we are spending too much on health care, and then on the 
other hand though they are saying the public sector isn't 
spending enough on health care, and then they also come out 
that government should stay small. And I sometimes in my simple 
mind try to put that all together. They say they want small 
government, but they want to pay more for Medicare so that 
their rates are somehow viewed the correct rate. Who is to say 
that private insurers aren't overpaying?
    They say, I have so little bargaining power. In some 
places, say California, even a large company like Well Point 
cannot face down a hospital system. And who is to say the 
private sector isn't overpaying? You know, you could make that 
case.
    Ms. DeGette. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you. Gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. Mr. Chairman, I will defer to whoever is next 
on this side if I may since I just want to listen.
    Mr. Pallone. Thank you. Mr. Gingrey.
    Mr. Gingrey. Mr. Chairman, thank you. Ms. DeGette was just 
referencing in Medicare that we have a----
    Ms. DeGette. Would the gentleman yield? It is DeGette, and 
everybody including the President has been saying it wrong. So 
I would just like to----
    Mr. Gingrey. Ms. DeGette.
    Ms. DeGette. Thank you very much.
    Mr. Gingrey. And it is Diana and not Deana. Is that 
correct?
    Ms. DeGette. You got it.
    Mr. Gingrey. Thank you. I will remember that. But Ms. 
DeGette was talking about the public and private plan that we 
have within the Medicare system and that the private plan 
turned out to be so much more costly. The reason I bring that 
up, because, Dr. Reinhardt, in your presentation, you talked 
about the importance of rigorous cost effectiveness analysis. 
And I have concern that our way of scoring things in a static 
environment rather than a dynamic way of doing it.
    Medicare Advantage--and the President, of course, has 
certainly taken a swipe at Medicare Advantage and is going to 
cut that significantly to the chagrin, I think, of 10 million 
people who get their care through Medicare Advantage.
    If it is true that end-of-life cost is the biggest cost of 
Medicare, the last month of life, then I think we might be 
judging that cost of Medicare Advantage prematurely. Now, I am 
not saying that it should be 115 percent compared to Medicare 
fee-for-service. Maybe it is a little too high, but in the 
final analysis, it seems to me that if we looked at this in a 
dynamic way, follow it all the way to the end of life, then it 
may turn out that Medical Advantage, the private versus the 
public, would be much more cost effective.
    And I worry in regard to what you were saying, Dr. 
Reinhardt, in rigorous cost effective analysis in regard to 
medications, in regard to biologicals, in regard to durable 
medical equipment or devices. That maybe in fact these would, 
by some rigorous cost effective analysis, almost like a Federal 
Reserve Board for health care, that these decisions would be 
made too early. And if we had an opportunity to wait and see in 
combination with other things, whether it was a cancer drug or 
a new surgical procedure, that in fact, in the long run, it 
would be cost effective. So I would like for you to respond to 
that for us.
    Mr. Reinhardt. Well, I mean first of all your point of 
ideally we would like to have a dynamic view is correct. I 
agree with this. Ideally what you would really like to have is 
a natural experiment where some people went into Medicare 
Advantage, some stayed with the traditional program, and you 
could follow them until they die and say what were the life 
cycle costs adjusting for illness and so on. That would be 
ideal obviously, and maybe you are right. It could be cheaper 
if they manage somehow the last month of life more efficiently. 
I am not sure there is any evidence----
    Mr. Gingrey. Well, I would say this. It is very likely that 
those were managed efficiently over a number of years in regard 
to wellness and taking care of themselves and taking care of 
their medications. When it comes to be their final day on 
earth, it might be a catastrophic event like a heart attack or 
a stroke but not in an intensive care unit for months suffering 
from multiple horrendoplasties, as we used to say in medical 
parlance.
    Mr. Reinhardt. No, it is possible, I mean, and it is 
researchable. One could research it even now. You could give 
the ARC some money--and I speak here with a conflict of 
interest. I am a health services researcher, but we could 
research this.
    Mr. Gingrey. Yes, I think you could, and let me ask you one 
last question, Dr. Reinhardt, before my time runs out 
completely. You had an article published March 13 of this year 
in the ``New York Times.'' You pointed to two groups who 
comprised the ``opposition to cost effectiveness analysis.'' 
And you said one of those groups were manufacturers of 
pharmaceuticals and biotechnology products or of medical 
devices. But the second group, and this is what I want to 
address my question to. You said the second group are 
individuals who sincerely believe that health and life are 
priceless, and you went on and you said in describing this 
second group, you state that for them cost should never be 
allowed to enter clinical decisions. ``It is an utterly 
romantic notion, and if I may so say, also an utterly silly 
one. No society could ever act consistently on such a credo.'' 
That is the end of your quote.
    Dr. Reinhardt, do you believe that we, as individuals, in 
America should have the ability to value our own lives, or is 
this something we should ask the government to do for us, i.e., 
ration that care when you get to be 90 years old and you need a 
hip replacement, do you just let them fall and break the hip 
and die of pneumonia? Or do they get the opportunity, if they 
value that, to get that hip replaced?
    Mr. Reinhardt. I cannot even tell you, Congressman Gingrey, 
how much I hoped someone would ask me this question because 
this is how I would think about it. Every American should have 
the right to value their own life any way they wish. But then 
the question is at whose expense. If it is at their own 
expense, by all means. But if you are dealing with a collective 
insurance fund, then those who preside over those funds do 
have, at some point, to ask themselves at what price do I buy 
additional life years, quality adjusted--we call them 
quallies--or additional health? And to say we don't make 
airports as safe as they could be. Our air traffic control 
system is reckless, I think, from what you read, and what often 
near misses. And why don't we do it? Over money. We may 
calculate our some fault in an unarmored Humvee. That was a 
calculated decision to say well, it would cost so much to have 
armored vehicles. We are going to take a chance of some 
Marines, and that is what the Congress does.
    So what I listed there is a paper that shows the value of 
human life legislators and people routinely put on their own 
life, and they are rather low numbers in many ways. And I raise 
the question why should health care be the only area in an 
economy in society where I have the right to say spend the 
limit, spend $5 million on me and let the taxpayer pick up the 
tab. I think that notion, to my mind, is romantic and, in fact, 
silly.
    Mr. Pallone. We are----
    Mr. Gingrey. Like a German philosopher of yesterday.
    Mr. Pallone. We have to move on, Mr. Gingrey. I am sorry, 
but we just have a lot of people, and we got another panel. 
Next is Ms. Capps.
    Ms. Capps. Thank you, Mr. Chairman, and I want to use my 
time really well with a great panel. And I have a question for 
each of you, starting with Ms. Pipes. In your testimony, you 
talked a lot about rationing care and waiting lists, and Canada 
does have bad wait times, but so does the United States. 
Twenty-three percent of adults reported having to wait over six 
days to get an appointment to see a doctor the last time they 
needed one. In the U.K., which also has a single payer system, 
it was only 15 percent.
    In addition, 34 percent of sick adults in America who had 
medical problems skipped important doctor visits because of 
cost. That is way more than the 4 percent in the U.K. and the 7 
percent in Canada.
    Not to belabor that, because we are talking about American 
system that we want to try to reform, is there any data you can 
present to this committee showing that a new optional public 
health plan will create rationing times or wait times worse 
than what we are seeing right now?
    Ms. Pipes. Well, I haven't done the exact research on that 
particular issue, but I think----
    Ms. Capps. So there is no documentation that you know of?
    Ms. Pipes. Not that I know of, but I can look into it and 
find that out because I think----
    Ms. Capps. That would be great. If you can find it, I would 
love to have it for our----
    Ms. Pipes. Because I think, you know, Canada does have long 
waits, and people that have money come to the United States and 
pay out of pocket.
    Ms. Capps. You said that in your testimony.
    Ms. Pipes. So it is very important that we improve the U.S. 
system so that people can get better access.
    Ms. Capps. Exactly.
    Ms. Pipes. And that is why I support universal choice 
because a young man of 30, you know, wants to get a high 
deductible----
    Ms. Capps. Thank you.
    Ms. Pipes [continuing]. Insurance plan. Why should he have 
to pay $12,000 to $15,000 to cover my in vitro fertilization? 
You know what I mean?
    Ms. Capps. Thank you very much, and if you can find that 
information for us, I think it would help us to make some good 
decisions. Dr. Feder, I mentioned the story in my opening 
minute about a constituent of mine who lost her job and had a 
reoccurrence of her cancer. She did well in the country that I 
represent because they have a particular public access program 
that worked for her.
    But I want you to be able to elaborate briefly but for our 
value what you were saying about how when someone loses 
employer coverage, their ability to purchase coverage in the 
non-group market is limited at best.
    Ms. Feder. Yes, well it is. You are absolutely right, but 
in your community she had an option. She had what is called a 
pre-existing condition. She was sick, and you are going to hear 
on the next panel from my Georgetown colleague, Karen Pollitz, 
who can give you examples, a tremendous number of examples of 
this kind. That people in the non-group market essentially does 
not--either denies people who have conditions, rules out 
coverage for the body parts that have been damaged, limits the 
benefits, or charges higher rates.
    The market simply does not work for people. It is not any 
kind of safety net, and the evidence on the non-group market is 
that rather than people falling into that system and getting 
picked up, it ends up people are healthier in that market than 
in the employer-sponsored system.
    So this woman, without your plan, when she most needed 
care, would have lost any means to get access to it. And we 
know looking at the evidence in general on the uninsured that 
people are actually dying in that circumstance.
    Ms. Capps. Thank you very much, and I----
    Ms. Pipes. I mean because people get their insurance 
through their employer and it is not portable if they lose 
their job, this is the reasons why changing the tax code so 
that people can go into the individual market. And also I think 
we will see more competition and new insurance companies that 
will deal with specific people.
    Ms. Capps. Well, we will see about that.
    Ms. Feder. They don't compete for sick people.
    Ms. Capps. That is right. If there is anybody who can show 
a plan where they compete for sick people, we would love to 
hear about that too.
    There is another topic that is very dear to my heart, Dr. 
Reinhardt, I saved for you. In the United States, we spend 
nearly $7,500 per person on health care. It is the most 
expensive system in the world, if I am not mistaken. Yet in 
terms of maternal mortality, women dying in childbirth, we rank 
41st out of 171 countries. So there is a disparity there. How 
can we now as we want to reform our system--what are some 
proposals specifically that would improve issues like maternal 
health, a classic indicator, according to the millennium 
challenge, for the overall health of a nation while striving 
for lower costs?
    Mr. Reinhardt. Well, obviously part of the reason why women 
die has to do with issues outside of the health system, and 
every health services researcher would recognize this. But when 
you come to infant mortality or maternal death, the health 
system does have a contribution to make. And I think we are 
falling short. It is because people often do not have insurance 
particularly when you are just slightly over the Medicaid limit 
or live in a state with a low threshold.
    And I must say as a European and ex-Canadian, I am stunned 
at this. I believe the children are the treasure of a nation. 
They are the future generation. And I always have said to me, 
mothers are on par with soldiers. They do a patriotic service 
because they bring us the next generation. We should give them 
medals rather than the way we treat them.
    And I remember I once gave a speech called ``Motherhood and 
Apple Pie'' where I said I do buy the idea that Americans love 
apple pie, but I am not so sure about motherhood. I don't think 
in this country we respect mothers enough. And people who know 
me know that is a big deal with me. We do not respect mothers 
enough.
    Mr. Pallone. We----
    Ms. Pipes. It would be worthwhile you looking at some of 
the work that June O'Neill has done on infant mortality rates 
because other countries--we have the best neonatal procedures 
and clinics and facilities in this country. And often in other 
countries, people are not counted as live births. And so look 
at the work that June O'Neill has done because you have to 
compare apples with apples.
    Ms. Capps. I was talking about maternal mortality.
    Ms. Pipes. Right.
    Ms. Capps. But our infant mortality rate is not so hot 
either.
    Ms. Pipes. Well, but I think you have to compare on an 
equal playing field how other countries treat--what they count 
as infant mortality rate versus this country because we keep a 
lot of babies alive that wouldn't even be counted as live 
births in other countries. So it is very important, look at 
June O'Neill's work on this issue.
    Mr. Pallone. Thank you. Next is the gentleman from Arizona, 
Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. Ms. Pipes, I would 
like to begin with you. I think I have heard you describe what 
you favor as universal choice. Are you familiar with plans that 
have been introduced that would provide every American with a 
stipend? That is either a tax credit or a refundable advancible 
tax credit that is cash to go buy a health care plan for every 
single person. Are you familiar with those? And would you 
describe that as universal choice?
    Ms. Pipes. Yes, I would, and Mr. McCain during the campaign 
was sort of hit by Mr. Obama saying--Mr. Obama said Mr. McCain 
would like to tax your health care. In fact, the plan would 
be----
    Mr. Shadegg. Well, I don't want to talk about his plan. I 
want to talk about some quick questions, and I have a long 
list.
    Ms. Pipes. So but I think it----
    Mr. Shadegg. Would you say we have a patient choice driven 
system now?
    Ms. Pipes. No, I would not. I would say 47 percent of 
health care is in the hands of government today, and we have a 
small sector 7 million people have patient-centered health 
care.
    Mr. Shadegg. Would you include in that patient centered 
health care plans that are picked by your doctor? Don't we 
really have a third-party control system in America today where 
your health insurance plan is picked by your employer, and then 
plan then picks your doctor, and you have virtually no choice?
    Ms. Pipes. Absolutely. And that is why if we can move away 
from employer-based care and move up the individual market, new 
competition will come in. New insurance plans will be 
available, and people will be able to choose the type of plan 
that fits their individual----
    Mr. Shadegg. What if we let them choose from the private 
market or choose their employer's plan, but put the choice with 
them?
    Ms. Pipes. That is an excellent idea, yes.
    Mr. Shadegg. Would you say that we have a healthy market in 
health insurance in America today?
    Ms. Pipes. No, I would not.
    Mr. Shadegg. This represents the northern Virginia 
residential phone book. All of the people in that book get to 
buy auto insurance if they have an auto, right?
    Ms. Pipes. Right.
    Mr. Shadegg. If I put up here the northern Virginia phone 
book, it would be a fraction of this size, would it not?
    Ms. Pipes. Yes.
    Mr. Shadegg. Maybe a fifth or less. Perhaps that kind of a 
graphic of the health insurance market versus the auto 
insurance market today. That is only employers get to buy 
health insurance, and they make the decision for their 
employees. Whereas in auto insurance, everybody gets to make 
their own choice and gets to pick a plan, and we have a much 
healthier market. Wouldn't you agree?
    Ms. Pipes. Absolutely, and, you know, the average employer 
spends $12,000 per year on an employee's health plan, maybe 
even $15,000. But the thing is that not all employees need that 
much health care, and there would be more competition if people 
could choose, like in the auto insurance, the type of insurance 
that fits their needs. And some will be a lot cheaper.
    Mr. Shadegg. So you would favor a system where they get to 
make their own choices?
    Ms. Pipes. Absolutely.
    Mr. Shadegg. And moving away from a system where there is a 
third-party control?
    Ms. Pipes. Right.
    Mr. Shadegg. I take it then you would not agree for moving 
from a system that is third-party controlled by your employer 
to third-party controlled by the government? Is that going to 
solve the problem in your view?
    Ms. Pipes. I think that if the government takes over the 
health care system, and including this public plan within the 
National Insurance Exchange, it is going to reduce people's 
choices, cost are going to go up, and ultimately care will have 
to be rationed as it is in countries like Canada and the U.K.
    Mr. Shadegg. Dr. Feder said, and I agree with her, that 
affordability is the real key here. We are worried about 
expense. We are worried about how expensive health care has 
become.
    Ms. Pipes. Right.
    Mr. Shadegg. And how expensive health insurance has become. 
Do you think it is a coincidence that we are experiencing a 
huge spiraling costs in health care costs where it is all 
third-party control and the market doesn't include all these 
people, it just includes this little business phone, that we 
are only experiencing that spiraling cost in the one place in 
America where there is genuinely no market? Is that a 
coincidence?
    Ms. Pipes. Well, as you have said, I mean we don't have a 
free market in health care. We have a lot of government in 
health care. We have the third party payer system, and people 
are not in charge of their health care. We don't get our life 
insurance, our long-term care insurance through our employer.
    Mr. Shadegg. We have pretty well divorced the consumer of 
health care services from the payer of health care services.
    Ms. Pipes. Right, exactly. Absolutely.
    Mr. Shadegg. And once divorcing them, costs have gone up 
dramatically once we have divorced the consumer from the payer.
    Ms. Pipes. Because we have in this country what you call 
first dollar coverage. When people they pay nothing--if 
employees don't pay anything for their premium or they pay a 
little bit, or they pay no copay or a small copay, first dollar 
coverage means when people think something is cheap or free, 
they demand a lot more but----
    Mr. Shadegg. And they think it is cheaper right now because 
their employer is paying for it.
    Ms. Pipes. Yes, and then----
    Mr. Shadegg. Wait, let me switch topics. A lot of 
discussion here today about a public plan. If we institute a 
public plan, won't politicians have a tendency to increase the 
subsidy of that public plan year after year after year as they 
have done with other public offerings?
    Ms. Pipes. Well, I think if you look at Canada, when the 
government took over the health care system in 1974, they were 
completely taken aback by how much demand there was for a 
program that people think of as virtually free because they 
don't know how much they are paying through the tax system. And 
it went up and up, and then government has to put a cap to say 
we can't----
    Mr. Shadegg. I am almost out of time, but if we let the 
government create a public plan and increase its subsidy year 
after year--I really have two questions. One, how will the 
private sector stay in competition with that if the government 
sector's subsidy goes up year after year? And second, if the 
government both offers a plan and also sets the rules for its 
plan and the private plan, aren't we allowing the government to 
be both a player in the game and a referee in the same game?
    Ms. Pipes. Right, and that was what I mentioned in my 
testimony. If you have guaranteed issue, community rating, and 
