[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]

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    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:]
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    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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