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


 
                    THE PRESSURES OF RISING COSTS ON
                     EMPLOYER PROVIDED HEALTH CARE

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                     EMPLOYMENT, LABOR AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

             HEARING HELD IN WASHINGTON, DC, MARCH 10, 2011

                               __________

                           Serial No. 112-10

                               __________

  Printed for the use of the Committee on Education and the Workforce


                   Available via the World Wide Web:
      http://www.gpoaccess.gov/congress/house/education/index.html
                                   or
            Committee address: http://edworkforce.house.gov




                  U.S. GOVERNMENT PRINTING OFFICE
64-941                    WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  

                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
                 Jody Calemine, Minority Staff Director

         SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Robert E. Andrews, New Jersey
Glenn Thompson, Pennsylvania           Ranking Minority Member
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Loebsack, Iowa
Richard L. Hanna, New York           Dale E. Kildee, Michigan
Todd Rokita, Indiana                 Ruben Hinojosa, Texas
Larry Bucshon, Indiana               Carolyn McCarthy, New York
Lou Barletta, Pennsylvania           John F. Tierney, Massachusetts
Kristi L. Noem, South Dakota         David Wu, Oregon
Martha Roby, Alabama                 Rush D. Holt, New Jersey
Joseph J. Heck, Nevada               Robert C. ``Bobby'' Scott, 
Dennis A. Ross, Florida                  Virginia


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on March 10, 2011...................................     1

Statement of Members:
    Kildee, Hon. Dale E., a Representative in Congress from the 
      State of Michigan, question for the record.................    36
    Kucinich, Hon. Dennis J., a Representative in Congress from 
      the State of Ohio..........................................     4
        Prepared statement of....................................     0
        Submissions for the record:
            ``Medical Bankruptcy in the United States, 2007: 
              Results of a National Study,'' American Journal of 
              Medicine, 2009.....................................    42
            ``Seeing Red: The Growing Burden of Medical Bills and 
              Debt Faced by U.S. Families,'' the Commonwealth 
              Fund, August 2008..................................    48
            Arensmeyer, John, founder & CEO, Small Business 
              Majority, prepared statement of....................    68
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     3
        Additional submission: Letter, dated Mar. 10, 2011, from 
          Associated Builders and Contractors....................    67

Statement of Witnesses:
    Brewer, J. Michael, president, Lockton benefit group, Lockton 
      Companies, LLC.............................................    25
        Prepared statement of....................................    27
    Houser, Jim, Hawthorne Auto Clinic and Main Street Alliance 
      of Oregon..................................................    21
        Prepared statement of....................................    23
    Miller, Thomas P., J.D., resident fellow, American Enterprise 
      Institute..................................................
        Prepared statement of....................................     6
        Response to Mr. Kildee's question........................    36
    Parker, Brett, vice chairman and chief financial officer, 
      Bowlmor Lanes, on behalf of the U.S. Chamber of Commerce...    15
        Prepared statement of....................................    17


     THE PRESSURES OF RISING COSTS ON EMPLOYER PROVIDED HEALTH CARE

                              ----------                              


                        Thursday, March 10, 2011

                     U.S. House of Representatives

         Subcommittee on Health, Employment, Labor and Pensions

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The committee met, pursuant to call, at 10:05 a.m., in room 
2175, Rayburn House Office Building, Hon. Phil Roe [chairman of 
the subcommittee] presiding.
    Present: Representatives Roe, Kline, DesJarlais, Hanna, 
Bucshon, Barletta, Roby, Heck, Kucinich, Kildee, Hinojosa, 
Tierney, and Wu.
    Staff present: Katherine Bathgate, Press Assistant; Kirk 
Boyle, General Counsel; Casey Buboltz, Coalitions and Member 
Services Coordinator; Ed Gilroy, Director of Workforce Policy; 
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; Alissa Strawcutter, Deputy Clerk; Aaron 
Albright, Minority Deputy Communications Director; Daniel 
Brown, Minority Staff Assistant; Jerrica Mathis, Minority 
Legislative Fellow; Megan O'Reilly, Minority General Counsel; 
Meredith Regine, Minority Labor Policy Associate; and Michele 
Varnhagen, Minority Chief Policy Advisor and Labor Policy 
Director.
    Chairman Roe [presiding]. Good morning, everyone. I want to 
thank our witnesses for being with us today, and for sharing 
their thoughts and experience on this very important subject.
    The steady rise in cost is a critical challenge facing our 
nation's health care system. For many patients, the price of 
health care is the determining factor when deciding whether to 
receive the care he or she needs. It also imposes a tremendous 
burden on taxpayers, as government health services become more 
and more expensive.
    As a parent, a physician and elected official, hardly a day 
goes by when I am not reminded of this difficult reality. 
Yesterday was no exception. Employers, however, understand 
better than most the tough choices workers and their families 
face as health care costs go up year after year.
    In 1974, the Employee Retirement and Income Security Act, 
commonly known as ERISA, became law. It provides the rules of 
the road for benefit plans offered by employers, including 
employer-provided health care. Employer-provided health care is 
now as common to employee compensation as wages, paid vacation 
and sick leave.
    Roughly 170 million individuals receive health insurance 
through an employer-provided health care plan. It has become 
central to our nation's health care system. While not perfect, 
it has served employers and employees well for nearly 40 years. 
Any changes to the nation's health care system will affect the 
lives of millions of employers, workers and their families.
    That is why the challenge of rising costs is a pressing 
national concern. An aging workforce, more advanced therapies, 
higher utilization, liability and fewer providers are just some 
of the factors contributing to the increases.
    As policymakers, we have a responsibility to understand the 
underlying causes of these factors and to consider common-sense 
solutions that ultimately reduce expenses for workers and their 
families.
    President Obama understood this responsibility when, as a 
candidate for the presidency, he outlined a plan he promised 
would reduce costs or the families and businesses. Without 
providing specific details for businesses, then-Senator Obama 
promised his health care plan would lower premiums by as much 
as $2,500 per family. As president, Mr. Obama claimed that 
under his plan, ``if you like your current health care, you can 
keep it.''
    Unfortunately, now, we know these assertions to be untrue. 
Along the path to health care reform, the president and his 
Democratic allies are banning any effort to reduce costs, and 
instead focused on expanding access through the creation of a 
new government entitlement program; a program that will surely 
change how workers receive their health care, regardless of 
whether they like it or not.
    This has left this issue of rising costs unresolved as the 
need for meaningful reform grows more urgent.
    There are a number of provisions in the recent health care 
law that not only fail to address rising costs, but actually 
exacerbate the problems facing employers and their workers. For 
the first time in our nation's history, we have a mandate 
requiring certain employers provide government-approved 
insurance, or pay a fine.
    However, providing government-approved health care will 
grow more and more expensive, as benefit plans begin to comply 
with a number of additional mandates and requirements 
controlled by Washington bureaucrats. Existing employer plans 
were supposed to be grandfathered from the new law's 
requirements. But we have since learned this will not be the 
case for up to 69 percent of the plans, including up to 80 
percent of smaller plans.
    We all want to see individuals with pre-existing conditions 
get the care they need and young adults receive extended help 
from their parents, if they so desire.
    But a sea of government mandates will not lead to lower 
costs and better health care. A number of independent health 
care researchers have examined the issue and determined costs 
will continue to increase at a rapid pace, due in part to 
Obamacare.
    That is why we are here today. We must examine these and 
other driving forces behind rising health care costs, their 
effects on employers and workers, and begin to consider 
responsible solutions that address the needs of the nation.
    I would now recognize my colleague and friend from Ohio, 
Mr. Kucinich, the senior Democratic member of the subcommittee 
here today, for his opening remarks.
    [The statement of Dr. Roe follows:]

           Prepared Statement of Hon. David P. Roe, Chairman,
         Subcommittee on Health, Employment, Labor and Pensions

    Good morning everyone. I want to thank our witnesses for being with 
us today and for sharing their thoughts and experience on this 
important subject.
    The steady rise in cost is a critical challenge facing our nation's 
health care system. For many patients, the price of health care is the 
determining factor when deciding whether to receive the care he or she 
needs. It also imposes a tremendous burden on taxpayers, as government 
health services become more and more expensive. As a parent, physician, 
and elected official, hardly a day goes by when I am not reminded of 
this difficult reality.
    Employers, however, understand better than most the tough choices 
workers and their families face as health care costs go up year after 
year. In 1974, the Employee Retirement and Income Security Act, 
commonly referred to as ERISA, became law. It provides the rules of the 
road for benefit plans offered by employers, including employer-
provided health care. Employer-provided health care is now as common to 
employee compensation as wages, paid vacation, and sick leave.
    Roughly 170 million individuals receive health insurance through an 
employer-provided health care plan. It has become central to our 
nation's health care system. While not perfect, it has served employers 
and employees well for nearly forty years. Any changes to the nation's 
health care system will affect the lives of millions of employers, 
workers, and families.
    That is why the challenge of rising costs is a pressing national 
concern. An aging workforce, more advanced therapies, higher 
utilization of services, and fewer providers are just some of the 
factors contributing to the increases. As policy makers, we have a 
responsibility to understand the underlying causes of these factors and 
to consider commonsense solutions that ultimately reduce expenses for 
workers and their families.
    President Obama understood this responsibility when, as a candidate 
for the presidency, he outlined a plan he promised would ``reduce costs 
for families and businesses.'' Without providing specific details for 
businesses, then-Senator Obama promised his health care plan would 
``lower premiums by as much as $2,500 per family.'' As President, Mr. 
Obama claimed that, under his plan, ``if you like your current health 
care, you can keep it.''
    Unfortunately, we now know these assertions to be untrue. Along the 
path to health care reform, the president and his Democrat allies 
abandoned any effort to reduce costs and instead focused on expanding 
access through the creation of a new government entitlement program; a 
program that will surely change how workers receive their health care, 
regardless of whether they like it or not. This has left this issue of 
rising costs unresolved as the need for meaningful reform grows more 
urgent.
    There are a number of provisions in the recent health care law that 
not only fail to address rising costs, but actually exacerbate the 
problems facing employers and their workers. For the first time in our 
nation's history, we have a mandate requiring certain employers provide 
government-approved insurance or pay a fine.
    However, providing government-approved health care will grow more 
and more expensive as benefit plans begin to comply with a number of 
additional mandates and requirements controlled by Washington 
bureaucrats. Existing employer plans were supposed to be 
``grandfathered'' from the new law's requirements, but we've since 
learned this will not be the case for up to 69 percent of plans, 
including up to 80 percent of smaller plans.
    We all want to see individuals with pre-existing conditions get the 
care they need and young adults receive extended help from their 
parents if they so desire. But a sea of government mandates will not 
lead to lower costs and better health care. A number of independent 
health care researchers have examined the issue and determined costs 
will continue to increase at a rapid pace due in part to ObamaCare.
    That is why we are here today. We must examine these and other 
driving forces behind rising health care costs, their affects on 
employers and workers, and begin to consider responsible solutions that 
address the needs of the nation.
    I would like to now yield to Mr. Andrews, the ranking member, for 
his opening remarks.
                                 ______
                                 
    Mr. Kucinich. I want to thank my friend, Chairman Roe, for 
calling this hearing. I would also like to thank our 
distinguished panel of witnesses for appearing.
    It has been nearly 1 year since the Affordable Care Act 
became law, and already, millions of Americans are realizing 
its benefits. The new health care law comes at a time when both 
employers and families are struggling to keep up with 
skyrocketing increases in their health care costs.
    Over the last decade, family premiums more than doubled in 
the employer-based health insurance market. We know that 
without reform, the problem of rising health care costs will 
just get worse.
    The Commonwealth Fund estimates that, absent health reform, 
the average family premium will nearly double again by 2020, to 
almost $24,000. These increases are unsustainable, and this 
country could not afford the status quo any longer. Higher 
health care costs means employers have less to reinvest in 
their business, and families have a harder time making ends 
meet.
    While the Affordable Care Act is not a perfect law--and I 
know that, because I was involved principally in challenging 
it--it dramatically expands access to affordable, quality 
health care. It takes critical first steps in reining in the 
abuses of an insurance industry that so far has gone unchecked.
    It will provide small employers with the same purchasing 
power as large employers and will give them tax credits to help 
them cover their workers.
    It also extends flexibility to the states, should they want 
to pursue an alternative to the federal health law, as long as 
it provides at least the same protections and access to health 
care as is afforded under the ACA.
    It is unconscionable that we have allowed the insurance 
industry in this country to pad its pockets at the expense of 
hard-working Americans by charging more but spending less on 
benefits. In 2010, the top five insurance companies--
UnitedHealth, WellPoint, Aetna, Humana and Cigna--saw record 
profits, $11.7 billion.
    While 43 states already had some kind of premium rate 
review process before the ACA, the law gives states the ability 
to enhance or create a rate review process to go after 
unjustified rate increases. It also ensures that these rate 
increases and the justification for them are publicly 
available.
    The Affordable Care Act further protects against insurance 
company abuses by requiring them to spend more on benefits and 
less on profits and CEO pay. The law's medical loss ratio 
requirements require insurance companies spend 80 to 85 percent 
of premium dollars on medical care and health quality. This 
provision alone will provide up to $1.2 billion in rebates 
starting in 2012.
    The law's benefits for employers are already being 
realized, even before the law is fully implemented. More than 
5,000 employers are taking part in the law's retiree 
reinsurance program, which has reimbursed more than $535 
million in health care benefits, benefiting more than 4.5 
million Americans.
    Four million small businesses are eligible for the small 
business tax credit, and many are seeing real savings this 
year. As a result, more are offering health care. The number of 
small employers with three to nine workers offering health 
insurance has risen from 46 to 59 percent.
    After starting in 2014, small employers will be able to 
pull together to provide more health care choices to employees 
at lower cost.
    Employers will also benefit from the law's Patient's Bill 
of Rights. A healthier workplace is a more profitable and more 
productive one.
    If these new protections were taken away, it is clear that 
employers, especially small employers, will be worse off. Helen 
Darling, president of the National Business Group on Health, 
which includes almost 300 large employers, has said, ``If the 
law gets repealed or gutted, we will have to start over, and we 
will be worse off.''
    The Congressional Budget Office states that repealing the 
law will slightly increase employer-sponsored premiums.
    Ultimately, we need to remove the source of our health care 
problems: the health insurance companies. They are the reason 
that one out of every $3 spent on health care goes to something 
other than providing care.
    I believe the demise of the for-profit health insurance 
industry is inevitable. Until then, Mr. Chairman, the American 
people who are trying to survive this recession need our help. 
And the Affordable Care Act provides Americans relief from the 
burden of health insurance companies.
    I look forward to today's hearing. I yield back the balance 
of my time.
    I just want to say, Mr. Chairman, we have votes going on in 
Government Oversight right around the corner. I may have to 
duck out for a moment here and there. But otherwise, I will be 
here with you.
    Chairman Roe. I thank the gentleman for yielding.
    Pursuant to committee rule 7c, all members will be 
permitted to submit written statements to be included in the 
permanent hearing record.
    And without objection, the hearing record will remain open 
for 14 days to allow questions for the record. Statements and 
extraneous material referenced during the hearing will be 
submitted for the official hearing record.
    It is my pleasure to introduce our panel.
    I know, Mr. Miller, you are probably a wreck in the 
Washington traffic, but thank you for being here.
    Mr. Thomas Miller is a resident fellow for the American 
Enterprise Institute, where he focuses on health care policy, 
with a particular emphasis on such issues as information, 
transparency, health insurance regulation and consumer-driven 
health care.
    He was a member of the National Advisory Council for the 
Agency of Health Care Research and Quality from 2007 to 2009. 
Prior to his work at AEI, Mr. Miller was a senior health 
economist for the Joint Economic Committee, where he organized 
a series of hearings on promising reforms in private health 
markets. Mr. Miller holds a bachelor's degree in political 
science from New York University and a law degree from Duke 
University.
    Mr. Brett Parker is vice chairman and chief financial 
officer for Bowlmor Lanes. Bowlmor Lanes, as it is known today, 
was started in 1997, and operates bowling alleys in six 
locations in four states including New York, Maryland and 
Florida, and California. Bowlmor Lanes has grown from 50 to 
more than 500 employees--and congratulations for that--in the 
last 10 years, with more than 100 hired within the last year 
alone.
    Mr. Parker is testifying today on behalf of the U.S. 
Chamber of Commerce.
    I will now yield to the gentleman from Oregon, Mr. Wu, to 
introduce Mr. Jim Houser.
    Mr. Wu. Thank you, Mr. Chairman.
    Mr. Jim Houser is co-owner of Hawthorne Auto Clinic, a AAA-
approved auto repair facility located in Portland, Oregon. 
Hawthorne Auto Clinic has been the recipient of a number of 
awards, including the Blue Seal of Excellence Award from the 
National Institute for Automotive Service Excellence; the Best 
Practices for Sustainability Award from the City of Portland; 
and the Small Business of the Year Award in both 1996 and 2007, 
from the Better Business Bureau.
    Mr. Houser is testifying on behalf of the Main Street 
Alliance, a national network of state-based small business 
coalitions. I have had the pleasure of meeting with Main Street 
Alliance members at home and welcome Mr. Houser to Washington 
and this committee.
    Thank you, Mr. Chairman.
    Chairman Roe. Thank you, Mr. Wu.
    And also, thank you, Mr. Houser, for being here.
    Our final witness is Mr. Michael Brewer, the president of 
Lockton Benefit Group located in Kansas City, Missouri. Lockton 
Benefit Group provides national employee benefits consulting 
services to about 2,500 companies nationwide in a broad range 
of industries.
    Lockton Benefit Group is part of Lockton Companies, LLC, 
which provides global risk management, insurance and employee 
benefit services. Lockton is the world's largest privately 
owned, independent insurance brokerage firm, and it has more 
than 3,800 associates worldwide.
    Before we start the testimony, let me explain the light 
system. Basically, you have 5 minutes, the yellow light with 
the green light. The yellow light means you have a minute, and 
the red light means that probably I will start tapping to end 
your testimony.
    So with that, Mr. Miller, would you begin?

