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

                          HEARING ON IMPLEMENTATION OF

               HEALTH INSURANCE EXCHANGES AND RELATED PROVISIONS

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

                                    HEARING

                                   before the

                             SUBCOMMITTEE ON HEALTH

                                     of the

                          COMMITTEE ON WAYS AND MEANS

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 SECOND SESSION

                                   __________

                               September 12, 2012

                                   __________

                              Serial No. 112-HL15

                                   __________

             Printed for the use of the Committee on Ways and Means

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    80-694                    WASHINGTON : 2013
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                        COMMITTEE ON WAYS AND MEANS

                         DAVE CAMP, Michigan, Chairman

    WALLY HERGER, California             SANDER M. LEVIN, Michigan
    SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
    KEVIN BRADY, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 JIM MCDERMOTT, Washington
    DEVIN NUNES, California              JOHN LEWIS, Georgia
    PATRICK J. TIBERI, Ohio              RICHARD E. NEAL, Massachusetts
    DAVID G. REICHERT, Washington        XAVIER BECERRA, California
    CHARLES W. BOUSTANY, JR., Louisiana  LLOYD DOGGETT, Texas
    PETER J. ROSKAM, Illinois            MIKE THOMPSON, California
    JIM GERLACH, Pennsylvania            JOHN B. LARSON, Connecticut
    TOM PRICE, Georgia                   EARL BLUMENAUER, Oregon
    VERN BUCHANAN, Florida               RON KIND, Wisconsin
    ADRIAN SMITH, Nebraska               BILL PASCRELL, JR., New Jersey
    AARON SCHOCK, Illinois               SHELLEY BERKLEY, Nevada
    LYNN JENKINS, Kansas                 JOSEPH CROWLEY, New York
    ERIK PAULSEN, Minnesota
    KENNY MARCHANT, Texas
    RICK BERG, North Dakota
    DIANE BLACK, Tennessee
    TOM REED, New York

             Jennifer Safavian, Staff Director and General Counsel

                      Janice Mays, Minority Chief Counsel

                                     ______

                             SUBCOMMITTEE ON HEALTH

                       WALLY HERGER, California, Chairman

    SAM JOHNSON, Texas                   FORTNEY PETE STARK, California
    PAUL RYAN, Wisconsin                 MIKE THOMPSON, California
    DEVIN NUNES, California              RON KIND, Wisconsin
    DAVID G. REICHERT, Washington        EARL BLUMENAUER, Oregon
    PETER J. ROSKAM, Illinois            BILL PASCRELL, JR., New Jersey
    JIM GERLACH, Pennsylvania
    TOM PRICE, Georgia
    VERN BUCHANAN, Florida

                                C O N T E N T S

                                   __________

                                                                       Page

    Advisory of September 12, 2012 announcing the hearing............     2

                                   WITNESSES

    The Honorable Michael Consedine, Commissioner, Office of the
      Commissioner, Department of Insurance..........................     8
    E. Neil Trautwein, Vice President, Employee Benefits Policy
      Counsel, National Retail Federation............................    22
    Daniel T. Durham, Executive Vice President, Policy and Regulatory
      Affairs, America's Health Insurance Plans......................    30
    James F. Blumstein, University Professor of Constitutional Law
      and Health Law & Policy, Vanderbilt Law School.................    47
    Heather Howard, Director, State Health Reform Assistance Network,
      Lecturer In Public Affairs, Woodrow Wilson School of Public and
      International Affairs, Princeton University....................    58

      HEARING ON IMPLEMENTATION OF HEALTH INSURANCE EXCHANGES AND RELATED

                                   PROVISIONS

                                  ----------

                         WEDNESDAY, SEPTEMBER 12, 2012

                 U.S. House of Representatives,
                           Committee on Ways and Means,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 3:20 p.m., in
    Room 1100, Longworth House Office Building, the Honorable Sam
    Johnson presiding.
        [The advisory of the hearing follows:]

    HEARING ADVISORY

        Chairman Herger Announces Hearing on Implementation of Health
    Insurance Exchanges and Related Provisions
        Wednesday, September 5, 2012
        *UPDATE: NEW TIME*

    ALL OTHER DETAILS OF THE HEARING REMAIN THE SAME.

        House Ways and Means Health Subcommittee Chairman Wally Herger (R-
    CA) today announced that the Subcommittee on Health will hold a hearing
    to examine implementation of health insurance exchanges as authorized
    by the Democrats' health care law (P.L. 111-148 and 111-152). The
    hearing will take place on Wednesday, September 12, 2012, in 1100
    Longworth House Office Building, beginning at 2:30 PM.

        In view of the limited time available to hear from witnesses, oral
    testimony at this hearing will be from invited witnesses only. However,
    any individual or organization not scheduled for an oral appearance may
    submit a written statement for consideration by the Subcommittee and
    for inclusion in the printed record of the hearing. A list of witnesses
    will follow.

    BACKGROUND:

        The Democrats' health care law calls for the creation, operation,
    and regulation of health insurance exchanges. The health care law
    states that exchanges must meet minimum operational standards, provide
    for the certification of qualified health plans (QHP), and facilitate
    Medicaid and plan enrollment.

        The health care law requires states to establish exchanges, in
    accordance with federal law and subsequent regulations, by January 1,
    2014. Eligibility for premium and cost-sharing subsidies, which are
    financed through cuts to Medicare and tax increases on families and
    employers, are tied to enrollment in a QHP offered in state-established
    exchanges. If a state is unwilling or unable to establish an exchange,
    the law authorizes the Secretary of Health and Human Services (HHS) to
    establish a federal exchange within the state. States have until
    November 16, 2012, to declare their intentions.

        Open enrollment in the exchanges begins on October 1, 2013. Plans
    are required to be certified as a QHP prior to open enrollment.
    Additionally, enrollment is predicated on the establishment and
    operation of information technology infrastructure, referred to as the
    data hub, to accurately and reliably transmit sensitive personal data.
    Prior to open enrollment, states, insurers, and other federal agencies
    need to conduct tests with the data hub, to ensure citizenship, income,
    plan enrollment, and other data necessary for eligibility
    determinations can be transmitted accurately and securely. This is
    clearly a significant undertaking.

        However, to date, the Obama Administration has failed to publish
    final regulations to guide states, employers, and health plans as to
    what will be expected of them when open enrollment begins, including
    regulations on mandated benefit packages, new insurance regulatory
    mandates, expected enrollee costs, and much of the exchange-related
    information. Instead, the Administration has often relied on
    ``bulletins,'' which are not enforceable by law and are issued without
    first conducting a rigorous cost-benefit analysis.

        Between 2012 and 2022, the Congressional Budget Office (CBO) and
    Joint Committee on Taxation (JCT) estimate exchanges will process more
    than $1 trillion in premium and cost-sharing subsidies. Additionally,
    exchanges are also responsible for facilitating Medicaid enrollment,
    which CBO and JCT estimate will result in an additional expenditure of
    more than $640 billion.

        In announcing the hearing, Chairman Herger stated, ``In just over a
    year, the Democrats' health care law is slated to begin funneling more
    than $1.6 trillion in taxpayer and Medicare beneficiary and provider-
    funded subsidies through state-based insurance exchanges. However, the
    necessary regulations for exchange operation, plan design, and
    eligibility still have not been finalized by the Obama Administration,
    leaving many to question whether political motivations are delaying the
    release of much-needed guidance for states, employers and health plans.
    Such uncertainty threatens to saddle stakeholders with higher costs and
    also increases the risk of waste, fraud, and abuse. Given this massive
    undertaking, the hearing will allow the subcommittee to hear about the
    progress and the pitfalls associated with this unprecedented expansion
    of government into America's health care system.''

    FOCUS OF THE HEARING:

        The hearing will focus on the implementation status of health
    insurance exchanges and related regulations.

    DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

        Please Note: Any person(s) and/or organization(s) wishing to submit
    for the hearing record must follow the appropriate link on the hearing
    page of the Committee website and complete the informational forms.
    From the Committee homepage, http://waysandmeans.house.gov, select
    ``Hearings.'' Select the hearing for which you would like to submit,
    and click on the link entitled, ``Click here to provide a submission
    for the record.'' Once you have followed the online instructions,
    submit all requested information. ATTACH your submission as a Word
    document, in compliance with the formatting requirements listed below,
    by the close of business on September 26, 2012. Finally, please note
    that due to the change in House mail policy, the U.S. Capitol Police
    will refuse sealed-package deliveries to all House Office Buildings.
    For questions, or if you encounter technical problems, please call
    (202) 225-1721 or (202) 225-3625.

    FORMATTING REQUIREMENTS:

        The Committee relies on electronic submissions for printing the
    official hearing record. As always, submissions will be included in the
    record according to the discretion of the Committee. The Committee will
    not alter the content of your submission, but we reserve the right to
    format it according to our guidelines. Any submission provided to the
    Committee by a witness, any supplementary materials submitted for the
    printed record, and any written comments in response to a request for
    written comments must conform to the guidelines listed below. Any
    submission or supplementary item not in compliance with these
    guidelines will not be printed but will be maintained in the Committee
    files for review and use by the Committee.

        1. All submissions and supplementary materials must be provided in
    Word format and MUST NOT exceed a total of 10 pages, including
    attachments. Witnesses and submitters are advised that the Committee
    relies on electronic submissions for printing the official hearing
    record.

        2. Copies of whole documents submitted as exhibit material will not
    be accepted for printing. Instead, exhibit material should be
    referenced and quoted or paraphrased. All exhibit material not meeting
    these specifications will be maintained in the Committee files for
    review and use by the Committee.

        3. All submissions must include a list of all clients, persons and/
    or organizations on whose behalf the witness appears. A supplemental
    sheet must accompany each submission listing the name, company,
    address, telephone, and fax numbers of each witness.

        The Committee seeks to make its facilities accessible to persons
    with disabilities. If you are in need of special accommodations, please
    call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
    business days notice is requested). Questions with regard to special
    accommodation needs in general (including availability of Committee
    materials in alternative formats) may be directed to the Committee as
    noted above.

        Note: All Committee advisories and news releases are available on
    the World Wide Web at http://www.waysandmeans.house.gov/.