a lot of mandates, that is going to push up the costs of the 
plans. And if the government prices their plan slightly 
cheaper, you are going to crowd out the private insurers and 
leave us with a taxpayer funded plan, which ultimately will be 
too expensive and end up with rationed care.
    Mr. Shadegg. You----
    Ms. Pipes. It is not going to help the American people get 
the finest health care available.
    Mr. Shadegg. You would rather give them cash and let them 
make a choice?
    Ms. Pipes. Right, absolutely.
    Mr. Shadegg. Thank you.
    Mr. Pallone. All right, thank you. Gentlewoman from 
Illinois, Ms. Schakowsky.
    Ms. Schakowsky. Thank you. If I could just ask each of you. 
Do you think that health care is a right?
    Ms. Feder. Yes.
    Ms. Pipes. No.
    Mr. Reinhardt. Health care is too big a label. Some kind of 
health care is absolutely a right viewed in this country. It is 
not in the Constitution. However, think of someone lying in the 
street. A car hit them. They are bleeding. Does anyone in this 
room think you don't have a right to be picked up and brought 
to the nearest hospital? Does any American think that right 
does not exist? So yes, some health care, a lot of it, is a 
right, and some of it like plastic surgery is not.
    Ms. Schakowsky. Well, that is not necessary health care.
    Mr. Reinhardt. Cosmetic surgery.
    Ms. Pipes. And we do have, as someone mentioned earlier, 
IMTALLA. I think it was--that we have IMTALLA, which is a law 
that says no one can be denied access to emergency room----
    Ms. Schakowsky. I know. I am just asking if you think it is 
a right. You said no.
    Ms. Pipes. No, because how do you determine how open-ended 
that right is and what it will cost? And so I think that we are 
entitled to life, liberty, and the pursuit of happiness.
    Ms. Schakowsky. Yes, I want----
    Ms. Pipes. You mean access----
    Ms. Schakowsky. It is my time, and I reclaim it. What would 
you say, Ms. Pipes though, that 87 percent of Canadians view 
the elimination of public health care as a negative? This is 
according to McGill professor Stuart Sirroca, author of the 
study. It was the highest ranking opinion in the entire survey, 
that they would not want to eliminate their public health care 
system?
    Ms. Pipes. Well, there are poll numbers that have come out 
of Decima that the majority of Canadians, 47 percent versus 41 
percent, are dissatisfied with the Canadian health care system.
    Ms. Schakowsky. Well, you spend about 10 percent of GDP, 
you said, on health care----
    Ms. Pipes. Right.
    Ms. Schakowsky [continuing]. On health care in Canada. What 
do we spend, Ms. Feder, in----
    Ms. Pipes. Sixteen percent here.
    Ms. Schakowsky. OK.
    Mr. Reinhardt. More than that.
    Ms. Pipes. But it is going up, yes.
    Ms. Schakowsky. Yes, so in other words, perhaps if more 
were spent on the Canadian health care system, it could serve 
more people. But I am not looking for a comment now.
    I am concerned about this notion, and you referred to it 
earlier, Dr. Reinhardt, and I would appreciate if you or Dr. 
Feder would want to comment on that. The United States, it 
seems to me, does in fact ration health care. That the dollar 
bill is essentially that ration card and that when you have 
more than half of Americans who say that they haven't gotten 
health care, they have postponed or have completely eliminated 
health care that they need, that clearly this health care is 
being rationed. That people--we don't count the people not in 
line because they can't afford it. And I think this is really 
an important point about comparing our system with a Canadian 
system where they actually count people that wait in line. 
Either one of you or both.
    Ms. Feder. Yes, I appreciate the question, Congresswoman 
Schakowsky. And the first point I would make is, as you were 
making earlier, is that we are not talking about turning the 
American system into the Canadian system. We are talking about 
slowing the growth and making sure--of health care costs, and 
making sure everybody has affordable insurance and affordable 
care.
    And as Dr. Reinhardt said earlier, that when people can't 
afford care, when they don't have insurance coverage or there 
are holes in their insurance coverage, care is being rationed. 
And I find very interesting not just people who aren't showing 
up because they know they can't afford it, but how much do you 
hear from your constituents about the runaround they get from 
their insurance companies, the denials, the submitting the 
claims over and over again, the not being able to get service?
    Ms. Schakowsky. All the time.
    Ms. Feder. Exactly, so what is it? We think the system 
works? It is being compared to a straw man. What we need to do 
is to fix our system, get better value for the dollar and make 
sure that everybody gets access to care when they need it.
    Ms. Schakowsky. And prescriptions left in the drawer 
because they can't afford to fill them. Dr.----
    Ms. Feder. Exactly. We have the evidence of it.
    Mr. Reinhardt. It so happens I have written three papers on 
this rationing issues. One, in fact, entitled ``Styles of 
Rationing: Canada Versus the U.S.'' And there is no question 
they do ration with a queue for some procedures up there, and 
there is no question we ration through price and ability to 
pay. And to deny that defies anything any freshman is ever 
taught if they have a good economic professor. I could show you 
textbook after textbook from people who are actually 
conservative politically who says the role of prices is to 
ration. And we use price as a rationing device.
    There was a recent study out--Judy, you may know it--that 
showed for low income people, they actually consume less health 
care because they very often are uninsured. But if we compare 
people who do not have insurance with those who have insurance, 
Jack Hadley's numbers, the uninsured get 43 percent of the care 
that similarly situated insured get. And to deny that that is 
rationing borders on the mischievous. I think that is 
rationing, and we are discussing styles of rationing. Canadians 
have a different view about what is equitable than what 
apparently we have.
    Ms. Schakowsky. Thank you. Bottom line, we want to do an 
American system that works for everyone. Thank you.
    Mr. Pallone. Thank you. Gentleman from Illinois, Mr. 
Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman, and I did, by 
listening appreciate a lot of the comments, and I won't be 
long. Following up on John Shadegg's comments about buying 
power, just two quick questions. There is a debate for those 
who propose about it being a mandatory or voluntary system. If 
you use the automobile insurance debate, if you drive in 
states, you have to have insurance.
    I am of the point of view that if you went to a private 
option, what is called the public choice, however we are going 
to define that, that it would be--everyone would have to 
cover--I mean you would not have a choice to be out. Everyone 
would have to have something. You would also have to force then 
the insurers to have the wide breadth of everyone involved. I 
mean you couldn't allow them to cherry pick is kind of the 
terminology I use. And it is a mandatory system.
    And the final thing is there would have to be the basic 
package would have to be a catastrophic package. I mean the 
cost shifting, what goes on in a hospital, and what everybody 
is worried about is catastrophic care. And maybe you could 
allow people through health savings accounts or just their own 
dollars to do the preventative care, to go to the doctor for 
the cold and flu and all that other stuff.
    What do you think about that premise? And, Dr. Reinhardt, 
if you would just then mention, and Ms. Pipes and Dr. Feder? 
And that would be the only question I--that is what has been 
bubbling around in my thought process, how do you get to the 44 
million or 47 uninsured Americans? They have to have insurance. 
They have to have a catastrophic package. What would you say to 
those comments?
    Mr. Reinhardt. Well, ultimately, when you discuss universal 
coverage and when do you know how have you reached this fairly. 
The only metric that really makes sense to me would be to say 
what fraction of a family's discretionary income, after food, 
housing, and shelter, should a family in America be required to 
contribute towards it own heath care. And presumably that 
percentage would be small for a waitress or a cab driver, and 
it would be higher for a full professor at Princeton. You could 
easily ask me to contribute 10, 12 percent of our household 
budget towards health care, and you would not ask a waitress to 
do that. So that is the first thing.
    Now with respect to the choice market for private 
insurance, if you put community rating on, say you must charge 
everyone the same, sick or healthy, and guaranteed issue, if 
you don't couple that with mandatory insurance, you will get a 
death spiral of private insurance, which we actually see in New 
Jersey happening. So those two go together.
    The alternative model would be that you say oK, we let the 
private insurers medically underwrite. So if somebody is sick, 
they pay a huge premium. Somebody has AIDS, they pay $80,000 a 
year. And someone who is very healthy gets it very cheap. But 
then you would have to have a bureaucracy that could give 
subsidies to the chronically ill for the huge premiums that 
they are charged and subsidize them to the tune that ultimately 
you are happy with that percentage. And this is really 
something. I think my colleague Mark Polly at UPenn, and who is 
the co-author--had a very lovely paper on this. How do you know 
that you are equitable? And he proposes this metric. Adam 
Wagstaff at the World Bank had the same thing for the 
International----
    Mr. Shimkus. Yes, sir, and I don't want to cut you off, but 
I do want Ms. Pipes and Dr. Feder, briefly. I only have a 
minute left. If you could kind of summarize that quickly. 
Sorry, Dr. Reinhardt.
    Ms. Pipes. And you mentioned mandatory car insurance, but 
15 percent of drivers in this country, even though all states 
but two have mandatory care insurance, are driving around 
without car insurance. And we have seen the experiment in 
Massachusetts where now after--it will be three years old in 
April--that still 2.5 percent of people are uninsured.
    And about 60 percent of the people who are people signed up 
for the Commonwealth Care, the subsidized thing. So it is very 
hard to take the American mind set and ensure and make them 
do--I mean Hillary Clinton said the only way you could enforce 
a mandate was to garnish the wages. I don't think that is the 
American way. And so I think it is very hard. But if we have, 
you know, universal choice, and people can choose the system 
that best suits them, I think we will get a lot of those 45.7 
million Americans going into the insurance market. There is 
nothing wrong with having a high risk pool for people who are 
falling between the cracks.
    Mr. Shimkus. Thank you. Dr. Feder with the chairman's 
permission.
    Ms. Feder. Yes, is it okay?
    Mr. Pallone. Yes, sure.
    Ms. Feder. I will be quick. I was interested in what you 
said about making rules for insurance because as I listen to 
Mr. Shadegg, no matter how big that phone book gets of 
insurance companies, if 20 percent of the people account for 80 
percent of the spending we spend on health care when we get 
sick, insurers always win if they insure us when we are healthy 
and avoid us when we are sick. So you have to have rules. It 
has to be group insurance. That is the only way it can work.
    I am less concerned about mandates than I am concerned 
about making sure that everybody has the wherewithal to buy 
insurance so that means subsidies, making those adequate. And 
also I think facilitating enrollment in many ways can get 
everybody into the system so that we fix it no only--people 
don't walk around with a U for uninsured on their foreheads. 
There is a problem in the whole system, and we need to make it 
work for everybody.
    Mr. Shimkus. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. First just 
a couple of observations. Trying to use the car insurance as an 
analogy is a terrible mistake because if it operated like 
health care providers what would happen is your first accident 
or speeding ticket, the insurer would drop you. Then you would 
go to the next insurance company, and they would say you had a 
pre-existing condition and wouldn't offer you any insurance.
    The other observation is anybody that doesn't believe that 
our health care system is broken would be those individuals 
that presently have coverage, number one, but even out of 
those, you would have to say it be those that are healthy and 
haven't attempted to use the coverage.
    I am going to quote from a paper from 2004. I get these all 
the time from a physician friend of mine. Every time we have a 
hearing, he will send me an email and refer me to articles, but 
I am going to agree with this article. And I think it is going 
to embrace some of the concepts that have been advocated by 
members on the other side of the aisle here in the committee.
    And this is by Michael Porter and Elizabeth Ulmstead-
Teasburg. ``We believe that competition is the root of the 
problem with U.S. health care performance, but this does not 
mean we advocate a state-controlled system or a single payer 
system.'' Of course what we have here is we are talking about a 
public option, which is separate because those approaches would 
make things only worse. ``On the contrary, competition is also 
the solution, but the nature of the competition in health care 
must change. Our research shows that competition in the health 
care system occurs at the wrong level over the wrong things in 
the wrong geographic markets and at the wrong time. Competition 
has actually been all but eliminated just where and when it is 
most important. The health care system can achieve stunning 
gains in quality and efficiency, and employers, the major 
purchasers, of health care services, could lead the 
transformation.''
    This paper was written 2004. Jury was out. Jury has come 
in. Employers have not been able to do it. Someone has 
suggested that a well-educated consumer will be able to do it 
as long as we give vouchers or some--and we know that we don't 
have that level of competency out there, through no fault of 
the consumer, of course.
    I would like comments from Dr. Reinhardt and Dr. Feder as 
to the way I view this without trying to be married to any kind 
of ideology to the point of a faith or religion that doesn't 
allow us to discuss this thing rationally and in good faith.
    I believe that what we are espousing here and hopefully 
will have a bill which is going to be a public option will be 
the vehicle that will allow us to bring into the marketplace 
those wonderful ideas of competition, consumer choice, 
education, quality, efficiency, and get our biggest benefit out 
of every dollar. Is this what we see here today? That is what I 
really think we are discussing. Because we are really talking 
about concept at this point. And we may bring into immigration 
and other things, but those are issues that we will have for 
another day.
    But overall, conceptually speaking, is that what this will 
bring to this debate as far as a public option? Dr. Reinhardt.
    Mr. Reinhardt. Well, this paper was in the ``Harvard 
Business Review'' by them and then followed by a huge tome that 
they wrote, and a number of us reviewed it in ``Health 
Affairs.'' My view is their vision is correct but very utopian 
because somehow they pretend that you can slice all ill health 
into episodes that begin and end and that you can get 
physicians and hospitals and convalescent centers to build 
little groups that specialize, little focus factories as Reggie 
Hertslinger calls them, that specialize in this, and then 
advertise their price for the whole bundle and have a quality 
rating. And they don't even say who would do that, who would 
rate the quality.
    So as a concept it is good, and I think we are gingerly 
moving that way. But it will take at least 20 years before you 
would have realized that. But it is true. A public health plan 
does have the advantage of being able to experiment with that 
just like a private plan.
    I would urge you to think--they always say Medicare wasn't 
an innovator. Who developed the DRGs? It was Medicare, copied 
now around the world. Who developed the resource-based relative 
value scale for physicians? It was Medicare now copied by every 
private insurance plan. So I believe the vision they had is 
good, and competition is a good thing. And none of us are 
against competition.
    But in the meantime, we have American families in dire 
need. We cannot wait for Utopia, and we have to make sure one 
of the principles--the President said American families should 
not go broke over health care. I think on either side of the 
aisle----
    Mr. Gonzalez. Dr. Reinhardt, I do want to give Dr. Feder an 
opportunity, and I only have a minute left. I apologize.
    Ms. Feder. I am for affordability, to finish Dr. 
Reinhardt's sentence, but I--and I would say that what we are 
talking about in terms of paying more effectively for medical 
care is what we are talking about. So whether it is episode-
based or better rewards for primary care or refining what we do 
in the existing system where we are overpaying within some 
DRGs, we have a lot of room for improvement. And what you have 
put forward is that a public health insurance option can be a 
leader, not only in payment reform but also in managing chronic 
illness and promoting prevention. And we focus so heavily on 
fees because that is, I think, another straw man. What we need 
to focus on is leadership and accountability to us as an option 
in the health insurance system.
    Mr. Pallone. Thank you. The gentlewoman from the Virgin 
Islands, Ms. Christensen.
    Ms. Christensen. Thank you, Mr. Chairman, and I want to 
also thank the panelists this morning. I think the discussion 
will hopefully guide us through the minefield that we face 
trying to get to universal coverage and hopefully help us to 
shape a bill that we can get passed here and in the Senate and 
signed by the President.
    My first question is to Dr. Reinhardt and to Dr. Feder. I 
have a little bit of discomfort around the public plan, which 
both of you support as well as many others because--help me 
understand. Is this the same as Medicaid or different than 
Medicaid? Are you going to have Medicaid for the poor, and 
would there be a public health plan for everybody else? 
Wouldn't that be continuing the same kind of two-tiered system 
that we are trying to get away from? And shouldn't it just be 
one public plan that Medicaid patients would have paid for them 
and others pay in according to their income? Or is that what 
you envision anyway?
    Mr. Reinhardt. Well, as a practical matter, you would 
probably have to go with a separate plan because Medicaid 
involves the state, and that system, to fuse that with a public 
plan, which I think would be ideal, would be very difficult 
because the states might object to that. And then there would 
be an issue of the fiscal transfers to make that possible.
    Ms. Feder. Yes, I would just say to think of a public 
health insurance plan not as Medicaid, but think of it as a 
publicly owned, publicly accountable insurance option that you 
would be able to choose along side private insurance options, 
with everyone having a guaranteed standardized set of benefits. 
So they would compete on their ability to deliver care 
efficiently. Couldn't discriminate based on health status.
    And I would distinguish that from the importance of 
retaining Medicaid. Not only do we have statutory law that 
provides statutes that protect very low-income people that we 
should extend, I think, to all people below poverty.
    But the whole body of law defined through litigation, that 
actually protects very low-income people. And I think to 
disrupt that would be a mistake.
    Ms. Christensen. It is not that I want to disrupt it. It is 
just that Medicaid has not been really providing the kind of 
outcomes that we want to see.
    Ms. Feder. Your concern----
    Ms. Christensen. But, you know, we can fix that as well.
    Ms. Feder. Your concern is well taken, and that gets to 
whether we are paying providers adequately to serve people. So 
we want to keep the protections, which, if we have it as a 
public health insurance plan among choices, is not going to 
have as generous benefits as Medicaid has.
    Ms. Christensen. And, Dr. Reinhardt, one of our people on 
the other panel, Dr.--Professor Baiker, I guess, spends a 
considerable part of her written testimony on the problem of 
the sick and the uninsured, which is a population group that I 
am particularly concerned about. We spend a lot of our time and 
focus on eliminating health disparities in poor racial and 
ethnic minorities, rural individuals, and they would be sicker 
and prominently among the uninsured.
    And because they are sicker, bringing them into the system, 
Professor Baiker would say would drive up the cost of care. It 
drives up the cost of care now, affects the quality of care for 
the uninsured. So how do we insure that their high cost--
because they are bringing them to make sure that they have 
