[Senate Hearing 111-865]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-865



                                 OF THE

                          LABOR, AND PENSIONS

                          UNITED STATES SENATE


                             FIRST SESSION




                             APRIL 28, 2009


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               EDWARD M. KENNEDY, Massachusetts, Chairman

CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming
TOM HARKIN, Iowa                     JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico            RICHARD BURR, North Carolina
PATTY MURRAY, Washington             JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island              JOHN McCAIN, Arizona
BERNARD SANDERS (I), Vermont         ORRIN G. HATCH, Utah
SHERROD BROWN, Ohio                  LISA MURKOWSKI, Alaska
ROBERT P. CASEY, JR., Pennsylvania   TOM COBURN, M.D., Oklahoma
KAY R. HAGAN, North Carolina         PAT ROBERTS, Kansas          
JEFF MERKLEY, Oregon                 

           J. Michael Myers, Staff Director and Chief Counsel

     Frank Macchiarola, Republican Staff Director and Chief Counsel



                            C O N T E N T S



                        TUESDAY, APRIL 28, 2009

Kennedy, Hon. Edward M., Chairman, Committee on Health, 
  Education, Labor, and Pensions, opening statement..............     1
    Prepared statement...........................................     2
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     3
Bingaman, Hon. Jeff, a U.S. Senator from the State of New Mexico.     5
    Prepared statement...........................................     5
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     6
Kingsdale, Jon, Ph.D., Executive Director, Commonwealth Health 
  Insurance Connector, Boston, MA................................     8
    Prepared statement...........................................     9
McAnneny, Eileen, Esq., Senior Vice President, Associated 
  Industries of Massachusetts, Boston, MA........................    12
    Prepared statement...........................................    12
Liu, Ruth, Senior Director of Health Policy and Health Reform, 
  Kaiser Permanente, CA..........................................    15
    Prepared statement...........................................    16
Besio, Susan, Ph.D., Director, Office of Vermont Health Access, 
  Human Services Agency, State of Vermont, Burlington, VT........    24
    Prepared statement...........................................    25
Chen, Harry, M.D., Emergency Room Physician and Board of Vermont 
  Program for Quality Health Care, Burlington, VT................    33
Prepared statement...............................................    25
Clark, Hon. David, Speaker of the Utah House of Representatives, 
  Salt Lake City, UT.............................................    34
    Prepared statement...........................................    34
James, Brent, M.D., M.Stat., Executive Director, IHC Institute 
  for Health Care Delivery Research, Intermountain Health Care, 
  Inc., Salt Lake City, UT.......................................    38
    Prepared statement...........................................    39



                        (ROUNDTABLE DISCUSSION)


                        TUESDAY, APRIL 28, 2009

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
     The committee met, pursuant to notice, at 2:31 p.m., in 
Room SD-430, Dirksen Senate Office Building, Hon. Edward 
Kennedy, Chairman of the Committee, presiding.
    Present: Senators Kennedy, Mikulski, Bingaman, Murray, 
Sanders, Hagan, Merkley, Enzi, Alexander, Burr, Isakson, Hatch, 
and Coburn.

                  Opening Statement of Senator Kennedy

    The Chairman. We will come to order.
    Senator Enzi was telling us about the good old days, when 
this committee was really called to order, and had great 
success in bringing together different colleagues to consider 
the work of this committee.
    It's good to see all of you today and I appreciate it very 
    I think most of you have a pretty good idea about where we 
are--I think our committee, over a period of time, has been 
looking at a variety of different issues. The Medicare, 
Medicaid, and CHIP programs--those have all been issues that we 
have been focused on, over the past several years.
    We still have very important work to do and we are very, 
very hopeful that our committee will be able to deal 
effectively in these areas, as we have in some of the others.
    We have an extraordinary group of individuals whom we have 
called on to be of help and assistance to this committee. 
Rarely have we had a group of individuals who have worked as 
conscientiously and thoroughly on the issues which we're facing 
before the committee. We are enormously grateful to all of 
those who have been a key part of all of our efforts.
    We are especially thankful for Jon Kingsdale and Eileen 
McAnneny who are joining us today from Massachusetts. We will 
have a chance to introduce all of those who are here, and we 
will start with our members, and start with Senator Enzi.
    We are very thankful that Senator Enzi has been willing to 
take on so much of the responsibility of this committee for 
these past weeks, and he has just done an extraordinary job, 
and we're all very, very appreciative and grateful to him.
    I will ask him to start, and then we'll go along with the 
other members of the committee.
    [The prepared statement of Senator Kennedy follows:]

                 Prepared Statement of Senator Kennedy

    Today, America stands at an historic crossroad for our 
health care system. Unlike earlier attempts at health reform 
dating back to President Harry S. Truman, there is no realistic 
alternative. Either we join together and put our Nation on the 
right track to affordable, accessible health care for all, or 
our system will collapse from its own weight and 
    A few key facts demonstrate the magnitude of this problem. 
More than one in six Americans--nearly 50 million individuals--
are uninsured.

     25 million more are underinsured.
     Nearly 80 percent of the uninsured are from 
working families.
     40 percent belong to the middle class.
     The uninsured lack insurance because they can't 
afford it.

    Our Nation spent about $2.4 trillion on health care in 
2008--more than twice as much as in 1997 and half as much as 
projected for 2017.
    Employer-sponsored health insurance premiums have grown 
four times faster than wage increases over the last 8 years.
    These increases have affected businesses profoundly. GM 
spends more money on health care than on steel. Starbucks 
spends more on health insurance premiums than on coffee.
    The impact is particularly harsh on small businesses. In 
2007 only 45 percent of firms with 3-9 employees offered health 
benefits (compared to 99 percent of firms with 200 or more 
    What harms businesses also harms families. Non-elderly 
Americans spend more than 10 percent of their income on health 
insurance premiums, and the percentage rises every year. For 
those without access to employer-sponsored insurance and who 
have pre-existing health problems, insurance is often 
unavailable at any price. Elderly couples must have average 
savings of $300,000 to pay for their lifetime health expenses 
not covered by Medicare.
    Job losses resulting from the current economic crisis are 
making this problem even worse. For every 1 percent increase in 
the unemployment rate, another 1.2 million persons lose their 
health insurance. For every 100 people losing their jobs, the 
ranks of the uninsured grow by 85. Lack of health insurance 
results in postponement of needed care, worsening of illness, 
increased absence from work and decreased productivity, and 
higher costs when these people are treated for acute illnesses, 
through expensive emergency care, with poor follow-up.
    These problems will worsen as health costs accelerate 
beyond the growth of the overall economy. Without reform, 
Medicare spending will consume 25 percent of Federal income tax 
revenues by 2025, and 40 percent by 2035, according to the 
Trustees of the Medicare Trust Fund.
    Medicaid, funded by Federal and State budgets, will face 
equally large financial challenges. Employers will be unable to 
absorb the growth in insurance premiums, and the ranks of the 
uninsured will continue to swell.
    Congress must deliver strong medicine to America's health 
care system to break this cycle. As we have learned from 
successful State experiments, the foundation for an affordable 
and accessible health care system rests on a three-legged 
stool: The first is system-wide reform of health insurance 
markets, especially the individual and small employer markets. 
The second leg is shared responsibility by individuals, their 
employers and government, with each having an essential role to 
achieve full participation. Finally, we need realistic support 
and subsidies for those who cannot afford to purchase health 
insurance on their own.
    Today, we will hear from experts from four States which 
have pioneered different approaches to expanding coverage for 
reforming their delivery systems: Utah, Vermont, California, 
and Massachusetts. We will hear about their successes and 
failures, the obstacles they have yet to overcome, and most 
importantly, the lessons from their experience for national 
health reform.
    I take particular pride in the achievements of the 
Massachusetts health reform, which has increased coverage from 
90 percent of all residents to about 97.5 percent in less than 
3 years, and provides valuable lessons based on its successes 
and shortcomings. No other State has achieved this level of 
success, and it has faced up to problems in primary care, 
quality of care, and other aspects of this issue with courage 
and tenacity.
    I appreciate the remarkable progress made by each of these 
States and I look forward to learning more today about the 
lessons they can teach us in preparation for effective national 
health reform.

                   Opening Statement of Senator Enzi

    Senator Enzi. Thank you, Mr. Chairman. I want to thank you 
for the way you've distributed the workload on your side, while 
it's been necessary for you to be gone. You've had some 
outstanding people who have been willing to work, and as a 
result we've gotten results.
    Since everybody's kind of concentrating on healthcare a 
little bit today, because of what's happened in Mexico and is 
now spreading to the United States, I do want to mention that 
Senator Burr spent about a year and a half of his life working 
on a bioterrorism bill, and everybody on this committee got to 
work on it, and because of the efforts of this committee, 
they're in place already, 50 million doses of Patamaflu 
vaccine, which will take care of what we have so far. And puts 
in place a way to develop the vaccine through the fall, for the 
fall epidemic that could hit, that will make a huge difference 
to people, possibly, all over the world.
    But just as importantly, it put in place some of the tools 
for quickly identifying the kinds of things that are happening 
right now, and it's not very often that a committee or a person 
can take a look into the future, and find something that 
actually becomes necessary and lifesaving in the future.
    I congratulate the committee, Senator Burr, and Senator 
Kennedy for the particular work that they did on it.
    I do want to thank you for holding this roundtable today on 
State-based healthcare reform initiatives. The States are 
always kind of, mini labs for what can happen, and they find a 
lot of the successes, and they find a lot of the problems for 
us, so that we don't have to experience them on a national 
    I do believe it's crucial for us, as we consider national 
reforms, to hear from people across the country, about what 
they've learned while enacting healthcare reforms.
    I always say, ``If you want to know how things are really 
going on the ground, you just talk to the folks that have 
actually done something.'' That's what we're going to do today.
    This isn't a normal situation where the Chairman invites 
four people, and I invite one, and then both sides show up to 
beat up on everybody. This is where we actually want to know 
what you did, how you did it, what the effect was, and then a 
chance for some interaction among the people on the panel about 
how one person's idea might work pretty well with another 
person's idea--and that's very helpful for us, as we begin 
drafting a bill.
    National healthcare reform will impact the lives of 
millions of Americans in every State. In fact, probably before 
we're done, it will affect every single American. It's 
important for us to remember that our States are sometimes very 
different, and that is what makes America great. We're a 
diverse country with differences of opinion, and unique ways of 
solving problems.
    Represented here today are States that span both the 
political spectrum, and the geographic width of our Nation. 
They've all taken on the laudable goal of improving the health 
of our citizens, but have done so in different ways. I feel 
strongly that we need to keep this in mind as we continue to 
pursue national reforms.
    Throughout my discussions on healthcare reform, I've 
insisted that we cannot just focus on expanded coverage. We 
also have to focus on improving quality, and getting more value 
out of our healthcare system. Our current pace of spending is 
not sustainable, and we must get healthcare costs under 
    I believe we can do that, and I'm interested in hearing 
ideas from those on the panel and have experience in working to 
bring down costs.
    Another topic of discussion I'm interested in is insurance 
market reforms. I understand in Massachusetts reforms like 
guarantee issue and modified community rating were imposed 
several years prior to the development of the connector, and 
the implementation of the individual mandate. I do worry that 
forcing States to dramatically change their insurance market 
rules too quickly could result in some very serious unintended 
    I also note that in Massachusetts, there is no public plan 
option. While it is crucial that we get the policy of insurance 
market reform right and increase the value of healthcare 
dollars, I would be remiss if I didn't at least mention the 
perils of process. Without the right process, we can't move 
forward on the best healthcare reforms for the American people.
    The first real test of whether the new Administration and 
Senate leaders are serious about developing bipartisan 
solutions was how the Budget Conference Report addressed 
healthcare reform. The majority failed that test. 
Reconciliation would cut off most avenues for real debate in 
the Senate, and is intended primarily as a tool to reduce the 
deficit. If those in the majority do use the budget 
reconciliation to jam the healthcare reform through the Senate, 
they'll be sending a clear signal that they're not interested 
in truly bipartisan effort, and I hope that's not true.
    With that, I will look to our witnesses to make 
recommendations for how we should shape the policies of 
healthcare reform.
    Mr. Chairman, I thank you for holding this roundtable 
     The Chairman. Thank you very much. I'll let that comment 
that you aimed at the Democrats go by.
    Senator Enzi. We'll talk later.
    The Chairman. This is pretty early in the game--but we want 
to have Senator Bingaman, and Senator Hatch, if you would make 
a comment, and then we'll call on Senator Bingaman to make an 
additional comment.

                     Statement of Senator Bingaman

    Senator Bingaman. Mr. Chairman, let me thank you for having 
the hearing. This is, I think, the third of these hearings 
we've had on the whole subject of coverage, and how to expand 
coverage, and I do think it's very useful to have people here 
from these four States that are represented, and your own State 
of Massachusetts has probably done more than any State to take 
on this difficult job of reforming healthcare and expanding 
    I know we have a couple of witnesses here from Senator 
Sanders' State of Vermont, and that's very welcome, as well. We 
have two witnesses from Utah, Senator Hatch's State, and a 
representative from California. We're glad to have all of these 
    I do think there's a lot we can learn at the Federal level 
from the experiences we've observed with individual States, and 
I think they can start us down the path toward a solution at 
the national level, as well.
    Again, I thank you for having the hearing, and I look 
forward to hearing from each of these witnesses.
    [The prepared statement of Senator Bingaman follows:]

                 Prepared Statement of Senator Bingaman

    Welcome, I am pleased to participate in today's hearing 
with Senators Kennedy, Enzi and the other members of the 
committee. States face many health care challenges including: 
the rising number of uninsured, the rising cost of health care, 
and a fragmented medical and insurance system. In the end 
almost 50 million Americans are left without any access to 
health insurance and many millions more have inadequate 
    Today we will hear about reform experiences in 
Massachusetts, California, Vermont, and Utah. These States have 
taken bold steps in attempting to address the complex 
healthcare problems they face.
    Perhaps one of the most successful models of reform has 
been Massachusetts. Although their uninsurance rate was low 
before reform--around 13 percent--they have cut this unisurance 
rate by 75 percent. Now more than 97 percent of the population 
has coverage. In addition, the State has nearly cut in half the 
cost of premiums in the individual market and remarkably, the 
cost premiums of policies sold through the Connector is even 
expected to decline this year--at a time when medical inflation 
continues to outpace other sectors of the economy. It's not 
surprising that the reform enjoys a 75 percent public approval 
rating in Massachusetts.
    I want to thank the panelists for their participation 
today. I look forward to hearing about the efforts in their 
    It is my hope that this hearing will serve to inform and 
encourage the Senate's important work to achieve national 
health reform.
     The Chairman. Thank you very much. We'll now hear from 
Senator Hatch.

                       Statement of Senator Hatch

    Senator Hatch. Thank you Mr. Chairman. I appreciate you, 
and appreciate your leadership on this committee and your 
leadership in healthcare, in particular.
    I welcome all of you to the committee, we're very grateful 
to you, to come and spend time with us, and help us to 
understand these problems better.
    We would especially like to recognize speaker David Clark 
from my home State and Dr. Brent James, who has a world 
reputation in healthcare--both from my great State of Utah--for 
lending their time and their expertise to this important 
    Just like me, I'm sure that every member will find their 
insights extremely helpful, as we move toward reform in our 
Nation's healthcare system. Before talking about policy, let me 
take a couple of minutes to talk about process.
    Healthcare reform is an important national priority that is 
too big for political gamesmanship. We're talking about an 
issue that makes up one-sixth of our total economy. I'm very 
disappointed that the upcoming Budget Conference Report will 
include partisan reconciliation instructions for healthcare 
    Any successful healthcare reform proposal must be subject 
to the full scrutiny of both parties of the Senate and House of 
Representatives, and the American people. Using the budget 
reconciliation process in the Senate, for example, would limit 
debate to only 20 hours, and restrict the ability of Senators 
to amend and perfect a proposal that is intended to steer one-
sixth of our economy in a new direction.
    Now, this would make it difficult--if not impossible--to 
gain broad, bipartisan support for the effort, and I think it 
would be a tremendous disservice to the American people, and 
our Nation. The notion of a 50-vote healthcare reform 
legislation that is jammed through after being debated only 20 
hours, with a limited amendment process, should scare every 
person in this room.
    Now, having said that, let me now focus on the incredibly 
important policy being discussed in the room today. As we move 
forward on comprehensive reform, it is important to recognize 
that all States are not created equal. Every State has its own 
unique mix of challenges, based on everything from an insurance 
market, to demographics, and regulations. I'm sure that both 
Speaker Clark, and Jon Kingsdale will agree with me when I say 
that Utah is not Massachusetts, and Massachusetts is not Utah. 
Although, Senator Kennedy has been trying all of these years to 
make Utah like Massachusetts.
    What works in one State will not necessarily----
    The Chairman. The issue is cut.
    Senator Hatch. Yes, this is cut, yes. I'm just beginning.
    There's an enormous reservoir of expertise, experience and 
field-tested reform at the State level, which is represented 
well on this panel. I personally believe in 50-State 
laboratories that help us to arrive at final conclusions on 
things as important as this.
    We should take advantage of that, of you folks here, by 
placing States at the center of efforts to meet coverage and 
affordability goals.
    There will be, naturally, an important role for the Federal 
Government in the partnership, but it will have to give the 
States flexibility and assistance to meet coverage and 
affordability objectives. We should not make the mistake of 
assuming that the Federal Government is the solution to all 
problems. I think the focus should be on families, not 
    Having said that, let me just say that I, unfortunately, 
have to leave at the conclusion of my remarks to attend a very 
important briefing in the Senate Intelligence Committee in the 
Secure Room. I just want to thank you, Mr. Chairman, for this 
courtesy. I want to thank all of you for the great testimony I 
know you will give, and the help that you will give to every 
member of this committee, and I hope we all pay strict 
attention to what you have to say.
    I'm grateful to you, welcome to you, and of course, we'll 
learn from you and I'll pay attention to what you have to say, 
    Thank you, Mr. Chairman.
     The Chairman. Thank you very much. We are very lucky to 
have Jeff Bingaman and we'd ask him if he'd be good enough to 
moderate this for us today.
    Senator Bingaman [presiding]. Good, I'm glad to do that, 
let me just briefly re-introduce our witnesses and then we'll 
just start over at the left, and have each of you tell us what 
you think we need to know about this subject.
    Jon Kingsdale is the Executive Director of the Commonwealth 
Health Insurance Connector in Boston. Thank you very much for 
being here, you're right at the center of the reform efforts 
there in Massachusetts, and we're anxious to hear your views on 
    Ms. McAnneny is the Senior Vice President with Associated 
Industries of Massachusetts, also in Boston. Thank you for 
being here.
    Ms. Liu is the Senior Director of Health Policy and Health 
Reform with Kaiser Permanente in California, thank you for 
being here.
    Let's see, in Vermont we have Susan Besio, who is the 
Director of the Office of Vermont Health Access with the Human 
Services Agency in Vermont, in Burlington.
    Harry Chen is an M.D., and emergency room physician and 
Board of Vermont Program for Quality in Healthcare, also in 
Burlington. Thank you for being here.
    Then, as Senator Hatch indicated, we have the majority 
leader of the Utah House of Representatives here, the Honorable 
David Clark. Thank you for being here, we appreciate it very 
    And Brent James is the Executive Director with the IHC 
Institute for Healthcare Delivery Research with Intermountain 
Healthcare, Inc., in Salt Lake City.
    Thank you all for being here, why don't we start with you, 
Mr. Kingsdale, if you'd advise us as to the things you think we 
need to know about the experiences you've had in Massachusetts.


    Mr. Kingsdale. Good afternoon, and thank you so much. With 
my 60 seconds, I won't re-introduce myself, but just jump right 
into it.
    Perhaps the most important lesson from Massachusetts is 
that it can be done, with Senator Kennedy's help. With all but 
2.6 percent of our residents insured, we enjoy near-universal 
coverage. We're learning, of course, as we go, but I would 
offer five lessons for your consideration.
    First, the individual mandate has proven essential to 
covering the uninsured as the keystone of our theme of shared 
responsibility among many parties.
    Second, that implementing health reform is a campaign built 
on the theme of shared responsibility and supported by 
coalitions of progressive advocacy groups, health insurers, 
employers--such as Eileen McAnneny represents.
    Third, that there are, of course, many twists and turns to 
implementing complex reform, which really could not be 
anticipated in statute. Rather, the legislature, wisely 
delegated some key decisions to a representative Board of the 
Connector, which conducts its activities in public, with great 
transparency, and has kind of a learning organization. I think 
Senator Daschle made a similar point in his cogently argued 
book about the importance of delegation.
    Fourth, that exchanges can be a valuable component of a 
broader set of reforms and I've supplied committee staff with 
some thoughts on their design. Here, I would stress the need 
for independence, if a public agency is to create and regulate 
a market.
    Then, finally, I would point out that Massachusetts has 
succeeded in covering most of our people by starting with 
coverage expansion. We are now moving to address costs, and I 
would urge you to consider Massachusetts' example in not 
holding the uninsured hostage to cost control, but I would hope 
that you would devise a political strategy for progressing from 
the very difficult challenge of covering expanding coverage, to 
the nearly impossible challenge of controlling costs. Thank 
you, and I look forward to your questions.
    [The prepared statement of Dr. Kingsdale follows:]

               Prepared Statement of Jon Kingsdale, Ph.D.