        Mr. JOHNSON. We are going to bring the subcommittee to
    order. We have got two guys in here, the two most important
    ones in the whole Congress.
        Let me say our thoughts are with the Health Subcommittee
    chairman Wally Herger as he continues to recover in California
    from a hip replacement surgery and a recent bout with the flu,
    and I speak for all of us when I say we wish him well and hope
    for a speedy recovery.
        We are here today to discuss implementation of Obamacare
    insurance exchanges and related provisions, and I want to thank
    our witnesses for your flexibility so we will be able to hold
    the hearing today, and thank you for sticking around. I
    appreciate it.
        In the interests of time and to accommodate our witnesses,
    I ask unanimous consent that my opening statement be made part
    of the record. Do you agree to that?
        Mr. THOMPSON. Absolutely.
        Mr. JOHNSON. And Mr. Stark isn't here yet, so, without
    objection, I would ask that you make his opening remarks part
    of the record as well.
        Mr. THOMPSON. Absolutely.
        Mr. JOHNSON. Thank you, appreciate that.
        Today we are joined by five witnesses, and given the home
    State ties, I will yield to the gentleman from Pennsylvania to
    introduce our first witness. Go ahead.
        Mr. GERLACH. Thank you, Chairman Johnson, for giving me the
    opportunity to introduce my fellow Pennsylvanian, Insurance
    Commissioner Michael Consedine. Last year Michael was appointed
    by Governor Tom Corbett to serve as our insurance commissioner
    for the Pennsylvania Insurance Department and was confirmed by
    the Pennsylvania Senate back in April of last year.
        The Insurance Department of Pennsylvania administers the
    laws of the Commonwealth as they pertain to the regulation of
    the insurance industry in order to protect insurance consumers.
    Given that Pennsylvania is the fifth largest insurance market
    in the United States and the 14th largest insurance market in
    the world, Michael certainly has his work cut out for him when
    you add it to the implementation of the State exchanges under
    the Affordable Care Act.
        Throughout his legal career he has concentrated his
    practice on regulatory and corporate matters involving
    insurance entities and consumers. From 1995 to 1999, he served
    as department counsel for the Pennsylvania Insurance Department
    where he represented the department in an array of litigation
    proceedings and on transactional filings, including major
    corporate restructurings. He has also practiced law with the
    firm of Saul Ewing in Philadelphia, where he was a partner and
    vice chair of its insurance practice group.
        He is a graduate of James Madison University as well as the
    Widener University School of Law, and given his vast experience
    and knowledge in the industry, he is an important asset to our
    Commonwealth. So we want to welcome him to the panel today and
    thank him for testifying on this important matter.
        Yield back. Thank you, Mr. Chairman.
        Mr. JOHNSON. Thank you.
        Also testifying today are Neil Trautwein, vice president
    and employee benefits policy counsel at the National Retail
    Federation. Thank you for being here. Dan Durham, executive
    vice president of policy and regulatory affairs at America's
    Health Insurance Plans; Jim Blumstein, professor of
    constitutional law and health law and policy at Vanderbilt Law
    School, director of Vanderbilt's Health Policy Center; and
    Heather Howard, director of State Health Reform Assistance
    Network and lecturer in public affairs at Princeton
    University's Woodrow Wilson School of Public and International
    Affairs.
        Thank you all for being here. You will each have 5 minutes
    to present your oral testimony, and your entire written
    statement will be made a part of the record.

        [The Opening statement of follows: The Honorable Pete
    Stark]

    [GRAPHIC] [TIFF OMITTED] 80694.001

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    [GRAPHIC] [TIFF OMITTED] 80694.003

        Without further ado, Commissioner Consedine, you are
    welcome to begin.

      STATEMENT OF THE HONORABLE MICHAEL CONSEDINE, COMMISSIONER,
         OFFICE OF THE COMMISSIONER, DEPARTMENT OF INSURANCE,
                        HARRISBURG, PENNSYLVANIA

        Mr. CONSEDINE. Thank you very much, Mr. Chairman.
        Thank you for that introduction, Representative Gerlach.
        Good afternoon, distinguished members of this committee. My
    name is Michael Consedine, and I am Pennsylvania's insurance
    commissioner. As some of you may know, I had the privilege of
    presenting testimony in front of your colleagues on the
    Committee on Energy and Commerce in March of last year about
    our experiences in Pennsylvania with the first year of the
    implementation of the Affordable Care Act. In that testimony I
    described Pennsylvania's early experiences with the ACA as
    traversing a path that was marked by a lack of clear direction
    and troubling indications of the terrain ahead.
        Unfortunately, in the 18 months that have followed, very
    little has changed. We still lack clear direction, and the
    flexibility promised us has not materialized, something that at
    this point poses a significant barrier to our ability to make
    informed decisions on issues that could impact the lives of
    millions of Pennsylvanians.
        To date, the Department of Health and Human Services has
    failed to issue numerous regulations regarding how States are
    to implement the ACA. Most of these outstanding regulations
    address critical issues on the operation and requirements of
    key components of the ACA, like health insurance exchanges. The
    lack of detailed information from HHS has put Pennsylvania and
    many other States in a very difficult position. We are
    traveling down a road directionless while knowing the road will
    soon end. Pennsylvania, like many States, needs final rules and
    guidance on exchanges in order for us to determine what course
    is in the best interest for our State.
        These concerns and the absence of clear guidance prompted
    me to write a letter to Secretary Sebelius 2 weeks ago
    outlining 26 specific questions that we in Pennsylvania felt
    needed to be answered in order for us to make an informed
    decision on exchanges. I have submitted a copy of that letter
    to the committee for inclusion in the record. As of the date of
    this testimony, HHS has not responded to our letter.
        Pennsylvania is not an outlier in feeling directionless on
    this road. Recently I was asked to chair a National Association
    of Insurance Commissioners working group charged in part with
    collectively identifying the universe of unanswered questions
    and issues with exchanges in order to help other States begin
    to better understand the impact the operation of a Federal
    exchange may have on the insurance markets. We have yet to hold
    our first meeting, but already 22 States have signed up to
    participate in this working group.
        A poorly executed Federal exchange launch and transition
    from current market rules to the new ACA rules could result in
    severe market disruptions and a weakening of States' control
    over their insurance markets. Continuing without answers to
    these crucial issues is like driving down a winding road at
    night without headlights. Nothing good will come of it.
        As chair of this working group, my hope is that we may
    provide the needed direction, guidance, and support for all
    States that are traveling on this road together so that we as
    regulators can help our States make informed decisions and
    minimize disruptions to insurance consumers and our markets. We
    sincerely appreciate the efforts of Congress in aiding us at
    this critical juncture.
        The road to exchange implementation is also a toll road. No
    matter what exit a State takes, it will cost something.
    However, without answers to our questions, the total costs are
    unknown, but seemingly grow every day.
        States are also being asked to make a selection of
    essential health benefits benchmark plan by the end of this
    month, but no rule, proposed or final, has been released
    outlining the details of this process. Will a State's selection
    really be the selection, or can HHS modify a State's choice or,
    worse yet, override the selection and replace it with another
    benchmark? At this point no State can answer those questions
    because there is no regulation. All we know is that the ACA
    clearly intended for the decision on essential health benefits
    to be made by the Secretary of Health and Human Services, so at
    this point any inference that States have binding
    decisionmaking authority on issues appears to be an illusion.
        HHS has been similarly silent on how it intends to pay for
    a State exchange or what costs States should expect to incur
    whether entering into a partnership or merely interfacing with
    a Federal exchange. States are required to live within their
    fiscal means, which requires thoughtful budget planning.
    Without answers to these questions, it is impossible for States
    like Pennsylvania to adequately prepare. These questions are
    just a few of the many outstanding issues to which States like
    Pennsylvania need answers if we are to make informed decisions.
        In the end, the unfortunate but consistent delay of
    information from HHS will hurt Pennsylvania individuals and
    businesses the most. They are the passengers on this journey
    that is supposed to bring them to a destination of affordable
    and accessible health care. A poorly implemented Federal
    exchange, however, will put those passengers at risk. Two years
    after the ACA's implementation, we see health care premiums in
    Pennsylvania continue to rise, with no promise of reductions in
    sight, and we see an increase in the bureaucracy surrounding
    health insurance regulation. As I told Secretary Sebelius in my
    letter, Pennsylvania's focus remains on getting health care
    reform done right, not just done quickly, and certainly not
    done in a manner that puts Pennsylvanians at risk.
        Even though the lack of information from Washington is
    producing roadblocks to effective exchange implementation in
    many States, it will not stop Pennsylvania from continuing its
    own work towards achieving meaningful and sustainable health
    care solutions in our State.
        Thank you very much for the opportunity to testify before
    you today.
        Mr. JOHNSON. Thank you.
        [The prepared statement of Mr. Consedine follows:]
        [GRAPHIC] [TIFF OMITTED] 80694.004

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        [GRAPHIC] [TIFF OMITTED] 80694.015

        Mr. JOHNSON. Did you get an answer from the Secretary?
        Mr. CONSEDINE. We did not.
        Mr. JOHNSON. Thank you.
        Mr. Trautwein, you are now recognized for 5 minutes, sir.

       STATEMENT OF E. NEIL TRAUTWEIN, VICE PRESIDENT, EMPLOYEE
         BENEFITS POLICY COUNSEL, NATIONAL RETAIL FEDERATION,
                            WASHINGTON, D.C.

        Mr. TRAUTWEIN. Thank you, Mr. Chairman, Ranking Member
    Stark, and Members of the Committee. I appreciate the
    opportunity to appear before you today.
        My name is Neil Trautwein, and I am a vice president and
    employee benefits policy counsel with the National Retail
    Federation. I am pleased to appear here today on behalf of the
    NRF, which is the worldwide voice of retail in all channels and
    all forms of distribution.
        Retail supports one out of every four jobs in the economy
    today and contributes $2.5 trillion to the gross national
    product. We support effective implementation of the Affordable
    Care Act, even though we don't support the underlying law. We
    are concerned, as people who have to live with the law, by the
    delays in issuing regulations and agency reliance on temporary
    guidance rather than formal regulations, but we do recognize
    that the agencies are balancing a lot of different concerns,
    and probably we wouldn't have been happy had they issued
    interim final regulations in the first place.
        Still, we cannot afford to have the ACA stumble out of the
    starting gate, because it is our employees and individuals out
    there who will bear the brunt of the problems, particularly as
    regards health insurance exchanges, which is very important to
    employers and employees alike.
        The fate of exchanges will be a significant indicator for
    the ultimate success or failure of the Affordable Care Act.
    Unanswered questions abound on exchanges despite a final
    exchange rule. The lack of additional guidance on questions we
    and others have asked has not only slowed exchange planning in
    many of the States, but also employer planning for benefits in
    years 2014 and beyond. NRF and other members of the Coalition
    on Choice and Competition have worked hard to encourage both
    the States and implementing agencies to move forward, but the
    clock is ticking, and fall 2013 is very short away. We
    particularly fear that as the regulations are released late in
    the ballgame, a cascade of regulations will telescope onto
    employers and really frustrate them as they are trying to
    manage new responsibilities.
        To employers, genuine reform would lower the cost of
    coverage and make it easier to provide coverage. The ACA is
    nothing if not complicated, something that advocates and
    opponents both agree. We do credit the regulatory agencies for
    working hard and fairly cooperatively to implement the ACA,
    which has not been the easiest task in the world.
        The administration has been appropriately solicitous of the
    retail industry, partly because of our place in the economy,
    also because of the difficulty of covering the retail and
    restaurant workforce. Much of the regulatory guidance released
    to date will help accommodate our workforce concerns, but we
    really would prefer not to have to revisit these issues on a
    year-by-year-by-year basis.
        Much of the administration's guidance lacks the notice-and-
    comment finality employers must rely upon to plan for the
    future. The consistent attention and cooperation of the
    administration, though it has been both welcome and helpful,
    doesn't make up for that finality.
        Timing is becoming critical for benefits that are to be
    available in January 2014. My members tell us that they
    commonly need 6 to 9 months to prepare for each year for
    coverage in an ordinary benefit year. 2014 will be anything but
    normal. It will be a lot of new issues and responsibilities to
    take on. Without final regulations in the first quarter of
    2013, I fear that we will have a lot of attrition in the level
    of employer-sponsored plans.
        Again, I appreciate the opportunity to appear before you
    today. Fair and final regulations will help individuals,
    employers, health plans, and exchanges prepare for the
    difficult transition ahead in January 2014. The best chance
    health insurance exchanges have to succeed is to launch
    smoothly and as glitch-free as possible. NRF stands ready to
    work with the administration and Congress to help make the ACA
    more workable so long as it remains the law of the land.
        Thank you, and I look forward to your questions.
        Mr. JOHNSON. Thank you, sir.
        [The prepared statement of Mr. Trautwein follows:]
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        Mr. JOHNSON. Mr. Blumstein, you are now recognized. Well,
    wait a minute. Durham, let me get you first.

