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


               PROVIDING ACCESS TO AFFORDABLE, FLEXIBLE
                  HEALTH PLANS THROUGH SELF NSURANCE

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

                                HEARING

                               BEFORE THE

                        SUBCOMMITTEE ON HEALTH,
                    EMPLOYMENT, LABOR, AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

           HEARING HELD IN WASHINGTON, DC, FEBRUARY 26, 2014

                               __________

                           Serial No. 113-46

                               __________

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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Robert C. ``Bobby'' Scott, 
Joe Wilson, South Carolina               Virginia
Virginia Foxx, North Carolina        Ruben Hinojosa, Texas
Tom Price, Georgia                   Carolyn McCarthy, New York
Kenny Marchant, Texas                John F. Tierney, Massachusetts
Duncan Hunter, California            Rush Holt, New Jersey
David P. Roe, Tennessee              Susan A. Davis, California
Glenn Thompson, Pennsylvania         Raul M. Grijalva, Arizona
Tim Walberg, Michigan                Timothy H. Bishop, New York
Matt Salmon, Arizona                 David Loebsack, Iowa
Brett Guthrie, Kentucky              Joe Courtney, Connecticut
Scott DesJarlais, Tennessee          Marcia L. Fudge, Ohio
Todd Rokita, Indiana                 Jared Polis, Colorado
Larry Bucshon, Indiana               Gregorio Kilili Camacho Sablan,
Trey Gowdy, South Carolina             Northern Mariana Islands
Lou Barletta, Pennsylvania           Frederica S. Wilson, Florida
Joseph J. Heck, Nevada               Suzanne Bonamici, Oregon
Susan W. Brooks, Indiana             Mark Pocan, Wisconsin
Richard Hudson, North Carolina
Luke Messer, Indiana

                    Juliane Sullivan, Staff Director
                 Jody Calemine, Minority Staff Director
                                 
                                 ------                                

        SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           David Loebsack, Iowa,
Tom Price, Georgia                     Ranking Member
Kenny Marchant, Texas                Rush Holt, New Jersey
Matt Salmon, Arizona                 Robert C. ``Bobby'' Scott, 
Brett Guthrie, Kentucky                  Virginia
Scott DesJarlais, Tennessee          Ruben Hinojosa, Texas
Larry Bucshon, Indiana               John F. Tierney, Massachusetts
Trey Gowdy, South Carolina           Raul M. Grijalva, Arizona
Lou Barletta, Pennsylvania           Joe Courtney, Connecticut
Joseph J. Heck, Nevada               Jared Polis, Colorado
Susan W. Brooks, Indiana             Frederica S. Wilson, Florida
Luke Messer, Indiana                 Suzanne Bonamici, Oregon
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on February 26, 2014................................     1

Statement of Members:
    Loebsack, Hon. David, a Representative in Congress from the 
      State of Iowa..............................................     4
        Prepared statement of....................................     6
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor, and Pensions............................     1
        Prepared statement of....................................     3
Statement of Witnesses:
    Calsyn, Maura, D., Director Of Health Policy, Center for 
      American Progress, Washington, DC..........................    24
        Prepared statement of....................................    26
    Ferguson, Michael, W., President and CEO, Self-Insurance 
      Institute of America (SIIA), Simpsonville, SC..............     8
        Prepared statement of....................................    11
    Kelley, Wes, Executive Director, Columbia Power and Water 
      Systems, Columbia, TN......................................    19
        Prepared statement of....................................    21
    Melillo, Robert, National Vice President of Risk Financing 
      Solutions, USI Insurance, Glastonbury, CT..................    31
        Prepared statement of....................................    33
Additional Submissions:
    Mr. Loebsack: Question Submitted for the Record                  63

 
         PROVIDING ACCESS TO AFFORDABLE, FLEXIBLE HEALTH PLANS.
                         THROUGH SELF-INSURANCE

                              ----------                              


                      Wednesday, February 26, 2014

                     U.S. House of Representatives

        Subcommittee on Health, Employment, Labor, and Pensions

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:03 a.m., in 
room 2175, Rayburn House Office Building, Hon. Phil Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, DesJarlais, Bucshon, Brooks, 
Messer, Loebsack, Holt, Scott, Hinojosa, Courtney, and 
Bonamici.
    Also present: Representative Kline.
    Staff present: Andrew Banducci, Professional Staff Member; 
Janelle Belland, Coalitions and Members Services Coordinator; 
Molly Conway, Professional Staff Member; Ed Gilroy, Director of 
Workforce Policy; Benjamin Hoog, Senior Legislative Assistant; 
Nancy Locke, Chief Clerk; Daniel Murner, Press Assistant; Brian 
Newell, Deputy Communications Director; Krisann Pearce, General 
Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce 
Policy; Alissa Strawcutter, Deputy Clerk; Tylease Alli, 
Minority Clerk/Intern and Fellow Coordinator; Jody Calemine, 
Minority Staff Director; Melissa Greenberg, Minority Staff 
Assistant; Julia Krahe, Minority Communications Director; Megan 
O'Reilly, Minority General Counsel; Michael Zola, Minority 
Deputy Staff Director; and Mark Zuckerman, Minority Senior 
Economic Advisor.
    Chairman Roe. A quorum being present, the Subcommittee on 
Health, Employment, Labor, and Pensions will come to order, and 
good morning. I would like to welcome our guests and thank our 
witnesses for being here on this snowy day--sort of a surprise 
this morning.
    Rising health care costs remain a significant challenge for 
workers and job creators nationwide. According to a survey 
released by the National Small Business Association, 91 percent 
of employers reported higher costs at their most recent health 
insurance renewal; one in four experienced cost increases of 20 
percent or more. In a report released last Friday, the 
nonpartisan actuaries at the Centers for Medicare and Medicaid 
Services estimated roughly two-thirds of small businesses will 
face higher insurance premiums as a result of the President's 
health care law.
    Promoting policies that will lead to affordable health care 
coverage is more urgent than ever. Today we will examine how 
self-insured plans help provide quality health care to millions 
of Americans at a more reasonable cost and discuss why we 
should reject any effort that undermines this important health 
insurance option.
    Employers who manage a self-insured health plan bear the 
financial risk of providing health benefits to workers. 
Employers will often work with a third-party administrator to 
process claims and benefit payments. Many self-insured 
employers also purchase a product known as stop-loss insurance, 
a risk management tool that protects employers against 
catastrophic claims and high costs.
    We have with us today a panel of witnesses who possess a 
wealth of knowledge, expertise, and experience in this area. 
They will explain in greater technical detail how the self-
insured marketplace works.
    However, it is worth noting just how vitally important this 
health insurance option has become. Approximately 60 percent of 
all individuals covered by employer-sponsored health insurance 
are in a self-insured plan. Even unions are embracing the 
benefits of this approach. A majority of Taft-Hartley health 
plans are self-insured.
    Support for self-insurance has grown because it can be 
tailored to the needs of the workforce and offers transparency 
to ensure the plan is managed in an efficient and effective 
way. Just as important, self-insurance helps control health 
care costs, which can lead to higher wages for workers and more 
resources for employers to invest in job creation.
    Across the country we are witnessing what happens when the 
federal government tries to force millions of individuals into 
a one-size-fits-all health care plan: costs go up, wages go 
down, and workers lose the coverage they like and the full-time 
jobs they need. Self-insurance is a legitimate option for 
workers and employers who cannot afford this government-run 
health care plan.
    Perhaps that explains why some want to clamp down on the 
use of self-insured health care plans. In February of 2013, the 
New York Times reported that Obama administration officials 
were ``considering regulations to discourage small and midsize 
employers'' from using stop-loss insurance, thereby undermining 
the ability to self-insure. This press report contradicted an 
earlier statement by Phyllis Borzi, the Assistant Secretary of 
Employee Benefits Security at the Department of Labor, who 
vowed that the administration was, ``not secretly writing a 
stop-loss regulation.''
    For months, the committee has sought clarification, but as 
usual, the administration has been less than forthcoming. The 
administration must clarify plans to potentially regulate in 
this area and explain the legal basis it has to do so.
    No more Friday news dumps, midnight regulations, or holiday 
surprises. The employers, workers, unions, and families who 
rely on these health care plans deserve to know the truth now. 
Like every American, they were told if they liked their current 
health care plan they could keep it, and they have a right to 
know whether they too will be on the losing end of the 
president's broken promise.
    Let's work together to make health care more affordable 
instead of raising costs of the more heavy-handed rules and 
bureaucratic overreach.
    Before I conclude, I would like to take a moment to 
acknowledge the resignation of my friend and our friend and 
former colleague, Rob Andrews. Over the last few years Rob and 
I have sat side by side on this subcommittee discussing 
important issues facing our families--our nation's families and 
workplaces, such as health care, labor relations, and 
retirement security. We had our disagreements for sure, but we 
also shared a desire to advance the best interests of workers, 
employers, and retirees.
    There are a number of challenges that merit our attention 
and the issue before us today is no exception. We have to 
ensure federal labor policies are fair and protect the right of 
workers to join or not join a union. We also have to address 
the multiemployer pension crisis that grows more severe with 
each passing day.
    Rob and I spent many hours together examining the problems 
facing the multiemployer pension plans and discussing possible 
solutions to protect workers, employers, retirees, and 
taxpayers. For the sake of those whose jobs and retirement 
security are at stake, I hope this committee can continue that 
spirit of bipartisan cooperation in the months ahead, and I 
truly will miss Rob Andrews.
    We are pleased today that our colleague, Dr. Dave Loebsack, 
is serving today as the senior Democratic member of the 
subcommittee.
    And with that, I will now yield to our distinguished 
colleague for his opening remark?
    [The statement of Chairman Roe follows:]

