    [House Hearing, 112 Congress]
    [From the U.S. Government Publishing Office]

     THE IMPACT OF THE HEALTH CARE LAW ON THE ECONOMY, EMPLOYERS, AND THE
                                   WORKFORCE

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

                                    HEARING

                                   before the

                             COMMITTEE ON EDUCATION
                               AND THE WORKFORCE
                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                HEARING HELD IN WASHINGTON, DC, FEBRUARY 9, 2011

                                   __________

                                Serial No. 112-2

                                   __________

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                    COMMITTEE ON EDUCATION AND THE WORKFORCE

                        JOHN KLINE, Minnesota, Chairman

    Thomas E. Petri, Wisconsin           George Miller, California,
    Howard P. ``Buck'' McKeon,             Senior Democratic Member
        California                       Dale E. Kildee, Michigan
    Judy Biggert, Illinois               Donald M. Payne, New Jersey
    Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
    Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott,
    Virginia Foxx, North Carolina            Virginia
    Duncan Hunter, California            Lynn C. Woolsey, California
    David P. Roe, Tennessee              Ruben Hinojosa, Texas
    Glenn Thompson, Pennsylvania         Carolyn McCarthy, New York
    Tim Walberg, Michigan                John F. Tierney, Massachusetts
    Scott DesJarlais, Tennessee          Dennis J. Kucinich, Ohio
    Richard L. Hanna, New York           David Wu, Oregon
    Todd Rokita, Indiana                 Rush D. Holt, New Jersey
    Larry Bucshon, Indiana               Susan A. Davis, California
    Trey Gowdy, South Carolina           Raul M. Grijalva, Arizona
    Lou Barletta, Pennsylvania           Timothy H. Bishop, New York
    Kristi L. Noem, South Dakota         David Loebsack, Iowa
    Martha Roby, Alabama                 Mazie K. Hirono, Hawaii
    Joseph J. Heck, Nevada
    Dennis A. Ross, Florida
    Mike Kelly, Pennsylvania
    [Vacant]

                          Barrett Karr, Staff Director
                    Mark Zuckerman, Minority Staff Director

                                C O N T E N T S

                                  ----------
                                                                       Page

    Hearing held on February 9, 2011.................................     1

    Statement of Members:
        Hinojosa, Hon. Ruben, a Representative in Congress from the
          State of Texas, prepared statement of......................    66
        Kline, Hon. John, Chairman, Committee on Education and the
          Workforce..................................................     1
            Prepared statement of....................................     3
            Additional submissions:
                Letter, dated February 7, 2011, to Hon. Kathleen
                  Sebelius, Secretary, U.S. Department of Health and
                  Human Services, from 21 States' Governors..........    85
                Article, ``Bay State Health-Care Blues,'' by Paul
                  Howard, National Review, August 5, 2010............    88
                Article, ``Judge Rejects Health Law,'' by Janet
                  Adamy, Wall Street Journal, February 1, 2011.......    89
                Article, ``An ObamaCare Appeal From the States,'' by
                  Mitch Daniels, Wall Street Journal, February 7,
                  2011...............................................    91
        Miller, Hon. George, senior Democratic member, Committee on
          Education and the Workforce................................     3
            Prepared statement of....................................     5
            Additional submissions:
                J. Kelly Conklin and David Borris, on behalf of the
                  Main Street Alliance, prepared statement of........    68
                John Arensmeyer, founder & CEO, Small Business
                  Majority, prepared statement of....................    71
                Letter, dated January 26, 2011, from 250 economists
                  in support of the Patient Protection and Affordable
                  Care Act of 2010...................................    77

    Statement of Witnesses:
        Howard, Paul, Ph.D., senior fellow and director, Center for
          Medical Progress, Manhattan Institute for Policy Research..     7
            Prepared statement of....................................     9
        Johnson, Gail, president/CEO, Rainbow Station, Inc...........    15
            Prepared statement of....................................    17
        Trautwein, Neil, vice president and employee benefits policy
          counsel, National Retail Federation........................    23
            Prepared statement of....................................    25
        Van de Water, Paul N., senior fellow, Center on Budget and
          Policy Priorities..........................................    20
            Prepared statement of....................................    22

                       THE IMPACT OF THE HEALTH CARE LAW
                           ON THE ECONOMY, EMPLOYERS,
                               AND THE WORKFORCE

                                  ----------

                          Wednesday, February 9, 2011

                         U.S. House of Representatives

                    Committee on Education and the Workforce

                                 Washington, DC

                                  ----------

        The committee met, pursuant to call, at 10:01 a.m., in room
    2175, Rayburn House Office Building, Hon. John Kline [chairman
    of the committee] presiding.
        Present: Representatives Kline, Biggert, Platts, Foxx, Roe,
    Thompson, Walberg, DesJarlais, Hanna, Rokita, Bucshon,
    Barletta, Noem, Roby, Heck, Ross, Kelly, Miller, Kildee, Payne,
    Andrews, Woolsey, Hinojosa, McCarthy, Tierney, Kucinich, Wu,
    Holt, Davis, Grijalva, Bishop, Loebsack, and Hirono.
        Staff present: Kirk Boyle, General Counsel; Casey Buboltz,
    Coalitions and Member Services Coordinator; Ed Gilroy, Director
    of Workforce Policy; Jimmy Hopper, Legislative Assistant;
    Marvin Kaplan, Professional Staff Member; Barrett Karr, Staff
    Director; Ryan Kearney, Legislative Assistant; Brian Newell,
    Press Secretary; Molly McLaughlin Salmi, Deputy Director of
    Workforce Policy; Ken Serafin, Workforce Policy Counsel; Linda
    Stevens, Chief Clerk/Assistant to the General Counsel; Loren
    Sweatt, Professional Staff Member; Joseph Wheeler, Professional
    Staff Member; Aaron Albright, Minority Press Secretary; Tylease
    Alli, Minority Hearing Clerk; Jody Calemine, Minority General
    Counsel; Brian Levin, Minority New Media Press Assistant;
    Jerrica Mathis, Minority Legislative Fellow; Megan O'Reilly,
    Minority Labor Counsel; Julie Peller, Minority Deputy Director
    of Policy and Planning; Meredith Regine, Minority Policy
    Associate, Labor; Melissa Salmanowitz, Minority Press
    Secretary; Michele Varnhagen, Minority Labor Policy Director;
    Daniel Weiss, Minority Special Assistant to the Chairman; and
    Mark Zuckerman, Minority Staff Director.
        Chairman Kline [presiding]. A quorum being present, the
    committee will come to order. Well, good morning, everyone, and
    welcome. Today's hearing is the first opportunity for this
    committee to take a close look at the consequences of the
    health care reform bill that was signed into law last year. It
    has been less than a year, and already this 2,700-page law has
    led to more than 4,000 pages in new government regulations.
        A proposal designed to reduce health care costs will
    instead increase national health care spending by $311 billion.
    And during a time of stubbornly high unemployment, job creators
    are forced to wrestle with the uncertainty of what the law and
    its new regulations mean and how that all fits into their plans
    for the future.
        Employers already struggling to keep their doors open now
    must choose between higher health care costs or costly
    penalties. To suggest this doesn't undermine job creation is, I
    believe, to deny reality.
        Recently, a number of small-business owners were asked how
    they are adjusting to the new health care law. Their answers
    help provide a snapshot of what our economy is facing and will
    continue to face if the law isn't replaced.
        Blake Haynie, resident of Georgia and owner of Action
    Signs, Incorporated, said, ``I will lay off the necessary
    number of employees to cover the extra costs.'' Gary Crosby,
    who owns Gary Crosby Construction in my home state of
    Minnesota, said he will ``have fewer employees.'' Catherine
    Marsh of Botkins, Ohio replied, ``reducing staff, cutting
    benefits.''
        And Darcy Gunn of Loveland, Colorado declared, ``I have
    never laid off any employees. The last thing I need is more
    expenses. This is the wrong time to hurt small-business owners.
    I will have to pull the plug.''
        These are honest responses to a government takeover of one-
    sixth of the economy. Behind every story of a small-business
    owner struggling to meet the demands of the law's mandates and
    penalties is the reality of a workforce with fewer jobs and
    opportunities for workers and families.
        I anticipate supporters of the law with have their own
    stories to share as they seek to convince the American people
    that meaningful health care reforms are only possible as part
    of this costly government takeover. The American people reject
    this false choice, and we are here today to begin fulfilling
    our promise to find a better way.
        Today we will also examine what changes the law is imposing
    on employer-sponsored health care plans. This committee has
    broad jurisdiction over health insurance provided through the
    workplace, coverage that affects roughly 170 million Americans.
    By the administration's own estimates, up to 69 percent of all
    business health plans and 80 percent, 80 percent of small
    business health plans will soon see significant changes to the
    benefits they provide. This has a potential to undermine the
    health care coverage of tens of millions of Americans.
        We need to understand what those changes are and how
    insurers, employers and individuals are responding.
        If there is one business that has benefited from the new
    law, it is the blooming waiver business, operated at the
    Department of Health and Human Services. HHS has issued 733
    waivers that exempt the health care plans of various
    businesses, organizations and unions from the law's
    requirements.
        No one can be faulted for seeking an exemption. It is,
    however, interesting to see so many who extolled the virtues of
    this health care law now seeking relief from it. This is one of
    the many areas of this vast law that calls for further
    exploration.
        I want to thank our witnesses for being here today. We look
    forward to your testimony.
        [The statement of Chairman Kline follows:]

    Prepared Statement of Hon. John Kline, Chairman, Committee on Education
                               and the Workforce

        A quorum being present, the Committee will come to order.
        Good morning everyone and welcome. Today's hearing is the first
    opportunity for this Committee to take a close look at the consequences
    of the health care reform bill that was signed into law last year.
        It has been less than a year and already this 2,700 page law has
    led to more than 4,000 pages in new government regulations. A proposal
    designed to reduce health care costs will instead increase national
    health care spending by $311 billion. And during a time of stubbornly
    high unemployment, job creators are forced to wrestle with the
    uncertainty of what the law and its new regulations mean and how that
    all fits into their plans for the future.
        Employers already struggling to keep their doors open now must
    choose between higher health care costs or costly penalties. To suggest
    this doesn't undermine job creation is to deny reality.
        Recently, a number of small business owners were asked how they are
    adjusting to the new health care law. Their answers help provide a
    snapshot of what our economy is facing and will continue to face if
    this law isn't replaced.
        Blake Haynie, resident of Georgia and owner of Actions Signs, Inc.,
    said ``I will lay off the necessary number of employees to cover the
    extra costs.''
        Gary Crosby, who owns Gary Crosby Construction in my home state of
    Minnesota, said he will ``have fewer employees.''
        Catherine Marsh of Botkins, Ohio replied: ``Reducing staff, cutting
    benefits.''
        And Darcey Gunn of Loveland, Colorado declared, ``I have never laid
    off any employees. The last thing I need is more expenses. This is the
    wrong time to hurt small business owners. I will have to pull the
    plug.''
        These are honest responses to a government takeover of one-sixth of
    the economy. Behind every story of a small business owner struggling to
    meet the demands of the law's mandates and penalties is the reality of
    a workforce with fewer jobs and opportunities for workers and families.
        I anticipate supporters of the law will have their own stories to
    share as they seek to convince the American people that meaningful
    health care reforms are only possible as part of a costly government
    takeover. The American people reject this false choice and we are here
    today to begin fulfilling our promise to find a better way.
        Today we will also examine what changes the law is imposing on
    employer-sponsored health care plans. This committee has broad
    jurisdiction over health insurance provided through the workplace,
    coverage that affects roughly 170 million Americans.
        By the administration's own estimates, up to 69 percent of all
    business health plans and 80 percent of small business health plans
    will soon see significant changes to the benefits they provide. This
    has the potential to undermine the health care coverage of tens of
    millions of Americans. We need to understand what those changes are and
    how insurers, employers, and individuals are responding.
        If there is one business that has benefited from the new law it is
    the booming waiver business operating at the Department of Health and
    Human Services. HHS has issued 733 waivers that exempt the health care
    plans of various businesses, organizations, and unions from the law's
    requirements. No one can be faulted for seeking an exemption. It is,
    however, interesting to see so many who extol the virtues of the
    Democrats' health care law now seeking relief from it.
        This is one of the many areas of this vast law that calls for
    further exploration. I want to thank our witnesses for being here
    today; we look forward to your testimony. I will now recognize my
    distinguished colleague George Miller, the senior Democratic member of
    the committee, for his opening remarks.
                                     ______

        Chairman Kline. I will now recognize my distinguished
    colleague, George Miller, the senior Democratic member of the
    committee, for his opening remarks.
        Mr. Miller. Thank you very much, Chairman Kline, for
    calling this hearing.
        And I want to welcome our witnesses to this hearing and
    look forward to their testimony. There have been many
    predictions about the new health care law, how the new health
    care law would affect our nation's economy. The debate has been
    heated. Misinformation about the law has bred fear and division
    among the public.
        I hope that we can put rhetoric and misinformation aside,
    that we will openly and honestly examine the law that is now in
    effect but still has several years to go before it is fully
    implemented. The Affordable Care Act is not perfect. It does
    not contain everything that I wanted. And it includes many
    things that some of my colleagues oppose. That is the nature of
    lawmaking.
        But the new law has unquestionably begun to deliver
    positive results for small businesses, for large employers, for
    individuals, children, their families and the elderly. It has
    begun to work for small businesses.
        Dr. Odette Cohen, who runs a small pediatrics practice in
    Willingboro, New Jersey has testified in recent hearings that
    the small-business tax credit is keeping her employees covered.
    Thanks to the lower health care costs, Dr. Cohen is hiring
    another nurse practitioner and upgrading her business with
    electronic recordkeeping system.
        And she said that she was eagerly awaiting the creation of
    the state-based health insurance exchanges in 2014, which will
    allow her to pool together with other small businesses to
    improve choices and drive down the costs, just the way large
    companies do. And hopefully, she will get rid of that 18
    percent more she is paying for the same plans as large
    businesses offer.
        Dr. Cohen is not alone in benefiting from the new law. The
    recent Kaiser Family Foundation survey found that the number of
    small businesses offering insurance has increased by 30 percent
    this last year.
        The new law works for large employers, too. Helen Darling,
    the president of the National Business Group on Health, that
    represents more than 300 large employers, including 65 of the
    Fortune 100, has said that our nation's businesses would be
    worse off if the law was repealed. The new law benefits working
    people. Workers are already enjoying new rights and protections
    that put them in charge of their health care.
        Never again will they have to worry about losing their
    health insurance if they lose or change their job or decide to
    start their own business. The new law is literally keeping
    people alive.
        More than a million young adults have been able to join
    their parents' health plans. Nearly 16 million Americans are no
    longer vulnerable to the insurance companies dropping them from
    coverage when they need it the most. That is when they are
    sick.
        And 165 million people no longer are subject to the annual
    and lifetime benefit caps that rob them of coverage at the
    exact time that they need it. Children with preexisting
    conditions are no longer denied coverage. And in 2014, the same
    will be true for adults.
        And the new law also works for the overall economy. Since
    President Obama signed the Affordable Care Act, 1.1 million
    private sector jobs have been created, more jobs than in the
    entire 8 years of the Bush administration.
        The Wall Street Journal recently reported that the IPO
    market is gaining momentum. Seven of the 11 companies going
    public last week were in the health care-related industries,
    taking advantage of the new opportunities to make health care
    more efficient with new technologies and new systems guidance.
        The Health Care Act is now the law of the land. And it is
    working. It reigns in the power of the insurance companies that
    have unfairly wielded over ordinary Americans' lives. If
    Congress were to repeal this law, small businesses, families
    with children, workers and elderly would be harmed immediately.
    Their taxes would go up, the rights and benefits overturned,
    and their access to quality, affordable care taken away.
        I look forward to today's hearing. And I yield back the
    balance of my time.
        Mr. Chairman, I would like to just take a moment before we
    get into the hearing. Today's hearing will be the last hearing
    for the committee's Democratic staff director, Mark Zuckerman.
    Where is Mark? Right here, right behind us.
        Mark will be joining the White House staff as the new
    deputy to Melody Barnes in the domestic policy council. Mark
    has been a trusted adviser and a friend. Since 1996, Mark has
    been through every labor and education battle with me, helping
    to keep our promise to America's working families.
        Student loan programs are more reliable. Workers are
    afforded more rights. Patients are protected because of the
    work that Mark has done. I know his wife, Paula, and his
    children, Naomi and Noah, are as proud of him as I am and that
    he is taking this next step on his journey.
        Thank you, Mark, for all of your dedicated service to the
    committee on both sides of the aisle and for the committee's
    work on behalf of families. [Applause.]
        Mr. Miller. Stand up for a minute. Just stand up.
    [Applause.]
        Thank you. Thank you, Mr. Chairman.
        [The statement of Mr. Miller follows:]

      Prepared Statement of Hon. George Miller, Senior Democratic Member,
                    Committee on Education and the Workforce

        Thank you Chairman Kline for calling this hearing.
        There have been many prediction ns about how the new health care
    law would affect our nation's economy. The debate has been heated.
    Misinformation about the law bred fear and division among the public. I
    hope we can put rhetoric and misinformation aside. We should openly and
    honestly examine the law that is now in effect, but still has several
    years to go before it is fully implemented.
        The Affordable Care Act is not p perfect. It does not contain
    everything that I wanted, and it includes things that some of my
    colleagues opposed. That is the nature of lawmaking.
        But the new law has unquestionably begun to deliver positive
    results, for small businesses, large employers, individuals, children
    and families, and the elderly.
        It has begun to work for small business.
        Dr. Odette Cohen runs a small pediatrics practice in Willingboro,
    New Jersey. She testified at a recent hearing that the small business
    tax credit is keeping her employees covered.
        Thanks to lower health care costs, Dr. Cohen is hiring another
    nurse practitioner and upgrading her business with an electronic
    recordkeeping system. And she said she's eagerly awaiting the creation
    state-based health insurance exchanges in 2014, which will allow her to
    o pool together with other small businesses to improve choices and
    drive down costs, just the way large companies do.
        Dr. Cohen is not alone in benefiting from the new law. A recent
    Kaiser Family Foundation survey found that the number of small
    businesses offering insurance increased by 30 percent last year.
        The new law works for large employers, too.
        Helen Darling, president of the National Business Group on Health
    that represents more than 300 large employers including 65 of the
    Fortune 100, said that our nation's businesses would be worse off if
    the law is repealed.
        The new law works for working people.
        Workers are already enjoying new rights and protections that put
    them in charge of their own health care. Never again will they have to
    worry about losing health insurance if they lose or change their job or
    decide to start their own business.
        The new law is literally keeping people alive.
        More than a million young adults have been able to join their
    parent's health plan. Nearly 16 million Americans are no longer
    vulnerable to an insurance company dropping them from coverage when
    they need it most--when they get sick. And, 165 million people are no
    longer subject to annual or lifetime benefit caps.
        Children with pre-existing conditions can no longer be denied
    coverage, and in 2014, the same will be true for adults.
        And the new law also works for our overall economy.
        Since President Obama signed the Affordable Care Act, 1.1 million
    private sector jobs have been created--more than the entire eight years
    of the Bush administration.
        The Wall Street Journal recently reported that the IPO market is
    gaining momentum. Seven of the eleven companies going public last week
    were in health care related industries.
        The Affordable Care Act is now the law of the land. It is working.
    It reins in the power insurance companies have unfairly wielded over
    ordinary Americans' lives.
        If Congress were to repeal this law, small businesses, families
    with children, workers, and the elderly would be harmed immediately.
    Their taxes would go up, new rights and benefits overturned, and their
    access to quality, affordable health care taken away.
        Mr. Chairman, I look forward to today's hearing and I yield back my
    time.
                                     ______

        Chairman Kline. Mark, thank you for your service, your
    years of service to the committee. And congratulations on your
    new assignment. I am sure that will be a great adventure. Well,
    I hope it will be a great adventure for you. And anyway,
    congratulations.
        Pursuant to committee rule 7-C, all members will be
    permitted to submit written statements to be included in the
    permanent hearing record. Without objection, the hearing record
    will remain open for 14 days to allow statements and other
    extraneous material referenced during the hearing to be
    submitted for the official hearing record.
        It is now my pleasure to introduce our distinguished panel
    of witnesses. And I will go through and sort of introduce each
    of you, a little bit of bio before we get into the testimony.
        Dr. Paul Howard is a senior fellow at the Manhattan
    Institute and serves as director of the institute's Center for
    Medical Progress. He has written on a wide variety of medical
    policy issues, including health care reform, medical
    malpractice and Medicare policy initiatives. He received his
    Ph.D. in political science from Fordham University, is a
    graduate of the College of the Holy Cross in Worcester,
    Massachusetts.
        Ms. Gail Johnson is the president and CEO of Rainbow
    Station, Incorporated, a nationally accredited preschool and
    school-age recreation franchise based in Richmond, Virginia
    that offers backup daycare for mildly ill children on-site.
    Before starting her own business, Ms. Johnson worked as a
    pediatric nurse for almost 25 years and served as a faculty
    member of the Maternal Child Nursing Departments at the Medical
    College of Virginia, Virginia Commonwealth University. She
    continues to serve as the vice president of the Medical College
    of Virginia Foundation Board of Trustees.
        Dr. Paul Van de Water is a senior fellow at the Center on
    Budget and Policy Priorities, where he specializes in Medicare,
    Social Security and health coverage issues. He formerly served
    as assistant deputy commissioner for policy at the Social
    Security Administration and worked for over 18 years at the
    Congressional Budget Office. Dr. Van de Water holds an A.B. in
    economics from Princeton University and a Ph.D. in economics
    from Massachusetts Institute of Technology.
        Mr. Neil Trautwein is the vice president and employee
    benefits policy council at the National Retail Federation. As
    such, he leads National Retail Federation's work on health care
    reform and other benefits-related legislation and regulatory
    issues. He holds a bachelor's degree in political science from
    the University of Louisville and a law degree from George
    Washington University.
        Okay. You have in front of you--I think some of you have
    been here before and certainly seen this. You have the little
    box there. And it has a light system. When you start your
    testimony, the little green light will come on. And 4 minutes
    into your testimony, assuming that Ken's finger and timing is
    exactly correct, it will turn yellow. And that gives you about
    a 1-minute heads up that your 5 minutes is coming to a close.
        And when your 5 minutes is up, a red light will come on. I
    have no intention of dropping the gavel in the middle of any
    sentence, but please, try to wrap up your testimony. And be
    aware that your entire testimony will be included in the
    record.
        And while I am on it, when we get to questions, I want to
    remind my colleagues that we will be under the 5-minute rule.
    And out of fairness to our colleagues, I will be a little bit
    more prompt in dropping the gavel. Let us try to keep our
    questions and answers to 5 minutes.
        Okay. I think we are ready to go. We will start with Dr.
    Howard.
        Sir, you are recognized.

      STATEMENT OF PAUL HOWARD, SENIOR FELLOW, MANHATTAN INSTITUTE

        Mr. Howard. I would like to thank Chairman Kline, Ranking
    Member Miller and the other honored members of the committee
    for the opportunity to speak this morning on the economic and
    employment effects of the Patient Protection and Affordable
    Care Act. I am speaking today from my experience studying
    health care policy, speaking with providers, patients and
    employers from across the country and from my own research on
    health care as director and senior fellow at the Manhattan
    Institute's Center for Medical Progress.
        First of all, I would like to state that real health care
    reform that lowers costs and improves access to affordable
    coverage is a critical national priority for employers, for the
    uninsured and for taxpayers. Unfortunately, the Patient
    Protection and Affordable Care Act doubles down on many of the
    worst aspects of our current system while adding new cost
    pressures that will serve as a drag on economic growth and job
    growth for years to come.
        In turn, I will discuss why the Affordable Care Act is much
    more likely to increase the deficit than to lower it, explain
    how the mandates and penalties that it imposes on insurers and
    employers will increase health care costs and decrease
    employment and conclude by explaining the negative effects of
    regulatory uncertainty at a time when companies are sitting on
    trillions of dollars in cash that could be used for job
    creation.
        Even if we take the Affordable Care Act at face value, many
    experts believe that it has not done nearly enough to address
    current and project entitlement spending. The CBO does score
    the Affordable Care Act as reducing the deficit by $143 billion
    in its first decade. However, current savings estimates double-
    count $52 billion in Social Security payments and $70 billion
    in premium payments for a new long-term care program as
    revenues. It also gears up to $115 billion in discretionary
    costs, including $10 to $20 billion in direct implementation
    costs.
        Defenders of the act like to point to the increased savings
    in the second decade of the legislation. The problem with this
    defense is that the Office of the Medicare Actuary has noted
    that most of these cuts will be unsustainable. We should also
    note that states will face $21 billion in new Medicaid costs
    from 2014 to 2019, not including up to $12 billion in new
    administrative outlays. Many state budgets face significant
    budget deficits today and cannot afford any new spending.
        The Affordable Care Act also imposes a number of new
    minimum benefit requirements on insurers. These provisions may
    result in what is perceived to be a richer benefit package, but
    at the cost of higher insurance premiums that employers will
    have to offset to reduce employee wages and fewer jobs.
        New taxes on drug companies, insurance companies and
    medical device companies are all likely to be passed----
        Chairman Kline. Dr. Howard, let me--I am sorry to
    interrupt. But we are having microphone difficulties. And it
    has been suggested that maybe you move the microphone away from
    you just a little bit. And we can hear what you are saying, but
    it is a mechanical problem. So I didn't mean to interrupt. We
    will try again. And then we will just power through.
        Mr. Howard. Would you like me to start again? Or----
        Chairman Kline. No.
        Mr. Howard. Okay. The Affordable Care Act also imposes a
    number of new minimum benefit requirements on insurers. These
    provisions may result in what is perceived to be a richer
    benefit package, but at the costs of higher insurance premiums
    that employers will have to offset through reduced employee
    wages or fewer jobs. New taxes on insurers, drug companies and
    medical device companies are all likely to be passed through
    directly onto employers.
        The administration has repeatedly promised that if you like
    the coverage you have today, you will be able to keep it. But
    current estimates are that 69 percent of all employers and up
    to 80 percent of small employers will lose their grandfathered
    plans over the next several years.
        The mandate is apt to have a variety of negative effects on
    coverage and employment decisions. For employers with 50 or
    fewer employees who do not offer coverage, it will be a
    disincentive to grow beyond the cap and incur the penalty.
    Other mid-sized firms will likely hire fewer lower wage
    workers, more part-time workers or become more automated in
    order to reduce their exposure to the penalty.
        Of course, many companies may rationally decide that the
    price of dropping coverage is more than offset by the savings
    recouped from ending employer-based coverage. The decision to
    end coverage will also be encouraged by the fact that the
    Affordable Care Act offers significantly larger subsidies
    through the state exchanges than many employees will receive
    through employer-based coverage.
        Employers will face tremendous uncertainty over the next
    several years as they try to understand their exposures to the
    costs associated with the federal and state insurance
    requirements, creating a substantial drag on job creation.
    Employers are already struggling with the unintended
    consequences of the legislation.
        To date, the Department of Health and Human Services had to
    issue over 700 waivers from minimum benefit requirements under
    the Affordable Care Act. Over 200 economists have also sent a
    letter to the House leadership on January 18th discussing the
    enormous costs of the legislation and its negative effect on
    employment. A different, better approach for the U.S. is to
    rely on incremental reforms to expand coverage to those with
    greatest need, implement tax reforms to equalize the tax
    treatment of insurance purchased on the individual market or
    through employers and institute health care and insurance
    reforms that utilize competition and consumer choice to drive
    health care costs down.
        Members of the committee, I thank you for the opportunity
    to be here today. And I look forward to answering your
    questions.
        [The statement of Mr. Howard follows:]

     Prepared Statement of Paul Howard, Ph.D., Senior Fellow and Director,
      Center for Medical Progress, Manhattan Institute for Policy Research