access to care. How do we work the system so that it doesn't 
drive up--so that we keep insurance affordable and still 
provide that high level of service at the outlet? Or should we 
just make the investment and not worry, you know, know that it 
is going to pay off in the long run?
    Mr. Reinhardt. Well, I wouldn't say make the investment and 
not worry about it. I would say make the investment and then 
worry about a long-term strategy to take costs into our gun 
sights and really start looking at how much, for example, do we 
spend on administration that buys no health care that could be 
reduced, these Winberg variations I talked about in Medicare, 
and you have them in the private sector as well.
    So I think cost control, we ought to be able to do this 
more cheaply than we are in America. Even the business 
roundtable says that, but you can't wait. These American 
families are hard pressed. They are facing a deep recession. 
There will be ever more of them, and to say if there is 
somebody who is poor and sick and now we serve them, and that 
will drive up cost, I would say yes, it will. But that is why 
you are doing it.
    Ms. Christensen. And this does not eliminate the need for 
focusing more on prevention or other programs to eliminate 
health disparities. It is part of the testimony in the other 
panel, and I wanted to get a response on that.
    Ms. Pipes, despite your data that shows that the Canadian 
system may not be working as well as many purport it to be, how 
do you explain the 20 or 23 percent value gap? Our country is 
running 20 or 23 percent behind yours on the value we get for 
health care? How do you reconcile those two things?
    Ms. Pipes. Well, I think that, you know, Canadians, a lot 
of Canadians come to the United States and get health care when 
they are on waiting lists. So I think it is very hard, when the 
government runs the health care system, to actually measure, 
you know, actual comparisons between a totally government-run 
system and a system that is a hybrid of a number of different 
types. So I think, you know, I don't know where your number 
comes from. But, you know, I haven't analyzed that number, and 
I would be interested in it.
    But I will say that 250 Canadian doctors leave Canada every 
year to come and practice in the United States, not just for 
the money because they can make more money, but because they 
can practice the type of medicine that they are trained to 
practice because doctors in Canada are basically union members.
    I mean Dr. Reinhardt mentioned that when you work in a 
province, whether you work in British Columbia, your medical 
association negotiates your fee with the provincial government. 
My cousin is a corneal transplant specialist. He hasn't had an 
increase in four years because the government is in a deficit 
situation. And so doctors, you know, it doesn't matter whether 
you are the best cardiac surgeon or the worst, everyone gets 
paid the same. And it destroys the incentive to attract the 
best people into health care and into medicine.
    And so, you know, we want to continue to have--America has 
the best. People come from all over the world to get health 
care here. Whether it is Silvio Berlesconi coming from Italy to 
get a pacemaker. We need to make some changes to build on the 
system we have and not break it down and have a public health 
plan that I think will crowd out the private insurers because 
when you are adding tremendous cost with guaranteed issue, 
community rating, and these mandates.
    So I just think that universal choice will lead us to 
universal coverage because young people--17 million Americans 
earning over $50,000 a year, two-thirds of them are young 
people. And they don't need every single aspect. They want 
insurance to be insurance for catastrophes.
    Ms. Christensen. Well----
    Mr. Pallone. Your time is over. Ms. Castor.
    Ms. Castor. Thank you, Mr. Chairman, and thanks to the 
panel. I would like to go back to what is driving these huge 
increases over the past decade in the cost of health care and 
recall that health insurance premiums have outpaced wage 
growth. From '99 to 2008, premiums grew at three times the rate 
of wages, and, Dr. Reinhardt, in your testimony, you said that 
we had seen that just over the past seven years, the average 
total outlay on health care for a family from all sources has 
nearly doubled.
    And folks back home, they want to know why. It is just out 
of control. One easy answer has been when I go to the 
hospitals, that is an easy case because they say the 
uncompensated care, the folks that come into the ER that do not 
have health insurance and have chronic disease or something. 
That translates to them. They get that, and they understand we 
are--if you have private insurance, they are subsidizing part 
of that uncompensated care.
    The hospitals in my area, in turn, have developed a clinic 
system with very low administrative costs. It is a partnership 
with the private doctors, private hospitals, and nonprofits. 
And it is saving everyone money. But what else is driving these 
astronomical increases? Lessons that we can learn moving 
forward as we develop this public choice option?
    Mr. Reinhardt. Well, the American system is expensive 
because we have structured it to make the demand side weak and 
the supply side strong. And all the other nations that are 
cheaper have a strong demand side or a stronger demand side and 
a weaker supply side. And it is really how you apportion the 
market power. I mentioned that even in a large insurer like 
Well Point had real trouble negotiating with the Sutter Health 
System in California. Because it is a big system, you cannot 
run a health insurance plan without having that in your 
network. And therefore they had all the market power.
    So I think it is quite clear. It is part of the reason why 
we have a very luxurious system overstocked. You read Med Pac. 
We have too many MRI machines. Canada may have too few, but 
everyone agrees we have too many. It is because we essentially 
turned over a disproportionate amount of power to the supply 
side of the system.
    Ms. Feder. To answer in a slightly different way, I think 
your constituents will have had the experience of being bumped 
from doctor to doctor, having tests duplicated, finding it 
impossible to get--being stuck in a hospital, not able to get 
out, seeing attempts at treatment that seem to be, not to work.
    What we are lacking and what we are talking about with 
comparative effectiveness research is to provide an information 
base, real evidence. So that you don't go to what Uwe is 
talking about, the supply side. You don't go to the 
pharmaceutical companies to find out which medication you need. 
You have an actual evidence base that enables you to know, 
enables doctors and patients to decide together on what works 
and what doesn't.
    And we can refine our repayment mechanism so that we are 
actually able to encourage and reward the provision of services 
that work and the discouragement of services that don't. There 
is no mechanism for that now, and we are talking about 
developing that, not in a punitive way, not in an arbitrary 
way. In a way that enables physicians and patients to choose.
    Ms. Castor. You know, let me ask you all this. I am 
starting to hear much greater concern as folks realize the 
astronomical salaries in the corporate sector in health care, 
and the HMOs are not immune to this. And I wonder if you see 
any analogy in what is going on in the financial system to 
health care. This is again a segment where the government--the 
taxpayers are subsidizing private HMOs, and CEOs are making a 
multi, multi-million dollar, we are talking about $25 million, 
$50 million per year. Is this also a factor in the high costs? 
Shouldn't some of this be plowed back into people's health and 
not paid out in these astronomical salaries?
    Mr. Reinhardt. Well, if you think of the United--former 
United CEO who had $1.6 billion, the bulk of that income 
actually came from stock options, which is taken away from 
shareholders and customers. So one has to be somewhat careful 
of how that salary is composed. If $50 million were a salary 
booked into payroll expense and added to the premiums, then, of 
course it would be driving health care costs. But if it comes 
out of stock options, then it is another story, and he got $1.6 
billion simply because during his reign, the stock went up and 
up.
    What is much more troublesome to me with private insurance 
is that, as an industry, I think they have not done enough to 
reduce the administrative cost of health care, that the amount 
of money they need to run the business is higher than I think 
it would be if they were all electronic, had a common 
nomenclature, common claim forms, et cetera.
    The president of Johns Hopkins mentioned in a speech not 
long ago, he deals with 700 distinct managed care contracts, 
each with different terms. And so if you were to look at a 
Canadian--there was just a program. They were looking at a 
Canadian hospital and American hospitals in terms of the 
billing clerks. You would be shocked at the difference. That is 
where the real money is, not so much CEO salaries.
    Ms. Pipes. Well, also I think that Dr. Ben Zyker of the 
Pacific Research Institute did a study comparing administrative 
costs of government programs versus the private sector, and 
there are a lot of things that aren't included in the 
government Medicare and Medicaid. So I think you should take a 
look at the study.
    Ms. Castor. Well, that is interesting because the example 
of my local community that is a collaboration of the hospitals 
and doctors and our county government, our administrative costs 
are way, way low. And that has been proven out for a number----
    Ms. Pipes. Well, I urge you to look----
    Mr. Pallone. We are going to have to end on this one. 
Sorry. Mr. Braley from Iowa.
    Mr. Braley. Thank you, Mr. Chairman. Ms. Pipes, you have 
certainly been a prolific commentator on health care issues. Do 
you hold yourself out at this hearing as a health care policy 
expert?
    Ms. Pipes. Yes, I am an economist by training. Grew up in 
Vancouver, went to college there, and was an economist at the 
Fraser Institute in Vancouver, and then came to the U.S. in 
'91.
    Mr. Braley. One of the things that has been difficult for 
me to do is ascertain the extent of your educational 
background. Do you have any advanced degrees in economics?
    Ms. Pipes. I have an honors degree in economics from the 
University of British Columbia, and then I joined the Fraser 
Institute working under Dr. Michael Walker and, you know, 
started out as an economatrician. I won the Canadian Crystal 
Ball award.
    Mr. Braley. So the answer to my question would be no, 
correct?
    Ms. Pipes. No, I have an honors BA in economics but have 
worked in the economic research field for----
    Mr. Braley. And you don't have a masters or Ph.D. in health 
care policy?
    Ms. Pipes. No, I don't.
    Mr. Braley. Or in public policy as a general concept?
    Ms. Pipes. No, but I have worked in the field.
    Mr. Braley. All right, on the Web site for the Pacific 
Research Institute, you are identified in your individual bio 
as a scholar. Are you aware of that?
    Ms. Pipes. Yes, I am a scholar. I write a lot on health 
care. I write books----
    Mr. Braley. Have you published any scholarly treatises in a 
peer-reviewed journal of economics on health care policy?
    Ms. Pipes. Yes.
    Mr. Braley. And can you give us some examples?
    Ms. Pipes. I have done some things in ``Health Affairs'' 
over the past, and in----
    Mr. Braley. But can you just identify the scholarly journal 
that is a peer review journal of that kind?
    Ms. Pipes. Right, well ``Health Affairs'' is, I think. I 
don't know whether you would say it is but----
    Mr. Reinhardt. It is peer reviewed.
    Mr. Braley. All right, and do you have a CV or resume that 
you use for your official purposes?
    Ms. Pipes. Well, I use what we have on our Web site. I 
don't--I mean I have one in my desk from when I got my job in 
1991. I don't keep it up to date, but I could----
    Mr. Braley. I mean do you have a listing of your 
publications, a listing of your appearances? Some people do 
this as a way to----
    Ms. Pipes. Right, and if you----
    Mr. Braley [continuing]. Let people that they are speaking 
before know what the content of their background and expertise 
is. Do you have such a listing----
    Ms. Pipes. Yes, and if----
    Mr. Braley [continuing]. That you could provide to the 
committee?
    Ms. Pipes. You will see that I write for the ``Wall Street 
Journal'' and the----
    Mr. Braley. Just please answer my question. I don't have 
much time.
    Ms. Pipes. Sure.
    Mr. Braley. Could you provide that to the committee?
    Ms. Pipes. Of course, yes. So you can----
    Mr. Braley. OK. Now, one of the things you asked about or 
you raised in the conclusion of your opening remarks was the 
need for medical malpractice reform. Do you remember that?
    Ms. Pipes. Yes.
    Mr. Braley. I am sure you are aware that the Institutes of 
Medicine has done a series of three important studies dealing 
with the issue of preventable medical errors and the cost that 
they contribute to the overall health care economy of this 
country. The seminal work was the first work in 2000 ``To Err 
is Human,'' and in that report, the Institutes of Medicine 
concluded that ``preventable adverse events are a leading cause 
of death in the United States. The results of the study imply 
that at least 44,000 and perhaps as many as 98,000 Americans 
die in hospitals each year as a result of medical errors. 
Deaths due to preventable adverse events exceeds the death 
attributable to motor vehicle accidents, breast cancer, or 
AIDS.''
    That was then followed by another seminal study ``Patient 
Safety'' also from the IOM, and in that study, they included 
the finding that the committee strongly believes that patient 
safety is indistinguishable from the delivery of quality care. 
A new delivery system must be built to achieve substantial 
improvement in patient safety. A system that is capable of 
preventing errors from occurring in the first place while at 
the same time incorporating lessons learned from any errors 
that do occur.
    And then we had the important 2006 study from the 
Institutes of Medicine ``Preventing Medication Errors'' which 
concluded that medication errors are surprisingly common and 
costly to the nation. The committee concludes there are at 
least 1.5 million preventable adverse drug events that occur in 
the United States each year. The true number may be much 
higher. And they issued a conservative estimate that these 
adverse drug events cost our economy, at minimum, $3.5 billion 
a year.
    So what I am wondering is why when we talk about reforming 
our health care system don't people who come from your point of 
view come to the committee and talk about constructive ways we 
are going to reduce preventable medical errors, which we all 
know are the most dramatic way that we can reduce the cost of 
medical malpractice in this country?
    Ms. Pipes. Well, I think you should look at some of the 
work done by Dr. Betsy McCoy, who has done work on infectious 
diseases and shows that more people die in hospitals from 
infectious diseases by a major part compared to medical errors. 
So I think that is important.
    Mr. Braley. Well, let us talk about that though because are 
you familiar with the Joint Commission on Accreditation of 
Health Care Associations?
    Ms. Pipes. Yes.
    Mr. Braley. And are you familiar with their Sentinel Event 
Program?
    Ms. Pipes. Right.
    Mr. Braley. Do you know that in the first 10 years the 
Sentinel Event Program was in place over a 10-year period, only 
3,000 sentinel event reports were filed with JACO, which is 
astonishing considering the incidents of preventable medical 
errors that resulted in deaths only, not serious injuries, when 
those numbers would suggest that they should have been 
receiving 44,000 to 98,000 reports at a minimum. So isn't it 
clear that the system of accountability that we currently use 
is completely failing American health consumers in making a 
more safe system?
    Ms. Pipes. Well, I think all doctors are interested in 
people living longer and healthier lives. And, as I say, more 
people are dying from infectious diseases in hospitals than 
from medical errors. Unfortunately----
    Mr. Braley. Well, I would disagree with that 
characterization because most people would tell you, who study 
this issue, that one of the most preventable forms of an 
adverse event in a hospital setting is nosocomial infection. 
And in fact, there has been a lot of research that indicates 
that, despite overwhelming evidence from medical economists, 
hospitals are reluctant to move to a business model that will 
allow them to reduce the incidents of nosocomial infections. So 
I disagree with your characterization that a nosocomial 
infection is not a preventable medical error.
    Ms. Pipes. No, I----
    Mr. Pallone. All right, I am going to let you----
    Ms. Pipes. I see that you----
    Mr. Pallone. Ms. Peeps--Pipes. Sorry. I would like you to 
respond, and then we have to end because we are over a minute.
    Ms. Pipes. Right. No, I agree with you. We want to get 
infectious diseases in hospitals down because they are a 
tremendous problem and hardship. And on the medical malpractice 
reform, when they capped the noneconomic damage awards in Texas 
at $250,000, a lot of docs who had left, OB/GYNs and 
neurosurgeons are now coming back into Texas because there is 
an environment there where doctors want to practice medicine.
    We have seen in states like Pennsylvania and Nevada where a 
lot of OB/GYNs and neurosurgeons have left the practice of 
medicine because the cost of their med now is so expensive that 
it is not profitable for them to practice medicine.
    Mr. Pallone. Thank you. Next is Ms. Baldwin.
    Ms. Baldwin. Thank you, Mr. Chairman. Professor Reinhardt, 
I enjoyed some of the points made in the end of your written 
testimony that you weren't able to make in your more 
abbreviated oral testimony. One of the things that I am 
interested in is the role--well, first your comment. You call 
it the electronic farmers' market. I think we are used to 
calling it the exchange or connector. But that that entity 
would have to be empowered with regulatory powers to supervise 
and enforce the reputability of the products being offered.
    We have also had a lot of comments about having the 
inclusion of a public option, and, in fact, Dr. Feder said a 
public system--I think I am quoting accurately--a public system 
can keep the private system honest. So I would like to hear 
your take on the interplay between the regulatory powers that 
are going to be necessary and having a public sector option 
sort of perhaps substituting for that or at least enhancing it.
    Mr. Reinhardt. Well, if you want to have any market, no 
matter what it is, it has to be regulated. And we now find out, 
to our great dismay, that the market-for-credit default swaps 
also should have been regulated. So you need that, and in 
health care, with the insurance industry, it is still the Wild 
West in many ways when you come to the individual market. That 
is not true for the employment-based system.
    So you do need to be sure that these policies don't have 
fine print that ultimately leave you uninsured rather than 
insured. So you need regulation there.
    You then have to make a decision if you want community 
rating or not. If you say we allow medical underwriting, then 
the subsidies you give people have to be tailored to the health 
status, which is difficult to do. So I think such a body would, 
by nature have to be regulatory, endowed with the power to 
regulate, or it goes back to government.
    Ms. Baldwin. Dr. Feder, you address as, I think, your 
fourth point that you gave as take-home points that we have to 
stop discriminating against sick people in coverage. I want to 
hear your take on whether the high-risk pools that have been 
available as a tool to cover sicker populations, have then been 
a success story, a failure, somewhere in between? What is your 
take on that?
    Ms. Feder. Congressman Baldwin, my colleague Karen Pollitz, 
will be testifying on the next panel, and I will be drawing 
insufficiently on her expertise in answering the question. I 
think high-risk pools are problematic. One, they pull off 
people from the rest of the system, and I think we would be 
better pooling risk everybody together.
    Second, they have been completely inadequately funded. 
Charge the people who are high risk high rates so that many 
people who are sick can't get into the high risk pool.
    Third, as I understand it, they impose pre-existing 
condition exclusions on people who are sick or high risk, which 
I am laughing because that boggles the mind. So it is possibly 
true that adequately funded with good rules may all come 
together, and I urge you to ask Karen to tell you that. But as 
it has been treated, it is not a substitute for a well-
regulated insurance market that everybody gets to choose a plan 
regardless of health status.
    Ms. Pipes. In some states, the high-risk pools work better 
than in others depending on funding.