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

    Good morning. I'd like to welcome to our guests and thank our 
witnesses for joining us.
    Rising health care costs remains a significant challenge for 
workers and job creators nationwide. According to a survey released by 
the National Small Business Association, 91 percent of employers 
reported higher costs at their most recent health insurance renewal; 
one in four experienced cost increases of 20 percent or more. In a 
report released last Friday, the nonpartisan actuaries at the Centers 
for Medicare and Medicaid Services estimate roughly two-thirds of small 
businesses will face higher insurance premiums as a result of the 
president's health care law.
    Promoting policies that will lead to affordable health coverage is 
more urgent than ever. Today we will examine how self-insured plans 
help provide quality health care to millions of Americans at a more 
reasonable cost, and discuss why we should reject any effort that 
undermines this important health insurance option.
    Employers who manage a self-insured health plan bear the financial 
risk of providing health benefits to workers. Employers will often work 
with a third-party to process claims and benefit payments. Many self-
insured employers also purchase a product known as stop loss insurance, 
a risk management tool that protects employers against catastrophic 
claims and high costs.
    We have with us today a panel of witnesses who possess a wealth of 
knowledge, expertise, and experience in this area. They will explain in 
greater technical detail how the self-insured marketplace works. 
However, it is worth noting just how vitally important this health 
insurance option has become.
    Approximately 60 percent of all individuals covered by employer-
sponsored health insurance are in a self-insured plan. Even unions are 
embracing the benefits of this approach; a majority of Taft-Hartley 
health plans are self-insured. Support for self-insurance has grown 
because it can be tailored to the needs of the workforce and offers 
transparency to ensure the plan is managed in an efficient and 
effective way. Just as important, self-insurance helps control health 
care costs, which can lead to higher wages for workers and more 
resources for employers to invest in job creation.
    Across the country, we're witnessing what happens when the federal 
government tries to force millions of individuals into a one-size-fits-
all health care plan: costs go up, wages go down, and workers lose the 
coverage they like and the full-time jobs they need. Self-insurance is 
a legitimate option for workers and employers who cannot afford this 
government-run health care scheme. Perhaps that explains why some want 
to clamp down on the use of self-insured health care plans.
    In February 2013 the New York Times reported Obama administration 
officials were ``considering regulations to discourage small and 
midsize employers'' from using stop-loss insurance, thereby undermining 
the ability to self-insure. This press report contradicted an earlier 
statement by Phyllis Borzi, Assistant Secretary for Employee Benefits 
Security at the Department of Labor, who vowed the administration was 
``not secretly writing a stop-loss regulation.''
    For months the committee has sought clarification, but as usual the 
administration is being less than forthcoming. The administration must 
clarify its plans to potentially regulate in this area, and explain the 
legal basis it has to do so. No more Friday news dumps, midnight 
regulations, or holiday surprises. The employers, workers, unions, and 
families who rely on these health plans deserve the truth now. Like 
every American, they were told if they liked their current health care 
plan they could keep it; they have a right to know whether they too 
will be on the losing end of the president's broken promise. Let's work 
together to make health care more affordable, instead of raising costs 
with more heavy-handed rules and bureaucratic overreach.
    Before I conclude, I would like to take a moment to acknowledge the 
resignation of our friend and former colleague Rob Andrews. Over the 
last few years, Rob and I sat side by side on this subcommittee, 
discussing important issues facing our nation's families and 
workplaces, such as health care, labor relations, and retirement 
security. We had our disagreements, but we always shared a desire to 
advance the best interests of workers, employers, and retirees.
    There are a number of challenges that merit our attention, and the 
issue before us today is no exception. We have to ensure federal labor 
policies are fair and protect the rights of workers to join or not join 
a union. We also have to address the multiemployer pension crisis that 
grows more severe with each passing day. Rob and I spent many hours 
together examining the problems facing multiemployer pension plans and 
discussing possible solutions to protect workers, employers, retirees, 
and taxpayers. For the sake of those whose jobs and retirement security 
are at stake, I hope this committee can continue that spirit of 
bipartisan cooperation in the months ahead.
    We are pleased our colleague Representative David Loebsack is 
serving today as the senior Democratic member of the subcommittee. With 
that, I will now yield to our distinguished colleague for his opening 
remarks.
                                 ______
                                 
    Mr. Loebsack. Good morning, all. I want to thank in 
particular Chairman Roe--Dr. Roe--for calling today's hearing, 
and thank all the witnesses for testifying today.
    Dr. Roe and I have had a personal relationship since I have 
gotten here, and it has been a very good relationship and I do 
look forward to working with him today and hopefully into the 
future, as well. We already discussed our desire to do that on 
a bipartisan basis going forward, and I know that we feel the 
same way and it is a mutually respectful and civil 
relationship, which often is kind of rare in this body now 
days, so I do look forward to today's hearing and hopefully 
working together in the future beyond this hearing.
    Thank you, Dr. Roe.
    The Affordable Care Act can pave the way for all Americans 
to have access to quality, affordable health coverage for the 
first time. While it is unacceptable that technical problems 
prevented people from signing up for the state marketplaces at 
the outset, there is more than a month of open enrollment left 
and millions of Americans are signing up for coverage.
    As of last month, we just heard, approximately 4 million 
people have enrolled on the marketplace plan and millions more 
have secured coverage through Medicaid.
    The ACA is also helping strengthen employer-sponsored 
coverage for the more than 150 million workers and their 
families who get their health insurance through employment. Of 
the workers who get coverage through their jobs, about three in 
five work for an employer who self-funds their coverage--three 
in five--which means that they directly assume responsibility 
for covering the cost of their employees' medical care.
    While the ACA provides employers who self-fund with greater 
flexibility, it also ensures that workers with this coverage 
have access to many of the law's important new consumer 
protections. Because of the Affordable Care Act's ban on annual 
lifetime limits, workers no longer face financial ruin if they 
confront a chronic or catastrophic illness.
    Children can stay on their parents' plan until they are 26, 
including about 5,400 young people in my district alone. This 
means that rather than worrying about whether they can afford 
adequate coverage at the very early stages of their careers, we 
are giving America's young people a chance to focus on building 
a strong future right from the start.
    Now workers have the right to appeal a benefit denial 
through an independent third party, and they have the right to 
a summary of their benefits and coverage to help them compare 
costs and understand their health care plan.
    The Affordable Care Act also provides workers with greater 
freedom, as they are no longer tied to their employer for their 
health care coverage. This newfound freedom gives workers 
greater flexibility in the labor market. They are free to make 
career decisions, such as changing jobs or starting their own 
business, without worrying about how they will continue to get 
health insurance.
    Employers are also benefitting from the law and saving 
money through such provisions as the small business tax credit 
and medical loss ratio. In fact, last year, health care costs 
grew at the slowest rate in 50 years.
    Spending less on health care allows employers to create 
more jobs. Since the law's enactment, more than 8 million new 
jobs have been added to the economy and nine out of 10 of those 
jobs were full-time positions.
    Recent reports have indicated that employers may be looking 
to self-insure. As part of today's hearing I expect we will 
discuss the issues unique to the self-insurance market. I think 
this is an important conversation, and while there are many 
benefits to employers who self-insure, there also can be 
significant financial risks.
    The recent story about AOL exemplifies the risks involved 
with self-insuring and reinforces why employers must be 
adequately prepared if they face higher-than-expected health 
care costs. The CEO of AOL recently blamed the high health care 
costs incurred by two babies for the company's decision to cut 
contributions to its retirement plan.
    With 5,000 workers, AOL is not what I would consider--and I 
think most would consider--a small employer, and thus, was 
ultimately able to absorb the costs. They did not have to shift 
the costs onto employees, and after a public outcry they 
backpedaled their plan to cut retirement benefits.
    A small employer, regardless of whether they had stop-loss 
coverage, may not have as much flexibility to absorb unexpected 
costs in a self-funded plan.
    I hope today's conversation will be a constructive one and 
I look forward to the testimony.
    And again, I want to thank Dr. Roe, the chairman, for 
putting this hearing together today.
    And I yield back. Thank you, Dr. Roe.
    [The statement of Mr. Loebsack follows:]

Prepared Statement of Hon. David Loebsack, a Representative in Congress 
                         from the State of Iowa

    Good morning. I want to thank Chairman Roe for calling today's 
hearing and thank all of the witnesses for testifying.
    The Affordable Care Act paves the way for all Americans to have 
access to quality, affordable health care coverage for the first time.
    While it is unacceptable that technical problems prevented people 
from signing up for the marketplaces at the outset, there is more than 
a month of open enrollment left and millions of Americans are signing 
up for coverage.
    As of last month, approximately 4 million people have enrolled in a 
marketplace plan and millions more have secured coverage through 
Medicaid.
    The ACA is also helping strengthen employer-sponsored coverage for 
the more than 150 million workers and their families who get their 
health insurance through employment.
    Of the workers who get coverage through their jobs, about three in 
five work for an employer who self-funds their coverage, which means 
that they directly assume responsibility for covering the cost of their 
employees' medical care.
    While the ACA provides employers who self-fund with greater 
flexibility, it also ensures that workers with this coverage have 
access to many of the law's important new consumer protections.
    Because of the Affordable Care Act's ban on annual and lifetime 
limits, workers no longer face financial ruin if they confront a 
chronic or catastrophic illness.
    Children can stay on their parent's plan until they are 26, 
including 5,400 young people in my district alone. This means that 
rather than worrying about whether they can afford adequate coverage at 
the very early stages of their careers, we are giving America's young 
people a chance to focus on building a strong future right from the 
start.
    Now workers have the right to appeal a benefit denial to an 
independent third party and they have the right to a summary of their 
benefits and coverage to help them compare costs and understand their 
health care plan.
    The Affordable Care Act also provides workers with greater freedom 
as they are no longer tied to their employer for their health care 
coverage. This newfound freedom gives workers greater flexibility in 
the labor market: they are free to make career decisions, such as 
changing jobs or starting their own business, without worrying about 
how they will continue to get health insurance.
    Employers are also benefiting from the law and saving money through 
such provisions as the small business tax credit and medical loss 
ratio. In fact, last year health care costs grew at the slowest rate in 
50 years.
    Spending less on health care allows employers to create more jobs. 
Since the law's enactment, more than eight million new jobs have been 
added to the economy--and nine out of 10 of those jobs are full-time 
positions.
    Recent reports have indicated that more employers may be looking to 
self-insure.
    As part of today's hearing, I expect we will discuss the issues 
unique to the self-insurance market. I think this is an important 
conversation.
    While there are many benefits to employers who self-insure, there 
also can be significant financial risk.
    The recent story about AOL exemplifies the risks involved with 
self-insuring and re-enforces why employers must be adequately prepared 
if they face higher than expected health care costs.
    The CEO of AOL recently blamed the high health care costs incurred 
by two babies for the company's decision to cut contributions to its 
retirement plan.
    With 5,000 workers, AOL is not what I would consider a small 
employer and thus was ultimately able to absorb the costs. They did not 
have to shift the costs onto employees, and, after a public outcry, 
they backpedaled their plan to cut retirement benefits. A smaller 
employer--regardless of whether they had stop-loss coverage--may not 
have as much flexibility to absorb unexpected costs in a self-funded 
plan.
    I hope today's conversation will be a constructive one and look 
forward to the testimony. Thank you very much, Mr. Chairman. I yield 
back.
                                 ______
                                 
