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



 
   THE HIGH COST OF SMALL BUSINESS HEALTH INSURANCE: LIMITED OPTIONS

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

                                HEARING

                               BEFORE THE

              SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 20, 2009

                               __________

                           Serial No. 111-75


      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov



                  U.S. GOVERNMENT PRINTING OFFICE
74-846                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001




                    COMMITTEE ON ENERGY AND COMMERCE

   HENRY A. WAXMAN, California, 
             Chairman
JOHN D. DINGELL, Michigan
  Chairman Emeritus
EDWARD J. MARKEY, Massachusetts
RICK BOUCHER, Virginia
FRANK PALLONE, Jr., New Jersey
BART GORDON, Tennessee
BOBBY L. RUSH, Illinois
ANNA G. ESHOO, California
BART STUPAK, Michigan
ELIOT L. ENGEL, New York
GENE GREEN, Texas
DIANA DeGETTE, Colorado
  Vice Chairman
LOIS CAPPS, California
MICHAEL F. DOYLE, Pennsylvania
JANE HARMAN, California
TOM ALLEN, Maine
JANICE D. SCHAKOWSKY, Illinois
CHARLES A. GONZALEZ, Texas
JAY INSLEE, Washington
TAMMY BALDWIN, Wisconsin
MIKE ROSS, Arkansas
ANTHONY D. WEINER, New York
JIM MATHESON, Utah
G.K. BUTTERFIELD, North Carolina
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 BRALEY, Iowa
PETER WELCH, Vermont                 JOE BARTON, Texas
                                       Ranking Member
                                     RALPH M. HALL, Texas
                                     FRED UPTON, Michigan
                                     CLIFF STEARNS, Florida
                                     NATHAN DEAL, Georgia
                                     ED WHITFIELD, Kentucky
                                     JOHN SHIMKUS, Illinois
                                     JOHN B. SHADEGG, Arizona
                                     ROY BLUNT, Missouri
                                     STEVE BUYER, Indiana
                                     GEORGE RADANOVICH, California
                                     JOSEPH R. PITTS, Pennsylvania
                                     MARY BONO MACK, California
                                     GREG WALDEN, Oregon
                                     LEE TERRY, Nebraska
                                     MIKE ROGERS, Michigan
                                     SUE WILKINS MYRICK, North Carolina
                                     JOHN SULLIVAN, Oklahoma
                                     TIM MURPHY, Pennsylvania
                                     MICHAEL C. BURGESS, Texas
                                     MARSHA BLACKBURN, Tennessee
                                     PHIL GINGREY, Georgia
                                     STEVE SCALISE, Louisiana

                                  (ii)
              Subcommittee on Oversight and Investigations

                    BART STUPAK, Michigan, Chairman
BRUCE L. BRALEY, Iowa                GREG WALDEN, Oregon
  Vice Chairman                        Ranking Member
EDWARD J. MARKEY, Massachusetts      ED WHITFIELD, Kentucky
DIANA DeGETTE, Colorado              MIKE FERGUSON, New Jersey
MIKE DOYLE, Pennsylvania             TIM MURPHY, Pennsylvania
JAN SCHAKOWSKY, Illinois             MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas
DONNA M. CHRISTENSEN, Virgin 
    Islands
PETER WELCH, Vermont
GENE GREEN, Texas
BETTY SUTTON, Ohio
JOHN D. DINGELL, Michigan (ex 
    officio)

                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Bart Stupak, a Representative in Congress from the State of 
  Michigan, opening statement....................................    17
Hon. Phil Gingrey, a Representative in Congress from the State of 
  Georgia, opening statement.....................................    19
    Prepared statement...........................................    22
Hon. Henry A. Waxman, a Representative in Congress from the State 
  of California, opening statement...............................    32
Hon. Marsha Blackburn, a Representative in Congress from the 
  State of Tennessee, opening statement..........................    33
    Prepared statement...........................................    35
Hon. Bruce L. Braley, a Representative in Congress from the State 
  of Iowa, opening statement.....................................    37
    Prepared statement...........................................    39
Hon. Donna M. Christensen, a Representative in Congress from the 
  Virgin Islands, opening statement..............................    42
Hon. John D. Dingell, a Representative in Congress from the State 
  of Michigan, opening statement.................................    42
Hon. Betty Sutton, a Representative in Congress from the State of 
  Ohio, opening statement........................................    44
Hon. Gene Green, a Representative in Congress from the State of 
  Texas, opening statement.......................................    45
    Prepared statement...........................................    46
Hon. Janice D. Schakowsky, a Representative in Congress from the 
  State of Illinois, opening statement...........................    48
Hon. Greg Walden, a Representative in Congress from the State of 
  Oregon, prepared statement.....................................   106
Hon. Joe Barton, a Representative in Congress from the State of 
  Texas, prepared statement......................................   108
Hon. Michael C. Burgess, a Representative in Congress from the 
  State of Texas, prepared statement.............................   110

                               Witnesses

Norman Michael Landauer, Bi-State Muffler & Brake Inc., 
  Davenport, Iowa................................................    49
    Prepared statement...........................................    52
Bruce Hetrick, Hetrick Communications, Indianapolis, Indiana.....    54
    Prepared statement...........................................    56
    Answers to submitted questions...............................    00
Fred Walker, St. Petersburg Glass and Mirror, St. Petersburg, 
  Florida........................................................    60
    Prepared statement...........................................    62
Linda J. Blumberg, Urban Institute...............................    66
    Prepared statement...........................................    68
    Answers to submitted questions...............................   123

                           Submitted Material

Hearing memorandum...............................................     3
Paper entitled, ``House Bill to Hit Small Businesses with 
  Surtax,'' dated July 23, 2009, by The Heritage Foundation, 
  submitted by Mrs. Blackburn....................................   112
Letter of July 16, 2009, from Members of Congress to House 
  Speaker Pelosi, submitted by Mr. Gingrey.......................   114
Report entitled ``High-Risk Insurance Pools: A Flawed Model for 
  Reform,'' dated September 29, 2008, by Center for American 
  Progress, submitted by Mr. Braley..............................   118


   THE HIGH COST OF SMALL BUSINESS HEALTH INSURANCE: LIMITED OPTIONS

                              ----------                              


                       TUESDAY, OCTOBER 20, 2009

                  House of Representatives,
      Subcommittee on Oversight and Investigations,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 1:08 p.m., in 
Room 2123, Rayburn House Office Building, Hon. Bart Stupak 
[chairman of the subcommittee] presiding.
    Present: Representatives Stupak, Braley, Schakowsky, 
Christensen, Green, Sutton, Dingell, Waxman (ex officio), 
Burgess, Blackburn, and Gingrey.
    Staff Present: Phil Barnett, Staff Director; Bruce Wolpe, 
Senior Advisor; Mike Gordon, Chief Investigative Counsel; Anne 
Tindall, Counsel; Erika Smith, Professional Staff Member; 
Jennifer Owens, Investigator; Ali Neubauer, Special Assistant; 
Paul Jung, Public Health Service Detailee; Julia Elam, Fellow; 
Sean Hayes, Minority Counsel; Alan Slobodin, Minority Chief 
Counsel, Oversight; Peter Kielty, Minority Legislative Analyst.
    Mr. Stupak. This hearing will come to order.
    Today, we have a hearing entitled The High Cost of Small 
Business Health Insurance: Limited Options, Limited Coverage.
    Before we begin, I have a unanimous consent request. 
Committee staff have prepared a memorandum that summarizes 
information gathered in our investigation into the small 
business health insurance market. I ask unanimous consent that 
the memorandum be entered into the record.
    Dr. Gingrey. Mr. Chairman..
    Mr. Stupak. Mr. Gingrey.
    Dr. Gingrey. Reserving the right to object, Mr. Chairman. I 
understand majority staff has been working with the insurers to 
protect confidential medical and business information; and, of 
course, this information was given to the committee in good 
faith, with the understanding that it would not be made public 
before consulting with the companies that provided it. My 
question, Mr. Chairman, is the majority assuring us that there 
is no confidential or sensitive medical or business information 
in this staff memo, which we just got I guess the final version 
within a couple of hours, that will be revealed if we agree 
with this unanimous consent request?
    Let me ask that again. Is the majority assuring us that 
there is no confidential or sensitive medical or business 
information in the staff memo that will be revealed if we agree 
to this unanimous consent request? And if the majority cannot 
guarantee that the staff memo does not include confidential or 
sensitive information, would you amend your unanimous consent 
request to allow the majority and the minority staff to review 
the memo and make necessary redactions before it is included in 
the record?
    Mr. Stupak. Mr. Gingrey, all the names of the companies 
have been removed. There is, from our review, no proprietary 
information or business information that would be 
inappropriately disclosed. I am very comfortable that there is 
nothing in there that would cause any concern. We redacted most 
of it.
    This memo was actually done last night. We did have some 
names in there. We did hear some objection from the minority 
side, so we did remove those names so no one would be----
    Dr. Gingrey. Mr. Chairman, I appreciate that. Again, I know 
that some of these companies--and, obviously, I will not 
mention their names--but they may be in States where there is a 
very limited market, and I do have some concerns that it would 
be fairly easy to put two and two together and figure out 
exactly who you are referring to.
    Mr. Stupak. Again, we have reviewed it. We see nothing 
proprietary. We have run it by everyone that needed to be--I 
don't think there is any reason to have any concerns. However, 
if you want time to look at it, by the end of the hearing if 
you say there is a line that should be redacted, I will be 
happy to do so.
    Why don't we just go ahead and put it in the record, but if 
you have objections at the end of the hearing, when your staff 
has a chance to review it closer, I will be happy to----
    Dr. Gingrey. Mr. Chairman, I think that is very fair on 
your part. I appreciate that. And we will take you up on that.
    And, with that, I will remove my reserving the right to 
object and go ahead and let you put it in the record.
    Mr. Stupak. Thank you. The memorandum is in the record; and 
if by the end--the close of this hearing, if there is an 
objection on a line or two, we will have a chance to discuss it 
and remove that.
    Our purpose here is not to divulge or harm any company's 
business practice. We may question their business practice, but 
we are not here to harm their business practice through 
inappropriate release of information. So, with that, the memo 
will be made part of the hearing record.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.001
    
    [GRAPHIC] [TIFF OMITTED] 74846A.002
    
    [GRAPHIC] [TIFF OMITTED] 74846A.003
    
    [GRAPHIC] [TIFF OMITTED] 74846A.004
    
    [GRAPHIC] [TIFF OMITTED] 74846A.005
    
    [GRAPHIC] [TIFF OMITTED] 74846A.006
    
    [GRAPHIC] [TIFF OMITTED] 74846A.007
    
    [GRAPHIC] [TIFF OMITTED] 74846A.008
    
    [GRAPHIC] [TIFF OMITTED] 74846A.009
    
    [GRAPHIC] [TIFF OMITTED] 74846A.010
    
    [GRAPHIC] [TIFF OMITTED] 74846A.011
    
    [GRAPHIC] [TIFF OMITTED] 74846A.012
    
    [GRAPHIC] [TIFF OMITTED] 74846A.013
    
    [GRAPHIC] [TIFF OMITTED] 74846A.014
    
  OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Stupak. The chairman and ranking member and the 
chairman emeritus will be recognized for 5 minutes for an 
opening statement. Other members of the subcommittee will be 
recognized for 3-minute opening statements. I will begin.
    Today's hearing is the fourth of a series of subcommittee 
hearings on business practice in the private insurance market. 
Earlier this year, we held hearings on the insurance industry 
practice of terminating coverage after a policyholder becomes 
sick and files a claim. In our investigation, we learned that 
if your insurance company believes your illness may be costly, 
they will go back and reexamine your initial application to 
find any excuse to cancel your coverage. As health insurance 
industry executives brazenly told us, this practice, known as 
rescission, will continue until there is a national health care 
reform to expressly prohibit it.
    Last week, we held a hearing on the problem of 
underinsured, which occurs when someone has health insurance 
but their coverage is inadequate, leaving them with a limited 
coverage when they need it the most. We heard compelling 
stories from Americans who purchased insurance, paid their 
premiums, and expected to be protected in the event of a health 
crisis. When that crisis struck, they realized that their 
insurance was woefully inadequate to cover the high costs 
incurred to treat themselves or their family members.
    Today, we continue our investigation of the private health 
insurance market with a focus on the challenges faced by small 
businesses. Small businesses are a cornerstone of the American 
economy. They are the American dream. They employ 59 million 
American workers and created a quarter of the Nation's jobs 
from 1992 through 2005.
    In August of 2009, the committee sent document requests to 
six leading health insurance companies that sell policies in 
the small business market, seeking information about how they 
set premium rates and about some of the largest premium rate 
increases in recent history. What we learned from that 
investigation was the insurance companies take advantage of lax 
State laws and regulations in order to purge unprofitable small 
business policies.
    Because Federal law guarantees small businesses cannot be 
denied insurance once they have purchased it, insurers impose 
unpredictable and increasingly unaffordable increases. These 
unsustainable increases forces a small business to drop their 
health insurance because it is no longer affordable. Thus, the 
small business is purged. These increases are based on factors 
that are beyond the control of small businesses, such as 
employee health status, the size of the small business, and the 
age and gender of the employees.
    As a result of these discriminatory pricing practices, 
small group premiums are subject to unpredictable and enormous 
increases. Insurance companies routinely impose double-digit 
increases in premiums and, in some case, premiums increase more 
than 200 percent.
    Some of the more shocking cases that the committee 
uncovered include in January of 2008 an insurance company 
offered a 232 percent premium rate increase to an engineering 
service company in Kentucky. The number of employees on the 
plan had dropped from eight to one.
    In 2009, another insurance company offered a small 
technology firm in Georgia renewal of its current HMO insurance 
policy at a 214 percent increase in premiums. The basis of the 
rate hike was that the average worker at that firm became older 
and/or more likely to be female and the size of the company 
decreased.
    Large annual premium increases can be devastating for small 
firms. As small firms struggle to stay afloat during this 
economic downturn, health insurance costs consume an even 
greater portion of company profits and make it even harder for 
these companies to cover all persons. Even before this most 
recent economic turndown, the cost of employer-sponsored health 
insurance was the primary concern of small businesses.
    The average cost of a family premium for a small business 
health insurance plan is nearly $13,000. This is up 123 percent 
since 1999, and the median family income grew only 29 percent 
over the same period. Because of these higher costs, nearly a 
quarter of all small businesses are making the difficult 
decision to reduce their health benefits.
    Small business employees are shouldering a higher burden of 
their costs. Over the last 10 years, worker contributions for 
health insurance premiums have more than doubled, while their 
deductibles have greatly increased. Some businesses have even 
had to take the drastic step of eliminating employer-sponsored 
coverage altogether.
    Less than 50 percent of the smallest firms, those with 
fewer than 10 employees, offer coverage. As a result of 
reductions in small group coverage, more than half of all small 
business employees in 2007 were either uninsured or 
underinsured during the year.
    It is clear that the high cost of health insurance is 
crippling small businesses in our country, just when we need 
our Nation's small businesses to contribute to job growth and 
economic recovery. We must reform our health care system so it 
does not punish those small business owners who choose to do 
the right thing and provide coverage for their workers.
    Today, we will hear testimony from several small business 
owners about the challenges they face in today's small group 
health insurance market.
    Mr. Mick Landauer is the owner of Bi-State Muffler & Brake, 
Incorporated, for the past 30 years. He has shops in Iowa and 
Illinois, employing 11 workers. This year, he was quoted a 
premium increase of 42 percent from his current insurer. Mr. 
Landauer believes that this increase is due to his own 
congenital heart condition, which has required three heart 
surgeries in the past and probably more in the future.
    This year, instead of accepting this outrageous increase, 
he opted to increase his employees' deductible to $8,000 per 
individual and $16,000 per family. Next year, he plans to take 
himself off the company's plan in order to reduce the insurance 
rates for his business. More importantly, he believes that it 
is the right thing to do for his employees.
    Mr. Bruce Hetrick owns Hetrick Communications in 
Indianapolis, Indiana, with 15 employees. His company received 
double-digit rate increases from his carrier earlier this year.
    His insurance plan also covered his late wife, who 
developed cancer and incurred over $300,000 in treatment costs 
in her last year of life. In that year, Mr. Hetrick's health 
premiums rose 28 percent. After his wife passed away, his 
insurance company requoted the policy. The premium increase was 
rolled back to 10 percent.
    Mr. Fred Walker owns St. Petersburg Glass and Mirror in St. 
Petersburg, Florida. He has offered health insurance since he 
started his company 15 years ago. His carrier has increased his 
premium rates every year, including a 14.6 percent increase 
this year.
    To keep his business afloat during this downturn, he was 
considering dropping health coverage altogether until he found 
out his secretary had breast cancer. He decided to do the right 
thing and maintain his company's coverage so his secretary 
could have coverage for her treatment. But, to afford coverage, 
he had to take a plan with a $6,000 deductible. Because the 
group coverage was renewed, his secretary has been able to 
obtain the treatment she needs for her cancer.
    We will also hear from Dr. Linda Blumberg, an expert on 
health insurance in the small group market, on the effect of 
health insurance costs on small businesses.
    The U.S. House of Representatives will soon vote on H.R. 
3200, America's Affordable Health Care Choices Act of 2009. 
H.R. 3200 contains critical insurance reforms that will end 
abusive insurance company practices. Under the bill, insurance 
companies can no longer rescind policies after people get sick 
based on minor mistakes or technicalities. The bill prohibits 
the type of annual and lifetime caps on coverage that lead many 
individuals to be uninsured or underinsured, and insurers will 
no longer be able to discriminate against small businesses 
based on how small they are or the health status of their 
workers.
    We must reform health insurance so that small businesses 
can compete on a level playing field with large employers and 
lead the way for our Nation's economic recovery.
    That concludes my opening statement. I would next turn to 
Mr. Gingrey for an opening statement, please.

