[Senate Hearing 111-1087]
[From the U.S. Government Publishing Office]
S. Hrg. 111-1087
ARE MINI-MED POLICIES
REALLY HEALTH INSURANCE?
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HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
DECEMBER 1, 2010
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED ELEVENTH CONGRESS
SECOND 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 GEORGE S. LeMIEUX, Florida
CLAIRE McCASKILL, Missouri JOHNNY ISAKSON, Georgia
AMY KLOBUCHAR, Minnesota DAVID VITTER, Louisiana
TOM UDALL, New Mexico SAM BROWNBACK, Kansas
MARK WARNER, Virginia MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
Ellen L. Doneski, Staff Director
James Reid, Deputy Staff Director
Bruce H. Andrews, General Counsel
Ann Begeman, Acting Republican Staff Director
Brian M. Hendricks, Republican General Counsel
Nick Rossi, Republican Chief Counsel
C O N T E N T S
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Page
Hearing held on December 1, 2010................................. 1
Statement of Senator Rockefeller................................. 1
Statement of Senator Hutchison................................... 4
Statement of Senator Ensign...................................... 5
Statement of Senator Boxer....................................... 40
Statement of Senator Nelson...................................... 48
Witnesses
Stephen Finan, Senior Director of Policy, American Cancer Society
Cancer Action Network.......................................... 6
Prepared statement........................................... 8
Eugene Melville, Cancer Patient, Riverside, CA................... 12
Prepared statement........................................... 14
Aaron Smith, Co-Founder and Executive Director, Young Invincibles 15
Prepared statement........................................... 17
Rich Floersch, Executive Vice President for Human Resources,
McDonald's Corporation......................................... 23
Prepared statement........................................... 25
Timothy S. Jost, Robert Willett Family Professor, Washington and
Lee University School of Law................................... 26
Prepared statement........................................... 28
Devon M. Herrick, Ph.D., Senior Fellow, National Center for
Policy Analysis................................................ 31
Prepared statement........................................... 33
Appendix
McDonald's Medical Brochure...................................... 55
Janet Stokes Trautwein, Executive Vice President and CEO,
National Association of Health Underwriters, prepared statement 69
Angelo I. Amador, Vice President--Labor and Workforce Policy,
National Restaurant Association, prepared statement............ 70
Jessica Lynn Carroll, Professional stage actress and member,
Actors Equity Association, prepared statement.................. 72
Letter, dated November 30, 2010 to Hon. John D. Rockefeller IV
and Hon. Kay Bailey Hutchison, from Mallory Duncan, Senior Vice
President, General Counsel, National Retail Federation......... 74
Response to written questions submitted by Hon. Kay Bailey
Hutchison to:
Aaron Smith.................................................. 77
Rich Floersch................................................ 77
Timothy S. Jost.............................................. 79
Devon Herrick................................................ 79
ARE MINI-MED POLICIES
REALLY HEALTH INSURANCE?
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WEDNESDAY, DECEMBER 1, 2010
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 2:35 p.m. in room
SR-253, Russell Senate Office Building, Hon. John D.
Rockefeller IV, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV,
U.S. SENATOR FROM WEST VIRGINIA
The Chairman. This hearing will come to order.
And I want to apologize, not for those of us who are here,
but for those who aren't here, because, at least on the
Democratic side, there would be a lot of people here, but we're
having 3 days of three-and-a-half-hour caucuses. And how much
are we getting done? That's something that only I can tell you,
but I can't. And so, some will be coming in. And the problem,
basically, is that most committees aren't having hearings
during the lameduck session, and Senator Hutchison and I don't
see the reason for that. We think it's a good time for
hearings. But, if people are sitting in a caucus until 3:30 or
4, that makes it harder. So, I do apologize to you, and I
apologize for keeping you waiting.
Let me make my opening statement, and then Senator
Hutchison. And then, if others, there not being many, want to
just say a brief word, that would fine. Is that all right with
you?
Senator Hutchison. Yes.
The Chairman. OK.
More than a million Americans wake up and go to work every
day thinking they have health insurance, but I think the fact
is, they don't. They don't have the kind of comprehensive
health insurance that most people in this hearing room most
certainly do have. They have something called ``limited-
benefit,'' or ``mini-medical'' insurance.
Now, this is an insurance product that has been around for
a couple of decades, but it didn't really get going until two
of the largest insurance companies started marketing them, and
those were Cigna and Aetna. They started selling it, and then
it became much more popular.
Wendell Potter, who sort of made his name when he came
before this committee and told us about how Aetna gets rid of
people they don't want to have to insure because their risks
might be too high--and he's, you know, a formidable person and
he testified before our committee last year about these plans.
And he called them ``fake insurance''--his words--designed to
earn big profits for the insurers but provide little value to
customers.
Now, this is how mini-meds work. Most people in this
hearing room probably don't have much experience with mini-
meds, as I indicated. But, if you work at a restaurant or a
retail chain in this country, or if you're a young adult
working a part-time or temporary job, while you're looking for
a permanent one, mini-med insurance might be the only option
that you have.
Employers who offer this health insurance to their
employees make a nice pitch. They hand out a nice glossy, happy
people abound everywhere. But, the statistics aren't quite as
good. So, here it is. That's what McDonald's hands out to its
hourly restaurant employees.
[The information referred to is contained in the appendix.]
And part of what underlies this hearing--my point of view--
is, what are human beings, and how are they to be treated? And
if you're a corporate person or you're an hourly person, does
that make a difference in terms of how you should be insured?
Are you less valuable because you're not a corporate person? Or
are you more valuable because you are a corporate person? Or is
everybody equally valuable? Well, they will be in 2014, when we
get our [Patient Protection and Affordable Care Act] state
exchanges going. But, we have to get from here to there.
So, this little booklet I held up tells new McDonald's
employees how they can get health insurance plans that will
help them, ``pay for the medical care you need when you're
sick, injured, or have an ongoing medical condition.''
Comprehensive statement. And all those great benefits only cost
McDonald's employees as little as $14 a week, deducted out of
their paycheck. But, buried in the fine print of this policy,
in confusing industry jargon, which we've become very familiar
with on this committee--not just on health insurance, but a lot
of other ways that people manage to take money out of other
people's pockets and put it in theirs, it's a very different
story. The true story is, the McDonald's mini-med policy will
not pay for your bills if you a have serious health problem.
And I can go into that later.
A McDonald's employee, named Katrina Fulton, from
Monticello, Kentucky, learned this lesson the hard way. She
thought she had health insurance through her McDonald's job,
until she needed treatment for her colitis. Now she has more
than $10,000 in unpaid medical bills. But, on the other hand,
it said that, ``pay for the medical care you need when you're
sick, injured, or have an ongoing medical condition.'' Told one
thing, reality another thing.
The mini-med insurance policy most commonly sold to
McDonald's hourly employees like Mrs. Fulton has an annual
limit of $2,000. So, if you're in the hospital, you use up your
$2,000 just for the room you have, the bed you sleep in. It
doesn't get you IV, it doesn't get you an X-ray, it doesn't get
you a CAT scan, it doesn't get you any medication, it doesn't
get you any gauze, any bandages, any anything. And so, that's
the thing--they say $20,000, but actually, it's $2,000. Keep
that in mind as I go along.
The mini-med insurance policy most commonly sold to
McDonald's hourly employees, like Mrs. Fulton, has that $2,000
limit. Anything more than $2,000, and McDonald's workers pay
that out of their own pockets.
So, what will $2,000 cover in our healthcare system? Not
much. It won't cover the cost of having a baby--that's about
$9,000--and it won't cover 1 year of healthcare for a person
with diabetes--that's about $7,000, on average. And, as we're
going to hear from our witnesses today, the cost of treating a
health problem like cancer, which I grant is dramatic, but
which is something that many, many, many millions of people
have or have suffered or will suffer in this country, can
easily exceed $50,000 or even $100,000 on an annual basis. And
it can be a lot more if you have to get into brain surgery.
So, today we're going to learn more about mini-med
insurance policies. Some people are going to say that, even
though these mini-med policies have skimpy coverage, they are,
``better than nothing for consumers.'' I want to destroy that
phrase before this hearing is over, but I won't do it in my
opening statement. They say that McDonald's employees and other
workers should be grateful that they have this coverage, even
though it won't protect them against the cost of a serious
illness or accident. But, we're going to hear people argue that
mini-med insurance is worse than nothing. I will argue that
too, because of the sense of security and expectations and
leading people down beautiful roads that end up with large
brick walls. It gives people a false sense of security. It lets
them think they have health insurance, when they really don't.
By the time they realize they don't have real health insurance,
it's already too late. They have already received a huge
hospital bill or have had their testing or surgery canceled
because the so-called ``health insurance'' is worthless and
will not cover those things.
I'm very pleased to say that the days of these mini-med
plans are numbered. The new healthcare reform law--not loved by
all, but by this person--is slowly putting an end to health
plans that place caps on essential health services. That will
happen with the state exchanges. Annual limits will no longer
be legal. Lifetime limits will no longer be legal. If you're
going to provide insurance--you make money on some, you lose on
others.
Mr. Potter talked to us about the five largest health
insurance companies, not involved in mini-med particularly, but
he said that in 2009 they made $14.8--or $14.6 billion [$14.5
billion] worth of profit, while at the same time, using the
power of recision--that is, the power to cut people off even
though they have a policy--they cut people off. They cut off 3
million people, those five companies, in that year, while they
were making this kind of money. That is disturbing.
Well, I'm very glad that you came. I have over-talked, and
I will probably continue to do that. Senator Hutchison will
keep me under control. But, my point is, it's not 2014 yet. All
of this will disappear then. McDonald's won't be able to offer
these plans then.
There are more than a million Americans today who are
covered by these policies and who really don't know if the
plans are doing more harm than good. No reason why they should.
So, I thank you all for coming, and I turn now to my very
distinguished Co-Chair, Senator Hutchison from Texas.
STATEMENT OF HON. KAY BAILEY HUTCHISON,
U.S. SENATOR FROM TEXAS
Senator Hutchison. Thank you, Mr. Chairman.
I'm glad that you have called this hearing on mini-meds,
because, of course, they have received a lot of attention
recently, especially since the passage of the Healthcare Reform
Act. Much attention has been paid to the related decisions by
the Department of Health and Human Services to grant waivers
and create carve-outs from the healthcare law's requirements
for mini-meds in order to avoid swelling the ranks of the
uninsured.
These policies are not a new phenomenon. They've been
around since the 1980s. And, for the better part of the last
decade, there has been a public debate about whether such
limited, but affordable, policies are, on balance, a reasonable
option for employers and their employees. Now we're addressing
the question, under the shadow of a law that appears to
presuppose the answer.
To answer this question, we have several very important
witnesses, including one from Texas. I'm very pleased that Dr.
Devon Herrick is here from the National Center for Policy
Analysis. The center has been very much a leader in the area of
alternatives for better healthcare coverage. And I'm glad
you're here.
I do think, Mr. Chairman, however, that someone from the
Department of Health and Human Services also should be required
to testify before we make any decisions about mini-meds.
This past summer, the Health and Human Services Department
acknowledged the need for a waiver of the healthcare law's ban
on annual benefit limits so that individuals covered by mini-
meds would not be denied access to needed services or
experience more than a minimal impact on premiums.
To date, 111 employers and insurers, covering more than a
million people, have received such waivers from the Department
of Health and Human Services. While these include chain
restaurants like McDonald's, which is represented at today's
hearing, the biggest single waiver, for 351,000 people, was for
the United Federation of Teachers Welfare Fund, a New York
union providing coverage for city teachers.
Just last week, the Department of Health and Human Services
announced it would also give mini-meds a special, one-year
reprieve from the law's medical loss ratio provisions. Mini-med
insurers will be permitted to multiply their medical care
expenditures by a factor of two to meet the law's requirement
that 80 to 85 percent of premium revenues be spent on the
delivery of healthcare. In announcing this special
consideration for mini-meds, the Department of Health and Human
Services expressed concern about the possibility of over 1
million individuals who have coverage through these plans
losing all coverage completely.
I recognize this is not a hearing on the Health and Human
Services waivers, but these waivers do call attention to the
question of whether mini-meds provide an option for some
consumers who would have no option if they were eliminated.
Nevertheless, I appreciate that your point, Mr. Chairman,
that a $2,000 limit on benefits seems very unrealistic. If that
is, in fact, the case, that is not a good limit. However, a
$750,000 limit, which is required in the healthcare reform
bill, is also going to be excessive for a number of people to
be able to afford, including some small businesses. Surely
there is something in between here that would create a more
reasonable alternative.
Without the recent waivers, I think the healthcare reform
bill could very well keep employees from having any coverage
whatsoever, including coverage which would at least give them
the ability to have check-ups and for their children to have
shots and that sort of thing. So, I think we need to be very
careful in treading on this ground, as we look at yet another
piece of the healthcare reform bill that may have gone so far
overboard as to throw the baby out with the bath water, so to
speak.
Thank you very much.
The Chairman. Thank you, Senator Hutchison.
I've talked at length--do you want to make a statement?
Senator Ensign. Just very briefly.
The Chairman. Yes. Let me just make this statement, then go
to you.
The--to Senator Ensign--the--I've talked with Kathleen
Sebelius [Secretary, U.S. Department of Health and Human
Services (HHS)]--these waivers are entirely temporary, and--as
you indicated, in some cases, they're just a year; and, in all
cases, they don't go beyond the beginning of the state
exchanges in 2014. So, it's a very temporary business, and I
think they did it for whatever reason. I also would agree with
you, it would be better if we had somebody here. It would be a
crowded table, but it would be better.
Senator Ensign.
STATEMENT OF HON. JOHN ENSIGN,
U.S. SENATOR FROM NEVADA
Senator Ensign. Thank you, Mr. Chairman.
Just very briefly, I wish that not only someone from HHS
was here, but also from the Congressional Budget Office, simply
because it would be an opportunity to obtain answers to
questions. Questions, such as, did the CBO take into account
these mini-med plans and potential for people dropping their
health insurance in these mini-med plans and then dumping the
people--those employees--into the exchanges? And were those
costs figured into whether or not this bill was actually going
to hurt the deficit, or not? I think that's a significant issue
that needs to be answered from CBO, because this bill was said
to have reduced the deficit, and yet, we're seeing all kinds of
unintended consequences with this new healthcare law. The mini-
med problem is just one of many.
Mr. Chairman, you said, in your opening statement, that
these things do more harm than good. My question--which is kind
of a rhetorical question--would be, if they do more harm than
good, then why did HHS grant waivers? I mean, if they're doing
more harm than good, then shouldn't HHS just say, ``Sorry,
that's the way the law is, we're not going to grant to any
waivers,'' if, in fact, they were doing more harm than good?
But, what I think HHS recognized is that it is better to have
at least some insurance than no insurance, and that's why
they're granting these waivers. At least, HHS should be here to
answer that question.
So, thank you, Mr. Chairman.
The Chairman. Thank you, Senator Ensign.
And if there are no other statements to be made, let's go
to our panel. And we'll start with Mr. Stephen ``Finnan''----
Mr. Finan. ``Finan.''
The Chairman.--Senior Director of Policy at the American
Cancer Society.
STATEMENT OF STEPHEN FINAN,
SENIOR DIRECTOR OF POLICY,
AMERICAN CANCER SOCIETY CANCER ACTION NETWORK
Mr. Finan. Good afternoon, Mr. Chairman----
The Chairman. And, incidentally, all of your statements are
already in the record, so you don't have to leaf through the
whole pages, if you don't want to.
Mr. Finan. Thank you.
Good afternoon, Mr. Chairman, Ranking Member Hutchison, and
distinguished members of the Committee.
My name is Stephen Finan, Senior Director of Policy at the
American Cancer Society Cancer Action Network, or ACS CAN. We
are the advocacy affiliate of the American Cancer Society, a
nationwide, community-based, voluntary health organization
dedicated to eliminating cancer as a major health problem by
preventing cancer, saving lives, and diminishing suffering from
cancer through research, education, advocacy, and services.
ACS CAN is grateful for the Committee's interest in the so-
called ``mini-med'' health insurance plans. Today I'd like to
share with you what our organization has learned about the
underinsured, and paint a picture all too common in America of
how cancer patients and survivors with inadequate insurance
face barriers and financial burdens in getting the quality
healthcare they need to fight their disease.
As defined by the American Cancer Society, adequate health
insurance ensures the timely access to the full range of
evidence-based healthcare services, including prevention and
primary care, disease treatment, and survivorship. Coverage
should be comprehensive and protect the individual from
incurring catastrophic expenditures.
So, what does being underinsured really mean for a cancer
patient with a mini-med health insurance policy? Cancer is
approximately 200 separate diseases, and, not surprisingly, the
cost of treatment can vary enormously.
In 2009, ACS CAN commissioned a study to examine the
adequacy of 4 serious medical conditions: stage II breast
cancer, stage III colon cancer, myocardial infarction, or heart
attack, and type I diabetes. It compared coverage features to
simulate claim scenarios developed to illustrate potential care
needs of patients with serious and chronic conditions.
For the stage II breast cancer case scenario, estimated
charges for treatment billed by providers, institutions, and
suppliers totaled approximately $111,300. For the stage III
colon cancer case, care costs an estimated $252,000. Under the
scenarios outlined in the study for the heart disease patient,
the estimated charges totaled about $77,800. For the diabetes
scenario, allowed charges for treatment billed by providers,
labs, and pharmacies totaled over $7,100 for 1 year.
Clearly, such expenses are not financially viable for a
patient with a mini-med policy that has a low annual limit or
other tight restrictions on benefits.
Earlier this year, ACS CAN commissioned a nationwide poll
among households with a cancer patient age 18 or older. Among
the findings, half the families with somebody under 65 with
cancer said they have had difficulty affording healthcare costs
such as premiums, co-pays, and prescription drugs. Nearly one-
third of families with someone under 65 with cancer have had
trouble paying for basic necessities or other bills, and nearly
a quarter have been contacted by a collection agency.
Additional findings from this poll are provided in the
statement I submitted for the record.
The American Cancer Society offers a program called the
Health Insurance Assistance Service, or HIAS, through its call
center in Austin, Texas. HIAS is a free resource that connects
callers with health insurance specialists who work to address
their needs.
Brian, from South Carolina, is one example of a patient we
have heard from who is facing the excruciating choice of saving
their life or their life savings as a result of inadequate
health coverage. At age 25, Brian was recently diagnosed with
testicular cancer. He is a full-time college student and works
part-time at a retail store. The plan his employer offers has a
$10,000 annual limit on benefits. He has already exceeded that
limit and now has to pay for his treatment out of pocket. But,
he continues to pay the premium so he can keep his coverage in
the next plan year.
Mr. Melville, a cancer patient whose experience you will
hear in a minute, also called HIAS. And we brought his story to
the attention of the Committee.
The mini-meds are a perfect example of why reform is so
crucial. Adequate coverage at affordable prices has long been
unattainable for many Americans, and the problem, in recent
years, has grown worse. If we want all Americans to have
meaningful access to quality healthcare, we need to change the
insurance market rules, provide subsidies to lower-income/
middle-income families, streamline administrative costs, and
greatly increase transparency and accountability. The
Affordable Care Act provides a solid framework for achieving
these goals.
ACS CAN acknowledges that, to maintain stability in the
insurance market, all plans may not be able to immediately
conform to the law's requirements in the requisite amount of
time. Immediate compliance could result in termination of
coverage for people who would otherwise have no other coverage
alternative at all. That's why the law gives the administration
the power to temporarily waive certain requirements. But, at
the same time, we cannot allow cancer patients to fall into
financial ruin because they unknowingly purchase inadequate
coverage.
HHS must take steps to require plans with waivers to
improve their products between now and 2014, and to make plan
participants fully aware of the exception. A waiver this year
should not be a free ride until 2014.
To make reform meaningful, we must find ways to work
together with pragmatic intent to ensure implementation helps
improve healthcare for cancer patients, and others with
significant medical needs.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Finan follows:]
Prepared Statement of Stephen Finan, Senior Director of Policy,
American Cancer Society Cancer Action Network
Introduction
Good afternoon, Mr. Chairman, Ranking Member Hutchinson and
distinguished members of the Committee. My name is Stephen Finan,
Senior Director of Policy at the American Cancer Society Cancer Action
Network (ACS CAN). We are the advocacy affiliate of the American Cancer
Society, a nationwide, community-based, voluntary health organization
dedicated to eliminating cancer as a major health problem by preventing
cancer, saving lives, and diminishing suffering from cancer through
research, education, advocacy, and services.
ACS CAN is grateful for the Committee's interest in so-called
``mini-med'' health insurance plans. Throughout the health care reform
debate over the past 2 years, ACS CAN's goal was to use the ``cancer
lens'' to bring national attention to significant problems in the
nation's health care system. One of the less visible but very
significant problems that we see among cancer patients is being
``underinsured''--having insurance that offers too little coverage to
fully address the needs of a serious medical condition like cancer.
Today, I'd like to share with you what our organization has learned
about the underinsured and paint a picture--all too common in America--
of how cancer patients and survivors with inadequate insurance face
barriers to and financial burdens from getting the quality health care
they need to fight their disease.
American Cancer Society's Commitment to Access to Care
Cancer death rates have decreased by 21 percent among men and 12
percent among women since the early 1990s. Despite this significant
progress, the American Cancer Society realizes that its long-term goals
of reducing the incidence and mortality of cancer cannot be achieved
unless the coverage gaps that exist within the current health care
system are addressed. The challenge lies in the fact that even among
those who are considered insured, more than 25 million are
underinsured. Many underinsured are left with the extraordinary dilemma
of either incurring serious and potentially ruinous out-of-pocket
financial expenses to obtain necessary treatment, or curtailing
essential treatment, thereby putting their health and possibly their
lives in jeopardy.
Defining Adequate Health Insurance
The issue of underinsurance is an underappreciated, and at times
overlooked, problem of adequacy of coverage. As defined by the American
Cancer Society, adequate health insurance ensures timely access to the
full range of evidence-based health care services, including prevention
and primary care necessary to maintain health, avoid disease, overcome
acute illness, and live with chronic illness. These services encompass
the complete continuum of evidence-based cancer care for treatment and
support needs, including clinical trials. Coverage should be
comprehensive and protect the individual from incurring catastrophic
expenditures.
Cancer and the ``Underinsured''
So what does being underinsured really mean for a cancer patient
with a mini-med health insurance policy?
Cancer is approximately 200 separate diseases, and not
surprisingly, the costs of treatment can vary enormously. However, it
is possible to provide examples of costs that illustrate the problem of
underinsurance.
In 2009, ACS CAN commissioned a study by the Georgetown Health
Policy Institute to examine the adequacy and transparency of coverage
under the Blue Cross Blue Shield standard option plan offered through
the Federal Employees Health Benefit Program for four serious medical
conditions: stage II breast cancer; stage III colon cancer; myocardial
infarction (heart attack); and type I diabetes. It compared coverage
features to simulated claims scenarios developed to illustrate
potential care needs of patients with serious and chronic conditions,
and estimated what patient out-of-pocket treatment costs would be under
the plan.
In the scenario used in the study for the breast cancer case, the
disease was detected following a routine screening mammogram.
Approximately 30 percent of breast cancers are diagnosed as stage
II.\1\ Standard treatment for this patient would include breast
conserving surgery (lumpectomy), chemotherapy, Herceptin therapy,
radiation therapy, and hormone therapy, as well as various medications
and a wig prescribed for treatment side effects. The patient also
receives short term counseling for depression. From start to finish,
these treatments would take place over 87 weeks. Hormone therapy (taken
orally) and other follow-up care and screening would continue beyond
this time frame.
---------------------------------------------------------------------------
\1\ Ali, Sohrab, ``Female Breast Cancer Incidence, Stage at
Diagnosis, Treatment, and Mortality in North Carolina,'' North Carolina
Public Health studies, June 2006.
---------------------------------------------------------------------------
Under this scenario, estimated allowed charges (reflecting insurer
negotiated discounts) for treatment billed by providers, institutions,
and suppliers total approximately $111,300.
For the stage III colon cancer case, the male patient undergoes
surgery to remove the affected part of his colon. He then undergoes 12
rounds of chemotherapy, involving a combination of drugs at two-week
intervals. As often happens with colon cancers diagnosed at later
stages, the cancer does come back and screening indicates it has spread
to the liver.\2\ The patient is hospitalized for a second surgery to
remove the tumors, and then resumes chemotherapy. A series of
subsequent treatments fail and active treatment then ceases. The
patient is referred to hospice care and he dies 8 weeks later.
---------------------------------------------------------------------------
\2\ Recent studies suggest that patients diagnosed with late-stage
colon cancer have a 35.7 percent reoccurrence rate within 5 years. See
``Intensive Surveillance Beneficial in Early-Stage Colon Cancer,''
Health Day News, June 30, 2009. Available at http://www.clevelandclinic
meded.com/news/Article.aspx?AID=628515&setSpecialty=true.
---------------------------------------------------------------------------
From diagnosis to date of death, care takes place over 124 weeks at
an estimated cost of $252,433.
The two other scenarios in the study cover coronary artery disease
and diabetes. Under the scenarios outlined in the study for the heart
disease patient the estimated allowed charges (reflecting insurer
negotiated discounts) for treatment billed by providers, institutions,
and suppliers total about $77,800. For the diabetes scenario, the
patient has well-controlled diabetes. For a patient with this type of
diabetes self-management needs, the charge for any single item or
service is relatively modest, but ongoing. For example, test strips
cost approximately $1 each, but the patient would use about 1,400
strips per year. Under this scenario, allowed charges (reflecting
insurer negotiated discounts) for treatment billed by providers, labs,
and pharmacies total over $7,100 for one year.
So what does this mean for a patient with a mini-med policy that
has a $2,000 or $10,000 annual limit? Recognizing that these expenses
will likely occur over 2 years, a person with the stage II breast
cancer who received the full course of treatment could face over
$90,000 in out-of-pocket expenses, and the colon cancer patient could
face $220,000 in out-of-pocket expenses. Obviously, such expenses are
not financially viable for middle-income families.
The problem of paying costly medical bills affects middle-class
families, particularly those with chronic diseases such as cancer.
