[Senate Hearing 111-344]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 111-344



                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE


                             FIRST SESSION


                             JUNE 24, 2009


    Printed for the use of the Committee on Commerce, Science, and 

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                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota             SAM BROWNBACK, Kansas
TOM UDALL, New Mexico                MEL MARTINEZ, Florida
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
                    Ellen L. Doneski, Chief of Staff
                   James Reid, Deputy Chief of Staff
                   Bruce H. Andrews, General Counsel
   Christine D. Kurth, Republican Staff Director and General Counsel
              Brian M. Hendricks, Republican Chief Counsel

                            C O N T E N T S

Hearing held on June 24, 2009....................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Johanns.....................................     4
Statement of Senator Klobuchar...................................    38
Statement of Senator Udall.......................................    40


Wendell Potter, Former Health Insurance Executive, Philadelphia, 
  PA.............................................................     5
    Prepared statement...........................................     7
Nancy Metcalf, Senior Program Editor, Consumer Reports...........    10
    Prepared statement...........................................    12
Karen Pollitz, Research Professor, Georgetown University Health 
  Institute......................................................    26
    Prepared statement...........................................    28


Response to written questions submitted by Hon. Tom Udall to 
  Karen Pollitz..................................................    49



                        WEDNESDAY, JUNE 24, 2009

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice at 2:31 p.m. in room 
SR-253, Russell Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.


    The Chairman. This hearing will come to order. Members will 
soon be joining us. Today's hearing is about protecting 
    So I want to start by talking about the consumer. Her name 
is Jill Faddis. Back in 2001 she had problems with her health 
insurance company. She and her husband were living in Seattle, 
Washington at the time.
    And the insurance company was the Aetna insurance company. 
Their Aetna policy covered visits to doctors who were not part 
of Aetna's network. Now understand when you say not part of her 
network, you're talking up to about 100 million people in the 
country. So don't think they're an exclusive little group. It's 
a huge, huge, group.
    The policy promised the Faddis' that if they went to see 
out-of-network doctors Aetna would reimburse them at the 
``usual and customary rate'' for the Seattle area. So relying 
on Aetna's promise, Jill Faddis and her husband went to visit a 
local periodontist. A periodontist is a dentist who specializes 
in gum work. And it's sort of a hard thing to do.
    The periodontist charged Mrs. Faddis $140 for the visit. 
The charge was sent to Aetna which processed the claim and 
reimbursed the Faddis' only $65 for the visit for which they 
had been promised more. Aetna told Mrs. Faddis that the $65 was 
the usual and customary charge for this service. And that she 
and her husband would have to pay the $75 balance themselves to 
make up the difference.
    Mrs. Faddis did not take Aetna at their word. She's a 
classic American. She took out her Yellow Pages and she called 
every single periodontist in her area, Seattle and beyond.
    There were about 11 or 12 folks that she reached. And I'd 
like to pass out at this point a chart showing what she found. 
She found that the actual usual and customary fee periodontists 
in her area were charging for that service was somewhere 
between $110 and $163 for that service.
    [The information referred to follows:]

    So then she shared her research with Aetna. She told them 
they had made a mistake. Aetna told her that no, she was wrong. 
She had made a mistake. Aetna told her that their calculation 
of the reasonable and customary charge for the service was $65, 
    Now this story does not have a happy ending. Mr. and Mrs. 
Faddis paid the $75 out of their own pocket, I mean they had to 
get well. She had to get well. And rather than going on to 
fight a big insurance company where they would lose and figured 
it out.
    So this to me is a very disheartening story. And the thing 
that's most disturbing about it is that it gets repeated 
millions and millions of times a year, over and over again. I 
repeat there are a hundred million Americans outside of network 
    Because some must turn to their health care insurance for 
help and clarity. And they don't get it. They think they pay 
for protection against the risk of high health care expenses. 
But the insurance company has figured out a way to wiggle out 
of providing the protection that they deserve. That's what they 
are in it for.
    So the Faddis' paid the $75 and moved on. But think about 
the concern over the $100,000 in medical bills for breast 
cancer treatment protocol or about the heart attack victim 
whose bills total $80,000 or more, probably much more. When 
insurance companies fail to meet their obligation to these 
people and literally therefore, not invectively, but it 
literally becomes a matter of life and death, financially or 
    Consumers cannot make real choices because the insurance 
company doesn't use standard language or definitions, I would 
say, on purpose. That's what the panel knows better than I do, 
if they agree.
    Consumers can't challenge insurance companies' decisions. 
They just lose. People know that. Because the companies don't 
explain the terms of coverage in clear language, I would say, 
    To me this is entirely unacceptable. People don't know what 
they are buying, what they're getting, why they're getting 
underpaid, while they're being forced to pay more of the 
difference. So with this said, I'm very happy that we have two 
health care experts today who can help us understand why 
consumers get such a raw deal from their insurance companies.
    And I'm hoping that they can give us some ideas about how 
we can level the playing field between what we tend to value in 
America. And that is a patient who is pain and needs care, and 
an insurance company which is part of our free market system.
    I'm also equally pleased to welcome Mr. Wendell Potter to 
the Committee today. He's a former insurance executive, who is 
going to tell us about some of the tactics insurance companies 
use to keep insurance in the dark. I have a special respect for 
him simply because he's doing something I think is very 
courageous and very brave.
    I want to really, sincerely thank you, Mr. Potter, for 
coming forward at this very important juncture, not just in the 
question of insurance companies. But because of that, the whole 
question of what's going to happen in the health care debate. 
And how are we going to divide up the responsibility of what 
insurance companies do.
    Can we depend upon their word? Should we side with 
consumers? Make sure they get charged only what they should be 
charged? And you spent most of your career in this. So I just 
greatly admire you for doing this.
    Before I close my remarks, I want to add a very important 
point. A few months ago this Committee started looking at the 
many problems consumers have with the health insurance 
industry. And I think you know that. We've been working at this 
very, very hard.
    In March we had two hearings about the deceptive Ingenix 
database hearings. That was a--that's a bad product which is 
now on its way out. Not by their own will, but because they 
were discovered to be defrauding consumers who were ill in the 
State of New York, but not beyond that.
    The New York Attorney General took action. They paid $350 
million. And said well, they were happy to start something, you 
know, they warmed up nicely. But we had them cold.
    So we have pursued this matter. The Committee staff has 
been continuing to investigate the issue. And recently sent me 
a written report on what they have found so far.
    I circulated this staff report to Members this morning. And 
I now ask and give unanimous consent to insert this report and 
its exhibits into the record of this hearing. And I have it in 
front of me, but I can't throw that all over the room. But 
please be sure to follow it.
    [The information referred to is retained in Committee 
    The Chairman. So I look forward to our discussion today. 
And to what we may learn about the parts of our health care 
system that are so desperately in need of reform. I mean, we 
are at the very precipice of doing something or doing nothing 
or doing something poor or doing something really good in the 
national debate on health care reform. We have to do it right.
    I happen to be one of those people who favors a public 
plan. I wish I had more people joining me in that. I think they 
will join me in that as the debate goes along and as the groups 
get smaller.
    But I just have to tell you that when I hear about these 
things this morning that I've talked about, this afternoon, 
about the power of insurance company to withhold information. 
And I have many more questions about that, to keep the 
consumer, the patient, uninformed and unpaid. I'm very unhappy 
about that.
    So that concludes my opening remarks. My dear Governor, if 
you wish to be Ranking Member and say something, I'd welcome 
your comments.

                   U.S. SENATOR FROM NEBRASKA

    Senator Johanns. You know what, Mr. Chairman? It's amazing 
how quickly you become the Ranking Member here.
    Senator Johanns. I appreciate the Chairman putting this 
hearing together because it's an enormously important topic. 
And I'm not going to talk long because for one thing the clock 
is running. For another thing I'm so anxious to hear from the 
    First thing I would say is that the Chairman's comments are 
on the mark in so many ways. And the Chairman rightfully points 
out that there is a national debate going on now about health 
care reform. And there are so many difficult issues in that and 
complex policy issues. One of them being the public plan verses 
private plan and how that might work or not work.
    But in order to make sure we don't lose sight of what we're 
really about here today at the hearing, I do want to indicate 
that even if there were no debate going on about national 
health care or public plans, even if there were no debate 
whatsoever, this would warrant a hearing. This would warrant us 
looking into this and digging deep to see what's going on.
    My sense is that there are a number of very distinct issues 
at work. And I'm going to ask the witnesses if they would, to 
try to help educate us on these distinct issues.
    First, we do have Ingenix practices. The Chairman has now 
made the report a part of the record, certainly replete with a 
lot of errors, if not serious legal problems there. This 
practice appears to have forced consumers to pay more.
    And that's not right. It just simply is not. And the 
unfortunate thing for consumers is this is such an enormously 
complicated area for them that unless they're devoting full 
time to understanding it, they never would have understood it 
or stumbled onto what was going on here.
    And then, if you factor into it some who might be out there 
who might be doing something that is intentionally deceptive, 
then the problems even get more acute. They get worse.
    Second, we have an issue that I think relates to the whole 
issue of transparency. Our policyholders, given the opportunity 
to be aware of the features of the very policy that they think 
they are buying to protect themselves investing their hard-
earned money. Or are we simply in a situation now where 
literally this whole arena has become so impossibly 
complicated, so difficult, that it's going to be nearly 
    Again, unless you spend full time to understand your rights 
under your policy, do these policies get explained to the 
consumer? What's going on there?
    And then we have finally, and most importantly--and that's 
why I applaud the Chairman for holding this hearing--
irrespective of anything going on in the health care industry 
these days, we have the whole issue of consumer's rights.
    Health insurance is an item that we purchase in our lives 
thinking that by investing our hard-earned money into it. And 
like I said, it is not inexpensive. And by doing that, we 
believe that an umbrella of protection now extends around us. 
And that we can trust and rely upon that umbrella of protection 
that is there.
    And if in fact what we find out in today's hearing is that 
in some respects that umbrella is not as thorough as we thought 
it was or as protective as we thought it was, then I think it's 
the obligation of this Committee to act. And to try to figure 
out how we can solve that problem and be able at the end of the 
day to assure our constituents, the consumers of the plan, that 
in fact, their expectation is being met. That there are laws in 
place to make sure that they will be protected and their rights 
will be protected as will the rights of their family.
    So, Mr. Chairman, again, thank you. And to the witnesses, I 
look forward to your testimony. And I look forward to the 
opportunity for some robust questioning of you. Thank you.
    The Chairman. Thank you very much, Senator Johanns. And his 
robust questioning will be exactly that. So be prepared.
    I'd like to introduce our witnesses now.
    And I'd like to start with Wendell Potter. As I mentioned, 
he spent almost 20 years working in the health care industry. I 
didn't mention that he was most recently the Vice President for 
Corporate Communications and Chief Corporate Spokesperson for 
the CIGNA insurance company. I call upon you, sir.

                        PHILADELPHIA, PA

    Mr. Potter. Mr. Chairman, thank you for the opportunity to 
be here this afternoon. My name is Wendell Potter and for 20 
years I worked as a senior executive at health insurance 
companies. And I saw how they confused their customers and 
dumped the sick all so they can satisfy their Wall Street 
    I know from personal experience that Members of Congress 
and the public have good reason to question the honesty and 
trustworthiness of insurance companies. When I left my job as 
Head of Corporate Communications for one of the country's 
largest insurers, I did not intend to go public as a former 
insider. But recently it became abundantly clear to me that the 
industry's charm offensive which is the most visible part of a 
duplicitous and well-financed PR and lobbying campaign may well 
shape reform in a way that benefits Wall Street far more than 
average Americans.
    A few months after I joined CIGNA in 1993 during the last 
reform debate, the President of CIGNA's health insurance 
division came here to assure Members of Congress that he and 
other industry leaders would help lawmakers pass meaningful 
reform. They enthusiastically supported covering all Americans, 
eliminating underwriting practices that excluded pre-existing 
conditions and that cherry-picked, healthy customers the use of 
community rating and the creation of the standard benefit plan. 
Today we are hearing industry executives saying the same things 
and making the same assurances.
    This time though, the industry is bigger, richer and 
stronger. And it has a much tighter grip on our health care 
system than ever. Average families don't understand how Wall 
Street dictates whether they will be offered coverage or that 
they can keep it and how much they'll be charged for it. But in 
fact, Wall Street plays a powerful role.
    Remember the top priority of for-profit companies is to 
drive up the value of their stock. To win the favor of 
influential analysts for-profit insurers must prove that they 
made more money during the previous quarter than a year 
earlier. And that a portion of premiums going to medical costs 
is falling.
    Even very profitable companies will see sharp declines in 
stock prices moments after admitting they failed to trim 
medical costs. I have seen an insurer's stock price fall 20 
percent or more in a single day after executives disclosed that 
the company's medical loss ratio went up. Insurers routinely 
dump policyholders who are less profitable or when they get 
    Insurers have several ways to cull the sick. They look 
carefully to see if a sick policyholder might not have 
disclosed a pre-existing condition when applying for coverage. 
And then they use that as justification to cancel the policy 
even if the enrollee has always paid his or her premiums.
    They also dump small businesses whose employees' medical 
claims exceed what insurance underwriters expected. All it 
takes is one illness or accident among employees at a small 
business to prompt an insurance company to hike the next year's 
premiums so high that the employer has to cut benefits, shop 
for another carrier or stop offering coverage all together. 
This practice is known in the industry as ``purging.''
    The purging of less profitable accounts by hiking rates 
helps explain why the number of small businesses offering 
coverage to their employees has fallen from 61 percent to 38 
percent since 1993. Once an insurer purges a business there are 
often no other viable choices in the current health insurance 
market because of rampant industry consolidation. Purging 
happens all the time.
    For instance, between 1996 and 1999, Aetna initiated a 
series of company acquisitions and became the Nation's largest 
insurer with 21 million members. Armed with a new computer 
system, new management and a shift in strategy in 2000 Aetna 
began sharply raising premiums on less profitable accounts. 
Because of this and other factors Aetna shed eight million 
    Insurers also protect their profits by being intentionally 
vague or even purposely misleading them. An estimated 25 
million Americans are now underinsured for two main reasons.
    First, the high deductible plans many of them have been 
forced to accept--like the one I was forced to accept at my 
previous company--require them to pay more out of their own 
pockets for medical care whether they can afford it or not.
    Second, the number of underinsured people has increased as 
more have fallen victim to deceptive marketing practices and 
bought what essentially is fake insurance.
    The big insurers have spent millions acquiring companies 
that specialize in ``limited benefit plans.'' In one policy not 
only are the benefits minimal, but the underwriting criteria 
established by the insurer essentially guarantees big profits. 
Pre-existing conditions are not covered during the first 6 
months and an employer must have an annual employee turnover 
rate of 70 percent or more. So most of the workers don't even 
stay on the payroll long enough to use their benefits.
    Thank you, Mr. Chairman for beginning this conversation on 
transparency and for making this such a priority. The industry 
and its backers are using fear tactics as they did in 1994 to 
tar a transparent and accountable, publicly accountable health 
care option as ``government run health care.'' But what we have 
today, Mr. Chairman, is Wall Street-run health care that has 
proven itself an untrustworthy partner to its customers, to the 
doctors and hospitals who deliver care and to the state and 
Federal Governments that attempt to regulate it.
    Thank you.
    [The prepared statement of Mr. Potter follows:]

                 Prepared Statement of Wendell Potter, 
          Former Health Insurance Executive, Philadelphia, PA

