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





          PPACA AND PENNSYLVANIA: ONE YEAR OF BROKEN PROMISES

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

                                HEARING

                               BEFORE THE

                         SUBCOMMITTEE ON HEALTH

                                 OF THE

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 23, 2011

                               __________

                           Serial No. 112-25



      Printed for the use of the Committee on Energy and Commerce

                        energycommerce.house.gov







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                    COMMITTEE ON ENERGY AND COMMERCE

                          FRED UPTON, Michigan
                                 Chairman

JOE BARTON, Texas                    HENRY A. WAXMAN, California
  Chairman Emeritus                    Ranking Member
CLIFF STEARNS, Florida               JOHN D. DINGELL, Michigan
ED WHITFIELD, Kentucky                 Chairman Emeritus
JOHN SHIMKUS, Illinois               EDWARD J. MARKEY, Massachusetts
JOSEPH R. PITTS, Pennsylvania        EDOLPHUS TOWNS, New York
MARY BONO MACK, California           FRANK PALLONE, Jr., New Jersey
GREG WALDEN, Oregon                  BOBBY L. RUSH, Illinois
LEE TERRY, Nebraska                  MICHAEL F. DOYLE, Pennsylvania
MIKE ROGERS, Michigan                ANNA G. ESHOO, California
SUE WILKINS MYRICK, North Carolina   ELIOT L. ENGEL, New York
  Vice Chair                         GENE GREEN, Texas
JOHN SULLIVAN, Oklahoma              DIANA DeGETTE, Colorado
TIM MURPHY, Pennsylvania             LOIS CAPPS, California
MICHAEL C. BURGESS, Texas            JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
BRIAN P. BILBRAY, California         JAY INSLEE, Washington
CHARLES F. BASS, New Hampshire       TAMMY BALDWIN, Wisconsin
PHIL GINGREY, Georgia                MIKE ROSS, Arkansas
STEVE SCALISE, Louisiana             ANTHONY D. WEINER, New York
ROBERT E. LATTA, Ohio                JIM MATHESON, Utah
CATHY McMORRIS RODGERS, Washington   G.K. BUTTERFIELD, North Carolina
GREGG HARPER, Mississippi            JOHN BARROW, Georgia
LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
BILL CASSIDY, Louisiana              DONNA M. CHRISTENSEN, Virgin 
BRETT GUTHRIE, Kentucky              Islands
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

                                 _____

                         Subcommittee on Health

                     JOSEPH R. PITTS, Pennsylvania
                                 Chairman
MICHAEL C. BURGESS, Texas            FRANK PALLONE, Jr., New Jersey
  Chairman Emeritus                    Ranking Member
ED WHITFIELD, Kentucky               JOHN D. DINGELL, Michigan
JOHN SHIMKUS, Illinois               EDOLPHUS TOWNS, New York
MIKE ROGERS, Michigan                ELIOT L. ENGEL, New York
SUE WILKINS MYRICK, North Carolina   LOIS CAPPS, California
TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
MARSHA BLACKBURN, Tennessee          CHARLES A. GONZALEZ, Texas
PHIL GINGREY, Georgia                TAMMY BALDWIN, Wisconsin
ROBERT E. LATTA, Ohio                MIKE ROSS, Arkansas
CATHY McMORRIS RODGERS, Washington   ANTHONY D. WEINER, New York
LEONARD LANCE, New Jersey            HENRY A. WAXMAN, California (ex 
BILL CASSIDY, Louisiana                  officio)
BRETT GUTHRIE, Kentucky
JOE BARTON, Texas
FRED UPTON, Michigan (ex officio)

                                  (ii)






                             C O N T E N T S

                              ----------                              
                                                                   Page
Hon. Joseph R. Pitts, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     1
    Prepared statement...........................................     2
Hon. Glenn Thompson, a Representative in Congress from the 
  Commonwealth of Pennsylvania, opening statement................     4

                               Witnesses

Gary Alexander, Secretary, Pennsylvania Department of Public 
  Welfare........................................................     4
    Prepared statement...........................................     7
Michael Consedine, Acting Insurance Commissioner, Pennsylvania 
  Insurance Department...........................................    10
    Prepared statement...........................................    13
Patricia Vance, Senate Public Health and Welfare Committee, 
  Pennsylvania State Senate......................................    34
    Prepared statement...........................................    36
Matthew Baker, Chair, Pennsylvania House Health Committee........    38
    Prepared statement...........................................    40
Gene Barr, Vice President, Government and Public Affairs, 
  Pennsylvania Chamber of Business and Industry..................    50
    Prepared statement...........................................    53
Ken Shivers, Pennsylvania Director, National Federation of 
  Independent Business...........................................    58
    Prepared statement...........................................    60
Ann Daane, Vice President, North America Human Resources, Case 
  New Holland....................................................    62
    Prepared statement...........................................    64

 
          PPACA AND PENNSYLVANIA: ONE YEAR OF BROKEN PROMISES

                              ----------                              


                       WEDNESDAY, MARCH 23, 2011

                  House of Representatives,
                            Subcommittee on Health,
                          Committee on Energy and Commerce,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:15 a.m., in 
the Senate Majority Caucus Room, Pennsylvania State Capitol, 
Hon. Joe Pitts (chairman of the subcommittee) presiding.
    Member present: Representative Pitts.
    Also present: Representative Glenn Thompson.
    Staff present: Heidi Stirrup, Health Policy Coordinator; 
Ryan Long, Chief Counsel, Health; Paul Edattel, Professional 
Staff Member, Health; Debbee Keller, Press Secretary; Katie 
Novaria, Legislative Clerk; and Stacia Cardille, Democratic 
Counsel.
    Mr. Pitts. The subcommittee will come to order.
    I have with me seated at the dais Congressman G.T. 
Thompson. He is a Member from the 5th Congressional district of 
Pennsylvania and served as a hospital administrator for 28 
years, so he has some expertise in the area of health care. He 
serves on the Education and Workforce Committee, which has co-
jurisdiction with Energy and Commerce Committee, and one other 
committee, I guess it is, Ways and Means, on health care, 
primarily employer health plans, I believe. The chair will 
recognize himself for an opening statement for 5 minutes.

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    First of all, let me say it is good to be back in 
Harrisburg. I spent more than 20 years here as a State 
representative, and I still have many fond memories and good 
friends from my time here.
    On the 1-year anniversary of the Patient Protection and 
Affordable Care Act being signed into law, we are here today to 
examine the effects of the law, the effects it has already had 
and which it will have on the States, and we will hear how 
various provisions in the law are burdening businesses and 
employers, precisely at a time when we need them to be hiring 
new employees and creating jobs.
    What we affectionately call Obamacare, its heaviest burden 
on the States is the Medicaid expansion. A May 2010 Kaiser 
Family Foundation report found that by the year 2019, 
Pennsylvania's Medicaid rolls may grow by an additional 682,880 
people and may cost the State an additional $2.041 billion over 
the 2014-2019 time period.
    Where is Pennsylvania supposed to come up with that $2 
billion? How much spending for education, transportation, and 
other priorities will have to be cut to come up with this 
money? Which taxes will need to be raised to pay for this 
expansion?
    And, in the private sector, Obamacare levels taxes on 
virtually every sector of our economy. For businesses, the law 
raises the Medicare payroll tax by a total of $210.2 billion. 
Employers will also be penalized for hiring new workers. They 
will pay a fine of $2,000 for every full-time employee for whom 
they do not provide acceptable coverage, as defined by the 
government. Many employers will be forced to dump their 
employees into the exchanges, just to remain competitive. 
Employers will have to comply with thousands and thousands of 
pages of burdensome regulations. There is something like 6,500 
already and many thousand more coming out in future years that 
will impose new mandates and responsibilities and new 
compliance costs on businesses, while driving up health 
insurance premiums and discouraging hiring.
    So today, we will hear from representatives of the State 
and the private sector to get their perspective on what 
Obamacare means for them. I would again like to thank Governor 
Tom Corbett for kindly agreeing to share some opening remarks.
    At this time I would like to welcome our distinguished 
witnesses, Secretary of Public Welfare Gary Alexander and State 
Insurance Commissioner Michael Consedine, on panel one. On 
panel two, we will have State Senator Pat Vance, chair of the 
Senate Public Health and Welfare Committee, and State 
Representative Matt Baker, chairman of the House Health 
Committee. And on panel three, we will hear from Gene Barr, 
Vice President of Government and Public Affairs for the 
Pennsylvania Chamber of Business and Industry, Kevin Shivers, 
Pennsylvania State Director with the NFIB, and Ann Daane, Vice 
President of North America Human Resources at Case New Holland.
    And finally, I would like to thank Governor Corbett's 
office, both Senator Scarnati's and Dominic Pileggi's offices 
and Representative Matt Baker's office for their help with 
accommodations and making this hearing possible today.
    [The prepared statement of Mr. Pitts follows:]

               Prepared statement of Hon. Joseph R. Pitts

    It's good to be back in Harrisburg. I spent more than 20 
years here as a state representative, and I still have many 
fond memories and good friends from my time here.
    On the one-year anniversary of the Patient Protection and 
Affordable Care Act being signed into law, we are here to 
examine the effects that the law will have, and is already 
having, on states.
    And, we will hear how various provisions in the law are 
burdening businesses and employers, precisely at a time when we 
need them to be hiring new employees and creating jobs.
    Obamacare's heaviest burden on states is the Medicaid 
expansion.
    A May 2010 Kaiser Family Foundation report found that by 
2019, Pennsylvania's Medicaid rolls may grow by an additional 
682,880 people and may cost the state an additional $2.041 
billion over the 2014-2019 time period.
    Where is Pennsylvania supposed to come up with $2 billion? 
How much spending for education, transportation, and other 
priorities will have to be cut to come up with this money? 
Which taxes will need to be raised to pay for this expansion?
    And, in the private sector, Obamacare levels destructive 
taxes on virtually every sector of our economy.
    For businesses, the law raises the Medicare payroll tax by 
a total of $210.2 billion.
    Employers will also be penalized for hiring new workers. 
They will pay a fine of $2,000 for every full-time employee for 
whom they do not provide ``acceptable'' coverage--as defined by 
the government.
    Many employers will be forced to dump their employees into 
the exchanges, just to remain competitive.
    Employers will have to comply with thousands and thousands 
of pages of burdensome regulations--which will be coming out 
for years--that will impose new mandates and responsibilities 
and new compliance costs on businesses, while driving up health 
insurance premiums and discouraging hiring.
    So, today, we will hear from representatives of the state 
and the private sector to get their perspective on what 
Obamacare means for them.
    I would again like to thank Governor Tom Corbett for kindly 
agreeing to share some opening remarks with us before our 
hearing got underway. Thank you, Governor.
    I would also like to welcome our distinguished witnesses, 
Secretary of Public Welfare Gary Alexander, and State Insurance 
Commissioner Michael Consedine, on panel one.
    On panel two, we will have State Senator Pat Vance, chair 
of the Senate Public Health and Welfare Committee, and State 
Representative Matt Baker, chairman of the House Health 
Committee.
    And on panel three we will hear from Gene Barr, Vice 
President of Government and Public Affairs for the Pennsylvania 
Chamber of Business and Industry, Kevin Shivers, PA State 
Director with the NFIB, and Ann Daane (Day-nee), Vice President 
of North America Human Resources at Case New Holland.
    Finally, I would like to thank Gov. Corbett's office, Sen. 
Dominic Pileggi's office, and Rep. Matt Baker's office for 
their help with accommodations and making this hearing 
possible.

    Mr. Pitts. So at this time we have our first panel seated. 
Each witness has prepared a written opening statement that will 
be placed in the record. Our first witness is Acting Secretary 
of Public Welfare Gary Alexander. Secretary Alexander oversees 
a department that provides services and support to more than 
2.1 million low-income, elderly and disabled Pennsylvanians. 
Prior to being nominated as DPW Secretary earlier this year, 
Secretary Alexander served as the Rhode Island Secretary of 
Health and Human Services. He is widely recognized as a health 
care and program innovator, welfare reformer and management 
specialist.
    Our second witness, Michael Consedine, was appointed by 
Governor Corbett to serve as Insurance Commissioner for the 
Pennsylvania Insurance Department pending senate confirmation. 
From 1995 to 1999, Commissioner Consedine served as Department 
Counsel for the Pennsylvania Insurance Department. From 1999 to 
January of 2011, he was in private practice where he was 
partner and vice chair of his firm's insurance practice group.
    Secretary Alexander, you will have 5 minutes to summarize 
your testimony. Before you do that, I would like to recognize 
Congressman G.T. Thompson for his opening statement.
    Mr. Thompson. Thank you, Chairman, and thank you so much 
for not just convening this panel but thanks for the invitation 
to be able to join you and really to be here to address very 
important issues that we have.

