[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
          THE HEALTH INSURANCE FEE: IMPACT ON SMALL BUSINESSES

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



                                HEARING

                               before the

                 SUBCOMMITTEE ON HEALTH AND TECHNOLOGY

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS

                             UNITED STATES

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                              MAY 9, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] 
                               

            Small Business Committee Document Number 113-016

              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missour
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director



                            C O N T E N T S

                           OPENING STATEMENT

                                                                   Page
Hon. Chris Collins...............................................     1
Hon. Janice Hahn.................................................     2

                               WITNESSES

William Dennis, Jr., Senior Research Fellow, NFIB Research 
  Foundation, Washington, DC.....................................     4
Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning, Inc., 
  South Jordan, UT, testifying on behalf of the National 
  Association of Health Underwriters.............................     6
Paul N. Van de Water, Senior Fellow, Center on Budget and Policy 
  Priorities, Washington, DC.....................................     7
Dean Norton, President, New York Farm Bureau, Elba, NY, 
  testifying on behalf of the American Farm Bureau Federation....     8

                                APPENDIX

Prepared Statements:
    William Dennis, Jr., Senior Research Fellow, NFIB Research 
      Foundation, Washington, DC.................................    26
    Ryan P. Thorn, President, Ryan P. Thorn Insurance Planning, 
      Inc., South Jordan, UT, testifying on behalf of the 
      National Association of Health Underwriters................    38
    Paul N. Van de Water, Senior Fellow, Center on Budget and 
      Policy Priorities, Washington, DC..........................    42
    Dean Norton, President, New York Farm Bureau, Elba, NY, 
      testifying on behalf of the American Farm Bureau Federation    44
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    Hon. Charles Boustany........................................    47
    MHPA - Medicaid Health Plans of America......................    49


          THE HEALTH INSURANCE FEE: IMPACT ON SMALL BUSINESSES

                              ----------                              


                         THURSDAY, MAY 9, 2013

                  House of Representatives,
               Committee on Small Business,
             Subcommittee on Health and Technology,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Chris Collins 
[chairman of the subcommittee] presiding.
    Present: Representatives Collins, Luetkemeyer, Huelskamp, 
Hahn, Schneider and Matheson.
    Chairman COLLINS. Good morning. I call this meeting to 
order.
    We are joined today by our colleague, Congressman Jim 
Matheson from Utah, who will introduce one of our witnesses. 
Mr. Matheson is a lead sponsor with Congressman Charles 
Boustany of Louisiana of the House bill to repeal the health 
insurance providers' fee. As of this week, I believe that bill 
has over 150 co-sponsors, and I am proud to be amongst them. 
Thank you for your leadership, Mr. Matheson
    I want to welcome all of our witnesses. We look forward to 
your testimony. Special thanks to Dean Norton, president of the 
New York Farm Bureau from Elba, New York, which I am honored to 
represent.
    Today we meet to examine the Health Care Law's new annual 
fee on health insurance, which was included as a way to finance 
the health care Law. Beginning in 2014, the law assesses a fee 
on health insurance providers, which across the industry totals 
$8 billion and increases to $14.3 billion in 2018, and will 
continue to increase every year thereafter. The nonpartisan 
Joint Committee on Taxation estimates the fee will exceed $100 
billion over the next 10 years. Both the Joint Committee on 
Taxation and the Congressional Budget Office said they expect a 
very large portion of this fee to be passed through to the 
purchasers of insurance in the form of higher premiums, driving 
up the cost of insurance for families in all regions and small 
businesses in all sectors.
    Why is this a problem for small business? The health care 
Law exempts self-funded plans from the fee, but it applies to 
fully-funded ones. Small business owners typically do not have 
a large enough pool to self-insure, so they face the higher 
premiums in a fully-funded group plan, precisely the plans to 
which this tax applies. Of course, small business owners with 
more than 50 full-time equivalent employees do have the choice 
not to offer coverage, but then they pay the $2,000 per 
employee employer mandate penalty.
    In fact, a March 2013 study released by the National 
Federation of Independent Business Research Foundation 
estimates the fee will raise the cost of employer-sponsored 
insurance by 2 to 3 percent in 2014, imposing a cost of nearly 
$2,000 per family by 2020. The study also predicts that the 
price increases caused by the fee will reduce private sector 
employment by up to 262,000 jobs by 2020, with the majority of 
the losses falling in the small business sector.
    We are pleased to have a witness from the NFIB here today 
to discuss the study's findings in greater detail. We will also 
hear from small business owners about the burden of the fee. 
The Joint Committee on Taxation has said this fee is 
essentially an excise tax based on the sale price of health 
insurance, so it will not be tax deductible. The Joint 
Committee estimated that repealing the fee would have the 
effect of stopping the 2 to 2-1/2 percent increase per year and 
eliminating the fee could reduce the average family premium in 
2016 by $350 to $400, which represents the increase that would 
otherwise occur.
    To put this issue in context, we note that according to the 
U.S. Chamber of Commerce Quarterly Small Business Survey, the 
numerous requirements of the Health Care Law are now the 
biggest concern for U.S. small businesses, bumping economic 
uncertainty from the top spot after two years. These are the 
small businesses, our nation's best job creators, that we are 
relying on to bring our still anemic economy back. They are the 
same small businesses whom we are asking to shoulder more and 
more mandates, taxes, regulations, and cost increases.
    Again, I want to thank our witnesses for being here today. 
I now yield to Ranking Member Hahn for her opening statement.
    Ms. HAHN. Thank you, Mr. Chairman.
    So before we deep dive into examining the possible impacts 
of this one part of the Health Care Law, it is important that 
we step back and I think remember that the Affordable Care Act 
has done a lot to make health insurance more affordable, more 
dependable, and more meaningful for American families and 
businesses. Under the Affordable Care Act, children can no 
longer be denied coverage because of a preexisting condition. 
Parents can keep their son or daughter on their insurance until 
age 26. Insurance companies are forbidden from canceling a 
policy for someone who has gotten sick or been hurt just 
because they had a typo on a form a decade ago. If an insurance 
company spends too much of the money it is paid on things that 
are not about quality health care, it has to refund its 
customers. The ACA empowers small businesses in the health 
insurance market through the exchange and offers significant 
tax credits to support health insurance for some of the smaller 
small businesses. Millions of Americans are already feeling the 
positive benefits of the Affordable Care Act in their health 
and their pocketbooks.
    Now, of course, I think there are ways that we can improve 
this law. I, for one, think we might have to do something to 
bring these hospital chargemaster list prices into the light of 
day, but as we move towards the implementation of some of the 
biggest components of ACA next year, there may well be some 
things we need to do to adjust and correct issues that come 
along.
    Today we are examining how one component of the law, the 
tax on health insurance companies, may have an undesirable 
impact on consumers, including small businesses, in the form of 
increased premiums. As we examine the problems this fixed fee 
could impose, it is important to understand the origins of the 
provision. It was meant to raise $90 billion from insurance 
companies, not their customers. With the insurance mandate 
poised to deliver millions of new customers to insurance 
companies, it would seem fair to ask the insurance companies to 
pony up some of the cost of the law that was going to give them 
so many more millions in customers.
    However, these companies threaten to recoup the fee from 
consumers through increased premiums rather than absorb the fee 
themselves. Because higher premiums present a real risk to 
small employers and their ability to invest and grow, I am glad 
we are investigating this issue. We are looking for feedback to 
see how likely increased premiums are due solely to this 
section in the Affordable Care Act and what they would mean for 
our businesses. But at the same time we must recognize the 
difficulty presented in our task due to the number of major 
insurance market reforms that also become effective next year. 
These consumer protections in conjunction with exchanges, are 
expected to alleviate the continued rise in premiums over time. 
Market forces will have a major impact on how insurance 
providers react to being assessed a premium tax, while also 
being tasked with implementing other insurance reforms. 
Accordingly, this hearing will not only explore the burdens of 
higher premiums but also how the Health Insurance Tax will 
interact with other provisions contained in the ACA like the 
medical loss ratio and rate review panels.
    Just as with any other legislation that brings major 
changes, there has been much speculation about the positive and 
negative effects the ACA will have, particularly on our small 
businesses. For this reason it is important that we consider 
all aspects of the Health Insurance Tax before acting 
prematurely to eliminate it entirely. At a time when we are 
facing budgetary burdens, we must work to come up with a 
realistic remedy. The unintended consequences of a health 
insurance tax on small employers could affect their ability to 
provide affordable health insurance while also growing their 
business.
    This hearing serves as a starting point to examine this 
issue and start a dialogue so we can address it immediately.
    I want to thank all the witnesses for being here today. I 
look forward to your comments, and I yield back, Mr. Chairman.
    Chairman COLLINS. Thank you Ranking Member Hahn.
    We are going to have votes probably at 10:30, 10:35. I 
think we are going to have plenty of time to get through the 
opening statements of our four witnesses at which time we will 
have to adjourn until after votes and then we will come back at 
that point in time and continue. So I just wanted to make that 
clear.
    Also, to explain the timing lights to our witnesses in 
front of you, you each have five minutes to deliver your 
testimony. The light will start out as a green light and with 
one minute remaining the light will turn yellow. And finally, 
it will turn red at the end of your five minutes. And if you 
could try to keep your time within that we would appreciate 
that especially with our voting schedule coming up.
    Our first witness is William Dennis, Jr., who is a senior 
research fellow with the NFIB Research Foundation in 
Washington, D.C. I referred to some of the studies and reports 
in my opening comments. Mr. Dennis has directed the NFIB 
Research Foundation since 1976. Welcome, Mr. Dennis. You have 
five minutes to present your opening testimony.

STATEMENTS OF WILLIAM DENNIS, JR., SENIOR RESEARCH FELLOW, NFIB 
  RESEARCH FOUNDATION; RYAN P. THORN, RYAN P. THORN INSURANCE 
PLANNING; PAUL VAN DE WATER, SENOR FELLOW, CENTER ON BUDGET AND 
POLICY PRIORITIES; DEAN NORTON, PRESIDENT, NEW YORK FARM BUREAU

                STATEMENT OF WILLIAM DENNIS, JR.