    Thank you for this opportunity to share my State's experience with 
health reform, in the context of your effort to expand financial access 
to medical care for the Nation. My name is Jon Kingsdale and I am the 
Executive Director of the Commonwealth's Health Connector. This is an 
independent State authority, established under the landmark health 
reform law, Massachusetts' Chapter 58 of the Acts of 2006, as one of 
several State agencies charged with expanding health insurance 
coverage. The Health Connector operates two new coverage programs, 
makes policy and regulatory decisions, and orchestrates public outreach 
and education efforts.
    Perhaps the most important lesson from Massachusetts' effort to 
achieve near-
universal health insurance is to demonstrate that it can be done, here 
in the United States. Two years after Chapter 58 took effect, the 
State's uninsurance rate had fallen to just 2.6 percent, by far the 
lowest in the country and about one-fourth of what it had been prior to 
reform.\1\ This is not quite universal coverage, but it is only 1 
percent or so above the uninsurance rates of some European countries 
commonly considered to have ``universal'' coverage. In the course of 
implementing Chapter 58, we have learned many lessons and we continue 
to evaluate and re-think our reforms. We do not have any ``silver 
bullets'' to offer, but I would suggest five lessons from the 
Connector's experience that might help inform national efforts.
    \1\ Long, S., Cook, A., & Stockley, K. (2009, March). Health 
Insurance Coverage in Massachusetts: Estimates from the 2008 
Massachusetts Health Insurance Survey. Boston, MA: Division of Health 
Care Finance and Policy. Available online at, http://www.mass.gov/
    First, the individual mandate has proven essential to covering 
large portions of the uninsured. As evidence, I would cite the contrast 
with Hawaii, which enacted a mandate on employers and employees only. 
Yet, the rate of uninsurance there still fluctuates around 8 
    \2\ DeNavas-Walt, C., Proctor, B., & Smith, J. (2008, August). U.S. 
Census Bureau, Current Population Reports, P60-235, Income, Poverty, 
and Health Insurance Coverage in the United States: 2007. U.S. 
Government Printing Office: Washington, DC.
    Not only does the individual mandate work to enroll those who might 
otherwise choose to remain uninsured--whether subsidized or not--it 
also works indirectly to lower the cost of insurance. The uninsured are 
disproportionately young, single male, and poor \3\: some considerable 
numbers of them are quite healthy and prefer to take the chance of not 
being covered. As a result, these so-called ``invincibles'' do not 
contribute through insurance risk pools to subsidize those in poor 
health; moreover, when trauma or serious illness do strike the 
uninsured, they actually add to providers' bad debt and charity care, 
which is ultimately born by premium-payers and taxpayers. Massachusetts 
has found ways to cover many of the young ``invincibles'' at rates they 
can afford, and with coverage that helps lower premiums for others. 
Non-group enrollment in Massachusetts more than doubled in the year 
after the individual mandate took effect and, judging from the 
Connector's enrollment, some 55 percent of new, non-group enrollees 
were aged 17-35 and some 85 percent purchased single coverage.\4\
    \3\ Long, S., Cook, A., & Stockley, K. (2009, March). Health 
Insurance Coverage and Access to Care in Massachusetts: Detailed 
Tabulations Based on the 2008 Massachusetts Health Insurance Survey. 
Boston, MA: Division of Health Care Finance and Policy. Available 
online at, http://www.mass.gov/Eeohhs2/docs/dhcfp/r/survey/
08his_detailed_tabulations.pdf; and Massachusetts Department of Revenue 
(2008). Massachusetts Department of Revenue, Data on the Individual 
Mandate and Uninsured Tax Filers, Tax Year 2007. Boston, MA: Author. 
Available online at, http://www.mass.gov/Ador/docs/dor/News/
    \4\ Commonwealth Health Insurance Connector Authority, Commonwealth 
Choice Enrollment Data.
    The individual mandate is controversial. It polls less favorably 
than reform generally or than a mandate for children alone.\5\ But it 
is the keystone of our reform. So, Massachusetts has taken special care 
to implement the requirement that adults have insurance, if affordable, 
in such a way as to build support for it over time. Importantly, it is 
enabled by complimentary initiatives, which exemplify our law's theme 
of ``Shared Responsibility:'' (a) the commitment of employers with over 
10 employees to make a ``fair and reasonable'' contribution toward 
group health insurance; (b) the commitment by government to subsidize 
insurance for low-income people without other access to coverage; and 
(c) the requirement that the larger health plans participate in the 
Connector and the non-group market, under regulations that guarantee 
issue and renewal of insurance policies using adjusted community 
    \5\ Sussman, T., Blendon, R.J., & Campbell, A.L. (2009, April 21). 
Will Americans Support the Individual Mandate? Health Affairs Web 
Exclusive w501-w509.
    The individual mandate is part of a broader commitment from various 
parties, including business and health insurers, to ``Shared 
Responsibility.'' The second point I would make is that implementing 
health reform in Massachusetts is a campaign, built around this theme 
of ``Shared Responsibility.'' Because individual responsibility is a 
critical element, which generates bi-partisan support and resistance, 
its acceptance cannot be taken for granted, but must be earned. Having 
done so, tax compliance is very high--98.6 percent in the first year--
and the popularity of reform overall and even of the mandate have risen 

    As part of this campaign, Massachusetts phased in penalties for the 
mandate only after expanding new sources of coverage, and the Connector 
allows case-by-case exceptions to the individual mandate through a 
generous appeals process. We evaluate the results of our experiment, 
both to celebrate its victories and to identify and correct the 
problems. The State's legislature follow reform's progress closely, 
even enacting follow-up reforms in 2008 (Chapter 305), and Governor 
Patrick has been steadfast in his support of Chapter 58 throughout this 
very challenging economic climate. The coalitions of interest groups 
that helped pass Chapter 58, on a bi-partisan basis and with nearly 
unanimous votes, continue to campaign for its implementation. These 
coalitions include liberal advocacy groups, employers and insurers. 
Third, because implementing this ``experiment'' is so challenging, 
Chapter 58 created new State entities to guide the reforms. Anything so 
ambitious as reforming one-sixth of our economy cannot be captured in a 
single piece of legislation, but involves some degree of trial and 
error, learning by doing. The Massachusetts legislature built a sturdy 
statutory framework for reform, but delegated many key policy 
determinations and provided the resources to oversee coverage 
expansions. It provided special funding for the first-year 
administrative activities of a half-dozen existing State agencies, 
capitalized the newly-established Health Connector, and authorized an 
ongoing source of administrative revenues for new programs.
    Chapter 58 authorizes the Connector's semi-independent and broadly 
representative Board of Directors to make tough policy calls.\6\ The 
Connector conducts all its activities in public and very transparently, 
and it prides itself on being a ``learning organization.'' For example, 
the Board defined ``Minimum Creditable Coverage'' and ``Affordability'' 
by unanimous votes in 2007, only to significantly revise these 
determinations in 2008 (also by unanimous votes). The Connector 
launched its small-group offering in early 2009 as a pilot, with a 
commitment to evaluate and revise it in light of preliminary 
    \6\ By statute (M.G.L. c. 176Q  2(b)), the Connector's 10-member 
Board of Directors is chaired by the Commonwealth's Secretary of 
Administration & Finance and also includes, ex officio, the Director of 
Medicaid; ex officio, the Commissioner of Insurance; ex officio, the 
Executive Director of the Group Insurance Commission; three members 
appointed by the Governor, one of whom shall be a member in good 
standing of the American Academy of Actuaries, one of whom shall be a 
health economist, and one of whom shall represent the interests of 
small businesses; and three members appointed by the attorney general, 
one of whom shall be an employee health benefits plan specialist, one 
of whom shall be a representative of a health consumer organization, 
and one of whom shall be a representative of organized labor.
    By contrast, a statute is not a ``learning organization'' and 
Chapter 58 could not have anticipated the many twists and turns of 
implementing such complex change. Similarly, Senator Daschle has argued 
for delegating implementation of national health care reform to a new 
Federal authority with expertise, independence and flexibility.\7\
    \7\ Daschle, T., Lambrew, J. & Greenberger, S. (2008). Critical: 
What We Can Do About the Health-Care Crisis. St. Martin's Press: New 
York, NY.
    Fourth, properly constituted, resourced and empowered, an exchange 
can be a valuable component of a broader set of reforms. The Health 
Connector actually runs two different insurance exchanges, serving 
distinct functions and clients. Commonwealth Choice is a distribution 
channel for individuals in the non-group market to buy health insurance 
with their own money at premiums which are, by law, the same in or 
outside the Connector. ``Commonwealth Care'' offers a choice of plans, 
purchased by the Connector for uninsured adults earning 300 percent or 
less of the Federal Poverty Level (FPL)--to which some enrollees make a 
premium contribution, but those below 100 percent of the FPL do not. 
Commonwealth Care negotiates premiums and drives a hard bargain with 
its own dollars in a way that Commonwealth Choice, as a free-market 
exchange, simply cannot do.
    Each program uses competitive solicitations and offers a choice of 
plans to enrollees at different price points. Both programs add value, 
but the two exchanges operate in very different ways, reflecting their 
different objectives, statutory rules, and target populations. If the 
Congress authorizes exchange(s) as part of broader reform, there are 
important decision points about how aggressive the exchange(s) should 
be in influencing premium rates, which populations an exchange should 
serve, whether the exchange(s) should try to stimulate change in the 
surrounding market, how best to promote coverage and inform the public 
about insurance, and whether there should be one national exchange or 
many State exchanges. These decisions must be coordinated with each 
other and the larger reform context. I have elsewhere supplied the 
committee's staff with some thoughts on these questions.
    The Commonwealth's Health Connector does enjoy considerable, though 
by no means total, independence from politics, and I would urge the 
committee to consider the advantages of semi-independence for a public 
agency administering a market or exchange. On the one hand, an 
exchange's efficacy derives from its capacity, as a public agency 
operating in the context of larger reform, to exert market forces and 
prudent purchasing to improve the value of health insurance. On the 
other hand, its credibility and authority to improve competition and 
benefit consumers depends on its objectivity and independence from 
overt political influence. I would draw an (imperfect) analogy to the 
SEC, the Federal Reserve Board, and other such Federal entities 
designed to improve the functioning of markets and cite, again, Senator 
Daschle's argument.\8\
    \8\ Daschle, T., Lambrew, J. & Greenberger, S. (2008).
    Fifth, as ambitious as Chapter 58 is, comprehensive reform was 
simply too much for Massachusetts to digest in one gulp. Rather, we are 
trying to sequence reform, starting with near-universal coverage and 
moving now to address costs. Massachusetts is very proud of having 
achieved 97.4 percent coverage, compared with a national average below 
85 percent. Doing so has not exacerbated the underlying problems of 
run-away health care costs, shrinking supply of primary care 
clinicians, and fragmented, uncoordinated care which characterize 
American medicine. Neither has it solved these problems.
    Having made the commitment to near-universal coverage, 
Massachusetts now confronts the challenge of controlling costs. This is 
the more difficult challenge. On the one hand, in enacting Chapter 58, 
the Commonwealth did not hold the uninsured hostage to first 
controlling medical costs. On the other hand, the Commonwealth will not 
be able to sustain near-universal coverage, if we cannot now control 
costs. So, we now confront costs from the moral high-ground of 
protecting near-universal coverage, but without any guarantee of 
success. The fifth lesson is that the nation must not hold the 
uninsured hostage to cost control, but that the Nation will need a 
political strategy for progressing from the very difficult challenge of 
expanding coverage to the even greater challenge of controlling medical 
    Comprehensive health reform is a marathon, not a sprint. 
Massachusetts has chosen to start with coverage and pace its reforms, 
but it also runs the risk of not finishing the race.

    Senator Bingaman. Thank you very much. Ms. McAnneny. I'm 
mispronouncing your name, it's----?
    Ms. McAnneny. McAnneny.
    Senator Bingaman. McAnneny.
    Ms. McAnneny. There's an N missing.
    Senator Bingaman. Yes.
    Ms. McAnneny. Thank you.
    Senator Bingaman. All right. Please, go right ahead.


    Ms. McAnneny. I, like Jon Kingsdale, won't waste part of my 
60 seconds on an introduction. I would like to thank you for 
the opportunity, it's truly an honor and a privilege to 
participate in this, and especially to appear before Chairman 
Kennedy, who has been an outstanding Senator for the State of 
Massachusetts, and whose Herculean efforts and influence really 
made healthcare happen in Massachusetts. Thank you, Senator.
    Robert Blendon, who is a professor at Harvard School of 
Public Health spoke recently, and he had mentioned that there 
have been 61 prior efforts, to date, between the States and the 
Nation to attain universal healthcare coverage, and 60 of those 
efforts have not succeeded--Massachusetts is the exception.
    I believe Massachusetts' success--at least in part--can be 
attributed to the support of the business community, so I think 
that that is a critical component to any healthcare reform on 
the national level.
    I also agree with Jon Kingsdale that the individual mandate 
has been a critical component in motivating people to purchase 
the insurance. Often it has been available to them, and for 
whatever reason they have not taken it. That has been a great 
motivating force. I also think our incremental approach has 
been key, because it has allowed us to deal with the bumps in 
the road, and it did not up heave our current system, it didn't 
require an employer mandate, rather, or it didn't repeal the 
employer-sponsored insurance. Rather, it worked within those 
confines, and targeted populations that needed insurance, and 
was successful as a result.
    I look forward to the discussion. Thank you.
    [The prepared statement of Ms. McAnneny follows:]

                 Prepared Statement of Eileen McAnneny

    Good afternoon. For the record my name is Eileen McAnneny, Senior 
Vice President and Associate General Counsel of Associated Industries 
of Massachusetts (AIM), the State's largest nonprofit, nonpartisan 
association of Massachusetts employers. AIM's mission is to promote the 
well-being of its 6,500 members and their 680,000 employees and the 
prosperity of the Commonwealth of Massachusetts by improving the 
economic climate, proactively advocating fair and equitable public 
policy, and providing relevant, reliable information and excellent 
    On behalf of our membership, I am honored to provide the employer 
perspective on Massachusetts health care reform. AIM has a very diverse 
membership, representing employers in all sectors of the economy, of 
all sizes and from all regions of our State. A common denominator for 
them, however, is that they all offer health insurance to at least a 
portion of the workforce. This fact certainly shapes AIM's point of 

                         1. KEY LESSONS LEARNED

    Chapter 50 of the Acts of 2006, the most recent attempt by 
Massachusetts to adopt and implement major health care reform, has been 
very successful to date for several reasons. Although Massachusetts 
health care reform is often touted as a ``bold experiment'' and 
``landmark legislation,'' it was prompted by several far more mundane 
factors. The need to win Federal approval of the Commonwealth's Section 
1115 Medicaid Waiver under which the State's Medicaid program had 
operated for more than a decade to retain hundreds of millions of 
dollars in Federal funds certainly served as an impetus. In 2005, the 
Center for Medicaid and Medicare Services (``CMS'') urged Massachusetts 
to devise a plan to provide health insurance coverage more efficiently 
to the uninsured. Rather than making payments to the disproportionate 
share providers, CMS wanted the money to go directly to individuals to 
pay for health insurance premiums.
    In addition, there were two ballot initiatives pending that were 
problematic to the business community. The first would have made very 
comprehensive health care a right under the Massachusetts' 
Constitution. The second established a payroll tax on Massachusetts' 
employers that would be used to fund an expansion of public health care 
programs. Because both initiatives required the business community to 
pay significantly more for health care but did not change the delivery 
system in any way or give the employer community a say in how the money 
would be spent, neither ballot question was appealing. This served to 
motivate employers to engage in the dialogue among major stakeholders 
about how to cover the uninsured more efficiently in Massachusetts. 
Lastly, Speaker of the House Salvatore DiMasi, Senate President Robert 
Travaglini and Governor Mitt Romney all demonstrated unflagging 
leadership and commitment to ensuring that Massachusetts devised a way 
to cover the uninsured in a way that would win CMS's approval, improve 
the lives of the uninsured and win the approval of employers.
    Equally important was the participation in the dialogue of all 
major stakeholders--doctors, hospitals, consumers, insurers, employers 
and lawmakers--and the consensus among them that the status quo was not 
optimal. Their participation allowed for very thoughtful and well-
informed dialogue, and perhaps more importantly, made them vested in 
the long-term success and sustainability of health care reform as we 
moved forward with implementation and encountered the inevitable 
``bumps in the road.''
    Massachusetts took an incremental approach to its reform. We did 
not seek to fundamentally revamp the way people obtained coverage, to 
eliminate employer-sponsored coverage or conversely, to impose an 
employer mandate. Instead, we sought to adapt the existing sources of 
coverage and fill in the gaps. For example, Medicaid income-eligibility 
thresholds were expanded to cover children under 300 percent of the 
Federal poverty level. All insurance policies sold in Massachusetts 
were required to expand the definition of ``dependent'' to include 
children: (1) until they reached 26 years of age or (2) for full-time 
students for 2 years after they lost their status as a dependent under 
the Internal Revenue Code, whichever came first. This change was 
designed to get more young adults covered in a cost-effective manner. A 
young adult plan was also introduced into the marketplace that did not 
include all the mandated benefits as a way to make the insurance more 
affordable. This targeted approach, although not universally supported, 
allowed Massachusetts to move forward.
    Massachusetts policymakers did not let the perfect get in the way 
of the good. At the time the legislature enacted Chapter 58, for 
example, future funding sources for some of the expansions remained 
uncertain, and several of the elements were met with a healthy dose of 
skepticism by various stakeholders. Public policymakers forged ahead to 
ensure approval of the Medicaid Waiver, but also because the goal of 
universal coverage was a worthy one and the challenges were not 

                           OF NATIONAL REFORM

    Massachusetts was well-suited relative to many other States to 
address the issue of the uninsured and to strive for universal 
coverage. Prior to enactment of Chapter 58, Massachusetts: had one of 
the lowest rates of uninsured in the Nation (between 6-9 percent); 
spent over $1 billion annually in reimbursement to hospitals for 
coverage for the uninsured already through the Uncompensated Care Pool; 
had a higher rate of employers providing health insurance to employees 
than the Nation as a whole and a higher percentage of employees taking 
that coverage. In many ways, this made Massachusetts uniquely situated 
to address the challenge of covering the uninsured.
    Nevertheless, there are key elements included in the Massachusetts 
plan that are readily transferable and key to the success of a national 
    Massachusetts reform was premised on the concept of shared 
responsibility and central to that is the individual mandate 
requirement. In fact, much of Massachusetts' success in reducing the 
number of uninsured can be attributed to the individual mandate. Many 
of the 432,000 newly-insured had access to coverage prior to enactment 
of health care reform in 2006, but chose not to enroll. Of those, 
160,000 people, who were offered employer-sponsored plans and refused 
them prior to imposition of the individual mandate, are today covered 
through their employer's plan. Similarly, of the 72,000 people newly 
signed up for MassHealth, many were eligible prior to health care 
reform but did not enroll. Thirty-two thousand individuals purchased 
coverage for themselves when they opted not to before. The balance of 
the newly-insured, about 175,000 covered lives, is covered by 
Commonwealth Care, the State's subsidized insurance product. While the 
compliance burden of the health care mandate falls on the individual, 
employers and the State largely shoulder the cost. From the employer 
perspective, it is critical that lawmakers recognize the increased cost 
implications of the individual mandate on the employer community.
    In addition, the requirement that all residents of the Commonwealth 
have insurance begs the question about how much insurance is enough to 
satisfy this requirement. The debate about what is ``minimum creditable 
coverage'' in Massachusetts evoked strong reactions from employers. 
While individuals ultimately must comply or face tax consequences, 
employers wanted to make sure that the benefits they offered met the 
MCC standard. Otherwise, employers would be in the untenable position 
of providing health insurance coverage at great expense yet their 
employees would still be subject to fines. The challenge is defining 
MCC in a way that ensures adequate coverage while allowing employers to 
be flexible in the coverage that they provide.
    Creation of the Commonwealth Health Insurance Connector was one of 
the more innovative provisions of the Massachusetts health care reform 
law. Its purpose was threefold. Its primary function was to facilitate 
the purchase of health insurance by individuals by serving as a 
clearing house for all products that provided good value to consumers. 
These products received the Commonwealth's seal of approval. In 
addition, the Connector administered the Commonwealth Care product 
(subsidized insurance on a sliding scale for those with income below 
300 percent of the Federal poverty level) and Commonwealth Choice, a 
product offered to all individuals without any income limitations. 
Last, the Connector was charged by the legislature with making some 
critical public policy decisions such as what is minimum creditable 
coverage and when is an individual excused from the health care mandate 
because insurance is unaffordable.


    The most difficult aspects of health care reform, from the employer 
perspective, were the provisions that were adopted as ``workarounds'' 
to Federal law and are therefore not directly relevant to the national 
discussion. For example, to provide all individuals with the Federal 
tax benefits available to employer-based insurance, Massachusetts 
requires all businesses with 11 or more full-time equivalents to 
establish and maintain a section 125 plan. This enables employees who 
are ineligible for employer-sponsored insurance to pay for the entire 
health insurance premium in pre-tax dollars and those that are eligible 
for employer-sponsored insurance to pay for their portion of the 
premium in pre-tax dollars. Should Congress enact national health 
reform and want to provide a tax exemption for the cost of health 
insurance, the necessary changes could be made to the Internal Revenue 
    The most contentious aspect of the health care reform debate in 
Massachusetts was whether or not to impose an employer mandate. 
Predictably, the consumer advocates wanted to impose an employer 
mandate and the employer community vehemently opposed it. The 
compromise requires certain employers that do not offer health 
insurance to a sufficient number of their employees or subsidize it 
adequately to make a monetary contribution to the State towards the 
cost of subsidized care. The ``fair share contribution'' provision has 
proven very difficult to understand and comply with. Since its initial 
implementation, the FSC requirements have been amended to impose more 
frequent reporting requirements and additional burdens on business, 
particularly those with part-time, seasonal or temporary help. This 
issue, along with the definition of minimum creditable coverage, 
threatened to undermine the consensus that Massachusetts had carefully 
built around health care reform.
    In many ways, the most difficult aspect of health care reform in 
Massachusetts lays ahead. Massachusetts health care reform was intended 
to cover the uninsured. Although the employer community's we preference 
was to address the increasing cost of health care before we expanded 
coverage, and warned that the long-term viability of health care reform 
would be jeopardized if cost was not addressed, we did not stand in the 
way of the Commonwealth's efforts to provide health insurance to the 
uninsured, and in fact, are committed to that goal.
    The high cost of health insurance, which serves as a barrier to 
purchasing health insurance for many small businesses and individuals 
and acts as a competitive disadvantage for the businesses located here, 
must be addressed. The cost of health insurance in Massachusetts 
exceeds the national average by 30 percent and health care reform has 
done nothing to moderate premium trends to date. In fact, as a result 
of health care reform, some businesses now must pay a fair share 
contribution. Others are now providing coverage to more of their 
employee population or have increased their benefit offerings to comply 
with the minimum creditable coverage standard. Despite these additional 
costs, nearly three-quarters (72 percent) of Massachusetts employers 
offer health insurance to their employees and this offer rate has held 
steady, even as the employer offer rate nationally has declined from 68 
percent to 60 percent between 2001 and 2007.
    The economic challenges confronting Massachusetts employers, and 
their willingness and/or ability to offer coverage going forward, will 
be a key determinant in whether Massachusetts reform is sustainable 
absent significant progress on reducing health care costs.
    On behalf of Associated Industries of Massachusetts and the 
employers we represent, I thank you for the opportunity to provide 
comments and look forward to working with members of the committee as 
you explore national health reform.

    Senator Bingaman. Thank you very much.
    Ms. Liu, you're going to give us the word on what's 
happening in California and what we can learn from that?


    Ms. Liu. Yes, I'm happy to do so, and I want to thank you 
for the invitation to be here today to discuss lessons from 
    I think as you know, the California effort didn't quite 
succeed, so my testimony may be a little different than some of 
my colleagues. I still think there are many lessons that we can 
learn from the effort.
    I am currently with Kaiser, I did want to inform the 
committee that, at the time of the California Health Reform 
Effort, I was Associate Secretary at the California Health and 
Human Services under the Schwarzenegger administration. My 
views here today are my own, and not that of the Governor or 
the Administration.
    I think there are really three key lessons to learn from 
the California experience. The first is that, in the California 
effort, we did focus on a broad definition of health reform, 
including prevention and wellness strategies, a strategy for 
universal coverage and financing, and a focus on cost 
containment. I believe that is essential to focus on all three 
aspects, simultaneously, to ensure that any reform effort is 
financially sustainable in the long-term.
    Second, we wrestled with issues around affordability--both 
affordability for purchasers of coverage, and keeping the cost 
of the reform proposal affordable for the State.
    There are many lessons learned in terms of benefit design, 
subsidy design, and shared responsibility that I think will 
translate well nationally.
    And finally I want to say that we spent considerable time 
and effort designing an approach that would allow us to 
transition--as smoothly as possible--from an underwritten, but 
fairly robust individual market, to a guaranteed issue market 
without health status rating, that preserved comprehensive 
offerings. I think it would make sense to look at that 
transition very carefully, as Senator Enzi has raised.
    Once again, I want to thank you for the opportunity to be 
here, and I want to thank you--especially Senator Kennedy--for 
your efforts in Massachusetts, and for the national reform 
effort that we're all looking forward to in California.
    [The prepared statement of Ms. Liu follows:]

                     Prepared Statement of Ruth Liu

    Thank you for the invitation to be here today to discuss lessons 
from the California health reform effort and implications for national 
reform. I am Ruth Liu, Sr. Director of Health Policy in the Legal and 
Government Relations Department of Kaiser Foundation Health Plan 
(``Health Plan'') and Kaiser Foundation Hospitals (``Hospitals''). 
Health Plan and Hospitals, together with the contracting Permanente 
Medical Groups, constitute the Kaiser Permanente Medical Care Program. 
Kaiser Permanente is the Nation's largest private integrated health 
care delivery system, providing comprehensive health care services to 
more than 8.7 million members in nine States (California, Colorado, 
Georgia, Hawaii, Maryland, Ohio, Oregon, Virginia, Washington) and the 
District of Columbia. At the time of the California health reform 
effort, I was Associate Secretary at the California Health and Human 
Services Agency in the Schwarzenegger administration. The views 
reflected in this testimony are my own, not that of Governor 
Schwarzenegger or his Administration.