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

    Dr. Gingrey. Chairman Stupak, thank you. Thank you for 
holding the hearing.
    Our economy owes most of its success to the people who will 
testify before the committee today, Americans who work in a 
small business. Their prominent place in the American economy 
makes this hearing today an even more important one.
    Small businesses create jobs and wealth. Surveys have shown 
that companies with as few as 20 employees are often 
responsible for a quarter of the country's job growth; and, in 
recent years, the vast majority of the United States firms had 
fewer than 50 employees.
    First and foremost, Congress must enact policies that help 
these businesses grow and promote job creation. As we continue 
to review potential reforms for the health care system, we must 
also find a way to enact new policies and regulations that will 
help our small business owners provide their employees with 
quality, affordable health care.
    Since 1999, the average annual cost of a family premium for 
employer-sponsored health coverage in a small firm has 
increased over 120 percent. That is about 12 percent a year 
over the 10-year period.
    The three small business owners today will testify to a 
system that offers small businesses few options and increasing 
costs. They will all testify to the basic problem facing small 
business owners. With fewer employees, one illness can make 
health care unaffordable for all, for the entire employee 
group.
    Bruce Hetrick will testify that his wife's cancer resulted 
in $300,000 in health care costs. When it came time to renew 
his policy, the premium was scheduled to increase nearly 30 
percent. His wife passed away a month before the new premium 
took effect. When the insurance company learned of this, they 
changed the premium increase to just 10 percent, a particularly 
cold comfort, I am sure.
    Mr. Hetrick, I wish to convey my condolences for your loss 
and thank you for your courage in testifying today.
    Fred Walker's business was hit hard by the economic turmoil 
of the past 2 years, so much so that in February of this year 
he had decided to discontinue the company's health care plan. 
Only then he learned that an employee had been diagnosed with 
breast cancer. For Mr. Walker the choice was easy. He decided 
to continue the employee health care plan, but he was facing a 
14 percent increase in the premiums last year. Today, he 
worries that the next premium increase will be much more 
substantial and very possibly unsustainable.
    Mr. Walker, I thank you also for taking care of your 
employee and for being here and appearing before the committee.
    Michael Landauer has been operating the Bi-State Muffler & 
Brake for 30 years. He has been able to offer his employees' 
health care, but today those costs are spiraling out of 
control. Over the last 2 years alone, his deductibles have 
quadrupled. Mr. Landauer plans to remove himself from his own 
plan next year because his own health care costs are what 
essentially is driving up the premiums for the rest of his 
employees.
    Mr. Landauer, thank you again for being here and 
testifying.
    I note the title of this hearing is The High Cost of Small 
Business Health Insurance: Limited Options, Limited Coverage. 
It is a sad truth small business owners have few options when 
it comes to purchasing health insurance.
    Congress has an opportunity to enact reforms that address 
these skyrocketing costs. However, I recognize that there are 
ideological differences among this body regarding how we 
provide small business owners with more affordable health care 
options. To be frank, we do them and millions just like them a 
disservice by insisting that the path to reform is singular, 
one size fits all. This Congress should consider high-risk 
pools that can be designed to offer those with chronic 
illnesses affordable coverage without requiring their co-
workers or employees to pay more for their own coverage. We 
should also give small business owners the ability to choose 
the coverage they want, free of mandates for care that require 
them to purchase services that they don't need or want. These 
are but two examples of many ideas that Republicans want to 
share with our President and Democratic colleagues, if they 
would only take the necessary time to listen.
    I thank the witnesses again for appearing before the 
committee today. I look forward to your testimonies and the 
dialogue to follow.
    Thank you, Chairman Stupak; and I yield back the balance of 
my time.
    [The prepared statement of Mr. Gingrey follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.015
    
    [GRAPHIC] [TIFF OMITTED] 74846A.016
    
    [GRAPHIC] [TIFF OMITTED] 74846A.017
    
    [GRAPHIC] [TIFF OMITTED] 74846A.018
    
    [GRAPHIC] [TIFF OMITTED] 74846A.019
    
    [GRAPHIC] [TIFF OMITTED] 74846A.020
    
    [GRAPHIC] [TIFF OMITTED] 74846A.021
    
    [GRAPHIC] [TIFF OMITTED] 74846A.022
    
    [GRAPHIC] [TIFF OMITTED] 74846A.023
    
    [GRAPHIC] [TIFF OMITTED] 74846A.024
    
    Mr. Stupak. Thank you, Mr. Gingrey.
    Mr. Waxman, chairman of the full committee, opening 
statement, please, sir.

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Waxman. Thank you very much, Mr. Chairman.
    Today, we are going to hear about the difficulties small 
businesses face in finding and keeping affordable health care 
coverage for their employees.
    Last summer, Chairman Stupak and I initiated an 
investigation into insurance company practices in the small 
group market. The committee obtained thousands of pages of 
insurance documents, interviewed company executives, and heard 
stories from numerous small business owners. What did we learn? 
Simply put, the health care market for small business health 
insurance is fundamentally flawed. Rising health insurance 
costs are wreaking havoc on small businesses and their 
employees. As one of today's hearing witnesses put it, health 
care and health coverage inflation is small business enemy 
number one.
    Many small business owners, like the ones we will hear from 
today, want to provide health coverage for their employees. It 
is not only the right thing to do, but it also makes good 
business sense because it helps them recruit and retain better 
employees. But the current system stacks the deck against small 
businesses. Small firms pay premiums that are 18 percent higher 
than what large companies pay for the same level of coverage, 
and insurance companies can legally discriminate against small 
firms when setting premium rates. If a small firm employee gets 
sick, the insurance company can hike up the premium rates in 
order to recover its costs.
    Insurers can also charge discriminatory rates based on the 
age and gender of the small firm's employees. They can charge 
higher premiums to small businesses that employ older people or 
young women who might get pregnant, and these discriminatory 
rate-setting practices are perfectly legal under our current 
health insurance system.
    Moreover, the insurance companies punish small businesses 
for being small. Insurers charge the highest premium to the 
smallest firms, who, unlike large businesses, cannot spread 
risk among many employees.
    Our investigation revealed that annual premium increases 
can be staggering. Insurers take advantage of weak State 
regulation of premium rates in order to purge from their rolls 
the less profitable small group policies, and they do this by 
making their insurance plans too expensive for a small business 
to afford.
    Small businesses commonly face double-digit increases in 
their health insurance premiums; and insurers impose even 
steeper rate hikes on the small businesses that happen to have 
a sick employee, employ more women than men, or have an older-
than-average workforce.
    The committee's investigation revealed that several 
insurers have imposed premium increases of greater than 100 
percent on small business customers. Two insurers have imposed 
rate hikes of greater than 200 percent in a single year.
    Given the sky-high costs of small group coverage, it is not 
surprising that small businesses are less likely than large to 
offer coverage; and, as premiums skyrocket in this market, the 
share of small businesses that offer group plans continues to 
decline.
    The committee has investigated a variety of private 
insurance practices, and one common theme has emerged. 
Insurance companies compete not on the basis of who has the 
best record of keeping their customers healthy but based on who 
is best at avoiding covering people who need life-saving and 
expensive health care. When we examined the individual health 
insurance market, we learned that companies will cancel 
policies after a policyholder gets sick and files claims.
    In the small group market, insurers don't cancel policies. 
Instead, they increase rates to unaffordable levels so they can 
unload small businesses with sick employees from their plans. 
In each case, the insurance companies have created a win-win 
scenario for themselves. If health claims are low, the company 
collects premiums and makes money. If policyholders get sick, 
the company finds a way to get rid of the unprofitable policy.
    But that is not how insurance is supposed to work. The 
purpose of insurance is to spread risk across large numbers of 
people so that when some people get sick they receive needed 
care without experiencing financial ruin. In today's private 
health insurance market, too often insurance companies simply 
aren't there when they are needed the most. It is time to fix 
this broken system and ensure that everyone has access to 
affordable, reliable insurance.
    Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Mr. Chairman.
    Mrs. Blackburn, 3 minutes for an opening statement, please.

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

    Mrs. Blackburn. Thank you, Mr. Chairman.
    Welcome to our witnesses. We are glad that you are here. We 
appreciate your submitting your testimony in advance so that we 
could prepare for the hearing today, and we welcome each of 
you. We will be interested to hear your comments and to get 
your thoughts on the issue that is before us.
    Last week, we had a hearing that has been mentioned. It was 
on the rescissions issue. And as I said then and will restate 
today, I favor patient-centered, free market-oriented health 
care solutions that will keep people covered and employed, 
which is what we want to do.
    And we know that you all want to be able to keep people 
employed, and I think it is especially important for you, 
because we know that small business firms that employ 500 or 
fewer individuals, that comprises half, half of the American 
people that work in the private sector. And that should not be 
lost on us as we look at how we approach health care reform. 
Small businesses have created more than 72 percent of the new 
jobs created across this country in recent years; and, because 
of that, we have a true appreciation for what you do.
    I do have concerns with the plans that the Democrats have 
brought forward on health reform. I was looking at some 
research today. Basically, their reform plan includes a $544 
billion surtax on what is termed ``the rich''. But we all know 
that is primarily those of you who are small business owners 
and are going to bear the brunt of some of the reform efforts 
that have been mentioned and brought forward. According to data 
from the IRS, more than half of those targeted under the 
Democrats' health care surtax are the small business owners.
    Now, this is of concern to me because I come from 
Tennessee, where we have had the test case for public option 
health care. It was put in place in late 1994. It is a program 
called TennCare.
    Our small business owners, while I was in the State Senate 
there, worked with us repeatedly because of their concern for 
the way the program was structured; and what we saw happen with 
the advent of public option health care in our State was that 
the cost of insurance went through the roof for our employers. 
It escalated more than the national average. And you have heard 
my colleagues talk about the rate of increase in some of their 
States.
    We are also concerned as we look at increased taxes and the 
mandates and bureaucracy, and we have read some of the 
estimates that health reform policies that have been proposed 
from this body would cost as many as 5 and a half million 
American jobs. We don't want to see health care become such an 
expense that you can't afford to keep your doors open. I am on 
your side in making certain that this stays affordable. We are 
looking at other options.
    I thank you for being here.
    I yield back my time.
    [The prepared statement of Mrs. Blackburn follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.026
    
    [GRAPHIC] [TIFF OMITTED] 74846A.027
    
    Mr. Stupak. I thank the gentlelady for her opening 
statement, but I must correct it. H.R. 3200 does not impose a 
super tax on small businesses. It is on individuals who have 
incomes more than a million dollars. It is not on small 
businesses. I am sure it was just a misstatement or something. 
I just want to clarify the record.
    Mrs. Blackburn. Mr. Chairman, I would love to submit the 
memo I have in my hand, if that would be acceptable.
    Mr. Stupak. I have no problem with you submitting a memo in 
hand, but you have got to have your facts straight.
    I mean, 1 percent of income between those who make 350 to 
500,000 and 1.5 percent between those that make 500 to a 
million. The issue is there is no extra tax on small 
businesses. That is what your statement said, 500-some billion. 
That just is not true. It is only 1.2 percent of all taxpayers, 
individual taxpayers, not businesses that would have to pay the 
surtax.
    Mrs. Blackburn. Mr. Chairman, most small businesses file as 
a sub S or file on a regular 1040. And I think 22 members of 
your caucus also have written the Speaker with concerns about 
this very issue for those small businesses.
    I join many of our small business owners. They are not 
claiming party affiliation. They are claiming concern. Many in 
our State have seen it because of the impact of TennCare.
    I raise it not as an item of controversy but as an item of 
concern that I have for our Nation's small businesses. And I 
think that, as we move forward, you have always been good to 
work with us on issues, and I would look forward to working 
with you to make certain that we address this so that it does 
not affect our Nation's small business owners.
    And I appreciate the hearing today.
    Mr. Stupak. Well, again, let me just state, even if you 
want to call it a subchapter S, the tax is not on business. It 
is on individuals, and those with the highest 1.2 percent of 
all taxpayers would have to pay it. It is not on businesses. I 
guess we can argue that all day, but it is not on businesses. I 
want to make that clear. It is on individuals. OK? And that is 
from the Joint Tax Committee.
    Mrs. Blackburn. They are business owners, sir. Thank you.
    Mr. Stupak. I am not arguing where you are getting your 
income from. What I am saying is it is on individual income, 
not on businesses.
    Mr. Braley for an opening statement, 3 minutes.

OPENING STATEMENT OF HON. BRUCE L. BRALEY, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF IOWA

    Mr. Braley. Thank you, Mr. Chairman; and thanks to all of 
our witnesses for joining us today.
    The problems that we are here to talk about are all too 
familiar to me as a small business owner for 20 years before I 
came to Congress. For the last decade that I can recall, the 
place where I worked, where I was a small business owner, faced 
a minimum of 15 percent premium increase notices every year and 
a maximum of 47 percent.
    When you are a small business faced with that challenge, 
you have limited options; and one of the options that we 
pursued almost every year was filling out multiple insurance 
applications at four, five, six, seven different companies in 
search of a better option for the employees that we cared 
about. And yet almost every year we were faced with the harsh 
reality that in my State of Iowa 80 percent of the health 
insurance market is dominated by two companies; and so there 
were very, very few cost-effective options available to small 
business owners.
    And I am also very familiar with the impact that one severe 
illness among your employees or a covered member of their 
family can have on dramatically increasing the cost of a small 
business's insurance costs. We had employees who were diagnosed 
with multiple sclerosis. We saw our premiums skyrocket because 
of the enormous costs of caring for that lifelong disease. We 
had employees diagnosed with cancer, who suffered substantial 
health care costs. That also impacted our next year's premium 
costs.
    These are not things that are abstract to small business 
owners. These are the challenges they face every day. And they 
want to try to provide the best possible coverage for their 
employees. But when we see what is happening right now with 
health care costs projected to go up 10.5 percent again next 
year, according to the health insurance industry itself, we 
know that that is not just going to be a dollar-for-dollar pass 
through to small businesses. Because if you look at the trends, 
it is usually about a two-fold or three-fold increase in 
premium costs.
    And that is why, to quote our friends on the other side, 
free market-oriented health care solutions aren't working for 
small businesses. We have had high-risk pools that have been 
available in many States. It has not solved the problem that 
small business owners face. And that is why it is time to look 
at new, creative solutions like a public health insurance 
option to inject more competition into a free market system 
that does not have competition in many States and to give small 
business owners true choices in the type of coverage they are 
looking at to provide to their employees.
    And there was a reference to this surcharge. Well, the IRS 
has done analysis of every congressional district in the 
country in terms of who would be impacted by the surcharge that 
is in the House health care bill; and in the First District of 
Iowa 99.33 percent of my constituents would not be impacted at 
all by that surcharge.
    So I want to thank everyone for being here today. I am 
proud to have a witness from my district, Mick Landauer; and I 
look forward to his testimony.
    [The prepared statement of Mr. Braley follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.056
    
    [GRAPHIC] [TIFF OMITTED] 74846A.057
    
    [GRAPHIC] [TIFF OMITTED] 74846A.058
    
    Mr. Stupak. Thank you, Mr. Braley.
    Mrs. Christensen for an opening statement, please.