    Mr. Chairman, thank you for the opportunity to be here this 
    My name is Wendell Potter and for 20 years, I worked as a senior 
executive at health insurance companies, and I saw how they confuse 
their customers and dump the sick--all so they can satisfy their Wall 
Street investors.
    I know from personal experience that Members of Congress and the 
public have good reason to question the honesty and trustworthiness of 
the insurance industry. Insurers make promises they have no intention 
of keeping, they flout regulations designed to protect consumers, and 
they make it nearly impossible to understand--or even to obtain--
information we need. As you hold hearings and discuss legislative 
proposals over the coming weeks, I encourage you to look very closely 
at the role for-profit insurance companies play in making our health 
care system both the most expensive and one of the most dysfunctional 
in the world. I hope you get a real sense of what life would be like 
for most of us if the kind of so-called reform the insurers are 
lobbying for is enacted.
    When I left my job as head of corporate communications for one of 
the country's largest insurers, I did not intend to go public as a 
former insider. However, it recently became abundantly clear to me that 
the industry's charm offensive--which is the most visible part of 
duplicitous and well-financed PR and lobbying campaigns--may well shape 
reform in a way that benefits Wall Street far more than average 
    A few months after I joined the health insurer CIGNA Corp. in 1993, 
just as the last national health care reform debate was underway, the 
President of CIGNA's health care division was one of three industry 
executives who came here to assure Members of Congress that they would 
help lawmakers pass meaningful reform. While they expressed concerns 
about some of President Clinton's proposals, they said they 
enthusiastically supported several specific goals.
    Those goals included covering all Americans; eliminating 
underwriting practices like pre-existing condition exclusions and 
cherry-picking; the use of community rating; and the creation of a 
standard benefit plan. Had the industry followed through on its 
commitment to those goals, I wouldn't be here today.
    Today we are hearing industry executives saying the same things and 
making the same assurances. This time, though, the industry is bigger, 
richer and stronger, and it has a much tighter grip on our health care 
system than ever before. In the 15 years since insurance companies 
killed the Clinton plan, the industry has consolidated to the point 
that it is now dominated by a cartel of large for-profit insurers.
    The average family doesn't understand how Wall Street's dictates 
determine whether they will be offered coverage, whether they can keep 
it, and how much they'll be charged for it. But, in fact, Wall Street 
plays a powerful role. The top priority of for-profit companies is to 
drive up the value of their stock. Stocks fluctuate based on companies' 
quarterly reports, which are discussed every 3 months in conference 
calls with investors and analysts. On these calls, Wall Street looks 
investors and analysts look for two key figures: earnings per share and 
the medical-loss ratio, or medical ``benefit'' ratio, as the industry 
now terms it. That is the ratio between what the company actually pays 
out in claims and what it has left over to cover sales, marketing, 
underwriting and other administrative expenses and, of course, profits.
    To win the favor of powerful analysts, for-profit insurers must 
prove that they made more money during the previous quarter than a year 
earlier and that the portion of the premium going to medical costs is 
falling. Even very profitable companies can see sharp declines in stock 
prices moments after admitting they've failed to trim medical costs. I 
have seen an insurer's stock price fall 20 percent or more in a single 
day after executives disclosed that the company had to spend a slightly 
higher percentage of premiums on medical claims during the quarter than 
it did during a previous period. The smoking gun was the company's 
first-quarter medical loss ratio, which had increased from 77.9 percent 
to 79.4 percent a year later.
    To help meet Wall Street's relentless profit expectations, insurers 
routinely dump policyholders who are less profitable or who get sick. 
Insurers have several ways to cull the sick from their rolls. One is 
policy rescission. They look carefully to see if a sick policyholder 
may have omitted a minor illness, a pre-existing condition, when 
applying for coverage, and then they use that as justification to 
cancel the policy, even if the enrollee has never missed a premium 
payment. Asked directly about this practice just last week in the House 
Energy and Commerce Committee, executives of three of the Nation's 
largest health insurers refused to end the practice of canceling 
policies for sick enrollees. Why? Because dumping a small number of 
enrollees can have a big effect on the bottom line. Ten percent of the 
population accounts for two-thirds of all health care spending.\1\ The 
Energy and Commerce Committee's investigation into three insurers found 
that they canceled the coverage of roughly 20,000 people in a five-year 
period, allowing the companies to avoid paying $300 million in claims.
    \1\ Samuel Zuvekas and Joel Cohen, ``Prescription Drugs And The 
Changing Concentration Of Health Care Expenditures,'' Health Affairs, 
26 (1) (January/February 2007): 249-257.
    They also dump small businesses whose employees' medical claims 
exceed what insurance underwriters expected. All it takes is one 
illness or accident among employees at a small business to prompt an 
insurance company to hike the next year's premiums so high that the 
employer has to cut benefits, shop for another carrier, or stop 
offering coverage altogether--leaving workers uninsured. The practice 
is known in the industry as ``purging.'' The purging of less profitable 
accounts through intentionally unrealistic rate increases helps explain 
why the number of small businesses offering coverage to their employees 
has fallen from 61 percent to 38 percent since 1993, according to the 
National Small Business Association. Once an insurer purges a business, 
there are often no other viable choices in the health insurance market 
because of rampant industry consolidation.
    An account purge so eye-popping that it caught the attention of 
reporters occurred in October 2006 when CIGNA notified the 
Entertainment Industry Group Insurance Trust that many of the Trust's 
members in California and New Jersey would have to pay more than some 
of them earned in a year if they wanted to continue their coverage. The 
rate increase CIGNA planned to implement, according to USA Today, would 
have meant that some family-plan premiums would exceed $44,000 a year. 
CIGNA gave the enrollees less than 3 months to pay the new premiums or 
go elsewhere.
    Purging through pricing games is not limited to letting go of an 
isolated number of unprofitable accounts. It is endemic in the 
industry. For instance, between 1996 and 1999, Aetna initiated a series 
of company acquisitions and became the Nation's largest health insurer 
with 21 million members. The company spent more than $20 million that 
it received in fees and premiums from customers to revamp its computer 
systems, enabling the company to ``identify and dump unprofitable 
corporate accounts,'' as the Wall Street Journal reported in 2004.\2\ 
Armed with a stockpile of new information on policyholders, new 
management and a shift in strategy, in 2000, Aetna sharply raised 
premiums on less profitable accounts. Within a few years, Aetna lost 8 
million covered lives due to strategic and other factors.
    \2\ ``Behind Aetna's Turnaround: Small Steps to Pare Cost of 
Care,'' Wall Street Journal, August 13, 2004.
    While strategically initiating these cost hikes, insurers have 
professed to be the victims of rising health costs while taking no 
responsibility for their share of America's health care affordability 
crisis. Yet, all the while, health-plan operating margins have 
increased as sick people are forced to scramble for insurance.
    Unless required by state law, insurers often refuse to tell 
customers how much of their premiums are actually being paid out in 
claims. A Houston employer could not get that information until the 
Texas legislature passed a law a few years ago requiring insurers to 
disclose it. That Houston employer discovered that its insurer was 
demanding a 22 percent rate increase in 2006 even though it had paid 
out only 9 percent of the employer's premium dollars for care the year 
    It's little wonder that insurers try to hide information like that 
from its customers. Many people fall victim to these industry tactics, 
but the Houston employer might have known better--it was the Harris 
County Medical Society, the county doctors' association.
    A study conducted last year by PricewaterhouseCoopers revealed just 
how successful the insurers' expense management and purging actions 
have been over the last decade in meeting Wall Street's expectations. 
The accounting firm found that the collective medical-loss ratios of 
the seven largest for-profit insurers fell from an average of 85.3 
percent in 1998 to 81.6 percent in 2008. That translates into a 
difference of several billion dollars in favor of insurance company 
shareholders and executives and at the expense of health care providers 
and their patients.
    There are many ways insurers keep their customers in the dark and 
purposely mislead them--especially now that insurers have started to 
aggressively market health plans that charge relatively low premiums 
for a new brand of policies that often offer only the illusion of 
comprehensive coverage.
    An estimated 25 million Americans are now underinsured for two 
principle reasons. First, the high deductible plans many of them have 
been forced to accept--like I was forced to accept at CIGNA--require 
them to pay more out of their own pockets for medical care, whether 
they can afford it or not. The trend toward these high-deductible plans 
alarms many health care experts and state insurance commissioners. As 
California Lieutenant Governor John Garamendi told the Associated Press 
in 2005 when he was serving as the state's insurance commissioner, the 
movement toward consumer-driven coverage will eventually result in a 
``death spiral'' for managed care plans. This will happen, he said, as 
consumer-driven plans ``cherry-pick'' the youngest, healthiest and 
richest customers while forcing managed care plans to charge more to 
cover the sickest patients. The result, he predicted, will be more 
uninsured people.
    In selling consumer-driven plans, insurers often try to persuade 
employers to go ``full replacement,'' which means forcing all of their 
employees out of their current plans and into a consumer-driven plan. 
At least two of the biggest insurers have done just that, to the dismay 
of many employees who would have preferred to stay in their HMOs and 
PPOs. Those options were abruptly taken away from them.
    Second, the number of uninsured people has increased as more have 
fallen victim to deceptive marketing practices and bought what 
essentially is fake insurance. The industry is insistent on being able 
to retain so-called ``benefit design flexibility'' so they can continue 
to market these kinds of often worthless policies. The big insurers 
have spent millions acquiring companies that specialize in what they 
call ``limited-benefit'' plans. An example of such a plan is marketed 
by one of the big insurers under the name of Starbridge Select. Not 
only are the benefits extremely limited but the underwriting criteria 
established by the insurer essentially guarantee big profits. Pre-
existing conditions are not covered during the first 6 months, and the 
employer must have an annual employee turnover rate of 70 percent or 
more, so most of the workers don't even stay on the payroll long enough 
to use their benefits. The average age of employees must not be higher 
than 40, and no more than 65 percent of the workforce can be female. 
Employers don't pay any of the premiums--the employees pay for 
everything. As Consumer Reports noted in May, many people who buy 
limited-benefit policies, which often provide little or no 
hospitalization, are misled by marketing materials and think they are 
buying more comprehensive care. In many cases it is not until they 
actually try to use the policies that they find out they will get 
little help from the insurer in paying the bills.
    The lack of candor and transparency is not limited to sales and 
marketing. Notices that insurers are required to send to 
policyholders--those explanation-of-benefit documents that are supposed 
to explain how the insurance company calculated its payments to 
providers and how much is left for the policyholder to pay--are 
notoriously incomprehensible. Insurers know that policyholders are so 
baffled by those notices they usually just ignore them or throw them 
away. And that's exactly the point. If they were more understandable, 
more consumers might realize that they are being ripped off.
    Thank you, Mr. Chairman, for beginning this conversation on 
transparency and for making this such a priority. S. 1050, your 
legislation to require insurance companies to be more honest and 
transparent in how they communicate with consumers, is essential. So, 
too, is S. 1278, the Consumers Choice Health Plan, which would create a 
strong public health insurance option as a benchmark in transparency 
and quality. Americans need and overwhelmingly support the option of 
obtaining coverage from a public plan. The industry and its backers are 
using fear tactics, as they did in 1994, to tar a transparent, 
publicly-accountable health care option as a ``government-run system.'' 
But what we have today, Mr. Chairman, is a Wall Street-run system that 
has proven itself an untrustworthy partner to its customers, to the 
doctors and hospitals who deliver care, and to the state and Federal 
Governments that attempt to regulate it.

    The Chairman. Thank you, Mr. Potter, very much. And we will 
come back to you with questions.
    Nancy Metcalf is our next witness, is the Senior Program 
Editor for Consumer Reports. She has written a series of 
articles on junk insurance for Consumer Reports. And we look 
forward to your comments.

                  STATEMENT OF NANCY METCALF, 

    Ms. Metcalf. Thank you, Mr. Chairman.
    The Chairman. Pull that mic up nice and close.
    Ms. Metcalf. Thank you for inviting me to testify on this 
important topic.
    As a health writer for Consumer Reports, I have talked to a 
lot of consumers over the years who have bought insurance on 
their own. And I can tell you they all bought the same, pretty 
uncomplicated thing, a health plan that they can afford that 
will not leave them destitute if they get really sick. They do 
their best to buy this. But way too often what they end up with 
is something completely inadequate.
    Take Susan Kelly, a realtor from Houston. She told me I 
just wanted something to cover me if something catastrophic 
happened. Something catastrophic did.
    She got breast cancer. And found out that her Mega Life 
policy didn't cover her outpatient chemotherapy or radiation 
therapy. She ended up $100,000 in debt.
    Another Susan, Susan Braig, from California also wanted 
catastrophic coverage. And she also got breast cancer. She had 
a Blue Cross policy that said it covered outpatient treatment. 
But buried deep in the tiniest print inside a very long policy 
was an escape clause that they used to get out of paying it. 
She's $40,000 in debt.
    Some of the reform proposals on the table include subsidies 
that will open the individual market to many millions of new 
consumers through health insurance exchanges. These must 
include strong consumer protection and transparency provisions 
to protect consumers from buying inadequate junk polices like 
these. Right now it's not a level playing field, not even 
    Consumers have no idea how health insurance works. And 
insurance companies know this and take advantage of it in how 
they design and market their plans. Sadly state regulators have 
not been much help. The only thing they seem to care about is 
that a plan is actuarially sound.
    Every trick and gotcha that I'm going to talk about today 
is part of a legally approved and marketed plan. Here's how it 
plays out. Consumers don't understand how health insurance 
    A couple of years ago we ran some focus groups of people 
who had bought their own insurance. We asked if their policies 
had an annual out-of-pocket limit. They had absolutely no idea 
what we were talking about even though buying a policy without 
one is like buying a car without brakes.
    They don't know the difference between co-pays and co-
insurance. They don't know that a limited benefit indemnity 
plan might as well come with a warning label that says this 
plan will leave you broke if you ever get cancer. They don't 
understand that premiums are low for a reason.
    As consumers we're trained to look for a bargain. People 
think insurance works the same way. They have no idea that if 
they're 55-years-old and have diabetes and heart disease, that 
no insurer could possibly stay in business selling them a 
policy for $150 a month. And if they do find a plan at that 
price, it's going to be junk insurance.
    They really can't find the booby traps in their policies. 
I've seen a UnitedHealthcare policy that doesn't cover the 
first day of hospitalization which is the most expensive day, 
of course. I see many policies that only cover diagnostic tests 
if they are done in a hospital.
    Aetna's standard individual health plan only covers $5,000 
worth of prescription drugs a year. Somebody who needs a 
$2,000-a-month drug for rheumatoid arthritis would run that 
benefit out by St. Patrick's Day.
    And consumers don't realize how catastrophic a health 
catastrophe can be. One of the most poignant cases I covered 
was a middle-aged couple who bought a UnitedHealthcare policy 
knowing that it had a $50,000-a-year maximum payout. It seemed 
like a huge sum to them until the husband got colon cancer. And 
his treatment cost more than $200,000. A lot of people 
knowingly buy hospitalization-only policies because they don't 
realize that some of the most expensive treatments are done on 
an outpatient basis.
    Consumers Union believes that policies that exclude or 
limit major categories of care such as outpatient treatments or 
prescription drugs should not be sold at all. We think that all 
health insurance should be comprehensive and come in a few 
standard flavors. Differentiated mainly by the degree of cost 
sharing and presented in a format that makes it easy for 
customers to stop--consumers to shop by price.
    This is not rocket science. We already sell Medigap 
policies this way. And it works just fine.
    But absent these reforms at least insurers should be forced 
to be honest about what they are selling, as you, Mr. Chairman, 
have recognized by introducing the Informed Consumer Choices in 
Health Care Act. In clear, standardized, user-tested formats 
insurers should have to disclose what a policy covers and even 
more important what it doesn't cover. If a policy excludes or 
has low dollar limits on hospital or doctor or drug coverage, 
it should say so.
    Consumers need to be told in big letters what their 
policy's out-of-pocket limit is, including if there are any 
expenses that don't count toward that. They need, in other 
words, a fighting chance not to be ripped off by junk 
insurance. Thank you.
    [The prepared statement of Ms. Metcalf follows:]

                 Prepared Statement of Nancy Metcalf, 
                Senior Program Editor, Consumer Reports

    Mr. Chairman and Members of the Committee:
    Thank you for inviting me to testify on this important topic.
    As a health writer for Consumer Reports,\1\ I've talked to many 
consumers over the years who have bought insurance on their own. And I 
can tell you they all want the same, uncomplicated thing: a health plan 
they can afford that won't leave them destitute if they get really 
    \1\ Consumer Reports is published by Consumers Union, an expert, 
independent nonprofit organization whose mission is to work for a fair, 
just, and safe marketplace for all consumers and to empower consumers 
to protect themselves. To achieve this mission, we test, inform, and 
protect. To maintain our independence and impartiality, Consumers Union 
accepts no outside advertising, no free test samples, and has no agenda 
other than the interests of consumers. Consumers Union supports itself 
through the sale of our information products and services, individual 
contributions, and a few noncommercial grants.
    They do their best to buy decent insurance, but way too often, they 
end up with something completely inadequate.
    Take Susan Kelly, a realtor from Houston. She said, ``I just wanted 
something to cover me if something catastrophic happened.'' It did. She 
got breast cancer, and found out her Mega Life policy didn't cover 
outpatient chemo or radiation therapy. She ended up $100,000 in debt.
    Another Susan, Susan Braig from Altadena, California, said ``I 
thought, at least I'll be covered if I have, God forbid, a catastrophic 
illness.'' The SHE got breast cancer. Her Blue Cross policy said it 
covered outpatient chemo or radiation therapy, but it had a tricky 
clause in it that enabled the company to deny coverage in her case. 
She's $40,000 in debt now.
    Some of the reform proposals on the table include subsidies that 
will open the individual market to many millions of new customers 
through health insurance exchanges. These must include strong consumer 
protection and transparency provisions to protect consumers from buying 
inadequate junk policies.
    Right now, it's not a level playing field, not even close. 
Consumers have no idea how health insurance works. Insurance companies 
know this and take advantage of it in how they design and market their 
plans. Meanwhile, state regulators have been--with a few exceptions 
such as New York and Massachusetts--asleep at the switch. The only 
thing they seem to care about is that the plan is actuarially sound. 
That's important, but insufficient to protect consumers. Every trick 
and gotcha that I'm talking about today was part of a legally approved 
and marketed plan.
    Here is how it plays out.

        1. Consumers don't understand the working parts of health 
        insurance. If people bought cars the way they buy health 
        insurance, they wouldn't be aware that a car has to have a 
        transmission or a battery. A couple of years ago, we ran some 
        focus groups of people who had bought their own health 
        insurance. We asked if their policies had an annual out-of-
        pocket limit, and they had no idea what we were talking about, 
        even though--if I may stretch the automotive metaphor a bit--
        buying a policy without one is like buying a car without 
        brakes. They don't know the difference between co-pays and 
        coinsurance. They don't know that a ``limited benefit indemnity 
        plan'' might as well come with a warning label that says: 
        ``this plan will leave you broke if you ever get cancer.''

        2. They don't understand that low premiums are low for a 
        reason. As consumers, we are trained to look for a bargain. 
        People think insurance works the same way. They have no idea 
        that if they are 55 years old, and have diabetes and heart 
        disease, that no insurer could possibly stay in business 
        selling them a policy for $150-a-month--and that if they do 
        find a plan at that price, it's going to be junk insurance.

        3. They can't identify the booby traps. I've seen a United 
        Healthcare policy that doesn't cover the first day of 
        hospitalization, which is commonly the most expensive day 
        because of ER or surgery bills. I've seen many policies that 
        only cover diagnostic tests in connection with hospitalization. 
        Aetna's standard individual health plan only covers $5,000 of 
        prescription drugs a year. Sounds like plenty, but someone who 
        needs a $2,000-a-month drug for rheumatoid arthritis would 
        exhaust that benefit by St. Patrick's Day.