    Mr. DENNIS. Thank you very much, Mr. Chairman.
    I am accompanied today by Michael Chow, who is a senior 
policy analyst with us who actually did the assimilation 
itself, so if we get too deep in the weeds I have my technical 
expert with me.
    I also am going to strike some of my initial comments since 
you very well described what we are talking about here and that 
kind of thing. But let me just summarize what the health 
insurance premium tax is. It has four characteristics. It is 
large, it is highly inequitable, it is nontransparent, and it 
cascades. And so in effect what it does is raises the costs for 
smaller businesses, it worsens our competitive position, and 
ultimately it gives those small business owners without health 
insurance another reason for not providing it to their 
employees.
    The simulation which we have attempts to determine the 
economic impact. We used a BSIM module of something called a 
REMI model. Now, the REMI model is a very standard common model 
used by many folks. To give an example, we not only use it but 
the AARP, NEA does. MIT has been a client for a while. 
University of Michigan. The Democratic Policy on the Senate 
side has been, so it is a generally well recognized model.
    As we proceeded with it there are lots of moving parts when 
you try and estimate things like this, and what we attempted to 
do with these moving parts is to, as much as possible, be 
conservative in their use. By conservative in this case I 
simply mean that we try to minimize any potential extremities 
that would and use conservative assumptions. For example, we 
assume that there would be constant employer offerings, that 
they would not change. That is an arguable thing but that seems 
to be the most reasonable thing we have. And there are other 
similar types of things such as the constant distribution of 
insurance types--same number of family policies, same number of 
individual policies, plus one policies, and so forth.
    An initial question was what will the tax rate actually be 
since it was not initially put into the law as any particular 
rate, and we did not feel we had the expertise so we relied on 
two sources to come up with our estimates. We used the Joint 
Tax Committee and we used Doug Holtz-Eakin's estimate. And, of 
course, he is the former chairman of the Congressional Budget 
Office. I will get that right yet. And so we used 2.5 and 3 
percent and simulated both of those. We also used different 
rates of premium inflation because that is a matter of dispute. 
No one knows quite what that is going to be as time goes on. 
Some are arguing it will be relatively low. Some are arguing it 
will be relatively high. So we use basically 5 percent annual 
increase to 10 percent annual increase with increments in 
between.
    These results yielded a total estimate of 146,000 to 
262,000 lost jobs, 59 percent of which would be in small 
business. It is also a cumulative loss of up to $184 billion in 
lost output. So it is a significant impact. Some would argue it 
could be bigger but it certainly is bigger, and the number that 
I have just given you include all the feedback that comes from 
the reinvestment of the money. So in effect, we have also 
included not only the jobs lost but the jobs that would be 
gained through health and things of that nature.
    So in sum, what we are doing is we are collecting and 
spending $100 billion of a highly inequitable tax to yield 
essentially a quarter of a million lost jobs and, what, $175 
billion to $200 billion in lost GDP over a decade.
    Thank you, Mr. Chairman. I would be happy to answer any 
questions you may have.
    Chairman COLLINS. Thank you, Mr. Dennis.
    At this point I would like to yield to Representative 
Matheson, who will introduce our next witness.
    Mr. MATHESON. Well, thank you, Chairman Collins. Thank you 
for holding this hearing. It is particularly important for 
small business because, as you know, this premium tax applies 
to fully-insured plans. It does not apply to self-insured, 
which are more large corporations. So I am glad I am holding 
this hearing, and you mentioned my role with Mr. Boustany on 
the legislation to repeal this particular tax. My purpose in 
being here today is to introduce a good friend and a 
constituent of mine, and someone whose family has known mine 
for a number of years. Ryan Thorn is a health underwriter from 
South Jordan, Utah. And there he has serviced Utah small 
employers for over 30 years, and he is a small business owner 
himself. He served in various capacities with the National 
Association of Health Underwriters and he is currently a vice 
president of that organization. It is fair to say that Ryan has 
a great understanding of the small business marketplace and the 
mechanisms at play that affect business costs, and I think his 
testimony and answers should be very important for this 
committee to hear as this is someone who is balancing the books 
for his own small business and he is also providing health 
insurance and consultation to other small businesses as well. I 
have always found him to be a very forthright individual who 
has provided me with good information over the years to help me 
understand the issues. I am pleased he is here today to testify 
before this Committee. And I will yield back my time.
    Chairman COLLINS. Mr. Thorn, if you could deliver your 
opening remarks.

                   STATEMENT OF RYAN P. THORN

    Mr. THORN. Thank you, and good morning.
    My name is Ryan Thorn. As mentioned, I do own an insurance 
agency in South Jordan, Utah. I am self-employed with one part-
time employee. I am here on behalf of the National Association 
of Health Underwriters or NAHU.
    I have been involved with NAHU since 1993 and currently 
serve on the national board. I help my clients purchase health 
insurance coverage and service their benefits all year long. 
Almost all of my clients are self-employed or have less than 25 
employees.
    I would like to thank the House Small Business Committee 
for inviting me here today and for my congressman 
representative Jim Matheson, and also my senator, Orrin Hatch 
as they have both sponsored bills to repeal the annual fee on 
health insurance premiums included in this law which will have 
serious financial consequences for Utah businesses and 
consumers. While technically paid by the carriers that issue 
individual and fully-insured coverage from 2014 on, Utah 
insurers have confirmed back to me that the tax will be passed 
down to consumers. The direct impact on premiums will be 
staggering.
    I have included Utah's data in my written testimony to each 
of you, but in short, it averages out to be about $500 per year 
for families and $200 a year for individuals. It 
disproportionately hits individuals and small business owners, 
the people who have been hurt most by these challenging times, 
and this tax never goes away.
    Among my clients, the cost of health insurance is a huge 
concern. In preparation for today, I contacted several of them 
to share their thoughts. One longtime client wrote, ``We have 
always tried to take care of our employees but it is becoming 
impossible at this rate.'' Another explained, ``We currently 
pay 75 percent of insurance premiums for all of our employees 
and their families. We have historically provided this degree 
of benefits because of our strong commitment to our most 
valuable asset, our employees. Frankly, ObamaCare's multiple 
hidden taxes, such as the HIT, scares the daylights out of us 
and threatens not only our ability to provide adequate 
insurance coverage for our employees and families but also the 
very existence of our company.''
    The bottom line, the ACA and its national health insurance 
sales tax is causing tremendous anxiety for American employees. 
One of my clients said, ``Freedom brings happiness. I just do 
not find happiness anymore from what the government is doing to 
me.''
    This tax has no purpose but to increase federal revenues. 
It does not make the markets work better or target poor 
behavior choice, such as smoking. It is a huge expense for 
individuals and small businesses, larger than the device and 
pharmaceutical taxes combined.
    The members of NIHU and I believe it is inherently unfair 
to finance health care reform by taxing people who are doing 
the right thing by buying private coverage. I have made my 
living for nearly 30 years helping people buy private health 
insurance, so I know when prices go up people buy less or 
simply forego coverage altogether. I am afraid this tax and 
other cost drivers will incentivize the younger and healthier 
people not to buy coverage until they need medical care. The 
resulting adverse selection will make the cost of health 
insurance even higher for everyone.
    The impact of jobs will be huge. Another client said, ``The 
activation of this law and tax will likely prevent me from 
hiring new employees.'' Besides not hiring, employers will 
change jobs from full-time to part-time status since most part-
timers are not offered benefits. Of course, this is to the 
detriment of the employees whose hours will be cut. We are 
simply going in the wrong direction.
    Finally, on a personal note, my wife Robin, and I spend 
just under $500 a month on our $4,000 deductible family HAS 
policy, which is a significant expense. Due to other ACA 
pricing changes, premiums will be going up an average of 28 
percent next year for Utah families like mine. That is on top 
of the HIT tax and other fees. Factor in the law's MLR 
requirements, which by the way decreased my personal business 
income by 30 percent. It is hard to call this law the 
Affordable Care Act, at least in the Thorn family.
    I consider it an honor to have been invited to share these 
thoughts with Congress today and the impact this HIT tax will 
have on small businesses and individuals. Thank you very much.
    Chairman COLLINS. Thank you, Mr. Thorn.
    I would now like to yield to Ranking Member Hahn for the 
introduction of our next witness.
    Ms. HAHN. Thank you, Mr. Chairman.
    It is my pleasure to now introduce Mr. Paul Van de Water. 
Mr. Van de Water is a senior fellow at the Center on Budget and 
Policy Priorities where he specializes in Medicare, Social 
Security, and health coverage issues. Previously, he worked at 
the Congressional Budget Office for over 18 years. Welcome, Mr. 
Van de Water.

                 STATEMENT OF PAUL VAN DE WATER

    Mr. VAN DE WATER. Thank you, Ms. Hahn, for that kind 
introduction. And Mr. Chairman, I am pleased to be here with 
all of you this morning.
    The Affordable Care Act will extend health insurance 
coverage to 27 million people and help ensure that Americans 
have access to affordable coverage. And it will do so in a 
fiscally responsible way. In fact, the congressional budget 
estimates that health reform will reduce the deficit modestly 
in its first 10 years but substantially in the following 
decade.
    To pay for this expansion of health coverage, the ACA 
levies taxes on or reduces Medicare payments to businesses and 
industries that will directly benefit from health reform. The 
fee on health insurance providers, also known as the Health 
Insurance Tax falls into this category. The fee does not apply 
to large employers that self-insure, those that pay the cost of 
their own employees rather than purchase insurance in the 
commercial market. This is reasonable since most large 
employers already offer health insurance and will be largely 
unaffected by health reform.
    As with any excise tax, supply and demand will determine 
how the tax's burden is ultimately split between providers and 
purchasers. Insurance companies have recently turned in very 
strong financial results and thus are well positioned to bear 
some of the tax, but a portion of the tax is likely to be 
passed on to consumers. The Joint Committee on Taxation, as I 
think another witness has mentioned, estimates the premium 
subject to the fee will be 2 to 2-1/2 percent higher than they 
otherwise would be.
    But that is only part of the story. As Congresswoman Hahn 
mentioned in her opening statement, health reform also contains 
many provisions that will slow the growth of premiums. The new 
health insurance exchanges will increase competition among 
plans and create economies of scale. Standardization of 
benefits and prohibition of medical underwriting will reduce 
administrative costs. The individual mandate will help bring 
more healthy young workers into the insurance pool. Premium 
increases of 10 percent or more are subject to state or federal 
review, and insurers must provide rebates to their customers if 
they spent less than 80 percent of premiums on medical care. 
The ACA also includes a large number of initiatives to identify 
and implement more efficient ways of delivering medical care 
services.
    All things considered, the Congressional Budget Office 
estimates that health reform will slightly reduce premiums for 
employer sponsored health insurance in the near term. For 
employers with more than 5 workers, CBO estimates that the law 
will reduce average premiums by up to 3 percent in 2016 
compared to what they otherwise would be. For small employers, 
the estimated change in premiums ranges from an increase of 1 
percent to a reduction of 2 percent. And for workers and firms 
that can benefit from the ACA's tax credit for small employers 
the cost of insurance will drop by 8 to 11 percent.
    Now, claims that the Health Insurance Tax in particular or 
health reform in general will kill jobs are unfounded. The 
Congressional Budget Office foresees only a small net reduction 
in labor supply, primarily because some people who now work 
mainly to obtain health insurance will choose to retire earlier 
or work somewhat less, not because employers will eliminate 
jobs. And if you would like in questioning I would be happy to 
indicate why I think the problems are with the study from the 
NFIB.
    In conclusion, the Health Insurance Tax forms part of a 
carefully thought out structure to expand health insurance 
coverage and slow the growth of health care costs without 
adding to the budget deficit. Any effort to modify or repeal 
this tax must not undercut any of these three crucial 
objectives.
    Thank you, Mr. Chairman.
    Chairman COLLINS. Thank you, Dr. Van de Water.
    Our final witness is Dean Norton, who is president of the 
New York Farm Bureau. Mr. Norton is a senior agricultural 
consultant with Freed Maxick and Battaglia, a local CPA firm in 
the Buffalo, New York-Western New York area. He is a 
constituent of New York's 27th Congressional District, which I 
am honored to represent, and his family owns a dairy farm in 
Elba, New York. He is testifying today on behalf of the New 
York Farm Bureau.
    Welcome, Mr. Norton. You have five minutes to present your 
testimony.