       OPENING STATEMENT OF HON. DONNA M. CHRISTENSEN, A 
       REPRESENTATIVE IN CONGRESS FROM THE VIRGIN ISLANDS

    Mrs. Christensen. Thank you. Thank you, Chairman Stupak, 
for holding this hearing.
    Small businesses have a major stake in what we are trying 
to do in health care reform. As a physician and also a former 
small business owner, of course, and a former 10-year member of 
the House Committee on Small Business, the gravity of this 
issue and its implications have long been of concern.
    Our Nation's present and future economic health thrives and 
flourishes based on the viability of our small businesses. They 
employ more than half of our country's private sector workforce 
and are currently responsible for three out of four new jobs. 
Yet, due to increasing premium rates and their already very 
high insurance costs, more and more of these businesses find it 
difficult, if not impossible, to offer their employees health 
insurance; and this is even more acute given the current 
economic crisis.
    Looking to the future, the Council of Economic Advisers 
predicts that if nothing is done to address insurance plan 
practices or to slow the rise in employer health premium rates 
now, fewer than 20 percent of small employers will offer 
coverage by 2040.
    The success of small businesses depend on a healthy 
workforce; and we all know that when one does not have 
insurance, needed health care is often deferred. Without 
healthy workers, small businesses cannot thrive. So passing a 
robust health bill is vital to the survival of this engine of 
our economy. Done right, it will level the playing field, 
giving small businesses the opportunity to offer affordable, 
quality coverage to their employees at a fair price.
    I would like to also thank the witnesses for being here 
this afternoon to help highlight this need and the opportunity 
we have before us to make a difference in the strength of this 
important sector of our economy.
    Thank you. I yield back.
    Mr. Stupak. Thank you.
    Mr. Dingell for an opening statement.

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

    Mr. Dingell. Mr. Chairman, thank you.
    I thank you, Mr. Chairman, for holding this very important 
hearing on an issue which is central to our comprehensive 
health care reform efforts.
    The United States spends over $1.9 trillion annually on 
health care expenses, more than any other industrialized 
nation. These costs keep rising and are a major factor in the 
difficulties facing American businesses in remaining 
competitive and profitable.
    This is strikingly apparent for America's small businesses. 
There is no doubt that today's private insurance market is not 
working well for anybody but especially so for small businesses 
and for their workers. They are severely disadvantaged by the 
current U.S. health care system's operations relative to their 
larger counterparts.
    Small business owners and their employees are receiving 
fewer benefits and paying higher costs for health coverage. 
During the past decade, the median family income grew 29 
percent, while the average annual cost of a family premium on a 
small firm increased 123 percent.
    The U.S. health care system imposes also a heavy tax on 
small businesses and their employees, not often noted except by 
the small business people. Small businesses pay up to 18 
percent more per workers than large firms for the same health 
insurance policy. Some of these higher costs are passed on to 
small firm employees in the form of lower wages or in the form 
of lesser benefits, and some eat into the profits of small 
businesses that could otherwise be used for much-needed 
investments.
    I have heard from many small business owners in my district 
about their genuine desire to provide health care for their 
workers. Unfortunately, because of the costs, they are simply 
unable to do so. This impacts recruitment, retention, and 
places them at a very real and severe competitive disadvantage.
    I want to express my particular thanks to our witnesses who 
have joined us today. I am happy to tell them that their 
testimony reminds us why it is so crucial that we pass 
comprehensive health care reform this year.
    And, again, I want to commend you, Mr. Chairman, for having 
this hearing.
    We understand that small businesses are critical to job 
growth and innovation in the U.S. economy. They are the key to 
our economic recovery.
    In drafting comprehensive health reform legislation to the 
House, we have taken aggressive steps to ease the burden 
currently experienced by small business owners who struggle to 
provide health care for their employees. Under H.R. 3200, small 
businesses will be able to provide and to purchase health 
insurance through a national insurance exchange, allowing them 
to choose between a multitude of plans that would provide 
better coverage at lower costs than they could find in the 
current group market. Those plans would also be transparent, 
and those plans would also meet rigorous standards for the 
protection of the employer and the employee.
    Small business employees will no longer be penalized for 
pre-existing medical conditions, a poorer health status, or 
age. Some small businesses that provide health insurance for 
their employees will receive up to a 50 percent small business 
tax credit to alleviate their disproportionately higher costs 
and encourage better coverage. Additionally, small business 
owners will benefit as costs for the uninsured are no longer 
shifted onto employers.
    Mr. Chairman, I commend you again for your diligence in 
this matter. Today's hearing and the investigations that you 
have been conducting highlight the importance of our cause to 
deliver comprehensive health reform for the American people.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Stupak. Thank you, Mr. Dingell.
    We will hear from Ms. Sutton from Ohio.

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

    Ms. Sutton. Thank you very much, Mr. Chairman; and thank 
you for holding this important hearing.
    And, to the witnesses, I look forward to hearing what you 
have to say. Thank you for coming forward and sharing your 
experiences and your stories to inform our discussion and our 
policymaking.
    You know, small businesses are the drivers of our economy; 
and, from 1992 to 2005, companies with fewer than 20 employees 
accounted for a quarter of the Nation's job growth.
    And Ohio is also experiencing that kind of job growth in 
small businesses. From 2004 to 2005, small businesses created 
the only surplus in new jobs for Ohio. In those years, while 
larger employers saw decreases in employment, the smallest Ohio 
employers, those with one to nine employees, saw large 
increases.
    Small businesses in Ohio have the ability to thrive, but 
health care costs pose a major impediment to their potential 
continued success. In 2008, Ohio's small businesses spent $5.3 
billion in health care premiums, and a Small Business Majority 
report found that the number could rise to 12.5 billion by 2018 
without health care reform. These high costs led employers to 
cut benefits or, in many cases, not offer them at all.
    In 2008, just 31 percent of Ohio's small businesses 
reported paying for health insurance for their employees. Of 
the ones that did, 71 percent said that they were struggling to 
do so; and of the ones who don't provide insurance, more than 
75 percent of those said they could not afford it.
    Small businesses are not unlike individuals when they are 
trying to buy health insurance for their employees. They don't 
have the bargaining power and are charged higher prices for 
plans that are less generous. Basically, insurance companies 
discriminate against them, giving them ``take it or leave it'' 
plans.
    The rates and services offered can vary greatly, even for 
companies that are the same size and may be involved in the 
same business. Over the past year, this subcommittee has been 
active in exposing and revealing underhanded insurance 
practices by insurance companies. We are gathering information 
on the cancellation of small business plans as well as the 
overall business practices of insurance companies.
    In a hearing last week, my colleague, Representative 
Schakowsky, referenced a news story in which an insurance 
company cancelled an entire line of insurance for small 
businesses in order to remove costly beneficiaries from their 
roles. It is unconscionable behavior, pursuing profit without 
regard to the wake of harm, the people that they leave behind 
stranded not only with health problems but with no way to 
access the care they need to overcome them.
    We must get to the bottom of these harmful practices, and 
this hearing is a good step in that direction. As I said, small 
businesses are part of a growing list of people and 
institutions, entities that need health care reform now in 
order to succeed.
    And I yield back.
    Mr. Stupak. Thank you, Ms. Sutton.
    Mr. Green for an opening statement, please.
    Mr. Green. Thank you, Mr. Chairman.
    I would like to place my full statement in the record.
    Mr. Stupak. Without objection.

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

    Mr. Green. And thank you for holding this hearing.
    Because small businesses, particularly in a tough economy, 
face such a hard decision. Because in my earlier life I 
actually helped manage a small business with 13 employees and 
had to negotiate with insurance companies. We had a bargaining 
unit, so our line employees, our production employees would be 
covered, but we wanted something to cover all 13. And I can 
tell you a lot of experiences, and I will tell you one. Because 
we would sign a 3-year contract, and in its first year they 
would always raise the premium so much because they knew we 
were producing a product and not actually in the business of 
buying insurance, and it went to where we had to go every year 
almost and threaten to take our work, policy elsewhere.
    But one year they came to me and said, because it was my 
job to negotiate with the insurance company, they came to me 
and said, you have one employee who has had two radical 
mastectomies; and if you exclude that employee, we can give you 
a lot better rate. And I said, you don't understand. That 
employee is the wife of the owner, and it is a family company, 
and I will tell him you suggested that. They actually pulled it 
off the table.
    But, you know, that is what employers, small businesses see 
every day, the choice of either cutting employees or cutting 
your health care. And that is why what Congress is trying to do 
is so important, to put small business on a level playing field 
so they can bargain with insurance companies on some type of 
even field.
    And so, Mr. Chairman, thank you for calling this hearing. 
Hopefully, it will point up the need that we have for some kind 
of national health care exchange for small businesses to 
participate in. I know in Texas we tried to do that, with very 
limited success.
    But, again, thank you, Mr. Chairman. I look forward to the 
testimony.
    [The prepared statement of Mr. Green follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.028
    
    [GRAPHIC] [TIFF OMITTED] 74846A.029
    
    Mr. Stupak. Thank you, Mr. Green.
    Ms. Schakowsky for an opening statement, please.

       OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 
     REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS

    Ms. Schakowsky. Thank you very much, Mr. Chairman, for 
holding this hearing that focuses on the problems of small 
business owners and their employees.
    Virtually every business and every household in our country 
is struggling to cope with rising health care costs. It is 
really Code Red for small businesses.
    The Main Street Alliance describes it this way: Quote: 
Every day small businesses are being forced to drop health 
coverage, lay off employees, or shut their doors for good 
because of the rising costs of health care.
    Small businesses can't afford the cost of doing nothing on 
health care. We can't afford to see insurance costs continue to 
skyrocket with no bargaining power to keep the insurance 
companies in check. We can't afford to pay more for less 
coverage, including twice as much in administrative costs as 
larger groups, with no real alternatives. We can't afford to 
keep absorbing huge rate hikes in this system that gives 
insurers free rein to discriminate based upon our employees' 
health status and gender.
    You heard about health status. I hope to ask some questions 
about gender. This is a critical condition confronting many of 
my constituents, people like Marie, who owns a candy store in 
Wilmette. After she and her husband were denied coverage, they 
were finally able to find a policy but one that requires them 
to pay $1,700 each month in premium and out-of-pocket costs. 
And how many small business entrepreneurs can afford that, 
particularly in today's economy?
    Or Jim Kelly of Glenview, Illinois, who works for a small 
business that can't afford to provide coverage to its workers. 
Jim and his wife are forced to take, in his words, a risk. We 
are paying cash for our medication and hoping that nothing 
major happens until we are eligible for Medicare.
    Americans shouldn't be asked to gamble with their lives. It 
is time for solutions. I hope that we will hear today the 
changes that are essential to keep small business economically 
strong and small business employees healthy, and I think this 
hearing and action on health care reform couldn't be more 
timely.
    Thank you, Mr. Chairman.
    Mr. Stupak. Thank you, Ms. Schakowsky.
    That includes the opening statements by members of the 
subcommittee.
    We have our first panel of witnesses before us.
    Our first witness, Mr. Landauer, comes from Iowa and is a 
constituent of Mr. Braley. Mr. Braley is Vice Chair of this 
subcommittee, so I am going to ask him to take a moment and 
introduce Mr. Landauer.
    Mr. Braley. Thank you, Mr. Chairman.
    I am proud to introduce Mick Landauer, a constituent of 
mine and the owner of Bi-State Muffler & Brake, Inc., in 
Davenport, Iowa.
    Mick showed up at one of my very first town hall meetings 
on health care in July in the Quad Cities and has been working 
with my office all year on important health care issues, 
particularly the challenges of providing affordable health care 
coverage for his employees. I want to thank Mick for helping me 
on this critical issue and for being here to share his story 
with the subcommittee.
    Mr. Stupak. Thank you.
    And Mr. Bruce Hetrick is with us. He is a small business 
owner from Indianapolis, Indiana. And thanks for being here. I 
know it was difficult. And sorry about the loss of your wife. 
But it is a story I think we all need to know, because I think 
small businesses face it every day. So thank you for being 
here.
    Mr. Fred Walker is a small business owner from St. 
Petersburg, Florida. I know the economy is not the best down 
there, so I am sure you can give us some insight not just on 
health care but also on economic and what it is doing to your 
business line on health insurance.
    And Dr. Linda Blumberg, who is a Senior Fellow at the Urban 
Institute, expert on small business and insurance; and we look 
forward to your testimony.
    It is the policy of this subcommittee to take all testimony 
under oath. Please be advised that you have the right under the 
rules of the House to be advised by counsel during your 
testimony. Do you wish to be represented by counsel?
    Everyone is shaking a their head no, so I will take that as 
a no answer. Therefore, I am going to ask you to please raise 
and raise your right hand and take the oath.
    [Witnesses sworn.]
    Mr. Stupak. Let the record reflect that all witnesses 
answered in the affirmative. They are now under oath.
    We will hear from you with an opening statement 5 minutes 
long. If you have a longer statement, we will include it; and 
it will be made part of the record.
    Mr. Landauer, if you don't mind, we will start with you. We 
will go from my left and go right across. You might want to 
turn that on, Mr. Landauer. A green light should go on. There 
we go. Go ahead.

STATEMENTS OF NORMAN MICHAEL LANDAUER, BI-STATE MUFFLER & BRAKE 
 INC., DAVENPORT, IOWA; BRUCE HETRICK, HETRICK COMMUNICATIONS, 
 INDIANAPOLIS, INDIANA; FRED WALKER, ST. PETERSBURG GLASS AND 
 MIRROR, ST. PETERSBURG, FLORIDA; AND LINDA J. BLUMBERG, URBAN 
                           INSTITUTE

              STATEMENT OF NORMAN MICHAEL LANDAUER

    Mr. Landauer. Thank you, Mr. Chairman, and to all honorable 
members of the congressional subcommittee. I am here today to 
give just one story on the high cost of small business health 
insurance.
    I do own my own business. I have owned the company for over 
30 years, and one of the perks we offer at the company is a 
group health insurance policy for the employees who desire 
coverage. The cost is split on a 50-50 basis, and these costs 
keep rising.
    In 2006, our company paid $17,500 for health insurance. 
That was about 2 percent of the business costs. In 2007, the 
health insurance costs rose to $22,000. That was 2.4 percent of 
our costs. In 2008, health insurance rose to $25,500; and, 
again, our costs of it rose also. In 2009, health insurance 
through September has cost $21,660, which comes out to about 
$29,000 for the year, and is up to 3 percent of our expenses.
    The rates per employee have been climbing tremendously. In 
order to keep them down, our deductible is rising instead. Our 
monthly premiums now are around $400 for a single individual 
and around $850 on the family plan. The deductible is at $8,000 
for an individual policy and $16,000 for the family plan. The 
muffler shop pays for half the deductibles in 2009.
    Last year, we had deductibles of $4,000 for an individual 
and $8,000 for a family plan, with monthly rates that were 
quite a bit lower. Two years ago, the deductibles were $2,000 
for an individual and $4,000 for the monthly plan. The monthly 
rates again were lower yet. At our next signing period, I 
expect the deductibles to double once again, with the monthly 
rates to go up by $50 to $100.
    How can this be? It is because one of our policyholders was 
born with congenital heart disease. He visits a specialist 
twice a year. A routine visit costs anywhere from $1,200 to 
$1,500. Any specialized tests that may be done can run $10,000 
or more. And that employee is me.
    The only way I see to keep both monthly rates and 
deductibles reasonable is by taking myself off our group 
policy. I will not be able to get health insurance, individual 
or otherwise, as I have turned down our company's group plan 
that is available to me.
    So I ask you, what options do I have? Pay for my own 
medical costs, in which case I would be forced to sell the 
business? Quit going to doctors, including my congenital heart 
specialist, even though I now have a pacemaker? Or how about 
moving to Canada, which has a national health care plan? But 
yet again, I would be forced to sell my own business.
    To me, owning your own business is the American dream, a 
dream that now seems to be only that, a dream. I turned 53 last 
Thursday and am beginning to wonder how it could all go wrong. 
Is it punishment for not being the typical person?
    I employ 11 people at the muffler shop, including myself, 
and do feel successful in the business world. I am a member of 
our local temple. I am a member of two nonprofit organizations. 
But I have learned anything can change in an instant.
    Anyway, I would like to personally thank you for letting me 
have my time at the hearing. I know that our health insurance 
landscape does need a change. I know that is an issue with all 
Americans, as it does affect each and every one of us. I do 
understand there are as many reasons for a change in our health 
insurance system as there are against that change, and I see 
there is no right or wrong answer to the question of health 
insurance.
    As for me, I am for a change in the way that health 
insurance policies can be written. Whether we make them 
national in scope or even let the government offer their own 
policy, I feel it is time for a change. Health insurance is not 
just a purchased item, as is car insurance, but rather a part 
of America that does affect all Americans.
    I know you have a difficult task ahead of you, and I wish 
you all the best in trying to solve America's health care 
dilemma. I wish you the best of luck in the decisions you are 
going to make that will not only impact me but the rest of 
America as well. Each and every one of us are going to be 
affected by your decisions.
    Once again, thank you for letting me testify before you 
today. It has been my utmost honor to have the privilege of 
speaking before you and trying to give a voice for many other 
people besides myself.
    [The prepared statement of Mr. Landauer follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.030
    
    [GRAPHIC] [TIFF OMITTED] 74846A.031
    
    Mr. Stupak. Thank you, Mr. Landauer.
    Mr. Hetrick, your opening statement, please.