 OPENING STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN 
         CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

    You know, when the President signed the Affordable Care Act 
into last March effectively immediately, States were strictly 
prohibited from making any changes to their Medicaid programs' 
eligibility standards, methodologies and/or procedures. And 
while I am not an official member of the Energy and Commerce 
Committee, my professional background is in health care, and as 
a member of the Education and Workforce Committee and 
specifically the Health Subcommittee, there is a shared 
jurisdiction with Energy and Commerce over many of these 
issues. This includes any changes that would identify and 
reduce waste, fraud and abuse in the system.
    Many States such as Pennsylvania are generous with their 
Medicaid eligibility and surpass the mandatory federal 
guidelines, and as we know, currently many States are 
struggling to meet their fiscal obligations. States, unlike the 
Federal Government, are generally required to balance their 
budgets. It has become increasingly clear that drastic 
increases in State obligations will force significant tax 
increases or will result in cuts to vital programs to meet 
these new federally dictated obligations. Estimates suggest 
that Pennsylvania will see up to a 25 percent increase in 
Medicaid enrollment. During the years of 2014 to 2019, this 
will cost Pennsylvania alone over $2 billion. Many States will 
experience similar, if not greater, funding burdens.
    The Robert Wood Johnson Foundation estimates that 18.6 
million new people will be eligible for Medicaid rolls 
nationally. Enrollment will be substantially higher in southern 
and western States. Several States will now have more than 10 
percent of their population newly eligible and the national 
Medicaid roll will reach upwards of 80 million people. The 
bottom line: States simply cannot afford this dramatic cost.
    Now, I am glad to have the opportunity to be here and look 
forward to receiving some further insights and feedback on the 
effect that the Affordable Care Act is having right here in the 
Commonwealth of Pennsylvania, and thanks again to the chairman 
for having us and thank you to all of our witnesses for being 
here today.
    Mr. Pitts. Thank you, Congressman Thompson, for your 
opening statement.
    Mr. Secretary, you are recognized.

     STATEMENTS OF GARY ALEXANDER, SECRETARY, PENNSYLVANIA 
  DEPARTMENT OF PUBLIC WELFARE; AND MICHAEL CONSEDINE, ACTING 
   INSURANCE COMMISSIONER, PENNSYLVANIA INSURANCE DEPARTMENT

                  STATEMENT OF GARY ALEXANDER

    Mr. Alexander. Thank you very much. Chairman Pitts and 
members of the committee, I thank you for this opportunity to 
discuss Pennsylvania's medical assistance program, the 
challenges that we face because of these federal mandates and 
the issues that are arising because of the Affordable Care Act.
    Given your time constraints, I will get straight to the 
point, two points actually. Number one, Pennsylvania's Medicaid 
program as currently structured is unsustainable, inefficient, 
bureaucratic and not focused on performance and outcomes. 
Federal mandates are largely responsible because Medicaid is a 
program that pays for volume and not value. Number two, the 
federal health care law will make this problem even worse for 
consumers and taxpayers. Adding more people to a broken system 
is a terrible idea no matter how much money Washington wants to 
throw at it.
    Pennsylvania's Medicaid rolls already are heading toward a 
cliff of fiscal instability, and this will clearly plunge us 
over the edge if this law is not stopped. The federal health 
care law requires State Medicaid programs to cover every adult 
who earns up to 133 percent of the federal poverty level or 138 
percent if we use this new code from the IRS.
    The expansion will bring nearly 1 million new additional 
Pennsylvanians onto the Medicaid rolls. That is in addition to 
the more than 2.2 million on our rolls today. The Pennsylvania 
Department of Public Welfare's overall Medicaid budget, the 
amount spent from both State and federal dollars is already 
growing at nearly 12 percent annually and is expected to exceed 
$18.3 billion in the current fiscal year. That is a 97 percent 
increase from the $9.3 billion budget of a decade ago.
    Pennsylvania already spends more of its general fund 
revenues on Medicaid than all but two States in the Nation with 
about 30 percent of it going towards Medicaid. If we continue 
on this path, the State will use about 60 percent of its budget 
on Medicaid alone by fiscal 2019, leaving less money for other 
vital services. If the federal health care law is implemented 
as currently planned, this already unsustainable spending 
pattern will get much worse. Contrary to what some in 
Washington think, the new law will not be entirely financed by 
the Federal Government. Even with the enhanced funding for 
certain expansion populations, the law will cost the 
Commonwealth taxpayers more than $11.4 billion over the first 
full decade of implementation. This is totally unsustainable.
    Certainly, a safety net is important for our most 
vulnerable citizens so if Medicaid is to remain economically 
viable, where does that leave us for options? The most obvious 
and viable option is to give States complete flexibility to 
design and manage a Medicaid program that allows us to improve 
outcomes and bring more value to taxpayers and beneficiaries. 
We need to make this a health program and not a benefit 
program. For Pennsylvania, this solution would be a boom for 
innovation, efficiency and, most of all, a healthier and more 
productive citizenry. Our current Medicaid program is an 
inefficient hodgepodge of command and control top-down 
processes from afar. Very few of our current programs 
nationally reward or even encourage prevention, wellness and 
disease management and people in this Nation on the welfare 
system are discouraged from working.
    Administratively, the program is equally broken. Operating 
multiple waivers across multiple populations is archaic, siloed 
and prevents integrated health care. Bureaucrats in Baltimore 
don't manage and don't administer programs and certainly don't 
have to balance a budget. We do.
    Public welfare reform presents us with a great opportunity 
to use the resources within our Commonwealth to transform the 
structure and operations of the public health system without 
needless federal intervention and with the best interests of 
Pennsylvanians in mind instead of being distracted by the 
interest of federal bureaucrats.
    Permit me to outline a few of the reforms that Pennsylvania 
and other States can do on their own without the heavy hand of 
Washington. We can promote improved care management through 
quality outcomes, wellness and prevention and new provider 
markets that drive nutrition and personal responsibility into 
the programs. We can focus on data-driven consistent management 
and decision-making from measured quality outcomes. We can 
examine new initiatives such as healthy choice accounts for 
families structured to promote personal responsibility and 
incentivize preventive care. We can provide care coordination 
and management for all beneficiaries through mandatory 
enrollment in a primary care coordination model, a managed care 
plan or a healthy choice option. We can implement smart 
purchasing techniques and strategies and fair share initiatives 
which empower Medicaid recipients to make cost-conscious 
decisions about their medical care and competitive and 
selective contracting to ensure purchases are made at the best 
competitive prices.
    Mr. Chairman, as we Americans have given trillions of 
dollars to government entitlements with the poorest of 
outcomes, we ask that Washington get off of our backs. It is 
time that State governors, State legislators and others have 
their chance. Washington has already had theirs. We have 
firsthand experience managing our own programs; Washington does 
not. We know how to balance budgets; Washington does not. 
Pennsylvania is ready and able to bring innovative policy 
solutions to actively address Medicaid's unsustainable growth. 
The States can and should be the originators of policies and 
best benefits their own diverse populations and demographic 
realities. It is time we realize the ``Washington knows best'' 
mentality is counterproductive to innovation within States.
    Thank you for allowing me to speak today.
    [The prepared statement of Mr. Alexander follows:]



    Mr. Pitts. Thank you, Mr. Secretary.
    Mr. Commissioner, you are recognized for your opening 
statement at this time.

                 STATEMENT OF MICHAEL CONSEDINE

    Mr. Consedine. Good morning, Chairman Pitts and 
distinguished members of the committee. My name is Michael 
Consedine and I am Pennsylvania's Acting Insurance 
Commissioner.
    As you know, this is the first anniversary of the federal 
Affordable Care Act. As Pennsylvania's chief regulator of the 
insurance industry, I appreciate the opportunity to share with 
you our efforts over the last year to navigate this new law, 
our view on its impact on consumers, both individual and 
business, and on our State and the challenges we face as we 
move forward. But first, because as Chairman Pitts knows, 
Pennsylvania is unlike many other States, please allow me to 
provide a brief snapshot of Pennsylvania's health care 
marketplace.
    While there are more than 100 carriers licensed to write 
health insurance in our State, the marketplace is in fact 
dominated by nine carriers with two groups sharing over 50 
percent of the market. Moreover, Pennsylvania's population is 
diverse. We have both urban and rural areas. We are often 
considered a State with large businesses due in part to our 
urban concentrations but much of our population is employed by 
small businesses. It is in this unique and in many respects 
challenging marketplace that we are dealing with the 
implementation of the Affordable Care Act.
    If the Act was designed to serve as a roadmap to affordable 
and accessible health insurance for Pennsylvanians, I will tell 
you that thus far it has been a path marked by lack of clear 
direction and troubling indications for the road ahead. I 
recognize that some journeys do start out that way and still 
one proceeds undaunted by the twists and turns ahead.
    One of the first requirements we dealt with under the act 
was the creation of the so-called high-risk plan designed to 
act as a stopgap measure for uninsured Americans until the act 
takes full effect in 2014. It was a significant undertaking to 
create a new program in a very short timeframe but we made it 
to this first mile marker. As of March 1, 2011, we have 2,684 
enrollees receiving coverage and care. Ironically, this makes 
Pennsylvania one of the more successful programs in the country 
in terms of its participation.
    Several provisions of the Affordable Care Act have become 
effective and several additional provisions will become 
effective in 2011. These requirements primarily deal with 
policy design and required coverages. Compliance with these 
provisions required Pennsylvania to develop new systems and 
procedures, all within associated cost to the State to ensure 
compliance, and it was at this point in our journey that we 
first saw troubling signs for the road ahead.
    While from a consumer perspective there are additional 
benefits as a result of these forms, these federally mandated 
coverage changes resulted in premium increases of up to 9 
percent, this on top of already significant premium increases 
being seen by Pennsylvania businesses and consumers. Therefore, 
it is important to stress that the initial reforms have caused 
an increase in premiums, not a decrease.
    The Affordable Care Act also provided for several grants 
from the Federal Government to the States as a way to help 
States navigate the path to health care implementation. The 
first, already mentioned, was PA Fair Care. We next intend to 
utilize the consumer assistance grant in making health 
insurance understandable to consumers. I am not sure any of us 
here or even in Washington truly understand the act, in part 
because it is still evolving and changing. So educating 
everyday Pennsylvanians about the new law is a challenge. To 
use the journey analogy, how can a State effectively give 
directions to consumers when the destination itself is still 
moving?
    There is also an exchange planning grant. The formation of 
a health insurance exchange market in each State by 2014, 
really 2013, is one of the act's landmark provisions. If the 
States does not set up an exchange, the State's exchange will 
be run at the federal level. Implementation of an exchange is 
no small endeavor. In some respects, it represents the point of 
no return in the implementation of the act because of the time 
and resources that States will need to expend in creating this 
new enterprise. Also, the Affordable Care Act sets various 
aggressive timeline for exchange implementation. As with other 
areas of the law, here we are also awaiting clear direction 
from HHS on key components of the exchange including the design 
of the essential benefit package.
    Governor Corbett has tasked the Insurance Department as the 
lead agency in the Commonwealth to study implementation of the 
health care exchange. We intend to look very carefully at what 
type of an exchange, if any, Pennsylvania should implement 
before taking that very significant step.
    Overall, Mr. Chairman, we are concerned that the road to 
implementation of the act is a toll road. As noted earlier, the 
immediate insurance reforms imposed by the Affordable Care Act 
added to the cost of coverage by mandating required benefits or 
expanded coverage. Additionally, the act imposes a toll on the 
insurance regulators' already strained resources. There is no 
money in the act to help fund the increased workload associated 
with reviewing the act nor is there any money to fund the 
enforcement efforts that States will need to undertake to 
ensure industry compliance. Again, this is a toll that States 
are expected to pay out of already strained budgets.
    As Governor Corbett noted in his remarks, the act does not 
go far enough in addressing the cost drivers of health 
insurance. If the ultimate objective of our journey of reform 
is affordable care, we question whether the Affordable Care Act 
is a clear roadmap or still an uncharted course.
    So Pennsylvania, like many States, stands here today 1 year 
after the Affordable Care Act enactment at a crossroads. We 
could proceed down one path towards full implementation of the 
law, expending substantial time and limited State resources and 
funds in doing so, possibly only to find that the path is 
closed by virtue of legal or legislative challenges to the 
current version of the act. We could also choose a path to full 
resistance of the act. However, we risk that our journey ends 
in federal regulation of Pennsylvania's health insurance 
market. We continue to hope that with your hope, Mr. Chairman, 
members of the committee and Governor Corbett, that we might be 
able to forge another path, one that results in a clear roadmap 
that delivers us to the destination we all seek: health care 
reform that truly addresses the issues of affordability and 
accessibility in a fiscally sound manner.
    Thank you, and we would be happy to answer any questions 
that you have.
    [The prepared statement of Mr. Consedine follows:]