                    STATEMENT OF DEAN NORTON

    Mr. NORTON. Thank you, Mr. Chairman.
    I appreciate the opportunity to appear before you today on 
what is a serious concern for my farm, my neighbors' farms, and 
those all across this great country. The HIT tax ultimately 
will hit me and my employees and our wallets and shrink the 
health care coverage my family's farm is able to provide.
    I am the fifth generation of Nortons to farm on the same 
plot of land in Elba, New York, dating back to 1906 and my 
Great Great Great Grandfather Bloon. Oak Orchard Dairy 
encompasses 1,000 acres of cropland and we milk about 900 cows 
a day. We also have a custom trucking operation for forage and 
commodity harvesting, and my wife Melanie and I operate DMCK 
Cattle Company, which leases cows back to neighboring dairies. 
In addition, it has been my privilege, as has been mentioned, 
to serve as the president of the New York Farm Bureau for the 
last four years, and I also serve on the American Farm Bureau 
Board of Directors.
    A recent Congressional Budget Office report confirms that 
the HIT tax would be largely passed through to the consumers in 
the form of higher premiums for private coverage. My family's 
farm and countless other small businesses will bear the brunt 
as consumers. Small businesses are the backbone of the American 
economy. Farmers are small businesses, and many of us offer 
health care coverage for our employees. Most farmers and other 
small businesses do not self-insure because we do not have a 
large enough pool of employees. Instead, small family farms, 
like myself, purchase health insurance on the fully-insured 
market which the HIT tax is levied on. And that is why we are 
going to feel the full force of the HIT tax as the health 
insurers pass on the cost to family farms. It is expected to 
cost, as has been mentioned, $100 billion over the next 10 
years. That translates to $400 more per family per year. That 
is a hit that many families cannot afford. You are talking 
about money that could buy a month's worth of groceries. And do 
not forget, those of us in rural areas already pay a 
disproportionate share of health care costs than those who live 
in urban areas.
    Keep in mind these costs are only going to make it tougher 
for our farm to operate. Dairy farming by nature is highly 
unpredictable. We have no control over the price of milk, which 
varies greatly from year to year. Also, the price of feed for 
our cows and fuel has been rising rapidly, as have the farm's 
health costs. Health care costs for small businesses have 
doubled since 2000. Imagine trying to budget with all those 
uncertainties every year.
    In order to keep up with the rising expenses of employer 
provided health insurance, we have been forced to trim costs. 
It was necessary for the farm to significantly change the cost 
structure of our insurance plan. We have turned to a highly 
deductible policy that only covers 50 percent of the insurance 
costs at this time. We used to cover 90 percent. In turn, our 
employees now have to contribute a larger portion of their 
income when they seek medical attention. I think we could all 
agree that this could be a disincentive for people to seek care 
in some instances. To compound the problem, we now only cover 
half of our employees than we once did, and keep in mind this 
was all before the HIT tax. Now we have to reevaluate our 
health insurance coverage again.
    Do we want to offer less health care coverage? Absolutely 
not. Health insurance is a benefit that we need to attract high 
quality, dependable workers. Milking cows is a 7 day a week 
business, 365 days a year. Without our hardworking employees we 
would have no family farm.
    For our trucking business, it runs through our very short 
harvest season where missing out on a single day can be the 
difference between profit and loss. It is very important we are 
able to offer reasonable health insurance if we are to obtain 
the workers we need to stay in business. Just as important, it 
is good for our employees, their families, and our communities 
that we keep them healthy. The HIT tax will hurt the very 
people that it was intended to help. It means that it will be 
harder to afford health care for my family, my employees, and 
for farms across this country.
    In conclusion, I would encourage all members of the House 
Small Business Committee to be sponsors of the bipartisan bill 
HR 763, introduced by Representative Boustany from Louisiana 
and Representative Matheson from Utah. This bill will repeal 
the annual fee on health insurance providers that was enacted 
by the Affordable Care Act.
    I appreciate the opportunity to share my story, and I look 
forward to your questions.
    Chairman COLLINS. Thank you, Mr. Norton.
    We will start the questions as we watch the clock to see 
when we may be called out to vote. I think from hearing the 
opening testimony, a good opening debate comment might be 
concerning whether or not insurance companies will in fact 
attract so many more customers if their profits will skyrocket 
to the point they do not have to pass much of any of this tax 
onto the consumers. I understand and paraphrase Dr. Van de 
Water's comments that this was one of the reasons that this tax 
is levied on the product offerings that most small businesses 
offer because, in fact, they will get so many new customers, 
they will make money, and they will be able to absorb a large 
part of this.
    So maybe I would ask each of you to comment, because I know 
my own observations are--especially concerning the young and 
the healthy now that the companies cannot charge more than 9-1/
2 percent of their W-2 wages, and Mr. Thorn, you might comment 
on the fact there is no longer just a pure single policy. Those 
policies have to include the dependents of the families. We 
used to have single family; now we have got single plus 
dependents, which is a more costly policy, and then the spouse 
will come on board. So you might speak to that.
    My concern is just the opposite. There will be fewer and 
fewer policies. The young and the healthy will, in fact, 
understand that they can drop health insurance all together 
because there is no penalty for preexisting conditions. Why 
would they have health insurance at all? And also, companies 
are likely, as I talk to them, take employees, drop them to 
part-time so they will not get insurance which certainly will 
mean fewer policies. Then lastly, the cost of a penalty at 
$2,000 is less than most companies pay for insurance and you 
might see a significant number of companies dropping health 
insurance, which actually would reduce the number of customers, 
not increase them as Dr. Van de Water testified.
    All four of you in good open debate, that is why we are 
here. If you can comment on some of those. Start with Mr. 
Dennis.
    Mr. DENNIS. First of all, I think a lot of us are operating 
on a good deal of speculation quite frankly because what we 
have seen as time goes on is we keep asking small business 
people what they are going to do, so on and so forth. A lot of 
them really do not know what is going on. But those that we 
engage and talk to tell us indeed that of those that do not 
have it, they are less likely to have it. Those that do are 
casting about for ways to get out from underneath a lot of 
this. Most of them do not want to get rid of their health 
insurance, but I think over the longer period, come push to 
shove it is our judgment that in all probability will decline. 
How much? I do not know.
    Chairman COLLINS. Thank you, Mr. Dennis.
    Mr. Thorn, as someone who is selling these policies, we 
would be interested in your comments.
    Mr. THORN. It is interesting as I meet with clients every 
day and the underlying concern is the uncertainty as was just 
mentioned. They are literally scared to death as to the 
unknown. They are trying to do the right thing for their 
employees but they are looking at this huge expense growing 
with margins are already so thin. Bring on another 500 bucks 
HIT tax. Sure, I would love to. It just is not going to happen. 
And I think part of the problem, and as I talk to the carriers 
in my state anyway, they did indicate it will be passed on to 
the consumer, to the small employer owner. And so I think we 
have a trickledown effect. So if that tax is passed down to the 
consumer and all of a sudden we have got more people opting out 
because I cannot afford this anymore; that 500 bucks just put 
me over the edge, you are going to have less revenues coming in 
to the insurance carriers. So that is going to be a trickle 
down problem.
    I also see from my own experience you have got a lot of 
small businesses who are looking at cutting hours, the opposite 
of what they really want to do. And instead of being able to 
support a full-time family and give them a good, decent wage, 
in order to fit their own budgets they are going to have to cut 
their own hours down. So that is going in the wrong direction 
as well.
    Chairman COLLINS. I share the concerns.
    Dr. Van de water, if you could comment.
    Mr. VAN DE WATER. Certainly. As I said, Mr. Chairman, I 
think there does seem to be a consensus among economic analysts 
that at least some of this tax will end up being passed forward 
to consumers. The Joint Committee on Taxation, whom I cited, 
which is Congress's nonpartisan staff agency, has estimated an 
increase of about 2 to 2-1/2 percent in premiums if one were to 
look at the effect of this tax by itself. So that I think we 
can take pretty much as a given. But the point is there is a 
whole heck of a lot of stuff going on as well.
    I was really taken by Mr. Norton's comment that his 
insurance costs had doubled I think you said over the past 10 
years or so. That is a huge increase. In relation to that, a 2 
percent tax is pretty small and can easily be swamped by these 
other factors in the Affordable Care Act that I mentioned and 
that Ms. Hahn referred to.
    As far as whether insurance companies are going to get more 
business, I think there is virtually no doubt that they are 
going to get substantially more business, again relying on 
Congressional Budget Office estimates you see huge increases. 
And again, knowing I was going to have a fellow witness from 
New York. I just came across a study yesterday from the state 
of New York about the growth of the small group and the 
nongroup market in New York, and this was done by I think the 
consulting firm of Deloitte. They estimate a huge increase in 
nongroup insurance in New York of over tenfold and a modest 
increase, but an increase nonetheless, in small group coverage. 
So again, I think that the consensus there is overall there 
will be a very substantial increase in insurance coverage and 
in business for commercial insurers.
    Chairman COLLINS. Thank you, Dr. Van de Water.
    Mr. Norton.
    Mr. NORTON. It has been my experience in the agriculture 
industry that any time a regulation or a mandate has been 
passed down to our suppliers or vendors that eventually I am 
the one paying for that tax or regulation, so I would say that 
there is probably a good chance that yes, we will be doing 
this.
    We were all talking about the uncertainty. I would just 
mention that I know of at least two farmers--Mr. Chairman, your 
district, because of the uncertainty of immigration reform, 
because of the uncertainty of the Affordable Care Act, the HIT 
tax and what does it mean to their business--they have taken I 
would consider drastic steps, and they have moved away from 
being specialty crop growers--and by specialty crops I mean 
fruits and vegetables, like cabbage, cucumbers, apples, and 
whatnot, and they have made the decision that this year they 
are going to move away from growing those type of highly labor 
intensive crops because of the uncertainty with all these rules 
and regulations and immigration reform, and they are going to 
go to a mechanized type of agriculture or corn, soybeans, 
something that can be planted and harvested with machines. And 
to me that is a loss not only to that farm but you are talking 
30 employees that will not be employed by a farm. You are 
talking about thousands and thousands of dollars that are not 
going to be in the community anymore. So to me this uncertainty 
is already having a drastic effect on what is happening in the 
agricultural community.
    Chairman COLLINS. Thank you, Mr. Norton.
    Again, one of the reasons for the hearing is to talk about 
what might happen. Again, none of us know for sure and that is 
why I think the public deserves and we are having this hearing 
today to hear various potential outcomes.
    With that I would like to yield to Ranking Member Hahn for 
her opening questions.
    Ms. HAHN. Thank you. Again, this is an important hearing so 
that we can really analyze what some of the impacts are of the 
Affordable Care Act.
    I will say I have been having in my district workshops with 
my small businesses specifically on ACA because there is so 
much misunderstanding out there. And frankly, I would dare say 
there are outright lies being put out there in some of the 
media outlets about really what this means. So I have been 