Often insurance policy deductibles, co-payments and limits on health
services may leave cancer patients without access to the timely,
lifesaving treatment they need. Cancer patients may have to deal with
major financial burdens because of out-of-pocket costs in addition to
their cancer diagnosis.
Earlier this year, ACS CAN commissioned a nationwide poll among
households with a cancer patient age 18 or older.\3\ Among the
findings:
---------------------------------------------------------------------------
\3\ Facing Cancer in the Health Care System. Lake Research Partners
and Bellwether Research & Consulting, May, 2010. The sample size was
1,011.
Half of families with someone under 65 with cancer (49
percent) say they have had difficulty affording health care
costs, such as premiums, co-pays, and prescription drugs in the
---------------------------------------------------------------------------
past 2 years.
Nearly one-third of families with someone under 65 with
cancer (30 percent) have had trouble paying for basic
necessities or other bills, and 23 percent have been contacted
by a collection agency. About one in five (21 percent) has used
up all or most of their savings, and one in six (18 percent)
has incurred thousands of dollars of medical debt.
As a result of costs, one in three individuals under age 65
diagnosed with cancer (34 percent) has delayed needed health
care in the past 12 months, such as putting off cancer-related
tests or treatments, delaying cancer-related check-ups, not
filling a prescription, or cutting pills. Of those currently in
active cancer treatment, one in three (33 percent) has put off
some type of health care in the past due to costs.
Four in ten families (42 percent) with insurance say their
premiums and/or co-pays have increased in the past 12 months
for the family member with a cancer diagnosis, and one in four
(25 percent) says his or her deductible has gone up.
One-third (34 percent) of those under age 65 said they had
problems with insurance coverage of cancer treatment such as
the plan not paying for care or less than expected, reaching
the limit of what the plan would pay, or delaying or skipping
treatment because of insurance issues.
A 2006 study analyzed data from the Medical Expenditures Panel
Survey (MEPS).\4\ The MEPS household survey, sponsored by the Agency
for Health Care Research and Quality (AHRQ), collects information from
the non-elderly, non-institutionalized U.S. population. The survey
asked American families questions about health insurance coverage,
health care utilization, and health care expenditures. In this study,
the researchers defined ``underinsured'' as people with insurance
spending 10 percent or more of their tax-adjusted family income on
health care services, including insurance premiums. Nearly 1 in 3 (28.8
percent) cancer patients who are insured have an out-of-pocket health
care burden that exceeds 10 percent of their family income. More than 1
in 9 cancer patients with insurance have out-of-pocket health care
burdens exceeding 20 percent of their family income in health care
expenditures. It is important to note that this definition of
underinsured only measures those who actually spent more than 10
percent of their income on health services. There are undoubtedly many
more people who didn't spend more than that for financial reasons but
instead chose to curtail necessary services. Though uncounted, these
people, too, are underinsured.
---------------------------------------------------------------------------
\4\ Banthin JS, Bernard DM. Changes in financial burdens for health
care: National estimates for the population younger than 65 years, 1996
to 2003. JAMA 2006; 296: 2712-19.
---------------------------------------------------------------------------
Cancer patients with inadequate coverage have higher medical costs
and must deal with the additional stress of financial instability. A
2006 survey of cancer patients and their families found that one in
five cancer patients with insurance uses all or most of their savings
when dealing with the financial costs of cancer.\5\ Medical debt is an
important cause of bankruptcy filing in the U.S. Another study examined
the causes of bankruptcy and found that 1.9-2.2 million Americans
experienced bankruptcy related to medical problems in 2001.\6\ Among
those with illnesses that led to bankruptcy, their out-of-pocket costs
average $11,854 and three-quarters had insurance at the time of their
diagnosis. Among those interviewed with medical bankruptcy, 1 in 10 of
the families had a cancer diagnosis.
---------------------------------------------------------------------------
\5\ USA Today, the Kaiser Family Foundation, the Harvard School of
Public Health. National survey of households affected by cancer, August
1-September 14, 2006.
\6\ Himmelstein DB, Warren E, Thorne D, Woolhandler S. Illness and
injury as contributors to bankruptcy. Health Aff 2005; Web exclusive:
63-73.
---------------------------------------------------------------------------
Despite having insurance, many cancer patients and survivors
experience major financial burdens. The situation of the underinsured
is difficult to measure because wide variation exists among health
insurance plans and people do not realize they are underinsured until
they have a health crisis such as cancer. Furthermore, studies like the
one I previously mentioned use a narrow definition to measure the
number of underinsured. While we use these studies to talk about the
underinsured, they do not illustrate the whole picture.
The Health Insurance Assistance Service
The Health Insurance Assistance Service (HIAS) is a service offered
through the American Cancer Society's National Cancer Information
Center (NCIC) in Austin, Texas. HIAS is a free resource that connects
callers with health insurance specialists who work to address their
needs. The health insurance specialists at NCIC handle inquiries about
health insurance, coverage dynamics, and state programs--all specific
to the caller's needs. To date HIAS has logged more than 30,000 calls
from all 50 states and the District of Columbia. Unfortunately, HIAS is
able to help relatively few people to actually find coverage because
the current health insurance coverage is often unavailable to cancer
patients due to pre-existing condition clauses and when available, is
often unaffordable for middle-class Americans.
Many calls received by HIAS are from people recently diagnosed or
in treatment for cancer. The primary problem for these people is
affordability--the accumulation of co-pays and deductibles has reached
a level that they can no longer afford. Few programs exist that
alleviate the financial burdens of out-of-pocket costs or provide care
when a patient reaches a benefit limit within their insurance policy.
In addition, the Society receives calls from patients that have reached
the limit of their benefits or need additional services that are not
covered by their plan. Among the calls from insured cancer patients,
nearly three-quarters (71 percent) stated their insurance was
inadequate to meet their medical needs.
Within the HIAS data base, we are seeing callers who are reaching
annual or lifetime limits on coverage. With the variation in insurance
policies, there are many types of caps on coverage, including overall
limits on benefits and limits on specific types of benefits such as
outpatient visits.
The following are just two examples of patients we've heard from
who are having to make the tough choice between saving their life or
their lifesavings:
Orlin is a 61-year-old Iowa man who was recently diagnosed with
recurrent prostate cancer. His insurance plan through his job
at an international security company has a $3,500 annual cap on
benefits and a $250 annual maximum on prescriptions. Orlin
quickly exceeded these limits and now pays out-of-pocket for
his treatment. He and his wife have already amassed $25,000 in
medical debt.
Brian is a 25-year-old man from South Carolina who was recently
diagnosed with testicular cancer. He is a full-time college
student and works part-time at a big box retail store. The
employer-sponsored benefit plan he has from his job has a
$10,000 annual limit on benefits. While he has already exceeded
that limit and now has to pay for his treatment out-of-pocket,
he continues to pay the premiums, so he can keep his limited-
benefit plan in the new year.
Underinsurance and the Affordable Care Act
The Affordable Care Act (ACA) makes tremendous strides toward
eliminating the kinds of problems that arise from mini-meds and other
plans that offer inadequate coverage. The law provides a framework for
an essential benefits package; it eliminates lifetime limits and phases
out annual limits by 2014; and most importantly for many of today's
enrollees in mini-med plans, it offers subsidies to assist individuals
and families below 400 percent of the federal poverty level, and there
will be out-of-pocket limits in all plans, except those that are
grandfathered. And finally, the ACA makes great strides in empowering
consumers with information, such as enhancing consumer disclosures,
rating plans in the exchanges, and standardizing administrative
processes.
Last June, HHS issued an interim final regulation regarding annual
limits. It set a minimum limit of $750,000 for plans years after
September 23, 2010, and those limits will rise each year through 2013
until they reach $2 million. There is no annual limit in plans after
2014. The regulation also recognized that some plans which currently
have much lower annual limits might not be able to comply without
imposing significant premium increases or reductions in benefits. Thus,
plans can request a waiver. In September, HHS issued guidance on
waivers, and since then, it is our understanding that over 100 plans
with approximately 1.2 million enrollees have been granted waivers as
of November 1.
We recognize the dilemma that exists. Clearly, plans with limits as
low as $1,000 are of little value to a person with cancer. Such plans
provide the appearance of insurance, but they provide no protection
against potential financial ruin. Nonetheless, no one wants to see
massive disruptions in the market as we transition to the full
insurance reforms in 2014, and therefore, waivers may be warranted for
some plans.
A waiver, though, should come with some obligations on the part of
the plans. Last month, HHS issued guidance requiring plans to notify
enrollees of a waiver including an explanation of the reason for it and
the protection that would otherwise have applied. This is a critical
step toward consumer education and empowerment. We commend HHS for
taking this step toward consumer education and transparency, and we
strongly believe the administration should be even more expansive in
increasing disclosures and insurer transparency in the coming months
and years. However, we strongly believe that HHS must take steps to
require plans with waivers to improve their products between now and
2014; a waiver this year should not be a free ride until then.
The mini-meds are a perfect example of why health care reform is so
crucial. Adequate coverage at affordable prices is no longer attainable
for many Americans. If we want all Americans to have meaningful access
to quality health care, we need to change the insurance market rules,
provide subsidies, streamline administrative processes and greatly
increase transparency and accountability. The Affordable Care Act
provides a solid framework for achieving these goals, and it is ACS
CAN's intent to work with all interested parties to implement the law
successfully so that the health system works for people with cancer and
other serious medical conditions. We know we must find ways to work
together with pragmatic intent to assure implementation helps improve
health care for cancer patients and other groups.
The Chairman. Thank you very much.
Mr. Eugene Melville.
STATEMENT OF EUGENE MELVILLE, CANCER PATIENT, RIVERSIDE, CA
Mr. Melville. Good afternoon, Chairman Rockefeller.
The Chairman. Where are you from?
Mr. Melville. Pardon me?
The Chairman. Where are you from?
Mr. Melville. I'm living in Riverside, California. I grew
up in Boston, Massachusetts.
The Chairman. OK. But, you flew from California.
Mr. Melville. Yes, I came in from California.
The Chairman. Thank you.
Mr. Melville. Good afternoon, Chairman Rockefeller, Ranking
Member Hutchison, and distinguished members of the Committee.
I would like to thank you for the opportunity to share my
story with you. My name is Eugene Melville. I am from
Riverside, California. And I was recently diagnosed with oral
cancer.
I was asked to attend today's hearings to discuss the
difficulties I am having with getting the treatment I need,
because of the limitations of my current health insurance
coverage. The American Cancer Society Cancer Action Network,
ACS CAN, was able to make the Committee aware of my story
because I called the American Cancer Society's Health
Information Assistance Service for help with trying to get
access to the medical services I need to fight this disease.
I'm hopeful that my story will demonstrate why the adequacy
of health insurance coverage is so important. The last thing
anyone wants to be told when they are diagnosed with cancer is
that their health insurance provides inadequate coverage to
fully address the treatment that they need. However, that's
what has happened to me, and that's the reason why I traveled
here today.
I have worked for a big-box retail chain for several years.
I do not plan to identify my employer during this testimony
today as I am not here to drag their name through the mud. The
problem is that bad health insurance is offered in the
marketplace.
The health insurance that I currently have is a policy my
company offers to part-time employees through Aetna. When I
purchased the insurance, my understanding at the time was that
the policy had a $20,000 annual limit on benefits. I knew my
policy had limitations. However, I thought the policy would at
least provide some financial buffer if something catastrophic
happened to me.
Well, I went to the doctor, for what I thought was an
injury from a car accident in July of this year. However,
during his examination, my doctor became concerned about a lump
in my neck. The doctor referred me for diagnostic screening and
a biopsy. The biopsy showed that I had cancer and I was
referred to an oncologist. He recommended that I have laser
surgery to remove a lesion on my tongue, and surgery on my
swollen lymph nodes in my neck.
Five days before the surgery, the administrative staff at
the hospital informed me that they had canceled all my
appointments and procedures. They explained to me that my
insurance company had told them I had reached the annual
benefits maximum in my policy for the 2010 calendar year.
Of course, I was confused, devastated by the information
they provided me. I knew I had a $20,000 annual cap on my
policy, but I also knew that I had not been to the doctor for
any medical care procedures that cost anywhere near $20,000. I
thought I understood how the insurance policy worked. I paid
bi-weekly premiums out of my paycheck, and it wasn't going to
cover any of the treatments recommended.
I had just been diagnosed with cancer. I was trying to come
to grips with this news, and no one ever wants to hear the
dreaded words from their doctor, ``You have cancer.'' I thought
I was going to get surgery and start treatment but, instead, I
was told that the hospital couldn't help me.
I immediately called the insurance company to find out why
they told the hospital they would not cover my surgery. That's
when I found out that, instead of a policy with a $20,000
annual limit for all services, the $20,000 limit was divided
into benefit categories. My policy actually has a $2,000 annual
limit on physician visits and outpatient treatments and a
$20,000 annual limit on hospitalizations. Further, the
hospitalization coverage does not cover payments for more than
$2,000 in services for lab tests, surgical supplies, and
medications. As I learned, cancer treatment, such as
chemotherapy, and radiation, and surgery, are often done in
doctors' offices or at an outpatient treatment center. So, my
treatments would not be covered by my plan.
As an individual recently diagnosed with cancer, the $2,000
that my policy provides me annually for doctors' visits and
outpatient treatment doesn't even begin to cover the costs of
the lifesaving treatments that I need for my oral cancer.
Instead of receiving the treatments my doctor prescribed
and beginning my recovery, I have spent the last few months
struggling to piece together coverage to treat my cancer.
Recently, I was able to enroll in the Medically Indigent
Services Program at Riverside County Regional Medical Center in
Moreno Valley, California. Even though I finally have access to
treatment, I do not feel that I am receiving the same treatment
that I would if I had health insurance. Just last week, the
doctors at the program informed me that they are now only
planning to treat my cancer with chemotherapy and radiation,
despite the earlier recommendations from my oncologist for a
laser procedure and surgery.
It has now been months since my diagnosis, and I continue
to experience significant discomfort on my tongue and neck due
to the cancer.
The insurance I have has fallen far short of what I need to
fight this chronic disease. I hope my testimony today will make
a difference. I don't want anyone else to have to go through
what I'm going through. I hope that you will continue to
support the full implementation of the Affordable Care Act so
employees like me can have access to comprehensive healthcare
coverage that is transparent and presented to people in terms
that they understand.
Thank you.
[The prepared statement of Mr. Melville follows:]
Prepared Statement of Eugene Melville, Cancer Patient, Riverside, CA
Good afternoon, Chairman Rockefeller, Ranking Member Hutchison and
distinguished members of the Committee. I would like to thank you for
the opportunity to share my story with you. My name is Eugene Melville.
I am from Riverside, California, and was recently diagnosed with oral
cancer. I was asked to attend today's hearing to discuss the
difficulties I am currently having with getting the treatment I need
because of limitations of my current health insurance coverage. The
American Cancer Society Cancer Action Network (ACS CAN) was able to
make the Committee aware of my story because I called the American
Cancer Society's Health Information Assistance Service for help with
trying to get access to the medical services I need to fight this
disease. I am hopeful that my story will demonstrate why the adequacy
of health insurance coverage is so important. The last thing anyone
wants to be told when they are diagnosed with cancer is that their
health insurance provides inadequate coverage to fully address the
treatment they need. However, that is what has happened to me--and is
the reason I traveled here today to tell my story.
I have worked for a big-box retail chain for several years. I do
not plan to identify my employer during my testimony today, as I am not
here to drag their name through the mud. The problem is that bad health
insurance is offered in the marketplace. The health insurance I
currently have is a policy my company offers to part-time employees
through Aetna. When I purchased the insurance, my understanding at the
time was that the policy had a $20,000 annual limit on all benefits. I
knew my policy had limitations. However, I thought the policy would at
least provide some financial buffer if something catastrophic happened
to me.
I went to the doctor for what I thought was an injury from a car
accident in July of this year. However, during his examination, my
doctor became concerned about a lump in my neck. The doctor referred me
for diagnostic screening and a biopsy. The biopsy showed that it was
cancer. My oncologist recommended that I have laser surgery to remove
swollen lymph nodes in my neck, as well as a lesion on my tongue.
Five days before my scheduled surgery, the administrative staff at
the hospital informed me that they had canceled my appointments and
procedures. They explained to me that my insurance company had told
them I had reached the annual benefits maximum on my policy for the
2010 calendar year. Of course I was confused and devastated by the
information they provided me. I knew I had a $20,000 annual cap on my
policy, but I also knew I had not been to the doctor for any medical
care or procedures that cost anywhere near $20,000 this year. I didn't
understand how the insurance policy I paid bi-weekly premiums for out
of my paycheck wasn't going to cover any of the treatments recommended.
I had just been diagnosed with cancer, and was trying to come to
grips with this news. No one ever wants to hear the dreaded words from
their doctor--``You have cancer.'' I thought I was going to get surgery
and start treatment, but instead I was told that the hospital couldn't
help me.
I immediately called my insurance company to find out why they told
the hospital they would not cover my surgery. That is when I found out
that instead of what I thought was a policy with a $20,000 annual limit
for all services, the $20,000 limit was divided into benefit
categories. My policy actually has a $2,000 annual limit on physician
visits and out-patient treatments, and an $18,000 annual limit on
hospitalizations. Further, the hospitalization coverage does not cover
payment for physicians or medications--only room and board. As I
learned, cancer treatments such as chemotherapy, radiation and surgery
are done in doctor's offices or at an out-patient treatment center so
my treatments would not be covered by my plan.
As an individual recently diagnosed with cancer, the $2,000 that my
policy provides me annually for doctor's visits and out-patient
treatment doesn't even begin to cover the cost of the life-saving
treatments I need for my oral cancer. Instead of receiving the
treatments my doctor prescribed and beginning my recovery, I have spent
the last few months struggling to piece together coverage to treat my
cancer.
Recently, I was able to enroll in the Medically Indigent Services
Program at Riverside County Regional Medical Center in Moreno Valley,
California. Even though I finally have access to treatment, I do not
feel that I am receiving the same treatment that I would have if I had
health insurance. Just last week, the doctors at the program informed
me that they are now only planning to treat my cancer with chemotherapy
and radiation, despite the earlier recommendation from my oncologist
for a laser procedure and surgery. It has now been months since my
diagnosis and I continue to experience significant discomfort on my
tongue and neck due to the cancer, and swollen lymph nodes in my neck.
The insurance that I have has fallen far short of what I need to
fight a chronic disease such as cancer. I hope my testimony today will
make a difference. I don't want anyone else to have to go through what
I am going through. I hope that you will continue to support the full
implementation of the Affordable Care Act so that employees like me can
have access to comprehensive health care coverage that is transparent,
and presented to people in terms that they understand.
The Chairman. Thank you, Mr. Melville, very much.
And now, Mr. Aaron Smith is Co-Founder--and I guess if you
co-found, you get to be Executive Director, it's part of the
deal--of a very impressive group called Young Invincibles----
Mr. Smith. Chairman Rockefeller----
The Chairman.--a misleading name.
Mr. Smith. Thank you.
STATEMENT OF AARON SMITH, CO-FOUNDER
AND EXECUTIVE DIRECTOR, YOUNG INVINCIBLES
Mr. Smith. Chairman Rockefeller, Ranking Member Hutchison,
and other members of the Senate Commerce Committee, thank you
for having me here today.
My name is Aaron Smith, and I am the Co-Founder and
Executive Director of Young Invincibles. Young Invincibles is a
nonprofit, nonpartisan organization that advocates on behalf of
young adults, ages 18 to 34. Founded by a group of students and
young workers during the healthcare reform debate, Young
Invincibles sought to provide a voice for young adults in
Washington on an issue that directly affects millions of young
Americans.
We have continued that work since the passage of the
Affordable Care Act. We recently submitted two amicus briefs in
support of the law in federal district courts in Virginia and
Florida. And this fall, we coordinated a national education
campaign on the dependent coverage provision, a benefit that
will allow over 2 million young adults to get covered on their
parents' plan up to age 26.
The healthcare needs of young adults are rarely discussed,
yet about 21 million young adults are currently uninsured--the
largest group in the country. The term ``young invincible'' is
based on the false idea that young adults do not want to buy
insurance because they think they do not need it. In reality,
young adults want insurance, but numerous factors act as
barriers, such as low wages and jobs without benefits. The
problem is compounded by an extremely high youth unemployment
rate, now over 18 percent for 16- to 24-year-olds.
Mini-med plans disproportionately impact young adults, in
part because we make up a large percentage of the restaurant,
retail, and temporary staffing industries that use these plans.
A look at Aetna mini-med data underscores the impact on young
adults. Almost 40 percent of enrollees on Aetna mini-meds are
under the age of 30.
Why are mini-meds a problem for young workers? After all,
something is better than nothing, right? This is the argument
that you will hear in support of mini-med plans. But, mini-med
plans are a problem for young adults, as the following story,
one of several we have received on the topic, makes clear.
A 24-year-old man lives in Michigan. He has autism. For the
past few years, he was fortunate to have a job with a retail
chain store, making $8 an hour and working 20 to 30 hours per
week. When he took the job, the young man was told about a
health insurance option for employees that would cost only $100
a month. It was a significant part of his paycheck, but he and
his parents knew that having insurance was important. They
assumed it would cover his basic needs, so he signed up.
Unfortunately, last year the young man had a seizure as a
result of his condition. He and his parents expected his
insurance to cover him. They were wrong. His insurance plan did
not cover the ambulance ride, the CAT scan, the emergency room
visit, or the prescriptions to treat him, following his
emergency. He did not have the money to pay for all of his
care, so his family was forced to pay over $3,000 out-of-pocket
for this one incident.
The young man and his mother now say that if they had known
his insurance covered so little, then they would have at least
tried to buy private insurance to protect themselves.
Fortunately, this young man was able to get back on his
father's plan this year, due to the new provision allowing
young adults to stay on their parents' insurance up to age 26.
While he will still struggle with his condition for the rest of
his life, at least he and his family can worry less about his
medical needs being covered.
This story illustrates some key problems with mini-med
plans. First, with benefit caps often as low as $5,000, young
adults on mini-meds often face thousands of dollars in medical
bills should they get sick or injured. And, despite the myths,
young adults have significant medical needs. Nearly one in
young ten adults have between $5,000 and $50,000 in medical
bills each year. And young adults 19 to 29 go to the emergency
room more than any other age group under the age of 75. One
emergency room visit can easily cost thousands of dollars, and
on a mini-med plan, many of these costs are paid out of pocket
and, at times, can go uncompensated. It can even mean
bankruptcy for a young adult making $8 an hour with no savings.
Second, mini-med plans are often deceptively advertised to
young workers as full coverage, when, in fact, they are not
comprehensive at all. For first-time health insurance consumers
new to the system and the terminology, this can be particularly
problematic. A recent survey of college students found that
only 29 percent understood the meaning of a premium, and only
30 percent knew what a lifetime coverage limit meant. Insurance
plans and their maze of deductibles, benefit caps, co-
insurance, et cetera are complicated enough for even
experienced consumers. For young people completely new to the
insurance system, distinguishing types and quality of insurance
is that much more difficult. As a result, they are even more
susceptible to the economic allure of mini-meds and their
apparent affordability.
Of course, primary and preventive care are good things in
and of themselves. If employers want to offer workers and
inexpensive preventive care package or discounted access to a
clinic, we would welcome that. But, that is not what's
happening here. Instead, many employers advertise these mini
plans--mini-med plans--as real insurance, because it attracts
workers who desperately want to be covered, when, in fact,
these plans will not cover you when you need it the most. Mini-
med plans are simply not adequate coverage.
Young Invincibles will be paying close attention as
insurers report more information on their mini-med plans. Our
goal is to move as quickly and smoothly as possible toward full
implementation in 2014, a time when young adults should have a
variety of affordable quality options for insurance. By that
point, mini-med plans should be a thing of the past. Yet,
employers can, and should, help now to transition to a system
where all Americans have a decent standard of coverage. It is
in all of our best interests to bring young workers into the
health insurance system to pay their fair share for affordable
medical care that will keep them healthy, productive, and ready
for the future. Surely, that is a goal we can all get behind.
Thank you.
[The prepared statement of Mr. Smith follows:]
Prepared Statement of Aaron Smith, Co-Founder and Executive Director,
Young Invincibles
Chairman Rockefeller, Ranking Member Hutchinson, and other members
of the Senate Commerce Committee: thank you for having me here today.
My name is Aaron Smith and I am the Co-Founder and Executive Director
of Young Invincibles.
I. Young Invincibles
Young Invincibles is a non-profit, non-partisan organization that
advocates on behalf of young adults, ages 18 to 34. Founded by a group
of students and young professionals during the health care reform
debate, Young Invincibles sought to provide a voice for young adults in
a process that too-often excluded young people.
Our name, ``Young Invincibles,'' comes from an insurance industry
term illustrating a belief that so many young adults are uninsured
because they perceive themselves as ``invincible.'' Our research and
our own experiences tell us that, in fact, the opposite is true. Young
people want and need coverage but are confronted by a broken system
filled with obstacles to quality, affordable insurance. As we got
involved in the fight for health care reform, we added a slogan to our
name: ``because no one is invincible without health care.''
During the health care reform debate, Young Invincibles joined in
coalition with over twenty national youth-focused organizations, such
as Rock the Vote and U.S. PIRG, with a combined membership of more than
1.5 million young adults. The coalition adopted a policy platform that
sought to provide comprehensive, affordable coverage for young adults
and to fix the broken system for all Americans. Those policies included
staying on a parent's plan up to age 26, a key provision that has
already begun to help young people and families, and could provide
coverage for over 2 million young adults.
Young Invincibles chose to support the Patient Protection and
Affordable Care Act (``ACA'') because it would help provide coverage to
the vast majority of uninsured young adults in the country, and provide
both improved consumer protections and more affordable, better quality
health for the millions who already have coverage.\1\ The ACA provides
insurance tax credits to individuals making up to 400 percent of FPL,
thus making health care more affordable for millions of young
Americans. Almost 9 million young adults ages 18 to 34 are limited-
income, earning between 133 percent and 400 percent of FPL, and will
qualify for tax credits.\2\ The ACA also requires states to expand
Medicaid coverage to all individuals making less than 133 percent of
FPL, regardless of whether the individual has a child or a disability.