    Chairman Roe. I thank you, Dr. Loebsack. And one of the 
things that you hear in Congress all the time, the more times 
you hear somebody say they like each other they usually don't. 
Actually, in this case we do, so I wanted to let you know that 
to get started.
    Pursuant to rule 7--committee rule 7--all members will be 
permitted to submit written statements to be included in the 
permanent hearing record. And without objection, the hearing 
record will remain open for 14 days to allow such statements 
and other extraneous material referenced during the hearing to 
be submitted for the official hearing record.
    It is my privilege now to introduce our distinguished 
panel.
    First, Mr. Michael Ferguson is the president and chief 
executive officer of the Self-Insurance Institute of America in 
Simpsonville, South Carolina. Mr. Ferguson has significant 
expertise on self-insurance matters related to group health 
plans and has been with the Self-Insurance Institute of America 
for more than 18 years.
    And welcome, Mr. Ferguson.
    I now would like to yield to my colleague, Dr. DesJarlais, 
to introduce our next witness?
    Mr. DesJarlais. Thank you, Mr. Chairman.
    And good morning, and thanks to all of you for traveling 
here in the snow to testify with us today.
    I have the privilege of introducing Mr. Wes Kelley, who 
comes to us from Columbia, Tennessee, which is located in 
Tennessee's fourth district, and in Maury County. Mr. Kelley is 
the executive director of Columbia Power and Water Systems and 
has held that position since May of 2012. Columbia Power 
provides reliable and reasonably priced utility services to its 
customers with a personal touch and, under Mr. Kelley's 
leadership, was able to upgrade many of its services during 
fiscal year 2013.
    Prior to moving to Columbia in 2012, Mr. Kelley was the 
president and CEO of PES/Energize, a municipal power and fiber-
to-home broadband provider in Pulaski, Tennessee. Before this, 
Mr. Kelley worked for the city of Hillsdale, the Hillsdale 
Board of Utilities, and the Hillsdale College in Hillsdale, 
Michigan.
    In addition to his professional duties, Mr. Kelley serves 
on a number of industry and community boards, including the 
Tennessee Valley Authority's Regional Energy Resource Council, 
as well as serving as the chair for the Maury County Chamber of 
Economic Alliance.
    Wes Kelley is a graduate of Hillsdale College, where he 
majored in political economy. He is currently married to 
Sundown Kelley, with whom he has two daughters, Haven and 
Cadence.
    And I yield back.
    Welcome.
    Chairman Roe. Thank you, Dr. DesJarlais.
    And one of the things that you all that are not from 
Tennessee don't know is, if you are running for statewide 
office it goes through Columbia, Tennessee, during Mule Days, 
so everybody that is running--you know if they show up at 
Columbia for Mule Days they are running for something 
statewide.
    Am I correct, Mr. Kelley?
    I will now continue our introductions. Ms. Maura Calsyn is 
the director of health policy at the Center for American 
Progress in Washington, DC. Prior to joining the Center for 
American Progress, Ms. Calsyn was an attorney with the 
Department of Health and Human Services Office of General 
Counsel.
    Welcome.
    Mr. Robert Melillo is the national vice president of risk 
financing solutions at USI Insurance Services in Glastonbury, 
Connecticut. Mr. Melillo has nearly 20 years of experience in 
group health insurance industry, with more than 15 of these 
years concentrated on the stop-loss market.
    A very distinguished panel, and thank you all for being 
here.
    Before I recognize you to provide your testimony let me 
briefly explain our lighting system. You have five minutes to 
present your testimony. When you begin the light in front of 
you will turn green; with one minute left the light will turn 
yellow; and when your time is expired the light will turn red.
    At that point I will ask you to wrap up your remarks as--I 
won't cut you off in the middle of your remark, but try to wrap 
it up at that point. And after everyone has testified, each 
member will have five minutes to ask questions.
    And we will now start with Mr. Ferguson?

  STATEMENT OF MR. MICHAEL FERGUSON, PRESIDENT AND CEO, SELF-
    INSURANCE INSTITUTE OF AMERICA (SIIA), SIMPSONVILLE, SC

    Mr. Ferguson. Good morning, Chairman Roe, members of the 
subcommittee. Certainly my pleasure to be with you today and 
talk with you about what I think I would agree is a very timely 
topic.
    I thought probably the logical place to start was to 
briefly describe or talk about what as self-insured plan is and 
how it differs from a fully insured plan. So real basically, if 
you are an employer and you want to provide coverage for your 
employees you have got two options to do so.
    What we call the traditional option is you contact an 
insurance company and you arrange for a group insurance policy 
through a traditional insurance carrier, and you pay a premium 
to that insurance carrier, and in turn, that insurance carrier 
basically promises to cover the health care risks of your 
workforce population. So essentially, you are transferring that 
financial and legal liability risk over to the insurance 
carrier.
    The alternative to that is to decide, ``Well, instead of 
paying an insurance company to do this, what we are going to do 
as an employer, we are going to self-insure,'' which 
essentially means you are going to pay the cost of the claims 
as they are incurred. So by doing that, you are retaining the 
financial liability and the legal liability.
    Now, most self-insured plans, particularly in the smaller 
and midsize market range, they will retain what is known as 
stop-loss insurance to guard against catastrophic risk. So 
again, as a self-funded plan, you are retaining the risk and 
you are paying the claims as they are incurred. So it is a 
financial management tool, if you will, in a way, to help you 
finance the cost of your health benefits for your workers.
    So with that, you know, let's talk about who self-insures.
    And, Mr. Chairman, you talked a little bit about this, 
self-insurance is a pretty major portion of the marketplace 
today. About 61 percent of workers in private health care plans 
receive their benefits through a self-insured arrangement.
    But it is not limited to the private employer marketplace. 
There are a lot of union plans that rely on self-insurance. 
There is estimated about 600 Taft-Hartley union plans that 
operate on a self-insured basis.
    And then finally, there are a lot of public sector entities 
that utilize self-insurance as the financing tool for the 
health benefits, and you are going to hear a story today from 
one such public organization that utilizes self-insurance.
    So the self-insurance footprint in the marketplace is 
fairly large. It is really a mainstream strategy for businesses 
and organizations these days, and so it is a significant part, 
so it is good that we are talking about it here in this 
hearing.
    Now, when you are looking at self-insurance it is important 
to point out that self-insurance is not necessarily the right 
choice for every organization. Like any major business 
decision, there are pros and cons.
    There are certainly some disadvantages to being self-
insured. Clearly you are taking the financial and legal 
liability risks when you are becoming self-insured, whereas if 
you transfer that off under a fully insured arrangement.
    And the other thing that I would point out that is 
something that is maybe not said in bullet-point presentations, 
but when you are self-insured, in order to run a successful 
self-insured plan you really want to spend the time to sort of 
roll up your sleeves and take the time to plan out and work 
through your business advisors and your business partners to 
make sure the plan runs effectively. So it takes a little extra 
time to run a successful self-insured plan, so you need--from a 
corporate culture standpoint, you need to be willing to invest 
the time.
    Now, the upsides are many. There are good cost-saving 
opportunities, and you can customize the plan to best meet the 
needs of your particular workforce.
    Now, one of the advantages that I particularly did not note 
is that by self-insuring, this is--companies that self-insure, 
the main motivation is not to get out of requirements that are 
put forth by the ACA. In other words, this is not--if you are a 
self-funded plan, particularly a non-grandfathered plan, which 
by definition are plans that become self-insured after the ACA, 
you are subject to almost all of the ACA requirements and you 
are also included--you are also subject to ERISA, HIPAA, and 
other consumer protection requirements. So by becoming self-
insured it is actually the opposite: You are subjecting 
yourself to more regulation, not less.
    Finally, you know, as members of Congress what can you do 
to help to make sure that self-insurance continues to be an 
important and growing segment of the marketplace? Well, there 
is legislation now pending before Congress, the Self-Insurance 
Protection Act, which basically would set some guardrails 
around the self-insurance marketplace to protect from new 
regulatory action that would make it more difficult for 
employers or--make it more difficult for employers to operate 
self-insured health plans, and I would ask for your support for 
that legislation.
    Mr. Chairman, those are my remarks. Thank you.
    [The statement of Mr. Ferguson follows:]
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    Chairman Roe. Thank you very much, Mr. Ferguson.
    Mr. Kelley, you are recognized for five minutes?