    STATEMENT OF DANIEL T. DURHAM, EXECUTIVE VICE PRESIDENT, POLICY
       AND REGULATORY AFFAIRS, AMERICA'S HEALTH INSURANCE PLANS,
                            WASHINGTON, D.C.

        Mr. DURHAM. Thank you, Mr. Chairman.
        Good afternoon. I am Dan Durham, executive vice president
    for policy and regulatory affairs at America's Health Insurance
    Plans. I appreciate this opportunity to testify on health
    insurance exchanges.
        AHIP members are strongly committed to competing in the new
    marketplace and offering high-quality, affordable coverage to
    consumers who shop in exchanges. Since the day the Affordable
    Care Act was enacted, our members have been working around the
    clock to implement the law, while continuing to meet the needs
    of their 200 million customers. Health plans are complying with
    the thousands of pages of regulations, data requests, and other
    requirements that Federal agencies have issued. In short,
    health plans are focused like a laser on implementation, while
    continuing to offer high-quality, affordable coverage within
    the parameters of the law.
        My written testimony focuses on key implementation issues
    and recommends five things: minimizing disruptions as we
    transition to exchanges, ensuring workable exchange operations
    and State flexibility, minimizing coordination to prevent
    redundant regulations in data collection, maximizing choice and
    competition, and addressing specific ACA provisions to make
    healthcare coverage more affordable.
        I will begin by emphasizing the urgent need for regulatory
    clarity with respect to exchanges. Health plans, States, and
    others need clear regulatory guidance on the following: First,
    the comprehensive insurance market reforms, including
    guaranteed issue, adjusted community rating, and geographic
    rating areas. Health plans need clear guidance on how these new
    market rules will be applied both inside and outside the
    exchange to appropriately develop and price their products.
        Second, essential health benefits. While we appreciate the
    flexibility provided in the bulletin released last December,
    health plans need final guidance on essential health benefit
    requirements to develop products that qualify for individual
    and small-group coverage. The process for developing new
    products is data intensive and time consuming and typically
    takes between 12 and 18 months.
        Third, cost-sharing reductions. While the bulletin released
    last February was very helpful, health plans still need clear
    guidance on how to develop additional products on the silver
    tier that will meet the cost-sharing reduction requirements.
        Fourth, actuarial value. While the bulletin was released
    last February, and we know a great deal of work has been
    proceeding, we look forward to the release of the actual
    calculator that will provide a simplified means for health
    plans to compute and report actuarial value for the plans they
    intend to offer.
        Fifth, risk-mitigation programs. While the final rule was
    released earlier this year, and significant work is ongoing,
    the specific parameters for reinsurance and the methodology for
    risk adjustment have yet to be released. Health plans will need
    to know the details.
        And, sixth, the certification standards for qualified
    health plans, including quality reporting requirements on the
    activities that improve health outcomes and patient safety.
    Health plans need to know all the requirements necessary to be
    certified as a qualified health plan in order to develop their
    products appropriately.
        Clear regulatory guidance in each of these areas is needed
    in the very near future. Unless such guidance is forthcoming,
    it will be difficult for health plans to complete product
    development, fulfill network adequacy requirements, obtain
    necessary State approvals, and ensure that their operations,
    materials, training, and customer service teams are fully
    prepared for the initial enrollment period that begins on
    October 1, 2013.
        Our testimony also outlines specific recommendations for
    ensuring that exchanges work efficiently and effectively by
    minimizing duplication of regulations, data collections, and
    exchange functions and adopting common standards for the flow
    of data between exchanges and health plans.
        And, finally, while the ACA expands coverage to millions of
    Americans and provides subsidies, several provisions of the law
    will have the unintended consequence of making coverage less
    affordable. Our written testimony examines three such
    provisions: first, the health insurance premium tax; second,
    the minimum coverage requirements; and, third, the age-rating
    bands. We strongly urge Congress to revisit these issues to
    avoid higher costs and potential coverage disruptions for the
    American people.
        Thank you again for this opportunity to testify. I look
    forward to your questions.
        Mr. JOHNSON. Thank you, sir.
        [The prepared statement of Mr. Durham follows:]
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        Mr. JOHNSON. Professor Blumstein, now you can talk.

       STATEMENT OF JAMES F. BLUMSTEIN, UNIVERSITY PROFESSOR OF
     CONSTITUTIONAL LAW AND HEALTH LAW AND POLICY, VANDERBILT LAW
                      SCHOOL, NASHVILLE, TENNESSEE

        Mr. BLUMSTEIN. Thank you, Mr. Chairman, Mr. Stark. My name
    is James Blumstein. I am a professor at Vanderbilt Law School
    and Vanderbilt Medical School. I am pleased to be invited to
    appear before the committee. I speak as an individual, however,
    not as a representative of Vanderbilt or any other institution.
        Briefly, I have been asked to address a very focused and
    very specific question: What is the scope of subsidy that is
    available on these new exchanges that are going to be created
    under the Affordable Care Act? Clearly there are subsidies
    available under the statute for State-run exchanges. The
    question I want to focus on is whether those same subsidies
    exist or can exist under the law for federally run exchanges.
        Secondly, the IRS has issued a rule that extends coverage
    of the subsidy to federally run exchanges. Is this rule
    sustainable?
        The subsidies have two roles. They support those who have
    incomes at 100 to 400 percent of the Federal poverty level, but
    they also serve to trigger an employer tax, a penalty, if an
    employer is obligated to provide--a large employer is obligated
    to provide coverage that is affordable and meets the Federal
    standards. And the question is whether or not the IRS, through
    the rule, can impose the subsidy requirement which, in turn,
    triggers this tax or penalty upon employers. My brief
    conclusion is the following: The Affordable Care Act, or the
    ACA, does not provide for a subsidy on the Federal exchanges,
    and the IRS exceeds its authority in promulgating this rule.
        So let me focus first on the provisions of the Affordable
    Care Act. The Affordable Care Act provides two types of
    exchanges, a State-run exchange under Section 1311 and a
    federally run exchange under Section 1321. Under Federal
    constitutional principles, the Federal Government can induce
    States to establish exchanges, but they cannot force them or
    commandeer them to do that. So inducement is okay, but coercion
    is not.
        The ACA provides different treatment for these two
    exchanges. There is a subsidy expressly provided for State-run
    exchanges, and to make clear there is no ambiguity, under
    Section 1311, that is the section that provides for State-run
    exchanges, there is an important canon of construction in
    written documents, contract statutes called, excuse my Latin
    here, but expressio unius est exclusio alterius, which means
    the expression of one thing is the exclusion of another of the
    same kind.
        So there are two--very straightforwardly, there are two
    types of exchanges under the ACA, State run and federally run.
    The subsidy provided for in the ACA provides only a subsidy for
    the State-run exchange. So under the exclusio unius principle,
    granting subsidy on one exchange and omitting that subsidy on
    the Federal exchange means that there is no grant of comparable
    subsidy on the Federal exchange, and so if the issue were only
    under the statute, it would be pretty straightforward, and it
    would be relatively easy to interpret.
        What about the IRS rule? The IRS expands the scope of
    coverage so that subsidies exist on both the State-run and the
    federally run exchange. There is no question that the IRS has
    rulemaking power to establish the rules of the road on how
    these exchanges will be implemented. The question is whether
    they have, narrowly speaking, power to extend the subsidy to
    these Federal exchanges and thereby impose a tax on large
    employers.
        Federal agencies have gap-filling authority when an issue
    is either expressly delegated to it, or when, because of
    ambiguity, the issue is implicitly delegated that power to fill
    a gap. But the agency gap-filling power, because of ambiguity,
    must relate to the specific issue the agency addresses in its
    rulemaking not globally, but specifically. Here that question
    is the scope of the subsidy.
        In determining whether ambiguity exists, the courts have
    said that you look at traditional tools of statutory
    construction, for example, the expressio unius rule, and under
    the expressio unius rule, there is no ambiguity on the question
    of the scope of subsidy. Only State-run exchanges are qualified
    for that subsidy. The ACA provides for subsidy on only one of
    the exchanges, the State-run exchanges. It makes reference to
    the statutory Section 1311 to make sure that there is no
    ambiguity, so it mentions State-run exchanges, and it mentions
    Section 1311. Absent ambiguity, the IRS's power to expand the
    subsidy vanishes, there is no gap to fill, and thus no power
    for the IRS to act as it did.
        Thank you, Mr. Chairman.
        Mr. JOHNSON. Thank you, sir.
        [The prepared statement of Mr. Blumstein follows:]
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        Mr. JOHNSON. Ms. Howard, you are recognized.