Before the ACA, states generally only covered young adults with
children. The expansion of Medicaid could cover nearly 7 million
currently uninsured young adults.\3\ Access to this coverage will allow
young adults with chronic conditions to find treatment, give healthy
young adults an option to maintain their health, and generally provide
a health care backstop for a generation that is struggling in a tough
economic recession.
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\1\ See YI Want Change, Comprehensive Insurance: Not Insurance In
Name Only: YIWC Analysis of Catastrophic Plan and Dependent Coverage,
(December 2009).
\2\ U.S. Census. (2009-2010). Current Population Survey: Annual
Social and Economic Supplement.
\3\ Id.
---------------------------------------------------------------------------
Young Invincibles has continued its work to give young adults a
voice in the legislative, regulatory and legal process by informing
lawmakers, courts and relevant organizations about the unique needs of
young adults , and by organizing grassroots campaigns to educate our
generation. We strive to give young adults all the information and
tools they need to get covered, get care, and get involved. The focus
of this work is formed through interaction with thousands of young
adult members around the country and extensive research on young adults
and the health care system.
This summer, Young Invincibles launched Getting Covered, a national
campaign promoting the dependent coverage provision in ACA that took
effect on September 23, 2010. YI worked with over 20 national
organizations, ranging from AARP to Small Business Majority, to provide
information to young adults and parents. We developed a website,
GettingCovered.org, that acts as a central hub where young adults,
parents and employers can get comprehensive information about how
dependent coverage works, personalized information about their coverage
options and the capacity to easily share coverage information with
family and friends. The site includes an ``Employer Answer Center'' to
respond to questions from small businesses and local Chambers of
Commerce. To spread the word about the dependent coverage provision,
Young Invincibles co-hosted a webcast tele-town hall with AARP in
California that drew over 11,500 participants. To mark the occasion of
the provision taking effect in law on September 23, we helped
coordinate more than 80 events in 25 states around the country.
Young Invincibles has also weighed in on the debate over health
care reform now taking place in our federal courts. We submitted amicus
briefs in the cases currently underway in the Eastern District of
Virginia and the Northern District of Florida, offering a policy
argument on behalf of our generation in defense of the law's
constitutionality. Additionally, Young Invincibles is an active
participant in the ongoing process of implementation. We have submitted
comments about dependent coverage and the insurance exchanges to Health
and Human Services (HHS). At the state level, we have been asked to sit
on the New York State Health Care Reform Advisory Committee. And we are
hard at work developing a state implementation `'blueprint'' that will
help all states implement reform in a way that best meets the needs of
young adults.
II. The Challenges of Young Adults in the Health Care System
About 21 million young adults are currently uninsured, the largest
age group of uninsured in the country. Young adults make up 26 percent
of the population under the age of 65, but account for 42 percent of
the uninsured in that demographic.\4\ Millions more remain
underinsured, enrolling in barebones coverage that leaves them without
access to everyday care.\5\ The high rate of uninsured young adults
does not reflect a free choice by young Americans to go without
insurance, but rather the lack of affordable, worthwhile coverage
options. Polling shows that majority of young Americans favor the ACA,
in part because of the pervasiveness of coverage barriers for our
generation and the possibility of new insurance options.\6\
---------------------------------------------------------------------------
\4\ Id.
\5\ Families USA, Barebones Insurance Would Do Little to Help
Uninsured Working Families, May 4, 1999, available at http://
www.familiesusa.org/resources/newsroom/statements/1999-statements/
press-statementbarebones-insurance-would-do-little-to-help-uninsured-
working-families.html.
\6\ Gallup, June 22, 2010, available at http://www.gallup.com/poll/
140981/Verdict-Healthcare
-Reform-BillDivided.aspx.
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A. The Myth of the Young Invincible
The term ``young invincible'' is based on the false premise that
young adults simply do not want to buy insurance coverage because they
think that they do not need it. The reality is much more complicated.
Numerous factors act as barriers to coverage for young adults, from
low-incomes to the scarcity of entry-level jobs with benefits. In fact,
evidence shows that young adults want and need health insurance and
will buy it readily when given the opportunity.\7\
---------------------------------------------------------------------------
\7\ See Jennifer Nicholson, et al., Commonwealth Fund, Rite of
Passage? Why Young Adults Become Uninsured and How New Policies Can
Help, 2009 Update, 2009, at 6, available at http://
www.commonwealthfund.org/ /media/Files/Publications/Issue%20Brief/2009/
Aug/1310_Nicholson_rite_of_passage_2009.pdf (``Rite of Passage?
2009''); see also Gallup, Income Trumps Health in Young Adults'
Coverage, February 26, 2010, available at http://www.gallup.com/poll/
126203/income-trumps-health-status-young-adults-coverage. aspx.
---------------------------------------------------------------------------
A major reason behind the high uninsurance rate for young adults is
that they more often lack access to employer-sponsored health
insurance, which is the source of insurance for the vast majority of
Americans. Only 53 percent of young adults ages 19 to 29 have access to
employer-sponsored insurance, as compared to 76 percent of adults over
30.\8\ The lack of employer-sponsored insurance is partly due to the
staggeringly high unemployment rate for young adults. For 16 to 24
year-olds, the unemployment rate is currently about 18 percent, nearly
twice the national average.\9\ Another factor is that many young adults
take low-paying entry-level jobs that do not offer benefits,
particularly in the retail and restaurant industries. Finally, the
current job market often requires young adults to seek internships and
apprenticeships to gain experience and advancement, positions that
rarely offer benefits.
---------------------------------------------------------------------------
\8\ Nicholson, supra note 7.
\9\ Rory O'Sullivan and Barbara Ray, Economy Hammers Already
Vulnerable Young Adults, Young Invincibles, 2010 available at http://
www.younginvincibles.org/News/Releases/2010
1105_Unemployment_Issue_Brief.pdf.
---------------------------------------------------------------------------
For young adults who do not have access to employer-sponsored
insurance, purchasing individual market insurance can be an option,
but, given the cost, it is usually not tenable. The average young adult
with no access to employer-sponsored insurance earns $14,746 per
year.\10\ The average annual cost of an individual plan offered to a
relatively healthy 27-year-old is $1,723.\11\ In other words, an
individual insurance plan would be well over 10 percent of the young
adult's income, a significant burden for a low-income individual
already struggling to make ends meet.
---------------------------------------------------------------------------
\10\ U.S. Census.
\11\ AHIP Center for Policy Research, Individual Health Insurance
2009: A Comprehensive Survey of Premiums, Availability and Benefits
(October 2009).
---------------------------------------------------------------------------
Premiums for those young adults with a pre-existing medical
condition are even higher.\12\ The ``offer rate'' on the individual
market for a young adult between 18 and 34 with a pre-existing
condition (the frequency with which the consumer is offered coverage by
an individual market insurer) is roughly equal to someone with a
preexisting condition between the ages of 35 and 49.\13\ But the 35 to
49 year-old is 15 percent more likely to have employer-sponsored
coverage, meaning that young adults with pre-existing conditions have
fewer options than their older counterparts.\14\ Given the average
wages of young adults without employer-sponsored coverage, these
individuals, who need care, will be among the least able to afford it.
---------------------------------------------------------------------------
\12\ Id.
\13\ Id.
\14\ Id.; U.S. Census, supra note 2.
---------------------------------------------------------------------------
By contrast, studies show that when health insurance is made
affordable and available, young adults eagerly enroll. When young
adults between the ages of 19 to 29 are offered affordable health
insurance through their employers, 78 percent enroll, compared to 84
percent of adults over age thirty.\15\ These similar enrollment rates
demonstrate that uninsurance among young adults reflects the lack of
affordable options, not a cultural opposition to coverage.
---------------------------------------------------------------------------
\15\ Nicholson, supra note 7.
---------------------------------------------------------------------------
Moreover, young adults with higher income levels are far more
likely to have insurance. The uninsured rate is just 14 percent for
young adults living over 400 percent of the federal poverty line
(``FPL''), but rises to 46 percent for young adults making less than
200 percent of the FPL.\16\ With about 37 percent of young adults
living below 200 percent of the FPL, it is no surprise that young
adults have the highest uninsurance rate of any age group.\17\
---------------------------------------------------------------------------
\16\ U.S. Census, supra note 2; see also Gallup, Income Trumps
Health in Young Adults' Coverage, February 26, 2010, available at
http://www.gallup.com/poll/126203/income-trumps-health-status-young-
adults-coverage.aspx.
\17\ U.S. Census, supra note 2.
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The simple facts show that when insurance is made available to
young adults, either by providing it through employers or by providing
an individual option within their economic means, they get covered.
With ACA promising to cover millions more uninsured young Americans and
improve options for the already insured, it is therefore not surprising
that young adults are the age group most supportive of the health care
reform law.\18\
---------------------------------------------------------------------------
\18\ Gallup, June 22, 2010, available at http://www.gallup.com/
poll/140981/Verdict-Health
care-ReformBill-Divided.aspx.
---------------------------------------------------------------------------
III. Mini-Med Plans and Young Adults
Estimates of the number of enrollees in mini-meds vary, but
insurers state that it could be over 2 million consumers. It is
difficult to determine exactly how many of those enrollees are young
adults, but a basic understanding of the industries using mini-meds
make it clear that young adults are disproportionately impacted. Mini-
meds are typical of the restaurant industry, and in particular fast
food chains, as well as temporary staffing agencies. Young adults under
30 make up over half of restaurant industry employees.\19\ More
broadly, young adults under age 35 make up 41 percent of the employment
services industry, but only 35 percent of workers as a whole.\20\
---------------------------------------------------------------------------
\19\ Restaurant Industry, Small Business and Technology Development
Center, 2005, available at http://www.sbtdc.org/pdf/restaurant.pdf.
\20\ Career Guide to Industries, 2010-11 Edition, Bureau of Labor
Statistics, available at http://www.bls.gov/oco/cg/cgs039.htm.
---------------------------------------------------------------------------
A quick look at Aetna mini-med plans underscores this point. About
39 percent of enrollees on Aetna mini-meds are under age 30, though
young adults under age 30 make up only about 25 percent of the labor
market as a whole.\21\ While mini-meds do affect Americans of all ages,
the impact is particularly great for young workers.
---------------------------------------------------------------------------
\21\ Background Of Aetna Affordable Health Choices*Limited Benefit
Plans, Loss Of Health Coverage For Persons In Employer-Sponsored Group
Limited Benefit Plans, May 3, 2010; U.S. Census.
---------------------------------------------------------------------------
A. A Young Adult on a Mini-Med Plan
Young Invincibles often receives stories from young adults and
families around the country who have had troubles with the current
health care system, including with mini-med plans. Here is one (names
removed at request of the person):
A 24-year-old young man lives in Michigan. He has autism. For the
past few years, he was fortunate to have a job with a big-box retail
chain store making
$8/hr and working 20-30 hours per week. When he took the job, the young
man was told about a inexpensive health insurance option for employees
that would cost only $100/month. It was a significant part of his
paycheck but he and his parents thought having insurance was worth it.
The coverage was advertised as normal health insurance so the young man
assumed it would cover his basic needs. He signed up for the option,
and had the $100 taken out of his paycheck each month. Unfortunately,
last year the young man had a seizure as a result of his condition. He
and his parents expected his insurance to cover his condition. They
were wrong. His insurance plan did not cover the ambulance ride, the CT
scan, an EEG and other tests, the emergency room visit or the
prescriptions to treat the young man following his emergency. He did
not have the money to pay for all his care so his family was forced to
pay over $3,000 out-of-pocket for this one incident, despite the fact
that he was supposed to have coverage. The young man and his mother
feel that if they had known that his insurance covered so little, then
they would have at least tried to buy private insurance to protect
themselves.
Fortunately, the young man was able to go back on his father's plan
this year due to the provision in the Affordable Care Act that allows
young adults to stay on their parent's insurance up to age 26. While he
will still struggle with his condition, at least he and his family can
worry a little bit less about his insurance.
A. The Problem with Mini-Med Plans for Young Adults
The current recession has exacerbated long-term labor market trends
impacting young adults. Over the past 30 years, jobs for young adults
have become more unstable, and wages have stagnated. The types of jobs
and benefits available to young adults have also changed. Many entry-
level positions, the kind available to most young adults after high
school or college do not provide comprehensive insurance coverage. This
type of low-wage, low-benefit labor market in part has led to the rise
of mini-meds, which are advertised by insurance companies as an
inexpensive way to retain and attract low-wage employees. In many of
these plans, the employer provides no contribution, as they typically
do for more comprehensive employer-based insurance. Employees can only
afford mini-med plans because the coverage is so minimal, with benefit
caps often below $10,000.\22\ As a result, workers who get sick or
injured and truly need insurance may end up paying thousands of dollars
out-of-pocket.
---------------------------------------------------------------------------
\22\ Background Of Aetna Affordable Health Choices Limited Benefit
Plans, Loss Of Health Coverage For Persons In Employer-Sponsored Group
Limited Benefit Plans, May 3, 2010; U.S. Census.
---------------------------------------------------------------------------
The problems associated with mini-meds, however, are compounded
when marketed to consumers who are less experienced and less
knowledgeable about health insurance and the health care system
overall. Most young adults are completely new to insurance, and the
choice of a mini-med plan may be their first insurance decision. Many
struggle to understand the common industry terms used in mini-med
promotional materials. For example, a recent survey of college students
done by eHealthInsurance.com, one of the largest online brokers, found
that less than half of young adults surveyed could confidently define
basic health insurance terminology, only 29 percent understood the
meaning of a ``premium,'' and only 30 percent knew what a ``life-time
coverage limit'' meant.\23\ The problems are certainly not limited to
college students. A recent survey of insured adults found that 52
percent thought that reading Shakespeare was easier than reading their
health insurance policy.\24\
---------------------------------------------------------------------------
\23\ eHealth, eHealthInsurance 2010 College Graduates Survey: No
Work, No Health Insurance, No Clue, Marketwire, May 19, 2010, available
at http://www.marketwire.com/press-release/eHealthInsurance-2010-
College-Graduates-Survey-No-Work-No-Health-Insurance-No-Clue-NAS
DAQ-EHTH-1263012.htm.
\24\ Business Wire, Inc., New Consumer Education Website Helps
Simplify Health Benefits Decisions in Era of Health Care Reform,
Insurancenewsnet.com, Oct. 13, 2010, available at http://
insurancenewsnet.com/article.aspx?id=230225&type=newswires.
---------------------------------------------------------------------------
Yet, the fine print on mini-med insurance policies is particularly
confusing. For example, a mini-med plan will often have a totally
different benefit cap for annual expenses, inpatient services,
outpatient services, emergency room visits, and preventive care.\25\
With so many different benefit caps, it becomes increasingly difficult
for even the most experienced consumer to judge how much coverage they
are actually receiving, let alone a young adult who is new to the
market. Even professionals in the health insurance industry acknowledge
that these plans can be extremely confusing for workers.\26\
---------------------------------------------------------------------------
\25\ Background Of Aetna Affordable Health Choices Limited Benefit
Plans, Loss Of Health Coverage For Persons In Employer-Sponsored Group
Limited Benefit Plans, May 3, 2010; U.S. Census.
\26\ HR.BLR.com, Can't Afford Insurance? Try a Mini-Med Plan, May
9, 2007, available at http://hr.blr.com/whitepapers/Benefits-Leave/
Healthcare-Insurance/Cant-Afford-Insurance-Try-a-MiniMed-Plan/.
---------------------------------------------------------------------------
In sum, young adults are disproportionately likely to be on mini-
med plans, but disproportionately likely to be less informed about how
insurance operates or how mini-meds actually work. That makes young
adults more susceptible to insurance plans that are sold as ``real''
coverage but are actually far from comprehensive.
It should not shock anyone that a $1,000, $5,000 or $50,000 cap on
coverage does not provide adequate coverage to young adults. A biking
accident, a kidney stone or a pregnancy all cost more than the $2,000
annual benefit cap in the basic McDonald's mini-med plan. While young
adults are comparatively healthy, they still incur significant health
costs each year. Approximately 8.6 percent of young adults between the
ages of 18 and 30 had medical claims between $5,000 and $50,000 in
2010, or about 4.6 million young adults. In contrast, only .15 percent
of that age cohort had annual costs between $50,000 and $100,000.\27\
This data shows first that the current benefit caps found in many mini-
med plans are not sufficient to meet the health needs of young people
who can easily have thousands of dollars in medical costs. Second, the
data suggests that the hundred thousand dollar accidents and illnesses
that drive up premiums and spur employers to avoid more comprehensive
coverage is not typical of this population and therefore is less of a
financial risk for insurers. This is also in line with what we have
found in other types of limited benefit plans offered to young adults,
where raising or eliminating benefit caps has a relatively small impact
on premiums. In other words, providing comprehensive insurance that
covers the health needs of young workers is both necessary and
affordable.
---------------------------------------------------------------------------
\27\ Agency for Healthcare Research and Quality, Medical
Expenditure Panel Survey (MEPS), available at http://www.meps.ahrq.gov/
mepsweb/.
---------------------------------------------------------------------------
This niche of the health insurance market has exploded in large
part because young adults--and low and moderate income adults--want
some form of coverage. Many young adults understand that it is their
responsibility to themselves and to society as a whole to get covered.
The danger of mini-med plans is that they take advantage of consumers
who want to do the right thing, but may not have enough knowledge or
experience to know that the coverage they are getting can be, in
practice, barely more than no coverage at all.
B. The Impact of Not Having Decent Insurance
Having a mini-med plan or any substandard insurance policy can have
negative health and financial consequences for young adults. Young
adults do suffer from chronic illnesses, catastrophic accidents and
more unpredictable health crises: they are not invincible. They also
need preventive care. And given their lower incomes, young adults often
face serious financial troubles when forced to pay out-of-pocket for
health expenses. In short, a lack of quality, affordable insurance has
long-lasting consequences to the health and economic opportunity of
young adults.
a. The Need for Care
Young adults need medical care to treat chronic conditions, care
for sudden accidents or illnesses, and provide critical preventive
services. Approximately 15 percent of young adults live with a chronic
health condition such as asthma, diabetes, or cancer that requires
ongoing care.\28\ Another 9 percent grapple with depression or anxiety
disorders.\29\ These conditions worsen without treatment, resulting in
higher health care costs later. Moreover, almost 16 percent of young
adults, ages 18 to 24, and 21 percent of young adults, ages 25 to 34,
have what is classified as a ``pre-existing condition'' and are often
excluded from the individual market altogether.\30\
---------------------------------------------------------------------------
\28\ Nicholson, supra note 7.
\29\ Id.
\30\ Families USA, Health Reform: Help for Americans with
Preexisting Conditions, at 3, available at http://www.familiesusa.org/
assets/pdfs/health-reform/preexisting-conditions.pdf.
---------------------------------------------------------------------------
Preventive care is critical to protect the future health of both
the healthy and chronically ill. While some mini-med plans may cover
basic vaccines or primary care visits, they often do not cover the full
range of preventive care that even young adults need, particularly if
they have a chronic condition that needs ongoing care.
Additionally, young adults often experience accidents or unexpected
illnesses. Rates of motor vehicle accidents, sexually transmitted
diseases, and substance abuse are at their highest in young
adulthood.\31\ As a result of the higher accident rate, young adults
ages 19 to 29 find themselves in the emergency room more than any other
age group under the age of 75.\32\ Even the healthiest young adult,
then, is never more than an instant away from entering the health care
market where they will need insurance to afford proper care.
Unfortunately, the low benefit caps on mini-med plans mean that a trip
to the emergency room can quickly equal thousands of dollars in out-of-
pocket expenses for a young adult.
---------------------------------------------------------------------------
\31\ Robert Fortuna and Brett Robbins, Dependence on Emergency
Contracts among Young Adults in the United States, (2010), available at
http://resources.metapress.com/pdf-preview.axd?code=wv5
8867474626077&size=largest.
\32\ M. Jane Park, et al., The Health Status of Young Adults in the
United States, Journal of Adolescent Health, 39, (2006), available at
http://download.journals.elsevierhealth.com/pdfs/journals/.
---------------------------------------------------------------------------
b. Medical Bankruptcies
Young adults generally find it more difficult to pay medical costs
when they do access care. Of those uninsured young adults who sought
medical attention, 60 percent reported difficulty paying for their
treatment, compared to just 27 percent of insured young adults.\33\
About two-thirds of young adults earn below 400 percent of the FPL, or
approximately $43,320.\34\ This limited-income population has little
opportunity to buildup savings. As a result, when they do face a
medical crisis, they often face medical bankruptcies at much higher
rates than their older counterparts.\35\ While data is limited as far
as the number of mini-med enrollees who enter bankruptcy due to medical
bills, we expect that given the low benefit caps in mini-med plans,
young adults on these plans would be more susceptible to medical
bankruptcy than young adults with comprehensive insurance.
---------------------------------------------------------------------------
\33\ Id.
\34\ U.S. Census.
\35\ Michelle Doty, et al., Commonwealth Fund, Seeing Red:
Americans Driven Into Debt By Medical Bills, August 2005 Issue Brief
(2005), at 2, available at http://www.commonwealth
fund.org/usr_doc/837_Doty_seeing_red_medical_debt.pdf.
---------------------------------------------------------------------------
IV. Conclusion
Despite the myths, young adults have serious health needs and
require quality, affordable health insurance to pay for medical care.
They are also a population that wants to enroll in the kind of
comprehensive coverage that provides such care. Because of their
relative lack of economic power and options and because they are
typically less sophisticated consumers, young adults too often find
themselves with substandard insurance products they do not understand.
Mini-med plans are a prime example of this problem. The low benefit
caps means that many--perhaps even most--young adults on these plans
face significant financial risk should a medical emergency arise,
defeating the whole purpose of insurance. Moreover, these plans are too
often marketed in a deceptive way that gives less experienced consumers
of health insurance the false impression that they have a decent level
of coverage.
The reality for a young person on a mini-med plan who has to go to
the emergency room or who has a more sustained health condition is that
they do not have adequate coverage. Sadly, many of these young workers
find themselves saddled with medical debt and simultaneously become a
burden on their families and the rest of the health care system. Young
adults need quality, affordable insurance to maintain good health and
encourage earlier, more consistent treatment that is both more
effective and better for the health insurance system overall.
Despite the obvious flaws in mini-med plans, it is an encouraging
sign that employers see providing insurance as a valuable and necessary
benefit for their employees. Young Invincibles would gladly work with
employers transitioning from mini-med plans to more quality, affordable
health insurance. The profits made by insurance companies on mini-med
plans suggest that a transition toward better value is both realistic
and desirable. Such a move will not only be welcomed by workers, young
and old, but could have positive effects on productivity and worker
satisfaction. Thankfully, young adults will have many more options in
2014 with the full implementation of ACA, with millions likely to get
affordable, comprehensive insurance through subsidies in the exchange
or Medicaid. That is a very good thing. Mini-med plans by that point
should be a thing of the past. Yet, employers can help now to
transition to a system where all Americans have a decent standard of
coverage. Bringing young workers into the health insurance system, to
pay their fair share for affordable medical care that will keep them
healthy and ready for the future, should be a goal that we can all get
behind.
The Chairman. Thank you very much, Aaron Smith.
And now, Mr. Richard Floersch, who is the Executive Vice
President and Chief Human Resources Officer of the McDonald's
Corporation.
We welcome you.
STATEMENT OF RICH FLOERSCH,
EXECUTIVE VICE PRESIDENT FOR HUMAN RESOURCES,
McDONALD'S CORPORATION
Mr. Floersch. Thank you.
Chairman Rockefeller and members of the Committee, I am
Rich Floersch, Executive Vice President for Human Resources at
McDonald's Corporation.
More than 3,100 independent small business owners, or
franchisees, own and operate nearly 12,500 McDonald's
restaurants throughout the United States. McDonald's USA owns
and operates approximately 1,500 additional restaurants.
For many of our employees, McDonald's is their first job.
Our goal is to provide those employees with competitive
compensation and benefits. Health insurance is, of course, but
one of a suite of benefits, such as dental, vision, and
retirement savings, provided to our employees. We have sought
to match the health insurance options we make available to the
needs, desires, and capabilities of our employees.
To understand the options we provide to our employees, it
is important to understand a little bit about our employees. At
restaurants owned by the company, over three-quarters of our
crew employees work part-time, averaging slightly less than 18
hours per week. There is considerable turnover, and the tenure
of crew employees tends to be rather short, lasting about 17
months. Most often, by 18 months the employee has either left
McDonald's, perhaps to return to school, or been promoted to a
more senior position.
At McDonald's, we are proud of our long tradition of
promoting from within. Today, 70 percent of our restaurant
managers, 50 percent of our corporate staff, and, indeed, 40
percent of our top 50 executives are remarkable individuals who
started their career in an entry-level position at a McDonald's
restaurant.
For the crew at company-owned restaurants, nearly 80
percent of which are hourly part-time employees, we offer four
choices for health insurance. Three are low-cost limited-
benefit plans and one is a higher-cost comprehensive medical
option. The comprehensive plan provides significantly higher
benefit levels, but, naturally, at a higher premium. If the
employee elects any one of these plans, McDonald's contributes
$10 a month during their first year of employment, and $20 a
month thereafter, until such time as the individual is promoted
to a longer-term, full-time position with eligibility for our
core benefit plans.
The three limited-benefit plans have different annual
benefit limits--$2,000, $5,000, or $10,000--and correspondingly
higher premiums. McDonald's works hard to make sure that its
employees understand the coverage limitations, as well as the
benefits provided by these plans. All of the documentation
provided to employees details the limited nature of the
coverage.
Whether or not an employee has reached their annual
insurer-paid benefit limit--and very few do--they continue to
benefit from their participation in the plans. They receive
significantly reduced prices for prescription drugs and
healthcare services through negotiated discounts.
Given the high and continually increasing cost of
healthcare, those annual insurer-paid benefit limits may appear
low. Yet, it is important to note that, even though the lowest
annual benefit plan is overwhelmingly the most popular choice
amongst our hourly employees, approximately 90 percent of
covered employees do not reach the annual limit for these
benefits.
Although we do not have the ability to direct franchisees
on the wages and benefits they provide to their employees, we
did insist that our insurance carrier make available the same
plans to our franchisees. We are pleased that, over the past 5
years, participation in these health plans has increased over
threefold, and now nearly 80 percent of franchisees offer these
plans.