        4. They don't realize how catastrophic a health catastrophe can 
        be. One of the most poignant cases I ever covered was a middle-
        aged couple who bought a United Healthcare policy knowing it 
        had a $50,000-a-year maximum payout, which seemed like a huge 
        sum to them. Then the husband got colon cancer, and his 
        treatment cost more than $200,000.\2\ A lot of people knowingly 
        buy hospitalization-only policies because they don't realize 
        that some of the most expensive treatments are done on an 
        outpatient basis.
    \2\ ``Hazardous Health Plans,'' Consumer Reports, May, 2009, pp. 
What Consumers Need
    Consumers Union believes that policies that exclude or limit major 
categories of care, such as outpatient treatments or prescription 
drugs, should not be sold at all. We think that all health insurance 
should be comprehensive and come in a few standard flavors, 
differentiated mainly by the degree of cost-sharing, and presented in a 
format that makes it easy for consumers to shop by price. This is not 
rocket science. We already sell Medigap policies this way.
    But absent those reforms, at least insurers should be forced to be 
honest about what they're selling, as you, Mr. Chairman, have 
recognized by introducing the Informed Consumer Choices in Health Care 
Act of 2009. In clear, standardized, user-tested formats, insurers 
should have to disclose what a policy covers--and even more important, 
what it doesn't. If the policy excludes or has low dollar limits on 
hospital or doctor or drug coverage, it needs to say so, clearly and 
    Consumers need to be told, in big letters, what their policy's out-
of-pocket limit is, including if there are any expenses that don't 
count toward that. They need to know approximately what their out-of-
pocket costs will be for expensive treatments such as cancer 
chemotherapy or heart surgery.
    They need, in other words, a fighting chance not to be ripped off 
by junk insurance.
    Thank you again for opportunity to testify.
    For the record, I am submitting a recent article from Consumer 
Reports on this subject entitled ``Hazardous Health Plans,'' as well as 
a Consumers Union Health Policy Brief explaining our recommendations in 
greater detail.
                       Consumer Reports--May 2009

Hazardous Health Plans
Coverage Gaps Can Leave You In Big Trouble
    Many people who believe they have adequate health insurance 
actually have coverage so riddled with loopholes, limits, exclusions, 
and gotchas that it won't come close to covering their expenses if they 
fall seriously ill, a Consumer Reports investigation has found.
    At issue are so-called individual plans that consumers get on their 
own when, say, they've been laid off from a job but are too young for 
Medicare or too ``affluent'' for Medicaid. An estimated 14,000 
Americans a day lose their job-based coverage, and many might be 
considering individual insurance for the first time in their lives.
    But increasingly, individual insurance is a nightmare for 
consumers: more costly than the equivalent job-based coverage, and for 
those in less-than-perfect health, unaffordable at best and unavailable 
at worst. Moreover, the lack of effective consumer protections in most 
states allows insurers to sell plans with ``affordable'' premiums whose 
skimpy coverage can leave people who get very sick with the added 
burden of ruinous medical debt.
    Just ask Janice and Gary Clausen of Audubon, Iowa. They told us 
they purchased a United Healthcare limited benefit plan sold through 
AARP that cost about $500 a month after Janice lost her accountant job 
and her work-based coverage when the auto dealership that employed her 
closed in 2004.
    ``I didn't think it sounded bad,'' Janice said. ``I knew it would 
only cover $50,000-a-year, but I didn't realize how much everything 
would cost.'' The plan proved hopelessly inadequate after Gary received 
a diagnosis of colon cancer. His 14-month treatment, including surgery 
and chemotherapy, cost well over $200,000. Janice, 64, and Gary, 65, 
expect to be paying off medical debt for the rest of their lives.
    For our investigation, we hired a national expert to help us 
evaluate a range of real policies from many states and interviewed 
Americans who bought those policies. We talked to insurance experts and 
regulators to learn more. Here is what we found:

   Health insurance policies with gaping holes are offered by 
        insurers ranging from small companies to brand-name carriers 
        such as Aetna and United Healthcare. And in most states, 
        regulators are not tasked with evaluating overall coverage.

   Disclosure requirements about coverage gaps are weak or 
        nonexistent. So it's difficult for consumers to figure out in 
        advance what a policy does or doesn't cover, compare plans, or 
        estimate their out-of-pocket liability for a medical 
        catastrophe. It doesn't help that many people who have never 
        been seriously ill might have no idea how expensive medical 
        care can be.

   People of modest means in many states might have no good 
        options for individual coverage. Plans with affordable premiums 
        can leave them with crushing medical debt if they fall 
        seriously ill, and plans with adequate coverage may have huge 

   There are some clues to a bad policy that consumers can 
        spot. We tell you what they are, and how to avoid them if 

   Even as policymakers debate a major overhaul of the health-
        care system, government officials can take steps now to improve 
        the current market.

Good Plans vs. Bad Plans
    We think a good health-care plan should pay for necessary care 
without leaving you with lots of debt or high out-of-pocket costs. That 
includes hospital, ambulance, emergency-room, and physician fees; 
prescription drugs; outpatient treatments; diagnostic and imaging 
tests; chemotherapy, radiation, rehabilitation and physical therapy; 
mental-health treatment; and durable medical equipment, such as 
wheelchairs. Remember, health insurance is supposed to protect you in 
case of a catastrophically expensive illness, not simply cover your 
routine costs as a generally healthy person. And many individual plans 
do nowhere near the job.
    For decades, individual insurance has been what economists call a 
``residual'' market--something to buy only when you have run out of 
other options. The problem, according to insurance experts we 
consulted, is that the high cost of treatment in the U.S., which has 
the world's most expensive health-care system, puts truly affordable, 
comprehensive coverage out of the reach of people who don't have either 
deep pockets or a generous employer. Insurers tend to provide this 
choice: comprehensive coverage with a high monthly premium or skimpy 
coverage at a low monthly premium within the reach of middle- and low-
income consumers.
    More consumers are having to choose the latter as they become 
unemployed or their workplace drops coverage. (COBRA, the Federal 
program that allows former employees to continue with the insurance 
from their old job by paying the full monthly premium, often costs 
$1,000 or more each month for family coverage. The Federal Government 
is temporarily subsidizing 65 percent of those premiums for some, but 
only for a maximum of 9 months.) Consumer Reports and others label as 
``junk insurance'' those so-called affordable individual plans with 
huge coverage gaps. Many such plans are sold throughout the Nation, 
including policies from well-known companies.

                   7 Signs a Health Plan Might Be Junk

Do everything in your
 power to avoid plans
 with the following

Limited benefits. Never
 buy a product that is
 labeled ``limited
 benefit'' or ``not
 major medical''
 insurance. In most
 states those phrases
 might be your only
 clue to an inadequate

Low overall coverage
 limits. Health care is
 more costly than you
 might imagine if
 you've never
 experienced a serious
 illness. The cost of
 cancer or a heart
 attack can easily hit
 six figures. Policies
 with coverage limits
 of $25,000 or even
 $100,000 are not
                         No coverage for
``Affordable''            important things. If
 premiums. There's no     you don't see a
 free lunch when it       medical service
 comes to insurance. To   specifically mentioned
 lower premiums,          in the policy, assume
 insurers trim benefits   it's not covered. We
 and do what they can     reviewed policies that
 to avoid insuring less   didn't cover
 healthy people. So if    prescription drugs or
 your insurance was a     outpatient
 bargain, chances are     chemotherapy but
 good it doesn't cover    didn't say so anywhere
 very much. To check      in the policy
 how much a               document--not even in
 comprehensive plan       the section labeled
 would cost you, go to    ``What is not
 ehealthinsurance.com,    covered.''
 enter your location,
 gender, and age as
 prompted, and look for
 the most costly of the
 plans that pop up. It
 is probably the most
                                                  Limitless out-of-


    Aetna's Affordable Health Choices plans, for example, offer limited 
benefits to part-time and hourly workers. We found one such policy that 
covered only $1,000 of hospital costs and $2,000 of outpatient expenses 
    The Clausens' AARP plan, underwritten by insurance giant United 
Health Group, the parent company of United Healthcare, was advertised 
as ``the essential benefits you deserve. Now in one affordable plan.'' 
AARP spokesman Adam Sohn said, ``AARP has been fighting for affordable, 
quality health care for nearly a half-century, and while a fixed-
benefit indemnity plan is not perfect, it offers our members an option 
to help cover some portion of their medical expenses without paying a 
high premium.''
    Nevertheless, AARP suspended sales of such policies last year after 
Sen. Charles Grassley, R-Iowa, questioned the marketing practices. Some 
53,400 AARP members still have policies similar to the Clausens' that 
were sold under the names Medical Advantage Plan, Essential Health 
Insurance Plan, and Essential Plus Health Insurance Plan. In addition, 
at least 1 million members are enrolled in the AARP Hospital Indemnity 
Insurance Plan, Sohn said, an even more bare-bones policy. Members who 
have questions should first call 800-523-5800; for more help, call 888-
687-2277. (Consumers Union, the nonprofit publisher of Consumer 
Reports, is working with AARP on a variety of health-care reforms.)
    United American Insurance Co. promotes its supplemental health 
insurance as ``an affordable solution to America's health-care 
crisis!'' When Jeffrey E. Miller, 56, of Sarasota, Fla., received a 
diagnosis of prostate cancer a few months after buying one of the 
company's limited-benefit plans, he learned that it would not cover 
tens of thousands of dollars' worth of drug and radiation treatments he 
needed. As this article went to press, 5 months after his diagnosis, 
Miller had just begun treatment after qualifying for Florida Medicaid. 
A representative of United American declined to comment on its 
    Even governments are getting into the act. In 2008, Florida created 
the Cover Florida Health Care Access Program, which Gov. Charlie Crist 
said would make ``affordable health coverage available to 3.8 million 
uninsured Floridians.'' But many of the basic ``preventive'' policies 
do not cover inpatient hospital treatments, emergency-room care, or 
physical therapy, and they severely limit coverage of everything else.

             Want better coverage? Try running for Congress

President Barack Obama says Americans should have access to the kind of
 health benefits Congress gets. We detail them below. Members of
 Congress and other U.S. Government employees can receive care through
 the Federal Employees Health Benefits Program. Employees choose from
 hundreds of plans, but the most popular is a national Blue Cross and
 Blue Shield Preferred Provider Organization plan. Employee
 contributions for that plan are $152 per person, or $357 per family,
 per month.

Plan features            Covered services

 No annual or     Inpatient and    Family
 lifetime limits for      outpatient hospital      planning
 major services           care                     Durable
 Deductible of    Inpatient and    medical equipment,
 $300 per person and      outpatient doctor        orthopedic devices,
 $600 per family          visits                   and artificial limbs
 Out-of-pocket    Prescription     Organ and
 limit of $5,000 per      drugs                    tissue transplants
 year with preferred      Diagnostic       Inpatient and
 providers, which         tests                    outpatient surgery
 includes most            Preventive       Physical,
 deductibles, co-         care, including          occupational, and
 insurance, and co-       routine immunizations    speech therapy
 payments                 Chemotherapy     Outpatient
                          and radiation therapy    and inpatient mental-
                          Maternity care   health care

The Wild West of Insurance
    Compounding the problem of limited policies is the fact that 
policyholders are often unaware of those limits--until it's too late.
    ``I think people don't understand insurance, period,'' said Stephen 
Finan, associate director of policy at the American Cancer Society 
Cancer Action Network. ``They know they need it. They look at the 
price, and that's it. They don't understand the language, and insurance 
companies go to great lengths to make it incomprehensible. Even lawyers 
don't always understand what it means.''
    Case in point: Jim Stacey of Fayetteville, N.C. In 2000, Stacey and 
his wife, Imelda, were pleased to buy a plan at what they considered an 
``incredible'' price from the Mid-West National Life Insurance Co. of 
Tennessee. The policy's list of benefits included a lifetime maximum 
payout of up to $1 million per person. But after Stacey learned he had 
prostate cancer in 2005, the policy paid only $1,480 of the $17,453 it 
cost for the implanted radioactive pellets he chose to treat the 
    ``To this day, I don't know what went wrong,'' Stacey said about 
the bill.
    We sent the policy, along with the accompanying Explanation of 
Benefit forms detailing what it did and didn't pay, to Karen Pollitz, 
research professor at the Georgetown University Health Policy 
Institute. We asked Pollitz, an expert on individual health insurance, 
to see whether she could figure out why the policy covered so little.
    ``The short answer is, `Beats the heck out of me,' '' she e-mailed 
back to us. The Explanation of Benefit forms were missing information 
that she would expect to see, such as specific billing codes that 
explain what treatments were given. And there didn't seem to be any 
connection between the benefits listed in the policy and the actual 
amounts paid.
    Contacted for comment, a spokeswoman for HealthMarkets, the parent 
company of Mid-West National, referred us to the company website. It 
stated that the company ``pays claims according to the insurance 
contract issued to each customer'' and that its policies ``satisfy a 
need in the marketplace for a product that balances the cost with the 
available benefit options.'' The spokeswoman declined to answer 
specific questions about Stacey's case, citing patient privacy laws.
    One reason confusion abounds, Pollitz said, is that health 
insurance is regulated by the states, not by the Federal Government, 
and most states (Massachusetts and New York are prominent exceptions) 
do not have a standard definition of what constitutes health insurance.
    ``Rice is rice and gasoline is gasoline. When you buy it, you know 
what it is,'' Pollitz said. ``Health insurance--who knows what it is? 
It is some product that's sold by an insurance company. It could be a 
little bit or a lot of protection. You don't know what is and isn't 
covered. Nothing can be taken for granted.''

            The real cost of illness can be staggering . . .
 Few Americans realize how much care costs. Coverage gaps can leave you
                                in debt.
      Condition                      Treatment                Total Cost
Late-stage colon       124 weeks of treatment, including       $285,946
 cancer                 two surgeries, three types of
                        chemotherapy, imaging, prescription
                        drugs, hospice care.
Heart attack           56 weeks of treatment, including        $110,405
                        ambulance, ER work-up, angioplasty
                        with stent, bypass surgery, cardiac
                        rehabilitation, counseling for
                        depression, prescription drugs.
Breast cancer          87 weeks of treatment, including        $104,535
                        lumpectomy, drugs, lab and imaging
                        tests, chemotherapy and radiation
                        therapy, mental-health counseling,
                        and prosthesis.
Type 2 diabetes        One year of maintenance care,             $5,949
                        including insulin and other
                        prescription drugs, glucose test
                        strips, syringes and other
                        supplies, quarterly physician
                        visits and lab, annual eye exam.

            . . . and out-of-pocket expenses can vary widely
                            Massachusetts Plan        California Plan
With its lower premium   Monthly premium for any  Monthly premium for a
 and deductible, the     55-year-old: $399         healthy
 California plan at      Annual deductible:       55-year-old: $246
 right would seem the     $2,200                  Annual deductible:
 better deal. But        Co-pays: $25 office       $1,000
 because California,      visit, $250 outpatient  Co-pays: $25
 unlike Massachusetts,    surgery after            preventive care
 allows the sale of       deductible, $10 for      office visits
 plans with large         generic drugs, $25 for  Co-insurance: 20% for
 coverage gaps, a         nonpreferred generic     most covered services
 patient there will pay   and brand name, $45     Out-of-pocket maximum:
 far more than a          for nonpreferred brand   $2,500, includes
 Massachusetts patient    name                     hospital and surgical
 for the same breast     Co-insurance: 20% for     co-insurance only
 cancer treatments, as    some                    Exclusions and limits:
 the breakdown below     services                  Prescription drugs,
 shows.                  Out-of-pocket maximum:    most mental-health
                          $5,000, includes         care, and wigs for
                          deductible, co-          chemotherapy patients
                          insurance, and all co-   not covered.
                          payments                 Outpatient care not
                         Exclusions and limits:    covered until out-of-
                          Cap of 24 mental-        pocket maximum
                          health visits, $3,000    satisfied from
                          cap on equipment         hospital/surgical co-
                         Lifetime benefits:        insurance
                          Unlimited               Lifetime benefits: $5

         Service and Total Cost                     Patient Pays                         Patient Pays
Hospital                                                                $0                                 $705
Surgery                                                               $981                               $1,136
Office visits and procedures                                        $1,833                               $2,010
Prescription drugs                                                  $1,108                               $5,985
Laboratory and imaging tests                                          $808                               $3,772
Chemotherapy and radiation                                          $1,987                              $21,113
Mental-health care                                                    $950                               $2,700
Prosthesis                                                              $0                                 $350
TOTAL $104,535                                                      $7,668                              $37,767
Source: Karen Pollitz, Georgetown University Health Policy Institute, using real claims data and policies.
  Columns of figures do not add up exactly because all numbers are rounded.