        I'd like to thank Chairman Kline, Ranking Member Miller and members
    of the Committee for the opportunity to speak this morning on the
    effects of the Patient Protection and Affordable Care Act on the
    economy, employers and the workforce.
        I'm speaking today from my experience studying health care policy;
    speaking with providers, patients, and employers from across the
    country; and from my own research on health care as director and senior
    fellow at the Manhattan Institute's Center for Medical Progress.
        First of all, I'd like to state that there is a critical need for
    real health care reforms that improve access to affordable health
    insurance; protect individuals and families from the risk of
    catastrophic health care expenses; lower the unsustainable rate of
    health care cost growth for private and public payers; and create
    better incentives for health care providers to offer more cost
    effective care.
        Creating truly portable individual health insurance would reduce
    the incidence of job-lock, encouraging entrepreneurship and allowing
    employees to changes jobs without fear of losing valuable health
    insurance. Slowing the rate of insurance premium growth for employer-
    based coverage would allow employers to shift scarce capital to other
    critical business operations (including job creation) and/or increase
    employee compensation in the form of higher take home pay.
        Without significant health care reforms, rising employer health
    insurance premiums will continue to sap business capital and erode
    employee take home pay. More businesses (especially small employers)
    will drop coverage as insurance becomes unaffordable, leading to an
    ever growing number of uninsured. Entitlement spending for Medicare and
    Medicaid will swamp state and federal budgets, threatening economically
    crippling tax increases or devastating spending cuts.
        Unfortunately, the Patient Protection and Affordable Care Act is
    not the solution to our health care woes. If anything, the Affordable
    Care Act ``doubles down'' on many of the worst aspects of our current
    system, while adding new cost pressures and problems that will serve as
    a drag on economic growth and job creation for years to come.
        I believe that the negative economic impacts of the Affordable Care
    Act can be separated into three broad categories:
         PPACA will Increase the Deficit, Not Reduce It
         PPACA will Increase Insurance Costs and Reduce Employment
         Regulatory Uncertainty under PPACA will Hinder Job
    Creation
        In turn, I will discuss why the Affordable Care Act is much more
    likely to increase the deficit than reduce it; explain how the
    mandates, taxes, and penalties that it imposes on insurers and
    employers will increase health care costs and decrease employment; and
    conclude by exploring the negative effects of regulatory uncertainty at
    a time when companies are ``sitting'' on trillions of dollars in cash
    that could be used for job creation.
    PPACA will Increase the Deficit, Not Reduce It
        From an economic perspective, reducing the federal deficit to
    sustainable levels would be an enormous boon for U.S. economic
    competitiveness and job creation. If we continue spending at current
    projected levels, the U.S. economy will be exposed to the risk of a
    sovereign debt crisis that would force economically crippling tax
    increases or sudden and severe cuts in government spending that would
    have long lasting negative consequences for U.S. economic growth and
    employment.
        Slowing the rate of excess health care cost growth for government
    health care entitlement programs like Medicare and Medicaid would be a
    significant step towards addressing the U.S.'s long term structural
    deficit. However, the Affordable Care Act creates a new middle class
    entitlement for the purchase of heavily subsidized private health
    insurance, and approximately doubles the size of the Medicaid program.
    This is hardly the best way to ``bend the curve'' of health care
    spending, since it creates large new constituencies for increased
    health care spending and increased demand is likely to put significant
    upward pressure on the cost of health care goods and services.
        The Affordable Care Act does contain what MIT economist Jonathan
    Gruber calls (approvingly) a ``spaghetti approach to cost control''.\i\
    This includes a grab-bag of Medicare pilot projects and payment reforms
    including Accountable Care Organizations, bundled payment systems, and
    pay-for-performance initiatives. The strategy, insofar as it can be
    called a strategy, is to throw ``a bunch of stuff at against the wall
    [to] see what sticks.''
        Unfortunately, these programs are underpowered, and are likely to
    be cut short whenever they work too effectively, and threaten the
    interests of one or another powerful health care interest group.
        The Affordable Care Act's focus on top-down planning also ignores
    the myriad unintended consequences that follow when bureaucracies with
    limited information attempt to control the behavior of hundreds of
    thousands of physicians, and thousands of hospitals, who have powerful
    financial incentives to find ways to maximize revenue from
    administratively favored activities and procedures and avoid painful
    cuts to disfavored ones.
        Even if we take the Affordable Care Act at face value, it has not
    done nearly enough to address current and projected entitlement
    spending. Just two months after the Affordable Care Act passed, the
    director of the Congressional Budget Office (CBO) noted that:
        Rising health care costs will put tremendous pressure on the
    federal budget during the next few decades and beyond. In CBO's
    judgment, the health legislation enacted earlier this year does not
    substantially diminish that pressure.\ii\
        Nonetheless, it has been endlessly repeated that the Affordable
    Care Act will actually reduce the deficit by a small amount in its
    first ten years and by trillions of dollars thereafter. How is this
    circle squared? The federal government is clearly committed to spending
    hundreds of billions more on Medicaid, the State Children's Health
    Insurance Plan (or SCHIP), and new subsidies for middle- and upper
    income-uninsured to buy health insurance on newly created state health
    insurance exchanges beginning in 2014.
        Still, the CBO does score the Affordable Care Act as reducing the
    deficit by about $143 billion in its first decade (including $19
    billion from its education related provisions). However, the CBO also
    notes that the federal government will spend about $401 billion more on
    health care programs in the Affordable Care Act's first decade, while
    increasing federal revenues, through taxes and fees, by an even greater
    amount, $525 billion.\iii\
        Consequently, half-a-trillion dollars will be shifted out of the
    private economy and directed largely towards new health care spending.
    Not only will this reduce funds available for private sector job growth
    and innovation, but the funds are also lost for any future deficit
    reduction efforts. Estimates that the Affordable Care Act reduces the
    deficit by $143 billion seem reassuring, but only if we ignore the fact
    that we are shifting substantial new revenues from non-health care
    sources to meet new health care obligations--hardly ``bending the
    curve'' by any plausible definition.
        The passage of the Affordable Care Act also set a new low in
    Washington's perennial fiscal shell games. First of all, the
    legislation double-counts $53 billion in Social Security payments and
    $70 billion in premium payments for a new long term care insurance
    program (CLASS) as revenues. It also ignores up to $115 billion in
    discretionary costs associated with the Affordable Care Act, including
    $10-20 billion in direct implementation costs,\iv\ including:
         $5-10 billion for the IRS associated with ``the
    eligibility determination, documentation, and verification processes
    for premium and cost-sharing credits''
         $5-10 billion in costs for a variety of federal agencies
    including CMS, the Office of Personnel Management, Medicaid and CHIP
        Many more costs loom just over the horizon. The infamous ``doc
    fix'' for the sustainable growth rate (SGR) formula under Medicare
    threatens large cuts to physicians fees every year. Congress passed the
    latest SGR patch in December and deferred cuts for 2011, without
    offering any permanent resolution. Ultimately the SGR has to be
    addressed, but the fiscal cost is staggering: estimated at $276 billion
    over 10 years. The CBO also estimates that costs for the new insurance
    subsidies and Medicaid expansion under the Affordable Care Act will
    grow by approximately 8% annually beginning in 2019.
        Defenders of the Affordable Care Act may concede that the near term
    prospects for the bill to control costs are poor. Instead, they point
    to the increased savings in the second decade of the legislation, and
    to the 2010 Medicare Trustees report, which estimates that the
    Affordable Care Act will extend Medicare's hospital insurance trust
    fund an additional 12 years (from 2017 to 2029), and cut trillions from
    Medicare's long-term expenditures.
        The problem is that these figures assume that Congress will
    tolerate large cuts to payments for Medicare providers or that such
    cuts will have no effect on services for Medicare beneficiaries. The
    office of the Medicare Actuary has published what amounts to a dissent
    from the 2010 Trustees report, noting that:
        [T]he financial projections shown in this report for Medicare do
    not represent a reasonable expectation for actual program operations *
    * * the statutory reductions in price updates for most categories of
    Medicare provider services will not be viable.\v\
        Medicare actuaries estimate that by 2019, Medicare payment rates
    would be lower than those currently paid for Medicaid (which already
    pays providers much less than private insurance). In the long run,
    Medicare payments would dip to ``one-third of the relative current
    private health insurance prices and half of those for Medicaid,''
    according to the actuaries' memorandum. Under these projections, a full
    15% of Medicare providers would be unprofitable by 2019, 25% by 2030,
    and 40% by 2050.\vi\ Needless to say, it is unlikely that Congress
    would actually allow these cuts to go into effect, since they would
    have dire consequences for Medicare beneficiaries.
        Other analysts, after discounting the double-counting of revenues
    and cuts that are likely to be unsustainable, put the true deficit
    costs of the Affordable Care Act during its first 10 years at over $562
    billion and second decade at over $1.5 trillion.\vii\ Meeting these
    obligations will require significant new tax increases or spending
    cuts, draining funds from the private sector or reducing investment for
    other critical priorities like public education and infrastructure.
        We should also not ignore the serious impact that the Affordable
    Care Act will have on already strained state budgets. The new law would
    bring 16 million Americans--one-half of the estimated 32 million who
    will receive new insurance coverage--into Medicaid, covering Americans
    making up to 133 percent of the federal poverty level.
        Medicaid spending currently consumes about 20 percent of state
    budgets, crowding out spending on everything from education to
    infrastructure. The federal government will pick up 100 percent of new
    Medicaid costs for the first several years after 2014, when the law
    goes into effect, paring back to 90 percent in 2020. Still, states will
    face $21 billion in new Medicaid costs from 2014-2019,\viii\ not
    including up to $12 billion in new administrative costs.\ix\ While this
    pales besides the $443 billion in new Medicaid costs for the federal
    government, many state budgets are in such poor condition that they
    can't afford any new outlays; they need, in fact, to cut spending.
        States will also be responsible for the approximately 11 million
    uninsured Americans who are currently eligible for Medicaid but have
    never bothered to enroll. In 2014, once the Affordable Care Act takes
    effect, many of these eligible but not enrolled people will presumably
    sign up for Medicaid coverage. Unfortunately for the states, these
    enrollees would be covered not under the higher federal matching rate
    that the Affordable Care Act establishes but under the pre-PPACA rate,
    which varies by state but is much more onerous. These trends will only
    increase Medicaid pressures on state budgets, leading to more
    economically damaging tax increases, budget cuts, or state employee
    layoffs.
    PPACA will Increase Insurance Costs and Reduce Employment
        While the full deficit effects of the Affordable Care Act are not
    likely to be felt for several years after full implementation begins in
    2014, the Act also contains a number of other provisions including new
    insurance mandates, taxes, and employer penalties that will have a
    direct and more immediate effect on the cost of health insurance
    coverage and employer decisions to hire (or not hire) additional
    employees.
        The Affordable Care Act imposes a number of new requirements on
    insurers, including extending dependent coverage for adult children
    until they are 26; eliminating the lifetime cap on health insurance
    coverage and gradually increasing and then eliminating annual coverage
    limits; forbidding companies from excluding children with pre-existing
    conditions from child-only coverage policies; and eliminating cost-
    sharing for preventive services in Medicare and private plans. These
    provisions may result in what is perceived to be a ``richer'' benefit
    package, but at the cost of higher insurance premiums that employers
    will have to offset through reduced employee wages or job creation.
        New taxes on insurance companies, pharmaceutical companies, and
    medical device companies are all likely to be passed through directly
    onto employers and employees in the form of higher insurance premiums.
    (Some of these new costs can, of course, also be passed along to
    consumers in the form of higher prices for goods and services.)
        The administration has also repeatedly promised that ``if you like
    your plan, you can keep it, and thus that ``grandfathered'' plans would
    not be subject to new insurance regulations, and new costs. However,
    the government has since revealed that up to 69 percent all employers
    (and up to 80 percent of small employers) will lose their grandfathered
    status over the next several years and be subject to new regulatory
    requirements and costs.\x\
        Massachusetts' experience with health insurance reform, the
    template for the Affordable Care Act, suggests that health insurance
    costs will rise for employers and for small firms in particular. A July
    2010 study by health economists John Cogan, Glenn Hubbard, and Daniel
    Kessler found that premium trends for employer-provided health
    insurance rose faster in the Bay State after reforms were implemented,
    particularly for individual coverage and for small businesses.
        The authors found that ``health reform in Massachusetts increased
    single coverage employer-sponsored insurance premiums by about 6
    percent in aggregate and by about 7 percent for firms with fewer than
    50 employees. * * * For small employers, the differential
    Massachusetts/US growth in small group [family] premiums from 2006-
    2008, over and above the growth from 2004-2006, was 14.4 percent.''
    \xi\
        The Affordable Care Act also contains a play or pay mandate that
    penalizes companies with more than 50 employees who do not offer
    coverage, or offers ``unaffordable'' coverage if one or more employees
    at the firm purchases subsidized coverage on a state health insurance
    exchange beginning in 2014.
        The consulting firm Mercer predicts that ``more than a third of the
    nation's employers--38%--have at least some employees for whom coverage
    would be considered `unaffordable' under [PPACA].'' The penalty is
    equal to $3,000 per full-time employee receiving subsidized coverage,
    or $2,000 per FTE excluding the first 30, whichever is less. (Although
    Mercer found that more small companies would be affected by the
    penalty, 31% of employers with 500 or more employees would be at risk,
    along with 20% of employers with 20,000 or more employees.)
        The ``play or pay'' mandate is apt to have a variety of effects on
    coverage and employment decisions. For employers with 50 or fewer
    employees who do not offer coverage, it will be a disincentive to grow
    beyond the ``cap'' and incur the penalty--reducing employment. One
    labor economist notes that the $2,000 penalty will amount to 15% of
    average wages in the restaurant industry and nearly 10% of wages in the
    retail sector--providing an incentive for firms to hire fewer lower-
    wage workers or become more automated. (In general, firms will also
    prefer to hire full-time workers as the cost of benefits per-hour of
    labor is lower.) \xii\
        For employers who do not offer ``affordable'' coverage, they can
    avoid the penalty by increasing spending on health care benefits to
    reduce the employees' share of health insurance costs below the 9.5%
    threshold of household income. However, these expenditures would
    compete with total employee compensation or other employment decisions.
    (How, exactly, firms will go about learning their employees' household
    income for purposes of determining if their coverage is
    ``affordable''--household income may fluctuate throughout the year--is
    another question entirely, with potentially troubling privacy
    implications.)
        Of course, many companies may rationally decide that the ``price''
    of dropping coverage (along with any increase in an employees' salary
    or other compensation) is more than offset by the savings recouped from
    ending an employee insurance policy that costs $11,000 or more
    annually.\xiii\
        The decision to end employer-based coverage will also be encouraged
    by the fact that the Affordable Care Act effectively creates a ``most
    favored subsidy'' group, insofar as individuals and families in the
    exact same income bracket may qualify for very different tax subsidies
    based on whether or not they are offered employer-based insurance
    coverage.
        The subsidies and cost sharing support available on the state
    health insurance exchanges are significantly more generous than the
    current insurance tax exemption for employer provided health
    insurance--at least for households earning less than 200-250 percent of
    the federal poverty level--providing an additional incentive for low-
    wage employees to migrate into the exchange. (Higher-wage employees who
    do not qualify for subsidies on the exchanges, or who would still face
    substantial out of pocket costs, will want to ``stay put'' in employer-
    based coverage.)
        The Affordable Care Act does contain a tax credit to offset the
    costs of insurance coverage for small firms. The credit, however,
    phases out for firms with between 10-25 employees and as average wages
    approach $50,000. Proprietors and their family members are also
    excluded from claiming the credit, even though many small firms are
    family-run. Given these limitations, the National Federation of
    Independent Businesses estimates that only 35 percent of firms with
    fewer than 25 employees will be able to qualify for the credit. In any
    case, the premium is only available for a total of six years (2010-13,
    plus a two year credit beginning in 2014).
        Although it is difficult to predict the exact magnitude of the
    Act's effect on employment-based coverage, CBO does expect that as many
    as 3 million people would lose employer based coverage, noting that
    ``firms that would choose not to offer coverage as a result of the
    proposal would tend to be smaller employers and employers that
    predominantly employ lower wage workers.'' \xiv\ Other sources estimate
    that far more lower-wage employees may be ``dropped'' into the state
    exchanges than has been previously estimated--perhaps as many as 43
    million, substantially increasing taxpayer obligations and driving up
    the cost of the program.\xv\
        Firms are therefore most likely to end coverage for lower wage
    employees, and/or outsource or automate their functions to both avoid
    paying a fine and to shed health insurance costs. In sum, the tax
    advantage on the exchanges for many households is likely, over the long
    term, to undermine coverage in the employer-based market, increase
    taxpayers' exposure to subsidy costs, and reduce demand for low-wage
    labor.
        (Many low-income employees may also find themselves enrolled in
    Medicaid, a joint-federal state program that offers comprehensive
    insurance coverage on paper, but which has serious access problems due
    to low and slow reimbursements for physicians' services. Medicaid also
    seems to have worse outcomes for serious illnesses like cancer and
    heart disease.)
        One small business owner (an IHOP franchisee in New Jersey)
    anticipates that Affordable Care Act penalties for his 140 uninsured
    workers (up to $220,000) will force him to raise prices or possibly lay
    workers off. ``We are still figuring out how to deal with this,'' he
    told the Cleveland Plain Dealer in July. ``Ultimately, either
    businesses will close or consumers will pay more.''
    Regulatory Uncertainty under PPACA Will Hinder Job Creation
        The Patient Protection and Affordable Care Act is likely to
    increase insurance premiums for employers by mandating richer benefit
    packages; penalize firms that do not offer insurance or do not offer
    ``affordable'' insurance; and increase incentives for employers to find
    ways to reduce insurance coverage for, or reliance on, low-wage labor.
    Overtime, the Affordable Care Act will significantly undermine the
    employer-based insurance coverage and leave millions more Americans in
    insurance markets that are government controlled.
        Still, much of the regulation that will affect insurance costs and
    firms' allocation of wages and employment will be written over the next
    several years. As a result, employers face tremendous uncertainty as
    they try to understand their exposure to costs associated with federal
    and state insurance requirements; calculate potential penalties for
    going without coverage or exceeding maximum allowable household costs;
    and prepare to navigate the thicket of regulations that will emerge
    piecemeal from the Department of Health and Human Services, state
    departments of insurance, and state health insurance exchanges.
        Employers are already struggling with unintended consequences of
    the legislation. To date, the Department of Health and Human Services
    has had to issue 733 waivers from minimum insurance requirements under
    the Affordable Care Act, including 182 issued to plans provided under
    union collective bargaining agreements.
        While HHS should be commended for acting to minimize the loss of
    coverage or large premium increases for millions of enrollees in these
    plans, it does underscore the potential for political pressures to be
    brought to bear that will make the transparent implementation of the
    Affordable Care Act extraordinarily difficult. Indeed, we have already
    seen how union pressures on Congress and the White House pushed back
    the ``Cadillac Tax'' in the Affordable Care Act to 2018 (and
    substantially raised the threshold at which the tax takes effect),
    raising the question of how many other provisions may be selectively
    enforced or not enforced at all.
        At least until 2014, firms will proceed very cautiously before
    committing themselves to new investment or employment decisions. Given
    persistently high unemployment, and a fragile recovery from the worst
    financial crisis since the Great Depression, the Affordable Care Act
    will remain a drag on the economy until many of these questions are
    resolved--and beyond. The Congressional Budget Office currently
    estimates that the Affordable Care Act will reduce labor in the U.S. by
    approximately .5 percent, primarily because it will ``affect some
    individuals' decisions about whether and how much to work, and some
    employers' decisions about hiring workers.'' \xvi\
        This may seem to be a modest amount (although it may represent
    hundreds of thousands of lost jobs). And private firms can and do adapt
    themselves to a variety of regulatory environments. But a glance at our
    European competitors shows that universal health insurance is not, in
    itself, a boost to employment or global competitiveness. Many European
    countries have persistently higher overall unemployment than the U.S.
    The French economist Guy Sorman puts it as follows:
        France's costly national health insurance is mostly financed by
    taxes on labor. A Frenchman making a monthly salary of 3,000 euros will
    pay approximately 350 of them (deducted by his employer) for health
    insurance. Then the employer will add approximately 1,200 euros, making
    the total monthly cost to the employer of this individual's services
    not 3,000 euros but 4,200.
        High labor costs in France affect not only consumer prices but also
    unemployment rates, since employers are reluctant to pay so much for
    low-skill workers. Economists agree that unemployment rates and the
    cost of national health insurance are directly related everywhere,
    which partly explains why even in periods of economic growth, the
    average French unemployment rate hovers around 10 percent.\xvii\
        A different, and better approach for the U.S., would've relied on
    incremental reforms to expand coverage to those with the greatest
    medical and financial need; implemented tax reforms to equalize the tax
    treatment of insurance purchased on the individual market or through
    employers; and instituted health care and insurance reforms that
    utilize competition and consumer choice to drive health care costs
    down.
        Instead, we've created a new open-ended federal entitlement,
    mandated even more expensive, comprehensive insurance coverage, and
    instituted a massive new regulatory process that will generate
    unintended consequences for years to come.
        Members of the Committee, thank you for the opportunity to be here
    today. I look forward to answering your questions.

                                    ENDNOTES

        \i\ Cost Questions Could Lead to Further Debate on Health Care
    Reform. California Healthline, April 26, 2010. http://
    www.californiahealthline.org/articles/2010/4/26/cost-questions-could-
    lead-to-further-debate-on-health-care-reform.aspx
        \ii\ Douglas Elmendorf, Director, Congressional Budget Office,
    Presentation to the Institute of Medicine, Health Costs and the Federal
    Budget, May, 26 2010. Slide 2. http://www.cbo.gov/ftpdocs/115xx/
    doc11544/Presentation5-26-10.pdf
        \iii\ Congressional Budget Office, The Budget and Economic Outlook:
    An Update. August 2010 (p. 6). http://www.cbo.gov/ftpdocs/117xx/
    doc11705/08-18-Update.pdf
        \iv\ Letter from Congressional Budget Office Director Douglas W.
    Elmendorf to the Hon. Jerry Lewis, ranking member of the House
    Committee on Appropriations. May 11, 2010 (p. 2). http://www.cbo.gov/
    ftpdocs/114xx/doc11490/LewisLtr--HR3590.pdf
        \v\ 2010 Annual Report of the Boards of Trustees of the Federal
    Hospital Insurance and Federal Supplementary Medical Insurance Trust
    Funds. ``Statement of Actuarial Opinion'', p. 282. https://www.cms.gov/
    ReportsTrustFunds/downloads/tr2010.pdf.
        \vi\ Projected Medicare Expenditures under an Illustrative Scenario
    with Alternative Payment Updates to Medicare Providers. Centers for
    Medicare and Medicaid Services, Office of the Actuary, August 10, 2010
    (p. 6). http://www.cms.gov/ActuarialStudies/Downloads/
    2010TRAlternativeScenario.pdf.
        \vii\ Douglas Holtz-Eakin and Michael J. Ramlet, Health Care Reform
    is Likely to Widen Budget Deficits, Not Decrease Them. Health Affairs,
    June 2010:1136-41. http://www.ncpa.org/pdfs/health-care-reform-likely-
    to-add-billions-to-deficit.pdf
        \viii\ Health Reform Issues: Key Issues About State Financing and
    Medicaid. Kaiser Family Foundation, May 2010 (p. 2). http://
    www.kff.org/healthreform/8005.cfm
        \ix\ Obamacare: Impact on States. Edmund F. Haislmaier and Brian C.
    Blase, Heritage Foundation. July 2010 (p. 5). http://thf--
    media.s3.amazonaws.com/2010/pdf/bg2433.pdf
        \x\ HHS Urged to Ease Requirements for Maintaining `Grandfathered'
    Status. Commonwealth Fund, August 17, 2010. http://
    www.commonwealthfund.org/Content/Newsletters/Washington-Health-Policy-
    in-Review/2010/Aug/August-23-2010/HHS-Urged-to-Ease-Requirements-for-
    Maintaining-Grandfathered-Statu.aspx
        \xi\ John F. Cogan, R. Glenn Hubbard, and Daniel Kessler (2010)
    ``The Effect of Massachusetts' Health Reform on Employer-Sponsored
    Insurance Premiums,'' Forum for Health Economics & Policy: Vol. 13:
    Iss. 2 (Health Care Reform), Article 5. http://www.bepress.com/fhep/13/
    2/5
        \xii\ Health Care's Impact on the Low-Skilled Worker. Diana
    Furchtgott-Roth, RealClearMarkets.com, May, 6, 2010. http://
    www.realclearmarkets.com/articles/2010/05/06/healthcare--and--low-
    skilled--workers--98451.html
        \xiii\ Documents reveal that AT&T, Verizon, others, thought about
    dropping employer sponsored benefits. Shawn Tully, CNN Money, May 6,
    2010. http://money.cnn.com/2010/05/05/news/companies/dropping--
    benefits.fortune/
        \xiv\ Cost estimate for the amendment in the nature of a substitute
    for H.R. 4872, incorporating a proposed manager's amendment made public
    on March 20, 2010 (p. 10). http://www.cbo.gov/ftpdocs/113xx/doc11379/
    AmendReconProp.pdf
        \xv\ The Patient Protection and Affordable Care Act: Labor Market
    Incentives, Economic Growth, and Budgetary Impacts, Douglas Holtz-
    Eakin, January 26, 2011 (p. 14). http://waysandmeans.house.gov/
    UploadedFiles/HoltzEakin--Testimony--1--5.pdf
        \xvi\ See Congressional Budget Office, Director's Blog, October 22,
    2010. http://cboblog.cbo.gov/?p=1478
        \xvii\ Paying for Le Treatment, Guy Sorman, City Journal, August
    24, 2009. http://www.city-journal.org/2009/eon0824gs.html
                                     ______

        Chairman Kline. Thank you, Dr. Howard.
        Ms. Johnson?

    STATEMENT OF GAIL JOHNSON, PRESIDENT AND CEO, RAINBOW STATION,
                                  INC.

        Ms. Johnson. Good morning, Chairman Kline, Ranking Member
    Miller and the rest of the committee. I am delighted to be able
    to speak with you today and grateful for the opportunity to
    discuss some of the ramifications of the new health care law
    facing employers and the workforce. In my remarks today, I will
    share my experience as an employer purchasing insurance
    coverage for our teachers and staff under the Affordable Care
    Act.
        While this law includes important insurance reforms and
    increased coverage to many more people, taken as a whole, the
    law is biased towards mandating coverage rather than providing
    meaningful cost control. Over the next 3 years, it will force
    employers to decide between absorbing rising premiums versus
    paying tax penalties. This will ultimately slow or stall the
    growth of small and mid-sized businesses as we struggle with
    the new cost requirements.
        Throughout my career, I have focused on women's and
    children's issues and founded a business, as mentioned before,
    focusing on quality early education school-age recreation and
    mildly ill backup care, backup care that provides on each of
    our Rainbow Station campuses about a thousand productive work
    days for parents who would otherwise have to stay home with an
    ill child. We do impact the economy with our business.
        As a pediatric and small-business owner, I strongly support
    the reform of our health care system. It is desperately needed.
    As a whole, the new law increases access to coverage without
    controlling costs. Rainbow Station is only beginning to feel
    the impact of this new law.
        Since 1992, we have provided health insurance for faculty
    and staff. And I have worked diligently to minimize out-of-
    pocket health care expenses for our employees. I have made a
    concerted effort each year to keep co-pays low and ensure no
    deductibles for my staff. I want my employees to access the
    health care system with minimal financial barriers.
        Last month, everything changed. This year, we will insure
    84 lives at a cost of $502,000. If I changed nothing and
    renewed our policy from 2010, our premium would increase 18
    percent. This increase would drive my premium to over $593,000.
    Due to the economic climate of the past 2 years, I just could
    not afford to absorb this increase and further impact our
    bottom line.
        For similarly-sized workforces, our broker informed us that
    the baseline increase, or trend, as she called it, is 12
    percent per year. This increase encompasses rising insurance
    costs due to advances in technology as well as rising medical,
    pharmaceutical and legal costs throughout the insurance, health
    care industry.
        Additionally, our broker informed us that 3 to 5 percent of
    our scheduled increase was a result of the new mandates and
    administrative costs caused by the Affordable Care Act of this
    year. I had hoped that this law would indeed help my premiums
    to lower, when, in fact, sadly, it did not.
        To avoid this premium increase, I made the difficult
    decision to add an employee deductible of $500. For the first
    time in our nearly 20-year history, our employees will now pay
    a deductible. Their premiums will not rise, but we sacrificed
    our goal of minimizing out-of-pocket expenses and
    unfortunately, increased a financial barrier to accessing
    health care services.
        This change resulted in forfeiting our ability to
    grandfather our plan. Moving forward, our plan must now comply
    with all the mandates required by the Affordable Care Act each
    year as the law is implemented.
        For example, my policy now has--will have to have no dollar
    limits on durable medical equipment. I employ young teachers,
    fortunately, healthy, young teachers. They do not have a need
    for durable medical equipment. But because I now have to
    include this in my policy, it's causing my premium to increase.
        To help keep up with these essential benefits, we will have
    to eventually pass on to employee--increase our employee cost
    sharing. The law has transformed health insurance into an
    obligation rather than a benefit that I can use to supplement
    salary and attract and retain quality faculty and staff. In the
    future, I will have even harder decisions to make.
        Do I continue to provide insurance coverage to my teachers?
    Or do I drop insurance coverage altogether and just pay a
    penalty? The penalty may cost me anywhere from $168,000 to
    $252,000. Choosing to forego providing insurance coverage
    could, indeed, save Rainbow Station about $300,000. But at what
    price?
        Will I be able to retain and attract the highest quality
    early child educators and nurses and staff without providing a
    quality benefits package? If compelled to eliminate our
    insurance coverage, I worry what my employees will face in the
    individual marketplace. There is great uncertainty out there
    regarding the availability of affordable, quality insurance
    products for our employees in the exchanges.
        The situation is more unsettling when considered that many
    businesses just like mine are facing the same decision. The
    decision to offer health insurance will strictly be about
    costs: rising insurance premiums versus tax penalties.
    Therefore, I fear more employers will choose to drop coverage
    and instead, pay the tax penalties.
        I believe the new health care law will discourage economic
    growth among small and mid-sized companies. Our government
    should be encouraging job growth and recovery. But this law
    disincentivizes for higher wages, new hiring and robust
    employee benefits. Employers will be compelled to devote more
    capital resources towards operating costs rather than investing
    in jobs growth.
        Thank you so much for the opportunity to speak with you
    today. And I look forward to any questions you may have.
        [The statement of Ms. Johnson follows:]

      Prepared Statement of Gail Johnson, President/CEO, Rainbow Station,
                                      Inc.

        Good morning Chairman Kline, Ranking Member Miller and members of
    the committee. My name is Gail Johnson, and I am grateful for the
    opportunity to address some of the ramifications of the new health care
    law facing employers and the workforce.
        In my remarks today, I will share my experience as an employer
    purchasing insurance coverage for our teachers and staff now that the
    Patient Protection & Affordable Care Act (PPACA) is the law of the
    land. While this law includes important insurance reforms that increase
    access to coverage for many more people, taken as a whole, the law is
    biased toward mandating coverage rather than providing meaningful cost
    control. Over the next three years, it will force employers to decide
    between absorbing rising premiums versus paying tax penalties. This
    will ultimately slow or stall the growth of small and midsized
    businesses as we struggle with the costly new requirements.
        Throughout my career, I have been focused on women and children's
    health and education issues. Before becoming an entrepreneur, I worked
    as a pediatric nurse for nearly 25 years. As a nurse, I held many
    roles, including visiting public health and home healthcare nurse;
    maternity, pediatric and nursery staff; Lamaze instructor; and faculty
    member of the Maternal Child Nursing Departments at the Medical College
    of Virginia (MCV)/Virginia Commonwealth University (VCU) and J.
    Sergeant Reynolds Community College. I continue to be engaged with the
    MCV/VCU School of Nursing as the Chair of the Nursing Advancement
    Council and serve as Vice President, Medical College of Virginia
    Foundation Board of Trustees.
        I am the founder and CEO of Rainbow Station, Inc., a nationally
    accredited preschool and school-age recreation franchise that offers
    emergency backup care for mildly ill children on site. We provide
    developmentally appropriate early education and school-age recreation
    to 325 children on each campus. There are three corporately owned
    Rainbow Station campuses in Richmond, Virginia. In 1999, I created
    PRISM, the franchising company for Rainbow Station, and there are
    currently franchises operating in Virginia, North Carolina and Texas.
    All Rainbow Station schools are accredited by the National Academy of
    Early Childhood Programs and/or the National Afterschool Association's
    Council on Accreditation as soon as they become eligible for
    accreditation. Some schools are accredited by the Southern Association
    of Colleges & Schools.
        My corporate Rainbow Station campuses employ 225 employees with
    annual wages for teachers ranging from $23,000 to $35,000. Currently,
    there are a total of nine schools open, with a capacity for 3,131
    children. Fully enrolled, each campus will generate $2.5-$3.5 million
    in revenue annually, depending on geographic location. There are eight
    additional locations in development, along with several sales pending.
        Within Rainbow Station facilities, we have the capacity to provide
    backup care for mildly ill children. This care is overseen by a
    pediatric nurse and results in approximately 1,000 productive workdays
    each year at each Rainbow Station campus being returned to parents and
    their employers. We provide these parents with the option to leave
    their child with a nurse, if they choose to go to work. Rainbow Station
    provides flexibility to working parents who would normally be forced to
    miss work in order to stay home with a mildly ill child. Using the
    franchise business model, we hope to continue growth and provide these
    work/family support solutions and services to more communities across
    the United States. Unfortunately, growth of our business is being
    significantly challenged by a lack of access to credit and the
    uncertainty created by the Patient Protection and Affordable Care Act
    (PPACA).
        My franchise system is an active member of the International
    Franchise Association (IFA). As the largest and oldest franchising
    trade group, the IFA's mission is to safeguard the business environment
    for franchising worldwide. IFA represents more than 90 industries,
    including more than 11,000 franchisee, 1,100 franchisor and 500
    supplier members nationwide. According to a study conducted for the IFA
    Educational Foundation, there are more than 800,000 franchised
    establishments in the U.S., creating 18 million American jobs and
    generating $2.1 trillion in economic output.
        The findings of the study, Small Business Lending Matrix and
    Analysis, prepared for the IFA Educational Foundation, support the
    notion that meaningful economic recovery and meaningful job creation
    will start with small business lending. In fact, the study determined
    that for every $1 million in new small business lending, the franchise
    business sector would create 40.4 jobs and generate $4.2 million in
    economic output.
        Franchised businesses play an important role in the economic health
    of the U.S. economy, and they are poised to help lead the economy on
    the path to recovery. IFA Educational Foundation reports show that the
    franchise industry consistently outperforms the non-franchised business
    sector, creating more jobs and economic activity in local communities
    across the country. Franchising grew at a faster pace than many other
    sectors of the economy from 2001 to 2005, expanding by more than 18
    percent. During this time, franchise business output increased 40
    percent compared to 26 percent for all businesses.
        The IFA continues to seek solutions to ensure that health insurance
    is more affordable for franchised businesses and their employees. We
    support proposals that strengthen consumer-oriented, affordable health
    insurance options and promote small business health plan legislation.
    Such legislation will allow owners of franchise businesses to pool
    together across state lines and purchase affordable health coverage. We
    also support medical liability reform that focuses on reducing
    litigation that has lead to higher costs. Unfortunately, the
    legislation signed into law last year contains a framework that will
    encourage further shifting of health costs onto the backs of small
    franchised businesses--in the form of a mandate on employers--and
    impose new taxes and fees that will be passed along by health insurance
    providers to consumers.
        As a pediatric nurse and small business owner, I understand the
    need for health care reform. However, increasing access to health
    coverage and forsaking measures to control health care costs will lead
    to negative repercussions in the small business community. Franchising
    encompasses businesses of all sizes, from small single unit locations
    to multi-unit international brands. Systems such as mine--fast-growing,
    midsized businesses--are the country's strongest job creators. Small
    and midsized businesses that are growing are able to do so by
    reinvesting income from their operations to expand. These businesses
    have limited margins for increased labor and operating costs. Complying
    with the requirements of the new law will force entrepreneurs to invest
    less into growing their business. I am here today to inform the
    Committee on Education and the Workforce that the new health care
    reform law will slow or stall the growth of small and midsized
    businesses as we struggle to absorb its new costs.
        Several aspects of the new law will add costs and regulatory
    burdens for small business owners. It establishes an employer mandate
    to provide health insurance coverage to employees. If employers do not
    purchase coverage, they will be subject to a penalty of $2,000 per
    full-time worker. The law further restricts workplace flexibility by
    defining a full-time employee as one who works at least a four day per
    week schedule. Furthermore, small businesses will now be required to
    calculate on a monthly basis the variable schedules of hourly employees
    to determine requirements under the new law and the associated
    penalties.
        Congress empowered the federal bureaucracy to determine an
    ``essential benefits package,'' ultimately requiring employers to
    contribute toward a package they otherwise may not have been able to
    afford. As crafted, I believe the new law will eliminate all
    flexibility for employers to design an affordable benefits package.
    This inflexible, one-size-fits-all approach betrays a bias toward
    mandating coverage rather than curbing costs. This represents a
    significant government intrusion into the benefits decisions of
    employers. In order to comply, small employers will be faced with
    decisions such as cutting back wages, forgoing new hiring and raising
    prices for services. These measures will further stunt any economic
    recovery and curtail future job growth.
        The new law took care to provide exemptions only to certain
    businesses--those employing less than 50 full-time equivalent
    employees--this creates a disincentive to hire or expand beyond this
    level. As is the case of my business, it plants the cost of compliance
    squarely on the backs of small and midsized firms employing more than
    50 people. It is important to note that in a business like Rainbow
    Station, we must adhere to required ratios of faculty to children in
    order to maintain state licensure as well as to earn and maintain
    national accreditation. The only option my business would have to avoid
    the employer mandate is to cut back on enrollment; and, therefore,
    services to the community.
        Under the new law, starting in 2014, we will be required to offer
    coverage or pay a tax penalty. To keep up with the law's mandated
    essential benefits, we will have to increase the amount of employee
    cost-sharing. This will drive our health insurance costs higher than we
    are able to provide today. We also must be mindful that our employee's
    share of the plan does not exceed 9.5 percent of their household
    income. Otherwise, they will be eligible for subsidies and would
    trigger penalties of up to $3,000 per employee who receives a subsidy.
    How are employers supposed to determine the household income of each
    employee? This is private information that employees would certainly
    not expect their employers to ascertain in most cases.
        The new law emphasizes access to coverage over curbing rising
    health care costs. The federal government has forced the hands of
    employers and transformed health insurance into an obligation, rather
    than a benefit of employment, a benefit that I use to supplement salary
    and wages in order to attract and retain quality faculty and staff.
    Essentially, the decision to offer health insurance coverage will
    strictly be about cost--insurance premiums versus tax penalties. Health
    insurance coverage will cease being a benefit of employment or part of
    a competitive compensation package.
        Rainbow Station is already beginning to feel the impact of the new
    health care law. Since 1992, Rainbow Station has provided health
    insurance for faculty and staff. Because we are a preschool with
    relatively low wages--although, I am proud to report that our wages are
    in the upper quartile for our industry--I have worked diligently to
    minimize out of pocket healthcare expenses for my teachers and staff.
    Currently we pay 70 percent of the insurance premium for our faculty
    and staff. I make a concerted effort each year to keep employee co-pays
    low and ensure no deductibles. I want my employees to be able to access
    the health care system with minimal financial barriers.
        Having just completed the renewal process for our insurance policy,
    I would like to share with the Committee one example of what small and
    medium-sized employers are struggling with across the United States. If
    I did nothing and just renewed our policy from 2010, I would face a
    premium increase of 18 percent. Our insurance broker informed us that
    the annual trend increase is 12 percent, and businesses with insurance
    plans and employee pools similar to our business can expect a 12
    percent increase each year moving forward. That increase encompasses
    continually rising insurance, technology, medical, pharmacy and legal
    costs across the entire health care industry. An additional 3 to 5
    percent of the increase is attributed to the new mandates and
    administrative costs caused by PPACA that are effective in 2011.
        Last month, everything changed. This year we will insure 84 lives
    at a cost of approximately $502,000. The 18 percent increase would have
    driven the cost of my premiums to nearly $593,000. Due to the economic
    climate of the past two years, unfortunately, I could not afford to
    absorb this increase to our bottom line. Therefore, my choices were to
    either pass this cost on to my teachers and staff or make changes to
    the plan. Specifically, we chose to add an employee deductible of $500
    to keep our insurance premium costs nearly flat and so our employees'
    premium will also not rise. For the first time in our nearly 20 year
    history, our employees will pay a deductible for their health care. We
    have sacrificed one of our goals in providing employee benefits by
    unfortunately increasing a financial barrier to accessing health care
    services.
        This change resulted in forfeiting our ability to ``grandfather''
    our health insurance plan. Moving forward, our plan must comply with
    all of the mandates required by PPACA each year as the law is
    implemented. While the Administration provided some flexibility to its
    initial grandfather rules--by allowing small businesses to shop for
    comparable coverage from different carriers--there remain many hurdles
    to successfully keeping the health plan our employees like. In the
    future I will have even harder choices to make. Our insurance plan must
    now comply with new requirements. For example, my policy must have no
    dollar limits on durable medical equipment. The majority of my teachers
    and staff are young females. Traditionally, the demographics of my
    workforce allowed me to avoid the higher cost of a plan that had no
    limits on durable medical equipment. The new law prevents me from
    purchasing a policy that meets the specific health care needs of my
    workforce. This will continue to drive up our costs each year. My young
    faculty and staff, thankfully, are healthy adults that do not need
    wheelchairs, oxygen tents or catheters. I am being compelled to
    purchase an expensive policy that provides coverage for medical care my
    workforce does not require.
        In January 2014, I will have a very difficult decision to make. Do
    I continue to provide insurance coverage to my teachers and staff or
    drop coverage altogether and pay the penalty? The penalty would cost me
    anywhere from $168,000 to $252,000 per year and is dependent upon how
    many of my staff enter the exchange to purchase insurance and qualify
    for subsidies. Choosing to forego providing health insurance coverage
    to my employees may ``save'' Rainbow Station's bottom line as much as
    $300,000. Will I be able to retain and attract the highest quality
    early-childhood educators, nurses and staff without providing a
    competitive employee benefits package?
        I am also concerned that if we are compelled to eliminate our
    health insurance coverage, what will my employees face in the
    individual marketplace? There is great uncertainty regarding how the
    exchanges will function and the quality of insurance products our
    employees will find available to purchase. Furthermore, the situation
    is even more unsettling when you think about how many other franchisees
    and small businesses across the country reach the conclusion that their
    business will no longer be economically viable due to the rising cost
    of insurance coverage. Unfortunately, more businesses will drop
    coverage and try to ``save'' money by instead paying the tax penalty.
        Supporters of the law point to the small business tax credit as a
    benefit for some employers, but the tax credit is entirely inadequate.
    For a growing company like ours, which provides an important service to
    the community, the thresholds are entirely too small to be of any
    assistance. In order to qualify for the tax credit, we would have to
    cut hours for our full-time staff to ensure we were under the 25 full-
    time equivalent employee threshold. As I noted earlier in my statement,
    Rainbow Station must adhere to state mandated staff to children ratios.
    There is not much we could do to meet the requirements of the tax
    credit. Encouraging companies to cut back hours or eliminate staff is
    the wrong message our government should be sending small businesses--
    particularly during a recession. It is clear that the tax credit is too
    narrowly restricted to be of any benefit to small businesses.
        As I review the new health care law I see a structure designed to
    discourage economic growth among small and midsized companies. At a
    time when our government should be doing everything in its power to
    encourage job growth and recovery, I see a federal requirement that
    creates disincentives for higher wages, new hiring and robust employee
    benefits. This law will direct my business decisions in such a way that
    forces me to devote more of our capital investment resources toward
    operating costs rather than growth.
        I want to thank the members of the Committee on Education and the
    Workforce for the opportunity to participate in today's important
    hearing on the effects of the health care law on employers. It is my
    hope that we can work together to fix the unworkable aspects of the new
    law that will harm our economy. Moving forward I would encourage
    Congress to pass legislation that balances the need to improve access
    to coverage together with controlling the rising costs of care. We must
    enact new legislation that incentivizes consumer-oriented solutions to
    health insurance and finally enable my franchise system to band
    together across state lines to purchase affordable coverage for our
    employees.
        Thank you and I look forward to answering any questions you may
    have.
                                     ______

        Chairman Kline. Thank you very much.
        Dr. Van de Water?