For those employees who are making McDonald's a career,
including all restaurant managers, assistant managers,
certified swing managers, primary maintenance employees, and
corporate staff, we offer several comprehensive plans. These
plans are designed so that higher-compensated employees are
required to pay significantly more in premiums than lower-
compensated employees.
With respect to our limited-benefit plans, based on numbers
provided by our carrier, the loss ratio for these plans
apparently has ranged from a low of 78 percent to a high of 91
percent over the past 5 years, with the most recent year being
86 percent.
In closing, earlier this fall, the Department of Health and
Human Services granted over 100 temporary waivers from certain
statutory benefit targets. Those waivers specifically exempted
plans made available to employees by many businesses and
unions. At the time, there were press reports that speculated
on what McDonald's would do if our current health insurance
carriers stopped offering limited-benefit plans. The removal of
these options only weeks before our next open enrollment period
would have been highly disruptive to the company and our
employees. We would have been forced to go back into the
insurance marketplace and obtain the best available affordable
options to offer our employees. We feared those options would
not measure up to those we currently offer. But, we would have
taken action to make sure that our employees were provided the
best health insurance options available.
At McDonald's, we are proud of the benefits that we offer
to our employees. We cannot control the rising cost of
healthcare. We cannot dictate what insurance products health
insurers are willing to offer. But, what we can do, and what we
are committed to continue doing, is to strive to make available
to our employees, and those of our participating franchisees,
benefit options that fit their needs.
Thank you.
[The prepared statement of Mr. Floersch follows:]
Prepared Statement of Rich Floersch, Executive Vice President for Human
Resources, McDonald's Corporation
Chairman Rockefeller and members of the Committee, I am Rich
Floersch, the Executive Vice President for Human Resources of
McDonald's Corporation. My team's responsibilities include determining
the various benefit programs that are available to the employees of
McDonald's and, in some cases, the employees of the thousands of small
businesses that own and operate the nearly 12,500 franchised McDonald's
restaurants around the nation.
I am here today to continue the informative discussion we have been
having with various policymakers concerning the health insurance
challenges facing organizations such as McDonald's and our employees as
well as our franchisees and their employees, given the ever increasing
cost of health care in America.
Let me start by describing our organizational structure. McDonald's
and its franchisees operate approximately 14,000 restaurants in the
United States. Nearly 12,500 of those restaurants are owned and
operated by more than 3,100 independent small business owners--
franchisees--throughout the United States. McDonald's USA owns and
operates approximately 1,500 restaurants in the United States.
Individuals working at those McDonald's-owned stores, along with those
of us who work for the corporation, are employees of McDonald's. Our
franchisees, and the people who work in the nearly 12,500 franchise-
owned restaurants, are employees of these individual small businesses.
For many of our employees, McDonald's is their first job. Our goal
is to provide those employees with competitive compensation and
benefits. Health insurance is, of course, but one of a suite of
benefits, such as dental, vision and retirement savings, provided to
our employees. We have sought to match the health insurance options we
make available to the needs, desires, and capabilities of our
employees. Indeed, to understand the options we provide to our
employees, it is important to understand a little bit about our
employees.
At restaurants owned by the company, over three-quarters of our
crew employees work part-time, averaging slightly less than 18 hours
per week. There is considerable turnover and the tenure of crew
employees tends to be rather short--lasting about 17 months. Most often
by 18 months the employee has either left McDonald's, perhaps to return
to school or take another job, or been promoted to a more senior
position. At McDonald's we are proud of our long tradition of promoting
from within. Many employees who started out as members of a restaurant
crew have moved on to supervisory or management positions. Today 70
percent of restaurant managers, 50 percent of corporate staff and
indeed, 40 percent of our top 50 executives are remarkable individuals
who started their career in an entry-level position at a McDonald's
restaurant.
We have worked hard to find affordable health insurance plans that
meet the needs of our restaurant employees. We utilized the services of
noted experts in this field. We believe that we have achieved the best
result that the marketplace allows. When we surveyed our crew employees
about their health care needs, they told us: 16 percent would not pay
for any health insurance; 18 percent were covered under another plan;
35 percent would be willing to pay $5-$10 per week for health
insurance; 20 percent would pay $11-$20 per week while 7 percent said
they would pay $21-$35. Only 3 percent of our crew indicated they would
pay more than $35 per week for health insurance.
For the crew at company-owned restaurants, nearly 80 percent of
which are hourly part-time employees, we offer four choices for health
insurance. Three are low cost limited benefit plans and one is a higher
cost comprehensive medical option. The comprehensive plan provides
significantly higher benefit levels, but naturally at a higher premium.
If the employee elects any one of these plans, McDonald's contributes
$10 a month during their first year of employment and $20 per month
thereafter until such time as the individual is promoted to a longer
term, full-time position with eligibility for our core benefit plans.
The three limited benefit plans have different annual benefit
limits--$2,000, $5,000 or $10,000--and correspondingly higher premiums.
McDonald's works hard to make sure that its employees understand the
coverage limitations as well as the benefits provided by these plans.
All of the documentation provided to employees details the limited
nature of the coverage.
Whether or not an employee has reached their annual insurer paid
benefit limit, and very few do, they continue to benefit from their
participation in the plans. They receive significantly reduced prices
for prescription drugs and health care services through negotiated
discounts with providers, as well as access to a 24/7 nurse care phone
line.
Given the high, and continually increasing, cost of health care,
those annual insurer paid benefit limits may appear low. Yet it is
important to note that, even though the lowest annual benefit plan is
overwhelmingly the most popular choice amongst our hourly employees,
approximately 90 percent of covered employees do not reach the annual
limit for these benefits. And again, even for those employees who reach
the benefit limit of the plan they chose, they continue to receive the
additional benefit of the substantial negotiated discounts on health
care services and prescriptions.
Although we do not have the ability to direct franchisees on the
wages and benefits they provide to their employees, we did insist that
our insurance carrier make available the same plans to our franchisees.
We have actively and successfully promoted participation at the
franchisee level, indeed, over the past 5 years, participation in these
health plans has increased over threefold and now nearly 80 percent of
franchisees offer these plans.
For those employees who are making McDonald's a career, including
all restaurant managers, assistant managers, certified swing managers,
primary maintenance employees and corporate staff, we offer several
comprehensive plans. These plans are designed so that higher
compensated employees are required to pay significantly more in
premiums than lower compensated employees.
I know that some criticize limited benefit plans not only for their
limits but also with respect to the ratio of benefits paid out compared
to premiums received. These are largely questions for insurance
carriers and were the subject of the regulations recently issued by
HHS--but I would offer the following observation regarding our
experience. Based on numbers provided by our carrier, the loss ratio
for the limited benefit plans offered to McDonald's hourly employees
apparently has ranged from a low of 78 percent to a high of 91 percent
over the past 5 years, with the most recent year being 86 percent, and
would appear to be comparable to the goals established in the recent
legislation.
Earlier this fall, the Department of Health and Human Services
granted over 100 ``temporary waivers'' from certain statutory benefit
targets. Those waivers specifically exempted plans made available to
employees by many businesses and unions. At the time there were press
reports that speculated on what McDonald's would do if our current
health insurance carrier stopped offering limited benefit plans. The
removal of these options only weeks before our next open enrollment
period for employees would have been highly disruptive to the Company
and our employees. We would have been forced to go back into the
insurance marketplace and obtain the best available affordable options
to offer our employees. We feared those options would not measure up to
those we currently offer. But we would have taken action to make sure
that our employees were provided the best health insurance options
available.
At McDonald's we are proud of the benefits that we offer to our
employees. We cannot control the rising cost of health care, we cannot
dictate what insurance products health insurers are willing to offer--
but what we can do, and what we are committed to continue doing, is to
strive to make available to our employees, and those of our
participating franchisees, benefit options that fit their needs. Thank
you.
The Chairman. All right, thank you.
Mr. Timothy Jost, who is Professor of Law, Washington and
Lee University School of Law.
Please.
STATEMENT OF TIMOTHY S. JOST, ROBERT WILLETT FAMILY PROFESSOR,
WASHINGTON AND LEE UNIVERSITY SCHOOL OF LAW
Mr. Jost. Thank you, Senator.
Good afternoon, Senator Rockefeller, Senator Hutchison, and
members of the Committee.
Once fully implemented in 2014, the Affordable Care Act
will dramatically reduce the number of uninsured Americans.
Equally important is the assistance that the legislation will
provide to underinsured Americans. It is estimated that 25
million Americans under the age of 65, 20 percent of all
insured American adults, are underinsured. Over half of them
report problems gaining access to care. Sixty-two percent of
bankruptcies in 2007 had a medical cause, and almost 70 percent
of those bankrupts were insured. $2.6 billion of their debt was
owed to healthcare providers, which is only a small part of the
$43 billion that healthcare providers lose every year because
of uncompensated care. Underinsurance is a serious problem for
American consumers and for American healthcare providers.
Between 1 and 2 million Americans have limited-benefit, or
mini-med, policies. These persons are often not fully aware of
how inadequate their coverage is. Two-hundred and fifty dollars
a day, for example, for hospital care, which is a reported
benefit for one such policy, does not cover 10 percent of the
average cost of hospitalization per day in the United States.
Once the Affordable Care Act, which, I'd like to mention,
was held constitutional again yesterday in a federal court--
since I'm a law professor--once it is fully implemented,
underinsurance will be largely eliminated. All health plans in
the individual and small group markets will be required to
cover federally-defined essential benefits, and caps will be
placed on out-of-pocket healthcare costs for all plans. Annual
dollar limits on essential health coverage will disappear. Most
importantly, premium tax credits and Medicaid expansions will
make it possible for Americans with poorly paid jobs to get
access to real comprehensive insurance. And many Americans
currently insured through mini-meds will probably be eligible
for Medicaid, once the Medicaid expansions go into place.
In the interim, however, significant protections are being
put in place for plan years beginning September 23, 2010.
Lifetime limits on coverage are banned, and annual coverage
limits go to $750,000 for 2011, and disappear by 2014.
Beginning next year, insurers in the individual and small
group market will also need to spend 80 percent of their
premium revenues on healthcare or quality improvement.
Beginning in 2012, all health plans will need to disclose their
plan benefits and limitations on coverage in a standard, easily
readable format. Limited-benefit plans will no longer be able
the hide the limits of their benefits.
Unfortunately, two of the most important September 23
reforms will not be applied immediately to limited-benefit
plans, as has been mentioned several times today. HHS has
waived the annual limits requirements for 1 year for plans
covering 1.175 million Americans. HHS has also announced that
health plans with annual limits of $250,000 or less will be
allowed to lower their minimum medical loss ratios from 80
percent to 40 percent.
I'd like to point out that both of these waivers are in
compliance with the law. Section 2711 authorizes HHS to waive
the annual limit requirement. Section 2718 allows it to adjust
the minimum medical loss ratio. So, HHS's actions here are
legal. They're also understandable. Prior to 2014, there may be
few affordable alternatives available that would benefit
enrollees. And for some--I don't believe all--but, for some
enrollees in mini-meds, they are better than nothing.
I'd like to also point out, at least, that I've heard from
HHS that the benefits in the plans for which it has allowed
waivers vary very significantly. The annual limits all under
$750,000 a year, but limits in some of the plans are much
higher than in other plans. And I understand that HHS is
planning to post on its website the actual amount of the annual
benefits of plans with waivers so that they can be seen.
The one requirement that HHS has imposed through its waiver
guidance, which I think is very important, is a requirement of
disclosure. Disclosure is very important, because, in some
instances, the premiums for limited-benefit plans are not
significantly different than those for comprehensive plans,
including higher-deductible plans. Alternative coverage may
also be available to some people who are on mini-meds through a
high-risk pool or through a state Medicaid program or a CHIP
program for their children. Moreover, enrollees who receive
limited-benefit plans through their employers may be able to
demand better coverage, or find an employer that offers better
coverage, if they fully understand how limited their benefits
are. There's no requirement, which I think is unfortunate, in
the HHS medical loss ratio rule that mini-meds give notice to
their enrollees of their lower target, but there should be, for
the same reason.
Limited-benefit plans leave Americans exposed to far too
great a level of financial and health risk. Until they
disappear, it is essential that these plans fully comply with
the requirements of the law, and that consumers be fully
informed of any waivers or adjustments granted to their plans,
and also that consumers truly understand how limited their
coverage is.
Thank you.
[The prepared statement of Mr. Jost follows:]
Prepared Statement of Timothy S. Jost, Robert Willett Family Professor,
Washington and Lee University School of Law
My name is Timothy Stoltzfus Jost. I hold the Robert Willett Family
Professorship at the Washington and Lee University School of Law. I
have taught and written about health law, and in particular health
insurance law, for thirty years. I am a consumer representative to the
National Association of Insurance Commissioners and have been heavily
involved in the implementation of the Affordable Care Act. Thank you
for the opportunity to speak to you today about limited-benefit health
insurance policies, also known as mini-medical plans.
Much has been made of the impact that the Affordable Care Act will
have on the uninsured once it is fully implemented, and rightly so. The
CBO estimates that the Affordable Care Act will reduce the number of
uninsured Americans by 32 million.
But equally important is the assistance that that the legislation
will provide to the underinsured. It is estimated that 25 million
insured adults under age 65, 20 percent insured American adults, were
underinsured in 2007.\1\ Seventy-one percent of Americans who are among
the top 25 percent of spenders on health care services and whose income
is at or below 200 percent of poverty were underinsured.\2\ Over half
of underinsured Americans report problems gaining access to care,
including over 40 percent who report not filling a prescription and 30
percent who report skipping a test or treatment or not following up on
a recommendation from a doctor because of the cost the care.\3\ Forty-
five percent of underinsured Americans report problems with medical
bills.\4\ Sixty-two percent of bankruptcies in 2007 had a medical
cause, but almost 70 percent of those bankrupt were insured at the time
of the bankruptcy.\5\ Obviously, their insurance was not adequate to
provide financial security. $2.6 billion of the debt involved in those
bankruptcy proceedings was owed directly to health care providers,
which in all likelihood lost billions more to unpaid bills owed by
underinsured Americans who did not go bankrupt.\6\
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\1\ Persons are underinsured if they must spend at least 10 percent
of their income for out-of-pocket medical expenses, or at least 5
percent if their income is below 200 percent of the federal poverty
level, or if their deductibles equal or exceed 5 percent of their
income. Cathy Schoen, et al., How Many are Underinsured? Trends Among
U.S. Adults, 2003 and 2007, Health Affairs, June 10, 2008, w298 to
w309, w300.
\2\ Jon R. Gable, et al., Trends in Underinsurance and the
Affordability of Employer Coverage, 2004-2007, Health Affairs, June 2,
2009, W595-w606, w604.
\3\ Schoen, et al., at w304.
\4\ Ibid.
\5\ David Himmelstein, et al., Medical Bankruptcy in the United
States: Results of a National Study, The American Journal of Medicine,
available at http://www.pnhp.org/new_bank
ruptcy_study/Bankruptcy-2009.pdf.
\6\ Melissa Jacoby & Mirya Holman, Medical Providers as Lenders: A
National Study (working paper).
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Many of the underinsured have health insurance coverage with high
cost sharing obligations, including high deductibles. But over a
million of the underinsured have limited benefit, or mini-med,
policies. High cost sharing policies expose lower-income Americans to
immediate, sometimes unsustainable, costs when they seek medical care.
Limited benefit policies, on the other hand, are more insidious, as the
persons whom they cover often are not fully aware of how inadequate
their coverage is compared to the medical costs they are likely to
incur. An individual whose coverage excludes the first day of a
hospital stay may not realize that most, often virtually all, of the
costs of a hospital stay may be incurred during the first day, when a
surgery is most likely to occur. A family whose policy limits coverage
to $250 a day for hospital care may not realize that this would not
cover 10 percent of the average per diem cost of hospitalization in the
United States.
When the Affordable Care Act is fully implemented in 2014, it
should dramatically reduce the level of underinsurance in the United
States. All health plans in the individual and small group market will
be required to cover a federally defined essential benefits package and
caps will be placed on deductibles for small group plans and for out-
of-pocket costs for all health policies.\7\ Employees who are offered
plans at work with an actuarial value below 60 percent of covered
benefits or who are required to pay more than 9.5 percent of their
income for the employee share of insurance premiums will be eligible
for federal premium tax credits, and their employers will have to pay a
penalty.\8\ Annual dollar limits on health coverage will disappear.\9\
Most importantly, premium tax credits and Medicaid expansions will make
it possible for Americans with low income jobs to get access to real
comprehensive insurance coverage.\10\
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\7\ Pub. L. No. 111-148, Sec. 1302(a)
\8\ 26 U.S.C. Sec. 4980H(b), added by Pub. L. No. 111-148,
Sec. 1513.
\9\ 42 U.S.C. Sec. 2711(a)(1)(B), added by Pub. L. No. 111-148,
Sec. 10101(a).
\10\ Pub. L. No. 111-148, Sec. Sec. 1401, 1402, 2001.
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In the interim, however, significant protections are being put in
place for plan years beginning after September 23, 2010 to shield
insured Americans from financial disaster. For most Americans, these
requirements go into place on January 1, 2011 when their new plan year
will begin. First, lifetime limits on coverage are banned, and annual
coverage limits will go up immediately to $750,000, increase further
for 2012 and 2013, and then disappear by 2014.\11\ Few insured persons
ever encounter lifetime limits, but persons who do are very sick people
who face financial devastation and the possibility of losing life-
sustaining treatment. Annual limits are a more common problem. The law
will ensure that annual limits are high enough to provide insured
Americans with real protection. Insurers will also be barred from
imposing higher cost sharing on enrollees who have to go out-of-network
to get emergency care.\12\ The September 23 reforms also ensure that
enrollees in non-grandfathered plans will have access to preventive
services without cost sharing.\13\
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\11\ 42 U.S.C. Sec. 2711(a)(2), added by Pub. L. No. 111-148,
Sec. 10101(a); 45 C.F.R. Sec. 147.126
\12\ 42 U.S.C. Sec. 2719A(b), added by Pub. L. No. 111-148,
Sec. 10101(h).
\13\ 42 U.S.C. Sec. 2713, added by Pub. L. No. 111-148, Sec. 1001.
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Beginning next year, insurers in the individual and small group
market will also need to spend 80 percent (and insurers in the large
group market, 85 percent) of their premium revenue on health claims or
expenses that improve quality of care.\14\ Effective March, 2012, all
health plans will need to disclose their plan benefits and limitations
on coverage in a standard, easily-readable, format so that all
enrollees will be able to clearly see the limits their coverage
imposes.\15\ Limited benefit plans will no longer be able to hide their
limitations.
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\14\ 42 U.S.C. Sec. 2718, added by Pub. L. No. 111-148,
Sec. 10101(f).
\15\ 42 U.S.C. Sec. 2715, added by Pub. L. No. 111-148, Sec. 1001.
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Unfortunately, two of the most important September 23 reforms will
not be applied immediately to limited benefit plans. Exercising
authority granted by the Affordable Care Act to ``ensure that access to
needed services is made available with a minimal impact on premiums,''
\16\ HHS has, to date, waived the annual limits requirement for 1 year
for 111 plans covering 1.175 million Americans.\17\ Under a Guidance
issued September 3, 2010 \18\ and a Supplemental Guidance issued
November 5, 2010, plans can apply for and be granted a waiver if full
compliance with the annual limit requirement, ``would result in a
`significant decrease in access to benefits' or a `significant increase
in premiums.' ''
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\16\ 42 U.S.C. Sec. 2711(a)(2), added by Pub. L. No. 111-148,
Sec. 10101(a);
\17\ http://www.hhs.gov/ociio/regulations/
approved_applications_for_waiver.html.
\18\ http://www.hhs.gov/ociio/regulations/patient/ociio_2010-
1_20100903_508.pdf.
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HHS also announced in its medical loss ratio rule, released on
November 22, that limited benefit plans with annual limits of $250,000
or less will be allowed to double the amount that they spend on medical
claims and quality improvement activities for calculating their medical
loss ratios (effectively lowering the target percentage of their
premium revenues that they must spend on medical care and quality
improvement from 80 percent to 40 percent in the small group and
individual market and to 42.5 percent in the large group market).\19\
This dispensation will only apply for 2011, and during 2011 limited
benefit insurers are required to submit quarterly reports of their
experience so that HHS can determine if further adjustments will be
permitted. HHS took this step under the authority it has under the
medical loss ratio provision to take into account the special
circumstances of ``different types'' of plans in establishing the
medical loss ratio calculation methodology.\20\
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\19\ See Interim Final Rule, Health Insurance Issuers Implementing
Medical Loss Ratio (MLR) Requirements under the Patient Protection and
Affordable Care Act, Sec. Sec. 158.120(d)(3), 158.221(b)(3). http://
www.ofr.gov/OFRUpload/OFRData/2010-29596_PI.pdf.
\20\ 42 U.S.C. Sec. 2718(c), added by Pub. L. No. 111-148,
Sec. 10101(f).
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It is unfortunate that enrollees in limited benefit plans will not
get immediate relief from the highly restricted annual dollar limits
imposed by those plans. On the other hand, prior to 2014 when tax
credits become available, there may be few affordable alternatives
available for limited benefit plan enrollees. An important protection
in the November 5 HHS Guidance is a requirement that enrollees in a
limited benefit plan receive a notice informing each participant or
subscriber that the plan or policy does not meet the restricted annual
limits for essential benefits set forth in the IFR because it has
received a waiver of the requirement. The notice will be required to
include the dollar amount of the annual limit along with a description
of the plan benefits to which it applies, and will be required to be
prominently displayed in clear, conspicuous 14-point bold type. In
addition, the notice will be required to state that the waiver was
granted for only 1 year. HHS will establish model notice language for
issuers which will be posted at the HHS website.
Disclosure that a plan does not comply with the requirements of the
Affordable Care Act is very important because in some instances the
premiums for limited benefit plans are not significantly different from
those charged for more comprehensive plans (including higher deductible
plans). An enrollee in or applicant for a limited benefit plan may be
able to find alternative coverage. Alternative coverage may also be
available through a high-risk pool or state assistance plan. Moreover,
enrollees who receive limited benefit plans through their employers may
be able to request more comprehensive coverage or find an employer that
offers better coverage if they understand how limited their coverage
is.
The annual waiver Guidance does not state when this notice should
be given. This question is addressed by a model law recently approved
by the health insurance committee of the National Association of
Insurance Commissioners.\21\ HHS should require notice to be given at
the time the waiver is granted and to prospective applicants and
enrollees during any open or special enrollment period. Notice should
also be given to the state insurance commissioner in the state where
the waiver is granted and be posted on the healthreform.gov web portal
if any limited benefit plan is identified on the web portal. Notice
should also when a waiver expires.
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\21\ The National Association of Insurance Commissioners' Proposed
Model Law for Lifetime and Annual Limits requires:
Sec. 4(C)(2)(a) At the time a health benefit plan receives a waiver
from the U.S. Department of Health and Human Services, the health
benefit plan shall notify prospective applicants and affected
policyholders and the commissioner in each state where prospective
applicants and any affected insured are known to reside.
(b) At the time the waiver expires or is otherwise no longer in
effect, the health benefit plan shall notify affected policyholders and
the commissioner in each state where any affected insured is known to
reside.
Available at http://www.naic.org/documents/
committees_b_101122_materials.pdf.
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The HHS medical loss ratio rule does not require that plans give a
special notice to enrollees that the plan is excused from the rebate
requirement. HHS should also require notice to be given of loss ratio
waivers. Presumably only plans that receive the annual limits waiver
will qualify for the medical loss ratio waiver, and the notice of the
loss ratio waiver should be given at the same time that an annual limit
waiver notice is given. HHS should also carefully consider the
quarterly data submitted by limited benefit plans this year and only
extend the medical loss ratio adjustment beyond 2011 if it becomes
indisputably clear that an extension of the adjustment is necessary to
assure continued availability of coverage. Even then, the required
target should be raised to a level closer to the statutory requirement
of 80 or 85 percent. While it may not be possible to eliminate limited
benefit plans immediately, they should be required to operate as
efficiently as possible.
Limited benefit plans leave Americans exposed to far too great a
level of financial and health risk. They should disappear as soon as
possible. As a practical matter, however, they may be the only coverage
available to some Americans until the premium tax credit and Medicaid
expansions take place in 2014. In the interim, it is essential that
these plans comply with the requirements of the law to the maximum
extent possible and that consumers be fully informed of any waivers or
adjustments granted to these plans and of how limited their coverage
under these plans truly is.
The Chairman. Thank you very much.
And finally, Dr. Devon Herrick, Ph.D., Senior Fellow,
National Center for Policy Analysis.
STATEMENT OF DEVON M. HERRICK, Ph.D., SENIOR FELLOW, NATIONAL
CENTER FOR POLICY ANALYSIS
Dr. Herrick. Mr. Chairman, Ranking Member Hutchison, and
members of the Committee, I am Devon Herrick, Senior Fellow
with the National Center for Policy Analysis. I welcome the
opportunity to share my views and look forward to your
questions.
Between one and two million Americans currently have a
health plan that features limited benefits, sometimes called
``mini-med plans.'' Mini-med plans are increasingly popular
among low-income workers, seasonal and part-time employees, and
firms too small to be able to afford generous health plans.
The typical design of a mini-med plan includes coverage for
a select number of physician visits, ancillary tests, a limited
number of inpatient hospital days, and prescription drugs. The
deductibles and copayments tend to be pretty low. And the
maximum amount of medical benefits that can be claimed in any
given year is capped anywhere from a few thousand dollars, in
some cases, to $25,000, maybe even $50,000, annually.
Mini-med plans are affordable. Premiums for single coverage
can start out as low as $250 per year for single coverage, or
for family coverage, in some cases, as low as $1,000 a year.
But, one reason that mini-med plans are affordable is because
of the amount of risk that the insurance company is
underwriting is lower than for a comprehensive plan and is
capped at a predetermined level. However, the Affordable Care
Act, the new healthcare reform law, prevents insurers from
capping annual limits at less than $750,000 this year, and that
phases out completely in 2014. By design, a limited-benefit
plan cannot meet these requirements and remain affordable.