    Ms. Baldwin. Mr. Chairman, I yield back the remainder of 
time.
    Mr. Pallone. Thank you. The gentleman from Connecticut, Mr. 
Murphy.
    Mr. Murphy of Connecticut. Thank you very much, Mr. 
Chairman. Ms. Pipes, I want to go back to this issue of wait 
times for a moment. I think we spent a little too much time 
obsessing over one system, the Canadian system, given the 
number of other examples.
    But one of the statistics that is often used is wait times 
for specific surgeries like hip replacements and knee 
replacements. And there certainly are longer waiting times in 
Canada for those procedures. For knee replacements, I think it 
is about three weeks. In Canada--about eight weeks in Canada, 
about three weeks in the United States.
    But what gets lost is that the payer for those surgeries in 
the United States is the government most often. 71, 70 years 
old is the average age for a knee replacement surgery. And in 
the United States, Medicare seems to do a pretty decent job at 
moving those people through the system and getting care at a 
more expedient rate than Canada does.
    And so I guess it is a way of asking this question. You 
sort of in your remarks seemed to suggest that just an inherent 
flaw of a government system is longer wait time. But it seems 
that our experience with Medicare is that if you put the money 
behind the program, if you make the choice to get people care 
faster, then a public system or a public plan could work just 
as well as a private plan could.
    So do you think that it is inherent in a public versus 
private dichotomy, or do you think that if you choose to spend 
the money and get the provider network and get the wait times 
down that you could get wait times down in a public plan?
    Ms. Pipes. Well, in Canada, you could reduce the waiting 
times by putting more and more taxpayer dollars into the health 
care system. The problem is that Canadians are taxed at a much 
higher rate than Americans, and the government feels that where 
they are now they are taxed enough.
    And, you know, I did work at the Fraser Institute in my 
early years called Tax Facts where we developed a Canadian 
consumer tax index and compared the levels of tax in Canada 
versus the United States. And work, on average, two months 
longer because we have a lot more government in our lives in 
Canada.
    So, you know, in the case of my mother who needed a hip 
replacement, and she was a senior, she waited two years to get 
a knee replacement. And when they replaced it, they replaced it 
with a plastic knee because they said their actuarial records 
showed that at her age she would only live for five years and 
therefore the plastic knee was more efficient and more cost 
efficient--cost effective. But, you know, she lived eight years 
longer, and she was in severe pain.
    So, you know, this is how Canada, you know, controls costs, 
and people don't have access to Pap smears on a regular basis 
or PSA tests and things. We have a lot of prevention in this 
country, but these things are more expensive. But we have to 
decide in this country, you know, if you want a lot more 
government in your health care, you are probably going to end 
up rationing care because as we have seen in Massachusetts, the 
cost of being a lot more than what the original estimates were.
    Mr. Murphy of Connecticut. You know I think we both use 
anecdotes on both sides of this debate, but I would say that 
your testimony has been peppered with stories about Canadian 
health care experience. And I am just looking at the data on 
knee replacement surgeries that just don't back up that type of 
timeframe. And I do agree with you that it is a matter of 
choosing to invest in the system. I mean no one is talking 
about a United States health care reform proposal ratcheting 
down the percentage of GDP to what Canada spends today.
    You know, we would love to control costs, but we are not 
going to spend as much as Canada does, and we are going to 
hopefully get a little bit more than they do, which brings me 
to a question for Dr. Reinhardt.
    In your testimony, one of the things you talked about was 
the relative ineffectiveness of the private insurance system to 
get a handle on the cost of care in this country. And that has 
been a vexing question for me for years. The private sector 
health care system has obviously immediate incentives to bring 
down the cost of care because it increases value for the 
company for its shareholders and doesn't have the burden that 
some government systems does of having to go through a 
regulatory process to try to change behavior. And yet we don't 
have private insurers investing in simple, preventative 
procedures and costs that could bring down care.
    Why do you think that our private health care insurance 
system in this country isn't doing as good a job as it could 
controlling costs and investing in prevention?
    Mr. Reinhardt. I think that is an extremely interesting 
question because in the '80s, a lot of us, myself, thought the 
HMOs actually could do exactly what you said. And there were 
proposals to make Medicare into a defined contribution plan 
because there was talk that an HMO, well-run private plan, 
could do the same thing Medicare does much cheaper. Sometimes 
even people said 25 percent.
    So then we gave them 95 percent of the average actuarial 
per capita cost and said that is very generous. They should be 
able to shoot fish in a barrel, given Medicare is so 
inefficient as everyone said. But they couldn't. As you know, 
in the '90s, they all pulled out, and the only way they seem to 
have made it work is to get that 14 percent extra.
    I find that very disappointing as an economist that the 
private market that I usually believe in somehow failed us 
here. Why are there not more efficient? Why, for example, given 
Florida is a lot more expensive for Medicare than, say, Iowa 
would be, why wouldn't HMOs thrive in Florida managing care? I 
don't think they have proven yet that they can do it.
    I hope some day they can, but so far they have not, and it 
is a very intriguing question why they have not been able to 
reduce costs. And in the early decade, you know, premiums went 
up 14, 15 percent, and I always said it is stunning. Medicare 
has nothing like these increases, and yet the private sector 
came with these increases.
    Mr. Pallone. We have to move on.
    Mr. Murphy of Connecticut. Thank you, Mr. Chairman.
    Mr. Pallone. Gentleman from New York, Mr. Weiner.
    Mr. Weiner. Thank you, Mr. Chairman. I think to some degree 
this discussion about public versus private plans I think might 
be too--I mean it is too binary a way to look at it. What does 
Congress have? I mean it has a private plan, right. But we 
aggregate our many employees. We offer a phone book not 
dissimilar to the size of Mr. Shadegg's visual aide there of 
different options, of different prices, of different types of 
service. What does the panel think Congress has in the language 
of this discussion?
    Ms. Feder. You can argue that what Congress is an example 
of a connector in the federal employees health benefit plan, 
and for purposes of disclosure, I am the wife of a federal 
retiree. So I have it too. And we choose, from those of us who 
have it, from a set of private health insurance plans. So what 
is being talked about is talking about adding a public health 
insurance plan to that menu.
    Mr. Weiner. And, Ms. Pipes, would you too characterize what 
Congress has as a private model in the way you have described 
it?
    Ms. Pipes. Well, the federal employees health benefit plan, 
of course, is part of the government, but they have private 
plans within that. And my understanding is that the Blue Cross 
sort of traditional plan still costs members of Congress about 
$400 a month because I think the plan is about $1,200 a month. 
And it----
    Mr. Weiner. Right, but--forgive me for interrupting. But 
mightn't there be--I mean, look, I think we have a political 
imperative, and as we try to work this out is to try to take 
that large percentage of American citizens who have health 
insurance that they are satisfied with that would like to pay 
less would keep them invested in this discussion. It is 
important that they be involved.
    But I also think that this notion that government 
involvement, the moment it touches this, creates a problem. And 
letting everyone go out and deal with this problem on their 
own, as Mr. Shadegg and you have suggested, goes too far in the 
other extreme.
    For example, you know, what if you aggregated a whole bunch 
of businesses that were on their own not able to shop very 
competitively for health insurance plans, but you as the 
government, we as the government said you know what? We are 
going to take 100,000 employees of small businesses in New York 
City, and we are going to go out and we are going to put a book 
together of different insurance plans who now knowing they are 
getting 100,000 customers.
    And we are also going to do a couple of other things. We 
are going to say you can't exclude people because they have 
pre-existing conditions. There are certain minimum standards 
you need to have and the like. You are then kind of taking a 
little bit of the private model, a little bit of the public 
model, a little from column A and column B. Would you find that 
offensive to your notion that the government should not be 
involved in this?
    Ms. Pipes. Well, you know I was a very big support of 
association health plans, which would have allowed, under a lot 
of smaller businesses to group together and then go into the 
market and negotiate better rates. So I am a big fan of, you 
know, small business needs, you know----
    Mr. Weiner. So you would be fine with government putting 
its finger on the scale, having standards, having regulations, 
requiring certain coverage and the like, so long as the people 
writing the checks to the doctors were private insurance 
companies rather than government?
    Ms. Pipes. Right, and I think we have seen, you know, New 
York has community rating, guaranteed issue. New York and New 
Jersey have some of the most expensive insurance plans because 
of those. I would prefer to see some of the mandates and things 
like that removed.
    I mean if you want to get a plan that has community----
    Mr. Weiner. Yes, I understand that. I just have a moment 
more. Dr. Reinhardt, can I ask you a question that touched on 
what Mr. Murphy concluded with? Do you think that insurance 
companies in the present model intentionally do things to make 
money on the float? Do you think the reason there are six major 
insurance companies that have six different forms, for example, 
is an example of them trying to build in inefficiencies that 
benefit their bottom line but make reimbursement slower, make 
it more difficult for doctors, more difficult for patients to 
navigate? Do you think they are trying to find ways--I mean are 
they not incentivized by a different set of impairments than 
perhaps Medicaid is? Maybe that is why the inefficiencies 
remain.
    I mean you go into a hospital administrator's office or a--
and you sit literally inboxes and outboxes for all the 
different insurance companies because, despite the fact that 
they are asking for the same information, they intentionally 
keep that inefficiency in the system because they make money on 
it?
    Mr. Reinhardt. Well, I think if interest rates, short-term 
rates were 8, 9 percent, I think you have a point there. In 
fact, I teach a course in financial management, and that was 
one of my lecture notes, how much you could make off the float 
by just dragging out payment.
    But with low interest rates such as we have had, I think it 
would be unprofitable----
    Mr. Weiner. No, I was thinking more of the structure, the 
way the industry has structured itself to have these 
inefficiencies, not just for the moment. Do you think that is 
why it evolved to be so inefficient and so lumbering very often 
is because they make money on that? When you were giving that 
class in 2003 or '04, what were you--well, maybe that was too 
early. 2005, what were you saying?
    Mr. Reinhardt. Well, I mean there was definitely--I took a 
health plan in New York and showed that basically they made 
most of their money on the float, which is, of course, not 
necessarily dishonest. That is part of an insurance industry's 
source of income is to make money on the float.
    What was questionable is did they deliberately drag out 
payment so that they could make more money on the float? And 
that is easily fixed by saying if you don't pay within 30 days, 
you will pay an interest rate. Just like in any trade credit in 
business, you could say you pay within 30 days, that is fine. 
If you drag it out longer, you have to pay the hospital one 
percent per month you drag it out. That would solve the 
problem, which is, in fact, what my class and I concluded could 
be done.
    Mr. Weiner. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you. Chairman Waxman.
    Mr. Waxman. Well, thank you very much, Mr. Chairman. I have 
been listening to the discussion. I had to miss some of the 
earlier presentations, but I think this has been an excellent 
panel.
    Dr. Reinhardt, you have indicated you think that whatever 
we do, employer-sponsored insurance is shrinking, and it will 
continue to shrink. And that this may be a good time for us to 
develop an alternative for people, an alternative based on a 
reformed individual market, a public insurance program, or 
both. That has been the basis of a lot of the discussion and 
debate.
    But I want to ask you what should a health reform bill do 
to make sure that health care coverage is affordable for those 
who no longer have access to employer-sponsored coverage? 
Should we look at the amount of money that people pay out of 
their income for health? Should we try to say that--not just 
look at the premium but all the out-of-pocket costs and then 
say that people shouldn't have to pay more than 10 percent, 7 
percent plus or more of their income?
    Mr. Reinhardt. I think, Chairman Waxman, that would be the 
way to go. You have to focus on total health spending, not just 
premium, and then relate it to the ability of the family to pay 
for that. And that, in some way, is an ethical political 
decision where you put those numbers. If you were to say 
somebody making less than $25,000, what should that percentage 
be? I personally feel 5 percent would stretch them already. 
While, as I said earlier, if it were someone like me, if you 
set that at 12 percent, I wouldn't cheer, but I think I could 
eat it. I could manage that, and it would be fine.
    In the short run, bringing more people under insurance will 
cost money because they are consuming less than half what 
insured people get. So we would have to top it off, and the 
estimates are--some are $120 billion to $150 billion a year if 
you want really full coverage.
    But in the longer run, I do believe we can make health care 
in America a lot cheaper by doing the kind of cost containment 
candidates from both sides of the aisle had. Senator McCain 
also had ideas about cost containment, but they take longer to 
do.
    Mr. Waxman. Would you put a limit on the out-of-pocket 
expenses at let us say for low-income people, 5 percent of 
income? Would that make sense given the cost of food, rent, 
transportation? Would you try to figure out some kind of limit 
for those who have insurance and how much they will to pay out 
of pocket?
    Mr. Reinhardt. I would absolutely try to figure out a 
limit. Now, I am shooting off the hip. I said 5 percent might 
even stretch people. I always wonder, as someone on the upper 
strata of the income distribution, I wonder how people on 
$25,000 family income make it. You know, I used to be there. I 
grew up poor, but I forgot. So I think it is quite conceivable 
that 3 percent would stretch them. One would really have to 
budget this out, and that may be a good research project for 
Judy Feder to figure out. That is what you do.
    Ms. Feder. Why, thank you.
    Mr. Waxman. Right, in her spare time.
    Mr. Reinhardt. I mean obviously you can list what families 
need to spend on the basics.
    Mr. Waxman. Ms. Pipes, what do you think about that? Do you 
think there ought to be some limit on how much people have to 
pay for their health care?
    Ms. Pipes. Well, you know, we have--people at $25,000 are 
obviously on Medicaid. And we have now an expanded state 
children's health insurance plan. So we have a lot of 
government. I would like to see, as I have said, open up the 
market and, you know, change the employer-based system. Allow 
it to still be there, but if you tax the employer benefits and 
then provide a refundable tax credit for those who go--for 
those people. And also then I think we would see then 
individual market expand, and we would see new competition, new 
insurers. And we would----
    Mr. Waxman. Well, let us say we don't get what we want and 
people still, to get adequate insurance coverage for their 
health needs, have to pay so much out of pocket. Should we just 
assume that they just made a deal that didn't work out for them 
and let it go?
    Ms. Pipes. Well, if you look at Massachusetts, which had 
the individual employer mandate in their Romney care plan in 
2006, I mean even after, you know, the Commonwealth Care and 
the subsidized and free plans, you still saw that 20 percent of 
the people in the first year that should have bought insurance 
were excluded because the premiums were still too expensive. So 
it is very difficult for me. I don't know what the ideal number 
is, but----
    Mr. Waxman. With the few seconds I have, I did want to ask 
you one other question.
    What would you think of the idea--and Mr. Weiner was sort 
of hinting at this--that people go to a connector and buy a 
private insurance policy, but the connector would be like the 
federal employees' benefit package where you have, in effect, a 
lot of private choices that are group plans so you eliminate 
the discrimination and all of that.
    What would you think of that kind of a connector to private 
plans----
    Ms. Pipes. Well, I would----
    Mr. Waxman [continuing]. Private insurance plans.
    Ms. Pipes. Yes, I would support a connector if it was 
totally private, but when you have government politicians or 
government bureaucrats determining, you know, what has to be on 
the insurance plan in the connector, then often I see price 
going up. And it becomes more difficult. So I would support a 
totally private connector, but I am not in support of a 
national insurance exchange such as President Obama has been 
talking about because I see the controls that would be set by 
government being--causing----
    Mr. Waxman. So you don't seen that working? Dr. Feder, if 
we had that ability for people to go a connector and buy a 
private insurance plan, do you think it could work like the 
federal employees? And do you think you need a public option to 
provide some tension to keep the private insurance plans 
affordable and all of that?
    Ms. Feder. I think the combination is ideal. I think what 
we are looking for is we can think of it as a public choice 
plan. That essentially we create a place, as you say, where 
people are able to buy group insurance without discrimination 
based on health status. But to do that alone without a public 
health insurance option, we have not seen great competition, 
whether in the federal health employees' plan or any other. So 
that having the public health insurance option, as I said 
earlier, can make the whole market work more effectively 
because we can hold it accountable for delivering good 
benefits, delivering good care, and essentially working to 
negotiate good rates with providers.
    Mr. Waxman. Thank you, Mr. Chairman.
    Mr. Pallone. Thank you, Chairman Waxman. And I think all of 
our members have asked questions, so I really want to thank 
you. This was a great panel. It was really thought provoking in 
terms of our efforts to draft legislation and address the whole 
issue of health care reform. So thank you very much. We 
appreciate it.
    Ms. Pipes. Thank you.
    Ms. Feder. Thank you.
    Mr. Pallone. And I would ask the next panel to come 
forward. Thank you all for being here. And let me introduce 
each of you starting on the left, and I hope I get the names 
right. First, is it Mila Kofman? Mila Kofman who is 
superintendent of insurance for the State of Maine Bureau of 
Insurance. Then we have Dr. Jon Kingsdale, who is executive 
director of the Commonwealth Health Insurance Connector 
Authority. And then we have Karen Pollitz who two Ls, not 
three. Your name tag has three Ls. Karen Pollitz, who is 
research professor at Georgetown University Health Policy 
Institute. And then we have Dr. Katherine Baicker, who is 
professor of health economics at the Harvard School of Public 
Health. And finally Edmund Haislmaier.
    Mr. Haislmaier. Haislmaier.
    Mr. Pallone. Haislmaier.
    Mr. Haislmaier. Thank you.
    Mr. Pallone. Who is senior research fellow at the Center 
for Health Policy Studies with the Heritage Foundation. Thank 
you all for being here. I know some of you have actually been 
here since the beginning, which is, I am sure, been difficult.
    But in any case, we will have statements from each of you, 
about 5 minutes each, starting with Ms. Kofman.