                   STATEMENT OF BRUCE HETRICK

    Mr. Hetrick. Mr. Chairman and members of the committee, 
thank you for the opportunity to talk with you about the impact 
of health insurance on small business.
    My take on our health system comes from three perspectives.
    First, you need to know that I am a hearing-impaired, 
migraine-suffering, diabetic cancer survivor who is also the 
father of a cancer survivor and the widower of a cancer victim. 
So I have experienced more than my fair share of the American 
health care system.
    Second, as a professional communicator with a passion for 
human services, I have spent decades working for health 
educators, nurses, doctors, hospitals, health advocates, and 
the people who pay for all of the above.
    Third, I have been a small business owner for 16 years. In 
that role, my colleagues and I have evaluated, purchased, and 
paid for health insurance for our employees and our families.
    Despite my and my family's health problems, I consider 
myself lucky. I have had health coverage for myself, my spouse, 
and my twin sons throughout my 30-year career. For the most 
part, the policies have covered what they promised to cover, 
little haggling required. When the need was greatest, during my 
late wife's cancer battle, our insurance company, Anthem Blue 
Cross/Blue Shield sped approvals and denied not a single claim. 
I am very grateful for that.
    On the other hand, I have some frustrations.
    First, health care and health coverage inflation is small-
business enemy number one. My company pays 80 percent of the 
employee premiums and 50 percent of dependent premiums. That is 
higher than typical for firms like ours, but it helps us to 
attract and retain good people. It also leaves us with a 
painful choice. Either the cost of health coverage cuts into 
our profits or, if we pass it onto our customers, it renders us 
less competitive.
    Another concern is health insurance rate inequities. If you 
are a big business, you get pricing based on giant risk pools. 
I mean if you are a small company like mine, one staff health 
crisis can send your rates skyrocketing.
    Let me give you one example. My late wife, Pamela Klein, 
was also my business partner. As such, she was covered by our 
company's health plan.
    In the last year of her life, the billed charges for Pam's 
cancer care totaled $300,000. A few months before her death, 
our health insurance renewal came up. Lo and behold, the quoted 
increase for the health insurance portion of our benefits plan 
was a whopping 28 percent. That would have been devastating to 
our company and our employees.
    When Pam died just short of the actual renewal date, I had 
our rates requoted. With Pam out of the mix, the increase for 
the very same health coverage was just 10 percent. A 28 percent 
increase reduced to 10 percent because of one person who needed 
the care that we had paid for.
    One additional concern I will share with the committee 
involves taxes and economic development. Because I own more 
than 2 percent of an S corporation, my benefits are fully taxed 
income. My employees' health insurance is a pretax company 
expense. Mine is fully taxed as personal income. In addition, 
my employees enjoy pretax spending accounts for their out-of-
pocket medical expenses. I am the only person in the company 
who cannot participate. In this country where most jobs are 
created by small business, that is a very powerful incentive to 
do just the opposite.
    Because we are so overly dependent on employment-based 
health insurance in this country and because we have allowed 
the denial of coverage to those with major maladies and pre-
existing conditions, we have created an enormous chasm between 
haves and have-nots. One lost job, paired with one serious or 
chronic ailment, and you are a fiscal goner.
    As Pam and I sat in renowned cancer centers in Indianapolis 
and Houston, getting pricey chemotherapy and sophisticated 
scans, we were grateful for the caregivers, the coverage, the 
clinical trials, and the chance at survival. But we also felt 
guilty that we were getting this because we had money, 
connections, and jobs. Yet all the while, here in the greatest 
Nation on earth, others facing the same predicaments, citizens 
with the same right to life and health, were growing sick and 
dying with no chance whatsoever. Sadly, 5 years after Pam's 
death, more uninsured Americans than ever still are.
    My point today is simple. We need health coverage for all. 
We need it now. But if Congress is going to settle on an 
employer-based system, then our small businesses need rates and 
risk pools and tax policies that make the provision of health 
insurance competitive and affordable. We need incentives to 
create and sustain jobs, not incentives to lay people off, 
close up shop, and go to work for large organizations with 
benefits that we can't compete with.
    Thank you very much.
    [The prepared statement of Mr. Hetrick follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.032
    
    [GRAPHIC] [TIFF OMITTED] 74846A.033
    
    [GRAPHIC] [TIFF OMITTED] 74846A.034
    
    [GRAPHIC] [TIFF OMITTED] 74846A.035
    
    Mr. Stupak. Thank you, Mr. Hetrick.
    Mr. Walker, your statement, please.

                    STATEMENT OF FRED WALKER

    Mr. Walker. Good afternoon, Mr. Chairman and Members. Thank 
you for having me.
    My name is Fred Walker. I am the owner and operator of St. 
Petersburg Glass and Mirror in St. Petersburg, Florida. We 
fabricate and install flat glass and aluminum products for the 
construction, remodeling, and emergency recovery industries.
    I founded the company in 1993 with two credit cards and 
some financial support from my family and a whole lot of help 
from my wife. Sixteen years later, I feel lucky to be a 
survivor of the current economic disaster in our community.
    From day one I felt that each employee should have an 
option to be included in a health insurance plan. Over the 
years we learned that the plans are many. You have to shop for 
a new one every year in order to help avoid escalating costs, 
pre-existing conditions are never covered, and each employee is 
a unique case. As the costs have risen, the financial burden 
that our company can bear has been reduced. We currently pay 50 
percent of our policy for each employee. Percentages have 
changed as the policies and the premiums have risen.
    I am here today because the economic downturn has had an 
effect on my business and, consequently, my ability to provide 
health care programs for my employees. 2007 and 2008 were boom 
years for St. Pete glass and mirror. The housing boom was 
followed by a commercial building boom. I had 10 glazers on 
staff, an assistant manager, and a secretary. Every day was 
busy, and we sometimes had more work than we could handle.
    By late 2008, things started slowing down; and I saw the 
decline coming. I started laying off workers that September; 
and by February, 2009, it looked like I might have to drop our 
health insurance program altogether.
    I mentioned that one day to my secretary, Mindy; and she 
immediately made an appointment to have a breast exam. The 
checkup she had been avoiding was breast cancer. I made the 
decision to keep our health insurance program even though the 
business continued to collapse. Mindy went into treatment and 
has fared well. However, our options are now very limited, and 
she has recently been refused a quote because of pre-existing 
conditions until she is cancer free for 10 years.
    Please also note that I had a sudden bout of seizures from 
May, 2008, to November, 2008, which included several days in 
the hospital; and our recent quote did not exclude me. 
Apparently, I am a lower risk.
    We have operated since June with a staff of four, myself, 
Mindy and two glazers. Everyone takes voluntary time off when 
there is no work. Gross income is roughly one-third of what it 
should be with a workforce that size. Mindy's treatment is over 
for now; and if she can find another option, I will go on my 
wife's policy soon. Rebuilding the company appears to be months 
or maybe years away.
    I thought it was my duty to ask friends, family, and 
mentors their opinions on this issue as I represent them as 
well. I will paraphrase some of their responses.
    Jack Grayson, owner of Seminole Realty, my cousin, had a 
13-year battle with his departed wife, Peggy. She had cancer; 
and I quote, ``The last few years, our copays and medication 
were $3,000 to $4,000 a month, and we had good insurance. What 
do the less fortunate people do?'' Peggy passed on in 2000. 
Jack says we have to help those who can't afford the proper 
care.
    John Wallace, a general contractor who is my best customer, 
says the bill passed in the Senate last week requiring 
businesses to provide health insurance will crush small 
business.
    Lance of Lance's Moving Company, a customer, walked in off 
the street last week and we were talking about it. Lance 
related a story that his wife had kissed their grandson on the 
eye when he was a baby. She had a cold sore and accidentally 
gave him herpes simplex in his eye. There is no medical 
insurance available because of the pre-existing condition. 
Lance has spent his life savings and is out of options. The boy 
is 6 years old.
    Most of us use chiropractors, dentists, optometrists, and 
counselors, as well as medical doctors. These people are as 
educated and vital to our welfare as doctors but not covered 
under most medical plans.
    A friend related a story about a local anesthesiologist who 
specializes in cardio-pediatric care. His clinic had liability 
insurance. The hospital he worked out of had liability 
insurance, but his annual premium for his personal liability 
was $250,000 per year. That is triple liability insurance, and 
where is our money going?
    Finally, my wife, Jane Walker, director of Daystar Life 
Center in St. Petersburg, who takes care of the least fortunate 
of us every day, says there are many people who choose between 
food, medication, and health care for their loved ones every 
day.
    Something has to be done. We live in the greatest nation in 
the world, have the resources. This is an issue about people, 
not politics. Not money, but people.
    Finally, I did find somebody who was happy with their 
health care. Pete and Pat Lamb are dear family friends, and 
they are both over 70 years old. Their combination of Medicare 
and coinsurance has provided for them well. Perhaps that is a 
starting point.
    Thank you.
    [The prepared statement of Mr. Walker follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.036
    
    [GRAPHIC] [TIFF OMITTED] 74846A.037
    
    [GRAPHIC] [TIFF OMITTED] 74846A.038
    
    [GRAPHIC] [TIFF OMITTED] 74846A.039
    
    Mr. Stupak. Thank you, Mr. Walker.
    Dr. Blumberg, your testimony please.

                 STATEMENT OF LINDA J. BLUMBERG

    Ms. Blumberg. Mr. Chairman and distinguished members of the 
committee, thank you for inviting me here today to share my 
views on the health insurance challenges facing small 
businesses and their workers. While I am an employee of the 
Urban Institute, this testimony reflects my views alone and 
should not be attributed to the Urban Institute, its trustees, 
or its funders.
    Small employers are at a significant disadvantage as 
purchasers of health insurance relative to large employers. The 
consequences are clear and consistent over time. Small 
employers are much less likely to offer health insurance 
coverage to their workers, and workers in small firms are much 
more likely to be uninsured. The barriers that small employers 
face in insurance purchasing come on multiple fronts; and as 
premiums continue to grow faster than wages, the declines in 
small employer-based coverage outpace the declines among large 
employers. Without significant reforms to how small group 
health insurance markets function and to the insurance options 
that are available to those without employer offers of 
insurance coverage, there should be no expectation that these 
negative trends will abate.
    In 2008, only 36 percent of employers with fewer than 10 
workers offered insurance to their workers, compared with 99 
percent of employers with a thousand or more workers. Plus, 
declines in employer offers over time have been greatest among 
small employers.
    The employer size differences are most dramatic when 
looking at employers with a low-wage workforce. Among employers 
for which at least half of their workers were low wage, only 18 
percent of the smallest employers offered health insurance 
coverage in 2008 compared with 98 percent of the largest 
employers.
    Between 2000 and 2008, the share of low-wage employers 
offering coverage to their workers fell almost 28 percent for 
employers with fewer than 10 workers but held steady for the 
largest low-wage employers. So the differential in offer rates 
between small and large employers is large and growing even 
larger, and the situation for low-wage firms and their workers 
is particularly severe.
    Differences in employer offer rates and take-up translate 
directly into differences in insurance coverage for workers. 
Fully one-third of workers employed in firms of fewer than 25 
were uninsured in 2008, compared with 13 percent of those 
employed by firms of a thousand or more. Smaller firms faced 
much larger administrative costs per unit of health benefit 
purchased. Administrative economies of scale occur because the 
cost of enrollment and other activities by plans are largely 
fixed, and insurers have fewer workers over which to spread 
these costs in small firms. In addition, small employers 
experience greater year-to-year variability in medical expenses 
than do large firms because there are fewer workers over which 
to spread the risk. Insurers charge small employers higher 
premiums as a result.
    Many States allow commercial insurers to adjust small 
employer premiums based on the health status and claims 
experience of their workers. Almost all States allow 
significant variations in premium rates as a function of the 
age of the workers, and many also allow adjustments based on 
the industry of the employer. These rating practices create 
additional difficulties for many small employers to obtain 
affordable coverage for their workers.
    Another barrier to small employers providing health 
insurance is that the typical worker in a small firm is paid 
significantly less than workers in large firms. The lower wages 
of small firm workers imply that they are less able to pay for 
health insurance through wage reductions. Consequently, their 
employers are less likely to offer such benefits.
    Workers in small firms that do not offer health insurance 
are often left with few options for insurance coverage. In the 
vast majority of States, there is no guarantee that an 
individual can purchase health insurance in the individual 
market; and even if nongroup coverage is available, coverage is 
frequently limited such that it may not be adequate to provide 
these workers with affordable access to necessary medical care.
    A number of provisions in H.R. 3200 would provide 
significant assistance for small employers and their workers. 
The most important of these, in my opinion, are the 
establishment of a national health insurance exchange, along 
with significant reforms to insurance market rules, and the 
provision of subsidies to assist the low-income population 
purchase health insurance coverage through the exchange.
    Not only would workers in small firms have a choice of 
insurance plan within the exchange, a situation extremely 
unusual today, but those that have been priced out of the 
market due to health issues or an older workforce may have 
affordable access to coverage for the first time.
    In addition, all small groups would see a significant 
decrease in the year-to-year variability of premiums due to 
greater sharing of health risks. In addition, small employers 
can expect administrative savings from purchasing coverage 
through the exchange. Churning across policies and insurance-
related job loss should be reduced significantly.
    Finally, with the insurance reforms in the exchange alone, 
small firm workers would still be more likely to be uninsured 
than large firm workers because they tend to be lower income. 
As a consequence, the financial assistance and purchasing 
exchange based coverage and the expansion of eligibility for 
the Medicaid program that H.R. 3200 would provide are critical 
elements to expanding coverage for low-wage workers and their 
families. In these ways, the proposed legislation would make 
adequate and affordable coverage available to many more workers 
of small employers than is the case today.
    Thank you very much.
    [The prepared statement of Ms. Blumberg follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.040
    