      STATEMENT OF PAUL N. VAN DE WATER, SENIOR FELLOW, CENTER ON
                      BUDGET AND POLICY PRIORITIES

        Mr. Van de Water. Mr. Chairman, Mr. Miller and members of
    the committee, I appreciate the invitation to appear before you
    today. My testimony draws on a letter that I and over 250 other
    economists recently submitted to the committee.
        The Affordable Care Act will significantly strengthen our
    nation's economy over the long haul. The law takes essential
    steps to slow the growth of health care costs, which are
    consuming an ever-increasing share of our economic output. And
    it contributes to the stagnation in workers' real wages.
        The Congressional Budget Office estimates that health
    reform will slightly reduce premiums for employer-sponsored
    health insurance in the near-term. For employers with more than
    50 workers who account for 70 percent of the total insurance
    market, CBO estimates that the law will reduce average premiums
    by up to 3 percent in 2016. Small business will pay less for a
    given package of benefits. Qualified small businesses are also
    eligible for federal tax credits for their health insurance
    contributions.
        Even if health reform were to impose some costs on
    employers, economic principles strongly suggest that the impact
    on business hiring decisions would be small. Because the major
    impact of health reform does not begin until 2014, businesses
    will have time to adjust, increasing the likelihood that any
    impact will be primarily on workers' after-tax compensation,
    not on hiring. And in the following years, as health reform
    begins to slow the growth of health care costs, workers will
    see larger increases in their take-home pay.
        All in all, the short-term economic effects of health
    reform will be quite small. One major financial research firm
    termed the law's economic impact minor and said, ``any
    disincentives from higher taxes and fees will hardly make a
    difference.''
        CBO foresees a small net reduction in labor supply because
    some people who now work mainly because they need to obtain
    health insurance will choose to retire earlier or work somewhat
    less, not because employers will eliminate jobs. Over the long
    haul, health reform will have many positive effects on the
    economy.
        First, CBO estimates that health reform will reduce the
    budget deficit, modestly in the first decade, but substantially
    thereafter. The lower budget deficits stemming from health
    reform will hold down interest rates, free up more capital for
    private investments and boost long-term economic growth.
        Second, health reform will increase labor markets'
    flexibility. The new law will reduce job loss when workers stay
    in the job just because they are afraid of losing their health
    insurance. As a result, Americans will be more able to switch
    jobs and open new businesses. The result will be a more
    productive economy.
        Third, expanding health coverage to 32 million uninsured
    people will improve health outcomes by helping people obtain
    preventive and other health services and improving continuity
    of care. This, too, will enhance economic productivity.
        Finally and most important, the Affordable Care Act
    contains almost every cost-containment provision that policy
    analysts have considered effective in reducing the growth of
    medical spending. These include payment innovations that will
    reward providers based on the value of their care and not on
    the volume of their procedures, an excise tax on high-cost
    insurance plans, independent payment advisory board, a center
    for Medicare and Medicaid innovation, measures to inform
    patients and payers about the quality of health care providers,
    more funding for comparative effectiveness research and steps
    to promote wellness and prevention.
        Slowing the growth of health care costs is one of our
    nation's most pressing economic challenges. And success will
    benefit employers, workers and taxpayers. The effort will
    require an ongoing process of testing, experimentation and
    rapid implementation of what is found to work. Health reform
    begins that vital process.
        Thank you very much.
        [The statement of Mr. Van de Water follows:]

           Prepared Statement of Paul N. Van de Water, Senior Fellow,
                     Center on Budget and Policy Priorities

        Mr. Chairman, Mr. Miller, and members of the committee, I
    appreciate the invitation to appear before you today to discuss the
    impact of health reform on the economy, employers, and the workforce.
    My testimony draws on a letter that I and over 250 other economists
    have submitted to the committee (a copy of which is attached).
        The Affordable Care Act (ACA) will significantly strengthen our
    nation's economy over the long haul, although initially its effects
    will be modest. The law takes essential steps to slow the growth of
    health care costs, which are consuming an ever-increasing share of our
    economic output and have contributed significantly to the stagnation in
    workers' real wages in recent years.
        The Congressional Budget Office (CBO) estimates that health reform
    will slightly reduce premiums for employer-sponsored health insurance
    in the near term. For employers with more than 50 workers (who account
    for 70 percent of the total insurance market), CBO estimates that the
    law will reduce average premiums by up to 3 percent in 2016. For small
    employers, the estimated change in premiums ranges from an increase of
    1 percent to a reduction of 2 percent.\1\ Many small businesses will
    pay less for a given package of benefits and are likely to provide more
    comprehensive health coverage than they do today. Qualified small
    businesses are also eligible for federal tax credits for health
    insurance contributions. The early retiree reinsurance program will
    provide interim financial relief to employers for the cost of covering
    retirees between ages 55 and 65.
        Even if health reform were to impose some costs on employers,
    economic principles strongly suggest that the impact on business hiring
    decisions would be small. Any such effect would instead ultimately be
    passed on to workers in the form of slower growth in their after-tax
    compensation. CBO draws that conclusion with respect to both the
    Affordable Care Act's excise tax on high-cost health insurance plans
    beginning in 2018 and its penalty on firms with 50 or more employees
    that do not offer affordable health insurance.\2\ And because the major
    impact of health reform does not begin until 2014, businesses will have
    time to adjust, increasing the likelihood that any impact will
    primarily be on employees' after-tax compensation, not on hiring. In
    the following years, as health reform begins to slow the growth of
    health care costs, workers will see larger increases in their take-home
    pay.
        All in all, the short-term economic effects of health reform will
    be quite small. Moody's Analytics terms the law's economic impact
    ``minor'' and says that any disincentives from higher taxes and fees
    ``will hardly make a difference.'' \3\ CBO foresees a small net
    reduction in labor supply, because some people who now work mainly to
    obtain health insurance will choose to retire earlier or work somewhat
    less, not because employers will eliminate jobs.\4\ That effect could
    be partly offset, however, by increased incentives to work for people
    who now face losing Medicaid coverage if they work more.
        Over the longer run, the health reform law will have many positive
    impacts on the economy. First, CBO estimates that health reform will
    reduce the budget deficit--modestly in its first ten years, but
    substantially in the following decade.\5\ In a letter to Speaker
    Boehner a few weeks ago, CBO stated that repealing the ACA would add
    $230 billion to the federal deficit between now and 2021.\6\ According
    to Moody's Analytics, the lower budget deficits stemming from health
    reform will hold down interest rates, free up more capital for private
    investment, and potentially boost long-term economic growth.
        Second, health reform will increase labor market flexibility.
    Moody's Analytics also points out that ``there is the potential for the
    new law to reduce `job lock,' when workers stay in a particular job
    because they are afraid of losing their insurance. * * * If the bill
    works as planned, Americans will be more able to switch jobs and open
    new businesses.'' \7\ As CBO says, ``making it easier for some workers
    to obtain health insurance outside the workplace * * * enabl[es]
    workers to take jobs that better match their skills.'' \8\ The result
    will be a more productive economy.
        Third, expanding health coverage to 32 million uninsured people
    will improve health outcomes by helping people obtain preventive and
    other health services and improving continuity of care.\9\ CBO suggests
    that this could also enhance the nation's economic productivity.
        Finally, and most important, the Affordable Care Act contains
    almost every cost-containment provision that policy analysts have
    considered effective in reducing the growth of medical spending. These
    include:
         Payment innovations, such as bundled payments and
    accountable care organizations, to reward providers based on the value
    of their care, not just the volume of their procedures;
         An excise tax on high-cost insurance plans to make
    consumers more cost-sensitive and discourage excess utilization;
         An Independent Payment Advisory Board that will develop
    and submit proposals to reduce cost growth and improve quality in both
    Medicare and the health care system as a whole;
         A Center for Medicare and Medicaid Innovation that will
    test, evaluate, and foster rapid expansion of new ways to increase the
    value of care;
         Measures to inform patients and payers about the quality
    of health care providers;
         Increased funding for comparative effectiveness research;
    and
         Promoting wellness and prevention.
        Slowing the growth of health care costs is one of our nation's most
    pressing economic challenges, and success will benefit employers,
    workers, and taxpayers. Health care experts agree that the effort will
    require an ongoing process of testing, experimentation, and rapid
    implementation of what is found to work. The health reform law begins
    that process.

                                    ENDNOTES

        \1\ Douglas W. Elmendorf, Director, Congressional Budget Office,
    Letter to the Honorable Evan Bayh, November 30, 2009.
        \2\ Congressional Budget Office, ``Box 2-1: Effects of Recent
    Health Care Legislation on Labor Markets,'' The Budget and Economic
    Outlook: An Update, August 2010, pp.48-49.
        \3\ Augustine Faucher, ``Healthcare Reform Doesn't Alter the
    Outlook,'' Moodys' Analytics, March 26, 2010.
        \4\ CBO, Box 2-1.
        \5\ James R. Horney and Paul N. Van de Water, Health Reform Will
    Reduce the Deficit, Center on Budget and Policy Priorities, March 25,
    2010, http://www.cbpp.org/cms/index.cfm?fa=view&id=3134.
        \6\ Douglas W. Elmendorf, Director, Congressional Budget Office,
    Letter to the Honorable John Boehner, January 6, 2011.
        \7\ Faucher.
        \8\ CBO, Box 2-1.
        \9\ Jill Bernstein, Deborah Chollet, and Stephanie Peterson, How
    Does Insurance Coverage Improve Health Outcomes?, Mathematica Policy
    Research, April 2010, http://www.mathematica-mpr.com/publications/PDFs/
    Health/Reformhealthcare--IB1.pdf.
                                     ______

        Chairman Kline. Thank you.
        Mr. Trautwein?

       STATEMENT OF NEIL TRAUTWEIN, VICE PRESIDENT AND EMPLOYEE
          BENEFITS POLICY COUNSEL, NATIONAL RETAIL FEDERATION

        Mr. Trautwein. Thank you, Mr. Chairman, Ranking Member
    Miller and honored members of the committee. My name is Neil
    Trautwein. And I am a vice president with the National Retail
    Federation.
        As I have noted before, the retail community is one of the
    toughest populations to cover with health insurance. We may, in
    fact, be the canary in the coalmine when it comes to health
    insurance coverage.
        We have high turnover rates, admitting first-time job
    holders. We have a high percentage of part-time employees.
    Stores and restaurants often serially share employees. Many
    otherwise coverage-eligible employees opt out of the coverage
    we offer.
        One common element in the retail industry are our profit
    margins, which are wafer thin. We have to manage everything in
    our stores very, very tightly, particularly the cost of labor
    because we are a labor-intensive industry. And benefits is
    included in that cost of labor.
        In our view, the last Congress' health care reform debate
    was needlessly divisive. There was a broad consensus for reform
    that addressed cost savings in the health care system. We
    proposed--the National Retail Federation proposed a reform
    platform in 2007 and 2008. We worked very diligently in multi-
    stakeholder groups to try to reach consensus on reform. We
    supported reform until it was clear we could no longer support
    the reform bills in Congress.
        We continue to strongly support what we wish you would have
    started with in the first place, which is job-friendly health
    care reform that starts with reducing the costs of medical
    care, which in turn, drives the health care increases in our
    economy. We supported the repeal and replace efforts in the
    Congress, not because we have opposed reform, but because we
    absolutely need it.
        The Patient Protection and Affordable Care Act was not what
    we needed in terms of reform. Passage of health care reform is
    already complicating life for many retailers today. There is a
    lot of confusion over the law. And we haven't even gotten to
    2014, which is the year that really scares my members.
    Nevertheless, it remains the law of the land.
        We have worked hard to brief our members on both the
    opportunities under the law and their coming obligations. We
    have worked with the Obama administration to help smooth the
    impact of the law wherever possible. We appreciate their
    efforts to do so.
        We are working hard to find and recommend ways to help
    improve the law and make it work better. First and foremost, we
    urge you to get rid of the employer mandate penalties for
    failure to offer coverage, to failure to offer affordable
    coverage based on family income and the so-called free choice
    vouchers in the law.
        Ironically, it may prove less expensive for many employers
    to stop offering coverage than to continue to offer that
    coverage under the law. For example, an employer with 52 full-
    time employees would pay, according to Kaiser Family Foundation
    estimates, between $520,000 and $780,000 to cover their
    workforce. It could also additional penalties based on family
    income for unaffordable coverage.
        The same employer would pay a penalty amount for not
    covering those 52 employers of $44,000 under PPACA. While the
    difference between $780,000, $520,000 and $44,000 is pretty
    substantial, it may not be enough of itself for employers to
    make that decision. There are other factors that come to play
    in terms of offering benefits or not. But nevertheless, this
    factor is significant by any business measure.
        NRF has created a health care mandate cost calculator on
    our Web site. It is freely available. We take no data from
    that. And no password is required. It allows you to model
    different size businesses and how the mandate penalties
    potentially will apply.
        These mandate penalty provisions are already affecting
    hiring decisions in today's marketplace. Our members have just
    come out of recession. If that, people are not fully back in
    the stores. So, you know, the question of whether to hire or
    not is particularly difficult for our members right at the
    moment.
        My written testimony contains four case study examples of
    the effect of PPACA on their workforce. And I encourage their
    review. I also include several recommendations to add
    additional flexibility to the law to help employers to continue
    to make that transition over time.
        One additional area I would encourage you to watch. We urge
    Congress to resist any temptation for the states to look for
    waivers from PPACA to displace the law in their local areas.
    There is no quicker way to break the back of employer-based
    health care, multi-state employers, than to harm ERISA.
        Again, I appreciate the chance to appear before you today.
    And we look forward to working with you to help bring more
    meaningful health care reform in the future.
        Thank you, Mr. Chairman.
        [The statement of Mr. Trautwein follows:]

       Prepared Statement of Neil Trautwein, Vice President and Employee
              Benefits Policy Counsel, National Retail Federation

        Mr. Chairman, Ranking Member Miller and honored members of the
    Committee, I thank you for the opportunity to appear before you today
    and to share our views regarding the new health care reform law--the
    Patient Protection and Affordable Care Act (PPACA). My name is Neil
    Trautwein and I am Vice President and Employee Benefits Policy Counsel
    of the National Retail Federation (NRF).
        As the world's largest retail trade association, the National
    Retail Federation'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 and generated 2010 sales of $2.4 trillion.
        The retail industry has one of the hardest workforces of any to
    cover with health insurance. We have a fairly young workforce (but also
    have a growing senior cohort) coupled with a high turnover rate. We
    employ half of all teenagers in the workforce and a third of all
    workers under 24 years old. More than a third of our workforce is part-
    time. Two-thirds of our part-time employees are women. Frequently,
    qualified retail workers opt-out of the coverage we offer because they
    already have alternative coverage through another family member or
    another job. Many are second wage earners, mainstays of family
    economies. Smaller retailers often experience problems making health
    insurance plan participation requirements because too many employees
    opt out.
        As a labor-intensive industry, retailers are strong advocates of
    high quality and affordable health coverage in order to help keep our
    employees healthy and productive. In fact, a retailer (Montgomery Ward)
    was one of the first businesses to offer medical coverage in the U.S.
    As an industry that frequently endures wafer-thin profit margins or
    worse, we are also well acquainted with the need to manage the
    collective cost of labor (including benefits) in as cost-effective a
    manner as is possible. Maintaining balance between these two
    imperatives is not always easy. Even in the best of times, it can
    border on the impossible--and these are still far from being the best
    of times.
        The previous Congress' health care reform debate was highly and, in
    our view, unnecessarily divisive. The retail industry proposed in 2008
    and strongly supported comprehensive health care reform (see NRF's
    Vision for Health Care Reform, www.nrf.com/healthcare) that would
    reduce health care costs and extend coverage to the uninsured. We
    proposed building from the voluntary base of coverage by lowering the
    cost of medical care and coverage in order to extend coverage to those
    without. I testified before this Committee's Subcommittee on Health,
    Employment, Labor and Pensions in March 2009 to share our reform
    platform.
        Instead, Congress enacted--over our strong objections--a reform law
    that fails to quickly reduce health care and coverage costs. It will
    also impose unwarranted penalty mandates on employers in 2014 that are
    already deterring job growth today. NRF strongly opposed both the House
    and Senate-passed reform bills and the modified Senate bill that became
    law.
        We continue to oppose this law today. NRF supported the successful
    passage of H.R. 2 in the House on January 19, 2011. NRF also supported
    the unsuccessful repeal vote in the Senate on February 2, 2011. We took
    these actions not because we oppose reform, but because we absolutely
    must have it. Unfortunately, rather than moving us forward, passage of
    PPACA has made providing coverage more difficult for today's retailer.
        Nevertheless, PPACA remains the law of the land. NRF has worked
    hard to alert our members to the staged implementation of PPACA and
    increasing employer obligations under the law. We have also worked to
    identify and suggest improvements. We have worked closely and
    cooperatively with the Obama Administration wherever possible to help
    smooth implementation of the law. We continue to work with the
    Administration to flesh out missing or contradictory provisions of
    PPACA, especially as regards the penalty mandate provisions effective
    in 2014.
        We strongly support what we needed to start with in the first
    place: more job-friendly health care reform that will concentrate first
    on reducing the cost of medical care. Toward that end, we also support
    efforts like H.R. 4, which that would repeal the expanded Form 1099
    reporting requirements under PPACA.
        Requiring reporting for all non-credit card transactions over $600
    in a year will create a blizzard of reports that will needlessly bog
    down commerce while also swamping the IRS. This provision has no
    relevance to our health care system and should be promptly repealed.
    This necessary change to PPACA rightly enjoys broad bipartisan
    support--and received an overwhelming Senate vote of 81-17 February 2,
    2011 on a dispositive procedural motion. We look forward to its prompt
    approval in the House as well.

    Employer Penalty Mandate
        The PPACA penalty mandates effective in 2014 differ from more
    traditional employer mandates by not directly mandating the provision
    of coverage. Instead, it penalizes the failure to do so for full time
    employees, defined as working 30 or more hours per week. Employees with
    fewer than 30 hours per week are not counted for penalty purposes,
    though their hours are aggregated to determine whether an employer
    meets the 50 full-time equivalent employee threshold for coverage.
    Employers with fewer than 50 full-time equivalent employees are exempt.
        PPACA also penalizes an employer who provides coverage to full-time
    employees if the cost to an employee exceeds 9.5 percent of his or her
    family income. The penalty for failure to provide coverage to full-time
    workers is $2,000 per uncovered full-time employee minus the first 30
    full-time employees. The penalty for providing ``unaffordable
    coverage'' to a full-time employee is $3,000 for each full-time
    employee with unaffordable coverage, up to a cap of $2,000 times every
    full-time employee, minus the first 30.
        Ironically, it may prove less expensive for many employers
    (including some public employers) to pay the penalty than to pay for
    coverage and any possible penalties for ``unaffordable care.'' For
    example, an employer with 52 full-time employees would pay an average
    of $520,000 to $780,000 for coverage (based on Kaiser Family Foundation
    estimates). The employer could also owe penalty amounts as noted above
    for the failure to provide affordable coverage even though he or she is
    providing the same coverage to all employees. That same employer would
    owe a penalty for failure to provide any coverage to full time
    employees of $44,000 (52 employees minus the first 30 times $2,000).
        While the substantial difference between coverage cost and penalty
    amounts is not dispositive in itself--other considerations will factor
    into each employer's determination--it certainly is significant by any
    measure. PPACA may thus ultimately succeed in dismantling employer-
    based health coverage. We strongly urge repeal of the employer penalty
    mandate provisions.
        Many retailers have been astounded by the prospect of being
    penalized for providing coverage that exceeds a factor largely beyond
    their knowledge or control: an employee's family income. They have also
    been shocked by the ``free-choice'' vouchers in which certain low-
    income employees can opt out of the employer plan taking their
    employer's contribution with them in the form of a voucher. Employer
    costs could greatly increase as younger, healthier entry level
    employees opt out. Finally, retailers of all sizes oppose shifting our
    health care system from voluntary to mandatory through penalty
    mandates.
        NRF has created a special web-based Health Mandate Cost Calculator
    to help illustrate the penalty mandates to various sized employers. The
    NRF Calculator is intended to be an open modeling tool and no data is
    collected from it. I attach several screen prints of the calculator in
    action at the end of this statement. I also encourage the members of
    this Committee, their staff and the general public to see it in action
    for themselves at www.nrf.com/healthcare. No password is required.

    Effect on the Retail Community
        The penalty mandate provisions are already affecting hiring
    decisions in advance of their effective date in 2014. We have heard
    reports from across the retail community (including our restaurant
    members) that the penalty mandates are affecting expansion, franchising
    and hiring decisions today. We respectfully urge Congress to reassess
    and repeal the penalty mandate to help encourage needed growth in jobs
    and our economy.
        We collected a number of examples from our chain restaurant
    division (National Council of Chain Restaurants) in late 2010. Please
    note the four examples below:

    Example 1
        One of the nation's largest quick service restaurant (QSR) chains
    has estimated the incremental cost to comply with the new health care
    law to be $10,000 to $15,000 annually per restaurant. Across this
    chain's entire franchised system, that would equate to $50 to $75
    million in incremental costs, annually. These costs would wipe out up
    to one-third of this system's profits per year, potentially causing
    hundreds of restaurants in the system to go out of business,
    eliminating up to 12,500 jobs.
        Most of the restaurants in this chain's system are locally-owned
    and operated by small business franchisees. These franchisees typically
    own just a handful of restaurants, and these new costs could cause them
    to lose some or all of their stores. The reasons are two-fold.
        First, there are limited options for restaurants in this chain to
    try and offset these dramatic new costs. In this economy and
    competitive environment, raising prices has not been an option
    (although higher prices may ultimately result economy-wide given the
    game-changing nature of this law). Second, laying off employees to
    reduce costs is also not an option because these stores already keep a
    minimum number of hourly team members on the clock as required to best
    serve customers. Some of the restaurant owners in this system may
    consider dramatically lowering each full-time team member's weekly
    hours to less than 30 hours in order to avoid full-time classification.
        The only option left for many restaurants in this system will be to
    close their doors. In fact, this chain projects that 10 percent of its
    small business franchisee owners will not be able to absorb the new
    costs of the health care law and will shut down restaurants. Each
    restaurant employs between 12 and 25 team members. In a system with
    5,000 restaurants, the loss of 500 restaurants translates into a loss
    of between 6,000 and 12,500 jobs.

    Example 2
        A second chain--a large franchised system with multiple casual/
    family dining restaurant concepts--projects that the average cost per
    restaurant in their system would be $237,000. That equates to a system-
    wide cost of providing health insurance benefits to full time employees
    of almost $806 million per year. If all of the chain's small business
    franchisee owners elected to pay the employer penalty instead of
    providing insurance, the cost would be reduced to just over $84,000 per
    restaurant, or a savings of $286 million system-wide.
        As each restaurant in this system is owned and operated by an
    individual small business person, it is impossible to predict how each
    would react to such dramatic cost increases. To cope with these cost
    increases, these owners could reduce the number of employees per
    restaurant, reduce the number of hours worked, or reduce the number of
    full time employees and rely on more part time labor.
        If every franchisee reduces the number of full time employees to
    the bare minimum required, over 100,000 employees who are currently
    full time would be shifted to part time. If the franchisees elected to
    provide health insurance benefits to the remaining full time employees,
    the cost per restaurant would be $69,000 (versus $237,000 per
    restaurant with the existing number of full time workers). The cost
    savings under this scenario would be $571 million system-wide. However,
    if the franchisees elected instead to just pay the employer penalty for
    the remaining full time employees under the skeleton crew scenario, the
    cost per restaurant would be $24,470, or just over $83 million system-
    wide.

    Example 3
        Another casual dining chain, also franchised, currently offers all
    its employees, regardless of hours worked, limited benefits health
    insurance plans that cost employees as little as $1 a day. The chain
    spends almost $9 million a year on this plan. Under the new health care
    law, this company anticipates it will reduce the number of jobs it
    offers by 15 to 23 percent, or 5,000 to 8,000 jobs.
        The choices, as this chain sees it, are three-fold. It could choose
    not to provide insurance to full time employees and simply pay the
    penalty, which would cost $56 million per year. This figure exceeds
    this company's profit last year by almost $11 million. Or, it could
    keep its current number of full time and part time employees and
    provide insurance, which would cost the system over $27 million
    annually. This cost would consume 42 percent of last year's profits.
        Finally, the company could reduce the number of full time employees
    and eliminate the benefits that are currently offered to part time
    employees, which is an unattractive option because it could result in
    higher turnover and higher training costs. This company believes all
    three options are unattractive, and that the most rational choice for
    them is to maintain its reliance on a workforce that is primarily full
    time, but to reduce the number of jobs overall by between 5,000 and
    8,000.

    Example 4
        A mid-sized quick service restaurant chain that employs nearly
    60,000 workers does not believe that the health care law is
    economically feasible. This chain owns and operates approximately 1,100
    restaurants, and their independent franchise owners operate an
    additional 1,100. They currently offer health insurance to all
    employees, including restaurant crew members who are offered a range of
    coverage options including a limited benefit ``mini-med'' plan.
        This chain has carefully reviewed the requirements placed upon
    employers in the new healthcare law, and has worked with their
    insurance brokers and actuaries to determine what the potential cost of
    compliance might be. They are disappointed that more cost control
    measures were not included in the law, and that no consideration was
    given to the possibility that some employers might continue to offer
    limited benefit plans to hourly workers.
        They believe the cost associated with offering the full benefit
    health insurance plans that the law requires is excessive, and they do
    not believe that they will be able to offer such coverage to all
    workers. They are analyzing many options as they prepare to comply with
    the law, including the possibility that many of their restaurant
    employees that would currently qualify as full-time workers might see a
    reduction in their hours of work such that they would be considered
    part-time workers.

    Priority Workforce Changes to PPACA
        I have previously noted the harmful workforce effects of PPACA
    compliance. Central to these concerns is the lack of flexibility that
    will constrain retail's ability to manage our high turnover rate. I
    note that many states have expressed similar concerns over the lack of
    flexibility under PPACA, most recently expressed in a February 7, 2011
    letter to Secretary Sebelius from 21 Governors.
        Our preference would be for an outright repeal of PPACA to be
    replaced by legislation that places top priority on reducing the cost
    of medical care and coverage. Short of that, we advocate the following
    initial nonpartisan steps to help expand employer flexibility and to
    help lower the cost of providing coverage:
        1. Repeal employer mandate penalties, including the penalties for
    providing ``unaffordable'' coverage and the ``free-choice'' vouchers.
        2. Define a full-time employee as working 40 hours per week,
    determined on at least a 120-day basis.
        3. Expand waiting periods to at least 120 days.
        4. Repeal auto-enrollment or delay onset of auto-enrollment for at
    least 120 days, consistent with maximum waiting periods.

    ERISA
        Given this Committee's jurisdiction, we would be greatly remiss in
    not mentioning our continued strong support for ERISA. ERISA allows
    employers to offer common coverage across state boundaries--an ability
    crucial to multi-state employers. We strongly oppose any effort to
    weaken ERISA's preemption of inconsistent state laws for health plans
    (also known as welfare plans under ERISA).
        We urge Congress to resist any entreaties by the states to waive
    ERISA preemption in favor of a competing state reform scheme. We cannot
    afford to dismantle the backbone ERISA provides to employer-based
    coverage. ERISA has worked well and continues to work well to help
    provide coverage to millions of working Americans. NRF continues to
    believe in addition that smaller employers could also benefit from
    ERISA preemption through small business health plans or association
    health plans.

    Conclusion
        Again, NRF greatly appreciates the opportunity to appear before you
    today. In sum, we urge you to work to create a value-oriented health
    care system that promotes lower cost and higher quality care and
    coverage for employers of all sizes and individuals from all walks of
    life. That will require stepping away from PPACA--either through
    repeal, as the House has done, or through wholesale change to PPACA,
    especially as regards the penalty mandates. We look forward to working
    with you to help promote the enactment of positive health care reform.