STATEMENT OF MR. WES KELLEY, EXECUTIVE DIRECTOR, COLUMBIA POWER 
                AND WATER SYSTEMS, COLUMBIA, TN

    Mr. Kelley. Thank you very much, Chairman Roe, Ranking 
Member, members of the subcommittee. I appreciate this 
opportunity to provide testimony today on the importance of 
self-insurance to small and midsized organizations. I represent 
one such organization that utilizes self-insurance to provide 
health care benefits to our employees while maximizing our cost 
control opportunities.
    My name is Wes Kelley, and I am proud to serve as executive 
director of Columbia Power and Water System in Columbia, 
Tennessee. We are the electric and water and broadband provider 
for much of Maury County. Columbia, for those of you that don't 
know, haven't had the good fortune to visit Mule Day, is 
located about 40 miles south of Nashville, Tennessee.
    We are a small organization. We have an annual budget of 
about $85 million, but our 115 employees, 55 retirees, and 204 
family dependents are all proud of the work we do serving our 
local community.
    In 1993 our Board of Public Utilities decided to move our 
employee health insurance program from the fully insured 
marketplace and create a self-funded health plan to better 
manage costs and the benefits provided to our employees and 
eligible retirees. Enough money was saved in the first year of 
self-funding to establish a solid financial reserve that has 
continued to build to this day.
    Initially established with a $20,000 specific stop-loss 
retention level, this was increased to $30,000 in 2004, where 
it remains. Last year total funded costs were reduced by 1.8 
percent and this downward trend has been in place for several 
years. For example, claims were $1.7 million in 2006, but have 
been reducing gradually to $1.2 million last year even though 
coverage was provided to essentially the same number of 
employees and eligible retirees.
    While occasionally costs may rise in response to unusual 
conditions, we have worked closely with our employees to 
control the cost of our health care and keep the plan 
affordable. We regularly solicit bids from qualified providers 
for stop-loss coverage along with our health care network and 
third-party administration.
    Since the plan was established we have taken much of our 
savings and placed those dollars in a reserve account. Today we 
have more than $1 million in reserves. Indeed, in previous 
years our board intentionally stopped funding the plan to keep 
the reserve from growing too large.
    Over the past 22 years our self-funded arrangement has 
allowed the utility to maintain above-average benefits to our 
employees, dependents, and retirees. In an era of ever rising 
deductibles we have been able to keep our participants' 
deductibles at $200 for an individual, $400 for a family, with 
a $10 drug copay.
    Also, we provide a full range of dental benefits, including 
orthodontia. These benefits are provided without the employees 
contributing to the cost of health insurance through their 
paycheck or otherwise.
    Furthermore, eligible early retirees and their dependents 
enjoy the same benefits as active employees. Retirees age 65 
and older, along with their surviving spouses, maintain 
Medicare supplemental coverage with CPWS, along with access to 
drug discounts.
    These health benefits have allowed us to retain the best 
possible workforce, increase productivity, and maintain a high 
level of satisfaction with the plan. Some of the dollars saved 
since implementing our self-funded plan have been used to fund 
wellness and disease control measures, the cost of which would 
have otherwise been on top of the premiums we pay in a fully 
insured environment.
    Some of the wellness benefits include annual blood tests, 
PSA screening for men, and mammograms for female employees. 
Also, biannual physicals are provided to the employees at no 
cost.
    Controlling the cost of health care is critical to our 
organization because we realize that any increase in that cost 
will ultimately impact the ratepayers that use our utility 
services. In spite of our small size, we believe our self-
funded health insurance has been successful thanks to the good 
advice we receive from knowledgeable consultants; strong, 
business-minded board of directors; an appreciative workforce; 
and perhaps most importantly, affordable stop-loss insurance 
that protects the financial solvency of the plan.
    Thank you again for this opportunity to share our 
experience.
    [The statement of Mr. Kelley follows:]
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    Chairman Roe. Thank you, Mr. Kelley.
    Ms. Calsyn, you are recognized for five minutes?

   STATEMENT OF MS. MAURA CALSYN, DIRECTOR OF HEALTH POLICY, 
          CENTER FOR AMERICAN PROGRESS, WASHINGTON, DC

    Ms. Calsyn. Thank you, Mr. Chairman, Ranking Member, and 
members of the Subcommittee. Thank you for the opportunity to 
testify today.
    My testimony is going to focus on the following three 
topics: first, how the Affordable Care Act preserves 
flexibility for self-insured employers, while also giving 
workers greater flexibility and security; second, the risks of 
self-funding to employers and employees; and third, why an 
increase in smaller businesses' self-funding creates problems 
for employers and employees who remain in the fully insured 
market.
    First, the ACA reformed much of the private insurance 
market but had a much smaller impact on self-insured employers 
because the law exempts these plans from many of its key 
reforms. This approach accounted for the differences between 
the fully insured and self-insured markets.
    For example, the majority of self-funded large employers 
offer fairly comprehensive benefits, in stark contrast to plans 
in the individual market. The essential health benefits and 
actuarial value requirements fixed this problem in the 
individual and small-group fully insured markets, but do not 
apply to self-insured plans.
    This is an example of how the ACA's treatment of self-
insured plans is a compromise that largely preserved the 
flexibility in this market while making targeted changes to 
protect consumers, like banning lifetime limits.
    When discussing flexibility, affordability, and health 
care, we should also consider how the ACA helps workers. The 
law provides security for those with job-based insurance in 
case they lose that coverage in the future, and employees are 
no longer tied to a particular job because that is their sole 
source of coverage.
    Second, self-funding is not a panacea. My two co-witnesses 
have detailed the benefits of self-insurance as well as the use 
of stop-loss policies and other arrangements to mitigate its 
risks. But, self-funding still requires significant resources 
and expertise to understand and manage the legal and financial 
complexities of these arrangements.
    And when discussing affordability of group health plans we 
must also consider employees' costs, not just employers'. If 
businesses do, in fact, self-insure to avoid complying with the 
ACA reforms they may offer fewer categories of benefits or pass 
along those costs to their employees.
    Sicker employees in these plans may also face higher costs 
down the road and even employment discrimination because of 
lasering. A laser is a higher attachment point for an enrollee 
with costly preexisting conditions or other health risks, which 
shifts liability for those costs back to the employer and 
potentially the employee.
    Third, the trend of smaller businesses self-insuring 
creates problems for the businesses and employees who remain in 
the fully insured market. Millions of small business employees 
have historically been uninsured, and those with coverage have 
often paid more.
    One reason why is because small businesses may not have 
enough employees to adequately spread risk. To solve this 
problem the ACA not only prohibits practices that priced older 
and sicker groups out of the health care market, but it spreads 
risks among all small employers.
    But if businesses with healthier employees leave the fully 
insured market en masse these changes are meaningless, and 
without a stronger regulatory framework for the self-insured 
market and stop-loss insurance this is a significant risk. That 
is because there are few incentives for employers with 
healthier-than-average workforces to join the fully insured 
risk pool that may include older, less healthy individuals.
    But once the group's health status declines, self-funding 
becomes much riskier. Stop-loss insurers, for example, can 
raise premiums or refuse to renew coverage. Small employers may 
drop coverage or return to the fully insured market, adding 
their less healthy employees to that risk pool, and for small 
businesses a single injury or unexpected illness can trigger 
this response.
    One study found that without further regulation of stop-
loss policies, up to 60 percent of small businesses could self-
fund, leaving more costly employees in the fully funded market. 
This could increase premiums by up to 25 percent, which could, 
in turn, deter other businesses from offering insurance 
coverage or cause others to drop coverage, further increasing 
costs and disrupting coverage.
    Anecdotal evidence suggests that this shift is beginning. 
The increase in stop-loss policies marketed to extremely small 
companies is also telling.
    In conclusion, self-funding will likely lower costs for 
some employers, but it will dramatically increase costs for 
others that remain in the fully insured market because self-
funding is simply not a viable alternative. Millions of workers 
will also see higher costs.
    We must acknowledge these tradeoffs during this discussion. 
Greater oversight and regulation of stop-loss insurance will 
help stabilize the small-group market and protect employers and 
employees.
    Mr. Chairman, this concludes my testimony. I am happy to 
answer any questions.
    [The statement of Ms. Calsyn follows:]
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    Chairman Roe. Thank you very much for your testimony.
    Mr. Melillo, you are recognized for five minutes?

  STATEMENT OF MR. ROBERT MELILLO, NATIONAL VICE PRESIDENT OF 
    RISK FINANCING SOLUTIONS, USI INSURANCE, GLASTONBURY, CT