holding workshops so that we can walk small businesses through 
what this means.
    Now, in California, we are ahead of the game because we are 
ready for the exchanges. We are on top of it, and we think it 
is going to be valuable and beneficial to small businesses. And 
let us remember less than 1 percent of small businesses will be 
under the mandate of the Affordable Care Act to provide health 
insurance. But that does not change those of you who want to 
provide health insurance, which I applaud, and then what this 
new tax will mean in terms of higher premiums.
    What I want to do, Mr. Van de Water, and Mr. Dennis, is 
maybe talk about that huge disparity that both of you talked 
about in terms of job losses as a result of this--I do not know 
if it was the result of ACA or result of just this tax. I want 
to hear that.
    And by the way, when we are talking about job losses, we 
have been told that sequestration will result in 750,000 job 
losses. So around here there are some decisions that have been 
made that have resulted in job losses. So on top of that I am 
real interested to know what the big disparity is on the number 
of jobs you think will be lost as a result of this.
    Mr. Van de Water, you kind of said you would be willing to 
explain it.
    Mr. VAN DE WATER. Sure.
    As I indicated, the Congressional Budget Office has taken a 
look at the overall effect of the Affordable Care Act and has 
concluded that the effect on employment overall would be 
negligible. And in fact, to the extent that there is any effect 
at all it will result from the fact that some people who are in 
effect hanging on to jobs in their older years simply to hang 
on to health insurance coverage would be able to retire 
earlier, spend more time with their grandchildren, whatever, 
because they would have alternative sources of health coverage 
available that were not tied to their employment.
    Now, with regard to the NFIB study, the model that they use 
is very complicated and I cannot say that I can follow all of 
the moving parts, but I have a couple of suspicions of what is 
going on here.
    First of all, although Mr. Dennis talks about the proceeds 
of the tax being reinvested, it is not entirely clear to me 
that the model is taking into account or the assumptions that 
were input into the model are taking into account all of the 
spending that results from the tax because of the extent that 
there is money that is being collected through the tax but 
being spent yet get ignored in the model. You could end up with 
job loss because of that.
    I am also concerned about what the model may be assuming 
with respect to the effect of premiums on wages. Again, as an 
economist I would believe that to the extent that people get 
health insurance coverage, that is part of their compensation 
package. It is compensation just like wages. And to the extent 
that employers are paying more compensation in the form of 
health insurance over the not too many years that people end up 
with less cast compensation. So to the extent that compensation 
is unaffected by the cost of health insurance as I think it 
would be, it is very hard for me to see why this particular 
model should produce anything in the way of job loss.
    Ms. HAHN. Thank you.
    It is an interesting angle to talk about the people who 
really only have jobs for the health insurance as being one 
angle. I had one friend who got married to the wrong person 
just so she could have health insurance. We will also have a 
lot of less bad marriages as a result of this.
    Mr. Dennis, explain----
    Mr. DENNIS. We did not model the bad marriages. I am sorry.
    The first thing on the spending item. Yes, it all is 
required by the way the thing is constructed that you have to 
put it all back in. You have to put it back in in the 
industries in which it is presumed it will go into. So we 
assumed that this would be spent for the most part on the 
health care with a little bit on insurance I believe was the 
way we put it together. So that answer is yeah, there is all 
spending.
    The second thing is the idea of passers of these things in 
terms of lower compensation. And so in effect we get a net wash 
on that. And there is some truth in that. Again, I cannot do 
all the technical equations and all that sort of thing they got 
in there either, but I think there is an allowance for that. 
And some of it goes through and some of it does not.
    Ms. HAHN. Thank you.
    Chairman COLLINS. Thank you.
    At this point, I yield to Representative Huelskamp for five 
minutes.
    Mr. HUELSKAMP. Thank you, Mr. Chairman.
    I did not know we would get to questions before we went to 
vote but I appreciate the opportunity.
    Gentlemen, thank you for being here. I appreciate the 
opportunity to visit with you.
    First, I want to read a constituent's e-mail I have 
received and ask you a few questions about that.
    ``Dear Tim or Dear Congressman, I appreciate all your 
efforts against the Health Care Plan and now more so than ever. 
I want to tell you my story in case any personal stories will 
help you in your fight against that horrible law.''
    And this is from Kathy.
    ``I was recently notified by my insurance company that they 
will be closing their doors, going out of business, on December 
31st of this year due to the ObamaCare sledge hammer that will 
be coming down on everyone as of January 1, 2014. Not only am I 
losing my and my children's insurance coverage, I am losing 
people who have become my friends.'' And then she describes 
this insurance company was with the family throughout a loss of 
her husband through cancer, and this is not just one letter we 
received; this is something I received from many folks.
    She was happy with her health insurance coverage and she 
has lost that. We talk about the facts and figures that are in 
here. One thing you cannot change are these stories of folks 
that like their health care plan. The Congressional Budget 
Office estimates that 7 million Americans will lose their 
employer-based health care coverage. Apparently, even if they 
liked it they do not get to keep it. Seven million. And that is 
the impact of what happens here.
    One thing I want to ask a question is this $100 billion tax 
increase which I am cited onto the bill to do away with that, I 
think the doctor here is supportive of that. I would guess the 
other three are not, but Doctor, the question I have, the $116 
billion tax increase, you support that. Do you think that was 
not high enough or just about right? Because you are under the 
impression that this tax increase is good for the economy, good 
for the health care sector. I want you to describe the reasons 
for your support of that and what it means for Americans.
    Mr. VAN DE WATER. The importance of the Health Insurance 
Tax is as one of the ways of paying for the expansion of 
coverage in health reform. I personally think that it is a very 
important benefit. It is a very exciting development that all 
Americans going forward will have access to health insurance 
coverage regardless of their health status, regardless of their 
employment status. I, for one, think that I want my children to 
have access to health insurance. I suspect that all of us want 
our children and friends to have access to health insurance, 
and I think the Affordable Care Act will do that. And that is 
why we have this tax along with the others in health reform, 
not because we like any one tax in particular. No one likes 
taxes per se. We raise taxes to raise revenues to pay for 
things that we want to pay for, and in this case we are paying 
for an expansion of health insurance coverage to 27 million 
Americans. Would there be alternative ways of raising that 
revenue? Of course there would. And if the Congress can come up 
with an alternative, so be it.
    Mr. HUELSKAMP. But what do I tell Kathy who lost the plan 
she liked, Doctor? It was taken away from her. She had a decade 
long relationship with this company and it has worked well for 
her, and you have come in here with this law--not you--the 
Congress and the president--and said, ``Sorry, that is no 
longer a choice you have any more.'' And she is very upset 
about it. What do I tell her?
    Mr. VAN DE WATER. Well, there is no evidence that what has 
happened to this company is as a result of this particular tax.
    Mr. HUELSKAMP. The law is the impact that caused this. I 
mean, you can argue with Kathy and argue with her experience 
with her insurance company, but the impact of this law is the 
company she liked, as well as 7 million other Americans have 
health insurance and they are going to lose that and have to go 
into a plan they do not like. I mean, what am I supposed to 
tell those folks? Just say, ``Hey, it is a great thing. Enjoy 
paying the tax but you do not get to keep the health insurance 
as promised.''
    Mr. VAN DE WATER. I think the health reform law has become 
a convenient excuse for people to use. We do not know that this 
company is going out of business because of the health reform 
law. Companies of small businesses we know----
    Mr. HUELSKAMP. Well, I am not going to argue with Kathy who 
lost her health insurance coverage in making this claim, her 
insurance. She was happy with it. This company is going out of 
business. Again, what is the statement to that?
    Mr. VAN DE WATER. Not necessarily because of health reform. 
We do not know that.
    Mr. HUELSKAMP. Well, one thing you do not know, Doctor, is 
the fact that I will note here you used data from 2009 to make 
your claims. CBO has updated much of this data in here. The 7 
million--do you not agree with the CBO that 7 million Americans 
are going to lose their employer-based health care coverage? Do 
you disagree with that?
    Mr. VAN DE WATER. Some people will cease to have----
    Mr. HUELSKAMP. Do you disagree with up to 7 million 
Americans? This is coming out of the CBO.
    Mr. VAN DE WATER. I do not remember offhand if that is the 
right number.
    Mr. HUELSKAMP. Well, you might look up the latest reports 
because one point in here--and I am sorry, Mr. Chairman, but 
when you come here and you use something from 2009 and say this 
is--the year before this passed, 2009----
    Mr. VAN DE WATER. Which particular citation are you 
concerned about, sir?
    Mr. HUELSKAMP. Well, you have the citation, sir. It is in 
your report. And you talk about the impact of the----
    Mr. VAN DE WATER. The citation is still accurate.
    Mr. HUELSKAMP.--impact of this health insurance----
    Mr. VAN DE WATER. Nothing I have said is based on CBO 2009 
has changed in CBO's view that I know of.
    Mr. HUELSKAMP. I will be happy to share that with you, sir. 
The CBO has changed. They now estimate that the cost has 
doubled. That is the estimate of CBO. And the 7 million lost--7 
million figure is not new. I mean, this was a few months out 
here.
    So I just say there is some information out there. I would 
appreciate if you would share the most up-to-date information 
in the CBO.
    Mr. VAN DE WATER. The 27 million figure I used is the most 
recent number.
    Mr. HUELSKAMP. Well, how many will still be uninsured when 
this is fully implemented? About the same percentage that were 
uninsured before we started this.
    I yield back my time.
    Mr. VAN DE WATER. Absolutely not.
    Chairman COLLINS. Thank you, Mr. Huelskamp.
    Voting has been called but we do have a few more minutes. 
So in the interest of maybe cutting it a little close, I would 
like to yield to Mr. Schneider for his questions.
    Mr. SCHNEIDER. And I will be brief.
    I spent the bulk of my career working with small 
businesses. I owned businesses from 1997 to 2003. I owned a 
small insurance agency, and I know from my experience both 
personally and many of my clients, the bane of looking to the 
future is uncertainty. As you talked about the uncertainty, it 
makes it very difficult.
    But I also know from my experience and the experience of my 
clients that we were seeing double digit increases in health 
insurance premiums going back, and as we were making choices 
that was one, in my own case with my partner, that was one of 
our greatest uncertainties every year is what was going to be 
the insurance in health insurance. And for a small business we 
had our peak 10 employees. That was a very difficult challenge.
    So as you look at uncertainty as we go forward, what do you 
see? We need to get through to the other side of the complexity 
of health care but to provide a greater certainty once we get 
there, once people know what they are doing, do you think 
people will start hiring again? Do you think we will start 
moving in the right direction again? What is the impact long 
term that concerns you?
    Mr. DENNIS. Well, are you talking about uncertainty in the 
abstract or with regard to the particular thing we are talking 
about here, health care?
    Mr. SCHNEIDER. Well, certainly, the abstract makes it 
harder for businesses to plan in general, but specifically with 
health care, once we get it set they will know what they have 
to do.
    Mr. DENNIS. Well, clearly, uncertainty has been a major--
what can I call it? Drawback or dampening. Had a dampening 