                        OVERVIEW OF KEY LESSONS

    In the California reform effort, we focused on a broad definition 
of health reform, including prevention and wellness initiatives; a 
strategy for universal coverage and financing; and a focus on cost 
containment. I believe it is essential to focus on all three aspects 
simultaneously to ensure that any reform effort is financially 
sustainable in the long-term.
    Second, we wrestled with issues of affordability, both 
affordability for purchasers of coverage and keeping the cost of the 
reform proposal affordable for the State. There are many lessons 
learned in terms of benefit design, subsidy design and shared 
responsibility that would translate well nationally.
    Finally, we spent considerable effort in designing an approach that 
would allow us to transition as smoothly as possible from an 
underwritten, but robust, individual market to a guaranteed issue 
market without health status rating that preserved comprehensive 


    The California reform effort was designed around three overarching 

     A focus on prevention and wellness to ensure that the 
health reform effort had the objective of keeping people healthy at the 
center. In this area we focused on strategies to foster individual 
responsibility for health through benefit product design; to promote 
more effective chronic care management; to engage communities in broad 
public health campaigns and initiatives; and to promote higher 
standards of patient safety in our hospitals.
     Universal coverage to ensure that all Californians had 
access to high-quality, affordable health care. To achieve universal 
coverage we felt it was imperative to have an individual mandate, as a 
purely voluntary system will leave many individuals uninsured. The 
mandate also needed to be accompanied by subsidies for low-moderate 
income individuals and changes in market and rating rules in the 
individual market to ensure access and affordability for those with 
pre-existing health conditions. Effective enforcement of the mandate 
was also essential to spread risk broadly and keep premiums affordable.
     Cost containment to move towards making health care more 
affordable for all purchasers of coverage and to promote strategies for 
more efficient health care delivery. A key component in the area of 
cost containment for the currently insured was our focus on what we 
labeled the ``hidden tax'' or the cost shift that exists for commercial 
purchasers from both the uninsured and the underpayment of public 
programs. Medi-Cal, (California's Medicaid program) has one of the 
lowest provider reimbursement rates in the country and accounts for a 
significant shift of costs onto the private sector. A major financial 
component of our effort included increasing provider reimbursement 
rates for Medi-Cal by over $4 billion. This strategy was intended to 
both reduce the cost shift and improve access to providers for an 
expanded Medi-Cal program. Any significant expansion of the Medicaid 
program nationally under reform should take into account this issue. We 
also pursued a number of other initiatives to address the underlying 
costs of health care including promotion of health information 
technology and e-prescribing, pay for performance, fostering a greater 
reliance on evidence-based medicine and the prevention and wellness 
strategies noted above. Nationally, there are additional steps and 
policy levers at the government's disposal to drive more efficient care 
delivery and payment reforms.


    A key consideration in designing a coverage proposal is the trade-
off between the comprehensiveness and cost of a specified benefit 
design. For the subsidized benefit, this dilemma will affect both the 
overall cost of the program and the cost for the individual, in terms 
of any contribution towards the premium and associated cost sharing 
with the product. For the unsubsidized benefit, the question becomes 
what minimum level of comprehensiveness is appropriate in conjunction 
with an individual mandate. In the California proposal, we determined 
that it did not make sense to have one standard benefit for all income 
levels of the uninsured. Subsidized lower income individuals clearly 
needed a more comprehensive benefit with minimal cost sharing, but that 
same benefit design might be quite costly for individuals who were not 
subsidized, particularly for those with incomes just above the subsidy 
threshold level.
    An addendum to this statement provides further detail, but in 
general the Administration proposed the following:

     Expanded public coverage for the lowest income individuals 
(Medic aid or CHIP for children up to 300 percent FPL; Medicaid up to 
100 percent for all documented adults);
     Subsidized coverage with a sliding scale contribution 
towards premium for documented adults between 100-250 percent FPL. 
Subsidized coverage included a broad scope of benefits and moderate 
cost sharing;
     Mandated minimum coverage of a high deductible plan 
($5,000), with preventive services, some office visits and some drug 
coverage outside the deductible for those above 250 percent FPL. The 
scope of benefits covered was similar to the subsidized benefit.

    During negotiations with the Legislature these parameters were 
modified, and the minimum benefit was never defined, but there was 
general agreement that a variable benefit design approach dependent on 
the income level of the individual was preferable for both individuals 
and the State.


    Closely associated to the issue of benefit design and affordability 
was the issue of subsidy design. As indicated above, the lowest income 
individuals received a full subsidy with a sliding scale subsidy for 
those with slightly higher incomes, and no subsidy for those above 250 
percent FPL. Several factors were considered in designing the sliding 
scale subsidy level including affordability for individuals, minimizing 
employer crowd out and Federal cost sharing rules.
    During negotiations, it became clear that a subsidy design with the 
income cut-off levels we had proposed would be particularly problematic 
for older individuals. We had taken steps to phase out health status 
rating, but we allowed a continuation of age rating (and rating based 
on family size and geography). This meant that older individuals over 
250 percent FPL would face quite high premiums. We felt that some 
difference in premium between younger and older individuals was 
appropriate given that: (1) older individuals have less constraints on 
their budget than young families (no child care or education expenses 
and lower housing expenses); and (2) health coverage is of greater 
value since average utilization increases with age. However, we 
concluded that some additional financial assistance would be needed for 
this population.
    There was considerable discussion around what level of subsidy 
could be offered and what the subsidy should be benchmarked against. 
Several stakeholders argued that subsidies should be based on all 
possible out-of-pocket costs rather than on premium alone which would 
have been prohibitively expensive for the State. In the end, we decided 
that additional subsidies would be provided on a sliding scale basis 
for those between 250-400 percent FPL if the premium cost for a product 
with moderate cost sharing ($2,500 deductible) exceeded 5.5 percent of 
gross income. This allowed the subsidy costs to remain affordable, 
while ensuring that individual out-of-pocket expenses would be limited.


    One of the underlying principles articulated by Governor 
Schwarzenegger was his desire to have all stakeholders in the health 
care system bear some responsibility for reforming the health care 
system. This proved to be a fairly popular approach because the 
proposal was designed such that all stakeholders both benefited in some 
way from the proposal and also bore some new responsibility, financial 
or otherwise. While some of the specific measures used in the 
California proposal would not translate well nationally, the general 
principle should. At the national level there are also additional 
opportunities for shared responsibility that States cannot pursue. For 
instance, an employer mandate at the State level generally has to be 
considered as a ``pay or play'' mandate due to ERISA concerns, but at 
the national level policymakers could mandate at least larger employers 
to simply ``play'' at some minimum level.

                             MARKET REFORM

    One of the most difficult policy challenges we faced in California 
was determining the most appropriate way to move from a highly 
underwritten, but quite robust, individual market to an individual 
market with guaranteed issue, no health status rating, but still 
preserving more comprehensive benefit offerings for those who preferred 
    Here we could not look to other States that had adopted broad 
health reforms such as Massachusetts since the market conditions and 
regulatory rules were completely opposite. In California, the 
individual market is quite robust with relatively low premiums and 
younger and healthier individuals that can pass medical underwriting in 
the market. In Massachusetts, guaranteed issue and rating rules were 
already in existence before broad reform, and the individual market was 
quite expensive and generally much higher risk than in California. An 
influx of new individuals into the market in Massachusetts, some higher 
risk, but others lower risk, would generally lower premium costs. In 
California, an influx of individuals, particularly a large number of 
higher risk individuals, would likely increase premiums considerably.
    In particular, this meant that if we were to have a guaranteed 
issue, we needed to ensure that the mandate would be well enforced so 
that younger healthier individuals would be more likely to comply with 
the mandate and moderate the risk pool and overall premium increases. 
This was quite a controversial issue and the compromise bill left much 
to be determined by the State during implementation. However, the 
enforcement measures widely discussed included a concept called 
``seamless coverage'' which would permit the State to adopt a number of 
education and enrollment steps to improve compliance with the mandate. 
It would also allow the State to default enroll individuals who did not 
comply with the mandate after a specified period of time in the 
mandated minimum coverage and pay their premium until the individual 
was in compliance.
    We certainly could not find a perfect solution to solve the 
complexity of issues this transition engendered, but we agreed on 
several approaches that would: gradually transition to our stated end 
goal while minimizing disruption of the current market; moderate likely 
premium increases for those currently in the individual market; and 
keep premiums relatively affordable for those entering the market for 
the first time. We also wanted to ensure that a broad choice of 
benefits, from less comprehensive to more comprehensive would be 
available on a guaranteed issue basis with rating appropriate to the 
difference in benefits, not expected risk. A summary of reforms and 
proposed market changes submitted by a coalition of health plans in 
California are included as an addendum to this statement. Some of the 
key reforms in addition to guaranteed issue and an enforceable mandate 

     A gradual phasing out of health status rate bands;
     Grandfathering of individuals with current insurance if 
they had that insurance 18 months prior to the mandate;
     Requiring risk adjustment among plans across the newly 
insured pool and the grand fathered pool to ensure all plans shared the 
new ``risk'' in the market equitably;
     A requirement to offer a wide variety of products and to 
price them in relation to the rest of an insurer's portfolio. These 
requirements would preserve broad choice for consumers with rating 
appropriate to the difference in benefits, not anticipated risk.
     Corresponding rules for the purchase of guaranteed issue 
products by individuals to ensure that the comprehensive plans were not 
adversely selected against and prices remained affordable.

    Determining a single strategy for a smooth transition in a national 
reform effort may prove very difficult given the wide variation in 
market conditions and regulations across the country. It may be 
preferable to establish Federal standards around benefit design and 
financial subsidies along with rules and regulations to ensure broad 
choice and fair rating for consumers and appropriate risk adjustment 
across plans. Implementation benchmarks could also be established 
through Federal regulation. States could be allowed to design their own 
transitional strategies to meet these benchmarks with provision of 
Federal subsidy dollars tied to meeting these standards and benchmarks.
    The goal of national health reform is an ambitious, but much-needed 
policy reform in this country. I look forward to discussing these 
lessons from California with you in greater depth and discussing 
additional opportunities not available at the State level as you move 
forward with the national health agenda.


    1. benefit design considerations in the california reform effort
    One of the key issues policymakers face in determining an 
appropriate benefit design for the currently uninsured population is 
the trade-off between comprehensiveness of the product and the cost.
    In the California reform effort, the Administration's health reform 
team considered comprehensiveness of the benefit from the standpoint of 
both the scope of covered benefits and the cost sharing associated with 
the product. Likewise cost was considered from the standpoint of the 
cost of the premium for the individual and the ability of an individual 
to afford associated cost sharing. In the case of the subsidized 
product, consideration was also given to the subsidy costs for the 
State, the impact on employer ``crowd out'', and Federal cost sharing 
rules that would impact the ability to draw down Federal funds.
    In terms of the scope of benefits, all individuals were required to 
purchase a product that met the ``Knox Keene'' standard required for 
all HMO products in the State, plus prescription drug coverage. Knox 
Keene requires coverage of all ``basic health care services'' including 
physician services, hospital inpatient and ambulatory care services, 
diagnostic lab and radiological services, home health services, 
preventive health services, emergency health care services and hospice 
care. In addition to these general categories, State lawmakers have 
included specific mandates that are a subset of these categories.
    Cost sharing for the products varied dependent on the income level 
of the individual. Since lower income individuals have less 
discretionary income, the subsidized population had a benefit with zero 
to moderate cost sharing. Individual contributions towards the cost of 
the subsidized product were established as part of the shared 
responsibility principle for all but those with the lowest incomes, to 
offset some of the subsidy costs for the State, and to mitigate 
employer crowd out. Cost sharing for the unsubsidized product was set 
with much higher parameters. The rationale for this approach was two-
fold: higher income individuals generally have more discretionary 
income, and with no subsidy for the premium costs, might prefer a 
benefit design with higher cost sharing parameters. In a guaranteed 
issue world, an individual could purchase a more comprehensive benefit 
design if they preferred.
    The Administration team originally modeled costs based on the 
following parameters:

     All children regardless of documentation status up to 300 
percent FPL eligible for either Medicaid (up to 100 percent) or SCHIP 
(101-300 percent).
     Documented adults up to 100 percent FPL--Eligible for 
     Documented adults 101-250 percent--Eligible for subsidized 

          Subsidized coverage defined as Knox Keene benefits 
        plus prescription drugs.
          Individual cost towards premium--100-150 percent 
        FPL--3 percent of gross income, 151-200 percent FPL--4 percent 
        of gross income, 201-250 percent FPL--6 percent of gross 
          $500 deductible, $3,000 out-of-pocket maximum. 
        Prevention, physician office visits and Rx outside the 
        deductible with limited co-pays.

     Documented adults above 250 percent--mandated to purchase 
minimum coverage. Minimum coverage never defined in legislation, but 
modeled at:

          Knox Keene benefits plus prescription drugs.
          $5,000 deductible; $7,500 individual/$10,000 family 
        out-of-pocket maximum. Prevention, some physician office visits 
        and some drug coverage outside the deductible with low-moderate 

    During the negotiations with the Legislature the benefit parameters 
were modified somewhat, to reflect the following changes:

     Documented adults from 101-150 percent would have no 
contribution towards the premium.
     Adults from 151-250 percent would be required to 
contribute up to 5 percent of their income based on a sliding scale.
     Subsidized coverage benefits would be based on a modified 
SCHIP product with similar cost sharing parameters.
     Minimum benefit standard for those over 250 percent would 
be determined at a later date by a State agency through a public 
hearing process.
     Additional subsidies would be provided on a sliding scale 
basis for those between 250-400 percent FPL if the premium cost for a 
product with moderate cost sharing ($2,500 deductible) exceeded 5.5 
percent of gross income.
          2. california health reform market reforms overview
     Individual Mandate for the purchase of coverage.
    Intent: Necessary to attain universal coverage. Can better meet 
affordability concerns if all individuals are required to purchase 
    Exemptions may be provided for the following reasons: new 
California residents, individuals who apply for and are granted an 
affordability or a hardship exemption by the Managed Risk Medical 
Insurance Board (MRMIB), and persons with incomes below 250 percent of 
the Federal Poverty Level (FPL) if the cost of premiums for minimum 
creditable coverage exceeds 5 percent of their income. (The last 
exemption is basically for undocumented adults below 250 percent who 
would not be eligible for subsidized coverage. Documented adults below 
250 percent would qualify for either Medi-Cal or new subsidized 
coverage and would not have to pay more than 5 percent of income for 
that coverage.)
     Guaranteed Issue of all products from onset of the 
mandate, with carriers required to offer a diversity of products from 
high-deductible to comprehensive.
    Intent: Broad choice of guaranteed issue products for consumers.
    Guaranteed issue corresponds to the mandate. If you are exempt from 
the mandate, you do not qualify for GI coverage.
     Use the ``seamless coverage'' approach to ensure that 
people comply with the mandate.
    Intent: Enforcement of the individual mandate is essential for 
guaranteed issue to work properly. The State will adopt a number of 
education and enrollment steps to improve compliance with the mandate 
and will default enroll individuals in coverage after a specified 
period of time and pay their premium until the individual is in 
     Grandfather products that are below the minimum standard 
for those who have had those products for 18 months prior to the 
    Intent: Don't require people who have been purchasing insurance to 
change their coverage. By grandfathering these people their rates will 
also initially be protected from major rate increases as a consequence 
of the new market rules.
     Individuals are allowed to purchase and renew coverage 
below the mandated minimum up to enactment of the mandate, but 
individuals purchasing this type of coverage will not be grand 
fathered, unless they had this coverage 18 months prior to the mandate.
    Intent: Ensure that a variety of low-cost products are available to 
consumers before the individual mandate goes into effect.
     Prohibit the introduction of new products below the 
minimum standard 18 months in advance of the mandate.
    Intent: While people with long-standing existing coverage below the 
minimum should not be forced to change their coverage, insurers should 
be discouraged from selling coverage that doesn't meet the minimum 
standards to get around our new policy. Over time, individuals with 
coverage lower than the minimum will shift over voluntarily to products 
that meet the minimum standard.
     Establish coverage choice categories and require insurers 
to offer choice in a variety of levels using a similar rating 
    Intent: Ensure that a broad range of products are offered on a 
guaranteed issue basis from less comprehensive to more comprehensive in 
the reformed market and that they are priced in relationship to each 
other based on differences in benefit design, not based on possible 
risk selection.
     Gradually phase out increased charges for health status by 
limiting the amount insurers can ``rate up'' for those with health 

          For the first 2 years insurers can rate 20 percent 
        above or below based on a person's health status.
          For the next 2 years insurers can rate 10 percent 
        above or below based on a person's health status.
          After 4 years insurers cannot vary their rates based 
        on a person's health status. Insurers will only be allowed to 
        vary rates based on age, family composition, and geography.

    Intent: ``Soften'' the transition from a market that is not 
guaranteed issue and where rates differ dramatically according to 
health status, to a market that is guaranteed issue and rates vary only 
by age, family and geography. Individuals who are older and sicker will 
pay more, but the differential is limited and they are guaranteed issue 
coverage. By allowing health status rate bands initially, there will 
not be as big a premium increase for young, healthy individuals who had 
coverage or who will be buying coverage for the first time. Individuals 
who had coverage that exceeds the minimum will still see premium 
increases estimated at about 20 percent more than they pay today. To 
minimize that expected rate increase we would need to either broaden 
the health status risk bands or ``re-insure'' products for these 
individuals at a cost of approximately $300 million. In our language we 
give authority for this reinsurance mechanism if we choose to pursue 
this strategy.
     Apply an overall maximum ratio (for example; rates for a 
60-64 year old cannot be more than XXX higher than rates for a 30-34 
year old) for individuals between 30-34 and the 60-64 rate categories.
    Intent: Health status rate bands will mean that older individuals 
in general will pay more than younger individuals both because of their 
age and their higher health risk. By requiring an overall rate ratio 
for middle age to the oldest category we protect the oldest individuals 
from very high rates. We exclude the youngest (19-29) because we need 
to keep prices affordable for the youngest who will be the least likely 
to comply with the mandate.
     Require plans to redistribute funds among themselves based 
on the number of high risk individuals each health plan has.
    Intent: Make sure that all health plans share the new ``risk'' in 
the market equitably. This component is particularly important because 
we are grandfathering a large number of individuals who have coverage 
that does not meet the minimum standard. Without this structure some 
plans may not participate fully and fairly in the guaranteed issue 
market. All plans should bear an equitable cost for reforming the 
     Authorize a shared reinsurance provision, should the age 
adjusted risk of individuals enrolled in the unsubsidized market, 
significantly exceed the incidence of risk of those enrolled in the 
subsidized program.
    Intent: Split the cost of reinsurance by having the plans bear the 
first portion of risk if the risk is up to 10 percent higher. This 
methodology will incentivize plans to better manage risk as they will 
be on the hook for the first level of reinsurance. The State then bears 
the additional cost of reinsurance above 10 percent as a means to keep 
rates more affordable for the majority of individuals.
 3. Proposed Rules to Safeguard Market Viability under Guaranteed Issue
    Proposals mandating guaranteed issue of health insurance are among 
the ideas for health care reform recently advanced. However, as the 
experiences of a number of other States attest, instituting guaranteed 
issue in the individual market can trigger severe unintended 
consequences, such as large, destabilizing premium increases and 
insurer flight from the market. It is therefore critical that in 
implementing guaranteed issue, careful attention be paid to minimizing 
these risks and assuring that a wide variety of benefit packages can 
continue to be offered at reasonable rates.
    Mandating coverage for all individuals is an absolute requirement 
for successful implementation of guaranteed issue, but it alone is not 
sufficient for a good outcome. The two-phase proposal described below 
represents our initial thinking about how guaranteed issue could be 
established without harming the people currently served in the 
individual market and assumes that other elements of health care reform 
proposed do not undermine a viable market.


    Because of the major risks involved in moving to guaranteed issue, 
it is important that there be a transition period to assure that 
persons currently in the market do not experience a sudden increase in 
rates and that the individual market remains viable. We propose the 
following transition rules:

     The State will define a baseline HMO benefit plan and a 
baseline PPO benefit plan with the same actuarial value.
     At some reasonable time after the baseline plans have been 
defined, a carrier must offer at least one baseline plan on a guarantee 
issue basis. If a carrier chooses to offer more than one product in the 
individual market, it must offer the baseline benefit plan for each 
product. A product offered in the subsidized pool would be excluded 
from this requirement.
     In offering the guaranteed issue benefit plans, a carrier 
shall continue to have flexibility in establishing and maintaining 
provider networks as long as the carrier meets regulatory requirements 
for access to care and as long as guaranteed issue is available in at 
least one product using each network offered by the carrier.
     The baseline product for each network offered by the 
carrier shall be its lowest priced product and be subject to guaranteed 
     Carriers may also offer other benefit plans not subject to 
guaranteed issue. Carriers will be able to develop benefit plans and 
price as they do now.
     At the same time that plans begin offering the baseline 
benefit, the individual mandate shall commence and the State shall 
begin enforcement activities.
     The State will continue to operate a high-risk pool 
similar to MRMIP and shall continue to subsidize its cost by an 
appropriation of no less than the amount now provided for support of 
MRMIP, which is $40 million from the Tobacco Tax.
End of Transition Period
     The transition period will end when there is full 
compliance with the individual mandate. We will work together and with 
the Governor's Office and the legislature to define full compliance.
     When it is determined that there is full compliance with 
the individual mandate, the phase two framework will go into effect.


    To establish a functional, sustainable market where Californians 
who are not eligible for subsidized coverage and are required to 
purchase coverage through the individual market have guaranteed access 
to affordable coverage, regardless of health status.
     All Californians are mandated to obtain health coverage 
through direct purchase, employment or a public plan.
     The individual mandate is fully effective and the State 
actively monitors and enforces the enrollment requirement.
     The individual mandate requires minimum coverage of a plan 
with high cost-sharing, such as a $5,000 deductible plan, with a $7,500 
out-of-pocket maximum. Californians could also satisfy the mandate by 
purchasing any plan which meets Federal qualification for an HSA-
compatible HDHP plan.
     These rules would apply to adults above 250 percent of 
poverty and children above 300 percent of poverty who are ineligible 
for other public programs.
Benefit Plans
     The State will define five classes of benefit plans, each 
class having an increasing level of benefits.

          Within each class, the State will define one baseline 
        HMO and one PPO plan, and a baseline for any other type of 
        product that meets the minimum mandated benefit.
          The State will define reasonable benefit variation 
        from the baseline that will allow for a diverse market within 
        each class.
          The benefits within each class could be standard and 
        uniform across all carriers, or the benefits offered in each 
        class could be defined based on actuarial equivalence.
          Each carrier in the individual market will offer at 
        least one plan in each class.
          Carriers are not obligated to offer all product 
        options, but if a carrier chooses to offer a product option in 
        one class, it must offer that product option in all classes.
          All plans will be offered to individuals on a 
        guaranteed issue basis once full application of the individual 
        mandate has been achieved.

     Carriers participating in the individual market must offer 
all plans in all of their approved service areas.
     Any coverage that does not at least equal the minimum 
State-mandated plan does not qualify as meeting the individual coverage 
     Classes defined by the State must reflect a reasonable 
continuum between the class with the highest and lowest level of 
     This allows an individual to choose a benefit plan with 
the appropriate level of coverage for the individual's needs.
     Carriers should compete on the basis of price, quality and 
service, not risk selection. The State would act as ``referee'' 
establishing the rules and preventing carriers from designing plans to 
avoid high risk enrollees.
Guaranteed Issue Requirements
     Individuals would elect a plan within a benefit 
classification. An individual may change plans as follows:

          Annually, in the month off the individual's birthday, 
        within the same benefit classification.
          Every 3 years, in the month of the consumer's 
        birthday, the consumer may move up one level of benefits.
          At any time, within the same carrier's portfolio, a 
        consumer may move to a lower class.
          At significant life events, the individual would have 
        broader open-enrollment choices and can move up 2 or 3 bands 
        (upon marriage, the death of a subscriber).