    Mr. Melillo. Thank you.
    Chairman Roe and members of the subcommittee, thank you for 
the opportunity to testify on the issue of self-insurance. 
Again, my name is Robert Melillo, and I am the national vice 
president of risk financing solutions for USI Insurance 
Services, who happens to be one of the largest insurance 
brokers in the country, specializing in employee benefits, 
representing more than 10,000 employee benefit clients.
    My testimony today will include an overview of what is 
involved with migrating a group that is currently fully insured 
into a self-funded arrangement, and I will also share with you 
two case studies of groups under our advisement right now that 
are in a self-funded arrangement.
    So, the role of the insurance broker or consultant is to 
educate their client and inform their client of the options 
available to them in the marketplace to allow them to deliver a 
competitive and comprehensive health benefits package to their 
employees and their dependents. Traditionally, the fully 
insured programs have been the easiest option, yet they have 
been some of the least flexible and creative options.
    Self-funding offers plan sponsors a platform that allows 
them to effectively and efficiently manage their health care 
spending while allowing the stakeholders the ability to analyze 
the data and modify the plan design and swap out the service 
vendors to improve the outcomes and eliminate waste. Before a 
plan sponsor converts from a fully insured program to a self-
funded program they first must go through an evaluation 
process, a preparedness process, if you will, focusing on five 
key elements: risk and financial stability, risk tolerance in 
management, innovation, engagement, and ultimately education.
    And that is the role of the employee benefits producer or a 
consultant. Now, by assessing the plan's preparedness to 
convert from a fully insured plan to a self-funded arrangement 
the plan sponsor themselves and the consultant become better 
acquainted with their risk tolerance level and their 
preparedness to make that transition.
    Now, two case studies that I have to share today--one is 
Sheffield Pharmaceuticals, a family-owned, midsized 
manufacturing firm in Connecticut. They have 162 employees of 
which 75 are under the employee benefits plan.
    Prior to converting to a fully insured arrangement they 
received consistent renewal increases of approximately 10 to 15 
percent year over year. In 2008 they received an increase of 25 
percent because of a few catastrophic claims within that pool. 
The following year, with no bad claims experienced, they 
received a 39 percent rate increase from their fully insured 
carrier.
    Therefore they began to look, you know, more aggressively 
with their consultant at self-funding as an option. They ended 
up making the switch to a self-funded program using basically 
the same plan design they had in their fully insured plan, and 
over a 4-year span they saved over $400,000, a 19 percent 
savings, of which their success allowed the company to realize 
savings that, number one, allowed them to maintain a gold 
standard plan, and they did not increase their employee 
contributions for the entire term.
    The second case study is a firm in Mason, Ohio--SpearUSA. 
In 2011, they converted to a self-funded program, and by 
converting to a self-funded program they used the stop-loss 
insurance to help them reduce their spend by $4.4 million over 
a 3-year span.
    By doing so, they were able to also maintain their same 
benefit plan while adding a wellness program, so they increased 
their benefits. In addition, they did not increase their 
employee contributions for the entire term, as well.
    In conclusion, I would like to thank the committee for the 
opportunity to speak about the true benefits of self-insurance 
and what it can do for the employer. And I believe that plan 
sponsors' choice to self-insure with the use of quality and 
customizable stop-loss insurance programs is essential if they 
are to have a chance to manage their future and current spend 
instead of getting this set-it-and-forget-it mindset that tends 
to lend itself to a fully insured program.
    Thank you.
    [The statement of Mr. Melillo follows:]
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    Chairman Roe. Thank you very much.
    And I am going to start the questioning, and I usually wait 
till the last but I have to go at 11 o'clock to another 
committee and testify, like you all are doing now, so someone 
is going to have to take my seat.
    I really appreciate your being here today and I think we 
have seen the advantages and basically some of the complexities 
of health coverage. As you know, I spent over three decades as 
a physician practicing medicine dealing with all of this.
    And I also spent a number of years as a city mayor dealing 
with exactly the same issues Mr. Kelley brought along with the 
self-insured, where we insured our employees, we insured our 
city workers and our teachers. And it was about 2,500, as best 
I recall, the total number, and we were able to take this 
flexibility.
    And the thing that no one brought up, but I did read in 
your testimony that you had that is so valuable in self-insured 
plans is the transparency and the data that you get. You are 
able to control that data and see what is actually going on and 
where the claims are and what you need to do, what moves you 
need to make in your business to address that.
    And so what we did was we set up a--first with diabetes. We 
screened everyone for diabetes. We found occult diabetes in our 
population, were able to start a cholesterol, hypertension, a 
smoking cessation program.
    And I have gone through a number of these across the 
country and seen, Mr. Kelley, exactly the same thing. And I 
think that is why rising costs--and the premise of the 
Affordable Care Act was--we are going to increase access for 
people and lower costs.
    One of the things that I was noticing in Ms. Calsyn's 
testimony--and she is correct, she says ultimately self-funding 
will lower costs for some employees who choose the self-funding 
path but raise it dramatically for others. What the Affordable 
Care Act has done is done exactly that: It has raised costs for 
11 million people and lowered it for 6 million. It is already 
doing that now.
    And that is why I think businesses are scrambling to look 
at self-insurance. And I can assure you that the practice I was 
in with 450 employees, Mr. Melillo, is going to be looking at 
that very model, because we have the traditional insurance plan 
that most people have now.
    I think a question--I want to ask a couple of questions--
how has--any of you who do these self-insurance plans--Mr. 
Kelley, you may want to mention this--how has the ACA affected 
you all with the $63 fee? Because I held a hearing in Concord, 
North Carolina, several months ago--eight or nine months ago--
and it was a gold standard plan like you have. And, I mean, you 
have a plan that your employees pay nothing into, as I 
understood it. Am I correct?
    Mr. Kelley. That is correct. Yes, sir.
    Chairman Roe. And basically they have wellness benefits, 
all the benefits, essentially, of the ACA, and yet you have the 
flexibility to design those plan benefits that best suit you. 
And I think that is the biggest knock I have on the ACA is that 
the essential health benefits telling me exactly what I need to 
buy--as a consumer and you as an employer figure out for your 
employees what is best for them to buy.
    So if you could--I know there is a $63 fee. I know in 
Johnson City, Tennessee, the city manager told me it costs us 
$177,000. I know in Washington speak that is not a lot of 
money, but in Tennessee that is still a lot of money. So--
    Mr. Kelley. Thank you, sir. Yes, we do absorb those fees 
and we comply with the requirements of ACA, both in terms of 
coverage--we are a grandfathered plan, being established 22 
years ago, but there are certainly some requirements that 
impact us. And indeed, if our plan shifts dramatically then 
that grandfathered status goes away and we comply with all the 
requirements stipulated in the ACA.
    I want to speak more broadly to the point that you raised 
about how we determine our benefits. We determine our benefits 
by listening to our employees. You know, we are a small 
organization--115 active employees. We have a pool of 55 
retirees who are just as vocal as the active employees.
    And when they step forward and say, ``Hey, you know, this 
doesn't seem right. Can we work on this?'' we sit down with our 
consultants and we say, alright, what do we need to do to make 
this right? And we have been blessed by the fact that overall, 
claims have been reducing as employees realize that we are all 
in this together, and there has been a lot of ownership on the 
part of our employees.
    And I have been very pleased. Our overall costs have been 
decreasing, and that is what has allowed us not to pass these 
costs onto our employees.
    Chairman Roe. See I think one of the things you could do 
that the ACA didn't do that it should have done, and a lot of 
parts of it--26-year-olds, lifetime limits, preexisting 
conditions, I agree with all of that. The problem with it is 
that it prescripts what you must buy instead of you sitting 
down with your employees and finding exactly what they need as 
an employee and what--and how you can react to what their needs 
are.
    I think instead of having us up here tell you what to do, 
you are deciding in Columbia, Tennessee what to do.
    Mr. Melillo, very quickly, who should have a self-funded 
plan and who should not?
    Mr. Melillo. So, who should have the self-funded plan and 
who shouldn't actually comes down to the assessment process, 
and basically it determines a mindset. So if the employer or 
the plan sponsor is comfortable and understands all the facets 
that are involved with a self-funded program, has the financial 
capital to sustain itself on a program, those are the elements 
that they have to take into consideration.
    Those five bullets I mentioned--you know, stability, 
population, you know, risk tolerance and management capability, 
et cetera--those elements are the things that you really have 
to sit down with a qualified, licensed broker or consultant to 
help you make that assessment. There are a number of things 
they need to take into account.
    Chairman Roe. I thank you.
    My time is expired.
    Dr. Loebsack?
    Mr. Loebsack. Thank you, Dr. Roe. Thanks again for having 
this hearing. It has been very informative. Looking forward to 
hearing some more Q&A.
    First thing I want to ask, actually, is of Mr. Melillo, and 
then I am going to go to Ms. Calsyn.
    Even before I ask my question, you know, it seems to me 
what we are talking about here are a number of issues. You 
know, when we talk about self-funding, a lot of it is from the 
employer perspective and I want to make sure we don't lose 
sight of the employees, as well, and the benefit structure and 
making sure that those folks have what they need. I understand 
all these things have to be taken into account when someone is 
being consulted--an employer is being consulted as whether they 
ought to self-fund or not.
    But, Mr. Melillo, you mentioned that in those two cases 
over the course of a 3- or 4- or 5-year period that the 
premiums didn't increase--
    Mr. Melillo. Right.
    Mr. Loebsack.--over those years. What was the comparison of 
the premium at the outset compared to when they were fully 
insured when they made that transition? How did the premium--
how do the premiums compare to one another?
    Mr. Melillo. So the premium equivalent is based on what you 
would fund the account at, so what you project. You know, in 
one instance it was significantly lower. In my written 
testimony there is a chart and a graph for both with detail, 
okay?
    As a matter of fact, the case in number one, which was 
Sheffield Pharmaceuticals, their number was approximately--in 
2014 their premiums were--fully insured premiums would have 
been $967,000 and their self-funded funding level is projected 
to be $912,000. The prior year, which are the real numbers as 
opposed to projected, in 2013 Sheffield funded--their fully 
insured premiums would have been $774,000, and the self-
funded--what they actually funded and paid for fees was 
$612,000.
    Mr. Loebsack. Right. That is from the company--that is the 
total company perspective.
    Mr. Melillo. Right.
    Mr. Loebsack. That is the aggregate. Right.
    What about on an individual basis? When they moved from 
fully insured to self-funding did the premiums for the 