effect on small business employment. It probably also has had a 
dampening effect on entry, too, although we cannot prove that 
nearly as much.
    Longer term one has to assume that if you reduce that 
uncertainty, and it will take a lot to do that, that indeed 
employment will be much more likely to stabilize in the sector. 
Small businesses still struggling and a good bit of it is that 
rather than hiring in anticipation, you know, expecting certain 
positive things to happen and therefore I am going to hire, it 
is almost the reverse happening. You have to force them to 
hire. In other words, things have to be so tight that that is 
the only way you are going to hire. And that is the feedback we 
have been getting for a long time now and it seems to continue. 
All survey stuff would also show that uncertainty is a huge 
factor.
    Mr. SCHNEIDER. Do you get a sense--and I will close with 
this question--do you get any sense in your surveys that small 
business employers with access to exchanges, with access to a 
more stable market, will feel that they have the opportunity to 
hire more people down the road?
    Mr. DENNIS. We do not have any survey data on that one way 
or another. We hope to begin to start collecting some of it 
soon. And to be able to give you a better answer on that. Let 
me put it that way.
    Mr. SCHNEIDER. I yield my time.
    Chairman COLLINS. Thank you. In the interest of continuing 
to cut it close, I yield to Mr. Luetkemeyer for his questions.
    Mr. LUETKEMEYER. Thank you, Mr. Chairman.
    With regards to the exchanges, Mr. Dennis, the president 
has already waived off the competitive part of that for another 
year or two; is that not correct?
    Mr. DENNIS. Yes.
    Mr. LUETKEMEYER. Can you explain a little about that?
    Mr. DENNIS. You mean that there will only be one plan?
    Mr. LUETKEMEYER. Right. Right.
    Mr. DENNIS. There will be one rather than three.
    Mr. LUETKEMEYER. So as a result of that where is the 
competition that is supposed to be driving down price?
    Mr. DENNIS. Well, you would not necessarily have to get 
your insurance through the exchange. I mean, you could, but you 
do not necessarily have to. So presumably there will be other 
plans.
    Mr. LUETKEMEYER. What kind of effect is that going to have 
on the small business folks trying to find insurance?
    Mr. DENNIS. Well, it will be, I mean, they will have fewer 
opportunities than they would have in the past.
    Mr. LUETKEMEYER. What does that usually mean you have fewer 
opportunities?
    Mr. DENNIS. More expense and----
    Mr. LUETKEMEYER. More expense.
    Mr. DENNIS.--less quality. Let me put it that way.
    Mr. LUETKEMEYER. One of the things that I have talked with 
my small business folks at home is that whenever they are 
looking in the 40 to 150 range about how--with employees, how 
they are going to be able to afford this, they are looking to 
going to part time with some of these, going temps with some of 
these, even dividing their companies in two, two have two 
separate companies to try to slip underneath this. When these 
people go down to 28 hours or 30 hours or whatever it is, those 
people are going to find insurance on their own; is that not 
correct?
    Mr. DENNIS. Yeah.
    Mr. LUETKEMEYER. Okay. If you are a young person that is 
being laid off and you are healthy, Mr. Thorn, what is your 
experience with young people who have to make a choice between 
paying rent, making a house payment, making car payments, 
paying the rest of their insurance, and now they have to figure 
out how they are going to afford health insurance on a reduced 
budget; what is your experience with that?
    Mr. THORN. Or go on a date.
    Mr. LUETKEMEYER. Or go on a date.
    Mr. THORN. And the young, healthy immortals we call them--
--
    Mr. LUETKEMEYER. Maybe they will get married like Ms. 
Hahn's friend.
    Mr. THORN. Let us hook them up. There you go.
    No, I think that is a very real concern. In our state of 
Utah we have had updates 26 for a long time, for a number of 
years. So part of the ACA, I think that is a good thing. I look 
at a lot of these young kids who are going to school. The last 
thing in the world they can afford is health insurance. To be 
able to stay on their mom and dad, that is a good thing. But 
for those young folks who----
    Mr. LUETKEMEYER. Let us take a single parent with a child 
or two. You are 30, 30-some years old. You have got, you know, 
you are a wage earner. You can pick out whatever occupation you 
want to but you are a wage earner and so now you are a 
receptionist at your insurance agency, for instance, and 
suddenly you get your hours cut back and you have got two 
employees, let us say. And now you cut them both back to 28. 
You have part-time employees you do not have to supply their 
insurance for them.
    What happens--what is the economic effect when people have 
less money to spend, Mr. Dennis?
    Mr. DENNIS. Well, I mean, if you have less money to spend--
--
    Mr. LUETKEMEYER. You do not purchase things; right?
    Mr. DENNIS. Well, yeah. And you are going to prioritize 
them. Let us put it that way.
    Mr. LUETKEMEYER. Okay. If you have less money--and if the 
insurance is taking more money out of your pocket and you have 
less money to spend, that is less money to spend on the rest of 
the economy; is it not?
    Mr. DENNIS. Well, someone has got it somewhere. I mean----
    Mr. LUETKEMEYER. Well, the insurance companies are going to 
take it out and send it to the government. So the government 
has got it; right?
    Mr. DENNIS. Exactly.
    Mr. LUETKEMEYER. Okay. So where is the economic benefit of 
this? Is it going to be a plus or a minus?
    Mr. DENNIS. I am getting a little lost on some of this, I 
am sorry, sir.
    Mr. LUETKEMEYER. My basic, where I am headed with this is 
the insurance costs are sucking more money out of the economy.
    Mr. DENNIS. Right.
    Mr. LUETKEMEYER. There is less money for the individuals 
and businesses to spend.
    Mr. DENNIS. Right.
    Mr. LUETKEMEYER. And therefore, there is going to be less 
money spent in the economy. So the effect would be----
    Mr. DENNIS. No, there will not be any less money spent. It 
will be who is spending it and what is it being spent on?
    Mr. LUETKEMEYER. Okay. Who can best spend a dollar--the 
government or private sector? Who can get a better return on 
it?
    Mr. DENNIS. I am very much biased towards the private 
sector.
    Mr. LUETKEMEYER. Thank you for your honesty, Mr. Dennis.
    I think that in the interest of time here I will stop there 
because we need to go vote, but again, I thank you each for 
being here today. I appreciate your willingness to spend some 
time with us and give us some real world examples of some of 
the effects of this tax on small business. Thank you.
    Chairman COLLINS. In the interest of getting out to vote we 
will adjourn this briefly until we are back. It could be 30 to 
45 minutes. There are a few more questions and I think to get 
those on the record we will reconvene after voting. I thank you 
for your understanding and we will be back as soon as we vote. 
This meeting is temporarily adjourned.
    [Recess]
    Chairman COLLINS. I call the hearing back to order. And in 
the interest of time, I will certainly defer to Ranking Member 
Hahn for a couple of questions so she might catch her flight.
    Ms. HAHN. Thank you, Mr. Chairman.
    Mr. Van de Water, the ACA included provisions including 
rate review panels and the medical loss ratio requirements, 
both intended to protect consumers. Can you please explain the 
interaction between the Health Insurance Tax and consumer 
protection provisions like these?
    Mr. VAN DE WATER. Yes, thank you, Ms. Hahn.
    As discussed before, the medical loss ratio provision is 
designed to make sure that consumers basically get good value 
for their insurance premium dollars and this other requirement 
is dependent upon the details of the policy that either 80 or 
85 percent of the premium be paid out ultimately in benefits.
    Now, my recollection is that this particular tax that we 
are discussing today, the Health Insurance Tax, is included for 
purposes of meeting the medical loss ratio so that to the 
extent that that is passed forward that the consumers still 
have to pay--can be forced to pay some of the Health Insurance 
Tax. That is that the medical loss ratio provision does not 
protect them from having part of this tax passed forward, but 
it will provide a lot of help to consumers generally. In fact, 
there are a lot of consumers who already receive rebates on 
account of the medical loss ratio provisions so that even 
though it does not protect them from the Health Insurance Tax 
in particular, it is a good protection generally speaking.
    Ms. HAHN. Thank you. Yeah, we actually had a witness here I 
think last month that actually talked about already having 
received $1,500 in a rebate check that she was saying really 
was helping to keep afloat her expenses at that time. So she 
was very happy to get that.
    Mr. VAN DE WATER. And, of course, there a lot of other 
provisions of health reform, which will be affecting premiums 
as well. During our intermission, Mr. Thorn and I were having a 
good chat and we were agreeing that in the long run the most 
important thing that needs to be done is to control the rate of 
growth of health care costs, and that is not something that is 
peculiar just to public programs like Medicare or Medicaid, but 
it applies obviously to private insurance, self-insured 
employers, small businesses that purchase commercial products, 
individuals, and of course, the ACA takes a number of steps 
that we hope are going to help slow the growth of health care 
costs in the long run, although we also know it is just the 
beginning and then more is going to have to be done.
    Ms. HAHN. So one of the things we have not talked about is 
the premium tax credits that ACA has included, which will 
provide assistance in buying health coverage. And these 
subsidies can actually lower health insurance costs for many 
people, and despite insurance companies recouping the Health 
Insurance Tax through higher premiums. Do you think it is 
possible that these premium credits will help keep premiums 
affordable for most people?
    Mr. VAN DE WATER. Well, for those companies, employees of 
those companies that can take advantage of them, yes. In my 
prepared statement I mentioned the CBO estimate that for 
employees of that sort and in terms that can take advantage of 
the credit, that the net reduction in premiums might be on the 
order--due to the affordable Care Act, overall might be on the 
order of 8 to 9 percent. Now, I think we all know, and I am 
sure your Committee is very well aware, that if cost 
considerations, the reach of those small employer credits is 
somewhat limited. They apply only to very small firms and to 
those with quite low wage levels. But for the firms that can 
take advantage of them they will be a big plus.
    Chairman COLLINS. I just have a few questions to finish up. 
I, again, thought we were only talking about the Medical Device 
Tax, but in fairness to all here I do subscribe to the Max 
Baucus definition of ObamaCare, calling it a ``train wreck.'' 
We will not know until January 1, 2014, but I am of the 
opinion, frankly, $100 billion here and $100 billion there and 
$40 billion here and $40 billion there actually is real money, 
even for the federal government. So $100 billion, the Health 
Insurance Tax. Another $100 billion on employer mandates. 
Another $40 billion. And we had testimony just a few weeks ago 
from Dr. Aiken who was saying if a small startup Medical Device 
Company is not profitable and they do not make 2.3 percent of 
profit based on revenue they go out of business. All those jobs 
are lost.
    Stryker. A $100 million tax on medical device alone already 
has laid off 1,000 workers, cutting back on R&D. They are a 
public company. They need to protect their stock price and they 
cannot absorb or pass on a $100 million charge. So again, I 
would say with some bias I agree with Max Baucus. It is a train 
wreck.
    But a couple of questions maybe to finish up. Mr. Dennis, 
the NFIB is known for advocacy for small business. In fact, I 
am a member of the NFIB, in all fairness. Do you think--I think 
I know the answer--that the annual fee threatens small business 
expansion and job creation? Just interested in your opinion on 
that.
    Mr. DENNIS. Yeah. Surely. Whenever you get something like 
this, it is always something that you have to pay. And the more 
that you have to do, the less you are able to put in an 
investment somewhere else. I mean, it is a matter of choices. 
You either pay what you have to pay or do not, or you invest or 
do not. That is pretty simple and the question is just how 
much.
    Chairman COLLINS. Thank you.
    One other question for Mr. Dennis, and something that I am 
very concerned about. I believe in competition. I think 
competition works. I do not think the government should pick 
winners and losers, and I do not think the federal government 
should put small businesses at a disadvantage, whether it is 
currently today a higher tax rate, marginal tax rate for pass-
through entities, than we have for big corporations. 39.6 