           STATEMENT OF TOM MILLER, RESIDENT FELLOW,
                 AMERICAN ENTERPRISE INSTITUTE

    Mr. Miller. Thank you very much, Chairman Roe, 
Representative Kucinich, members of the subcommittee, for this 
opportunity to speak on the pressures of rising costs on 
employer-provided health care.
    We should be more concerned about what is likely to unfold 
as we approach 2014 and the immediate years afterward than the 
most recent ups and downs of the limited dosage effects of the 
Affordable Care Act's initial year of implementation.
    It has not provided much short-term help, but it still 
threatens to do more harm later. Partly because the ACA 
actually has provided very little in tangible first-year 
benefits, it also has imposed only modest immediate costs and 
complications on most employers.
    Although the health sector appears to exhibit a 
longstanding ability to grow faster than the rest of the 
economy, the substantial effects of a deep recession within the 
last 3 years certainly slowed the absolute dollar growth of 
health spending and some health care utilization, if not its 
relative share of a troubled economy.
    We often forget that national health spending has grown at 
a slower rate in every year from 2000 to 2009. However, we can 
neither afford, nor should we expect, to rely on a prolonged 
recession or sluggish economy to keep slowing down that rate.
    There remains a substantial list of theories and 
explanations for this persistent excess growth of health 
spending and health insurance costs, but the most predictable 
common element behind many of the more politically effective 
ones is that it is always someone else's fault.
    The unpredictability of what will be enforced under the 
regulatory domain authorized under the ACA, and how its complex 
and often inconsistent provisions will be interpreted, leaves 
many employers frozen in uncertainty in their health benefits 
planning. Leading examples include the narrowed range of 
grandfathering protection for previous employer health plans 
and future definitions of details to be unveiled later for 
central benefits and state health benefits exchanges.
    In isolation, a few of the initial burdens for employers 
are likely to determine decisively whether most of them 
continue to offer health insurance. But over time, they amount 
to a steady drip-by-drip, political form of water torture that 
can eventually reach critical mass and push a much larger share 
of employers to reconsider their continued involvement in 
offering health coverage.
    The structure of future penalties for noncompliance with 
employer coverage mandates will send out additional economic 
disincentive signals that tell different categories of business 
owners to grow slower, hire fewer, pay less and restructure 
their firms.
    More ominously, the tilted playing field beginning in 2014 
for future tax subsidies for workers at the same income level, 
depending on whether they are inside employer health plans or 
purchasing outside coverage in any benefits exchanges that 
actually come into existence by then, appears far from 
politically sustainable.
    If and when the highly flammable legislative firewalls 
constructed to separate these two health insurance domains 
begin to break down, the federal budgetary implications of an 
employer coverage meltdown alone would be explosively 
unaffordable. And the future of market-based forms of private 
insurance would be in even greater jeopardy.
    We still have time to pull back before testing the 
temperature of the water for the lead group of health policy 
lemmings nearing the edge of this cliff.
    A short list of changes in direction would include a much 
stronger focus on responsible choice in competition in health 
care markets; more neutral, limited and transparent taxpayer 
subsidies for health spending by most Americans, but more 
targeted special protection for the most vulnerable and 
highest-risk portions of the populations; real steps toward 
meaningful information transparency; and realignment of 
incentives to reward better health care choices and higher-
value health care delivery.
    The last round of purported health care reform overloaded 
the operational circuits of our political system, overfed its 
appetite for more private resources and offended longstanding 
cultural norms. Rebalancing the mix necessarily must begin with 
repeal of many core components of the ACA, but it cannot end 
short of equally difficult but necessary and more sustainable 
reforms enacted to replace them.
    Thank you.
    [The statement of Mr. Miller follows:]

     Prepared Statement of Thomas P. Miller, J.D., Resident Fellow,
                     American Enterprise Institute

    Thank you Chairman Roe, Ranking member Andrews, and members of the 
Subcommittee for the opportunity to speak this morning on the pressures 
of rising costs on employer-provided health care.
    I am speaking today as a health policy researcher, a resident 
fellow at the American Enterprise Institute and co-author of the 
forthcoming book, ``Why ObamaCare Is Wrong for America (to be published 
later this month). I also will draw upon previous experience as a 
senior health economist at the Joint Economic Committee, member of the 
National Advisory Council for the Agency for Healthcare Research and 
Quality, and health policy researcher at several other Washington-based 
think tanks.
    The subject of this hearing is not a new one, although the economic 
and policy context in which we examine it has changed and will continue 
to do so in the years and decades ahead. The two most significant 
factors are the recent deep recession--from which both the overall 
economy and its health sector are slowly recovering--and the passage 
and early implementation of the Patient Protection and Affordable Care 
Act (referred to hereafter as ``ACA'')--from which they may not, 
without a substantial change in direction.
    Roughly 170 million Americans received private health insurance 
through the workplace in 2009,\1\ and the vast majority of those 
workers and their families, despite periodic complaints, value it very 
much. However, our largely employer-based system of private health 
coverage does not work well for everyone--most notably those workers 
who lose their jobs. Or who cannot find either new or initial work. Or 
who cannot afford their share of expensive and rising premiums. Or who 
need a better balance between lagging wages and rising health benefits 
costs. Or whose employer simply cannot afford to offer insurance. 
Millions of people need better options to get more stable and 
affordable health insurance.
---------------------------------------------------------------------------
    \1\ As calculated under Current Population Survey methods by the 
Census Bureau last year. Carmen DeNavas-Walt, Bernadette D. Proctor, 
and Jessica C. Smith, U.S. Census Bureau, Income, Poverty, and Health 
Insurance Coverage in the United States: 3009, Current Population 
Reports, P60-238 (Washington, D.C.: U.S. Government Printing Office, 
2010), table C-1.
---------------------------------------------------------------------------
    As director of AEI's ``Beyond `Repeal and Replace:' Ideas for Real 
Health Reform'' project, I would be happy to discuss in greater depth a 
number of better solutions to the continuing chronic conditions of high 
costs, inconsistent quality, gaps in access, and misaligned incentives 
throughout our health care economy. However, the primary focus of my 
testimony today is, first, to place employer health care cost 
challenges and assertions about them in perspective. I then will 
examine the likely effects of the ACA on the future ``health'' of 
employer-sponsored health insurance, and very briefly conclude with 
some suggested policy alternatives.
    In brief, we should be more concerned about what is likely to 
unfold as we approach 2014 and the immediate years afterward than the 
most recent headlines of the limited-dosage effects of the ACA's 
initial year of implementation. It has not provided much short-term 
help, but still threatens to do more harm later. A number of blame-
shifting assertions, statistical mirages, overstatements, and 
simplistic pet theories should not distract us from the more complex 
and daunting task of both rethinking the path that the previous 
Congress took in the ACA and pursuing more robust and realistic routes 
to sustainable, higher-value health care.
Putting Health Spending Trends in Perspective
    Let's start with a reminder of the health spending context when the 
ACA was first proposed, debated, and enacted. From calendar year 2007 
to 2008, overall national health spending (as measured by the 
``National Health Expenditure'' accounts compiled annually by the 
Centers for Medicare and Medicaid Services) increased only 4.7 percent. 
That was the smallest percentage annual increase in the nearly 50 year 
history of that measure. And then national health spending rose only 4 
percent more, in 2009.
    As for the more narrow measure of the employer cost per employee of 
employer-sponsored health benefits, the most consistently accurate one 
over time--Mercer's National Survey of Employer-Sponsored Plans--
indicates that those costs remained in a steady pattern of roughly 6 
percent annual increases in the five years from 2005 through 2009, even 
though the underlying health care cost trend was running about 9 
percent a year. However, those employer health benefits costs increased 
6.9 percent in 2010. Even though the employers surveyed last year 
expected the health care costs they would face in 2011 to rise another 
10 percent, they also planned to make changes in their health plan 
benefit designs and vendors in order to bring their actual employer 
benefits cost increases down to 6.4 percent (see Figure 1).



    The Mercer survey includes public and private employers with 10 or 
more employees. Another longstanding national employer health benefits 
survey by the Kaiser Family Foundation and the Health Research & 
Educational Trust (KFF/HRET) examines trends among nonfederal private 
and public employers with three or more employees. Its most recent 
annual survey found that average total premiums (both the employer and 
employee shares) for employer-sponsored coverage increased only 3 
percent for single coverage and 5 percent for family coverage in 2010. 
This reflected a continuation of relatively modest premium growth in 
recent years.
    For 2011, several other national employer health costs surveys have 
forecasted somewhat higher rates of increase. Last fall, Hewitt 
Associates predicted that large employers could expect 2011 health care 
cost increases of 8.8 percent, compared to annual growth rates of 6.9 
percent in 2010 and 6.0 percent in 2009 and 2008. Also generally 
consistent with other forecasts of underlying health cost growth (as 
opposed to actual health premium cost increases), 
PricewaterhouseCoopers estimated last June that employers could expect 
medical costs to increase by 9 percent in 2011.
    The above numbers and estimates tell several overlapping stories, 
with more than a few cautions and limitations. First, employers 
generally end up paying somewhat less for their health plan premiums 
than initial health care cost projections would suggest. Particularly 
in the case of larger employers, they do not accept passively the first 
set of premium prices quoted to them. They adjust their plan designs 
(e.g., greater cost sharing), insurance partners, and incentives to 
employees so that they can afford better the health benefits they 
ultimately finance either directly (in self-insured plans) or through 
purchases of fully insured coverage.
    Second, it's more informative to focus on percentage increases and 
relative shares of both the employee compensation dollar and overall 
economic resources, rather than on nominal dollar amounts, in order to 
spot any changes in past trends. The persistence of real rates of 
increase in health spending relative to spending on other goods and 
services can be less obvious during periods of varying inflation rates.
    Third, different employer benefits surveys often reflect somewhat 
different types of respondents (e.g., large versus small employers), 
time periods, and methodologies. No single survey tells the complete 
story, but the better ones all tell us important parts of it despite 
lesser inconsistencies. Aggregate national average numbers also can 
obscure substantial variation among different regions, types of 
purchasers, and insurance product markets. For example, large employers 
(500 or more employees) experienced a sharper cost increase in 2010 
than smaller employers in the Mercer survey, even though they generally 
have greater advantages in bargaining leverage, risk pooling, benefits 
administration capacity, and regulatory flexibility. Much smaller 
employers--particularly in the below-50-employee ``small group'' 
market--consistently face higher insurance premium costs for any given 
level of benefits, but they purchase ``less'' and thereby bring down 
their actual premium expenses. Consumer-driven health plans with 
greater cost sharing continued to provide health benefits at lower 
costs, and increased their overall market share (but most notably among 
the largest employers).
    Fourth, although the health sector of the economy appears to 
exhibit a longstanding ability to grow faster than annual GDP, wages, 
and non-health areas of government spending, the experience of recent 
years reveals the substantial effects of a deep recession in slowing 
the absolute dollar growth of health spending (and health care 
utilization), if not its relative share of a troubled economy. As a CMS 
team of health spending actuaries explained in a Health Affairs 
article, ``Although health care spending has grown at a slower rate 
every year since 2002, the deceleration, or slowdown in the rate of 
growth, was more pronounced in 2008 and 2009 because of the severe 
economic recession. In contrast to prior recessions, when there was 
usually a lag before health care spending growth slowed, the recession 
that lasted from December 2007 to June 2009 had a more immediate impact 
on the health care sector.'' \2\
---------------------------------------------------------------------------
    \2\ Anne Martin, David Lassman, Lekha Whittle, Aaron Catlin and the 
National Health Expenditure Accounts Team, ``Recession Contributes to 
Slowest Annual Rate of Increase in Health Spending in Five Decades,'' 
Health Affairs 30:1 (2011):14.
---------------------------------------------------------------------------
    So the illusory ``good news'' of the last few years might be that 
the Obama administration can claim at least superficially that it 
already helped slow down somewhat the growth rate for health care 
spending, and related health insurance premiums. The ``bad news'' is we 
neither can afford, nor should we expect, to rely on a prolonged 
recession or sluggish economy to keep doing so.