    Mr. Pitts. The chair thanks the gentleman. The chair now 
recognizes himself for questioning.
    Secretary Alexander, can you describe your experience in 
dealing with the CMS bureaucracy in your attempts to be granted 
Medicaid waivers? Do you find the CMS bureaucracy helpful and 
cooperative? Do you find their decision-making process timely? 
Do you find the actions of the CMS bureaucracy to be 
burdensome? Would you please elaborate?
    Mr. Alexander. Thank you, Mr. Chairman. Certainly, the 
citizens that work at CMS are fine people. Many of them have 
grown up in the bureaucratic abyss of Washington or Baltimore. 
What I would say essentially is that the CMS process is heavily 
bureaucratic, it is not timely, it is very burdensome and 
archaic. Sometimes approval for just a routine question can 
take months and reams of paperwork from the State. The federal 
establishment keeps adding more and more employees. We here at 
the State level keep decreasing our employees. We cannot 
continue to mirror our operations here like the federal 
establishment.
    I will just give you an example of something recent. South 
Carolina is trying to amend one of their home and community-
based waivers, and because they made a mistake and added one or 
two sentences that shouldn't have been in the application, the 
application then got put to the bottom of the pile again and 
they are going to have to wait another few months. Now, when 
States are trying to balance their budgets, this is extremely 
troublesome. Generally what happens is, States want to make 
changes to their programs. They petition CMS. It takes months 
and months. The legislature will then pass a bill in June or 
July and then it takes us months and months and months, 
sometimes 12, 18 months or 2 years to get a decision out of 
Baltimore. This leads us to have deficits in our own budgets. 
All of this can't continue. We are operating multiple waivers 
across multiple programs. It is very disjointed and 
disorganized. So I guess the short answer is, it needs to be 
overhauled.
    Mr. Pitts. Thank you. Mr. Secretary, in what they call 
reforming the Nation's health care system, the President and 
the previous Congress decided on a plan that significantly 
expanded the Medicaid program. In fact, the Administration's 
Chief Actuary believes the plan will expand the Nation's 
Medicaid rolls by 20 million people. Do you believe that 
reforming the Nation's health care system is accomplished by 
expanding the Medicaid program by nearly 30 percent?
    Mr. Alexander. The Medicaid program is singularly the most 
broken program in Washington. None of us would sit around and 
create a health care program with outcomes or outcome-based 
measures and created the way the Medicaid program is currently 
structured. It is going to be a disaster for the States to 
continue down this road and to add all of these people to the 
rolls.
    Mr. Pitts. Mr. Secretary, do you believe that PPACA's 
maintenance of effort requirement hinders States from 
implemented program integrity measures to root out fraud and 
waste and abuse in Medicaid?
    Mr. Alexander. It does. It also inhibits States from saving 
money when we are on a financial cliff, and for our hands to be 
tied like that under the current structure where we have no 
flexibility in the program at all is disastrous. We cannot 
tailor benefits. We cannot structure benefit packages for 
certain populations. It is a one-size-fits-all program, and 
that type of a program invites fraud, waste and abuse.
    Mr. Pitts. Finally, Mr. Secretary, the CHIP program, the 
expansion of the State Children's Health Insurance program, 
signed into law in 2009, provided bonus payments to States for 
adopting administrative changes such as eliminating asset tests 
and in-person interviews to verify Medicaid eligibility. Do you 
believe this bonus payment system promotes fraud and abuse?
    Mr. Alexander. It certainly does because any time we are 
inviting things like express-lane eligibility or presumptive 
eligibility in trying to have recipients access these programs 
in an expedited manner, we here on the State level have a lack 
of staff to begin with so all of those items would invite 
fraud, waste and abuse in the system.
    Mr. Pitts. Thank you.
    Commissioner, in your testimony you described the 
uncertainty facing States as they decide whether to create an 
exchange. Can you explain in further detail how PPACA imposes 
both a financial and administrative hardship on States that 
choose to set up an exchange?
    Mr. Consedine. I would be happy to, Mr. Chairman. The 
system in terms of what an exchange looks like, how it operates 
is still dependent on significant guidance from the Federal 
Government, even on such things as simple matters of the 
technology involved, the computer language that the State 
system is going to use to communicate with the federal system. 
You know, while the law provides for grants to help studies for 
implementation of the act and does provide more substantial 
grants to other States for early innovator approaches, it 
really still doesn't address the long-term maintenance costs 
associated with setting up and running an exchange long term, 
and again, there is still so much that needs to be decided in 
terms of how these exchanges operate and what is going to be 
acceptable to the Federal Government and what is not going to 
be acceptable, and that is, as I mentioned in my remarks, sort 
of the atmosphere of uncertainty that the States and businesses 
and everybody are dealing with is how do you set up an exchange 
or how do you build something, and essentially what we are 
doing with an exchange is building something, but we don't have 
any blueprints to use at this point so we are just--you can't 
build effectively a sound structure when you don't have 
blueprints, and we are waiting for that, and until we have 
those, it is a loss of money and time and resources for States 
and all of those are very precious resources at this point.
    Mr. Pitts. Thank you. Commissioner, in your testimony you 
cite defensive medicine resulting from frivolous lawsuits as 
one of the drivers of health care costs. Do you believe PPACA 
credibly addressed the issue of medical liability reform?
    Mr. Consedine. I do not. I am quite clear that I believe 
that is one of the major failings with the Affordable Care Act 
is it really does not address the cost drivers of health 
insurance. I mean, one of the things we really want as part of 
reform is affordability, and the act does not go nearly as far 
as it could in addressing affordability and certainly the 
defensive medicine is a significant factor that really is not 
addressed to any great degree as part of the reform.
    Mr. Pitts. Thank you. The chair recognizes the gentleman, 
Congressman Thompson, for questioning.
    Mr. Thompson. Thank you, Chairman.
    Thank you, Mr. Secretary, Mr. Commissioner, for 
participating in the panel and for your leadership here in the 
Keystone State. We very much appreciate it.
    Mr. Secretary, in my opening statement I mentioned the 
maintenance of effort provisions that prohibit States from 
altering their Medicaid programs, the way their Medicaid 
programs are administered, and this includes cleaning up waste, 
fraud and abuse in the system.
    Mr. Thompson. My question is, has Pennsylvania identified 
areas in the system that could be improved but are being held 
back because of the maintenance of effort provisions?
    Mr. Alexander. Well, certainly the biggest problem we have 
with the maintenance of effort provisions is really, we have to 
maintain all of the eligibility levels that we have as of a 
certain date, which was about a year ago. The other part of 
this step I think we all seem to forget and it is sort of in 
the details, always the devil is in the details, is that if 
somebody--if we try to change a benefit, not an eligibility 
category but a benefit and it results in anybody losing 
eligibility, the State will be penalized. So the reason why 
that is detrimental, of course, is of a State tries to innovate 
and create benefit packages that are tailored and targeted to 
certain populations so that they don't have to give those 
benefits across all of the populations, which we really can't 
do anyway, but if we tinker with the benefit and it results in 
the loss of eligibility, the States will be penalized and in 
fact if we turn the clock back to when the stimulus was first 
given to the States, that was a huge problem because certain 
States already had some innovation in the pipeline, and when 
the new Administration came in, that all came to a halt.
    Now, of course, when you have to--any time you are 
administering a program this large, this fast with all of these 
onerous rules and regulations, it is going to be very difficult 
to root out all of the waste, fraud and abuse, and certainly 
those MOE requirements would keep us down the same path so that 
we certainly couldn't clean up as much as we should.
    Mr. Thompson. Certainly I am of the belief that States are 
laboratories of innovation, and certainly based on your 
testimony from both you gentlemen, you talked about very 
innovative ways to meet needs, and this is a question, just 
follow-up. If the maintenance of effort provision were 
obviously repealed or at least delayed for a certain period of 
time, could there be some savings realized?
    Mr. Alexander. Absolutely because it would give the States 
the flexibility to eliminate some higher-end populations, and 
if you are looking at States that are more lucrative in their 
Medicaid benefit, then obviously those are the types of States 
that would be able to eliminate certain eligibility categories. 
Certainly that is not the goal, but when you are in dire 
straits and you have to balance a budget and your State is on a 
cliff, you better do everything humanly possible, and for 
governors, it is a huge burden to have those MOE requirements. 
Those MOE requirements should have never been put in even with 
the federal stimulus. They were detrimental because it is 
obviously a cliff. We got all that federal stimulus money and 
now it is ending and we never made the hard choices and the 
difficult choices, and now we have to make those.
    Mr. Thompson. Mr. Secretary, the new law creates a 
trillion-dollar entitlement program, expands Medicaid, imposes 
new taxes and regulatory burdens on American employers and 
workers. In your view, does the new law control and reduce the 
trend of increasing public health expenditures in Pennsylvania?
    Mr. Alexander. Absolutely not. Have we ever seen anywhere 
the costs in Medicaid ever come down, ever? The biggest part of 
this law is the expansion in Medicaid, and that is going to be 
to the detriment of the States. Expanding Medicaid is no way to 
give universal health care.
    Mr. Thompson. Mr. Commissioner, supporters of the health 
care law claim that new insurance exchanges will give small 
employers the same leverage as large employers. Will the new 
exchanges work or are there too many unresolved questions 
regarding their structure and are there any problems you 
anticipate?
    Mr. Consedine. We just don't know. At this point we really 
don't have any other models that we can look at and say one way 
or the other they work well or they don't work well. I mean, we 
have seen Massachusetts as an example of an existing health 
care exchange and certainly in that case it hasn't lived up to 
its promises in terms of certainly affordability. Access may 
have been improved but not significantly, and the affordability 
issue continues.
    There are a lot of questions that are still unresolved. For 
example, what is going to constitute sort of the essential 
benefits package that is going to be required under the 
exchange? You know, what is going to be covered under that and 
what is not? I mean, there are a lot of what we call sort of 
additional mandated benefits that are provided under most 
health insurance policies. Autism is a good example. If that is 
not part of the essential benefits package that is yet to be 
developed at the federal level and the States want to provide 
that as part of our essential benefits package here, we can do 
that but that is going to substantially add to the cost and 
that is a cost that is in that case borne by the State, and 
again, that is one of those big issues that we don't know yet 
what direction they are going. Hopefully sometime this summer 
we will have a better sense but there are still a lot more 
questions that need to be answered before we can give any sound 
guidance on how this is going to work and if it is going to 
work well.
    Mr. Thompson. I mean, there are ideas that we had worked 
on, a bill specifically, Putting Patients First Act, that was 
introduced in July 2009 and it had some parts of it that were 
totally ignored with the President's health care bill that was 
signed, so I want to share some of those and get your opinions 
on them. Would ideas like cross-State purchasing and permitting 
employers to pool their resources to increase bargaining power 
with insurance companies help begin the process of controlling 
and lowering health care costs here in the Commonwealth?
    Mr. Consedine. Well, certainly that type of buying power on 
a pooled basis has been shown to be an effective way to lower 
premium costs, and again, that is not something you see in this 
act. You know, I think there are a lot of great ideas that were 
out there but did not find their way into the reform law that 
we are dealing with, and that is one of the issues we have is 
we are sort of stuck with what we have and there is still a 
great deal of questions on what we are going to do with it and 
how it is going to work with the States but we would certainly 
like the opportunity to go back to the drawing board and come 
up with something that works for the country and especially 
works for Pennsylvania.
    Mr. Thompson. Great. Thank you.
    Mr. Pitts. The chair thanks the gentleman.
    Mr. Secretary, what do the words ``independence'' and 
``self-sufficiency'' mean to you? The Medicaid Act says that we 
are to furnish services to families and individuals to gain 
independence and self-sufficiency, and that doesn't sound like 
a lifetime of benefits to me. Do you think the current 
regulations give States the ability to operate a program that 
instills self-sufficiency and independence?
    Mr. Alexander. Absolutely not. We promote in this program 
and all of the other programs dependency and not self-
sufficiency and self-reliance. Clearly, the Medicaid Act spells 
it out and it tells us that we are to furnish services so that 
individuals and families can gain or retain independence and 
self-sufficiency. Obviously we know we have very vulnerable 
citizens that may need care for a lifetime, and that is why we 
are here. But the vast majority of our beneficiaries or 
recipients could be moved more quickly off of the program and 
the current system does not allow us to do that.
    Mr. Pitts. If we eliminate the maintenance of effort 
requirement, then would you have the flexibility to achieve 
that purpose?
    Mr. Alexander. Well, if we remove the maintenance of effort 
requirement, all that would enable us to do is to eliminate 
eligibility categories. If we are truly going to focus on work 
and employment, then we need to retool all of the federal 
entitlement programs to focus on that. Even the disabled 
population will tell you that they would like to go to work. 
There are many barriers in the federal entitlement programs, 
especially the Social Security program. This is why it is so 
disorganized. We are dealing with multiple programs, multiple 
federal agencies, multiple bureaucrats and it is not 
integrated. If we were to eliminate barriers in some of these 
programs, it would make it much easier for even our disabled 
population to go to work. We should be here to empower them and 
give them the tools to do this, not put barriers in front of 
them. So what I would say to you is, the federal programs do 
not promote self-sufficiency and reliance and independence; 
they promote dependency.
    Mr. Pitts. Thank you.
    Commissioner, cost shifting occurs when hospitals and 
doctors receive reimbursement rates from Medicare and Medicaid 
that are lower than the cost of providing care. In order to 
break even, providers, hospitals and physicians compensate for 
these unpaid costs by increasing how much they charge other 
patients, especially those that are privately insured or paid 
out of pocket. You cite cost shifting in your testimony as a 
driver of health care costs. I am concerned that this effect is 
going to get worse under Obamacare, which forces nearly 20 
million people into a Medicaid program that typically providers 
even less than Medicare. Obamacare increases medical costs for 
private payers by expanding the government programs and 
reducing payment rates. In addition, because Obamacare did not 
properly handle the issue of provider reimbursement under 
Medicare, doctors are faced with the added pressure of finding 
revenue elsewhere. Do you believe the expansions of Medicaid in 
your State will shift costs to private payers and ultimately 
increase premiums for privately insured individuals? If so, 
why?
    Mr. Consedine. I absolutely do, and I would be interested 
to hear Secretary Alexander's views on this as well. We are 
certainly concerned about the cost shifting on the Medicaid 
side. We are also concerned about it on the exchange side. 
Again, what we have seen in the Massachusetts example is that 
costs went up and in fact that is due in large part because of 
the cost-shifting issues that you cite as well as adverse 
selection. So it continues to be an area that we are very 
concerned about, and again, I think highlights one of our main 
problems with the Affordable Care Act is, it doesn't really 
address the cost side.
    Mr. Pitts. Mr. Secretary?
    Mr. Alexander. Mr. Chairman, the hospitals in Pennsylvania 
stand to lose hundreds of millions of dollars in 
disproportionate share payments to hospitals. The premise 
behind the federal health care law is that by providing 
everybody with insurance that the hospitals will need much less 
in disproportionate share payments. If we look at the one 
example that we have, which is Massachusetts, Massachusetts 
openly admits that their uncompensated care is going sky high. 
So if the federal health care law is based on the Massachusetts 
model, if that is how we are modeling this, we are going to be 
in serious trouble, and in fact, Pennsylvania's hospitals will 
be in serious trouble with that reduction in disproportionate 
share payments. All of this is a cost shift, and we are 
operating a system where we have all of these onerous, very 
onerous federal mandates, rules and regulations and we see that 
we don't have enough money to pay certain providers. We don't 
have enough to pay doctors adequately and we don't have enough 
money to pay hospitals adequately. So we keep putting more and 
more mandates on the system and there is no money. The only way 
out is flexibility. We have to lift a lot of these mandates 
that actually just don't make any sense, and if we have that 
ability, we could tailor programs here appropriately and use 
the money more wisely even across all of the programs, not just 
Medicaid. So if we had that flexibility, I think it would make 
it much easier for us.
    Mr. Pitts. Thank you. The chair recognizes Mr. Thompson for 
additional questions.
    Mr. Thompson. Thank you, Chairman.
    You talked about hospitals and specifically rural 
hospitals. That is the world I came out of. I spent 28 years 
there, and I am still trying to figure out how I got in 
Congress, but it was a great learning experience working in 
health care in a world of regulations and looking what mandates 
and unfunded mandated and regulations, the impact that it has 
on our health care system, and you gentlemen have both 
referenced in terms of hospitals. Now, in Pennsylvania we have 
a lot of hospitals and they are a site of providing care. Given 
the fact that the President's health care bill expands 
Medicaid's rolls by about 18 million, I think it what was 
projected, Pennsylvania somewhere under a million more people 
enrolled in medical assistance, and medical assistance paying--
and I am not sure about specifically--well, my experience in 
Pennsylvania, medical assistance pays somewhere about 40 to 60 
cents on every dollar of cost that a hospital or physician has. 
Based on your professional experiences and your leadership 
roles here, is that good news or bad news for the future of 
specifically rural hospitals and underserved urban hospitals?
    Mr. Alexander. I would say obviously not. I think in 
Pennsylvania, because of the ruralness of the State, we have to 
be very conscious for access purposes, and currently the 
reimbursement rates because of this perverse system that we are 
operating between State and Federal Government, does not lend 
itself to be able to even increase rates adequately. We here at 
the State level are operating multiple programs across multiple 
federal agencies. It is very, very disorganized. If States 
should be left alone to create programs that are tailored to 
their own citizens and if we were able to do that, we would 
even be able to take less money from the Federal Government. 
Maybe some States would put money into health care. Maybe some 
States would put more money into nutritional services. Maybe 
some States would put more money into employment. The bottom 
line is, is if we had that flexibility, we could use federal 
money and State money much more wisely so that rural hospitals 
or even in the inner city where they are dying for more money 
would be able to have some relief.
    Mr. Consedine. The only other observation I would make is 
one of our concerns looking down the road is, we see already 
sort of a consolidation trend occurring not only on the 
insurance side where you have either health insurance companies 
that are either getting out of the market altogether or they 
are consolidating, the view being that you almost are going to 
have to to survive this new environment under the Affordable 
Care Act. The same thing is going to happen on the hospital 
side too where you have the larger hospital chains potentially 
acquiring rural hospitals and smaller hospitals, and long term 
as they look at, you know, what hospitals are more profitable, 
which are not, there is a risk that some of those rural 
hospitals just go away. And again, for a State like ours where 
we have large swaths of the State that are served by one rural 
hospital, that is a concern to us.
    Mr. Thompson. I want to follow up on one point you made in 
terms of what is the likelihood that some rural hospitals may 
go away, may close. I have never been one for health care 
reform, and I have spent my entire professional career in terms 
of health care refinement and improvement, and one of the 
principles obviously of that is access, and given this medical 
assistance expansion, and I am not sure what the portion of the 
half a trillion dollars of Medicare cuts will hit hospitals 
here in Pennsylvania but it will be significant, certainly the 
bureaucracy costs that are layered on, now we have over 100 new 
bureaucracies. I remember the costs when HIPAA was implemented, 
my hospitals and the amount of people that had to be hired that 
really don't do any direct patient care but that was to be in 
compliance, those compliance costs. Given all that, is there a 
likelihood in Pennsylvania if this bill goes unchecked and all 
parts of it are implemented that we will see hospitals, some 
hospitals close in Pennsylvania, and isn't that completely 
opposite of expanding access to care?
    Mr. Alexander. I would say yes. Hospitals right now are--we 
have hospitals in this State that are on the brink, and I have 
seen it in other States where they are just barely making it. 
Any more federal top-down heavy-handed rules and regulations 
and laws from Washington are not going to solve the problem, 
and I like what you just said. We should be using refinement 
rather than reform because that is exactly--we have a lot of 
hardworking people in our hospitals and our nursing homes and 
our health care providers have been doing an excellent job. It 
is the government that puts roadblocks in the way. So not only 
does Washington have to get off of our backs but we at the 
State level in some respects have to be cognizant of what is 
going on in the counties and in our local hospitals.
    Mr. Thompson. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman.
    The committee received a letter earlier this year from 33 
governors and governors-elect asking for the additional 
flexibility that you have talked about. Sort of the theme in 
this testimony, and the committee is committed to provide 
States with the flexibility they need. If you have any 
suggestions that you have where Congress can help lift the 
mandates to provide this flexibility, we would welcome them.
    This has been excellent testimony. We thank you for your 
input. We look forward to continuing to work with you. This is 
our first field hearing, so you are guinea pigs for us in a 
way. We thank you for your excellent input. At this time the 
chair will excuse panel one and call forward the second panel.
    For our second panel, we will hear from two of 
Pennsylvania's senior legislators, two former colleagues and 
good friends. Senator Patricia Vance is the only member of the 
legislature who is a professional nurse. Prior to her election 
to the Senate, she served 14 years in the Pennsylvania House. 
In the Senate, Senator Vance chairs the Public Health and 
Welfare Committee.
    Our second witness, Matt Baker, was recently elected to his 
10th term in the House of Representative. Representative Baker 
serves as chairman of the House Health Committee for the 2011-
12 session.
    Welcome. We have your written testimony in the record. You 
are now recognized for opening statement. Senator Vance, you 
are recognized for your statement.