percent for small business, 35 percent for big corporations. 
The first time I know of in history that small businesses are 
taxed at a higher rate. But I am more concerned about the fact 
that a lot of big corporations--most--are self-insured.
    So my worry is on the competitive impact. A lot of small 
businesses, certainly they compete product line by product line 
with big corporations. They see a niche and they want to step 
in, but since big corporations are not subject to this tax if 
they are self-insured--so you could argue, and I think Dr. Van 
de Water even said--it may not have a lot of impact on some of 
these big corporations but this tax is placed on those group 
plans that small businesses subscribe to. So now this Health 
Insurance Tax, there is unanimous agreement, will be passed on 
in the form of higher premiums. It seems to me it is just one 
more competitive cost disadvantage that the government is 
deliberately passing on to small business which will have a 
chilling effect on competitiveness. So again, that is a 
statement, and I just would like your comments, Mr. Dennis.
    Mr. DENNIS. Well, no. I mean, I think that is one of the--
if you look at the tax per se and forget the size of the tax 
and all this stuff, one of the most egregious things about this 
particular form of tax is that it is highly discriminatory. I 
cannot imagine being in similar context in this one because it 
is so egregious. And as a corollary, of course, it is a hidden 
tax. It is a nontransparent tax. And then thirdly, if you want 
to add that, it is a cascading tax. And that is it becomes a 
tax on a tax because it is rolled into the premiums.
    So in terms of just tax policy, I cannot think of a tax 
that is probably much worse than this. If you give me some time 
I might be able to, but this kind of does a pretty good job of 
violating a lot of important principles.
    Chairman COLLINS. I think a prior witness would say that 
the Medical Device Tax is right up there with it.
    Mr. Thorn, now this is a little bit technical but, you 
know, in peeling back the numbers I would like to ask you, as I 
understand it this is an excise tax, so it is not tax 
deductible. If the insurance company has to provide call it a 
$1 fee to the government as an excise tax, that comes off of 
the bottom line of for-profit insurance companies. In order to 
get there it is not that they are going to be passing on a 
dollar; they have to pass on $1.50. So they are going to have 
to actually pass on to the consumers and small businesses a 
$1.50 increase in order to have a dollar left because the 
increase in the premiums is a taxable event. They are going to 
pay 50 cents in tax to the federal government, which is money 
going out. That then leaves them with a dollar. Then they send 
that dollar to the federal government as an after-tax excise 
tax.
    As an insurance broker I would ask, am I reading this 
correctly that a one dollar increase--one dollar health 
insurance tax equals potentially, certainly for the for-profit 
insurance companies, $1.50 being passed on, so it is even 
worse. I just would ask your comment on that.
    Mr. THORN. Well, Mr. Chairman, you are absolutely right. 
The bigger issue, too, is the fact that you are going to see a 
lot of insurance companies who are creating or devising self-
insured policies down to 5 to 10 lives, which is also a 
potential train wreck in and of itself to avoid this very tax. 
And I am hearing stories of that happening. So do we really 
want to go down that road as well? I think there are so many 
problems with this tax itself and it is disproportionately 
being affected by the small employer groups. If you are going 
to spread the tax it should be amongst everyone, not just a 
certain population.
    Chairman COLLINS. That is a concern I have.
    My last questions are for Mr. Norton. The Farm Bureau has a 
lot of issues. Just next week we are marking up the five-year 
Farm Bill that was deferred. It should have been done last 
Congress but that is another comment. You have a lot of 
issues--dairy issues, insurance issues, and so forth--and yet 
you are here today saying that one of the top issues for the 
Farm Bureau is, in fact, repealing the Health Insurance Tax. 
And I just would like your comment on how it is you have 
prioritized this given so many other issues.
    Mr. NORTON. Well, as you mentioned, we have a lot of 
issues, but this is front and center one of them because 
honestly, without some of the employees that we have to help us 
on our family farms and our family businesses, we would not be 
in business, and it is imperative for us to be able to take 
care of them and provide them health insurance. So the HIT tax 
as it is very well named, is going to affect us whether we are 
able to have employees, whether we are able to provide the 
health insurance that we want to to them, and whether some of 
our members might actually take the drastic decision to either 
get out of farming all together because of it or change their 
model. So our members felt very strongly about the Affordable 
Care Act. We have been opposed to its mandates from the 
beginning and this is one of the issues that we are here to 
work on.
    Chairman COLLINS. And I am sure you deal with the other 
farm presidents around the country. Certainly, New York is New 
York, but could I get your comments on whether your 
counterparts across the United States share this same view?
    Mr. THORN. Well, I am one of 51, including Puerto Rico. And 
as you well know, we get together every year and have a meeting 
of delegates to decide our policy. And this was one of those 
issues that we discussed and decided in January and we all 
agreed that it is important that we take care of this issue and 
that we speak up about the cost that this mandate is having on 
us and what it is doing to our farms and possibly driving us 
off of our farms.
    Chairman COLLINS. And certainly, the Farm Bureau is a 
nonpartisan, bipartisan group.
    Mr. THORN. Yes. Nonpartisan, bipartisan. We work with both 
sides of the aisle. Just last week I was having a conversation 
with Senator Schumer on immigration reform, and I am very well 
aware that you and Senator Schumer are not on the same side of 
the aisle.
    Chairman COLLINS. Do you think?
    Anyway, I want to thank the witnesses, and Ms. Hahn, I do 
not know if you have a couple of follow-up questions.
    Ms. HAHN. Not so much follow-up but I just feel like I need 
to go on the record to say it is the insurance companies who, 
by the way, the last time I checked, were making huge profits. 
CEOs of insurance companies are making millions of dollars, and 
once again, we are letting the insurance companies run health 
care. I mean, that is why we have the Affordable Care Act 
because insurance companies in this country, instead of the 
doctors, were telling people what kind of procedures they could 
have. One of the reasons I ran for Congress was because one of 
my best friends died of breast cancer about 20 years ago 
because at that time bone marrow transplants were considered 
experimental and her HPO did not allow for a bone marrow 
transplant. And I thought you know what? I am going to run for 
Congress because I want to make sure that people do not go 
broke in this country because they have to decide between 
health care for their families or paying the bills. And the 
last time I checked, these medical device folks were also 
making huge profits. And by the way, this ACA is probably going 
to probably allow for more of these medical devices to be 
approved because of this insurance mandate.
    And with all due respect to the member who had his 
constituent Kathy--and I am sorry for Kathy that she lost her 
insurance--what insurance company is closing their doors when 
we are mandating in this country that everybody buys insurance. 
They must have a pretty bad business model. There is hardly any 
other product that we are mandating that people buy. Why an 
insurance company would close their doors when more people in 
this country are going to have to buy insurance, I do not know.
    I just feel like I need to go on the record to say once 
again we should be angry at insurance companies, not at this 
law. They are once again trying to hold people hostage and I 
just read where a CEO of one of these medical device companies 
was making $25 million as a bonus at the end of the year. So I 
am not feeling too bad for insurance companies right now or 
medical device companies. I do want to listen to our small 
businesses, and I am going to continue to listen. If there are 
places in this law that we need to tweak and we need to make 
better, I will. But let us direct our anger where it is 
appropriate, and that is with these big insurance companies who 
are still raking in a huge amount of profits and millions of 
dollars and leaving people like Kathy to fend for themselves. 
Thank you very much.
    I yield back no time.
    Chairman COLLINS. Thank you.
    We all know we can agree to disagree, and in many cases we 
do, but in answer to a couple of things, I have a medical 
device company in my district, Curbell, and they happen to make 
that device that makes the bed go up and down and turns the 
television on and off and calls the nurse. Now, that is a 
medical device. And the medical device tax will impact their 
profits in a draconian way--2.3 percent of revenue. And as Dr. 
Aiken said a couple of weeks ago, a very successful company 
makes 5 percent of revenue on the bottom line. That is how a 
business works. A 2.3 percent tax is taking away half their 
profits. And as we know, a lot of startup medical device 
companies, that is where they come from. They do not make any 
money or they make a very small amount. So there are examples 
of very successful medical device companies that make 10 
percent of revenue on profit. But 2.3 percent is still wiping 
out 25 percent of their profit.
    Stock prices are based on a multiple of your profit. That 
means the Strykers and the Greatbatches and the other companies 
are either going to have to see their stock price plummet by 25 
percent or they are going to have the cuts. We are already 
seeing the cuts, we are already seeing the layoffs, and wishing 
it so does not make it so. The idea that we have a mandate 
here, and what is a mandate? You must do something. Well, that 
is not what the ACA is because for $95 an individual can beg 
off. And for $2,000, a company subject to the ACA can simply 
deny coverage. The young and the healthy, if they do not 
subsidize the sick and the old, I think there is everyone that 
understands it is the young and the healthy paying into a 
system that subsidizes the old and the frail, all of a sudden 
the penalties for the young and the healthy not having 
insurance are gone. Because when you think about it, $95 is 
their penalty? $2,000 from the employer? There is no longer a 
penalty for preexisting conditions. So there were folks who got 
insurance because they were afraid if they came down with a 
condition they could lose their house, they could lose this or 
that. There is no longer a penalty for preexisting conditions. 
There is a $95 cost to get out, and if the insurance is $1,500, 
I am afraid--only time will tell, and Mr. Thorn hopes this will 
not be the case--you are going to see the young and the healthy 
dropping insurance like there is no tomorrow because there is 
no ROI (return on investment), so to speak.
    I have met with the American Health Insurance Providers 
organization. They are already seeing the young and the healthy 
drop their insurance because the cost is very low, the risk is 
no longer there. I can tell you if I buy a new car, I get 
collision insurance in case I wreck the car. Now, if you told 
me after I wreck the car I can sign up for insurance, I am not 
going to get the insurance until I wreck my car and I will not 
be buying collision insurance on my new vehicle, and there is a 
big correlation with that in the ACA. We will be seeing how 
this plays out, but it is not as easy to use the example of 
insurance companies making millions. I can assure you in 
western New York that is absolutely not the case, and I can 
absolutely tell you our CEOs do not make $25 million. But 
again, we will set that aside.
    I want to thank the witnesses for coming here today. This 
is certainly a controversial topic. We are going to see how 
this plays out. This is just one more step in getting four 
great witnesses to give us input. Some of it we agree on, some 
of it we will have to see how it plays out. The Subcommittee 
will continue to monitor the implementation of this health care 
law and the impact on small businesses. I am sure we will have 
some other hearings. And following this hearing, I do plan to 
send a comment letter to the Department of the Treasury on the 
proposed rule. They are in charge of implementing the fee.
    With that, I ask unanimous consent that members have five 
legislative days to submit statements and supporting materials 
for the record. So without objection, so ordered.
    This hearing is now adjourned. Thank you.
    [Whereupon, at 12:15 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