Other Statistical Mirages, Mis-Steps, and Pet Theories versus Longer-
        Term Trends
    There remains a substantial over-supply of theories and 
explanations for the persistent ``excess'' growth of health spending 
and health insurance costs above the rate of annual growth in the rest 
of the U.S. economy. A number have some limited degree of plausibility, 
but either their overall impact, duration, or independent effects (or 
all of the above) tend to be over-stated at best. Recently on the hit 
list have been such explanations as:
     Excessive profits by * * * (chose a sector of the health 
economy you do not represent)
     Failure to receive more and better-reimbursed health 
services from * * * (choose a sector of the health economy you do 
represent)
     Cost shifting (by everyone else)
     Changes in the insured risk pool (too many healthy people 
either losing coverage or dropping out of the insurance market, too 
many sick people staying on employer coverage with enhanced COBRA tax 
subsidies)
     Insufficient health coverage and excessive out-of-pocket 
costs
     Almost everyone seemingly either has, or is about to 
suffer from, a chronic and costly health condition
    The full list, on both sides of the ideological as well as interest 
group divides, is of course much longer. It includes a wide assortment 
of ``silver bullets'' of health policy reform advocacy that never quite 
hit their elusive target. But the most predictable common element 
behind many of the more politically effective ones is that it's always 
``someone else's'' fault! A broad consensus has existed for many 
decades that the small share of health care costs that we individually 
have to pay most directly are too high. But we appear to be nearing a 
newer frontier where the limits of what all those ``someone else's'' 
(particularly employers and taxpayers, and even U.S. Treasury 
creditors) are willing and able to pay are getting much closer in 
sight, as well.
    One of the more pernicious misstatements of health care financing 
reality is the assertion that our mixed public/private system fails to 
pay enough of everyone else's health care bills; hence the need both 
for more insurance coverage and more comprehensive benefits. However, 
when one compares out-of-pocket (OOP) health spending to total national 
health expenditures, one finds that the OOP share in the U.S. continues 
to decline as part of a long-term trend--12.0 percent actual in 2009, 
9.7 percent project for 2014, the first fully-installed year of the 
ACA's coverage mandates and enhanced taxpayer subsidies. Moreover, the 
U.S. OOP share of health spending, as of the last comparative figures 
available from the OECD in 2008 (12.1 percent) was below that of 
Germany, Canada, and the weighted average of all reporting members, 
respectively. Despite some apparent growth in the nominal dollar amount 
of potential cost sharing in certain segments of the private health 
insurance market, this first-party exposure to some of the costs of 
care has not yet translated into increases in the share of U.S. health 
spending that is paid out of pocket.\3\
---------------------------------------------------------------------------
    \3\ For an earlier examination of this issue, see Thomas Miller and 
Rohit Parulkar, ``Out of Pocket Theory for Health Spending Cutbacks Is 
`Clueless,' '' Health Affairs Blog, September 24, 2010, available at 
http://healthaffairs.org/blog/2010/09/24/out-of-pocket-theory-for-
health-spending-cutbacks-is-clueless
---------------------------------------------------------------------------
    Aside from occasional throwaway comments that aggregate health 
spending is too high and/or unaffordable, the default presumption in 
many elite health policy circles remains that the actual consumption of 
care should remain unburdened by the economics of paying more of its 
full price out of pocket--even at the margin. Early dollar deductibles 
are resisted as discouraging essential preventive care (as in * * * 
dropping by the doctor's office whenever the first unclear symptom 
appears, to see if one might be discovered, along with a billing code 
for it * * *). Partial cost sharing for larger medical expenses is seen 
as too punitive and overtaxing the limited abilities of patients to 
assess more complex tradeoffs. And leaving all the other mid-range 
types of health care cost decisions subject to cost sharing apparently 
either would single out the chronically ill too harshly and leave them 
prone to even greater health problems in the future, or it would 
jeopardize the underlying financial health of a health delivery system 
based on opaque cross-subsidies that detach prices from values. Before 
you know it, not a single dollar of health spending can be left at risk 
to the dangers of cost sharing.
    The above represents only a slight exaggeration of the ambitions 
and presumptions of the ACA's coverage mandates, cost sharing limits, 
and expanded health spending subsidies through future health benefits 
exchanges, which are either imposed on employer-sponsored coverage or 
will directly affect its future. If left unchanged and fully 
implemented, they would push most Americans to believe they can and 
should spend even higher relative shares of other people's money. This 
in turn will aggravate the longstanding economic effects of distorted 
spending incentives and substantial dead-weight losses when re-routing 
greater shares of the economy through public financing mechanisms.\4\
---------------------------------------------------------------------------
    \4\ See, for example, Martin Feldstein, `` How Big Should 
Government Be?'' National Tax Journal 50:2 (1997): 197-213; and 
Christopher J. Conover, ``Congress Should Account for the Excess Burden 
of Taxation,'' Cato Policy Analysis no. 669, October 13, 2010.
---------------------------------------------------------------------------
    Before examining both the likely short-term and long-term effects 
of the ACA on employer health care costs, overall health spending 
trends, and the larger economy, let's first remember some broader 
points about what really matters in improving the value of the health 
care we receive (i.e., delivering better health outcomes at lower 
costs).
     Although the ACA emphasizes expanded insurance coverage, 
redistribution and expansion of public subsidy payment streams, and 
scapegoating private insurers for a host of partly real but broadly 
exaggerated misdeeds, the overwhelming component of current health 
premium costs and their future rates of growth is comprised of * * * 
the underlying cost of health care as currently delivered in far from 
optimally effective or efficient ways. And it has failed to provide a 
clear, consistent, feasible, and sustainable route to address that 
problem.
     Producing better health outcomes and improved population 
health is driven much more by factors well beyond the supply and cost 
of medical care. Our longstanding political biases in health policy 
continue to neglect this crucial point. Despite a handful of fledging 
initiatives in less-noticed sections of the overall legislation, the 
ACA's overwhelming focus remained on politically controlling private 
health insurance more tightly, rearranging public subsidies for health 
care financing predominantly for political and re-distributional 
reasons, and then jerry-rigging the complex contraption to meet 
daunting political and budgetary scoring needs by whatever means 
necessary to ensure narrow passage last March.
     Although our health care system still manages to perform 
admirably in many respects despite the many public policy handicaps 
under which it continues to operate, its costs continue to exceed its 
value and this increasingly crowds other important private and public 
needs. We cannot afford to continue to neglect necessary spending and 
investment in a number of NON-healthcare sectors of our society.
     The employer-sponsored portion of private insurance will 
continue to provide a vital role in our health care arrangements. It 
remains much more creative, accountable, sensitive to workers' 
preferences, and value-conscious than the growing share of the health 
care marketplace dominated by politically-administered care and 
coverage. But the small employer portion of the health coverage market 
needs better tools and options. In an increasing number of cases, 
traditional small-group coverage is less and less financially viable. 
Nor is it a consistently satisfactory option for small business 
employees and their employers. The ACA failed to solve those problems, 
largely because it was pursuing a broader political agenda. Rethinking 
and restructuring a much different version of health benefits 
``exchange'' options for some, but not all, of those people currently 
in the small employer, as well as individual, portion of the health 
insurance market, remains essential.
     Improved choice, competition, and value in health care 
arrangements still will have to be driven by more transparent, 
accountable, and decentralized private markets, rather than top-down 
political edicts. Real health care reform is not a public versus 
private either-or proposition, but we have overloaded the operational 
circuits of our political system and overfed its appetite for private 
resources. Rebalancing the mix necessarily must begin with repeal of 
many core components of the ACA, but it cannot end short of equally 
difficult but necessary reforms to replace them.
Assessing the ACA's Effects on Employers and Employees
    In the very near term, the ACA has only done modest damage to 
employer-sponsored health coverage. Its main provisions were delayed 
for a number of years in a staggered ``time-release'' schedule of 
implementation due to political, economic, and administrative 
considerations. Employer coverage mandate penalties, crowd-out 
competition from highly-subsidized state health benefits exchanges and 
expanded Medicaid coverage, and more binding requirements for (plus 
actual definition of) essential health benefits, remain a number of 
years away (``apres 2013, le deluge''). So, because the ACA actually 
has provided very little in tangible first-year ``benefits,'' it also 
has imposed only modest immediate costs and complications on most 
employers. Early projected estimates of the increased employer premium 
costs of initial mandates for offering group health insurance coverage 
to dependent ``children'' (up to age 26) of covered adults range in the 
one- to two-percent range. Premium cost increase estimates for the 
early prohibition on lifetime coverage limits, as well as the gradual 
phasing out of annual coverage limits, were equally modest. The less-
noticed fact was that most employer group policies already had rather 
generous coverage limits, and hence they were largely unaffected by 
this ``mandate.'' Of course, every two- to three-percent ``average'' 
increase in premium costs can be more problematic for profit-squeezed 
small employers already operating on the margin, let alone those who 
are at the high-cost end of those broad cost-estimate averages.
    Several other claims of early deliverable benefits from the ACA 
remain overstated, if not even more questionable. The initial 
implementation of minimum medical loss ratio (MLR) mandates for fully-
insured coverage that began this year will have a more disruptive 
coverage impact in the individual than in the small group market (80 
percent of premiums must be paid out in medical benefits by insurers in 
both markets, under rather complex rules for calculating compliance 
with that threshold). However, the initial enforcement of the MLR rules 
threatens to squeeze out or reduce the valuable services of many 
insurance agents and brokers, and discourage private insurers' 
investments in useful ancillary services that do not meet more narrow 
ACA-enabled regulatory definitions of payments for ``medical 
benefits''--rather than leave it up to small employers and their 
covered employees to determine whether they are worthwhile as part of 
an overall package of insurance benefits. Moreover, the exaggerated 
effort to paint insurers' ``excessive'' administrative costs as a key 
component of high and rising insurance premiums flies in the face of 
the formers' relative share of those premium dollars as well as recent 
trends in their rate of growth. In general, administrative costs 
(including profits) for private insurers have been growing less rapidly 
than overall private premiums since 2003, as calculated by CMS in its 
annual National Health Expenditure account estimates (decreasing from 
13.67 percent in 2003 to 11.15 percent in 2009).
    Another ``feel good'' exercise of short-term political posturing 
under the ACA involves initial provisions for enhanced federal and 
state review of private insurers' premium rate filings. Although HHS 
does not have full power to deny proposed rate hikes, it has issued 
regulations enabling it to ask for more information to ``justify'' 
them, slow down requests for their approval by state regulators, and 
enhance the ability of the latter to block, reduce, or delay them 
further under state law. However, the long history of prior approval 
mechanisms for proposed insurance rate filings at the state level 
indicates that regulators may temporarily suppress rates but cannot 
keep them below the levels needed for insurers to pay claims and earn a 
reasonable economic rate of return on their capital.\5\
---------------------------------------------------------------------------
    \5\ See Scott E. Harrington, ``Regime Change for Health Insurance 
Regulation: Rethinking Rate Review, Medical Loss Ratios, and Informed 
Competition,'' American Enterprise Institute, December 2010, available 
at http://www.aei.org/paper/100163.
---------------------------------------------------------------------------
    In a similar vein, the ACA claims to ensure that insurers in the 
employer group market eventually will be prohibited from denying 
coverage for employees with more costly pre-existing conditions (but 
not before 2014). Actually, earlier provisions of federal law under 
HIPAA (enacted in 1996) already provided similar protection in the 
group market for current and new employees with evidence of qualified 
continuous insurance coverage, apart from longstanding guaranteed 
renewability practices in most of the private insurance market in any 
event.
    Early interpretation and enforcement of ACA's prohibition on 
lifetime insurance coverage limits for so-called ``mini-med'' health 
benefits plans reveals a different short-term ``duck and cover'' 
strategy by the current administration, when faced with bad publicity 
and substantial political pressure to reverse course in regulatory 
policy. Initially, a handful of high-profile or politically savvy 
companies offering such lower-cost, limited-benefits health plans to 
their lower-wage and/or shorter-tenured workers were granted short-term 
``waivers'' from the new rules implementing the ACA's ban on lifetime 
benefits caps. But as public criticism of both the selective waivers 
and the jeopardy remaining for other providers of mini-med coverage 
increased, the trickle of waivers turned into a gusher of subsequent 
exemptions until almost all of that sub-market had received short-term 
relief by the end of last month (HHS recently reached the magic 
``1040'' mark in the number of waivers granted).
    The above rounds of early ACA implementation reveal the overly 
broad regulatory discretion granted to the HHS secretary in many 
hastily- and poorly-drafted sections of the law, as well as a short-
term political strategy to push for tighter regulation unless and until 
it meets substantial resistance, at which point the administration's 
regulators may pull back temporarily. (One-year waivers and creative 
re-interpretations of ambiguous legislative language provide little 
assurance regarding later years). The more important objective is to 
avoid substantial political controversies on less essential ACA 
provisions that might threaten to undermine the implementation of much 
more important and far-reaching ones after the 2012 election cycle 
completes its course.
    However, the unpredictability of what will be enforced and how it 
will be interpreted leaves many employers frozen in uncertainty in 
their health benefits planning, when not fearing the worst and finding 
their expectations met. The best illustration of the latter involves 
last year's expansive interpretation of the ACA's seemingly 
straightforward rules for grandfather protection from several of its 
new rules for employer health plans that were already in existence on 
the date of the law's enactment. By the time HHS had re-interpreted the 
conditions for such grandfathering far more narrowly, most employer 
plans concluded they were likely to lose it once they made even modest 
adjustments in their ``grandfathered'' plans. Even federal regulators 
acknowledged that by 2013, only about one in five small employers and 
one-third of large employers will remain grandfathered. The impact of 
the new grandfathering rules was less in terms of the additional 
obligations and costs to which employer plans would become subject 
(most of them have decided to live with those burdens as the price for 
making other necessary cost-reducing changes in the health plans). 
Rather it was the latest unforeseen construction of a new set of hoops 
(mostly restrictions on any significant changes in cost sharing and 
benefits structure) through which they would have to jump if they still 
wanted to ``retain'' the protection from a lesser set of regulatory 
hassles and burdens (primarily involving no cost sharing for coverage 
of ``preventive'' health benefits) that the law had previously promised 
them on its face. Large employers generally shrug and make the economic 
and political tradeoffs as the price of doing business in a highly 
political and sometimes arbitrary regulatory environment. Smaller 
employers are more likely to be on the receiving end of new regulatory 
costs that they are proportionately less able to foresee, finesse, and 
finance.
    Still ahead for the employer community are uncertainties in how the 
ACA's rules for such largely-uncharted definitions and details of 
``essential benefits'' and ``state benefits exchanges'' will be written 
and then interpreted in practice. The reasonable fears in the employer 
community are that those benefits will be biased toward more generous 
and less affordable levels, and that the exchanges ultimately will be 
designed to capture a much greater share of current employer coverage, 
penalize them for it, and then trap those new ``beneficiaries'' in much 
more highly regulated and restrictive insurance plans that only look 
``private'' initially but eventually gravitate toward more of an 
expansion of Medicaid-like public coverage over time.
    Added on to this menu of bitter-tasting items are various new taxes 
that nibble away further at the affordability of employer coverage and 
the profitability of the enterprises that must finance it. Higher 
Medicare payroll taxes, including those imposed on a new category of 
``unearned'' income, will hit not just the ``rich'' but a significant 
number of successful small business owners operating either as sole 
proprietors or in subchapter S corporate structures. New taxes on 
insurance premiums, medical devices, and on prescription drugs will add 
up as they are passed through to the end -ser consumers of health care 
in the form of higher insurance premiums and out-of-pocket care costs. 
A particularly obnoxious Form 1099 tax reporting requirement that would 
devastate many small businesses with new paperwork burdens remains 
widely unpopular but not yet fully repealed by the current Congress.
    In isolation, few of the initial burdens under the ACA for 
employers are likely to determine decisively whether most employers 
continue to offer health insurance. But over time they amount to a 
steady drip-by-drip political form of water torture that can eventually 
reach critical mass and push a much larger share of employers to 
reconsider their involvement in offering health insurance coverage.
    Former football coach Bill Parcells once said, ``They want you to 
cook the dinner, at least they should let you shop for the groceries.'' 
The ACA sets in motion the temptations to impose stronger doses of a 
highly politicized and tightly regulated regime of health insurance in 
which employers are increasingly going to be asked first to pay for 
health insurance groceries selected by Washington regulators and then 
to cook and serve them according to recipes concocted by the previous 
Congress and at HHS.
    The potential economic damage ahead posed by the ACA to employers 
is not limited just to the future cost of health benefits they will 
face or their decisions whether to offer or drop coverage. The 
structure of future penalties for failure to comply with the employer 
mandate to provide coverage, which begins in 2014, will send out 
additional economic disincentive signals that tell different categories 
of business owners that they may need in some cases either to grow 
slower, hire fewer workers (particularly lower-wage earners), pay them 
less, pay them more, restructure firms to be smaller or have a 
different payroll structure, outsource more operations, rely on more 
capital and less labor, or mix and match all of the above as the latest 
rules, ambiguous enforcement guidance, and the surrounding health 
policy terrain requires them to pay more attention to volatile health 
care politics and less to business operations. Some of the key economic 
disincentives include the need to stay below the 50-employee threshold 
for the upcoming employer coverage mandate penalties, to juggle the 
tradeoffs between higher average wages versus lower cost health 
benefits versus a larger employer share of health benefits premium 
payments--to limit penalties for employees declining ``unaffordable'' 
coverage, or to keep payrolls lower and smaller in pursuit of temporary 
and narrowly- defined small business tax credits for health coverage 
costs, Far too many employers will feel like they have left the 
difficult challenges of recent private health insurance markets, only 
to be trapped in a more complex maze where almost all the choices could 
go wrong but must be weighed again and again to determine which is the 
``least bad'' one at the moment.
    It is in this larger context that the ``lure to leave'' the many 
political and regulatory landmines of ACA-style employer coverage could 
reach a tipping point if and when we reach the years shortly after new 
subsidized health benefits exchanges have become established without 
crashing (no small feat!). Despite a host of uncertainties ahead, such 
exchange-based insurance coverage (as envisioned quite optimistically 
in the ACA) might seem like a great deal to many workers, particularly 
lower-wage employees whose premiums would be more heavily subsidized by 
taxpayers than under the current tax exclusion for employer-sponsored 
insurance.
    As written in the law, however, these generous subsidies are 
officially limited to families earning between 100 percent and 400 
percent of the federal poverty level, who do not receive qualified 
health insurance from their employers or from public programs such as 
Medicaid and Medicare. But many employers will face substantial 
economic incentives to reconsider continued offers of health coverage 
to their workers. A complex set of employer mandate penalties would 
loom large, with their amounts varying depending on the size of a firm 
and traded off against the net gains from eliminating direct health 
benefits costs, paying higher wages, and competing differently in labor 
markets.
    The tilted playing field for tax subsidies for workers at the same 
income level inside employer health plans versus purchasing coverage in 
the exchanges appears far from politically sustainable, despite the 
temporary legislative ``firewalls'' constructed in the ACA to minimize 
such crossovers. If and when they begin to break down, two related 
effects would topple the superstructure of ACA's tenuous combination of 
more, but not unlimited, taxpayer financing of health care financing 
and reasonably predictable access to various types of (largely 
mandatory) ``private'' insurance coverage. As sketched out most notably 
by former CBO director Douglas Holtz-Eakin, the federal budgetary 
implications of this employer coverage meltdown alone would be 
explosively unaffordable. Whether market-based forms of private 
insurance would be sustainable under this vastly rearranged landscape 
also seems questionable, at best.
    The massive uncertainties and confusion ahead under the ACA for 
employers and their workers are already mounting, after less than one 
year. Much grimmer reality could bite even before its full mandatory 
coverage and expanded subsidies roll out in full force in 2014. The 
sheer difficulty of understanding, anticipating, and maneuvering 
through the complex and shifting regulatory terrain of the ACA and 
ObamaCare will be difficult for any business firm. It will be 
particularly challenging for smaller firms still struggling to survive 
during challenging economic conditions. Many of the misguided economic 
signals sent by the ACA to the business community encourage slower, 
rather than faster, economic growth; economic paralysis amidst the 
search for clear and consistent regulatory analysis; and fewer 
opportunities for better-paying jobs.
    We still have time to pull back before testing the temperature of 
the water for the lead group of health policy lemmings nearing the edge 
of the cliff. A short list of changes in direction would include a 
stronger focus on responsible choice and competition in health care 
markets; more neutral, limited, and transparent taxpayer subsidies for 
health care spending by most Americans (augmented to provide special 
enhanced protection for the most vulnerable low-income and high-risk 
portions of the population); real steps toward meaningful information 
transparency; and realignment of incentives to reward better health 
care choices and higher-value health care delivery.\6\
---------------------------------------------------------------------------
    \6\ See, for example, James C. Capretta and Thomas P. Miller, ``The 
Defined Contribution Route to Health Care Choice and Competition,'' 
American Enterprise Institute, December 2010, available at http://
www.aei.org/paper/100164.
---------------------------------------------------------------------------
    Thank you again for the opportunity to present this testimony. I 
look forward to your questions.
                                 ______
                                 
    Chairman Roe. Thank you.
    Mr. Parker?

 STATEMENT OF BRETT PARKER, VICE CHAIRMAN AND CHIEF FINANACIAL 
OFFICER, BOWLMOR LANES, SPEAKING ON BEHALF OF THE U.S. CHAMBER 
                          OF COMMERCE

    Mr. Parker. Chairman Roe, Congressman Kucinich and 
distinguished members of the subcommittee, thank you for the 
opportunity to testify before you today, on the pressures 
businesses face from the rising costs of providing employees 
with health care benefits.
    I am Brett Parker, vice chairman and chief financial 
officer of Bowlmor Lanes, which is headquartered in New York 
City. I am here to speak with you today on behalf of the U.S. 
Chamber of Commerce.
    Bowlmor Lanes as we know it today was formed in 1997, in 
Greenwich Village. We purchased the original Bowlmor location 
and completely remodeled the internal operations by infusing a 
vision of upscale design elements and dramatic architecture 
into what had become a tired and dilapidated space.
    The overhaul of Bowlmor Lanes saw the installation of video 
screens and lane-side food and drink service. We strove to make 
bowling a relevant activity to the city's residents and 
businesses again.
    By 1999, Bowlmor Lanes became the highest grossing bowling 
alley in the United States. Today, it stands as one of the 
longest continuously running bowling alleys in the country.
    Following the phenomenal success of Bowlmor in New York 
City, we knew that the Bowlmor concept could be introduced in 
other locations across the country. Today, we have a total of 
six locations in four states. And last year, we opened our new 
flagship location in Times Square that we are quite excited 
about.
    Bowlmor has grown from 50 to over 500 employees in the last 
10 years. We are creating jobs.
    With the economic downturn, Bowlmor took a hit like most 
businesses in the United States. We did not cower from this 
challenge or simply hope that things would somehow play out 
favorably. We tightened our belts and continued to work hard 
and smart.
    We are entrepreneurs. We believe in ourselves and our 
business, and we are willing to take risks and put our 
reputation and our money on the line.
    I have found that many of the roadblocks that we face to 
doing those very things, expanding our business and generating 
new jobs, are erected by the government. Whether it is a threat 
posed by card check, the absurdity of the new 1099 reporting 
mandate, or the anxiety and complexity of the new health care 
law and its array of mandates, we feel like the federal 
government, time and time again, creates obstacles to success, 
and by doing so increases the likelihood of failure.
    These forces combine to make future investments in growing 
our business less and less attractive.
    Bowlmor Lanes currently employs 532 members of our team, 
with a workforce comprised of 258 full-time employees and 274 
part-time employees. Under the new health care law, it seems 
probable that we will sustain a per capita cost increase on 
existing full-time employees of at least $2,000 per person. 
This poses a significant cash drain on the business.
    For Bowlmor to develop a new location, we need to have $2 
million in cash equity on hand. By depriving us of the cash we 
need to grow, through dollars paid to penalties and lost 
profits from facilities not developed, over the first 5 years 
the health care law will preclude us from opening five 
locations, creating over 500 jobs or investing $26 million in 
new infrastructure. The damage gets worse every year the 
employer mandate and the health care law are in effect.
    When it comes to health insurance, we have been continually 
forced to weigh the difficult choice between increasing cost to 
the company and our employees with reducing coverage. Every 
year we pay more and get less.
    To minimize the losses sustained due to this mandate, we 
will have to keep employees part-time and not allow them to 
work 30 hours a week. We are very unhappy about the effects 
this will have on our employees.
    Unfortunately, even if Bowlmor found a way to offer 
coverage that meets the new law's standards, we would still be 
subject to $3,000 fines whenever a low-income employee gets a 
subsidy. This is a big incentive for us to stop offering any 
coverage at all.
    If Bowlmor attempts to continue offering benefits, we can 
look forward to more expensive insurance thanks to the health 
care law.
    Next, we have a host of new taxes to look forward to. Taxes 
that would make Bowlmor's health insurance more expensive, 
taxes on prescriptions, medical devices and insurance plans 
will be passed on to consumers, meaning Bowlmor and its 
employees.
    First and foremost, Congress should repeal the job-
destroying employer mandate. Senator Hatch introduced a bill to 
do that in the Senate that has 26 co-sponsors. But nobody in 
the House has introduced the companion legislation.
    In conclusion, from the perspective of Bowlmor Lanes, the 
costs incurred with the new health care law will greatly hinder 
our ability to expand and develop new venues and create new 
jobs. I am hopeful that this body will make it a priority to 
repeal the most objectionable provisions, like the employer 
mandate.
    Also, I hope you will look to real reforms that lower 
costs, such as tort reform. And throughout this process, I 
would ask that you continually be mindful of how your decisions 
directly, and oftentimes inadvertently, impact businesses in 
this nation.
    We are the job creators. Please rebuild an environment that 
encourages, not suppresses, business growth, entrepreneurism, 
investment and job creation.
    Thank you for this opportunity to testify, and I look 
forward to your questions.
    [The statement of Mr. Parker follows:]

 Prepared Statement of Brett Parker, Vice Chairman and Chief Financial 
   Officer, Bowlmor Lanes, on Behalf of the U.S. Chamber of Commerce