    [GRAPHIC] [TIFF OMITTED] 74846A.041
    
    [GRAPHIC] [TIFF OMITTED] 74846A.042
    
    [GRAPHIC] [TIFF OMITTED] 74846A.043
    
    [GRAPHIC] [TIFF OMITTED] 74846A.044
    
    [GRAPHIC] [TIFF OMITTED] 74846A.045
    
    [GRAPHIC] [TIFF OMITTED] 74846A.046
    
    [GRAPHIC] [TIFF OMITTED] 74846A.047
    
    [GRAPHIC] [TIFF OMITTED] 74846A.048
    
    [GRAPHIC] [TIFF OMITTED] 74846A.049
    
    [GRAPHIC] [TIFF OMITTED] 74846A.050
    
    [GRAPHIC] [TIFF OMITTED] 74846A.051
    
    [GRAPHIC] [TIFF OMITTED] 74846A.052
    
    [GRAPHIC] [TIFF OMITTED] 74846A.053
    
    Mr. Stupak. Thank you all for your testimony and for being 
here today. We will start with questions.
    Mr. Landauer, you said you have a congenital heart 
condition. I take it you have always disclosed that to the 
insurance companies?
    Mr. Landauer. Yes.
    Mr. Stupak. Then why have your rates dramatically 
increased? Have you started utilizing the service more?
    Mr. Landauer. About 8 years ago, I had my third major 
operation that was about $500,000. Basically, the past 4 years, 
they have gone up tremendously. I'm using probably $40,000 a 
year just in a test to make sure that they don't need to do 
another operation.
    Mr. Stupak. I guess what was confusing me a little bit, 
your rates have gone way up, but it seems like your surgeries 
were earlier. I was trying to put some correlation there. That 
is what I was trying to do.
    Mr. Landauer. I understand that. Yes, my surgeries were 8 
years ago, my last major surgery, and yet the rates started 
climbing 4 years ago.
    Mr. Stupak. Mr. Hetrick, let me ask you a question along 
the same lines. Long before your wife passed on, you had 
insurance. And then you indicated when she got sick, the year 
she was really sick, you had a 28 percent increase. And when 
she passed on, you asked them to recalculate; and it would have 
been only a 10 percent increase.
    Mr. Hetrick. I am having trouble hearing you.
    Mr. Stupak. OK. You indicated you have had insurance while 
you were in business, 16 years, or whatever it was?
    Mr. Hetrick. Yes. I started the company 16 years ago. I 
probably got the first insurance about 14 years ago.
    Mr. Stupak. And then your wife became ill?
    Mr. Hetrick. Yes.
    Mr. Stupak. And she was part owner of the business and so 
she was a covered employee?
    Mr. Hetrick. Yes.
    Mr. Stupak. And then that 1 year your rates increased 28 
percent?
    Mr. Hetrick. 28 percent.
    Mr. Stupak. And, unfortunately, after your wife died, you 
asked them to recompute; and they said, oh, it should have been 
maybe a 10 percent increase?
    Mr. Hetrick. Correct.
    Mr. Stupak. Just think out loud. I would think all those 
years when I paid for insurance, when I did get sick, I 
wouldn't see a dramatic increase because I have been paying all 
those years. That's why I have insurance. So you stabilize your 
costs and your risk, but that does not seem to be the case. It 
seems like in your case your big increase was because, 
unfortunately, your wife got ill.
    Mr. Hetrick. Right. The only thing that changed, the 
reduced risk factor that was quoted in the e-mail that came to 
us, was Pam died. So, since her death, rates have gone back to 
somewhat they are for other small businesses in America. Our 
rate increase last year was 19 percent.
    Mr. Stupak. We have insurance and we think we build up a 
reserve so, when we do get sick, we have been paying all of 
these years, you would think they would pay the claim. And you 
said they were pretty good about paying, but then you wouldn't 
expect them to try to pick up that loss all in the next year or 
two.
    Mr. Walker, you said your secretary--and I compliment you 
for keeping the insurance so she can at least get some coverage 
here--you said refused a quote. Was that your secretary trying 
to buy an individual policy or was your company--your company 
refused the quote because she was on your policy?
    Mr. Walker. It was an individual policy. Salesmen will walk 
in off the street and want to quote. I always felt it was my 
duty to do the best for my employees and do the best for the 
company. OK, quote us another policy and see if you can beat 
what we have got.
    This happened just a couple of weeks ago after we were all 
involved in this. This was a HumanaOne policy. A guy I had 
known just started selling health insurance. He came back and 
said, here is a quote for you, you, and you. Mindy, sorry, we 
can't help you. So, guys, let's huddle up and talk about your 
health insurance. She confronted him about it; and he said, 
until she has been cancer free for 10 years, they wouldn't even 
give her a quote.
    Mr. Stupak. So if you dropped her, she would be out of 
luck?
    Mr. Walker. Completely out of luck. If she loses her job, 
if our company continues to shrink, she is out of luck. She has 
no options.
    Mr. Stupak. Dr. Blumberg, please look at that chart number 
3. Each of these are small businesses. They have indicated how 
they have struggled to try to keep things afloat, provide 
insurance, provide reasonable pay for their employees. If you 
look up at this chart, if you look in that book, Mr. Walker, 
what it shows is loss of future small business profits due to 
health insurance costs over the next 10 years. This chart shows 
that lost profits will skyrocket 17 times that of the 2009 
levels if we do not enact health reform.
    I would like to ask you about the impact of the current 
health care system on small business competitiveness. If we do 
not enact comprehensive reform for the small group insurance 
market, what will the impact of health costs be on small 
businesses off into the future? Does that chart reflect what is 
going to happen?
    Ms. Blumberg. I apologize, Mr. Chairman. I don't see that.
    Mr. Stupak. I misspoke. I'm sorry. Tab 11.
    Ms. Blumberg. OK, tab 11.
    Clearly, the problem is that small businesses are already 
starting with one foot in the hole in terms of purchasing 
health insurance coverage. They simply are not efficient 
purchasers of coverage as a consequence of the way small 
insurance markets work and the marketing costs that are 
associated with selling coverage small group by small group in 
addition to the limitations with regard to risk pooling that 
there are in the current voluntary small group insurance 
market. So, already at a disadvantage, their costs of 
purchasing coverage are high relative to the wages of the 
individuals that they are buying coverage for.
    And what has been going on trend-wise is that the cost of 
medical care grows faster than income, faster than wages. So it 
really is going to become increasingly difficult over time if 
nothing changes those trends and nothing changes the way that 
these markets work for small businesses to the point we are 
already seeing incredibly low rates of coverage among the 
smallest employers and it has got to--it will get much worse 
over time until it is quite unusual for a small employer to be 
able to offer coverage at all.
    Mr. Stupak. Thank you. My time has expired.
    Mr. Gingrey for questions, please.
    Dr. Gingrey. Mr. Chairman, thank you.
    I want to say to all of the witnesses again, thank you for 
your testimony.
    Before I begin my questions, I would like to raise two 
issues.
    First, the troubles of our three business owner panelists 
are, unfortunately, not unique. Many in this country are 
finding it harder and harder to afford quality health care. In 
fact, Federal officials just yesterday announced that Medicare 
premiums for seniors will shoot up by over 15 percent, to $110 
a month, Part B premium.
    Reducing the cost of health care in this country and making 
sure that those with chronic illnesses can access the same type 
of affordable insurance as healthy Americans should be two of 
our main goals. Unfortunately, the rising costs of health care 
is a universal problem and one that we do not solve I don't 
think with H.R. 3200.
    Second, hearing your testimony today, I would like to 
suggest a market reform that I have long advocated that I think 
would benefit both those employees with chronic illnesses as 
well as their healthy colleagues.
    High-risk pools--we talked about this a littler earlier, 
but high-risk pools were created to offer those with chronic 
illnesses a place to purchase health insurance at affordable 
rates, regardless of their chronic conditions. By embracing 
high-risk pools in the States--and I think 28 States actually 
have embraced them--we have a chance to create a unique 
solution to a unique problem, namely, how a tragic illness can 
disproportionately hit the health care costs of small business 
owners and their employees.
    Mr. Chairman, I raise that concern because I truly believe 
that H.R. 3200 does little to address either of these concerns. 
Everyone in this body wants to reform what ails our current 
system. I wish we could find a way to combine that want for 
change into an opportunity to sit down and find a common 
solution to this problem.
    I practiced medicine for nearly 30 years, Mr. Chairman, as 
you know; and I have seen firsthand how policies in Washington 
impact patients back home, for better or for worse. I, like 
many of my colleagues, just want an opportunity to share our 
experiences with you; and I would like to ask unanimous consent 
to submit this letter that 22 of your Democratic colleagues 
submitted to Speaker Pelosi back on July 16, 2009. I would like 
to submit that for the record.
    Mr. Stupak. Let me just take a look at it.
    Dr. Gingrey. Certainly, Mr. Chairman. I appreciate you 
looking at that.
    While you are glancing at the letter, let me ask a question 
of Dr. Blumberg.
    As you know, H.R. 3200 contains a surtax which would apply 
to any adjusted gross income exceeding $280,000 a year for an 
individual and $350,000 for a couple filing a joint return. The 
tax rates would range anywhere from 1 percent to 5.4 percent 
for those earning more than a million. According to 22 House 
Democrats--that is the letter that I submitted to the chairman 
for inclusion in the record--these taxes would fall largely on 
small businesses and manufacturers. They wrote in a letter to 
Speaker Pelosi, and I quote, that many successful small 
businesses, the very kind that should lead in creating jobs and 
help us emerge from this very recession, will be taxed at over 
50 percent.
    Do you agree with these House Democrats that we should not 
tax small businesses?
    And, before you respond, I want to get the chairman's 
response to my unanimous consent request.
    Mr. Waxman. Could the gentleman state his unanimous consent 
request?
    Dr. Gingrey. Chairman Waxman, absolutely.
    The request is that we submit the letter that was written 
to Speaker Pelosi on July 16, 2009, by 22 House Democrats 
regarding this issue, this concern of the surtax and what 
adverse effect it would have on small businesses and job 
creation in this country.
    Mr. Stupak. I have no objection.
    But again, as Ms. Blackburn pointed out before, there is no 
surtax on small businesses. The surtax is on 1.2 percent. In 
fact, I think in Mr. Braley's district, 99.3 percent of the 
people would not see any increase. So there is no surtax.
    We will accept the letter that you would like to submit for 
the record.
    [The information appears at the conclusion of the hearing.]
    Mr. Stupak. It goes on to say, these 21 Members, that 
health care reform should be good for small businesses, and as 
long as small businesses are not unfairly burdened by H.R. 
3200, we are confident that it can be. And I think we all agree 
we do not want to burden small businesses.
    Dr. Gingrey. Mr. Chairman, I appreciate you accepting that 
letter for the record.
    Dr. Blumberg, if you would respond.
    Ms. Blumberg. My understanding of the bill as it stands 
right now is consistent with that of the chairman's, that this 
component, this financing component of the bill, would not 
impact, would not be a tax on small business income. It is a 
tax on high-earning individuals; and, as such, I don't have any 
objections in terms of the imposition of that type of tax. But 
I think there has been some misunderstanding of how it would be 
imposed.
    Dr. Gingrey. Dr. Blumberg, thank you. We will give you a 
copy of that letter that was submitted and will be included in 
the record for your perusal at a convenient time for you to do 
that.
    I know it is subject to interpretation, but, as Ms. 
Blackburn pointed out, so many of these small businesses are 
not C corporations, they are sole proprietorships or S 
corporations, and they file as individuals. And basically no 
matter what number that might be--the chairman has indicated it 
is a very small number--but my question--and maybe I can direct 
it to our small business witnesses as well--if indeed, in 
addition to having to pay these astronomical increases in your 
health insurance premium year after year after year, you also 
had to file as an individual these high surtaxes from 1 to 5 
percent on your income above $280,000, what adverse effect 
would that have on your ability to not only hire people but 
continue as a growing concern?
    Maybe we can start with Mr. Landauer.
    Mr. Landauer. I'm trying to understand your point. I file 
an individual income tax return, and I am also an S 
corporation, but that is completely different from my 
individual income tax. I don't see how it would be affected by 
your saying----
    Dr. Gingrey. Thank you, Mr. Landauer.
    Mr. Hetrick, you mentioned in particular the problem you 
have with regard to the way your health insurance premium--you 
have to pay. You don't get a tax break at all.
    Mr. Hetrick. I am also an S corporation owner, and so I 
have to channel all of the business's income through my 
personal return. Part of that income is the health insurance 
premium because it is taxable income to anyone who owns more 
than 2 percent of an S corporation.
    Dr. Gingrey. Mr. Walker, I have to yield back. The chairman 
has been awfully generous with the time, but I have run out of 
time. I hope to have a second round.
    Mr. Stupak. Chairman Waxman for questions.
    Mr. Waxman. Thank you, Mr. Chairman.
    The surtax that is in the House bill is a tax on high 
income individuals, and there is a joint tax committee that 
said this surcharge would have no impact on 96 percent of small 
business owners. It would effect only the highest income, 1.2 
percent of taxpayers. So I think we are getting a 
misinterpretation of what the bill provides. But let's look at 
the reality. Health care costs are going up. They are going up 
overall. So how do we handle those increases in costs?
    If you are in a small business, the insurance companies are 
saying to you if somebody in your business gets sick, we are 
going to control the costs by making everybody else in that 
business pay a higher premium. That is not controlling costs, 
that is shifting costs onto people who are vulnerable and who 
have no leverage to fight back.
    We had a hearing last week, and there was a man by the name 
of Nathan Wilkes, and he worked for a small company. He loved 
that company. But he had a son with hemophilia which is an 
expensive, lifelong blood clotting disorder. So the insurance 
company responded by raising the costs of insurance for 
everyone at Mr. Wilkes's company. It is the same story we are 
hearing from the three of you. Mr. Wilkes described his son's 
medical condition as a bomb that went off, but everybody else 
was collateral damage because they couldn't have insurance any 
more when it became unaffordable. That is no way to hold down 
health care costs, that is simply shifting the costs.
    The shocking thing to me is that what your insurance 
company did to you, Mr. Landauer, Mr. Hetrick, Mr. Walker and 
Mr. Wilkes's situation, it is perfectly legal. As far as they 
are concerned, it is the smart way to do business, but it is 
not acceptable in order to get people covered.
    Now, Mr. Gingrey said what we ought to do is have these 
high risk pools. Well, as I have looked at high risk pools 
around the country, it is hard to get into them. And then they 
put a lifetime cap. Sometimes these lifetime caps keep you from 
ever getting the services you need. This can't be the solution, 
to give people a lifetime cap when they are sick.
    Mr. Gingrey said you are going to pay a tax which I think 
he was wrong in saying to those of you in small businesses, but 
somebody is going to pay a tax. It is going to be higher income 
people, but somebody will have to pay more money. If they pay 
more money, which means we can then bring more people into the 
insurance and have basically everybody covered, we are not 
going to require in addition to any tax, that people pay 
extraordinarily higher insurance costs every year if somebody 
gets sick. That is going to be outlawed. We are not going to 
let the insurance companies do that any longer.
    Mr. Landauer, do you think that insurers should be 
permitted to charge higher rates to companies in which one 
person gets sick or has a chronic condition? It is an obvious 
question. Obviously not. You know from your own experience how 
unacceptable it is. Mr. Hetrick, you described your own 
experience with an insurance company imposing steep premium 
increases due to your wife's health status. I assume you think 
it is wrong to allow that to happen, even though it is legal.
    Mr. Hetrick. Mr. Waxman, I am the son of a life insurance 
executive, and so I understand underwriting.
    If we are going to allow the underwriting based on groups 
of 15 people or 13 people or 3 people, or whatever Mr. Landauer 
has, then the underwriter is going to say, gee, you need to 
crank up the rates. To me the only way we can fix this is put 
everyone into a large group. From my personal perspective, I 
would love for the large group to be 300 million people and we 
rate the policy that way. You folks in Congress haven't seemed 
to quite get to the 300 million people answer yet, which would 
be universal coverage and single payer.
    If we go to a public option, I guess what I am asking you 
is could we come up with a way that small businesses could 
group together into large risk pools so I am not dependent on 
my 13 people and he is not dependent on his 4.
    Mr. Waxman. Absolutely. It wouldn't be a public option, it 
would be pooling people together who can't get insurance 
because they can't afford it, can't get insurance because their 
employer can't afford it, can't get insurance because they have 
pre-existing medical condition. All of these people would be 
pooled together and they would go to an exchange and they would 
be able to choose a private insurance policy, maybe another 
private insurance policy, maybe a third private insurance 
policy, and perhaps a public insurance policy. It would be 
their choice. But by pooling people together in this exchange, 
we are in effect pooling the risk and not putting it on a small 
group, and in that way we make the system make sense. Allowing 
insurance companies to punish businesses because someone got 
sick, especially a small business, makes no sense. And people 
in businesses buy health insurance so they will be covered if 
they are sick. And small businesses shouldn't have their 
success impinge on whether an employee gets sick and be able to 
pay insurance and continue in business. Thank you.
    Mr. Stupak. Thank you, Mr. Waxman.
    Mr. Braley for questions, please.
    Mr. Braley. Thank you, Mr. Chairman.
    I want to talk briefly about this concept of high-risk 
pools; and I am referring to a report recently called High Risk 
Insurance Pools: A Flawed Model for Reform, dated September 29, 
2008. Here is the history of high-risk pools:
    The report notes that high-risk pools have been around for 
over 30 years and currently exist in 35 States, but they only 
cover 207,000 Americans. The biggest barrier to enrollment is 
cost. High-risk pools are inevitably expensive, because all of 
the enrollees have medical conditions and could potentially 
result in costly medical bills, which means the pools cannot 
spread the risks among low-risk and high-risk individuals.
    And the report notes specifically the State of Florida has 
a high-risk pool that costs $17,517 per enrollee, which is 
nearly 50 percent of the income of those enrollees. And the 
problem is that most of these high-risk pools are already 
heavily subsidized. Because if you take out of your group of 
insureds those people who add the most cost to the pool you are 
insuring and put them with other people who cost a lot of 
money, it is going to take an extraordinary amount of money to 
cover their health care costs. And that is why these high-risk 
pools are already heavily subsidized.
    So you can't come in and heavily subsidize a heavily 
subsidized high-risk pool that makes any sense, and that's why 
many of these subsidies already cover about 50 percent of the 
pool and an expansion of those programs could cost as much as 
$100 billion.
    I think the last word in this report says, in every State 
that covers the uninsurable with a high-risk pool or offers 
coverage to the uninsurable, the very condition that made you 
uninsurable will be included as a pre-existing condition in the 
high-risk pool, usually for 6 to 12 months. That is a 
conversation stopper for most people. And if you have been 
diagnosed with cancer, you cannot wait 6 months to start your 
treatment.
    That's what is wrong with expansion of high-risk pools as 
an alternative to doing what we are trying to do, which is 
create reasonable competition in the marketplace and more 
options for consumers and small businesses owners.
    Mr. Landauer, I want to make sure people understand the 
reality of what you just described, because insurance 
terminology can be very confusing. But, as I understand your 
testimony, your firm has had to double its deductible for 
individual and family coverage in each of the last 2 years; is 
that correct?
    Mr. Landauer. Yes.
    Mr. Braley. And they are currently paying $8,000 for the 
individual policy and $16,000 for the family plan?
    Mr. Landauer. Yes.
    Mr. Braley. That means before any insurance coverage kicks 
in for your employees, if they are under the individual policy, 
they have to pay $8,000 out of their pocket?
    Mr. Landauer. As the shop owner, I pay half of that right 
now.
    Mr. Braley. Absolutely. And thank God for that and your 
generosity.
    My point being, until you and your employees match that 
deductible of $8,000 for individuals or $16,000 for family 
members, that company has been collecting premiums of between 
$400 and $800 a month and hasn't paid a dime?
    Mr. Landauer. Correct.
    Mr. Braley. Mr. Chairman, I think that is what is wrong 
with our health care delivery system and the way we pay for it 
in that we expect so much out of hard-working Americans like 
Mr. Landauer or Mr. Hetrick, Mr. Walker, and millions of other 
small business owners, who simply want to have an opportunity 
to provide their employees with the best coverage possible at 
an affordable price. That is why the obligation on us is to 
find a way to give them the options they need to do that.
    I think if we have the slide that is part of tab 10, this 
map shows what is wrong with the lack of competition in America 
right now. It shows among the darkest blue the States where 80 
to 100 percent of the market is dominated by two carriers. The 
light medium blue is 70 to 79 percent of the market dominated 
by two carriers and the light blue, 60 to 69 percent.
    When you don't have competition in the marketplace, it goes 
completely contrary to the economic principles that you all 
have to deal with every day in your businesses. And we have got 
a health insurance industry that is supply driven and with 
limited competition, and that is the problem we need to solve.
    I yield back the balance of my time.
    Mr. Stupak. Thank you, Mr. Braley.
    Mr. Dingell for questions, please.
    Mr. Dingell. Thank you, Mr. Chairman.
    First of all, members of the panel, my thanks and my 
compliments on your excellent testimony.
    Mr. Landauer, according to documents obtained as a part of 
this committee's investigation, your insurer, Wellmark, offered 
your business a 41 percent increase in premium costs this year; 
is that true?
    Mr. Landauer. Yes, it is.
    Mr. Dingell. How then are you going to budget or even stay 
afloat when you must absorb such huge unexpected increases in 
costs?
    Mr. Landauer. By raising the deductible.
    Mr. Dingell. So, in raising the deductible, you reduce the 
premium?
    Mr. Landauer. Correct.
    Mr. Dingell. Had you planned for this 41 percent increase 
in premiums?
    Mr. Landauer. No, I had not budgeted for it.
    Mr. Dingell. So let's assume that your insurance costs will 
rise 200 percent in 1 year. What then would you do?
    Mr. Landauer. Well, right now, I am taking myself off of 
insurance; and I do not think it will rise. I think we will pay 
less next year.
    Mr. Dingell. So you are indicating your cure for this is to 
remove yourself from insurance coverage?
    Mr. Landauer. Correct.
    Mr. Dingell. Now, Mr. Hetrick, you discuss the importance 
of attracting and retaining good workers. How important is the 
ability of small businesses to offer affordable health coverage 
to their employees to recruitment and retention of efforts?