Without waivers, mini-med plans would essentially be banned
from the marketplace.
Another threat to the existence of mini-med plans is the
medical loss ratio regulations requiring insurers to spend 80
percent of insurance premiums on medical care. The nature of
mini-med plans is such that, with the marketing and the
administrative cost of plans, especially in industries that
have a higher worker turnover, it's hard to meet these
regulations.
Public health advocates often deride mini-med plans as
inadequate, but I believe this is misguided. In any given year,
most people who are covered by health insurance experience very
low claims. For example, per capita annual medical expenditure
does not surpass $3,000 a year until you approach age 50, on
average. About half the population spends less than $1,000 a
year on medical care. In fact, about 80 percent of the
population will have annual medical expenditures of less than
$4,000 in a given year. High medical spending tends to be
concentrated among older individuals.
Some critics of mini-med plans assume that mini-meds are
really the result of stingy employers, but this is really not
the case. Economists all agree that it's workers themselves who
bear the cost of employee health coverage. Workers bear the
cost through reduced wages. They bear the cost through indirect
contributions. Health benefits are really just a form of
noncash compensation that's part of the workers' total
compensation package. If the minimum compensation required is
higher than workers are able to produce, they will be priced
out of the market for labor. Thus, to deprive workers of these
low-cost limited-benefit plans also means that many workers
will lose coverage. In the long run, many could lose their
jobs. For example, by 2014, we estimate, using CBO data, that
the minimum benefit level required for workers in medium to
large firms will approach $5,000 per individual or a little
over $12,000 per family. If you break this down, this equals
about $2 per hour for single coverage and nearly $6 an hour for
family coverage. Add to that the required federal minimum wage
of $7.25 in 2014, and employers will face a minimum cost to
employee workers in medium to large firms at around $13 per
hour or $27,000 per year. Workers who cannot produce that much
in value are at risk of finding themselves out of work. And
besides, it would be a hardship to really expect workers with
modest means to contribute sums of money equivalent to half
their wages.
The Affordable Care Act provides no new subsidies for low
income workers at large firms. A better way would be to have a
uniform tax credit, as has been proposed by Senators Coburn and
McCain.
Let me conclude by saying, plans that feature limited
benefits in return for a lower monthly premium are not for
everyone. Indeed, these plans cap benefits at a level that was
never intended to provide protection in the event of a
catastrophic medical illness. However, during the healthcare
reform debate the President told the American people, and I
quote, ``And if you like your insurance plan, you will keep it.
No one will be able to take that away from you,'' unquote.
Mini-med plans provide a level of benefits that many Americans
come to rely upon, and the loss of this coverage will make them
worse off.
Thank you.
[The prepared statement of Mr. Herrick follows:]
Prepared Statement of Devon M. Herrick, Ph.D., Senior Fellow,
National Center for Policy Analysis
Limited Benefit Plans Serve a Need
Mr. Chairman and members of the Committee, I am Devon Herrick, a
Senior Fellow at the National Center for Policy Analysis, a nonprofit,
nonpartisan public policy research organization dedicated to developing
and promoting private alternatives to government regulation and control
and solving problems by relying on the strength of the competitive,
entrepreneurial private sector. I welcome the opportunity to share my
views and look forward to your questions.
Beginning in 2014, most U.S. residents will be required to have
health insurance coverage. This provision of the Patient Protection and
Affordable Care Act (ACA) is often referred to as an individual
mandate. In addition to this requirement, new ACA provisions will limit
the choice of health plans offered in the future and reduce Americans'
ability to enroll in plans that meet their needs and fit their budget.
Costly Coverage. On September 23, 2010, a wide array of ACA
provisions went into effect, creating new regulations on existing
health insurance plans and phasing in new requirements for health plans
offered in the future. Annual and lifetime caps on benefits will not be
allowed by 2014. Beginning next year, insurers will be required to
spend 80 percent to 85 percent of premium dollars on medical costs,
referred to as the Medical Loss Ratio (MLR), or refund the excess to
policy holders.
Once the individual mandate becomes effective on January 1, 2014,
the ACA requires most policies sold to provide an essential benefit
package that covers preventive services with no cost sharing. For most
plans the least comprehensive benefit plan allowed must cover 60
percent of medical costs--the so-called Bronze Plan. Insurers selling
coverage in the individual market will not be allowed to deny coverage
to applicants with pre-existing conditions or to charge them more than
healthy applicants. In addition, insurers will only be allowed a 3-to-1
ratio for older applicants compared to premiums for younger applicants.
Regulations requiring an essential benefit package, and a minimum MLR,
largely preclude the sale of health insurance other than comprehensive
coverage that more closely resembles pre-paid medical care than pure
insurance.
Limited Benefit Plans.\1\ Between one and two million Americans
currently have a health insurance plan that features ``limited
benefits,'' sometimes called ``mini-med'' plans. Mini-med plans are
increasingly popular among moderate income workers, seasonal and part-
time employees, as well as small firms that cannot afford comprehensive
health benefits. A typical design for a limited benefit plan includes
coverage for a number of physician visits, ancillary tests, limited
hospital inpatient days and negotiated discounts on prescription drugs.
The deductibles and copayments are relatively low. Depending on plan
design, some mini-meds provide first-dollar coverage for some services.
However, the maximum amount of medical benefits that can be claimed in
a given year is capped, providing maximum benefits of anywhere from a
few thousand dollars to $25,000 to $50,000 or more annually.
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\1\ David R. Henderson, ``Mini-Med Plans,'' Brief Analyses No. 727,
National Center for Policy Analysis, October 21, 2010.
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Mini-med plans are affordable. Premiums for family coverage can
vary from $1,000 to $6,000 a year, or as little as $250 to $2,500
annually for single coverage. Plans like these can provide access to
basic medical care after a copayment, such as physician visits,
prescription drugs and hospital inpatient services.
Insurance involves the transfer of risk from the insured to the
insurer. One reason mini-med plans cost less than comprehensive health
insurance is because the risk underwritten by the insurer is lower than
comprehensive coverage and capped at a predetermined level.
Mini-Med Plans Under the Affordable Care Act. The ACA prevents
health insurers from capping annual limits on coverage at more than
$750,000 in 2010, $1.25 million in 2011 and $2 million the following
year. Most annual dollar limits on health coverage will be phased out
by 2014. By design, a limited benefit plan cannot meet these
requirements and remain affordable. Without waivers allowing enrollees
to retain their plans, mini-med plans will essentially be banned from
the marketplace. As a result, many people who rely on these plans will
lose coverage and join the ranks of the 50.7 million people who are
uninsured at any given time.\2\
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\2\ Carmen DeNavas-Walt, Bernadette D. Proctor and Jessica C.
Smith, ``Income, Poverty, and Health Insurance Coverage in the United
States: 2009,'' P60-238, U.S. Census Bureau, United States Department
of Commerce, September 2010.
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In the short run, the only other option for affordable coverage is
a high-deductible plan that provides little in the way of access to a
doctor or prescription drugs without significant cost sharing. High-
deductible plans have a place in the market and provide a level of
protection against catastrophic health conditions. But they are not
popular among many moderate income families precisely because they do
not provide benefits below a high threshold in a manner that limited
benefit plans do.
Another threat to the continued existence of limited benefit plans
is the Medical Loss Ratio regulations requiring medical expenditures to
be 80 percent to 85 percent of premiums. These regulations favor
comprehensive, pre-paid medical plans, where a significant share of
premiums dollars represents care the enrollee expects to receive in a
given year. Health plans with limited benefits are more likely to run
afoul of MLR requirements given that less of the premium represents
pre-paid medical spending. By contrast, the owners of mini-med plans
expect a lower level of medical spending. The overhead cost to market
and administer a mini-med policy is likely to be a larger proportion of
the premium dollars than is currently allowed by law. This is
especially true of industries with high turnover of workers.
An unintended consequence of efforts to require a MLR of 80 percent
for individual and small group plans is that mini-med plans will cease
to be an affordable option for moderate income Americans. Public health
advocates often deride limited benefit plans as inadequate to protect
Americans against the most serious health problems and view the demise
of mini-meds as necessary and in the interest of public health.
However, in any given year most people covered by health insurance
experience very low claims. Especially for young people just starting
out, a plan providing a less comprehensive package of benefits is often
sufficient to meet all their medical needs. For instance, per capita
annual medical expenditures do not approach $3,000 per year until
around 50 years of age [see Figure I].\3\ Moreover, for most people age
40 years and under, the percent of U.S. health care expenditure
consumed by the sickest 5 percent of the group does not exceed 10
percent of medical costs for that cohort.\4\
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\3\ Ellen Meara, Chapin White and David M. Cutler, ``Trends in
medical Spending by Age, 1963-2000,'' Health Affairs, Vol. 23, No. 4,
July/August, p. 179.
\4\ Leslie J. Conwell and Joel W. Cohen, ``Characteristics of
People with High Medical Expense in the U.S. Civilian
Noninstitutionalized Population, 2002,'' Statistical Brief No. 73,
Agency of Healthcare Research and Quality, March 2005.
Source: Calculations based on Ellen Meara, Chapin White and David
M. Cutler, ``Trends in Medical Spending by Age, 1963-2000,'' Health
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Affairs, Vol. 24, No. 4, July/August 2004, p. 179.
In fact, 80 percent of the population consumes less than $3,220
annually in medical care [See Figure II]. High medical spenders tend to
be concentrated among older individuals.\5\ McDonalds has reported that
85 percent of its enrollees spend less than $5,000 annually.\6\
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\5\ Mark W. Stanton, ``The High Concentration of U.S. Health Care
Expenditures,'' Issue No. 19, Agency of Healthcare Research and
Quality, June 2006.
\6\ Janet Adamy, ``McDonald's May Drop Health Plan,'' Wall Street
Journal, September 30, 2010.
Note: Figures are expenses per person.
Source: Leslie J. Conwell and Joel W. Cohen, ``Characteristics of
People with High Medical Expense in the U.S. Civilian
Noninstitutionalized Population, 2002,'' Statistical Brief No. 73,
Agency of Healthcare Research and Quality, March 2005.
For example, in 2006 the state of Tennessee created CoverTN for
families with incomes too high for Medicaid and too low to afford
private coverage. CoverTN is a low-cost option that features limited
benefit health plans, with benefits capped at $25,000--only $15,000 of
which can be put toward hospital bills. Benefits consultant Milliman
estimated about 98 percent of enrollees would not exceed their annual
benefit cap in a given year.\7\
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\7\ Chad Terhune, ``Covering the Uninsured, But only up to
$25,000,'' Wall Street Journal, April 18, 2007.
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For moderate income Americans, an insurance plan providing a lower
level of benefits fills a need. For most of these, insuring against the
risk of medical expenses--that could reach a few thousand dollars--is
worth insuring against.\8\
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\8\ David R. Henderson, ``Mini-Med Plans,'' Brief Analyses No. 727,
National Center for Policy Analysis, October 21, 2010.
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Other Advantages. Our health care system is not set up for cash
paying patients. When a patient enters their doctor's office third-
party insurers pay about 90 cents on the dollar toward the cost, on
average. For the health care system as a whole the proportion of third-
party payment is about 88 percent.\9\ Cash-paying patients who inquire
about the price of a medical procedure are likely to be disappointed.
Typically, neither the hospital nor the doctor will know the cost until
the procedure is completed.\10\ Indeed, the same procedure may have
many different prices, because each health insurer may have negotiated
a different discount. In fact, the cash price is often the highest. A
cash-paying patient is often charged exorbitant ``list prices'' because
they are receiving care without a health plan. Instead of paying cash,
mini-med patients are able to benefit from negotiated, in-network
discounts and discount drug cards.
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\9\ Centers for Medicare and Medicaid Services, ``National Health
Expenditures by Type of Service and Source of Funds: Calendar Years
2006-1960,'' U.S. Department of Health and Human Services, 2008.
\10\ Devon M. Herrick and John C. Goodman, ``The Market for Medical
Care: Why You Don't Know the Price; Why You Don't Know about Quality;
And What Can Be Done about It,'' National Center for Policy Analysis,
NCPA Policy Report No. 296, February 2007.
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Burden on Workers. Health benefits are a non-cash portion of
workers' total compensation package. We estimate the cost of the
minimum benefit package that everyone will be required to have under
the ACA at about $4,750 for individuals and $12,250 for families. That
translates into a minimum health benefit of $2.28 an hour for full-time
workers (individual coverage) and $5.89 an hour (family coverage) for
full-time employees. In 4 years' time, the minimum cost of labor will
be a $7.25 cash minimum wage and a $5.89 health minimum wage (family),
for a total of $13.14 an hour or about $27,331 a year.
Economists agree that workers themselves ultimately bear the cost
of their own health coverage through direct contributions and wage
reductions in lieu of take-home pay.\11\ When the cost of health
benefits rise, employers tend to pass on the costs or constrain wage
increases.\12\ In addition, total employee compensation tends to equal
the value of what workers produce--that is what they add to overall
output, at the margin. If the minimum compensation required is higher
than what workers are able to produce, they will be priced out of the
labor market. Thus, to deprive workers access to these low-cost limited
benefit plans ultimately means many workers will lose coverage--or lose
their jobs.
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\11\ David M. Cutler, ``The Cost and Financing of Health Care,''
Vol. 84, No. 2, Papers and Proceedings of the Hundredth and Seventh
Annual Meeting of the American Economic Association Washington, D.C.,
January 6-8, 1995, American Economic Review, May 1995, p. 35.
\12\ For instance, see ``Employer-Based Health Insurance: High
Costs, Wide Variation Threaten System,'' Government Accountability
Office, HRD-92-125, September 22, 1992.
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The real purpose of insurance is asset protection for people who
anticipate needing medical care and have assets to protect or income to
protect. Moderate income people and those who are young have few
accumulated assets and many don't expect to experience costly medical
bills. It is a hardship to ask them to spend sums that could amount to
one-half their annual income on health insurance and then fine them or
their employer when they cannot afford to do so.
Individuals who purchase health insurance in the exchange beginning
in 2014 can expect to receive subsidies that in some cases will be
worth about $19,400 annually. However, the ACA provides no new
subsidies to low-income employees of large firms. A moderate income
family earning $30,000 per year could expect to only receive about
$2,800 in federal subsidies for a comprehensive health plan purchased
through their employer.\13\ This is too little to make comprehensive
health coverage affordable. It is a hardship to deprive moderate income
workers access to a health plan that meets their needs and fits their
budget.
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\13\ Stephen Entin, ``Health Insurance Exchange Subsidies Create
Inequities,'' Brief Analyses No. 696, National Center for Policy
Analysis, March 3, 2010.
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How Government Can Help. A better way to help moderate income
workers afford health coverage would be to provide a uniform tax credit
as Senator McCain, Senator Coburn and Representative Ryan have all
proposed. This would provide the same subsidy to all families
regardless of their tax bracket or where they receive their coverage.
This would allow them to set some of the tax credit aside in a Health
Savings Account for later use or purchase whatever coverage meets their
need and fits their budget.
Conclusion. Plans that feature limited benefits in return for a
lower insurance premium are not for everybody. Indeed, these plans cap
benefits at a predetermined level and are not intended to provide
protection in the event of a catastrophic illness. However, they are an
affordable choice for many Americans. During the health reform debate,
the President told the American people ``And if you like your insurance
plan, you will keep it. No one will be able to take that away from you.
It hasn't happened yet. It won't happen in the future.'' \14\ Limited
benefit plans provide a level of benefits many Americans rely on and
the loss of coverage would make them worse off.
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\14\ Office of the Press Secretary, ``Remarks by the President on
Health Insurance Reform in Portland, Maine,'' The White House, April 1,
2010.
The Chairman. All right, I thank you.
The--philosophically, Dr. Herrick, when you say that it
covers--that most people don't reach that--90 percent of people
don't reach beyond the $2,000, first--I mean, you have to
consider, what is health insurance? Health insurance assumes
risk. And most people aren't going to have to use a lot of
health insurance, particularly when they're young. Although, as
Mr. Smith knows, the largest users of emergency medical
services are, in fact, people between the ages of 17 and 29.
And, you know, mental health and all kinds of other things--
chronic diseases--they have these things but then sometimes,
because they're young, don't think they need to take care of
them. But, then they do. They run into a crisis and then
they're--then they want health insurance. But, it's a matter of
risk.
Nobody implies that--you know, that 80 percent of all
Americans are going to have--are going to come up to the
requirements of what their plan might be. But, the comparison I
would make--if you're serious about health insurance, then you
have to--you would probably be comfortable with the fact that
your--the car that you're driving, the brakes on it work 90
percent of the time; 10 percent, they don't. That describes
health insurance.
You can't just say, ``Oh, but, you see, lots and lots of
people are really only using it up to $2,000,'' as Mr. Floersch
did. But, you have to also be able to look at those who don't,
because that's what health insurance is about. You make money
on some, you lose money on others, but it has to be there. And
for those for whom it has to be there, like Mr. Melville, the
answer, which has been bandied about quite a bit here, that
it's better than nothing--I would say it's worse than nothing
because of the false expectations and false hope that it
raises, and the fact that people don't--I mean, that little
brochure I held up--you know, how many people are actually
going to read that? I tried to, last night. It's actually half
in Spanish and half in English, and it--they're turned upside
down. So, I mean, it's actually--it's a work of art. But, the
10 percent that need it need it. And if you're a corporation
and you're providing health insurance, then you cannot treat
the 90 percent--or, the 10 percent different than the 90
percent, or the 90 percent different from the 10 percent. Your
brakes have to work all the time or else you're not going to
drive your car.
We had--we went through this in sudden speed acceleration
with Toyota and other vehicles, here. All of a sudden, the car
just speeds up. Well, most of the time, it doesn't. I went
through this myself with two American cars. But, when it does
speed up, you can't control it, and you run into what Mr.
Melville has run into. In this case, it would be the car in
front of you. And you can't control the speed at all.
So, I really want to put to rest the idea that Mr. Melville
doesn't count, because he's part of only the 10 percent, rather
than 90 percent. If McDonald's and other corporations are
serious about health insurance--and which is why the health
insurance bill passed, and which--why it would be useful if HHS
were here, but I've talked at length with them about this, as
my staff has, and what they're simply waiting for is the--as
you pointed out, Mr. Jost--is they're waiting for the state
exchanges, which, incidentally, are not federally run, but
which are state-run and state-regulated. So, that's--and so,
there's a little period of a couple of years here where HHS had
to kick the can down the road. As you indicated, Mr. Floersch,
the--you're just going into your open enrollment period. They
understand that. They know that the state exchanges are coming
up. It's going to be a full concentration effort to get those
working right. But, when they do come up, there will be, as you
indicated, Mr. Jost, no more mini-medical plans. They will not
exist. They will not be allowed to exist. And that's, I think,
a very important aspect.
I've already gone over my--no I haven't. I have 30 seconds
more. I won't use it. I'll wait until the next question.
Senator Hutchison.
Senator Hutchison. Thank you, Mr. Chairman.
Mr. Floersch, McDonald's, as we have said, is one of the
businesses that has received mini-med waivers from HHS. And,
according to your testimony, in response to company surveys,
only 3 percent of your crew employees have said they would be
willing to pay more than $35 per week for health insurance. The
Chairman said that you have a cap, on your mini-meds, of $2,000
in benefits, per year. I'd like to ask, is that true? And, if
so, do you think that McDonald's has found the best plan
possible for this $35-per-week health coverage for your
employees?
Mr. Floersch. Yes, I--actually, when we did--we did survey
our employees to find out what they'd be willing to pay, and--
our hourly employees--and the majority said that they would be
willing to pay anywhere from $5 to $20 a week for insurance. We
factored that in when we went out to the marketplace. We worked
with outside experts and said, ``Who are the organizations out
there that we should take a look at to construct this insurance
program?'' We came up with a group of companies. We had a
strong internal team that looked at these proposals. We
actually have a more customized plan with the insurance carrier
that we have, BCS, than what exists elsewhere in the
marketplace, that meets our needs--and the fact that we've seen
a tripling of our enrollment over the last 3 to 4 years, in
terms of hourly employees enrolling in the program, and more
franchisees offering it. We also stay very close to what other
companies are offering. We feel very positive that our plan is
actually one of the best.
Senator Hutchison. It is, in fact, a $2,000-a-year limit.
What is the amount that an employee would pay per week for a
policy with that kind of annual limit?
Mr. Floersch. Eleven dollars for $2,000. And there's a
$5,000 option, then there's $10,000. And then we do offer a
comprehensive option for hourly employees, as well.
Senator Hutchison. And for the $5,000 limit, what would
that weekly fee be for the employee?
Mr. Floersch. It's more like around $15 or, you know $20.
We've tried to stay within this--after we surveyed our
employees, we tried to stay within this range of what we
consider to be affordable for them. Because they told us----
Senator Hutchison. So, a $15-a-week amount, by the
employee, could provide a $5,000----
Mr. Floersch. Right.
Senator Hutchison.--maximum coverage.
And so, from what you're saying, I understand you start at
a low level, and then move to a higher level; and the premium
goes up some, but the coverage goes up to higher maximums. You
have a range of options, apparently, for your employees. Is
that correct?
Mr. Floersch. That is correct, yes.
Senator Hutchison. And let me ask you this. According to
what I understood your testimony to be, 90 percent of your
covered employees, even at the lowest maximum level, don't
reach the annual limit. Is that correct?
Mr. Floersch. If you take all of the $2,000, $5,000, and
$10,000, the majority of people are in the $2,000, and 90
percent of that total population of $2,000, $5,000, and $10,000
do not hit their limits.
Senator Hutchison. Let me go to Dr. Herrick. You mentioned
in your testimony--or in your written testimony--that Tennessee
has a program called ``CoverTN'' for families with incomes in
between Medicaid eligibility and private coverage
affordability, as a gap filler. And it provides a low-cost
health insurance option with benefits capped at $25,000. And,
in that program, you said that 98 percent of those employees
don't reach that cap, which certainly is believable. Do you
think that that is an affordable option? And, would it meet the
requirements of the new federal reform law, or would they have
to significantly change their policies?
Dr. Herrick. Oh, no, that would not meet the new
requirements of the Affordable Care Act. The particular plan
had a maximum benefit of $25,000, of which no more than $15,000
could be used toward hospital care. And, at the time, which
was, I think, 2007, it was widely reported that Milliman, the
actuarial and consulting firm, reported that probably 98
percent of the enrollees would never reach their caps.
High healthcare costs and high spenders tend to be
concentrated among older individuals and people on Medicare.
And, by and large, most of us don't really experience anything
that's of a catastrophic nature in any given year. Of course,
it is very tragic when it does occur, but I'm not convinced if
any health plan could affordably cover all the risks.
Senator Hutchison. The Chairman mentioned that the state
plans, or the state options, when they come into effect, are
going to be run by the states and regulated by the states. But,
they do have the federal requirements, which is going to mean
that they have to meet certain standards. I mean, even
companies that provide, say, 35 percent of the premiums are not
going to meet the federal standards. So, doesn't that cut off a
lot of plans that now give a level of coverage, maybe even a
$25,000-limit coverage, but are not going to meet the federal
plan, and so, might be out of range for people who are now on
these policies?
Dr. Herrick. Oh, absolutely, especially if you work for a
medium-size firm with--which employs more than 50 people. You
will get no additional subsidy from the Affordable Care Act.
And, as I said, economists agree that workers themselves bear
the cost of coverage in reduced wages. So, a lot of people will
be priced out of the market when their employer is required to
provide a much higher level of coverage and then, of course,
pass on the costs to them.
Senator Hutchison. Thank you.
My time is up. Thank you.
The Chairman. I'll go on, but I just want to make one
correction. You are aware, are you not, Dr. Herrick, that--in
the healthcare plan, that starting next year 35 percent of
healthcare premiums will be subsidized for small businesses?
And then by 2014, up to 50 percent will be subsidized by
federal premiums?
Dr. Herrick. Yes, I am aware of that. That's for very small
firms, and it phases out as the average wage rises to $50,000.
it phases out as the average number of employees reaches 25.
And I can't recall the exact statistic, but it has been
estimated that, really, a rather small proportion of small
firms will, in fact, qualify for that program.
The Chairman. Well, I think you're wrong on that, but I'm
speaking out of turn.
Everybody left.
Senator Boxer. I'm still here.
The Chairman. You're here.
Senator Boxer. Yes.
The Chairman. Barbara Boxer.
STATEMENT OF HON. BARBARA BOXER,
U.S. SENATOR FROM CALIFORNIA
Senator Boxer. Thank you.
I am somebody from a state of 38 million people, but it's
OK.
Mr. Melville, thank you for coming to share your story,
because what you have done by your presence is, you have put a
human face on a healthcare system that was in desperate need of
reform. And don't think Dr. Herrick totally gets it, either,
so--I mean, I'll get to that later. But, no one will be forced
to pay more than 8 percent of their income. And tax credits
will kick in. And I would just say this to you. You don't
choose, nor do any of us, the time at which we're going to get
sick. Right?
Mr. Melville. That's correct.
Senator Boxer. And a lot of the things we did, you know,
won't be corrected until 2014. They're starting to kick in
slowly. So, I want you to know, I apologize to you, that you
have not been protected from what has happened to you.
And I want to just explore this with you. Because, from
what I understand, you believed you had a $20,000 cap on your
policy every year. Is that correct?
Mr. Melville. I felt there was a buffer.
Senator Boxer. Right. And who led you to believe that there
was a $20,000 cap on your policy, as opposed to a $2,000 cap,
on paying the bills for your illness? Who led you--you don't
have to give me a name of an individual.
Mr. Melville. It wasn't an individual.
Senator Boxer. Was it an insurance company not disclosing
this in proper way? Was it an employer who didn't disclose it
in the proper way? How did you come to the conclusion that you
had a $20,000 cap for your illness, when, in fact, you had a
$2,000 cap and called Mr. Finan or called the Cancer Society--
thank God you're there, sir, doing what you do to help people--
what--was it just sold as $20,000 cap? Was that your
understanding?
Mr. Melville. I believe the company is at fault for lack of
disclosure.
Senator Boxer. OK.
Mr. Melville. And I was under a false impression. And then,
when I did get diagnosed for cancer, I said, ``Well, OK, I've
got a little buffer here,'' and then I would be willing to get
three jobs to pay whatever would come up that I would owe.