    Chairman Roe, Ranking Member Andrews and distinguished members of 
the Subcommittee, thank you for the opportunity to testify before you 
today on the pressures businesses face from the rising costs of 
providing employees with health care benefits. I commend your efforts 
to further understand the impact the new health care law will have on 
the ability of businesses, including small ones like mine, to compete, 
grow and create jobs as well as our capacity to offer our employees 
health care benefits.
    I am Brett Parker, Vice Chairman and Chief Financial Officer of 
Bowlmor Lanes, which is headquartered in New York City. I am here to 
speak with you today on behalf of the U.S. Chamber of Commerce. The 
U.S. Chamber of Commerce is the world's largest business federation, 
representing the interests of more than three million businesses and 
organizations of every size, sector, and region. More than 96 percent 
of the Chamber's members are small businesses with 100 or fewer 
employees, 70 percent of which have 10 or fewer employees. Yet, 
virtually all of the nation's largest companies are also active 
members. We are particularly cognizant of the problems of smaller 
businesses, as well as issues facing the business community at large.
    The Chamber did not support the status quo before passage of the 
health care law--in fact, we were parties to a number of collaborations 
aimed at building bipartisan reforms that would lower health care 
costs. We opposed the misnamed Patient Protection and Affordable Care 
Act (PPACA) because it failed to rein in costs, and instead increased 
them, while loading job creators with mandates, regulations, new taxes 
and burdens. Rather than solve the problems in the health care system, 
PPACA ignores costs and instead redistributes money from producers in 
order to fund vast new entitlements and expand old ones--this was not 
an improvement over the status quo, it was a step backwards. Instead, 
the Chamber believes that we should replace PPACA, advance market-based 
reforms, and focus on lowering costs, increasing competition, and 
improving the health care delivery system.
Company Background
    In 1938, the original Bowlmor Lanes opened its doors in the heart 
of Greenwich Village. During the golden age of bowling from the 1940s 
to 1960s, Bowlmor Lanes was at the forefront of the bowling revolution, 
hosting the prestigious Landgraf Tournament in 1942 and one of the 
first televised bowling tournaments in 1955. Through the 1970's and 
1980's, Bowlmor Lanes was home to the top bowlers in the sport and 
became a regular hangout for village hipsters. But in the 1990's, as 
the popularity of bowling as a sport declined, so did the condition of 
the bowling alley.
    Bowlmor Lanes, as we know it today, was formed in 1997 under the 
leadership of our CEO, Tom Shannon, who secured financing, purchased 
the original Bowlmor location and completely remodeled the internal 
operations by infusing his vision of upscale design elements and 
dramatic architecture into what had become a tired and depilated space. 
The overhaul of Bowlmor Lanes saw the installation of video screens, 
glow in the dark lanes and lane side food and drink service. Simply 
put, we strove to make bowling a relevant activity to the city's 
residents and businesses again. And Bowlmor has achieved this goal and 
continues to grow and prosper. By 1999, Bowlmor Lanes became the 
highest-grossing bowling alley in the United States. Today, it stands 
as one of the longest contiguously running bowling alleys in the 
country.
    Following the phenomenal success of Bowlmor Lanes in New York City, 
we knew that the Bowlmor concept could be introduced in other locations 
across the country. Today, we have a total of six locations in four 
states: two in New York, two in California, one in Florida and one in 
suburban Washington, DC, specifically Bethesda, Maryland. At each 
location, our objective is to blend a great American pastime with an 
upscale entertainment experience. And nowhere is this more exemplified 
than our newest venture--Bowlmor Lanes Times Square--where we invested 
$25 million, creating construction jobs in New York City and positions 
for the 179 individuals we directly employ there. With the doors to our 
new flagship location opened on November 23, 2010, Bowlmor Lanes has 
taken bowling to new heights--dividing 45 lanes of luxury bowling into 
6 intimate themed lounges. Each lounge is themed to represent iconic 
places and time periods in New York City--Times Square, Chinatown, 
Central Park, Art Deco, Prohibition and Pop. Bowlmor Lanes Times Square 
also features The Stadium Grill, an upscale sports bar and restaurant 
that fuses innovative American cuisine with premier sports and 
entertainment viewing. We are proud of our new flagship, as well as our 
growing business--Bowlmor has grown from 50 to over 500 employees in 
the last ten years; we are creating jobs.
    We are quite excited about our new venue in Times Square and proud 
of what it says not just about our company but the entrepreneurial 
resilience of visionary, hard-working, risk-taking men and women 
throughout our great nation. With the economic downturn, Bowlmor Lanes 
took a hit like most businesses in the United States. While I am 
guardedly optimistic that the worst is behind us, I will point out that 
we did not cower from this challenge or simply hope things would 
somehow play out favorably. We tightened our belts and continued to 
work hard and smart. We took concrete action, and perhaps most 
importantly, we moved proactively to fight our way out of this economic 
mess without looking for the government to guide the way. We are 
entrepreneurs--we believe in ourselves and our business and we are 
willing to take risks and put our reputation on the line. And we are 
confident that we can succeed, as we have in the past, in growing our 
business and creating jobs. I have unfortunately found that many of the 
roadblocks we face to doing those very things--expanding our business 
and generating new jobs--are erected by the government. Whether it is 
the threat posed by card check, the absurdity of the new 1099 reporting 
mandate or the anxiety, complexity, disorder, uncertainty and overall 
peril the new health care law and its array of mandates imposes, we 
feel like the Federal government time and again creates obstacles to 
success and, by doing so, increasing the likelihood of failure. These 
forces combine to make future investments in growing our business less 
and less attractive.
Health Care
    Bowlmor Lanes currently employs 532 members on our team, with our 
workforce comprised of 258 full-time employees and 274 part-time 
employees. We have a healthy, profitable, viable business that grows by 
developing and opening new units which, of course, means more jobs. In 
considering whether to expand and open a new Bowlmor Lanes operation, 
we have to very critically evaluate the costs of doing so, with 
particular scrutiny given to factors that increase our cost of doing 
business. For Bowlmor Lanes to develop a new location, we need to have 
$2-3 million in equity. Therefore, when the costs of implementing a new 
law or regulation threaten to reduce the cash flow from our existing 
locations, it stunts our growth. Having reviewed the new health care 
law, it seems probable that we will sustain a per capita cost increase 
on existing full time employees of at least $2,000 per employee. These 
fines quickly increase over time and confound Bowlmor's ability to 
invest, develop more locations, and create more jobs. As demonstrated 
by the chart below, the health care law may well incinerate more than 
$26 million that Bowlmor would have invested, as well as more than 500 
jobs we could have created. The damage gets worse every year the 
employer mandate, and the health care law, are in effect. The bottom 
line is that our ability to expand, to open a new operation and create 
new jobs is very sensitive to costs increases that will make existing 
venues less profitable and future increases that will make all venues 
more expensive to operate.

                                    BOWLMOR JOB LOSS RATE EXPECTED FROM PPACA
----------------------------------------------------------------------------------------------------------------
                                                                    Year
                                       -------------------------------------------------------------  Aggregate
                                             1           2           3           4           5          impact
----------------------------------------------------------------------------------------------------------------
Lost Cash From Operations of New Units  ..........    $348,000    $991,800  $2,156,730   $4,237,466   $7,733,996
Lost Cash From Healthcare Penalties...    $464,000    $510,400    $561,440    $617,584     $679,342   $2,832,766
Lost Units............................         0.2         0.4         0.8         1.4          2.5          5.3
Lost Jobs.............................          23          43          78         139          246          528
Lost Investment.......................  $1,160,000  $2,146,000  $3,883,100  $6,935,785  $12,292,020  $26,416,905
----------------------------------------------------------------------------------------------------------------

    Currently, Bowlmor offers health insurance to exempt employees; 
Bowlmor pays one third of the premium and employees pay the remainder, 
with an option for an employee to buy more comprehensive coverage if 
he/she so chooses. When it comes to health insurance, we have been 
continually forced to weigh the difficult choice between increasing 
costs to the company and our employees, with reducing coverage. We have 
been forced to continually reduce coverage over time to ensure that our 
employees can afford the costs of insurance. Unfortunately, this was 
the only way that we could continue to offer coverage without running 
ourselves out of business or inducing our staff to opt out of coverage. 
Every year we pay more and get less, and under the new law it appears 
that this process could get even worse. And there has been so much 
market consolidation already, we have very few insurance companies to 
choose from.
    Under the new health care law, the coverage Bowlmor offers will 
likely not be considered sufficient to avoid the employer mandate, 
which will penalize us to the tune of about $2,000 per full time 
employee. To minimize losses sustained due to this mandate, we will 
have to do whatever it takes to keep employees part-time, not allowing 
them to work 30 hours a week. We are very unhappy about the effects 
this will have on our employees--for example, an employee who currently 
works full-time in our kitchen will be shifted to part-time status with 
Bowlmor and he/she will likely have to find another part-time position 
at another restaurant or similar business. While Bowlmor would 
definitely rather not disrupt our full-time employees like this, we 
must do so to protect existing jobs. Unfortunately, even if Bowlmor 
found a way to offer coverage that meets the new law's standards, we 
would still be subject to fines--whenever our coverage fails to meet 
the affordability threshold for a low income employee and that employee 
gets a subsidy to purchase coverage in the new exchanges, Bowlmor would 
be fined $3,000 per head. This is a big incentive for us to stop 
offering any coverage at all. The structure of the penalties and 
mandates in the health care law seems to suggest that proponents want 
businesses to drop coverage and pay a fine, perhaps to funnel all 
Americans into government-run structures and eventually toward a 
nationalized health care system.
    As the costs of the health care law and other burdensome mandates 
continue to pile up, Bowlmor will be forced to look for other ways to 
control costs and this may mean reducing our workforce. For example, 
Bowlmor Lanes currently provides in-person service at the lanes, but we 
are exploring the possibility of deploying touch screen kiosks that 
customers could use instead. We prefer to not have to go this route 
because the in-person service provides our clients with a personal 
experience and we would prefer to keep our staff employed; however, our 
hand is being forced by costly mandates and regulations. We must take 
action to protect the greatest number of existing jobs possible.
    Another provision in the new law requires that companies with 200 
full time employees automatically enroll workers in their health 
insurance plan. This would be a disaster for a company like Bowlmor, 
with a somewhat transient workforce, high turnover, and a large number 
of low wage employees. These employees do not want to purchase 
benefits, and automatically enrolling them would be contrary to both 
their financial interests and their wishes--not to mention an 
administrative nightmare. Even worse would be a requirement that 
employers automatically enroll employees in a plan with no value to 
them: if Bowlmor is pressured into participating in the CLASS Act Ponzi 
scheme, workers will be automatically enrolled in a program they not 
only have no interest in, but one that they will likely never realize 
any benefit from. Provisions like this make it blindingly obvious that 
people with any real-world business experience had very little input 
into the health care law.
    If Bowlmor attempts to continue offering benefits, we can look 
forward to more expensive insurance thanks to the health care law. 
First the law will require a host of new benefits that we will have to 
pay for, including adding ``adult children'' up to age 26 as 
dependents, no cost-sharing allowed for some services, no annual or 
lifetime limits, etc. These might be nice to have, but when businesses 
are struggling to afford health insurance, these changes make insurance 
more expensive.
    The law also makes affordable, high-deductible plans worse--a new 
cap on Flexible Spending Arrangements will reduce employee flexibility, 
and a new requirement prohibits employees from spending their own money 
in health accounts unless they have a prescription for things like 
aspirin, Allegra, and other over-the-counter drugs.
    Next we have a host of new taxes to look forward to, taxes that 
would make Bowlmor's health insurance more expensive. Taxes on 
prescription drugs and medical devices will be passed on to consumers--
meaning Bowlmor and our employees. Even more egregious, a new small 
business health insurance tax will hit companies like Bowlmor who 
purchase fully-insured health plans, while big businesses that self-
insure will not pay the tax. I will not even discuss the looming so 
called ``Cadillac'' tax, which will be imposed in 2018. And let us not 
forget that the 1099 paperwork mandate is still out there, and unless 
the House and Senate can come to an agreement on how to offset the 
costs of repealing it, businesses like Bowlmor will be buried in 
useless tax filings.
    While repealing the 1099 provision would be a good start, Bowlmor 
and businesses like ours will suffer if all Congress does in the next 
two years is repeal 1099s and talk about repealing the whole health 
care bill. If Congress really wants to help us grow the economy and 
create jobs, we ask that you do two things--take the health care bill 
apart piece-by-piece, and pass real health reforms that will actually 
lower our costs. First and foremost repeal the job-destroying employer 
mandate; Senator Hatch introduced a bill to do that in the Senate that 
has 26 co-sponsors, but nobody in the House has introduced companion 
legislation. Also, please go after the more than $500 billion in new 
taxes the health care bill created.
    To actually help lower health insurance costs, Congress could 
consider a broad array of reforms, including medical liability reform, 
opening up health insurance markets to more competition, and allowing 
businesses to create new pooling mechanisms. Bowlmor's costs are 
directly increased because of cost-shifting from Medicare and Medicaid 
as well; so business has a big stake in helping you reform those 
entitlement programs. More transparency in the medical world would help 
drive greater efficiency and quality, so Congress should release the 
massive CMS claims database and allow that information to be used to 
report on the quality and efficiency of providers.

Conclusion
    Congress knows that the national debt is now more than $14 
trillion. You know the annual deficit will be $1.5 trillion if the 
President's budget proposal is enacted into law. And you know that our 
unfunded liabilities, promises that we have made under current law, for 
Medicare, Medicaid, and Social Security are more than $100 trillion. 
Congress knows that somehow our children and grandchildren are going to 
be forced to pay those costs, and still they created an entirely new 
health care entitlement that will add untold amounts to our promises 
going forward. Worse, it seems that small businesses are being forced 
to pay for this new spending through higher taxes, benefit mandates, 
and increased regulation. This is bound to reduce our value to society 
as investors and job creators, to shackle innovation, stifle economic 
growth, and create more fear and uncertainty about the future. If we 
did business the way the Congress that passed the health care bill did, 
we would already be out of business.
    This hearing is aptly entitled ``The Pressures of Rising Costs on 
Employer Provided Health Care.'' From the perspective of Bowlmor Lanes, 
the costs incurred with the new health care law will greatly hinder our 
ability to expand and develop new venues and create new jobs. While the 
existing political reality makes a total repeal of the law impossible 
during this Congress, I am hopeful that this body will make it a 
priority to repeal the most objectionable provisions like the employer 
mandate, which impose burdens on businesses and hinder job creation and 
growth. Also, I hope you will look to real reforms to lower cost, like 
tort reform. And throughout this process I would ask that you be 
continually mindful of how your decisions directly and oftentimes 
inadvertently impact businesses in this nation. It is companies like 
Bowlmor Lanes and millions of others like us that serve as the engines 
of economic growth in the United States. We are the job creators; 
please, rebuild an environment that encourages, not suppresses, 
business growth, entrepreneurism, investment, and job creation.
    Thank you for this opportunity to testify, and I look forward to 
your questions.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Parker.
    Mr. Houser?

 STATEMENT OF JIM HOUSER, OWNER, HAWTHORNE AUTO, TESTIFYING ON 
               BEHALF OF THE MAIN STREET ALLIANCE

    Mr. Houser. Chairman Roe, Congressman Kucinich and members 
of the committee, thank you for the invitation to testify 
regarding trends in health insurance costs and their impact on 
small businesses.
    My name is Jim Houser. I am an ASE certified master 
automotive technician and co-owner of Hawthorne Auto Clinic in 
Portland, Oregon.
    I am also co-chair of the Main Street Alliance of Oregon, a 
small business group in my state. And I serve on the national 
steering committee of the Main Street Alliance, a network that 
creates opportunities for business owners to speak for 
ourselves on issues that impact our businesses.
    When my wife, Liz Dally, and I opened Hawthorne Auto Clinic 
28 years ago, we made the commitment to offer health insurance. 
It seemed like the right thing to do, and it made good business 
sense in a high-skill field where offering benefits to keep 
experienced technicians is important. But it has not been easy.
    Small businesses are recognized as the engines of job 
growth. But a health care marketplace that stacks the deck 
against small businesses has put us at a consistent 
disadvantage.
    Small business health care costs have grown a whopping 129 
percent since 2000. We pay an average 18 percent more than 
large firms for the same coverage.
    At my business, we pay 100 percent of the insurance costs 
for our nine full-time employees and their dependents. Our 
premiums have doubled over the last 8 years, reaching $100,000 
last year, more than 20 percent of payroll.
    This year, we witnessed a minor miracle. Our premiums went 
down 3 percent. It is the first time in my memory they have 
declined.
    A provision of the Affordable Care Act has allowed my 22-
year-old daughter, a recent college graduate, to return to our 
insurance plan. I am glad our family business can actually 
cover our family again.
    We are also eligible for the new tax credits in the health 
law. My accountant says we should get back between $5,000 and 
$10,000 on our 2010 taxes. Combine that with the decrease in 
our premiums, and we will save 8 to 10 percent of our insurance 
this year, due to the Affordable Care Act.
    Now, I am well aware that health insurers are pursuing 
steep rate increases. I am also aware that insurance lobbyists 
are trying to pin these increases on the new law.
    This claim just does not pass inspection. If insurers are 
jacking up their rates, again, it is in spite of the new health 
law, not because of it. If anything, insurers are seizing the 
moment to hit customers with one more off-the-charts increase 
while they still can get away with it before measures to rein 
in those increases take effect.
    Even insurance executives admit the rate increases are not 
because of the new law. A senior vice president at Harvard 
Pilgrim in Massachusetts said, only one percentage point of 
this year's increases was attributable to the federal law. And 
that was mainly due to the requirement for free preventative 
services.
    As my mechanics will tell you, customers who have us 
perform regular preventative maintenance rarely get towed in 
for unanticipated, expensive repairs. Similarly, it is much 
more cost-effective to spend $200 to get a patient's blood 
pressure under control than to spend $50,000 for the E.R. 
response to a stroke.
    Preventative measures are an investment that pays off big 
in the long run.
    Whatever the lobbyists say, the fact is the health law is 
giving small businesses tools to put the brakes on rising 
insurance rates; for example, the new premium tax credits. Four 
million small businesses like ours can qualify for a credit of 
up to 35 percent.
    New customer protections allow young adults up to 26 to 
enroll on their parents' plan. Rate review resources give 
states new tools to protect small businesses from unreasonable 
rate increases. New medical loss ratio standards ensure small 
businesses get value for their premiums.
    And the state insurance exchanges being designed offer 
greater transparency, more choices and, with as many as 970,000 
people predicted to enroll in the exchange in Oregon, much more 
bargaining power.
    Small businesses are moving forward on health care. Kaiser 
Family Foundation reports the percentage of employers with 
three to nine employees offering health coverage rose from 46 
percent in 2009, to 59 percent in 2010.
    Efforts to repeal or defund the health law will only hurt 
us. Even the possibility of repeal creates paralyzing 
uncertainties.
    If the law is repealed, will I have to return my tax 
credit? What about next year? Will I be able to bank on the 
credit and use that money to invest in my business or not?
    We cannot afford to go back to a system that stacks the 
deck against small business. We have got to move forward.
    With proper implementation we can level the playing field, 
get control of insurance costs and allow small businesses to 
focus on what we do best--things like fixing cars, creating 
jobs and building local economies across America.
    Thank you very much.
    [The statement of Mr. Houser follows:]

      Prepared Statement of Jim Houser, Hawthorne Auto Clinic and
                     Main Street Alliance of Oregon

    Chairman Roe, Ranking Member Andrews, and members of the committee, 
thank you for the invitation to testify regarding trends in health 
insurance costs and their impact on small businesses.
    My name is Jim Houser. I am an ASE Certified Master Automotive 
Technician and co-owner of Hawthorne Auto Clinic in Portland, Oregon, a 
family business I founded with my wife, Liz Dally, 28 years ago. I am 
also co-chair of the Main Street Alliance of Oregon, a small business 
group in my state, and serve on the national steering committee of the 
Main Street Alliance, a national network that creates opportunities for 
business owners to speak for ourselves on issues that impact our 
businesses and our local economies.
    When Liz and I opened Hawthorne Auto Clinic in 1983, we made the 
commitment to offer health insurance to our workers. It seemed like the 
right thing to do, and it made good business sense. Auto repair is a 
high-skill field where offering good benefits to keep experienced 
technicians is very important. We're also an aging profession. The 
makeup of our small group shows it, and with the current system of age 
rating where you're penalized for having older workers in your group, 
we have suffered relentless increases in our insurance costs year after 
year.