      STATEMENT OF HEATHER HOWARD, DIRECTOR, STATE HEALTH REFORM
    ASSISTANCE NETWORK, LECTURER IN PUBLIC AFFAIRS, WOODROW WILSON
         SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS, PRINCETON
                   UNIVERSITY, PRINCETON, NEW JERSEY

        Ms. HOWARD. Thank you, Chairman Johnson, Ranking Member
    Stark, Members of the Committee. My name is Heather Howard, I
    direct the State Health Reform Assistance Network, or State
    Network. It is a program of the Robert Wood Johnson Foundation
    that is helping States implement the coverage provisions of the
    Affordable Care Act. The program is housed at Princeton
    University's Woodrow Wilson School, where I am a lecturer in
    public affairs teaching about health policy, and before coming
    to Princeton, I was New Jersey's commissioner of health and
    senior services.
        My testimony today calls on my experience working with
    States on exchange implementation and my previous service as a
    State health official. My comments are my own and not on behalf
    of Princeton University or the Robert Wood Johnson Foundation.
        From my experience I can tell you that while hurdles remain
    to be overcome, many States are actively implementing and are
    on schedule to stand up health insurance exchanges that will
    provide a competitive marketplace for individuals and small
    businesses to shop for affordable coverage just over a year
    from now.
        Today I want to talk about a couple of the themes that we
    are seeing in State implementation of health reform. First, we
    are seeing that States that want to move ahead with reform are
    effectively implementing exchanges. Second, those States that
    have not yet made significant progress have a path forward
    through the partnership or federally facilitated exchange.
    Third, we are seeing that the Federal-State relationship has
    been marked by flexibility and collaboration. And, finally, we
    are seeing that States are using that flexibility to innovate
    and tailor their solutions to meet their State's needs.
        Let me start first with what we are seeing in the States
    that are successfully getting ready to implement the Affordable
    Care Act. We know that 49 States and D.C. have received Federal
    planning grants, 35 States received establishment grants to
    facilitate additional planning and implementation, 13 States
    plus D.C. have already submitted letters to HHS affirming their
    intent to establish a State-based exchange, and 15 States
    already have exchange structures in place.
        Now, that is 13 States and the District of Columbia that
    have already signaled their intent to establish a State-based
    exchange. We know that other States, though, are working
    diligently, but may need to use the partnership model to bridge
    the gap to when they can actually stand up a State-based
    exchange. This partnership model allows States to retain plan
    management and consumer assistance functions. Those are two
    areas where States have traditional expertise and regulatory
    authority. And we know that still other States have done little
    beyond basic research in preparing for an exchange, but many of
    them are studying the issues and preserving their options. And
    we know that the ACA clearly envisioned that not all States
    would stand up a State-based exchange, so the federally
    facilitated exchange will provide consumers access to
    affordable health insurance products in those States.
        Now, we have heard today that the reason for State
    inactivity is a lack of guidance from HHS, but if a lack of
    guidance were a real barrier to progress, one would expect that
    the leading States would be confronting the most barriers and
    complaining the most loudly about the need for additional rules
    and regulations. In reality, the opposite is true. Those
    States, those leading States, are seizing the flexibility
    afforded them to pursue innovative approaches, and I believe,
    indeed, that the primary factor contributing to this variation
    in State activity is the political climate in the States.
        Now, we are also seeing that Federal officials are taking a
    flexible and collaborative approach to ACA implementation. In
    my experience they have provided enough guidance,
    responsiveness, and flexibility to enable the States to be
    successful. Indeed, we are seeing time and again that they have
    come down on the side of State flexibility, and something that
    as a former State official I know and appreciate. The best
    example of this is the guidance establishing the exchange
    blueprint which CCIIO has offered to the States. It is a step-
    by-step outline of what States will need to accomplish in order
    to comply with the ACA. HHS has set up a series of
    collaborative meetings, what they call establishment reviews,
    to go over State progress and address State concerns.
        Another example that is in my testimony that I can refer
    you to of this State flexibility is the essential health
    benefit process, where CCIIO has indicated that States can
    choose their own benchmark based on plans in their own States.
        Now, are more formal rules on EHB and other difficult
    topics still needed? Absolutely. But do implementation efforts
    need to come to a halt in the absence of formal rules on every
    open issue? State Network States and other States across the
    country are proving that is not the case.
        Now, finally, we are seeing that States are using the ACA
    resources to address long-standing problems and persistent
    needs. While ACA implementation has presented an enormous
    challenge to States, we know they are dealing with, of course,
    budget constraints, staffing constraints, but at the same time,
    I have talked to many State officials who are seizing the
    historic opportunity to expand health insurance coverage and
    are tailoring their implementation efforts to meet their
    State's unique needs, and I offer many examples of this in my
    written testimony.
        So in conclusion, the range of tasks that lie before States
    and the Federal Government are both daunting and exciting in
    scope. Nevertheless, States that haven't made substantial
    progress have a path forward under the partnership or federally
    facilitated exchange models, and States that want to implement
    reform have and will continue to make great strides in
    developing and implementing exchanges.
        Thank you.
        Mr. JOHNSON. Thank you, ma'am.
        [The prepared statement of Ms. Howard follows:]
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        Mr. JOHNSON. Commissioner Consedine, you know, you said you
    had never gotten a response out of the Secretary.
        Mr. CONSEDINE. That is correct, Mr. Chairman.
        Mr. JOHNSON. And our concern is that HHS has been slow to
    provide States with the necessary information on a number of
    key issues. In reviewing your letter, your requests seem very
    reasonable, like asking for a detailed timeline on when the
    hundred future or forthcoming exchange-related regulations
    cited by HHS will be released, and if HHS will be issuing final
    regulations to their numerous interim final rules, when HHS
    will release its rule governing federally facilitated
    exchanges, and when will they release a mandated benefit
    package rule, and you have never received an answer; is that
    true?
        Mr. CONSEDINE. Not today, Mr. Chairman, no.
        Mr. JOHNSON. And you asked all those questions?
        Mr. CONSEDINE. We did, indeed.
        Mr. JOHNSON. Well, let me get this straight. States are
    supposed to make decisions on benefit packages in the exchange
    by the end of the month; is that true?
        Mr. CONSEDINE. That is generally true at this point.
        Mr. JOHNSON. Yet HHS hasn't released so much as a proposed
    regulation outlining the details of this process.
        Mr. CONSEDINE. We have guidance at this point.
        Mr. JOHNSON. What kind of guidance? Detailed?
        Mr. CONSEDINE. It is detailed in some ways, lacking in
    others.
        Mr. JOHNSON. And States are supposed to let HHS know by
    November 16th--that is not that far off--whether or not they
    intend to create their own exchange despite the fact that there
    are nearly 100 forthcoming exchange-related regulations, and
    HHS has yet to propose regulations on what a federally
    facilitated exchange might look like; is that correct?
        Mr. CONSEDINE. That is correct.
        Mr. JOHNSON. It is baffling that the Obama administration
    can expect State governments to make informed decisions, ones
    that could require tens of millions of dollars in additional
    cost in the face of such regulatory uncertainty. Perhaps I
    shouldn't be surprised, however. By withholding information
    critical from stakeholders, stakeholders are paralyzed, and the
    Obama administration holds all the power. By keeping
    information from States, employers and health plans, the
    Federal Government's takeover of our health care system will be
    complete. As a defender of states' rights, that frightens me.
        I thank you for your testimony, all of you, and, Mr. Stark,
    I recognize you for 5 minutes.
        Mr. STARK. Thank you, Mr. Chairman.
        Thank the witnesses for enlightening us today.
        I am concerned, Mr. Consedine, that you are having trouble
    getting in touch. You wrote to Secretary Sebelius in August,
    the end of August, with a bunch of questions regarding
    exchanges, and have you had any meetings with them?
        Mr. CONSEDINE. Not since we sent the letter,
    Representative.
        Mr. STARK. Have you asked for any meetings?
        Mr. CONSEDINE. We have fairly regular discussions with
    the--with HHS, but not in response to our questions, no. We
    have not asked for a meeting at this point.
        Mr. STARK. I see. Well, if you contact Mr. Dioguardi, the
    Health and Human Services External Affairs, he will set up a
    meeting. If you didn't have to catch a 4 o'clock train, I would
    set up the meeting for you this afternoon, and I am sure that
    they could help you far better than any of us could, and, you
    know, they would welcome the chance. So I hope that you will
    take advantage of that and sometimes not wait for a letter. I
    mean, wait for a call back we learn in this business is to wait
    a long time. Make the second call, will you, and see if they
    can't help you. I think they would cooperate with you and get
    you all the information you need. It may not make it any
    easier, don't misunderstand me, but I think that they could
    probably answer a lot of questions for you.
        I am concerned. All of you, I can recall some time ago, had
    to implement supplemental insurance rules, right? Your State
    has? Mr. Trautwein? Mr. Durham? Ms. Howard? I mean, and there
    was some grumping and complaining by the insurance companies
    and others, but now it seems to work pretty well. Seniors like
    it. They can all look at the same policies, different in each
    State, but they get a selection of, what, 10 or 11 policies
    varying from very limited benefits to generous benefits, and
    the prices are all there, and it is wonderful for the
    consumers. And I shouldn't think that the insurance companies,
    then, it would seem to me, and their brokers or salespeople are
    selling the same benefits at different prices, and they have to
    pitch the fact that they can provide good service. And that
    is--you know, it is hard to spell out what is good service, but
    people can check with references, or if it is a company, people
    dealing with group policies can find out from their other
    companies how well Aetna does against Blue Cross.
        And I think that it serves us so well and serves your
    constituents or States so well to have some kind of a
    determined outline so that people--so that we make it easier--
    not easy, but easier--to compare. Most of us are not experts in
    insurance, as you all are, and you are dealing with people who
    get the broad idea, but if they can see a list, and that is
    really what I think we are talking about, I think you do a real
    service to your constituents.
        I would say that it is too bad we don't have anybody from
    California. But we are going to be ready on time, the Governor,
    our great Republican Governor, is ready to roll up his sleeves.
    He signed the implementing legislation in September, and I
    would hope that other States' Governors would move ahead.
        Sometimes we just have to dig in and say, this is a pain in
    the butt, like a new tax regulation or a new whatever. You have
    got to go ahead and do it, and I don't mean to say that we just
    put those things in law to make trouble for you, but we try and
    put them in law, so that we have to write laws here for every
    State in the Union. We can't write one law for California and
    one--and so thank you for putting up with us, and please call
    on our staff. I know the Republican staff is willing to help