Unfortunately, I would owe pretty much everything, minus----
Senator Boxer. Well----
Mr. Melville.--$2,000, which is----
Senator Boxer.--let me just say, you would join a lot of
other folks, because one of the reasons we acted on health
reform is that, if you look at all the bankruptcies, more than
60 percent of them were related to a healthcare crisis. And
people say, ``Well, these mini-med policies are better than
nothing.'' Barely. If you don't get sick, hey, you're fine.
But, I could say, just my own limited experience with the
healthcare system, $2,000 is a blink of an eye and a few pills
at the hospital. So, let's get real.
And you're paying--not you, sir, but the average person at
McDonald's is paying hundreds of dollars a year, $700 or $800,
for that minimum policy. Maybe they'd be better off saving that
money. So, in some cases, I'm not so sure that it's better than
nothing. But, I could be wrong on that.
But, let me just get to you, sir. I believe that the
insurance company and your company should make things right for
you, because I believe you were misled. And I don't know who
did it, but you're a smart man. I listened to--I don't know
what your work is, I don't know what your education is, I just
know you're smart. I could hear----
Mr. Melville. Thank you.
Senator Boxer.--and I've got to tell you, you were fooled
into thinking this policy covered $20,000 worth, and it didn't.
I would call on Aetna Insurance and your company to make it up
to you. Why on earth should you be subjected to less than top-
tier treatment? You're a hardworking person who has played by
the rules. You said here you'd be willing to get three jobs,
and I believe you.
Mr. Melville. I think Senator Rockefeller said it, in kind
of a nutshell, regarding gambles. The insurance company has all
the variables, and they know what the variables are, according
to statistics, as, you know, Mr. Floersch said, with McDonald's
and working with insurance companies. The insurance companies,
they take a--it's--insurance is a gamble. They're betting that
you're not going to get sick. However, nondisclosure, being
naive, whatever it is--not being informed--I couldn't make an
intelligent and informed decision, simply because this is what
my company offered me----
Senator Boxer. Absolutely.
Mr. Melville.--and I assumed it had a little oomph.
Unfortunately, to my dismay, it had nothing, in my opinion.
Senator Boxer. When you buy a policy that has a $20,000
cap, and it turns out that's divided into different categories,
to me that's a sham. So, I'm calling on Aetna----
Mr. Melville. There's $18,000 that I--that's sitting there
in----
Senator Boxer. Exactly.
Mr. Melville.--my supposed account--$18,000----
Senator Boxer. Exactly.
Mr. Melville.--that's sitting right there that I can't
touch.
Senator Boxer. Well, I'm just trying to make a point here.
I am going to work with Aetna, and--I don't know who your
employer is, because you have not said, and I'm not asking you.
But, I'm going to start with Aetna, and I'm going to take a
look at the way this policy was sold to you. They ought to make
it up. Because, right now, as I understand it, you're not
getting the treatment that you were told was the most effective
treatment at the beginning of this battle that you're facing.
Mr. Melville. That's correct.
Senator Boxer. Is that true?
Mr. Melville. That's correct. I--they wanted to do laser
surgery on my tongue and some surgery on my lymph nodes in my
neck. And when the $2,000 limit came about, I got a call from
the hospital saying that, ``Please, you can't come here
anymore. Your limit has been exhausted.''
Senator Boxer. And now, you have to plead--you have to go
to a place for indigent care, which I know didn't--isn't a
pleasant experience.
I just want to say, Mr. Chairman, I would like to get a
second round after the two of you do some more questions. I
have some more questions for the rest of the panel, but I'll
hold until I get a second round. Is that OK?
The Chairman. OK.
Mr. Melville. Yes, sir.
The Chairman. I think Senator Boxer and a number of the
panelists and I disagree very strongly with this, but a few of
the panelists appear to think, ``Oh, it's OK. You know, 90
percent don't require more than a few thousand dollars.'' And--
but, 10 percent do. And so, that makes you think, ``Well, what
is the obligation to the 10 percent who do?'' We understand
that insurance is about risk. When people do get sick, you'd--I
don't think it's enough to say, ``I'm really happy and really
applaud McDonald's, or others, for having 90 percent if that's
what it says, or is, who don't have to use more than $2,000.''
I think the more basic question is, like, would a car that the
brakes only worked 90 percent of the time, but didn't work 10
percent of the time, would that get approved? Would that get on
the market? Would that be in any car sales shop in the country
or the world? The answer is, no. And if we ran into problems,
they would be fined, penalized, all kinds of things. And it's--
to me, it's outrageous.
But, you did your best to try and figure out what you were
going to get. And we looked very carefully at your policy, and
here's what we found. The policy's limit on all doctor's office
visits and outpatient tests is only $2,000, not the $20,000 to
which you understandably gravitated because it was a higher
number and you--you know, for $20,000, you can get quite a lot
done. But, you gravitate toward that. But, no, it wasn't. It
was only $2,000. And the policy's limit on emergency room
services is only $600. OK? So, if you're desperate, and you--
some things aren't working out, you go to the emergency room,
which is one of the reasons we passed that bill, so we could
insure 32 million uninsured Americans, which would reduce the
need for uncompensated care, which would allow premiums for
other people to go down.
But, here's the really tricky thing about this policy, the
hospital coverage. Your policy covers up to $20,000 of room-
and-board costs at a hospital.
Mr. Melville. That's correct. You--it's not any outpatient
services.
The Chairman. That's what I'm----
Mr. Melville. You need to be----
The Chairman. I don't want you to rob me of my----
Mr. Melville. You need to be admitted into the hospital.
The Chairman. Yes. I mean, it's nice to have a room and a
bed. Let's agree on that.
Mr. Melville. Yes, I concur wholeheartedly.
The Chairman. Yes. But, it only covers up to $2,000 of most
other goods and services you receive--and tests--in a hospital.
For example, under this $2,000 limit--this is Aetna we're
talking about--medical/surgical supplies, syringes, bandages,
surgical instruments, IVs, catheters, blood tests, X-ray, CAT
scans, MRIs, all operating room and recovery room expenses--
you're probably not going to be able to afford them. So, you've
got a nice bed, you've got a nice room, but you got snookered.
And they were banking that you wouldn't get sick--on the hope
that you wouldn't get sick--the insurance company certainly
was, because that's what they do. I mean, we had to actually,
in the law, outlaw recisions. Most people don't know what a
recision is. A recision is when you have an insurance policy,
but the insurance company decides that they don't want to cover
you, because you may be at risk. Now, you can be at risk. A
preexisting condition includes a C-section. It includes being
pregnant. It does, in fact, and can, include having acne. It
can include all kinds of things where insurance companies,
because nobody is watching any of this, nobody understands
this, it's not being reported on, that--you know, that when you
get sick, you have to get help. And there's no way around that.
So that McDonald's and other companies, Dr. Herrick to the
contrary--seems to me, you can't just be happy about the 90
percent, you've got to take full responsibility for the 10
percent, or else you're saying, ``Well, they don't matter,
because they're not''--I mean----
Mr. Melville. There's your gamble on--there's their gamble
for the insurance company.
The Chairman. Yes.
Mr. Melville. That--it's just like, Senator Rockefeller,
you explained earlier.
And I just want to add, though, that I did get a letter in
the mail from my insurance company. I had just been diagnosed
for cancer about 30 days prior, and I got a letter in the mail
saying that ``You need to fill out this form, because we feel
that it's a preexisting''----
The Chairman. Yes.
Mr. Melville. And I almost--well, I----
The Chairman. Yes, but that's----
Mr. Melville.--felt pretty terrible, and I called them----
The Chairman. That's the way that----
Mr. Melville.--and she said, ``If you don't send it in,
then we're going to really take a look at you.'' I said, ``I'm
going to just write whatever I want, because it doesn't really
matter.'' I--it wasn't preexisting; I know that. I mean, they
had just diagnosed it. If it was preexistent, I never knew.
So, anyway, I'd----
The Chairman. No, I----
Mr. Melville.--I just wanted to put that in there.
The Chairman. We're--I understand you.
So, let me ask Mr. Floersch. Are the 90 percent who don't
come up to $2,000--are they more important to you, in your
policymaking about health insurance, than the 10 percent who
have major medical, or at least more than $2,000 of medical
requirements? How do you separate, in your mind, the human
being factor of the 90 percent that you get--or, the insurance
company gets away with, and therefore, you can apply their
coverage? But, it isn't--again, the brakes that don't work. You
don't drive the car at all, that the point--the principle is
sacrosanct there. Why are the 10 percent different, in your
mind? Why can you let them go, let them suffer, let them
suddenly go into, you know, bankruptcy or whatever, because, 90
percent aren't a challenge to you? How do you make that
distinction?
Mr. Floersch. Well, I--Mr. Chairman, we don't look at the
90 percent differently than the 10 percent.
The Chairman. Well, you do.
Mr. Floersch. No, because we do offer a comprehensive
option for hourly employees. So, they do have the opportunity
to be able to see three limited-benefit plan options--the
$2,000, the $5,000, and the $10,000--and a comprehensive
option. So, we do offer that comprehensive option for our
hourly employees.
And the other thing I would say is, we're very clear in our
materials. I know you talked about the brochure, here. But, you
know, within the first 2 pages, we've got eight references to
the fact that this is a limited benefit. We're very clear. We
have a definition of what is outpatient services, what are--we
have--this is--we have a video that we show to our employees.
It's very clear about how this is broken down.
I agree completely with what everybody has said, including
Mr. Melville. We need to be very transparent about this, and we
take this very seriously. So, I just wanted to make sure that
you----
The Chairman. No, but you're--you see, what you're saying
is, ``If we're transparent in saying that if you're--if you get
sick--I mean, cancer being sort of the most extreme example of
that, most scary example of that--we understand that, but we've
got something which will handle that.'' Well, in fact, you
don't, because the premiums won't cover what--the kind of
healthcare that Mr. Melville's going to need.
So, you say, ``Well we can take care of you.'' But, in
fact, you don't. Now, you do take care of yourselves. The
corporate healthcare plan is absolutely magnificent--top-of-
the-line, gold-plated. And that, again, is why it confuses me,
from a humanistic point of view, how you can so comfortably do
that, and then, because somebody shows they're particularly
good, and so you take them up into the corporate ranks, and all
of a sudden their insurance covers virtually everything. It's a
gold-plated insurance plan. But, in the meantime, the 10
percent. Why is it wrong for me to be worried more about the 10
percent who get snookered than the 90 percent who, by good
fortune, particularly yours, don't get sick up beyond $2,000 a
year.
Mr. Floersch. Well, I think, Mr. Chairman, the fact that we
do offer the comprehensive option for the same group of
employees, and the fact that we're very clear in our
communication about what the plans are, that's how I feel, you
know, comfortable with what we've done.
The Chairman. All right. I would say to my staff, have we
passed this around? Does everybody--press, do you have this?
This is what he's talking about. You don't have it. Can you get
it to them?
[The information referred to follows:]
----------------------------------------------------------------------------------------------------------------
McDonald's ``Mini-Med'' Plans McDonald's ``Corporation Health Plan''
(available to McDonald's (available to McDonald's corporate staff and
restaurant hourly employees) certain McDonald's restaurant management)
----------------------------------------------------------------------------------------------------------------
Employee's 2011 annual $710 (``Basic'' plan) $682-$920 (``Health Account PPO'')
premium $1,332 (``Mid 5'' plan) $704-$951 (``Deductible PPO'')
$1,947 (``Mid 10'' plan) $1,063-$1,435 (``No Deductible PPO'')
----------------------------------------------------------------------------------------------------------------
Employee's overall annual $2,000 (Basic plan) Unlimited
maximum health care $5,000 (Mid 5 plan)
benefit $10,000 (Mid 10 plan)
----------------------------------------------------------------------------------------------------------------
Employee's annual limit for $2,000 (Basic plan) Unlimited
outpatient services (e.g., $1,500 (Mid 5 plan)
doctor's visits, tests, $2,000 (Mid 10 plan)
prescriptions)
----------------------------------------------------------------------------------------------------------------
Employee's out-of-pocket Unlimited $4,000
maximum for covered
medical expenses
----------------------------------------------------------------------------------------------------------------
Employee's out-of-pocket Unlimited $2,000
maximum for prescriptions
----------------------------------------------------------------------------------------------------------------
McDonald's annual $0-$120 $6,894
contribution per covered
employee
----------------------------------------------------------------------------------------------------------------
Sources: Employee benefit materials provided by McDonald's; Annual Return/Report of Employee Benefit Plan, Form
5500 for the McDonald's Corp. Health Plan for the calendar plan year ending Nov. 30, 2008 (filed with U.S.
Department of Labor, 2009).
My time is way over, and so I go to Senator Hutchison.
Senator Hutchison. Mr. Chairman, I've asked my questions.
Let me look at this. Let Senator Boxer go. I might have
something----
Senator Boxer. Thank you so much.
Mr. Floersch, what percentage of these low-income people's
healthcare plans do you pick up? What percentage do you pay?
Mr. Floersch. On this--the $10 and $20.
Senator Boxer. Or----
Mr. Floersch. Ten dollars for the----
Senator Boxer. Or the----
Mr. Floersch. Ten dollars per month for a first-tier----
Senator Boxer. The range. No, the range. What do you pay
for your employees, on average, from--what do you pick up? What
percentage do you pick up?
Mr. Floersch. Oh, what percentage of a subsidy?
Senator Boxer. Yes. Of the healthcare premium do you pick
up? If it's $40 a month, do you pick up $20? Do you pick up
$10? What's the percentage you pick up----
Mr. Floersch. Anywhere from----
Senator Boxer.--for your employees?
Mr. Floersch. Anywhere from 10 to 20 percent.
Senator Boxer. Ten to twenty percent?
Mr. Floersch. For the hourly employees that we're talking
about.
Senator Boxer. OK. And what do you pick up for your
corporate people?
Mr. Floersch. We pick up 80 percent for our corporate
people. We pick up 80 percent for our restaurant mangers. We
pick up 80 percent for our certified swings. We pick up----
Senator Boxer. So, explain that.
Mr. Floersch.--70--I'm sorry; I want to--70 percent for our
executives.
Senator Boxer. So----
Mr. Floersch. We subsidize our----
Senator Boxer. So, explain that to me. So, the people who
earn the least, you pick up the least of their premium. Is that
what you're saying?
Mr. Floersch. I'm saying that, when we have comprehensive
options--and the first promotion that a person gets at
McDonald's, to floor supervisor after 6 months of being in the
job--and that only takes a couple years to get to that role--
you get a----
Senator Boxer. OK.
Mr. Floersch.--70-percent subsidy.
Senator Boxer. No, no, no. I get it. I get it. You are
telling me, with a straight face, that an hourly employee could
afford the same level of coverage that you get? No. And what
you do is, you pick up hardly anything of the lowest-income
people. And if you look at--do you know what, for example,
Starbucks pays for its workers? Seventy-five percent. So, I'm
just saying to you, just as a human being--and I think that you
posted a $4.5 billion profit in 2009, and that's great, and I
want everyone to be really successful--but, I am saying to you,
just on--as a moral issue that--I can't legislate morality, but
I'm just saying to you, the fact that, essentially, you pick up
70 or 80 percent for your higher-income workers, and 10 to 20
percent for your lowest workers, I think you ought to take a
look at that. That just makes my heart beat fast, and not in a
good way. I don't really get it.
Now, what steps do you plan to take, if any, to offer more
comprehensive healthcare than these mini-med plans? Do you have
anything in mind?
Mr. Floersch. Well, we have the comprehensive option that
we offer to hourly employees.
Senator Boxer. Yes, but they can't afford it. So, are you
thinking about paying, perhaps, more of the premium for your
hourly workers?
Mr. Floersch. We--a couple years ago, we moved from the $10
subsidy to the $20 subsidy, so we have increased that subsidy
over the last couple of years.
Senator Boxer. OK. Well, could I just suggest to you--it
might be really a wonderful thing, might make you feel really
good--if you paid the same percentage of those people's costs
as you do the higher-end people, I think it would be really
important.
Now, I want to ask Mr. Jost--Mr. Jost, in 2009, Consumer
Reports ran a story about Susan Braig, of Altadena, California,
who bought what she thought was a hospital-only catastrophic
insurance plan when she turned 50, only to find out it covered
almost nothing when she got breast cancer and needed help. To
what extent do plans that only cover hospital services--so-
called ``hospital-only'' plans--present the same hazards for
consumers as mini-med plans?
I think Senator Rockefeller pointed it out--our Chairman--
when he said to Mr. Melville, looking at his policy, it covered
hospital, but only the room, not anything--not any of the
treatment.
So, do you see a problem, now? Because, by 2014, we have
taken steps to cure a lot of these problems. And we face--
actual repeal of what we've done, and I hope we'll be able to
hold it off, because stories like this help us make our case.
But, do you see those hospital-only plans presenting similar
hazards for consumers as these mini-med plans? And do you
recommend a way we could address them in the interim, before
2014, when we solve some of these problems?
Mr. Jost. Well, I think that there are a number of kinds of
plans out there--there are also disease-only plans--that offer
very limited coverage. There are catastrophic benefit plans
with very high deductibles that offer very little coverage. And
there are quite a few plans out there, of various sorts, that
really do not cover what people will get in 2014, which is
essential benefit coverage.
The problem between now and then is how to pay for those
plans. Because, if you have very low income, but not low enough
to qualify for Medicaid, which, in states like Virginia means,
if you're still alive and you obviously have enough income not
to qualify for Medicaid, if you're an adult, how do you pay for
that? And that's why it's so important that we get the tax
credit----
Senator Boxer. OK.
Mr. Jost.--system online.
Senator Boxer. Well, let me just say this, and I'll stop. I
think what Chairman Rockefeller was getting to, and Mr.
Melville addressed, in terms of the risk--we all know the point
of insurance. You get a huge pool of people together. The
bigger the better. And, you know, you hope, and you look at the
different tables--actuarial tables--who's going to get sick,
who isn't? How do you price these plans? Et cetera, et cetera.
So that when someone does get sick, they're not shunted aside
or told, ``Oh, guess what? We don't cover this.'' To me, what's
going on out there, these are sham policies. They're shams.
And, as Dr. Herrick said, if people don't get sick, they never
know it. They say, ``I love my insurance.'' They never get
sick. Maybe they get a scratch. Maybe they go once a year. But,
these stories, as we heard from Mr. Melville, who could barely
tell it, you know, are running rampant through the countryside.
So, my point is that if you're saying the hospital-only
might be a problem, the disease-only might be a problem--what I
think we need to do in the interim, Mr. Chairman, is make sure
that the Secretary of HHS is shining a bright light on these
shams and scams that are out there. Because, they're just
figuring, ``Most people won't get sick and they'll never
know.'' And the fact that Mr. Melville would now get a letter
saying, ``We think you had a preexisting condition and didn't
tell us,'' adds--it just adds another dimension to the tragedy
he's facing, a man who's a hardworking man losing his dignity,
thinking he has a policy that's capped at $20,000, finding out
it isn't, and then getting a letter in essence saying, ``Did
you deceive us? You may have had this preexisting condition.''
We know that this is going on.
So, I want to just thank the Chairman, because, you know,
we passed a very important bill. We're going to revisit it and
revise it and make it better. But, this is very important
because we have to keep shining a light on what's happening to
the American people, to a lot of us, in this interim period.
And I want to thank you. It has been a terrific panel.
Thank you.
The Chairman. Thank you, Senator.
I return to Senator Hutchison.
Senator Hutchison. No further questions.
Senator Nelson?
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Mr. Chairman, I want to----
The Chairman. You can ask a question. You can make a
statement. You can talk about NASA. You can do whatever you
want. But----
[Laughter.]
Senator Nelson. No, we did that in this room, this morning,
all morning.
The Chairman. Oh, you did. OK.
Senator Nelson. We did.
The Chairman. So, let's concentrate on these folks.
Senator Hutchison. Our Chair is----
Senator Nelson. I can--and--yes, and so did Senator
Hutchison. This is our day for the----
Senator Hutchison. Commerce Committee.
Senator Nelson.--for the Commerce Committee, Russell Room,
beautiful hearing room.
I'd like to make a statement, that I thank you for having
this hearing.
And I think what it is exposing, since I had the privilege
of sitting with you in the Finance Committee as we crafted this
legislation of trying to have reform of healthcare in America
and health insurance. And I think what we're seeing today is
another reason why--why should there be a country as advanced
as ours that, of the 300 million people, 45 million people do
not have health insurance but still get healthcare when they
get sick, and everybody else pays for them, because when they
get sick, they get health care, they just go to the most
expensive place, which is the emergency room, at the most
expensive time, since they didn't have any preventive health
care, then when the sniffles turn into pneumonia, then you have
to treat the emergency?
Now, I think what we're talking about here today is a lot
of these mini-med plans are like that, with these high
deductibles. So, in effect, if you are a mom and a dad, maybe
you can get your--and you have modest income--maybe you can get
your children insured by virtue of the fact that Senator
Rockefeller upped the levels of the children's health insurance
plan; but for the mom and dad, the only thing you can afford is
this high-deductible medical plan. And so, what does the mom
and dad do? If everything--let's say it's a $5,000 deductible
or a $10,000 deductible. What they do is, they don't go to the
doctor, because they don't want to afford the out-of-pocket
cost, or they can't afford it.
And so, a system that is operative, that we have exposed
here today, is one of the very reasons why we need
comprehensive health insurance overhaul to make insurance
companies give 85 cents of every premium dollar that will
actually go into healthcare, and, for smaller group policies, a
lower percentage, but, nevertheless, a--an increase over what
it is now, and to make health insurance available and
affordable to people otherwise. Otherwise, we have this
bifurcated system, where the haves have health insurance and
get healthcare, and the have-nots do not, unless you're really
a have-not and you qualify under Medicaid.
Now, that's just--in a country that values the Golden Rule,
``Do unto others as you would have them do unto you,'' in a
country that is a moral country, we just have an obligation to
try to help people. And here's another example of why we needed
health reform.
Now, a lot of these things don't take effect until 2014.
And there's a part that will affect these folks that doesn't
take effect, and that's the--imposing the annual limits on
essential health benefits. That doesn't take effect until 2014.
But, it's good that you get this out here for discussion,
Mr. Chairman. And I thank you.
The Chairman. Thank you, Senator Nelson.
I'd just like to ask a question. I might ask this to Mr.
Smith. Again, we have the principle of health insurance, that
some people are going to be sick and some people aren't going
to be sick, and nobody knows what the measurement's going to
be. But, the American Health Insurance folks, AHIP--the
American Health Insurance Plans--they published a Consumer's
Guide to Health Insurance. And the very first question--and
they were the ones who fought the hardest to defeat the health
reform bill. They spent more money, more time, more advertising
than anybody else in trying to defeat it. Now, they represent
the health insurance industry. On this committee, that is no
surprise, because we've had many hearings on the health
insurance industry--and the way they get away with things and
the use of fine print and smiling faces, so that--because--
knowing that a lot of people just--don't have the time. They're
afraid. They're not going to look into it very carefully.
However, these folks, who tried to do everything they could to
defeat the health bill--the reform bill--the very first
question answered in the guide is, why do you need health
insurance? Now, this is not me talking; this is them talking.
And here's what they said: ``The purpose of health insurance is
to help you pay for care. It protects you and your family
financially in the event of an unexpectedly serious illness or
injury that could be very expensive.'' To wit, Mr. Melville.
Now, what--this just reeks with hypocrisy, based upon what they
tried to do during a year and a half of debate, and what we've
uncovered here in this committee in previous hearings about a
variety of health insurance companies' practices.
I'm wondering if Mr. Floersch doesn't have the comfort of
knowing that, when the 10 percent have their problems, like Mr.
Melville, and he has to scramble to anyplace he can get, that
Mr. Floersch knows that the American taxpayer is going to pay
for what he isn't, because they will be going into emergency
rooms, they'll be going anyplace they can, and that takes him
off the hook, which is why we passed health reform, so people
wouldn't have to do that, so they wouldn't have to go to the
emergency room and--because they might have to go, but they'd
have health insurance--so that the taxpayers--other taxpayers,
who aren't Mr. Melville, who aren't any of you sitting up there
or anybody in this room, don't have to pay for his health
insurance, because the health reform bill will do that.
So, I'm actually wondering if the 10-percent factor--10
percent of the time that the brakes don't work--doesn't weigh
heavily on McDonald's, or other corporations that do similar
type things as this, with mini-med, because they know that the
taxpayers will make up for what they refuse to do, because they
don't want to spend a lot of money on temporary employees.
Mr. Smith. I think you're right, Senator, that there's a
powerful, and I think it's probably unintentional, consequence
of these sorts of mini-med plans, is that there is a burden
transferred from the company to the public system and to
taxpayers. I think, from my vantage point, the fundamental
question is, Do we actually think that mini-meds are adequate
insurance? Or do we think that it's the best we can do for an
$8-an-hour low-wage worker? And I think if we all around this
table and, you know, any American asked themselves, I think
that most of us would say that a $2,000 annual benefit cap is
not going to be adequate. It's not going to cover you when you
actually need it.
So, we--if we don't really think it's adequate, then the
question is, is this really the best we can do? I don't think
we should accept that. And I think that the Affordable Care Act
sets up a system that is going to fix that problem with the
status quo. It's going to provide a--more affordable, more
comprehensive options for young adults. And--you know, but
there is a transition period. And one thing I would like to
hear from the employers, particularly these employers who have
mini-med plans, is, what are you going to do, as Senator Boxer
said, to improve the quality of your plans before 2014? How can
we work together to either make a bigger contribution or to
figure out ways to make those plans more comprehensive and
actually meet the needs of your workers?
The Chairman. So, you could be working at McDonald's,
yourself. Right?
Mr. Smith. Absolutely.
The Chairman. I mean, not all of their employees are co-
founders, you see, so----
[Laughter.]
The Chairman.--but, you could be doing that. And so, I have
to look at you as the 10 percent. Number one, young people tend
to think they're not going to get sick. They don't know, as I
said, that they are, far and away, the largest users of
emergency rooms of any age group in the country, and have been
for years. They don't know that 10 percent of them have
depression, mental illness problems, as is the case across
America. But, they don't know that, because young people aren't
meant to be that way, except when we read, dramatically, in
newspapers, things that they have to do. They don't know that
they have chronic illnesses, and that those are debilitating
and expensive. Or they are--they don't want to be bothered with
the healthcare system.