                                     ______

        Chairman Kline. Thank you.
        I thank all the witnesses for their testimony.
        We will move to member questions now. I am going to put
    myself on the clock as well. I start off optimistically always.
    As then we will move through each side and ask questions.
        There has been an ongoing debate, and we heard it here
    today. And I suppose we will continue to hear it, about whether
    or not this health care law reduces medical costs and health
    care costs. It has been my understanding, my belief, having
    listened to many economists, many witnesses that it does not
    reduce costs. So let me start with Dr. Van de Water.
        You are one of those who claim that this law will reduce
    the growth of medical spending or help reduce costs. Yet, just
    recently in a presentation to the Institute of Medicine,
    actually last May, CBO Director Elmendorf concluded that,
    ``Rising health costs will put tremendous pressure on the
    federal budget during the next few decades and beyond. In CBO's
    judgment, the health legislation enacted earlier this year does
    not substantially diminish that pressure.''
        Do you disagree with----
        Mr. Van de Water. [OFF MIKE].
        Chairman Kline. Yes.
        Mr. Van de Water. As I stated in my testimony, that
    controlling health care costs is not a simple, short-run
    proposition. And certainly, in the near-term, we are not going
    to see a major change in the cost trend. But as CBO Director
    Elmendorf has indicated, that the health reform act does
    contain several important provisions which hold great promise
    in the longer term for slowing health care cost growth.
        And Director Elmendorf, I think, has particularly cited the
    payment innovations that I mentioned, of the sort that would
    encourage--that would reward providers, not simply because they
    do more stuff, because they carry out more procedures, but
    because the procedures that are done provide more value for
    money. And secondly, also, but something which doesn't begin
    for several years and which I know is controversial, but most
    economists think is a good idea, namely, the excise tax on
    high-cost health plans, which will discourage the offering of
    plans which are overly generous and encourage excess use of
    health care services.
        You see the result of all of this in the national health
    expenditure projections, which the Center for Medicare and
    Medicaid Services actuary puts out. In the near-term, there
    will be some very modest increase in total national health
    spending as we cover 32 million more Americans. But later in
    the coming decade, the rate of cost growth, according to the
    Medicare actuary, is projected to slow as the various cost-
    containment provisions in the Affordable Care Act begin to kick
    on.
        Chairman Kline. Okay. Thank you.
        Dr. Howard, would you care to comment? We will have
    battling economists here, I am pretty sure.
        Mr. Howard. I think that the substantial savings that is
    anticipated by the act in its second decade comes from across-
    the-board cuts to provider rates under Medicare that the
    Medicare actuary in a dissent to the 2010 report said were
    going to be unsustainable because most of the easy productivity
    gains have already been taken out of the system. And the
    actuary estimates that most of those cuts would be repealed. So
    we are going to lose that money.
        I think what we are talking about here is the downside
    financial risk of taking what is essentially a trillion dollar
    gamble that, while we don't think that the law is going to
    reduce spending in the short-term, as a matter of fact, it is
    going to go up by about $300 billion during the first decade,
    but in the second decade, we are hoping that some of these
    other things will kick in. I think that is quite a gamble to
    take, given the enormous deficit problems the U.S. is already
    facing.
        Chairman Kline. I am going to continue the--well, I guess I
    am not going to continue. If I am going to be consistent here
    in trying to maintain the 5-minute rule--I was going to get
    into another ongoing debate. And that is the discussion about
    whether or not this actually reduces the deficit.
        And I know that that probably somebody else will get to
    that. There are a number of factors, one of which that you
    talked about. And that is Medicare reductions in payments to
    physicians and so forth, which may very well not occur.
        But in order to set the example for my colleague, Mr.
    Miller, I will yield--you do? I will yield back.
        Mr. Miller. Thank you, Mr. Chairman, very much for the
    hearing. To continue the discussion you just started, I find it
    interesting that this discussion started out suggesting that a
    lot of people were going to not--in the future, not going to
    offer insurance. And we see the New England Medical Journal
    telling us that they expect coverage will increase from 84
    percent to 94 percent as a result of these reforms. And we see
    the Rand Corporation estimating that the exchanges will allow
    small employers to increasingly offer health care coverage
    because they will have the same purchasing power as large
    employers.
        Currently, there is about an--a 13 percent difference in
    the cost of those because small employers don't have the
    ability to organize in that fashion. Rand expects to offer
    rates to increase for employers with 50 or fewer employees from
    57 to 80 percent. So that small employers under 50--it is
    interesting that that projection is now--we see Forbes and the
    L.A. Times commenting 2 weeks ago that the insurers are stating
    that they are covering more employees since the enactment of
    this act.
        The UnitedHealth Group, which, I think, is one of the
    largest, added 75,000 new customers working in businesses of 50
    or fewer employees. Coventry Health added 115,000 new workers
    in 2010, an 8 percent jump. Blue Cross/Blue Shield in Kansas
    City reported that--somewhere. I lost my paper here--an
    increase of 58 percent in the number of small businesses
    purchasing coverage since April of 2010.
        So I appreciate all of the speculation. But the fact of the
    matter is on the ground, small businesses are starting to
    extend coverage to their employees at rates we haven't seen in
    the past.
        The question about costs--we have seen a doubling of costs.
    We have seen more than a doubling of premiums to businesses and
    to families and to others. And we have had businesses coming to
    the Capitol for 10 or 15 years telling us that this is crushing
    them.
        And yet, we see the Business Roundtable telling us if we do
    the things in the act that are, in fact, part of this act, that
    they would expect by 2019--so if you look at this decade,
    compared to the previous decade, where it all doubled, that
    they expect that large employers will save some $3,000 per
    employee on health care costs by 2019. That is not me. That is
    the Business Roundtable.
        Why did they say that? Because what is, in fact, in this
    bill is a challenge to the Congress of the United States and to
    everybody on this committee and every policymaker in the
    Congress. And that is because in this legislation are the
    reforms that have been proposed as a matter of cost containment
    for many years, never accepted by the Congress prior to this,
    the reforms on bundling, on readmission policy, on accountable
    care organizations, on strengthening primary care and
    prevention and wellness.
        And we see major organizations on the employer side and on
    the benefits side of offering the annual checkup, the
    preventative care for people to try to avoid those health care
    costs. We are already seeing small improvements in some of the
    organizations that started with the pilots on readmission
    policy.
        So the fact on the ground is contrary to the political
    speculation under the dome of the Capitol. Small employers are
    voting with their dollars. Employees are voting with the desire
    to have care. And I think one of the most important one is I
    opened with the testimony of Dr. Odette Cohen. And the fact is
    that they expect much of this because of the exchanges that go
    into effect in 2014, where small employers will have the
    ability to have the same leverage in choosing policies that
    large employers have today.
        So again, the prospects of the actual legislation, not the
    speculation, the prospects of the actual language, not the
    speculation, suggest that already institutions of delivery,
    institutions of insurance, institutions of employers are
    already adapting and, in fact, expanding health care coverage
    as the economy recovers. And I appreciate all of the discussion
    about all of the uncertainties that this has created in the
    community. And yet, today we see that the survey of small
    businesses is more confident than any time in recent history,
    even with this passed of health insurance on the horizon.
        So I hope that helps to stimulate the debate for the rest
    of the morning. Thank you. And I yield back the balance of my
    time.
        Chairman Kline. I am so impressed. It is just excellent. I
    thank the gentleman.
        Mr. Thompson, you are recognized for 5 minutes.
        Mr. Thompson. Thank you, Mr. Chairman.
        Thanks to the panel for being here and lending their
    expertise. You know, according to analysis of--backed up by
    former CBO Director Doug Holtz-Eakin, the health care law, ``My
    strong sense from employers with the agreement of their
    employees to drop employer-sponsored health insurance for as
    many as 35 million Americans.''
        And this is far from being a partisan suggestion. Outgoing
    Tennessee governor from the state of my colleague sitting next
    to me, Governor Phil Bredesen, a Democrat, expands on the same
    perverse incentive in the Wall Street Journal editorial
    entitled, ``Obama-Care's Incentive to Drop Insurance,''
    published in October of 2010.
        You know, during the debate over the health care reform
    last year, there were a lot of promises made. One, that health
    insurance costs would decrease. But according to CBO analysis,
    individual health insurance payments will rise by an average of
    $2,100 per family.
        And this increase comes despite President Obama's frequent
    promises that his health care plan would lower premiums by
    $2,500 per year for an average family. And, two, another
    promise of many, if you like your health care plan, you can
    keep your health care plan, despite indications that insurance
    companies are now dropping everything from children's insurance
    to mini med plans.
        Dr. Howard, when the rubber meets the road and the bottom
    line that we are looking at is obviously controlling costs and
    preserving patient choice, what are some suggestions that you
    have to--that you can make to achieve those goals?
        Mr. Howard. I would very seriously consider starting over
    again and devolving more power to states to experiment with
    health care reforms each in their own way. Massachusetts will
    go its way. And that is an experiment that is ongoing. In
    Massachusetts, we have seen costs rise after the health care
    reforms there, particularly for small businesses. There was a
    study done by Cogan, Hubbard and Kessler that found that for
    small businesses, insurance premiums rose by 14 percent over
    and above what they had been--the rate had been prior to health
    care reform in that state.
        But I think having different states take different
    approaches and see what works is a better way to go than trying
    to commit the entire nation to one one-size-fits-all program at
    the present time. I would also think seriously about
    frontloading our efforts to control costs and not expanding
    coverage to large populations until we have established that we
    have, in fact, controlled costs and can use those savings to
    expand coverage to people who need it the most.
        So I think a cost-first approach that trusted, but verified
    our attempts to control costs and could pass on those savings
    to small businesses, to employers and to employees through
    higher wages would be a better approach than the approach we
    are taking right now, which is basically we are going to spend
    about a trillion dollars over the next decade with the hope in
    the second decade we will recoup substantial savings.
        Mr. Thompson. Thank you.
        Ms. Johnson, thoughts?
        Ms. Johnson. Pardon?
        Mr. Thompson. Any thoughts in terms of suggestions to--
    looking at controlling costs and preserving patient choice?
        Ms. Johnson. Obviously, my experience is that the costs
    aren't being contained. I think that, again, perhaps to start
    over and to try a new bill that really looks at controlling the
    actual costs of health care, which, in fact, impacts the cost
    of insurance that employers are making. And I think also if you
    are looking at the actual to get the bottom line of what it is
    going to cost the individual insured are, in my case, my
    teachers are going to have to pay. It is all about the premiums
    that the cost of the insurance costs.
        So unless those premiums are held in check, which is not
    happening, and they are continuing to go up because of the
    rising costs of health care period, as well as the impact of
    the Affordable Care Act, then we just need to stop, start,
    restart and try again.
        Mr. Thompson. All right.
        Dr. Van de Water, before I came here, I spent 28 years
    managing in rural hospitals, always looking at the pending,
    looming Medicare cuts since 1997, the Balanced Budget Act. And
    you contend that health care reform will reduce the budget
    deficit. As you know, the new law relies on over a trillion
    dollars in tax increases and Medicare reductions.
        In your testimony to the Budget Committee last week, you
    said that the record demonstrates that Congress has repeatedly
    adopted measures to produce considerable savings in Medicare
    and has let them take effect. Well, since the new health care
    law did not reform the scheduled reductions in Medicare
    physician payments, the so-called doc-fix as we have always
    known it, do you support the current reduction of 28 percent in
    Medicare physician payments?
        Mr. Van de Water. Certainly, not.
        Mr. Thompson. So how do we--doesn't that just speak to
    the--I think, the credibility and the reality of half a
    trillion cuts that were as a part of the health care act of
    whether--it speaks to the reality of whether they will really
    be imposed going forward?
        Mr. Van de Water. No, those are two entirely different
    things. The sustainable growth rate formula existed before the
    enactment of health reform. It is still in law. Even if health
    care reform were repealed, the sustainable growth rate cuts
    would still be scheduled to take effect. They do represent the
    problem and issue that has to be dealt with. But it is quite
    distinct, and it is separate from health reform.
        Chairman Kline. The gentleman's time has expired.
        Mr. Andrews?
        Mr. Andrews. Thank you, Mr. Chairman.
        Thank the witnesses for their excellent presentations this
    morning.
        Mr. Trautwein, welcome back to the committee. An
    overwhelming majority of Americans believe that if you have had
    breast cancer or diabetes, you shouldn't be denied insurance
    coverage and you shouldn't be charged more for it because of
    your preexisting condition.
        As you know, one of the problems with that change, though,
    is if you don't have more people in the insurance pool, those
    changes would, in fact, drive up premiums dramatically for
    businesses and for individuals. One of the ways that has been
    discussed to avoid that problem is to have an individual
    mandate to buy health insurance coverage. Do you favor that?
        Mr. Trautwein. We have backed away from--in our vision for
    health care reform, we called for consideration of an
    individual precisely because of that problem. We backed away
    from that because of the--what we thought were a lack of short-
    term cost savings, quicker and----
        Mr. Andrews. Now, I understand that. But let me--because
    the time is limited. You did say to this subcommittee of this
    committee about 2 years ago that you would urge consideration
    of an individual mandate to obtain basic coverage and leverage
    voluntary employer contributions. So if we are starting with a
    clean slate, which we are with the repeal, would you include an
    individual mandate in the replacement bill?
        Mr. Trautwein. I think the politics have demonstrated that
    that is a highly controversial element. And----
        Mr. Andrews. Okay.
        Mr. Trautwein [continuing]. Highly--a much litigated
    element.
        Mr. Andrews. Everything is controversial in politics. On
    the merits--because I am sure you care about the merits--would
    you include that in the replacement bill?
        Mr. Trautwein. I would not.
        Mr. Andrews. Okay.
        Mr. Trautwein. I would go about it differently.
        Mr. Andrews. So you have changed your position from 2 years
    ago?
        Mr. Trautwein. That context for that was in the--in
    relation to the NRF platform for forward--and not in the
    context of----
        Mr. Andrews. Okay. So you don't favor it now, but you did
    favor it then?
        Mr. Trautwein. That is correct.
        Mr. Andrews. Okay. The second thing I wanted to ask you was
    there are at least two members of your association, Macy's and
    the Kroger Company, that have taken advantage of the early
    retiree health care payments. Would you repeal those, or would
    you keep them?
        Mr. Trautwein. There is not a lot of retiree health care in
    retail. And certainly, that would be an issue to look at if--in
    a new bill. Certainly, as it is still part of the current law,
    that is not something that we have----
        Mr. Andrews. But again, because the presumption of this
    hearing is we don't have the new law. It has been repealed. So
    if we were starting to write on a clean sheet of paper a new
    health care law, would you or would you not include the
    subsidies for early retirees for employers?
        Mr. Trautwein. I probably would not include that by reason
    of the cost of those provisions.
        Mr. Andrews. Okay. The third question I want to ask you--
    you testified clearly that you think that an employer mandate
    is destructive of jobs, particularly in the retail sector. I
    want to read to you from a letter dated March 19, 2010. I am
    quoting, ``We need to introduce clear standards for shared
    responsibility that provide stable insurance coverage and
    prevent cost shifting from the uninsured to those with
    coverage. We believe that individuals, employers and government
    must all take responsibility for managing and financing health
    care.''
        The letter goes on to say that the signatories urge and
    expect Congress to take the first essential step and pass
    meaningful health reform this year. That was the day before the
    vote on the bill.
        One of the signatories was the Wal-Mart Company, to that
    letter. Do they misunderstand the retail business? Or why are
    they wrong in taking that position?
        Mr. Trautwein. I don't represent that company. The National
    Retail Federation does not represent that company. We had a
    difference of opinion on that particular issue.
        Mr. Andrews. But on substance, why are they wrong?
        Mr. Trautwein. I think on the substance, based on the
    breadth of the retail industry and the difficulty we have in
    managing the cost of labor because we have a lot of people in
    our industry, it is destructive to that. Now, why they took
    their position is in their own counsel. And I encourage you to
    ask them.
        Mr. Andrews. Well, unfortunately, none of them were invited
    as witnesses today to talk about why they support the employer
    mandate. But I am sure that they will come in the future.
        Thank you. I yield back the balance of my time.
        Chairman Kline. I thank the gentleman.
        Mr. Barletta?
        Mr. Barletta. Thank you, Chairman Kline.
        Dr. Howard, the Patient Protection and Affordable Care Act
    that we are examining here today contains a massive expansion
    of the Medicaid program in order to reduce the number of
    uninsured, leaving states to foot the bill. As someone from a
    commonwealth that is home to more than 2 million medical
    assistant recipients, and as someone whose commonwealth is
    facing serious budget issues, won't these costs place an even
    greater burden on the states and resulting in an even higher
    unemployment rate?
        Mr. Howard. Congressman, I think that is absolutely
    correct. The states right now face severe budget crises, in no
    small measure due to Medicaid. Medicaid currently counts for
    about 20 percent of state budgets, crowding out spending from
    everything to education to infrastructure.
        Although the federal government will be picking up, over
    time, about 90 percent of the costs of the Medicaid expansion,
    that still leaves about $21 billion in new costs for states,
    along with $12 billion in new administrative costs, forcing
    either other large cutbacks in programs or sharp tax increases.
    Medicaid is also a deeply flawed program where recipients have
    worse access to doctors and poorer outcomes for diseases like
    cancer and heart disease.
        There is a very short-term increase in the Affordable Care
    Act for physician payments under Medicare for 2 years. But then
    it goes away. I don't know who is going to pick up the spending
    for that provision. Perhaps it will be the states, another
    unfunded liability that is placed on their books. So I
    completely agree that half of all insured Americans under the
    Affordable Care Act will be pushed into a Medicaid program that
    is deeply flawed, tremendously expensive and a real burden on
    state budgets.
        Mr. Barletta. Thank you.
        Ms. Johnson, first I want to thank you for your hard work
    taking care of our children.
        Ms. Johnson. thank you.
        Mr. Barletta. Three years from now, the health care law
    will force employers with more than 50 employees to provide
    government-sanctioned coverage to their employees under a
    penalty of $2,000 per employment--employee tax. Ms. Johnson,
    our country has experienced an unemployment rate that is at or
    above 9 percent for 21 consecutive months. How will your
    company adjust to this new provision? And how will it
    potentially effect the unemployment of your employees?
        Ms. Johnson. I think that is the big unknown. I think there
    is so much unknown about what happens in 2014. I know that,
    based on what I have been told, that I can expect the increase
    that I was hit with this year, next year and the next year and
    the next year, which will position me in a place to say can I
    pay the costs of the premiums that are already a half a million
    dollars. Can I pay that rising cost?
        Or do I have to say, okay, do I save my bottom line and
    keep my business flourishing and thriving and say to my
    employees, go and buy--you have a chance now to buy individual
    insurance, you have a chance to go the exchanges? But what does
    that mean? And what will they be able to buy? And what will
    that mean to my ability to attract the quality teachers that we
    have?
        We have functioned for years and priding ourselves on being
    the employer of choice in the early education business. So I am
    in a real conundrum because the costs of the premiums is eating
    away at my bottom line. But at some point, you have to make a
    business decision and say, if there is an option for you, this
    is the option.
        It may not be as good an option as you have for health care
    now as far as out-of-pocket costs. But it is available for you.
    And we will have to do it that way. I don't know is, I guess,
    the answer. I just have to weigh the impact of the cost of the
    premiums and the availability of the exchange.
        Mr. Barletta. And quickly, Mr. Trautwein, how will the
    employer mandate effect retailers, especially smaller growing
    retailers, near the 50 employee threshold?
        Mr. Trautwein. Well, I think it is causing many retailers
    to consider whether they grow beyond that. Under PPACA, there
    is a provision where you aggregate part-time employees, which
    is very important to my industry, and use those to determine
    whether you hit the 50 full-time equivalent threshold or not.
    So I think it is going to have an effect, particularly as we
    get towards 2014, when the mandate is effective, in terms of
    their hiring practices.
        Mr. Barletta. And do you believe that the reverse can also
    happen, where employees--employers around the 51 mark, 52, may
    actually lay people off to get under the 50 employee threshold?
        Mr. Trautwein. It could very well. I use the example of
    that employer with 52 full-time employees and very substantial
    cost implications for that employer.
        Mr. Barletta. Thank you.
        Chairman Kline. I thank the gentleman.
        Mr. Kildee?
        Mr. Kildee. Thank you, Mr. Chairman.
        Dr. Van de Water, what effect or effects with the early
    retiree reinsurance program have on employers in both the
    short-term and the long-term?
        Mr. Van de Water. The early retiree reinsurance program
    that you ask about is the provision that helps employers that
    do offer health coverage to early retirees by paying for a
    portion of the more expensive claims that those employers have.
    Clearly, doing so will make it much easier for employers to
    continue offering that type of coverage, which has been eroding
    in many cases up to now. So that should have a very positive
    effect.
        Mr. Kildee. Many employers in my district have expressed
    interest of getting into that program. Again, do you find that
    they are doing so because they find a benefit in so doing?
        Mr. Van de Water. Absolutely. Of course, yes, sir.
        Mr. Kildee. Could you speak of what benefits a business
    might have?
        Mr. Van de Water. Let us say the early retirees, that is
    people between ages 55 and 65, are often the most expensive
    insured--or members in employers' insurance pool because
    unfortunately, as we get older, our health care needs increase.
    And, of course, some of those early retirees may also be early
    retirees simply because their health status forced them out of
    the workplace. So that this reinsurance pool, which helps the
    employer bear the costs of the more expensive early retirees,
    can save that employer a substantial amount of money and can
    make it possible to continue offering health coverage, not just
    for the early retirees, but for the employer's entire
    workforce.
        Mr. Kildee. So in this instance, we find something that is
    liked or beneficial to the employer and also to the early
    retirees.
        Mr. Van de Water. Absolutely. And I would say the small-
    employer tax credit is another example of that.
        Mr. Kildee. I thank you very much, Doctor.
        Chairman Kline. I thank the gentleman.
        Dr. Heck, you are recognized.
        Mr. Heck. Thank you, Mr. Chairman.
        Thank you to the panel members for being here this morning.
    As an emergency medicine physician, which provides the ultimate
    safety net in health care, taking care of everyone, regardless
    of ability to pay, time of day or chief complaint, I echo the
    nearly universal sentiment that we need to improve our health
    care delivery system.
        Likewise, as a former small-business owner, I was gravely
    concerned about the impact of the Affordable Care Act on my
    business and those of other businesses in Nevada, a state that
    already suffers from the highest unemployment rates in the
    nation. Claims of benefits from the small-business tax credit
    and the increased number of employees covered failed to address
    what happens when that credit expires and the businesses are
    caught in a catch-22 of continuing the benefit that they have
    been provided with a credit or decreasing the size of their
    workforce.
        I also spoke with larger businesses. A medical staffing
    company, primarily physicians, with 2,800 employees that
    previously had seen single-digit premium increases over the
    course of years was hit with a 40 percent increase this year; a
    food retailer that provides coverage to both full-time and
    part-time employees within my district is concerned about the
    90-day coverage requirement, a timeframe that is shorter than
    what they currently provide, even though they provide insurance
    and what that impact is going to have on their ability to
    continue to provide coverage.
        Dr. Van de Water, you stated that the ``impact will be
    primarily be on employees' after-tax compensation,'' and
    implied that that impact would be short-term. Hardly a
    consolation to residents of Nevada, which also suffers from the
    number one rates in foreclosures and bankruptcies.
        Ms. Johnson, a question for you. Dr. Van de Water also
    stated that the short-term economic impacts will be ``quite
    small.'' Would you characterize your premium increase of 18
    percent as quite small? And could you please tell us about your
    employees' reaction to the addition of a deductible to their
    policy?
        Ms. Johnson. No, in a word, it is not quite small. And it
    has been a gradual response. I think you--at our open
    enrollment this month, it was, ``Oh, okay.'' But now as they
    begin to go and access health coverage and the reality of the,
    ``Oh, okay,'' becomes apparent, it is like, ``Oh, no.''
        I am in preschool business. And we are at the, as I often
    say, the bottom of the educational food chain, which means our
    wages are, too. We are proud to pay in the upper quartile of
    preschool teacher wages. But that is still not a lot, which
    means that there is a little less--there is very little
    leftover dollars for them to use to pay for health care, even
    if insured.
        So this was, I think, something that I wrestled with. And
    what I really wrestle with is what about next year. Okay, we
    have added a deductible this year. Based on what I understand,
    we will have an increase similarly or maybe more next year.
    What will I have to do then? Will I have to raise their
    premiums, too, and have a deductible? This is something that
    doesn't seem like we are cutting costs at all, particularly to
    the insured.
        Mr. Heck. Thank you, Ms. Johnson.
        Dr. Van de Water, after hearing that impact of the 18
    percent premium increase and the impact on the employees and
    the deductible and how that is further decreasing their after-
    tax compensation by having to lay out more for health care,
    would you still characterize those impacts as quite small?
        Mr. Van de Water. Absolutely. If one listened carefully to
    Ms. Johnson's statement, her insurance broker made it quite
    clear that the very large preponderance of the increase had
    nothing to do with the Affordable Care Act. Now, according to
    the Congressional Budget Office and most independent actuaries,
    the expectation is that the additional costs of the
    requirements in the Affordable Care Act will be minimal.
        As I listened to Ms. Johnson's statement, it appears that
    her company offers quite comprehensive coverage and that any
    additional requirements--any additional costs in order to meet
    the requirements of the Affordable Care Act, whether it be
    first dollar preventive coverage, which it sounds like her plan
    may already have, that these costs are minimal. So again, if
    one--the 18 percent is not the effect of the Affordable Care
    Act. And the cost increases that are expected next year, again,
    that is not attributable to the law. So I don't think that
    causes me to change what I said one bit.
        Mr. Heck. Well, what about the impact on the employees who
    are now having to shell out additional dollars because of the
    implementation of a deductible from their already low-end
    compensation?
        Mr. Van de Water. Well, two points about that. First of
    all, most health economists, including a lot of members on your
    side of the aisle, have long been advocating larger deductibles
    to make health care consumers more cost-sensitive. So from an
    overall cost-control point of view, actually, I think having
    modest deductibles for other than preventive services, is
    actually a good idea.
        But putting that aside, the 18 percent cost increase is not
    the result of the Affordable Care Act. Neither is the
    deductible which Ms. Johnson felt necessary to add to her plan
    to offset what otherwise had been a very large premium
    increase. So we are talking about apples and oranges here.
        Mr. Heck. Thank you, Mr. Chair.
        Chairman Kline. The gentleman's time is expired.
        Mr. Grijalva?
        Mr. Grijalva. Thank you, Mr. Chairman.
        And let me thank the panel for your comments today. I find
    it kind of ironic the whole discussion is centered around the
    fact that health care costs are rising as though that was a new
    concept in the last--let me start--if I may, Ms. Johnson, you
    suggested, among--you suggested that if this trend continues
    that we are talking about, premium increases in particular,
    that you would have to shift to the penalty because that would
    not--that would be something that would be--you would have to
    be required in order to continue to provide the health care to
    your employees. But I thought the comment that you made about
    the most important thing is to hold premium increases at check.
        One of the mechanisms--and I--to me, this kind of
    reinforces your comment. The idea that a robust exchange with a
    robust, strong public option as a competitive offset to premium
    increases and private insurance would be a good suggestion down
    the road to save money for you and for your employees. How do
    you feel about that competitive issue with private insurance?
        Ms. Johnson. I am all about competition. I think
    competition is what drives prices down. So that is just a
    bottom line how I think as a business owner.
        I don't think we understand completely about what the
    exchanges really are going to play out to be.
        Mr. Grijalva. Okay.
        Ms. Johnson. And so, that--it is the unknown that adds the
    complexity to the situation.
        Mr. Grijalva. But the concept of competition is the bottom
    line for you?
        Ms. Johnson. Yes.
        Mr. Grijalva. Thank you.
        Mr. Van de Water, who carries--we are talking about costs.
    Who carries the costs right now of the 35, 45 million uninsured
    that are--who carries the effects of those costs right now?
        Mr. Van de Water. Well, those costs show up in various
    ways. The uninsured, as you know, do receive some health care.
    Dr. Heck referred to the care that is available to people who
    come to emergency rooms. So the uninsured do get some care, but
    they don't get as much care as insured people do. So increasing
    coverage is extremely important.
        But the costs of that care is paid for by other people,
    either by other--by people who are insured through paying
    higher premiums to offset the costs that are incurred by
    hospitals for the----
        Mr. Grijalva. Okay. Somebody pays for that?
        Mr. Van de Water. Some of it by taxpayers. We have special
    payments through Medicare and Medicaid to assist hospitals for
    that kind of care that they provide.
        Mr. Grijalva. Okay.
        Mr. Van de Water. So that the care is ultimately paid for
    by others.
        Mr. Grijalva. Okay. Thank you.
        And, Mr. Trautwein? Thank you. The effects we--you talked a
    lot about hiring--how the health care reform could be a
    constrictor to hiring. What are the effects--what would be the
    effects of hiring if there was no reform?
        Mr. Trautwein. I am sorry, sir?
        Mr. Grijalva. What would be the effect on the hiring
    picture among the--the people you represent, the small
    businesses, the retailers, if there was no health care reform
    act?
        Mr. Trautwein. If there was no health care reform act,
    those retailers who offer coverage would continue to struggle
    to offer that. Because of the rising costs, fewer smaller
    retailers would be able to do that. We still have a lot of
    uncertainty, as Ms. Johnson said, in terms of what the exchange
    is going to look like, how effective it will be ultimately. But
    again, we were strong proponents of reform and for good reason.
        Mr. Grijalva. Okay. So we have talked a lot about costs.
    You have. And I would suggest that part of the discussion--and
    that is what I asked Mr. Van de Water and Ms. Johnson--has to
    do with benefit as well. And in that analysis, I think, if I
    may say, you are leaving out a significant portion about what
    the long-term benefit is of health reform. And that would--has
    been the goal all along.
        With that, I yield back, Mr. Chairman.
        Chairman Kline. I thank the gentleman.
        Ms. Roby, you are recognized.
        Mr. Roby. Thank you, Mr. Chairman.
        Thank you to each of you who are here today. I want to take
    a moment, if I might, and just expand on the discussion that
    Mr. Heck had a few minutes ago. Clearly, our economy needs job
    growth and expansion of industries and ideas in the workforce
    and not federal regulations that place such a heavy burden on
    them.
        At the same time, we do need to implement common-sense
    health care changes that are free market solutions, tax code
    reform, medical malpractice reform and increase competition
    across state lines. And I have recently shared some examples as
    it relates to a Pizza Hut owner in Headland, Alabama that is
    going to be forced to shut his doors because he can't afford
    this as well as an owner of pharmacies throughout the Southeast
    who has the ability to create jobs but is fearful to do so
    because he doesn't know what the federal government is going to
    do to him next.
        So expanding on the discussion before, Ms. Johnson, your
    testimony, if I did nothing and just renewed our policy, due to
    the 18 percent increase, I simply cannot afford to absorb this
    increase to the bottom line. And then Dr. Van de Water said
    even if health care reform were to impose some costs on
    employers, economic principles strongly suggest that the impact
    on business hiring decisions would be small.
        So my question is to you, Dr. Howard, is if you could help
    reconcile--I mean, clearly, there is two very different,
    differing opinions from Dr. Van de Water and Ms. Johnson. And I
    would like to hear your take on the real economic impact on job
    growth when you hear from small-business owners like the Pizza
    Hut owner, like the owner of the pharmacies and certainly, the
    testimony of Ms. Johnson, which seems to be in conflict with
    Dr. Van de Water's position.
        Mr. Howard. Well, I think that small businesses are in an
    environment where they direly need relief from health care
    costs. The purported exercise of health care reform was to
    ``bend the curve of health care costs.'' The defense apparently
    is now costs will go up, but they will be small. But I would
    like to point out that for small-business owners and mid-size
    business owners, those new costs are unchosen. They are being
    forced on them.
        They will have to pass those costs along to their employees
    in the form of lower wages. That may seem to be a minor impact,
    but I think given the rest of the economy and all the other
    cost pressures we are facing, I think that that is not the
    right message to send to employees, that you are going to take
    the hit now in the hopes that 10 or 15 years down the line,
    maybe we will see health care costs slow.
        And we also have to understand that this is in the context
    of everything else that we are asking small employers to do,
    that small employers are trapped in very dysfunctional state
    insurance markets where they face dozens of state mandates on
    insurance that drive up the cost of insurance. So their choices
    are limited.
        We are limiting their choices even further. And we are
    asking them to pay more costs. So I think that that is the
    central problem here, is we have put more problems on their
    plate rather than taking them away.
        Mr. Roby. Thank you very much.
        Mr. Chairman, I yield back.
        Chairman Kline. I thank the gentlelady.
        Mr. Kucinich, you are recognized.
        Mr. Kucinich. Thank you very much, Mr. Chairman, members of
    the committee. Two of the main concerns I hear from businesses
    when it comes to health care are predictability and costs. They
    want predictability because without it, it is hard to make
    long-term decision and investments.
        The Affordable Health Care Act provides some protection
    from the unpredictability of wild leaps in health care costs
    for those in small insurance pools. It does that by putting
    more people in the same risk pool, by providing ways to
    challenge excessive rate increases and by capping the amount of
    money insurance companies can spend on things other than your
    health care. It is not perfect, but it is much more than we had
    before the bill passed.
        I also hear from businesses that they want lower health
    care costs for their employees. The lower the costs, the easier
    it is to attract talented workers. It is especially true for
    small businesses, who are competing against larger businesses
    for talent. And many businesses want lower costs because they
    are at huge competitive disadvantage compared to their
    competition overseas.
        The per-person health care costs in the U.S. in 2008 were
    $7,538; in the U.K., $3,129; in Canada, $4,079; in Holland,
    $4,063; in Spain, $2,902. In fact, among our OECD competition,
    no one is even close to us in health inefficiency. And who
    bears the burden of that? Our businesses.
        The Affordable Care Act, again, provides some help there
    with tax credits and also because it insulates people from the
    highly expensive individual insurance market by pooling them
    together. It makes sense. The more people in the pool, the
    lower everyone's cost because the costs are spread among more
    people.
        Now, Mr. Van de Water, if part of the reason small business
    would get more predictability is because their employees can
    band together with others in a bigger risk pool, would their
    costs be even more predictable if everyone in the U.S. was in a
    single risk pool, the very definition of a single payer plan?
        Mr. Van de Water. Mr. Kucinich, that is a difficult
    question. I think there is always going to be unpredictability
    in health insurance markets. But I think that your general--the
    general thrust of your question is correct, that the--you know,
    the larger the pool, the less likely premiums are to change by
    very large amount from one year to the next due to modest
    changes in the makeup of the risk pool. I think your general
    idea----
        Mr. Kucinich. Well, let me follow-up on that. Thank you,
    Mr. Van de Water. If businesses get relief from health care
    costs under the Affordable Care Act, would they get even more
    relief from the tremendous burden of inflated per-capita health
    care costs under a single payer plan?
        Mr. Van de Water. Quite possibly.
        Mr. Kucinich. Well, I just wanted to use this opportunity
    to suggest to my colleagues, who want to dramatically change
    the Affordable Care Act or perhaps dismantle it, that this--
    these hearings are also a good opportunity to look forward.
    Thank you.
        I yield back.
        Chairman Kline. I thank the gentleman.
        Dr. Roe, you are recognized.
        Mr. Roe. Thank the gentleman for yielding.
        Thank the panel for being here.
        And I will start by looking at my own experience of 30-plus
    years of small-business owner, like Ms. Johnson. We started out
    by providing 100 percent of the health care coverage for all
    the families and people who worked for us. We now have over 300
    employees who get insurance in our business, in our practice.
        And we are at the process of looking at if we dropped the
    coverage that we had and paid the penalty, we could save our
    practice almost a million dollars a year. This is real-world
    stuff. I haven't been here but 2 years. This is real-world
    stuff.
        And Dr. Van de Water mentioned a moment ago about the
    impact being minor. Well, let me give you just an example of
    what health care reform did in the state of Tennessee. We
    started a reform in 1993 called TennCare. And we had the
    problem with the health care system in America, as has been
    pointed out many times and I saw in my patients, that it costs
    too much money to come to the doctor and to enter the health
    care system. There is no question about that.
        The second problem we have was we had a segment of our
    population that didn't have affordable coverage, that couldn't
    afford it. So they are out there. We know who they are. And
    lastly, which hasn't been mentioned, is that there is a huge
    liability crisis in America that is adding to the cost of the
    care.
        I just spoke to the CEO of Mount Sinai Hospital Monday.
    Sixty-million his hospital system pays in liability insurance.
    In our state, we started with a $2.6 billion program. We have a
    lot of uncovered people. This is going to compete the hold the
    health care costs down.
        Ten budget years--in just 10 short years, that had gone to
    $8.5 billion, taken up about 33 or 4 percent of the entire
    state budget. We have essentially paid for the health care
    increase in the state of Tennessee by not adding any new
    dollars to our higher education system in 20 years. We have 50
    less highway patrolmen than we had 30 years ago. And we have 2
    million more people that live in the state.
        So it has not held the costs down. And our Democratic
    governor, who just was turned out, Governor Bredesen, called
    this new plan the mother of all entitlements because he as a
    state CEO or governor, executive, understood that. And how we
    managed the costs in Tennessee was we rationed care. We
    basically cut people off, and we limited the number of visits
    that they have.
        Let us look forward, also, at Medicare, which started as a
    $3 billion program in 1965. The estimates--there wasn't a CBO
    then. But the government estimates were this would be a $15
    billion program in 25 years. Now, the actual number--does
    anybody know what it was 25 years later? Over a hundred billion
    dollars. And today it is over $500 billion.
        So I don't see anywhere in there that these costs are being
    held down. And the way you are going to haul costs down in
    America is personal responsibility and disease management and
    liability reform. That is how you are going to do that, not
    through this plan.
        And I want to--I am going to stop after making that
    statement and just--Ms. Johnson, to you, in your own business,
    you are a real-world businessperson and owner. I have heard
    this story over and over again. The other thing, before I
    finish, is the great secret in government programs is they
    never cover the costs of the care.
        In our state, TennCare pays about 60 percent of the costs.
    And Medicare pays about 90 percent in our state. So guess what
    happens? That cost is shifted to private insurers. And you not
    only have the cost of your increase with technology liability,
    you also are paying for the costs that the government isn't
    paying for. So what they just did was expanded massively a
    Medicaid program that is already failing. And it is going to
    shift more costs.
        So you are absolutely right. Your costs are not going to go
    up 8 or 10 or 12 percent. They are going to go up 20 percent
    when this happens. And to say that with a straight face that
    this is going to hold costs down, I don't see any way it can
    possibly do that.
        Mr. Miller. Would the gentleman yield?
        Mr. Roe. No, I want to finish my time.
        Ms. Howard (sic), yes, ma'am?
        Ms. Johnson. To respond to that, I agree wholeheartedly.
    Just because the particular changes in the Affordable Care Act
    that impacted my policy this year has 3 to 5 percent does not
    speak to the whole question because the health care industry
    and the costs to insurance companies that is impacting my
    premiums is still reeling out of control.
        And it had been my hope that whatever bill, health reform
    bill, we had would be hauling those costs under control as
    well. And I don't see that happening. So it is not just the
    specific 3 to 5 percent that increased directly related to
    removing the caps on durable medical equipment, et cetera, et
    cetera. It is also the fact that there are increasing health
    care costs that this reform bill is not curtailing.
        Mr. Roe. Dr. Howard, any comments?
        Mr. Howard. Well, I think that is a good observation that
    the costs are shifting substantially. I know that in many
    states in general, Medicare pays 80 percent of what private
    insurers pay. And Medicaid pays about 60 percent, I believe. So
    it is a tremendous cost shift and a tremendous problem for
    physicians and why more and more physicians are simply refusing
    to see patients.
        Chairman Kline. The gentleman's time has expired.
        Mrs. McCarthy is recognized.
        Mrs. McCarthy. Thank you, Mr. Chairman. And thank you for
    having this hearing.
        It has been interesting listening to the testimony. And I
    guess--I spent the majority of my life as a nurse before I got
    here. And I think one of the things that we have to
    understand--you know, I have heard statistics going all over
    the place. They mentioned the 1960s.
        As a nurse in the 1960s, I earned $25 a week. My health
    insurance at that particular time was probably about $1.30,
    $1.40 because we did pay into our health care, as we do here.
    You know, everybody keeps thinking that we as federal employees
    get free health care. We pay into it.
        And we also, by the way, in my opinion, for what I pick
    out--we are talking about the exchange. I picked the insurance
    company that I wanted. Someone else on my staff, especially the
    younger ones on my staff, they pick out the insurance that they
    want. But the difference is we do not have a cap. If I get
    sick, I will be covered. And that is what we are trying to give
    to the American people.
        Costs have gone up. Health care has gone up to the point of
    where small businesses, large businesses could no longer
    sustain it. So something had to be done.
        Now, no one is going to say this has been a perfect bill.
    But it is a start--and hopefully improve upon it as we go
    forward.
        You know, I heard again a number of times on the small
    businesses, you know, that are exempt from the responsibility
    requirement of expanding their insurance coverage under the
    bill from 46 percent of companies offering coverage in 2009 to
    almost 59 percent of companies offering coverage in the year
    2010. I do believe that once people get over this fear of what
    the health care bill can do and we bring everybody in--because
    there was mention before--our hospitals are paying for people
    that don't have insurance.
        And if you don't have care, preventative care--this country
    is basically a very unhealthy country. And they are. And yet,
    with medical technology, with what--certainly if you have the
    access to a doctor and they discover you have high cholesterol
    at the age of 40, you are going to take medication, hopefully,
    that will prevent a stroke or a heart attack down the road.
    That is the whole idea of what this bill is.
        But the truth of the matter is if we had done nothing, your
    small business wouldn't be eligible for health care. Your large
    corporations would not be able to afford health care. And this
    is the debate that will continue to go on. But to say we should
    repeal and stop and don't do anything, in my opinion, is the
    wrong way to go.
        So, Mr. Van de Water, I wish that you would talk a little
    bit more on the cost savings from preventative care. We are
    already seen some of the estimates from CBO, which is unusual
    for them. They don't like to do anything that they don't have
    hard facts on. But also spreading the coverage across the whole
    country so that people that don't have health care will have
    health care and how that helps the pool.
        And hopefully, Ms. Johnson could be able to have cheaper
    insurance or at least sustain the costs. I am not going to say
    she is going to get cheaper insurance. I will say she will
    sustain the costs so they are not going up high.
        Mr. Van de Water. Happy to do that, Mrs. McCarthy. But if I
    might, I would like to amplify on a point that you made earlier
    on in your remarks suggesting that there was--I forget the
    exact term you used, that there are unnecessary concern, fear,
    anxiety about the effects of the health reform legislation.
        As we listened to some of these individual stories, I think
    we seem to lose sight of the big pictures, which is that, in
    fact, the vast preponderance of employers already offer health
    insurance coverage, which is, in fact, substantially more
    generous than that that would be required by the Affordable
    Care Act. Ninety-five percent of employers with more than--with