     Individuals applying for coverage would be required to 
fill out a standard health status questionnaire to assist plans in 
identifying (a) persons in need of disease management, and (b) high-
risk applicants.
    The time limitation on enrollment protects the more comprehensive 
plans from accruing a high level of risk that would result in making 
them unaffordable. It would encourage people to choose benefit plans 
that will meet their needs over the long term.
     Prior identification of persons in need of disease 
management allows plans to reach out to these people to encourage them 
to get the care they need.
     Prior identification of high risk applicants will 
facilitate the re-insurance mechanism discussed below. The 
identification of ``high risk'' applicants would be invisible to the 
enrollee, except to the extent they are candidates for disease 
Rating Rules
     Carriers may rate the entire portfolio in accord with 
expected costs or other market considerations, but the rate for each 
plan would be set in relation to the balance of its portfolio.
     Each plan would be priced as determined by each carrier to 
reflect their expected costs with appropriate cost-subsidization across 
the entire individual risk pool. Additional rules would require the 

     If a carrier offers different provider networks on 
different plans, it may consider the effect on health care costs.
     Rates may vary from applicant to applicant by:

        (1)  Age--Legislation to define specified age bands.
        (2)  Family--Legislation to define 5 family sizes (Single Sub, 
        Sub/Sp, Sub/Ch, etc. . . .). Carriers can chose to offer only 
        member level rates (a family rate would be the sum of the 
        individual rates for each family member).
        (3)  Geographic rate regions, limited to 9 regions, of a 
        carrier's choice. A region may not split a county more than 
        once, and within a county, may not split any block of zip codes 
        sharing the first three digits.
        (4)  Health Improvement Discounts. A carrier may reduce co-
        payments or offer premium discounts for non-smokers, 
        individuals demonstrating weight loss through a measurable 
        health improvement program or individuals actively 
        participating in a carrier's disease management program. Any 
        discounts must be approved by the State.

     A carrier must use the same rating factors for age, family 
size and geographic location for each plan.
     No artificial constraints will be placed on differences in 
rates by age, family composition, or region.
     These are similar to the current rules in the small group 
     Allowing pricing flexibility between plans allows carriers 
to reflect the differences in their costs structure and anticipated 
experience under each plan.
     This structure must be linked with an effective re-
insurance pool to protect the richest plan category from the selection 
costs likely to occur.
Reinsurance Pool
     Carriers would be allowed to cede high risk enrollees into 
a subsidized pool.
     This process would be invisible to the enrollee as it 
would be a financial arrangement between the carrier and the State.
     Financing for this pool would be broad-based and shall not 
rely only on the premiums from the individual market.
     There are various approaches to re-insurance that have 
been used and that are being developed. We could discuss the details of 
what would be best in California as part of development of the final 
     This would help to maintain affordability for individuals.
     This also helps to ensure a level playing field so that 
carriers compete based on price, quality and service rather than risk 

    Senator Bingaman. Ms. Besio, tell us about Vermont.

                         BURLINGTON, VT

    Ms. Besio. OK. First, I'm going to correct the 
pronunciation of my name, which is Besio (Bes-eye-o), Susan 
    I'm actually the Director of Healthcare Reform for Vermont, 
and also the Director of the State's Medicaid Program. I want 
to thank you, along with the other panelists, for asking the 
States to be here today, and for your leadership.
    Vermont has long valued coverage as important for our 
residents. However, Vermont's reforms were very, very 
comprehensive, in that they did address both coverage, care 
delivery, prevention and wellness, and trying to control costs. 
Hopefully we'll get a chance to talk about all of those aspects 
    In terms of coverage, Vermont has always had coverage as a 
key component of our State's values. We have a very expansive 
Medicaid program, we actually cover children up to 300 percent 
of Federal poverty level, childless adults up to 150 percent, 
and adults with dependents up to 185 percent of Federal poverty 
    That was a key cornerstone of our coverage expansions that 
we initiated in 2006. We're also one of the few States in the 
country that has guaranteed issue and community rating which, 
again, is part of our Vermont values that we want to provide 
affordable and comprehensive coverage to all of our residents, 
regardless of age or health status.
    Since the fall of 2007, when we implemented our reforms, 
our uninsured rate has dropped from 9.8 percent to 7.6 percent 
for all of our residents, and from 4.9 percent to 2.9 percent 
for our children. We're very proud of that progress, we did 
this without an individual mandate, but we did do it with new, 
comprehensive, private market product called Catamount Health, 
premium assistance for people up to 300 percent of the Federal 
poverty level for both Catamount Health and for their employer-
sponsored insurance, for people with employer-sponsored 
    We did integrated private and public outreach and 
marketing, and enrollment, and we insisted that coverage be 
comprehensive and affordable, with low deductibles and low out-
of-pocket cost.
    The reason that is so important to us is because we 
recognize that if people have high out-of-pocket costs, they're 
not going to access preventative care, even if preventative 
care is free, because the follow-up care is not. And so, we 
think that's a very important value to consider when you're 
developing benefit designs that might be standardized at the 
national level.
    We also would think that we have some experience around the 
role of insurance regulation, implications of Medicaid and 
Medicare in terms of the complexity of those systems, and how 
they interface with our States' abilities to expand and 
maintain coverage. Obviously, the importance of simultaneous 
system redesign in terms of care delivery which has to go hand-
in-hand with the coverage initiatives.
    We very much appreciate you asking Vermont to be at the 
table today. We think that we have a lot of learning to offer, 
we also believe that--as Senator Hatch mentioned--each State 
has unique values, conditions, and State and local regulations 
that can not be dismantled in any kind of healthcare reform 
effort, because we have made significant progress, and we do 
not want to go back.
    Again, thank you very much for having us here today, and we 
look forward to our discussion.
    [The prepared statement of Ms. Besio follows:]

     Prepared Statement of Susan Besio, Ph.D. and Harry Chen, M.D.


    My name is Susan Besio. I am the Director of Health Care Reform for 
the State of Vermont, and also was recently appointed Director of the 
State's Medicaid Program. With me today is Dr. Harry Chen, who is a 
practicing emergency room physician and board member of Vermont Program 
for Quality in Health Care, and former Vice-Chair of the Vermont 
Legislative Committee on Health Care. We would like to thank Senator 
Kennedy, Senator Enzi, Senator Bingaman, Senator Sanders, and the rest 
of the members of the committee for giving us the opportunity to speak 
today about our State's experiences with health care reform related to 
coverage and how they can inform national reform efforts.


    Per capita health care costs are lower in Vermont when compared to 
the United States, but the spending gap has been narrowing since 1999. 
Health care spending growth rates in Vermont have exceeded national 
averages for each of the last 4 years, and health care costs were 17.1 
percent of Vermont's gross State product in 2007. We cannot afford our 
current health care system.
    Universal health care coverage is a key mechanism to help bring 
down the costs of health care. Covering the uninsured will help lower 
uncompensated care costs, which affect premiums paid by the insured. In 
addition, people who do not have affordable, comprehensive coverage do 
not access preventive or primary care, and instead use costly emergency 
room services; they also develop more significant illnesses which 
require more costly services. For example, data from the Vermont 2005 
Family Health Insurance Survey \1\ showed that 45 percent of uninsured 
children did not see a physician for routine care (compared to 7 
percent of insured children); this has significant implications for 
both short-term and long-term wellness, and health care expenditures.
    \1\ Vermont Family Health Insurance Survey, 2005. The survey report 
can be found at http: 
    In 2005, before our reforms began, Vermont had an uninsured rate of 
9.8 percent (61,056) compared with a national rate of 15.7 percent, and 
an uninsured rate for children of 4.9 percent.\1\ This relatively low 
uninsured rate is partially due to Vermont use of its Medicaid 1115 
waiver authority to expand coverage for the uninsured. The Dr. Dynasaur 
program provides Medicaid coverage to all children with household 
incomes under 300 percent FPL, to pregnant women with household incomes 
under 200 percent FPL, and to parents and caretakers with household 
incomes under 185 percent FPL. The Vermont Health Access Plan (VHAP) 
provides coverage for uninsured adults with household income under 150 
percent FPL and adults with children on Dr. Dynasaur who have income 
under 185 percent. Approximately 19 percent of Vermonters (125,000) 
have health insurance provided by the State through these programs.
    Regarding private insurance, Vermont is one of a handful of States 
that requires guaranteed issue and community rating--reflecting the 
State's values of wanting to provide affordable, comprehensive health 
coverage regardless of age or health status (matters largely outside 
the individual's control). However, affordable coverage is becoming 
more difficult, especially in the individual market, where enrollment 
has decreased 44 percent from 2000 to 2007. And while Vermont employers 
appear to be maintaining coverage for their employees, the cost-sharing 
within the plans is increasing each year, making it more difficult for 
Vermonters to get the care they need, when they need it.


    On May 25, 2006, Vermont Governor James Douglas signed into law 
Acts 190 and 191 (Acts Relating to Health Care Affordability for 
Vermonters). These Acts, augmented by portions of the State Fiscal Year 
2007 Appropriations Act and Act 153 (Safe Staffing and Quality Patient 
Care), along with Acts 70 and 71 in 2007 and Acts 203 and 204 in 2008 
provide the foundation for Vermont's Health Care Reform Plan.
    Vermont's comprehensive package of health care reform legislation 
is based on the following reform design principles:

     It is the policy of the State of Vermont to ensure 
universal access to and coverage for essential health care services for 
all Vermonters.
     Health care coverage needs to be comprehensive and 
     Vermont's health delivery system must model continuous 
improvement of health care quality and safety.
     The financing of health care in Vermont must be 
sufficient, equitable, fair, and sustainable.
     Built-in accountability for quality, cost, access, and 
participation must be the hallmark of Vermont's health care system.
     Vermonters must be engaged, to the best of their ability, 
to pursue healthy lifestyles, to focus on preventive care and wellness 
efforts, and to make informed use of all health care services 
throughout their lives.

    Using these principles as a framework, Vermont's health care reform 
legislation contains over 50 separate initiatives designed to 
simultaneously achieve the following three goals:

     Increase access to affordable health insurance for all 
     Improve quality of care across the lifespan.
     Contain health care costs.

    It is significant that Vermont's landmark 2006 Health Care Reform 
legislation was the product of extensive negotiation and collaboration 
by the Douglas administration, legislative leaders of the Vermont 
General Assembly, and the private sector participants--including 
providers and payors--in Vermont's health care system. While there were 
multiple ideas and political agendas as part of the discussions, there 
is agreement that the final legislation was comprehensive in its 
breadth and significant in its potential impact on health care in 
Vermont. There also was a commitment to move forward with 
implementation in a collaborative, non-partisan manner to maximize its 
success, as evidenced by the subsequent, collaborative work embodied in 
additional legislation passed in 2007 and 2008 and under development in 
the current legislative session.

                        VERMONT COVERAGE REFORMS

    These reforms are making a real difference. In contrast to many 
other States where the number of uninsured is increasing, Vermont's 
coverage reforms instituted in the past 2 years have reduced the number 
of uninsured from 9.8 percent in 2005 to 7.6 percent in 2008, and the 
uninsured rate for children has fallen from 4.9 percent in 2005 to 2.9 
percent in 2008.
    Data from the 2005 Vermont Family Health Insurance Survey on the 
demographics of the uninsured in Vermont helped focus the design of our 
coverage reforms. According to the survey, 51 percent of the uninsured 
in Vermont were estimated to be eligible for a Medicaid program but not 
enrolled in the program; 27 percent of the uninsured in Vermont had 
household income under 300 percent FPL but were not eligible for a 
Medicaid program; and 22 percent of the uninsured in Vermont had 
household income greater than 300 percent of FPL. Over three-quarters 
of Vermonters indicated that cost was the major reason for being 
    In response, Vermont's coverage reforms:

     designed and implemented the new Catamount Health 
insurance plan,
     developed income-sensitive premium assistance programs for 
Catamount Health and for employer-sponsored insurance,
     developed the new brand name ``Green Mountain Care'' to 
include the State's Medicaid and Medicaid expansion coverage programs, 
Catamount and the new premium assistance programs under a single 
umbrella, and
     implemented mechanisms to assist with comprehensive 
outreach to every uninsured Vermonter that is matched with application 
assistance, tracking, follow-up, and referral.

    Mandated in statute, the new coverage initiatives were designed 
with very specific underlying values. These included ensuring 
comprehensive coverage and affordable coverage; (premiums and out-of-
pocket); promoting preventive care and chronic care management; 
augmenting, not supplanting, employer-based coverage; and avoiding 
contributing to the cost shift via inadequate provider payments in any 
new coverage plans.
    Catamount Health Plan: Act 191 of 2006 created a separate insurance 
pool in the individual market for the purpose of offering a lower cost 
comprehensive health insurance product for uninsured \2\ Vermonters. 
The Catamount Health Plan is modeled after a preferred provider 
organization plan with a $250 in-network deductible and $800 out-of-
pocket maximum for individual coverage. Cost sharing is prescribed in 
statute, and includes a waiver of all cost-sharing for chronic care 
management and services for subscribers who agree to participate in a 
defined chronic care management program offered through the carrier, 
and a zero deductible for prescription drug coverage. Lower premium 
costs as compared to equivalent benefit plans on the individual market 
were achieved due to estimates concerning the claims costs of the 
uninsured relative to the claims costs of the general population, and 
based on provider reimbursement rates established in the law that are 
lower than commercial rates (but 10 percent higher than Medicare 
rates). Catamount Health policies began being offered by Blue Cross 
Blue Shield of Vermont and MVP Health Care on October 1, 2007. As of 
the end of March 2009, over 8,200 people have enrolled in Catamount 
Health Plans, and enrollment continues to increase by several hundred 
each month.
    \2\ Uninsured means: (1) you have insurance which only covers 
hospital care OR doctor's visits (but not both); (2) you have not had 
private insurance for the past 12 months; (3) you had private insurance 
but lost it because you lost your job or your hours were reduced; got 
divorced; have or are finishing COBRA coverage; had insurance through 
someone else who died; are no longer a dependent on your parent's 
insurance; or graduated, took a leave of absence, or finished college 
or university and got your insurance through school; (4) you had VHAP 
or Medicaid but became ineligible for those programs; (5) you have been 
enrolled for at least 6 months in an individual health insurance plan 
with an annual deductible of $10,000 or more for single coverage or 
$20,000 or more for two-person or family coverage; or (6) you lost 
health insurance as a result of domestic violence.
    Catamount Health Premium Assistance Program.--Of the 8,200 
beneficiaries covered by Catamount Health Plans, 85 percent are 
receiving premium assistance, which is available to Vermont residents 
who have been uninsured for at least 12 months (with exceptions) and 
who are not eligible for a public insurance program such as Medicaid. 
Premium assistance is based on household income, and eligible 
individuals are able to purchase a Catamount Health policy at the 
following rates, with the remainder paid by the State:

    Up to 200 percent FPL: $60 per month;
    200-225 percent FPL: $110 per month;
    225-250 percent FPL: $135 per month;
    250-275 percent FPL: $160 per month;
    275-300 percent FPL: $185 per month; and
    Over 300 percent FPL: Full cost of the Catamount Health individual 
policy ($393/month).

    Employer Sponsored Insurance (ESI) Premium Assistance Programs.--
Vermont's health care reform is designed to support and build on our 
Nation's current health care system that primarily relies on employer-
based coverage. As such, the new Catamount Health Plan and the 
associated premium assistance programs were constructed to minimize 
``crowd-out'' from employer coverage, and the funding of the reforms 
include an assessment on employers that do not offer insurance.
    The ESI Premium Assistance Program also makes health coverage more 
affordable for uninsured Vermonters who have incomes under 300 percent 
FPL and have access to approved employer-sponsored coverage.\3\ If 
cost-effective for the State, adults currently enrolled in the Medicaid 
VHAP program and new VHAP applicants who have access to an approved 
employer-sponsored insurance (ESI) plan are required to enroll in their 
employer-sponsored plan as a condition of continued coverage under 
VHAP. The premium assistance program provides a subsidy of premiums or 
cost-sharing amounts based on the household income of the eligible 
individual to ensure that the individual's out-of-pocket obligations 
for premiums and cost-sharing amounts are substantially equivalent to 
or less than the annual premium and cost-sharing obligations under VHAP 
(ranging from $7 to $49 per month). In addition, supplemental benefits 
or ``wrap-around'' coverage is offered to ensure VHAP-eligible 
enrollees continue to receive the full scope of benefits available 
under VHAP.
    \3\ ESI plans must be comprehensive and affordable. Affordable is 
defined as a maximum individual in-network deductible of $500. 
Comprehensive is defined as including coverage for physician care, 
inpatient care, outpatient, for prescription drugs, emergency room, 
ambulance, mental health, substance abuse, medical equipment/supplies, 
and maternity care. Employers do not have to contribute to the plan for 
it to qualify.
    Catamount Health Premium assistance applicants who have access to 
an approved employer-sponsored insurance (ESI) plan are required to 
enroll in their employer-sponsored plan as a condition of receiving 
premium assistance. Their cost sharing for their employer's plan is 
identical to those enrolled in the Catamount Health Premium Assistance 
    As of the end of March 2009, over 1,450 Vermonters were receiving 
premium assistance from the State to enroll in their employer's plan.
    Seamless Transitions.--The statutes and State regulations governing 
the premium assistance programs and the already existing Medicaid-
related programs are designed to create an integrated system of State 
assistance to better assure the continuity of health care to covered 
beneficiaries, so that individuals who fall out of one assistance 
category may transition into another when financial eligibility 
requirements are met.
    Comprehensive, Integrated Marketing and Outreach.--The State has 
worked with the private carriers offering Catamount Health Plans and 
other Vermont stakeholders to develop a comprehensive marketing 
strategy across all the coverage and affordability initiatives. Through 
a contract with a national marketing firm, the State has implemented an 
aggressive outreach campaign, including television, radio, Internet, 
and print advertising; developed a new Green Mountain Care Web site 
with a high level screening tool; augmented an existing toll-free help-
line to inform people about and assist them to enroll in Green Mountain 
Care programs; and conducted trainings around the State with over 2,500 
participants. The State also works with the Department of Labor to 
conduct outreach to employers, including targeted efforts to companies 
following a layoff; has implemented targeted outreach to 18-34-year-
olds where they live, work and play; and has recently gotten 
sponsorship by a major bank to promote Green Mountain care.
    Private Insurance Market Reform.--A viable non-group market (where 
premiums are perceived as affordable and where enrollment is stable for 
all demographic groups without access to employer-sponsored insurance) 
is an essential component of a well-functioning, all-lines health 
insurance market. Like many other States, the Vermont non-group market 
is characterized by declining enrollment, adverse selection, increasing 
prices, enrollment in high deductible plans, and limited carrier 
participation. Act 191 of 2006 directed BISHCA to establish a non-group 
market security trust to reduce premiums in the non-group market by a 
minimum of 5 percent to make non-group products more affordable for 
individual Vermonters. Unfortunately, limited State funds have resulted 
in a lack of progress to lower the costs for Vermonters enrolled in 
these products.
    Act 191 of 2006 also directed the State to study the non-group 
market and make recommendations to the General Assembly to improve this 
option for Vermonters. While the State has contracted with a national 
expert to conduct studies and make recommendations for reforms to this 
market the complexity of this type of reform has prohibited significant 
    Healthy Lifestyles Insurance Discounts.--Vermont is a community-
rated State, and therefore costs variations within a specific insurance 
product are not generally allowed for different populations. However, 
beginning in 2006, health care reform legislation has authorized the 
State to adopt regulations permitting health insurers to establish 
premium discounts (up to 15 percent of premiums) or other economic 
rewards for subscribers in Vermont's community-rated non-group and 
small group markets, and to allow insurers in the small and large group 
markets to offer split benefit design plans, which would allow a 
healthy lifestyle differential in cost sharing for the same premium 
cost. Any discounts offered through these programs must be offered in a 
non-discriminatory manner and may not be limited by health status. 
Individuals committing to improve health through healthier lifestyle 
choices must be offered the discount. It is hoped that these new 
options will provide an incentive for choosing healthier lifestyles, 
help make insurance more affordable for individuals and businesses, 
improve the health of Vermonters enrolled in these plans, and thereby 
affect the overall growth in our health care costs in the long run.
    Possible Individual Insurance Mandate.--In 2006, Vermont made a 
conscious decision to not require an individual mandate such as the 
Massachusetts approach. However, Act 191 of 2006 does require that if 
less than 96 percent of Vermont's population is insured by 2010, the 
legislature must ``determine the needed analysis and criteria for 
implementing a health insurance requirement by January 1, 2011 . . . 
including methods of enforcement, providing proof of insurance to 
individuals, and any other criteria necessary for the requirement to be 
effective in achieving universal health care coverage.'' Actuaries for 
the Vermont Department of Banking Insurance and Health Care 
Administration have opined that an individual mandate can be an 
effective way of addressing adverse selection and pre-existing 
condition coverage challenges. However, learning from Massachusetts, it 
is clear that an individual mandate requires significant State 
investments to make affordable coverage available so residents can meet 
the mandate. Given the current economic environment, an individual 
mandate does not seem fiscally feasible for Vermont in the near future.


    Funding for the programs within Vermont's Health Care Reform is 
based on the principle that everybody is covered and everybody pays.
    Catamount Health Fund.--Vermont's health care reform established a 
new fund in Fiscal Year 2007 primarily as a source of funding for the 
Catamount Health and ESI premium assistance programs. Sources of 
revenue include 17.5 percent of the new cigarette taxes (see below), 
the Employers' Health Care Premium Contribution (see below), Catamount 
Health premium assistance amounts paid by individuals to the State, and 
other revenues established by the General Assembly.
    Increases In Tobacco Product Taxes.--The health care reform 
legislation included a $.60 per pack increase in the cigarette tax 
beginning July 1, 2006 and an additional $.20 per pack increase 
beginning July 1, 2008; a new tax on ``little cigars'' and roll-your-
own tobacco as cigarettes; and changed the method of taxing moist snuff 
to a per-ounce basis and increases tax on July 1, 2008 by 17 cents.
    Employers' Health Care Contribution Fund.--Act 191 of 2006 
established an Employer Health Care Contribution Fund to contribute to 
the Catamount Fund.\4\ Employers pay an assessment based on their 
number of ``uncovered'' employees, using the following guidelines:
    \4\ More information can be found at: www.labor.vermont.gov/

     Employers without a plan that pays some part of the cost 
of health insurance of its workers must pay the health care assessment 
on all their employees.
     Employers who offer health insurance coverage must pay the 
assessment on workers who are ineligible to participate in the health 
care plan (unless the plan is offered to all full-time employees, and 
the employee is a seasonal or part-time worker with coverage 
elsewhere), and on workers who refuse the employer's health care 
coverage and do not have coverage from some other source.