individuals go down? Did they change at all?
    Mr. Melillo. So again, it goes back to the employee 
contribution strategy, so some employers will use a percentage 
of what the premiums should be and the employee will pay a 
certain dollar amount. In this case the employee was set with a 
specific dollar amount--
    Mr. Loebsack. Right.
    Mr. Melillo.--and what they did--from 2008 to present what 
the employee funds for their portion of the benefits has not 
increased.
    Mr. Loebsack. I understand that, but I think to be fully 
accurate we need to compare what they are paying at the outset 
versus what they would have paid with a fully insured plan. 
That is my point. I don't know if you can get that--
    Mr. Melillo. Okay, so--
    Mr. Loebsack.--data or not. It would be interesting to see 
that. Because it is great to talk about over time how their--
and it is wonderful that their contribution doesn't increase, 
but it would be nice to see what it was at the outset because 
if it had gone up dramatically--and I am not saying it did; I 
don't know the answer to that and that would make some 
difference, obviously, too, in making a comparison between 
these two approaches--
    Mr. Melillo. Right.
    Mr. Loebsack.--so if we could get that data, I don't know 
if that is possible, it is--
    Mr. Melillo. Oh, absolutely.
    Mr. Loebsack. Okay.
    Mr. Melillo. But for what it is worth, the $612,000, what 
was actually funded, versus $774,000, one could argue that it 
would be relational. So if they are currently paying $50 per 
paycheck for their portion of benefits it would go up 
relational.
    Mr. Loebsack. And I am not disregarding those numbers. 
Thank you.
    Ms. Calsyn, in your testimony you state that workers could 
face coverage gaps if they get their coverage from a self-
funded health plan because self-funded employers are not 
required to cover the Affordable Care Act's essential health 
benefits. Go back to that issue, the essential health benefits.
    Am I correct that a worker in a self-funded plan could lack 
access to mental health and substance use disorder benefits, 
for example? Mental health is a very important issue, as you 
know, and mental health parity is a very important issue.
    Ms. Calsyn. Well, this could come up in a variety of ways I 
think. First, because a self-funded plan is not subject to the 
EHB requirements they might decide not to have that category of 
benefits. You know, the witnesses here today have described 
plans that are very robust but there could be examples of 
smaller employers especially who are being marketed to exit--
you know, to exit the fully insured market to move to self-
insured markets. One of the ways they could save money by doing 
so is to structure their benefits in a way that don't include 
some of those categories.
    Because the EHB requirement doesn't apply to these self-
funded firms, you also have a kind of interesting, complicated 
interaction with the mental health parity law, too. So even 
though in theory the mental health parity law applies to firms 
of this size, if they decide not to include mental health 
coverage then they don't have to really worry about that.
    The other situation, I think, where this might happen is 
there is a little bit of a downstream effect that could happen, 
too. You know, if somebody, said--take another essential health 
benefit that a lot of people say is going to raise a lot of 
cost. If you look at maternity care, for example, a plan might 
decide not to have that or limit that in some way. For very 
small firms if they decide to do that there also wouldn't be 
any protections under the Pregnancy Discrimination Act.
    So, you know, in many cases you are not going to see this, 
but there could be places where the different overlapping laws 
that protect workers just simply--a few people can fall through 
the cracks.
    Mr. Loebsack. Thank you.
    Thank you, Dr. Roe, and I yield back.
    Chairman Roe. Thank you.
    Dr. DesJarlais, you are recognized.
    Mr. DesJarlais. Mr. Ferguson, can you please elaborate on 
the impact federal regulation of stop-loss insurance may have 
on self-insured employers, especially smaller self-insured 
employers?
    Mr. Ferguson. Sure. I would be happy to.
    As we talked about earlier, in a self-funded arrangement 
stop-loss insurance is a critical risk management tool to 
protect the solvency of the plan. And so most small and 
midsized employers will retain that coverage for that 
particular reason.
    Now, the terms of those stop-loss policies will vary by the 
type of organization. It is sort of like any--if you think of 
any sort of insurance type of product that an employer might 
buy, they have to determine how much risk they want to take and 
how much risk that they want to insure, right? And that is the 
same with stop-loss insurance. And so depending on the 
particular employer, they may have different risk appetites for 
stop-loss insurance.
    And just as a point of clarification, too, because 
sometimes this gets lost in the mix, when a self-insured 
employer retains stop-loss insurance the stop-loss insurance is 
basically an indemnity type insurance between the insurance 
carrier and the employer. The stop-loss insurer is not paying 
claims; it doesn't cover individuals; it doesn't pay providers.
    It is a reimbursement mechanism between the employer and 
the insurer. And the employer has to first pay out those 
eligible claims and then they can seek reimbursement from the 
carrier.
    So, sometimes there is a misperception that the employer 
transfers all the risk. Well, it is not exactly true. If you 
are a self-funded plan, any eligible claim that comes in, you 
have to pay it, then you have--after the fact you have a 
reimbursement mechanism with the carrier.
    So, with that being said is stop-loss insurance is 
essential for employers--many employers to self-insure. And 
what we are hearing, or at least understood to be true, is that 
the administration has at least an interest--and we can't 
confirm this, but certainly an interest--in making it more 
difficult for employers to obtain stop-loss insurance as a way 
to sort of control a migration towards self-insurance.
    So, to the extent that stop-loss insurance is made more 
difficult through a regulatory process, it will dissuade more 
employers from being able--or make it difficult for those 
employers to operate self-insured plans.
    Mr. DesJarlais. Thank you.
    Mr. Kelley, self-insured plans allow them far more 
flexibility to design a plan that is best for the employer and 
his or her workforce, as you have talked with Dr. Roe about. 
Could you share some specific examples of how Columbia Power 
has designed a plan that works best for its specific workforce?
    Mr. Kelley. Certainly. As I said, my organization got into 
this in 1992; I think we started covering employees in 1993. 
And of course, health insurance was a different animal back 
then, and what we have been able to do is to respond as sort of 
the requirements of our workforce dictates.
    So there are certain coverages--mental health coverages 
were talked about, dental coverages, we are talking now about 
vision coverage, we are talking about early retiree coverage. 
These are all things that we are in discussions about because I 
think our employees and our workforce understand that there are 
costs associated with these things. Those costs impact the 
overall organization and they want to measure the benefits that 
they would receive versus the overall cost to the organization.
    And so, we have had a very positive dialogue on that, and I 
think that a healthy employer does that. They engage their 
workforce and allows them in to sort of peer behind the curtain 
and understand how those costs are impacting the overall 
organization and making the employees a team member in that 
process.
    Mr. DesJarlais. So you would agree that a company your size 
can better manage its 115 people than the federal government 
trying to manage 330 million people and try to do a one-size-
fits-all?
    Mr. Kelley. You know, I think that there are--if there are 
minimum acceptable standards--we will certainly need minimal 
acceptable standards, but I think as you have seen in our 
organization, we go above and beyond that.
    Now, we don't go above and beyond just simply to lavish 
excessive benefits on our employees, but we do try to be 
responsive and be a good community member and a good employer.
    And it is always a balancing act and I think that is 
something that every employer has to balance. I think that 
there is a responsibility to be good to, in our case our 
ratepayers and private businesses, their shareholders or 
whatever their financial arrangements are, but you have to make 
sure that your workforce is protected and that you are being a 
strong community citizen. And part of that strong community 
citizen is to make sure that your employees are not 
disadvantaged when it comes to receiving health care or any 
other benefit.
    Mr. DesJarlais. All right. Thank you.
    I yield back.
    Chairman Roe. Thank you.
    Mr. Scott, you are recognized for five minutes.
    Mr. Scott. Thank you, Mr. Chairman.
    Ms. Calsyn, you indicated we have a zero sum game. If we 
allow healthier people to get out of the insurance pool that 
leaves those in the insurance pool with higher costs. Did you 
estimate that cost that it could--did you say it could get up 
to 25 percent higher for those left behind?
    Ms. Calsyn. That was an analysis done by the Urban 
Institute, I believe in late 2012.
    Mr. Scott. But the idea that healthier people can join a 
separate pool leaves those behind with much higher costs.
    Ms. Calsyn. Right. I mean, there has been a lot of talk 
right now--so far in this hearing about the essential health 
benefits, but one of the key provisions that really helps small 
businesses in the Affordable Care Act is the risk pooling, and 
by taking out--if there is a mass shift and too many fully--I 
am sorry, too many fully funded, fully insured employers leave 
to go into the self-insured market you are going to create that 
problem.
    When you talk--
    Mr. Scott. Well, the lower cost for the self-insured 
doesn't happen by magic. It is arithmetic. I mean, you said it 
is lower because you have a healthier pool. How much of it is 
because of the lower benefits?
    Ms. Calsyn. I am not really sure.
    Mr. Scott. Mr. Melillo, do self-insured policies have a 
lower administrative cost? I know the significant portion of 
your policy payment goes to administration--it is estimated 10, 
15, up to 20 percent or more in regular policies; Medicare can 
do it at about 2 percent.
    Are the administrative costs in self-insured lower than 
regular insurance?
    Mr. Melillo. The answer is yes more often than not, and the 
reason being is when you unbundle the fully insured packaging 
what you are essentially doing is you are building your own 
all-star team, if you will, of a health insurance plan specific 
to the needs and desires of both the plan sponsor and the 
membership they are writing for, right? So now you have the 
opportunity to identify and administrator that serves 
specifically your need, can administer the plan that you want 
to administer. And you can market one carrier or administrator 
against another to leverage a better price.
    Mr. Scott. Okay.
    The annual reports, Mr. Kelley, indicated there are cost 
savings. One of the costs in a small--that is not reported on 
an annual basis for a small plan is the risk of a rare but 
catastrophic loss. You have got thousands of policies out 
there; only a couple are going to get hit with this 
catastrophic loss. Most of them will report nice savings and 
one or two unlucky ones will get busted.
    How do you calculate the catastrophic loss?
    Mr. Kelley. Yes, sir. Well that gets into our stop-loss 
protection. So--
    Mr. Scott. Is your stop-loss per individual or for the 
entire plan?
    Mr. Kelley. In our case, being a small organization, we 
have both. We have specific stop-loss at $30,000 per 
individual, so we are going to absorb the first $30,000. And 
then as Mr. Ferguson pointed out, we will be reimbursed over 
$30,000 by our stop-loss insurer.
    And then we also have an aggregate cap over the whole of 
the organization that if our total health care claims exceed a 
certain amount, which is in our case, you know, well over $1 
million, then there is insurance that kicks in at that point as 
well. So we are in a box. We are in a box in terms of an 
individual's exposure that we absorb and we are in a box in 
terms of the overall organization.