How to Protect Yourself
    Seek out comprehensive coverage. A good plan will cover your 
legitimate health care without burdening you with over-sized debt.
    ``The idea of `Cadillac' coverage vs. basic coverage isn't an 
appropriate way to think about health insurance,'' said Mila Kofman, 
Maine's superintendent of insurance. ``It has to give you the care you 
need, when you need it, and some financial security so you don't end up 
out on the street.'' What you want is a plan that has no caps on 
specific coverages. But if you have to choose, pick a plan offering 
unlimited coverage for hospital and outpatient treatment, doctor 
visits, drugs, and diagnostic and imaging tests. When it comes to life-
time coverage maximums, unlimited is best and $2 million should be the 
minimum. Ideally, there should be a single deductible for everything 
or, at most, one deductible for drugs and one for everything else. And 
the policy should pay for 100 percent of all expenses once your out-of-
pocket payments hit a certain amount, such as $5,000 or $10,000.
    If you are healthy now, do not buy a plan based on the assumption 
that you will stay that way. Don't think you can safely go without drug 
coverage, for example, because you don't take any prescriptions 
regularly today. ``You can't know in advance if you're going to be 
among the . 01 percent of people who needs the $20,000-a-month biologic 
drug,'' said Gary Claxton, a vice president of the nonprofit Kaiser 
Family Foundation, a health-policy research organization. ``What's 
important is if you get really sick, are you going to lose 
    Consider trade-offs carefully. If you have to make a trade-off to 
lower your premium, Claxton and Pollitz suggest opting for a higher 
deductible and a higher out-of-pocket limit rather than fixed dollar 
limits on services. Better to use up part of your retirement savings 
paying $10,000 up front than to lose your whole nest egg paying a 
$90,000 medical bill after your policy's limits are exhausted.
    With such a high deductible, in years when you are relatively 
healthy you might never collect anything from your health insurance. To 
economize on routine care, take advantage of free community health 
screenings, low-cost or free community health clinics, immediate-care 
clinics offered in some drugstores, and low-priced generic 
prescriptions sold at Target, Walmart, and elsewhere.
    If your financial situation is such that you can afford neither the 
higher premiums of a more comprehensive policy nor high deductibles, 
you really have no good choices, Pollitz said, adding, ``It's why we 
need to fix our health-care system.''
    Check out the policy and company. You can, at least, take some 
steps to choose the best plan you can afford. First, see ``7 Signs a 
Health Plan Might Be Junk,'' on page 25, to learn to spot the most 
dangerous pitfalls and the preferred alternatives.
    Use the Web to research insurers you're considering. The National 
Association of Insurance Commissioners posts complaint information 
online at www.naic.org.
    Entering the name of the company and policy in a search engine 
can't hurt either. Consumers who did that recently would have 
discovered that Mid-West National was a subsidiary of HealthMarkets, 
whose disclosure and claims handling drew many customers' ire. Last 
year, HealthMarkets was fined $20 million after a multistate 
investigation of its sales practices and claims handling.
    Don't rely on the salesperson's word. Jeffrey E. Miller, the 
Florida man whose policy failed to cover much of his cancer treatment, 
recalls being bombarded with e-mail and calls when he began shopping 
for insurance. ``The salesman for the policy I bought told me it was 
great, and I was going to be covered, and it paid up to $100,000 for a 
hospital stay,'' he said. ``But the insurance has turned out to pay 
very little.''
    Pollitz advises anyone with questions about their policy to ask the 
agent and get answers in writing. ``Then if it turns out not to be 
true,'' she said, ``you can complain.''

What Lawmakers Need to Do Next
    Consumers Union, the nonprofit publisher of Consumer Reports, has 
long supported national health-care reform that makes affordable health 
coverage available to all Americans. The coverage should include a 
basic set of required, comprehensive health-care benefits, like those 
in the Federal plan that Members of Congress enjoy. Insurers should 
compete for customers based on price and the quality of their services, 
not by limiting their risk through confusing options, incomplete 
information, or greatly restricted benefits.
    As reform is developed and debated, Consumers Union supports these 
changes in the way health insurance is presented and sold:
    Clear terms. All key terms in policies, such as ``out-of-pocket'' 
and ``annual deductible,'' should be defined by law and insurers should 
be required to use them that way in their policies.
    Standard benefits. Ideally, all plans should have a uniform set of 
benefits covering all medically necessary care, but consumers should be 
able to opt for varying levels of cost-sharing. Failing that, states 
should establish a menu of standardized plans, as Medicare does for 
Medigap plans. Consumers would then have a basis for comparing costs of 
    Transparency. Policies that insurers currently sell should be 
posted in full online or available by mail upon request for anyone who 
wants to examine them. They should be the full, legally binding policy 
documents, not just a summary or marketing brochure. In many states 
now, consumers can't see the policy document until after they have 
joined the plan. At that point, they're legally entitled to a ``free 
look'' period in which to examine the policy and ask for a refund if 
they don't like what they see. But if they turn the policy back in, 
they face the prospect of being uninsured until they can find another 
    Disclosure of costs. Every plan must provide a standard ``Plan 
Coverage'' summary that clearly displays what is--and more important, 
is not--covered. The summary should include independently verified 
estimates of total out-of-pocket costs for a standard range of serious 
problems, such as breast cancer treatment or heart bypass surgery.
    Moreover, reliable information should be available to consumers 
about the costs in their area of treating various medical conditions, 
so that they have a better understanding of the bills they could face 
without adequate health coverage.

             Consumers Union Health Policy Brief--June 2009

                  Simplifying Health Insurance Choices

                Written by Lynn Quincy and Steve Findlay

    Today, consumers face a bewildering health insurance marketplace, 
especially if they buy insurance on their own. Americans find it all 
but impossible to compare health insurance policies on an ``apples-to-
apples'' basis because the policies are written in legalese and the 
terms of coverage are so varied. As lawmakers consider comprehensive 
health care reform, they have an opportunity to fix the way we shop for 
health insurance. This brief recommends new, consumer-friendly rules 
for the health insurance marketplace. These rules require clear and 
consistent definitions of insurance terms, standardized health plan 
provisions, new health plan disclosure forms, unbiased enrollment 
assistance and rigorous enforcement at the state and national levels.
Today's Health Insurance Marketplace: Overwhelming Complexity
    Health insurance is one of the most important purchases Americans 
make, yet many consumers feel helpless when it comes to shopping for 
    For one thing, unlike most things we buy, it's difficult to know 
the full cost of our health coverage option. While most people 
understand the amount of their monthly premium, it's far harder to 
compare potential out-of-pocket costs for medical services. In fact, it 
is almost impossible for them to assess the expenses they would face if 
they get sick and need extensive care.\1\
    \1\ Karen Pollitz, Eliza Bangit, Jennifer Libster, Stephanie Lewis, 
and Nicole Johnston. Coverage When It Counts. How much protection does 
health insurance offer and how can consumers know?, Center for American 
Progress Action Fund, May 8, 2009.
    There are important underlying reasons for this confusion. To start 
with, policies are written in legalese or impenetrable ``health 
insurance speak.'' Take, for example, this policy provision from a 
Rhode Island insurer: \2\
    \2\ Rhode Island Office of the Health Insurance Commissioner. 
Notice Of Adoption Of Office Of The Health Insurance Commissioner 
Regulation 5, ``Standards For Readability Of Health Insurance Forms,'' 
(accessed: 5/4/09).

        Benefits are payable for Covered Medical Expenses (see 
        ``Definitions'') less any Deductible incurred by or for a 
        Covered Person for loss due to Injury or Sickness subject to: 
        (a) the Maximum Benefit for all services; (b) the maximum 
        amount for specific services; both as set forth in the Schedule 
        of Benefits; and (c) any coinsurance amount set forth in the 
        Schedule of Benefits or any endorsement hereto. The total 
        payable for all Covered Medical Expenses shall never exceed the 
        Maximum Benefit stated in the Schedule of Benefits. Read the 
        ``Definitions'' section and the ``Exclusions and Limitations'' 
        section carefully.

    Very few consumers can make sense of the above paragraph. The 
average U.S. adult reads comfortably--especially about subjects they do 
not understand well--at an 8th grade level. Yet the typical health plan 
document is written at a first-year college reading level.\3\ As one 
insurance official stated ``it will be difficult for many health system 
reform ideas to get traction when people literally don't know what we 
are talking about.'' \4\
    \3\ Colleen Medill, Richard Wiener, Brian Bornstein, and E. 
McGorty, ``How Readable Are Summary Plan Descriptions for Health Care 
Plans,'' EBRI Notes, Vol. 27, No. 10, October 2006.
    \4\ The Regence Group. ``Regence Study Shows Steep Health Plan 
Learning Curve,'' http://www.regence.com/docs/pressReleases/2008/
release.pdf (accessed: 5/4/09).
    Navigating the health insurance marketplace takes more than just 
reading skills. Health literacy is a broader concept that includes the 
ability to process numbers (numeracy) and at least a basic 
understanding of how to access care or coverage. Unfortunately, just 12 
percent of adults are characterized as fully ``proficient'' in health 
literacy, according to one analysis.\5\
    \5\ Mark Kutner, Elizabeth Greenberg, Ying Jin, and Christine 
Paulsen. The Health Literacy of America's Adults: Results from the 2003 
National Assessment of Adult Literacy, U.S. Department of Education, 
National Center for Education Statistics, September 6, 2006.
    Lack of standardization adds greatly to the confusion. Terms like 
``deductible'' or ``hospitalization'' can vary from plan to plan. A 
recent Consumer Reports article, for example, described a health 
insurance policy in which hospitalization coverage excluded the first 
day of hospitalization (in the fine print)--usually the most expensive 
day when lab and surgical suite costs are incurred.\6\ Similarly, a 
detailed comparative study of health plans in Massachusetts and 
California found that plans with seemingly similar provisions would 
have left policyholders with out-of-pocket obligations that differed by 
thousands of dollars.\7\ For example, a typical course of breast cancer 
treatment would cost the patient nearly $4,000 in one plan but $38,000 
in the other plan--despite the fact the plans contained similar 
deductibles, co-pays and out-of-pocket limits. In the case of the 
second plan, the policy's out-of-pocket limit included many 
``exceptions'' that increased costs for the consumer.
    \6\ ``Hazardous Health Plans,'' Consumer Reports, May 2009.
    \7\ Pollitz et al., op cit.
    The bottom line is that consumers end up with coverage they don't 
understand. One study sponsored by the insurance industry asked adults 
to define insurance terms and calculate their bill. Most respondents 
were able to answer the questions correctly just half the time.\8\ 
Another industry-sponsored survey found that less than a quarter of 
respondents understood the terminology used in their health policy.\9\ 
Unfortunately, when consumers don't understand their coverage, they may 
end up with unexpected costs if they need a lot of medical care.\10\
    \8\ The Regence Group, op cit.
    \9\ 2008 Survey sponsored by eHealth Inc., parent company of 
ehealthinsurance. http://phx.corporate-ir.net/
=(accessed: 6/1/09).
    \10\ ``Hazardous Health Plans,'' op cit.
    Surprisingly, consumers have little in the way of national 
standards that help them buy health insurance.\11\ This near absence of 
consumer protections means that consumers often purchase coverage that 
doesn't suit their needs, that costs them too much, and ultimately 
drives up our Nation's health care bill.
    \11\ The few standards that do exist are not rigorously enforced. 
See, for example, Medill et al., op cit.
How Consumers Choose
    Consumers value ``choice'' when purchasing almost anything. In 
health care, the choice they value most is a choice of doctors and 
places to get care. However, at least one study indicates that 
consumers would actually prefer fewer choices of insurance policies in 
exchange for meaningful distinctions between plans and lower 
    \12\ Jonathan Gruber. Choosing a Medicare Part D Plan: Are Medicare 
Beneficiaries Choosing Low-Cost Plans?, Henry J. Kaiser Foundation, 
March 2009.
    Indeed, a large body of research concludes that too many choices 
often paralyze consumer decision-making.\13\ When choices are 
overwhelming, decision-making becomes stressful for consumers. To 
reduce this stress, people take ``cognitive short-cuts.'' One common 
short-cut is ``sticking with what we know.'' In the world of health 
insurance, this often translates to sticking with the plan or policy 
you have, even if doesn't cover needed care or more attractive health 
plans are available.
    \13\ Dale Shaller. Consumers in Health Care: The Burden of Choice, 
California HealthCare Foundation, October 2004.
    Another ``short cut'' is to enroll in a highly advertised plan or 
one with a familiar brand name, rather than researching the best and 
most cost-effective plan. Consumers' distaste for evaluating large 
amounts of information, or complex information, is one reason companies 
put so much effort into branding. In 2008 health insurance companies 
spent over $645 million on advertising.\14\
    \14\ Personal communication from TNS Media Intelligence, May 20, 
    Consumers are also prone to dismiss information they don't 
understand.\15\ As a result, people often don't use the information 
provided by insurance companies, instead turning to family, colleagues 
and friends for help navigating the health plan selection process.\16\
    \15\ Judith Hibbard and Jacquelyn Jewett. ``Will Quality Report 
Cards Help Consumers?,'' Health Affairs, 1997.
    \16\ Michael Wroblewski. ``Uniform Health Insurance Information Can 
Help Consumers Make Informed Purchase Decisions,'' Journal of Insurance 
Regulation, 26(2):21-37, 2007.
    The experience of seniors purchasing Medicare Part D (prescription 
drug benefit) plans illustrates the ``choice'' problem. On average, 
Medicare beneficiaries have a choice of 48 Part D plans--and some have 
a choice of around 70. One study found that, based on individuals' 
previous year drug use, only 6 percent of enrollees picked the plan 
that would save them the most money. Most enrollees were spending $360 
to $520 more per year than the optimal plan for them.\17\ Yet, 
relatively few enrollees switch into other, more cost-effective plans. 
Of 17 million Medicare Part D enrollees in 2008, only 1 million 
switched plans.\18\ Surveys show that seniors are aware of the problem. 
Nearly three-quarters felt that their Part D choices were too 
complicated. And a majority of seniors agreed with this statement: 
``Medicare should select a handful of plans that meet certain standards 
so seniors have an easier time choosing.'' \19\
    \17\ Gruber, op. cit. The author was careful to note that plan 
selection based on current use of health care services is not 
necessarily predictive of the protection offered against future health 
care needs.
    \18\ U.S. Government Accountability Office. ``Medicare Part D: 
Opportunities Exist for Improving Information Sent to Enrollees and 
Scheduling the Annual Election Period,'' GAO-09-4, December 2008.
    \19\ Gruber, op cit.
    This ``paradox of choice'' is not restricted to seniors. The 
``Consumers' Checkbook Guide'' to health plans for Federal employees 
reports that ``hundreds of thousands of employees and annuitants are 
still enrolled in plans that are much more expensive than average, and 
that give them no needed extra benefits.'' \20\ Federal employees, who 
face a lot of health plan choices, also like to ``stick with what they 
know.'' In one recent two-year period, fewer than 5 percent of 
enrollees switched health plans.\21\
    \20\ Washington Consumers' Checkbook. 2009 Guide to Health Plans 
for Federal Employees, published 2008.
    \21\ U.S. Government Accountability Office, Federal Employees' 
Health Plans: Premium Growth and OPM's Role in Negotiating Benefits, 
Report to the Subcommittee on International Security, Proliferation, 
and Federal Services, Committee on Governmental Affairs, U.S. Senate, 
GAO-03-236, December 2002.
Checklist for a Better Health Insurance Marketplace

   A manageable number of meaningful health plan choices.

   Standardized health plan benefits allowing ``apples-to-
        apples'' comparisons.

   Health plan materials written in ``plain English,'' using 
        clear, consistently defined terms, and highlighting the 
        information of most interest to consumers (such as whether 
        their doctor participates in the plan and likely out-of-pocket 

   ``Plan chooser'' decision aids, including a user-friendly 
        Web-based decision tool, access to local one-on-one counseling 
        services, and a 24-hour toll-free phone number. Proactive 
        outreach to low-income and minority populations should be 

   A strong oversight body that conducts consumer education, 
        aggregates and reports on customer complaints, monitors and 
        enforces plan quality reporting, and monitors compliance with 
        new insurer regulations.

A Better Health Insurance Marketplace
    There is a better way. We need a health insurance marketplace which 
has consumer protections commensurate with the importance of the 
purchase; new rules for insurance plan disclosure that take into 
account real consumer decision-making behavior; and less variation in 
health plan design so that consumers can easily compare benefits and 
    To create this new marketplace, Consumers Union proposes five 
specific changes.

1. A Manageable Number of Plan Choices
    Consumers should have a manageable number of ``good'' health plan 
options. Building on current state rules for insurer financial 
solvency, all health plans should also be required to meet national, 
minimum standards for coverage, network adequacy, and claims payment 
and appeal procedures.
    If these national standards, in combination with the reforms below, 
produce an excessive number of coverage plans, then health plans should 
be required to bid to participate in the market in order to reduce the 
number of health plan options to a manageable level. This approach 
would promote competition on price, improved patient satisfaction and 
quality of care. It would also avoid the problems of an excessive 
number of confusing, look-alike plans, such as now confronts Medicare 
beneficiaries in their choice of Part D and managed care (Medicare 
Advantage) plans. In addition to an excessive number of Part D choices, 
beneficiaries face 44 Medicare Advantage plans on average and some 
beneficiaries have 87 choices.\22\ Many plans feature only minor 
differences from each other. Moreover, in 2008 approximately 27 percent 
of these plans had fewer than 10 enrollees.\23\ Listing such options 
leads enormously to the ``clutter'' in the market and provides little 
benefit to the consumer.
    \22\ Marsha Gold. ``Medicare's Private Plans: A Report Card on 
Medicare Advantage,'' Health Affairs 28, No. 1, w41-w54 (published 
online November 24, 2008).
    \23\ CMS Office of Public Affairs, CMS Issues Guidance For Medicare 
Advantage And Prescription Drug Plans For 2010 (press release), March 
30, 2009.
2. Standardized Benefit Designs
    What a health plan covers and how cost is shared between the plan 
and the patient is referred to as the ``benefit design.'' To engage 
consumers and facilitate informed choice, benefit designs should be 
standardized and vary around only a few features.\24\ In other words, 
health plan choices should feature clear, meaningful differences.
    \24\ Requiring that health plans meet a standard of actuarial 
equivalence--that is pay the same percent of charges on average--but be 
allowed to vary the benefit design is not a workable substitute. Such a 
policy would leave consumers unable to meaningfully compare health 
plans. See Pollitz, op cit.
    Excess benefit variation was the reason that Congress ordered 
Medigap policies standardized into 10 standard designs in 1992. Studies 
have found these reforms reduced beneficiary confusion, marketing 
abuses, and consumer complaints, and have improved benefits.\25\
    \25\ Jim Hahn. Standardized Choices: Medigap Lessons for Medicare 
Part D, CRS Report for Congress, March 8, 2006.
    To facilitate consumers' ability to compare health plans, we 
recommend that all health plans cover exactly the same comprehensive 
set of medical services, and vary only by their cost-sharing features 
and networks of doctors, hospitals, and other providers.\26\
    \26\ This approach is similar to the one used in Massachusetts for 
plans offered through the Connector. Connector plans differ from this 
proposal in that the cost-sharing design must adhere to prescribed 
levels of ``actuarial value'' rather than set benefit designs (as is 
done in Medigap). In addition, these plans must conform to the state's 
standard for minimum credible coverage.
    Cost-sharing variation should be limited. To start, we recommend 
that annual benefit limits and life-time benefit limits be eliminated. 
Cost-sharing terms like ``deductible'' should be defined using 
standard, industry wide definitions. Furthermore, the plan's out-of-
pocket limit should be a ``hard'' out-of-pocket. In other words, it 
must not feature exceptions that can drive the policyholder's cost 
beyond the stated limit.\27\ If remaining cost-sharing variation is 
limited to a small number of designs, consumers can more reliably gauge 
their out-of-pocket cost exposure and better compare plans.
    \27\ Pollitz (op cit.) describes real health plans whose provisions 
lead to costs for covered services that vastly exceed the plan's stated 
out-of-pocket maximum.
    Exhibit 1 is an illustration of how this might work. In the 
example, four levels of cost-sharing are permitted (designated as 
``basic,'' ``bronze,'' ``silver'' and ``gold''). Within these cost-
sharing ``tiers,'' there is additional variation reflecting the 
comprehensiveness of the plan's provider network--that is, the number 
of local hospitals and doctors participating as in-network providers. 
Taking both dimensions into account, a total of 10 variations is 
    In the context of a broader health reform effort, the ``basic'' 
cost-sharing level might be the minimum (least generous) coverage 
allowed. On the other hand, the most generous tier might be set at 
cost-sharing levels that lower-income Americans can afford. Since lower 
levels of cost-sharing are associated with higher premiums (all other 
things being equal), premium subsidies would be available to help 
lower-income families purchase coverage that contains adequate 
financial protection.