STATEMENTS OF PENNSYLVANIA STATE SENATOR PATRICIA VANCE, SENATE 
  PUBLIC HEALTH AND WELFARE COMMITTEE; AND PENNSYLVANIA STATE 
REPRESENTATIVE MATTHEW BAKER, CHAIR, PENNSYLVANIA HOUSE HEALTH 
                           COMMITTEE

                  STATEMENT OF PATRICIA VANCE

    Ms. Vance. Good morning, Chairman Pitts, Congressman 
Thompson. We are delighted to have you here with us today to 
talk about the impact of the Patient Protection and Affordable 
Care Act.
    As you said, my name is Pat Vance. I am one of the 50 
senators in the Pennsylvania Senate and chair of the Public 
Health and Welfare Committee. Before serving in the 
legislature, I was both a geriatric and a pediatric nurse, so I 
hit both ends of life's spectrum, but my health care background 
really gives me a unique perspective on the medical and 
legislative impacts of this federal health care proposal.
    Now that a year has passed since this legislation was 
signed into law, it is time to evaluate some of the 
consequences and rethink the direction we are headed.
    First, insurance premiums have increased dramatically over 
the past year. Last August, the California Department of 
Insurance approved an average rate increase of 14 percent for 
Anthem Blue Cross and Blue Shield of California increased its 
rates in October 2010, January 2011 and is posed for a third 
rate hike this spring. For some individual policyholders, this 
cumulative increase could be as high as 86 percent. Mennonite 
Mutual Aid Association in Kansas increased its rates 4 percent 
recently to pay for provisions that were required in this 
federal health care law.
    In Pennsylvania, Blue Cross of Northeastern Pennsylvania 
increased rates 9.9 to 15 percent as of January 1, 2011. These 
rate increases far outpaced the Consumer Price Index, which as 
you all probably know went up 1.6 percent before seasonal 
adjustments during the year-end January 2011 according to the 
United States Department of Labor. Now does not seem to be the 
time to further burden taxpayers. The economy is still in 
pretty dire straits. As of January 2011, Pennsylvania's 
seasonally adjusted unemployment rate is 8.2 percent, slightly 
better than the United States, which is 9 percent. Gasoline 
prices have been surging lately due to all the problems in the 
Middle East and employers have frozen wages during the past few 
years, and by all indications wages will continue to stagnate. 
Americans are really struggling. We hear from them every day in 
the office.
    The federal health care law will only add to the average 
resident's financial stress with excise taxes on high-cost 
plans, increases on taxes on earned and unearned income, and 
penalties on uninsured individuals. On top of this, the federal 
health care bill will most likely increase the deficit through 
Medicaid expansion and increase subsidy costs as insurance 
premiums continue to rise. The voters have called on government 
to exercise fiscal restraint and it is irresponsible for all of 
us to leave a legacy of debt on our children and our 
grandchildren. We are really only kicking the can down the road 
and making things tougher for them.
    Finally, employers will struggle with mandates required 
under the federal law, which will ultimately reduce their 
willingness to hire new employees. Under the law, employers 
have lost their flexibility, and that is a word we need to talk 
about a lot. We need more flexibility in choosing benefits for 
their employees. In Massachusetts, we have seen employers drop 
coverage and pay the fines, which they have determined to be 
cheaper. This defeats the goal of having more Americans covered 
by health insurance. Now is the time to step back and reexamine 
the federal health care law, the good and the bad.
    In closing, thank you for this opportunity to testify on 
the impact of this law on the citizens of Pennsylvania, and I 
look forward to taking any of your questions.
    [The prepared statement of Ms. Vance follows:]



    
    Mr. Pitts. The chair thanks the gentlelady.
    Representative Baker, you are recognized for your opening 
statement.

                   STATEMENT OF MATTHEW BAKER

    Mr. Baker. Good morning, Mr. Chairman and committee 
members. Thank you for the opportunity to comment on the impact 
the federal health care law has upon Pennsylvania.
    As the majority chairman of the House Health Committee, I 
have many concerns that the federal law will result in 
unsustainable growth in Medicaid costs, higher taxes, loss of 
liberty and freedom in choosing one's health insurance, being 
mandated to buy insurance or face fines or penalties by the IRS 
that has already been deemed unconstitutional and will likely 
be decided by the United States Supreme Court on appeal.
    The federal takeover of health insurance regulation and, 
indeed, one-sixth of our national economy, will have serious 
and costly impacts to Pennsylvania's taxpayers, businesses and 
State budgets and constitutes a significant usurpation by the 
Federal Government of longstanding State authority over health 
insurance regulations.
    Due to strong public opposition to the federal law, I have 
introduced House Bill 42 along with 41 other States called the 
Health Care Freedom Act that protects two essential rights: to 
participate or not in any health care system, and prohibits the 
government from imposing fines or penalties in that decision; 
and two, protects the right of individual to purchase, and the 
right of doctors to provide, lawful medical services without a 
government fine or penalty.
    According to the American Legislative Exchange Council 
(ALEC), the federal health care law will cost $1.5 trillion 
over the next 10 years, adding billions of dollars to 
Pennsylvania's budget shortfall. The Heritage Foundation 
estimates Pennsylvania's Medicaid costs to increase by nearly 
$1 billion from 2014 to 2020 as a result of new Medicaid 
mandates. Eligibility for Medicaid would increase in 2014 by 
half a million people, growing Medicaid enrollment by 18 
percent to over 3 million people in Pennsylvania. In other 
words, in 2014 one in four Pennsylvanians walking around in our 
great Keystone State would be on public welfare at greater 
taxpayer expense here in Pennsylvania.
    A May 2010 Kaiser Foundation report found that by 2019, 
Pennsylvania's Medicaid rolls may grow by nearly 700,000 people 
and may cost our State an additional $2 billion over the 2014-
2019 time frame. Under the new law, Medicaid coverage will 
extend not only to those who are currently uninsured or whose 
incomes are below 133 percent of the federal poverty level but 
will also sweep into the program several million more 
nationally below that income threshold who are currently 
covered by private employer-sponsored coverage or individual 
coverage. The crowding out or displacement of private coverage 
will most likely occur among people who work for businesses 
with fewer than 50 employees.
    Pennsylvania Medicaid consumes 31 percent of the entire 
State budget. Additional mandates under the federal law are 
estimated to increase exponentially by nearly $1 billion on top 
of this growth. Pennsylvania's Medicaid budget is growing at 
nearly 12 percent a year while revenues have grown just 3 
percent. The unsustainable, unaffordable and unavoidable growth 
will continue as long as inflexible federal rules mandate State 
policies. I believe Pennsylvania should request a waiver of the 
Medicaid mandates that I believe bind States' controls, 
particularly given the maintenance of effort effects on needed 
cost control measures in the midst of Pennsylvania's $4 billion 
budget deficit.
    According to the Heritage Foundation/Lewin data, there 
would be dire consequences for patients, doctors and hospitals 
in Pennsylvania. They estimate 51 percent of privately insured 
Pennsylvania residents would transition out of private 
insurance. Fifty-nine percent of Pennsylvania's residents with 
employer-based coverage would lose their current insurance. 
Eighty percent of Pennsylvania's residents in a health 
insurance exchange would end up in a public plan. Thirty-two 
percent of the uninsured would still lack coverage.
    It is my understanding that the federal law raises taxes by 
almost $500 billion, or a half a trillion dollars over 10 
years. The largest portion of tax increases will fall upon 
small business owners, reducing capital, limiting economic 
growth and hiring and probably loss of jobs and reduction of 
hours and wages. The employer mandate will impose a tax of 
$2,000 per employer on employers with more than 50 employees 
that do not provide health insurance. The federal law will also 
tax employers that offer health coverage unaffordable by the 
government. These new taxes on employers will reduce employment 
or be passed on to workers in the form of lower wages or 
reduced hours. New and increased Medicare taxes will impact our 
small businesses. Over time, higher payroll taxes will decrease 
wages for their employees.
    While I believe there may be some good intentions with the 
federal health care act, in part, to support, I believe the 
federal health care act has to be reformed to better serve 
Pennsylvania citizens. In addition to constricting economic 
growth and reducing employment, the health care act will 
dramatically increase spending and health care as well as the 
cost of health coverage. Newer and higher taxes on small 
businesses and workers will impede job creation and economic 
growth that they can ill afford during a time when our economy 
struggles. With most States faced with deep budgetary deficits, 
the federal health law adds conservatively over $118 billion 
that the federal health law will cost taxpayers through 2023. 
These are taxes that can be avoided and should be avoided if 
proper changes are made to the federal law.
    In conclusion, it is my hope and the hope of the majority 
of the citizens that Congress will enact a new health care bill 
that will reduce health care costs, spending and taxes as well 
as the cost of health insurance coverage in a way that will do 
no harm to our fragile economy or to our taxpayers already 
overburdened by taxes, credit and debt. Let us work together in 
a shared vision to find solutions for health care reform that 
are innovative, private sector, market-driven, affordable, 
accessible and based on patients' needs and choices.
    Thank you very much, Mr. Chairman.
    [The prepared statement of Mr. Baker follows:]