    and see if we can't cooperate and get this done for all of our
    constituents, because in the end to bring in millions of
    additional people is going to save us all money. It is going to
    save the taxpayers money. It is going to lower in time the cost
    of medical care.
        The worst thing we could have is somebody without medical
    insurance or a way to pay for medical care ending up in the
    emergency room. That costs all of us; you, it raises our
    insurance premiums, it raises our taxes. And that is one thing
    I think we can all agree, we have to see that everybody gets
    covered one way or another. You may not like my universal
    health care plan, but let us work toward it.
        Thank you very much, Mr. Chairman. Thank the witnesses
    again.
        Mr. JOHNSON. Did the Governor of California change parties?
        Mr. STARK. No, he hasn't. Now, we have talked to him about
    that.
        Mr. JOHNSON. Well, you called him a Republican Governor.
        Mr. STARK. But then his wife would become a Republican, and
    then we would have real trouble.
        Mr. JOHNSON. Well, you called him a Republican.
        Mr. STARK. Well, he is.
        Mr. JOHNSON. Really?
        Mr. STARK. Arnold?
        Mr. JOHNSON. Arnold? Arnold's not Governor anymore, I don't
    think.
        Mr. STARK. Well, no, but he signed it. It was Governor
    Schwarzenegger, I am sorry, not Governor Brown.
        Mr. JOHNSON. Okay. Mr. Nunes, you are recognized.
        Mr. NUNES. Thank you, Mr. Chairman.
        I just want to state for the record that in my district
    from California, with Medicaid and Medicare going broke and the
    State of California in dire need of financial and budget
    reform, they actually can't even pay the bills now. Governor
    Brown, who is a Democrat, is going to the people to raise
    taxes, and they are not even sure if those taxes will pay for
    the current requirements under Medicaid, what is known as
    MediCal in California.
        Ms. Howard, in your testimony that Federal officials have
    been responsive, I think you used the words ``flexible'' and
    ``collaborative,'' I am troubled to understand how it is
    collaborative or responsive when bulletins and guidelines are
    being substituted for the normal procedures which involve
    drafting clear rules allowing for public comment and then
    setting formal policy.
        Ms. HOWARD. Well, actually it is more collaborative the way
    they have been doing it because it allows them to meet with
    stakeholders. And I think we heard from some of the
    stakeholders here that they had been involved in that process,
    and that they are able to inform the formal policymaking role;
    that in the first year of ACA implementation, they issued a
    number of interim final rules, and there was an outcry from the
    regulated community that, you know, we want to be more
    collaborative.
        And so now they have taken the less formal approach, and
    they have been meeting with stakeholders, and I have certainly
    seen that. I saw the commissioner at the National Association
    of Insurance Commissioners meeting in August, and there were a
    number of Federal officials there holding office hours, meeting
    with State officials.
        So I think this process and EHB, the central health
    benefits, is another example of where the Federal Government
    has been flexible. They received input from an expert panel at
    IOM, they met with stakeholders, they developed initial
    guidance. Then they met with stakeholders again, they issued
    frequently asked questions, and in the end they came down on
    giving States flexibility and said to States, you can choose a
    plan that operates in your State; we are not going to come up
    with a one-size-fits-all Federal approach.
        So I think we really are seeing the Federal Government be
    as flexible as they can. And as a former State official, I know
    you want clarity from the Federal Government, but that is not
    always the best thing, because what we are seeing is States are
    seizing that flexibility to come up with solutions that work
    for themselves.
        Mr. NUNES. Well, that sounds nice, but in reality here we
    passed legislation. I didn't vote for it; many of us up here
    didn't vote for it. But at the end of the day, there has to be
    clarity for folks like the insurance commissioner to implement
    law in his or her own State.
        So, Commissioner, how are you finding the flexibility?
        Mr. CONSEDINE. Representative, we hear the words
    ``flexibility,'' ``collaboration'' a lot. You know, what we
    often get, however, is we will be collaborative and flexible
    within a fixed sort of parameter of a mindset within HHS, but
    outside of that you quickly run into resistance.
        You know, we have a very good working relationship with
    HHS, a number of those folks are former insurance regulators,
    and I have nothing but admiration for the job they are trying
    to do, but what we often get--well, you know, what we are
    really after at this point is the guidance and the clarity that
    you talk about. And they are not, you know, in-the-weeds
    questions at this point. We are asking very general, broad
    questions like how much is this going to cost us? What level of
    autonomy are we really going to have? How is this going to
    work? And it is, we will get back to you soon.
        Mr. NUNES. Well, it sounds like the flexibility you are
    going to need is you are going to have to have friends on the
    Ways and Means Committee to get you appointments with the folks
    over at HHS who you can't get a response from.
        I just want to be kind of general here just to get a
    general flavor for all of you on the panel, just on a scale of
    1 to 10, just to kind of give the general public your view of
    whether or not how successful this is going to be by 2014 in
    terms of its implementation. So 1 being it is going to be
    great, not going to be any problems, to 10 being it is going to
    be a complete train wreck, and we have got a lot of problems
    before 2014. Why don't we start with you, Mr. Commissioner.
        Mr. CONSEDINE. Thank you for putting me on the spot.
        Mr. NUNES. We can start on the other end if you like.
        Mr. CONSEDINE. I would give it an 8. I mean, we have very
    grave concerns at this point that people, if they don't have
    good information, they are going to make bad choices, and when
    you are making bad choices when it comes to health insurance,
    that has very significant repercussions.
        Mr. NUNES. Mr. Trautwein?
        Mr. TRAUTWEIN. I worry that we are in that 7 to 8 range
    myself. I represent employers who are going to have to deal
    with the compliance issues and understand how to navigate
    through their responsibilities. I spent a lot of time trying to
    educate my members about how the law will come into effect and
    what their responsibilities will be. There is a lot of
    confusion out there.
        Mr. NUNES. Thank you.
        Mr. Durham. I am out of time here. The chairman's being
    very gracious.
        Mr. DURHAM. It depends. The sooner we get clear regulatory
    guidance, the closer we can get to 10 on the scale.
        Mr. NUNES. You mean to 1 or 10?
        Mr. DURHAM. It depends on----
        Mr. NUNES. It depends on the guidance.
        Mr. DURHAM. The sooner the better.
        Mr. NUNES. Mr. Blumstein?
        Mr. BLUMSTEIN. Yeah. I don't know that I can give you a
    number. Of course, I am from Tennessee where we implemented our
    TennCare program in about 60 days, so our folks are pretty good
    in navigating that process.
        I would have to say that it would be nice to get more
    clarity and have a rule of law. When you talk about
    negotiation, it is really not a rule of law, and that is the
    problem that I have with that process.
        Mr. NUNES. Great words.
        Ms. Howard.
        Ms. HOWARD. And like the professor here, I am a lawyer, not
    a math person, so I will just say that I think the building
    blocks are in place. The Federal Government has experience with
    Part D, with HIPAA, with the early implementation of the under
    26 and the preexisting exclusion for kids, a lot of experience
    under its belt, and I am hopeful it will be close to that end
    of the spectrum.
        Mr. NUNES. So 3 heading to 1?
        Ms. HOWARD. You know, I am hopeful it will get there.
    Millions of people are hoping for it.
        Mr. NUNES. Thank you.
        Thank you, Mr. Chairman.
        Mr. JOHNSON. The gentleman's time has expired.
        Mr. Kind, you are recognized.
        Mr. KIND. Thank you very much, Mr. Chairman.
        I want to thank the panelists for your testimony here
    today.
        Ms. Howard, let me start with you. Perhaps I missed the
    memo that went out somewhere that said this was going to be
    easy, that this was going to be seamless, that this was going
    to be perfect right out of the block. I think we all know,
    those of us who have been dealing with healthcare reform, how
    complicated and how difficult this is going to be to try to
    increase the access of healthcare coverage in our country,
    improve the quality of care, and bend that cost curve.
        This is probably the paramount issue that we are facing
    with as a Nation today. We are not going to get our fiscal
    house in order unless a lot of these reforms succeed, and being
    able to bring healthcare costs while expanding coverage and
    improving quality. I mean, it is as simple as that. And yet I
    hear a lot of people complaining that things aren't happening
    immediately and perfectly right out of the block.
        Mr. Consedine, I appreciate your testimony, but I think you
    are here and you are a little more sophisticated than you are
    leading us to believe in the political world. You don't send a
    letter to a Department like HHS and expect an immediate
    response within 2 weeks and then rush down to Washington
    complaining about lack of responsiveness. I will guarantee you,
    you pick up the phone, you call and you set up a meeting down
    there, they will be more than happy to sit down with you and go
    through this chapter and verse. And you are not going to need
    any leverage on this committee or any other Member of Congress
    to help grease the skids to get an appointment with HHS.
        Ms. Howard, I am hearing from you that with the
    collaboration that you are working with the States, willing to
    go forward on the exchange, that there has been some open
    communication, and yet we heard testimony today there is a lack
    of communication, there is a lack of direction, there is need
    for clear guidance. Is this what you have been experiencing in
    working with the 10 States that are trying to implement the
    exchanges right now?
        Ms. HOWARD. I will start by saying I think you are right;
    if it were easy, we would have done it already, and it would
    have been done generations ago. And we have some good early
    news today with the census numbers. I am seeing a drop in the
    uninsured rates. There is a lot of work to be done.
        What we are seeing in our States is that the States that
    want to move are able to move. And, in fact, they are seeing
    this flexibility as an opportunity. So I will take, for
    example--I am sorry that Congressman Blumenauer is not here
    right now, but Oregon is seizing the flexibility under the EHB
    rules. They have recommended the third most popular small-group
    plan in their State to be their central health benefits
    benchmark. So if there had been something from on high from the
    Federal Government saying, this is what the benefits package
    will look like, Oregon wouldn't be able to do the analysis and
    see what works for Oregon.
        So certainly time and again we are seeing States are
    seizing this opportunity and are really able to do it in a way
    that works for them, and that is that Federalism that I think
    we want to see, that collaboration between the Federal
    Government and the States.
        Mr. KIND. Well, we just heard previously from Mr.
    Trautwein, and I appreciate his testimony, that by the first
    quarter of next year, we are going to need some clear
    direction, we are going to need clear rules at that point. Do
    you agree with that assessment?
        Ms. HOWARD. I agree. I agree, absolutely. I think the
    Federal Government has been prioritizing what they have done.
    They have done a number of final rules this year, they did the
    exchange final rules. They actually did the final rules on risk
    adjustment, which was really important, very complicated, and
    that is something they tackled early knowing that it was so
    complicated. So I think you are seeing a sequencing, and I
    think we will see more as soon as they are able.
        Mr. KIND. I thank you, and with all due respect to the
    chairman of this committee, this hearing may be a little
    premature in that regard, but as far as I am concerned, I am of
    the attitude the more oversight, the more hearings, the more