[GRAPHIC] [TIFF OMITTED] 80825.001

    Good morning Mr. Chairman, Representative Hahn, and other 
members of the subcommittee. My name is William Dennis. I am a 
Senior Research Fellow with the NFIB Research Foundation. 
Behind me is my colleague Michael Chow, a Senior Policy Analyst 
also with the Foundation who produced the simulation on which 
this testimony is based. Thank you for inviting us to discuss 
our recent research examining the economic effects of the 
health insurance premium tax contained in the Patient 
Protection and Affordable Care Act (PPACA) on the small 
business sector and the broader U.S. economy.

    I ask that my testimony be submitted for the record along 
the results of our mid-March simulation.

    The health insurance premium tax was one of the largest 
revenue components included in the original law to offset the 
budgetary costs posed by PPACA. Formally structured as a fee on 
health insurers, this tax was intended to raise more than $100 
billion over a decade beginning in 2014. However, both 
government and independent analysts believe that the tax will 
be passed on to consumers in the form of higher health 
insurance premiums.

    The Congressional Budget Office (CBO) explicitly asserted 
that this tax/fee/surcharge ``would be largely passed through 
to consumers in the form of higher premiums for private 
coverage.''\1\ A March 2011 report by former Congressional 
Budget Office Director Douglas Holtz-Eakin concurred in that 
view \2\ as did the Joint Committee on Taxation (JCT) in a 
letter to Senator Jon Kyl dated June 3, 2011.\3\
---------------------------------------------------------------------------
    \1\ An Analysis of Health Insurance Premiums Under the Patient 
Protection and Affordable Care Act, Congressional Budget Office, 
November 30, 2009, pp. 15-16.
    \2\ Holtz-Eakin, Douglas, ``Higher Costs and the Affordable Care 
Act: The Case of the Premium Tax,'' American Action Forum, March 9, 
2011.
    \3\ Barthold, Thomas A., letter to Senator Jon Kyl, Joint Committee 
on Taxation, Washington, DC, June 3, 2011.

    The tax has a number of oddities and one of them raises a 
major equity and competitive issue for smaller firms. The tax 
falls almost exclusively on small businesses. Their larger 
competitors have no equivalent obligation. Small-businesses, 
therefore, are asked to absorb a significant share of the 
financial load of the program while placing them in a less 
---------------------------------------------------------------------------
competitive position to do so.

    The reason for these problems is that the tax is a premiums 
tax which targets the fully-insured market. The full-insured 
market is the small-business (and individual) market. Small 
businesses rarely have the economic resources to self-insure, 
which would allow them to escape the tax like large firms do. 
The Department of Health and Human Services' (HHS) Medical 
Expenditure Panel Survey (MEPS) reports that among private 
sector establishments who offer health insurance 87 percent of 
those with fewer than 100 employees do not self-insure while 
nearly 75 percent of those with between 100 and 499 employees 
do not.\4\ The remainder purchase fully insured plans. For 
these small businesses who participate in the fully-insured 
market, the costs of higher premiums will be borne jointly by 
both the employer and the employee in proportion to their share 
of premium.
---------------------------------------------------------------------------
    \4\ Medical Expenditure Survey, Agency for Healthcare Research and 
Quality, U.S. Department of Health and Human Services, Table 1.A.2.a 
(2010), http://meps.ahrq.gov/mepsweb/data--stats/
summ--tables/insr/national/series--1/2010/
tia2a.pdf.

    To quantify the economic effects the health insurance tax 
would have on small businesses and the broader economy, the 
NFIB Research Foundation employed the Business Size Insight 
Module (BSIM), a dynamic economic forecasting tool produced by 
Regional Economic Models, Inc., or REMI.\5\ The REMI model is 
the leading forecasting and policy analysis model in use and is 
employed by hundreds of governmental agencies, universities, 
consulting firms, nonprofits, and other entities. In the past 
year, for example, the Senate employed the REMI model to 
estimate the economic impact that S.2237, the Small Business 
Jobs and Tax Relief Act, might have on the economy.\6\
---------------------------------------------------------------------------
    \5\ The model does not allow us to assess the competitive impacts 
of the tax.
    \6\ Treyz, Federick, ``Estimated Economic Impacts of the `Small 
Business Jobs and Tax Relief Act' '', Regional Economic Models, Inc., 
June 2012.

    The modeling process is reasonably straight-forward in the 
sense of employing publicly available data as inputs for the 
calculations. However, since the tax is fixed (through 2018), 
one must estimate the number of people who will be insured by 
small businesses in order to obtain the cost of the tax per 
insured. We relied on experts for that number. The JCT 
estimated the premium increase at between 2.0 and 2.5 
percent;\7\ Holtz-Eakin estimated it at 3.0 percent.\8\ We 
arbitrarily selected 2.5 and 3.0 percent, and simulated both.
---------------------------------------------------------------------------
    \7\ Joint Economic Committee, op. cit.
    \8\ Holtz-Eakin, op. cit.

    After accounting for a range of potential healthcare 
inflation rates in future years, the REMI model predicted a 
reduction in national private sector employment of 146,000 to 
262,000 jobs in 2022. For perspective, that is the equivalent 
of wiping out all current payroll employment in Binghamton, 
Ithaca, and Elmira, New York, or Santa Barbara and El Centro, 
California or Sioux City and Cedar Rapids, Iowa.\9\ Fifty-nine 
percent of the job losses are forecast to be in the small 
business sector, a reflection of the health insurance tax's 
incidence on the sector. In addition, the cumulative reduction 
in real output over the ten-year forecast window is projected 
to be as high as $185 billion. Earlier reports \10\ discussing 
initial findings along with the detailed methodology we 
employed are available on the NFIB website.\11\
---------------------------------------------------------------------------
    \9\ U.S. Bureau of Labor Statistics, U.S. Department of Labor, 
http://www.bls.gov/news.release/metro.t03.htm.
    \10\ Chow, Michael J., ``Effects of the PPACA Health Insurance 
Premium Tax on Small Businesses and Their Employees: An Update,'' NFIB 
Research Foundation, March 19, 2013.
    \11\ http://www.nfib.com/research-foundation/studies/hit-cost.

    In conclusion, we hope the research foundation's analysis 
has been helpful to you in understanding the substantial costs 
this health insurance fee stands to pose to small businesses 
and the debilitating effects it will have on the sector's 
ability to create jobs and put our nation back to work. Thank 
you again for the invitation to address your subcommittee 
today. We look forward to any questions you may have.

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    The New York Farm Bureau commends the Subcommittee on 
Health and Technology of the House Committee on Small Business 
for holding this hearing on the impact of the Health Insurance 
Tax (HIT) on farms and small businesses. I'd like to thank 
Chairman Graves and Ranking Member Velazquez, and also thank 
Subcommittee Chairman Collins, who is my own Representative. I 
appreciate you inviting me to testify today.