    Mr. Hetrick. I think it is incredibly important. We compete 
every day with Eli Lilly & Company for talent in our community, 
and they have a remarkable benefits package. And for me to get 
that talent and keep them versus that big corporation, I have 
to have wonderful benefits.
    I will tell you, Mr. Dingell, I have had to lay off seven 
people this year in order to retain the health benefits for 
those of us who remain. So that is one-third of my workforce 
gone, salaries gone, jobs gone, in order to continue to 
continue paying 80 percent of the health care premium and 50 
percent of dependent coverage. So it is incredibly important to 
us.
    Mr. Dingell. I would note here that our committee's 
investigation in the small business premium situation has 
revealed some staggering rate increases. Six insurers were 
surveyed by the committee. Two reported annual premium 
increases of over 200 percent, two reported several increases 
of over 100 percent, and all reported numerous double digit 
increases.
    Now, it is to be noted these astronomical increases are 
often related to change in health status of employees or other 
factors that you gentlemen, as employers, cannot control, like 
ages of workers or the fact that many of your employees might 
be women. And this has led, as I have indicated, to 200 percent 
increases in some instances. I find this terrifying.
    Now, Mr. Landauer, again, I understand your deductible is 
$8,000 for an individual policy and $16,000 for a family 
policy; is that correct?
    Mr. Landauer. Correct.
    Mr. Dingell. Now, Mr. Landauer, you expect this to double 
for your plan next year; is that correct?
    Mr. Landauer. If I keep everything else the same, yes.
    Mr. Dingell. Would you want to amplify on that last 
comment, sir?
    Mr. Landauer. With my medical costs this year alone, they 
are going to be around $40,000. It doubled last year because 
they were $40,000. It doubled the year before, and they were 
not even $40,000.
    Mr. Dingell. Now, this I find to be a very troublesome 
situation. I would like to get beyond access to health 
insurance and to discuss the importance of access to care. You 
provide access to health insurance coverage for your employees, 
but I would guess that with the rising costs of the plan, 
largely realized through a skyrocketing deductible, that access 
is hindered for your employees. Now tell me what are you going 
to do next year about the plan which is, as you say, is going 
to double?
    Mr. Landauer. I am going to take myself off of the plan.
    Mr. Dingell. As your deductibles increase, do you hear 
concerns from your employees about their ability to confront 
and afford these rising costs that the deductible increase 
imposes upon them?
    Mr. Landauer. I hear more about the monthly cost associated 
with it.
    Mr. Dingell. Dr. Blumberg, if you please, can you speak to 
inefficiencies in the current health insurance market and the 
savings that can be realized from addressing them?
    Ms. Blumberg. Well, specifically with regard to small 
businesses, they are inefficient purchasers, as I mentioned 
earlier, of health insurance coverage as a consequence of the 
fact that there are very high fixed costs involved with selling 
insurance coverage. And so when you are taking a large amount 
of fixed costs and spreading it over a small number of people 
in a small firm, the administrative costs associated with 
selling that coverage are very high relative to the benefits 
that people are obtaining. So that is one inefficiency.
    Another inefficiency is that over a small risk pool, a 
small number of people, any individual who has extraordinarily 
high costs associated with their health care needs can have a 
very substantial impact in a particular year on the expected 
cost of that group. As a consequence, we see these big swings 
in premiums from year to year for small group purchasers. And, 
obviously, individuals would be willing to pay something in 
order to spread the costs over a period of time in order to 
smooth out those year-to-year variances, but insurance is not 
sold more than a year at a time, so they are stuck with the 
small pool over which to spread their needs.
    Another inefficiency is, with these big swings of premiums, 
we see a lot of churning every year in insurance plans by small 
employers. So when they are faced with a big increase, they are 
constantly trying to find a better price. As a consequence of 
that moving around to different plans, they are also creating 
higher administrative costs, which is a dead weight loss 
efficiency-wise.
    So what we are hoping with health care reform is to address 
these needs on both of those fronts, to first lower 
administrative costs by allowing small group purchasers to 
purchase coverage in the context of a national health insurance 
exchange. That should both lower administrative costs because 
some of the marketing costs, the enrollment costs associated 
with insurance could be done centrally, reducing those costs 
overall; and marketing costs in particular could be lowered 
that way through the exchange.
    In addition, by purchasing through a health insurance 
exchange, we would have a situation where the costs associated 
with each small employer could be shared in terms of risk 
pooling so that the risks would not be felt when there is a big 
change in a particular year with a small number of enrollees.
    In addition, if you are allowed to stay within the health 
insurance exchange over time, even if you change jobs, and 
because there would be less year-to-year variability in the 
premiums, we would see a reduction in the churning that we see 
now for small businesses going from plan to plan.
    In addition, there are some potential inefficiencies 
associated with individuals picking jobs as a consequence of 
the health insurance choices they face; and if we eliminate the 
disadvantage that people face by going with a small employer as 
a consequence of the more limited insurance options there, then 
people can pick their jobs based on the best fit for their 
skills instead of insurance choices which does potentially 
create inefficiencies in the job market.
    Mr. Dingell. My time is up, but I thank you and all of the 
panel members.
    Mr. Walker, the fact that I didn't ask you any questions 
does not mean that I'm not impressed with your testimony or 
don't appreciate your presence here.
    Gentlemen and lady, thank you very much.
    Mr. Walker. Thank you.
    Mr. Braley [presiding]. The Chair thanks the distinguished 
chairman emeritus and recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    From the testimony we have heard today, it is clear that 
skyrocketing health insurance costs are crippling small 
businesses, and how can we expect small businesses to compete 
in the market when they have to pay 18 percent or more per 
employee than larger corporations for the same health care 
plan?
    Mr. Hetrick, you stated in your written testimony that 
either the costs of health care coverage cuts into your profits 
or, if we pass it along to our customer, it renders us less 
competitive. In the economic downturn like the one we have been 
experiencing, have you been able to pass increased health costs 
on to your customers, or have the costs come out of your bottom 
line?
    Mr. Hetrick. Could you repeat the question?
    Mr. Green. Particularly in tough economic times like we 
have, have you been able to pass any of those costs--increased 
health care costs on to your customers, or does it go to your 
bottom line?
    Mr. Hetrick. No, we have tried to keep our rates 
competitive with what we have in the market, so it just takes 
down our profitability. And, quite frankly, we haven't made a 
profit for the last 2 years. I am covering it out of my pocket.
    Mr. Green. So my next question is very easy. It makes it 
real difficult to grow if you are not showing a profit for 2 
years?
    Mr. Hetrick. That's correct.
    Mr. Green. We have heard insurance premiums for small 
businesses are highly volatile, which hampers the business' 
ability to budget. Like I said, in my own experience years ago, 
premium increases can vary from year to year and are driven by 
factors that small businesses have no control over.
    Without reform, small business health costs will continue 
to skyrocket. In the absence of meaningful reform, businesses 
will pay nearly $2.4 trillion in health care costs over the 
next 10 years, and they will lose $52.1 billion in profits, and 
their workers, their employees, will lose $834 billion in 
wages.
    Dr. Blumberg, do you think, can America's small businesses 
remain competitive if we do not reform the health insurance 
market?
    Ms. Blumberg. I think there are real dangers, because I 
believe that the rate of small business provision of health 
insurance will inevitably go down over time, continuing the 
trends that we have seen, that it is going to be very difficult 
for small employers to compete for labor without some 
alternative source of insurance coverage for their workers. 
Because if they are competing for labor with larger businesses 
who can do a better job of providing coverage, it is going to 
be very difficult for them.
    Mr. Green. Mr. Chairman, in my experience, we were a small 
company and we did compete with large employers, some of which 
were across State lines, so they were under Federal law, 
whereas our company was typically under State law. And as a 
State legislator for many years, we couldn't control the cost 
of health care in Texas, and maybe that is why we had the 
highest number and the highest percentage of uninsured.
    We have a lot of small businesses who can't do it. 
Somewhere along the way, we have to provide that because--
provide that assistance and that reform.
    I think H.R. 3200 has some problems, but I think also we 
need to deal with the small business issue that larger 
companies can bargain and get lower rates where smaller 
businesses can't. And it can't be done even with State coops. 
It has to be done on a national basis.
    Thank you, Mr. Chairman, for your time. I appreciate our 
witnesses being here today.
    Mr. Stupak [presiding]. Thank you, Mr. Green.
    Ms. Schakowsky, for questions please.
    Ms. Schakowsky. Thank you, Mr. Chairman; and thank you so 
much to our witnesses.
    It is almost a rule in politics that we sing the praises of 
small businesses in our country as an engine for our economy, 
as the biggest creator of jobs. But I think it is high time now 
that we make it possible for you to continue to be those 
things, and the testimony that you have given has been very 
dramatic.
    I wanted to ask you, Mr. Landauer. You said, what are my 
options? You said, pay for my own medical costs--I am assuming 
that is what you are saying--in which case I would be forced to 
sell the business. Is that what you are talking about?
    Mr. Landauer. Correct.
    Ms. Schakowsky. And so you are going to sell the business?
    Mr. Landauer. If I have any major problems that require 
extra expense, my only option is to sell the business, because 
the doctors are going to require money.
    Ms. Schakowsky. My goodness. You said, or maybe move to 
Canada. We had a panel of witnesses last week that were advised 
to get a divorce so that the wife could go on Medicaid and be 
able to pay the family expenses. I mean, this is the United 
States of America, and to suggest things or leave options like 
moving to another country or getting a divorce seemed totally 
unreasonable.
    I wanted to mention one other thing. We had research from 
the National Women's Law Center that said that insurers who 
practice gender rating charged 40-year-old women from 4 to 48 
percent more than 40-year-old men; and the investigation of 
this committee suggested that gender discrimination was even 
worse. It said, according to internal insurance company data 
uncovered in our investigation, the exact same policy for a 
healthy 23-year-old woman may cost 143 percent more than a 
healthy 23-year-old man.
    I wondered if any of you were aware of this gender 
discrimination in setting rates, if it ever had to become a 
consideration in hiring? I would be interested to know.
    Mr. Walker.
    Mr. Walker. I have never used that as a consideration in 
hiring. But certainly I have encountered it. It has to do with 
pregnancy. When women are in the years that they might get 
pregnant or have those sorts of expenses charged against the 
insurance company, their rates are considerably higher, 
sometimes as much as double.
    Ms. Schakowsky. Yes. Mr. Hetrick.
    Mr. Hetrick. I will share with you, on the issue of gender, 
a fairly funny story, sad story. I am now remarried. My current 
wife runs a national sorority. She has 47 employees at her 
headquarters, where she is CEO; 45 of them are female. Her 
insurance rates are so high that she cannot even think about 
insuring the dependents of those employees, because you are 
insuring 45 women, most of child-bearing age. So again it comes 
down to actuarial tables and underwriting what are the expenses 
of women versus men. There is a difference. And they sock it to 
you.
    Ms. Schakowsky. It could also be who sets the rules. But 
that is beside the point.
    Mr. Landauer, have you ever encountered that, or knew about 
the gender discrimination?
    Mr. Landauer. I did not know about gender discrimination. 
We have had women who have been part of the company. The last 
woman we had was about 12 years ago. And insurance has become a 
tremendous mess in the past 5 years with us.
    Ms. Schakowsky. Yes. I want to ask you, Dr. Blumberg, 
another shocking example of insurance company discrimination 
comes from the individual insurance market. In the individual 
market, some insurance companies consider it a preexisting 
condition when a woman has had a C-section or been a victim of 
domestic violence, which can justify denying coverage 
altogether. From a policy standpoint, is there any good public 
policy reason why a victim of domestic abuse or a woman who 
delivered a baby by C-section should be shut out of the private 
health insurance market?
    Ms. Blumberg. I don't think there is any good public policy 
rationale for it. These are all decisions that are based on 
expectations of future health care spending. And in a system 
where individuals can make decisions about going in or out of 
the health insurance system, where you don't have everyone in 
all of the time, people will have a tendency to purchase 
coverage when they think they are going to need care.
    As a consequence of this voluntary system, current 
regulations allow the insurance to set these rates to protect 
themselves against that type of adverse selection. And that is 
one of the main reasons why it is important under reform to 
have an individual requirement of health insurance coverage; 
because once you have that in place, once you have everyone or 
almost everyone in the system, you can prohibit those kinds of 
practices and stop people from being rated up as a consequence 
of future expectations.
    Ms. Schakowsky. Thank you. And I want to thank the business 
owners for doing absolutely all you can to make sure that your 
employees have the coverage that you need.
    And I see at least in two instances, you know, Mr. Landauer 
and Mr. Hetrick have really personally suffered from the rules 
of the game right now. Actually, all of you have. So we will do 
our best to address that. Thank you. I yield back.
    Mr. Stupak. Thanks. I think we have completed one round. I 
know Mr. Gingrey has a question or two. I probably do. If 
anyone else, we will go another round with this panel as long 
as they have time. Before I go there, I guess I better go to 
Mr. Burgess first.
    Dr. Burgess. I will go second round.
    Mr. Stupak. OK. Mr. Gingrey, go ahead.
    Dr. Gingrey. Mr. Chairman, thank you very much. And I did 
have a few things that I wanted to ask the witnesses. 
Obviously, what our concern here and what your concern and what 
you expressed so clearly is the cost of providing health 
insurance to your employees in these small companies.
    And, you know, we are talking about in H.R. 3200, and then 
the two bills over on the Senate side, some pretty massive 
changes in our health care system and health insurance delivery 
system, something that is going to cost at least, I think 
conservatively, a trillion dollars over 10 years.
    And the point I wanted to make and the questions I wanted 
to ask and see how you feel about this, certainly there are 
those of us on the Republican side that feel that we have some 
good ideas too, and that we would like to share, that we would 
like the Majority and the President to listen to some of these 
suggestions.
    And let me ask a couple. In regard to your small 
businesses, and I want to ask all three of you--Mr. Walker, I 
will start with you, because I think that is where I ended 
during the first round. But the idea of maybe your glass 
company or Mr. Landauer's muffler shop, or Mr. Hetrick's 
communications shop joining together with other small 
companies, where a pool of a thousand or more created, and that 
you can actually purchase--shop for affordable health care for 
your employees with this larger pool, lower administrative 
costs, spreading the risk--we refer to it sometimes as 
association health plans. I would like your opinion on that as 
a cost saver.
    I would also like your opinion, Mr. Walker, you mentioned 
the anesthesiologist in Florida that was paying I think 
something like $275,000 a year for medical malpractice 
insurance. And CBO has estimated with malpractice insurance 
reform, tort reform, product liability reform, that we could 
save $54 billion over 10 years. That is a nonbiased CBO 
estimate, and the President has said it ought to be included. 
And yet none of these bills--nowhere in H.R. 3200 is there 
anything about medical liability reform.
    And then lastly, you know, Chairman Waxman was concerned 
about cost shifting. I have a concern that H.R. 3200, it shifts 
costs, but it shifts them on small businesses during an economy 
where we need job creation. And this letter that I submitted 
for the record, the 22 Democrats stated many small businesses, 
the very kind of businesses that should lead in creating jobs, 
would be taxed at over 50 percent. If this were true, would 
that concern any one of our three business owners? Mr. Walker, 
I will start with you.
    Mr. Walker. To that last question, certainly not. I have 
never made that kind of money. And I think the number that came 
out was 1 percent of us.
    As to pools, let me say this. Obviously, I am not in the 
insurance business, but if you spread the risk you are going to 
lower the cost to the employee. So as for a risk pool, I 
wouldn't say a high-risk pool, just a pool in general, let's 
put some of those healthy young people behind you in the same 
pool with us so we can lower the costs.
    Next, I have a really good example of something you are 
talking about. There is a duplicity in Florida, I don't know 
about the other States; I have to insure my employees with 
workers comp insurance while they are at work. So there are two 
systems of health insurance. Now, a few years back we had a 
couple accidents on the job. I can't have my guys on a 
construction site unless we have comp. So my answer to fixing 
that problem was go to an employee leasing program. Employee 
leasing program, technically my people don't work for me.
    Dr. Gingrey. Mr. Walker, excuse me for interrupting you, I 
am about to run out of time. If you don't mind, address the two 
questions about association health plans and medical liability 
reform, and then quickly let's go to Mr. Hetrick and Mr. 
Landauer.
    Mr. Walker. I would love to see liability reform. That 
anesthesiologist is insured three times. That is wrong.
    Secondly, what I was getting at with the workers comp 
question is the spreading of the risk. That is how I was able 
to retain workers comp.
    Dr. Gingrey. Mr. Hetrick.
    Mr. Hetrick. I am nowhere near the income level to pay for 
any kind of tax. I absolutely agree that we need to have larger 
risk pools. The prescription that you guys come up with for 
that, I don't know which one is best. I don't know if it is the 
exchanges, I don't know if it is cooperatives, I don't know if 
it is a public option, I don't know if it is universal payer. I 
know it needs to be done and I know the tax policies need 
changed so that people who are creating jobs don't get punished 
for it.
    Dr. Gingrey. Absolutely, Mr. Hetrick. And Mr. Landauer, 
real quickly.
    Mr. Landauer. I agree with Mr. Hetrick on both his answers. 
We do need some sort of reform with the insurance, whether it 
be nationwide, whether it be the single-payer plan, whether 
groups. And am I allowed to ask a question?
    Mr. Stupak. Sure, go ahead. I don't know if any one of us 
can answer it.
    Mr. Landauer. Those of you who are against a government-run 
plan, are you also against Medicare for the seniors? Because to 
me, that is the government-run plan. So do we do away with 
Medicare for the seniors?
    Dr. Gingrey. Mr. Chairman, I will be glad to try to take a 
stab at that if you will allow. No, we are not. Those of us who 
are against throwing the baby out with the bath water in regard 
to this current reform of our health care system are not 
opposed, not one bit, to Medicare. And many of us sitting on 
this panel are now eligible for Medicare. And we want it not to 
be weakened to pay for something else. We want it to be 
strengthened.
    We are concerned very much about the viability of Medicare, 
which within 7 years will be almost insolvent. And we have $35 
trillion worth of unfunded liability over the next 50 years in 
the Medicare program. So when we see $500 billion taken out of 
the current Medicare system, particularly Medicare Advantage, 
to try to insure 15 million people, many of whom are young and 
healthy and don't want first dollar coverage, it just doesn't 
make a whole lot of sense. But thank you for your question.
    Mr. Stupak. Let me give you the real answer now on that 
one. Actually, it was an amendment in the committee. No one 
voted to cut out Medicare. And under 3200 we expand Medicare by 
paying for preventive testing, mammograms, colon cancer, 
diabetes, things like this. Plus, we try to close that doughnut 
hole on prescription drug coverage because you have that 
doughnut hole. I don't think anyone is against that. It is just 
how are we going to structure it. That is why we appreciate all 
of your testimony, because small business is one of them we 
have been struggling with, how best to do it; 3200, three 
bills, they will go through changes, we will have a final vote 
in the House maybe later this month or early next month. And 
then it has to go to Senate. And after it comes back from 
Senate we have a conference. And hopefully after that, 
hopefully by December we have a final bill.
    I just urge all members to take a look at the reality of 
the bill when we get to that final point in December and cast a 
vote according to all these hearings we have been having.
    Mr. Burgess hasn't had a chance to ask a few questions. I 
am going to go to Mr. Burgess, and then I have a few questions, 
and then I think Mr. Braley, and then we will wrap it up. Mr. 
Burgess.
    Dr. Burgess. Thank you, Mr. Chairman.
    Mr. Landauer, just to further expound on your observation, 
the issue before us is not--right now the Federal Government 
owns about 50 percent of the health care dollars that are spent 
in this country. And the question is not do we roll that back, 
but do we move more of that dollar into the realm of the 
Federal Government. There are several of us who are concerned 
about that.
    I am a physician by trade, ran a small business for almost 
25 years in my community. So I understand a lot of the 
difficulties that have been discussed today. I have lived them 
firsthand. We had a woman testify in front of this committee, 
or maybe it was the Health Subcommittee, who was a pediatrician 
in Alabama. She got my attention because she went into practice 
the same year I did, 1981. There is something that happens in 
the medical practice where you have got to pay attention to 
what is called the payer mix. That is, if you have patients who 
are covered by Medicaid and Medicare, those Federal programs, 
as good as they are, and many people depend on them, but as 
good as they are, they don't cover the cost of delivering the 
care in the physician's office. So the doctor is going to have 
to make up that cost somewhere else. And typically, with as bad 
as the health care profiteers, United, Cigna, and Aetna are, 
they do tend to allow that practitioner to be able to cover 
that cost that is not paid for by--that is not covered by 
Medicare and Medicaid.
    Medicare is designed for doctors to go broke very slowly, 
but they still go broke. Medicaid doesn't have that same safety 
mechanism, so you go broke much more quickly.
    In this individual's case, she had 70 percent of her 
practice was now Medicaid in a rural Alabama pediatric 
practice. And she said she is borrowing from her retirement 
fund to keep her doors open.
    I will tell you, having had some experience with that, and 
you may have encountered this yourself, if you lose money on 
every transaction, very difficult to make it up in volume. And 