                  Exhibit 1--Illustration of Health Plan Designs That Vary Around Few Features*
                                                                        COST SHARING (Illustrative only)
              Standard Plans   Premium Level      Provider                                          Maximum Out-
 Plan Tier                                        Network       Deductible (one     Office copay;     of-Pocket
                                                                    person)       Coinsurance (for  expense (one
                                                                                   other services)     person)
Basic        AA               Lowest          May be limited   $1,150             $35; 20%          $3,500
Bronze       BB               Low             May be limited   $750               $30; 20%          $2,500
             CC               Low             Fairly
             DD               Low             Comprehensive
Silver       EE               Medium          May be limited   $300               $25; 10%          $1,500
             FF               Medium          Fairly
             GG               Medium          Comprehensive
Gold         HH               High            May be limited   $0                 $15; 5%           $500
             II               High            Fairly
             JJ               High            Comprehensive
* This table is for illustrative purposes only and does not constitute a recommendation for cost-sharing levels.
  All plans, AA to JJ, cover the same comprehensive set of services and vary only by their cost-sharing
  provisions and provider networks. Within a plan ``tier'' cost-sharing is identical.

3. Standardized, Consumer-friendly Health Plan Materials
    Making it easier for consumers to choose a health insurance plan 
means making the information about those health plans understandable, 
relevant, and ``evaluable''--a fancy word meaning you can readily rank 
your choices from best to worst.
    To ensure that the materials are understandable, insurers should be 
required to describe their plans in simple, straightforward language, 
and use consistent, industry-wide definitions for common policy terms 
like ``deductible,'' ``out-of- pocket limit,'' and ``hospitalization.''
    Health plan materials should also emphasize the information of most 
interest to consumers, such as out-of-pocket costs and access to 
doctors and specialists.\28\ For example, surveys show that most 
people's primary interest when switching health plans is whether their 
current doctor is ``in the plan.'' Further, they like to know if they 
have the right to see doctors outside the plan's network, and at what 
cost. While health plans today make this information available, it is 
often difficult and time consuming for consumers to compare provider 
networks and access rules for dozens of plans.
    \28\ Alison Rein. Consumer Choice in the Health Insurance and 
Provider Markets: A Look at the Evidence Thus Far, Robert Wood Johnson 
Foundation, October 25, 2007.
    If consumers are to choose from among health plan options, they 
must be able to rank them. Information that makes this task easier is 
said to be ``evaluable.'' Evaluable information is presented so that it 
is easy to find the ``best'' option(s). Evaluable displays of 
information anticipate the difficulty of weighing two dissimilar pieces 
of information (like health plan cost and quality), and provide short-
cuts for the consumer--similar to the ``Best Buy'' designations in 
Consumer Reports ratings of cars or TVs.
    Consumers also deserve to know how well a plan serves its 
enrollees. Currently, formal measures of plan quality are rarely 
consulted, in part because people distrust information they think comes 
from the insurers themselves.\29\ Consumers have expressed a preference 
for an independent entity that rates health insurers--similar to the 
easy-to-use financial ratings that are readily available when 
purchasing life insurance.\30\
    \29\ A. Monroe. ``Consumer Involvement--A Vital Piece of the 
Quality Quilt: the California HealthCare Foundation's Strategy for 
Engaging California Consumers'', Quality and Safety in Health Care, 
Vol. 11, No. 2 (2002).
    \30\ Dale Shaller, Shoshanna Sofaer, Steven D. Findlay, Judith H. 
Hibbard, David Lansky and Suzanne Delbanco. ``Consumers And Quality-
Driven Health Care: A Call To Action,'' Health Affairs, 22, No. 2 
    To help consumers choose, government should require insurers to use 
a standard, consumer-friendly disclosure format to describe their 
health plan. Standard disclosure forms reduce consumer confusion and 
increase the likelihood that consumers will choose a plan that meets 
their needs.\31\ While more detailed information should be available, 
at a minimum this form would: (1) identify whether or not a given 
provider participates in the plan, (2) disclose potential out-of-pocket 
costs under several common medical scenarios and (3) provide premium 
    \31\ Wroblewski, op cit.
    Consumers also need information that compares health plans ``side-
by-side.'' \32\ Exhibit 2 presents an example of how comparative health 
plan information could be displayed in ways that help consumers. The 
example assumes that some basic information about the applicant and 
their plan preferences has been provided (top of the table).
    \32\ EHealth Inc. 2008 survey, op cit.
    Consumers Union recommends that actual health insurance disclosure 
requirements be developed in consultation with consumers, insurers, 
literacy experts and educators, and tested on representative 
populations, with special attention to hard-to-reach populations and 
    \33\ For an example, see the ``Coverage Facts'' prototype included 
in: Katherine B. Wilson. Check the Label: Helping Consumers Shop for 
Individual Health Coverage, California Health Care Foundation, June 
4. ``Plan Chooser'' Decision Aids
    Even with the simplification of insurance choices envisioned above, 
many consumers may still be confused by the choices confronting them. A 
variety of decision aids should be available to consumers accommodating 
their language preferences, health literacy levels, Internet-access 
levels and cultural backgrounds.
    Studies show that one-on-one assistance can be critical for getting 
people enrolled in health plans.\34\ Consumers Union recommends new 
Federal support for a nationwide network of locally-based, non-profit 
health insurance counseling services, including in-person counseling 
and phone support. The counselors should be tasked with employing 
creative, targeted efforts to inform and assist our Nation's most 
vulnerable populations with their health insurance options.
    \34\ Lynn Quincy, Patricia Collins, Kristin Andrews and Christal 
Stone. Designing Subsidized Health Coverage Programs to Attract 
Enrollment: A Review of the Literature and a Synthesis of Stakeholder 
Views, Mathematica Policy Research, December 31, 2008.

                           Exhibit 2--Illustration of a Standard Plan Comparison Form

You Asked for Health Plans For:
 a healthy, 45 year old woman,
 living in the 20016 ZIP Code (Washington, D.C.),
 listing Dr. Smith (202-555-1212) as an in-network provider,
 and featuring the least expensive premiums.
Here Are the Choices for the 2009 Plan Year (Jan 1-Dec 31):

                                                                        ANNUAL COSTS
                                                                                      The most you
                                                                          Expected      will pay    How did last
                                                            Expected     Total Cost   (for covered     year's
 Plan Tier  Health Plans     Provider        Monthly       costs for      (premiums     services      enrollees
                              Network      Premium Cost     medical         plus        using in-     rate this
                                                          services for    expected       network        plan?
                                                          people like      cost of      providers
                                                              you         services)       plus
Bronze      Downtown      Limited         $125           $280           $1,780        $4,000
            Uptown        Limited         $200           $280           $2,680        $4,900
            Premier       Fairly          $225           $280           $2,980        $5,200
            Insurance     Comprehensive
            Health        Fairly          $235           $280           $3,100        $5,320
            Plans R Us    Comprehensive
            Humongous     Comprehensive   $245           $280           $3,220        $5,440
            Best          Comprehensive   $275           $280           $3,580        $5,800
            Practice IPA
Note: This list excludes plans that a) may be cheaper but don't include your doctor in their network or b) have
 higher premiums (but may feature less expensive cost-sharing for medical services).


What ``Bronze'' Plans Pay For:
The Bronze Plans all feature the same cost-sharing provisions. Subject to these cost-sharing provisions, Bronze
 plans cover most medical services such as inpatient and outpatient hospitals services, prescription drugs, lab,
 X-ray, maternity, and physician office visits. These plans do not cover cosmetic surgery, dental or vision
EXAMPLE: Based on the experience of prior enrollees, a healthy, 45-year-old woman might use these services
 during the year and expect to pay:

                       Cost of    Your share
      Service          Service                        Explanation
Annual Physical,    $500          $35         Plan copay for an office
 including GYN                                 visit (not subject to
Mammogram           $200          $200        Subject to the plan's $800
Doctor visit for    $120          $35         Plan copay for an office
 Illness                                       visit
Generic Antibiotic  $10           $10         Plan copay for generic
TOTAL                             $280
Your experience may be different. However, even if you need a lot of
 medical care, your share of the cost for covered services using in-
 network providers will not exceed $2,500.
For help with your enrollment decision, call 1-800-PLN-HELP or visit

The Part D Drug Finder Tool--Not Easy or Efficient
    A recent article in an AARP Bulletin billed itself as the ``Quick 
Route Through the Medicare Drug Plan Finder 2009.'' These instructions 
contained 15 steps and 2,500 words. Four instructions were to ignore or 
overcome a feature of the plan chooser tool in order to complete the 
    These counselors must also provide ongoing feedback to regulators 
and policymakers with respect to consumers' experiences--providing a 
key pathway for improved services over time.
    Web-based tools can also facilitate health plan comparisons. 
However, such tools must not introduce their own level of complexity 
(see side bar on the Medicare Part D tool). Web-based plan chooser 
tools must have at least one default set of steps that is simple to 
complete based on the most common consumer preferences. As noted above, 
consumers have a strong preference for information on which doctors 
participate in the plan. The web-based tools should allow consumers to 
enter the name or phone number of their desired doctor(s) and 
hospital(s) and view only those plans that have the indicated providers 
in their network.

5. A Strong Federal Oversight Body
    Given the complexity of the health insurance marketplace and the 
fact that state regulatory offices are often understaffed, Consumers 
Union recommends a new level of Federal/state cooperation in the 
enforcement of insurer regulations and consumer protections. We 
recommend that a new Federal entity, in cooperation with states, 
perform the following functions:

   Monitor insurer compliance with new Federal standards. Work 
        with state insurance departments, U.S. Department of Labor (for 
        employer plans), and other entities as needed to ensure that 
        Federal health insurance standards are implemented and 
        enforced. Agency should provide for regular collection and 
        analysis of data from insurers to monitor compliance/
        effectiveness of Federal reforms.

   Monitor state enforcement and provide Federal fallback 
        enforcement if needed. If states fail to enforce Federal 
        standards for health insurance consumer protection, Federal 
        fallback enforcement is appropriate. Agency should also conduct 
        some independent audits and/or market conduct exams to verify 
        compliance directly.

   Collect, audit and publish health plan quality information. 
        We recommend a Federal/state partnership be charged with 
        collecting and verifying quality information and aggregating it 
        into measures that consumers can understand. The underlying 
        detail should also be available to interested consumers, 
        enrollment counselors and outside watchdog groups. The measures 
        should use a five star-type system, graded on a curve to ensure 
        distinctions between plans. An insurance plan that fails to 
        provide the necessary quality data on time would not be 
        included among plan choices. Among other things, these quality 
        measures should include enrollee satisfaction, provider 
        satisfaction, claims resolution records and a history of 
        premium increases.

   Consumer education. The new agency should educate consumers 
        on their rights to register complaints about health plan 
        service, coverage denials, balance-billing and co-pay problems. 
        It should also serve as the first stop (in lieu of courts) for 
        appeals of coverage denials. The grievance and appeals 
        processes should be standardized and simplified so that it is 
        easy for consumers to get what they are paying for.

   Maintain a complaint hotline, and compile Federal and state 
        data on insurance complaints and report this data publicly.

   Ensure consumer co-payments for out-of-network care are 
        based on honest, audited data. Consumers Union supports the 
        recommendation of the New York Attorney General, who has called 
        for an independent, verifiable system of determining usual and 
        customary charges so that consumers and doctors are not cheated 
        out of millions of dollars a year in insurance payments for 
        out-of-network care.\35\
    \35\ New York Office of the Attorney General, ``Health Care Report: 
The Consumer Reimbursement System is Code Blue,'' January 13, 2009.
In Conclusion
    The impact of a simplified, consumer-friendly, health insurance 
marketplace should not be underestimated. One study, for example, found 
that making it easier to get information about insurance products, and 
simplifying the application process, could increase purchase rates as 
much as modest premium subsidies would.\36\
    \36\ M. Marquis, M. Buntin, J. Escarce, K. Kapur, T. Louis, and J. 
Yegian. ``Consumer Decision Making in the Individual Health Insurance 
Market,'' Health Affairs, May 2006.
    The current health reform debate provides policymakers with a 
unique opportunity to establish new rules that require clear and 
consistent definitions of insurance terms, standardize health plan 
provisions, and provide for rigorous enforcement at the state and 
national levels. We caution, however, that these new consumer 
protections, by themselves, will not accomplish our Nation's larger 
goals of lowering health care cost trends, expanding coverage and 
removing poor quality care from the system.

    The Chairman. Thank you very, very much, Ms. Metcalf. And 
now we have Ms. Karen Pollitz, who I have had the honor of 
knowing for a long time. And she's a Research Professor at the 
Georgetown University Health Policy Institute. I thought you 
ran the place. You don't.
    Ms. Pollitz. Nobody runs the place.
    The Chairman. I'll wait another year.
    The Chairman. She studies regulation of private health 
insurance in her spare time and her professional time. Karen 


    Ms. Pollitz. Thank you, Mr. Chairman. It is a honor to be 
here. I usually--I'm used to sitting at your elbow. So it's 
very nice to see you face to face at a hearing.
    I don't need to tell you, of all people, that health 
insurance is all about spreading risk. But that's a very 
difficult thing to do. A small proportion of the population 
accounts for the vast majority of health care spending, about 1 
percent, the sickest 1 percent of us account for a quarter of 
all medical care spending.
    And so there's a powerful, powerful financial incentive, as 
you've heard from Mr. Potter, for insurers to try to avoid the 
sickest people or to avoid paying their claims. And that 
incentive isn't going to go away after health care reform. It 
will be important certainly to make rules, to say to insurers 
that they can't turn people down anymore, charge them more, 
offer poorer benefits. But in order for coverage to be secure 
you are going to need greater transparency and accountability 
in private health insurance than you have today.
    Transparency in health insurance is going to involve three 
key elements.
    The first is reporting of data by health insurers to 
regulators about what they sell, what they--who they enroll, 
who they dis-enroll. You're going to need to be able to really 
get into the operations of health insurance companies, make 
them tell you how they work. And not just in general and not 
just on average, but in very specific ways so that you can 
track what's happening to people when they are sick. That small 
number of people is who you need to be able to keep an eye on 
throughout the health insurance system. And insurers need to be 
able to--or need to be required to report that data to 
regulators on an ongoing basis.
    Disclosure to consumers is the second element. As Nancy has 
said, consumers don't understand their health insurance. 
Industry studies show that overwhelmingly people don't 
understand their health insurance.
    They find it confusing. They don't know the terms. The 
majority of people asked said that they would prefer to work on 
their income taxes than try to read their insurance policy.
    It's a very, very complicated document. So disclosure to 
consumers means telling them in meaningful ways what it is that 
their coverage does. And how it will work for them and what it 
will pay and what it won't pay.
    We recently completed a study of health insurance policies 
sold in the State of California looking at the one that Nancy 
mentioned that covered Ms. Braig. And also even in the State of 
Massachusetts which is now highly regulated and has a lot of 
rules. And what we found is that there is still a lot of moving 
parts in health insurance policies, a lot of different ways in 
which they can move.
    And as Nancy mentioned, the terms of health insurance don't 
mean the same. So even in Massachusetts policies that had an 
out-of-pocket limit, mostly didn't cover all of your out-of-
pocket costs. They just covered some of your out-of-pocket 
costs. But other policies did cover all of your out-of-pocket 
costs, but they used the same term. They all said there's an 
out-of-pocket limit.
    So we found that under one--two bronze policies in 
Massachusetts. These are supposed to be actuarial equivalent 
policies. A breast cancer patient might pay about $7,600 of her 
total treatment costs, out-of-pocket. And under another bronze 
policy actuarial equivalent, same out-of-pocket limit, she 
would pay $13,000, out-of-pocket. So we need more 
standardization in terms of these terms.
    And we also need to show people what it is that their 
coverage would do for them. We have recommended the development 
of something called Coverage Facts labels modeled on the 
Nutrition Facts labels that you see on your cereal box that 
would lay out a set of standardized claim scenarios for some 
recognizable conditions: breast cancer, pregnancy, heart 
attack. And then ask insurers to take those standardized claim 
scenarios and process them under the policies that they sell.
    And then show people in a very detailed way, here's what 
the policy would cover. Here's what the policy wouldn't cover 
and you would have to pay and give them a bottom line. So that 
when they are shopping and comparing the price of policies they 
can actually see what it would cover.
    Transparency is going to be important. But accountability 
is also going to be very, very important because again of the 
strong financial incentives we just can't run the health 
insurance system on the honor system. There's going to need to 
be strong oversight and strong enforcement of the rules that 
are there to protect consumers.
    In particular it's going to be very important for there to 
be resources to monitor the health insurance industry and to 
enforce the rules, resources that are sadly lacking today. At a 
hearing last summer, over on the House side, the Committee on 
Oversight and Government Reform, a Representative of the 
Administration testified that at HHS there were four part-time 
people whose job it was to monitor all of the HIPAA protections 
for private health insurance in Federal law. Four, part-time 
people, that's it.
    And despite, this was a hearing on rescissions, despite 
press reports about abusive rescission practices, no one at HHS 
had looked into it. No one had asked any questions. No one had 
even checked to see if the state laws were up to speed and were 
protecting people in these ways.
    Over at the Department of Labor which has oversight over 
employer sponsored health plans, where most of us get our 
coverage, testimony has been given that there are resources for 
that department to review each employer sponsored health plan 
under its jurisdiction once every 300 years.
    And at the state level, regulatory resources are also very 
limited. I think the states are trying very hard. But state 
insurance departments have to oversee all lines of insurance, 
not just health insurance. They have seen staffing cuts, 
significant staffing cuts in recent years.
    And most of them also oversee other things, banking, 
insurance, commerce, real estate. In four states the Insurance 
Commissioner is also the Fire Marshall. And they do not have 
the resources to have, in most states, a dedicated team that 
just keeps an eye on health insurance all the time doing 
regular monitoring, regular audits, to make sure that consumers 
are protected. They have to operate in response to complaints.
    So in conclusion, Mr. Chairman, I want to congratulate you 
for introducing the Informed Consumer Choices in Health Care 
Act. That bill would provide for the transparency and 
accountability that we need and the resources to make that 
happen. I hope that will be part of health reform. And I'm very 
happy to take your questions.
    [The prepared statement of Ms. Pollitz follows:]