    The assessment is based on full-time equivalents at the rate of 
$91.25 per quarter ($365 per year), exempting eight FTEs in fiscal 
years 2007 and 2008, six FTEs in 2009, and four FTEs in and after 2010. 
The assessment rate increases annually indexed to Catamount Health Plan 
premium growth.
    Medicaid Global Commitment to Health 1115 Demonstration Waiver.--In 
2005, Vermont entered into a new 5-year comprehensive 1115 Federal 
Medicaid demonstration waiver designed to: (1) provide the State with 
financial and programmatic flexibility to help Vermont maintain its 
broad public health care coverage and provide more effective services; 
(2) continue to lead the Nation in exploring new ways to reduce the 
number of uninsured citizens; and (3) foster innovation in health care 
by focusing on health care outcomes. The Waiver program consolidates 
funding for all of the State's Medicaid programs, except for the new 
Choices for Care (long-term care) waiver and several small programs 
(SCHIP and DSH payments for hospitals). It also converts the State's 
Medicaid organization to a public Managed Care Organization (MCO). 
Under this new waiver, the MCO can invest in health services that 
typically would not be covered in our Medicaid program, and Vermont's 
Medicaid program has programmatic flexibility to implement creative 
programs and reimbursement mechanisms to help curb our health care 
    In 2007, the State requested an amendment from CMS to include 
Catamount Health and the employer-sponsored insurance premium 
assistance programs under the financial umbrella of this waiver. 
However, CMS only approved use of Medicaid funds up to 200 percent of 
FPL. The Governor and the Legislature agreed to use State General Fund 
to subsidize the premium assistance for individual within the 200 
percent to 300 percent FPL range, recognizing that many of these 
individuals cannot afford to purchase full cost insurance on their own.
    State Fiscal Obligations Protected.--The health care reform 
legislation enables the State Emergency Board to establish caps on 
enrollment in the Premium Assistance Programs if sufficient funds are 
not available to sustain the programs. This has not been employed to 


    Plan Affordability.--Access to affordable health care plans is key 
to universal coverage. This is very evident in Vermont's reforms, as 
only 15 percent of the people who have enrolled in the new Catamount 
Health Plans have bought the plans at full cost ($393 per month for an 
individual). The remaining have enrolled with premium assistance, and 
75 percent of those are individuals below 200 percent FPL who only pay 
$60 per month.
    Any national coverage option must be made affordable to people in 
all income ranges, without compromising the comprehensiveness of 
benefits and without further shifting costs of care to the private 
sector or providers. Vermont tried to achieve this in the Catamount 
Plans by requiring the providers be reimbursed at Medicare rates plus 
10 percent rather then the estimated 130 percent currently paid by 
private insurers. This would not be an option for a national plan, as 
providers could not absorb such a massive shift in their payer mix. 
Therefore, options for a federally offered plan must provide premium 
assistance based on income and have mechanisms such as a risk-pool to 
cover the costs for the most high needs beneficiaries. These provisions 
will have significant costs that cannot be absorbed by the States.
    Collaboration.--Vermont's progress on health care reform has not 
come easily. Choosing a public-private partnership model for expanding 
coverage requires close collaboration amongst insurers, providers and 
government. Non-profit agencies have also contributed time and money to 
the effort to achieve universal access. At times, this degree of 
collaboration may seem duplicative, but is essential to success in the 
absence of an individual mandate.
    Flexibility.--Even in a small State like Vermont it is clear that 
one-size-doesn't-fit-all. What works well in Burlington with its 
academic medical center may be very different than what will work in a 
rural community in the Northeast Kingdom. Reform efforts must allow for 
such grassroots change, building on existing local successes. The 
dictum of primum non nocere applies to reform as well as it does to 
health care itself.


    Benefit Design.--As previously mentioned, Vermont's Catamount 
Health plans offer very comprehensive coverage and low out-of-pocket 
costs. Vermont believes that providing comprehensive, affordable 
coverage with an emphasis on primary and preventive care, is key to 
successful reforms of our health care system. Coverage with high 
deductibles, high cost-sharing and/or minimal coverage does not promote 
accessing early and preventive care, which in turn, will not achieve 
the long-term goal of decreasing our system's health care costs. 
Vermont also believes that ensuring community rating and guaranteed 
issue is paramount for ensuring that all eligible people can access the 
coverage they need at an affordable and fair price.
    Crowd-Out Protections.--Vermont's reforms included several 
mechanisms that were designed to support the existing employer-
sponsored insurance system, through which 56 percent of Vermonters get 
their primary health care coverage. Catamount Health Plans and the 
premium assistance programs require that individuals must be uninsured 
for 12 months before becoming eligible (with exceptions due to life-
changing events). In addition, Vermont provides premium assistance for 
people to enroll in their employer's plan (if it is affordable and 
comprehensive). Finally, employers who do not offer coverage to their 
employees must pay into the Employer Health Care Contribution Fund to 
help support the State-sponsored programs. As such, over the past 3 
years, Vermont has not seen a large drop in the number of insured 
Vermonters who have employer-sponsored insurance even in times of 
economic downturn (decrease of only .5 percent). Any national reform 
efforts built on the employer-based health care system will need to 
include similar provisions that protect from its erosion.
    Connector Mechanisms and Insurance Regulation.--Vermont did not use 
the Massachusetts Connector approach, but instead developed a unified 
marketing and enrollment process between State government and the 
private insurers offering the new Catamount Plan. While national 
reforms that involve a coverage mandate or new Federal coverage options 
may necessitate formal mechanisms to connect individuals with their 
coverage options, Federal legislation should allow for program design 
and implementation at the State level. Most States have specific rules 
and regulations in place to regulate coverage and provide consumer 
protections based on State values, such as community rating and 
guaranteed issue provisions enacted in Vermont. Unless the national 
reform includes standards that adhere to this level of access, a 
national connector will not meet States' needs.
    Establishing a national floor with flexibility for a State-based 
approach would allow States to preserve consumer protections valued by 
their citizens and implement innovative strategies to contain costs 
while improving access and quality. States would also greatly benefit 
from the creation of multi-state pooling of risk (information only 
exchanges are not as useful), as long as minimum standards are 
applicable. Benefit plans should be comprehensive in services covered 
including mental health parity; should be subject to State consumer 
appeals and remedies; and should be subject to State system reform 
initiatives such as chronic care management and treatment standards. 
Utilized in this way, national standards establishing a floor may be an 
effective way to establish minimum coverage requirements while 
maintaining State-based regulation and preventing a set-back for State 
reform efforts already underway.
    System Delivery Reform.--Although not the specific focus of this 
Roundtable, strong evidence is emerging that coverage expansions will 
not be successful if there are not simultaneous and significant efforts 
to reform the care delivery system. Lack of access to primary care 
physicians is a major concern as many existing physicians are reaching 
retirement age and fewer medical school graduates are going into this 
field. Better support (such as multi-payer payment reforms, electronic 
information systems, and additional care condition staff) must be 
provided to primary care providers to enable them to deliver evidence-
based preventive care and to attend to patients with chronic 
conditions. Incentives to attract and retain primary care providers and 
other needed allied health care providers should include educational 
scholarships, loan forgiveness and reformed payment systems. Additional 
improvements in administrative systems such as common formularies, pre-
authorization requirements, and common claims systems would help to 
secure a primary care base and necessary access for patients. These 
supports may also help turn the tide on waning interest in this type of 
practice. Vermont has put significant efforts into transforming its 
care delivery system though the Blueprint for Health multi-payer 
integrated medical home and community care team projects, along with 
the development of a statewide health information exchange. National 
emphasis on these types of initiatives will be key to controlling the 
cost of health care in the long-run and making coverage both affordable 
and accessible.

                              ADDRESS THEM

    Balancing Fiscal Resources.--Even though Vermont currently offers 
premium assistance for people up to 300 percent FPL, it has done so 
without full Federal assistance that was initially expected when the 
reforms were designed. As noted above, Vermont requested an amendment 
from CMS to include Catamount Health and the employer-sponsored 
insurance premium assistance programs under the financial umbrella of 
its 1115 demonstration waiver, which operates under a negotiated cap 
for total State and Federal expenditures. However, CMS only approved 
use of Medicaid funds up to 200 percent of FPL, necessitating that 
State funds be used over the past 2 years to support premium assistance 
programs between 200 and 300 percent FPL. This has been a significant 
drain on State resources, and as the economy continues to decline, this 
may put the program in jeopardy. In order to help reforms succeed, the 
Federal Government must support States that believe they can fiscally 
support expansions under already existing Federal spending agreements.
    Vermont, like other States, is facing large budget deficits over 
the next few years, even after factoring in the assistance provided in 
the American Recovery and Reinvestment Act. Just this past Friday, 
Vermont's revenues were down-graded another 1.3 percent for this State 
fiscal year ending on June 30, and by 4.1 percent for State fiscal year 
2010. This is the third revenue downgrade in the past 6 months. As 
such, Vermont is now experiencing significant pressures on its budget 
to support the already existing Medicaid programs.
    Medicare.--The fiscal resource dilemma faced by Vermont and other 
States is compounded by the fact that State Medicaid programs are being 
required to cover growing percentages of the costs for long-term care 
and people who are dual-eligibles for Medicaid and Medicare. These 
budgetary pressures are putting our coverage initiatives at risk, 
thereby possibly undermining our successes to date and into the future. 
Any new requirements within national reform for Medicaid expansions 
and/or mandated coverages will need full Federal financial support, and 
Federal payment changes for Medicare must be a part of the fiscal plan.
    The fact that Medicare is an isolated federally administered 
program that often has conflicting payment structures and benefit 
design elements with Medicaid also impedes States' ability to deliver 
coordinated and effective care for its citizens who have dual 
coverages. In addition, the lack of State-level flexibility to 
integrate Medicare with State reforms significantly impedes reform 
efforts. While Federal policymakers have rightly focused on how 
Medicare can drive change in the health care system, valuable 
partnerships can be formed between Medicare and States that have 
already been leading the way in reform. However, this requires the 
Federal Government transform the Medicare program to permit such 
collaboration and partnerships with States. One possible solution would 
be to allow CMS to establish a system where State-led reform efforts 
could be considered outside of the current Medicare demonstration 
project methodology (e.g., CMS set up a review panel to consider State-
led proposals as they are developed). This approach is well established 
in other Federal agencies, such as the National Institutes for Health.
    Complexity of Medicaid Rules.--Vermont has tried to develop a 
seamless system of State-sponsored coverage options. However, the 
complexity of Medicaid rules and eligibility categories has made this 
extremely difficult to design and administer. Medicaid rule 
simplification and the latitude to better align eligibility categories 
and rules across programs (e.g., food stamps) would be extremely 
    Old Eligibility and IT Systems.--Many States, including Vermont, 
are relying on antiquated eligibility systems that are difficult to 
program and make it hard to access data and reports for guiding policy 
and budgetary decisions. Vermont's eligibility determination system was 
put in place in 1983. There has been recognition for a number of years 
that system replacement is important; however, this requires 
considerable State fiscal investments which have been prioritized for 
beneficiary coverage instead. As such, it has taken significant staff 
and fiscal resources to implement all of the eligibility changes 
created with the addition of the Catamount and ESI premium assistance 
programs. In addition, in some cases new policies that would benefit 
beneficiaries or create fiscal savings have not been implemented due to 
eligibility system capacities. The American Recovery and Reinvestment 
Act contains significant funds for health information technology, but 
these funds cannot be used to assist States to replace their 
eligibility systems. Since these systems will be key to any new 
coverage expansions, this decision should be revisited at the national 
    ERISA.--The Employee Retirement Income Security Act (ERISA) has 
been a problem for Vermont's reform efforts in several ways. For 
example, the inability to gather data on self-insured benefit plans 
limits targeted outreach to uninsureds and the ability to monitor 
employer-based benefit changes over time. In addition, Vermont has had 
to work around the fact that self-insured employers do not have to be 
at the table for State reforms, whether focused on health care quality, 
cost containment, or improving access. The ERISA also poses 
implementation dilemmas for ESI premium assistance programs. A possible 
Federal solution would be to write an exemption to allow States to 
apply for a waiver of ERISA pre-emption, provided the State reform 
effort is aimed at reducing the uninsured or achieving other federally 
approved policy goals.


    A key to Vermont's health reform has been the inclusion of all 
stakeholders all the time--in development, design and implementation. 
As we move forward with national reform, individuals, providers, the 
private sector and government--at the State and Federal levels--must 
work collaboratively to realize our shared goals of improving access 
and quality and containing costs.
    Many States have taken the lead and have implemented incremental 
and comprehensive reforms that can and should inform national health 
care reform, but these State reforms also should not be dismantled in 
the process. There are a range of issues where State variability 
matters, especially given the unique conditions of State and local 
insurance markets, different perspectives on health care services, and 
options for creating effective health care delivery systems.
    States strongly support services that provide for the health and 
well-being of their citizens. While there is a very important role for 
the Federal Government in paying for and shaping the type of health 
coverage available, overly proscriptive requirements will impede 
States' ability to design programs, benefit packages, and coordinate 
services in a way that meets the needs of our citizens.
    In conclusion, we want to express our appreciation for the 
leadership by your committee to move forward on the national agenda for 
health care reform. We in Vermont believe it is essential to the 
overall physical and fiscal health of our State and our Nation, and we 
look forward to partnering with you in this crucial and exciting 

    Senator Bingaman. Thank you very much.
    Dr. Chen.

                         BURLINGTON, VT

    Dr. Chen. Thank you, Senator Bingaman and other Senators 
and Senator Sanders.
    As a practicing emergency physician, I can speak directly 
to the human toll of being uninsured. All of these are all of 
the more compelling when they look you right in the eyes.
    I've been privileged for the past 4 years to play a role in 
shaping healthcare reform in Vermont, and I'm proud of our 
results of some of the lowest uninsured rates in the Nation. 
Again, we discussed arduously the mandate and came up with our 
answer of not to do the mandate in Vermont, but I certainly 
could understand how it helped Massachusetts.
    We haven't reached our goal, but we're hopeful that we'll 
get there. Coverage initiatives as a part of healthcare reform 
must be comprehensive. A high-deductible plan is not healthcare 
reform, it's asset protection, and it's important--for our 
goal--to get the right care to the right person, at the right 
    Coverage initiatives must be a part of comprehensive 
healthcare reform, that simultaneously address quality, 
efficiency and cost. We won't succeed without an adequate 
workforce, without more emphasis on prevention, delivery system 
reform, and payment reform. Affordability is the problem that 
can unravel our efforts at real healthcare reform.
    As you move forward, please be careful that your efforts 
don't undermine what we've done in the States. It's clear from 
Vermont's efforts that one-size-does-not-fit-all, and I would 
encourage the committee--as I do in my practice of medicine--to 
first, do no harm.
    I'm sure this committee will wrestle with some of the same 
issues that we did in Vermont in terms of the individual 
mandate. We opted not to have a mandate, but with the proviso 
that we could go back to it at a later time. We also wrestled 
with the issue of public or private, and in Vermont we--as you 
might expect--in politics, came up with what was possible, 
which was a mixture of both.
    In closing, I'm delighted that this committee is taking on 
this important issue. I'm sure that most of us in this room 
consider universal access to healthcare a moral imperative. I'm 
proud of our progress in Vermont, and hope our experiences can 
help inform other States in this committee, as we move forward.
    Thank you.
    Senator Bingaman. Thank you very much.
    Representative Clark, I mistakenly tried to demote you to 
the job of Majority Leader, I understand you're the Speaker.
    We are very glad to have you here. Please, go right ahead.


    Speaker Clark. Thank you very much, I appreciate the 
opportunity to be here, and especially want to extend a thanks 
to Senator Kennedy, and to you, Senator Bingaman, for the 
invitation to testify on a number of issues that are related to 
health system reform.
    It's interesting to note that if two States as widely 
differing culturally, politically, and systemic backgrounds as 
Utah and Massachusetts can pursue similar reforms, then other 
States can do the same, provided they're given the ability and 
the tools necessary to make those adjustments, and the 
adaptations to the same basic model that fits each one of their 
own States' unique circumstances.
    As we proceed to developing a national health system 
policy, we would propose that the best way for the Federal 
Government to be involved is to respect the starting points of 
each individual State--their distinct systems, their 
institutions, their values, their attitudes--by allowing 
significant flexibility to implement reforms and systemic 
changes consistent with all of our own local circum-
    I appreciate the recognition of looking at what's going on 
in the States, or we wouldn't have the invitation to be here 
today, but I would like to challenge the Federal Government 
that they should take no action that should further reduce the 
ability of States to develop creative solutions by reducing 
healthcare spending, and expanding coverage. The willingness of 
States to experiment should be encouraged, and their ability 
enhanced by allowing reasonable exemptions, or waivers, from 
some of the Federal laws and regulations that constrain 
innovations right now on the State level.
    Our reform efforts have included several elements, such as 
creating affordable plans, developing data transparency, 
creation of private marketplace, or an exchange, and also look 
to creating incentives that will enhance consumerism and enable 
the private market to come up with solutions. We suggest that a 
similar focus on market-oriented solutions is the basis for any 
action that should be taken on the Federal level.
    In the State of Utah, we feel confident that the invisible 
hand of the marketplace, rather than the heavy hand of 
government, is the effective means whereby reforms should take 
    Thank you.
    [The prepared statement of Speaker Clark follows:]

               Prepared Statement of the Hon. David Clark

    My name is David Clark and I am Speaker of the Utah House of 
Representatives. Senator Kennedy and Senator Bingaman, thank you for 
inviting me to testify before you today on a number of issues related 
to State health system reform.
    Utah is arguably the healthiest State in the union and is often 
recognized as having the most efficient health care delivery system. 
Not coincidentally, Utah also enjoys the lowest per-capita health 
spending in the Nation.\1\ However, in spite of our enviable 
circumstances, Utah State officials recognized the dysfunction of our 
health system and, in 2005, began serious efforts aimed at reform. 
Lawmakers in both parties agreed that the status quo was unacceptable 
and that the current system, characterized by misplaced competition and 
misaligned incentives, could no longer be tolerated and should be 
replaced by one characterized by efficiency and value.
    \1\ This and other comparative state-level data may be found at 
    In 2008 and 2009, the Utah State Legislature passed landmark 
legislation setting into motion dramatic changes in the health system. 
The legislative Health System Reform Task Force met numerous times in 
2008 and relied heavily on input and ideas from a broad base of Utah 
stakeholders, including health care providers, insurers, businesses, 
and community members. Through a process involving extensive research, 
public input, and consensus building, the Task Force advanced a number 
of measures representing critical steps in moving our health system 
reform efforts forward.
    Utah's reform efforts have been and will continue to be designed to 
address our State's unique circumstances; however, there are certainly 
elements of our approach that may be broadly applied.
    For instance, Utah and Massachusetts both pursued consumer focused 
health reforms, albeit in different fashion and with a different 
priority order for the common components. Both States also achieved a 
broad, bipartisan consensus supporting the basic reform elements. 
Dissimilarly, however, Utah began by implementing private market 
reforms first--creating a defined contribution health insurance option 
for employers and their workers, with public sector reforms likely to 
follow. Massachusetts, on the other hand, acted first on the public 
sector reform piece, shifting tax dollars from paying hospitals for 
treating the uninsured to buying insurance coverage for the low-income 
uninsured, and is now rolling out private insurance market reforms.
    If two States with such widely differing cultural, political, and 
systemic backgrounds as Utah and Massachusetts can pursue similar 
reforms, then other States can do the same, provided they are given the 
ability and the tools necessary to make adjustments and adaptations to 
the same basic model in order to accommodate unique circumstances. As 
we proceed in developing a national health reform policy, we would 
propose that the best way for the Federal Government to be involved is 
to respect the starting points of individual States--their distinct 
systems, institutions, values, and attitudes--by allowing significant 
flexibility to implement reforms and systemic changes consistent with 
local circumstances.
    A key lesson in our experience was the importance of cultivating 
awareness and understanding of the issues at hand. State officials 
engaged in a multi-year process of discussion and education among 
lawmakers and stakeholders leading up to enactment of reform. That 
process resulted in near unanimous approval of the reform legislation 
in both houses of the Utah State Legislature. An up-front investment in 
education and consensus building is essential to achieving truly 
transformative health system changes. While that requires more time and 
effort, the results are more satisfactory than the alternatives of 
simply trying to carve out a niche with special rules for some favored 
product, or patch or expand the current, sub-optimal system.
    Effective communication with stakeholders is essential. In Utah, we 
made it clear at the onset that the status quo simply wouldn't do and 
that we were committed to enacting meaningful reform. ``Real change 
requires real change'' was our clarion call. We also made a decisive 
effort to clearly define our expectations to stakeholders, making them 
aware that our vision of reform would require serious engagement and an 
element of sacrifice by all involved. We encouraged providers, 
insurers, business leaders, and members of the community to be 
innovative, and even courageous, in thinking about health system 
reform. Early and often, my message to stakeholders was, ``I don't want 
to hear `No, because . . .' I want to hear, `Yes, if . . .' ''
    While all of the Utah reform provisions (see Appendix for detailed 
list) are critical, perhaps the two with the most immediate impact on 
the health system is the establishment of a new defined contribution 
market for health insurance and the creation of the Utah Health 
Exchange. A defined contribution approach to health insurance puts the 
consumer directly in control of their health benefit, while preserving 
all of the Federal tax advantages that are currently only available 
through an employer-sponsored arrangement. This approach is analogous 
to the movement from a defined benefit pension program for retirement 
to employer's defined contributions to an employee's retirement through 
contributions to a 401(k) or similar retirement account.
    Instead of promising or providing a certain level of health 
benefit, the employer provides a pre-determined level of funding that 
the employee then controls and uses to purchase their choice of health 
insurance. The advantage to the employer is that in this simplified 
system, their only decision is how much to contribute toward the 
employee's health benefit each year. They are no longer responsible for 
choosing the benefit structure, insurance company, or provider network. 
However, the employer is still required to have 75 percent employee 
participation in the defined contribution market. This feature is 
designed to encourage appropriate funding of the employees' benefit 
plan. Both the choice and the accountability are moved from the 
employer side of the equation to the employee.
    Employees benefit because they now can choose the health benefit 
that meets their needs, adding additional funding of their own if they 
so desire. This could have a major impact on the health care system. As 
consumers are given the opportunity to engage in informed choices, 
competition will increase. Health plans will have to respond directly 
to consumer needs and demands. Ultimately, having consumers more 
engaged in the process will lead to more efficient health care and 
better health.
    The Utah Health Exchange is another critical component. In order 
for a defined contribution system to function efficiently, consumers 
need a single shopping point where they can evaluate their options and 
execute an informed purchasing decision. For a consumer-based market to 
succeed, individuals must have access to reliable information to allow 
consumers to make side-by-side comparisons of their options.
    The Utah Health Exchange is an internet-based information portal 
with three core functions: (1) provide consumers with helpful 
information about their health care and health care financing, (2) 
provide a mechanism for consumers to compare and choose a health 
insurance policy that meets their needs, and (3) provide a standardized 
electronic application and enrollment system. In addition, a feature 
completely unique to the Utah Health Exchange will allow for premium 
aggregation from multiple sources (for example, premiums from multiple 
employers for an individual, from multiple employers for different 
family members, or from State premium assistance programs) for a single 
    In addition to these two key operational features, a critical 
component of the Utah approach was the underlying reliance on market-
based principles. We feel confident that the invisible hand of the 
marketplace, rather than the heavy hand of government, is the most 
effective means whereby reform may take place. The State must be 
involved in shaping reform, but the government's role should be limited 
to simply facilitating the necessary changes.
    Perhaps the most difficult aspect of our reform efforts involved 
overcoming Federal regulatory barriers including the Employee 
Retirement Income Security Act of 1974 (ERISA), the Consolidated 
Omnibus Budget Reconciliation Act (COBRA) and the Health Insurance 
Portability and Accountability Act (HIPAA). These Federal regulations 
seriously limit the scope of the market affected by State reforms. 
Moreover, States are unable to aggressively pursue a number of 
programs, such as many of those involving wellness initiatives or 
personal responsibility elements. This issue might be largely overcome 
if States were granted broad authority to initiate demonstration 
projects determined to promote the intended objectives of the Federal 
    This concludes my prepared remarks. I will be glad to answer any 
questions you may have. Thank you.
           Appendix.--Utah's Approach to Health System Reform
                            2008 legislation

    The 2008 legislative session was the proving ground for the 
innovation and determination of State leaders in reforming our health 
system. Their efforts resulted in a number of measures that established 
a foundation for health system reform in several ways.

     Provider Transparency.--The All Payer Database (APD) was 
created to provide statewide quality and cost measures for episodes of 
     Patient Transparency.--The Utah Department of Health was 
authorized to adopt standards for the electronic exchange of medical 
records by the creation of the Clinical Health Information Exchange 
     Internet Portal.--Legislation created the Office of 
Consumer Health Services (OCHS) to be housed under the control of the 
Governor's Office of Economic Development. This office was charged with 
the task of creating an Internet portal that promotes a consumer-
oriented health care system by making information available to 
consumers, allowing them to make more informed decisions.
     CHIP open enrollment and outreach.--Legislation ensured 
that Utah's Children's Health Insurance Program (CHIP) will cover all 
eligible children who apply. It also required the State departments of 
Education, Health and Workforce Services to promote enrollment of 
eligible children in CHIP and Medicaid.
     State Tax Credit.--The legislation established a 
nonrefundable State income tax credit of up to 5 percent for 
individuals paying for health insurance with post-tax dollars.
     Waiver Amendments.--Required State programs to work with 
the U.S. Department of Health and Human Services to help more people 
get insurance through private programs and to make public programs and 
subsidies available to more people in difficult circumstances.
     Legislative Task Force.--Legislation also provided for an 
11-member Task Force to study health system reform. Members of the Task 
Force formed five working groups representing various stakeholders who 
dedicated immeasurable time and effort discussing and exploring reform 
options and strategies.