    50 to 199 workers--even for firms with between 25 and 49
    workers, 92 percent of those firms already offer coverage. And
    like, with Ms. Johnson's firm, that coverage, in general, is
    already more generous than would be required to meet the
    requirements of the Affordable Care Act.
        So the additional costs that would be imposed on those
    firms is truly minimal. And that is not a matter of
    speculation. You know, that is a matter of fact.
        In terms of the cost controls which you asked about, it
    would be nice if we could start to slow the growth of health
    care costs substantially right away. But I don't think that any
    of the supporters of this legislation--or, I hope, of any
    other--had ever promised that that difficult task could be
    accomplished right away. We have been faced with year-in, year-
    out double digit, in my cases, increases in health care costs.
        And I want to emphasize that those are not unique to public
    programs. Those increases have been both in the private
    insurance--people buy, again, as we have heard from Ms. Johnson
    and Mr. Trautwein's examples. So what we will need to do is to
    make major reforms. What most analysts believe is we will need
    to make major reforms in the health care delivery system to
    develop ways of delivering care that are more cost-effective.
    This law begins, but it will take some time to do.
        Chairman Kline. Thank you, sir.
        The gentlelady's time has expired.
        Mrs. McCarthy. Thank you.
        Dr. Des Jarlais?
        Mr. DesJarlais. Thank you, Mr. Chairman.
        As I sit and listen to the debate today and hear my
    colleagues tell us that we should not be afraid to move forward
    and be afraid of what is in this bill, as a physician, I can
    tell you that that is not the sensation and the feeling I am
    getting as I sit here listening.
        We look at the federally run programs in our health care
    system today, which encompass over half of the covered lives in
    America through the Medicare, Medicaid and veterans system. And
    I don't think anybody is going to sit here today and give gold
    stars and A ratings to the success and the state of these
    programs.
        So the thought of moving forward with this Affordable
    Health Care Act without apprehension causes me great pause as a
    physician. And I guess I would like to ask Dr. Van de Water--
    you had mentioned that we have 32 million uncovered lives right
    now that will be addressed with this act. And there is roughly
    330 million people in our country.
        It should be noted that before this health care bill was
    passed, if you study the polls, 75 percent of Americans rated
    their health care as good or excellent. It is hard to get that
    many people in this country to agree on anything.
        So we have 25 percent that are dissatisfied. And I assume
    that the 32 million that you speak of are in this group. Can
    you break down that group of 32 million? Because that was
    always kind of a moving target during the debate.
        Mr. Van de Water. When you say break down, you mean in
    terms of how these people would achieve coverage?
        Mr. DesJarlais. Are these people that don't qualify for
    Medicaid? Are they people that are here legally or illegally?
    Are they people that are willfully uninsured?
        Mr. Van de Water. Thirty-two million figure is the number
    of additional people who would receive coverage under the
    Affordable Care Act. And that number is not exactly, but more
    or less evenly divided between people who would achieve
    coverage under Medicaid and those who would achieve coverage
    through the new health insurance exchanges.
        Mr. DesJarlais. Do you know approximately how many?
        Mr. Van de Water. I could look it up and----
        Mr. DesJarlais. Okay. But somewhere, there is a portion of
    those that would qualify for an existing plan?
        Mr. Van de Water. Some of the Medicaid people would qualify
    under existing law. But that number I don't have at my
    fingertips.
        Mr. DesJarlais. Okay.
        Dr. Waters (sic), could you comment on how we can expand
    coverage to 32 million people and yet reduce costs and preserve
    quality of care?
        Mr. Van de Water. That is exactly what----
        Mr. DesJarlais. Okay, go ahead.
        Mr. Van de Water. Yes, that is exactly--we do that through
    the Affordable Care Act. That is exactly what the Congressional
    Budget Office and the Medicare actuary project is what is going
    to happen. As I said, that in the near-term, as we bring
    coverage to 32 million more people, of course, there will be a
    modest increase, which, I believe, at its peak is only about 3
    percent of national health spending.
        After that, the rate of growth of costs will slow. And in--
    early in the next decade, if one extrapolates the actuary's
    projections, the level of spending will be less than it would
    have been without the Affordable Care Act. And the reason for
    that--the reasons for that are among the things that I
    mentioned, the provisions in the law that change reimbursement
    practices to focus on the value rather than volume, the
    provisions that eliminate the over-payments for Medicare
    Advantage plans, the excise tax on high-cost health plans and
    so forth.
        Mr. DesJarlais. And you feel this can be done while
    maintaining quality of care, despite what my colleague from
    Tennessee spoke of in terms of the failed TennCare plan?
        Mr. Van de Water. The gentleman knows more about--being
    from Tennessee, knows more about the details of TennCare than I
    do. But our quality of care leaves a lot to be desired. The
    most studies show that even in our--while many people get
    excellent care for certain purposes, that is still in--I forget
    the precise number, but about 40 percent of people who are in
    the medical care system don't get all of the recommended care
    that they should.
        That was a recent analysis by the Rand Corporation that, I
    think, appeared in Health Affairs Magazine. So there is a lot
    of room for improving quality while reducing costs.
        Mr. DesJarlais. Thank you, Dr. Van de Water.
        Dr. Howard, would you comment on whether or not you feel
    that we can expand coverage while reducing costs and
    maintaining quality?
        Mr. Howard. I think it is going to be extraordinarily
    difficult. I think that a number of the programs that Dr. Van
    de Water talked about could very well increase quality. But
    they are likely also to increase costs.
        That may be something we should do. But if you are giving
    people more services or preventative services, costs are going
    to go up. The thing that CMS scored as having the largest
    impact on health care spending was going to be the across-the-
    board provider cuts that are happening in the latter decades of
    the Affordable Care Act.
        And that means that at long-term, Medicaid rates are going
    to drop below those of Medicaid. And we already know there are
    serious access problems there. There are going to be serious
    access problems for seniors if that happens. So that is not
    likely to happen.
        So I think in the short-term, we are going to see costs go
    up in the hopes that costs will go down at some point. But
    since we can't predict what the economy is going to look like
    in 6 months or a year, I think trying to figure out what the
    health care system is going to be in 15 or 20 years is
    impossible.
        Mr. DesJarlais. All right. Thank you.
        Chairman Kline. The gentleman's time has expired.
        Mr. Holt?
        Mr. Holt. Thank you, Mr. Chairman.
        Before I get to my questions, I just wanted to underscore
    something that Mr. Miller raised earlier, which is, in fact,
    there has been a significant increase in small businesses
    offering health care benefits to their employees in the last
    year. UnitedHealth Care Group, the nation's largest insurer,
    added many tens of thousands of new customers, mostly small
    businesses. I am quoting from that well-known Socialist organ,
    Forbes Magazine.
        Blue Cross/Blue Shield of Kansas City, an astounding 58
    percent increase in the number of small businesses purchasing
    coverage; Coventry Health Care, more than 100,000 new workers,
    an 8 percent jump. Thirty-eight percent of these Kansas City
    Blue Cross/Blue Shield businesses had not offered health care
    benefits before.
        Says the writer, ``If you are all about beating up on
    President Obama, you can conveniently forget this bit of data
    as if it never really happened. However, if your interest is to
    make health care available to more Americans, this should be a
    happy day for you, no matter what your ideological beliefs.''
        Let me turn to some other details here.
        Mr. Van de Water, not much has been said this morning about
    the medical loss ratio. When this committee, particularly Mr.
    Tierney, pointed out to the country that most insurance
    companies were spending maybe 75 percent of an employee's
    health insurance premiums on actually providing health care,
    they were astonished. And now under the health care law, there
    is a requirement that the medical loss ratio increase, in some
    cases, to 85 percent and that there be auditing.
        In other words, insurance companies would be required to
    spend more of the collected premiums on actually providing
    health care. What effect do you think that will have on the
    issues that we are discussing today?
        Mr. Van de Water. Clearly, Congressman, the provision
    requiring that insurance companies spend 80 or 85 percent of
    the premium dollar on health care is going to mean that
    employees or individuals who buy insurance on their own are
    going to be getting considerably more insurance value for their
    dollar. There has been some--was some talk earlier this morning
    about waivers which HHS has been granted to allow some firms to
    offer these so-called mini-med policies during the interim
    between now and 2014 before the exchanges come into effect.
        If anyone has ever looked at those policies, the value that
    is received for those is extremely poor, that in many cases, we
    read the one offered by McDonald's to some of its employees
    only about 60 cents of the premium dollar is spent on health
    care.
        Mr. Holt. Well, thank you. I venture to say that as the
    auditing proceeds, the public will be astonished once again
    about how these companies are doing business.
        Ms. Johnson, your premiums have gone up, and they are
    proposed to go up for the subsequent year. Did you bring with
    you the figures for the past 10 years?
        Ms. Johnson. No, I did not. But they have been
    progressively going up.
        Mr. Holt. Is it more or less than the national average of a
    doubling of policies from 1999 to 2009?
        Ms. Johnson. I couldn't speak to----
        Mr. Holt. Was it comparable--it was probably a doubling?
        Ms. Johnson. I couldn't speak to the exact. I wouldn't want
    to say something that would not be truth.
        Mr. Holt. Well, for most businesses around the country, it
    was a doubling, which I take as evidence of the need for this
    health care legislation, not an argument against it. These
    happened before the health care bill was passed. The premium
    notices that you are getting in the mail these days are
    independent, as Mr. Van de Water has said, and so, independent
    of the health care legislation.
        Now, in the few seconds I have remaining, let me ask a very
    quick question, then, to Mr. Howard. You say that small
    businesses need relief. I would ask whether a 35 percent tax
    credit for doing what they want to do and are doing is
    considered relief.
        I would also ask, secondly, whether you believe that having
    patient-centered primary care, bundled payments, required 85
    percent medical loss ratio, payments that record--reward
    accountable provider groups and assume the responsibility for
    continuum of patients' care, more emphasis on outcome rather
    than procedures, independent payment advisory board, new
    innovative center within CMS for streamlining testing and rapid
    communication and expansion of successful models, enhanced rate
    review, price transparency will, in fact, bring down the
    costs--put downward pressure on the costs of medicine.
        Chairman Kline. Yes, Dr. Howard, if you think you can
    answer that in, you know, 20 or 30 seconds----
        Mr. Holt. A yes or no.
        Chairman Kline [continuing]. Please do. Otherwise, we will
    need to move along.
        Mr. Howard. Out of that laundry list, I think that a lot of
    things are going to increase costs. The tax credit you referred
    to----
        Mr. Holt. Will increase costs?
        Mr. Howard [continuing]. Is going to go--the tax credit you
    referred to is going to go away. And then employers are going
    to be left in state insurance exchanges, where there are going
    to be very expensive plans available to them.
        Chairman Kline. The gentleman's time has expired.
        Mrs. Biggert?
        Mrs. Biggert. Thank you, Mr. Chairman. And thank you for
    having this hearing. I have to state for the record that I am
    not a doctor on this side of the aisle. But I am a lawyer, so I
    want to turn to a little--something a little bit different.
        And, Dr. Howard, what has happened to ERISA? You know, this
    was a really voluntary--so that companies, employers could
    voluntarily offer health care benefits. And I think there was
    on the other side of the aisle talking about the states making
    all these different things. But this--ERISA is kind of what
    held it all together.
        And then I want to go something else. So if you could
    answer that briefly.
        Mr. Howard. I think that ERISA has been a tremendous
    benefit for large firms. It has helped them to design employee
    benefits they thought best fit their mix of needs and the needs
    of their employees. Obviously, even large companies are seeing
    health insurance increases and need to find better ways.
        There are some very innovative things happening at
    companies like Safeway and Whole Foods, where they are working
    with their employees to find ways to hold down costs through
    innovative disease management programs. I think that kind of
    experimentation, giving more ability to companies to experiment
    with those types of plans, is a very valuable way to go.
        Mrs. Biggert. But under the--this new law, will they be--
    will ERISA exist?
        Mr. Howard. I think that there is going to be a gradual
    erosion of ERISA, both because of the incentives for
    individuals to drop out of employer-based coverage because of
    the larger subsidies that are available on the exchanges, but
    also because the ability of states under--in the state
    insurance exchanges to make broad changes to plans that are
    available in their state markets--of course, ERISA is not
    affected by that. But I think there is going to be more of a
    push, particularly on states, to try and get ERISA-based
    companies into the insurance pool and to alter ERISA to make it
    possible for them to get at the--the companies' employees into
    those pools.
        Mrs. Biggert. Thank you. Then you said that that were,
    like, 700 waivers already, based on----
        Mr. Howard. Seven hundred and thirty-three.
        Mrs. Biggert. What about--I got a company, employer, a
    restauranteur in my district. He has 100 employees. He is not
    able right now to offer insurance. So with the new law, he is
    going to have to put all of his employees on--in the exchanges.
    And then he is going to have to pay a $2,000 penalty every year
    for each employee, which is $200,000. He doesn't make that
    much. So his conclusion was, ``Who wants to buy a restaurant?''
        And yet, there are all these waivers for large companies
    and things. Why are the waivers being given when the law was
    written in such a way that they should have to comply under
    that, too?
        Mr. Howard. Well, I would defer to some of my colleagues
    with experience in the small-business environment. But I would
    say very briefly that the administration has recognized that
    there will be a substantial decrease in coverage or a
    substantial increase in premiums if the waivers had not been
    given to those companies.
        Mrs. Biggert. Okay. Then the other issue is the court cases
    in 26 states having filed to repeal this law or to make certain
    changes. And it seems like it is two to two now with some
    states saying they want to keep it and other states saying let
    us do away with it.
        But their latest decision that has come out from, I guess
    it is, Florida with the district judge saying that, not only is
    the individual mandate that individuals have to purchase health
    care unconstitutional, but because there is no separability
    clause in there, that the whole law should be repealed. And
    what do you think of that? Or how do you----
        Mr. Howard. Well, I think that the individual insurance
    mandate is deeply troubling. You are forcing individuals to buy
    plans or buy kinds of plans they wouldn't necessarily choose
    for themselves and are going to face, in many cases, higher
    costs as a result of it.
        In Massachusetts, as I recall, 200,000 people, I think it
    was, who were exempted from the individual mandate because the
    costs were so high. I think a number of people after the
    mandate goes into effect are going to look at the cost of
    insurance. They are going to opt not to buy it and sit out. And
    that is going to raise the risk of adverse selection in those
    pools and raise the cost of insurance.
        So I think it is extremely problematic. And we need to look
    at better ways of incentivizing people to purchase the kinds of
    insurance that fit their needs, particularly consumer-driven-
    types of insurance.
        Mrs. Biggert. Thank you.
        Would anybody else like to comment on that briefly?
        Mr. Van de Water. I would just like to point out that the
    insurance exchanges will offer a range of policies. And, in
    fact, that the lowest level required has an actuarial value of
    60 percent, which is well below the level offered by the
    typical high-deductible plans with the health saving account.
    So, in fact, the notion that people are going to be forced to
    buy one particular kind of insurance that doesn't suit their
    needs is, I think, fundamentally off-base.
        Mrs. Biggert. Well, even those that have been--have
    waivers, it is very strict, the terms of how they can keep that
    waiver.
        Chairman Kline. The gentlelady's time has expired.
        Ms. Hirono?
        Ms. Hirono. Thank you, Mr. Chairman.
        There is no question that health care costs have been
    rising and the premium costs to businesses have been increasing
    year by year, often by double digits long before we ever passed
    the Affordable Care Act. And so, just slowing the ever-rising
    costs of health care, which already represents one-sixth of our
    gross national product--totally unsustainable, no end in sight.
    Just to slow that down, never mind bending the curve, I think,
    is a huge accomplishment for us.
        Now, Dr. Howard, you said something that was really
    interesting in response to the question of what would be your
    approach to how we could slow the ever-rising costs of health
    care in our country, unsustainable. You said that we should
    encourage the states to experiment with health care reform. You
    mentioned Massachusetts. And as a matter of fact, Hawaii, for
    over 35 years, has had probably the most progressive and
    comprehensive health care law in the entire country.
        It is an employer-mandated--mandate law, where there is no
    exception for small businesses. All businesses in Hawaii that
    have full-time employees must provide health care for which the
    employee pays only 1.5 percent of their wages. Which means that
    most of the employers in Hawaii who have full-time employees
    pay 100 percent of the coverage. There is no discrimination for
    preexisting conditions. There are no lifetime limits.
        And, in fact, the largest health care provider in Hawaii
    moved very quickly to provide an option for--opportunity, I
    should say, for the parents of children to put their kids on
    the policies until 26, before that requirement even kicked in.
    You know, things did not fall apart as a result of Hawaii's
    prepaid health care law. And, in fact, Hawaii's people live the
    longest, partly because we have early access to health care.
    That means prevention.
        So you would think with all of this that when we were
    discussing health care reform and the Affordable Care Act that
    I would be hearing from businesses all across Hawaii to
    eliminate Hawaii's prepaid health care law. Quite to the
    contrary. What the businesses in Hawaii were saying is please,
    please exempt Hawaii's law from whatever you folks are doing
    because they--our law works.
        Now, when you say that states should be given that
    opportunity, if the states go and follow the direction of
    Hawaii. So I think that would be great. Do you have any
    awareness of Hawaii's law, Dr. Howard?
        Mr. Howard. I am sorry to say that I don't. I mean, I think
    the central point to make is is that no two states are exactly
    alike. And so, Massachusetts or Hawaii may have found a set of
    arrangements that works well for their given populations, their
    given circumstances. The circumstances aren't the same for
    California or Texas or Oklahoma, Florida or any other state.
    Each state has to find its own way.
        There may be a mix of state programs that will work. One, I
    think, very interesting parallel was to welfare reform during
    the 1990s, where one state, Wisconsin, took the lead, found a
    workable program for welfare reform that later became a model
    for the nation and was extraordinarily effective.
        So I think there is a tremendous aspect to state
    experimentation, as it has often been said. Use the states as
    laboratories of experimentation before we commit the entire
    United States to one program, however attractive it may seem in
    Massachusetts or in Hawaii.
        Ms. Hirono. Well, given that, though, I don't think that we
    should all be reinventing the wheel. We should learn from other
    states' experiences.
        Dr. Van de Water, do you have any awareness or familiarity
    with Hawaii's prepaid health care law? Would you like to--and
    if you do, would you like to comment?
        Mr. Van de Water. Well, I have some familiarity, Ms.
    Hirono, with it. Recently I worked--I was the study director
    for a study panel of the National Academy of Social Insurance,
    which was examining administrative issues that would be
    involved in implementing health reform. And, of course, the
    administration of mandates is one of the things we looked at.
        And, of course, the employer mandate in Hawaii, which, as
    you say, has been in effect for 35 years, is an important
    example that we looked at. And I think I am personally quite
    pleased that you brought it up because it does show, as you
    said, that if a requirement is imposed broadly so that all
    employers have to meet it, then it should be quite successful.
        Clearly, if one particular employer by itself, say, in the
    retail market might be able to--because of competitive
    pressures, it might not be able to provide health insurance to
    its workers. But if it knows all of its competitors are going
    to have to do the same thing, as is the case in Hawaii, the
    whole situation is different. And, as you said, as far as I
    understand, Hawaii still has fast food restaurants. It still
    has daycare centers. The world----
        Ms. Hirono. Well, the world certainly has not come to an
    end in Hawaii. And, in fact, I would say that the business
    community in Hawaii pretty much uniformly want us to be able to
    continue this kind of a law, which is not to say it is perfect,
    of course, because health care costs in Hawaii also go up. But
    an economist I talked to in Hawaii, who one of his specialties
    is looking at Hawaii's law, said that premium increases in
    Hawaii has been lower because--in large part, because of the
    prepaid health care law.
        And I would also say that those states that have actually
    in place processes that allow for rate review, those states
    have a better chance for controlling health care costs,
    especially those that require prior approval. Thank you.
        I yield back.
        Chairman Kline. The gentlelady's time has expired.
        Dr. Bucshon?
        Mr. Bucshon. Thank you, Mr. Chairman.
        And thank you, witnesses.
        This is directed at Dr. Van de Water. Would you agree that
    when CBO scores a bill, they have to go on the assumptions that
    are in the bill to--and they can't--they don't have much leeway
    in interpreting what the law says, they just have to score it
    based on what the assumptions are? Yes or no?
        Mr. Van de Water. No.
        Mr. Bucshon. Okay. Then tell me why that would be.
        Mr. Van de Water. CBO estimates the effect of the law,
    evaluates the legislative language of the law. But the sponsor
    of the legislation does not have the opportunity to specify
    what economic and technical and other estimating assumptions
    the CBO uses in estimating what the effects of that legislative
    language would be.
        Mr. Bucshon. Okay. Then in the case of the Affordable Care
    Act, would you agree or disagree that some of the cost savings
    are the projected decrease in Medicare outlay of funds,
    decreasing reimbursement in the past and that was used as part
    of the cost savings in the Affordable Care Act?
        Mr. Van de Water. Yes, there are reductions in Medicare
    payments.
        Mr. Bucshon. Okay. And then would you also, I think, said
    earlier when someone asked the question about Medicare cuts and
    it is most universally believed that, especially the ones
    relating to the doc-fix-type of cuts, most likely will never
    occur. Then would you agree that the CBO's estimate of the
    repeal bill most likely is incorrect, based on the assumption
    that the Medicare cuts will occur and that--because from the
    direction I see it, you can't have it both ways.
        Mr. Van de Water. I guess I would make about three points
    in response to this. First, as I said in response to an earlier
    question that the sustainable growth rate formula is not an
    element of health reform as following the preceded health
    reform and that will continue after----
        Mr. Bucshon. But that is always reversed with the doc-fix,
    which is part of the assumption of your savings in the
    Affordable Care Act. Is that correct or incorrect?
        Mr. Van de Water. But the second point that I believe has
    also been referenced is that I and a colleague looked at all of
    the payment, Medicare payment reductions that were required by
    Medicare recent legislation over quite a number of years. And
    we found that with--in almost all cases, with a sustainable
    growth rate formula being the primary exception, that those
    payment reductions were allowed to go into effect. So that if
    one based--generalizes based on past experience, that one
    should not necessarily conclude that the payment reductions
    contained in the Affordable Care Act will not go into effect.
        Thirdly, even if Congress decided to change those
    provisions in the future, those changes would have to be paid
    for and would not add to the deficit. So that does not--none of
    that suggests that the CBO's scoring is in any sense incorrect.
        Mr. Bucshon. Well, history will tell us, but past history
    has told us that the effects of the decreasing reimbursement
    have always been reversed, historically, and that those savings
    and assumptions in the Affordable Care Act will ultimately
    prove not to be true.
        Mr. Van de Water. But actually, sir, that is not correct.
    Even looking at the sustainable growth rate formula by itself,
    that some of the reductions required by that did go into
    effect. Moreover, many of the recent changes have been offset
    and have been paid for and have, therefore, not up to this
    point, added to the deficit.
        Mr. Bucshon. Okay. Thank you.
        Mr. Trautwein, many people believe that there will be a
    large number of employers that will drop their private health
    insurance and have their employees go on the exchanges or
    Medicaid. If a large number of employers, more than the
    expected number, drop their health insurance coverage, what
    effect will this have on the cost projections for the
    Affordable Care Act, going forward?
        Mr. Trautwein. I think it could vastly increase the federal
    outlays for subsidies in the exchanges that could cause costs
    to greatly increase. Now, I don't think there is going to be a
    bottom dropping off in January 1, 2014. But I think you will
    see--but partly because of the differential item I showed in my
    oral testimony, between the cost of providing care versus the
    penalty amounts, you are going to gradually see an increasing
    movement away from employer-sponsored plans, not all at once.
    But accumulatively, I think that is going to increase.
        Mr. Bucshon. So over the course of the, say, the next two
    or three decades, you see that occurring? And then your
    projection on the overall federal government expense for health
    care would see a dramatic increase, compared to what the
    current estimates are?
        Mr. Trautwein. In my opinion, yes.
        Mr. Bucshon. Thank you.
        Chairman Kline. The gentleman's time has expired.
        Mr. Tierney?
        Mr. Tierney. Thank you, Mr. Chairman.
        Ms. Johnson, I feel your pain, as a former small-
    businessperson who represented a lot of small businesses, was a
    president of a local chamber of commerce. I agree that our
    private insurance companies were jacking up our premiums over
    and over again. Every quarter, the price would go up, and it
    was difficult.
        And I think in part we are trying to make the private
    insurance companies more accountable for it, or at least
    provide some relief for consumers here. And that is a part of
    the act on that.
        We have had some talk about cost containment. So I want to
    talk about what most health economists, about 250 that I am
    knowledgeable about, thought was a bill that had in it almost
    every cost-containment provision that policy analysts have
    considered effective in reducing the growth of medical
    spending. And that is referring to the ACA, the Affordable Care
    Act.
        So, Mr. Trautwein, I want to ask you. If you had your
    druthers and we are starting from scratch, would a bill that
    you were drafting include payment innovations like bundled
    payments and accountable care organizations that reward
    providers based on the value of their care, and not just the
    volume of their procedures?
        Mr. Trautwein. Certainly, many of the----
        Mr. Tierney. Okay, so you would?
        Mr. Trautwein. I would.
        Mr. Tierney. Okay. Would a bill that you were drafting put
    in an excise tax on high-cost insurance plans to make consumers
    more cost-sensitive and discourage excess utilization?
        Mr. Trautwein. I might not do that.
        Mr. Tierney. You might not do that? But you might also do
    it? You are uncertain?
        Mr. Trautwein. It is among the universe of cost reduction
    strategies that we and others have----
        Mr. Tierney. Okay. An independent advisory board that would
    develop and submit proposals to reduce cost growth and improve
    quality in both Medicare and the health care system as a whole,
    would you provide for one of those in your bill?
        Mr. Trautwein. Again, these are part of the universe----
        Mr. Tierney. But would you or would you not? Or you are
    uncertain?
        Mr. Trautwein [continuing]. That we work with the Finance
    Committee, Congressman.
        Mr. Tierney. Okay. A center for Medicare and Medicaid
    innovation, that is a center that would test, evaluate and
    foster rapid expansion of new ways to increase the value of
    care, would you think that would be a good thing to put in your
    bill?
        Mr. Trautwein. I think it is a positive idea----
        Mr. Tierney. Measures to inform patients and pay as to what
    the quality of health care providers, would that be something
    you would put in your bill?
        Mr. Trautwein. We have supported that as well.
        Mr. Tierney. Okay. Increased funding for comparative
    effectiveness research so people would know which procedures
    work better than others?
        Mr. Trautwein. I am less sure of that.
        Mr. Tierney. Okay. Promote wellness and prevention,
    provisions that do that, would you include those in your bill?
        Mr. Trautwein. Not in their present form----
        Mr. Tierney. Well, but would you have provisions in there
    for----
        Mr. Trautwein. First dollar coverage for preventative care.
    But preventative care----
        Mr. Tierney. But you would put provisions in there with
    respect to wellness and prevention?
        Mr. Trautwein [continuing]. Itself is very important. I am
    sorry, sir?
        Mr. Tierney. You would put provisions in there regarding
    wellness and prevention?
        Mr. Trautwein. Most----
        Mr. Tierney. All right. Would you consider an exchange, a
    group of insurance companies that would participate and
    compete, that would lower costs with their competition,
    increase innovation, would that be something you would consider
    putting in your bill?
        Mr. Trautwein. Their group purchasing has been a common--
    this committee has worked on association health plans and
    small-business health plans for a year. How the exchanges under
    the Affordable Care Act actually are going to work in progress,
    that is the unknown.
        Mr. Tierney. Would you provide for some sort of way to
    increase competition, innovation on that so that companies
    would compete against each other?
        Mr. Trautwein. I would. I am reluctant on the exchange
    structure.
        Mr. Tierney. But you would have something in there that----
        Mr. Trautwein. Certainly. Certainly.
        Mr. Tierney. Okay. The medical loss ratio provisions, where
    we finally say to small-business carriers and large-business
    carriers that no less than 80 or 85 percent of your premium
    dollar has to be spent on actual health services. They no
    longer can keep jacking up your CEO salaries, your bonuses,
    your dividends and all of that and your management costs at the
    expense of the consumer. And if you don't do it, you get a
    rebate, which in this case, the health and human services
    estimates that about $322 rebate per average will come out for
    people in the individual market, and $164 for people in the
    small-business market.
        So the companies have to tell us what they are spending
    their money on. It has to be transparent. Consumers will see
    it. And if they don't meet those marks of 80 to 85 percent of a
    premium dollar spent on health services, they are getting a
    rebate. Would that be something you would consider in there?
        Mr. Trautwein. Not in its present form. It has been a very
    crude instrument. And greater transparency, absolutely.
        Mr. Tierney. Would you--do you think that insurance
    companies ought to have at least some benchmark where they
    spend money on health services as opposed to all the other
    things I mentioned?
        Mr. Trautwein. I am reluctant----
        Mr. Tierney. Lobbyists and, you know, bonuses and things of
    that nature?
        Mr. Trautwein. I am reluctant to see that sort of a
    government fiat.
        Mr. Tierney. So you are okay with those things?
        Mr. Trautwein. But generally, transparency is very helpful.
        Mr. Tierney. Okay. So what is it that--what cost provision
    aspect that most health care analysts and policy analysts have
    would you put in that you don't find already in the bill?
        Mr. Trautwein. For one thing, as has been mentioned,
    medical liability reform would be helpful. I would also----
        Mr. Tierney. So would that two-tenths of a percent of the
    costs of health care in the world here, in the country?
        Mr. Trautwein. A lot of--under the Affordable Care Act, a
    lot of the cost controls are directed through Medicare as its
    role as a market leader, which will help bring that. I would
    have brought those earlier to the private market and tried to
    more quickly reduce the cost of medical care in order to bring
    costs down.
        Mr. Tierney. So you would have the federal government
    impose these on private companies?
        Mr. Trautwein. Not impose those, but make those more widely
    available and encourage those.
        Mr. Tierney. Well, so, you just want to wish they would do
    it as opposed to require it?
        Chairman Kline. The gentleman's time has expired.
        Dr. Foxx?
        Mrs. Foxx. Thank you very much, Mr. Chairman. I would like
    to yield my time to Dr. Roe.
        Mr. Roe. I thank the gentlelady for yielding.
        I would like to pose a question. Does anyone on the panel
    think that seeing a doctor is part of health care? A show of
    hands. You think seeing your physician has anything to do with
    health care?
        Mr. Trautwein. Yes.
        Mr. Roe. Well, thank you. Because that is what the
    sustainable growth rate does. If we don't pay our physicians--I
    just talked to a medical oncologist in downtown Manhattan
    yesterday who is barely able to keep his practice open because
    of the reimbursement he is getting from Medicare. So what did
    we do with this plan? And we do need health care reform. Let me
    make that very clear. I am all for that and have many ideas
    about it, none of which were listened to during the debate. But
    I have many ideas.
        We are taking $500 billion out of an already under-funded
    Medicare plan, and we are adding 3 million people per year to
    that plan. And the boomers start this year. So I can promise
    you, going over time, when you have got more people chasing
    fewer dollars, you are going--and you are paying your doctors
    less, your providers less, you are going to decrease access,
    increase costs and decrease quality. I can promise you that is
    absolutely what will happen.
        We are seeing in Tennessee right now we are having a very
    difficult time getting our Medicare patients seen and almost
    impossible in some specialties to get our TennCare, or
    Medicaid, patients seen, which we have just expanded. If we had
    taken the $500 billion and shored up the Medicare system,
    certainly with SGR--and a lot of people don't know what that
    is. It is a formula about how doctors are reimbursed. Also in
    the Medicare plan, we are going to reduce payments to
    hospitals, to outpatient care, to hospice care and so on.
        The other question, Mr. Trautwein, I want to ask you--if
    this plan, if this health care plan is so great, why did 700
    plus companies opt out of it?
        Mr. Trautwein. I think in terms of the--in terms of HHS and
    the waivers, this has to do with a corner of the Affordable
    Care Act, which in two aspects impinged upon limited benefit
    plans, both the restrictions on annual benefit limits as well
    as the medical loss ratio standards. Had the law been devised
    better, you might not have had that problem of taking coverage
    off the table for 1.4 million American lives.
        But, you know, I would not have written the law that
    direction. But the steps that the administration has taken to
    deal with this coverage, both in terms of insurers who issue
    this coverage on a fully-insured basis in the market, which is
    where most of the mini-med coverage comes in the market, there
    are some companies who self-fund that coverage. And that is
    where some of this amount goes. But they really backed
    themselves into a corner and have created a process, though
    generally not suspect, it creates an appearance of a problem.
        Mr. Roe. I think the other thing that we noticed in
    Tennessee was is that half the people that got on TennCare had
    private health insurance coverage and dropped it when the
    public plan came out there. And we also noticed when we cut
    off--when the governor had to, because of cost constraints,
    half the people went back on their private health insurance. So
    they dropped it, which is exactly what is going to happen in
    this exchange. I have already seen that occur already in our
    state.
        I think one of the things that disturbs me about this is
    when government decides what I as an individual need as health
    insurance, what--and I can't make that decision for myself, my
    family or my business. The government decides that. I think you
    have just empowered--I don't think it was intentionally done.
        But I think you empower the very people you didn't want to,
    which are the lobbyists, because they are going to come to me
    and say, ``Look, I have got the greatest knee replacement,''
    or, ``I have got the greatest procedure,'' or whatever. It may
    not help me as a consumer, but I have got to pay the extra
    costs, either as a business or as an individual.
        And one of the things you could do to make health insurance
    much cheaper--one of the years for me was letting me as an
    individual deduct my premium, just like a business does. That
    would have been very simple. You could have lowered my costs by
    35 percent by doing that.
        Dr. Howard?
        Mr. Howard. Well, I think that medical malpractice reform
    is also tremendously important because it changes how doctors
    practice. Their perception that they have to provide tests or
    services or even hospitalization that they don't think are
    medically necessary out of the fear of getting sued is an
    enormous problem that even outweighs the direct cost of the
    medical malpractice premiums that you face.
        And I would also take issue with the idea that the SGR is
    something that could be left out of health care reform. It is
    the most critical--as you put it, the most critical aspect of
    health care is getting to see a doctor. So putting, you know,
    doctors outside of the health care reform and then saying, ``We
    are going to fix this later,'' I think, is the wrong approach.
        Mr. Roe. Thank you.
        Chairman Kline. The gentleman's time--gentlelady's time has
    expired.
        Mr. Payne?
        Mr. Payne. Thank you very much.
        Ms. Johnson, you are the one where the rubber meets the
    road. I understand you are a very successful entrepreneur with
    your daycare business and doing very well. And although my
    colleagues have asked you some questions, I was not in the
    room. So I would just like to once again--because I think you
    are probably the most important person at the table, in
    deference to the men here, all due respect.
        In your testimony, you state that a renewal of your 2010
    policy would have resulted in about an 18 percent premium
    increase. And you attribute this, of course, to the new mandate
    and administrative costs associated with the new health care
    provisions taking effect this year. Now, however, it is my
    understanding that the costs for individual and employee--
    employer premiums have skyrocketed in the past decades, which
    underscores the need for the Affordable Health Care Act, in my
    opinion.
        Now, a Kaiser Family Foundation study found that between
    1999 and 2009, the premiums for health care more than doubled.
    And I have a son who is in local government. And he says that
    the cost of health care with your employees and city
    participants is just going through the roof. So the costs of
    health care seem to continue to go up.
        On the other hand, preliminary studies of the impact of the
    affordable health care have already reported a growth of health
    care coverage among small businesses, including those not
    mandated under the new law as a result of the cost-saving
    provisions. Now, I know my ranking member from New Jersey, Mr.
    Holt, asked the question, they tell me. But it seems that the
    findings match reports from insurers who share that the number
    of small businesses purchasing coverage has increased nearly 60
    percent in some areas.
        Insurers and the Department of Health and Human Services
    report that the new provisions have only contributed to 1 to 2
    percent of the premium increases this year with expected
    reductions over time. Now, although these provisions make
    health insurance coverage more affordable and will level the
    playing field for companies such as your company, Rainbow
    Station, who currently provide health care--and I really
    commend you for that, because, as we know, all companies of
    your nature do not--and have historically subsidized the un-
    offsetted care for those who do.
        So just take into account these reports and the fact that
    health care reform was not the leading cause of your 18 percent
    increase, but rather, the way we see it, will curb and reduce
    the premiums over the next 3 years. If that could be proven to
    you, would you have a different attitude towards this health
    care reform bill?
        Ms. Johnson. I guess we are talking about several things
    here. The increase in access that you referenced a 6 percent
    increase, there are some small businesses that have increased
    access to care, probably the very small businesses that were
    impacted with the tax credit that has been referenced several
    times. I am not eligible for that. I have more than 50
    employees. In order to access the tax credit, you have to have
    less than 50 employees and an income limit of $25,000. I don't
    get that. I am not eligible.
        So I think that, in effect, worked. And I am saying that I
    don't think we need to throw the baby out with the bathwater.
    And there are some things that worked. And as we go forward and
    maybe take it off the table and pick what worked and what
    didn't work, then that is a good thing.
        The other thing that we are talking about is cost. And it
    would assume, from the business owner on the street, that this
    Affordable Care Act would impact the costs of health care. My
    rates went up for two reasons, once because of just the rising
    costs of health care, but also because of this--the impact of
    this Affordable Care Act and provisions that I had to add to my
    policy that I had not had prior.
        So I think there is so many things that are here that we
    are talking about. I don't think that this Affordable Care Act
    really has addressed, as we have had in many conversations, the
    actual cost of health care, which will continue to cause my
    premiums to rise, much like they have over the last years since
    I have been in business.
        I think that the Affordable Care Act has increased some
    access. But I do think that businesses like mine, which are the
    mid-sized small businesses, the ones that are really providing
    jobs on the street, that are growing and adding jobs, we are
    the ones that are hit by the costs of this increasing, albeit
    whatever nature it is, 1 to 2 percent for me. It was 3 to 5
    percent directly related to the Affordable Care Act--that it is
    on the backs of mid-sized businesses.
        And it seems to me if we are the job creators, if we are
    the ones that are going to provide jobs and help us pull out of
    this economic slump that we have been in, then burdening us
    with more operating costs to the--that will take money from our
    bottom line and give us less money to grow our businesses, less
    money to provide jobs, then something is wrong. So I don't know
    how to fix it. I am just telling you that it is a problem.
        Chairman Kline. The gentleman's time has expired. Thank
    you.
        Ms. Woolsey?
        Ms. Woolsey. Thank you, Mr. Chairman.
        And thank you to the panel. We have heard a lot of things.
    We have heard about reeling premium costs. We have heard about
    reeling health care costs. We have heard let us start over. The
    Patient Protection Affordable Care Act was--it put in place in
    order to address these reeling costs. And it was supposed to be
    a start, not a finish. And there is a lot we could do,
    including the--a robust public option that would save more
    money, that would provide the competition we need in the
    exchanges and bring down costs all the way around.
        But instead, I hear a lot of you talking about let us get
    rid of it, and a lot of my colleagues on the other side of the
    aisle. I want to ask you who do you and where do you think the
    impetus would have come to stop this--these reeling costs of
    benefits and health care premiums and health care costs. Was it
    going to start at the state level? Was it going to start in the
    insurance--the private insurance industry?
        Were the employers going to insist that it happen? When and
    where was this going to begin, if it didn't start here, now
    with a program that--and a policy and a plan that was actually
    flexible enough that we could improve it?
        Dr. Van de Water?
        Mr. Van de Water. Ms. Woolsey, I think you make an
    excellent point, that the things that have to be done to slow
    the rate of health care costs are things that are not always--
    are not in many cases going to be simple or easy. They are
    things like imposing an excise tax on high-cost health
    insurance plans.
        They are things like reducing over-payments to Medicare
    Advantage plan. Had we not done those--taken those steps at the
    same time as we were also bringing coverage to an additional 32
    million people, I think there is a strong reason to believe
    that those steps never would have been taken at all.
        Ms. Woolsey. Thank you. Let us go down to the head of the
    line here, Doctor.
        Mr. Howard. Thank you, Congressman. I think I would make a
    couple of different points, one of which is that----
        Ms. Woolsey. No, where would it have started? That is my
    point. That is my point.
        Mr. Howard. All of the above, and bipartisan. I think I
    would have started with bringing everyone to the table and
    having a real bipartisan effort to create health care reform
    because the history shows that successful social policies have
    to have a lot of bipartisan support, which this did not have.
        I think I would have----
        Ms. Woolsey. Well, why didn't that happen under the Bushes,
    then, when the Republicans had the White House?
        Mr. Howard. You are referring to things like the Medicare
    Modernization Act in 2003 or in----
        Ms. Woolsey. I am referring to the Patient Protection
    Affordable Care Act.
        Mr. Howard. Or in 2007 when President Bush proposed
    creating a uniform tax credit for health insurance that was----
        Ms. Woolsey. It did not bring down the costs in premiums
    and health care costs? No. So where would it have started to
    get where we need to go so that you wouldn't think it was
    reeling out of control?
        Mr. Howard. There were a number of initiatives that the
    Bush administration did undertake at--pardon me--HHS and other
    places to increase transparency in the marketplace, offer
    health savings accounts to Americans, which have been
    tremendously popular. I think that we should have started with
    a much more bipartisan process at the beginning of this current
    administration.
        Ms. Woolsey. Okay. Then you just said you want it to be
    partisan because what you just proposed is the most partisan
    thing that we could--that could have been on the table, savings
    accounts. Do you mind if we move on to Ms. Johnson?
        Ms. Johnson. I would say, had we started--we are having a
    debate, and there is lots of things on the table that we are
    discussing. But have we really made progress to where we want
    to go? I would question that.
        I think that there has been something on the table for me.
    And this is my experience. When I became a franchisor and
    franchised my business, I was really excited, naively, to think
    that as I grew my business, I could lower my health care costs
    because my pool would be larger by adding schools across the
    country. Sadly, that was not the case because insurance cannot
    be transported across the state lines.
        And I think that, which has been on the table for some
    time, would be a really positive step to add the
    competitiveness to the marketplace, allow me to insure my
    entire franchise and lower my premiums. So that is something
    that has been on the table. And maybe that is a start that is
    really has not crossed the finish line.
        Ms. Woolsey. Thank you.
        Neil Trautwein?
        Mr. Trautwein. We have seen a lot of efforts in the private
    sector, Civil Business Group on Health, for one example. Peter
    Lee from PBGH is now in the administration and is giving us
    some hope that we are going to be able to make some progress on
    it. Employers have been a force for reducing the cost of care,
    particularly from a preventative health care standpoint and a
    lot of the growth in looking at, not only self-professed health
    risks, but also getting into actual monitoring and targeting
    populations. So I think--in answer to your question, I think
    the private sector is overlooked as a source for reducing the
    cost of medical care.
        Chairman Kline. The gentlelady's time has expired.
        Mr. Hinojosa?
        Mr. Hinojosa. Thank you, Chairman Kline. I would ask
    unanimous consent that the statement that I have--a four-page
    opening statement on health care reform's impact on the economy
    be made a part of the record.
        Chairman Kline. Without objection.
        [The statement of Mr. Hinojosa follows:]