    feedback we can get, the better off I think everyone is going
    to be. So I don't have a complaint having a hearing like this
    today, but let us also be realistic in regards to the timetable
    involved.
        I guess what is frustrating for me is, you know, the whole
    creation of the exchanges in the Affordable Care Act was based
    on legislation that I and others had introduced for years
    around here, called the SHOP Act, and every time I introduced
    that bill, I had an equal number of Republicans and Democrats
    supporting it, because, I mean, what is conceptually not to
    like? It is giving consumers choice to be able to go to a
    health insurance exchange and be able to choose their own plan
    amongst competing private health insurance plans through the
    power of the competition in the marketplace that is going to
    help drive prices down and hopefully improve the quality of
    care, and then we couple it with tax credits to make it
    affordable for those who can't do it on their own, for low-
    income families. That is really the whole concept behind the
    exchanges.
        By the way, I mean, if States want to join together and
    form a larger exchange across borders, they are allowed to do
    that, too, under the Affordable Care Act. There is no
    restriction for States to be able to partner and create even
    larger exchanges. If all 50 States want to eventually create 1
    national exchange, there is nothing stopping them or
    prohibiting them from doing it.
        But I sense from your testimony, Ms. Howard, that your
    opinion is that there is a difference in attitude and therefore
    approach from those States willing to make their best effort
    and go forward in the implementation of the exchange and those
    that for whatever political reason are choosing not to. Is that
    a reasonable assumption?
        Ms. HOWARD. I think that is correct. I think that variation
    in State approaches is due in large part to the political
    climate in the States, and the States that do want to move and
    are trying to seek or trying to implement are finding ways to
    do so.
        Mr. KIND. Well, I think this is a response to the 54
    million uninsured and the fact that the small-group market has
    failed miserably for so many individuals, small businesses and
    family farmers, and if anyone has a better idea of how we can
    extend healthcare coverage on an affordable basis to more
    Americans, we are all ears. I mean, this is not all set in
    stone, and we are willing to make adjustments as we go along,
    too.
        Thank you for your testimony. I yield back.
        Mr. JOHNSON. Drink more milk.
        Mr. Reichert, you are recognized.
        Mr. REICHART. Thank you, Mr. Chairman.
        I want to quickly follow up, Mr. Blumstein, with some
    questioning as far as how you communicate with the government.
    I was a sheriff for a long time and had the opportunity to work
    closely with some of the Federal law enforcement agencies and
    know that sometimes communication by phone is an expedient way
    of getting things done, but sometimes you need things in
    writing.
        And I was just listening to your earlier testimony and your
    description of the two exchanges that exist, the Federal and
    the State, but we have information here, too, that lists some
    other--maybe these are subexchanges under the two main
    exchanges--American Health Benefit Exchange, the sub--the Small
    Business Health Options Program, the regional, or other
    interstate exchanges, the subsidiary exchanges, exchanges
    operated by HHS Secretary. And then there is a partnership
    exchange listed, and under that title it says, via rulemaking
    HHS has created and modified federally controlled
    partnerships--in quotes, ``exchanges''--which are not defined
    or contemplated anywhere in the law.
        So when we go to the question of how we communicate with
    the government, what would you rather see, something in
    writing, you send a letter, you get something back in writing
    so you would know that the government has answered the question
    in a way that you can respond to; or does a phone call,
    personal meeting--what is your opinion on that?
        Mr. BLUMSTEIN. Well, I think that the relationships between
    citizens and their government should, when possible, be based
    upon rules. And we live in a rule-of-law society, and I think
    it is important to specify those rules; otherwise one lives in
    a world of governmental discretion. And governmental discretion
    can be exercised in ways that are appropriate, and it can be
    exercised in ways that are questionable, and it can be
    exercised in ways that are questionable and inappropriate. And
    so I tend to err on the side of having clearly delineated
    structures and rules and guidelines and to develop a process
    with some degree of transparency so that the accountability
    concern that citizens have is really adhered to.
        I have been in many negotiations, and, you know, what is
    negotiated can work for one situation and not for another. That
    sounds flexible. But it also runs the risk of bias, cronyism,
    using leverage in an inappropriate way. So I think that the
    way, the better way, to communicate is through formality. Now,
    that doesn't mean that there is not a role. I think that Mr.
    Stark's proposal to get together is not a bad proposal. I think
    that is a reasonable proposal. But at some point at the end of
    the day, the proposal has to be written down, and it has to be
    neutrally administered so that the particular government
    official is going to be--is going to say what the deal is, what
    the structure is, and you don't always have to go to the
    government, please, Daddy or Mommy, can I do something at a
    certain time? There have to be claims of right, and that is
    what the rule of law is about.
        Mr. REICHART. If you have a piece of paper to look at, we
    all know what the rules are. So it bothers me that this last
    partnership exchange is not mentioned anywhere in the law or in
    any rules, but it is still a part of the plan that maybe some
    of you may or may not know about as yet.
        I want to focus on the cost real quick in referencing our
    State of Washington in particular with the commissioner and Mr.
    Trautwein. The healthcare law requires exchanges to be self-
    sustaining by 2015, as you well know, and this means that the
    Federal Government cannot support ongoing exchange operations
    and administrative costs. Washington State's own exchange
    consultants have estimated that in 2015 the cost of operating
    the exchange will range from 40- to $60 million per year. So
    this runs between 11 and $22 per member per month, runs about
    500 to $1,000-plus for a family of four per year. And this is
    on top of the premium for health insurance and just to pay for
    the administrative costs of operating the exchange. That is the
    cost. So many of the functions of the healthcare exchange are
    already provided in the private sector; for example, verifying
    eligibility, billing, those examples.
        Why is it costing taxpayers in the State of Washington from
    500 to over $1,000 per family per year to receive subsidies
    through this structure?
        Mr. CONSEDINE. Congressman, I really don't have much in the
    way of insight as to Washington State's costs. In our
    experience looking at various exchange options in Pennsylvania,
    cost is really dependent on the design of the exchange you go
    with. Some States are looking--were looking and are looking at
    designs where the State's involvement is minimal, and,
    therefore, costs are less. Some are looking at a very engaged
    State exchange with additional levels of bureaucracy,
    employees, and of course that adds to the tab.
        Certainly from our perspective, coming from a State that
    does have its fiscal challenges, being cognizant of the cost is
    a significant part of the analysis process we are going
    through, because at the end of the day, those costs will be
    borne by the taxpayer directly or indirectly. And again, this
    is coming at a time when healthcare costs, even with the
    passage of the Affordable Care Act, continue to go up. So to
    add to that further by adding additional costs caused by
    potentially moving forward with the State exchange is, again,
    part of the dynamic that we are all looking at in weighing our
    options at this point.
        Mr. REICHART. I see my time has expired, Mr. Chairman.
    Thank you.
        Mr. JOHNSON. Thank you.
        Mr. Pascrell, you are recognized.
        Mr. PASCRELL. Mr. Chairman, the exchange grants program has
    awarded over $1.6 billion to States and territories in pursuit
    of this effort to implement the legislation. My home State of
    New Jersey--and I am glad we have a Jersey girl on the panel--
    my State of New Jersey has already received 8.6 million in
    grants for research, planning, information technology
    development to get the exchange off the ground; yet there is
    some political involvement there, which continues to get in the
    way. And it seems that certain Governors and certain
    legislatures would rather reject input into something
    critically important for their own constituents just to make a
    point.
        Now, I am convinced after listening to the distinguished
    panel, each and every one of you did a really fantastic job,
    that, number one, we are here discussing the bill and the act
    right now and the particular exchanges that are going to come
    about in 2014 because the past system or the system that we
    have now didn't work. There is a lack of competition, and you
    have said it in different ways. There are some States where you
    had only three or four companies writing policies, and that is
    controlled by the individual insurance director or commissioner
    of that particular State.
        So it wasn't easy just to talk about; there is no easy
    answer to why don't we just have people out to cross the State
    lines and go into Nova Scotia, which is not a State, and buy
    insurance? It wasn't that easy.
        How much competition do we have in most States? Very
    little. Is this what capitalism advocates? No. Don't we
    essentially desire to increase competition? Yes. Is the
    objective of the exchange system to increase options in
    competition; is that what its purpose is? And do we have really
    an enlargement of a Federal system, whatever that is? The
    answer to the first question is yes, yes and yes. And the
    answer to the last question is no.
        How this is an enlargement of the Federal system--and
    remember, in the beginning it was called socialism; now we have
    gotten off that term, and we are using other terms now. How,
    when we want to increase competition, when people are going
    into the private market into these exchanges regardless of how
    they are established in each State, does that reduce private
    entrepreneurship? That is a good question, I think. I have
    never heard a good answer to it.
        Now, Mr. Blumstein said that--rightfully so--that there are
    only subsidies for those State-run exchanges. I think that is
    what you said, Mr. Blumstein, correct? If you read the
    legislation, I think it is pretty clear. So you omit subsidies,
    subsidies are omitted for Federal exchanges; in other words,
    for Federal Government exchanges. I would like to know Ms.
    Howard, Director Howard, what do you think about that?
        Ms. HOWARD. So we have--what is also clear is we have very
    clear guidance from the IRS on this issue. And the IRS actually
    testified yesterday before another subcommittee of this
    committee on this issue, and we have career attorneys at the
    Department of Treasury that have been looking at this and have
    come down, in all due respect to my colleague here, on the
    other side. And certainly what I am seeing across the country--
    --
        Mr. PASCRELL. What is ``the other side''?
        Ms. HOWARD. The other side is that the exchanges--that
    regardless of the type of exchange, consumers should have
    access to subsidies.
        Mr. PASCRELL. That isn't what he said.
        Ms. HOWARD. Right.
        Mr. PASCRELL. Oh, okay.
        Let me ask you this question: In your testimony you
    identified several different forms, State exchanges. The forms
    they have taken are very different. It seems that a rigid
    approach would not be the most effective. I think we all agree
    with that.
        Can you discuss some of those different approaches that
    States are taking and address some of the unique State-level
    insurance market issues that might be beneficial to one State
    and not another?
        Ms. HOWARD. Thank you. That is a great question, and I will
    tie it back to your earlier point, which is that we do see
    variation across the country. In some States they have one
    insurer may have 85 percent of the market, so you have
    incredible competition--you have incredible concentration.