 STATEMENTS OF MILA KOFMAN, J.D., SUPERINTENDENT OF INSURANCE, 
   STATE OF MAINE BUREAU OF INSURANCE; JON KINGSDALE, PH.D., 
  EXECUTIVE DIRECTOR, COMMONWEALTH HEALTH INSURANCE CONNECTOR 
     AUTHORITY; KAREN POLLITZ, M.P.P., RESEARCH PROFESSOR, 
   GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE; KATHERINE 
 BAICKER, PH.D., PROFESSOR OF HEALTH ECONOMICS, HARVARD SCHOOL 
   OF PUBLIC HEALTH; AND EDMUND F. HAISLMAIER, B.A., SENIOR 
  RESEARCH FELLOW, CENTER FOR HEALTH POLICY STUDIES WITH THE 
                      HERITAGE FOUNDATION

                    STATEMENT OF MILA KOFMAN

    Ms. Kofman. Good afternoon, Mr. Chairman. I thank you and 
the committee for your leadership and willingness to address 
the health care crisis in America. It is both an honor and a 
privilege to be here before you to testify on this matter. I 
did submit a written statement, and I ask that the full written 
statement be admitted as part of the record.
    Mr. Pallone. And that will be the case for each of you. We 
will enter your full written statement in the record.
    Ms. Kofman. Thank you. My name is Mila Kofman. I am the 
superintendent of insurance in Maine. My agency serves and 
protects the public through regulation and oversight of the 
insurance industry. It is my job to ensure that insurance 
companies keep their promises. My views about reforms and the 
private market have also been informed by my experience as a 
federal regulator and through my research on private health 
insurance as an associate professor at Georgetown.
    I believe it would be optimal for us to address the health 
care crisis in America in its entirety and for the federal 
government to ensure that all Americans have access to 
affordable, adequate and secure health coverage.
    We live in the wealthiest nation in the world, yet we allow 
18,000 Americans to die preventable deaths each year on our 
soil, not overseas but here. The uninsured problem is estimated 
to cost our economy as much as $130 billion annually.
    Maine has been at the forefront of reforms, developing 
innovative initiatives to help finance medical care. Governor 
Baldacci has been a leader in establishing meaningful new 
health coverage options for individuals and small businesses, 
coverage that actually works for people when they are sick.
    Today I will discuss the types of problems I am not seeing 
because of the insurance reforms we have in Maine. First, it is 
important to remember that the private market is not a free 
market where purchasers have meaningful options. A free market 
assumes that everyone who wants to buy a product can choose 
among sellers competing for their business.
    Insurance companies do not compete to insure sick people. 
Insurance companies do not compete to insure sick people. An 
insurance company's success depends on its ability to minimize 
its risk. This provides incentives to cherry pick healthy 
people and limit the number of unhealthy. It creates a private 
market from which many Americans are shut out. Even minor 
conditions like an allergy could be the basis for not selling 
you a policy.
    Also in most states, insurers are allowed to charge higher 
rates for people with medical needs. This includes charging 
small businesses with sicker workers higher rates than small 
businesses with healthy workers.
    Maine is one of five states, in addition to New Jersey, 
Massachusetts, New York, and Vermont, that prohibits 
discrimination against individuals. We do this through 
guaranteed issue and adjusted community rating laws. Guarantee 
issue laws prohibit insurers from turning you down because of 
your health. Adjusted community rating laws prohibit insurers 
from charging sicker people higher rates.
    In addition to allowing people with medical needs to access 
private coverage, the combination of guaranteed issue and 
adjusted community rating laws has protected Maine consumers 
from some of the problems experienced by consumers and small 
businesses in other states.
    For example, we do not have rescissions, the problem that 
Chairman Waxman examined extensively as chairman of the 
oversight committee last year. This is a problem of having your 
policy retroactively cancelled and being responsible for all 
the claims paid while you had the policy. Rescissions leave 
people on the hook for their medical bills and uninsurable, 
completely shut out of the private market.
    In Maine, a consumer does not fear losing his or her 
insurance because he or she may have completed the application 
for insurance incorrectly by mistake. In other states, 
consumers reported having their policies cancelled 
retroactively for forgetting to report seeing a marriage 
counselor years before. In Maine, because insurers are not 
allowed to consider current or past medical needs in the first 
place when selling or pricing a policy, we have not had a 
problem with rescissions.
    We do have a problem, however, with affordability. The 
health care crisis is like a slow disease slowly killing off 
the middle class. It is a huge burden on employers of all 
sizes, on workers, and families. Health insurance premiums are 
expensive because medical care is expensive. The private health 
care financing system has not effectively switched its focus 
and incentives from paying for sick care to promoting wellness. 
The current system rewards inefficiency. Carriers have not been 
able to negotiate effectively enough with providers to keep 
costs contained.
    Many factors contribute to the price of coverage. That 
includes the cost of medical care, administrative costs, and 
profits. Since 2002, our state's largest insurer has declared 
nearly $152 million in dividends.
    As far as next steps, there is a strong and appropriate 
role for federal policy makers. Americans need and demand 
meaningful health insurance coverage options to access and pay 
for necessary, and in many cases, life-saving medical care and 
services. Working together, the federal government and the 
states, we can address the health care crisis facing our 
nation's employers, workers, and families.
    I encourage you to build upon the foundation that you 
established in 1996 through HIPAA, a federal floor of 
protections, recognizing that states have and should be allowed 
to create and enforce higher levels of consumer protections as 
their populations need.
    In addition to improving and having strong protections, it 
is equally important to have strong regulators to enforce the 
law. State regulators have a long history of effectively 
protecting insurance consumers. I encourage you not to 
duplicate or replace the existing effective state-based 
insurance oversight system. Thank you, and I look forward to 
assisting you as you move forward in addressing the health 
crisis.
    [The prepared statement of Ms. Kofman follows:]

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    Mr. Pallone. Thank you. Dr. Kingsdale.

                   STATEMENT OF JON KINGSDALE

    Mr. Kingsdale. Thank you, Mr. Chairman and members of the 
committee for this opportunity and more importantly for 
tackling this tough subject. I am executive director of the 
Commonwealth Health Insurance Connector Authority, which is one 
of the principle agencies of health reform in Massachusetts, 
and I want to share with you a couple lessons learned.
    First of all, I would note we do have 97.4 percent of our 
residents covered with insurance. Before I heard that 
characterized in the former panel, I actually thought that was 
good. It is, by far, the highest insurance level in the United 
States, which sadly is below 85 percent nationally and 
declining as we speak.
    Two years ago, after beginning implementation, we reached 
the principle goal of Massachusetts Chapter 58 of the Acts of 
2006, near universal coverage. As a result, financial barriers 
to obtaining care have fallen markedly. An Urban Institutes 
survey conducted midway through implementation, and I emphasize 
midway, found that Massachusetts rates of deferring needed 
care, because of financial barriers, were between one-half and 
one-third of the national average. And I think it is reasonable 
to assume, as enrollment continued to grow, the financial 
barriers continued to fall.
    Importantly, Massachusetts has been able to achieve near 
universal coverage without a surge in medical inflation. In 
Commonwealth Care, a program run by the Health Connector for 
lower income adults without access to employer sponsored or 
other public coverages, annual premium increases average under 
5 percent, and that is better than the national experience, in 
fact, most private experience in Massachusetts.
    Last week, we actually completed bidding and plan selection 
for the next fiscal year, starting this July, which has 
produced the following rather extraordinary results: choice of 
health plans and access to new primary care physicians will 
increase, and both the government spending per enrollee and 
what our 165,000 enrollees contribute monthly will decrease. 
And I have been in the insurance business for 35 years, and I 
don't usually use premium and decrease in the same sentence.
    The connector runs actually two distinct programs. So its 
second program, Commonwealth Choice, unsubsidized enrollees 
enjoy a broad array of commercial health plans. They can 
compare 37 private options that we offer, confident that these 
plans have received the commonwealth seal of approval for 
quality and value. On the day we initiate Commonwealth Choice 
and the individual mandate, July 1, 2007, purchasers of non-
group plans experienced a huge gain. Their choice of plans 
increased suddenly. Their average premiums dropped markedly, 
and shopping for a plan became far easier.
    The result has been a resuscitation of the non-group market 
in Massachusetts. Prior to reform, non-group enrollment had 
been falling and premiums rising. A year later, the number of 
Massachusetts residents buying insurance directly on their own 
had doubled, and the premiums for standard coverage in the 
largest non-group plans had declined by 25 percent.
    Although we only offer 37 of the 180 options now available 
to individuals in Massachusetts and they are priced the same in 
the connector or if purchased outside the connector, our growth 
has accounted for 50 percent of the growth in non-group 
coverage in Massachusetts.
    Health care reform in the state is a shared responsibility. 
One-third of the some 440,000 newly insured residents in the 
commonwealth are in employer-sponsored plans. Near universal 
coverage is the product of shared responsibility among 
employers, taxpayers, and those directly involved in providing 
and reimbursing care. Our governor and legislative leaders are 
committed to maintaining coverage and sustaining access.
    Now, let me just say a couple things about the two 
connector programs that I briefly described. The Connector 
organizes a market to provide meaningful choice. Like any 
retailer, we ask our customers what they want. What they tell 
us is they want quality, meaning insurance options they can 
trust, they want value, meaning that we compare and showcase 
those plans which offer the best benefits for prices charged, 
and they want to be able to compare and shop online as opposed 
to calling each carrier, asking a bunch of questions, being put 
on hold, and then trying to compare notes at the end of the 
day.
    In both Commonwealth Care and Choice, we set standards for 
covered benefits. We rigorous evaluate the products before 
offering them, and we organize the choice of plans so that 
members can readily compare them. At enrollment and afterwards, 
we work with members and health plans to resolve member issues.
    With Commonwealth Care, since we are spending public monies 
for coverage, the Connector specifies a set of benefits and 
conducts a highly competitive bidding process. But enrollees 
choose the plan. They choose the provider network, and if they 
choose a more expensive plan and they earn above 100 percent of 
FPL, they pay the additional cost.
    With Commonwealth Choice, which is the unsubsidized plan, 
our members are making a major buying decision. They are 
spending somewhere between $1,500 and $15,000 a year on 
insurance, depending on family size, age, zip code, et cetera, 
and the plan they choose. The Connector sets four very 
different levels of benefits from which customers can choose 
and offers at least six different carriers on each of these 
benefit tiers. Our customers can shop by entering three pieces 
of information: age, household size, and zip code.
    We do offer customer telephone service, but 80 percent of 
the buying is online, typically in 20 to 30 minutes, spend 
somewhere between $1,500 and $15,000 a year. And whichever plan 
they buy, enrollment is guaranteed as is the next year's 
renewal regardless of any change in members' medical condition.
    And believe it or not, after spending all that money, our 
members consistently thank you, even though we all know this is 
outrageously expensive. Frankly this is--and I have been in the 
insurance business for over 30 years--the most consumer 
friendly, consumer-driven offering that I have encountered. 
Thank you for your time and interest, and I will be happy to do 
my best to answer questions.
    [The prepared statement of Mr. Kingsdale follows:]

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    Mr. Pallone. Thank you. Ms. Pollitz with two Ls, not three.

                   STATEMENT OF KAREN POLLITZ

    Ms. Pollitz. Like Mr. Pallone. Thank you, Mr. Chairman, 
members of the subcommittee. Health reform presents you with an 
opportunity to provide for more health insurance markets 
through a connector, as Dr. Kingsdale discussed, or an 
exchange. You can organize markets around explicit outcomes 
that you want to achieve from health insurance.
    I would like to briefly review five key goals. The first is 
to promote risk spreading and stability in health insurance. We 
have already talked today about how a small minority of people 
accounts for most health care spending, and this creates an 
overwhelming financial incentive for insurance companies to 
avoid risk. So we need rules to make that stop.
    I have testified before about medical underwriting 
practices that make it harder for consumers to get coverage, 
but other marketing practices make it difficult for consumers 
to keep affordable coverage. Age rating raises your premium 
steadily, and when you reach your 50s and 60s, when the 
incidents of most health conditions starts to increase, health 
insurance becomes very unaffordable.
    Carriers also use durational ratings to actually apply a 
surcharge to premiums based on how long you have held your 
policy. The idea is to encourage people who can still pass 
underwriting to not renew, but to go out and buy a new policy, 
go through underwriting again to get a good rate. But the 
people who can't do that get stranded in policies and see their 
premiums spiral.
    Health reform can help by changing the rules of health 
insurance marketplaces, require guarantee issue, community 
rating, no pre-ex, so that we stop competition on the basis of 
risk avoidance.
    The second goal must be to assure adequate coverage. Today 
we have 57 million Americans struggling with medical debt, and 
three-quarters of them are insured. Some are underinsured 
because their policy doesn't cover key benefits, but 
increasingly the problem lies with high deductibles and high 
cost sharing.
    We have accepted higher cost sharing year after year in an 
effort to try to hold premiums down, but as soon as we get 
sick, we realize what a failed strategy this is. Especially for 
patients with chronic conditions, high deductibles hit 
relentlessly year after year. Even modest copays will mount 
quickly, and as a result, people have difficulty affording 
basic care management for chronic conditions like asthma and 
diabetes. And as a result, avoidable and expensive medical 
complications arise.
    In short, underinsurance is becoming a threat to the public 
health. It also drives up bad debt and collections costs for 
doctors and hospitals. The industry experts tell us that the 
collections rate for low deductible plans is about 87 percent, 
but for high deductible plans is only 43 percent. So it adds to 
that administrative cost and hassle for providers as well.
    Reform can help by setting comprehensive standards for what 
health insurance covers and make sure that in the marketplace 
only good choices are available.
    A third choice is to assure affordability. In the interest 
of time, I won't belabor this point. I think the other panel 
talked very convincingly about the need for subsidies for both 
premiums and for cost sharing to make health care and health 
coverage affordable.
    The fourth goal is cost containment. Most private health 
insurance markets today are dominated by a few, large carriers, 
and yet these dominant carriers have not used their market 
clout to control costs. Instead, they have passed out health 
care costs to consumers while increasing profitability at the 
same time. Reform can help by organizing health insurance 
markets to generate new forms of competition and more effective 
cost containment strategies.
    You have a number of options to consider. As is the case in 
Massachusetts, the exchange can have the option of not 
including all carriers as participants but instead selecting 
those that are the most effective and the most efficient. As 
also was discussed earlier at great length, a public health 
insurance plan option can and should be offered to heighten 
competition.
    And finally, Mr. Chairman, transparency and accountability 
are critical to a well-functioning health insurance market. Mr. 
Deal spoke earlier this morning about price transparency and 
the importance of that, and I completely agree. But we need 
transparency throughout our health insurance system and market. 
Health insurance policies themselves need to be transparent and 
understandable. Policies are so complex today they leave most 
consumers confused and frustrated. A recent industry survey 
found that most people would prefer to do anything, including 
working on their taxes, rather than trying to read through 
their insurance policy to figure out what it covers.
    And we need transparency of market behavior as well. Too 
many market practices are hidden from view. It is very 
difficult to track who is enrolled, who is disenrolling, when 
claims are paid, when they are pended, when they are denied. 
These questions are important, and they are answerable if only 
we will insist on the data.
    In an organized insurance market we can do that. In the 
past few months, as financial markets in the economy have 
struggled, how many times have you heard or you yourselves made 
the call for greater transparency and accountability? These 
themes must allow apply to health insurance and guide your 
efforts on health care reform. Thank you.
    [The prepared statement of Ms. Pollitz follows:]

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    Mr. Pallone. Thank you. Dr. Baicker.