    Prepared Statement of Hon. Ruben Hinojosa, a Representative in Congress
                            From the State of Texas

        Chairman Kline and Ranking Member Miller, thank you for convening
    today's hearing on Health Care Reform and its impact on our workforce,
    employers and economy.
        As it stands, some of health care reform's most critical pieces
    have not been implemented. However, the pieces of the law that have
    gone into effect have proved critically important for my constituents.
    Children that are 26 and under can stay on their parent's health
    insurance policy.
        Seniors are receiving rebates as they enter the donut hole and
    struggle to afford to their costly medications on a fixed-income.
        Small businesses that offer health insurance to their employees are
    taking advantage of tax credits that make health insurance affordable
    and provide employers a competitive edge.
        Over a million young adults are now on their parent's health plan.
    In my district there are 66,000 young adults that can now stay on their
    parent's plan as they transition from school to their careers.
        About 11,000 small businesses in my district qualify for tax
    credits to help them pay for the cost of covering their employees
        In the short time these credits have been available there has been
    a 13% increase in small employers offering coverage. Now 59% of small
    businesses are able to provide coverage to their employees
        The CBO has estimated that that health reform will lower the cost
    of a given plan in the small employer market by 1 to 4 % in 2016.
        The American health care system, its attendant inefficiencies, and
    the debilitating effect it had on American competiveness required this
    Congress to act in the 111th Session by enacting law that would expand
    the risk pool, contain costs, especially for small businesses, and make
    coverage more affordable.
        I believe as the law is rolled out, as the administration works
    with businesses to help them understand their obligations and benefits,
    and as we in Congress improve on components of this bill, our economy
    will continue to strengthen, aided by the major provisions of the
    Affordable Care Act.
                                     ______

        Mr. Hinojosa. I would like to go right into the questions
    and ask Dr. Van de Water--in your testimony, you state that
    health reform will increase labor market flexibility because
    the Affordable Care Act could reduce job lock. Many of my
    constituents in the 15th Congressional District that I
    represent in Texas have asked for more affordable health
    insurance and for more economic certainty in situations where
    they lose their employer-based health insurance. Please expand
    on how the Affordable Care Act will reduce job lock and whether
    it will result in a more robust economy.
        Mr. Van de Water. Certainly, Congressman. I think there are
    two simple examples or major cases to cite. First of all, for
    someone who is--looking at someone who is currently working for
    an employer that does offer health insurance, now if he wanted
    to take another job that doesn't offer health insurance, that
    person, he or she, will be able to obtain health insurance as
    an individual through the new health insurance exchanges with
    guaranteed issue that the person won't be able to be turned
    down because of his or her health condition.
        And the person will also pay rates that are not higher,
    depending upon his health status. So that will enable a person
    to change jobs.
        Similarly, if a person would--for example, someone age 63
    who might have liked to retire from the workforce, but isn't
    yet eligible for Medicare. That person might be able to stop
    working or to cut back his or her hours and, again, take a job
    that didn't offer insurance and obtain it through the health
    insurance exchange. So it would give a person a lot more
    flexibility.
        Another key example is a person who want to go off and set
    up his or her own business as a self-employed individual. That
    person could also now get a health insurance when under current
    arrangements, it might be unavailable and unaffordable.
        Mr. Hinojosa. I would like to now ask Mr. Neil Trautwein.
    The National Retail Federation recognizes that increasing
    access to health insurance will spread risks and reduce costs.
    Part of NRF's vision for health care reform recommends that
    Congress consider requiring individuals to obtain insurance,
    but not to require the employers. The Affordable Care Act
    implemented both employer and individual responsibility
    provisions that built upon our existing employer-based health
    insurance system in attempts to fairly balance responsibility
    among the individuals and the employers.
        Given that the employer mandate exempts small businesses
    and, according to CBO, applies to only--to 4 percent of
    employers nationwide, those with 50 or more full-time
    employees--question: Do you still propose to exempt all
    businesses and increase the burden even more on the
    individuals?
        Mr. Trautwein. The National Retail Federation does not
    support at present an individual mandate. We encouraged
    consideration of one to deal with the problem of risk selection
    at that time. We also proposed building from the existing base
    of employer-based coverage, not by mandating it, but by making
    it easier for employers to continue to provide this.
        The problem with the particular architecture of the
    Affordable Care Act is that there are substantial incentives to
    pay the lesser penalty amount rather than pay for coverage and
    face the possibility of additional penalties for providing
    coverage that exceeds an income threshold for some workers, the
    family income threshold. And also, there is a provision in
    there for folks slightly above that level that will let them
    exit the employer plan and take the employer contribution with
    them, the so-called free choice voucher.
        So I think, in our view, the architecture of the Affordable
    Care Act is flawed, and it may undercut the employer-based
    system in a much more substantial way after 2014 than would be
    wise under this--would have otherwise been wise.
        Chairman Kline. Thank you. The gentleman's time has
    expired.
        I want to thank--in fact, we have reached the end of the
    hearing. I want to thank the witnesses for their great
    testimony and for their forthright answers to the questions and
    for your patience as we are shifting back and forth.
        Mr. Miller and I were just talking about one of the
    outgrowths, one of the consequences, if you will, of the new
    plan to protect committee time so we didn't have to get up and
    walk away for votes, is every committee is having hearings at
    the same time. So I thank you very much for your patience.
        I now recognize Mr. Miller for any comments he would like
    to make.
        Mr. Miller. I thank the gentleman. Again, Mr. Chairman,
    thank you for having this hearing. I think this is a good
    airing of a lot of the subjects and concerns that have been
    raised.
        And I want to thank the witnesses for participating and the
    members. I would like to introduce into the record a paper from
    the Main Street Alliance and also from the Small Business
    Majority. Both of these items have been given to the majority
    prior to my request.
        Chairman Kline. Absolutely. Without objection.
        [Additional submissions of Mr. Miller follow:]

            Prepared Statement of J. Kelly Conklin and David Borris,
                     on Behalf of the Main Street Alliance

        Chairman Kline and Members of the Committee: We appreciate this
    opportunity to provide written testimony on behalf of the business
    owners in the Main Street Alliance network for the February 9 hearing
    on the health care law's impact on the economy, employers, and the
    workforce.
        The Main Street Alliance is a national network of small businesses
    dedicated to ensuring that small business owners have the opportunity
    to speak for ourselves on issues that impact our businesses, our
    employees, and our local economies. In 2009, we both had the
    opportunity to testify before congressional committees on the topic of
    health care, sharing our personal stories and speaking about the
    urgency of reforming health care to make it work for small businesses.
        The February 9 hearing was called to explore the impact of the new
    health care law on the economy, employers, and the workforce. From our
    perspective as small business owners, this impact is clear and
    positive: from the new small business tax credits to new protections
    like rate review and a value for premiums requirement, the health law
    is already throwing a lifeline to small businesses and creating
    opportunities for businesses to offer health coverage, save money on
    premiums, and plow those savings back into business investment and job
    creation.
        While some may raise concerns about the employer responsibility
    requirement for businesses with more than 50 workers, the fact remains
    that over 95 percent of our nation's businesses have less than 50
    workers (and so would not be subject to this requirement), and 95
    percent of businesses with more than 50 workers already offer health
    coverage. Indeed, this provision only reinforces what the vast majority
    of larger employers already do, and ensures that responsible employers
    who offer good-paying jobs with health benefits aren't undercut by
    competitors who shun these responsibilities.
        A much bigger issue--indeed, a true threat to small businesses and
    our ability to create jobs--is runaway health insurance costs. For
    example, in early 2010 (before the health care law was passed), one of
    us received a letter from our insurer offering to renew our current
    coverage at an increase of 124 percent. The escalation of health
    insurance rate increases is simply not sustainable for small
    businesses. Thankfully, the health care law includes a series of
    provisions that will begin to rein in these increases and cut costs for
    small businesses like ours. These provisions include:

    Small Employer Health Premium Tax Credits
        Business owners in our network from Portland, Maine to Portland,
    Oregon are already benefiting from the new tax credits effective for
    tax year 2010. Jim Houser, owner of Hawthorne Auto Clinic in Portland,
    Oregon with 15 employees, expects to receive a credit of between $5,000
    and $10,000 on his health insurance bill. That's serious savings for a
    small business. Jim has described the tax credit as a ``time machine,''
    turning the clock back on his insurance rates.

    Premium Rate Review
        After years of enduring double-digit rate increases with no
    recourse, small businesses like ours are encouraged that our states
    have new tools and new resources to review insurance rates and require
    insurers to provide justification for unreasonable rate increases. This
    is one of the most direct ways to protect small businesses and help us
    do our part to create jobs and grow the economy. There is a high level
    of market concentration in the health insurance industry and true
    competition--competition based on consumer value rather than
    competition based on cherry-picking risk pools--is largely absent. That
    is why we need robust rate review--to ensure that we're getting a fair
    shake.

    Medical Loss Ratio Requirements
        As small business people, we understand that the most important
    thing about a business is the value you provide to your customers. Yet
    the insurance industry has lost sight of that. The new minimum medical
    loss ratio requirements will restore a focus on providing us with value
    for our premium dollars. And if insurers fail to meet this basic
    standard, insurance customers like us will receive cash rebates
    starting next year--potentially to the tune of hundreds of millions of
    dollars.

    State Insurance Exchanges
        The state insurance exchanges due to come online in 2014 will level
    the playing field for small businesses. By creating a mechanism whereby
    we can band together and shop for coverage in one large pool, the
    exchanges will give us bargaining power, risk pooling, and greater
    choice.
        The repeal of the health law or the undermining of its core
    provisions would cause serious harm to small businesses (see attached
    fact sheet). Certainly, there are improvements that can and must be
    made to the law. For example, the 1099 reporting provisions and the
    paperwork burden they would create demand immediate attention. We were
    heartened that a majority of House members voted to fix this problem
    last summer (HR 5982, 7/30/2010), and we are confident that the current
    Congress will get this problem fixed with appropriate speed. We are
    also confident these types of improvements can be made without
    undermining the core cost containment provisions and other protections
    contained in the Affordable Care Act.
        The year 2010 saw a dramatic uptick in the percentage of small
    businesses offering health coverage: among businesses with 3-199
    employees, the offer rate increased by 9 percentage points; among those
    with 3-9 employees, the offer rate increased 13 points, from 46 percent
    to 59 percent. This is a promising trend, and we need to keep forging
    ahead, not return to the flawed health care system of the past.
        With proper implementation of the health care law, we can truly
    level the playing field for small businesses like ours. The law
    promises to benefit small businesses and the American economy by
    stabilizing our health insurance costs and allowing us to focus on what
    we do best: creating jobs and providing important goods and services to
    communities across America.
                Thank you,
                                       J. Kelly Conklin, Owner,
                          Foley-Waite Associates, Inc., Bloomfield, NJ.
                                           David Borris, Owner,
                                Hel's Kitchen Catering, Northbrook, IL.

                 Bad for the Bottom Line: How Rolling Back the
                Affordable Care Act Would Harm Small Businesses

    Small Businesses are Moving Forward on Health Care
        The percentage of small businesses offering health coverage to
    their employees rose significantly in 2010. For businesses with 3-199
    employees, the health insurance offer rate increased 9 percentage
    points. This increase was driven by an even greater spike among the
    smallest businesses: the offer rate among businesses with 3-9 workers
    rose 13 percentage points, from 46 percent to 59 percent.\1\
    ---------------------------------------------------------------------------
        \1\ Kaiser Family Foundation and Health Research & Educational
    Trust, ``Employer Health Benefits: 2010 Annual Survey,'' September
    2010, p. 38, http://ehbs.kff.org/pdf/2010/8085.pdf.
    ---------------------------------------------------------------------------
    Repeal of the Affordable Care Act Would Harm America's Small Businesses
        Attempts to cast repeal of the Affordable Care Act (ACA) as ``good
    for small businesses'' obscure what repeal would actually do. Here are
    the facts:
        Repeal would raise taxes for small businesses that qualify for the
    new premium tax credits.
         Starting for tax year 2010, small businesses may be
    eligible for health premium tax credits valued at $38 billion over a
    ten year period.\2\ As many as 4 million businesses may qualify for a
    credit, and about 1.2 million businesses could qualify for the maximum
    credit of 35 percent of their insurance contributions (increasing to 50
    percent in 2014).\3\
    ---------------------------------------------------------------------------
        \2\ Congressional Budget Office letter to Senate Majority Leader
    Harry Reid, December 19, 2009, p. 6, http://www.cbo.gov/ftpdocs/108xx/
    doc10868/12-19-Reid--Letter--Managers--Correction--Noted.pdf.
        \3\ Families USA and Small Business Majority, ``A Helping Hand for
    Small Businesses: Small Business Tax Credits,'' July 2010, pp. 3-4,
    http://www.familiesusa.org/assets/pdfs/health-reform/Helping-Small-
    Businesses.pdf.
    ---------------------------------------------------------------------------
         Up to 16.6 million people are employees of small
    businesses that will be eligible for the credit between 2010-2013.\4\
    ---------------------------------------------------------------------------
        \4\ S. R. Collins, K. Davis, J. L. Nicholson, and K. Stremikis,
    ``Realizing Health Reform's Potential: Small Businesses and the
    Affordable Care Act of 2010,'' The Commonwealth Fund, September 2010,
    p. 7 [hereinafter Collins].
    ---------------------------------------------------------------------------
        Repeal would leave small businesses vulnerable to continuing price
    gouging by insurers.
         The ACA gives states new tools and resources to require
    insurers to justify their rate increases.
         Without robust rate review, insurers will continue to
    raise rates at their whim. The most recent example: Blue Shield of
    California, which recently announced combined rate hikes of up to 59
    percent, and then thumbed its nose at the state's insurance
    commissioner when he attempted to delay the hikes.\5\
    ---------------------------------------------------------------------------
        \5\ Bobby Caina Calvan, ``Blue Shield stands by California health
    care premium hikes,'' Sacramento Bee, January 15, 2011, http://
    www.sacbee.com/2011/01/15/3325248/blue-shield-stands-by-
    california.html.
    ---------------------------------------------------------------------------
        Repeal would eliminate the guarantee of a basic standard of value
    for premium dollars.
         Under the ACA, if insurers fail to meet new minimum
    medical loss ratios (MLR), they'll owe a rebate to customers.
         Projections for the small group market give a mid range
    estimate of $226 million in rebates, or about $312 per person receiving
    a rebate, for 2011. Individual market estimates add another $521
    million.\6\
    ---------------------------------------------------------------------------
        \6\ Federal Register / Vol. 75, No. 230 / Wednesday, December 1,
    2010 / Rules and Regulations, pp. 74907-74908, http://
    edocket.access.gpo.gov/2010/pdf/2010-29596.pdf.
    ---------------------------------------------------------------------------
        Repeal would gut consumer protections for small business owners,
    employees, and their families.
         The ACA puts in place important consumer protections: for
    example, a ban on pre-existing condition exclusions, new limits on
    insurance caps, and the ability to keep children covered up to age 26.
    These protections directly benefit health insurance customers in the
    small group and individual markets where small businesses get coverage.
        Repeal would renege on the promise of choice, bargaining power, and
    risk pooling in insurance exchanges.
         Starting in 2014, small businesses with up to 50 employees
    (100 in some states) and self-employed people will be able to band
    together to shop for coverage in state insurance exchanges, gaining
    bargaining power and leveling the playing field with insurers. An
    estimated 29 million people will get coverage through the exchanges by
    2019 (5 million in small businesses that buy in as a group, and 24
    million more buying in on their own).\7\
    ---------------------------------------------------------------------------
        \7\ Congressional Budget Office letter to House Speaker Nancy
    Pelosi, March 20, 2010, p. 9, http://www.cbo.gov/ftpdocs/113xx/
    doc11379/AmendReconProp.pdf.
    ---------------------------------------------------------------------------
        Repeal would be bad for our national bottom line.
         The Congressional Budget Office estimated the repeal bill
    would add $230 billion to the federal deficit over 10 years, and much
    more over the following decade.
        The final word on health care repeal: It's bad business for small
    business.
                                     ______

             Prepared Statement of John Arensmeyer, Founder & CEO,
                            Small Business Majority

        This testimony is submitted in support of the small business
    perspective on the Patient Protection and Affordable Care Act and its
    impact on America's 28 million small businesses and the economy as a
    whole.
        Small Business Majority is a nonprofit, nonpartisan small business
    advocacy organization founded and run by small business owners and
    focused on solving the biggest problems facing small businesses today.
    We represent the 28 million Americans who are self-employed or own
    businesses of up to 100 employees. Our organization uses scientific
    opinion and economic research to understand and represent the interests
    of small businesses.
        We are testifying in support of the Affordable Care Act, which will
    help reduce the cost of insurance and medical care while making
    coverage affordable, fair and accessible. Our research shows that
    reforming our broken healthcare system has been and still is one of
    small business owners' top concerns, and that the majority of small
    employers believe reform is needed to fix the U.S. economy. It also
    shows that small businesses support key provisions in the law,
    specifically ones that help them better afford insurance, such as tax
    credits and insurance exchanges, and those that contain costs.
    Controlling skyrocketing costs is essential to ensuring small
    businesses' ability to obtain high-quality, affordable healthcare for
    themselves, their families and their employees. Our research also shows
    that absent reform, these costs would continue to escalate, undermining
    small businesses' success and our economic recovery. The new law goes a
    long way toward fixing our broken system and stemming these spiraling
    costs, while helping to create jobs and stimulate the economy.
        Our research, which is discussed in more detail below, shows the
    impact this legislation will have on small businesses and reveals that
    small businesses support many provisions in the law, especially those
    that benefit them immediately, such as the small business tax credits.
    In July 2010, Small Business Majority partnered with Families USA to
    determine the number of small businesses eligible for a tax credit on
    their 2010 tax returns, one of the key provisions of the Affordable
    Care Act.
         We found that more than 4 million small businesses would
    be eligible to receive a tax credit for the purchase of employee health
    insurance in 2010.\1\
        We also recently commissioned a national survey of 619 small
    business owners to determine their views on the tax credits and
    insurance exchanges, another crucial provision of the Affordable Care
    Act for small businesses. The survey, which was released on Jan. 4,
    2011, found that:
         Both the tax credits and the exchanges, once they take
    effect, make small business owners more likely to provide healthcare
    coverage to their employees;
         One-third of employers who don't offer insurance said they
    would be more likely to do so because of both the small business tax
    credits and the insurance exchanges;
         31% of respondents who currently offer insurance said the
    tax credits and the exchanges will make them more likely to continue
    providing coverage.\2\
        However, the poll also found that the vast majority of small
    business owners don't know the tax credits or exchanges exist to help
    them afford coverage.
        As Congress considers measures to repeal the Affordable Care Act,
    it's important to understand the consequences this would have on small
    businesses and our fragile economy.
         Repealing the law would mean small businesses would lose
    $4 billion per year in healthcare tax credits and many small business
    protections, including a ban on denying coverage for preexisting
    conditions. This provision will provide much-needed help to many
    Americans, including the legions of self-employed individuals--many who
    currently can't get coverage because of this reason;
         Repeal would rob small businesses of their ability to pool
    their buying power through state insurance exchanges, and the various
    cost controls the ACA puts in place would also be lost;
         Repeal would mean an end to the tough enforcement measures
    in the law, which are saving billions in Medicare waste, fraud and
    abuse. This would result in higher taxes for employers and employees to
    fund Medicare, and higher taxes mean fewer jobs.
        These are just some of the disastrous consequences repeal of the
    Affordable Care Act would have on small businesses--consequences that
    are too severe on our nation's primary job creators. Small businesses
    create 70% of new jobs in our country. Spending less on health
    insurance will help them generate larger profits, which will help speed
    our journey down the road to economic recovery.
        My testimony highlights the issues of greatest importance to small
    businesses in the Affordable Care Act. It explains what we have learned
    from our scientific research about both the opinions of small employers
    and the economic impact of reform on small businesses, including the
    consequences repealing the Act would have on them and the economy
    overall. The key issues are:
         Why healthcare costs are killing small businesses and
    sapping our economic vitality;
         How the ACA is already helping small businesses afford
    insurance and provide their employees with coverage;
         Small businesses' No. 1 priority: Controlling the
    skyrocketing cost of health insurance and how the ACA tackles this
    problem;
         What the price of repeal is for small businesses and the
    economy;
         Why sharing the responsibility will strengthen our small
    businesses, their employees and the economy.