I started out my life, so to speak--public life, my
reasonable life--as a VISTA volunteer in southern West
Virginia, where nobody had health insurance, where nobody had
heard of health insurance, where there had never been a doctor.
You know, the schoolbus didn't even come there, because they
said, ``Ah, you're too far away,'' so nobody went to school.
Well, you get the picture. But, the county board of health was
willing to send a van for PAP smears. Now, that's all they were
willing to send, but they did do that. And I worked very hard,
in the community, to get people to show up. Very sensitive, you
know, somebody my age, and it was a sensitive subject for me; I
wasn't very good at it. First time the van came, nobody showed
up. I worked another month or so. They came again. Nobody
showed up. And then the third time, two people showed up but
wouldn't go in. What was the lesson learned? There's so much
bad news in people's lives as they are--were then and are now--
young people, all people--that they don't want to go in and
take a test which might show them that they have what Mr.
Melville has. They don't want to know that. So, it's the keep-
that-possibility-away-from-me factor.
Well, that can be a human reaction, but that cannot be a
public policy answer. Public policy has to come aggressively to
the rescue, to encourage people through--that's why all of the
prevention in the healthcare reform bill is all free--for
seniors, for anybody else. It's free. Wellness. All kinds of
things. That's why people of your age, when you go into the
exchange, you'll have hundreds and hundreds of millions of
dollars of financial help, because--maybe you see something you
want, but you can't quite afford it. Everything will be out
there in print, the cost of everything. It'll--it won't--you
know, Mr. Floersch said that it's all in the brochure. I--that
wasn't my opinion as I read it. But, it will--that will surely
be the case--transparency, total and full knowledge.
So, I just think that you can't say that 10 percent of the
people don't count. I don't think you can. I don't think that's
right.
I sort of want to end the hearing on that, but I'd like to
hear--some people will have opinions or have things they
haven't said that they wanted to say.
Start with you, sir.
Mr. Jost. Yes. An important point has been touched on a
couple of times, but not really emphasized. And that is,
another group that we don't have the table here today are
healthcare providers, because Mr. Melville's story illustrates
that, when the insurance runs out, it's the provider who
continues to care for you. And someone pays that cost. Who pays
that cost? Some of it's passed on to the taxpayers. Much of
it's passed on to other employers, who are providing
comprehensive health insurance and who bear the cost of paying
for uncompensated care.
So, in this country, we have very cheap hamburgers that are
provided by very low-wage workers with very little health
insurance. But, we pay a lot more for other goods and services,
because the employers who provide those goods and services are
providing comprehensive health insurance that is paying
providers for $43 billion of uncompensated care.
One of the things that the Affordable Care Act does is ends
this very inefficient system--or, I think will end this very
inefficient system of cross subsidization, so that all
employers will hopefully provide health insurance. If they
don't provide health insurance, there will be tax credits
available to middle-class and lower-income people who need
health insurance. And that will be paid for more directly,
rather than just passing all these subsidies around underneath
the table. And, as Senator Nelson said, people will get
healthcare when they need it, and it's going to be less
expensive in the long run.
So, I think this is a very positive step that we're taking.
It's very unfortunate we have to wait another 4--3 years before
it's fully in place.
Thank you.
The Chairman. That's correct. But, remember that--I think
it was Teddy Roosevelt that started trying to reform the
healthcare system. So----
Mr. Jost. We're almost there.
The Chairman. Yes, the 3--I'm not scared of 2014. To me,
it's just 3 years away. To others, it may be a long time. But,
it will take that kind of time to get the state exchanges
working. And they will be the--they'll be the folks that handle
all of this.
Mr. Finan, I think you have to have something to say.
Mr. Finan. I do. And thank you very much, Mr. Chairman.
Just a couple of comments.
I really appreciate the dialogue you had about the 90/10.
And I just wanted to point out, among that 10 percent, there's
probably a very high percentage of cancer patients. As you've
said, the real purpose of insurance--any kind of insurance, not
just health insurance--is to protect people against a
catastrophic loss. And mini-meds clearly don't do that.
We've had a lot of discussion today about transparency, and
that's critical. The insurance system we have, or we've had up
until now, is largely dysfunctional. It's not competitive. In
large--and one of the main reasons is the total lack of
transparency. Consumers don't have information. They don't know
what they're buying. They're only buying by price. And all too
often we've seen many, many stories, like Mr. Melville's, of
cancer patients who get into treatment only then to discover
what the real limits of their plans are.
And we--that's one of the many reasons why we're supportive
of the Affordable Care Act. We need to move away from that
system. We need much more transparency and accountability,
sure, as we've discussed, but also we need the essential
benefits package, because we need to provide adequate
healthcare, one that fully provides all the necessary services
to treat a serious medical condition like cancer. Clearly,
mini-meds can't do that, and won't be able to do that.
We also have to recognize the economic competitive
pressures that exist today that result in consumers and
employers and insurers providing mini-meds. We have to move
away from that. And fortunately, the Affordable Care Act does--
takes a huge step in doing that. It begins to provide an
alternative mechanism for providing insurance, meaning the
health exchange. It's defining adequate healthcare for the
first time ever in this country. And we're providing subsidies
that are necessary to help people, like Mr. Melville and others
who work at McDonald's, who don't have the means to buy--pay
the full cost of what is fully affordable.
Clearly, health insurance is, first and foremost, important
to us as individuals, but it is also very important to us as a
society. If we want to continue to grow and be productive in--
we need good health. And we, in the United States, have some of
the finest medical facilities, finest providers, finest
scientists in the world, but we do a terrible job of providing
that--translating that care to real service for all Americans
like Mr. Melville. It's got to stop. And fortunately, the
Affordable Care Act takes a lot of huge steps to restructuring
the system so that the--people like Mr. Melville, in the
future, won't have the problems that he faces.
Thank you very much, Mr. Chairman.
The Chairman. Thank you.
Aaron Smith, I just wanted to add one thing. I do a lot of
talking, in West Virginia, to youth groups, and--at
universities, colleges, et cetera--and I always come right at
them at what they least like about healthcare reform, and that
is that we say that it's mandatory that people have health
insurance. And if you don't do it, we're going to fine you.
Well, that goes against the spirit of everything.
But, having said that, there's an enormously powerful
reason for that, because if young people and people who don't
have health insurance, just as people who buy automobiles pay
automobile insurance and never complain a whit--health
insurance--they haven't had to, therefore they complain about
it. But, why do we do that? We do that so we can enlarge the
risk pool so that more people are paying into the health
insurance market and, therefore, premiums for individuals who
do have health insurance won't go up to the extent--forget
medical loss ratio for the moment, but they won't go up to the
extent that they are now, because so many--fewer people are
paying for so many who don't have health insurance and go to
the emergency room and, therefore, they do that.
And it's interesting. Young people, more so than others,
tend to understand that, because they tend to understand that
their sense of, sort of, sickness invincibility really isn't
there, and that their chances are better than others, but that
doesn't mean if they--that they get in trouble--they're not
going to get into real trouble.
Mr. Smith. You're right, Senator. In fact, most of the
polls show that young people support healthcare reform, and
even support the mandate, more than almost any other age group.
And one thing I would just add to your statement is that
the problems that young people have in the healthcare system
are pervasive. I was uninsured after I graduated from college.
Many--so many young people are. It's incredible. And so, when
you talk about the challenges that we face in an economy where
it's hard to find a job and where it's hard to get--certainly
find a job with benefits--I think it's very easy for young
people to understand that moving to a system where I might have
to buy insurance, but I'm also going to have more options--I'm
going to have subsidies to buy insurance; I'm going to have an
expanded Medicaid program and an exchange that makes things
more competitive--I think it's a good sell. And young people
get it.
The Chairman. Thank you.
Anybody else? Final thoughts.
Yes, sir.
Mr. Floersch. You know, I think part of what, you know, we
also see is just a couple decades of inflation, healthcare
inflation, that have been at, you know, very high levels--you
know, 6, 10 percent. You know, we've seen it at McDonald's, as
well. And our hope is that--with the healthcare reform, that
there'll be as much attention on trying to bring down some of
the costs. Because I do believe that when the costs start to
come down, or flatten out, I think some of these affordability
issues, and access, will actually work hand-in-hand, Mr.
Chairman.
The Chairman. I thank you all for coming.
I haven't looked at the clock, because, to me, this has
been very interesting, very compelling. And this is a very
American kind of hearing, where you have differences of view.
Mr. Melville, get well.
Mr. Melville. Thank you, Senator. I really appreciate your
holding this hearing. And I really like Washington, D.C. I----
[Laughter.]
The Chairman. Don't stay on the Hill long. You'll change
your view.
[Laughter.]
Mr. Melville.--I'm going back to Bunk Hill.
The Chairman. Yes. You're right. You're right.
This hearing is adjourned.
I thank you.
[Whereupon, at 4:30 p.m., the hearing was adjourned.]
A P P E N D I X
______
Prepared Statement of Janet Stokes Trautwein, Executive Vice President
and CEO, National Association of Health Underwriters
The National Association of Health Underwriters (NAHU) is a
professional trade association representing more than 100,000 health
insurance agents, brokers and employee benefit specialists from all
across America. NAHU members help individuals and employers of all
sizes purchase health insurance coverage. Every day, they work to
obtain insurance for clients who are struggling to balance their desire
to purchase high-quality and comprehensive health coverage with the
reality of rapidly escalating medical treatment costs. As such, we
recognize that limited medical benefit plans, or ``mini-med'' policies,
serve as an important private coverage option in the current health
insurance marketplace. I am pleased to submit the following comments
for the record for your hearing today entitled, Are Mini-Med Policies
Really Health Insurance?
It is estimated that more than 2 million Americans currently have
coverage under limited medical benefit plans that are not considered to
be excepted benefits under the federal Health Insurance Portability and
Accountability Act of 1996 (HIPAA). While the benefits offered by these
plans are, by definition, limited, they do provide their beneficiaries
with creditable coverage and access to medical services at an
affordable price.
Most beneficiaries of limited medical benefit plans receive their
coverage through their employers. Licensed health insurance agents and
brokers, including NAHU members, help employers design these plans,
educate employees about their coverage options under such policies and
enroll eligible individuals. Many beneficiaries of group limited
medical benefit policies are part-time, seasonal or temporary workers
who may be ineligible for their employer's more comprehensive health
plan options, or unable to afford such coverage. Others are in a
waiting period for an employer's regular health plan. Sometimes an
employer who is struggling with the cost of providing coverage to
employees elects to offer a limited medical benefit plan as an
alternative to dropping coverage altogether.
Limited medical benefit plans are also marketed to individual
health insurance consumers by licensed health insurance agents and
brokers, including many NAHU members. Individual health insurance
consumers are naturally very price-sensitive and, while not the right
choice for every customer, sometimes a limited benefit policy is the
best match for an individual or family's budget and health insurance
needs. Particularly in these trying economic times, a limited benefit
policy may be the best and most affordable way for a consumer to ensure
continuous and HIPAA-creditable coverage.
When marketing limited benefit policies to employers and individual
consumers alike, it is both the role and professional obligation of
licensed health insurance producers to explain in detail the scope of
benefits covered under these plans. In addition, licensed health
insurance agents and brokers must clearly explain any benefit
limitations to those individual employees they help enroll in group
limited medical benefit plans. NAHU members take their jobs most
seriously. And it is the job of a licensed producer to ensure that
every client selects the health benefit plan most appropriate for his
or her budget and medical needs.
It has come to our attention that there is some concern about a
rise in number of limited medical benefit plans being sold through
association groups, in particular associations that may have been
formed under dubious circumstances with loose membership criteria in
order to offer health insurance benefits to ``members.'' These
association memberships and corresponding health benefit plans may also
be marketed by unlicensed and unscrupulous actors.
NAHU believes that legitimate association plans that are subject to
state-based regulation, offered by licensed health insurance carriers
and sold by licensed health insurance agents and brokers have their
place in today's private health insurance marketplace. However, NAHU
has a long history of consumer-protection concern with associations
that are formed purely for the purpose of providing health insurance
coverage. Furthermore, we firmly believe that all individuals
conducting insurance sales or advising consumers about their health
insurance options should be licensed, carry errors and omissions
insurance and be subject to all state-based insurance regulations,
including continuing-education and consumer-protection requirements.
With regard to the Patient Protection and Affordable Care Act
(PPACA), it is our understanding that limited medical benefit plans
that are not considered to be excepted benefit policies under HIPAA
will be subject to the same insurance market reform provisions of PPACA
as other more robust individual and group health insurance policies.
Many limited benefit plans are able to be offered on an affordable
basis due to their inclusion of annual limits on certain benefits. Due
to the constraints PPACA imposes on annual benefit limits and medical
loss ratios in all group and individual health plan contracts, NAHU had
concerns about the ongoing viability of limited medical benefit plans.
It was our fear that the imposition of these requirements, which were
crafted for more comprehensive health insurance products, on limited
medical benefit plans would unintentionally reduce the overall number
of Americans who currently have health insurance coverage until the
remainder of the PPACA market reforms and low-income subsidy provisions
are fully implemented in 2014. Through recent interim final
regulations, the Federal Department of Health and Human Services
established a process for limited benefit plans to seek annual limit
waivers if necessary and also established modified medical loss ratio
calculation for the upcoming year, to preserve these product's place in
the market. NAHU is supportive of these efforts to maintain limited
benefit plans as a health insurance option for American health care
consumers.
NAHU appreciates this opportunity to provide the Commerce, Science
and Transportation Committee with comments on limited medical benefit
plans. If you have any questions, or would like additional information,
please do not hesitate to contact me at either (703) 276-3806 or
[email protected].
______
Prepared Statement of Angelo I. Amador, Vice President--Labor and
Workforce Policy, National Restaurant Association
Chairman Rockefeller, Ranking Member Hutchison, and members of the
Committee, on behalf of the National Restaurant Association, I
appreciate the opportunity to be able to submit our statement for the
record on limited benefit group healthcare policies, also known as
``mini-med policies.'' In particular, I would like to expand on why
they are prominent in the restaurant industry, who uses them, and why
they should be protected. The National Restaurant Association is the
leading business association for the restaurant and food service
industry. Our mission is to help our members establish customer
loyalty, build rewarding careers, and achieve financial success.
After delving into the main subject of this hearing, i.e., the
importance of mini-med policies, I would like to raise some broader
issues related to the Patient Protection and Affordable Care Act of
2010 (PPACA) that should be taken into consideration in any health care
discussion.
The Restaurant Industry Provides Healthcare Through Diverse Programs,
Including Mini-Med Policies, and Needs this Flexibility to
Cover a
Larger Proportion of its Workforce
Our industry is comprised of 945,000 restaurant and foodservice
outlets employing 12.7 million people--one of every 11 workers in the
United States. Despite being an industry of predominately small
businesses, the restaurant industry is the nation's second-largest
private-sector employer. The restaurant and food service industry is
unique for several reasons.
First and foremost, small businesses dominate the industry--with
more than 7 out of 10 eating and drinking establishments being single-
unit operators. Our workforce is also typically young, with nearly half
under the age of 25, with a high average workforce turnover rate
relative to other industries. In addition, the business model of the
restaurant industry produces relatively low profit margins of 4 to 6
percent before taxes, with labor costs being one of the most
significant line items for a restaurant.
Finally, restaurants employ a high proportion of part-time,
seasonal, and temporary workers. Many of them, together with those
workers that are in an eligibility waiting period, are part of the 1.4
million workers nationwide that have mini-med policies because they are
ineligible for coverage under the employer's regular group healthcare
plan.
In 2014, other options will become available. However, until 2014,
these workers would not be able to either take advantage of federal
subsidies found in the exchanges or have guaranteed issuance of
coverage in the individual market. Thus, in the interim, it is
important to continue to be able to offer mini-med policies to make
sure a larger number of workers have at least some type of meaningful
health insurance. Furthermore, for the many reasons outlined on the
second half of my statement on PPACA in general, serious consideration
should be given to preserving mini-med policies beyond 2014, in lieu of
the mechanism currently established under PPACA.
For all practical purposes, mini-med policies are sometimes the
only affordable option for a number of employees and their employers.
For example, many low margin restaurants will not be able to remain
profitable, if they were to expansively subsidize more generous
coverage for large numbers of employees, particularly entry-level,
part-time, and short-term employees. At the same time, lower income
employees cannot afford--and will not purchase--more extensive and
expensive coverage, even when offered by the employer. Mini-med
policies help meet the needs of a segment of our workforce, who may not
have coverage from other sources, by providing limited coverage and
benefits at an affordable cost.
Section 2711(a)(2) of the Public Health Service Act (``PHSA''), as
added by PPACA, calls on the Secretary to ``ensure that access to
needed services is made available with a minimal impact on premiums.''
The restrictions on annual limits and medical loss ratios being
contemplated in some of the PPACA regulations, without a blanket waiver
or other proper relief, would infringe both the spirit and the letter
of the law. These restrictions would lead many of these mini-med
policies to either no longer be offered or be offered with a
significant increase in premiums.
Clearly, the regulations seem to acknowledge as much by providing
for the Secretary of Health and Human Services (HHS) to establish a
waiver program if compliance with the requirements would result in a
significant decrease in access to benefits or significant increase in
premiums. However, the waivers are not guaranteed.
We are pleased that some of our members have already been able to
obtain such waivers on a case-by-case basis to continue offering mini-
med policies. Although, it is unclear how many employers did not even
attempt to avail themselves of the waiver process, particularly given
the difference in the level of resources available to each employer to
deal with this new complexity without a clear understanding on the
likelihood of success.
The National Restaurant Association continues to believe that it is
important to protect the healthcare coverage of workers in mini-med
policies until other options become available in 2014. Thus, we
continue to recommend that a blanket waiver on annual limit and medical
loss ratio restrictions be given to mini-med policies.
Providing a blanket waiver for mini-med policies until 2014 would
be in full harmony with both the spirit and the letter of the law by
ensuring that access to needed services is made available and with a
minimal impact on premiums. These plans currently serve many who do not
have other options. If some of these plans were eliminated before 2014,
they would leave some of the most vulnerable members of our workforce,
and their dependents, with no healthcare coverage at all.
If the administration is unwilling to create a blanket waiver on
annual limit and medical loss ratio restrictions for mini-med policies,
as now seems likely, Congress may have to intervene. Staying
competitive in recruiting and retaining employees is vital to the
restaurant industry. Restaurateurs want to continue to provide
healthcare coverage to their employees and flexibility is essential to
design such coverage to meet the needs of their employees and the
business. Current coverage offerings, including the availability of
mini-med policies, have been crafted to strike and maintain that
balance.
There Are Some More Important Fundamental Problems with PPACA from the
Perspective of the Restaurant Industry
The early feedback from our industry on PPACA is not encouraging.
So far, PPACA is failing to constrain rising health care and coverage
costs, while imposing unsustainable costs and job burdens on the
restaurant industry.
The National Restaurant Association actively participated in the
Congressional health care reform debate. We, ultimately, opposed
passage of PPACA because the law did not address the root of the
problem--rising health care costs--while it added additional burdens on
both employers and employees. PPACA will have an enormous impact on the
U.S. restaurant industry. Employee demographics, distinctively labor
intensive business models and a historically low voluntary enrollment
rate in health insurance offerings will lead the U.S. restaurant
industry to take the brunt of this act.
Our members will be predominantly affected by the burdens found in
PPACA in a number of ways. First, the definition of full-time employee
adopted by this law as an average of 30 hours per week is vastly
different than current practice in the restaurant industry--generally
40 hours per week. This will create confusion and will mean workers'
hours will be even more closely managed throughout the industry.
Due to the higher costs, it is entirely rational to expect some
employees' work hours to be cut even further to be below the 30 hours
per week threshold combined with less hiring of full time employees.
Because the restaurant industry is distinctively labor dependent and
constrained by thin profit margins, these changes to the business model
might be the only way to remain profitable. For front-of-the-house
employees, the number of hours worked directly impacts their income.
Thus, the changes businesses will make because of PPACA would have
another unintended negative consequence that has not fully been taken
into consideration. In addition, we fully expect less development and
growth for existing restaurants and for some restaurants operating with
marginal profits to have to close their doors altogether.
Second, the auto enrollment requirement poses further
administrative burdens, due to the high turnover of employees in our
industry. The industry has a high average turnover rate relative to
other industries--a 75 percent average turnover rate in 2008. This
means that employees could be auto-enrolled into a plans' pool and then
taken out in a relatively short amount of time, increasing costs.
Finally, the employer-mandate and accompanying penalties effective
in 2014 will impose a great burden on employers with 50 or more full-
time employees or full-time equivalents who fail to offer qualifying
coverage. The penalty is $2,000 per full-time employee (defined as 30
hours or more per week) after the first 30 employees.
Furthermore, a restaurant could provide qualifying coverage to
full-time employees and still be penalized for any subsidy recipient
full-time employees, if the cost to one full-time employee exceeds 9.5
percent of that employee's household income and the employee receives
subsidized coverage. This penalty is $3,000 per subsidy-eligible
employee up to a maximum of $2,000 times every full-time employee,
after the first 30 employees.
The employment-based exemptions found in PPACA, in addition to
placing direct pressure on employers to cut jobs to remain below the
exemption level, does nothing to test whether the employer has the
ability to absorb the additional costs. Thus, some in our industry are
calling for an exemption based on a ``profit-per-employee'' (PPE) test.
The PPE is calculated by dividing a business's net profit by its number
of employees. A recent study from the University of Tennessee's Center
for Business and Economic Research concluded that PPE would be better
than total employment for exempting employers because it is a better
proxy for ability to pay.\1\ Most restaurants already offer health care
options to their employees. However, a PPE based exemption would allow
small and low-margin restaurants the flexibility to provide benefits at
levels that allow them to remain profitable--helping preserve and
create jobs, particularly important in this economic climate.
---------------------------------------------------------------------------
\1\ Bruce, Donald (Ph.D.), ``An Economic Analysis of Business
Exemptions from Public Policies,'' Center for Business and Economic
Research, The University of Tennessee, Knoxville, TN, August 2010.
---------------------------------------------------------------------------
Since enactment of PPACA, the National Restaurant Association has
been attempting to constructively shape the regulations--including
those covering mini-med policies. Nevertheless, there are limits to the
scope of change we can achieve through regulations, particularly if
those charged with their drafting choose to ignore the industry's
comments. Ultimately, PPACA itself needs to be changed to mitigate the
most harmful effects on the restaurant industry.
The National Restaurant Association will continue to be active in
urging you to pass major legislative changes to PPACA because some of
the fundamental problems cannot be fixed through regulations alone. Our
highest priority will continue to be eliminating the employer-mandate
penalties.
In the meantime, other important changes are needed to ease the
administration of benefits without constraining benefit offerings,
including the elimination of the auto-enrollment provision, the
expansion of the limits on waiting periods, the modification in the
definition of full-time employee, and others. We look forward to
working with you on these and other important issues to improve health
care for our workers without sacrificing their jobs in the process.
Conclusion
The National Restaurant Association supports the general principles
of health reform and our recommendations would help prevent some
meaningful coverage from disappearing, due to unintended consequences.
We look forward to working with you and your staff as we move forward
on our common goal of creating an affordable and reasonable health care
system.
______
Prepared Statement of Jessica Lynn Carroll, Professional Stage Actress
and Member, Actors Equity Association
My name is Jessica Lynn Carroll, and I am a professional stage
actress and member of the Actors Equity Association. I also tutor
children and teens in math and SAT prep when I'm not on stage in order
to earn a paycheck. I just turned thirty in August and was recently
engaged to be married to a wonderful man. I live in the San Francisco
Bay Area, where costs are high and performance opportunities aren't
exactly plentiful, but I like to think that I've had a little success
in my career, and that encourages me to continue to pursue it, although
many of my peers have moved on to more lucrative professions. I am
active and in great health. I am slowly but surely paying off my
student loans, paying my bills, making ends meet. I feel like I'm a
typical American following a dream of artistic and familial
fulfillment.
Through a former tutoring job with a now defunct company, I
qualified for a low-cost health insurance plan made available to part
time workers. This plan, provided by the Strategic Resource Company
(SRC), is called Aetna Affordable Health Choices. In exchange for $25
out of my small bi-weekly paycheck, I believed I had basic coverage for
my rare visits to the doctor. After the company went out of business, I
kept the insurance through COBRA, now paying $72 monthly.
At around 8 p.m. on September 24, 2010, I was sitting with my new
fiance, Brandon, watching television and enjoying our time together.
Suddenly, something felt dreadfully wrong with my left arm; it felt
dead and heavy, as if I could no longer control it. Then the room began
to spin, and I felt a wave of nausea wash over me. I was certain I was
going to faint. After a few moments, the nausea vanished, but my arm
still would not function properly. Earlier that day I had worked out
and lifted my five pound weights with ease; now I couldn't even pick up
the weight. Brandon was terrified, as was I. He wanted to take me to
the emergency room immediately. He was convinced I was having a
seizure, while I secretly worried that it was the onset of multiple
sclerosis (for which I have no genetic predisposition, as far as I
know, but it was truly a frightening feeling that made my crazy mind
search for the most remote possibilities). We called an advice nurse,
and she was concerned as well. She recommended that I see a doctor
right away. I was nervous about going to the emergency room for two
reasons. First, I like to stay as far away from needles as possible.
Second, and most important, I was a little nervous about my insurance.
Every trip to the doctor for me is a roll of the dice, as far as my
insurance coverage goes. Sometimes I have no co-pay. Sometimes it's
$10; sometimes it's $15. Sometimes the labs cost nothing. Sometimes I
have to pay a nominal amount. Sometimes I receive a bill from the lab
only to be told later that I don't have to pay it. When I first paid
for my coverage, I scheduled a gynecological appointment. A day later,
I was told by my doctor's office that my insurance wouldn't cover it
because it was a preventive service. I called SRC, outraged. I asked
the representative, ``How can you refuse to cover my yearly PAP? Does
this mean that even though I pay you guys a premium, I have to go to
Planned Parenthood just to get a regular exam?'' The representative was
a woman; she seemed to understand my feelings. She was helpful, too.