        Mr. PASCRELL. You wouldn't call that competition, would
    you? Would anybody on the panel call that competition. When one
    firm--when one company is writing 75 percent of the policies in
    that State, is that competition?
        Mr. DURHAM. I would just like to add here that you can go
    to healthcare.gov in any State, in any ZIP code, and you can
    see all the plans that are available now in the individual and
    small-group market. The plans have made an awful lot of effort
    to load those systems with what they have to offer in those
    States. So there is a lot of choice.
        Mr. PASCRELL. Well, things have changed in the last few
    years. It is interesting that when we debated the bill, it
    precipitated many changes in many plans and many offerings. So
    already I think before we get to the exchanges we have
    healthcare reform to some degree. But I interrupted you.
        Mr. JOHNSON. One more.
        Ms. HOWARD. Congressman, you are right. There are different
    exchanges options available to the States. There is the State-
    based exchange in which the State runs all the functions of the
    exchange. At the other end of spectrum is the federally
    facilitated exchange with the Federal fallback. But there is
    this new model called the partnership model, which would allow
    the State to take on some of the functions of the exchange, and
    that model is attractive to some States that might not yet be
    ready to run their own exchange, might want to do only parts of
    it, and it really allows a State to maximize the areas in which
    they have expertise.
        A State like New Jersey that has a robust regulatory
    scheme, the Department of Banking and Insurance has a lot of
    expertise there, they might want to maintain plan management,
    or they might choose to maintain control over their insurance
    market rather than having the Federal Government come in and do
    it. So that is that partnership model, which is really a
    flexibility for the States.
        Mr. PASCRELL. Mr. Chairman, in conclusion, if I may, if--we
    heard complaints about certain States having a problem getting
    to the goal line. One-third of the population of this country
    right now is living--are living in States that have a darn good
    exchange plan moving, one-third of the population already.
        Mr. JOHNSON. Okay.
        Mr. PASCRELL. Thank you.
        Mr. JOHNSON. The gentleman's time has expired.
        Mr. Gerlach, you are recognized.
        Mr. GERLACH. Thanks, Mr. Chairman.
        Commissioner Consedine, you have had a couple of questions
    from some of our Members of the Committee today about your
    August 23rd letter to Secretary Sebelius and whether
    realistically you have given her enough time to respond to your
    questions. But I understand also you might have had prior
    meeting with HHS on a number of issues that you still continue
    to question. Is that accurate? And if so, what was the outcome
    of that meeting or meetings?
        Mr. CONSEDINE. I appreciate the question, Representative,
    and the opportunity to clarify.
        The questions that we have in the letter are questions that
    we have been asking for months now as part of our meetings with
    CCIIO and HHS that we do have. And they are very accommodating
    in meeting with us and sitting down with us, but what we
    haven't gotten to date are answers, and guidance and the
    clarity that we need on these questions. So really the letter
    is the formalization of the process that we have been going
    through for months now.
        And, you know, we are nearing the end of sort of the
    timeline we have been given. We have until November 16th really
    to make a decision as to when--what the States are willing to
    do. So we need these answers.
        Mr. GERLACH. Okay. Also understand there is a July 23rd
    letter to Kathleen Sebelius from the Republican Governors
    Policy Committee asking a whole slew of questions very similar
    to the questions you have raised in your August 23rd letter.
    And since Governor Corbett of Pennsylvania is a member of the
    Governors association, do you know whether or not he has
    received any responses to that letter or to the questions
    raised in that letter?
        Mr. CONSEDINE. To my knowledge, there was a response to the
    letter, but not answers to the questions that were raised.
        Mr. GERLACH. Ms. Howard, you indicate, I think, on two
    occasions that really the lack of progress in moving forward
    with State exchanges is really connected to the political
    climate in a State and not maybe other things. Are you
    suggesting that the questions posed by Commissioner Consedine
    or the Republican Governors Policy Committee, those questions
    really aren't valid or fundamental as to whether a State ought
    to move forward in establishing a commission--excuse me, an
    exchange?
        Ms. HOWARD. No, not at all. I think there are important
    questions to be raised, and this is a deliberative process. And
    I think they are in constant dialogue, as we have heard
    actually, with CCIIO, and I think it is constructive to be
    asking these questions.
        I just make the larger point that while some States may be
    in a holding pattern now because of external forces, external
    factors, the--you know, some States, the States that really do
    want to move, are able to move absent the guidance that they
    are asking for.
        Mr. GERLACH. As somebody that has been in the State
    legislature in Pennsylvania, before I would be asked to put up
    a vote on whether or not to move forward with something that
    commits taxpayer dollars at the State level, I would want to
    have answers to the questions of how much it is going to cost
    the taxpayers of Pennsylvania to have this exchange. Based on
    your work with the foundation, do you know how much it is going
    to cost taxpayers in Pennsylvania to have an exchange in the
    Commonwealth?
        Ms. HOWARD. No, I don't think we know that yet, because it
    is an evolving--we don't even know what policy decisions and
    what type of exchange Pennsylvania would choose to have.
        Mr. GERLACH. Here is a question from one of those posed to
    the Secretary: What financial costs will the State face if it
    elects to default on a federally facilitated exchange? Do you
    have an answer to that question?
        Ms. HOWARD. No. That is the issue that is pending, the
    final federally facilitated exchange rules.
        Mr. GERLACH. Another question: If HHS operates an FFE in
    the State, will the multiple State insurance plans be required
    to adhere to all applicable Pennsylvania insurance laws? Do you
    know the answer to that?
        Ms. HOWARD. I do not.
        Mr. GERLACH. So how can you expect any State to really put
    forward a public position on whether to move forward with an
    exchange if it doesn't know the impact on costs to the
    taxpayers of that State or to the insurance laws of that State?
    Isn't it prudent for the State decisionmakers to have those
    answers before they make that decision?
        Ms. HOWARD. Well, I think they are all proceeding prudently
    in the sense that they are all investigating their options and
    making policy decisions. And I do think it is admirable that
    they put so much effort in. And I know there are a lot of
    people working hard in Harrisburg, and in Trenton and in all
    these State capitals.
        I do go back, and while every ``I'' may not be dotted,
    there has been substantial guidance. In fact, we heard, I
    think, one Member testify about thousands of pages of guidance.
    So I think there is substantial guidance out there.
        Mr. GERLACH. But if the right questions aren't being
    answered, you still don't have the information as a
    decisionmaker in a State to move forward. So just as you
    acknowledged that the August 23rd letter from Commissioner
    Consedine and the July 23rd letter from the Republican
    Governors Policy Committee were appropriate to raise with the
    Secretary of HHS, wouldn't it be prudent for her to respond as
    soon as possible?
        Ms. HOWARD. I think so. I do know, having been a government
    official, that sometimes getting letters out is not always
    easy. And I do agree that often the phone may be the best way,
    and I think that hopefully will be one outcome of today.
        Mr. GERLACH. But answers need to be in writing because
    there could be litigation down the road, could there not? And
    so having formal answers in writing from both sides would be a
    very important part of building the record in making sure the
    proper decisions are made; would you agree?
        Ms. HOWARD. Not always, because, again, sometimes on the
    spectrum of Federal options, the Federal Government could be
    very prescriptive, and they could handcuff the States. And we
    are seeing the States that want to implement are seizing that
    flexibility and moving ahead.
        Mr. GERLACH. If I were in the State, I think I would want
    something in writing before I could rely on it from some
    Federal agency. Thank you, I yield back.
        Mr. JOHNSON. Good point.
        Commissioner, I understand you have got to catch a train,
    so I just want to thank you for being here and for answering
    our questions so intimately. Thank you again, and you are
    excused, if you desire. Thank you.
        Mr. CONSEDINE. Thank you, Mr. Chairman.
        Mr. JOHNSON. Mr. McDermott. Doctor, you are recognized.
        Mr. MCDERMOTT. Thank you, Mr. Chairman.
        Mr. Chairman, I disagree with the main point of this
    hearing. If the point is that the administration won't be ready
    for implementation of the Affordable Care Act, then I am here
    to tell you that is wrong.
        I come from the State of Washington, which is leading the
    way in moving forward with the Affordable Care Act. My office
    is in regular contact with all the principal players in
    Washington State, and they say that all systems are go. The
    legislature has enacted the authorizing legislation necessary
    to implement the act. In March of this year, the Governor
    signed into law the second and final piece of exchange
    legislation.
        Washington State is one of the first States to receive a
    Level 2 establishment grant funding to build its exchange.
    Washington is also one of the first States to select a
    benchmark healthcare plan. It is a Blue Shield plan that is
    currently the most popular small-group plan in the State of
    Washington.
        The exchange now has an 11-member board of directors,
    including various operating committees. The exchange also has
    in place an advisory committee and working groups that focus on
    consumer protection and plan management, among other things.
    The exchange has a CAO and staff in place. They have hired the
    contractors to build the necessary user infrastructure. They
    are on track to get conditional certification from the
    administration in January and to start using testing in the
    spring.
        The exchange CEO tells me they are projecting to have
    300,000 Washingtonians in the exchange, in the pool, by 2015 in
    a State with 1 million people without insurance, which spends
    $1 billion annually on uncompensated care. Getting those people
    into plans is what I am most focused on, not on picking fights
    over perceived faults with the new system. I think if you are
    looking for excuses for not implementing, you can find them. If
    you want to implement, you can do it, because the State of
    Washington is perfect proof that that is going on.
        And what I hear from the State about the administration is
    really nothing but praise. They have said that HHS is working
    with them at every step of the way and giving them all the
    guidance and support they need. So if my colleagues on the
    other side of the aisle are here to argue that stakeholders
    don't have the tools they need to get health reform off the
    ground, I am here to tell you I am not buying it.
        Mr. Kind is correct, this is a premature hearing, because
    you could have had States out here that are actually up and
    running. You brought one person who says, I couldn't get them
    to write down exactly how I should do it. Well, you can always
    find that kind of stuff, but there are other places where it is
    in place, working, and Washington State is ready to go.
        And I think that I just want to say one last thing before I
    stop here, and that is the chairman said in his opening
    statement that the administration is implementing the
    Affordable Care Act, quote, ``behind closed doors with little
    or no public input.'' Now, I would like to submit for the
    record, and I ask unanimous consent for that, for a record--a
    list of 34 just exchange-related conferences, meetings,
    listening sessions and consultations HHS has held since
    December 2010. Thirty-four meetings is hardly without public
    input.
        [The information follows: The Honorable Jim McDermott]
        [GRAPHIC] [TIFF OMITTED] 80694.058