       Prepared Statement of Karen Pollitz, Research Professor, 
             Georgetown University Health Policy Institute

    Good afternoon, Mr. Chairman and Members of the Committee.
    My name is Karen Pollitz. I am a Research Professor at the 
Georgetown University Health Policy Institute where I study the 
regulation of private health insurance.
    Thank you for holding this hearing today on transparency and 
accountability in health insurance. These characteristics are lacking 
in private health insurance today and must be strengthened as part of 
health care reform.

The Paradox of Risk Spreading
    It has long been true that a small proportion of the population 
accounts for the majority of medical care spending. (See Figure 1) Most 
of us are healthy most of the time, but when serious or chronic illness 
or injury strikes, our medical care needs quickly become extensive and 
Figure 1. Concentration of Health Spending in the U.S. Population

    Source: Agency for Healthcare Research and Quality, Medical 
Expenditure Panel Survey, 2003. Population includes those without any 
health care spending. Health spending defined as total payments, or the 
sum of spending by all payer sources.

    Because of this distribution, we buy health insurance to spread 
risks and protect our access to health care in case we get sick. 
However, the same distribution creates a powerful financial incentive 
for insurers to avoid risk. In a competitive market, if an insurer can 
manage to avoid enrolling or paying claims for even a small share of 
the sickest patients, it can offer coverage at lower premiums and earn 
higher profits.
    Today, insurance companies employ many methods to discriminate 
against consumers when they are sick. Medical underwriting may be the 
best known--a process used to assess the risk of applicants. People who 
have health problems may be denied health insurance when they apply. Or 
they may be offered a policy with a surcharged premium and/or limits on 
covered benefits including pre-existing condition exclusions.
    However, underwriting is not confined just to the application 
process. New policyholders (both individuals and small groups) who make 
large claims during the first year or two of coverage will likely be 
subject to post-claims underwriting. During this process insurers will 
re-investigate the applicant's health status and history prior to the 
coverage effective date. Any discrepancy or omission, even if 
unintentional and unrelated to the current claim, can result in 
coverage being rescinded or canceled. At a hearing of the House Energy 
and Commerce Committee last week, patients testified about having their 
health insurance policies rescinded soon after making claims for 
serious health conditions. One woman who is currently battling breast 
cancer testified that her coverage was revoked for failure to disclose 
a visit to a dermatologist for acne. At this hearing, when asked 
whether they would cease the practice of rescission except in cases of 
fraud, executives of leading private health insurance companies 
testified that they would not.\1\
    \1\ Lisa Girion, ``Health insurers refuse to limit rescission of 
coverage,'' Los Angeles Times, June 17, 2009.
    Health care reform legislation will likely include rules to 
prohibit these practices--guaranteed issue, modified community rating, 
and prohibition on rescissions and preexisting condition exclusions. 
These rules are important, but alone, will not put an end to 
competition based on risk selection. The incentive to compete based on 
risk selection will not go away.
    Insurers can use other formal and informal methods to discriminate 
based on health status. For example, they can make strategic decisions 
about where and to whom to market coverage, avoiding areas and 
populations associated with higher costs and risk. So-called ``street 
underwriting'' can be used to size up the health status of applicants 
before deciding whether to continue with the sales pitch. Insurers can 
also design covered benefits and provider networks to effectively 
attract healthy consumers and deter sicker patients from enrolling or 
remaining enrolled. Claims payment practices and care authorization 
protocols can also create hassles for patients that discourage coverage 
retention. Fine print in policy contracts may limit coverage or 
reimbursement for covered services, leaving consumers to pay out-of-
pocket for medical bills they thought would be covered.
    Therefore, rules will not be enough. To ensure health coverage is 
meaningful and secure, greater transparency and accountability must 
also be required of private health insurance.

Transparency in Health Insurance
    Transparency in health insurance will involve three key elements:

   reporting to regulators of data on health insurance company 
        products and practices;

   greater disclosure to consumers of how their coverage works 
        and what it will pay; and

   standardization of health insurance terms, definitions, and 
        practices so that consumers can have a choice of good coverage 
        options without having to worry about falling into traps.

    Data--Insurers should report information to health insurance 
regulators on an ongoing basis about their marketing practices. Data on 
the number of applications received and new enrollments, as well as 
data on enrollment retention, renewals, non-renewals, cancellations, 
and rescissions will be needed. In addition, data must be reported on 
health insurance rating practices at issue and at renewal. Regulators 
should know what policies are being sold, what they cover, and who is 
covered by them. Measures of coverage effectiveness will also be needed 
to track what medical bills insured consumers are left to pay on their 
own. Tracking of provider participation, fees, and insurer 
reimbursement levels is essential. Health insurance policy loss ratios 
(the share of premium that pays claims, vs. administrative costs) must 
be monitored. So must be insurer practices regarding claims payment and 
utilization review. If regulators have access to this kind of 
information, patterns of problems that affect the sickest consumers 
won't be easy to hide.
    Disclosure--Consumers need much more information about their 
coverage and health plan choices. Adequate disclosure to consumers 
begins by ensuring that complete information about how coverage works 
is readily available. Policy contract language should be posted on 
insurance company websites so that it can always be inspected by 
consumers and their advocates. Current provider network directories and 
prescription drug formularies should also be open to public inspection 
at all times.
    In addition, for each policy marketed, insurers should be required 
to provide ``Coverage facts labels that illustrate how the policy will 
work to cover standard illustrative patient care scenarios. Recently we 
issued two reports on the adequacy and transparency of coverage sold in 
Massachusetts and California. Our reports found substantial differences 
in coverage protection provided by policies that might otherwise appear 
similar to consumers. Even in Massachusetts, with its extensive health 
care reforms and market regulation, significant variation in policy 
features persists and could leave patients to pay medical bills they 
did not expect and cannot afford. For example, under two so-called 
``bronze'' policies that have the same actuarial value and cover the 
same benefits, we found a breast cancer patient might pay $7,600 out-
of-pocket for her treatment under one policy, but $13,000 out-of-pocket 
for the same treatment under the other policy.\2\
    \2\ Karen Pollitz, et. al., ``Coverage When It Counts: What Does 
Health Insurance in Massachusetts Cover and How Can Consumers Know?'' 
May 2009. Available at http://www.rwjf.org/pr/product.jsp?id=42248.
    To make coverage differences more obvious to consumers, a series of 
``Coverage Facts'' labels could be developed that simulate the medical 
care claims patients might have under several expensive conditions, 
such as breast cancer, heart attack, diabetes, or pregnancy. Insurers 
would be required to take these standardized scenarios, ``process'' the 
simulated claims under policies they sell, and then, for each policy, 
present a detailed summary of what would be covered and would be left 
for patients to pay. The format for these labels could be patterned 
after the Nutrition Facts label that help consumers understand the 
ingredients and nutritional value of packaged foods. See Figure 2.
Figure 2. Sample ``Coverage Facts'' Label for Health Insurance

    Consumers will need to know other information about how health 
insurers operate, including rates of prompt payment of claims and 
claims denials, loss ratios, and the number and nature of complaints 
and enforcement actions taken against an insurer. Health plan report 
cards should be developed to provide this information. As people shop 
for coverage, they must be able to compare differences in efficiency 
and the level of customer service that insurers provide.
    Standardization--People clearly value choice in health coverage, 
but so many dimensions of coverage vary in so many ways that choices 
can become overwhelming and even sometimes hide features that will 
later limit or prevent coverage for needed care. An important goal of 
health care reform must be to adopt a minimum benefit standard so 
consumers can be confident that all health plan choices will deliver at 
least a basic level of protection. Key health insurance terms and 
definitions must also be standardized. For example, the ``out-of-pocket 
limit'' on cost sharing should be defined to limit all patient cost 
sharing, not just some of it. If a plan says it covers hospital care, 
that should mean the entire hospitalization is covered, not all but the 
first day.\3\ Further, when consumer choice of plans includes low-, 
medium- and high-option plans, standardized tiers should be developed 
so people can be confident they are comparing like policies.
    \3\ A discussion of plans that include these kinds of features is 
available in ``Hazardous health plans: Coverage gaps can leave you in 
big trouble,'' Consumer Reports, May 2009.
Accountability in Health Insurance
    Finally, Mr. Chairman, accountability in health insurance requires 
strong rules and the capacity to monitor and enforce compliance.
    Strong rules must be clear, with few exceptions, so they are harder 
to evade. Weaker rules and exceptions create opportunities for current 
problems to persist. For example, health care reform legislation 
pending in the Senate will prohibit discrimination based on health 
status in premium rates, covered benefits, and eligibility. At the same 
time, however, Senate Committees are considering an exception to this 
rule that would allow premiums to vary based on health status in the 
context of so-called wellness programs. Some employers today offer 
wellness programs with pointed financial incentives for employees to 
not only participate, but actually change their health status. Under 
one popular program, all employee costs are increased by $2,000 at the 
outset. Workers then have the opportunity to reduce costs by $2,000, 
but only if they enroll in the incentive program and pass four health 
status tests, including normal readings for blood pressure, blood 
cholesterol, body mass index, and tobacco use. On the website for this 
wellness program, under ``Frequently Asked Questions for Employers'' it 
is acknowledged that employer savings are achieved when some employees 
``choose other health care options.'' \4\
    \4\ See http://www.benicompadvantage.com/products/
    Because this program discourages some sicker employees from taking 
coverage, it operates very similarly to other insurer practices of 
charging higher premiums to people with high blood pressure or high 
cholesterol in order to deter their enrollment. If discrimination like 
this is prohibited in one context but allowed in another, holding 
private health insurance to a nondiscrimination standard will be a 
    Regulatory resources--Finally, accountability in health insurance 
requires resources. Private health insurance regulatory resources at 
the Federal level are particularly lacking and must be increased. At a 
hearing last summer of the House Committee on Oversight and Government 
Reform, a representative of the Bush Administration testified that the 
Centers for Medicare and Medicaid Services (CMS), which is responsible 
for oversight of HIPAA private health insurance protections, then 
dedicated only four part-time staff to HIPAA health insurance issues. 
Further, despite press reports alleging abusive rescission practices, 
the agency did not investigate or even make inquiries as to whether 
Federal law guaranteed renewability protections were being adequately 
    \5\ Testimony of Abby Block, Hearing on Business Practices in the 
Individual Health Insurance Market: Termination of Coverage, Committee 
on Oversight and Government Reform, U.S. House of Representatives, July 
17, 2008.
    Additional resources will also be needed at the U.S. Department of 
Labor (DOL). After the enactment of HIPAA, a witness for DOL testified 
the Department had resources to review each employer-sponsored health 
plan under its jurisdiction once every 300 years.\6\
    \6\ Testimony of Olena Berg, Assistant Secretary of Labor, Pension 
and Welfare Benefits Administration, Senate Labor and Human Resources 
Committee, October 1, 1997.
    At the state level, limited regulatory resources are also an issue. 
In addition to health coverage, state commissioners oversee all other 
lines of insurance. In several states the Insurance Commissioner also 
regulates banking, commerce, securities, or real estate. In four 
states, the Insurance Commissioner is also the fire marshal. State 
insurance departments collectively experienced an 11 percent staffing 
reduction in 2007 while the premium volume they oversaw increased 12 
percent.\7\ State regulators necessarily focus primarily on licensing 
and solvency. Dedicated staff to oversee health insurance--and in 
particular, insurer compliance with HIPAA rules--are limited.
    \7\ National Association of Insurance Commissioners, 2007 Insurance 
Department Resources Report, 2008.
Informed Consumer Choices in Health Care Act of 2009
    Mr. Chairman, I want to congratulate you for introducing S. 1050, 
The Informed Consumer Choices in Health Care Act of 2009. And I commend 
Congresswoman Rosa DeLauro for authoring companion legislation in the 
House of Representatives, H.R. 2427. This bill would create a framework 
to assure greater transparency and accountability in health insurance. 
It would establish a new Federal agency within HHS tasked specifically 
with private health insurance oversight. This agency would develop new 
consumer information and disclosure tools, including a Coverage Facts 
label for health insurance. It would require regular reporting by 
insurers on industry products and practices. The bill provides 
resources for HHS to hire expert staff to carry out these functions and 
coordinate with state regulators. And it creates a grant program for 
state insurance departments so they, too, can have resources to better 
enforce market rules and protect consumers. This legislation and it 
deserves to be included in health care reform.
    In conclusion, starting with the financial industry bailout this 
year and continuing with the economic stimulus package, transparency 
and accountability have become the watchwords of this Congress, as 
taxpayers demand to know how their money is spent and whether stated 
goals have been achieved. As Congress prepares to make another 
significant and critically important investment, this time in our 
health care system, transparency and accountability must also guide 
your way.