    
    Mr. Pitts. The chair thanks the gentleman and recognizes 
himself for questioning.
    Senator Vance, as a health care provider, you do have a 
unique perspective in this debate. Section 1311(h) of the new 
health care law gives the Secretary of HHS the power by 
regulation to determine which health care providers private 
insurers are allowed to contract with. Do you think it is 
appropriate for the HHS Secretary to have this power?
    Ms. Vance. I think one of the problems with federal health 
care law is how much power it does give to the Secretary. It is 
undefined. Even someone who may think this is a wonderful law 
is unable to ascertain what exactly will be done because there 
is so much uncertainty. There is very little actually written 
into the law and too much power given. So do I think that power 
should be there? No. It has to be--first of all, I am not sure 
I like the idea that they would dictate which health care 
professionals could be hired, number one, but number two, for 
it to be so nebulous does not benefit anyone.
    Mr. Pitts. Senator, would you support federal legislation 
to repeal the Medicaid maintenance of effort requirement in the 
new health reform law?
    Ms. Vance. I never liked the maintenance of effort and I am 
not sure that we even need to have a law passed to do that. In 
fact, if the Federal Government was accessible to a waiver from 
the States, I think it could be done without legislation.
    Mr. Pitts. Representative Baker, you mentioned that many 
individuals that have private insurance now may end up on 
Medicaid. Section 1413 of PPACA actually states that if an 
individual applies to buy a private insurance policy in the 
exchange and is found eligible for Medicaid, that person must 
be enrolled into public program and cannot buy a private plan. 
Do you think most Americans know this provision was included in 
the health care law? Do you think that individuals should have 
the right to buy private coverage if they want rather than be 
enrolled in Medicaid?
    Mr. Baker. Very good question, Mr. Chairman. I don't think 
the average American really understands the full import of this 
2,000- or 3,000-page document. In fact, the former Speaker of 
your House said you had to pass it in order to understand what 
it is in it, so it seems to me not even many Members of 
Congress understood the federal law and its full import. You 
are absolutely right in terms of the minimal coverage 
requirements in health insurance, the mandates, the migration 
of millions more Americans going into Medicaid, growing 
Medicaid costs exponentially. I think there is sometimes a 
disconnect that is not government costs, it is taxpayer costs, 
and there are tremendous implications and ramifications in 
moving more people into Medicaid welfare programs instead of 
encouraging them to get out of Medicaid. Instead of growing 
Medicaid, we should be reducing Medicaid, helping people. The 
best welfare reform is job creation and people becoming 
productive and having personal accountability and 
responsibility and providing for their families and obtaining 
the American dream.
    So I just don't understand the concept out of Washington 
that we need to grow welfare and Medicaid. We need to reduce 
it. We need to shrink it. We need to have a full employment, 
equal opportunity jobs bill rather than this kind of concept. 
We need to reduce health care. The minimal requirement under 
health care for insurance, I find it remarkable that, and the 
federal judge in Florida mentioned it in his court case, that a 
20-year-old who wants to just have a high-deduction major 
medical or catastrophic health insurance plan is prohibited 
from doing that under the federal health care bill. The Federal 
Government mandates minimum health insurance requirements. And 
so that is a very costly requirement. And in fact, if they 
don't buy that insurance, they get fined or penalized by the 
Federal Government. My goodness, that is the heavy hand of the 
Federal Government and I agree with the federal judge. It is an 
unconstitutional reach by Congress to imply and implore the 
commerce clause for the first time in 200 years to both an 
economic activity and an economic inactivity.
    Mr. Pitts. Thank you. Representative, you mentioned that 
Medicaid now consumes 31 percent of Pennsylvania's budget. You 
also mentioned that the Medicaid budget is growing at 12 
percent a year. Do you think the Medicaid growth rate will 
increase as a result of this law, and if the State's revenue 
growth is 3 percent, I think you said, a year, and the Medicaid 
growth is 12 percent a year, or higher, what impact will that 
have on the ability of Pennsylvania government to provide other 
needed services?
    Mr. Baker. Thank you, Mr. Chairman. That was a great 
question. I think we are on a track of unsustainability and 
catastrophic budget crisis if we continue down this road of 
growing the welfare budgets, Medicaid budgets. I think it has 
been mentioned by previous speakers that vital, rare taxpayer 
funds are being crowded out by Medicaid costs that are better 
utilized for transportation, education or other health care 
needs, and this is definitely on a track of unsustainability if 
the federal court, Supreme Court decision doesn't strike this 
federal law down or if Congress does not repeal it.
    Mr. Pitts. Thank you. The chair recognizes the gentleman, 
Congressman Thompson, for questioning.
    Mr. Thompson. Thank you, Chairman.
    Thank you, Senator, Representative. It is great to have you 
here. I appreciate your leadership specific to your areas of 
jurisdiction committee-wise.
    Senator Vance, I just want to follow up the comments that 
Representative Baker made. The health care law contains a 
massive expansion of the Medicaid program in order to reduce 
the number of uninsured, which obviously we have heard this 
morning places heavy burdens on State budgets. Now, how will 
Pennsylvania respond to the expansion of the Medicaid program? 
Obviously it cannot raise taxes during this economic downturn 
so the tough question is, what is left?
    Ms. Vance. I don't think anyone will argue it is totally 
unsustainable. We cannot afford it. I know that the Federal 
Government takes the burden for a couple years but after that 
it comes back to Pennsylvania and to the taxpayers, and I 
cannot imagine our revenues increasing that dramatically that 
we would be able to cover that.
    Mr. Thompson. You mentioned that employers have lost their 
flexibility in choosing benefits for their employees. The 
proponents of the law said that they wanted to make sure that 
if you liked the insurance you had, you could keep it. However, 
the regulations coming from the Secretary of Health and Human 
Services would force as many as 87 million Americans with 
employer-based health care to change their plan. Do you think 
that we should pass legislation that would ensure that 
Americans can keep the plan they have now if they like it?
    Ms. Vance. Well, it appeared that the PR that came out 
about the federal health care bill that said if you like your 
insurance, you can keep it was speaking with a forked tongue 
because in essence that is not what happened. So yes, I believe 
that there should be able to have some determination for an 
employer to choose. And also, if it becomes such an important 
burden on the employer, that is why in Massachusetts, as you 
found out, they were willing to pay the penalty rather than 
because it was cheaper. We should have learned a lot of lessons 
from Massachusetts. Whether we did or not is questionable. 
People had an access card. They thought they had insurance but 
they had no access to real health care. They still have a huge 
increase in their emergency rooms. There are not enough basic 
health care practitioners and we have to put our arms around 
those who deliver basic health care, and just because you 
happen to have an insurance card does not mean you have access.
    Mr. Thompson. Very good. I couldn't agree with you more. 
This should be about access and bringing down cost.
    Representative Baker, always great to be with you. I 
appreciate the fact that we get a chance to work together quite 
a bit even outside of this area within the Pennsylvania 5th 
Congressional district. During the debate over the health care 
reform last Congress, there were a lot of promises made, 
primarily among them that the health insurance costs would 
decrease, and certainly as a part of my principles I led my 
professional life by and it certainly guided me in Congress as 
we refined and improved health care, whatever we did should 
decrease the cost of health care for every American. However, 
according to the nonpartisan Congressional Budget Office 
analysis, individual health insurance premiums were raised by 
an average of $2,100 per family, and this increase comes 
despite President Obama's frequent promise that his health care 
plan would lower premiums by $2,500 per year for an average 
family. What are some of the things that you would recommend to 
lower the cost of health care in Pennsylvania?
    Mr. Baker. It is a good question, and I often hear it, and 
thank you for your opening remarks. It is always good to see 
you and work with you on a number of issues in rural 
Pennsylvania. I am hearing from many constituents that they are 
not happy with this law for a number of reasons, this federal 
law, and one of them is that their health insurance premiums 
keep going up and so they don't believe the promise of those 
lowered premiums is really becoming a reality, and my good 
colleague, Senator Vance, just mentioned in her testimony that 
the price, the cost of health insurance keeps going up 
dramatically. But some of the ideas I think we ought to be 
pursuing and looking at at the State level, at least, is I 
think we ought to be considering applying for a medical loss 
ratio waiver. Some of the States have looked at those issues--
Maine, Nevada, New Hampshire, Kentucky and 10 other States. We 
have already established a State-run high-risk pool. I think 
that is helpful in this regard. We may want to set up and 
consider a prescription drug donation program that provides for 
the poor and the uninsured with security of prescription drug 
coverage, complete a completely voluntary program for the reuse 
of expensive medications. I think to the degree that we can 
afford it, I think we need to look at paying medical school 
loans for some physicians and nurses as a recruitment and 
retention program here in Pennsylvania, especially encouraging 
providers to practice in rural and underserved areas. We need 
to look and perhaps allow for alternative health care 
arrangements, health care sharing ministries, for instance, in 
some areas that are providing good paradigms and models.
    I have introduced a bill similar to the House of 
Representatives' to allow people to purchase health insurance 
across State lines, opening up competition, allowing for 
market-driven competition to lower down insurance premium 
rates. I think we need to consider equalizing the tax treatment 
of insurance for individuals, and I notice my time is up. I 
have many other suggestions that I could make but I just saw 
the button flashing here. Do you want me to continue?
    Mr. Thompson. Go ahead.
    Mr. Baker. Some of the other concerns I think we need to 
consider, we need to review sunset costly insurance mandates 
before enactment. We really need to seriously look and have 
some conversations about these costly mandates and how they 
actually trigger and reflect a contraindication that we are 
heading in the wrong direction that, you know, mandates may 
sound good, feel good and may help some but it actually is a 
cost driver increasing health insurance. I think we need to 
provide perhaps tax breaks for people and businesses who buy 
and sell health savings accounts and we need to provide 
patients with a cost estimate of medical treatments. And 
lastly, allow the poor to use Medicaid dollars possibly to 
purchase private health insurance. We might want to take a look 
at providing a state income tax credit for purchase of long-
term care insurance, perhaps offer again to the extent that we 
can afford it, offer premium insurance to Medicaid and SCHIP 
recipients who have access to employer-sponsored health 
coverage, maybe take a look at establishing a cash and 
counseling program for the disabled, and again, just generally 
stop costly Medicaid-mandated benefits before enactment.
    Mr. Thompson. Great. Thank you. Thank you, Chairman.
    Mr. Pitts. The chair thanks the gentleman. I have just a 
couple of more questions if you could take them.
    Senator, Medicaid was initially created to provide care to 
low-income children. The reimbursement rates for Medicare are 
usually much lower than those of private insurance and even 
Medicare. Some doctors no longer take Medicaid patients because 
of the reimbursement rates. By expanding eligibility for the 
program, do you believe that we are potentially jeopardizing 
the quality of care for those that program was initially 
intended for?
    Ms. Vance. Not only will it jeopardize the children but 
there are many physicians that no longer are willing to take 
Medicaid patients. I particularly notice this in my area with 
dental benefits, Medicaid dental benefits. It is almost 
impossible to find a dentist who wants to treat Medicaid 
patients. It is a disaster for people to obtain care with these 
low rates, and let me stress, there is no easy answer to all 
this. What we need is flexibility. Pennsylvania is almost like 
five States wrapped into one. We need to have the flexibility 
to treat different areas and know what works. Rural areas are 
not the same as an inner city urban area, and we need to have 
flexibility. I think the best thing that could happen for all 
of us is to have some determination whether this law is in fact 
going to meet the appeals process, this uncertainty, because 
you are putting a lot of time and money into hypothetically 
thinking maybe you will have to do it, maybe you won't, and 
this uncertainty, it does nothing but drive up cost.
    Mr. Pitts. Excellent point.
    Representative Baker, Pennsylvania is home to a vibrant 
medical technology industry including medical devices and 
innovative new pharmaceuticals. The new health care law 
includes new taxes on these industries. The Chief Actuary of 
CMS has stated that these taxes would be passed on to patients. 
Others believe that these new taxes might lead to less 
innovation and further job loss. If either scenario is the 
outcome, do you believe this is good public policy?
    Mr. Baker. Absolutely not. I do not subscribe to the 
attitude that more taxes are better and that that empowers 
anyone. I think it is just the opposite, that it discourages 
innovation. It discourages entrepreneurship. It discourages 
people to be able to decide for themselves what to do with what 
little money they have left after taxes are taken out of their 
paychecks. And with the cost of everything going up every year, 
it just exacerbates an already difficult situation. We are 
still struggling to come out of the deepest recession that we 
have experienced and the longest recession that we have 
experienced since the Great Depression. It just seems to me 
that to impose a tax, one of them that you suggested on 
disabled people, for instance, a tax on prosthetic limbs and 
the like on certain medical devices, my goodness, how does that 
help anyone? I don't understand that. So no, I think less taxes 
are better.
    Mr. Pitts. Thank you. Do you have any other questions?
    Mr. Thompson. Sure.
    Mr. Pitts. The chair yields to Congressman Thompson.
    Mr. Thompson. Thank you, Chairman.
    Representative Baker, thanks for your thoughts in that 
area. I mean, this is a country--in Pennsylvania, in 
particular, we have been a place of innovation when it comes to 
health care. We are blessed, when you look around the world in 
terms of quality and innovation in this country, and, you know, 
any time you tax something you repress it. Why would we want to 
end that legacy of being a place of innovation and quality?
    A question for both of you. Roughly 21 percent of the total 
State spending, Medicare is already the single largest item in 
the State budget according to the National Association of State 
Budget Officers, and 31 percent based on your testimony here in 
the Keystone State. Realizing that Washington is in worst 
financial shape than most States, and we are working to make 
budget cuts of our own at the federal level, what can Congress 
do that would allow you to reduce health care costs in 
Pennsylvania? Senator Vance will start and then we will check 
in with Representative Baker.
    Ms. Vance. I would repeat again, give us flexibility to 
make our own decisions. Hopefully those of us who work on the 
ground in Pennsylvania know what is needed in Pennsylvania. I 
don't have the vaguest idea what may work in another State. So 
if you want to help us, we need flexibility to be able to make 
informed decisions about the patients and the consumers that we 
hope to be able to help.
    Mr. Thompson. Thank you.
    Mr. Baker. I agree entirely. We need more flexibility. We 
don't need more rigidity, more mandates. We need less mandates. 
We need to be able to use the power and the imagination and the 
freedom and the entrepreneurship of the States to be able to do 
more with less. That is what we are faced with, these deep 
deficits that all the States are experiencing, and it just 
seems to me that the more mandates that we get from Washington, 
the worse it becomes for us to try to make ends meet, and it 
crowds out other budget areas that are in desperate need of 
funding. So the cost implications of this federal health bill 
are just astronomical, and obviously the costs will grow 
exponentially unless we have waivers, unless we have mandate 
relief and unless we have additional flexibility.
    Mr. Thompson. Thank you both for your leadership and 
testimony. Thank you, Chairman.
    Mr. Pitts. The chair thanks the gentleman, and again, 
thanks to the panel for your excellent testimony, for taking 
time to testimony, for taking time to answer our questions. We 
look forward to working with you as we seek to modify, repeal 
or replace portions of this, parts of this new law, and I would 
like to thank you for the use of your facilities. This is 
beautiful.
    So at this time the third panel will please come to the 
table. We will take a 5-minute recess before we continue.
    [Recess]
    Mr. Pitts. The subcommittee will reconvene for panel three. 
Our first witness of our third panel is Mr. Gene Barr. Mr. Barr 
is Vice President of Government and Public Affairs for the 
Pennsylvania Chamber. His responsibilities include directing 
all legislative and regulatory activity, marketing, membership 
and external communications. Our second witness, Kevin Shivers, 
has been the State Director of NFIB for the last 10 years. Mr. 
Shivers serves as NFIB's chief Pennsylvania lobbyist and leads 
the organization's grassroots and political activities. Our 
final witness is Ann Daane, is it? Ms. Daane joined Case New 
Holland in March 2008 as Vice President of Human Resources for 
North America. We look forward to hearing from each of you.
    Mr. Barr, you have 5 minutes for your opening summary.