                 STATEMENT OF KATHERINE BAICKER

    Ms. Baicker. Thank you very much for the opportunity to be 
here. I would like to draw a couple of key distinctions at the 
beginning. First, health is very different from health care, 
and second health care is very different from health insurance. 
I know we have all hit on these points already, so I will be 
brief. But we know many things affect health outcomes besides 
the health care system.
    By the time someone shows up at the hospital in critical 
condition, it is already too late in some senses. That means 
that comprehensive reform should address investment in all 
sorts of things that promote health including health behaviors, 
access to nutritious foods, exercise, et cetera. It also makes 
international comparisons of health systems particularly 
different because when we look at the value our health care 
system is producing, the health outcomes are the product not 
just of that health care system but of all those other factors 
that may be different across countries as well.
    The second distinction I wanted to draw was between health 
care and health insurance, and that sounds obvious, but it is 
often conflated in the debate. And this goes to the point that 
Representative Christensen raised earlier about what our 
responsibility and what our goals should be for helping sick 
people who are uninsured.
    People need health insurance because health care is 
uncertain because the risks are uncertain, not because health 
care is expensive. There are lots of things that are expensive 
that we might want to redistribute resources for to low-income 
people but not through the form of insurance because those 
expenses aren't so variable, so unknown. Whereas health 
insurance exists to protect people against the risk of needing 
a lot of resources to pay for an expensive health care 
condition when those resources could save their life.
    So what do uninsured sick people need? They need health 
care, but they don't necessarily need health insurance. And we 
might want to design a reform to help those people that gets 
them access to care that doesn't necessarily build on an 
insurance system designed to help the majority of people who 
get insured when they are healthy, some of whom then fall sick 
and some of whom don't.
    The problem that sick people who are insured have is one of 
insuring the affordability of that care going forward. People 
want protection not just against high expenses today, but 
against the risk of high expenses next year. And that means 
having an insurance policy that you can count on if you or a 
family member get sick. Your premiums shouldn't go up. You 
shouldn't lose your insurance. You have done what you needed to 
do to get insurance when you were healthy. We need to ensure 
that that insurance stays around to protect people should they 
fall ill.
    A second principle I would like to bring up is the idea 
that covering the uninsured doesn't pay for itself. It would be 
wonderful if we could recoup the investment that we make in 
covering the uninsured through less spending on emergency 
departments and inefficient care that we know the insured 
differently from the uninsured right now.
    Unfortunately, I don't think we can count on saving money 
by covering the uninsured, but that doesn't mean that it 
wouldn't be money extremely well spent. If we invest money in 
covering the uninsured, they will gain enormous health benefits 
from it. So the money is worthwhile, but it is not free. And it 
doesn't save money on net to extend insurance coverage because 
we know the uninsured are consuming too little health care 
today. So extending coverage to them would give them access to 
more care that would cost more money. So we need to design 
reforms that can pay for that.
    A corollary to that idea is that preventive care doesn't 
pay for itself by and large either. There are a few exceptions. 
Flu shots for toddlers more than pay for themselves. Most 
preventive care again is a good investment in health. It 
promotes health in the long run, and it is worth spending money 
on, but it doesn't reduce costs. Most preventive care buys 
quality adjusted life years at a pretty good price, and we 
should invest in that. Some preventive care is very expensive 
for the health that we buy and is in fact less cost effective 
than care that wouldn't be characterized as preventive. So we 
shouldn't think of preventive care as a uniform cure-all 
either. It is a mix of highly cost effective and highly non-
cost effective care as well.
    Another principle that I would like to bring to the debate 
is that insurance alone doesn't guarantee access to high 
quality care. We hit on that, the questions discussed that a 
fair amount in the first panel, so I won't spend a lot of time 
on it here. But there is ample evidence, largely derived from 
the Dartmouth data on variations in health care within 
Medicaid, that high spending on health doesn't guarantee high-
quality care. And even people in the same insurance program, 
Medicare fee-for-service, get wildly different health care 
benefits in different parts of the country.
    Next I would like to raise the idea that employees bear the 
burden of employer-provided health insurance. This means that 
if we want to foster the employer system, if we want to put 
employer-based policies on a level playing field with non-group 
markets, the reasons to think about doing that involve risk 
pooling and economies of scale in large purchasing, not the 
idea that employers somehow bear the burden of health costs 
through profits.
    In the long run, when health care costs go up for employer 
provided plans, employees bear that cost in the form of lower 
wages. That is part of the reason we have seen slower wage 
growth over the last decade. It is because an increasing share 
of compensation that workers get has come in the form of health 
insurance rather than wages. In some cases, when wages can't 
accommodate that increase in health care costs, that results in 
unemployment. So ultimately workers bear the burden either 
through lower wages or in some cases through losing their jobs.
    The last point that I would like to make is that high 
deductible health plans can introduce cost sharing that 
promotes efficiency, but they aren't the magic bullet. There is 
no reason to think that the high deductible health policies 
that we see today are the perfect structure. What I think the 
tax system should aim to do is promote innovative insurance 
coverage that fosters high value care. That might mean higher 
deductible for some kinds of care and subsidizing other kinds 
of care. Maybe we should pay people to go get flu shots because 
those are particularly cost effective. It should have a 
negative copayment associated with it.
    Any reform design should promote that kind of high value 
insurance structure that I think is unlikely to be generated by 
a monolithic single public payer plan but is unlikely to be 
generated by a prescribed particular form of deductible.
    So in conclusion, I think we should address the issues of 
coverage and cost together, not because they are equally 
important necessarily, although I think both are very 
important, but because each goal is more likely achieved when 
the two are considered together. It is very difficult to design 
a system to cover the uninsured that we can afford tomorrow if 
we don't take health care costs into account. And if we don't 
get costs under control, more people will find themselves 
falling into that uninsured bucket as their employer provided 
plan or the non-group market plans become less and less 
affordable.
    [The prepared statement of Ms. Baicker follows:]

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    Mr. Pallone. Thank you, Doctor. Mr. Haislmaier.

               STATEMENT OF EDMUND F. HAISLMAIER

    Mr. Haislmaier. Thank you, Mr. Chairman and members of the 
committee for inviting me here today to testify. I have 
submitted prepared remarks which I will summarize briefly. Let 
me just make a couple of points, and I would particularly like 
to follow on what Dr. Baicker just said about silver bullets.
    In 20 years of doing health care policy, it has been my 
observation that too often too many of us, regardless of where 
we are on the political spectrum, are tempted to try to latch 
onto something as a small silver bullet solution to health 
care. I have come to the conclusion that while each and every 
one of those things has some value, none of them are a magic 
silver bullet to fix the problem. Rather you have to take them 
in a context, and you have to look at them as pieces of the 
puzzle.
    We also have a tendency to run towards fads. That is the 
silver bullet, if you will, that is most popular at the given 
moment. Again this can be on either side of the aisle. We have 
seen it with HMOs, HSAs, public plan, this, that, and the 
other. Again I would encourage you to refrain from that.
    In looking at the situation we have today, what strikes me, 
not only based on my experience over 20 years, but actually 
based on the last five years of working with about 18 different 
states. Literally I was in the period of seven days testifying 
in Anchorage and Tallahassee. So it is across the country, in 
very different circumstances. How diverse the situation in on 
the ground in your different states and also how much more 
amendable it is to solution at the state level.
    I have also at a policy then intrigued by the few things 
that are really needed in my view to make measurable progress, 
and let me summarize them as I do in my testimony. I think the 
Massachusetts Connector, which is the first example, and now 
Utah--unfortunately Representative Matheson isn't here--last 
week enacted something very similar--is the first couple of 
examples of what I think needs to be done in one area, which is 
to create an individualized solution for employers and their 
workers.
    This is not the same as the traditional individual 
insurance market, as Mr. Kingsdale points out. This functions 
just like an employer market. You are guaranteed the coverage. 
You have a right to pick an open season. In fact, it works like 
FEHBP, which was discussed earlier.
    In fact, they are doing the things you would have to do if 
you were to say we are going to take FEHBP and instead of 
having it be one employer, the federal government, we are going 
to have a state do it for any employer in the state to 
participate in. That is what the unsubsidized Commonwealth 
Connector reforms that they are rolling out right now are 
designed to do and what other states are looking at doing. Any 
state can do that today, and we have shown them how they can do 
it working as Massachusetts and now Utah are doing within 
federal law.
    Point two is if you want to apply guaranteed issue to the 
individual market, that can be done. It can be done at the 
state level. Some states have done it, as Ms. Kofman pointed 
out. It could be required at the federal level. The important 
thing is to do it right. It should not be an unlimited pick-it-
up-drop-it-anytime-you-want kind of guaranteed issue, but 
rather as the federal government set forth in HIPAA, a set of 
standards for guaranteed issue in the group market for 
individuals when it is reasonable for people to do that.
    The other two points in my testimony are that the way to 
make those reforms work in an optimal fashion is to support 
them with risk adjustment mechanisms. And I noted in my 
testimony that in my discussions with folks in Massachusetts 
and in my observations, I think if I was to go back and say 
what did they leave out that they should have included. And 
that was they didn't include a risk-adjustment mechanism for 
making sure that nobody was disadvantaged as an insurer getting 
more of the sick cases than somebody else.
    Interestingly enough, learning from that lesson, that is 
the first order of business in the Utah reforms is to set that 
piece of it up.
    And then finally if you are going to move to guaranteed 
issue in the individual market, and you are going to give 
people the right to buy coverage, then for that to work 
economically and socially, people have to take of the 
obligation to take advantage of that right when they are 
healthy and pay into the system and not simply avoid it until 
they need it and then want to take out of the system.
    Finally what strikes me about all of this is that any of 
this stuff and all of this stuff can be done by states now. It 
is not necessary for the federal government to do it for them. 
The federal government, however, could do things to aid and 
encourage them. And I will be happy to discuss that later.
    And then finally to Representative Deal's question, again I 
think price and transparency is essential to making this work 
even better down the road. But again I think this is something, 
given that states regulate insurance and the practice of 
medicine, that states are looking at doing themselves to one 
degree or another and is certainly something I would encourage 
there to support it. Thank you.
    [The prepared statement of Mr. Haislmaier follows:]