    Healthcare Costs are Killing Small Business and Sapping Our Economic
            Vitality
        National surveys of small business owners consistently show that
    the cost of health insurance is their biggest overall problem. In fact,
    the crushing costs of healthcare outranked fuel and energy costs and
    the weak economy for 78% of small business people polled by the Robert
    Wood Johnson Foundation in 2008.\3\
        Small businesses are at a disadvantage in the marketplace largely
    because our small numbers make rates higher. According to research
    supported by the Commonwealth Fund, on average we pay 18% more than big
    businesses for coverage.\4\ Small businesses, including the self-
    employed, need a level playing field to succeed and continue as the job
    generators for the U.S. economy.
        We hear stories every day from small business owners who can't get
    coverage because they've been sick in the past or the health plans they
    are offered are outrageously priced. Louise Hardaway, a would-be
    entrepreneur in the pharmaceutical products industry in Nashville, had
    to give up on starting her own business after just a few months because
    she couldn't get decent coverage--one company quoted her a $13,000
    monthly premium.
        Many other businesses maintain coverage for employees, but the cost
    is taking a bigger and bigger chunk out of their operating budgets.
    It's common to hear about double-digit premium increases each year,
    eating into profits and sometimes forcing staff reductions. Small
    business owner Walt Rowen, owner of Susquehanna Glass Co. in Columbia,
    PA, was quoted a 160% premium increase from his carrier last year,
    forcing him to find a new plan. These rising bills frequently force
    business owners to hack away at the insurance benefit to the point
    where it's little more than catastrophic coverage. That leaves
    employees with huge out-of-pocket expenses or a share of the premium
    they can't afford, forcing them to drop coverage. That concerns Larry
    Pierson, owner of a mail-order bakery in Santa Cruz, California, who
    says ``the tremendous downside to being uninsured can be instant
    poverty and bankruptcy, and that's not something my employees
    deserve.''
        Small business owners want to offer health coverage, and our
    surveys show that most of them feel they have a responsibility to do
    so. Small Business Majority conducted surveys of small business owners
    in 17 states between December 2008 and August 2009.\5\ Our key findings
    included:
         An average of 67% of respondents said reforming healthcare
    was urgently needed to fix the U.S. economy;
         An average of 86% of small business owners who don't offer
    health coverage to their employees said they can't afford to provide
    it, and an average of 72% of those who do offer it said they are
    struggling to afford it.
        It should be noted that respondents to these surveys included an
    average of 15% more Republicans (39%) than Democrats (24%), while 27%
    identified as independent.
        The exorbitant cost of insurance means that many small businesses
    are forced to drop coverage altogether. According to the Kaiser Family
    Foundation, 54% of businesses with fewer than 10 employees don't offer
    insurance.\6\
        This makes small business employees a significant portion of the
    uninsured population. Of the 45 million Americans without health
    insurance in 2007, nearly 23 million were small business owners,
    employees or their dependents, according to Employee Benefit Research
    Institute estimates.\7\ And nearly one-third of the uninsured--13
    million people--are employees of firms with less than 100 workers.\8\
        With staffs of 5, 10 or even 20 people, small businesses are tight-
    knit organizations. Owners know their employees well and depend on each
    employee for their businesses' success. They don't want to see their
    valuable employees wiped out financially by a health problem, or ignore
    illnesses because they can't afford to go to the doctor.
        The Affordable Care Act addresses all these issues and more.
    Without reform, we will impede our overall economic growth. Small
    businesses with fewer than 100 employees employ 42% of American
    workers.\9\ Traditionally, small businesses lead the way out of
    recessions. Continuing to address the healthcare crisis by implementing
    the Affordable Care Act is essential to our vitality as a nation. A
    repeal of this landmark legislation would send our primary job creators
    back into in a broken system that threatens their competitiveness,
    discourages entrepreneurism and jeopardizes our economic recovery.

    The Affordable Care Act Is Already Helping Small Businesses Afford
            Insurance and Provide Their Employees with Coverage
        Our research shows that small business owners are more likely to
    provide insurance to their employees because of the tax credits and
    exchanges provided through the new healthcare law. As I mentioned in my
    introduction, our most recent research includes a national survey of
    619 small business owners that was conducted from November 17-22,
    2010.\10\ We wanted to gauge how entrepreneurs view two critical
    components of the Affordable Care Act: the small business tax credits--
    a provision allowing businesses with fewer than 25 employees that have
    average annual wages under $50,000 to get a tax credit of up to 35% of
    their health insurance costs beginning in tax year 2010--and health
    insurance exchanges--online marketplaces where small businesses and
    individuals can band together to purchase insurance starting in 2014.
    The survey's key findings include:
         One-third (33%) of employers who don't offer health
    insurance said they would be more likely to do so because of the small
    business tax credits;
         31% of respondents--including 40% of businesses with 3-9
    employees--who currently offer insurance said the tax credits will make
    them more likely to continue providing insurance;
         One-third (33%) of respondents who currently do not offer
    insurance said the exchange would make them more likely to do so;
         The same is true for those who already offer insurance,
    with 31% responding that the exchange would make them more likely to do
    so;
         However, most respondents are not familiar with the
    exchange or the tax credits; only 31% of respondents are familiar with
    the exchange and 43% are familiar with the tax credits.
        We believe that once the public, and small business owners in
    particular, become more familiar with the new law, they will understand
    the financial benefits and cost savings it provides. In fact, a Kaiser
    Family Foundation study conducted in January 2010 found that although
    the public was divided overall about reform, they became more
    supportive when told about key provisions. After hearing that tax
    credits would be available to help small businesses provide coverage to
    employees, 73% said it made them more supportive, and 63% felt that way
    after learning that people could no longer be denied coverage because
    of preexisting conditions.\11\
        The huge number of small businesses eligible for a credit on their
    2010 tax returns shows how wide-ranging the benefits of the ACA are:
    Small Business Majority and Families USA's study on the number of small
    businesses eligible for a tax credit on their 2010 tax returns shows
    that more than 4 million small businesses are eligible.\12\ That
    equates to 83.7% of all small businesses in the country. Perhaps even
    more encouraging is that more than 90% of small businesses in 11 states
    are eligible to receive the tax credits, with nearly 1.2 million small
    businesses nationally eligible to receive the maximum credit.
        A recent RAND Health study also examined the impact of the
    Affordable Care Act on health insurance coverage for workers at small
    companies. It found that once the new law takes full effect, the
    percentage of employers that offer insurance will increase from 57% to
    80% for firms with fewer than 50 employees, and from 90% to 98% for
    firms with 51 to 100 employees.\13\ Additionally, a study released Jan.
    24, 2011 by the Urban Institute (funded by the Robert Wood Johnson
    Foundation) also shows the positive benefits of the ACA on America's
    employers. The study debunks claims that the ACA would erode employer-
    sponsored coverage by providing incentives for employers to stop
    offering coverage, or that businesses would face increased costs as a
    result of reform. To the contrary, the study found that overall
    employer-sponsored coverage under the ACA would not differ
    significantly from what coverage would be without reform, but that in
    fact employer-sponsored insurance premiums will fall noticeably, by
    nearly 8%, and total spending on healthcare by small businesses will
    also decrease by nearly 9% because of healthcare exchanges and other
    provisions of the new law.\14\
        Analysis after analysis shows that the new healthcare law holds
    significant promise toward empowering small businesses to provide their
    employees with health insurance, and to be able to do so without
    breaking the bank. Instead of repealing the small business health care
    tax credit, Congress should be examining how to expand it in order to
    provide more support to small business.

    Small Businesses' No. 1 Priority: Controlling the Skyrocketing Cost of
            Health Insurance, and How the Affordable Care Act Tackles this
            Problem
        Small business owners are deeply concerned about the exponentially
    rising cost of health insurance. As Harvard University economics
    professor David M. Cutler notes, while family health insurance premiums
    have increased 80% in the past decade after adjusting for inflation,
    median income has fallen by 5%.\15\ When people have less disposable
    income to spend at local small businesses, small business owners feel
    the squeeze.
        We know from our opinion surveys that small business owners want
    reform to lower these skyrocketing costs and believe it will be good
    for the economy overall.\16\ The Affordable Care Act includes many
    provisions to contain costs. These measures will be felt throughout the
    entire healthcare system, lowering premium costs to small business
    owners and consumers alike. The Congressional Budget Office estimates
    the new law will lower federal deficits by more than $143 billion over
    the next 10 years, and by more than $1 trillion in the following
    decade. While there is still more that can be done to contain costs
    within the system, the new law is a great start. It moves our
    healthcare system toward greater financial stability and provides
    improved access to affordable, quality care for small business owners
    and their employees.
        Along with small business tax credits and insurance exchanges, the
    ACA controls costs by reining in administrative costs for small
    businesses. As previously noted, small businesses pay 18% more on
    average than large businesses for comparable health policies. This is
    largely due to high administrative costs, which can be up to 30% of
    premiums. The law includes administrative simplification programs,
    helping to put the country on a path to lower-cost, standardized
    administrative transactions, processes and forms. Additionally, it
    establishes insurer efficiency standards that require 80% of premium
    dollars be spent on care, not administrative overhead and executive
    compensation, for small group and individual plans. For large groups
    plans, the standard will be 85%. All of these measures will lower the
    time doctors have to spend on paperwork.
        The ACA also includes numerous reforms in Medicare that will reward
    value of care, not the volume of care. It requires the Department of
    Health and Human Services (HHS) to adopt value-based purchasing and
    payment methods for Medicare reimbursements for both physicians and
    hospitals, and move away from the fee-for-service system that is so
    costly and inefficient. What's more, cost containment measures made to
    Medicare will have a ripple effect to other areas of the system,
    further reducing costs. Harvard professor David Cutler points out the
    steps the Affordable Care Act takes to cut these costs:
         Payment innovations including greater reimbursement for
    preventive care services and patient-centered primary care; bundled
    payments for hospital, physician, and other services provided for a
    single episode of care; shared savings approaches or capitation
    payments that reward accountable provider groups that assume
    responsibility for the continuum of a patient's care; and pay-for-
    performance incentives for Medicare providers;
         An Independent Payment Advisory Board with the authority
    to make recommendations that reduce cost growth and improve quality in
    both the Medicare program and the health system as a whole;
         A new Innovation Center within the Centers for Medicare
    and Medicaid Services, or CMS, charged with streamlining the testing of
    demonstration and pilot projects in Medicare and rapidly expanding
    successful models across the program;
         Profiling medical care providers on the basis of cost and
    quality and making that data available to consumers and insurance
    plans, and providing relatively low-quality, high-cost providers with
    financial incentives to improve their care;
         Increased funding for comparative effectiveness research;
         Increased emphasis on wellness and prevention.\17\
        Rather than focusing on repeal, lawmakers should focus on improving
    healthcare reform, especially when it comes to cost containment. While
    the new law is a good start toward fixing our system and strengthening
    our economy, we should be bolstering it even more by including
    additional cost containment provisions. This will bring health
    inflation down and help businesses create more jobs.

    The Price of Repeal for Small Businesses and the Economy
        The shock of repeal would reverberate throughout the U.S. economy.
    The nonpartisan Congressional Budget Office (CBO) projects repeal would
    add $230 billion over the next 10 years to the federal budget deficit,
    and more than $1 trillion in the decade to follow. The national debt is
    already at its limit, and expanding the deficit would only cause
    additional lack of confidence in our nation's ability to recover from
    the recession.
        When you examine what repeal would mean financially for America's
    28 million small businesses, the picture is even bleaker. In June 2009,
    Small Business Majority commissioned noted economist and Massachusetts
    Institute of Technology professor Jonathan Gruber to apply his
    healthcare economics microsimulation model to the small business
    sector. He focused on businesses with 100 or fewer employees.\18\ Our
    research showed that without reform:
         Small businesses would pay nearly $2.4 trillion over the
    next 10 years in healthcare costs for their workers;
         A staggering 178,000 small business jobs, $834 billion in
    small business wages, and $52.1 in profits would be lost due to these
    healthcare costs;
         Nearly 1.6 million small business workers would continue
    to suffer from ``job lock,'' where they are locked in their jobs
    because they can't find a job with comparable benefits. This represents
    nearly one in 16 people currently insured by their employers.
        In a recent article he wrote for the Center for American Progress,
    Gruber again addressed the issue of job lock.\19\ He noted that ``such
    a system significantly distorts our labor markets by forcing
    individuals to stay in jobs that offer health insurance rather than to
    move to newer and more productive positions where coverage is not
    available. Millions of U.S. workers are not moving to better jobs or
    starting new businesses because there is nowhere to turn for insurance
    coverage should they leave their jobs.''
        The Affordable Care Act remedies this problem and levels the
    playing field to support entrepreneurs willing to take a risk and start
    a new enterprise. Insurance reforms provided in the new law protect
    these entrepreneurs, and the insurance exchanges established by the law
    allow the self-employed and small businesses to pool together for lower
    premium rates.
        The Center for American Progress has also weighed in on what small
    businesses would lose if the Affordable Care Act were repealed. The
    percentage of small businesses offering coverage has decreased from 68%
    in 2000 to 59% in 2007; repeal would ensure that this downward spiral
    would continue. Since 40% of small employers spend more than 10% of
    their payroll on healthcare costs, repeal would cause those already
    providing insurance to do so at the expense of increased wages. This
    would result in less profits, business investment and job creation.
    Additionally, repeal would mean small businesses would continue to pay
    on average 18% more for health insurance than large firms. And they
    won't get the financial relief tax credits and insurance exchanges will
    provide.\20\
        Healthcare reform will also reduce the ``hidden tax'' associated
    with health insurance. Repeal would keep this tax in place. The
    uninsured often delay treating their health problems until they become
    severe, and public and charity programs pick up a share. However, a
    portion remains unpaid. To cover the cost of this uncompensated care,
    health providers charge higher rates when the insured receive care, and
    these increases get shifted to consumers and small businesses in the
    form of higher premiums. This creates a ``hidden health tax'' that
    inflates the cost of premiums.\21\
        Instead of helping us move forward, a repeal of the healthcare law
    would send us back to the status quo and ensure that small businesses
    will be unable to play their historical role as the country's primary
    job creators. In fact, Harvard professor David Cutler projects repeal
    would destroy 250,000 to 400,000 jobs annually over the next decade,
    increase medical spending by $125 billion by the end of this decade and
    add nearly $2,000 annually to family insurance premiums.\22\ His
    summary of what repeal would do to the country is as dismal as it is
    succinct: ``It would hurt family incomes, jobs, and economic growth.''

    Sharing the Responsibility: Strengthening Our Small Businesses, Their
            Employees and the Economy
        The Affordable Care Act requires that all residents purchase
    insurance--a requirement that, while not uniformly popular, is
    necessary in order for reform to be successful. It will ensure a broad
    distribution of health risks in the market and help bring down costs.
    While this requirement has spawned contentious debates, we found that
    many small businesses are willing to help share the responsibility of
    providing insurance if it means lower costs overall and better quality
    insurance. Opinion polling we conducted shows that:
         Small businesses are willing to share the responsibility
    for making health insurance affordable along with insurers, healthcare
    providers, individuals and government, according to an average of 66%
    of respondents. By state, those agreeing with the concept of shared
    responsibility ranged from 59% to 72%.\23\
        We've also found that because so many small businesses are
    bombarded with misinformation, it has made it increasingly difficult
    for them to determine what the law actually requires of them. Most
    small business owners are surprised to learn that they won't be
    required to provide insurance. Businesses with fewer than 50 employees,
    which accounts for 96% of small businesses,\24\ are exempt from all
    requirements in the law. Businesses with 51 employees or more will be
    required to provide insurance, however 96.5% of these businesses
    already cover their workers.\25\
        The provision that all Americans purchase insurance was included in
    the law because businesses and the American people made it clear that
    they wanted to continue an employer-based health insurance system, not
    a government healthcare system, such as Medicare for all or Canadian-
    style healthcare insurance. Because 96% of employers with 51 or more
    employees are providing health insurance as well as paying federal
    taxes, it would not be fair to let 4% of employers have a free ride at
    the expense of the 96% of employers currently offering insurance, and
    at the same time have their employees covered by taxpayer funds to
    provide health insurance. Additionally, without the free-rider
    provision large employers would have an incentive to stop providing
    health insurance and let taxpayers provide coverage for their
    employees.
        Small businesses today offer health benefits to attract and retain
    good employees and to be competitive with large businesses. This will
    continue under reform, except that now these small businesses will have
    the benefit of buying health insurance through the state insurance
    exchange--creating market leverage like that of big companies, while
    driving down and stabilizing costs for their employees.

    Conclusion
        Healthcare reform is not an ideological issue; it's an economic
    one. Small business owners know this, which is why they overwhelmingly
    support reforming our broken system and containing the skyrocketing
    cost of insurance.
        Without healthcare reform, small businesses will once again be
    mired in a system that drains their coffers and stunts their growth--
    disabling them from playing their vitally important role as the
    nation's jobs creators. Harvard professor David Cutler is right when he
    concludes that repeal is ``bad economic policy. The effort to repeal
    health reform will make our current problems worse.'' \26\ We hope
    Congress will spend its time focusing on ways to make implementation of
    the Affordable Care Act as smooth as possible, and instead of trying to
    dismantle it, fix the parts that need improvement. Our small businesses
    and our economic recovery depend on it.

                                    ENDNOTES

        \1\ Families USA and Small Business Majority, A Helping Hand for
    Small Businesses: Health Insurance Tax Credits, July, 2010, http://
    smallbusinessmajority.org/small-business-research/tax-credit-study.php.
        \2\ Small Business Majority, Opinion Survey: Small Business Owners'
    Views on Key Provisions of the Patient Protection and Affordable Care
    Act, Jan. 4, 2011, http://smallbusinessmajority.org/small-business-
    research/small-business-healthcare-survey.php.
        \3\ Robert Wood Johnson Foundation, Study shows small business
    owners support health reform, 2008, http://www.rwjf.org/coverage/
    product.jsp?id=36558.
        \4\ J Gabel et al, Generosity and Adjusted Premiums in Job-Based
    Insurance: Hawaii is Up, Wyoming is Down, Health Affairs, May/June
    2006, http://content.healthaffairs.org/content/25/3/832.full.
        \5\ Small Business Majority, State Surveys Highlight Small Business
    Support for Healthcare Reform, August 2009, http://
    www.smallbusinessmajority.org/small-business-research/opinion-
    research.php.
        \6\ Kaiser Family Foundation/HRET, Employer Health Benefits Annual
    Survey, 2008, http://ehbs.kff.org/2008.html.
        \7\ Employee Benefit Research Institute, Sources of Health
    Insurance and Characteristics of the Uninsured: Analysis of the March
    2008 Current Population, http://www.ebri.org/publications/ib/
    index.cfm?fa=ibDisp&content--id=3975.
        \8\ Center for American Progress, What Will Happen to Small
    Business if Health Care Is Repealed, July 23, 2010, http://
    www.americanprogress.org/issues/2010/07/small--biz--reform.html.
        \9\ U.S. Bureau of Census, 2006 County Business Patterns
        \10\ Small Business Majority, Opinion Survey: Small Business
    Owners' Views on Key Provisions of the Patient Protection and
    Affordable Care Act, Jan. 4, 2011, http://smallbusinessmajority.org/
    small-business-research/small-business-healthcare-survey.php..
        \11\ Kaiser Family Foundation, Americans Are Divided About Health
    Reform Proposals Overall, But the Public, Including Critics, Becomes
    More Supportive When Told About Key Provisions, Jan. 22, 2010, http://
    www.kff.org/kaiserpolls/kaiserpolls012210nr.cfm.
        \12\ Families USA and Small Business Majority, A Helping Hand for
    Small Businesses: Health Insurance Tax Credits, July, 2010, http://
    smallbusinessmajority.org/small-business-research/tax-credit-study.php.
        \13\ RAND Corporation, ``How Will the Affordable Care Act Affect
    Employee Health Coverage at Small Businesses?'' 2010, http://
    www.rand.org/pubs/research--briefs/RB9557/index1.html.
        \14\ Urban Institute, ``Employer-Sponsored Insurance Under Health
    Reform: Reports of Its Demise Are Premature,'' Jan. 24, 2010, http://
    www.rwjf.org/coverage/product.jsp?id=71749&cid=XEM--749842.
        \15\ D Cutler, Repealing Health Care Is a Job Killer, Center for
    American Progress, 2010, http://www.americanprogress.org/issues/2011/
    01/jobs--health--repeal.html.
        \16\ Small Business Majority, State Surveys Highlight Small
    Business Support for Healthcare Reform, 2009, http://
    smallbusinessmajority.org/small-business-research/opinion-research.php.
        \17\ David Cutler, Repealing Health Care Is a Job Killer, Center
    For American Progress, Jan. 7, 2011, http://www.americanprogress.org/
    issues/2011/01/jobs--health--repeal.html.
        \18\ Small Business Majority, The Economic Impact of Healthcare
    Reform on Small Businesses, July 2009, http://
    www.smallbusinessmajority.org/small-business-research/economic-
    research.php.
        \19\ J Gruber, Be Careful What You Wish For, Repeal of the
    Affordable Care Act Would Be Harmful to Society and Costly for Our
    Country, American Progress, Jan 2010, http://www.americanprogress.org/
    issues/2011/01/aca--repeal.html.
        \20\ Center for American Progress, What Will Happen to Small
    Business if Health Care is Repealed, 2010, http://
    www.americanprogress.org/issues/2010/07/small--biz--reform.html.
        \21\ Kathleen Stoll and Kim Bailey, Hidden Health Tax: Americans
    Pay a Premium (Washington: Families USA, May 2009).
        \22\ D Cutler, Repealing Health Care is a Job Killer, Center for
    American Progress, 2010. http://www.americanprogress.org/issues/2011/
    01/jobs--health--repeal.html
        \23\ Small Business Majority, State Surveys Highlight Small
    Business Support for Healthcare Reform, August 2009, http://
    smallbusinessmajority.org/small-business-research/opinion-research.php.
        \24\ U.S. Small Business Administration, Office of Advocacy, based
    on data provided by the U.S. Census Bureau, Statistics of U.S.
    Businesses, 2006.
        \25\ Medical Expenditures Panel Survey, Insurance Component, Table
    I.A.2, 2008, available online at http://www.meps.ahrq.gov/mepsweb/
    data--stats/summ--tables/insr/national/series--1/2008/tia2.pdf.
        \26\ D Cutler, Repealing Health Care is a Job Killer, Center for
    American Progress, 2010. http://www.americanprogress.org/issues/2011/
    01/jobs--health--repeal.html
                                     ______

                                                      January 26, 2011.
    Hon. John Kline, Chairman; Hon. George Miller, Ranking Member,
    U.S. House of Representatives, Education and the Workforce Committee,
            Washington, DC 20515.
        Dear Chairman Kline and Representative Miller: Congress this week
    is holding hearings on the economic impact of health care reform. We
    write to convey our strong conclusion that leaving in place the Patient
    Protection and Affordable Care Act of 2010 will significantly
    strengthen our nation's economy over the long haul and promote more
    rapid economic recovery in the immediate years ahead. Repealing the
    Affordable Care Act would cause needless economic harm and would set
    back efforts to create a more disciplined and more effective health
    care system.
        Our conclusion is based on two economic principles. First, high
    medical spending harms our nation's workers, new job creation, and
    overall economic growth. Many studies demonstrate that employers
    respond to rising health insurance costs by reducing wages, hiring
    fewer workers, or some combination of the two. Lack of universal
    coverage impairs job mobility as well because many workers pass up
    opportunities for self-employment or positions working for small firms
    because they fear losing their health insurance or facing higher
    premiums.
        Second, the Affordable Care Act contains essentially every cost-
    containment provision policy analysts have considered effective in
    reducing the rate of medical spending. These provisions include:
         Payment innovations such as greater reimbursement for
    patient-centered primary care; bundled payments for hospital care,
    physician care, and other medical services provided for a single
    episode of care; shared savings approaches or capitation payments that
    reward accountable provider groups that assume responsibility for the
    continuum of a patient's care; and pay-for-performance incentives for
    Medicare providers.
         An Independent Payment Advisory Board with authority to
    make recommendations to reduce cost growth and improve quality within
    both Medicare and the health system as a whole
         A new Innovation Center within the Centers for Medicare
    and Medicaid Services charged with streamlining the testing of
    demonstration and pilot projects in Medicare and rapidly expanding
    successful models across the program
         Measures to inform patients and payers about the quality
    of medical care providers, which provide relatively low-quality, high-
    cost providers financial incentives to improve their care
         Increased funding for comparative effectiveness research
         Increased emphasis on wellness and prevention
        Taken together, these provisions are likely to reduce employer
    spending on health insurance. Estimates suggest spending reductions
    ranging from tens of billions of dollars to hundreds of billions of
    dollars. Because repealing our nation's new health reform law would
    eliminate the above provisions, it would increase business spending on
    health insurance, and hence reduce employment.
        One study concludes that repealing the Affordable Care Act would
    produce job reductions of 250,000 to 400,000 annually over the next
    decade. Worker mobility would be impaired as well, as people remain
    locked into less productive jobs just to get health insurance.
        The budgetary impact of repeal also would be severe. The
    Congressional Budget Office concludes that repealing the Affordable
    Care Act would increase the cumulative federal deficit by $230 billion
    over the next decade, and would further increase the deficit in later
    years. Other studies suggest that the budgetary impact of repeal is
    even greater. State and local governments would face even more serious
    fiscal challenges if the Affordable Care Act were repealed, as they
    would lose substantial resources provided under the new law while
    facing the burdens of caring for 32 million more uninsured people.
    Repeal, in short, would thus make a difficult budget situation even
    worse.
        Rather than undermining health reform, Congress needs to make the
    Affordable Care Act as successful as it can be. This would be as good
    for our economy as it would be for the health of our citizens.
                Sincerely,