    My name is Dean Norton. I am president of New York Farm 
Bureau, which represents 25,000 members, and I also serve on 
the Board of Directors of the American Farm Bureau Foundation, 
representing the Northeast. My family owns and operates Oak 
Orchard dairy farm in Elba, N.Y., and I am part of the fifth 
generation on this land. We also have a custom trucking 
operation for forage and commodity harvesting. The dairy 
encompasses more than 1,000 acres of farmland and currently has 
900 milking cows. In addition, my wife, Melanie, and I also 
operate DMCK Cattle Company.

    The HIT Tax was passed as part of the Patient Protection 
and Affordable Care Act (ACA). It has nothing to do with 
reforming the health care insurance system but was included in 
the ACA as a way to raise revenue to offset the cost of the 
legislation. The HIT Tax, which will be levied on a health 
insurance company's net premiums, is expected to raise $102 
billion over the first 10 years. During 2014, the first year 
that the HIT Tax takes effect, $8 billion will be collected. A 
recent Congressional Budget Office report confirms that the HIT 
Tax ``would be largely passed through to consumers in the form 
of higher premiums for private coverage.''

    Most farmers and other small businesses do not self-insure 
because they do not have a large enough pool of employees. 
Instead, small employers like my family purchase health 
insurance on the fully insured market. According to the Kaiser 
Family Foundation's 2012 Survey of Employer Health Benefits, 15 
percent of the smallest employers self-insure, roughly half of 
employers with 200-999 workers self-insure, and 93 percent of 
firms with more than 5,000 workers do so. Because the smallest 
employers almost never self-insure, we will end up bearing the 
brunt of the HIT tax.

    But health insurance costs for small businesses are already 
rapidly trending higher, increasing 103 percent since 2000. 
According to the Joint Committee on Taxation, the HIT tax will 
further increase family premiums by $400 or 2.5 percent in the 
year 2016, making it even harder for farmers to purchase 
coverage for themselves, their families and their employees.

    In my family's business, the dairy industry provides a 
highly unpredictable income--the price of milk and the price of 
our inputs can vary greatly. But health insurance costs have 
been increasing steadily over time. Our business has to plan to 
pay for health insurance costs no matter how the business is 
doing month to month. Because of the cost of insurance we have 
had to turn to a high deductible policy and we are now covering 
about half the number of employees we once did.

    In order to keep up with the expenses of employer-provided 
health insurance, it was necessary for the farm to 
significantly changed the cost structure from covering about 90 
percent of the insurance cost to approximately 50 percent at 
this time through the high deductible plan. Unfortunately, the 
people who are really hurt by this change are the employees. 
They now have to contribute a larger portion of the expense 
when they seek medical attention and I think we all know that 
this can be a disincentive for workers to seek care in some 
instances.

    Being able to offer health insurance is important to us we 
strive to offer benefits that attract high quality workers and 
to keep them healthy and productive once they are on the 
payroll. A dependable workforce is especially important in our 
dairy business which operates 7 days a week, 365 days a year 
and in our trucking business in which harvest seasons are short 
and a down day could make the difference between turning a 
profit or not.

    Escalating health insurance costs not only impact farm 
employers, but also those who purchase health insurance 
coverage for themselves and their families. The rise in health 
care costs in recent years has disproportionately impacts rural 
America where, according to the Council of Economic Advisors, 
24.2 percent of families spend more than 10 percent of their 
income on health insurance coverage, compared with 18.1 percent 
of families in urban areas.

    In conclusion, I would like to encourage all members of the 
House Small Business Committee to become cosponsors of H.R. 
763, introduced by Reps. Charles Boustany (R-La.) and Jim 
Matheson (D-Utah), to repeal the annual fee on health insurance 
providers that was enacted by the ACA. Repealing this 
counterproductive tax will certainly prevent premium increases 
for individuals and small businesses in the fully insured 
health insurance marketplace.

    Thank you again for the opportunity to share my story. I 
would be glad to take your questions.
    Statement of Rep. Charles Boustany (LA-03)

    House Small Business Committee

    Subcommittee on Health and Technology

    ``The Health Insurance Fee: Impact on Small Businesses'' 
Hearing

    May 9, 2013

    Enabling all Americans to have access to quality and 
affordable healthcare was, and remains, a laudable goal. 
Unfortunately, actual public policies passed by Congress, too 
often come with unintended consequences and unexpected price 
tags. The President's health care law is a prime example of 
this.

    For instance, take small businesses and the health 
insurance coverage countless enterprises provide for their 
workers and families. Recently, Gallup's national poll reported 
that health care costs and taxes served as the two greatest 
challenges already facing small businesses. Now, by way of the 
President's health care law, millions of American Main Street 
enterprises and the even more millions of workers they employ 
will be subjected to a new health insurance tax (HIT) at a 
price tab over $100 billion. Increased premiums will not only 
impact small businesses' bottom lines and family budgets, they 
will also lead to negative economic consequences.

    Promoted as a ``health insurance fee'' on insurers, the HIT 
is unavoidably a tax on small enterprises and the self-
employed. Even the Congressional Budget Office (CBO) noted the 
costs will simply be passed on to policyholders. The HIT will 
cost each affected family about an average of $5,000 in higher 
premiums over the next decade.

    American small businesses and workers aren't asking for a 
bailout or a handout, they just want a level playing field. 
Instead they received a tax increase for an expensive health 
care program they did not ask for our could even afford, while 
corporate interests and unions were given a pass. It's wrong 
and needs to be fixed before it goes into full effect in 2014.

    There is hope, however. Congress has the ability to enact 
what many call the ``small business fix'' to the President's 
health care plan through legislation I introduced named the, 
``The Jobs and Premium Protection Act.'' H.R. 763 prevents 
premium increases for small businesses and families and 
protects employees' jobs by repealing this unfair tax. The bill 
is a measured reform ensuring America's small businesses and 
workers are not targeted with billions of dollars in new taxes 
or forced to join the ranks of the unemployed. The legislation 
has overwhelming bipartisan support that continues to grow each 
day.

    Last year, similar legislation was cosponsored by 226 
members of Congress. I am hopeful my colleagues in the House 
and the Senate recognize the potentially disastrous economic 
effects this tax will have and will join in honoring our 
commitments to protect small businesses and the millions of 
workers and families depending on them.

    As small businesses inch toward 2014, when major provisions 
of the Affordable Care Act (ACA) will be implemented, the small 
business health insurance tax (HIT) will become an expensive 
reality. This tax may make the ability to offer health 
insurance coverage even more cost-prohibitive for employers and 
the ability to purchase health insurance coverage out of reach 
for many self-employed individuals. According to the National 
Federation of Independent Business Research Foundation, the 
small business health insurance tax may cause up to 249,000 
lost jobs and up to $30 billion in lost sales over the next 
decade. In this economy, American families and small businesses 
should not have to face a forced tax increase. It's bad policy.
                        Statement for the Record


 Hearing on the ``The Health Insurance Fee: Impact on Small Business''


                              May 9, 2013


                 Subcommittee on Health and Technology


                   House Committee on Small Business


                               Joe Moser


                       Interim Executive Director


                    Medicaid Health Plans of America

    Chairman Collins, Ranking Member Hahn, and other 
distinguished members of the Subcommittee on Health and 
Technology of the House Committee on Small Business, I am 
submitting this Statement for the Record on behalf of Medicaid 
Health Plans of America (MHPA) for the hearing titled, ``The 
Health Insurance Fee: Impact on Small Business,'' conducted by 
the Subcommittee on May 9, 2013. My comments are regarding the 
insurer fee's impact on the Medicaid program.

    MHPA is the leading national association solely focused on 
representing the interests of Medicaid health plans. MHPA's 117 
member plans serve more than 15 million beneficiaries in 34 
states and the District of Columbia. As you may know, over half 
(51%) of all Medicaid beneficiaries now receive their Medicaid 
benefits through full-risk, capitated Medicaid health plans.

    MHPA appreciates the Subcommittee's attention to the impact 
that the insurer fee, which is contained in Section 9010 of the 
Patient Protection and Affordable Care Act (PPACA), Public Law 
111-148, will have on consumers and small businesses. This tax 
would result in higher health insurance premiums in the 
commercial market and will be burdensome for small businesses 
that do not self-insure, as was discussed during the hearing.

    However, states' Medicaid programs and Medicaid 
beneficiaries will also be heavily impacted by the insurer fee. 
The insurer fee applies to most health insurance companies in 
the market and this includes nearly all of MHPA's membership, 
Medicaid health plans that contract with states to serve as the 
payment and delivery system for states' Medicaid beneficiaries.

    The negative impact of this fee is especially apparent when 
analyzing its effect on state Medicaid programs. The Medicaid 
program serves our nation's neediest population, including low-
income pregnant women, children and individuals with 
disabilities. Each state's Medicaid program is funded by the 
federal government and states. Most states contract with 
managed care organizations to deliver Medicaid benefits and 
services to beneficiaries. The states are required by the 
federal government to pay Medicaid health plans actuarially 
sound rates to ensure that plans have enough resources to cover 
the care needed by enrollees as well as common costs of doing 
business, which include taxes and fees. This means that 
Medicaid health plans will be paid with state and federal 
dollars to cover this fee owed as a result of the PPACA. 
Further, this fee is nondeductible and counts as taxable 
income, which only exacerbates the cost.

    MHPA commissioned Milliman, a leading actuarial firm, to 
analyze the impact of the fee on Medicaid health plans and to 
quantify the resulting cost to states and the federal 
government. The Millman report found that over ten years, the 
fee would cost the government $38.4 billion. The state portion 
of this estimate is $13.6 billion and $24.8 billion would be 
the federal portion.

    The loss of state and federal Medicaid funding that would 
result from this fee being placed on Medicaid health plans will 
strain states and the Medicaid programs, as well as reduce 
funding and access to services available for Medicaid 
beneficiaries. As states face financial pressure to implement 
the PPACA and expand the Medicaid program, the insurer fee will 
drain states of valuable and limited health care dollars.

    In closing, MHPA supports full repeal of the insurer fee. 
We applaud Congressman Boustany's legislation, H.R. 763, to 
fully repeal the fee in order to avoid the negative impact that 
it will have on state Medicaid programs and beneficiaries, as 
well as companion legislation, S. 603, introduced by Senator 
Barrasso. We urge Committee members to continue to recognize 
the negative impact that this fee will have on the Medicaid 
program as one very important component to the overall concerns 
regarding this tax contained in the ACA.

    Thank you for the opportunity to submit a Statement for the 
Record on behalf of MHPA.

                                 
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