A Stacked Deck: Small Businesses at a Disadvantage in the Insurance 
        Marketplace
    Small businesses are recognized as the engines of the American 
economy. The country looks to the innovation and entrepreneurship of 
small businesses to create jobs and drive the economic recovery. But 
for decades, a health care marketplace that stacks the deck against 
small businesses has put us at a disadvantage.
    The conditions small businesses have faced in the insurance 
marketplace of the last decade include:
     Small businesses' health care costs have grown 129 percent 
since 2000.
     We pay on average 18 percent more than large firms for the 
same level of coverage.
     Administrative costs can be two and a half times higher 
(sometimes even more) for small businesses compared to larger firms.
     High levels of market concentration, combined with a 
version of ``competition'' between insurers that is based on cherry-
picking healthy enrollees rather than competing to offer the best 
services at the best rates, leave small businesses with few real 
options and nowhere to turn when double digit rate hikes strike again.
     Tens of millions of small business owners, our employees, 
and dependents forego health coverage altogether because the costs have 
been out of reach: of the 49 million Americans living without health 
care (up from 40 million in 2000), an outsized majority--about 60 
percent--work for small businesses, according to the Employee Benefit 
Research Institute.

Cost Trends at Hawthorne Auto and Impact of the New Health Law
    I know from my own experience that the pressure of rising insurance 
rates over the last decade, without health reform, has been severe and 
unrelenting. At my business, insurance costs for our nine full-time 
employees and covered dependents doubled from 2002 to 2010, reaching 
over $100,000 last year. That figure represented more than 20 percent 
of our payroll, adding greatly to our cost of doing business.
    This year, we witnessed a minor miracle: our premiums went down 3 
percent. It's the first time in my memory they've declined.
    A provision of the Affordable Care Act has allowed my 22-year-old 
daughter, a recent college graduate, to rejoin our insurance plan. I'm 
not sure if that's why our premiums went down (because we're now 
sharing our health care risk over a larger, younger, and healthier pool 
of enrollees), but either way I'm glad our family business can actually 
cover our family again.
    We're also eligible for the new small employer premium tax credits 
in the law, and my accountant says we should get back between $5,000 
and $10,000 this year. Combine that with the premium decrease and we're 
going to save 8 to 10 percent on our health insurance this year due to 
the Affordable Care Act.

Broader Trends in Insurance Rates and Claims of Connection to the ACA
    I'm aware that many health insurers are continuing to pursue steep 
rate increases--from Blue Shield of California's push for increases of 
up to 59 percent to Anthem in Maine's legal battle with the state. I'm 
also aware that some insurance lobbyists are trying to pin these 
increases on the new law.
    This claim just doesn't pass inspection. If insurers are jacking up 
their rates--yet again--it's in spite of the new health law, not 
because of it. If anything, insurers are seizing the moment to hit 
customers with one more off-the-charts increase while they can still 
get away with it, before measures to rein in those increases take 
effect.
    Even insurance executives admit the rate increases aren't because 
of the new law. New York Times correspondent Robert Pear reported in an 
article on rising insurance rates that a senior vice president at 
Harvard Pilgrim in Massachusetts said only one percentage point of this 
year's increases was attributable to the federal law. And, according to 
this insurance company executive, that was mainly due to the 
requirement for free preventive services--a requirement that makes a 
lot of sense to me in the auto repair business.
    As my mechanics will tell you, customers who have us perform 
regular preventive maintenance rarely get towed in for unanticipated, 
expensive repairs. Similarly, it's much more cost effective to spend 
$200 to get a patient's blood pressure under control than to spend 
$50,000 for the ER response to a stroke. Preventive measures--whether 
in auto repair or health care--are an investment that pays off big in 
the long run.
Health Law Gives Small Businesses New Tools to Put Brakes on Rising 
        Insurance Costs
    Whatever the lobbyists say, the fact is the health law is giving 
small businesses tools to put the brakes on rising insurance rates in a 
number of ways. The following are some examples:
Small Employer Health Premium Tax Credits
    Business owners across our network from my Portland, Oregon to 
Portland, Maine are already benefiting from the new tax credits 
effective for tax year 2010. My accountant tells us we should expect to 
receive a credit of between $5,000 and $10,000 on our 2010 taxes. Other 
businesses that offer health coverage and pay half the cost can qualify 
for a credit of up to 35 percent now through 2013 and 50 percent in 
2014. That's serious savings for a small business. It's like a time 
machine, turning the clock back on insurance rates. It's hard to think 
of a single other step that could cut a small business's insurance bill 
by 35 percent in one go.

Consumer Protections that Benefit Small Businesses
    The Affordable Care Act puts in place important consumer 
protections in the small group and individual insurance markets where 
small business owners, our families, and our employees get health 
coverage. These protections include a ban on pre-existing condition 
exclusions, new limits on insurance caps, and the ability to keep adult 
children covered up to age 26 (this is the provision that has allowed 
us to re-enroll my daughter in our business's plan). These provisions 
will increase the quality of the coverage for small businesses and our 
employees. The under-26 provision will also help us spread risk across 
a broader age range to reduce our rates, as illustrated by the story of 
my business and my daughter.
Strengthening Premium Rate Review
    After years of enduring double-digit rate increases with no 
recourse, I'm encouraged that Oregon and other 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. Given the high level of 
market concentration in the health insurance industry and the absence 
of true competition (competition based on consumer value rather than 
competition based on cherry-picking risk pools), we need stronger rate 
review to protect small businesses from unreasonable rate increases.

Medical Loss Ratio Requirements and Value for Premiums
    Running a small business, remembering the importance of providing 
real value to our customers becomes second nature. Somehow, it seems 
health insurance companies have lost sight of that basic tenet of good 
business. Minimum medical loss ratio requirements will restore a focus 
on ensuring value for our premium dollars. If insurers fail to meet 
this standard, insurance customers like us will receive cash rebates to 
make up the difference. It's high time we had a value guarantee like 
this in health insurance.
State Insurance Exchanges: Transparency, Choice, and Bargaining Power
    The state insurance exchanges currently being designed 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 greater transparency, more choices, expanded 
risk pooling, and more bargaining power. In Oregon, as many as 970,000 
people are predicted to enroll in the exchange. I can't wait to join a 
group of almost a million people. For small businesses that currently 
have groups of 20 people, 10 people, or less, banding together in the 
exchange will represent an exponential leap in our bargaining power.

Cutting the ``Hidden Tax''
    Small businesses that have insurance now currently pay a ``hidden 
tax'' (estimated at over $1,000 per insured family and over $350 per 
insured individual in 2008) resulting from the cost-shifting of 
uncompensated care costs. By getting tens of millions more people 
insured and paying into the system up front, the new law should 
significantly reduce this cost-shifting and cut this hidden tax.

Conclusion: Small Businesses Moving Forward on Health Care
    Small businesses are moving forward on health care:
     Nationally, the Kaiser Family Foundation reports the 
percentage of employers with 3 to 9 employees offering health coverage 
rose from 46 percent in 2009 to 59 percent in 2010--in part due to the 
ACA's tax credits.
     Information from states also indicates that small 
businesses are taking advantage of the opportunity to start (and 
continue) offering health coverage. For example:
     Blue Cross Blue Shield of Kansas City recently reported 
that after letting local businesses know about the new tax credit, they 
enrolled more than 9,000 new members covered by 400 new employers. The 
company reported a 58 percent increase in small businesses purchasing 
insurance since April 2010, the first month after the passage of the 
ACA.
     Blue Cross and Blue Shield of Nebraska reported a 34 
percent increase in health insurance sales to small businesses for the 
new year.
     A spokeswoman for Blue Cross of Idaho reported a ``huge 
increase'' in the number of small employers requesting quotes, and a 
shift in employers keeping coverage for their workers.
    Efforts to repeal or defund the health law will only hurt small 
businesses that are already benefiting or looking forward to the 
benefits of the new law. Even the possibility of repeal creates 
uncertainties that are harmful to business planning and job growth. For 
example, if the law is repealed, will I have to return my tax credit? 
What about next year--will I be able to bank on the credit and use that 
money to invest in my business, or not? And, will my family business be 
able to continue providing coverage to our family, including my 22-
year-old college graduate daughter--or will she be bounced off our plan 
and left vulnerable to medical debt just as she's working to get on her 
feet and launch a career?
    We can't afford to go back to a system that stacks the deck against 
small businesses. We've got to keep moving forward. With proper 
implementation of the health care law, we can level the playing field 
for small businesses, get meaningful control of insurance costs, and 
allow small businesses to focus on what we do best: things like fixing 
cars, creating jobs, and building local economies, in Oregon and across 
America.
    Thank you.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Houser.
    Mr. Brewer?

           STATEMENT OF J. MICHAEL BREWER, PRESIDENT,
         LOCKTON BENEFIT GROUP, LOCKTON COMPANIES, LLC

    Mr. Brewer. Mr. Chairman, Ranking Member Kucinich and 
honored members of the committee, my name is Mike Brewer. I am 
the president of Lockton Benefit Group, the employee benefits 
consulting arm of Lockton Companies, LLC.
    Lockton Benefit Group provides employee benefits consulting 
services to 2,500 middle market clients nationwide. The vast 
majority of our clients employ between 500 and 2,000 employees. 
Our clients include private and governmental employers, and 
employers in a wide variety of trades and industries.
    Our clients agree that improvements in the health insurance 
system are necessary and important. However, they are 
frustrated that the health reform law imposes additional cost 
and other burdens upon them.
    Our clients wish that Congress would work to make an 
employer's provision of health insurance easier and less 
costly, rather than more expensive and more burdensome.
    Our actuaries have modeled for several hundred clients the 
impact of the health reform law on their group health insurance 
programs. To-date, we have aggregated the results from 136 of 
these modeling reports and broken out the results by industry 
segment. I would like to share some of those results with you 
today.
    On average, the reform law's immediate benefit mandates add 
2.5 percent to our clients' health insurance cost. The 
automatic enrollment requirement in 2014 adds 3.8 percent to 
our clients' health insurance spend, on average, even assuming 
that 75 percent of the automatically enrolled employees, who 
would not have otherwise enrolled in coverage, would opt back 
out of the coverage with the opportunity.
    These increases may appear modest, but they are not. Many 
clients have health insurance expense trends of 10 percent or 
more annually. A 10 percent trend line becomes 12.5 percent in 
2011, and 16.3 percent in 2014, just on account of the mandates 
that I have mentioned.
    I would like to speak for a moment to the impact of 
employers' ``play or pay'' mandate, which also takes effect in 
2014.
    Across most industry segments, our clients will have 
significant financial incentive to terminate the group coverage 
once the insurance exchanges present employers with another 
subsidized health insurance option. That is because the vast 
majority of our clients currently spend far more on health 
insurance per employee than the penalty under the ``play or 
pay'' mandate. By 2014, this gap will become even wider.
    On average, our analysis shows that by terminating group 
coverage our clients would save an amount equal to 44 percent 
of the projected health insurance cost in 2014.
    In fairness, few clients have told us today, here in 2011, 
that they definitely intend to terminate group coverage in 
2014. Similarly, few have said they intend to maintain their 
health insurance coverage. The vast majority tell us they are 
going to wait and see.
    They tell us that what they do in 2014 depends upon their 
health insurance costs then and their perceived need to use the 
health plan to gain a competitive advantage for labor.
    With regard to this latter point, many employers have told 
us, ``We won't be the first to drop coverage, but we also won't 
be third.''
    The modeling results for our clients in the restaurant, 
retail and hospitality industry is a ``damned if we do, and 
damned if we don't'' scenario.
    On average, to comply with the ``play or pay'' mandate and 
offer qualifying and affordable coverage to all full-time 
employees, the employer's health insurance costs increase 150 
percent. Ironically, if the employer simply terminates its 
group plan, it still pays 56.6 percent more than it would to 
maintain the current plan offered today, because it then has to 
pay the $2,000 per year, non-deductible penalty for each of its 
full-time employees, even those employees to whom the employer 
has never offered coverage.
    These clients and clients like them tell us they have but 
one option: to eliminate large numbers of full-time positions. 
By making full-time employees part-time, the employees are 
removed from the penalty equation.
    Let me also note that health reform adds up to 19 
additional disclosures and reports to the already daunting 27 
disclosures and reports a mere health plan may already be 
required by federal law to make to its enrollees or to the 
federal government.
    Our employer clients are not the bad guys. Our clients 
simply do not understand why, for making the effort to supply a 
valuable employee benefit to their employees, the federal 
government imposes so extensive an administrative and 
regulatory burden.
    These obligations, because of their complexity and steep 
penalties for violation, give employers yet one more reason to 
simply surrender and exit the group insurance marketplace. This 
is, of course, a huge concern to us.
    Again, Lockton greatly appreciates the opportunity before 
you today. We simply urge Congress that, in assessing the 
impact of this health reform legislation, you place yourselves 
not only in the shoes of those Americans who deserve and need 
access to affordable insurance, but also into the shoes of the 
American employers who supply valued health insurance coverage 
to 160 million of us.
    [The statement of Mr. Brewer follows:]

          Prepared Statement of J. Michael Brewer, President,
             Lockton Benefit Group, Lockton Companies, LLC

    Mr. Chairman, Ranking Member Miller and honored members of the 
Committee, my name is Michael Brewer and I am the president of Lockton 
Benefit Group, the employee benefits consulting division of Lockton 
Companies, LLC. On behalf of Lockton I thank you for the opportunity to 
appear here today to share our views regarding the impact of the new 
health reform law on the group health plans sponsored by our clients.
    Lockton is the largest privately held insurance brokerage and 
consulting firm in the world. Domestically, Lockton employs 2,300 
employees in 24 offices nationwide who serve the insurance risk needs 
of approximately 9,000 employer clients from coast to coast. Lockton 
Benefit Group (``LBG '') provides employee benefits brokerage and 
consulting services to approximately 2,500 of those clients. Nearly all 
of those clients employ us to assist in the design and administration 
of their group health insurance programs.
    The vast majority of LBG clients are ``middle market'' employers, 
employing between 500 and 2,000 employees, although we also have some 
small-group and ``jumbo'' clients. Our clients include private and 
governmental employers, and employers across many industry segments, 
including construction, health care, manufacturing, transportation, 
retail, professional services firms, and the hospitality/entertainment 
industry.
    More than half of LBG's clients maintain self-insured group health 
plans. The others purchase group health insurance from licensed 
insurance companies.
Make Employer Based Coverage Less Expensive and Burdensome
    Approximately 160 million Americans receive health insurance today 
through an employersponsored group health plan. Employees of our 
clients enjoy and appreciate this coverage.
    Our clients tell us they have no quarrel with the notion that 
improvements in the health insurance system are necessary, to improve 
access to insurance and reduce the cost of health care and, 
concomitantly, the cost of health insurance. However, they are 
frustrated that in the effort to achieve these aims the health reform 
law adds additional expense to their health insurance costs and imposes 
additional administrative burdens upon them.
    In short, our clients find that the health reform law makes what is 
already a costly and administratively burdensome endeavor--the 
sponsorship of a simple group health insurance plan--even more 
expensive and more hassle-prone. Our clients wish that Congress would 
work to make an employer's provision of health insurance easier and 
less costly, rather than more expensive and more burdensome.

Modeling Results
    We have modeled for several hundred clients the impact of the 
health reform law on their group health insurance programs, now and in 
2014. As of the date we prepared these comments, our actuaries had 
aggregated the results from 136 of these modeling reports, and broke 
out the aggregated results by industry segment. I would like to share 
some of those results with you today. We will be pleased to supplement 
these remarks in the coming weeks and months as we continue to add 
additional modeling results to this aggregated analysis.
Effect of Immediate Benefit Mandates
    On average, the health reform law's immediate benefit mandates (for 
example, the obligation to cover adult children to age 26, the 
elimination of lifetime dollar maximums, restrictions and ultimate 
elimination of annual dollar limits, etcetera) add 2.5% to our clients' 
health insurance costs.
    Industries that currently supply more generous health insurance 
packages--that is, they already cover adult children to age 25, for 
example, and/or already apply high lifetime maximums, such as $5 
million per lifetime--see the smallest increase (.5%).
    Firms that supply more modest packages--such as coverage of 
children to age 22 and/or $1 million lifetime maximums--see the largest 
percentage increases (3.7%).
    Standing alone, expressed as a percentage of total plan costs, 
these increases may not appear compelling. But the increases--
particularly the larger increases--concern our clients, many of whom 
are already struggling with health insurance inflation well in excess 
of the rate of inflation generally. For example, an employer whose 
health insurance costs are trending at 10% without regard to the reform 
law finds its trend increased to 12.5% (an additional 2.5% increase, on 
average) on account of the reform law's mandates. If the employer has 
2,000 employees and spends $16 million per year on health insurance, 
the additional cost of the mandates alone is $400,000.

Effect of Limited Waiting Periods (2014)
    The health reform law prohibits waiting periods of more than 90 
days, beginning in 2014. This mandate has little cost implication for 
most of our clients, because most do not currently maintain waiting 
periods in excess of 90 days.
    For our clients that have waiting periods in excess of 90 days, the 
consequences can be more dramatic. For example, a construction firm 
client with a 6month waiting period for health coverage experiences a 
3.9% cost increase, while another construction firm with a 12month 
waiting period experiences a 39.3% cost increase. Our transportation 
firm clients with 4month waiting periods experience a 6.4% increase.

Effect of Automatic Enrollment Requirement (2014)
    The reform law also requires employers with more than 200 fulltime 
employees to automatically enroll in a health plan those employees who 
become eligible for coverage but who do not affirmatively enroll. These 
employees may, however, choose to affirmatively disenroll. The 
automatic enrollment feature adds 3.8% to our clients' health insurance 
costs on average, with our governmental clients seeing the smallest 
increase (1.4%) and our transportation industry clients seeing the 
largest increase (10%). For one client, a large hospital, our actuaries 
expect the automatic enrollment feature to add more than $1 million 
annually to the client's health insurance cost.\1\
---------------------------------------------------------------------------
    \1\ In modeling the effect of the automatic enrollment provision, 
we assumed that 75% of employees who are eligible for coverage but have 
not affirmatively enrolled, and who are automatically enrolled by the 
employer, will opt out of coverage. These modeling results do not 
reflect the impact of the automatic enrollment feature on our retail, 
restaurant, hotel and entertainment industry clients. The modeling 
results for these clients are described separately, later in this 
document.
---------------------------------------------------------------------------
Employer ``Play or Pay'' Mandate (2014)--Impact on Employers
    Beginning in 2014, employers with at least 50 fulltime equivalent 
employees must offer their fulltime (30+ hours per week) employees 
``minimum essential coverage.'' That coverage must be ``affordable'' to 
the employee, that is, not cost him or her more than 9.5% of household 
income.
    Where an employer fails to offer this coverage at an affordable 
cost and the employee instead obtains subsidized coverage in an 
Insurance Exchange, the employer is subject to a penalty. If the 
employer continues to offer coverage to some employees, the penalty is 
a nondeductible assessment of $3,000 per year ($250 per month) for 
every fulltime employee who does not receive an offer of qualifying and 
affordable coverage, and who instead obtains subsidized coverage in an 
Insurance Exchange.
    However, if the employer terminates its group plan and offers 
coverage to no employees, and at least one fulltime employee obtains 
subsidized coverage in an Insurance Exchange, the penalty is $2,000 per 
year times all the employer's fulltime employees.\2\
---------------------------------------------------------------------------
    \2\ The first 30 such employees are not taken into account in an 
employer's penalty calculation.
---------------------------------------------------------------------------
    Across all industry segments in our book of business,\3\ clients 
will have a significant financial incentive to terminate their group 
coverage once the Insurance Exchanges present employees with another 
subsidized health insurance option. The vast majority of our clients 
currently spend far more on health insurance, per employee, than the 
nondeductible penalty under the ``play or pay'' mandate. By 2014 this 
gap will be much larger still.
---------------------------------------------------------------------------
    \3\ Except retail, hospitality and entertainment employers, whose 
modeling results are addressed separately.
---------------------------------------------------------------------------
    As a result, were they to terminate their group coverage they 
would, on average, save an amount equal to 44% of their projected 2014 
health insurance costs. For clients whose health plans tend to be more 
expensive, savings are larger (84% for our governmental clients, 60% 
for our hospital clients).