                            2009 LEGISLATION

    Through a process of extensive research, public input, and 
consensus building, the Task Force advanced four bills in the 2009 
session. These bills represent critical steps in moving Utah's Health 
System Reform forward. Among the many ambitious and bold 
accomplishments in these bills:

H.B. 188: Representative David Clark, House Speaker; Sponsor, Health 
        System Reform--Insurance Market
     Creation of a Defined Contribution Market.--This 
legislation increases the availability of consumer information, choice, 
and power in the health insurance market. The defined contribution 
system will be operational for the small group market by January 1, 
2010. In this market, employees will be able to choose any plan in the 
market on a guaranteed issue basis using pre-tax dollars. Rating and 
underwriting in this market will be based only on the employee's age 
and their employer's group risk factor. The newly established Risk 
Adjuster Board will guide technical issues related to keeping the 
market vibrant and functional. Furthermore, the defined contribution 
system allows individuals and families to aggregate premium payments 
from multiple employer or government sources.
     Expanding the Role of the Internet Portal.--This bill 
clarifies and expands the role of the Internet portal in making 
information available to consumers to make informed decisions in the 
small group and individual markets, as well as the new defined 
contribution market. The Internet portal will be a one-stop 
information, shopping and comparison tool for health care consumers. 
The portal will provide the technology backbone where the defined 
contribution market can operate.
     Enhanced Transparency.--While several efforts to enhance 
transparency were initiated by the 2008 legislation, this bill contains 
several additional provisions to increase the transparency of the 
marketplace and to allow consumers improved access to information so 
they can make better choices. The bill also requires insurance 
producers to disclose commissions and compensation to their clients.
     Lower Cost Products.--The bill creates new, lower cost 
alternatives in several markets. The bill establishes the new lower 
cost NetCare health benefit plan, allowing the exclusion of certain 
State-mandated benefits. NetCare will be available as an alternative to 
employees in the Utah mini-COBRA, COBRA, and conversion markets. This 
bill also establishes a new product that blends PPO and HMO products 
and eliminates some of the mandates related to insurer networks.
     Task Force Re-authorization.--This bill reauthorized the 
Health System Reform Task Force for an additional year and further 
required stakeholders to continue efforts for State health system 

H.B. 331: Representative James A. Dunnigan; Sponsor, Health Reform--
        Health Insurance Coverage In State Contracts
     Level Playing Field for Contractors.--Contractors bidding 
for State projects will no longer be advantaged if they do not provide 
health insurance for their employees. This legislation establishes a 
requirement that companies contracting with the State for projects 
exceeding a specified dollar amount provide a basic level of health 
insurance for their employees. The legislation establishes enforcement 
and penalties for a contractor who does not maintain an offer of 
qualified health insurance coverage for employees during the duration 
of the contract.

H.B. 165: Representative Merlynn T. Newbold; Sponsor, Health Reform--
        Administrative Simplification
     Administrative Simplification.--This bill requires 
providers and insurers to work together to simplify the billing, 
coordination of benefits, prior authorization, notification, and 
eligibility determination processes. This bill also moves the State 
toward card swipe technology for insurance cards so that a health care 
provider and patient can determine eligibility and what insurance 
requirements must be met for services such as deductibles, copayments 
and insurance status in real time.
     Demonstration Projects.--The legislation starts the 
process for health care payment and delivery reform to realign 
incentives in the health care system. The bill creates a systemwide, 
broad-based demonstration project involving health care payers and 
health care providers for innovating the payment and delivery of health 
care in the State.

S.B. 79: Senator Peter C. Knudson; Sponsor, Health System Reform--
        Medical Malpractice Amendments
     Tort Reform.--This legislation addresses the unique 
circumstances of receiving health care in an emergency room where 
health care providers are required, under Federal law, to treat any 
person who comes into an emergency room. Most times, emergency room 
physicians must treat with no knowledge of the patient and sometimes 
with an inability to communicate with a patient to determine past 
medical history. The legislation establishes a standard of proof for 
emergency room care in medical malpractice actions based on clear and 
convincing evidence.

    Senator Bingaman. Thank you very much.
    Mr. James, go right ahead.


    Dr. James. Thank you.
    I first need to apologize, Senator Bingaman, Senator 
Kennedy. I run a big training program that teaches clinical 
quality to physicians and nurses--I have about 45 senior 
physicians and executives sitting in my classroom in Salt Lake 
right now, so this, for me, is a day trip. I have to hit the 
4:30 flight to be home, I'm on the spot tomorrow, so I'm going 
to quietly slip out of here in a few minutes, I hope.
    Senator Kennedy, I have to mention that quite a number of 
those folks are from Massachusetts General Hospital and Brigham 
and Women's at the moment, so we're having a delightful 
discussion in my old home State, some years ago. Saturday I'll 
be there to deliver a keynote at a lecture on electronic 
medical records to maintain my faculty appointment at Harvard 
School of Public Health.
    The Chairman. Badly needed.
    Dr. James. It's essential, to say the least. It's good to 
be going home, at least for a visit.
    The Chairman. Good.
    Dr. James. Short version, the key to universal access is 
controlling the rate of increasing healthcare costs. The key to 
controlling healthcare costs is something called utilization 
rates. It's not how much we pay per unit, it's the number of 
    We've just completed a study that will soon appear in a 
major journal, where we estimated that, approaching 50 percent 
of all healthcare expenditures in the United States, they are 
technically waste, using a quality model. That's almost 50 
percent of a $2.4 trillion budget. I think that's where the 
real solution to this lies.
    Senator Bingaman. Could you just pull the microphone a 
little closer?
    Dr. James. There we go.
    Senator Bingaman. That helps.
    Dr. James. Is that better?
    Senator Bingaman. Thank you, yes.
    Dr. James. Yes, about 50 percent, we estimated, using a 
rigorous model that leads directly to action of current 
healthcare expenditures are waste from a patient's perspective, 
nonvalue adding, and represents a huge opportunity.
    We think one of the ways to approach that, which we're 
starting to experiment with in support of Representative 
Clark's initiatives is bundled payment through accountable care 
organizations. Quality measurement and accountability are 
essential parts of that, we know an awful lot about that today, 
know how to do it, and there are a series of well-established 
principles by which we could build effective quality 
measurements in the country; we're not following them very well 
    [The prepared statement of Dr. James follows:]

          Prepared Statement of Brent C. James, M.D., M.Stat.

    Mr. Chairman, thank you very much for the opportunity to share some 
of our experience as we have studied, then attempted, health reform 
within the State of Utah. I join the Honorable David Clark, Speaker of 
Utah House of Representatives, in this hearing. Speaker Clark has very 
ably led a joint Utah Senate-House task force studying health care 
delivery reform for the last 2 years. The task force report anticipates 
a coordinated series of legislative initiatives, that will roll out 
over the next several years. The first installment of that legislation 
was passed and signed into law earlier this year.
    Speaker Clark is obviously better positioned to describe the task 
force, the results of its investigations, and the resulting Utah State 
health reform legislative agenda than am I. I therefore plan to focus 
my remarks on the implementation of health care reform within the State 
of Utah. I am the Chief Quality Officer at Intermountain Healthcare. 
Intermountain is a not-for-profit system of 23 hospitals, almost 120 
outpatient clinics, and a health insurance plan. We supply more than 
half of all care delivered within the State of Utah. The short version 
of our mission statement is ``the best medical result at the lowest 
necessary cost.'' We provide that care to all people in our service 
area, regardless of insurance status. As a result, we are the source of 
much of the charitable care currently delivered in the State. We have 
been identified by external evaluators as one of the highest quality, 
most efficient care delivery organizations in the United States--or, 
for that matter, in the world. For example, the Dartmouth Atlas has 
asserted that if the rest of the country delivered the same care that 
is found within Intermountain, national Medicare costs would fall by 
more than 30 percent while clinical outcomes would significantly 
    The key to health reform is payment reform. We believe that the 
evidence clearly shows that efforts to extend health insurance to all 
citizens, whether at a State or national level, will rapidly fail 
unless we are able to control the rapidly rising costs of health care 
    We recently completed a study, currently under review for 
publication, that applied quality improvement (sometimes also called 
process management) principles to estimate waste within current care 
delivery. The advantage of using a process management approach is that 
such quality-based waste is, by definition, actionable waste. The same 
tools that identify the opportunities can be used to reduce operating 
costs by improving patient outcomes. Our model identified five nested 
categories. We were able to obtain synthetic national estimates for two 
of those categories. The three categories for which we could not 
generate robust estimates, at this time, were of a size roughly 
comparable to the two that we could estimate. Even then, we judged that 
almost half of all current expenditures in health care delivery are 
non-value adding from a patient's perspective. (Unfortunately, one 
person's waste may be another person's income.)
    Our analysis distinguished between two important factors that 
determine health care costs. The first is ``unit costs''--the actual 
cost of a single procedure, service, or other item used in health care 
delivery. The term is fractal, in the sense that it can evaluate 
granular items such as a single blood test, an imaging exam, a dose of 
a drug, an hour of acuity-adjusted nursing care, or a minute in 
surgery. It can also ``bundle up'' individual, granular, items into 
cases, such as a total hip arthroplasty (artificial hip joint 
replacement), a hospitalization for congestive heart failure, or the 
total cost of an outpatient visit to a specialist, with testing and 
imaging. The second factor is utilization--the ``number of units'' used 
to deliver care to a patient or to a defined population. Total cost is 
``number of units'' multiplied by ``cost per unit.''
    In the past, most governmental efforts to control the rate of 
growth of health care expenditures centered around unit costs alone. 
Typically, payment rates in government-related health care delivery 
programs are not negotiated with care providers. The controlling agency 
set payment rates, then care providers chose whether they would 
participate. However, such price control mechanisms do not address 
utilization rates--how many cases are performed, each paid at the 
mandated payment rate.
    Our analysis addressed both unit costs and utilization rates. 
However, the largest opportunities for savings came through utilization 
rates, by better matching care delivery to patients' true needs and 
desires (patient-centered care).
    To illustrate, over the past 3 years we have been working closely 
with government-run care delivery systems in western Canada. Clinical 
leaders of those systems report that, despite universal insurance 
coverage, as many as one-third of the individual citizens for whom they 
are responsible have difficulty in obtaining timely access to primary 
care physicians. The patients with the most difficulty in getting 
access are those who need it the most--patients with chronic disease. 
The root of the problem appears to be unit-based payment structure: 
Physicians can make more by seeing a large number of relatively 
healthy, simple, patients (the ``worried well'') than by spending the 
necessary time with a smaller number of complex patients. This has had 
a secondary effect of increasing waiting lines for already 
overburdened, and more expensive, specialists. The ``payment per unit'' 
was set by government policy within a province. Physicians have a 
strong financial incentive to increase the ``number of units'' 
(visits), but shortening the time spent per unit.
    To support State-level health reform, for patients with chronic 
diseases we are structuring bundled payments to groups of allied 
primary care physicians, specialists, and hospitals. This approach 
relies upon coordinated care. It centers around (a) physician-led 
primary care clinics; (b) with embedded nurse care managers; (c) 
supported by evidence-based best practice protocols, built into 
clinical work flows; (d) tightly linked to an effective network of 
specialists and, when necessary, hospitals. An electronic medical 
record is essential. It helps implement evidence-based best practice, 
and greatly enhances communication among all members of the team 
(patients, care management nurses, primary care physicians, and 
specialists). A series of careful studies have shown that this 
structure produces very significant improvements in both patient 
outcomes and patient experience of care, while significantly reducing 
costs. Some call this approach a ``medical home.'' (We were a little 
slow in coming to the catchy title, but have had such care in place, in 
some clinics, for more than 6 years.)
    In conjunction with the Mayo Clinic, we have assessed the 
contributions of this coordinated practice style as compared to 
financial incentives to patients built into insurance plans (e.g., 
copayments). While both factors contributed to cheaper care, the level 
of practice organization dominated insurance design.
    While about one-third of the physicians practicing in 
Intermountain's networks are employed by the system, the majority are 
community-based, independent physicians. This reflects a sea-change 
that is currently underway within the healing professions: We are 
moving away from a care delivery model based on a chaotic mixture of 
individual expert clinicians, to one that recognizes that most modern 
care is delivered by teams of clinicians, and that coordination among 
clinical teams is essential for good care. While such coordination does 
not require that physicians enter employment with some specific group 
(a common emerging model), it does require a local consolidator 
(sometimes called an Accountable Care Organization).
    We are presently moving to bundled payment in support of 
coordinated care delivery. Under bundled payment, an accountable care 
delivery group is given a fixed annual payment for all services for 
patients with chronic diseases (clinic visits; testing; imaging; 
hospitalization; end-of-life care). The payments are risk-adjusted 
based upon the number, type, and level of intensity of the chronic 
diseases involved. This payment structure directly addresses a major 
defect in current unit-based payment systems: Under current 
governmental payment systems, care providers are paid more when 
patients suffer complications (in sound byte form, ``we are paid to 
harm our patients''). Such circumstances require more care, which means 
more utilization (the consumption of more units of service). For 
example, a care delivery group can make much more money by 
hospitalizing a patient who has congestive heart failure, than by 
managing that patient so well in an outpatient setting that 
hospitalization is not necessary. Under a bundled payment system, the 
care delivery group has strong financial incentives to prevent 
complications, avoid preventable procedures and hospitalizations, to 
reduce operating costs, and increase operating margins (sometimes 
called ``shared savings'' payment models).
    Quality measurement is essential. Over the past 20 years, our 
ability to measure care outcomes has improved dramatically. This 
primarily came about by using quality improvement (process management) 
theory. The resulting evidence demonstrated that quality is very highly 
``process specific.'' That is, the fact that a care delivery group does 
well on one process (e.g., open heart surgery), does not mean that the 
same group will necessarily do well on any other process (e.g., 
management of congestive heart failure). It is now possible to (a) 
prioritize care delivery processes; then (b) generate measurement 
systems biggest to smallest, one at a time, specific to each condition. 
(Each of the individual measurement systems are unique--there's some, 
but not a lot, of overlap among them.)
    A prioritized approach helps get the most benefit to the most 
patients, in the face of limited resources. Care delivery concentrates 
massively. For example, within Intermountain, 104 of about 1,400 
clinical care processes accounts for about 95 percent of all the care 
that we deliver.
    Even with major advancements in measurement, for most clinical 
conditions quality measurement is not sufficiently precise to 
accurately rank physicians, hospitals, or practice groups (references 
available on request). That fundamental truth has another face: It is 
easy to scientifically demonstrate that, for most clinicals conditions 
it is impossible to build an evidence-based best practice guideline 
that perfectly fits any patient. As a result, achieving 100 percent 
performance on most quality measures means that a subset of patients 
received substandard care. On that foundation, a set of key principles 
for the appropriate design of quality measurement systems has emerged:

     Methods exist that build quality measurement and 
accountability in ways that don't depend on ranking providers.
     Measurement systems must contain a feed-back loop (called 
``gauge theory'' in the quality sciences). At a technical level, when 
quality measurement finds a performance outlier, it (precisely) means 
that: ``If I carefully analyze this outlier, I will (with high 
probability) be able to find its true cause.'' With new data systems--
even carefully constructed clinical measurement--many of the initial 
outliers track back to the measurement system (the gauge). This 
provides opportunity to ``fix'' the measurement system over time, and 
is the method by which reliable measurement systems emerge.
     Measurement must blend into clinical workflows:

    (a) The things most needed for solid quality measurement and 
accountability tend to be those elements that front-line clinicians 
need to deliver good individual patient care;
    (b) Embedded data tends to be much more timely and accurate 
(clinicians use the data, and so help produce both timeliness and 
    (c) If accountability measurement is not embedded in work flow, 
then the measurement system will compete for resources (time and 
people) at the front line, potentially damaging clinical performance 
    (d) Embedded measures lend themselves directly to change--they lead 
to improvement (in other words, use of ``after-the-fact'' measurement 
not only competes for resources with care delivery, it also competes 
for resources with improvement).

    To support State-level health reform, Intermountain is building 
embedded quality measures as an entry ``gateway'' for groups to receive 
bundled payment. We place thresholds at a high enough level that any 
participating group must put in place effective process management 
systems, but not so high that compliance with an external standard will 
damage some patients (as is clearly happening within the current CMS 
    As a result, Intermountain's evidence-based best practice 
protocols, and the quality measurement systems that are part of them, 
are the opposite of ``cook book'' medicine. Under the reality of 
current ``state-of-the-art'' quality measurement, where ``it is almost 
always impossible to generate a guideline that perfectly fits any 
patient,'' being too high (a statistical outlier) on a performance 
measure is just as concerning as being too low on the same measure (a 
statistical outlier on the other side). Both require the same sort of 
follow-up, learning, and adjustment.
    In summary, health care reform is advancing rapidly within Utah. 
Key lessons learned include:

     The key to universal access is controlling the rate of 
increase of health care costs.
     The key to controlling health care costs is managing 
utilization rates.
     Bundled payment for chronic disease, through Accountable 
Care Organizations, provides a very attractive mechanism to match 
utilization to patient needs, as seen by the patient.
     Quality measurement and accountability is an essential 
part of bundled payment.
     A series of well-established principles form the 
foundation for effective quality measurement.

    Thank you for your time and attention.

 Attachment.--Principles for Effective Measurement of Quality for the 
                       Purposes of Accountability

                         BACKGROUND INFORMATION

    Quality measurement has improved significantly over the past three 

     W. Edwards Deming linked quality to underlying work 
processes. He suggested that every process produces three parallel 
classes of outcomes: quality, cost, and service. This provided a robust 
structure for quality measurement, in context.
     Health services researchers (Nelson, James) further broke 
medical quality into four major subdivisions, which greatly simplified 
measurement within much more consistent categories. Those four major 
subdivisions are:

    1. appropriateness (indications),
    2. complications,
    3. therapeutic goals (biologic performance as seen by a health 
professional), and
    4. patient functional status (biologic performance as seen by a 

     These advances have led to validated quality measures 
within well-defined patient populations.

    Despite those advances, quality measurement still has major 

     There are widespread problems with incomplete science, 
incomplete assessment, incomplete documentation, and incomplete data 
extraction from fragmented, dispersed medical records.
     ``Availability bias.''
     Problems with attribution (most care is delivered by 
teams, so clinician-to-clinician comparisons tend to fail).

    Any quality measurement system itself contains variability, which 
can obscure underlying care delivery performance:

     There is a clear need for feedback and follow up on the 
data system itself, using well-established methods found in industrial 
quality control theory (gauge theory);
     No national groups currently employ this critical element; 
     Example of how it works: condition-specific measurement 
within Intermountain Healthcare.

    As a result, it is currently impossible for quality measures to 
accurately rank providers in most circumstances:

     A very robust scientific literature supports this 
conclusion (will supply on request); and
     Good quality accountability therefore needs to use 
approaches that do not rely on ranking--effective non-ranking 
approaches do exist, primarily derived from quality improvement theory.

    Provider quality performance is highly condition specific:

     Three decades of investigation have found no reliable 
general quality indicators (the fact that a provider does well or 
poorly on one condition does not imply that the same provider will do 
well or poorly on other conditions);
     However, care delivery concentrates massively. About 10 
percent of clinical conditions account for over 90 percent of all care 
delivery; and
     Therefore, build in measures by condition, in size order, 
to address the most good for the most patients.

    Poorly-constructed quality measurement systems often lead to ``data 
gaming'' (principle: it is easier to look good than to be good):

     There are three ways to get a better number (Deming):

    1. Improve the underlying process,
    2. Shift resources to the area under the measurement spotlight, at 
the expense of areas not under the measurement spotlight (very often, 
the peripheral damage outweighs the focused gain), and
    3. Game the number.

     Deming: ``as one attaches greater rewards or punishments 
to achieving a number, one gets increasing proportions of (2) and (3) 
     Extrinsic rewards tend to destroy intrinsic motivation, 
damaging professional oversight; and
     It is very clear that type (2) and (3) activities are 
becoming common among U.S. hospitals, relative to the CMS measures.

    Transparency is not the same as accountability:

     High-quality care delivery usually involves a series of 
decisions around sequential care delivery choices;
     Patients usually make those decisions in the context of a 
caring relationship, with a physician or nurse advisor;
     ``Transparency'' means that all participants--the 
clinician advisors as well as the patients--have sufficiently accurate, 
detailed information to make wise choices at each step in the chain; 
     Accountability measures, that reduce the problem to a 
single patient choice of a hospital or a physician, can directly 
undermine the true transparency that is essential to high quality care.

    There are 2 primary approaches to quality--(1) measurement for 
selection (accountability) versus (2) measurement for improvement:

     measurement for improvement contains measurement for 
selection/accountability--the opposite is not true (measures for 
accountability, mandated from above, do not create capacity for actual 
quality management and improvement at the front line);
     measurement systems designed for accountability often 
consume limited front-line resources and actively damage quality of 
care (Casalino; NEJM; 1999; Wachter et al.; Ann Int Med; 2008); and
     there are rigorous methods for generating reliable front-
line, embedded data systems that minimize burden and maximize data 
quality (NQF SFB report). These methods stand in contrast to the 
political methods currently used by most national reporting groups.


Berwick DM, James BC, Coye MJ. Connections between quality measurement 
    and improvement. Med Care 2003; 41(1 Suppl):I30-I38 (Jan, 
Casalino LP. The unintended consequences measuring quality on the 
    quality of medical care. New Engl J Med 1999; 341(15):1147-50 (Oct 
Institute of Medicine Subcommittee on Performance Measurement. 
    Performance Measurement: Accelerating Improvement. Washington, DC: 
    National Academy Press, 2006.
James BC. Information systems concepts for quality measurement. Med 
    Care 2003; 41(1 Suppl):I71-I79 (Jan, supplement).
Wachter RM, Flanders SA, Fee C, Pronovost PJ. Public reporting of 
    antibiotic timing in patients with pneumonia: lessons from a flawed 
    performance measure. Ann Intern Med 2008; 149(1):29-32 (Jul 1).