She put me on hold, and when she returned, she told me about a website
I should visit, making it very clear that she was not the one who had
informed me about it. The website explained that because my plan is
written in the state of New York, the law requires that my yearly
gynecological exam be covered. I printed out the part of the New York
law that says as much, and this now lives in my file at my doctor's
office. It is incredibly confusing; although my insurance appears to
cover preventive visits, I never receive those benefits because my
doctor's office is told each time that they aren't covered. This means
I have no idea what my cholesterol levels are, or my triglycerides, or
all those other numbers I am supposed to know.
So, it is hopefully easy to understand that while I knew emergency
room and hospital visits were covered by my plan, I was unsure about
how much. Meanwhile, I still had an arm that refused my every command.
Finally, my fiance insisted that we go; to him, any cost was worth
making sure that I was okay. How much could it really be, anyway? I
finally caved in, and we headed to the emergency room at Good Samaritan
Hospital. The emergency room doctor was concerned enough that she
ordered a CT scan. Needles abounded. After the CT scan and some blood
tests, I was given a clean bill of health, although it appeared that my
already diagnosed hypothyroidism had gone haywire again. The doctor
told me to schedule an appointment with my regular doctor to have those
levels checked. At the end of a very long night, Brandon and I left the
hospital at about 1 a.m., feeling confident that I was okay and that we
had done the right thing. My regular doctor hypothesized that the
episode was the neurological result of inhaling some aerosol bug spray
I had used a couple of days prior. He, too, said that I did the right
thing in going to the emergency room, as my symptoms had been odd and
worrisome.
Flash forward to nearly a month later. I arrived home from tutoring
to find Brandon standing in our living room, his face ashen. When I
asked him what was wrong, he hugged me, said it was all worth it, and
showed me a piece of paper. It was from Aetna, and it outlined my
explanation of benefits. The total charges amounted to $23,283.29. All
told, my plan covered precisely $500 for the event, or $250 each day.
After that and a PPO discount, my responsibility (with an included co-
pay) was a total of $15,565.47. I nearly threw up. In the coming days,
I received more explanations of benefits. One for the radiology
department totaling $355.56 after a PPO discount. Another for the
emergency room physician, costing $401.29 after a PPO discount. It
appeared that I owed various medical bills for this one evening to the
tune of $16,322.32.
This is money I simply do not have. I have paid every single bill
in my life; I have never relied on charity or government support, even
when I was eating chili beans because I couldn't afford food. This
time, I knew I couldn't take care of this alone. I immediately began to
search for help. First, I called Aetna to make sure that this was the
correct information. I was assured by the representative that it was
all incredibly accurate. She then advised me to go find better
insurance. (Fantastic service, I must say.) Then, I contacted the kind
people at Good Samaritan Hospital. With the help of Teresa, my
financial counselor there, I thankfully qualified for an
``underinsured'' discount. That bill is now down to $4,358.33. (Funny
how that looks like a paltry sum next to $16,000!) I have also applied
for further financial aid through Good Samaritan. The physicians'
billing company has offered me a 33 percent discount so far; I only
hope that they will give me more assistance if I provide my financial
hardship application to them, as well. The radiological bill has yet to
appear. I fervently hope that it will go the way of the lab bills and
magically disappear. As it is, I have no way to contact them, so I'll
wait and see. Currently, I owe just under $5,000, which is much better
by comparison; however, I still don't have that much money.
The effects of this situation are positive and negative. On the
plus side, I'm glad that I contacted Mark Rukavina with The Access
Project, who recommended that I tell my story in order to help others
in the same situation. I want to help protect other people who purchase
part time workers' insurance with the belief that it is full coverage.
I feel more educated about my own plan, although there are still many
things that I don't understand about it. I feel incredibly motivated to
earn enough weeks of acting work to qualify for health insurance
through my union. Also, I now know that I shouldn't use anything
stronger than Windex as bug spray.
As for the negative consequences, both my fiance and I have been
emotionally frayed by the whole ordeal. We sit and talk about which of
our belongings we can sell to be able to pay the bills. This is
humbling. I consider quitting acting altogether in order to find
``real'' work, although I still feel that what I do is ``real'' work,
just with more competition. I have put all wedding planning on hold
until I know how much I ultimately will have to pay toward medical
bills in the end, which is frustrating to our families. I am now
completing the daunting task of finding my own health insurance, which
will definitely cost more monthly, stretching my budget to its limits,
and which I am not even guaranteed to receive in the state of
California. I am daily frustrated that I was so close, so close, to
paying off my debts, and now I feel like I'm right back in a money pit
again. Worst, though, is that I feel deceived. I consider myself to be
a savvy consumer. I was led to believe that I had signed up for an
insurance plan that covered me as a healthy young person and was
something that I could afford on a part time salary. However, I now
feel like I was tricked by Aetna Affordable Choices, which has turned
out to be incredibly unaffordable in the long run.
______
National Retail Federation
Washington, DC, November 30, 2010
Hon. John D. Rockefeller IV,
Chairman,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Hon. Kay Bailey Hutchison,
Ranking Member,
Senate Committee on Commerce, Science, and Transportation,
Washington, DC.
Dear Chairman Rockefeller and Ranking Member Hutchison:
I write to comment on tomorrow's hearing (Are Mini-Med Policies
Really Health Insurance?) on behalf of the National Retail Federation
(NRF). NRF's global membership includes retailers of all sizes,
formats, and channels of distribution as well as chain restaurants and
industry partners from the U.S. and more than 45 countries abroad. In
the U.S., NRF represents the breadth and diversity of an industry with
more than 1.6 million American companies that employ nearly 25 million
workers.
NRF raised early concerns about the effect of the Patient
Protection and Affordable Care Act (PPACA) on limited benefit coverage
(also known as ``mini-med'' plans). Such plans sometimes are seen in
the retail and restaurant communities, frequently for part-time
employees. In our regulatory comment letter of August 27, 2010
(attached), we argued for waivers or other protection for limited
benefit plans from PPACA's phased-in restrictions on annual benefit
limits and from the effect of enhanced medical loss ratio (MLR)
standards.
The Obama administration subsequently set up criteria for yearly
waivers from application of the annual benefit limit restrictions and
created, in cooperation with the National Association of Insurance
Commissioners (NAIC), a methodology to help limited benefit plans meet
the enhanced MLR standards at least in 2011. We continue to compliment
the Obama administration for these appropriate and flexible
protections.
If we might suggest, this hearing would be better titled ``Are
Mini-Med Policies Really Comprehensive Health Insurance?'' NRF would
answer this question negatively: limited benefit coverage is, by
definition, far less comprehensive but far more affordable than is
comprehensive health insurance. Companies with low profit margins and
low-income working Americans are some of the biggest purchasers of this
coverage.
Around 1.4 million Americans are covered under limited benefit
coverage today. Many--if not most these--would be without affordable
alternative private coverage if limited benefit coverage disappeared
tomorrow. Some coverage--clearly explained and patiently disclosed to
consumers--trumps no coverage every time, at least in our view.
Under PPACA, more affordable and comprehensive alternatives are
projected to be available by 2014. In fact, as of 2014 individuals must
carry, and companies with more than 50 full-time employees or employee
equivalents must provide basic, or bronze level, coverage. In the
interim between now and 2014, however, limited benefit coverage fills
an important need not readily replaced by the market or hard-pressed
state Medicaid rolls. We believe that the Obama administration has
taken a wise and appropriate course to safeguard this coverage during
the difficult transition to 2014.
NRF remains ready to work with you and other lawmakers toward
implementing PPACA as well as any future changes to the law. If you
have any questions, please contact Neil Trautwein (202-626-8170/
[email protected]), NRF's Vice President, Employee Benefits Policy
Counsel.
Sincerely,
Mallory Duncan,
Senior Vice President, General Counsel.
Attachment
National Retail Federation
Washington, DC, August 27, 2010
Office of Consumer Information and Insurance Oversight
Department of Health and Human Services
Attention: OCIIO-9994-IFC
P.O. Box 8016
Baltimore, MD.
Re: OCIIO-9994-IFC, Interim Final Rules for Group and Individual Health
Plans re Preexisting Condition Exclusions, Lifetime and
Annual Limits, Rescissions, and Patient Protections
Dear Sir or Madam:
The National Retail Federation (NRF) represents the greater retail
industry, employers of one of every five employees in the American
economy. As the world's largest retail trade association and the voice
of retail worldwide, NRF's global membership includes retailers of all
sizes, formats and channels of distribution as well as chain
restaurants and industry partners from the U.S. and more than 45
countries abroad. In the U.S., NRF represents the breadth and diversity
of an industry with more than 1.6 million American companies that
employ nearly 25 million workers.
Our members are strong supporters of employer-based health coverage
and thus are vitally interested in the course of reform implementation
and its effect on the cost of medical care and coverage. In our view,
these interim final regulations addressing market conduct under the
heading of patient protections have generally struck an appropriate
balance between affected interests. Our comments below seek to clarify
or improve upon the existing regulatory framework in the interim final
rules in several respects.
NRF also has joined in a separate coalition comment letter (August
26, 2010) with the American Benefits Council, the National Association
of Manufacturers and the U.S. Chamber of Commerce. We recognize and
appreciate that NRF's comments today will be shared through the
electronic portal with the Department of Health and Human Services, the
Department of Labor and the Internal Revenue Service of the Department
of Treasury.
Annual Limits and Limited Benefit Plans
The Patient Protection and Affordable Care Act (PPACA) and this
interim final regulation address both lifetime and annual benefit
limits. Lifetime limits are outlawed for plan years beginning after
September 2010. Annual limits are phased out between plan years
beginning after September 2010 and 2014.
NRF was among several groups that raised concerns about the effect
of the phased restrictions on annual benefit limits on existing health
coverage, especially limited benefit plans (also sometimes known as
``mini-med'' plans). Such plans are sometimes seen in the retail and
restaurant communities, frequently for part-time employees.
We argued that application of the annual limit restrictions on
these plans would remove an important source of health coverage for
millions of Americans without recourse to affordable alternatives in
advance of 2014. Our allied concerns were clearly heard by the Obama
administration, as evidenced by the introduction in the interim final
rule of a prospective waiver of the annual limit restrictions before
2014. We commend the administration for taking a flexible approach to
this problem. The priority must be on ensuring continuity of existing
coverage through a quick and fair waiver process. No one will be helped
by the loss of their existing coverage.
NRF is confident that the administration will continue to seek to
accelerate sub-regulatory guidance on the waiver process--particularly
in advance of the pending work toward company open seasons for 2011
benefits. Timing is critical to meet this goal. We also urge the
Secretary to further exercise her discretion by simultaneously waiving
application of medical loss ratio standards to coverage receiving a
waiver from application of annual limit restrictions. This is also
vitally important to preserve this coverage in the interim period
before 2014. Finally, we encourage the administration to extend the
waiver or waivers continuously through plan years beginning in 2014
(assuming no substantial changes to the coverage considered under the
waiver or waivers) to help ensure the greatest possible continuity of
coverage in advance of the landmark changes and premium assistance
available beginning in 2014.
Access to Emergency Services
We concur with the objective of improving access to emergency
services but urge the administration to take care to ensure that this
does not undercut network participation or otherwise substantially
increase costs for plan participants. As suggested in our joint
employer letter of August 26, 2010, one way to address network
incentives might be to allow a cap on out-of-network reimbursement. In
addition, we strongly urge you to protect patients by prohibiting
balance billing by out-of-network emergency room providers. An out-of-
network emergency room door is not really open if a patient will face
the prospect of balance bill charges. The capped out-of-network
reimbursement really ought to be sufficient for out-of-network
emergency room providers.
Pre-existing Condition Exclusions for Children
PPACA and this interim final regulation prohibit pre-existing
condition exclusions for children age 19 and younger for plan years
beginning after September 2010. All pre-existing condition exclusions
are prohibited after 2014. We strongly encourage you to follow the
administration's July clarification regarding structured enrollment
periods.
PPACA seeks to ensure universal coverage by requiring all
individuals to obtain coverage effective in 2014. It is important in
the interim between now and 2014 not only to expand coverage for
children but also to ensure that coverage is obtained and maintained
prior to illness. The old insurance adages that a burning building
cannot be freshly insured or that new flood coverage cannot be obtained
for a flood-stricken residence hold true here regarding health coverage
as well. Structured enrollment is an important accommodation in advance
of the individual mandate to obtain coverage in 2014.
Conclusion
Thank you for allowing NRF to comment on the IFR concerning: annual
benefit limit restrictions and limited benefit plans; access to
emergency services; and the prohibition on preexisting condition
exclusions for children. We look forward to continuing to work with you
in the months and years ahead as PPACA phases in.
Sincerely,
E. Neil Trautwein,
Vice President,
Employee Benefits Policy Counsel.
______
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to
Aaron Smith
Question 1. Mr. Smith, in your testimony, you note that less than
two-tenths of 1 percent of young adults between the ages of 18 and 30
incur annual health care costs between $50,000 and $100,000. Does this
suggest that an insurance policy limited to $100,000 in annual benefits
would address the needs of 99.85 percent of young adults?
Answer. Unfortunately, $100,000 of insurance is not adequate
coverage for 99.85 percent of young adults--because the point of
insurance is to avoid the consequences of getting really sick or
injured, and this limit would not address that scenario. It is correct
that, according to MEPS data, only .15 percent of young adults exceed
$100,000 in medical expenditures. But while young adults do not often
collect exorbitant medical expenditures, when they do, they are less
able to pay these costs than their older counterparts--at the typical
salary range of a young adult, a major car accident could put him or
her into a lifetime of debt. That is why health insurance that covers
the spectrum of health circumstances is the best option for the health
and finances of young adults. Indeed, the low medical expenditure rate
does not mean that the healthy cohort were adequately covered with
$100,000 benefit caps. It simply means that they were lucky not to get
too sick.
We do think that the relatively small number is telling for another
reason, though--because it shows that if insurance companies act as
true insurance, offering coverage in the case of both typical health
necessities and dire health emergencies, that they would financially be
able to cover all major medical catastrophes.
Question 2. Your testimony indicates that, with respect to young
adults, ``raising or eliminating benefit caps has a relatively small
impact on premiums.'' Is this claim based on the comparatively low
medical expenses incurred by young adults?
Answer. In a plan such as the mini-meds at issue in this hearing--
ones where the plurality of enrollees are young adults--raising or
eliminating benefit caps should not have a large impact on premiums.
This is because this population incurs relatively few large claims.
Moreover, once all of the basic consumer protections come into
place--such as true medical loss ratios and exchanges that provide
competition to the marketplace--they will provide further assurances
that prohibiting benefit caps will not raise rates significantly. And,
given the enormous expansion in Medicaid options and subsidies for this
generally low-income age group to purchase insurance, finding
affordable coverage will be far easier for the average young adult than
it is in the pre-ACA status quo.
______
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to
Rich Floersch
Question 1. At the hearing, you were asked to comment on a chart
comparing the health insurance benefits offered to McDonald's hourly
employees and those offered to corporate and management employees. Is
there anything more you would like to include in the record regarding
the benefits offered to different categories of employees?
Answer. At the December 1, 2010 hearing before the Committee on
Commerce, Science and Transportation, McDonald's Executive Vice
President for Human Resources Rich Floersch submitted prepared
testimony and responded orally to questions from Members. McDonald's
refers the Committee to those prepared remarks and Mr. Floersch's
responses to questions and strongly stands by those statements. The
chart distributed by the Committee at the hearing, however, did not
represent a complete comparison of McDonald's plan benefits and
premiums. In particular, the ``High'' comprehensive medical plan that
is available to crew at company-owned restaurants was omitted entirely
from the chart.
Question 1a. How many hourly workers does McDonald's (to include
its franchisees) employ? How many corporate or management employees
does McDonald's employ?
Answer. McDonald's and its franchisees operate approximately 14,000
restaurants in the United States. Nearly 12,500 of those restaurants
are owned and operated by more than 3,100 independent small business
owners--franchisees--throughout the United States. McDonald's USA owns
and operates approximately 1,500 restaurants in the United States. The
total number of hourly crew (non-management) employees in U.S. company-
owned and franchisee restaurants is 573,261. The total number of
McDonald's company staff, which includes corporate staff, on U.S.
payroll is 4,436. For U.S. company-owned and franchisee restaurants,
the total number of salaried restaurant management is 30,803 while the
total number of hourly restaurant management is 108,237.
Question 1b. If McDonald's was required to offer its hourly
employees the same health insurance benefits offered to corporate and
management employees, what would be the likely effects on your business
and your workforce? Do you believe such a requirement would impact the
future size of your workforce?
Answer. For crew at company-owned restaurants, nearly 80 percent of
which are hourly part-time employees, McDonald's offers four choices
for health insurance. Three are low-cost limited-benefit plans and one
is a higher-cost comprehensive-medical option. The comprehensive plan
provides significantly higher benefit levels, but naturally at a higher
premium. For those employees who are making McDonald's a career,
including all restaurant managers, assistant managers, certified swing
managers, primary maintenance employees and corporate staff, McDonald's
offers several comprehensive plans. These plans are designed so that
higher-compensated employees are required to pay significantly more in
premiums than lower-compensated employees. McDonald's USA could expect
a significant impact on its business if it were required to offer
identical health insurance to all its employees. It is difficult,
however, to quantify that impact and any future business implications
of such a requirement given the uncertainties regarding regulatory
guidance and in the current and future health insurance marketplace.
Moreover, it is also difficult to speculate how such a requirement
would impact future business operations and particularly difficult to
quantify such an impact on McDonald's workforce.
Question 2. Has McDonald's attempted to calculate the likely costs
of compliance with the requirements of the new health care law if it is
fully implemented? If so, what has the company determined?
Answer. McDonald's is proud of the benefits it offers to its
employees. While McDonald's cannot control the rising cost of health
care or dictate what insurance products health insurers are willing to
offer, it is committed to making available to its employees, and those
of participating franchisees, benefit options that fit their needs. As
McDonald's is a system of mostly franchisees who are independent
business owners, the impact of the Patient Protection and Affordable
Care Act will vary across each franchise organization. Those variables
include factors such as the number of full-time employees for each
franchise, the marketplace, employees' specific health care elections,
and other factors that will not be determined until the regulatory
process is complete. However, at this time, based upon rough
assumptions and incomplete information, McDonald's has calculated
preliminary cost estimates that range from $10,000-$30,000 per
restaurant.
Question 3. One criticism of Mini-Med plans is that they spend too
little on the delivery of health care, as compared to administrative
costs and profits. Yet, your testimony indicates that the medical loss
ratios for the limited benefit plans offered to McDonald's hourly
employees have ranged from 78 percent to more than 90 percent over the
past 5 years, which suggests they may satisfy the medical loss ratio
requirements of the new health care law. Can you explain why McDonald's
medical loss ratios, or those of your insurer, so closely approach the
ratios required by the new law?
Answer. While some have criticized limited benefit plans,
McDonald's has worked hard to provide its employees with multiple
coverage options at several affordable premium levels. Though details
about medical loss ratios are largely questions for insurance carriers,
based on data compiled and submitted to the Committee by BCS Insurance
Group, the loss ratio for the limited benefit plans offered to
McDonald's hourly employees apparently has ranged from a low of 78
percent to a high of 91 percent over the past 5 years, with the most
recent year being 86 percent. While these levels appear comparable to
the goals established by the recent legislation and while BCS is the
most appropriate source of this information, McDonald's is proud that
its employees receive high value health insurance benefits which it
actively promotes by emphasizing wellness programs, health education
and prevention.
______
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to
Timothy S. Jost
Question 1. Professor Jost, you were recently quoted in a New York
Times article discussing the medical loss ratio exemption approved by
the Department of Health and Human Services (HHS) for limited benefit
plans (``U.S. Turns to Waivers to Address Talk of Dropping Health
Coverage,'' New York Times, October 7, 2010). Specifically, you were
quoted as saying that, if Congress had ``wanted to exclude mini-meds,
they would have excluded mini-meds.'' Do you believe that HHS has acted
contrary to Congressional intent by fashioning Mini-Med exclusions and
waivers?
Answer. The quote to which you refer was specifically in reference
to the treatment by NHS of limited benefit policies with respect to the
medical loss ratios. It has always been clear to me that prior to 2014
HHS has the discretion under section 2711 of the Public Health Services
Act (as added by section 1001 of the Affordable Care Act) to waive on a
caseby-case basis the annual limits limitation imposed by the ACA to
``ensure that access to needed services is made available with a
minimal impact on premiums.'' I did not, however, believe that HHS had
the authority under section 2718 of the Public Health Services Act,
added by section 10101 of the ACA, to waive the medical loss ratio
requirements of the law with respect to mini-meds.
Section 2718 does, however, allow HHS to ``take into account the
special circumstances of smaller plans, different types of plans, and
newer plans,'' in establishing methodologies for calculating the
medical loss ratios. Pursuant to this authority, HHS has, for example,
applied credibility adjustments for calculating the medical loss ratios
of small plans and allowed issuers to delay calculating their medical
loss ratios when they enter a new market. In its interim final rule of
December 1, 2010 on medical loss ratios, HHS did not exclude limited
benefit plans from the medical loss ratio rule, but rather created for
1 year a special methodology for calculating their incurred claims and
quality improvement expenses. While I do not necessarily agree with
this methodology, I believe that it is legal under section 2718. I did
not, of course, have the December 1 rule available when I made the
statement to Reed Abelson that was quoted in the New York Times.
Question 2. You testified that, at least prior to 2014, when
additional provisions of the health care law are scheduled to go into
effect, ``there may be few affordable alternatives available for
limited benefit plan enrollees.'' If implementation of the law is
delayed beyond 2014, would you anticipate a need to continue making
this affordable insurance available?
Answer. If implementation of the Affordable Care Act is delayed
beyond 2014, we will continue to have tens of millions of American who
remain uninsured and underinsured. Health care providers, employers,
and persons who purchase health insurance will continue to spend
billions of dollars covering the costs of uncompensated care provided
to Americans who are uninsured and underinsured. Hundreds of thousands
of Americans will continue to go through bankruptcy every year because
their insurance is not adequate to cover their medical costs.
If however, this is the case, I suppose some people who knowingly
purchase insurance that they understand will not begin to cover their
needs if they suffer illness or injury may believe that inadequate
insurance that covers minor medical bills is better than no insurance,
and that they should be allowed this choice. To paraphrase the example
of Chairman Rockefeller, I suppose it is better to have brakes that
work some of the time than to have no brakes at all. I pray that after
January 1, 2014, Americans will no longer be forced to make this
choice.
______
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to
Devon Herrick
Question 1. Your testimony seems to suggest that, by moving toward
a one-size-fits-all solution to the health care problem, the new health
care law may actually threaten the jobs of some workers. Can you
elaborate on that point?
Answer. Providing health insurance isn't merely a cost of doing
business. Health benefits received at work are part of workers' total
compensation package--portion of which is taken as a non-cash
``fringe'' benefit. Economists generally agree that it's workers
themselves who ultimately bear the cost of employee health insurance.
Workers pay for coverage with direct contributions, but also as wage
reductions, receiving coverage in lieu of greater take-home pay. When
the cost of health insurance rises, employers generally try to pass on
the increase to workers by requiring more direct contributions or
employers slow wage increases to compensate.
Overall, employee compensation approximately equals the added value
workers produce. If mandated health insurance boosts the minimum cost
to hire a worker higher than what that worker is able to produce, they
will be priced out of the labor market.
According to data from the Congressional Budget Office, the
estimated minimum benefit package that large firms will be required to
provide under the Affordable Care Act is about $4,750 per worker
($12,250 for family plans). That is a minimum health benefit of $2.28
an hour for full-time workers (individual coverage) and $5.89 per hour
(family coverage) for full-time employees. When added to the federal
minimum wage of $7.25 in 2014, the minimum cost per hour to employ a
worker is about $13.14 an hour ($27,331 per year). Young workers just
starting out and those who lack job skills may not be able to produce
that much value at the margin. Thus, they are at risk of never being
hired or even fired.
A well-known economic theorem posits that there is a trade-off
between labor and capital. If the price of labor rises, firms will
substitute capital. In other words, firms might choose to hire fewer
low-skilled workers and substitute a higher ratio of automated
machinery requiring fewer workers that possess more skills.
Question 2. You testified that, as compared to the recently enacted
health care law, a better way to help moderate income workers afford
health coverage would be to provide a uniform tax credit. Could you
elaborate on the advantages of such an approach to health insurance
reform?
Answer. Right now the federal government primarily uses the tax
system to encourage private health insurance, handing out more than
$200 billion in tax subsidies every year. The Affordable Care Act
leaves this system largely intact. For instance, estimates vary but
around 111 million people live in families with annual income that
theoretically qualifies them for subsidized coverage in the Exchange.
Yet, the Congressional Budget Office assume only about 25 million
people will actually get subsidized coverage in the Exchange. This
suggests nearly 86 million moderate income Americans will receive a tax
subsidy that makes them no better off than under the current system.
Under the current system, every dollar in health insurance premiums
paid by an employer is excluded from employee income and payroll taxes.
Take an employee in the 25 percent income tax bracket. Throw in state
and local income taxes, add the 15.3 percent (FICA) payroll tax, and
the tax exclusion for a middle income family is worth almost 50 cents
on the dollar.
According to the Lewin Group, a private health care consulting
firm, families earning $100,000 a year get four times as much tax
relief as families earning $25,000. In other words, the biggest subsidy
goes to those who least need it and who probably would have purchased
insurance anyway.
Yet a uniform tax credit as Senator McCain, Senator Coburn and
Representative Ryan have all proposed, would help moderate income
workers afford health coverage regardless of where they receive their
health coverage. All health insurance would be sold on a level playing
field under the tax law, regardless of how it is purchased. This would
allow them to set some of the tax credit aside in a Health Savings
Account for later use, or purchase whatever coverage meets their need
and fits their budget. The tax credit would likely be sufficient to pay
for the core insurance that all families need. Families wishing to have
more comprehensive benefits would have to purchase those additional
benefits out-of-pocket. This would discourage over-insurance and would
encourage families to be more prudent purchasers of insurance and
medical services.