Employer ``Play or Pay'' Mandate (2014)--Impact on Employees
    We also modeled the impact of plan termination on clients' 
employees, were they forced to seek coverage in an Insurance Exchange. 
On average, to purchase Exchange-based coverage equivalent to the 
employer's health reform-qualifying coverage, our clients' employees 
would pay significantly more than they pay for the employer's coverage. 
This is because our clients typically subsidize a larger portion of 
employees' health insurance costs than the Exchanges will subsidize, 
and employees pay their portion of employer-based coverage with pretax 
dollars. Their portion of the cost of Exchange-based coverage will be 
paid with after-tax dollars.
    On average, our clients' employees would pay between 101% and 155% 
more for Exchangebased coverage (101% assuming the employee is the sole 
wage earner in the household, 155% assuming there is household income 
in addition to the employee's salary, thus reducing the size of the 
subsidy the employee receives in the Exchange).
    The more highly paid the employer's workforce, the more significant 
the expense borne by the employee in the Insurance Exchange (again, 
because higher household income means smaller subsidies, if any, in the 
Exchange). For example, employees of our professional service firm 
clients can expect to pay, for equivalent coverage in an Exchange, 113-
148% more than they would pay for employer-based coverage.
    This dichotomy has triggered within some employers a conflict 
between the financial officers, working to hold the line on expenses 
and increase profitability, and the human resource officers who, as 
necessary, work to fashion appropriate compensation and benefit 
structures for employees. Next to wages, health insurance costs are the 
most onerous component of labor expenses for the vast majority of our 
clients. By 2014, when the Insurance Exchanges open and present 
employees with another, largely subsidized option for health insurance 
coverage, the burden of group health insurance costs on an employer's 
balance sheet will create tremendous tension within many clients. What 
clients do then depends on several factors.
    Thus far, few clients have told us they definitely intend to 
terminate group coverage in 2014, when Exchange-based coverage becomes 
available. Similarly, few clients have told us they definitely intend 
to maintain their group coverage. The majority of our clients tell us 
they will wait and see. What they will do in 2014 depends on their 
health insurance costs and budget in 2014, and their perceived need to 
use a health plan to gain a competitive advantage for labor.
    With regard to this latter point, many clients have told us, ``We 
won't be the first to drop coverage, but we won't wait to be third, 
either.''
    Our smaller clients will be the first to abandon group coverage. At 
a recent seminar presentation we made to approximately 200 employers 
ranging in size from 50 to 150 employees, half told us they intend to 
exit the group insurance marketplace in 2014.
    To the extent the labor market continues to favor the employer in 
2014, we expect some of our larger clients--particularly those 
employing relatively low paid, modestly-skilled hourly workers--to 
terminate their group health plans.

Retail, Hospitality and Similar Clients Will Eliminate Full-Time Jobs
    The modeling results for our clients in the restaurant, retail, 
hotel and entertainment (e.g., amusement park) industries are more 
sobering. Most of these clients do not offer group health coverage to 
all their fulltime employees because they cannot afford to do so. A 
restaurant chain, for example, will typically offer coverage to its 
corporate staff and restaurant managers. An amusement park will 
typically offer coverage to its year-round staff, but not to its 
extended seasonal workforce.
    These employers are caught in a ``damned if we do, damned if we 
don't'' bind. On average, to comply with the ``play or pay'' mandate 
and offer qualifying and affordable coverage to all fulltime employees, 
the employer's health insurance costs increase 150%.
    Maintaining the status quo--offering coverage to some employees, 
such as corporate staff, but not rank-and-file employees--can trigger 
excise tax penalties under the health reform law's nondiscrimination 
rule, and in any event would trigger $250 per month penalties for every 
fulltime employee not offered coverage and who instead obtains 
subsidies in an Exchange.
    Ironically, if the employer simply terminates its group plan it 
still pays 56.6% more than it would pay to continue its plan. Although 
the employer saves a portion of its health insurance spend (it loses 
the tax deduction on those dollars, and the FICA/FUTA savings on 
employee pretax contributions), it pays a $2,000 per year, 
nondeductible penalty on each of its fulltime employees, even those 
employees on whose behalf the employer is not otherwise incurring a 
health plan expense.
    These clients, and clients like them who employ a large number of 
fulltime, relatively low paid hourly workers who are not receiving an 
offer of robust health coverage today, tell us they have but one 
option: eliminate large numbers of fulltime positions. By making 
fulltime employees part-time, the employees are removed from the 
penalty equation.

Other Burdens
    Federal law imposes other burdens and counterproductive barriers on 
group health plan sponsors, burdens that ratchet up the angst, anxiety 
and frustration of our clients, increase costs to their health plans, 
and give additional reasons for employers to escape the challenges of 
group health plan sponsorship the moment they think they can.
    For example, under federal law alone, a simple group health plan 
must make up to 46 separate disclosures (to enrollees) and reports (to 
federal agencies). Nineteen of these disclosures and reports are 
required under the health reform law.
    The disclosures often go to different individuals, at different 
times, via different means. Some are required annually. Some might be 
required even more frequently. There are requirements that some be 
provided in separate documents, or in specific fonts, or be 
``prominent,'' or provided in a ``culturally and linguistically 
appropriate manner.''
    The myriad disclosure and reporting obligations add angst, cost and 
anxiety to the lives of our clients well in excess of the value that 
the vast majority of employees place in the bulk of the disclosures.\4\
---------------------------------------------------------------------------
    \4\ Lockton employees have attended thousands of employee 
enrollment meetings, and it is not uncommon to find many of these 
disclosures simply littering the floor afterwards. Most employees are 
simply not interested. The burden on the employer, in terms of cost and 
effort, thus outstrips the value most employees place on many of these 
myriad disclosures.
---------------------------------------------------------------------------
    We supply our clients with detailed ``notice calendars,'' but 
employers are often compelled to pay third-party vendors to satisfy at 
least some of the obligations.
    As they propose additional disclosure and reporting requirements, 
federal agencies estimate the relatively modest burden any single 
disclosure or report imposes on the employer. But there appears to be 
no effort to consider the cumulative burden--in time, money and 
effort--on the employer for supplying the currently required 
disclosures and reports.
    Congress should endeavor to minimize the administrative burdens 
employers bear in order to supply group health coverage. Congress 
should: (1) legislatively streamline the disclosure and reporting 
obligations on employers, allowing them greater leeway to consolidate 
disclosures in single documents without existing special rules that 
require some notices to be more ``prominent'' than others; (2) 
synchronize due dates for various disclosures and reports, unless 
impracticable; (3) allow employers to consolidate multiple government 
reports in single filings to the extent practicable; and
    (4) permit employers to post many of the required disclosures in 
the workplace or on their intranet pages rather than deliver by hand or 
by mail to employees, most of whom have demonstrated little or no 
interest in many of the disclosures.

Conclusion
    Lockton greatly appreciates the opportunity to appear before you 
today. In assessing the impact of the health reform legislation, we 
urge you to place yourselves not only in the shoes of those Americans 
who need access to affordable insurance, but in the shoes of the 
employers who supply valued coverage to 160 million of us.
    Employers are burdened and frustrated by aspects of the health 
reform law that add costs to their health plans, and will cause some of 
them to eliminate group coverage and fulltime jobs. They are perplexed 
by a federally-imposed reporting and disclosure scheme that has 
increased substantially under health reform and become far too 
cumbersome.
    We welcome the opportunity to work with you to mitigate these 
burdens on the employer community.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Brewer.
    Since Mr. Kucinich may have to leave, I am going to allow--
go ahead and start with your questioning, if you would.
    Mr. Kucinich. That is very generous of you, Mr. Chairman. I 
really appreciate it.
    I would like to start with Mr. Houser. And I appreciate Mr. 
Brewer's remarks that we need to be sensitive to all of those 
businesses that are providing health insurance.
    Now, Mr. Houser is here. And can you tell us how many 
employees you have?
    Mr. Houser. We have nine full-time employees. We have two 
student interns, who work half-time and go to school half-time. 
And we have two part-time employees: a shop maintenance helper 
and a part-time office assistant.
    Mr. Kucinich. Do you offer family and individual coverage?
    Mr. Houser. We provide complete, 100 percent coverage for 
full-time employees and their families. For the part-timers we 
offer proportional, and no one has taken us up on it.
    Mr. Kucinich. How much of the premium do you pay for your 
employees?
    Mr. Houser. It was $100,000 last year, for the total.
    Mr. Kucinich. Now, so you are paying basically 100 percent.
    Mr. Houser. Yes.
    Mr. Kucinich. Mr. Parker, in terms of your employees at 
your bowling company, do you pay 100 percent?
    Mr. Parker. No. We pay one-third.
    Mr. Kucinich. Okay.
    Can you, Mr. Houser, respond to the statement that Mr. 
Miller makes in his testimony where he states that the 
Affordable Care Act provides very little in tangible first-year 
benefits and imposes modest immediate costs and complications 
on most employers?
    Could you tell us about your experience with that?
    Mr. Houser. Congressman, our experience has been several. 
One is, of course, the tax credit that we will be getting. But 
more than that, the new health insurance exchange is what 
appears to be going to provide the greatest benefit to our 
business.
    The State of Oregon is currently very actively moving 
forward to not only cover about 970,000 more Oregonians, but 
also to change the--with that level of buying power--to change 
how health care is paid for to actually lower the cost of 
health care by changing from a fee-for-service, fee-for-
procedure to a fee-for-outcome mode of how to pay for--to 
actually also bring down the cost of health care.
    Mr. Kucinich. Well, could you tell us any benefits that you 
have already realized from the--have there been any benefits 
that you realized----
    Mr. Houser. The largest benefit is that our daughter, who 
is 22 years old and unemployed and out of college, is now back 
on our health care plan. And so, that is the biggest advantage 
that we have experienced so far.
    I cannot say whether our decrease in premiums was a result 
of the Affordable Care Act or not. I do not know that.
    Mr. Kucinich. And do you think this law will raise your 
costs and complicate your ability to offer health care?
    Mr. Houser. If the costs were to keep going up like they 
were before the Affordable Care Act was passed, then we would 
definitely have to re-evaluate our health care costs. I would 
have to----
    Mr. Kucinich. What about the role of the tax credits?
    Mr. Houser. Well, the tax credits are going to have a huge 
advantage. Although our employees are toward the higher end; 
$50,000 is the limit. And so, we are not quite there on 
average, but we are pushing that.
    But the tax credit does go up in, I believe it is 2014. So, 
that will certainly carry us quite a ways, and especially if we 
can get control of the health insurance rate increases.
    Mr. Kucinich. I have heard witnesses, the other witnesses 
say that they think that employers will increasingly stop 
offering health care to employees as a result of this law.
    Do you think that is true? Do you think that more small 
employers are offering health insurance now? Do you have any 
experience in that outside your own? Have you talked to 
anybody? Can you----
    Mr. Houser. I know that from reading the Kaiser Family 
Foundation report that actually, the number of small employers 
who are covering have increased from 2009, from 46 percent to 
59 percent. So, actually, more small businesses are actually 
increasing their coverage.
    Mr. Kucinich. One final question. What power did you have 
to negotiate with your insurance company when you increasingly 
saw your health care costs increase during the last years?
    Mr. Houser. I am sorry. I did not hear.
    Mr. Kucinich. What kind of negotiating power did you have 
with your insurance company prior to this?
    Mr. Houser. None. All we can do is wait for our broker to 
bring us various--you know, what we are going to be paying.
    Mr. Kucinich. I thank you, thank the gentleman.
    Thank you, Mr. Chairman.
    Chairman Roe. I thank the gentleman for yielding.
    Next is Dr. DesJarlais.
    Mr. DesJarlais. Thank you all for being here. And I am also 
going to have to slip away.
    So, Mr. Houser, you mentioned that your business will 
receive a credit of between $5,000 and $10,000 on your 2010 
taxes, because of the small employer health premium tax credit.
    Do you know who is paying for that credit?
    Mr. Houser. My taxes, I assume.
    Mr. DesJarlais. Any idea? Do you think your taxes are 
paying for that, for your employees?
    Mr. Houser. If my taxes--I am sorry.
    Mr. DesJarlais. Do you feel that your taxes are paying for 
that $5,000 to $10,000 tax credit? Yours personally?
    Mr. Houser. My taxes and your taxes. And my health care 
premiums are also paying for people who work for companies who 
do not cover their employees.
    Mr. DesJarlais. Okay. Do you have a plan in 2016 when that 
credit is no longer available?
    Mr. Houser. I do not envision us ever dropping health care 
coverage for our employees.
    Mr. DesJarlais. Okay. Thank you.
    One thing, if I could yield just a few seconds to our 
chairman to explain the impact of Medicare's expense estimates 
and what they actually turned out to be over time?
    Chairman Roe. What Dr. DesJarlais, I think, is talking 
about, when you look at the government estimates of how much a 
health care plan--the CBO estimated this would be budget-
neutral.
    Medicare was a plan they started in 1965 to cover our 
seniors. There was no CBO then, but the estimate in 25 years 
was this would be a $15 billion plan. In 1990, it was over $100 
billion. So, they missed it seven times.
    In Tennessee we saw where our Medicaid--we went through a 
managed care plan very similar to this in Tennessee in 1993, to 
try to control health care costs, because we had the things 
that you mentioned, rising costs, access and liability. And 
what happened was, in 10 years, in 10 budget years, our costs 
tripled in the state of Tennessee.
    So, it is about, how do you hold the costs down?
    I have sympathy. I have been a provider for all these years 
of health insurance. That is the major problem in America is 
the cost of the care. If it was all affordable, we could all 
have it.
    I yield back.
    Mr. DesJarlais. Okay, thank you for the history lesson. I 
know that you have those numbers well in mind.
    Mr. Miller, we have heard supporters of the new law claim 
that Republicans have not provided concrete ideas or 
suggestions to change financial incentives in health care and 
expand access to affordable, quality coverage. However, your 
testimony suggests there are alternatives to Obamacare.
    Can you elaborate on some of the alternative proposals to 
reform the health care system and design the lower costs of 
coverage and increase access?
    Mr. Miller. Let me put that in two tiers. I mean, I think 
that the actual, official congressional responses are still 
evolving. We have an earlier history of proposals in the House, 
and individual members in the Senate.
    If you are asking for what I would advise the people I have 
spoken to along those lines, we need to do several things. We 
need to first, unfortunately, undo the damage. We lost 2 years 
on the clock, and we have gone in the wrong direction. So, we 
cannot over-extend our resources and, basically, overload the 
entire system with what has happened.
    Some positive proposals, though. They have all limited 
effects in isolation. You have to combine them. The old toolkit 
includes ways to reduce regulatory costs.
    Cross-state purchasing is one proposal in that regard. We 
certainly hear a lot about medical malpractice reform. It will 
make some contribution in that regard.
    We ultimately need to step up to the plate in terms of 
rearranging the overall subsidy structure in health care 
financing. While putting more money into a different, more 
extensive version of high-risk pools, what is in the current 
law has failed in that regard. That would deal with what are 
the serious problems of people who have substantial spikes and 
continued problems in health care costs.
    We then need to think about how we are going to rearrange 
our tax subsidies, not only for our private health insurance, 
but climb up to the plate on Medicare. We do need to make some 
cost changes in Medicare.
    Unfortunately, most of the low-hanging fruit that was 
raided for Medicare spending reduction was then plowed right 
back into the system for the other type of entitlement in the 
private side.
    Medicaid has been overloaded. We need to restructure that.
    So, essentially, to be simple, we need more transparent 
measures of the value of health care being provided.
    We talk a lot about insurance and financing. But until we 
change the cost of care, we have not changed that basic 
problem.
    There are a lot of hypotheticals in the law, which someday, 
somehow might eventually happen. We need to get the private 
sector involved in actually making them come about.
    You can change, realign the incentives, but we are going to 
have to solve this problem by having care delivered at a lower 
cost with better outcomes. We need to measure it, make that 
more transparent to consumers, and then empower everybody else 
in the marketplace as opposed to Washington to make those 
decisions.
    Mr. DesJarlais. Thank you, Mr. Miller.
    Mr. Chairman, I yield back.
    Chairman Roe. I would thank the gentleman for yielding.
    Mr. Kildee?
    Mr. Kildee. Thank you, Mr. Chairman.
    Mr. Miller, a witness before the Senate Budget Committee 
stated that employees who have employer-sponsored health care 
do not have, as he put it, enough skin in the game--a round-
about way of saying that workers need to pay more for health 
care, so they do not use it as much.
    In 2009, though, 60 percent of bankruptcies were caused by 
medical bills. Seventy-five percent of these bankruptcies were 
filed by workers who actually had health insurance.
    Mr. Miller, you are on record supporting a road map offered 
by Congressman Paul Ryan. In that road map, Congressman Ryan 
proposes raising taxes on working families by eliminating the 
individual income tax exclusion for employer-sponsored health 
care.
    Can you say that workers do not pay enough for health care 
when the bankruptcy figures indicate that even those who have 
assistance file for bankruptcy more than any other reason?
    Mr. Miller. What I can say is that 60 percent figure, and 
the conclusions that run from it, are erroneous. We have done 
work on that, primarily my colleague, Aparna Mathur, which, if 
you examine what that is based upon, there are a lot of reasons 
for bankruptcies.
    They are not due to people paying too much for health care. 
Often these are done in a way that it says, as long as you had 
a medical bill along the way, it is then imputed that that 
somehow was what caused the bankruptcy.
    We have serious economic problems in the country. I just 
think that is a miscalculation as to what is the cause and the 
effect in that regard.
    On the larger issue as to whether workers are paying too 
much or too little, that is not the issue. The issue is whether 
or not they can see a way to find a better combination of 
health care that delivers improved health outcomes for them at 
a lower cost.
    We have a structure which hides those price tags, hides the 
results, does not give the information that they need in that 
regard.
    If you look at the measures as to how much workers are 
actually paying out-of-pocket for their health care, as opposed 
to what is rerouted through a very expensive, costly and 
inefficient insurance system, the vast proportion of that still 
flows through third party insurance.
    There has been an increase in the amount of cost-sharing in 
some sectors of the marketplace through what are called 
consumer-driven health plans. They are probably about 20 
percent of the market without necessarily having accounts. That 
has tended to slow down the overall increase in health care 
spending and in health insurance costs, and has been a 
positive.
    The law is fundamentally aimed against it. It will not 
succeed in stopping that, because when we are about 5 years 
from now, we are not going to be able to pay for all this stuff 
we say is going to be covered by insurance, and we will end up 
resorting to that type of cost-sharing implicitly anyway.
    Mr. Kildee. Do you think we should repeal the exemption for 
the worker who gets part of his----
    Mr. Miller. We need to change it. It is somewhat of a 
distraction. We need to think about what assistance you provide 
to people through the tax system to help them buy health 
insurance.
    But when we actually add it up, everyone is going to have 
to pay some money themselves. We cannot subsidize everyone's 
bill and think they all come out ahead.
    It has tended to drive up the cost of care, the cost of 
insurance. And we pretend that it actually brings us ahead, and 
it sets us further back.
    If you are not going to eliminate public assistance through 
the tax code, you are going to move it in a different 
direction.
    The Ryan proposal that you partly described does not 
eliminate tax relief. It puts it in a different form in more of 
a defined contribution approach, which flows directly to 
individuals to decide how they are going to spend it on their 
health care and their health insurance, as opposed to routing 
it through third parties. If they want to stay in an employer 
plan, they will do that.
    Mr. Kildee. I thank you. And if you can get some of the 
figures that you said differ from these to us, I would 
appreciate that.
    Mr. Miller. Yes. We will be happy to provide you with a 
different analysis of--there are bankruptcy problems and 
economic problems.
    But I know the studies. They have been around for a while. 
They get recycled. They take the wrong database. They do it in 
a different way.
    But I would be happy to provide you with some information 
on that.
    Mr. Kildee. Thank you very much, Mr. Miller.
    [The information follows:]