    Mr. Scott. When you talk about those savings, how much of 
the savings are eroded by the fact that you had to get 
catastrophic insurance?
    Mr. Kelley. Well, it certainly helps because things can 
happen, right? I mean, people can get hit with a catastrophic 
incident. And so what we are absorbing in our sort of daily 
cash flow is the routine medical, and then that stop-loss is 
there to, as I said, hem us in.
    Mr. Scott. You indicated you had a $1 million reserve.
    Mr. Kelley. Yes, sir.
    Mr. Scott. Who helps calculate the reserve necessary to 
absorb those unusual losses?
    Mr. Kelley. That is a great question. We use a consultant 
that has helped us over the years manage this plan.
    And before recent health care changes the decision was 
made, you know, we have claims that average between $1 million 
to $1.5 million a year. Therefore, once the reserve got to $1 
million we would just sort of stop funding it once it exceeded 
$1 million.
    With the current changes in the health care industry--and 
of course, many of the changes brought on--coming from 
Washington, D.C.--we have decided to remove that cap and we are 
just going to continue to fund that reserve once we exceed the 
$1 million mark because we just don't know what the future 
holds.
    Mr. Scott.--Another question to Ms. Calsyn: You talked 
about discrimination. Is there any evidence that people in 
self-insured plans are being discriminated against in 
employment?
    Ms. Calsyn. No. I think that what--the scenario that I laid 
out is, in the new concern--
    Mr. Scott. Well, I mean, if an employer on a self-insured 
plan knows that a family policy would include a very sick 
child, is there any evidence that would count against an 
employee in terms of prospective employment?
    Ms. Calsyn. It certainly could, and for--if there is a very 
sick child that--in most situations it would be a--if there was 
discrimination you would be able to--there are protections 
under the ADA for that. There are associational claims under 
the ADA. But for smaller employers who choose this path, they 
can be exempt from the ADA requirements so there is that risk.
    Mr. Messer. [Presiding.] Gentleman's time has expired.
    Would next like to recognize my good friend and colleague 
from the great state of Indiana, Dr. Bucshon, for five minutes.
    Mr. Bucshon. Thank you very much.
    I was a practicing cardiovascular and thoracic surgeon for 
15 years so I have spent my career in health care and, you 
know, the ACA I think has a few good things in there that we 
have talked about--preexisting conditions, children are 26, 
Medicare donut hole, lifetime caps, all of which I have had 
experience with in my medical career, seeing patients all 
across those categories, and one employee in meeting their 
lifetime cap--actually their spouse. But the thing that the ACA 
does not do is change the trajectory of health care inflation 
and the cost of health care overall.
    Some of the things that Dr. Roe discussed about making sure 
that we identify people early that have diabetes, people that 
have obesity problems, hypertension, and other things that 
affect their lives maybe 30 years down the line are extremely 
important, and I have always been a believer in preventive 
health care measures. And in fairness, that is one thing our 
medical system probably has not done as well as we should have 
historically.
    But if we are going to ever get control of this we have to 
address the cost of health care. Providing coverage, either 
through Medicaid or through exchanges or through private 
policies or through self-insurance, is something that is a 
noble goal.
    I want everybody to have access to quality, affordable 
health care, but unless we get the cost down we are not going 
to be able to sustain it. It doesn't matter what we discuss, 
how to cover people. We just are not going to fix that.
    So with that, Ms. Calsyn, I wanted to ask you, do you think 
citizens in our country should pay anything for our health 
care? I mean individually, like should they have to pay 
anything to get health care?
    Ms. Calsyn. I think that it--are you asking me if everybody 
should receive every single health care service for free?
    Mr. Bucshon. Yes, essentially.
    Ms. Calsyn. I don't think that would necessarily be 
appropriate.
    Mr. Bucshon. Okay. Because you are here arguing today 
about, you know, discussing about an avenue that employers are 
taking on self-insurance and how that is something essentially, 
from what your testimony says, I think it seems like you don't 
believe that should be an option. So do you believe that 
employers should be able to self-insure?
    Ms. Calsyn. I believe employers should be able to self-
insure. I do believe that there should be appropriate oversight 
of the self-insured market. I think that marketing stop-loss 
policies that have extraordinarily low attachment points, for 
example, probably puts the employer in the exact same position 
as they would be if they were purchasing fully insured 
products.
    Mr. Bucshon. I know you are an attorney. Do you have a 
background in health insurance in the industry?
    Ms. Calsyn. Before I went to the Department of Health and 
Human Services I was in private practice. I represented managed 
care organizations, other health insurers, fully insured 
employers--
    Mr. Bucshon. So you must understand, then, that people that 
are less healthy, so to speak, from an actuarial standpoint 
will affect the health insurance market. Because one of the 
things that the ACA is trying to do to control costs is to cap 
health care premiums for people that are unhealthy compared to 
people that are totally healthy, and, you know, it is basically 
disrupting the actuarial balance in trying to cover people.
    I have always agreed that we should have--you know, we 
should have variance in price for what you have to pay as an 
individual for health insurance based on whether you smoke or 
whether you have diabetes that you haven't treated for 30 
years. I was a heart surgeon and I can tell you if you have 
ever been in health care that personal responsibility is a big 
part of this.
    I don't believe the government can legislate whether or not 
people will take care of themselves or not, and that is what we 
are trying to do here. So do you believe in the single-payer 
system? Yes or no? Like the federal government paying for 
having a single-payer health care system. Do you believe that 
would be the best way to go?
    Ms. Calsyn. I believe that the best approach for this 
country right now is to implement the Affordable Care Act and 
work constructively across the aisle--
    Mr. Bucshon. So can you--
    Ms. Calsyn.--between Democrats and Republicans, more 
progressive people such as myself, and conservatives to make 
the law better.
    Mr. Bucshon. Have you voiced that opinion to the 
administration, since they have delayed it over 22--I don't 
know, 29 times the law has been delayed? Have you voiced that 
opinion to supporters of the law in the administration or on 
the other side of the aisle? Because I agree with you.
    I mean, President Lincoln said years ago the best way to 
repeal a bad law is to implement it strictly. And so, if this 
is a good law why do supporters like yourself continue to 
support delaying different aspects of the law when you think it 
is the best thing to do?
    I mean, and with that, I yield back my time.
    Mr. Messer. The gentleman yields back.
    Would next like to recognize the congresswoman from Oregon, 
Ms. Bonamici, for five minutes?
    Ms. Bonamici. Thank you very much, Mr. Chairman.
    I want to thank all of you for testifying before the 
subcommittee today and sharing your expertise.
    As you know, close to 4 million Americans have now signed 
up for health care since the insurance marketplaces opened. 
Additionally, many Americans are for the first time able to 
receive coverage and others are able to consider opening 
businesses or pursuing new careers without the fear of losing 
their insurance.
    Even in my home state of Oregon, where the technology has 
been problematic, a couple hundred thousand Oregonians have now 
received coverage. We have reduced the number of uninsured by 
up to 20 percent.
    So I am glad we are having this hearing today because it is 
important to make sure that we are building on the progress 
that we have made. It is important that we work to make sure 
that the goal is fulfilled, which is having access to high-
quality health coverage.
    Certainly self-insurance is important to discuss as part of 
that conversation and I am glad we are having this hearing 
today.
    I wanted to ask you, Ms. Calsyn, you coauthored a report 
last year that warns of the consequences of businesses with 
young, healthy employees choosing to self-insure while 
businesses with comparatively fewer healthy employees join the 
fully insured market. This may concentrate risk in fully 
insured marketplaces and drive up costs.
    But aside from that, I am really interested in how--your 
assessment of how self-funded plans affect the people receiving 
coverage. We have heard some success stories today, but what 
would be the concerns for employees receiving coverage through 
self-funded plans? Would there be a reason why an employee of a 
small business might prefer self-funded or fully insured?
    Ms. Calsyn. I think that for many employees self-funded 
arrangements are fantastic. I think that those are usually 
larger employers.
    I think that there are two groups of employees we need to 
worry about here. The first are employees who are in self-
funded arrangements where their employers may not have as fully 
assessed the risk, may not be sophisticated enough to deal with 
it, and may have not, you know, dotted all the i's, crossed the 
t's in their contracts with stop-loss carriers and other third 
parties.
    In those cases, the employer could potentially be at risk 
for unforeseen costs. They might not be protected, and 
obviously when a small business is in economic distress its 
employees are, too.
    You also have a situation in which a self-funded--a very 
small business might decide to--that they--because they have 
very young, very healthy employees they want to leave the fully 
insured market and self-fund. In that case the benefit 
structure might be a little different. It might not cover 
certain categories of benefits that the employee would like to 
see.
    I think where we are losing a lot--where some of the focus 
needs to turn back to is the balancing act--you know, these 
arrangements might be great for a lot of people in these plans, 
but there are also the people who--and the small business 
owners who are stuck in the fully insured market. And if too 
many of the healthy employees--I am sorry, employers with 
healthy employees moved into the self-funding route you can 
leave a lot of people in the fully insured market who are older 
and sicker and they could see their premiums go up, and it is 
obviously not just bad for them but it is also bad for the 
employers who are there.
    Ms. Bonamici. Thank you.
    I have a couple more questions. And as I said, we have 
heard some success stories today.
    Mr. Kelley, yours was a positive example, and 
congratulations to your company for your success. Clearly it 
has worked for your organization.
    Are there circumstances that would keep a company away from 
that kind of success? What I want to ask is, is there a 
business that is too small to self-insure? I would like to hear 
from each of you briefly.
    Mr.--is it Melio?
    Mr. Melillo. It is Melillo.
    Ms. Bonamici. Melillo.
    Mr. Melillo. So the, you know, the question is, is a group 
too small? I think that is like seven or eight on the list of 
things you need to assess when considering self-funding.
    You know, for example, if you are a small or a large 
company that is chasing a balance sheet, right, that is chasing 
receivables and your revenue stream isn't as strong and your 
capital situation doesn't preclude you--doesn't set you up for 
success--you don't have anything to fall back on, that is a 
group that a wise consultant would not, you know, suggest self-
funding to.
    Ms. Bonamici. Thank you. And I do want to hear real briefly 
from the others.
    Is there a group that--business that would be too small to 
self-insure?
    Mr. Kelley. I would say, speaking as a public employer, you 
need to make sure that the policymakers are going to adequately 
continue to fund the plan. You may have years of savings and 
you may take your hands off and lower your budget expectations 
and the next year there is a swing. You have to be consistent 