    Senator Bingaman. OK, thank you very, very much. Thank all 
of you for your presentation, and let me see if Senator 
Kennedy--did you have?
    The Chairman. I'll join in----
    Senator Bingaman. OK. Let me ask a question or two, just to 
get started.
    One of the issues that, obviously, we have to grapple with, 
and I guess each of your States has grappled with it in a 
different way, is this issue of whether or not to mandate 
coverage, or mandate that people go out and obtain insurance if 
they're not covered by a plan.
    Massachusetts has chosen to do that, and believes that that 
has been a key factor in the success that they've had. The 
other States have not--the other States represented here--and I 
guess in Vermont, Dr. Chen, you were indicating, Ms. Besio, you 
were indicating that this is a decision that was consciously 
made the other way, in Vermont.
    Let me just ask those of you from Vermont to explain your 
decision a little more, as to why you think it wasn't the right 
thing to do in Vermont and what you recommend we consider doing 
    Dr. Chen. Sure. In terms of the mandate, I was on the 
Conference Committee when we were negotiating the healthcare 
reform bill, and we really found that people--I'll use the 
euphemism--on the right of us and on the left of us, both of 
them, really, were opposed to the mandate. Some of the concern 
was, could we afford it, and I think, that really came down to 
the issue of affordability. If we had mandated, and everybody 
had taken advantage of it, we wouldn't have enough money. From 
a fiscal point of view, we couldn't implement a mandate.
    Now, as we develop our products, as we work toward our goal 
of 96 percent insured, we put in our bill a chance, an 
opportunity, to re-look at that mandate. If we didn't make 
enough progress, that's certainly something we would consider, 
I believe, in this upcoming year, 2010.
    Senator Bingaman. Have you been able to implement some of 
the insurance market reforms? I mean, in an earlier roundtable 
discussion that we had, the strong message that I picked up 
from some of the representatives of the insurance industry was 
that they would support a mandate--or they would support 
insurance market reforms such as prohibiting them from 
excluding people for pre-existing conditions, requiring 
guaranteed coverage, or guaranteed coverage--but they would 
only support that if it was in the context of a mandate, where 
everybody had to sign up. Have you been able to implement any 
of these insurance market reforms? And, if so, how does that 
    Ms. Besio. We actually have, in Vermont, guaranteed issue, 
and we also have community rating, meaning that we don't 
differentiate, in terms of the cost of products, according to 
age, or geographic location, or any other thing that's out of 
an individual's control. We have a very high standard in terms 
of our market, and the standards behind it.
    The dilemma--in terms of affordability for the individual 
mandate--is that you have to provide products that are 
affordable for everyone. If you have a standard that we, in 
Vermont, believe is very important, that you want to have low 
out-of-pocket cost in your benefit design to encourage people 
to actually access care early and use that insurance in the way 
that it was initially designed, and not just be catastrophic 
coverage, then you've got a relatively expensive product, or 
products, that are going to be offered on the market.
    The way to make those affordable are either to have a high-
risk pool that helps cover those high-risk cases, or to offer 
premium assistance. Either of those options costs money to 
bring down the cost of the coverage.
    I think that's the dilemma, from our perspective, really 
around the mandate, and can we provide affordable, 
comprehensive coverage that people would have access to, and 
can we afford that?
    Senator Bingaman. And you determined that you can not 
afford it?
    Ms. Besio. We can not afford it at this point in time, and 
in the foreseeable future, given the current state of our 
    Senator Bingaman. Let me ask Mr. Kingsdale if he had any 
comment on this issue, this set of issues?
    Mr. Kingsdale. Just that, actually, I think that Ms. Besio 
articulated the issue quite well. In Massachusetts, we also had 
adjusted community rating, guaranteed issue, guaranteed 
renewal, prior to the individual mandate--I believe there are 
five States in the country that do. We in Massachusetts--and I 
believe this is true of the other four--without the mandate and 
some other reforms, experienced what any economist or 
underwriter would predict, which is, a shrinking market for--
made up largely of older, sicker people--buying a product that 
nobody who wasn't pretty sure they were going to use a lot of 
it would buy voluntarily on their own part.
    The thing about the individual mandate is--definitely 
expensive, because you're trying to get everybody insured, and 
that's expensive. You have to subsidize people of lower income.
    It does create what an underwriter or an actuary would call 
a statewide credible risk pool. It brings in the young 
invincibles and others, so that actually the premium rate for 
the cost of coverage for people who were previously buying 
nongroup insurance actually fell as a result of reform, and as 
a result, we have a lot more product, we have more than doubled 
the size of our non-group market in just the first year of 
    It's expensive, I think you've described the challenge 
very, very aptly, but that's the challenge of getting universal 
    Senator Bingaman. Senator Kennedy, did you want to ask a 
question? Or Senator Enzi? What's your preference? Senator 
Enzi? Mike, why don't you go ahead.
    Senator Enzi. OK.
    I thank everybody for the brevity of their statements so 
that we can have questions. And I want you to know, that from 
each of you, I learned something that will help us on 
healthcare reform, and I think it's because you kept your 
statements very succinct, but I do have a few questions, and 
one of them will be for Ms Liu. What do you attribute to 
California not being able to pass their bill? There probably 
were a lot of roadblocks, but what ones could you share with 
    Ms. Liu. Certainly there were a number of roadblocks, as 
you said, one of them actually was a lot of controversy around 
a number of the policy issues that we were trying to pursue, 
one of them being the individual mandate, frankly.
    We were able to take a lot of the stakeholders who normally 
would not support an individual mandate, and discuss with them 
the reason that it was required in order to get universal 
coverage. That's really what the Governor had asked us to do.
    Absolutely, there needed to be a number of market reforms 
that were in place in order to achieve guaranteed issue under 
an individual mandate, and we took a lot of precautions in 
trying to move those forward.
    Why didn't it pass in California? You know, there are a 
number of reasons. We built a very large stakeholder coalition, 
but obviously not quite large enough. I think a lot of it also 
had to do with the timing of the proposal. It did pass, the 
Governor signed it, and it did pass the Assembly Health 
Committee, but by the time it got to the Senate Health 
Committee, a few days prior to that, notice had come out that 
California had a budget deficit of $14.5 billion. At the time, 
that, frankly, was the cost of the new reform proposal, which 
would have been $14.5 billion.
    Now, we had financed that completely separate from the 
State budget, so there wouldn't have been an impact on State 
revenues, but that made it difficult for us to get that message 
    I could go into a number of other reasons, but I'll leave 
it there, for now.
    Senator Enzi. Well, as you think of others, you could write 
them down for us, and we'd appreciate that.
    Ms. Liu. Certainly.
    Senator Enzi. But, I just want to mention that our budget 
deficit dwarfs yours.
    Ms. Liu. Fair enough. That's the only place that does, 
actually, dwarf California's budget deficit.
    Senator Enzi. For the other States, one of the things I 
keep--I'm very proud of the Wyoming legislature and the volume 
of bills that they're able to pass. One of the things I always 
watch is to see how many correction bills they have to do. Any 
time you pass something major, there's usually something that 
got left out. Could one person from each of the States kind of 
mention some things that they're still mulling over that 
probably need to be fixed?
    If you don't have anything, that's OK, too.
    Mr. Kingsdale. I'll take a crack at it.
    Obviously, as I said in the opening statement, I think it's 
often--it's generally recognized--we took on access with a nod 
toward cost containment, but I think the real battle over cost 
is still to be fought in Massachusetts.
    I would point out that our reforms did not exacerbate the 
cost issues in Massachusetts, or any of the other, sort of, 
national problems that characterize healthcare delivery in the 
United States. Everybody now recognizes that, in Massachusetts, 
that near-universal coverage is simply not sustainable, 
financially, unless we do address healthcare costs.
    I think we now, sort of, confront that issue from the moral 
high ground of a commitment--a moral commitment--to universal 
access and maintaining and protecting that. That's clearly a 
major piece still to be dealt with.
    There have been a number of other, sort of, smaller issues 
that--all the way from technical corrections to recognizing, 
for example, that the already growing national problem of 
inadequate, or shrinking, primary care supply is an issue 
that--if we're going to deal with finances, we ought to deal 
with labor supply, as well. There's legislation that passed 
last August, Chapter 305 of the Acts of 2008, which build on 
some private efforts to fund retention and recruitment of 
primary care physicians and nurse practitioners in 
Massachusetts, and I understand that 92 such physicians and 
nurse practitioners have been recruited and retained as a 
result of that program.
    Senator Enzi. I don't want to cut you off.
    Mr. Kingsdale. Sure, OK.
    Senator Enzi. I do want to hear from others, and my time is 
running out. If you think of some more, let us know, because 
you're the laboratory for us to work from.
    Vermont, do you have any corrections?
    Ms. Besio. Let me just say that our reforms were very 
comprehensive, and we didn't set up a lot of study groups. 
Actually, in our legislation, we created things like loan 
forgiveness funds, loan repayment funds, to help with our 
primary care workforce, and workforce area, in rural areas.
    However, the two things that have continued to be discussed 
over the last two legislative sessions--and there have been, 
actually, bills that have been passed to augment on the first 
bill, 2006 reform legislation--primarily dealt with increasing 
our Blueprint for Health, which is our effort to change the way 
care is delivered at the local level. That includes payment 
reform, community care teams, it's a multipayer approach, to 
support primary care practices, both in terms of prevention and 
managing chronic conditions better.
    On the coverage side, there's been a lot of discussion 
about expanding access to our new product, the Catamount Health 
product, and the premium assistance programs, and honestly, the 
roadblock there has been money. Can we afford to do any more 
expansions, allow more people into that premium assistance 
program, and access that product that's subsidized by the 
State? That has been a roadblock for us, consistently, over the 
past 2 years.
    Senator Enzi. Thank you.
    Speaker Clark. Thank you very much.
    Utah's on a--well, I'm just a Southern Utah banker by 
profession, so I try and make things simple. Numbers are what 
I'm more comfortable with, so I've taken our healthcare and 
said it's a 1-3-6-10 as our formula. Our first year of effort, 
a 3-year path, we identified six major areas of which we think 
we need to implement reform, including insurance modernization, 
which we're talking about here, but we anticipate that it'll 
take us a decade to fully implement that. This is a long and 
major process.
    We are beginning to take, what I call, the old carpenter 
rule. We have a good health system in the State of Utah--high 
quality, low cost. We are attempting to do the carpenter rule 
where you measure twice and cut once, before you do anything. 
So, we're having a very measured process, and one which we 
continually look back in the rear view mirror to make sure that 
our course correction is providing us where we thought we'd be, 
and not the unintended consequences.
    Now, let me take and put my legislative hat on. What I 
want, when I'm sitting in this chair, is somebody sitting at 
this microphone, giving me succinct answers on what I need to 
know about what the problems are. What you've heard across here 
is, in fact, that it's dollars. It is, truly, a very, very 
costly process to go through this. Massachusetts was 
approaching some serious problems with a large Medicaid 
retraction, and they needed to make some alternative direction, 
so they began looking at finding what they can do to retain 
that money, and still work within the system.
    In Utah, we never got the deposit slip--we never got to the 
bank to get that money. Dish payments, according to different 
States--I don't know if there's anyone here from New Hampshire, 
I was told there was $8,300 for every man, woman, and child.
    Wyoming, I don't think, receives any, they're 50th--49th is 
Utah. We get less than $100 per person. The tools we have to 
solve these problems that are flowing from Washington are 
entirely different. That's what allows--and I think why it's so 
important for each State to retain its own autonomy, to try and 
have some maneuverability in this process--it is really 
    I would hope that if nothing else, perhaps a 5-year 
partnership--give us a demonstration project. The opportunity, 
the flexibility to come back and report--I think it's going to 
take a partnership between all 50 States, and the Federal 
Government to find the right solution. But the bottom half of 
those solutions might be as independent as all 50 States.
    Very simple, let me tell you one of the challenges we have 
and why it's important we work in partnership. Right now, 
ERISA, in the State of Utah, covers the large employers, States 
off Federal mandate, Federal guidelines, we have no say, 
whatsoever. That's one-third of my market, completely gone.
    Government, Medicare, Medicaid, CHP--while we do have some 
influence, statewide--most of the guidance and direction and 
the--what we do comes from the Federal Government, the State 
maneuvers slightly through there, but we've got just this much 
movement in our wrist, and the Federal Government controls most 
of it.
    I have a 30 to 32 percent of the market that I'm trying to 
influence and control with a limited source of resources, and 
you start taking and putting mandates and guarantees--I have 
these whole other markets I don't impact, but all of the 
adverse selection and the narrow trouble it comes to, gets 
funneled down right directly onto that 30 to 32 percent--the 
small businesses around the country that are carrying the 
burden on this.
    In my State, 70 cents out of every dollar paid for 
insurance comes from an employer-based program. I have to be 
careful and be mindful of the business community and their 
efforts, and make sure that we're responsive to those needs, 
and not continue to layer back on top of them. That work is 
just beginning.
    Senator Enzi. Thank you very much.
    I apologize for running over so dramatically. I usually 
don't do that, but I hope this----
    Senator Bingaman. No, no, this was very useful, I think.
    Senator Enzi. I hope those were questions that were in a 
general spirit, rather than to make a point.
    Senator Bingaman. They're very good questions, and answers, 
    Senator Kennedy, did you want to----
    The Chairman. Just very quickly, Mr. Chairman, one thing 
that I've been thinking on as we've gone through these 
excellent questions and that is, what we know is that an 
enormous fraction of our healthcare costs are generated by the 
very small proportion of patients with serious illness. How can 
we reduce that, through better care and coordination?
    We have all of these pressures that we find out, and in 
particular, as we listen to so many of those who have testified 
and have done so well today. I think we're going to hear from 
some of those who have been dealing with healthcare challenges, 
that all of us are going to be faced with--those on this 
committee and those who aren't on this committee--and we're 
going to have the macro-costs that are going to come in there.
    We are also going to be faced with these enormous amount of 
costs that are going to be coming our way, and we're all going 
to be asked how we're going to be able to deal with those.
    We have also seen the situation where some of the costs of 
these individuals that we've heard about, go through a rather 
small window, and yet they have a large window that they're 
going to have to pay out through, that's going to come through 
in terms of expenditures.
    How general is your sense about these costs that we are 
going to be facing over a period of time? There's nothing new 
in this comment, but what I think is something we all ought to 
be reminded about, and that is what we can do to try and help 
the States to constantly work so that the States themselves 
have a reasonable opportunity for success.
    Senator Bingaman. Mr. James, go right ahead.
    Dr. James. I first ought to correct that--I'm trained 
originally in surgical oncology, so----
    Senator Bingaman. Speak up.
    Dr. James. I trained originally in surgical oncology, so I 
make the second physician on the group.
    In my specialty area, the first is, that higher quality 
care usually costs less. I think we did the first clinical 
demonstration of that in Utah way back in 1986. We've shown it 
consistently since. That's why my colleagues, partners in 
Boston are spending so much time out in Utah right now.
    The second part is, that we understand which parts of it 
really doesn't serve patient needs, and really need to be 
modified. Just as one example, about 30 percent of all Medicare 
expenditures go into end-of-life care. We measure it different 
ways--6 months of life, the last 6 months, the last year, 
occasionally you can actually identify the actual episode. 
There are significant differences across the States in terms of 
how much that spend is. Dartmouth Atlas currently identifies 
Utah--specifically inter-mountain--as the most efficient. We 
spend about $12,000 for a Medicare enrollee who dies. Los 
Angeles is actually the highest right now--$58,000. For the 
same course of care--interestingly, the same group shows that 
the quality of care in Utah is higher. Five times more expense, 
worse medical outcome.
    My favorite term for that is ``rescue care.'' We're 
understanding it fairly fully--when I talk about approaching 50 
percent waste in the system, that's what I mean. Right there. 
It's not care delivered in good service to patients.
    Very often this care--if they were given a fair choice--is 
not what they would have selected or chosen. We need to get it 
right, frankly, within the healthcare professions.
    Senator Bingaman. Dr. Chen did you want to comment?
    Dr. Chen. Sure. I think Dr. James raised a very good point 
about the variation in the healthcare spending in medicine, and 
there's been some wonderful work done by Elliot Fisher using 
the Dartmouth Atlas.
    I think there's certainly a lot of opportunity to deal with 
some of the waste in medicine there. I think I would also turn 
our attention to another part of medical care, and that's what 
I will call effective care. Those are the things that we know 
that people need with their chronic diseases, so when you have 
diabetes, we know you need that eye exam, we know you need that 
urinalysis, we know you need that foot exam.
    It is very important that these people get that care, 
because that prevents more expensive complications down the 
line. What Vermont has done is created this--what was 
originally a chronic disease management program, the Blueprint 
for Health--we've enhanced it, we've put the, as we say, the 
Blueprint's on steroids and we put it into medical home 
projects, in demonstration projects throughout Vermont. Where 
people will be tied together by information technology, and 
following standard protocols where there is a unified payer, 
reimbursement based on a per member, per month to provide this 
kind of case management. And where there's a community care 
team that makes sure they deal with all of the other patient 
needs, whether it be mental health needs, whether it be making 
sure the patient has transportation to get to the doctor's 
appointment, or to make sure that the patient has enough money 
to pay for nutritious food.
    That's all of, I think, what you're going to have to 
address, when you try to deal with those very costly people 
that end up having the chronic disease, and that's where we 
spend 70 percent of the healthcare dollars, on those 20 percent 
of the people.
    Senator Bingaman. Go right ahead.
    Ms. McAnneny. There is a growing focus in Massachusetts 
among employers on workplace wellness initiatives. I think 
we're increasingly of the sentiment that the best way to 
control cost is not to incur them at all. Folks are trying to 
keep their employees healthy--large employers can use a very 
holistic approach--they change the food offerings in the 
cafeteria, they set up walking paths and so forth.
    For smaller businesses that don't have those resources, 
they're collaborating with our State's Department of Public 
Health, trying to give them the toolkit they need to make some 
changes into focus on wellness
    Ms. Liu. If I could just add, very briefly, that what this 
really revolves around is over-utilization in care, and what we 
need in place is changes in our care delivery system and our 
payment system, so that we're incenting value-based care, as 
opposed to volume of care delivered.
    Certainly, at Kaiser Permanente, that is what we focus on, 
about giving people the right care at the right time, in the 
right place. We have some of those tools in place to be able to 
allow us to do that. So, when you're thinking about 
affordability, that's what I would focus on.
    The Chairman. Thank you very much.
    Senator Coburn. Can I jump in?
    Senator Bingaman. It's your turn, so why don't you just go 
ahead and ask your question.
    Senator Coburn. All right, well, we've heard about payment 
reform. The classic study is at Duke, where they opened a 
congestive heart failure clinic, and they lowered 
hospitalizations by 25 percent but, they had to shut it down, 
because they couldn't get recognized for the payments. Under 
our payment system under Medicare and Medicaid to drop this 
magnificent amount of money by putting people back in the 
hospital, rather than going to a managed, accountable care 
organization or medical home where we're actually having 
performance for pay, rather than pay for performance--where you 
perform and you get paid.
    Duke modeled this and they said, ``We've got a plan that 
works,'' but the payment reform is key on this. The payment 
reform is key on retention of primary care. We have a payment 
system that is broken, and it's broken in the government's 
payment system, and it's broken in the private insurance model.
    I'm interested to ask the folks from Vermont, how are you--
without an individual mandate, you've moved 2 percentage points 
in terms of coverage--most of the people we've had testify 
before this committee and in the study groups that are going 
around here is you can't have guaranteed coverage if you don't 
have an individual mandate.
    How have you done that? Have you incentivized so well, in 
terms of the co-payments, or the subsidization? Is that how 
you've moved people?
    Ms. Besio. I think it's to--that is part of it. The premium 
assistance program has been very powerful in terms of getting 
people enrolled. Actually, when we did our initial reforms--
prior to doing our reforms, we did a statewide survey that 
indicated that half of the people who were uninsured were 
already eligible for our existing Medicaid programs and 
expansion programs but had not enrolled. Seventy-seven percent 
of those folks, of all of our uninsured said it was because of 
cost. Well, Medicaid's free.
    Part of what we did as a strategy, when we developed our 
new Catamount Health Plan and our Premium Assistance Programs, 
we did integrated marketing with the private carriers that 
offered the new Catamount Health Plan. Our message to 
Vermonters was, ``Every Vermonter needs insurance.'' That was 
it. ``Every Vermonter needs insurance,'' here's the 800 number, 
and we asked people to call that number and we would help 
them--help determine which program they might be eligible for. 
And we think that that message actually got out.
    We have an employer contribution component to help finance 
our healthcare system, so that's also helped, I think. But our 
most recent survey, that gave us our new numbers, which just 
happened this fall, showed us that only about .5 percent of 
Vermonters have experienced a loss of employer-based insurance.
    Our employers, while they may be increasing cost sharing, 
they are still continuing to offer that insurance, and we think 
it's because we've put that message out there and people have 
taken it to heart.
    Senator Coburn. A couple of questions for Massachusetts, in 
looking at your own administrative budget and reading all the 
press reports we hear about the difficulties. You have a 
mandate and you have guaranteed issue, and yet we see the cost 
rise. One of the statements I think you said earlier, is that 
it didn't have anything to do with the plan, in terms of the 
cost increases. I wrote it down, exactly what you said. You 
said, the plan didn't affect the cost, the costs were there 
anyway. You also said the most impossible challenge that we 
have is cost.
    How are you all going to address the cost? As I read what's 
published about the Massachusetts plan, that's a big issue for 
you, and where do you go? Since you've got coverage, but now it 
looks like you can't afford the coverage because you've got 
cost. How are you going to handle that challenge?
    Dr. Kingsdale. That's a great question, it's the question 
of the hour in Massachusetts, I believe.
    I would point out that the major new coverage program we 
have, Commonwealth Care, that comes out of the connector, we 
actually had a premium reduction from this year to the----
    Senator Coburn. I'm talking about your administrative 
budget, I'm not talking about those--my question was related to 
your total cost--you've got a 33 percent increase in your 
administration of it this year, over 2008.
    Dr. Kingsdale. Actually we're going to come in at just 
about flat, but we also have a lot more members this year.
    I think your real--as I hear it----
    Senator Coburn. The real question is cost.
    Dr. Kingsdale [continuing]. The real question is about 
underlying cost of healthcare, yes. I actually have--I am very 
enthusiastic, I spent 30 years trying to design coordinated 
care systems and endorse some of the comments made earlier 
about systems and your own comments about payment reform and 
payment systems being broken. But I do believe that all that 
stuff takes a long, long time to develop, and these systems, 
you don't just change them overnight.
    This is a long struggle. Frankly, part of it is putting 
less money out. We have extremely, extremely smart doctors and 
health plan administrators and hospital administrators, and if 
we give them the right incentives, I believe it's much better 
for them to figure out than for government to micro-manage 
changes in the delivery system. But that is going to take time.
    We have one cost containment policy in this country, we 
have only one that I'm aware of. We ration access to health 
insurance, so we have 50 million people who don't get care 
because of that, and I think we need a better cost containment 
policy than that.
    Senator Coburn. Yes, you all don't have that option in 
Massachusetts right now, so what you do is going to be a great 
model for us to look at, in terms of how you handle it. Do you 
have the flexibility, being a single State, to modify some of 
the things you need to, to get to the cost issue?
    Dr. Kingsdale. Well, you know, Medicare is the biggest 
payer, it's 18, 19 percent of the healthcare sector, and we 
are--there's a payment reform commission set up by the--Chapter 
305, I mentioned, was passed in August. They are actively 
considering, they've already sort of voted to recommend 
movement over the next 5 years to global budgets, as a way of 
paying and away from fee-for-service. And we probably would, if 
we can legislate that, seek something like a Medicare waiver to 
try to involve the biggest payer in the country in that. It is 
a challenge when you're at the State level.
    Senator Coburn. One short follow-up--is everybody looking 
at accountable care organizations?
    Ms. Besio. Yes.
    Senator Coburn. Everybody?
    Ms. Besio. Yes.
    Senator Coburn. OK, thank you.
    Senator Bingaman. Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman.
    Welcome to all of our guests. This is, in fact, an 
important hearing, because as Representative Clark and Orrin 
Hatch and others have pointed out, a lot of interesting things 
are happening at the statewide level and we want to include 
those experiences and any ideas that we have for national 
    In fact, in that regard, while I suspect my ideas may be 
different than Speaker Clark's, we have introduced legislation 
that would provide five States of the country, who want to go 
forward with universal healthcare, waivers to do it their way. 
You may do it in Utah one way, Vermont may choose to go a 
single-payer route, but let's analyze the results of those and 
see how it's applicable to national legislation. Does that make 
sense to you?
    Dr. James. Absolutely, I think the incubation--what we're 
talking about--I mean, I look at Utah and Massachusetts. 
Massachusetts began this process of their reform by going to 
the public sector first, doing that reforming, and now they're 
beginning to look at the private sector.
    Senator Sanders. Let me just jump in, but the idea of 
giving States the freedom to have support from the Federal 
Government, do the waivers you mentioned, ERISA, so you can 
have those waivers to go forward in the way that you think 
makes sense. Make sense to you?
    Dr. James. It does if I can add COBRA, HIPAA, Department of 
Labor, and the tax code, yes.
    Senator Sanders. Yes, OK. And that's, Mr. Chairman, what we 
have introduced, and I think we can learn from those 
experiences. I think what States will do will be very 
different. I think Utah will be different than Vermont, let's 
look at those results.
    No. 2, we have--obviously the theme of the hour is cost all 
over the country. I want to say some good news here, which is 
that in the Stimulus Package, we have put $2 billion more, 
we've doubled the funding for community health centers, a 
program that Senator Kennedy developed some 40 years ago.
    We have tripled the funding for the National Health Service 
Corps to provide debt relief for those physicians who want to 
go into primary healthcare, and dentists and nurses as well. 
The beauty of that, is that what the studies tell us is that if 
you have strong primary healthcare in a medical home, you save 
money at the end of the day. Does anybody not think that we 
should continue that effort in strengthening primary healthcare 
and the National Health Service Corps? Is that a good idea? 
Anyone think it's not a sensible idea?
    Mr. Speaker.
    Speaker Clark. Well, the devil's always in the detail. The 
30,000-foot view you said right there, I think we're all in 
complete agreement.
    Senator Sanders. OK, great.
    The one issue, when we talk about the cost healthcare that 
has not come up, and it amazes me that it hasn't, is that we 
spend almost twice as much per person on healthcare as any 
other industrialized Nation, and yet we have 46 million 
Americans without any health insurance, and we're the only 
industrialized country in the world without a national 
healthcare program.
    I know it will shock people to hear this, but the one 
program, as I understand it, that has more support from 
physicians than any other program in the country, is called 
single-payer. At least 15,000 physicians, a number of State 
legislators have come on board. The single-payer concept and 
the strength of the single-payer concept is that it eliminates 
all of the waste, administrative costs, bureaucracy, 
profiteering, that currently takes place within private 
insurance companies.
    So we talk about saving money, I wonder how we do not talk 
about the fact that there are private insurance companies who 
take 25, 30 percent or more of every healthcare dollar for 
administration, rather than putting that money into doctors, 
nurses, medicine, etc. Does anyone want to comment on whether 
or not we think we have a good system if some private insurance 
company is making 30 cents of every dollar in bureaucracy and 
billing and every other thing, driving everybody nuts, in terms 
of the billing process? We don't talk--are we not allowed to 
talk about that issue? Are the private insurance companies 
quite so strong that we're not allowed to raise it? Jesus, OK.
    Dr. Kingsdale. I'll address it if you want.
    Senator Sanders. OK.
    Dr. Kingsdale. We run two exchanges. One of them, the 
largest one, run about 8 percent administrative costs and the 
exchanges can function, I think, to take that part of our 
health insurance industry, which has the highest administrative 
cost, the highest cost of distribution and no--on the order of 
15, 20 percent, and I'm talking about the nongroup market--and 
introduce substantial efficiencies into the distribution of 
insurance. When you have guaranteed issue, guaranteed renewal, 
community adjusted rating, and we get 80 percent of our 
applications in our private market online, you can actually 
take 10, 12 percent out of the cost of nongroup insurance.
    I'm not going to address your larger question, I know there 
are issues about waste and billing and claims and so forth, but 
there is a concrete way to take a substantial chunk out of 
    Senator Sanders. I think it was Dr. Chen who made the 
point, maybe I'm paraphrasing him, that coverage is not 
coverage. We have to get into the specifics. You can have a 
catastrophic plan which really doesn't mean much, huge 
deductibles, co-payments, so what. You're on a statistic that's 
covered, but it's not a good plan.
    Now, let me ask Dr. Kingsdale, I have a statistic, tell me 
if I'm right. This is on the Massachusetts plan. As I 
understand it, and I know you don't have the figures in front 
of you, but tell me if this sounds right. As of December 29, 
2008, fairly recently, a 56-year-old--why we selected 56, I 
don't know--56-year-old middle income person, man, would spend 
$4,872, that's the cheapest plan available to that person. The 
policy has a $2,000 deductible, it has a 20 percent co-payment 
of up to $3,000. That means if a guy has a bad year, breaks his 
leg, he could be spending $10,000, has exposure of $10,000 for 
a middle income guy. Is that what is true for the Massachusetts 
    Dr. Kingsdale. You're right, I don't have the numbers in 
front of me, but I think--for an individual, that would be 
$5,000 not $10,000. And yes, healthcare is God-awful expensive.
    Senator Sanders. No----
    Dr. Kingsdale. In that example----
    Senator Sanders [continuing]. That's not $5,000. Under the 
Massachusetts plan, an individual is $4,800, is that correct 
for an individual?
    Dr. Kingsdale. I don't want to argue with the numbers, I 
think it's $5,000. But your point, nevertheless, whether it's 5 
or 10, is a huge amount of money. Somebody else made the 
observation that that's really financial protection.
    Now, that bill could well be $100,000, of which the 
insurance only covers $95,000. And yes, $5,000 is outrageously 
expensive, but that's medical care in this country.
    Senator Sanders. No I understand that, my only point was, 
before we look at Massachusetts as some kind of Utopian 
solution, to understand that a middle income person who breaks 
his leg could be spending $10,000 a year. That is not a 
solution, frankly, that is just far too much money. That's all.
    Senator Bingaman. Senator Alexander.
    Senator Alexander. Thank you very much.
    I wonder if any of you looked at the Tennessee experience 
with TennCare in trying to see what mistakes you could avoid.
    You know, back in the 1990's I remember riding along and 
hearing on the radio after I was Governor of the State that we 
were going to cover twice as many people for the same amount of 
money, and I thought, ``That probably won't work'' and for a 
while it seemed to, because there were a high level of children 
insured at a relatively low cost, but a few years later it was 
threatening to consume 40 percent of the State budget. The 
current governor has had to--even recommend taking 170,000 
people off the rolls, which is a very painful experience.
    I wonder if that provided any lessons that you were able to 
avoid in developing your plans or it wasn't relevant to your 
    Yes, sir.
    Dr. Chen. Yes, I think that we did actually learn about the 
TennCare lesson in Vermont. I would say that throughout our 
expansions, both in Medicaid and also in the Catamount Health 
Program, we've put in what we'll call circuit breakers. There 
was always an ability to stop enrollment when we thought that 
enrollment was going too strong and costs were going to 
overwhelm the system itself, so that was a lesson we did learn 
from TennCare.
    Senator Alexander. Mr. Clark, you talked about Federal 
regulatory barriers preventing States from pursuing wellness 
initiatives or personal responsibility elements of a health 
reform program. Do you want to specify some examples of that?
    Speaker Clark. Right now there are--as I carved out--there 
is about two-thirds of the market that we have no impact on 
whatsoever or very, very little when it comes to the government 
program. It's always a matter of asking them for a waiver for 
direction. The ERISA plans are out of bounds, so we have our 
small commercial burr, so right around, the funnel starts to 
come down.
    When it comes to incentives, a lot of regulatory issues 
that deal with how we do incentives. What would be wrong with 
vizing an individual, a diabetic, 5 years down the road, to 
receive back a portion of their premium if they were able to 
drop or share it with a physician that is able to improve the 
quality of health? You've got a baseline medical, you drop that 
down, they show the improvement, here you are.
    Right now, IRS code--there's all kinds of challenges out 
there that are almost insurmountable to try and move forward.
    I'll answer that question, if I can take 10 seconds--I know 
the Senator left, but we don't have 37 percent administrative 
costs in the State of Utah. The companies that we deal with--if 
they did, I would give them about 24 months and they would be 
in Chapter 7. I am a little bit disturbed sometimes at the 
abstract numbers that get pulled out. There may be those around 
here, but they are the outliers, they are not the mainstream 
performers that have viability and substance over the term.
    Senator Alexander. Thank you, Mr. Chairman.
    Senator Bingaman. Thank you.
    Senator Hagan.
    Senator Hagan. Thank you, Mr. Chairman.
    One of the challenges I think we face in passing a 
healthcare reform bill this year, is convincing the 250 million 
people in our country who currently have health insurance and 
convincing them that reform will be as good for them as it will 
be for the 50 million people who don't have insurance.
    With the uninsured, our goal is fairly straightforward, 
even if accomplishing it is not. We want to get them into an 
affordable, reasonable plan. For the people who have insurance 
now, the challenge isn't quite as clear. Of course, we need to 
make sure that the people who are happy with their insurance 
can keep it, but we also need to improve the system in such a 
way that even the people who are already covered see the 
    For example, I think it's generally true that health 
insurance is a source of stress even to the people who 
currently have it. I believe Kaiser conducted a poll late last 
year that showed that 29 percent of the people who have health 
insurance are worried, are very worried about losing it, and 
another 20 percent are somewhat worried about losing it. As 
we're trying to get more people covered, half the people who 
are already covered are worried about losing their insurance.
    With that background, can those of you who have been a part 
of the efforts in Massachusetts and California, address the 
reactions of the insured population to the plans that were 
proposed in those States and any lessons we can learn at the 
national level, on how to best ensure the buy-in of those who 
have health insurance?
    Ms. McAnneny. Thank you. I think in Massachusetts, for 
those that had insurance prior to healthcare reform, I would 
put, at least for the employer community, I would categorize 
them in three different buckets, if you will.
    The first would be the large self-insured that were 
mentioned. I think through healthcare reform, they were largely 
unaffected. There certainly were some implications for them, 
but they continued to purchase as before.
    I think for the very small employers, those with 11 or 
fewer full-time equivalents, they too were unaffected because 
we chose to exempt them from healthcare reform, or at least any 
    For that smaller employer community, with more than 11, but 
still in the fully insured market, it has been a challenge. 
Those are the folks who have faced the greatest new 
responsibilities under healthcare reform. I think for all 
employees who get their KIA through the employer-sponsored 
system, as healthcare costs continue to rise, it is a growing 
concern, because there has been more of a cost sharing with 
employees. I think that in this down economy, that will 
probably only exacerbate.
    I think that it is a critical point and I think, from the 
employer community, one that we're watching very closely, in 
Massachusetts we chose to expand coverage first. The employer 
community's preference would have been to tackle the cost 
containment issue. We do have payment reform efforts underway, 
we're watching them closely and we do think that that's 
absolutely necessary if we are going to contain costs. I agree 
that for those who do get their insurance through their 
employer, cost is important and I think they are very 
    One of the issues with the individual mandate that I would 
like to raise has to do with--if you do have a mandate, it begs 
the question, how much insurance is enough to satisfy that? In 
Massachusetts the term is minimum credible coverage. That was a 
very contentious issue because what we did not want to do in 
Massachusetts was disturb the employer base. For those people 
who had insurance, most people are satisfied with their 
employer-sponsored coverage and wanted to keep it. We didn't 
want to make employers have to significantly amend the 
insurance that they offered.
    At the same time, we wanted to make sure it was more than 
just catastrophic and provided coverage for a whole host of 
things, like inpatient, outpatient, prescription drugs and the 
like. That was one of the biggest challenges, in my opinion, 
for Massachusetts. I think that that's still a work in 
    There are folks who want minimum credible coverage to be 
more expansive than it is. The employer community continues to 
push back, but you don't want it to be overly generous so that 
it disturbs the market. So there is tension there.
    Ms. Liu. Yes, in California, you're absolutely correct that 
one of the lessons we learned and one of the things we focused 
on is that we had to think about how the health reform proposal 
was useful for people who currently do have insurance. One of 
the things that we took a look at, No. 1, there was the issue, 
as you said, of people being afraid of losing their coverage, 
especially in these kind of economic times.
    We were moving, in California, from an underwritten market 
to a market of guaranteed issue, so that people would be sure 
they could get products when they needed it. We also put in 
some market reforms that would lower the cost of care for 
people who had health conditions. We are going to phase out 
health status rating. That's the kind of things that the public 
    Now, in order to make that work, we needed to have in 
place, because we have such a highly underwritten market, an 
individual mandate to make sure that you could offer guaranteed 
issue at an affordable rate.
    One of the other things that we looked at in terms of cost 
containment, for people who currently do have insurance, is 
tackling something that we called the hidden tax, and that's 
how we talked about it with people. What we really meant by 
that is that today, if you purchase through the commercial 
market, you're paying for your premium, but you are also paying 
for those who are uninsured, and you are paying for the 
underpayment, frankly, of public programs, especially in 
California, the Medi-Cal program significantly has very low 
reimbursement rates.
    As part of our health reform process, we increased Medi-Cal 
reimbursement rates by over $4 billion, and that really--the 
focus there was to say we want to lessen the cost shift on the 
people who are currently purchasing coverage, as well as make 
sure for people who might lose that coverage, that they have 
that security that you were talking about.
    Senator Bingaman. Senator Merkley.
    Senator Merkley. Thank you very much, Mr. Chair.
    Very quickly, in Massachusetts when folks do not comply 
with the individual mandate, how do you address that, what is 
the combination of incentives or punishments, if you will, that 
create the framework for that?
    Dr. Kingsdale. I mentioned earlier that health reform is a 
campaign and first of all, we compliment the individual mandate 
with an assessment on employers to make--if they don't make a 
fair and reasonable contribution with significant subsidies for 
low-income uninsured, and I think Susan referred to the cost of 
that. Beyond that, we implement the individual mandate with 
sort of a--we phased it in, we made additional coverage 
programs available before it went in effect. It didn't have any 
penalties attached to it for the first 6 months less 1 day. It 
had a modest penalty in the first year, 2007, that goes up in 
2008 and 2009. We have a very robust appeals process, which the 
connector runs.
    We basically try to run it and we compliment it with this 
campaign of shared responsibility. We use the Red Sox, the No. 
1 brand name in New England, as Connector day, has a whole 
Connect to Health. We tried to message that health insurance is 
good for you and administer the mandate from that perspective 
rather than a sort of got 'cha perspective, we're going to bend 
over backwards to try to penalize you. We try to bend over 
backwards not to penalize people.
    Senator Merkley. Thank you very much, Doctor.
    I have a number of questions, so I'm going to just keep it 
moving quickly here.
    One of the questions on cost containment is how you create 
incentives, and there's been a lot of observation in various 
forms that when you have fee-for-service, you incentivize 
doctors to do lots of services, lots of tests, and so forth.
    It has also been pointed out that the Mayo Clinic has one 
of the least expensive but highest quality services, and that 
one of the components of that is that the doctors are paid on 
salary, thereby eliminating incentives for them to do, 
additional tests. Is that part of the discussion in any of your 
    Ms. Liu. Briefly, I'm actually with Kaiser Permanente, and 
we agree with you because that's how we pay our doctors as 
well, is on salary, and that makes the financial incentives 
work for people, so that you do have the incentive to give the 
member appropriate treatment since you're getting a capitated 
payment and you're salaried, but you don't have the incentive 
to over treat.
    At the State level, it's really hard to implement a lot of 
    Senator Merkley. Do you have the reverse problem, by the 
way, in which doctors receive more reimbursement if they 
provide less services or is it just the same regardless. Is the 
salary fixed?
    Ms. Liu. The salary is fixed.
    Senator Merkley. It is fixed.
    Ms. Liu. Yes, absolutely. The doctors make the decisions 
about what care is appropriate. It's not the health plan making 
the decisions. What I'm saying is the incentives are in place 
because obviously you need to manage that members' care as 
effectively as possible because they are your member and you're 
getting paid a capitated fee on that.
    I think, at the national level, you have a much broader 
opportunity to make those changes in care delivery and payment 
reforms that States are a little bit in a bind in terms of 
making, but I don't know if any of the other colleagues want to 
chime in.
    Senator Merkley. Dr. Chen.
    Dr. Chen. In Vermont a significant proportion of the 
physicians, actually probably half, are employed by hospitals 
or hospital systems, so to the extent that we already have some 
of that in place, we can tailor some of the reform, whether it 
be the blueprint--enhanced medical home toward that using--
taking advantage of that.
    I think the rest of the physicians are small, very small 
practices of individual practitioners, but really would be hard 
to change that culture, in terms of trying to contain cost.
    Senator Merkley. I see I'm starting to run out of time, so 
I'm going to throw one more question in and, Mr. Speaker, I'd 
be happy to get your follow up to that afterwards. You're, in 
fact--it is Speaker isn't it? Speaker Clark.
    I think if I captured it right, doesn't it make sense for 
someone to get compensated for managing their diabetes, was 
that the comment? There's also been--the CEO of Safeway was 
here saying,