            Question for the Record Submitted by Mr. Kildee

    Mr. Miller, at the hearing I cited a figure that stated 60 percent 
of bankruptcies were caused by medical bills. You responded that the 60 
percent figure is erroneous and that you have a different analysis to 
prove your claim. Can you provide this analysis to the Committee?
                                 ______
                                 

    Response From Mr. Miller to Mr. Kildee's Question for the Record

    At the March 10 hearing of the House Education and the Workforce 
subcommittee on Health, Employment, Labor, and Pensions regarding the 
overall topic of ``Employer Health Costs,'' Rep. Kildee asked me a 
question following my oral testimony. It related partly to cost sharing 
by employees in employer-sponsored health insurance plans and also to a 
recent study claiming that 60 percent of bankruptcies were caused by 
medical bills, and that seventy-five percent of these bankruptcies were 
filed by workers who actually had health insurance. As I recall, I 
referenced some of the related research on that topic by my AEI 
colleague, Resident Scholar Aparna Mathur, which challenges the 
methodologies and findings in that study and other related ones. 
Essentially, she concludes that there are a number of significant 
causes of bankruptcies besides medical bills, and the ``Himmelstein et 
al.'' line of studies fails to connect causes with effects. .
    Now the Rep. Kildee has submitted a shorter, subsequent version of 
this question to Chairman Roe as a formal part of the hearing record 
and requested a written analysis of the 60-percent bankruptcy claim, I 
have attached one immediately below by Ms. Mathur, along with links to 
some of our other work in this field.
    Problems with the Himmelstein et al. (2005 and 2009) Studies, and 
the Massachusetts Study

(1) Sample Selection Issues
    A major shortcoming with both the Himmelstein et al. (2005 and 
2009) studies is what economists dub the ``sample selection issue''. 
Himmelstein et al. (2005, 2009) conducted a survey of bankruptcy filers 
from public court records for the year 2001 and 2007. Based on a sample 
of 1000 debtors, they concluded that more than 50 percent of these had 
filed for bankruptcy due to a medical reason. By limiting the sample to 
those who had already filed for bankruptcy, the study overstated the 
incidence of medical debt. To account for causation, the study sample 
should have, at the very least, included a ``control'' group of medical 
debtors who did not file for bankruptcy. In other words, if the authors 
were trying to establish whether medical debts cause bankruptcy 
filings, the appropriate sample should have included households with 
and without medical debt, and households who filed or did not file for 
bankruptcy. In short, what the authors have established is some 
correlation, but not causation.
    The sample also seems skewed towards debtors with high medical 
debt. The USTP report of bankruptcy filers, which included a much 
larger sample of 5203 filers, found that 90 percent of filers had 
medical debts less than $5000. The Himmelstein et al.(2009) study 
reports nearly 35 percent of filers with more than $5000 in medical 
debt. The authors make no attempt to reconcile or explain their 
findings or reveal the distribution of medical debts across filers in 
their sample.

(2) Regression Analysis
    The study also should have allowed for the possibility that other 
household characteristics, such as the filer's work status, marital 
status, income, and other kinds of debts could have influenced the 
filing. As explained earlier, this could be done through the use of 
appropriate regression techniques applied on a suitably large, random 
sample of filers and non-filers. Mainstream economics literature 
discussing the relationship between debts and bankruptcy amply outlines 
these standard considerations. The study does claim to have done 
multivariate analysis, but the analysis is done on an even more 
restricted sample than the original 1032 in 2007. The sample only 
includes people who reported having any medical bills. Therefore, it 
simply assumes that medical debts are important for bankruptcy filing, 
rather than testing for that hypothesis in the entire sample of 
bankruptcy filers.

(3) Definition of Medical Bankruptcy
    The 2005 study used an overly broad definition of ``medical 
filers,'' which included people with any sort of addiction or 
uncontrolled gambling problems.
    The 2009 study removed these clauses but still came up with a 62 
percent number; i.e., nearly 62 percent of bankruptcy filings are due 
to medical reasons. The reason for the high number is puzzling, though 
as mentioned earlier, it is partly driven by the fact that the authors 
ascribe any remotely medical factor as causing the bankruptcy filing, 
not just medical debts. The survey results shown in Table 2 (Page 3) of 
the study clearly state that only 29 percent of the respondents 
believed that their bankruptcy was actually caused by medical bills. 
However, the authors chose to add to this number the percent of people 
who lost weeks of work due to illness, the percent of people with more 
than $5000 in medical bills, and the percent of people reporting any 
medical problems. This is clearly an overstatement of the problem. 
Since the respondents themselves do not believe that these other 
factors caused the bankruptcy filing, it is wrong to ascribe the 
additional bankruptcy filings to their medical costs. A related point 
is that the survey fails to provide information on other causes of the 
bankruptcy filing or how the respondents would rank different factors, 
as in the PSID. Therefore, it is unclear whether medical bills were the 
most important cause or just another cause.
    This criticism was also raised by Dranove and Millenson in 
reference to the 2005 paper. Exhibit 2 of that paper identified people 
who stated that illness or injury was a cause of bankruptcy (although 
not necessarily the most important cause). According to Himmelstein and 
colleagues, 28.3 percent of respondents stated that illness or injury 
was a cause of bankruptcy. They also reported that medical bills 
contributed to the bankruptcy of 60 percent of this group. Multiplying 
the two figures together, Dranove and Millenson conclude that 17 
percent of their sample had medical expenditure bankruptcies. Even for 
that 17 percent, it cannot be stated with any degree of certainty 
whether medical spending was the most important cause of bankruptcy.
    The latest study by Himmelstein et al. suffers from the same kinds 
of issues as the earlier studies. The new study focuses on the impact 
of the Massachusetts Health Reform on medical bankruptcies. The study 
relies on the change in the percentage of people reporting medical 
bankruptcies between 2007 and 2009. Unfortunately, the 2007 survey did 
not especially focus on Massachusetts, so the authors are forced to 
rely on simply the 44 respondents who were from that state in the 
earlier survey. It compares that to the new 2009 survey relying on 199 
people. The paper finds that the percentage of medical bankruptcies 
actually declined by a significant 6.4 percentage points. However, in 
absolute terms, the number of medical bankruptcies increased from 7,504 
to 10,093. The fact that the percentage of medical bankruptcies in the 
population declined suggests that the growth rate of medical 
bankruptcies was lower than the growth rate of bankruptcies in the 
total population. Therefore, it is not clear from this statistic alone, 
whether the health reform had a positive, negative or any impact on 
medical bankruptcies. A proper analysis would include a sufficiently 
large-scale survey both before and after the Reform, which would also 
account for other contemporaneous changes in economic conditions in 
Massachusetts. Moreover, as mentioned earlier, more rigorous regression 
techniques would be required to establish causality. Factors that may 
be important at the household level as well as at the state level need 
to be controlled for. Further, the definition of a medical bankruptcy 
used in the 2009 study is subject to the same criticism as in the 
earlier study. To summarize, the new study provides no conclusive proof 
one way or the other of the effect of the Massachusetts reform on 
medical bankruptcies.
    In addition, please see the following related testimony and 
research:
    ``The Medical Bankruptcy Fairness Act'' Aparna Mathur, Testimony 
before House Committee on the Judiciary, July 15, 2010.

                    http://www.aei.org/speech/100157

    ``Can Bankruptcy Reform Facilitate a Fresh Start?'' Aparna Mathur, 
Testimony before Senate Subcommittee on Administrative Oversight and 
the Courts, October 20, 2009

                    http://www.aei.org/speech/100089

    ``Medical Debt: Is Our Healthcare System Bankrupting Americans?'' 
Aparna Mathur. Testimony before House Committee on the Judiciary, July 
28, 2009.

                    http://www.aei.org/speech/100071

    ``Maxing out on Debt Hysteria,'' Aparna Mathur and Tom Miller, The 
American, June 20, 2007

   http://www.american.com/archive/2007/june-0607/maxing-out-on-debt-
                                hysteria

    ``Medical Bills and Bankruptcy Filings,'' Aparna Mathur, AEI 
Working Paper 24680, July 19, 2006

   http://www.aei.org/docLib/20060719--MedicalBillsAndBankruptcy.pdf

    ``The Healthcare Bankruptcy Myth,'' Diana Furchtgott-Roth, 
RealClearMarkets.com, July 30. 2009

   http://www.realclearmarkets.com/articles/2009/07/30/the--medical--
                      bankruptcy--myth--97335.html

    ``Medical Bankruptcy: Myth vs. Fact,'' David Dranove and Michael 
Millenson, Health Affairs 74 (2006).
                                 ______
                                 
    Chairman Roe. Mrs. Roby?
    Mrs. Roby. Thank you, Mr. Chairman.
    Thank you so much to the witnesses for taking the time to 
be here this morning.
    So, in a very timely fashion, just yesterday, the 
Montgomery Chamber of Commerce from Montgomery, Alabama, was 
here in Washington, and I met with them. And the mayor of 
Montgomery was present.
    And during this meeting I learned that the City of 
Montgomery--and I served on the city council there from 2003 
until just recently--they are going to see an increase in their 
health care premiums by $4.6 million this year, due to 
Obamacare.
    And I guess I can direct this to Mr. Brewer, because I saw 
in your testimony where you also work with governmental 
employers.
    And then, Mr. Miller, if you will address it, as well.
    But the president promised in 2008 that his health care 
reform efforts would lower health insurance premiums for 
families by as much as $2,500.
    So, I am having a hard time understanding why, then, the 
City of Montgomery is not seeing a decrease in their premiums 
for the cost of their employees.
    Mr. Brewer. I cannot speak to where that came from.
    What I can speak to is the reality of what has happened 
with the benefit mandates that have been imposed upon employers 
like the City of Montgomery, Alabama, larger, self-funded 
groups. I am presuming they are self-funded, would be my guess.
    But the immediate benefit mandates, as I indicated in my 
testimony, increase cost to employers like the City of 
Montgomery by about 2.5 percent this year. The auto-enrollment 
feature down the road will add incrementally more cost to it.
    It certainly would have been great, had the Congress been 
able to deliver a bill that actually reduced the cost of health 
insurance coverage for the vast majority of employers in the 
United States. It would have been a message that probably would 
have resonated better and been better received.
    Regrettably, I think the bill falls short in a number of 
areas of addressing the actual root causes of the cost, 
increasing cost of health care. With all due respect to Mr. 
Kucinich, I do not believe that the insurance companies, in and 
of themselves, are the problem. I think there are plenty of 
other areas where there are opportunities for savings.
    So, Mr. Miller?
    Mr. Miller. Yes, I would agree with that last comment by 
Mr. Brewer. Certainly, we all can do better, and it is also 
distributed in that regard.
    The $2,500, let us be straightforward about it, was a 
campaign document. I know the scholars who put it together, and 
you put this on the back of the envelope, and you make pretend 
it will happen.
    They have been backpedaling from that and rearranging what 
it is supposed to eventually do. A lot of it now is basically, 
well, you are going to get all this tax money from other 
people. And that is how you are saving your $2,500.
    It has not brought down the essential cost of care. There 
are important things that need to be done in restructuring our 
health care delivery system, making everybody participating in 
it more accountable.
    Hypothetically, there are a lot of grand plans, you know, 
national strategies, but we do not have anything deliverable in 
the first couple of years.
    What this legislation essentially was about was about 
redistribution of money without fixing the problem, so the 
costs just move one place to another. Some people win, some 
people lose. If you happen to be one of the tiny handful of 
people who might qualify for a small business tax break, you 
are a winner.
    It does not deal with the larger organic system, which is 
that all of the care costs too much compared to what is given. 
We have got to make some decisions in that regard and get that 
more transparent.
    So, when you move past the politics of getting a law passed 
by any means, the question is: How do we drive forward and 
think about what is actually going to get to the causes of 
these costs?
    Until care is delivered earlier, cheaper and better, and 
people are healthier and do other things outside of the health 
care system, which means they are presenting fewer things to 
the table, no matter how much we do to tweak the tiny amount of 
insurance that is administrative costs, which have been going 
down for the last 5 years as a percentage of the premium; until 
we actually change that underlying cost growth, which is what 
gets reflected in the premium--we can fight about whether 
insurers are evil or slightly bad--it does not make a 
difference.
    And if we think we can route all this money through our tax 
system, there is no money left. We can just borrow some more 
and have it go back and forth.
    We cannot continue subsidizing. We actually have to 
confront the fact that we have got to get better care at a 
lower price. When we get to that stage, then we will have real 
reform. That is not what this bill was about.
    Mrs. Roby. And I appreciate your comments, both of you, on 
this issue.
    But to go to the point that you just made, municipalities 
and local governments all over this country are required by law 
to balance their budgets.
    Mr. Miller. That is correct.
    Mrs. Roby. And so, when you see this kind of impact in a 
local municipality on their smaller budget, it can be quite 
devastating. They do not print money.
    Mr. Miller. And they have other problems with their 
employee health care----
    Mrs. Roby. That is right.
    Mr. Miller [continuing]. Their retirees, their pensions. We 
are seeing all this kind of collapse on it, because we could 
afford our way around all these mistakes for a long period of 
time.
    And now, we have hit the margins where suddenly there is 
not someone else to pick up the tab. We are going to have to 
rework it.
    Mrs. Roby. Thank you. My time is up.
    Thank you, Mr. Chairman.
    Chairman Roe. Thank you for yielding.
    Mr. Hinojosa?
    Mr. Hinojosa. Thank you, Mr. Chairman.
    My question is directed to Mr. Houser.
    Mr. Houser, I want to thank you for your participation. You 
say in your written testimony that your insurance costs for 
your nine full-time employees and covered dependents doubled 
from 2002 through 2010, eating into more than 20 percent of 
your payroll. That is long before we started this health 
reform.
    As a small business owner, I know the difficulty of 
providing quality and affordable coverage to employees, because 
I was president of a family business for 20 years and 
understand the choices you have to make. I experienced first-
hand how, year after year, every dollar I spent on health 
insurance for my employees bought less and less.
    Given that, number one, the Affordable Care Act places no 
requirement on small businesses with fewer than 50 full-time 
employees, and being that the Affordable Care Act provides 
incentives and tax breaks, as you pointed out in your remarks, 
for those small businesses that do offer coverage, it is 
important that the record show that President Obama did not 
promise that the premiums were going to drop $2,500 in 2011, 
when it starts and begins to ramp up.
    He did say that the real bulk of the law will be 
implemented by 2014, and that at that time, we will have 
insured an additional 30 million people, thus being able to 
reduce the cost. And some of our other witnesses are trying to 
make this appear as though the president did not keep his word, 
or that he misled people.
    But there is no question that, as people in my district 
find out the benefits of this health reform, that they are very 
happy. And they are hoping that we will tweak it, but certainly 
not repeal it.
    I would like to ask you this question. Do you expect that 
tough choice I mentioned earlier to get tougher, or easier, 
going forward for your business and small businesses like yours 
that you talk to?
    Mr. Houser. I am sorry. I did not understand.
    Mr. Hinojosa. Do you expect that, between now and 2014, 
that things are just going to be so tough that you would not be 
able to offer health insurance to your employees?
    Mr. Houser. No, Congressman, not at all. I believe, 
especially based on the most recent trend with our premiums 
actually going down, and with the State of Oregon being very 
actively pursuing the exchange, which will, if the legislation 
goes through at the state level that is currently being 
proposed, will change the formula for how health care is paid 
for from the fee-for-procedure, fee-for-service to fee-for-
outcomes.
    Mr. Hinojosa. So, you are optimistic that this is going to 
be----
    Mr. Houser. It will go down.
    Mr. Hinojosa [continuing]. For small businesses.
    Mr. Houser. And we will continue to have health care.
    Mr. Hinojosa. I would like to yield time to Congressman 
Dennis Kucinich.
    Mr. Kucinich. I want to thank my friend, Mr. Chairman.
    I ask unanimous consent to enter into the record the 
American Journal of Medicine report on medical bankruptcies in 
the United States, 2007. It is a result of a national study.
    [The information follows:]

    
    
    
    
    
    
    
    
    
    
    
    
                                ------                                

    Chairman Roe. So ordered. Without objection.
    Mr. Kucinich. Thank you, Mr. Chairman.
    This study, by the way, is done by a group of physicians 
from Harvard, and Ph.D.s from Harvard and Ohio University, who 
found that using a conservative definition, 62.1 percent of all 
bankruptcies in 2007 were medical.
    Now, they have updated this report. I am also going to be 
submitting for the hearing record the 2010 copy of this report.
    And also, I ask unanimous consent to submit for the record 
a report from the Commonwealth Fund entitled, ``Seeing Red: The 
Growing Burden of Medical Bills and Debt Faced by U.S. 
Families,'' where it points out that an estimated 72 million 
American families have bill problems or medical debts relating 
to medical bill problems or medical debt. And 49.5 are 
uninsured.
    So, there is a problem with, if you have insurance, you are 
still stuck. So, I would like to submit this for the record.
    [The information follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                                ------                                