that is what she found herself doing. I felt like coming across 
the podium and saying, Please stop that, because ultimately you 
are just going to spend down your retirement plan and then you 
are still going to be in the same problem you were before. Her 
problem was too much of her practice was now the public option, 
if you will, Medicaid.
    So that is what worries a lot of us. Are we going to erode 
the ability to be able to continue for doctors around the 
country to keep their practices open if we go to a larger 
government share.
    There are obviously other things that are involved in that, 
and you have heard many of them today. But that in brief would 
be my answer to your question. Nobody is talking about rolling 
back the part of the public option, if you will, the part of 
the public insurance that already exists. It is what it is 
right now, and no one thinks that that is going to be removed.
    I would just like to ask--and I apologize, Mr. Chairman, 
for being late. I was at the National Institute of Health for 
most of the day. Reading through the testimony--and I 
apologize, Dr. Blumberg, I don't think I had yours--but just 
the testimony of our small business owners, it seems like there 
is a recurrent theme is that pooling came up as an issue, and 
the ability to pool your employees or your people that you are 
looking to insure. The concept of association health plans, 
where you can pool not just from within your own neighborhood, 
but if it is a group of florists or realtors, even doctors' 
offices or dentists' offices, you can pool with like business 
models even around the country to get a much larger patient 
pool.
    Very difficult to get the young folks behind us to sign up 
because we are talking about an insurance payment that 
essentially equals a bass boat, and they are healthy and the 
bass are biting, so I don't blame them for not wanting to buy 
insurance. But if you can pool and keep those costs low, that 
is a way to bring more people in. And I think one of you said 
it, you broaden the base and lower the rate.
    Same thing that we should be focusing on for taxes. But are 
you familiar with the concept of association health plans? It 
is something that has been talked about up here predating my 
arrival in Congress. But have any of you explored that as a 
possibility or an option? I mean you can't do it now because we 
don't let you. But if we did let you, would it be an option 
that you would consider?
    We will just go down the table. Mr. Landauer.
    Mr. Landauer. Yes, that would be an option that is very 
much considered. My brother is an accountant in the State of 
Iowa. And he belongs to a State group of accountants for 
insurance purposes only. And that keeps his costs low on 
insurance. And if they can do that for the accountants in Iowa, 
they should be able to do it for the muffler shop owners not 
only in Iowa, but nationwide. So yes, that is a very good 
option.
    Dr. Burgess. I tend to think of that as ERISA for the 
little guy. And if it is working well in Iowa, wouldn't it also 
be great if he could also partner with accountants in Missouri 
and Oklahoma and get an even larger pool from which to then 
negotiate the rate with the insurance company?
    Mr. Hetrick, do you have a thought on that?
    Mr. Hetrick. You know, I have talked about the risk pool 
here is a good idea, a bigger risk pool for businesses. It 
still leaves us with an employment-based health care system. 
And it doesn't help the people who lose jobs or change jobs. So 
it may be part of the answer.
    It can't be the only answer, because I have laid off people 
this year. And the biggest concern about laying people off is 
that the COBRA runs out after a while. And the COBRA is 
incredibly expensive. And I feel incredibly guilty laying 
people off, but I had to lay some people off in order to keep 
the other people's health benefits coming.
    Dr. Burgess. I am going to get cut off by the Chairman 
here. You are correct about your observations on COBRA. My 
opinion is there are things that are within our purview and 
ability to modify that system and improve that system so it is 
not so injurious. But what about the effect of having an 8 
percent payroll tax on your looking over the horizon and hiring 
back employees when the business improves?
    If 3200 has an 8 percent employee tax----
    Mr. Hetrick. If all health care is paid out of tax dollars?
    Dr. Burgess. If 3200 were to pass as is today. Certainly 
not all health care is paid for out of tax dollars, because we 
still leave 17 million uninsured under 3200.
    Mr. Hetrick. I think you are now down to the fundamental 
question: Is health insurance a responsibility of society to 
the people who are members of it? And do we all have the shared 
obligation?
    If you want to talk about--all the solutions that we are 
looking at are trying to find some subset of society to pay for 
another subset of society. We are asking now for businesses to 
pay for a large portion of society. We ask for the government 
to pay for some portion of society.
    Dr. Burgess. We don't pay for it. We take the money from 
you. We don't earn any money on our own. We produce nothing. 
You may not have noticed that today.
    Mr. Hetrick. Technically, the best way to spread the risk 
is to put everybody in the risk pool and for everybody to share 
in the cost equally. And this is the situation----
    Dr. Burgess. As a practical matter--forgive me for 
interrupting--but as a practical matter, an 8 percent payroll 
tax, what does that do to you for job creation going forward? 
As you look over the horizon, the job market or the economy is 
improving, you are going to bring people back into your 
business. But now whether someone wants to provide the 
insurance or not, there is an 8 percent payroll tax affixed to 
that job.
    Mr. Hetrick. I am sorry, I have trouble hearing.
    Dr. Burgess. The payroll tax will be the employer mandate, 
that everyone of course will contribute. So is this 8 percent--
I mean this is one of the largest taxes that has ever been 
levied upon--one of the largest taxes that has ever been levied 
on small business. Is that going to have an effect on your 
ability to hire in the future?
    Mr. Hetrick. It is still employment-based. You are still 
basing your system on people who work.
    Dr. Burgess. But that is the language in 3200 that we have 
in front of us, is that it will be paid for with an employer 
mandate. So people who work, you are correct, will be paying 
the bills. The employers will be assessed a tax, whatever you 
want to call it, a premium of 8 percent of their payroll to 
cover the cost of the insurance.
    Mr. Hetrick. If I am paying for a tax to get the health 
coverage or paying the insurance company to get health 
coverage, I want the best deal. To me it is like getting my 
son's college loans. I had a choice between a private lender 
and a government direct lending program. And those two went 
into competition with each other, and it helped drive the rates 
down on both sides of the deal.
    I would love to see the same thing on the health care. So 
the payment mechanism of it, whether I am paying for a 
government-funded program or paying the insurance company as I 
am now, I want the best deal.
    Dr. Burgess. So you would--if the best deal were to pay the 
8 percent payroll tax, people would--you would move away from a 
private insurance to the government insurance. That would be a 
business decision that you would make, would be to leave the 
private system and go to the government system.
    Mr. Hetrick. I want to look----
    Dr. Burgess. And that has been one of our concerns as well, 
that we will drive out the private sector. And again, as my 
response to Mr. Landauer, if you erode the private sector--
remember, the private sector is paying part of the freight. It 
is carrying part of the load for the public sector. I am not 
here to apologize for insurance companies. They brought a lot 
of the problems on themselves. Still, they fund the government-
run insurance currently. We couldn't run our offices without 
that ability to pick up some from the private sector. I am 
sorry, Mr. Chairman.
    Mr. Stupak. You used both rounds at once.
    Dr. Burgess. I knew you missed me all day, so I wanted to 
take full advantage of that.
    Mr. Stupak. Thank you, Mr. Burgess.
    Just one or two questions to wrap this up. It is my 
understanding the supplemental report we wanted in earlier 
comes in without objection; is that right, Mr. Gingrey.
    Dr. Gingrey. Mr. Chairman, on that, excuse me, Mr. Burgess, 
on that specific question, while we do not object to the 
inclusion of this staff memo, we again caution the Majority 
that the inclusion of specific examples in States with only a 
few insurance companies could make it apparent which insurance 
company is being discussed in each example.
    I do waive my reservation, Mr. Chairman, and I yield back. 
I just wanted to make that point.
    Mr. Stupak. Sure. And on the supplemental report here dated 
October 20th, if there are some redactions you want, just let 
us know and we will put it in there. But I don't see anything 
in there.
    Let me ask a question along those lines. In the 
supplemental memo dated October 20th, we talk about group-
specific factors. And Dr. Blumberg, it may be appropriate to 
ask you, I mean you have your baseline in health care which is 
based on utilization and rate-setting and that, but then you go 
into group factors. And for small businesses, it indicated that 
the group factors are health and claims experience of the 
group, the age of the group, the sex of the group, the size of 
the small business, the number of employees, the industry. And 
then we go to a final part of the rate creating which depends 
on administrative costs, profit that the insurance carrier 
expects, plus the agent's commissions, plus the taxes. So the 
small business or anyone buying insurance is paying about nine 
different factors for small businesses.
    Is that the same with larger businesses, or does this 
larger pool just sort of wipes out many of those factors?
    Ms. Blumberg. Well, the vast majority of the very large 
businesses are self-insured today. So their costs are based on 
the risk of those that are in the firm. But once you get to a 
large size, then basically the distribution of expenses within 
the firm looks like the distribution of expenses in the 
population at large.
    And so you don't have to worry about these things at a 
micro level. You are looking at the whole group. You are basing 
it on the law of large numbers. And so for those medium-sized 
firms who are buying commercial coverage, those are experience-
rated as well, but they are at lower administrative costs than 
the small firms are. And sometimes they do face difficulties as 
a consequence of their risk. But they are less likely than a 
small firm to have those big risk swings from year to year 
because of their size.
    Mr. Stupak. OK. And Mr. Walker, Mr. Hetrick, Mr. Landauer, 
it seemed like your premiums went up as your employees went 
down. Correct?
    Mr. Walker. That is correct. I am sorry, Mr. Landauer or 
me?
    Mr. Stupak. Mr. Walker, go ahead.
    Mr. Walker. No, as the economy crashed----
    Mr. Stupak. Right.
    Mr. Walker [continuing]. Then we were caught up in the 
insurance's ability to climb out of the economy. And they 
actually raised the rates to keep themselves employed, or so it 
seemed to us.
    Mr. Stupak. I am from Michigan. Our small businesses are 
looking at 22 to 40 percent increases in just this year alone, 
and not necessarily because they lost employees; just the 
economy. And the economy is bad in Michigan, and we are just 
getting hit again.
    Mr. Landauer, do you have anything to add to that, or Mr. 
Hetrick? Just what I was saying, Mr. Hetrick, the number of 
employees, it seemed like if you lose employees, you said you 
had to lay off employees, therefore your rates then went up 
because you had less of an area to spread a risk over.
    Mr. Hetrick. How many have we cut back?
    Mr. Stupak. No. Just did you realize that as you dropped 
employees--you said you had to lay some off to pay for your 
health insurance--then your health care costs actually went up 
because you have less employees to spread that risk over.
    Mr. Hetrick. Since we have fewer people on, the cost went 
down, unfortunately.
    Mr. Stupak. Oh, yours went down. OK.
    Mr. Hetrick. We also have had 2 years, 2007 and 2008, when 
we had the only single-digit cost increases in our company's 
history. It had been double digit every other year except those 
two. Now it is back to 19 percent.
    Mr. Stupak. Our committee now for 2 years we have been 
looking at the private insurance industry, and we have had our 
last three hearings now--it seems like the insurance companies 
win; if you have no claims, they get their money. No claims, 
they are not paying out, they makes profits. People get sick, 
premiums go up, they make profit. You really get sick, they 
drop you or else they will purge a small business from their 
rolls. It seems like in every scenario, the insurance industry 
still wins.
    Where is their risk? You are all talking about pooling and 
spreading the risk. Where is the risk for the insurance 
industry? I guess I don't see any. Mr. Walker.
    Mr. Walker. I can tell you that I bet the three of us, we 
have never met each other, but I will bet you the three of us 
have lost any ability to trust an insurance company because of 
that situation. And that is why we are probably all three in 
favor of at least a public option.
    Mr. Stupak. Dr. Blumberg, one more question if I may. There 
are a lot of us that talked about the insurance industry is not 
subject to antitrust laws. If they raised their rates 18 
percent, 28 percent, 22 percent, really nothing you can do 
about it. There has been a lot of discussion about taking away 
the antitrust exemption. Would that create competition in the 
marketplace to lower some of these rates for small or large 
businesses?
    Ms. Blumberg. You know, the situation is very difficult 
because there really is very little in terms of oversight of 
rating by State regulators. And the States are really where the 
vast majority of regulation of the insurance industry is today. 
And the resources there are really concentrated on ensuring 
that insurers are solvent and they meet the minimum solvency 
requirements. So there is not a lot of attention paid to how 
much the rates are going up and in what way they are going up, 
for whom.
    And so, you know, I am not an antitrust attorney, so I am 
not an expert in that area. But all I would caution is to say 
that I am not as concerned about the antitrust, you know, 
provisions as I am about greater oversight of the way that the 
insurers are operating.
    Mr. Stupak. Thank you. Mr. Braley, a question?
    Mr. Braley. Thank you, Mr. Chairman. I was a little bit 
surprised when Dr. Burgess went down the route of talking about 
this onerous 8 percent tax per employee on small businesses. 
Because I was attacked at one of my town hall meetings on 
health care reform by a small business owner who accused me of 
giving incentives for businesses to dump existing health care 
coverage they have that is more costly than that 8 percent 
requirement in order to save costs and improve their bottom 
line.
    So let's talk a little bit about those numbers. And I would 
be interested in all of your feedback on this. There are many 
small businesses in Iowa that employ people who make $20,000 a 
year or less. And when you are looking at the average annual 
premium for a family of four for small businesses at $13,000 a 
year, let's talk about that number. If you pay an 8 percent 
surcharge on an employee making $20,000 and they can go into 
the exchange and buy their own product with some supplemental 
affordability credits, that is going to cost a small business 
owner $1,600. That sounds considerably less than $13,000 a 
year. A $40,000 a year employee, what is that going to cost you 
if you decide that option? $3,200. Somebody making $60,000 a 
year working for a small business in Iowa is doing pretty well, 
aren't they, Mr. Landauer? $4,800 a year. That is about a third 
of what it is costing right now to insure a family of four. You 
can make $120,000 a year working for a small business, pay 8 
percent into the exchange, and pay $9,600, substantially less 
than it costs right now to insure a family of four.
    So when Congresswoman Blackburn was talking about 
confidence in the free market-oriented health care solutions to 
address these problems, count me as skeptical. There has been 
no institutional impediment to associated health care plans 
addressing the needs of small business owners in all 50 States. 
Have they done it? No. That is the problem that we are facing 
with health care. And I would just invite each of you to 
respond to the problems that I have just identified. Mr. 
Landauer?
    Mr. Landauer. Would you repeat the question?
    Mr. Braley. I won't go through the whole thing. I mean 
isn't it true that as a small business owner, if you are 
struggling to get by and these rising health care costs are 
tapping every dollar you have available to return a profit, 
that if you have an opportunity to pay substantially less by 
paying 8 percent of your employees' income into a pool and 
letting them choose their own health care, and if they are 
eligible they qualify for affordability credits to get a health 
care product that may be better than what you are offering them 
now, how is that not a positive outcome?
    Mr. Landauer. Correct. That is a perfect way of doing 
business.
    Mr. Braley. Mr. Hetrick, do you have any comments about 
that?
    Mr. Hetrick. Given the choice, I would have to look at 
which was the better deal if the coverage is equal. We have 
always erred on the side of providing quality coverage for our 
people.
    Mr. Braley. And you made a very good point, because you are 
in a market where you are competing for good employees. And one 
of the things we know is that in a free market system, that is 
always going to provide incentives for employers who want to 
attract the best caliber of employee, to offer a better 
benefits package to their employees.
    Mr. Hetrick. Yes.
    Mr. Braley. And that is why in the exchange that we have 
constructed there is a basic plan, a premium plan, an enhanced 
plan, and a premium-plus plan, so that employers can go in, 
even though they are going to have some basic required elements 
of coverage, and decide what makes most sense for their 
employees.
    Mr. Hetrick. Absolutely. And if you have got a cheaper way 
for me to pay for that same thing, I will go for the cheaper 
option.
    Mr. Braley. Mr. Walker.
    Mr. Walker. I have never been able to consider insuring a 
family of four. It has always been too expensive. But I think 
for an individual employee, we crunched these numbers last 
week, and it came to just below 5 percent. So at 8 percent for 
a family of four, that is a much better option, no doubt.
    Mr. Braley. Dr. Blumberg.
    Ms. Blumberg. Well, our analysis has showed that there are 
some advantages for many small employers to being able to use 
the pool and opt to pay a payroll assessment in certain 
circumstances as opposed to the premium. And they will 
obviously choose what is best for them financially.
    And just in case you are interested, I was not asked 
directly, but I have done quite a bit of analysis of 
association health plans and how they differ from exchanges. 
And they are really very different. One is oriented towards 
really broad pooling of health care risk, which is what you get 
under the exchanges laid out in H.R. 3200, whereas association 
health plans are really oriented towards further segmentation 
of health care risk, allowing the healthier firms to band 
together to avoid sharing in the costs of the higher-cost small 
firms.
    Mr. Braley. Thank you.
    Mr. Stupak. Mr. Gingrey, I think you had one more question 
you wanted to ask?
    Dr. Gingrey. Mr. Chairman, thank you. I want to make a 
couple of comments as just sort of a follow-on to what my good 
friend from Iowa, Mr. Braley, just said.
    No question about it, I think he is right, this paying the 
8 percent is a lot cheaper than buying and providing health 
insurance from the employees. And corporate America, under the 
provisions of H.R. 3200, will eventually, within 5 years let's 
say, drop 110 million of their employees who are currently 
covered by corporate America, and they will let them go right 
into that exchange.
    And if the final bill has a public option, the government--
trust me, I am from the government, I am here to help you--Mr. 
Walker said the three businessmen at the table probably agree 
that they don't trust the insurance industry, trust the 
government. They will absolutely crowd out the marketplace for 
the private insurers, and you will simply have, Mr. Landauer, 
you definitely then will have Medicare for all, and you will 
have lack of providers, and you will have rationing of care.
    And that is why those of us on this side of the aisle are 
so concerned with the public option. It is a Trojan horse for a 
single-payer system. And clearly, because of this 8 percent 
deal that Mr. Braley just talked about, employers across this 
country will drop their coverage of their employees like a hot 
potato. So it is not really a question, Mr. Chairman, but I 
appreciate you giving me the opportunity.
    Mr. Hetrick, you mentioned earlier about the student loan 
program. And you said, hey, look, this competition between 
FFELP and the Direct program, this is great, let's let them 
compete and let's see who offers a better rate for your child 
so they can go to college and get a college education. Well, 
the government wanted to compete, but now they have crowded out 
the FFELP, and it is all Direct loan program as a bill that we 
just passed, without my vote of course, in the House of 
Representatives, and there will be no competition. It will be 
all government.
    Same thing with health care. That is my concern. You can 
comment on that, any one of the four of you, if you would like, 
if I have got time remaining, Mr. Chairman.
    Mr. Stupak. Dr. Blumberg.
    Ms. Blumberg. We looked quite a bit at the public plan 
option, and do not believe that it is going to eradicate 
private health insurance coverage, even if implemented in the 
way laid out in the current proposal. And in fact, well over 90 
percent of the number of Americans currently covered by private 
insurers we believe would continue to be--would be covered by 
private insurers under the reform.
    We are talking about bringing in a lot more people into the 
system than are insured today. Many of them would be covered 
through private plans. And so because you are increasing the 
total number of coverage, we think roughly 92 percent as many 
people would be covered by private insurance, even in the 
presence of the public plan, perhaps higher than that depending 
upon the rules of getting into the exchange.
    In addition, when you think about situations where there 
has been a public plan competing with private plans, I think 
one important example to remember is just how badly private 
insurers did want to compete with the Medicare program, and 
hence we developed the Medicare Advantage program. Now, those 
private insurers have actually been quite advantaged by rules 
under the Federal Government, and in fact have been doing quite 
well, to the point where they have been providing extra--well 
over extra benefits than what the Medicare beneficiaries are 
entitled to, and increasing costs as a consequence.
    So we do have examples where we have allowed this kind of 
competition between private plans and a public health plan, and 
the privates have sustained themselves and done quite well.
    Mr. Stupak. Very good. Well, let me thank you all for 
coming. That concludes our questioning. I want to thank you for 
your testimony and your coming up here to testify in Washington 
to give us some insight. As you can see, we have differences of 
opinion on health care, and a long way to go, but hopefully we 
will get something done for the American people.
    Dr. Burgess. Mr. Chairman.
    Mr. Stupak. Mr. Burgess? That is it, you are cut off, there 
is the bell. Go ahead.
    Dr. Burgess. I have some additional questions I would like 
to submit in writing.
    Mr. Stupak. Yes. I was just going to get to that part. The 
committee rules, as you know, provide that members have 10 days 
to submit additional questions for the record. And that will be 
part of--this tradition will be kept. You have 10 days to do 
so, if you would like to submit additional questions for the 
record.
    Therefore, I ask unanimous consent that the contents of our 
document binder be entered into the record, provided that the 
committee staff may redact any information that is business 
proprietary, relates to privacy concerns, or is law enforcement 
sensitive. Without objection, documents will be entered in the 
record.
    [The information was unavailable at the time of printing.]
    Mr. Stupak. That concludes our hearing. This meeting of the 
subcommittee is adjourned.
    [Whereupon, at 3:42 p.m., the subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
    [GRAPHIC] [TIFF OMITTED] 74846A.054
    