          ``Hey, we and our self-managed health plan have a 
        number of incentives we've incorporated, combined with 
        real opportunity and encouragement to address disease 
        management regarding diabetes, regarding heart 
        conditions, certainly regarding smoking and smoking 

    Have any of your States succeeded in overcoming the 
bureaucratic obstacles or the cultural issues? Has it been a 
useful application of these sort of incentives to encourage 
people to make themselves healthier and help lower the cost of 
healthcare in the process for all?
    Mr. Speaker.
    Speaker Clark. The wellness aspect of this, I think is one 
that's been probably the deepest richest vein, but hasn't been 
tapped as much as it needs to be. In Utah, part of our health 
system reform is involving a number of demonstration projects 
with large models that will allow them, both to do bundle 
pricing so that the entire product now--the physician, the 
hospital--is all one price and they have to manage to that 
price for the quality that they deliver. We're looking at other 
demonstration projects where we can enhance just what we talked 
about here, let us find out what it is we can do to try and 
find proper incentives.
    We spent a considerable amount with a task force this last 
summer and tried to drill down what the different insurance 
that are in our State, what they do for incentives. Some have 
gathered the vision, some call an incentive a gift card, if 
you'll do certain things, we'll mail you a gift card to Target. 
Now those might be a--I think they're falling short of what I 
would call a wellness program. We need to do a more holistic 
program and we're trying to do some demonstration projects of a 
large enough scale that we can find out statistically and try 
and move forward in a major process.
    Ms. Besio. In Vermont, we have just passed legislation that 
allows our carriers, even though we do have community rating, 
to offer incentives, monetary incentives in their different 
products for people adhering to wellness initiatives. That's 
just getting underway, so we don't have any data.
    I do want to make the point that we do have these 
integrated medical home pilots that are incentivizing 
practitioners, primary care providers, as well as their 
patients to adhere to better practices by using evidence-based 
care, having community care teams to support those patients 
that the doctors don't have time to support in 15-minute 
visits, giving them health information technology to know how 
many people on their panel need foot exams this year, I mean 
this month. Most providers don't have that kind of information, 
getting the lab test in so that when you go to a specialist, 
they don't have to be repeated, another unnecessary cost and 
concern for patients themselves.
    But Medicare is not at the table. We can not get Medicare 
at the table. So we've got Medicaid and our three primary 
insurers all agreeing to provide the same monetary incentive to 
providers for evidence-based care, agreeing to support the same 
community care teams, they're all paying for this community 
care team, and agreement to, in the future, in a year from now, 
if those show that they're cost-effective, to take the money 
that's currently being invested in their 1-800 disease 
management program and support moving this integrated model 
statewide. We can't afford to do it without Medicare's 
involvement, and because Medicare is so rigid in their 
demonstration programs and their approaches to States, we can't 
get their involvement because we need to apply to be part of a 
singular Medicare demonstration project, which makes no sense 
when you're at the provider level trying to manage care for 
your entire patient panel.
    Senator Bingaman. Thank you.
    Senator Enzi.
    Senator Enzi. Mr. Chairman, this has been tremendously 
helpful. I always feel that roundtables are the best way to get 
the information if we're all working toward a common goal. Of 
course our common goal is to get everybody covered, and 
hopefully not to put States in particular constraint either.
    I've got pages of notes here, but I'm also curious as to 
what the benefit packages are in each of these States and how 
you derive that and how you change it and how long it takes to 
make changes.
    What we've gotten is just valuable beyond calculation, so I 
hope that you'll answer questions from myself and others that--
maybe even some that weren't here--but I'll be sharing my notes 
with a number of people.
    Thank you very much.
    Senator Bingaman. Thank you.
    Senator Merkley, did you have any other questions that you 
need to ask at this point?
    Senator Merkley. I do have a couple if it would be 
    Senator Bingaman. Why don't you go ahead.
    Senator Merkley. Senator Coburn mentioned pay-for-
performance as a reform. I'm not sure that I understand that 
exactly, but rather than just pay for tests, I assume it's the 
outcome or a successful treatment of a disease. Have any of you 
incorporated pay-for-performance, exactly how have you applied 
it, and what are the results?
    Dr. Chen. I think that it's fairly common, in the insurers 
in Vermont at least, that following well described evidence-
based metrics, if you do X, Y, and Z on your patient, you get 
an enhanced payment. That happens with Blue Cross/Blue Shield 
and MVP, the two nonprofit insurers.
    One of the things that we tried to stress, so that 
providers and physicians aren't really going crazy with all 
these different metrics, is that the blueprint says everyone 
will use the same metrics. Whether you're a Blue Cross, whether 
you're MVP, or whether you're Medicaid, we're going to follow 
the same thing, but we'll come to agreement on what they look 
like in the beginning. So we are doing it. It is certainly a 
part of healthcare in Vermont at this time.
    Senator Merkley. When you talk about evidence-based 
practices, you've applied and determined that here are the best 
cost-effective steps for addressing a particular situation. If 
the medical practitioner follows those steps, they get an 
incentive payment or a bonus or a reward. It's not based on the 
outcome or the effectiveness, that the person is healed, if you 
will, it's based on following the process.
    Dr. Chen. Right, it's a process-based measure, at least the 
classic pay-for-performance is process-based.
    Ms. Besio. I just want to point out that incentives can 
also take other forms. Giving those practitioners the kind of 
information technology tools that they need, that will help 
guide them in their care delivery, is also a form of incentive 
to help them provide that better care.
    We've used a tool called DocSite that we're starting to 
provide to any practitioner in Vermont--we're starting with 
primary care practices--that literally has in it, embedded, the 
evidence-based practices that we are trying to promote, that 
also has in it preventive care--evidence-based practices for 
preventive care--not only to chronic disease management. It 
gives doctors reminders of the preventive care that people need 
when they show up. When people come to their office, you can 
get a printout on how they compare to the national norms or to 
the State norms or regional norms on different indices to show 
what they're at risk for, etc.
    There's not only payment incentive, but also giving 
practitioners the tools and resources that they need in order 
to better manage care.
    Senator Merkley. Have you all extended the best practices 
into the formulary world?
    Speaker Clark. That's a very interesting question. I think 
the formulary has probably been more focused on cost rather 
than best practice. I think it's been more driven by the 
dollars, but there has been some effort to try and do that. I 
just want to emphasize that--I wish Dr. James were here. What 
he has done has been recognized worldwide, in those particular 
efforts that you talked about here and best practices, quality 
measurements. In fact, I've heard him speak numerous times 
where he says that the cost, access, and quality, typically the 
three-legged stool is not a three-legged stool, but is a linear 
equation, and that if you want to have lower costs, then you 
need to make sure you have the quality. You get that and you 
will then solve the axis question accordingly.
    Dr. Chen. I think in terms of the formulary, there are some 
certain items, like an ace inhibitor if you're diabetic and 
you're spilling protein, that are recommended, and those are 
part of, in some areas, the evidence-based guidelines, but as 
Speaker Clark mentioned, a lot of the other best practices and 
formulas come down to, is there a better, equally effective 
drug that costs a lot less? It's really a cost issue, which is 
    Senator Merkley. I'll just wrap this up here. In Oregon we 
had a lot of discussion of formulary, and essentially the 
strategy was to lay out the recommendation to the physician 
that they adopt this drug first because of the evidence that 
it's been most cost-effective. If they wished, they could waive 
that recommendation. They had to fill out a form and say, ``I'm 
waiving it.'' So a little bit of a hurdle, but there was no, 
sort of, bonus involved. I found that quite interesting. It was 
extremely controversial to have any sort of embodied advice, if 
you will, or this is the best idea. Not an easy discussion to 
hold as we were attempting to reduce costs.
    Ms. Besio. We actually use formularies in our Medicaid 
program. We don't provide incentives for it, but we actually 
require that people go through a formulary process.
    Speaker Clark. I think in many States, it is assumptive 
that it's the formulary, and if you want to do something 
outside of that, then it requires that additional effort on 
behalf of the physician.
    Senator Merkley. Thank you all very much, I appreciated 
your responses.
    Thank you, Mr. Chairman.
    Senator Bingaman. Yes, let me just thank everyone as well. 
I think it's been very useful, as Senator Enzi indicated. This 
helps us to figure out what we ought to be trying to get 
consensus on around here. Thank you very much.
    That will conclude our roundtable discussion.

    [Whereupon, at 4:09 p.m. the hearing was adjourned.]