        [GRAPHIC] [TIFF OMITTED] 80694.059

        [GRAPHIC] [TIFF OMITTED] 80694.060

        Mr. MCDERMOTT. This is a process that is working in some
    States because the political leadership wants it to work, and
    is not working in certain places because the political
    leadership thinks that this is how they will use it to defeat
    President Obama in the election. And there is a very clear
    break point. It is possible to implement, it is being done.
        And will there be problems? I am certain we are going have
    problems in the 2013 session that we are going to be in here
    trying to tinker with this and tinker with that and make
    things, because you can never design a human system without
    making mistakes. You cannot anticipate all the problems that
    you face.
        But we are on our way in Washington State, and it can be
    done, and anybody who says it can't simply is unwilling to look
    at the facts on the ground in some States. You heard about
    Oregon from Ms. Howard, and I can give you Washington. These
    are the States with the lowest healthcare costs in the country.
    Medicare costs in the State of Oregon and Washington are the
    lowest. And we also are implementing our exchanges because we
    are getting ready to make this thing work.
        I yield back the balance of my time.
        Mr. JOHNSON. Thank you. The gentleman's time has expired.
        We don't like the program in Texas either, and there is no
    taxes in Texas.
        Dr. Price, you are recognized.
        Mr. PRICE. Thank you, Mr. Chairman. And I want to thank the
    witnesses as well. I am sorry Mr. Consedine had to leave.
        I was pleased to hear, though, from Mr. Kind that nothing
    is set in stone. Whew, thank goodness that nothing is set in
    stone. I thought this was a law that was moving forward.
        And Mr. Kind also said, look, if anybody has got a better
    idea, just bring it to us, we are happy to listen to it. Well,
    the fact of the matter is that during this whole process, there
    were many of us who felt like we had a better idea, and we
    appealed to the administration week after week after week to
    just sit down with us, just talk with us about these ideas,
    because we believe that you can solve all these challenges
    without putting Washington in charge. And the administration
    ignored us at every single turn week after week after week. So
    there is great skepticism on our side when we hear someone say,
    oh, if you have a better idea, we are happy to listen to it.
        The question I wanted to ask Mr. Consedine was who is
    subject to the penalties if you don't comply with the law? Ms.
    Howard, who is subject to the penalties if the law is not
    complied with; is it the Federal Government that is subject to
    the penalties?
        Ms. HOWARD. I think it is--which----
        Mr. PRICE. Is it the Federal Government?
        Ms. HOWARD. I don't believe so.
        Mr. PRICE. Heck no. It is these folks, the folks in the
    States, the folks trying to comply with this law. And all that
    we are hearing is that the rules haven't been promulgated in
    enough time to be able to put things in place, and they are
    working as hard as they can.
        Mr. Durham, you have a paragraph in your testimony: Clear
    regulatory guidance in each of these areas is needed in the
    very near future. Unless the guidance is forthcoming, it will
    be difficult for health plans to complete product development,
    et cetera.
        How long does it take usually to--when the Federal
    Government or when it--there are major changes to rules and
    regulations that come out, how long does it take the plans to
    come up with the programs and products to be able to market to
    the public?
        Mr. DURHAM. I believe it typically takes 12 to 18 months to
    fully develop a product, get it through the State review and
    get it to market.
        Mr. PRICE. Twelve to eighteen months, Mr. Chairman.
        And, Mr. Durham, am I correct in saying that the time that
    the enrollment period begins that you are required to have
    something available is October 1st, 2013; is that right?
        Mr. DURHAM. That is correct in the statute.
        Mr. PRICE. We are bumping up against that right now.
        Mr. DURHAM. Yes.
        Mr. PRICE. So, Mr. Chairman, it is clear that HHS has been
    delinquent in their responsibilities and what they have been
    able to do. And these folks are trying just as hard as they can
    to comply with the law.
        Mr. Durham, I also want to touch on the whole issue of
    choices for patients, because as a physician, having cared for
    patients, what they want are choices. They want to be able to
    know who is going to take care of them. They want to be able to
    know that they are going to be able to pick a plan that has the
    doctors that they want in that plan to care for themselves and
    for their family.
        Do you know if your members are planning on offering State-
    and Federal-facilitated exchanges in all the States where they
    have networks?
        Mr. DURHAM. I don't know that because it really depends
    upon getting clear regulatory guidance here before plans can
    really decide which markets they want to compete in, and so I
    think that is a critical step in the process here. We have some
    guidance as has been discussed today, but there is still
    guidance missing, and to be able to develop products, get them
    through the various State review processes, and if they have to
    be a qualified health plan, there are additional requirements,
    that will take time. And I think it depends in terms of plans
    being able to compete in those markets when they get the final
    guidance to be able put together the product and comply. So it
    is very important, but they want to serve their customers,
    absolutely.
        Mr. PRICE. But it is possible that the guidelines will come
    out and make it such that it will be impossible for them to
    provide products or--to individuals out there in certain
    markets; is that accurate?
        Mr. DURHAM. I guess that is possible. We would hope that
    would not be the case, because the plans really do want to
    compete in these marketplaces.
        Mr. PRICE. Mr. Durham, I also want to talk about some of
    the plans--one requirement for the plan sold for small-group
    markets in the exchange is they have got to meet annual
    deductible limits; is that correct? Isn't that right?
        Mr. DURHAM. Yes. In the statute the deductible limits are
    $2,000 for a single individual and $4,000 for a couple.
        Mr. PRICE. Now, my sense, my understanding about that is
    that that will make it extremely difficult or problematic for
    small business employees to enroll in, for example, a high-
    deductible health savings account or catastrophic plan.
        Mr. DURHAM. That could be the case. We haven't received the
    clear guidance there yet. We expressed in terms of a bulletin
    on this issue that in--reach the actuarial value requirements,
    they ought to allow and count the employer's share to health
    savings account and the high-deductible health plan. But
    clearly I think the deductible limits in the small-group market
    will be a problem since they are lower than what is offered in
    today's market, and that will reduce choice for small
    businesses.
        Mr. PRICE. Reducing choices, that is right.
        Thank you, Mr. Chairman.
        Mr. JOHNSON. Thank you.
        Mrs. Black, you are recognized.
        Mrs. BLACK. Thank you, Mr. Chairman, and I want to thank
    you for allowing me to sit on this committee although I am not
    a member, and I appreciate the opportunity to be able to ask
    questions as well.
        Very informative panel, and thank you so much for being
    here today on this very, very important topic as we move
    forward.
        Mr. Blumstein, I have a question for you. I thought you
    brought up a very interesting question that I have been reading
    about now on more and more in publications, and that is the
    issue, the matter that was raised by Alder and Cannon, and in
    particular does the ACA clearly provide for subsidies if the
    Federal Government runs a program.
        I can hear what was said by Ms. Howard or others who are
    experts disagreeing with your analysis and their analysis. Who
    will eventually make this decision; will this be another court
    struggle here?
        Mr. BLUMSTEIN. Well, nice to see you, Representative Black.
    I guess we should say we are in neighboring congressional
    districts in Tennessee, and thank you for your service.
        I would have to say that, you know, the statements that the
    IRS--some official at IRS has said that the agency has
    authority is, you know--that is not a surprise. They issued the
    regulation. But they are supposed to speak in a regulatory
    process in a formal way. They are supposed to explain their
    reasons. The reasons are lacking; they are virtually
    nonexistent, in my opinion. And for someone to say, oh, well,
    an IRS person said X without saying what the argument is is not
    very satisfying, I must say.
        In terms of how arguments occur, usually lawyers reason
    with each other. And I have certainly have changed my mind on
    issues, but I only change my mind in response to arguments, not
    in response to these, you know, five different people said
    something to disagree with you. I am sure there are millions of
    people disagree with me on many things. Until you know what the
    arguments are, it is hard to confront them.
        I think the IRS has overreached here. They have not
    explained their rationale. The rationales that are out there
    are unsatisfying, they are not satisfactory. The IRS has to
    establish that there is ambiguity, implicit authority to rule
    not just in gross, but on this specific question. They have not
    established that because the courts have said that these normal
    ways of construing statutes, the exclusio unius rule is part of
    the interpretive process. And so once you say that that is part
    of the interpretive process of determining whether there is
    ambiguity, then, to me, the IRS really has a problem.
        And so it is conceded; everyone concedes that there are two
    exchanges. The statute provides subsidies in one exchange; it
    does not provide subsidies in the other exchange. And when that
    happens, basically there can be no subsidies in the other
    exchange. So then you have to look for exceptions to those
    kinds of rules, and I have not seen exceptions that really
    hold--in my opinion are persuasive.
        So then the question you asked is who--how will this be
    determined, and I see two different scenarios. If there is a
    change in the administration in this election, my guess is that
    Governor Romney as President will very likely have a new set of
    interpretations in the Internal Revenue Service, and that this
    very well--this rule may be modified or changed in some way,
    because I think the argument in favor of it is very thin, it is
    very results oriented.
        If President Obama is reelected, then I think the rule will
    stand, and then there will be a legal challenge here. I think
    we will be in court. And at first I thought that it would be
    hard to imagine who would bring this case, because it adds
    benefits to certain people, and that is the good part. But it
    also adds a tax to some people and companies, these large
    companies, and they are paying $2,000 or $3,000 per employee in
    taxes if their provisions don't meet the affordability criteria
    and the benefits and coverage criteria of the Federal
    Government.
        And so I think States may have the ability to bring this
    action. They will claim that they would have a competitive
    advantage if they choose not to set up an exchange. So I think
    you are going to find some kind of injury in the recruiting of
    companies. And certainly the companies themselves will have
    standing ability to challenge it. So I think you are going to
    see a coalition, and coalitions are actually in the process of
    being formed, I am told, where States and arguably private
    employers of 50 or more employees would bring this action and
    challenge the IRS ruling.
        Mrs. BLACK. I think you certainly laid this all out very
    well. I am not an attorney, I am a nurse, so reading your
    statement, it flowed very well so that I did understand it. But
    what it did make me think of is just one more complexity, one
    more complexity in what is already a very complicated program,
    one that we don't have a lot of definition. Frankly, I am just
    hearing it from my employers and hearing it from folks back in
    my State, where they are employers or they are government
    officials or whatever, that there is so much uncertainty and
    confusion, and it is very, very hard to make a decision when
    there is not clarity.
        And just to end here, we come from a State where we tried
    to have a single-payer system, where we tried to have universal
    care, and it was very difficult and didn't work in our State of
    Tennessee. I know we're involved with our good Governor in
    trying to fix a program which ultimately just really unraveled,
    and we no longer have the program.
        Mr. BLUMSTEIN. Yes, Governor Breseden is a hero for trying,
    and I must say he is--in Tennessee, as you know, the Tennessee
    Democrats, and he is a Tennessee Democrat, and I have worked
    and am proud to work for him and support him.
        Mrs. BLACK. Well, I served under the good Governor, and I
    know what difficulty we had there with the program, and, now
    that it is gone, on looking at what may be a mirror of what we
    tried and didn't work. So thank you so much for your testimony
    and coming here today.
        Mr. JOHNSON. Thank you.
        The lady's time has expired.
        I want to thank the witnesses for their thoughtful
    testimony and insights into the status of health insurance
    exchanges. The Obama administration's repeated avoidance of a
    transparent regulatory process and ongoing delays may be
    politically expedient, but it has not been without substantial
    cost. How do we account for the cost of unemployed Americans
    losing job opportunities because businesses are not hiring
    workers while the full compensation costs are unknown? Can you
    put a price on the family forced to forgo healthcare coverage
    because they have been priced out of the market by costly
    regulations?
        The more Americans learn about the law, the less they like
    it. Despite years of assertions to the contrary, information is
    the most significant threat to Obamacare. Holding back
    necessary regulation to avoid public scrutiny is irresponsible.
    Americans deserve better from their government.
        As a reminder, any Member wishing to submit a question for
    the record will have 14 days to do so. If any questions are
    submitted, I ask the witnesses to respond in a timely manner.
        Mr. JOHNSON. With that, the committee stands adjourned. I
    thank you all for being here today.
        [Whereupon, at 4:48 p.m., the subcommittee was adjourned.]
        Public Submissions For The Record
        American Society of Association Executives
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        Association of American Physicians and Surgeons
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        Barney Nemiroff MD
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        Citizens Council for Health Freedom
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        David J. Pasek MD
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        Medical Research Technology Information Consortium
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        Metro Pain Associates
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        National Association for the Self-Employed
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        Robert L. True
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        Stephen Welk MD
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        The Leukemia and Lymphoma Society
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        The National Small Business Association
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        Timothy Stoltzfus Jost
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        Walter H. Wood MD
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