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    Mr. Pallone. Thank you, and I want to thank all the 
panelists. We are going to have questions now. Each member gets 
5 minutes, as you probably know, and I will start out with 
myself. And I wanted to ask Mr. Kingsdale. You have achieved 
remarkable results in Massachusetts with your two connectors. 
Our national rate of uninsurance is 17 percent. In 
Massachusetts, just 2.6 percent are uninsured. But to achieve 
this result, you have in place a requirement that all residents 
must have health insurance coverage that meets minimum 
standards for adequacy, and I just want to ask a few questions 
about this individual mandate and how you ensure that the 
coverage people are required to buy is affordable.
    I have four questions. I am going to try to go quickly 
here. What type of coverage does Massachusetts require its 
residents to have, and how is that individual mandate enforced? 
Of course, I heard about this during the presidential campaign, 
but I want your opinion.
    Mr. Kingsdale. Thanks for the question. If you require 
insurance or anything, you have to set a minimum standard. 
Obviously a dollar of coverage per year does not constitute 
real insurance. And that has been one of the two thorniest 
problems, which the legislature in its wisdom as the board of 
the connector to resolve rather than to do in legislation.
    And we have used a couple principles to develop what I 
would call minimum credible coverage. One is that, like any 
insurance, it ought to protect people from catastrophic costs 
so there are some maximum cost sharing elements to it. And the 
second is that because this is health care, which does differ 
in some important respects from other kinds of insurance, we 
actually require coverage up front of preventive care before a 
deductible and coverage with or without a deductible of a broad 
array of services, such as you would expect from coverage in 
your own health plan.
    Mr. Pallone. And how about the enforcement of the 
individual mandates? How do you do that?
    Mr. Kingsdale. The enforcement is through the tax code. The 
enforcement has been on the principle that it is good to have 
insurance and we want to help you get there, not got you. So 
the actual requirement went into effect July 1 of 2007. As long 
as you had insurance by December 31 of 2007, you did not pay a 
penalty. And if you did not have it, the penalty was pretty 
modest, $219. That penalty goes up and becomes month by month 
as we move into 2008 and 2009.
    We have exceptions for religious beliefs, a much bigger 
exception for affordability. Of course, we have significant 
subsidies to low-income people who are not eligible for 
employer-sponsored insurance to help them afford it. And then 
we have a robust and generous appeals process for individual 
cases. So we bend over backwards to try to get you there rather 
than penalize you for it.
    Mr. Pallone. Let me see if I can get to these other three 
questions. How did the state decide what combination of 
premiums, deductibles, coinsurance, other out-of-pocket 
payments were affordable for individual and families?
    Mr. Kingsdale. That is the other very tricky question. 
Again the legislature asked the connector board to do that. And 
we kind of did a bookends approach. So at the bottom of the 
income scale, zero is affordable. And we defined that as 150 
percent of federal poverty level. That is a fairly arbitrary 
decision but a gut check. And at median income--and ours is a 
wealthy state, so that's about 550 percent of federal poverty--
we said you have to have insurance. There is no exception for 
affordability.
    And in between, we basically do a scaled progressive 
schedule, but the principle underlying that is that by the time 
you get to 200 to 300 percent of federal poverty, so that would 
be an individual making $21,000 to $32,000 a year, where 80 
percent of our citizens who get their insurance through 
employer-sponsored insurance, pay something like about $100 on 
average per individual per month toward that. We thought that 
was a reasonable affordability basis. It had political equity. 
It would reduce or avoid crowd-out, and it seemed sort of gut 
check fair.
    Mr. Pallone. Now what about, have any studies been done to 
determine if rates of medical debts or bankruptcy have declined 
since Massachusetts achieved this near universal coverage?
    Mr. Kingsdale. That is a great question. I actually have 
asked several times to have such a study done. It is on 
somebody's project list, and I keep looking for outside 
research to do it. I am hopeful that the answer would be 
medical bankruptcies would go way down if you compare '08 to 
'06, but we have not done the study.
    Mr. Pallone. Let me just ask Ms. Pollitz, this issue again 
with the individual bankruptcy or debt. There was a study 
published by the Senate for Studying Health Systems Change that 
showed that 75 percent of those with medical debt in 2007 were 
actually insured. They had health care coverage, but they still 
had debt. Can you explain that? I mean this whole issue of 
people who actually have coverage going bankrupt or going 
seriously into debt.
    Ms. Pollitz. It can be a number of different factors. It 
could be that their policy doesn't cover all of the services 
that they need. May not have a prescription drug benefit, for 
example. If you have HIV and you don't have a prescription drug 
benefit or MS or something that has very expensive 
pharmaceutical need, then you could run up very high medical 
bills because those services aren't covered by your insurance.
    There may be caps on what is covered. You see policies 
that, you know, only pay so many mental health visits a year, 
and then, you know, a kid gets an eating disorder. Or a policy 
that, you know, caps total benefits at $10,000 a year, and then 
you have a heart attack that costs $100,000. So that can 
happen.
    Typically the literature on medical bankruptcy suggests 
though that it is not six-figure medical debt that is sinking 
families. On average, it is less than $12,000 or $15,000 in 
medical debt that will run a family over the limit and leave 
them to declare bankruptcy. And so we need to also look at cost 
sharing, and cost sharing that we might think of even as 
modest.
    One study that I cited in my testimony looked at medical 
copays in the range of $6 to $25, and what those meant for 
people with chronic conditions, asthma and diabetes and so 
forth. If you are needing to, you know, take medication several 
times a day every day for your entire life and you are always 
refilling these prescriptions, those little copays add up and 
become thousands of dollars. And if you add on to that, 
deductibles, copays for other medical care that you need, it 
really adds up remarkably quickly.
    Mr. Pallone. OK, thank you. Mr. Deal.
    Mr. Deal. Thank you. I want to get my transparency question 
out of the way real quickly. I think most of you were in the 
audience and heard my description of the proposed legislation. 
And I will just go down the list. Do you generally believe that 
pricing transparency is something that we need to enhance in 
our system regardless of what that system may ultimately turn 
out to be? Ms. Kofman, start with you, and we will go down.
    Ms. Kofman. Thank you. I think it is critical when you have 
a private market to have transparency to provide consumers with 
useful information they can understand and use in making 
decisions. Right now, if you were shopping around, you couldn't 
get your policy ahead of time, the full contract. You can get a 
benefits description which may or may not be accurate.
    So transparency in my view includes everything, from how 
your contract, how your insurance will work when you need it, 
to choosing your provider and to making more informed choices 
from start to finish. Right now, that just does not exist in 
the private market.
    Mr. Deal. Dr. Kingsdale.
    Mr. Kingsdale. I would strongly endorse the idea of making 
prices and benefits and everything else transparent. In fact, 
in our programs, that is exactly what we do. I have been in the 
insurance business for over 25 years before becoming a 
bureaucrat. And so I am pretty realistic about how much is 
achievable. Price is absolutely--and other information--
requisite to a functioning market, but so is competition.
    In Ms. Kofman's state and in most towns in my state, you 
don't have but one hospital, period. So you can know all you 
want about their prices. You really don't have a choice, and so 
it doesn't do you much good. So I am realistic about what you 
can do with it.
    Mr. Deal. But even in those situations where there is one 
hospital, who you are and who is paying the bill will determine 
what the price from that one hospital is because you have 
negotiated prices by government agencies. You have negotiated 
prices by private insurers, and generally, the ones that wind 
up in the bankruptcy court are the ones that don't have 
anything, and they are generally charged the highest price of 
all. Ms. Pollitz.
    Ms. Pollitz. I agree it is very important, and I commend 
you for your legislation. And I would just agree also that 
looking at all of the dimensions where transparency is 
necessary is important to do, and I hope that will be part of 
this effort as well.
    Mr. Deal. Thank you. Dr. Baicker.
    Ms. Baicker. Agreed. Transparency is a prerequisite for a 
well-functioning market, and the prices that we could publish 
now would be very useful. And even more useful would be 
building together bundles of prices that would really let 
people choose how much does it cost to have this condition 
taken care of by this group, not line by line. It is harder for 
them to aggregate, but you have to start with what is 
available.
    Mr. Deal. Mr. Haislmaier.
    Mr. Haislmaier. Yes, Congressman, as I mentioned in my 
remarks, I do agree with you on that. I would simply, as I 
mentioned in my remarks, encourage everyone to recognize that 
this is one very important piece of the puzzle, but it is not 
the only thing.
    To follow up on what Mr. Kingsdale was saying, the first 
question is what does it cost. The next question is what am I 
getting for my money. And that is where you start comparing the 
data on quality and outcome. So you always have to ask that 
first question before the second question gets asked. That is 
true.
    There are ways where you can do that not only in insurance 
but also in the provider side, which is really important. And I 
would also encourage folks to think not about the consumer 
versus the provider interaction but creating a common data set 
that all the insurers can use to act as the agents, as the 
experts, on behalf of the consumers in these decisions. And so 
a number of states are looking to do that.
    And I think the regrettable thing about it, if 
Massachusetts's mistake in the beginning was not to have a risk 
adjustor, their mistake in implementation was that the governor 
and this administration recently cut back the cost and quality 
commission that was designed to do that in the legislation.
    Mr. Deal. Could I follow up with less than three-quarters 
of a minute? Would you contrast the Utah situation with the 
Massachusetts? What improvements do you think they made that 
were important? What other changes, if any, would you suggest 
the state look into?
    Mr. Haislmaier. Well, I think the most striking thing about 
this--and you all as members of Congress will probably think of 
the very different politics of those states--but I would 
encourage you to realize that the most striking thing to me 
about this is when you rank the 50 states by the per capita 
cost of health care, Massachusetts is the single most 
expensive, and Utah is the absolutely cheapest. So those are 
vastly different in their health care systems.
    That said, Massachusetts had a large amount of money that 
it was giving to hospitals, public dollars, to pay for the 
uninsured, which is now being converted into buying those 
people insurance. Utah is on the other end. They have almost no 
public money going to insurance. So what they are doing is, 
while Massachusetts focused on expanding coverage by 
subsidizing low-income individuals with the dollars they 
already had and is only now rolling out the reforms to allow 
employers and unsubsidized workers to have a choice of 
coverage.
    Utah is going about it the opposite way. They are starting 
in the private market and then working towards the public side. 
That is my point is states are very different. Each can use the 
same things, but they have to find their own way and their own 
order for doing it that suits them.
    Mr. Deal. Thank you.
    Mr. Pallone. Thank you, Mr. Deal. Mr. Gonzalez.
    Mr. Gonzalez. Thank you very much, Mr. Chairman. I 
apologize to the witnesses. There are so many conflicting 
appointments today and another hearing of the judiciary. So I 
missed the testimony of the witnesses, except for the first 
witness, and I apologize. I may go over something that you all 
covered, and again do understand though that you have written 
statements in here. We have memos that are prepared by staff. 
We are going to have many hearings. Much of what you say here 
today, if not listened by individual members of the committee, 
believe me, these statements will be reviewed and may well 
serve as the basis for some of the memos in the future as we 
take on different panels.
    I will start with pronunciation. Is it Dr. Baicker? How 
would you pronounce that?
    Ms. Baicker. Baicker.
    Mr. Gonzalez. Baicker, OK.
    Ms. Baicker. Just spelled funny.
    Mr. Gonzalez. No, it is spelled in a very interesting way. 
But you were here for the witnesses statements by the previous 
panel, were you not?
    Ms. Baicker. Yes.
    Mr. Gonzalez. OK, and in your own statement, and I couldn't 
agree with you more, and I am sure everyone that is here--in 
your statement, you indicate while there are many open 
questions in the design of the ideal system, with millions 
uninsured and rising costs threatening to swamp public and 
private budgets alike, we cannot afford to wait to act.
    Obviously this committee is going to move forward. This 
administration is going to move forward, but I think you 
highlight the biggest obstacle. And that is something I 
referred to earlier when I was quoting from the two authors 
from the ``Harvard Business Review'' in the article No Doubt, 
but we still face the same problem.
    How one balances these tradeoffs is likely driven as much 
by philosophy as economics. And any reform will involve tough 
choices between competing values, and I think that is the 
biggest problem. If we can just stick on the economics, the 
efficiency of what we do, we are well served. But you have 
already heard words like socialism, the Big Brother, and such. 
We need to get past that.
    So the question is do we move forward now? And we do so, we 
are not talking about a single payer. Is that correct? Now, 
there are many here that would like that, but I am just saying 
is it is going to be a public option. That is the way I like to 
think of it. And as we move forward again, leaving back 
ideologies, we have always said that we probably could form the 
most efficient system if the employer, which is the greatest 
purchaser of insurance, could lead that fight. That is what I 
had in the ``Harvard Review'' article, but that hasn't 
transpired in the past few years.
    So employers haven't been able to identify a better system. 
The consumer is ill equipped. Ms. Pollitz, thank you very much 
for your comment. It was very sad in that ``Time'' article 
about someone from San Antonio who had an insurance policy that 
was totally worthless when his kidneys failed. So you can't say 
that the consumer is equipped to deal with this. The health 
care providers aren't doing it, not the medical professions. As 
a matter of fact, we have the specialties that compete with one 
another depending on what is going to be covered and when and 
how much.
    So wouldn't it be appropriate for the federal government--
and I know someone has suggested let every state do it 
individually. But what are your views today about where we are 
going and what we are going to be proposing as far as the 
federal government coming in and playing a major role? Yes, Dr. 
Baicker.
    Ms. Baicker. Thank you for the question. I think you have 
hit on so many important issues. One of the things I would like 
to pick up on is that there are things that we cannot expect a 
private market to do. Private markets are great at pooling 
risks, and there are regulatory requirements to ensure that 
they do so fairly and effectively. But we can't expect private 
markets to redistribute money from rich to poor or from people 
with low health risks, the healthy, to people with high health 
risks, the sick. That kind of redistribution of resources is 
fundamentally social insurance not private insurance. Social 
insurance need not be socialized. It could be done through the 
form of risk-adjusted vouchers where people with high health 
risks take extra money that they are given. Maybe particularly 
low income people get more generous risk-adjusted vouchers to 
ensure that they have access to the care that they need.
    That kind of redistribution happens a little bit now 
because of the way that we subsidize employer-provided health 
insurance. The way that we subsidize it encourages some risk-
pooling in the employer market by encouraging high-risk people 
and low-risk people to stay in the same pool, whereas otherwise 
low-risk people might flee.
    Now, is that the most efficient way to do that kind of 
subsidization of high-risk people? There are probably other 
ways that we could accomplish that goal that might have better 
distributional implications while preserving what is good about 
the risk pooling that is occurring right now.
    Any reform going forward that is going to take care of our 
most vulnerable citizens is going to have a component of social 
insurance, and that is the way we should be thinking about that 
function, not trying to impose that on private markets that are 
ill equipped to do redistribution.
    Mr. Gonzalez. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Pallone. Thank you. Dr. Burgess.
    Mr. Burgess. Thank you, Mr. Chairman. Dr. Baicker, if we 
could just continue on that line for a moment. One of the 
things that was talked about in the fall campaign was using the 
best practices of the states that had high-risk pools and 
trying to construct or constructing rather a mechanism for 
dealing with individuals who had conditions of medical 
fragility that would apply to their unique situation without 
changing the landscape for everyone else. Is that still a 
realistic possibility in the environment that we find ourselves 
today, taking the best practices from the states that have 
high-risk pools?
    Ms. Baicker. I think we certainly want to learn from the 
diversity of state experiences, and some states have high-risk 
pools that are functioning much better than others. And there 
are some general principles we can draw from that, more broadly 
subsidizing the high-risk pools rather than trying to subsidize 
them from narrow tax bases, for example, seems to be a more 
productive way of subsidizing them. Again that is falling under 
the role of social insurance where you are explicitly trying to 
redistribute some money to high-risk people who are otherwise 
uninsured.
    I would think the first goal of a reform would be to get 
people insured as early as possible while they are healthy so 
they can invest in their health so they get the most efficient 
they can. And a system that is designed to minimize the number 
of people in that condition in the first place could spread 
dollars a lot further. Then I think it would be great to learn 
from best practices at the state level to deal with people who 
fall through the cracks and to ensure that there is a broad 
enough subsidization that it doesn't drive a cycle that leads 
to more health people being uninsured for example.
    Mr. Burgess. All right, thank you. Dr. Kingsdale, on the 
Massachusetts experience, do you have a figure on the number of 
people who are paying the fine rather than buying the 
insurance?
    Mr. Kingsdale. We have a lagging indicator because you file 
in April, of course, for the year before, and some people get 
extensions. So we have it only for 2007, and that was about 
100,000 people----
    Mr. Burgess. And so you will----
    Mr. Kingsdale [continuing]. About 1.5 percent of our 
population.
    Mr. Burgess. And then you will have comparable data that 
you will generate this--in your file period, April 15, like the 
federal income tax?
    Mr. Kingsdale. Right, although 10 percent extend until 
October, but we will have pretty good data.
    Mr. Burgess. Yes, I do that too.
    Mr. Kingsdale. Got to try that.
    Mr. Burgess. Mr. Haislmaier, if I could ask you on the--you 
pointed out that a lot of things are being done by the states 
now, that they have a great deal of flexibility. In fact, I 
think we gave them a great deal of flexibility in the Deficit 
Reduction Act in 2005. Ezekiel Emmanuel writing with John 
Lyndon in the ``Journal of American Medical Association'' in 
October of this past year alluded to that and said the one 
thing the states cannot do is to alter the federal tax code, 
that it is not within their power to do that. So could you 
speak to that?
    Mr. Haislmaier. Sure.
    Mr. Burgess. We heard a lot about taxing health benefits 
during the fall campaign. It appeared to me at the time to be 
something that was disfavored by the parties that won, but now 
it seems to be coming back in vogue. And I wonder if you might 
just address that.
    Mr. Haislmaier. Well, I think it all depends on what you do 
with the money once you have taxed them. Most of the proposals 
I am familiar with, and I worked on about eight different ones 
over the years from everybody from Mr. Army to Mr. McDermott on 
changing the tax treatment in Congress, would redistribute the 
money in the form of new tax credits to address some of the 
equity issues that were addressed earlier.
    The illustration would be the unsubsidized commonwealth 
choice plans that are now being rolled out in the Connector in 
Massachusetts and is envisioned in other states whereby an 
employer would say look, instead of offering you a group plan, 
I am going to take you down to the Connector and you will each, 
as employees, have a choice of that menu of plans that they 
have on offer. And you pick what is best for you. It is all 
guaranteed issue. If you leave me, you are still in the system. 
You still have your insurance. You take it with you, et cetera.
    That is structured in a way that under federal employee 
benefit law, it qualifies as employer-sponsored insurance and 
therefore qualifies for favorable tax treatment. The problem 
becomes that that favorable tax treatment is essentially the 
deduction against income and payroll tax. So if you are a lower 
wage worker who pays no income tax, that is worth 15 cents on 
the dollar to you. That is your payroll tax. If you pay the 
employer/employee share 15 cent at payroll plus you are in the 
15 percent income bracket, it is now 30 cents on the dollar up 
to like 50 cents on the dollar for somebody who is maybe making 
$100,000 in the 28 percent bracket, et cetera, or the 31 
percent.
    So the idea of tax reform is to change that to redistribute 
the money more equitably. The state can only maximize their 
citizens' access to those federal benefits. They can't change 
the federal benefits. There are other places in federal law 
where you could make changes that would aid the states.
    Mr. Burgess. Just one quick question. As I understand it 
right now, there is not a public option plan in the federal 
employee health----
    Mr. Haislmaier. No, there is no public option.
    Mr. Burgess. Would there be an advantage to putting a 
public option plan on the----
    Mr. Haislmaier. Well, my approach to the public option plan 
is I--you know, it strikes me as one of these fad and silver 
bullet things that go around as I talked about earlier. I look 
at it this way. No matter how you cut it, the government always 
sets the rules.
    Now, you in Congress have a set of issues because some of 
the rules are set at the federal level like this federal 
employee benefit law, Inirisa, HIPAA, COBRA, tax treatment of 
health care, the Medicare/Medicaid program. OK, but then other 
rules like licensure of providers, regulation of insurance is 
done at the state level. So your issue is which one is going to 
set which set of rules.
    But beyond that, you then have this issue, whether it is 
federal or state is, you know, if competition is going to work, 
everybody competing has to be on the same set of rules, right? 
OK, now you get to point three, which is oK, can the entity 
that is inherently the rule setter field the team in the 
competition and have that fair? I mean, you know, is the public 
plan going to have to meet the solvency requirements their a 
private insurer would have to meet in Ms. Kofman's regulations? 
Are they going to have to have prompt pay laws? Are they going 
to have to have, you know, can you sue them, or is sovereign 
immunity going to prevent you from suing them? When they deal 
with doctors, is it purely on a contractual basis, or is it 
like Medicare where if the doctor does something you don't 
like, you can say it is criminal because it is fraud.
    These are all questions you have to work out, and depending 
on how you answer them will depend on whether it will work 
well.
    Mr. Pallone. We have to move on here. Thank you.
    Mr. Burgess. To coin a phrase.
    Mr. Pallone. Ms. Castor.
    Ms. Castor. Thank you, Mr. Chairman, and thank you to the 
panel. Your testimony has been very thoughtful, and I was glad 
that you raised the value of the premium dollar for individual 
health coverage because I am very skeptical in the individual 
market that consumers are getting the value of the health 
benefits they need. And I have read testimony and understand a 
lot of that dollar that consumers pay is going for other 
purposes other than the health of that individual.
    And Ms. Kofman testified that in Maine, insurer 
administrative expenses have more than doubled in the past 
eight years. This is at the same time when all across the 
health care spectrum, the premiums are going way up, and what 
you receive, what a family receives, just isn't what it used to 
be.
    And you also noted that in the past three years, the 
state's largest insurance carrier has declared $152 million in 
dividends. So as regulators and experts in the individual 
health care market, tell me, on average, how much of the 
individual health insurance premium dollar is spent on covered 
medical benefits, and how much is spent on marketing and 
administration including high executive compensation and 
profit? And then how does this percentage or medical loss ratio 
compare to the medical loss ratio in employer group health 
insurance products? And what explains that difference? And what 