    The Chairman. Thank you very much, Karen Pollitz. I will 
lead with the questions, will be followed by Senator Johanns 
and then Senator Klobuchar.
    The focus of today's hearing and there are several focuses. 
But why is it so hard for consumers to get clear, reliable 
information? I don't always think so much in terms of insurance 
    But if I get a prescription for something if I'm not well 
and then you take that little thing out of the bottom of the 
bag, and I have to get out magnifying glasses and things that 
Galileo invented in order to find out, you know, what's 
actually written there. And there's a reason for that, that I 
won't read it, which of course, I never do. Therefore whatever 
they want to have happen, can happen.
    I'd like to start this discussion on this document which 
I'm holding up and which will be to some degree passed out, 
called Examples of Benefits Documents. And it's not very pretty 
either in appearance or in substance. It's called an 
Explanation of Benefits or Explanation of Benefits statement.
    Every time a consumer goes to see a doctor or receives 
medical service he or she receives one of these Explanation of 
Benefits statements. And the health insurance companies send 
tens of millions of these statements to their policyholders 
every year. Now the Explanation of Benefits is supposed to 
``explain to the consumer how much the doctor charged for the 
service and how much the insurance company pays as a 
reimbursement for the service.'' And it sounds pretty simple, 
pretty straight forward, I would guess.
    But it's not, when you start trying to read these 
statements. Each insurance company has its own specific 
terminology. And I want to emphasize that each one has its own 
specific terminology.
    So if you are dealing at various levels or inter family 
this or cousins or aunts, uncles, mothers, fathers, whatever, 
who knows what you've got trying to figure out. Each insurance 
company uses its own coding statement. I'm not, as Chairman of 
the Committee, quite sure myself of what a coding statement is 
as I speak.
    And I'm embarrassed by that. But that is the fact. And 
therefore, I think it reflects something, if only about me. And 
each insurance company has its own set of indecipherable 
    Now, Mr. Potter, you worked as an executive for the CIGNA 
insurance company for many years. Do you think the average 
CIGNA policyholder could understand the Explanation of Benefits 
statements that CIGNA sent them?
    Mr. Potter. Mr. Chairman, I couldn't understand them when I 
got them. And I'd been in the industry for many years, as you 
noted. Absolutely not.
    And it has become more problematic as the insurance 
industry has begun focusing more on what it refers to as 
consumer driven care. But these are the high deductible plans 
that are becoming so prevalent now. The EOB or Explanations of 
Benefit statements that are sent to people who have enrolled in 
these plans are far more complex than people used to get when 
they were in HMOs and PPOs.
    The insurers don't have significant incentive to make them 
clearer or more understandable. I was serving as Co-Chair of 
the industry's Task Force on Health Literacy when I left. And 
we had a meeting in Chicago. And I had----
    The Chairman. So you were central to trying to make it 
    Mr. Potter. That's correct. And we were--I suggested and 
some of the other members of the Committee agreed that 
something to tackle, that would be good for the industry to 
tackle would be the EOBs.
    The Chairman. What happened?
    Mr. Potter. I was told that it wasn't a priority. That they 
would take the idea to the leadership, but not to expect that 
this would be something that the industry would want to focus 
on. And maybe they have.
    But there has been no evidence of it because the EOBs I've 
been getting are no more clear than they ever have been. In 
fact, they're getting worse.
    The Chairman. Alright. Do you think that CIGNA and other 
health insurance companies are sending out these benefits 
because it's in their interest to keep as much information as 
possible from the policyholders?
    Mr. Potter. I think that's the--I think they know that 
that's the case. These companies make more than a billion 
dollars a year. The for-profit companies do.
    So they certainly could have the resources to devote 
something to make them clearer. But it's not a priority. And I 
think they realize that most people are baffled by these EOBs. 
And don't know how--what to do with them.
    The Chairman. Explanation of benefits.
    Mr. Potter. Yes, explanation of benefits. And I also think 
that, you know, they realize that people will just simply give 
up. And not pursue it.
    The Chairman. And that's the secret, isn't it, knowing that 
people are going to give up?
    Mr. Potter. I think so, sir.
    The Chairman. You win every time that way.
    Mr. Potter. Senator, I think you're exactly right.
    The Chairman. Now one of the things that Ms. Pollitz and 
other health care experts have proposed is standardizing all of 
the language. Now that to me doesn't sound like a very radical 
idea and in fact like a very sensible idea. And I'd love to see 
you do that, Karen.
    So that all companies use all terms that are equal and mean 
the same thing to anybody who ever receives them for any 
reason. And that would be in their written materials and 
whatever else. That would give consumers at least a fighting 
chance at understanding what kind of deal they're going to get 
for their health care dollars.
    Mr. Potter, again, during your time and I apologize for 
extending a little bit here. During your working experience in 
the insurance industry, did anyone ever discuss standardizing 
the language of these Explanation of Benefits statements?
    Mr. Potter. Not that I'm aware of, Mr. Chairman. And I 
think there's also an awareness that most people don't even 
understand the simple terms that are in there. I read a story 
recently based on a survey of the American population. More 
than half of the people in this country don't even understand 
what the word co-payment is or co-insurance is.
    The Chairman. That's important to say. That's important to 
say. I thank you, sir, very much.
    And I now call upon all of you, but I call upon--when I 
said earlier, my dear Governor. And now it's Senator Johanns.
    Senator Johanns. Thank you very much. Just because you're 
on this side, Mr. Potter, I'll start my questioning with you. 
And I do want to thank you for being here. I appreciate that 
    Mr. Potter, you've had an opportunity in your life, I 
suspect, to buy a number of pieces of real estate.
    Mr. Potter. I have.
    Senator Johanns. You sit through the closing and you've got 
your closing agent there. Sometimes you have your own lawyer 
    It's complicated, isn't it?
    Mr. Potter. Very complicated.
    Senator Johanns. And you peel document after document. And 
you're signing document after document. And did you ever stop 
the closing and say, well, whoa, wait a second. I want to read 
every one of these documents.
    Mr. Potter. I did once, but not after that. It's 
    Senator Johanns. It is overwhelming. Most of those 
documents, if you noticed, are required by Federal law.
    Mr. Potter. Yes.
    Senator Johanns. In our effort to try to simplify this, I 
think we've made it hopelessly complicated. Have you ever 
bought an automobile and financed that automobile?
    Mr. Potter. I have, sir, yes.
    Senator Johanns. Same sort of situation, isn't it?
    Mr. Potter. It is.
    Senator Johanns. Now when you were sitting there with your 
real estate transaction and your car transaction and spending 
very substantial amounts of money--typically the house is the 
biggest investment most people make in their life--did it occur 
to you or did you think to yourself, you know, I bet that 
closing agent is doing something fraudulent to me?
    Mr. Potter. Senator, that really didn't occur to me as much 
as I have faith that I'm going to be treated fairly.
    Senator Johanns. Yes.
    Mr. Potter. And that's my experience and how I felt. Maybe, 
I think the best of people and think that. That that's been 
what I've hoped for.
    Senator Johanns. Normally, I have that assumption too. I 
usually assume people are going to treat me fairly. Now zeroing 
in on what you've talked about--I've been here long enough to 
know--that on the spectrum of the downright fraudulent and 
criminal and people stealing, and that I've seen.
    I sat through a hearing involving Bernie Madoff where he 
made off with $60 billion. Then I've seen the other end of the 
spectrum where quite honestly we just didn't regulate very 
well. I sat through a hearing on derivatives recently. Talk 
about complicated.
    Where are we at on the spectrum in terms of your testimony 
and your claim about the insurance companies? Is it criminal or 
are we just not regulating very well, or some point in between?
    Mr. Potter. I--it's probably somewhere in between. I think 
that regulation is not adequate. I think that insurance 
companies realize, as Ms. Pollitz has mentioned, that 
regulatory agencies are not adequately resourced and certainly 
not at the Federal level, but not even at the state level.
    Senator Johanns. The Chairman knows me well enough to know 
that I was a Governor once in my life. And Governors have the 
responsibility of balancing state budgets. In fact, I come from 
a state where we had a little bit different twist to it.
    We not only had to balance it, we also had to make sure we 
never borrowed any money. The State of Nebraska doesn't owe 
anybody any money. I think that's kind of unique these days.
    But what I'm getting to here is there has been discussion, 
and there's kind of a raging debate about a government plan or 
public option or whatever terminology you want to put to it. 
The label doesn't really matter to me; it's something else.
    Let me ask you, you know if you look at Medicare. That's 
not a balanced budget situation. Every thoughtful analysis of 
Medicare tells us that pretty quickly here, 7, 8 years out, 
it's insolvent. If it were a private company, it would be 
broke. You wouldn't be buying that stock today.
    You're familiar with that?
    Mr. Potter. I am.
    Senator Johanns. Now that's not very good either is it?
    Mr. Potter. In health care reform I think a lot of things 
need to be addressed. And I think that is one element.
    Senator Johanns. We should pay for the health care we have 
already, right?
    Mr. Potter. We should. I think, Senator, as the Members of 
Congress approach this, we need to look at this certainly as a 
cost to taxpayers, but also as an investment in our country and 
our people. Yes, it will be expensive. There's no doubt.
    But what does it say about us when 50 million of us that 
don't have insurance?
    Senator Johanns. OK. Let's talk about this 50 million. My 
understanding is that about 10 million aren't here as American 
citizens. Is that something we should do in health care reform?
    Mr. Potter. Senator, that's interesting. One of the things 
I did when I was at CIGNA. I was helping to craft some 
documents that tried to segment who was uninsured and what, you 
know, the components of the uninsured.
    I think that as lawmakers look at reform that probably and 
possibly should be crafted so that people who are here 
illegally should not be covered. If you were to travel to 
England or Canada, I think possibly if you had an accident or 
were taken ill, you more than likely would be cared for there 
and you wouldn't be a legal citizen of those countries.
    Senator Johanns. Well, the reality here in this country 
too, as you know, if you end up at an emergency ward, they 
treat you.
    Mr. Potter. They do. Well, usually they do.
    Senator Johanns. Yes. They're going to deal with the 
emergency. We could go all through that number.
    But I don't want to get us off track here. Because as you 
know, there's also about 20 percent of that number that do 
qualify for a plan, Medicaid or whatever. And they just, for 
whatever reason, we haven't gotten them signed up.
    Mr. Potter. That's right.
    Senator Johanns. But anyway, let me get to what we're 
trying to do here. You've got 50 states that regulate in this 
area. You've got a Federal Government that regulates in this 
area. Big debate about what's going on.
    In a very succinct answer, if you were to really address 
the issue of consumers buying the policy and not knowing what 
they're getting, how best would you address that? So that when 
that consumer walked out of that agent's office or wherever, 
policy in hand and you said, Madam Consumer or Mister Consumer, 
tell me what you have in there? You could assure me as a 
legislator that they could answer that question thoughtfully 
and carefully and intelligently.
    How do I get there?
    Mr. Potter. I think the work of this Committee is possibly 
helping the country to get there. I think there should be 
standardized language. I think that there should be clear and 
understandable information provided to people about the 
insurance policies that is available to them so that they 
understand what the limits are or the limitations are and 
what's covered and what's not.
    I think that more information is vital. And that should be 
something that's addressed as part of reform.
    Senator Johanns. Thank you for your answer. Mr. Chairman, 
you're always patient with me. I'm hoping there will be another 
round of questions. I don't know if there will, but thank you.
    The Chairman. I will be here as long as the good Senator is 
    The Chairman. Senator Klobuchar?

                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman. And 
thank you for holding this important hearing. Thank you to our 
distinguished panelists.
    You know what's happening with the cost of health care. 
Families are going under. They can't bear the cost anymore.
    My own home State of Minnesota has some of the highest 
quality, lowest cost care in the country. And part of that, I 
believe, is because we have been focused for a long time on 
transparency, and a number of other things, as well as a more 
organized health care system and a team approach and some of 
the work that Mayo Clinic is doing.
    But in terms of transparency we have been doing a lot. And 
there's a law in Minnesota that requires health plans and 
providers to, upon request, to provide consumers with 
information on the cost of a specific procedure. And to provide 
information as to what their out-of-pocket cost will be based 
on their contract.
    Would this be a useful model, do you believe, Ms. Pollitz? 
Maybe you want to go in terms of allowing people to understand 
or do you think it's still going to be too complicated?
    Ms. Pollitz. No, I think the more information that you can 
require to be made available to people, the better. It is very 
helpful to know. It's one thing to be told right before you 
need to get the procedure if your doctor has already said you 
need this. At that point the cost is a little bit less 
important because your doctor has already said you need it.
    So--and, but if you step back and try to anticipate what 
your health care needs might be that's also difficult because 
we don't really always know what will happen to us tomorrow or 
next year. So our notion of a coverage facts label was to try 
to anticipate some common scenarios where people would need 
health care. And to provide information about all of the care 
they would need, all of the charges that would be involved.
    In part to educate them about how much protection they 
really are buying or how much they're trying to protect 
against. But also to let them see in advance, you know, when 
they are calm and aren't, sort of, in a medical crisis, how 
well a policy might cover and might pay for the services that 
they might need down the road.
    Senator Klobuchar. Ucare.com is a website in Minnesota that 
allows consumers to compare prices and offerings of health 
providers in the Twin cities. And it actually allows them to 
book services kind of like Expedia or Travelocity.com. So they 
can see how much it costs and then book services.
    Do you think this is another model that could be helpful as 
we go forward, as we're trying to figure out how to bring costs 
down and get that transparency out there?
    Ms. Pollitz. I don't know anything about that. It sounds 
fascinating. I'm--it's really quite innovative.
    Senator Klobuchar. The women are strong and the men are 
good looking.
    Ms. Pollitz. Good looking. I remember, yes.
    Senator Klobuchar. And all the recounts are above average.
    Ms. Pollitz. Yes.
    Senator Klobuchar. OK. So now the--you, I know that Senator 
Rockefeller has been doing some ground breaking work here with 
this idea of a coverage facts label. And your research studied 
conditions like breast cancer or heart attack and this 
information. Do you think we could do this with other 
conditions as well to try to show on the label how much this 
would cost?
    Ms. Pollitz. Oh, you absolutely could. We did a study that 
preceded this one looking at maternity care. If I can figure it 
out with my limited medical knowledge, I'm quite sure that 
other conditions could be developed and spec'ed out that way.
    Senator Klobuchar. You know, as we look at this issue of 
transparency and trying to show how much things cost, and maybe 
this is for you, Ms. Metcalf, Mr. Potter, the issue is also 
    And one of the things we're trying to do with health care 
reform based on some of the work done in Minnesota is put a 
quality index in there. So we're not just measuring costs that 
we're also looking at quality. And how would that be integrated 
with this label?
    Ms. Metcalf. You're talking about quality of care?
    Senator Klobuchar. That's right.
    Ms. Metcalf. By health plans?
    Senator Klobuchar. Well, that's right.
    Ms. Metcalf. There is, of course, some of that today with 
Hedis measures and the NCQA. There are a number of agencies 
that already make quality information available to health 
plans. But to me that's health insurance 300. And we're still 
on health insurance 100 which is if you can't buy proper health 
insurance it could be--the health system around you could be 
the highest possible quality. But you can't access it because 
you can't afford to pay for it.
    But I do think it would be wonderful. And coming from a 
magazine that is in business to give little blobs, as we call 
them, to rate things, I think it would be great to be able to 
rate health insurance plans on all dimensions including quality 
and service and----
    Senator Klobuchar. And one of the things that I was 
surprised by was, I think in your testimony, where you talked 
about how sometimes people don't even find out what's excluded. 
I have here a list of exclusions. They don't even find out 
what's excluded from their policies, from their insurance 
policies until they actually buy it. How can that happen?
    Ms. Metcalf. Because in most states you can't see your 
insurance policy until you've bought it.
    Senator Klobuchar. You mean the states don't even allow 
you? There's no----
    Ms. Metcalf. No, what you see before you buy is a 
promotional material of some kind. And some states are stricter 
about that than others. But you'll see a list or a description 
of some kind talking about the health plan that's often 
extremely unclear.
    An example that comes up a lot is you'll see a plan that 
says, we have a $1,500 deductible. But it won't say what goes 
into that deductible or not. We have a $5,000 out-of-pocket 
limit. You can't tell from the promotional material what goes 
into that out-of-pocket limit or not.
    They'll often have a thick line. And then below that 
they'll have the drug benefit. And they won't explain that the 
drug benefit is a completely separate thing that has no limit 
on out-of-pocket payments.
    There are all kinds of things that you don't know when 
you're shopping for a health insurance plan that you only find 
out after you get a document that's half-an-inch thick and is 
densely written.
    Senator Klobuchar. And also, I think you notice sometimes 
they have exclusions but they don't include all the exclusions.
    Ms. Metcalf. They don't include all the exclusions. They'll 
often not say this policy doesn't cover drugs, even though it 
doesn't. They'll tell you it doesn't cover a nose job.
    But I don't think that most people expect a health 
insurance policy to cover a nose job. That's not a helpful 
exclusion to tell people about.
    Senator Klobuchar. Very good. On the nose job, I will end.
    Senator Klobuchar. But thank you very much. This has been 
incredibly helpful. And I think it shows the reasons to have 
some kind of a label or some way for people to better 
understand what these policies are about. Thank you.
    The Chairman. Senator Udall?