STATEMENTS OF GENE BARR, VICE PRESIDENT, GOVERNMENT AND PUBLIC 
 AFFAIRS, PENNSYLVANIA CHAMBER OF BUSINESS AND INDUSTRY; KEVIN 
    SHIVERS, PENNSYLVANIA DIRECTOR, NATIONAL FEDERATION OF 
  INDEPENDENT BUSINESS; AND ANN DAANE, VICE PRESIDENT, NORTH 
           AMERICA HUMAN RESOURCES, CASE NEW HOLLAND

                     STATEMENT OF GENE BARR

    Mr. Barr. Mr. Chairman, thank you very much. Thanks to you 
and Congressman Thompson for the opportunity to be here. The 
chamber is the largest broad-based business advocacy group in 
Pennsylvania, and on behalf of our thousands of members across 
the Commonwealth, we thank you for this opportunity to discuss 
this law.
    Interestingly, and you will hear it now, you will hear it 
outside, you will hear it wherever you go, there are others who 
talk about the benefits of the law. Yes, there are some 
benefits. Unfortunately, from the perspective of job creators 
in Pennsylvania and across the country, the huge negatives 
attached to this law greatly outweigh, in our view, the 
benefits attached to it. You heard much of that earlier. I am 
going to just briefly summarize the comments we have already 
submitted, and the reality is, what you heard from the 
governor, from the secretaries, from our elected officials 
today are exactly right. This is a major problem for 
Pennsylvania, for the Nation, for job creators.
    From our perspective, what we need at this time, at this 
economic time here, is an increased focus on jobs. Obviously 
this is a balancing act between trying to take care of the most 
vulnerable in our society with trying to create those economic 
opportunities for everyone across the board. Unfortunately, 
this act works very deliberately and very strongly, in our 
view, against job creation.
    For example, the application of the law applies when you 
have 50 or more employees. At this time when we are desperately 
seeking across this Nation to create jobs, and if you are an 
employer with 45, you are going to think twice before you add 
those five individuals as employees. We do not need to give 
employers at any time, particularly this time in this 
recession, reasons not to hire, and unfortunately, this law 
makes them think more than twice about that. We have had 
struggles with employers over the last year with a number of 
different issues coming out of Washington, health care being 
one, issues like card check being other things, which have 
actively sought to discourage our members from adding our 
citizens to the work rolls simply because it becomes too 
difficult and too expensive to make those kinds of hires.
    The bill, the law, has, as you have heard, a number of tax 
increases relative to it. I am not going to get into all of 
those. You have heard them already and that is certainly true. 
The concern over debt is a real one. It is substantial, and 
this bill, despite what some of the proponents said, when you 
look at, for example, the remarks of the Chief Actuary, who is 
responsible for Medicare and Medicaid services, it is 
abundantly clear that the only way you can make this appear to 
positively address the deficit is through smoke and mirrors, 
double counting and so forth, and that has been done on a 
fairly large scale there. The other way, to be honest, the only 
way you can make it happen is by the cuts in reimbursement they 
have proposed to doctors and hospitals that if they happen will 
severely impact the ability, as Senator Vance mentioned, for 
accessibility to health care, and if they don't happen, those 
cuts, then what we will have happen is obviously an increase in 
the debt.
    The other thing that you heard and certainly we are hearing 
it from our members is the pieces of the legislation that 
actively discourage, someone would maybe say cynically that was 
what the bill was intended to do, private employer-sponsored 
health care because as you run the numbers, as any employer 
must do, run the numbers in terms of profitability, expenses 
and so forth, when you come down to it, many times the penalty 
is going to be much easier to pay than continuing the cost of a 
mandated, standardized, top-down health care plan that many 
employers may not even quality for with what they offer out 
there now.
    This individual mandate to buy, in addition, we believe 
Governor Corbett is exactly right in questioning along with 
others the constitutionality of this. You heard other comments 
about what has happened. We have already seen similar types of 
operations in place. We have seen Massachusetts take this, as 
was mentioned earlier. We have seen, sure, more people are 
insured but the problem is accessibility to health care. We 
have seen from everything we have seen higher ER visits for 
Massachusetts. Interestingly enough, I saw a study about a year 
or so ago in which the highest percent users disproportionate 
users of emergency room services are Medicare and Medicaid so 
current federal insurance is already not helping the ER side 
but is actually accelerating that.
    You heard earlier as well the importance of flexibility for 
employers. The only way that employers can be successful is to 
be flexible and nimble and agile to deal with the day-to-day 
changes that occur in the marketplace and occur in their 
operations. This reduces significantly the flexibility that is 
available to employers in terms of health care, reduces their 
operations, and clearly will have an adverse impact on 
employers as we move forward.
    There are a couple of things and again, you know, there was 
much made of the previous Speaker of the House comment about 
having to pass this bill so we could see what was in it. There 
was another comment that she made in speaking to a group of, I 
believe it was musicians and artists. She said well, we wanted 
to pass this bill so that you could all have health care 
coverage, and this is kind of a quote, go off and make music or 
create pictures or whatever you want to do. I do not believe 
the American people believe that that is the role of Federal 
Government, State government or any government to abdicate that 
kind of responsibility.
    The other thing that we have heard quite a bit during this 
debate has been well, business hasn't come forward with any 
options. That is absolutely incorrect. A number of them were 
articulated today. I am not going to go through those. But the 
premise from the business perspective is, health care reform 
needs to be more than figuring out who gets stuck with an 
inflated bill. As was mentioned earlier, this bill does little 
to nothing to address the health care cost issue. That has to 
be addressed, and one of the ways, and particularly for us here 
in Pennsylvania that is a major problem as has been mentioned 
is legal reform. Former Vermont Governor Howard Dean explicitly 
stated that they didn't touch that because they didn't want to 
offend the trial bar. Here in Pennsylvania, Philadelphia was 
recently named by a national group as the number one judicial 
hellhole in the United States. United States needs legal reform 
on a broad basis. Pennsylvania severely needs legal reform on a 
broad basis and it is something we are attempting to address 
here, and again, we are happy to hear Governor Corbett make 
that comment again.
    There are a number of other things clearly that we would 
advance including allowing minors to be kept on the plan for 
some period of time beyond. All those things we are happy to 
talk about. Unfortunately, while there are a couple of good 
things, as I mentioned in the plan, the overwhelming majority 
of it is going to drive costs higher, reduce flexibility for 
employers, severely impact job creation in this country and in 
this Commonwealth, which is where we are here immediately 
concerned.
    And finally, let me close with this. Chairman Pitts, I know 
that from our experience in the past you are a keen student of 
history, and a couple of months ago I ran across what I believe 
is a very interesting quote, and it came from Thomas Jefferson 
in 1802, and he said, ``If we can but prevent the government 
from wasting the labors of the people under the pretense of 
taking care of them, they must become happy.'' That is a 
tremendous piece of foresight from over 200 years ago. Thank 
you.
    [The prepared statement of Mr. Barr follows:]



    
    Mr. Pitts. The chair thanks the gentleman and recognizes 
the gentleman, Mr. Shivers, for 5 minutes for an opening 
statement.

                   STATEMENT OF KEVIN SHIVERS

    Mr. Shivers. Thank you, Mr. Chairman and members of the 
committee. I am the State Director for the National Federation 
of Independent Business and I want to thank you for the 
opportunity to talk with you about the Patient Protection and 
Affordable Care Act and its impact on small business owners and 
workers. As I begin my statement today, I want to say for full 
disclosure reasons, NFIB is one of the groups I joined with the 
many States in filing a lawsuit against the Federal Government, 
and we are hopeful that this will reach an expedited 
conclusion. We hope it will, because this is such an impactful 
law and particularly on small business.
    For small businesspeople, health care is a pocketbook 
issue. Nearly 81 percent of small business owners report that 
finding affordable health insurance for themselves and their 
employees is a challenge, and those small businesses that do 
have health insurance pay on average 18 percent more for the 
same health insurance benefits as large companies do. When the 
federal health law was signed, its proponents promised that the 
costs would decrease for small businesses. Not only have costs 
gone up the year after it has passed but the new law has added 
new compliance and paperwork burdens, making a flawed system 
even worse.
    Across the Nation, it has been reported that insurance 
premiums in the small group market have risen 40 to 60 percent. 
We have heard the same here in Pennsylvania. Many small 
businesses fortunate enough to afford health insurance have had 
their plans canceled because the federal health law's new and 
restrictive rules have rendered them noncompliant. Others who 
are told that their health plans will be protected or 
grandfathered under the new law under the new law have learned 
their plans now are noncompliant. About 60 percent of 
businesses last year made small adjustments to their plans in 
order to manage rising costs. By making small changes or 
adjustments, these plans no longer comply with the 
grandfathering provisions under the Obama health care law, 
exposing businesses to more regulations and cost increases in 
the future.
    It is estimated that as many as 80 percent of small 
businesses will be forced to give up their current coverage 
within the next 2 years. In an already uncompetitive market, 
more canceled plans and more regulations mean that small 
businesses have fewer choices than they had before the law was 
passed, making higher costs inevitable.
    The new law also imposed myriad tax and paperwork headaches 
for small businesses. Compliance costs from the 1099 provisions 
alone will place an enormous burden on small businesses. The 
cost associated with tax preparation paperwork is the most 
expensive paperwork burden that the federal government imposes 
on small business owners. It costs as much as $74 an hour. New 
taxes on various products, services and payroll are especially 
harmful to small business. And a new insurance company tax that 
will be paid almost exclusively by small businesses is expected 
to cost as much as $5,000 per household.
    The new federal law also has taken away one of the few 
consumer-directed pieces that currently exists in the health 
care marketplace today. The new law prohibits individuals from 
using pre-tax dollars, like those from a flexible spending 
account or a health savings account, to purchase over-the-
counter items. Now individuals must make an appointment with 
their health care provider in order to obtain a prescription to 
purchase things like basic remedies to alleviate the discomfort 
of the common cold. This mandate further taxes an already over-
utilized system and it forces doctors to take time away from 
patients who really need that medical care.
    Another provision of the Obama health care law which has 
failed to live up to its promise to reduce health insurance 
costs is the small business tax credit we all have heard about. 
While proponents of the new federal law told us that tax 
credits would help small business to purchase health insurance, 
in reality, the tax credits are limited. The full value of the 
tax credit applies to only a small number of small businesses 
under very specific circumstances, and it is temporary, so the 
costs will rise again once the credits expire.
    For more than two decades, small business owners have cited 
the rise in health care costs as their primary concern. Since 
1999, premiums have increased nearly 100 percent in the small 
group market. Unfortunately, the new Obama federal health care 
law only perpetuates the problem. One year after its passage, 
small business owners are bracing for higher costs, more rules 
and regulations, fewer choices and less flexibility.
    I want to thank you for considering the views small 
business and we stand ready to assist you in finding an 
alternative to this current federal problem. Thank you.
    [The prepared statement of Mr. Shivers follows:]



    
    Mr. Pitts. The chair thanks the gentleman and recognizes 
Ms. Daane for 5 minutes for an opening statement.