    Chairman Roe. Without objection, so ordered.
    Mr. Barletta?
    Mr. Barletta. Thank you, Mr. Chairman.
    Mr. Parker, I am proud to say, Pennsylvania's 11th 
Congressional District is home to a number of initiatives 
designed to help spur small business growth and development; 
specifically, Wilkes University's Small Business Development 
Center.
    As a former small business owner, I am well aware of the 
hurdles and challenges of both the start-up--which I did, I 
started a new business from scratch--and the growth challenges 
of small businesses.
    I want to talk particularly about the employer mandate 
provision.
    Would you say there is less of an incentive now? If you 
were a business that might have 47, 48 employees, would you 
believe that that is less of an incentive to expand and grow 
your business to over 50 employees?
    Mr. Parker. Absolutely. And more than that, even if you are 
already well above that number, the incentive now is to sort of 
batten down the hatches versus growing.
    And I think, you know, people have been talking throughout 
this hearing about how, well, when we get to 2014, the impacts 
will be this, that or the other. I can tell you, it is not 
hypothetical. This is impacting our business right now.
    You know, I run development for our business. Our growth is 
very much in fits and starts.
    We have to develop a new location, so we have to make a big 
bet. We have to pick an area that we think can support it. We 
have to go in, invest several million dollars. And then, we 
create a big chunk of jobs, and we have a new business.
    And each one of those is a big decision, and we have a lot 
of skin in the game, personally. And we are putting the well-
being of everyone in the company on the line every time we do 
it.
    And more deals that I have looked at over the last, you 
know, 6 months, I tend to say, it is marginal. We are going to 
pass. Just because, not only this bill and the impacts it has 
today, and knowing that it is only going to get worse, but, you 
know, what is next? And it is a huge disincentive to growth 
overall.
    Mr. Barletta. And would you say that a business that might 
have 52 employees may actually--a business that might be 
struggling to stay in business and pay its bills--would you 
believe that they may lay a few employees off to get under the 
50 employee mandate?
    Mr. Parker. Absolutely.
    Mr. Barletta. Do you have any idea where they picked the 
number 50 from, and how we established 50 as a magic number?
    Mr. Parker. I have no idea.
    Mr. Barletta. Mr. Brewer, same question. Would you believe 
that a business that might have 48 employees would be reluctant 
to hire a few more?
    Mr. Brewer. Sure. We do not do business in that space. Our 
cases are typically significantly larger. But I cannot imagine 
the same logic would not apply.
    We have got employers that we serve every day who are 
reluctant to add employees, because of the additional burden of 
sort of unforeseen health care mandates.
    So, yes, I think it would be perfectly logical that 
somebody would be willing to do that.
    Mr. Barletta. And would you believe, because of the 
Affordable Care Act, that in America there will be businesses 
who will lay off a few employees, if they are around 51, 52, 53 
employees?
    Mr. Brewer. I cannot tell you that I professionally believe 
that. On a personal level, that certainly makes sense.
    Mr. Barletta. Especially if it is a business that is 
struggling?
    Mr. Brewer. Yes.
    Mr. Barletta. Mr. Houser, if your business had 48 
employees, would you be reluctant to hire a few more, if it was 
going to put you over the 50 employee mandate, especially if 
you were a business that might be struggling today?
    Mr. Houser. Congressman, I make decisions like that based 
on my workload. I would not turn down work because I did not 
have sufficient employees. I would make a decision about hiring 
more employees based on how much work I had to perform.
    So, if I had 49 employees, and I had enough work for 52 
employees, and that was going to make me more profitable, I 
would hire 52 employees. That would not make----
    Mr. Barletta. But would you also maybe think about making 
the 49 work longer, so that you did not have to go over the 50 
employee mandate?
    Mr. Houser. I am talking about having enough work for 52 
employees. That would be the driving factor in my decision, not 
whether or not I have to provide some--because I am already 
providing the health care. That is factored in.
    Mr. Barletta. If you were a business----
    Mr. Houser. So, I do not see it----
    Mr. Barletta. I am talking about a business that might have 
48, 49 employees that was not. And hiring one or two more 
employees would now throw you into a mandate, where you would 
be fined $2,000 per employee.
    Mr. Houser. I do not----
    Mr. Barletta. Why wouldn't you think of just making those 
employees work a little longer, rather than hiring another few 
more employees?
    Mr. Houser. People make those kinds of decisions all the 
time, and I am not familiar with them.
    Mr. Barletta. Mr. Miller, many small businesses have 
employees who work full-time hours. My business that I had was 
a line painting business. We painted lines on highways. In 
Pennsylvania, obviously, you cannot paint lines in January. It 
does not work that well.
    Now, so, we would be considered seasonal. They might start 
working in April, and get laid off in October or November.
    Now, would they be considered, under this act, would they 
be considered full-time employees, or part-time employees?
    Mr. Miller. Well, there is a calculation--and again, these, 
you know, the angels dancing on the head of a pin--where they 
can get, in effect, calculations of full-time equivalents by 
aggregating part-time, workers, so they can add up to full-time 
employees and get you above or below that 50 threshold.
    And your description of this is exactly right. There is no 
one single factor that says we are going to shut down the 
business, or we are----
    Chairman Roe. Mr. Miller?
    Mr. Miller. But these are all calculations. If you try to 
trap employers in a maze, and it looks like all the other doors 
are closed, they are going to find one to go through.
    Chairman Roe. Mr. Miller?
    Mr. Miller. You will do calculations and say, does it pay 
for me to do something different? Do I restructure my firm? Do 
I suddenly have two businesses, and you ship people out 
somewhere else? Do I pay you differently, because it turns out, 
when I pay you more, I lose money under other calculations?
    Is it going to hit me when I grow too much? Can I do it in 
a different manner?
    All these are not what businessmen should be doing, but 
they have to take into account the entire structure of costs 
imposed on them, and they will act the best they can. We are, 
though, overloading them, so that they are trying to do so many 
things that have nothing to do with running their own 
businesses, that it gets very complicated, just to run an 
effective business.
    Chairman Roe. Mr. Miller, the time has expired.
    Dr. Bucshon?
    Mr. Bucshon. Thank you, Mr. Chairman.
    Just some background, I am a cardiovascular surgeon, so I 
have been in the health care industry for quite a long time.
    Mr. Houser, a couple of questions for you. Have you 
testified before Congress before, or is the first time?
    Mr. Houser. This is my first time, Congressman.
    Mr. Bucshon. Great.
    Mr. Houser. Thank you very much for inviting me.
    Mr. Bucshon. Welcome.
    Is it--under what you talked about--is it true or not true 
that your, the company that you run is currently exempt from 
the employer mandates in the new health care law?
    Mr. Houser. That is correct. Under my understanding, that 
is correct.
    Mr. Bucshon. So do you know if your current health care 
plans that you are offering to your employees comply with the 
requirements of the Affordable Care Act? Do you have any idea 
whether they comply or not?
    Mr. Houser. I have no idea. I could find out, but I do not 
know.
    Mr. Bucshon. Because under the Affordable Care Act, you 
really do not have to have your health plans comply at all, 
right, because your company is exempt.
    Mr. Houser. As far as I know, that is correct.
    Mr. Bucshon. Okay. I mean, the basic premise of the 
discussion has been the cost of health care. And as you are 
probably aware, under congressional testimony January 26, chief 
actuary, Mr. Foster, from the Medicare services, stated that, 
promises the new health law would hold down costs were ``false 
more than true.''
    And I applaud you for being a small business owner. It is 
tough. But in fairness, from your testimony, you are really 
exempt from the law and really do not have any risk under the 
law, other than the fact that you are hopeful the law will hold 
down health care cost. But we know the data shows that that is 
not true.
    So, I just wanted to get your view on that, that--and 
again, with what Mr. Barletta said--if you were an employer 
that had 60 employees, 70 employees, and you were not exempt 
from the health care law, do you feel that you would try to put 
yourself in a position that you would not have to comply with 
not only providing health insurance, but the specific type that 
is required under the law, or else suffer penalties?
    Mr. Houser. Congressman, there are over 4 million small 
businesses that fall in the category I am in, that will be able 
to, for example, get the tax credits for providing health care 
coverage for their employees.
    Mr. Bucshon. Excuse me. I do not want to interrupt, but 
those are going away in fairly short order. Those will be a 
temporary thing.
    And then, again, I think you were asked the question 
earlier. Do you have a plan for your business, when the tax 
credits, not only do they go away, but who is paying for the 
tax credits? I mean, where does the money come from? It comes 
from the American taxpayer.
    And as we know, with the testimony of Mr. Foster, as health 
care costs continue to rise under this health care bill, 
everyone is going to continue to struggle. Your premiums are 
going to continue to go up.
    And if you do not have a plan for when you lose your short-
term, small business credits, what are the other 4,000 
businesses like yourself around the United States going to do 
when those go away?
    Mr. Houser. Congressman, in part, my premium has gone down. 
And I do not see any reason why that might not continue, 
especially as more people join and are paying premiums, 
especially younger, healthier.
    I have every reason to believe that health care premiums 
can go down, or stabilize. And especially as the State of 
Oregon makes improvements in health care delivery, I also 
believe premiums can go down.
    So, I plan for the worst, I plan for the best. And you just 
sort of proceed on that basis.
    Mr. Bucshon. That opinion is in contrast to, again, the 
chief actuary, Mr. Foster, and most economists around the 
country that have looked at this health care bill, that your 
premiums will go down and the health care costs will go down.
    Because, being in medicine, I think that it is very clear 
that the number one problem we have in America is the 
skyrocketing cost of health care. And I am concerned for 
businesses like yours, that when these tax credits go away, you 
are going to have trouble.
    And also, you know, I do think, when you are discussing 
something which you are completely exempt from, that gives you 
a little bit different perspective on your testimony.
    So, I am hopeful that we can get some real cost containment 
in place for businesses like yours going forward, because I am 
fearful that when these very small credits go away, you are 
going to be struggling.
    And my time is up. Thank you.
    Chairman Roe. I thank the gentleman for yielding.
    I will finish the questioning by saying that not anybody on 
either side of the aisle did not think we needed to have a 
meaningful health care reform. This doctor sitting right here 
knew it better than anybody. And that is one of the reasons I 
ran and came to Congress.
    So, the number one issue in America was: How do we control 
the cost of care? Because once we get the costs under control 
and it is more affordable, more people can buy it.
    Number two, and the second problem we had in the American 
health care delivery system was, we had a group of people who 
did not have access to affordable insurance coverage in this 
country.
    We had the working poor that did not apply for, did not 
qualify for Medicaid, that did not have a job that provided the 
insurance. That is the group we are talking about.
    And thirdly, which did not even come up in this bill, which 
is a huge problem for Dr. Bucshon and myself, was liability 
reform. There is a huge cost for defensive medicine in this 
nation.
    So, those were the three problems.
    This bill did increase access to a program that has already 
failed, which is the Medicaid system, and it needs to be 
revamped. It did nothing to hold the costs down and did nothing 
for liability reform.
    The other equation--I see some young, probably physicians, 
in the crowd out here, I am glad they came--is we have 
forgotten about that part of the program.
    Let me explain to you what happens in these government 
programs. In TennCare, it paid the providers less than 60 cents 
on the dollar for providing the care. Medicare in our state 
pays about 90 percent of the cost of the care, leaving that 
cost shifted to the private sector.
    That is one of the reasons that the cost of private health 
insurance has gone up so rapidly in this country, is the cost 
shifting.
    Let me give you an example. When the implantable 
defibrillators first came out, a patient on TennCare--that is 
our Medicaid program in the state--had to have one. So, it was 
provided for him.
    The hospital got paid $800 for the defibrillator. And at 
that time, the defibrillator cost $40,000. So, the hospital ate 
$39,200 of that.
    And you, Mr. Houser, and Mr. Miller and myself, that 
provided health insurance coverage, that cost got shifted to 
you.
    Let me just say a very simple thing. A 2,500-page bill got 
written. And you could do two-thirds of it with two paragraphs. 
One is simply, sign up the people who are currently eligible 
for Medicaid and SCHIP.
    And number two, which I like, is leave your 26-year-old--
you only had one child, I had three that did that--allow them 
to stay on. That covers over 20 million people.
    And, then, lastly what you do, let people shop across state 
lines. It is the only insurance you cannot do that. Let them 
form association health plans and get bigger, like you are 
talking about. And have liability reform.
    You do those simple things--not complicated--you can help 
force the costs down.
    Here is a card. That is a health savings account card I 
have right here. I had to have some biopsies done. I had to 
have some anesthesia for it. I would recommend you get 
anesthesia, if you have the biopsies I had, too.
    [Laughter.]
    Anyway, I walk into the hospital and I have this card. It 
is called a health savings account. I do not ask the insurance 
company; I do not bother with them. I make a deal with the 
hospital. I said, how much will you give me this, if I pay you 
in a millisecond?
    And guess what. I saved 35 percent. I was happy. The 
hospital was happy.
    And that is what Mr. Miller was talking about, I think, is 
changing the way we pay for health insurance in this country.
    So, Mr. Brewer, I have dealt with this issue as a former 
mayor and these costs that are being passed along. Let me ask 
you why I would not do this.
    I had 350 employees in my practice. Right now, we put about 
$5,000 per person away. If I pay the fine and the penalty--we 
have 300 people who get health insurance through our practice--
if I pay the $2,000, that is $600,000 I pay. If I pay the 
$5,000, that is $1.5 million.
    If I dump my employees in the exchange, which I certainly 
do not want to do--we provided health insurance in our practice 
for over 42 years. And I won't be the first, but I won't be the 
third, either.
    Why wouldn't I do that, to put that to my bottom line, and 
put that cost onto the government? Why wouldn't I do that?
    Mr. Brewer. Do you want the CBO logic?
    Chairman Roe. Yes.
    Mr. Brewer. Because it is illogical. I do not see any 
reason why you would not do that.
    You know, I think the way we have characterized this, there 
is going to be a conundrum as we present to our employer 
clients, the clients that we serve, there is going to be a 
dynamic tension between the CFO and H.R.
    The CFO is going to look at that potential savings, and his 
eyes are going to get real wide. And he is going to say, why in 
the world wouldn't I do that?
    H.R. is going to be fighting about, well, we need it for a 
competitive advantage. You know, the CBO refers to a tight 
labor market that does not exist, so I am not sure that one 
holds any water.
    But over some period of time, if you have been in 
business--and you have--you know how this works. Over a period 
of time, the CFO is going to win that argument. The logic of 
survival will trump the logic of warm and cuddly H.R.
    So, the answer to your question is, there isn't any reason 
why you would not do that, if you had any reasonable assurance 
that your employees were going to be adequately covered, or 
adequately managed, within the framework of the exchange.
    Chairman Roe. And my time has expired.
    Mr. Kucinich, any closing comments?
    Mr. Kucinich. Yes. You know, in listening to the testimony, 
it is very interesting. And in hearing your questions from my 
colleagues, I came up with this conundrum, and you have--and 
the challenges that small businesses face here.
    You have Mr. Houser, who has being asked who pays for the 
small business tax cut he is receiving. But we know that he is 
paying 100 percent of his employees' health care, and he has 
been for 28 years.
    And you have Mr. Parker's company. According to staff and 
documents that they are covering less than 100 of their 530 
employees, and the rest will have little health care.
    And who is paying for those other 400? Well, it is going to 
be the taxpayers, because what is happening is, you know, 
people go--they will get medical care somehow.
    They will go to hospitals, they will go on Medicaid. As 
people who do not have any insurance, the hospitals end up 
being their emergency rooms. Taxpayers end up footing that bill 
in some way, shape or form.
    After the exchanges are set up, Mr. Parker's employees will 
go to the exchanges, and which are government subsidized.
    So, you know, we have to be sensitive to the sometimes 
conflicting and contradictory situations which businesses find 
themselves in, notwithstanding their position on the bill.
    Thank you.
    Chairman Roe. I thank the gentleman.
    I thank all of the panelists for being here. It was an 
excellent discussion.
    I will finish by this, by saying that I believe that 
businesses--and all of you all have been involved in business--
are much better suited to decide what health insurance that 
they need to purchase for their business than the federal 
government.
    What has happened is that the federal government will now 
decide which is adequate health insurance coverage. And let me 
give you just an example. They have a minimum benefit package 
that is going to be--and everyone will have to do it.
    And Mr. Houser, what you may have purchased may not be the 
minimum. Your cost may go up, because you may not meet the 
standard that the government says you have to make. I think you 
should be able to make that decision.
    There is a company in Tennessee--and I won't mention the 
name of it--that right now has a plan that they can afford--it 
is a large company--that they can afford and that they are 
happy with, their employees are happy with. But it will not 
meet this minimum standard that the government has laid out in 
this affordable health care plan.
    It will cost them $40 million to comply with this. If they 
drop their employees into the exchange, it will save them $40 
million. And Mr. Brewer clearly pointed out, that argument will 
go on, but eventually, the CFO will win out.
    I believe that individuals should make those decisions, and 
businesses should make those decisions, not the government.
    The other thing that I have a little problem with--matter 
of fact, a major problem--is with the cost estimates. It was a 
year ago the CBO--these are good people, they are honest, they 
plug in numbers that they get--told us that the budget deficit 
was going to be $1.2 trillion. It turns out it is going to be 
$1.65 trillion. So, in 1 year, they missed it by $400 billion.
    And I am supposed to believe, looking at all the past 
history that I have with Medicare and with TennCare, and with 
Massachusetts, quite frankly, what their--the Massachusetts 
plan, which has the mandate, have the highest insurance 
premiums, rising faster than anybody else in the country.
    So, when the government makes those decisions, and you do 
not make them as an individual or your family--and I have said 
this from day one. Health care decisions should be made by 
patients, their families and doctors. And it should not be 
decided by the federal government.
    I have enjoyed this discussion immensely today. I thank 
each one of you for preparing. You did a great job.
    And with this, without any further discussion, this meeting 
is adjourned.
    [An additional submission of Dr. Roe follows:]

                       Associated Builders and Contractors,
                                     Arlington, VA, March 10, 2011.
Hon. Phil Roe, Chairman; Hon. Robert Andrews, Ranking Member,
Subcommittee on Health, Employment, Labor Pensions, House Committee on 
        Education and the Workforce, 2181 Rayburn House Office 
        Building, Washington, DC.
    Dear Chairman Roe and Ranking Member Andrews: On behalf of 
Associated Builders and Contractors (ABC), a national association with 
75 chapters representing more than 23,000 merit shop construction and 
construction-related firms with nearly two million employees, I am 
writing in regard to the subcommittee hearing on, ``The Pressures of 
Rising Costs on Employer Provided Health Care.''
    Throughout the health care reform debate, ABC advocated for 
policies that would reduce the cost of health care for employers and 
their employees. ABC called on Congress to advance common-sense 
proposals that would address the skyrocketing costs of health 
insurance, especially for employer-sponsored plans, and the rapidly 
rising number of uninsured Americans.
    Unfortunately, the massive and complex health care law, known as 
the ``Patient Protection and Affordable Care Act'' or PPACA, fails to 
address the core problem facing small businesses: the rising costs of 
health care. It is unfathomable that our elected leaders imposed new 
costly mandates and taxes on employers at a time of record high 
unemployment. Such actions demonstrate a fundamental failure of the 
federal government to understand the needs of small businesses. As a 
result, numerous provisions in the health care law will have a direct 
negative impact on ABC members, including:
     Higher insurance costs due to new mandated benefits
     New taxes on small business health insurance policies
     Prohibitions on HSAs, FSAs and HRAs that limit employer 
and employee flexibility
     An employer mandate that encourages job cuts
     New taxes, fees and mandates specifically targeted at the 
small business community
    Additionally, ABC has expressed concerns about the regulatory 
burdens imposed by the massive health care law. The outcomes of many of 
the health care related federal rulemakings are currently unclear. This 
has created an environment of uncertainty in our industry that makes it 
difficult for firms to adequately plan for the future.
    Providing quality health care benefits is a top priority for ABC 
and its member companies. ABC urges Congress to move forward with 
legislative proposals that will provide employers and their employees 
with health care solutions that are both practical and affordable.
    ABC believes medical malpractice reform should be included in any 
true health care reform package. By enacting medical malpractice reform 
we will see a dramatic decrease in the cost of health insurance for the 
American public. ABC also strongly supports the inclusion of Small 
Business Health Plans (SBHPs) and expanding access to Health Savings 
Accounts (HSAs). Further, the unique nature of construction work 
demands that benefits be portable in order to reflect the reality of 
the industry workforce.
    We appreciate your attention to this important matter and look 
forward to working with you on commonsense health care initiatives.
            Sincerely,
                       Corinne M. Stevens, Senior Director,
                                               Legislative Affairs.
                                 ______
                                 
    [An additional submission of Mr. Kucinich follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                                ------                                

    [Whereupon, at 11:25 a.m., the subcommittee was adjourned.]

                                 