do you recommend? How can families and consumers get a better 
deal? Why don't you start?
    Ms. Kofman. Thank you very much for your question. I 
apologize for my voice. I am trying to get over a cold. In 
Maine we have, excuse me, 65 percent medical loss ratio 
requirements. We have two companies in the individual market. 
One was not meeting the 65 percent loss ratio. They paid out, I 
think, 50 some cents on every dollar they took in for medical. 
And so exercising my authority as a state regulator, I ended up 
requiring them to refund the extra premiums they collected, and 
I also fined them $1 million for violating the state law.
    The other major carrier, which is the majority of our 
market, they pretty much pay out over 90 cents on the dollar 
that they take in in medical. Now, there has been a whole lot 
of discussion about the cost of guaranteed issue and adjusted 
community rating requirements, those protections that allow 
sick people to access the private market. What that means is a 
lot of what the carriers take in, they do pay out in medical 
claims, but they also achieve healthy profits from being in the 
private market.
    Earlier, you heard that the private insurance market isn't 
really set up in a way where carriers can assume too much risk. 
I would say if you are going to have a private market where 
insurance companies are allowed to profit, it is equitable and 
fair for them to take on risk, and we shouldn't expect 
taxpayers to pay for the sick while insurance companies are 
very profitable and make millions and billions of dollars in 
the industry. So if you are going to have a private system, the 
carriers have to assume the risks, and the taxpayers should not 
bear the burden.
    Mr. Kingsdale. If I could add to that, I think it is--to 
your question about how much administrative costs in a non-
group market. It is highly variable with the rules that are set 
up. So in Commonwealth Care, our subsidized program, this is 
really kind of individual insurance. Individuals sign up. Their 
administrative costs run about 8 percent. In the non-group 
market more broadly in Massachusetts, they probably run twice 
that, maybe 12 percent, something like that, maybe not twice.
    In California, I am told, brokers earn 10 percent just for 
their services. So it depends very much market by market what 
the market rules are. And, of course, one of the great things, 
potentials, about the connector--remember my 20 to 30-minute 
shopping. It is all on web--is we can take the distribution 
costs of non-group insurance because they are very, very high 
even without large commissions. In an unorganized market, they 
are just very high. There are no scale economies. It is a one-
on-one, hand-to-hand combat kind of situation to sell a policy 
and explain it. We can take those way down. And if you add 
scale economies with, on a national level, millions of people 
buying this way, you are talking about a couple of percentage 
rather than 10, 15 percent. But it does depend on the rules and 
how you have structured the market.
    Mr. Haislmaier. Ms. Castor, could I comment on that as 
well, or do you----
    Mr. Pallone. I am sorry. You can comment. Sure, go ahead.
    Mr. Haislmaier. I am sorry. This question comes up at the 
state level a fair amount, and I just would want to make the 
observation I have suggested to states that what they can do, 
and, in fact, Jon might be able to do this in connector too, is 
to simply publish, apropos of the transparency, the loss 
ratios. And you publish what last year each company for each 
plan paid out in claims and what they retained for 
administration, profit, et cetera with the proviso that you let 
them buy it down. So in other words, the dollar premium that 
was either paid out in claims or refunded to the policyholders.
    Now, in that kind of a world, imagine you have two plans 
that are pretty much the same and cover the same benefits, et 
cetera, but one does a better job of managing care than the 
other, oK. And the one that does the better job of managing 
care costs $4,000 instead of $5,000, but to get that care 
managed, their loss ratio is 70 percent not 80 percent because 
they had to spend more in administration. Which would you buy? 
Would you buy the one that spent more in administration but 
produced the $4,000 premium because they did a better job 
working with providers to manage care? Would you buy the plan 
that was $5,000 but paid 80 percent out in benefits? If you put 
the information out, people can make those decisions would be 
my suggestion.
    Mr. Pallone. Thank you. Mr. Gingrey.
    Mr. Gingrey. Thank you, Mr. Chairman. Dr. Kingsdale, in 
regard to the Commonwealth health insurance connector, I was 
curious to know in comparing the Commonwealth Care versus the 
Commonwealth Choice, what has been the experience in regard to 
what consumers are choosing? Maybe that was in your written 
testimony. I did read it, but it was the wee hours this 
morning. But what is the breakdown at this point?
    Mr. Kingsdale. Yes, there are two very distinct programs so 
it is going to be hard for me to, I think, answer your question 
in a way that is going to satisfy probably the intent. So the 
four health plans that are available--and now we just could 
open that up to competition because they had restrictions in 
the original legislation. So we are adding a fifth, the first 
new entrant, major new entrant into the insurance business in 
Massachusetts in decades. But those four/soon five all 
basically serve Medicaid and lower income folks. And while two 
of them also participate in the unsubsidized program that has--
--
    Mr. Gingrey. So your Commonwealth Care is the subsidized 
program?
    Mr. Kingsdale. Right, and the Commonwealth Choice is 
unsubsidized. That is dominated by commercial insurers who are 
not in the low-income Medicare----
    Mr. Gingrey. So they really don't----
    Mr. Kingsdale. They are really very separate.
    Mr. Gingrey. The patients or the consumers don't have a 
choice. It depends on their income status.
    Mr. Kingsdale. Right.
    Mr. Gingrey. If they need a subsidy, then their choice is 
care.
    Mr. Kingsdale. Right.
    Mr. Gingrey. If they don't need a subsidy, then their 
choice is choice.
    Mr. Kingsdale. I will take a stab at one thing that might 
be helpful, which is because the transparency and because the 
price differential, the premium differential is 100 percent 
borne by the individual making the choice, there is 
disproportionately large purchase of lower-priced plans even 
though the lower-priced plans may have by far much less brand 
name recognition than the higher priced plan offering the same.
    Mr. Gingrey. Well, let me ask you this follow-up. In regard 
to that, in the Care plan, the subsidized plan, I guess 
physician fees, reimbursement rates for provider care is set. 
And are you finding that the many physicians, the acceptable 
rate of the Care plan in the commonwealth is pretty high?
    Mr. Kingsdale. Well, yes, and that is----
    Mr. Gingrey. Are you running into problems with that?
    Mr. Kingsdale. Not really, and that is part of an ethos of 
shared responsibility. There is tremendous support for this 
program among physicians, hospitals, insurers, employers, et 
cetera. You know, all but 2 legislators, all but 2 of 190 voted 
for the thing.
    But Medicaid MCOs that serve that lower income population, 
Commonwealth Care, while the fees are not set, so they can get 
negotiated up, kind of the reference point, the starting point 
that people have in mind when they start those negotiations are 
Medicaid fees. And they say you are going to pay us 10 percent 
more than that. As opposed to the commercial side where they 
might say we are starting at 150 percent of Medicare.
    Mr. Gingrey. Right.
    Mr. Kingsdale. So it is a bifurcated set of negotiations.
    Mr. Gingrey. Well, the reason I asked that question, of 
course, as we go forward and we are looking at all the options 
and hearing from all the experts in regard to, you know, the 
federal exchange connector, if you will, and the public option 
plan. And I just wonder if physicians are not forced, if they 
take any patients within the exchange that they would also have 
to take the public option.
    But if not and those fees are set so low, then you are 
going to have a lot of resistance, a lot of push back. And 
again what we are saying is what good is that card if there is 
no doctor that is going to accept the public option. So that is 
a concern of mine, other than the additional concern of the 
crowd out.
    Let me shift real quickly to--is it----
    Mr. Haislmaier. Haislmaier.
    Mr. Gingrey. I have already messed up once today on 
pronouncing one of my colleague's name. Doctor, I wanted to ask 
you on page three of your testimony, you speak at some length 
about market reforms that would ``realign insurer incentives 
away from avoiding risk and toward maximizing value'' and you 
cite in your testimony the need for risk-adjusted mechanisms to 
ensure the market works smoothly and fairly for all insurers 
and policy holders.
    It would seem to me that these market reforms that you talk 
about in your written testimony might address some of the major 
breakdowns in health care today without requiring government-
controlled care. And I would like in the 15 seconds left, could 
you elaborate on these risk-adjusted mechanisms a little bit 
more if the chairman would bear with me?
    Mr. Haislmaier. Yes, sir. Very simply--and I reference two 
papers in the footnotes in this testimony that are on our Web 
site that I wrote on the subject if you want to go into it in 
more length.
    But essentially in a market that is underwritten where the 
insurer could turn you away, OK, what we have created is a 
high-risk pool that says well, you can be guaranteed issue into 
there. OK, so the person who is sick gets sent over there, all 
right. If you have a market where the insurers can't turn you 
away, as we are talking about in the employer group market when 
you go to the connector or if you would expand guaranteed issue 
to the individuals, then you can't send the sick person off 
there.
    So what you do is you create essentially the same 
mechanism. It is just the insurers get in the room together and 
they put in the pot all their claims. I have five diabetics, 
you have three cancer patients, and we are going to sort it out 
and do it in a fair way.
    Now there are many different ways to do that, but that is 
essentially the concept behind it. And my point is for the 
market to work well so that the insurer can say hey, you know, 
I do a good job of treating diabetes. I can help coordinate 
your care so you get better results at a lower price, and then 
they get all the diabetics and somebody else gets all the 
cancer patients. Well, they can work it out in the back room on 
their own. That is what a risk-adjustor pool does OK, and it 
spreads the cost among everybody else. As opposed to saying 
well, you are sick, go there, and then we are going to spread 
that cost over everybody else.
    So it is the same concept. It just depends on the market 
you have. Again the papers discuss it in more length.
    Mr. Pallone. Thank you. I am going to have to stop you 
because they are telling us we are going to have votes, and I 
want to get the last two members in here. Ms. Capps.
    Ms. Capps. I am sorry. Thank you very much, and I just got 
a tip, but I also have some questions I want to ask. This has 
been a very interesting panel, and I appreciate your 
contributions, each one of you. I will single out two people 
because five minutes goes very quickly. But I understand, Ms. 
Pollitz, before I ask you my question, which I am very 
interested in your response to, that you never got to weigh in 
on the risk adjustment or risk insurance.
    Ms. Pollitz. Well, I didn't think I was asked but----
    Ms. Capps. No, that is why I am giving you a chance to if 
you could briefly do it.
    Ms. Pollitz. Sure, I think reinsurance is a mechanism that 
has been tried on a voluntary basis in a lot of insurance 
markets. And public reinsurance has been tried in a few states 
as well. It is simply another way to subsidize health insurance 
at the end of the day if it is public reinsurance. Instead of 
subsidizing the premiums, which come regularly on the first of 
every month, you need to sort of reach in and find somehow the 
high-cost claims or the high-cost patients.
    So it, I think, can achieve the same thing. It is more 
complicated. There are many more transactions involved, and at 
the end of the day, you need to make sure that if the end 
result is to subsidize the premiums, if that is what you want, 
to have the premiums reduced, then you need to have very, very 
good transparency to make sure that all of those savings from 
the reinsurance actually find their way back into reducing the 
premiums. Otherwise, you know, kind of like we are having with 
AIG now.
    Ms. Capps. I hear you.
    Ms. Pollitz. You are putting a bailout in, and you are not 
getting the result that you want.
    Ms. Capps. OK, thank you. Now, could I ask you the question 
that I had intended? And you will understand why when I tell 
you where I am coming from. I am hesitant about proposals that 
suggest that people should just purchase insurance in the 
individual market, whichever state they are from or wherever 
they are, because there are states like California that offer 
much stronger minimum protection for insurance.
    For example, California mandates screening for osteoporosis 
while most other states do not. That happens to be a topic I am 
personally very interested in. California also requires private 
insurers to cover treatment for eating disorders. More than 
half of the states do not. So that would make a huge difference 
to Californians if they got their insurance in another state 
that then refused to cover--and they came to California and 
refused to cover that. Wouldn't a public option be able to 
account for variances in state protections and be more consumer 
friendly? Also couldn't a public plan be formulated in a way 
that protects the strongest minimum coverage provided to 
individuals so that you would get the benefit from living in a 
state where these things were mandated?
    Ms. Pollitz. It is absolutely up to the Congress to 
determine whether you want to set these standards at the lowest 
or the highest common denominator or somewhere in between. So 
you absolutely could create a public program that provides for 
comprehensive coverage so that people get the care they need 
everywhere. And I would defer to Mila on the other issues about 
selling coverage.
    Ms. Capps. Right.
    Ms. Pollitz. In addition to the concerns about not being 
able to access benefits, I think there are real questions 
about--and I have enormous respect for Mila--but whether she 
has the resources to enforce against a plan in California. Or a 
resident of her state who would buy 3,000 miles away and then 
get into trouble----
    Ms. Capps. Right.
    Ms. Pollitz [continuing]. I think would be very difficult.
    Ms. Capps. And some of us in states like California are 
worried about the opposite, but I could see it going both ways. 
For example, people who worked so hard in California to do the 
things like what I have just mentioned. This would be a huge 
step backward if we would be forced into what we would consider 
a step backward.
    And I am going to need a little extra time, Mr. Chairman, 
because I kind of did something else too. But because, Ms. 
Kofman, I am really interested. You can speak to this one issue 
if you would like to. But I wanted to learn more about programs 
that you have been able to create, which bridge the gap between 
Medicaid-covered individuals and those who are uninsured but 
don't quite qualify for Medicaid.
    For example, I will tell you where I am coming from in my 
district. In fact, in each of the three counties I represent, 
we have seen some very innovative proposals such as county-
organized health systems which better capture all Medicaid 
eligible individuals in using a sort of managed care model, 
non-profit, but a locally organized one.
    And also then there is another program in Ventura County, 
which refers to the person I acknowledged this morning in my 
opening statement. Because she lived in Ventura County, those 
who are uninsured but don't qualify for MediCal or Medicaid in 
Ventura County have access to another program. And they have 
seen such a dramatic decline in emergency room visits for non-
urgent care as a result. And that is the kind of outcomes we 
should strive for because they can put that money back into the 
system and help extend it to more individuals.
    The reason it works--and this is what I would like you to 
verify or add to--is because it is public-public partnership 
whereby the local government can provide the innovation and 
creativity in creating a system that works best for their 
particular population.
    Can you talk--I know it is briefly now--about how have you 
done this? How have you managed to tailor a plan that Maine 
really benefits from?
    Ms. Kofman. We have a slightly different partnership, 
public-private partnership which I call a bridge program. It is 
called Deargo Choice. Right now, due to funding challenges, it 
is not open for new enrollment. But essentially the state helps 
to pay for the premiums. There is a private insurance company 
that provides the coverage, but it is a Deargo agency that 
negotiates the benefits, the price, and people who really can't 
afford the private coverage but are working and make too much 
money to qualify for the public insurance program, that is the 
place where they can get coverage where there is a private 
payer that pays their medical bills. And the state helps them 
with the premiums.
    The program has served over 23,000 people, both small 
business workers, their families, as well as individuals. 
Unfortunately because of funding challenges, it hasn't been 
open for new enrollment. And as premiums have gone up even 
slightly in that program last year--I believe it was 11 
percent, which in our market is slight.
    I can tell you that the major carrier recently came in with 
a premium increase of 40 percent, and actually that was for 
their consumer-driven product higher than the other products 
they sell. So 11 percent premium increase for the Deargo Choice 
is not as high as the rest of the market is asking for. But 
that forced some people to leave that program because they just 
couldn't afford even the 11 percent due to limited incomes. 
Their wages have not gone up, and everything else has gone up, 
the price of food, gas, energy. So it has been really different 
absent a strong and real financing mechanism.
    There has been a lot of talk here that states could do 
this. If we were able to address----
    Mr. Pallone. We are going to have to--I am going to have to 
cut you short because we have one more member, and we have 
three votes so----
    Ms. Capps. Well, could she finish her sentence? I just 
wanted to hear----
    Mr. Pallone. Sure, go ahead.
    Ms. Kofman. States need help. If we were able to tackle the 
health care crisis, we would have done it. We want to do it. We 
cannot do it alone despite Ed's comments earlier. We need help, 
and we want to be your partners in tackling the health care 
crisis.
    Mr. Pallone. OK.
    Ms. Capps. Well, to make this work, there are times when 
the federal government should really shift the balance a little 
bit more when states are having a hard time. Or that is one of 
the ways that it could survive. Thank you.
    Mr. Pallone. Thank you. Mr. Shadegg.
    Mr. Shadegg. Thank you, Mr. Chairman. Ms. Kofman, I just 
want to make sure. Did I hear you earlier say that there are 
only two carriers in the individual market in Maine?
    Ms. Kofman. Actively selling. That is correct.
    Mr. Shadegg. Tragically I think that is the situation in 
most states where people forced into the individual market have 
almost no choice whatsoever. A public plan which they could buy 
as an individual would be another option for them that would 
give them at least one other choice? Is that what you 
understand?
    Ms. Kofman. Yes, people want real choices. To the extent 
that the public plan offers good coverage, adequate coverage 
that pays for you when you are sick, that is a real new option 
that people would benefit from. I talk to providers and 
individuals alike, and people are losing faith in the private 
market.
    There is this perception out there because the profits have 
been so high that claims decisions are not made in the best 
interest of the insured person. And I can tell you they are, 
but the perception there is not the reality, and I think many 
people would choose the public option because of those reasons. 
And I think the public option would give----
    Mr. Shadegg. I understand that.
    Ms. Kofman [continuing]. Real competition for the private 
plans out there.
    Mr. Shadegg. Well, I believe that there have been instances 
where benefits have not been paid in the interest of the 
beneficiaries. Indeed, I conducted a long campaign against HMOs 
who I think were denying care to try to make profit. But we 
have people forced into the individual market often because of 
the tax treatment. Some people can get health care 
inexpensively through their employer on taxpayer favored basis. 
But if you go buy it in the individual market, you pay with 
after-tax dollars, making it much more expensive.
    Would you then favor mechanisms that would create other 
group purchasing options so that people could pool through a 
mechanism other than their employer?
    Ms. Kofman. I think we need a more equitable way to help 
people buy coverage, and people shouldn't be disadvantaged 
because their employer doesn't offer----
    Mr. Shadegg. I couldn't agree more.
    Ms. Kofman [continuing]. In the individual market. I think 
in terms of pooling, the price of pooling--pooling in itself 
doesn't get you anything unless there are real protections and 
oversight around pooling. So I would be very supportive of 
increasing and incentivizing more pooling as long as there are 
real protections for people who want to be in those pools.
    Mr. Shadegg. Mr. Haislmaier, high-risk pools. As I 
understand it, you just tried to explain or discussed with Dr. 
Burgess the issue--or maybe it was with Dr. Gingrey--people who 
are high cost can either be put in a high-risk pool or kept 
within the existing pool of insurers in a given state. Is that 
what the paper you discussed addressed?
    Mr. Haislmaier. Basically what you are doing is you have 
a--both of them, a high-risk pool or a risk-transfer pool are 
mechanisms for pooling on a market-wide basis. So you start at 
the individual insurer level where they say well, I get some 
sick people and some healthy people, and there is a cross-
subsidization of the sick by the healthy.
    The next step is to say well, we are going to take all the 
insurers in the market, and we are going to do this same sort 
of cross-subsidization for the whole market, defined however 
you want, a region, a state, whatever. But for purposes of this 
probably a state.
    Now, at that point, you have a decision. If the insurance 
is provided to the individual on the basis of underwriting 
where the insurer--a seller-driven market where the insurer can 
refuse to offer coverage, then what you do is you send that 
sick individual over to a high-risk pool. The excess cost is 
then passed back onto all those people you did----
    Mr. Shadegg. I wrote the state high-risk pool.
    Mr. Haislmaier. Right.
    Mr. Shadegg. What is encouraging----
    Mr. Haislmaier. So all I am saying is a risk-transfer pool 
is simply the same mechanism, but it is for a market where it 
is guaranteed issue and you can't send the individual off. You 
take the individual, you send the claim off.
    Mr. Shadegg. Let me change topics. Ms. Capps just talked 
about the fact that she loved the California mandates. She 
likes certain things that are mandated under California law for 
coverage. You mentioned earlier one of your concerns about a 
so-called public plan--and I think you are right. It is the 
current system in vogue or the idea in vogue--would be well, 
what does it cover, what doesn't it cover. I think you also 
touched upon a point that I think I touched upon in my 
questioning earlier. And that is if the government offers a 
public plan and the government also sets the rules for that 
plan and for all the other plans, isn't the government both a 
player in the game and the referee of the game? And I would 
like to see if you do agree with that point and if you would 
expand upon it.
    Mr. Haislmaier. Well, very simply, the last point, the 
government will always be the rule setter. So in a state, any 
state right now, they could set up a public plan in 
competition. I mean Massachusetts could do it with the 
connector if they wanted to, OK. You will always have that 
question of do they play by exactly the same rules because what 
we know is that when you have different rules, then you will 
have market segmentation.
    We have seen this in Maryland. We have seen this--I mean I 
have just been dealing with Washington state where they allowed 
association plans one set of rules for the small group market 
and commercial insurers another set of rules, and it has 
created all sorts of problems. So the first rule, whether it is 
a public or private plan or two groups of private plans, is, is 
everybody playing on the same rules.
    So that is one level of questions that you would confront 
regardless at any state. Now, if you are at the federal level, 
you have all those questions, but now you have an additional 
set of questions, and the additional set of questions is, will 
the 50 states have different standards. As Representative Capps 
pointed out, whose standards are we going to apply nationally? 
OK, so you have all the same set of questions you have to deal 
with, plus you have another set.
    Mr. Pallone. We are going to have to----
    Mr. Shadegg. Well, just, Dr. Kingsdale, you said there are 
100,000 people who have not joined or not paid in, they are 
simply unenrolled. In the first year, right. That was going 
back to '07. What does the system do for or about them? How do 
they get care?
    Mr. Pallone. Quickly because we have to vote.
    Mr. Kingsdale. OK, well if they are low income, they 
wouldn't be subject to that penalty. So they would basically be 
self-pay. They are part of the 2.5 percent that we haven't 
insured.
    Mr. Shadegg. OK, and----
    Mr. Pallone. All right. Well, we are going to run out of 
time if we want to vote. Thank you all. Again this has been 
very helpful in our efforts to try to put together legislation. 
And you may get some additional questions from members that you 
can respond to in writing. The clerk will notify you of that. 
But without objection, this meeting of the subcommittee is 
adjourned. Thank you.
    [Whereupon, at 2:48 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]

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