                     STATEMENT OF ANN DAANE

    Ms. Daane. Thank you, Mr. Chairman and other members of the 
committee. Thank you for the introduction. I am Ann Daane, Vice 
President of Human Resources at Case New Holland, and I thank 
you again for the opportunity to testify today.
    Chairman Pitts, we are proud that New Holland began here in 
Pennsylvania and that New Holland remains the North American 
brand headquarters. We have large facilities, and we are very 
proud of our many employees who build, develop and design 
equipment. We have more than 1,600 employees here in 
Pennsylvania.
    Today I am going to speak about the health benefits that we 
as employees receive from Case New Holland. For all of us, our 
health care benefits are important, and for our company, we 
want to make certain that we receive the highest quality health 
care at an affordable price. We believe that Congress has not 
done enough to reduce the cost of health care.
    In the United States, all full-time and part-time Case New 
Holland employees are eligible for coverage. Almost 90 percent 
of our active workers elect coverage for themselves and for 
their families. We cover 17,200 active employees and their 
families at a cost of $76 million annually. We also provide 
coverage to 11,800 retirees and their families at an additional 
cost of $72 million. We offer a choice of consumer-driven 
health care plan options and these plans have account-based 
incentives that let enrollees make their own decisions about 
their health care needs. We also have wellness and chronic care 
management programs, and almost nine out of ten of our 
employees participate in at least one wellness activity every 
year. That has resulted in a significant decrease in the health 
risk factors for those who participate.
    We believe that the health reform law needs to be changed. 
The rising cost of health care is affecting job growth, and is 
hurting all American companies who must compete in the global 
market. Rising costs are also affecting every American worker. 
The new law does not control health care spending. We believe 
it adds additional costs for our employees, and for Case New 
Holland, we expect to spend $126 million over the next 10 years 
just to comply with the new provisions.
    We are most concerned about the following three items in 
the health reform law. Number one, the new taxes that are 
imposed on prescription drug manufacturers, medical device 
manufacturers and insurance products. These new taxes will be 
passed on to us as purchasers in the form of higher costs. 
Secondly, the new law makes reductions to Medicare payments. 
Providers will shift costs to private purchasers, which will 
increase our costs. And thirdly, the new law requires employers 
to make plan and benefit changes--adult child coverage to age 
26, new prevention and wellness coverage, new appeals and 
grievance processes.
    There are more than 130 million Americans who receive 
health care coverage through their work. At a time when many 
employers are struggling merely to offer coverage, these new 
plan and benefit requirements will add more cost. We do want to 
see changes in the health care system to reduce overall costs. 
We have five suggestions on what should be changed.
    Number one, support consumer-directed health care plans. 
These innovative options empower our workers to make decisions 
about their own health care needs. Employers should have 
flexibility in their plan design so they can be innovative for 
their employees. Secondly, medical liability reform must be 
enacted. The Congressional Budget Office estimates that medical 
liability reforms would save $52 billion over 10 years just in 
public programs alone. It would save even more systemwide. 
Number three, adoption of health information technology. We 
need adoption of health information technology to create a more 
efficient health care marketplace. Number four, change Medicare 
payments to reward value, not the volume of service. And 
lastly, repeal those provisions of the new health care reform 
law that increase costs on employer-sponsored coverage.
    We must work together to find solutions to our health care 
cost crisis. For Case New Holland, we will continue to offer 
our employees coverage. It is important that they are healthy 
and productive. But we need greater competition and consumer 
engagement in a more efficient health care system. Our country 
needs this because Americans are paying more and more for 
health care and getting less and less value. Americans are 
fearful of losing their jobs and their health insurance 
coverage at the same time, and America is in an economic 
situation where we cannot afford the rising costs of health 
care.
    In conclusion, Case New Holland believes Congress must fix 
what isn't working, then move forward to create solutions that 
address the underlying health care crisis: the costs.
    Thank you again, Chairman and the committee, for allowing 
me the opportunity to speak to you today.
    [The prepared statement of Ms. Daane follows:]