    Henry J. Aaron, Senior Fellow, The Brookings Institution
    Jean Marie Abraham, Assistant Professor, University of Minnesota School
            of Public Health
    Randy Albelda, Professor of Economics, University of Massachusetts,
            Boston
    Sylvia A. Allegretto, Economist, University of California, Berkeley
    Stuart Altman, Sol C. Chaikin Professor of National Health Policy,
            Brandeis University
    Elizabeth Oltmans Anant, Assistant Professor of Public Policy and
            Economics, Duke University
    Rania Antonopoulos, Director, Gender Equality and the Economy Program,
            Levy Economics Institute
    Kenneth J. Arrow, Professor of Economics Emeritus, Stanford University
    Michael Ash, Associate Professor of Economics and Public Policy,
            University of Massachusetts, Amherst
    David Autor, Professor and Associate Head, Department of Economics,
            Massachusetts Institute of Technology
    Susan L. Averett, Charles A. Dana Professor of Economics, Lafayette
            College
    Christopher Avery, Roy E. Larsen Professor of Public Policy, Harvard
            University, Kennedy School of Government
    Rojhat B. Avsar, Assistant Professor of Economics, Columbia College
    M.V. Lee Badgett, Professor of Economics, University of Massachusetts,
            Amherst
    El-hadj Bah, Lecturer, University of Auckland
    Ron Baiman, Director of Budget and Policy Analysis Center for Tax and
            Budget Accountability
    Asatar Bair, Professor of Economics, City College of San Francisco
    Dean Baker, Co-Director Center for Economic and Policy Research
    Radhika Balakrishnan, Professor, Women's and Gender Studies, Rutgers,
            The State University of New Jersey
    Nesecan Balkan, Department of Economics, Hamilton College
    Erol Balkan, Professor of Economics, Hamilton College
    Steve Balkin, Professor of Economics, Roosevelt University
    Nina Banks, Associate Professor of Economics, Bucknell University
    William Barclay, Adjunct Professor, University of Illinois at Chicago
    Drucilla K. Barker, Professor and Director, Women's and Gender Studies,
            University of South Carolina
    David Barkin, Profesor de Economia, Universidad Autonoma Metropolitana-
            Xochimilco
    Anirban Basu, Associate Professor, Department of Health Services,
            University of Washington
    Francis M. Bator, Lucius N. Littauer Professor of Political Economy
            Emeritus, Harvard University, Kennedy School of Government
    Charles M. Becker, Associate Chair and Research Professor, Department
            of Economics, Duke University
    Marc F. Bellemare, Assistant Professor, Duke University
    Gunseli Berik, Professor of Economics, University of Utah
    Carole Biewener, Professor of Economics, Simmons College
    Cyrus Bina, Distinguished Research Professor of Economics, University
            of Minnesota
    Christine E. Bishop, Atran Professor of Labor Economics, Brandeis
            University
    Josh Bivens, Economist, Economic Policy Institute
    Heather Boushey, Senior Economist, Center for American Progress
    Roger Even Bove, Department of Economics & Finance (retired), West
            Chester University
    James K. Boyce, Professor of Economics, University of Massachusetts,
            Amherst
    Elissa Braunstein, Associate Professor, Colorado State University
    Clair Brown, Professor of Economics, University of California, Berkeley
    Thomas Buchmueller, Waldo O. Hildebrand Professor of Risk Management
            and Insurance, Ross School of Business, University of Michigan
    Colin Cameron, Professor of Economics, University of California, Davis
    Jim Campen, Professor of Emeritus, Economics University of
            Massachusetts, Boston
    Kathleen Carey, Associate Professor, Boston University School of Public
            Health
    Ann M. Carlos, Professor, Department of Economics, University of
            Colorado
    Frank Chaloupka, Distiguished Professor of Economics and Director,
            Health Policy Center, University of Illinois at Chicago
    Richard Chapman, Professor of Economics, Westminster College
    John Dennis Chasse, Professor Emeritus, State University of New York,
            Brockport
    Howard Chernick, Professor of Economics, Hunter College and the
            Graduate Center, City University of New York
    Raj Chetty, Professor of Economics, Harvard University
    Kimberly Christensen, Joanne Woodward Chair of Public Policy, Sarah
            Lawarence College
    Betsy Jane Clary, Professor of Economics, College of Charleston
    Paul D. Cleary, Dean of Public Health, Yale School of Public Health
    Jonathan Conning, Associate Professor of Economics, Hunter College and
            the Graduate Center, City University of New York
    Karen Smith Conway, Professor of Economics, University of New Hampshire
    Philip J. Cook, ITT/Sanford Professor of Public Policy, Duke University
    Paul Cooney, Associate Professor, Federal University of Para, Brazil
    Richard R. Cornwall, Professor of Economics, Emeritus, Middlebury
            College
    J. Kevin Crocker, Undergraduate Program Director, University of
            Massachusetts, Amherst
    David Cutler, Otto Eckstein Professor of Applied Economics, Harvard
            University
    Rada K. Dagher, Assistant Professor, University of Maryland
    Anita Dancs, Assistant Professor, Department of Economics, Western New
            England College
    Charles Davis, Professor, Labor Studies, Indiana University
    Susan M. Davis, Associate Professor, Department of Economics and
            Finance, Buffalo State College
    Partha Deb, Professor of Economics, Hunter College and the Graduate
            Center, City University of New York
    Gregory E. DeFreitas, Professor of Economics, Hofstra University
    Brad DeLong, Professor of Economics, University of California, Berkeley
    Timothy M. Diette, Assistant Professor of Economics, Washington and Lee
            University
    Marisa Elena Domino, Associate Professor of Health Economics, The
            University of North Carolina
    David E. Dowall, Professor, University of California, Berkeley
    Arindraijit Dube, Assistant Professor, Department of Economics,
            University of Massachusetts, Amherst
    Niev Duffy, President, Eastern Economic Research
    Mark Duggan, Professor of Economics, University of Maryland
    Randall P. Ellis, Professor of Economics, Boston University
    Elizabeth Elmore, Professor of Economics, Richard Stockton College of
            New Jersey
    Christopher L. Erickson, Professor, UCLA Anderson School of Management
    Jose Escarce, Professor of Medicine, David Geffen School of Medicine at
            UCLA
    Loretta Fairchild, Professor of Economics, Nebraska Wesleyan University
    Sasan Fayazmanesh, Professor Emeritus of Economics, California State
            University, Fresno
    Steven Fazzari, Professor of Economics, Washington University
    Judy Feder, Professor of Public Policy, Georgetown University
    Susan Feiner, Professor of Economics, University of Southern Maine
    Deborah M. Figart, Professor of Education and Economics, Richard
            Stockton College of New Jersey
    Kade Finhoff, Assistant Professor of Economics, University of
            Massachusetts, Boston
    Jason Fletcher, Assistant Professor of Public Health, Yale University
    Nancy Folbre, Professor of Economics, University of Massachusetts,
            Amherst
    Austin Frakt, Assistant Professor of Health Policy and Management,
            Boston University School of Public Health
    Jeffrey Frankel, Harpel Professor of Capital Formation and Growth,
            Harvard University
    Gerald Friedman, Professor of Economics, University of Massachusetts,
            Amherst
    Bianca Frogner, Assistant Professor, The George Washington University
    Bill Ganley, Professor of Economics and Finance, Buffalo State College
    Lorenzo Garbo, Professor of Economics, University of Redlands
    Irwin Garfinkel, Mitchell I. Ginsberg Professor of Contemporary Urban
            Problems, Columbia University School of Social Work
    Paul J Gertler, Li Ka Shing Professor of Health Policy and Management,
            University of California, Berkeley
    Mwangi wa Githinji, Assistant Professor of Economics, University of
            Massachusetts, Amherst
    Devra L. Golbe, Professor of Economics, Hunter College and the Graduate
            Center, City University of New York
    Heather Taffet Gold, Associate Professor of Public Health, Weill
            Cornell Medical College
    Claudia Goldin, Henry Lee Professor of Economics, Harvard University
    Don Goldstein, Professor of Economics, Allegheny College
    Jose A. Gomez-Ibanez, Derek C. Bok Professor of Urban Planning and
            Public Policy, Harvard University, Kennedy School of Government
    Joshua Goodman, Assistant Professor of Public Policy, Harvard
            University, Kennedy School of Government
    Neva Goodwin, Co-Director, Global Environment and Environment
            Institute, Tufts University
    Elise Gould, Economist, Economic Policy Institute
    Ulla Grapard, Associate Professor of Economics and Women's Studies,
            Colgate University
    Daphne Greenwood, Professor of Economics and Director, Colorado Center
            for Policy Studies, University of Colorado, Colorado Springs
    Tai Gross, Assistant Professor, Department of Health Policy and
            Management, Mailman School of Public Health, Columbia
            University
    Michael Grossman, Distinguished Professor of Economics, City University
            of New York Graduate Center
    Jonathan Gruber, Professor of Economics, Massachusetts Institute of
            Technology
    Kwabena Gyimah-Brempong, Professor and Chair, Department of Economics,
            University of Souh Florida
    Jack Hadley, Professor and Senior Health Services Researcher, George
            Mason University
    Paul Hancock, Professor of Economics, Green Mountain College
    Jeffrey S. Harman, University of Florida Research Foundation Professor,
            University of Florida
    Oliver Hart, Professor of Economics, Harvard University
    John T. Havey, Professor of Economics, Texas Christian University
    Gillian Hewitson, Department of Political Economy, University of Sydney
    Richard Hirth, Professor of Health Management and Policy, University of
            Michigan School of Public Health
    Vivian Ho, Baker Institute Chair of Health Economics and Professor,
            Rice University
    Joan Hoffman, Professor and Chair, Department of Economics, John Jay
            College of Criminal Justice, City University of New York
    Ann M. Holmes, Associate Professor, Indiana University-Purdue
            University, Indianapolis
    Barbara Hopkins, Associate Professor of Economics, Wright State
            University
    Jill R. Horwitz, Professor of Law, Co-Director, Program on Law and
            Economics, University of Michigan Law School
    Candace Howes, Professor of Economics, Connecticut College
    Hilary Hoynes, Professor of Economics, University of California, Davis
    Dorene Isenberg, Professor and Chair, Department of Economics,
            University of Redlands
    Ken Jacobs, Chair, Labor Center University of California, Berkeley
    Joyce P. Jacobsen, Andrews Professor of Economics, Wesleyan University
    Sanford M. Jacoby, Professor of Management and Public Policy,
            University of California, Los Angeles
    Habib Jam, Associate Professor of Economics, Rowan University
    Russell A. Janis, Senior Lecturer in Economics, University of
            Massachusetts, Amherst
    Arjun Jayadev, Assistant Professor of Economics, University of
            Massachusetts, Boston
    Neil Jordan, Assistant Professor and Director, Health Economics Center,
            Feinberg School of Medicine, Northwestern University
    Ted Joyce, Professor of Economics and Finance, Baruch College, City
            University of New York
    Geoffrey Joyce, Director of Health Policy, Schaeffer Center for Health
            Policy & Economics, University of Southern California
    Kyoungrae Jung, Assistant Professor, Health Policy and Administration,
            Pennsylvania State University
    Daniel Kahneman, Professor of Public Affairs, Emeritus, Princeton
            University
    Rajani Kanth, Professor of Economics (Visiting), Loras College &
            Washington College
    Ethan Kaplan, Visiting Professor of Economics, Columbia University
    Lawrence Katz, Allison Professor of Economics, Harvard University
    Donald Katzner, Professor of Economics, University of Massachusetts,
            Amherst
    Paula M. Kazi, Assistant Professor, Bucknell University
    Valerie K. Kepner, Assistant Professor of Economics, King's College
    Farida Khan, Professor of Economics, University of Wisconsin-Parkside
    Marlene Kim, Associate Professor, Department of Economics, University
            of Massachusetts, Boston
    Steven J. Klees, Professor of Education and Economic Development,
            University of Maryland
    Andrew I. Kohen, Professor Emeritus of Economics, James Madison
            University
    Brent Kramer, City University of New York
    Brent Kreider, Professor of Economics, Iowa State University
    Jill Kriesky, Economist, West Virginia Center on Budget and Policy
    Karl Kronebusch, Associate Professor, City University of New York
    Alan Krueger, Professor of Economics, Princeton University
    David Laibman, Professor (retired), Deparment of Economics, City
            University of New York
    Melaku Lakew, Professor of Economics, Richard Stockton College of New
            Jersey
    Thomas Lambert, Economics Lecturer, Indiana University Southeast
    Robert Lawrence, Albert L. Williams Professor of Trade and Investment,
            Harvard University, Kennedy School of Government
    Arleen A. Leibowitz, Professor, School of Public Affairs, University of
            California, Los Angeles
    David I. Levine, Trefethen Professor of Business Administration, Haas
            School of Business, University of California, Berkeley
    Frank Levy, Rose Professor of Urban Economics, Massachusetts Institute
            of Technology
    Peter M. Lichtenstein, Emeritus Professor of Economics, Boise State
            University
    Jeffrey B. Liebman, Malcolm Wiener Professor of Public Policy, Harvard
            University, Kennedy School of Government
    Peter H. Lindert, Distinguished Research Professor of Economics,
            University of California, Davis
    Richard C. Lindrooth, Associate Professor, Colorado School of Public
            Health, University of Colorado
    Victor D. Lippit, Professor of Economics, University of California,
            Riverside
    Linda Loubert, Assistant Professor, Economics Department, Morgan State
            University
    Harold S. Luft, University of California, San Francisco
    Catherine Lynde, Associate Professor, Economics, University of
            Massachusetts, Amherst
    Sean P. MacDonald, Assistant Professor of Economics, City University of
            New York
    Diane J. Macunovich, Department of Economics, University of Redlands
    Mark Maier, Professor of Economics, Glendale College
    Ann Markusen, Professor, Humphrey School of Public Affairs, University
            of Minnesota
    Eric S. Maskin, A.O. Hirschman Professor of Social Science, Institute
            for Advanced Study
    Thomas Masterson, Research Scholar, Levy Economics Institute of Bard
            College
    Julie Matthaei, Professor of Economics, Wellesley College
    Peter Hans Matthews, James Jermain Professor of Political Economy,
            Department of Economics, Middlebury College
    Kathleen McAfee, Associate Professor, Political Economy and
            International Relations, San Francisco State University
    Elaine McCrate, Associate Professor, Economic and Women's and Gender
            Studies, University of Vermont
    Thomas G. McGuire, Professor of Health Economics, Harvard Medical
            School
    Ellen Meara, Associate Professor, Darmouth Institute for Health Policy
            and Clinical Practice
    Michael Meeropol, Visiting Professor, Economics, John Jay College of
            Criminal Justice, City University of New York
    Martin Melkonian, Adjunct Associate Professor, Economics, Hofstra
            University
    David Meltzer, Associate Professor, Department of Medicine and
            Associated Faculty Member, Department of Economics, University
            of Chicago
    Peter B. Meyer, Professor Emeritus of Urban Policy and Economics,
            University of Louisville
    Marcelo Milan, Assistant Professor of Economics, University of
            Wisconsin-Parkside
    Lawrence Mishel, President, Economic Policy Institute
    Alan C. Monheit, Professor of Health Economics, School of Public
            Health, University of Medicine and Dentistry of New Jersey
    Taryn Morrissey, Assistant Professor of Public Administration and
            Policy, American University
    Karoline Mortensen, Assistant Professor of Health Services
            Administration, University of Maryland
    Tracy Mott, Associate Professor and Department Chair, Department of
            Economics, University of Denver
    Alicia H. Munnell, Peter F. Drucker Professor, Carroll School of
            Management, Boston College
    Richard J. Murnane, Professor, Harvard University
    Jason Burke Murphy, Department of Philosophy, Elms College
    Ellen Mutari, Professor of Economics, Richard Stockton College of New
            Jersey
    Reynold F. Nesiba, Associate Professor of Economics, Augustana College
    David Neumark, Professor of Economics and Director of Graduate Studies,
            University of California, Irvine
    Len M. Nichols, Director of the Center for Health Policy Research and
            Ethnics, Professor of Health Policy, George Mason University
    Laurie Nisonoff, Professor of Economics, Hampshire College
    Brendan O'Flaherty, Professor of Economics, Columbia University
    Albert A. Okunade, Professor of Health Economics, University of Memphis
    Oladele Omosegbon, Professor of Economics, Indiana Wesleyan University
    Shaianne T. Osterreich, Associate Professor, Economics, Ithaca College
    Zhaochang Peng, Department of Economics, Rollins College
    George Perry, Senior Fellow, The Brookings Institution
    Mark A. Peterson, Professor of Public Policy and Political Science,
            UCLA School of Public Affairs
    Karl Petrick, Assistant Professor of Economics, Western New England
            College
    Kathryn A. Phillips, Professor of Health Economics and Health Services
            Research, University of California, San Francisco
    Steven D. Pizer, Associate Professor, Boston University School of
            Public Health
    Harold Pollack, Helen Ross Professor of Social Service Administration,
            University of Chicago
    Daniel Polsky, Professor of Medicine, University of Pennsylvania
    Paddy Quick, Professor of Economics, St. Francis College
    Matthew Rabin, Professor of Economics, University of California,
            Berkeley
    Sarah Reber, Assistant Professor of Public Policy, University of
            California, Los Angeles
    Jim Rebitzer, Professor of Management, Economics and Public Policy,
            Boston University School of Management
    Michael Reich, Professor of Economics, University of California,
            Berkeley
    Uwe Reinhardt, James Madison Professor of Political Economy, Princeton
            University
    Dahlia Remler, Professor, School of Public Affairs, Baruch College,
            City University of New York
    Alice M. Rivlin, Senior Fellow, The Brookings Institution
    Charles P. Rock, Professor of Economics, Rollins College
    Christina D. Romer, Class of 1957, Professor of Economics, University
            of California, Berkeley
    Samuel Rosenberg, Acting Vice Provost for Faculty and Academic
            Administration, Roosevelt University
    Meredith Rosenthal, Associate Professor of Health Economics, Harvard
            University School of Public Health
    Roy J. Rotheim, Professor of Economics, Skidmore College
    Anne Beeson Royalty, Associate Professor of Economics, Indiana
            University, Purdue University, Indianapolis
    Cristopher J. Ruhm, Professor of Public Policy and Economics,
            University of Virginia
    Emmanuel Saez, E. Morris Cox Professor of Economics, University of
            California, Berkeley
    Harwood D. Schaffer, Research Assistant Professor, University of
            Tennessee
    John Schmitt, Senior Economist, Center for Economic and Policy Research
    Charles L. Schultze, Senior Fellow Emeritus, Economic Studies, The
            Brookings Institution
    Eric A. Schutz, Professor, Economics, Rollins College
    Joseph M. Schwartz, Professor of Political Science, Temple University
    Charles R. Sebuharara, Visiting Assistant Professor of Finance, Pamplin
            College of Business, Virginia Tech
    Eric Seiber, Assistant Professor of Health Services Management and
            Policy, The Ohio State University
    Janet Seiz, Associate Professor of Economics, Grinnell College
    Bisakha Sen, Associate Professor, Department of Healthcare Organization
            and Policy, University of Alabama, Birmingham
    Mark Setterfield, Professor of Economics, Trinity College
    Anwar Shaikh, Professor of Economics, New School for Social Research
    Nina Shapiro, Professor of Economics, Saint Peter's College
    Judith Shinogle, Senior Research Scientist, Maryland Institute for
            Policy Analysis
    Peter Skott, Professor of Economics, University of Massachusetts,
            Amherst
    Timothy Smeeding, Arts and Sciences Distinguished Professor for Public
            Affairs, University of Wisconsin-Madison
    Eugene Smolensky, Professor of the Graduate School, University of
            California, Berkeley
    Bryan Snyder, Department of Economics, Bentley University
    Eswaran Somanathan, Visiting Professor, Princeton University
    Paula H. Song, Assistant Professor, Health Services Management &
            Policy, The Ohio State University
    Neeraj Sood, Associate Professor, Schaeffer Center for Health Policy
            and Economics, University of Southern California
    Janet Spitz, Associate Professor of Business, College of Saint Rose
    James Ronald Stanfield, Emeritus Professor of Economics, Colorado State
            University
    Sally C. Stearns, Professor of Health Economics, University of North
            Carolina at Chapel Hill
    Bruce Stuart, Professor, University of Maryland School of Pharmacy
    Paul Swanson, Professor of Economics, William Paterson University
    Katherine Swartz, Professor of Health Economics and Policy, Harvard
            University School of Public Health
    Donald H. Taylor, Jr., Associate Professor of Public Policy, Duke
            University
    Mark Thoma, Professor of Economics, University of Oregon
    Chris Tilly, Professor and Director of the Institute for Research and
            Employment, University of California, Los Angeles
    Mariano Torras, Professor of Economics, Adelphi University
    Pravin K. Trivedia, J.H. Rudy Professor of Economics, Indiana
            University-Bloomington
    Jennifer Troyer, Associate Professor of Economics, University of North
            Carolina at Charlotte
    Laura Tyson, S.K. and Angela Chan Chair in Global Management, Haas
            School of Business, University of California, Berkeley
    Robert Otto Valdez, Robert Wood Johnson Foundation Professor, Family &
            Community Medicine and Economics, University of New Mexico
    Paul N. Van de Water, Senior Fellow, Center on Budget and Policy
            Priorities
    Courtney Harold Van Houtven, Associate Professor, Duke University
    Lane Vanderslice, Editor, Hunger Notes, worldhunger.org
    Elizabeth Richardson Vigdor, Research Scholar, Duke University
    Anca Voicu, Assistant Professor of Economics, Rollins College
    Mark E. Votruba, Associate Professor of Economics and Medicine, Case
            Western Reserve University
    Geetha Waehrer, Research Scientist, Pacific Institute for Research and
            Evaluation
    Jane Waldfogel, Professor of Social Work and Public Affairs, Columbia
            University
    Kenneth E. Warner, Avedis Donebedian Distinguished University Professor
            of Public Health, University of Michigan
    David Warner, Wilbur Cohen Professor of Public Affairs, LBJ School of
            Public Affairs, University of Texas at Austin
    Mark Weisbrot, Co-Director Center for Economic and Policy Research
    Thomas E. Weisskopf, Professor Emeritus of Economics, University of
            Michigan
    Charles K. Wilber, Emeritus Professor of Economics, University of Notre
            Dame
    Michael Wilson, Instructor, Harvard Medical School
    Cecilia Ann Winters, Associate Professor of Economics, Manhattanville
            College
    Jon D. Wisman, Professor of Economics, American University
    Barbara Wolfe, Professor, Economics and Political Science, University
            of Wisconsin-Madison
    Justin Wolfers, Associate Professor of Business and Public Policy, The
            Wharton School, University of Pennsylvania
    Robert S. Woodward, Professor of Health Economics, University of New
            Hampshire
    Vivian Wu, Assistant Professor, University of Southern California
    David Zalewski, Professor of Finance, Providence College
    Joshua Graff Zivin, Associate Professor of Economics, University of
            California, San Diego
                                     ______

        Chairman Kline. And again, I just want to thank all the
    witnesses for their participation, everybody in the audience, I
    suppose, for joining us today. We are adjourned.
        [Additional submissions of Chairman Kline follow:]

                                    ------

                   [From the National Review, August 5, 2010]

                          Bay State Health-Care Blues

                                 By Paul Howard

        The costly Massachusetts experiment has strangled small businesses.
    Now it is going national.
        It's no secret that the template for President Obama's health-
    reform legislation was the Massachusetts health-care plan enacted in
    2006. And it's likely that many of the problems now cropping up in the
    Bay State will reappear at the national level when key provisions of
    Obamacare go into effect over the next several years. While the legal
    fights over Obamacare are grabbing the headlines--on Tuesday, Missouri
    voters resoundingly rejected the individual mandate--voter approval
    will ultimately swing on the economy, where the new law will be a lead
    weight, particularly for small businesses.
        When it comes to health-care costs, small businesses are the canary
    in the coal mine. Lacking the bargaining power to demand lower rates
    from insurers, small businesses face higher health-insurance costs--and
    thus are much less likely to offer their employees coverage to begin
    with. They are also much more likely to drop coverage when costs rise.
        In Massachusetts, small-business owners ``are giving up out of
    frustration,'' an insurance broker recently told the Boston Globe. More
    and more small businesses ``simply can't afford health insurance any
    more.'' Prices are certainly going up in Massachusetts's small-group
    insurance market. The Retailers Association of Massachusetts reports
    that insurance premiums have risen by about 15 percent annually over
    the last five years.
        Earlier this year, insurance companies asked for large rate
    increases (up to 32 percent) in the small-group and individual-
    insurance markets (which were merged into one market as part of the
    2006 reforms). The state's response has been to strike back at the
    insurers: On April 1, in an unprecedented move, the Massachusetts
    Department of Insurance denied 235 of 274 increases requested by
    insurers.
        Bashing insurers may make for good politics, but it's bad policy.
    In a leaked email, Robert G. Dynan, the official charged with keeping
    insurers solvent, wrote that caps (set at 2009 rates) ``have no
    actuarial support'' and could lead to ``a train wreck'' for the state's
    insurers. Dynan may have a point: The four largest state insurers
    posted first-quarter losses of over $150 million, which they attributed
    to rate restrictions imposed on premiums.
        Defenders argue that Massachusetts was a high-cost state before the
    2006 health-care reforms took effect (which is true), and that those
    reforms have made insurance more affordable for low-income individuals
    even if they haven't kept a lid on overall costs.
        The reforms, however, may also have shifted costs to small
    businesses. A July study by health economists John Cogan, Glenn
    Hubbard, and Daniel Kessler suggests that state reforms may have
    increased premium trends for employer-provided health insurance,
    particularly for individual coverage and for small businesses. The
    authors found that ``health reform in Massachusetts increased single
    coverage employer-sponsored insurance premiums by about 6 percent in
    aggregate and by about 7 percent for firms with fewer than 50
    employees. * * * For small employers, the differential Massachusetts/US
    growth in small group [family] premiums from 2006-2008, over and above
    the growth from 2004-2006, was 14.4 percent.''
        What implications does this have for national health-care reforms
    and the economy?
        For starters, Obamacare makes Massachusetts's expensive, heavily
    regulated insurance market the model for the rest of the country. New
    regulations on insurers--including no caps on annual or lifetime
    coverage and a requirement to cover ``children'' until they are 26--
    will drive up costs for small businesses.
        Obamacare is also worse than its Massachusetts precursor in several
    respects. At least Massachusetts was able to finance its insurance
    expansion largely from existing revenue sources (in fact, about half of
    the initial funding came from the federal government). Congressional
    Democrats, however, don't have a rich uncle they can borrow from. So
    Obamacare includes large new taxes on prescription drugs, health
    insurance, and medical devices. All of these costs will be passed on to
    businesses and their employees in the form of higher premiums.
        Obamacare also imposes penalties on any firm with more than 50
    employees that doesn't offer coverage and has at least one employee
    receiving a premium tax credit to purchase coverage from one of the
    state health-insurance exchanges starting in 2014. The fines would be
    levied as a set fee per employee (excluding the first 30 employees). A
    new study from the American Action Forum, by former Congressional
    Budget Office director Douglas Holtz-Eakin and policy analyst Michael
    Ramlet, explains the implications for job creation:
        Hiring one more worker to raise employment to 51 will trigger a
    penalty of $2,000 per worker multiplied by the [number of workers above
    30]. In this case the fine would be $42,000 [21 workers multiplied by
    $2,000]. How many [firms] will choose not to expand?
        Firms with more than 50 employees--those with, say, 55--could also
    decide to lay off workers or outsource jobs to avoid the penalty.
        To be fair, Holtz-Eakin and Ramlet note that the health-care law
    does include a tax credit for firms that offer employee coverage--but
    the credit can only be claimed by very small firms (those employing
    fewer than 25 workers) with average wages below $50,000. Proprietors
    and their family members are excluded from claiming the credit, even
    though many small firms are family-run. The value of the credit also
    gradually phases out as businesses expand beyond ten employees, or as
    average wages approach $50,000. Given these limitations, the National
    Federation of Independent Businesses estimates that only 35 percent of
    firms with fewer than 25 employees will be able to qualify for the
    credit.
        The Bay State's frustration is likely to spread nationwide in
    coming years, as Obamacare drives costs up and more small businesses
    drop coverage and slow down hiring to avoid potential penalties. One
    small business owner (an IHOP franchisee in New Jersey) anticipates
    that Obamacare's penalties for his 140 workers (up to $220,000) will
    force him to raise prices or possibly lay workers off. ``We are still
    figuring out how to deal with this,'' he told the Cleveland Plain
    Dealer in July. ``Ultimately, either businesses will close or consumers
    will pay more.''
        Small businesses are one of the primary engines of American job
    creation. Imposing Massachusetts's expensive reforms on the entire
    nation is likely to put a drag on that engine for years to come.

        Original Source: http://article.nationalreview.com/438971/bay-
    state-health-care-blues/paul-howard
                                     ______

                [From the Wall Street Journal, February 1, 2011]

                            Judge Rejects Health Law

                                 By Janet Adamy

        A federal judge ruled that Congress violated the Constitution by
    requiring Americans to buy insurance as part of the health overhaul
    passed last year, and said the entire law ``must be declared void.''
        With his ruling, U.S. District Judge Roger Vinson set up a clash
    over whether the Obama administration still has the authority to carry
    out the law designed to expand insurance to 32 million Americans.
        A Florida federal judge on Monday ruled that a key plank of the
    health overhaul passed last March violates the Constitution, in a
    decision that could threaten the Obama administration's ability to
    implement the law. Janet Adamy has details.
        David Rivkin, an attorney for the plaintiffs, said the ruling meant
    the 26 states challenging the law must halt implementation of pieces
    that apply to states and certain small businesses represented by
    plaintiffs.
        But the Obama administration said it has no to plans to halt
    implementation of the law. Already, it has mailed rebate checks to
    seniors with high prescription drug costs, helped set up insurance
    pools for people with pre-existing medical conditions and required
    insurers to allow children to stay on their parents' insurance policies
    until they reach age 26.
        ``We will continue to operate as we have previously,'' a senior
    administration official said.
        In a pre-emptive move, the Justice Department, which represents the
    administration, is considering whether to seek a stay while its appeal
    against the decision is pending, spokeswoman Tracy Schmaler said.
        The legal morass is the biggest blow yet to the law since President
    Barack Obama signed it in March. Most of the plaintiffs--governors and
    attorneys general in 26 states--are Republicans seeking to knock down
    Mr. Obama's signature legislative achievement.
        The ruling by Judge Vinson, a Republican appointee in Pensacola,
    Fla., is the second of four to find that at least part of the law
    violates the Constitution's Commerce Clause by requiring citizens to
    carry insurance or pay a fee. But in asserting that the whole law is
    unconstitutional, it went much further than an earlier ruling in a
    Virginia case.
        Thus far, the court decisions are breaking down along party lines,
    with two Democratic appointees to the federal bench having upheld the
    law and two Republican appointees ruling against it. The matter is
    expected to be settled by the U.S. Supreme Court.
        The possibility that a court could ultimately unravel the law
    underscores just how difficult it is to enact universal health
    insurance--a goal that had eluded presidents dating back to Theodore
    Roosevelt. Mr. Obama's law, signed after a long-fought partisan battle,
    has been hailed by supporters as a historic achievement. But it is also
    one that cost Democrats seats in this fall's midterm elections, as the
    public was still divided in its support of the legislation.
        The court battle against the law--once seen as a long-shot strategy
    by the Republicans--has emerged as the greatest threat to the overhaul.
    While the Republican-led House has voted to repeal the law, that effort
    is expected to die in the Democratic-controlled Senate, and in any case
    would face President Obama's veto pen.
        Now even some Democrats who voted for the overhaul are
    contemplating whether Congress should strip out the so-called
    individual mandate, a once unthinkable scenario since the provision is
    seen as the backbone of the law. Since the law requires insurance
    companies to accept all comers, even people who are already sick, it
    requires healthy people to buy coverage as well.
        Otherwise, economists say, insurance premiums would likely rise
    sharply because people would wait until they were sick to seek
    coverage.
        The victories are emboldening Republicans in Congress who see
    attacking the law as a key strategy for retaking the White House in
    2012. ``This ruling confirms what Americans have been saying for
    months: The health spending bill is a massive overreach,'' said Senate
    Minority Leader Mitch McConnell (R., Ky.)
        In his 78-page ruling, Judge Vinson wrote that the entire law must
    be voided because the individual insurance mandate is ``not severable''
    from the rest of the law. Some laws contain what's known as a
    severability clause that says the rest of the law stands should a judge
    strike down a piece of it. But Democrats left it out.
        The judge said he didn't believe an injunction to stop the health
    overhaul was appropriate, because it is generally understood that the
    executive branch will obey a federal court. The government, however,
    doesn't believe the ruling requires it to stop implementing the
    overhaul.
        In court filings and testimony before the judge, the Obama
    administration argued that requiring Americans to carry insurance was
    within its constitutional powers, particularly those of the Commerce
    Clause that allows it to regulate economic activity. It argued that the
    health-care market is unique since all Americans receive medical care
    at some point. Requiring them to buy insurance is just a way of
    regulating how they pay for it, the administration said.
        The ruling also said that the entire law ``must be declared void,''
    because the mandate to carry insurance is ``not severable'' from the
    rest of the law. Above, an imaging technician prepares a CAT scan
    machine at Timpanogos Regional Hospital in Orem, Utah.
        Judge Vinson rejected that view. Under the Obama administration's
    logic, he wrote, ``Congress could require that everyone above a certain
    income threshold buy a General Motors automobile--now partially
    government-owned--because those who do not buy GM cars (or those who
    buy foreign cars) are adversely impacting commerce and a taxpayer-
    subsidized business.''
        Judge Vinson ruled in favor of the Obama administration on a
    secondary part of the suit, saying that the law's expansion of the
    Medicaid federal-state insurance program for the poor doesn't violate
    the Constitution.
        The states argued that the law's addition of 16 million Americans
    to the Medicaid rolls violates the Spending Clause of the Constitution
    by burdening them without giving them room to opt out of the program.
        But Judge Vinson said states clearly have the option to withdraw
    from the program, even though states ``have little recourse to
    remaining the very junior partner in this partnership.''
        Critics say the law's implementation has been undercut by waivers
    the administration granted to various parties to avoid aspects of the
    law. For example, the administration has temporarily exempted some
    companies that provide bare-bones ``mini-med'' insurance plans from
    meeting a requirement in the law that says insurers must spend a
    certain portion of premiums on medical care.
        The Obama administration says such waivers are only a bridge until
    2014, when the full law takes effect and employers have more options
    for providing affordable coverage.
        In addition to the House vote for repeal, Republicans are drafting
    a series of bills targeting particularly unpopular pieces of the law,
    including its requirement that larger employers provide coverage or pay
    a fee. They're also laying plans to choke off funding to hire federal
    workers to implement the law.
        Under the law, most Americans who do not carry insurance starting
    in 2014 will pay a penalty. It eventually tops out at $2,085 a year for
    families lacking insurance.
        Health policy experts say one alternative to the provision would be
    to make insurance more expensive for those who wait to buy coverage,
    providing an incentive for the uninsured to get covered early. But
    lawmakers from both parties agree that it would be complicated, and
    risky, to pull out such a central piece of the law without driving up
    insurance premiums.
                                     ______

                [From the Wall Street Journal, February 7, 2011]

                      An ObamaCare Appeal From the States

    Twenty-one governors representing more than 115 million Americans have
                                   written to
      Kathleen Sebelius asking for more flexibility on health-care reform.

                                By Mitch Daniels

        Unless you're in favor of a fully nationalized health-care system,
    the president's health-care reform law is a massive mistake. It will
    amplify all the big drivers of overconsumption and excessive pricing:
    ``Why not, it's free?'' reimbursement; ``The more I do, the more I
    get'' provider payment; and all the defensive medicine the trial bar's
    ingenuity can generate.
        All claims made for it were false. It will add trillions to the
    federal deficit. It will lead to a de facto government takeover of
    health care faster than most people realize, and as millions of
    Americans are added to the Medicaid rolls and millions more employees
    (including, watch for this, workers of bankrupt state governments) are
    dumped into the new exchanges.
        Many of us governors are hoping for either a judicial or
    legislative rescue from this impending disaster, and recent court
    decisions suggest there's a chance of that. But we can't count on a
    miracle--that's only permitted in Washington policy making. We have no
    choice but to prepare for the very real possibility that the law takes
    effect in 2014.
        For state governments, the bill presents huge new costs, as we are
    required to enroll 15 million to 20 million more people in our Medicaid
    systems. In Indiana, our independent actuaries have pegged the price to
    state taxpayers at $2.6 billion to $3 billion over the next 10 years.
    This is a huge burden for our state, and yet another incremental
    expenditure the law's authors declined to account for truthfully.
        Perhaps worse, the law expects to conscript the states as its
    agents in its takeover of health care. It assumes that we will set up
    and operate its new insurance ``exchanges'' for it, using our current
    welfare apparatuses to do the numbingly complex work of figuring out
    who is eligible for its subsidies, how much each person or family is
    eligible for, redetermining this eligibility regularly, and more. Then,
    we are supposed to oversee all the insurance plans in the exchanges for
    compliance with Washington's dictates about terms and prices.
        The default option if any state declines to participate is for the
    federal government to operate an exchange directly. Which got me
    thinking: If the new law is not repealed by 2013, what could be done to
    reshape it in the direction of freedom and genuine cost control?
        I have written to Kathleen Sebelius, secretary of Health and
    Services (HHS), saying that if her department wants Indiana to run its
    program for it, we will do so under the following conditions:
         We are given the flexibility to decide which insurers are
    permitted to offer their products.
         All the law's expensive benefit mandates are waived, so
    that our citizens aren't forced to buy benefits they don't need and
    have a range of choice that includes more affordable plans.
         The law's provisions discriminating against consumer-
    driven plans, such as health savings accounts, are waived.
         We are given the freedom to move Medicaid beneficiaries
    into the exchange, or to utilize new approaches to the traditional
    program, instead of herding hundreds of thousands more people into
    today's broken Medicaid system.
         Our state is reimbursed the true, full cost of the
    administrative burden to be imposed upon us, based on the estimate of
    an auditor independent of HHS.
         A trustworthy projection is commissioned, by a research
    organization independent of the department, of how many people are
    likely to wind up in the exchange, given the large incentives for
    employers to save money by off-loading their workers.
        Today's Rasmussen poll finds that Americans still favor repeal of
    the President's health-care reform. Senior editorial writer Joseph Rago
    has the latest. Also, Opinionjournal.com columnist John Fund on the
    unanswered questions about the Gipper.
        Obviously, this is a very different system than the one the
    legislation intends. Health care would be much more affordable, minus
    all the mandates, and plus the consumer consciousness that comes with
    health savings accounts and their kin. Customer choice would be
    dramatically enhanced by the state's ability to allow more insurers to
    participate and offer consumer-driven plans. Through greater
    flexibility in the management of Medicaid, the state might be able to
    reduce substantially the hidden tax increase that forced expansion of
    the program will impose.
        Most fundamentally, the system we are proposing requires Washington
    to abandon most of the command-and-control aspects of the law as
    written. It steers away from nanny-state paternalism by assuming,
    recognizing and reinforcing the dignity of all our citizens and their
    right to make health care's highly personal decisions for themselves.
        So why would Ms. Sebelius and HHS agree to this de facto rewrite of
    their treasured accomplishment? A glance at the recent fiasco of high-
    risk pools provides the answer. When a majority of states, including
    Indiana, declined to participate in setting up these pools, which cover
    those with high-cost, existing conditions, the task fell to HHS. As
    widely reported, it went poorly, with costs far above predictions and
    only a tiny fraction of the expected population signing up.
        If the feds can't manage this little project, what should we expect
    if they attempt it on a scale hundreds of times larger and more
    complex? If it were only Indiana asking, I have no doubt that HHS would
    ignore us. But Indiana is not alone. So far, 21 states--including
    Pennsylvania, Texas and Louisiana--have signed the same letter. We
    represent more than 115 million Americans. Washington's attempt to set
    up eligibility and exchange bureaucracies in all these places would
    invite a first-rate operational catastrophe.
        If there's to be a train wreck, we governors would rather be
    spectators than conductors. But if the federal government is willing to
    reroute the train to a different, more productive track, we are here to
    help.

        Mr. Daniels, a Republican, is the governor of Indiana.
                                     ______

        [Whereupon, at 12:29 p.m., the committee was adjourned.]