    [GRAPHIC] [TIFF OMITTED] 74846A.055
    
    [GRAPHIC] [TIFF OMITTED] 74846A.059
    
    [GRAPHIC] [TIFF OMITTED] 74846A.060
    
    [GRAPHIC] [TIFF OMITTED] 74846A.061
    
    [GRAPHIC] [TIFF OMITTED] 74846A.062
    
    [GRAPHIC] [TIFF OMITTED] 74846A.063
    
    [GRAPHIC] [TIFF OMITTED] 74846A.064
    
    [GRAPHIC] [TIFF OMITTED] 74846A.065
    
    [GRAPHIC] [TIFF OMITTED] 74846A.066
    
    [GRAPHIC] [TIFF OMITTED] 74846A.067
    
    [GRAPHIC] [TIFF OMITTED] 74846A.068
    
    [GRAPHIC] [TIFF OMITTED] 74846A.069
    
    [GRAPHIC] [TIFF OMITTED] 74846A.070
    
    [GRAPHIC] [TIFF OMITTED] 74846A.071
    
    [GRAPHIC] [TIFF OMITTED] 74846A.072
    
    [GRAPHIC] [TIFF OMITTED] 74846A.073
    
    [GRAPHIC] [TIFF OMITTED] 74846A.074
    
    [GRAPHIC] [TIFF OMITTED] 74846A.075
    
    [GRAPHIC] [TIFF OMITTED] 74846A.076
    
    [GRAPHIC] [TIFF OMITTED] 74846A.077
    
    [GRAPHIC] [TIFF OMITTED] 74846A.078
    