    
    Mr. Pitts. The chair thanks the panel for their opening 
statements, and I will begin with questioning. I recognize 
myself for 5 minutes.
    Mr. Barr, in your testimony, you state that PPACA limits 
the flexibility of consumer-driven plans like health savings 
accounts, flexible savings accounts. Shouldn't Congress promote 
rather than restrict consumer involvement in health care 
decisions? Would you elaborate?
    Mr. Barr. Mr. Chairman, I could not agree more. Over the 
years, many of our employers here in Pennsylvania and across 
the country have moved more and more to these health savings 
accounts. Oftentimes it works well with many other benefits or 
options, which is why we talked about the flexibility. 
Sometimes employees would rather have these HSA versus another 
plan, have more on another piece of the benefits side. This 
virtually eliminates that by making a standardized top-down 
this is what you are going to have to cover. HSAs also have a 
very positive benefit in that they have retirement options as 
well. There are retirement benefits, and we constantly hear 
that Americans don't save enough for retirement. This is a 
vehicle that allowed them to do that while also making 
participation, making them cognizant about what their health 
care costs are. Here in Pennsylvania, you heard Governor 
Corbett mention about the Health Care Cost Containment Council. 
The chamber is a member of that. We believe that by driving out 
more information to employees they are going to be able to make 
these kinds of informed decisions.
    And finally, someone passed on to me a little while ago a 
very interesting piece of information, and that is, out of all 
the medical procedures, there are only two that have gone down 
in cost in recent years. Those two are plastic surgery and 
Lasik surgery, which interestingly enough are typically ones 
that aren't covered by insurance and ones that people go out 
and shop for. I think it shows the market works. We have to 
continue to drive people into the market, have consumers make 
informed decisions, not create a plan that must be applied to 
everybody to the detriment of individuals, to the detriment of 
employers. Thank you.
    Mr. Pitts. Thank you. Again, Mr. Barr, this is a simple 
question. Will the new health care law cost our economy jobs, 
in your opinion?
    Mr. Barr. Mr. Chairman, absolutely we believe it will. 
First off, as I mentioned, there are detriments to jobs 
creation here that cause employers to think twice about whether 
or not they want to add those jobs. There are enough issues out 
there on other public policy sides that clearly make it more 
difficult for employers to add jobs already, and I mentioned 
some of the things that we have seen that have been discussed 
in Washington and we have been fortunate they have been held 
off, things like card check. The other problem becomes the debt 
side, and one of the things that Kevin had mentioned was the 
1099, which fortunately Congress has passed and I guess is 
sitting awaiting the President's signature. What it 
demonstrates, yes, this 1099 provision which required employers 
to report everything about $600 needed to be done away with. 
The problem is from a financial and a debt perspective, what 
was built into the law was well, great, everyone is not going 
to be able to comply with this, it is going to make us $17 
billion, therefore this works again on that house of cards upon 
which, in my view, this entire law is built, this financial 
house of cards, once you start pulling pieces out of it, none 
of it holds together. From the individual mandate to the other 
financial pieces, once you begin picking at the real problems 
in this, it falls apart.
    Mr. Pitts. Thank you.
    Mr. Shivers, the Obama Administration has touted the 
availability of a small business tax credit created by PPACA. 
However, I see the credit as creating an incentive to depress 
wage increases and too limited to help many small businesses. 
Do your members generally believe this credit will 
significantly help small businesses provide coverage to their 
employees?
    Mr. Shivers. No, we don't. I mean, we have encouraged our 
members, you know, if--we actually have a tax calculator and 
there are links to the Internal Revenue Service site where you 
can actually as a business owner, you know, plug in your 
information and learn if you are eligible for that credit. We 
advise our members if you are eligible for the credit, take 
advantage of it. The problem that we are finding, I think it 
was the Congressional Budget Office reported recently that the 
average credit that a small business receives is only going to 
cover about half of the cost increase in premiums. So if 
premiums have gone up 40 percent and, you know, the credit is 
only going to cover 20 percent of an increase, I am still left 
with a 20 percent increase in my health care costs.
    Mr. Pitts. If Congress, Mr. Shivers, would have passed 
legislation allowing for small business health plans, I think 
we used to call them association health plans, rather than 
PPACA, would that have done more to help job creators provide 
health insurance? Would you expound on that?
    Mr. Shivers. Absolutely. Small business health plans, the 
idea that a flower shop could partner with a tool-and-dye maker 
that could partner with a barbershop and be able to get that 
economies of scale and be able to purchase their health 
insurance at a substantially lower cost and also have enough 
people within their pool to manage that risk, it provides a 
couple of things. Again, it lowers costs but it also gives 
employers greater flexibility. We had heard that there were 
some, you know, businesses and insurance companies that were 
even debating the idea of providing a consumer-directed health 
care option, a health savings account as part of this small 
business health plan to even drive savings even further. 
Unfortunately, it was one of those plans that never even made 
it into the drafting room, I guess.
    Mr. Pitts. Thank you.
    Ms. Daane, what plans are you putting in place to prepare 
for the requirement that you provide health insurance to your 
employees or face a penalty? Would you ever consider dropping 
coverage or paying the penalty if it would be less costly?
    Ms. Daane. Our employees are our most important asset, and 
right now we have not even considered dropping coverage for our 
employees. Certainly the plans that we put in place are an 
important way for us to control spending. Our wellness plan is 
an important way for us to control spending. But should the 
costs continue to increase, we will need to make difficult 
decisions about how what we are going to do. That could impact 
the number of jobs that we have. We may need to move labor to 
lower-cost regions.
    Mr. Pitts. What has been your experience with your wellness 
program? How has it been structured and what kind of success 
have you seen? Has it resulted in lower costs?
    Ms. Daane. It has. Our wellness program has been very 
successful, and the employees who participate have seen their 
health care risk factors drop by as much as 18 percent. We have 
88 percent of our employees participate in at least one of our 
wellness activities over the last year. We include things like 
annual health assessment, biometric screenings, lifestyle 
improvement programs like smoking cessation, walking programs. 
We give them access to personal coaches to develop individual 
plans for health goals. We make a 24/7 nurse line available to 
them. A conservative estimate for the amount of savings that we 
have seen from these plans is about $1.6 million net return 
annually.
    Mr. Pitts. Thank you. The chair recognizes the gentleman, 
Mr. Thompson, for questioning.
    Mr. Thompson. Thank you, Chairman. Thanks to the panel for 
being here and being part of this important issue we are 
talking about.
    Mr. Barr, I want to follow up, I thought you did a great 
job of describing in terms of the 1099 reporting mandate, how 
that really is a taxing scheme in terms of dipping into the 
pockets of small businesses more than anyone else and going 
after revenue. I wanted to look at that from the standpoint, 
you know, we have worked hard to try to repeal that section. I 
know we voted on it, I think a number of times, and we are 
waiting for the Senate to do the right thing and the President 
also to do the right thing, but if that is unsuccessful and 
that reporting mandate is allowed to go forward, what would 
that mean for your member companies?
    Mr. Barr. Well, obviously it creates a whole new paperwork 
burden for everyone across the board and obviously smaller 
businesses would be much more at risk for that than others. 
However, there is one positive from the 1099 requirement in 
terms of job creation. My understanding is the IRS is standing 
ready to hire many hundreds of people in order to take care of 
1099 requirements. I guess that is the only caveat to the lack 
of job creation.
    Mr. Thompson. I think they have to get funding through the 
House first, and I don't think that is going to happen.
    Mr. Barr. Congressman, it is a great question. It is a 
severe problem, and again, you point out, you are exactly 
right. It is a tax. The IRS knows it. Not every business, 
particularly small to medium size, will have the wherewithal to 
fully comply, and we all know, compliance with federal tax 
regulations is burdensome, cumbersome and very difficult, and 
they know that, and again, they built the $17 billion into 
their finance calculations.
    Mr. Thompson. Have any, not just that mandate but any of 
the new mandates within the health care bill impacted the cost 
of coverage for your member companies at this point?
    Mr. Barr. Clear, when you look at mandates, here in 
Pennsylvania we dealt with mandates over the years. We have one 
of the highest number of mandates that is required coverage for 
insurance here in Pennsylvania. We know that that drives up the 
cost as we look at more mandates coming down. Obviously those 
that we have not done here in Pennsylvania will lead to that as 
well, and clearly, when you have a prescribed, standardized, 
minimal, our employers are going to have to look at it. 
Employers who believe they have a good plan now may not have a 
plan that meets the guidelines when that comes down and will 
have to make those modifications quite obviously at a higher 
cost.
    Mr. Thompson. Thank you.
    Ms. Daane, one promise we continually heard during the 
health care debate was that if you like your health care plan, 
you could keep your health care plan. Do you foresee your 
employees being able to keep their current plans?
    Ms. Daane. I think we will work very, very hard to be able 
to let them keep their current plan. Part of the issue for us 
is that right now the law is so unknown and so nebulous that it 
is hard for us to know whether our current plans will be in 
compliance with the legislation. So it is very hard for us to 
be able to say whether or not they will be able to keep their 
plan. I think as challenging for us is that unknown, that 
uncertainty costs us money as we work with consultants, as we 
work to try to understand whether or not our plans are 
compliant. We need some clarity on the bill.
    Mr. Thompson. In terms of the plans, do you have a cost 
estimate for an increase in 2011 to comply with several new 
provisions of the law, specifically the adult child coverage 
and expanded benefits and administrative requirements?
    Ms. Daane. We think for 2011, just for the small amount of 
compliance that we are going to need to do with this bill, it 
is going to cost us $1.2 million. Even with all the unknowns in 
the bill, we do know that the costs kick in more aggressively 
in 2013 and 2014. So it is $1.2 million for 2011. It is about 
$126 million over the next 10 years. Those are frightening 
numbers.
    Mr. Thompson. They are. And how many employees--because you 
talked about you do full time and part time so that $1.2 
million is spread over how many employees?
    Ms. Daane. Ten thousand, approximately.
    Mr. Thompson. Mr. Shivers, good to see you. Thanks for 
being part of the panel. My question for you is, even with the 
exemption for companies with 50 or fewer employees, do you see 
the employer mandate harming the growth potential of smaller or 
mid-sized firms, especially those with low margins? In other 
words, the employer mandate is simply a tax on jobs.
    Mr. Shivers. Yes, I do see it as a problem. President Obama 
when he was lobbying for the law visited Pennsylvania, actually 
visited one of our members who told him that this was going to 
be a burden on her business. She ran a bakery up in Allentown. 
And the President said but you have fewer than 50 employees, 
and she said but I won't grow. You know, where is the incentive 
for me to expand my business because I am always going to worry 
about what are the mandates and provisions under that law.
    The other issue is, even though those small businesses may 
be exempted, they are still responsible for following many of 
the reporting requirements and other provisions under the law. 
You know, that 1099 provision is going to be extraordinarily 
high threshold for a small business to meet. Of course, it 
varies from industry to industry but, I mean, we have heard of 
one small company who may have filed, like, 25 forms last year, 
under the new rules would be required to file as many as 300. 
There was a small business in Lancaster that reported to the 
newspaper that this would require them now to file as many as 
3,000 forms. So you can imagine just the cost of paperwork. And 
all of it is intended to trip a business up because if I don't 
file a form, I file that form incorrectly, now I am subject to 
audits and, you know, now I am going to be, you know, dealing 
with all kinds of other costs and other issues that are 
associated with just trying to protect my business.
    Mr. Thompson. Thank you.
    You know, we have heard the Democrats speak a lot about the 
incentives in the new law for small businesses to continue to 
provide coverage, and they often refer to the small business 
health care tax credit. Is this tax credit of any value to your 
member companies?
    Mr. Shivers. Again, what we are finding is that, you know, 
the credits that are offered are very small, very modest. You 
know, if you are looking at a business of 25 employees at an 
average wage of $50,000, they might quality for a partial 
credit. But, you know, that partial credit is going to be 
tricky. You know, a business with 19 employees at an average 
wage of $35,000 would receive no credit because of the way, the 
formula that is used to calculate that credit. So, you know, 
businesses that are eligible for it, we tell them take 
advantage of it but at the end of the day it is not going to 
mitigate the cost increases that they are seeing in their 
premiums right now.
    Mr. Thompson. Thank you. Thank you, Mr. Chairman.
    Mr. Pitts. The chair thanks the gentleman and we will start 
a second round.
    Ms. Daane, you said that your compliance costs are $126 
million to comply with the new law over the next 10 years. How 
does this affect your ability to hire new employees, new 
workers when so many Pennsylvanians are desperately seeking a 
paycheck today?
    Ms. Daane. We cannot sustain any kind of a system where 
health care costs grow faster than the rest of the economy. The 
costs take us in the wrong direction, and it is going to have a 
significant impact on our labor cost. We compete in a global 
economy, and as labor costs increase, it has a devastating 
impact on our ability to be able to maintain employees in the 
United States. To adapt to the cost pressures, we are going to 
make some difficult decisions. We are going to be forced to 
move jobs to other regions where labor costs are lower. We are 
going to have to eliminate some jobs altogether or certainly we 
are going to have to think about how much expansion we can 
tolerate. We may have to reduce benefit levels, and that could 
include both medical benefits, retiree contributions, those 
kinds of coverages. We would have to make some very, very 
difficult decisions.
    Mr. Pitts. Thank you.
    Mr. Barr, much of the focus regarding the impact of this 
new health care law on employers centered on the employer 
mandate. However, I believe an overlooked factor has been the 
compliance costs associated with the new law. Forms will be 
required for employers from numerous federal departments and 
agencies, be it Department of Labor or HHS or the IRS, in order 
to enforce new federal mandates. You briefly mentioned in your 
statement compliance costs. Can you expand further on the 
onerous compliance costs that will burden businesses with reams 
of paperwork, audits, whatever?
    Mr. Barr. Certainly, Mr. Chairman. Part of it we talked 
about a little bit already, which has been this 1099 
requirement. In addition, given that there is going to be a 
standardized--some of this is still evolving quite certainly 
but given that we have a standardized plan with the minimums 
you are going to have meet, you are going to have to document 
to the Federal Government that your plan meets those. You are 
going to have to continue to make all of the requirements and 
all of the reporting this is calling for so that the Federal 
Government can ensure that you as an employer are, one, sending 
in your 1099. My understanding is this was done so as not to 
deliberately undercount employees. You are going to have to 
continue to maintain that your coverages meet minimum standards 
for the Federal Government and all of those other things that 
surround that. We all know the paperwork continues to burden 
businesses, small, medium and large. This simply adds to that 
burden in many ways. And again, we really do hope the 1099 
requirement goes away. It is probably the most burdensome piece 
of this.
    Mr. Pitts. And Mr. Shivers, on the grandfather provision, 
do you think it is fair that if a small business could find an 
insurance company that would provide a less-expensive policy 
than their current plan that they would lose their 
grandfathered status?
    Mr. Shivers. That is very unfair, sir. You know, the 
President promised that, you know, if you like your health plan 
you will be able to keep it under my law, and what we are 
finding is that is not the case. In fact, 80 percent of 
businesses are expected to drop their coverage within the next 
2 years and, you know, many small employers are doing their 
level best to keep the coverage that they have, you know, to 
use it to attract good, quality workers, and, you know, with 
the cost drivers when you are facing a 40 to 60 percent 
premium, you have got to make some tough choices in terms of 
how you pay for that coverage. And just making a slight change 
in that plan to address the proliferation in cost, you are 
ineligible. That just simply isn't fair.
    Mr. Pitts. Thank you. The chair recognizes the gentleman, 
Mr. Thompson, for additional questions.
    Mr. Thompson. Thank you, Chairman.
    Mr. Shivers, can you explain how impending regulations 
authorized by Obamacare such as the essential benefits package 
jeopardize the availability of coverage options already offered 
by small businesses?
    Mr. Shivers. Not specifically understand that particular 
regulation, Congressman. I can tell you one of the challenges 
that our member are concerned about is, you know, my plan that 
exists today may not quality once the regulations are, you 
know, actually published and, you know, that creates the 
predictability and instability in a system that makes it really 
hard for a small businessperson or any businessperson to be 
able to plan and run their company.
    Mr. Thompson. Is it fair to say that obviously individual 
businesses are all unique in terms of their characteristics, 
the average age of their workforce, you know, when businesses 
get to know their employees and the demographics, 
characteristics, and the fact is that they might wind up having 
to pay for some type of mandated coverage which may not even 
apply. There may no need for that health care service among the 
characteristics and the demographics of their workforce.
    Mr. Shivers. That is correct, sir. You know, for many--you 
know, there is a competition issue, and, you know, for small 
businesses, you know, it is not just a competition for 
consumers, it is a competition for good workers, and, you know, 
for years, small businesses have been frustrated because they 
haven't been able to offer to good prospective workers the same 
kind of benefit packages that larger companies could do at a 
lower cost, and, you know, this system does nothing to, you 
know, raise the bar for that business to give them additional 
tools with which they can go out and attract good, quality 
people to their workforce. You know, we have come up with a 
one-size-fits-all cookie-cutter approach and you are absolutely 
right. You know, my workforce and the people that I am 
attracted to work in my company may be very different and then 
another company and that lack of flexibility is a very big 
problem under this law.
    Mr. Thompson. Well, Washington has been famous for one-
size-fits-all cookie-cutter approaches, whether it is health 
care or energy policy or education, and it always fails. Always 
fails the individual citizens in the end.
    Ms. Daane, you mentioned that the Medicare and Medicaid 
reimbursement system shifts more costs onto private insurance. 
That is certainly something I saw in my responsibilities as a 
manager within a rural hospital. Medicare and Medicaid never 
paid more, they always paid less. And so when you determine 
your rates and you determine your rates based on the cost of 
the service to provide, you really have to take into account 
what we call payer mix, and as government paid less, in my 
professional opinion, let alone my life experiences, that is 
why commercial insurance gets more expensive, which was 
absolutely ignored within this process of looking at the health 
care bill.
    In your view, will that problem be exacerbated if 20 
million more people are enrolled in the Medicare programs, some 
of whom used to have private insurance?
    Ms. Daane. Without a doubt. You know, cost shifting is 
something that we already see as a certain percent of the cost 
of coverage for our employees. You add their people to the 
Medicare, to the Medicaid system, there is going to be more 
cost shifting. Our cost as a private employer is going to go up 
without a doubt. I think then you marry that to the method of 
reimbursement, which is you are reimbursed on volume, not on 
value, that then, you know, kind of exponentially increases the 
damage that that does. We are a company that makes products 
that are used by rural consumers, and we have employees in 
rural areas. Chairman Pitts has been to our plant. Mr. 
Thompson, I would invite you to come. We make the best round 
bailer in the world and we are very proud of that. Our 
customer, our employees in the rural part of many of the States 
where we do business, we need to have a system that ensures 
that those rural providers continue to exist, that there is, 
you know, kind of the continued vitality of rural providers, 
both hospitals and service providers. The bill as it stands 
does not do that. In fact, it is very detrimental to that.
    Mr. Thompson. And my final question to Mr. Barr, what are 
your thoughts as to whether employers in general will drop 
health insurance coverage and pay a $2,000-per-employee 
penalty?
    Mr. Barr. Well, Congressman, that is going to come down to 
an individual decision. Ann mentioned the fact that they are 
probably not going to do it. They have to attract a certain 
kind of individual. Certain large companies may be better 
situated. The reality is, someone is going to sit down and look 
at what the cost of family coverage and single coverage is 
going to be for them to provide as a mandate, particularly now 
that it becomes standardized to all their employees if they 
have a 7,500-person operation, and they are going to have to 
weigh those. They are going to have to look at the cost of 
providing health care versus $2,000 a person, as I mentioned. A 
cynical person might say for those who really wanted a 
government-run plan, this is certainly one way this is going to 
accelerate that, and clearly, individual companies, individual 
employers are going to be making those decisions, sometimes 
purely for survival. In order to keep going, they are going to 
have to do that.
    The other thing that I will just say in summary, and I 
guess one of the things that we have seen from the employer 
base is that we have got to learn to trust the free market and 
entrepreneurs more. We continue to get this, well, we are going 
to prescribe, you are going to give this set of benefits and 
this set of benefits, and you have heard, you know that doesn't 
work. You know from your experience that doesn't work. Every 
situation is different. Geographic areas are different. And 
what works in a given area doesn't work in another. Certain 
employees value certain benefits more than others. And to the 
extent that we take that flexibility--you have heard that word 
a lot--to the extent that we put those mandates on, we make it 
so much more difficult to have a competitive jobs environment 
here.
    Mr. Thompson. Thank you. Thank you to each one of you.
    Mr. Pitts. And again, thank you for taking time to present 
testimony and answer questions. This has been a tremendous 
panel as you share your expertise.
    One of the jobs we have is to educate the public as to the 
requirements and the costs of PPACA, and there is no one better 
than the employer community to do that, and as we do that and 
as we look to modify, repeal and replace PPACA with real 
reform, we look forward to working with you in that regard and 
we hope that we will have much better news for you on the 
second anniversary of Obamacare before it is fully implemented 
as we meet again. Again, thank you very much.
    In conclusion, I would like to thank Governor Corbett, all 
of the witnesses, the members that participated in today's 
hearing. I remind members that they have 10 business days to 
submit questions for the record, and I ask the witnesses to 
please respond promptly to these questions.
    The subcommittee is now adjourned.
    [Whereupon, at 12:30 p.m., the subcommittee was adjourned.]

                                 
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