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you very much, Chairman Rockefeller. 
Good to be here with you. From the just short exchange I heard 
since I arrived here, it's clear that greater transparency in 
health insurance policies is needed for consumers to better 
understand what's available and to compare policies.
    And in your report you recommend developing standardized 
health care comparison tools for health insurance similar to 
the USDA nutrition labels, Ms. Pollitz. And that could help 
consumers understand what and how much is covered across 
different health insurance policies. What would you suggest 
specifically be included in such a tool or chart?
    Ms. Pollitz. I think actually there should be a series of 
charts. What we found in studying health insurance policies is 
that within a single policy there are different levels of 
coverage. Inpatient care may be covered at one level, 
outpatient services at another, mental health care at yet 
another, prescription at yet another, rehab services at yet 
    So I think coverage facts labels should demonstrate the 
care that people might need under different scenarios that in 
some cases rely heavily on inpatient care.
    The heart attack scenario that we developed, 75 percent of 
the medical costs incurred there were in the hospital.
    But in our breast cancer patient over 90 percent of her 
costs were incurred outside of the hospital in outpatient 
    And then we did a third scenario with diabetes where 
overwhelmingly the costs were spent at CVS on pharmaceutical 
supplies and insulin and other drugs to manage the diabetes.
    So I think you would want a series of labels that would 
demonstrate for people and test out all of the different types 
of coverage that they might need from their policy. And then 
let them see how the policy would work. And if they were 
standardized scenarios you could then compare two different 
policies and see them compared on the same situation so that 
you would get a fairer idea of what the differences might be.
    Senator Udall. But even with that kind of comparison it's 
still a very difficult choice in many situations, isn't it 
because you're looking down? If you don't have an immediate 
situation as you describe, you don't have cancer, breast cancer 
or diabetes or whatever it is, then you don't know really what 
to choose to protect yourself in the future?
    Ms. Pollitz. Exactly.
    Senator Udall. And with all these exclusions and the way 
the policies are put together. They are in many cases trying to 
make sure that they don't have to get into those situations, is 
what I assume is happening here.
    Ms. Pollitz. Right. But in the labels that we developed, 
the exclusions became apparent. Because the scenario was laid 
out if you had breast cancer you'd need this surgery and these 
many chemos and these many drugs and a wig.
    And then you could look across and see how much would the 
policy cover of each of those things. And any time there's a 
zero, chances are that was an exclusion.
    Senator Udall. Do you, Ms. Metcalf or Mr. Potter, have any 
comment on that?
    Ms. Metcalf. Well, I was interested in what you said, 
Senator, about people not knowing--not being able to choose 
based on their anticipation of a health condition. And it's the 
reason that we think at Consumer's Union that policies should 
cover all medical treatment that people need because you can't 
foresee. It's a mistake that we have found a lot of people make 
when they buy insurance.
    I'll give you a classic example as many companies market 
special policies to young adults. They are very inexpensive. 
And one of the reasons--well, they're inexpensive for one thing 
because young adults are cheap to insure cause they are pretty 
    Another one is that they often don't cover prescription 
drugs. And the young person who doesn't take a prescription 
drug says, I don't need drug coverage. I don't take any pills.
    So they don't have that coverage. They don't realize what 
can happen. And what can happen is next year they can get 
multiple sclerosis. And suddenly they need a drug that costs 
$10,000 a month. And they're shocked when their insurance 
company won't cover it.
    So it's partly a matter, I think, of--I think that one of 
the good points of one of these coverage facts plan is that it 
brings home to people the different possibilities of financial 
disaster if you don't buy a comprehensive plan.
    Senator Udall. And isn't the issue you just brought up of 
where you have MS for example. And it's diagnosed. And they 
won't cover it.
    Doesn't that also bring up the precondition issue of that? 
For them, they then have an outstanding condition. And then if 
they try to go get insurance for it. Many times it's rejected 
or they just say we're not going to allow you to do that.
    Ms. Metcalf. Exactly. If they're in the individual market 
and they develop a condition and discover that their insurance 
isn't adequate to pay for it, they're really stuck because they 
can't change to another policy at that point.
    Senator Udall. Yes, yes.
    Mr. Potter. Senator, I agree with Ms. Metcalf. I think it's 
especially important as insurers start pushing more of these 
high deductible plans. And there's a term in the industry that 
executives and financial analysts use. It's called benefit 
bygones. And we're seeing more and more of that.
    And what that means is that increasingly as policies come 
up for renewal employers will look, well how can I either shift 
more cost to my employees or what benefits can I cut to be able 
to continue to offer coverage at all? So you're seeing that all 
the time. And all the time you hear it, you're on an analyst 
call. You'll hear about benefit bygones. And as what is 
happening in the marketplace.
    The other point about the pre-existing conditions is let's 
just step back a minute. Where is the logic and the humanity of 
having pre-existing conditions not covered in our society? I 
mean, my children have asthma. They didn't--it wasn't anything 
that they had any control over.
    But their policies won't cover any pulmonary problems they 
might have had. Where is the logic in that?
    Senator Udall. Yes. I couldn't agree more. Thank you, 
Chairman Rockefeller, for your courtesies. I went a little over 
here I think on the time.
    The Chairman. You are welcome to do that because you always 
have sensible things to say.
    You know, I'm still--I want to go back to this business of 
how confusing all of this is to the consumer. Because I think 
it's--you know what we're really talking about here is we've 
got just so many people to--people say we've got 45 uninsured 
Americans. Well, we have 25 million--45 million uninsured 
    We have 25 underinsured Americans. And we have people who 
have insurance for 6 months and then they lose it so they lose 
it for much longer. And then you have people who are too rural 
or too poor in some ways. So that people come and collect them 
and whisk them off to getting insurance coverage.
    But what comes through to me in this whole argument so 
strongly is that you have so many vulnerable, now here we're 
talking about out of network. And people say, oh, well that 
must be a couple thousand people. Yes, it's a hundred million 
people. It's a hundred million people.
    And they're vulnerable. And therefore they deserve to be 
treated with respect and with care and with a system that 
works. But what you're looking at is a whole lot of for-profit 
insurance companies that are not only not giving them coverage 
through duplicitous methods which have now been, you know, done 
in in New York State and soon will be.
    Ingenix, which I mentioned, is going to cease to exist in 
about 5 or 6 months. Somebody will take its place, I'm sure. 
But we'll find them too.
    They're making so much money. They're making so much money. 
But they're spending so much of their time having so much 
money, trying to find ways to get rid of people through purging 
and other things which we can talk about, through getting 
people who are risks who they think are too poor or not likely 
to pay them, to get them off their lists all together. So they 
don't have to fool with them.
    I mean, this is not like two equally powerful groups facing 
each other. This is this mammothly powerful group and this very 
small, fragile group in need, in pain, sick. And it's an 
unequal fight.
    And the insurance company enjoys that because they know 
they can take advantage of it. And they know they can win every 
single time. And that is entirely wrong.
    And that's what a lot of this whole health care debate is 
about which is why I have an argument with some of my friends, 
who are my dear friends, who say that a public option which 
would simply put, you know, Medicare dollars in competition 
with very, very wealthy insurance companies is unfair, somehow. 
It's un-American. It's against the free enterprise system.
    It is the free enterprise system. It is the free enterprise 
system. It just happens that sometimes you have to trigger the 
free enterprise system to see how good they really are.
    Now I've already used more than half my time. You know, 
people I've got a little pamphlet here which we'll pass out. I 
keep saying that. I don't know if we do. Called, ``How Aetna 
pays claims for out-of-network benefits.''
    [The information referred to follows:]

    It's not very glossy. I think that's deliberate. It's the 
kind of thing that you sort of don't want to read because it 
looks kind of boring.
    And so you probably don't read it. And maybe that's the 
purpose of it. But they don't disclose what they're doing.
    They do it in language that consumers cannot possibly 
understand. And let me give you some of their language because 
I care about this language. It says in there at one place, 
``you,'' that is the consumer. ``You pay the co-insurance 
percentage of the prevailing allowance (usual and customary at 
the 75th percentile) for covered services. You will be 
responsible for the difference between the plan payment and the 
amount billed by the dentist.''
    Well, how many consumers know what a co-insurance 
percentage is? How many know what a prevailing allowance is? 
How many of them, I mean, how many of them know what usual and 
customary is?
    I mean we know that in the health care industry. But they 
don't. How are they going to look it up? In a dictionary? It's 
three words.
    I mean, they're going to know the word. But everything else 
is just a fog to them. And that's wrong.
    And they've been doing this for years and years and years. 
And they've been getting away with it. Then they get hit with 
some lawsuits.
    So maybe they're going to back off from it a little bit. 
Maybe they're not because they're very clever and they've got 
lots of people, lots of floors, lots of tall buildings to 
figure out how to get around these things. And big corporations 
can usually do that.
    So anyway, Aetna sent out that little group of words. And 
Mr. Potter, can you explain please, to me why you have to sue, 
not you personally, but the American has to sue or has to 
subpoena or investigate the insurance industry before they'll 
tell consumers how their policies work in plain, comprehensible 
    We've been talking about this a bit. But I want to drive it 
home. Why can't we do that? Why aren't we forcing our 
industries to do that?
    Mr. Potter. I do not know why we're not forcing the 
industries to do that. We should. Again it's not a priority in 
the industry to do that.
    It's not in their best interest to make it clearer. I was 
part of the Legal and Public Affairs department at CIGNA. My 
boss was one of the top lawyers.
    I mention that just because these kinds of materials are 
reviewed. They're a combination of medical, legal, marketing 
jargon usually. And buzz words and terms that the industry uses 
that have little meaning to the rest of the American public.
    I would have a hard time understanding a lot of what's 
being written here. Much of it is written to satisfy a lawyer's 
expectation that it be explicit from the lawyer's point of 
view, but not from a, you know, regular person's point of view.
    The Chairman. Let me just end this part by saying that it's 
sad to me because Americans are trusting people. And I'm always 
very happy about that. That's why I'm glad that I married a 
young lady from Chicago.
    I mean, the Midwest is trusting. The Northeast and the 
Southwest is a little less trusting. I don't know. But they're 
good people.
    And when you say Aetna or CIGNA or you know, one of these 
big insurance companies people tend to trust them just because 
they're a large institution with large amounts of money with a 
clearly public interest purpose. That is to pay health 
insurance for people who are sick. And they have the money to 
do it and people know that. So people tend to trust them.
    And then they turn around and spend their money on figuring 
out how to get rid of people. So they can make more money. And 
don't have to--I mean, why would they care so much about that 
more money?
    Why would they be proud about dropping eight million people 
because they, you know, they were too big a health risk or 
probably weren't going to be able to pay. What is insurance 
for? What is public policy for? What is America for? What do we 
stand for when it comes to the care of our people?
    We had a Metro accident obviously and it's tragic in 
Washington. And the first thing to hit you when you read the 
news and heard the news was how people were just clawing 
through hot steel and cutting themselves to try and rescue 
their neighbors, to get comfort to their neighbors, or give 
last rites to their neighbors in this wreckage. I mean, we are 
people that try to protect each other and do the right thing by 
each other.
    And yet here we have insurance companies, as a matter of 
practice, we don't question them partly because we do trust 
them. And now we're paying this terrible consequence. A lot of 
people are just, you know, breast cancer, whatever, just left 
out in the cold.
    And it makes me very, very angry. And I now turn to my more 
reasonable and sensible Governor, former Governor of the State 
of Nebraska.
    Senator Johanns. Well, thank you. I've lived my whole life 
in the Midwest. I grew up in northern Iowa and spent my adult 
life in Nebraska.
    I would just offer this. We also have, I think, a healthy 
suspicion about those who claim that government will solve all 
problems. And I look at the Medicare financial situation and 
it's easy to reach that conclusion. I, as Governor, dealt with 
state budgets. And did everything I could to sign up every 
single child to our Kids Connection program.
    I believed in it. I knew my costs were going to go up in 
the state budget. And I would have to defend that with 
conservative friends. But I really believed in it.
    And you know what? We could only get to 90 percent. You 
know why? Because there were 10 percent that did not want their 
kids in the program and that was their right.
    When you started your discussion today I got the impression 
that each witness was----
    The Chairman. Would the Senator yield?
    Senator Johanns. Yes.
    The Chairman. Then I take this out of my next round.
    Senator Johanns. I will be happy to yield.
    The Chairman. Well, I'm going to be here as long as you're 
going to be here.
    The Chairman. But West Virginia is in fact more of a 
Midwestern state than it is an Eastern state or a Northern 
state or it's more of a Southern state than. But Midwestern 
basically in its values and that's what counts. You talked 
about the 10 percent that don't take advantage of that.
    I started out as a VISTA volunteer in West Virginia in a 
little town with the closest hospital or rural health clinic 
was so far away that if you had a car and if your car could 
possibly make it. And if you could afford the gasoline because 
you didn't have a job, you didn't have an education. You didn't 
know where the hospital had been.
    Some of the people from the community that I worked in for 
2 years had never crossed a street with a red light or had been 
up a building in an elevator. Because that's rural life and you 
know that from Nebraska. So sometimes, it's like sometimes 
people would hold their children back from going to school. It 
was made easier by the fact that the county refused to send us 
a school bus to pick up our children because they thought we 
were irrelevant and too far away and not important.
    But I mean, sometimes it's not so the government or people 
being irresponsible. Personal responsibility is a very, very 
valid concept. I strongly believe in it. But I think that one 
has to define it fairly.
    And I apologize for interrupting you.
    Senator Johanns. Well, you never have to apologize, Mr. 
    Let me, if I might, focus in. I think we kind of got off to 
a start here. And Mr. Potter, you were obviously, continuing to 
be quite critical of your former employer.
    But I get the impression what you're really asking me to 
do, as a member of this Committee and somebody who will try to 
figure out the legislation, you're really trying to get me to 
focus in on how can we better explain what people are getting. 
    Mr. Potter. Yes, sir.
    Senator Johanns. OK. And then you mention the pre-existing 
conditions and I don't disagree with you there. I think you 
make a compelling point. But I don't hear a lot of disagreement 
here either as we talk about health care issues.
    I'm going to leave you alone now. Thank you for being here.
    Ms. Metcalf, if I might ask a question of you. Again, as I 
hear your testimony and whether you favor a public plan 
government option, whatever it's called, I think, too, what 
you're trying to get me to focus on is look, Mike, if you just 
sat down and read this stuff you won't understand it.
    And if you're not understanding it and you're a member of 
the U.S. Senate, how can you possibly expect a young family to 
ever figure this stuff out until the insurance company reads it 
or doesn't read it, sends them a letter, and says, you're not 
covered. The young family then finally reads it and goes, oh my 
lord. They've made the point.
    What we need, I think, is some really good concrete ideas 
on how to make that better. Because what it comes down to is 
this. It's like the questioning with Mr. Potter. You've owned 
real estate. We've passed tons of laws to make real estate 
transactions more understandable and it's just page after page 
of federal-ese.
    And it just goes on and on. And if there's one thing we've 
found about this financial crisis, many people had no idea what 
they were signing when they signed their mortgage. Now all of a 
sudden they've got their letter that their mortgage was going 
to reset.
    And they asked themselves, reset? What does that mean? And 
they realized they were out of luck. So we need some advice on 
how best to do that.
    Same way with you, Ms. Pollitz, is that how you pronounce 
    Ms. Pollitz. Pollitz.
    Senator Johanns. Pollitz. I think you've made some 
excellent points here. But I would hate to get at the end of 
this and find out that we've only made it more complicated, not 
less complicated.
    Ms. Pollitz. Senator, there's no question that health 
insurance is an inherently complicated thing and medical care 
is an inherently complicated thing. And I think there have been 
many efforts to try to, you know, drive all of this down to a 
fifth grade reading level. And that's just always going to be a 
very difficult thing to do and a very imperfect outcome.
    Having said that, we switched from steadying the policies 
that were for sale in the private market in other states and 
for the last few months we've been reading polices that are for 
sale to you, through the Federal Employees Health Benefits 
program. And there are requirements. And all of the companies 
meet them.
    And I have to say reading through your health plan is such 
a relief to me after having read through some of these other 
ones. So, I mean, there are rules about that things have to be 
explained. They have to be explained in a way that the average 
participant could begin to understand.
    There have to be examples to illustrate, you know, this is 
what's covered. This is what's not. This is what we mean by 
that. Here's an example.
    The terms have to be standardized. There's a common order 
to the brochures. So you always sort of, begin with what's 
covered and then how it's covered and then in certain orders.
    And it does make it easier. It's still hard. But it's a 
whole lot easier than some of the other policies that I looked 
at. So I think you can make progress on this without 
necessarily tackling the whole thing in one try.
    Senator Johanns. Just off the cuff, not seeing a piece of 
legislation in front of me, to me, that's a no-brainer. If 
that's what this is about today that you're saying to us, Mike, 
if you could just make this as readable as what you got when 
you signed up for your Blue Cross policy here with the Federal 
Government, as did every other Federal employee. Man, I'm 
    If that's what we're getting to here today then this 
hearing has been well worth the effort and well worth your 
time, I hope, because that makes sense to me. Absolutely. Thank 
    Mr. Pollitz. Great.
    Senator Johanns. All of you, I appreciate it.
    The Chairman. Can I just close this hearing unless any of 
you have statements that you would like to make at the end? By 
hardly agreeing with what you've said, Senator Johanns. It is, 
listening to the conversation, you go for this most complicated 
list of things, but horrifically written and all different. And 
then we said, we'll just make it right across the board so that 
everybody understands it.
    And all of a sudden you say, now wait a second. That's not 
going to work. That's not possible.
    And the answer is that it probably is possible, but that's 
it's going to be very hard to do. And that the companies that 
are involved are going to have to communicate with their people 
saying they are in the process of doing this.
    And they're going to do it. And maybe you can't get it, 
maybe you can get it done in 2 weeks, maybe in 2 months, maybe 
in 2 years. I don't know.
    But it does have to happen. People have to know what 
they're buying. And what they're going to get. And what they're 
not going to get. And that is axiomatic. That is not something 
that one can argue against.
    So I would agree with you, Senator. That's--it's a no-
brainer. If this hearing accomplishes nothing else and I hope 
it did accomplish something else. And we were able to do that.
    It is worth it. It is worth it. And I think all of you 
would be right on the front lines with your number two pencils 
ready to go.
    Do any of you have any closing comments?
    Mr. Potter. Senator, I would just like to make one comment. 
I--and need to address your point. I hope that I'm not coming 
across as someone who is just critical of my former employer.
    I had a good career at CIGNA and was well compensated. And 
I was there for 15 years and lasted 15 years. My comments are 
directed toward an industry that is really going in the wrong 
direction and taking this country in the wrong direction.
    The Chairman. I don't know why you should be worried about 
that. I mean, it is nice of you to say. But if we were doing 
Normandy Beach and we had all of our ships headed away from the 
beach, I would assume somebody would say this is not good. We 
ought to change this. And that's really what we've said here.
    And I really honor you. I mean, I really respect you.
    Mr. Potter. Thank you, sir.
    The Chairman. I was going to say that you're better than 
Russell Crowe on The Insider. But actually, I mean, they had 
to--he really would, you just sort of came out and did it 
because you cared about the insurance industry because you 
worked with it for a long time. And you want to see it work.
    Mr. Potter. Yes, sir.
    The Chairman. And I honor you for that. And I thank you all 
for your presence. And this hearing is adjourned.
    [Whereupon, at 3:53 p.m. the hearing was adjourned.]

                            A P P E N D I X

     Response to Written Questions Submitted by Hon. Tom Udall to 
                             Karen Pollitz

    Question 1. The minimum creditable coverage standards in 
Massachusetts for 2009 include inpatient and outpatient hospital and 
physician care, emergency services, mental health and substance abuse 
treatment, and prescription drug coverage. In addition, there are 
maximums for annual deductibles and out-of-pocket spending for an 
individual. How would you say that this compares with most health 
insurance policies available for individuals and groups today?
    Answer. The policies in Massachusetts are far more comprehensive 
than coverage offered in the individual market in most other states. 
All policies in Massachusetts must provide ``minimum creditable 
coverage,'' which includes key services such as prescription drugs, 
maternity care, mental health care, and rehab--services often excluded 
or limited in other state individual health insurance policies.
    In Massachusetts, all health insurance is subject to greater 
consumer protections than apply in most other state individual health 
insurance markets. No individuals in Massachusetts can be turned down 
or charged more based on health status. Pre-existing conditions are not 
    Compared to employer-sponsored group policies--the Silver and Gold 
level plans offered through the Commonwealth Connector generally 
provide cost sharing levels that are comparable to typical employer 
sponsored group plans.

    Question 2. Do you know what the Massachusetts experience has been 
in medical bankruptcy compared with other states where health insurance 
coverage is not as expansive? Is there less?
    Answer. I am not aware of any data that would answer this question.