in your application of funding and not let it jump around and 
not let local politics sort of absorb those savings and then be 
surprised when there is an increase.
    Ms. Bonamici. Right.
    What do you think, Mr. Ferguson?
    Mr. Ferguson. I would quickly echo Rob's comment. It is 
largely a balance sheet decision, and secondarily it is a 
corporate culture decision in the sense that I mentioned 
earlier, is if you are not willing--you meaning the management 
of the company--to take the time to properly structure the plan 
then you are probably not a good candidate for self-insurance.
    Ms. Bonamici. Thank you.
    And I see my time is expired. Thank you, Mr. Chairman. I 
yield back.
    Mr. Messer. The gentlelady yields back.
    Would next like to recognize the gentleman from Texas, Mr. 
Hinojosa?
    Mr. Hinojosa. Thank you, Mr. Chairman.
    Before I ask some questions I want to thank the panelists 
for coming before us and sharing your thoughts and 
recommendations.
    I wish to identify myself with--or my remarks with 
Congresswoman Bonamici because I heard my colleague on the 
other side of the aisle talk about why he doesn't like ACA, and 
he reminds me of the 30 percent who didn't like Social 
Security, reminds me of the 30 percent who didn't like Medicare 
and Medicaid. And it took years to make them work as they do 
today, to where most Americans fight to make sure that those 
programs stay in place.
    So I, too, support ACA and am pleased to hear about what 
the options are for small businesses.
    Ms. Calsyn, one of the aspects of your testimony I found 
most troubling was the practice of lasering. This is the 
process where a stop-loss insurance plan can set its attachment 
point, which is the specified limit when they will start to pay 
for an individual or a claim, at a relatively low amount for 
most employees but target a specific employee who has cancer or 
some other serious medical condition and set their attachment 
point at an exorbitantly high amount, placing the small 
business into much more financial risk. This, to me, is--or 
rather, this, to me, undermines the very notion of insurance, 
which is why some states have moved to ban the practice 
outright.
    How do you believe this practice would impact truly small 
businesses that decide to go the route of self-funded 
insurance?
    Ms. Calsyn. I just want to clarify one point with the 
lasering. A laser is a modification in the agreement between 
the employer and the stop-loss carrier. So an employee probably 
will not know that they are--that they have a laser on them. 
You know, they go ahead and keep paying and on the surface it 
will look the same way.
    However, it does set up a source of concern for especially 
a much smaller employer. It sets up another reason why a small 
employer may not, say, for example, wish to hire somebody, or 
may set up a way that there could be a motivation for some sort 
of employment discrimination.
    If you, say, have, you know, a very small pool you are--if 
you have a small number of employees you are going to know 
exactly who the costliest employees are. You know, there can be 
some other downstream effects, I think, of the laser, but I 
just wanted to make it clear that it is not that person is 
going to pay more, but there could be adverse downstream 
effects.
    Mr. Hinojosa. Thank you for your explanation.
    Mr. Melillo, I want to thank you for your testimony today. 
In that statement that I read about your statement you stated 
that ``most fully insured programs offer a canned plan design, 
loaded with state mandated benefits packaged by the insurance 
carrier and often do not address your financial goals and 
unique needs.'' Isn't that just another way of saying that 
businesses can switch to this self-funded plan as a way of 
avoiding covering the categories of benefits that workers 
deserve?
    Mr. Melillo. I tend to be an optimist, and I actually take 
that as to say you can enrich your benefits, for example, you 
know, even richer than what is offered in the state. So for 
example, Sheffield Pharmaceuticals offers a gold standard plan 
at the premium equivalent rates of a silver. So, you know, it 
is not a matter of dodging or avoiding benefits; it is a matter 
of addressing the specific needs of the population and then 
financing those needs.
    Mr. Hinojosa. Thank you.
    Ms. Calsyn, in recent years the administration expressed 
concerns that some of the smaller employers may start to self-
insure while also including stop-loss insurance with extremely 
low attachment points in order to avoid some of the new 
requirements of ACA. In your testimony you said tactics ``start 
to blur the line between self-insured plans and self-funded 
plants.'' What are the remedies that you think we should put in 
place to discourage that kind of activity?
    Ms. Calsyn. There are different approaches you could take. 
There are some states who have been a little bit more active in 
this area, so one way for--if an individual state saw a problem 
they could raise minimum attachment levels. Or, for example, in 
some states they limit the group size who can take this 
approach.
    In the federal level there is probably two different ways. 
There is language in the Affordable Care Act that could 
probably be defined to take a closer look at, you know, if 
somebody is self-insured are they really, in fact, self-
insured? Are they actually taking on any financial risk in 
exchange for this flexibility and these benefits?
    Mr. Hinojosa. Thank you.
    Mr. Messer. The gentleman's time is expired.
    Would next recognize congressman from Connecticut, Mr. 
Courtney, for five minutes?
    Mr. Courtney. Thank you, Mr. Chairman, and thank you for 
holding this hearing today, and particularly, having the wisdom 
of inviting Mr. Melillo, who is my neighbor in Glastonbury, 
Connecticut.
    And we are a state where, you know, actually it was in the 
New York Times yesterday that when the exchange was set up last 
summer HHS set a target of 100,000 enrollment through the 
exchange; we are now over 130,000 with another 6 weeks to go 
before the end of the March deadline. We had a governor who 
embraced the ACA and actually had some good people set up a Web 
site who--you know, they built a Ford Focus, they didn't try to 
build a Maserati, and as a result they had a website which 
actually functions and works.
    And what is really exciting is that we are at 238 percent 
of the target for qualified health plans--in other words, the 
private side of the exchange--and we know we are going to have 
at least another three or four insurers who are knocking on the 
door for next year's enrollment, so, you know, but I would say 
this, I mean, self-insurance is also, in my opinion, not 
incompatible with the ACA.
    I was at Town Fair Tire on Monday, which I know Mr. Melillo 
is familiar with down in East Haven, Connecticut. They have 
1,800 employees. You know, the employer is actually a pro-ACA 
guy but, you know, he said, ``We are just going to continue 
with our self-insured plan, which provides good, solid 
benefits.''
    By the way, I have been to Sheffield Pharmaceutical. New 
London is in my district, and it is a great company and they 
care about their employees and they are doing a great job, as 
your testimony points out, in terms of, you know, using the 
self-insured mechanism as a way of, you know, making their 
business work and keeping, you know, retention high with their 
workforce.
    I guess the question I would just want to sort of explore 
for a second here--and, Mr. Kelley, you might be the right 
person to ask--is that we actually had a community in my 
district which a number of years ago, pre-ACA, self-insured, 
you know, its education and townside employees. Apparently the 
finance office forgot to pay for the reinsurance premium for a 
given year and, I mean, it was a--just, you know, the worst 
timing ever because they had some catastrophic claims that came 
in that just completely capsized, you know, what they had in 
their reserve account.
    And frankly, the town's retirees are paying through the 
nose in the wake of that. They are hopefully at a point where 
they are going to be able to kind of, you know, restabilize. 
But I will tell you, it was a real hit on retirees who, as, 
again, Rob--you know, the state of Connecticut teacher pension 
plan is actually pretty meager for some folks of a different 
generation, so this was--you know, and again, they were 
helpless in terms of, you know, where they could turn in terms 
of what was clearly, you know, a misadministration of the plan.
    And I guess I would just sort of wonder whether you sort of 
have thoughts of this. I mean, again, obviously you have got to 
have some kind of reinsurance mechanism, whether it is small or 
large or private sector or public sector, to make sure that you 
are not going to have, you know, really disruptive increase in 
out-of-pocket for employees or retirees.
    So should there be a mandate? I mean, you know, really, 
because it was a pretty big problem, you know, because--again, 
it wasn't malicious. It was just, you know, somebody messed up.
    Mr. Kelley. There is no doubt that being self-insured 
places additional administrative burdens on an organization, 
but there are benefits and savings to be had--
    Mr. Courtney. No question. That is not the debate. The 
question is how do you ensure that you are not going to have 
those kinds of horror shows?
    Mr. Kelley. When I think about the horror story you just 
talked about, it is not dissimilar to what can happen to a 
pension plan that is not properly funded, and then that pension 
plan ends up getting upside down and then the retirees are 
bearing the burden of that, or future ratepayers or other 
public entities are paying for that support.
    So, I think that it calls for effective management across 
the board, but I would want to look at that from a regulatory 
standpoint in the same overall umbrella of all employee 
benefits. You know, there are a lot of benefits that employers 
provide employees, and that is good, standard business 
practices, and when something falls apart there needs to be an 
account--people need to be held accountable and then you move 
on.
    But I don't necessarily know that it is appropriate to 
single out health care with a particular focus when we are not 
providing that same level of scrutiny and belt and suspenders 
approach to all employee benefits.
    Mr. Courtney. Okay.
    Mr. Melillo?
    Mr. Melillo. You know, I would like to add that if it was a 
fully insured plan and premiums had lapsed coverage would have 
lapsed, but in this case, because the burden fell back on the 
employer and they are the ones who actually made the mistake, 
the employee still received their benefits, they just didn't 
get a reimbursement from their reinsurance or their stop-loss 
carrier because of their administrative mistake. So in this 
case it turned out to be a positive for the employee because 
they still had their coverage.
    Mr. Courtney. Well, you know, again, I would love to have 
those teachers come in and sit down with you because it was--
you know, it was again, they wanted me to call the Secretary 
Sebelius to try and intervene with the town, which obviously, 
you know, wasn't going anywhere. And it was a--you know, it was 
not pretty.
    So with that, anyway, I yield back, Mr. Chairman.
    Chairman Roe. [Presiding.] I thank the gentleman for 
yielding.
    Mr. Messer, you are recognized for five minutes?
    Mr. Messer. Thank you, Mr. Chairman. Thank you for this 
important hearing. Obviously the challenges with the ACA are 
many and well documented, my opposition well documented as 
well, so I would rather focus today on the subject matter 
before us.
    The employer-sponsored health insurance is the predominant 
source of coverage for individuals and families. In a near-term 
world that will remain true under the ACA, self-insurance is an 
important option and tool for employers, and stop-loss 
insurance an important tool in those self-insurance efforts.
    I would like to focus first on Mr. Melillo, and your 
testimony discusses the financial stability of self-insured 
plans, and I want to ask a couple questions together that maybe 
you can respond to.
    Is the financial stability of these self-insured plans due 
solely to a reliance on stop-loss insurance? Maybe said a 
different way, how--could you talk a little bit more detail 
about how stop-loss insurance is used by a self-employed 
insurer? And for example, do employers ever change their stop-
loss insurance coverage levels?
    Mr. Melillo. The answer is all of the above. The stop-loss 
is used as a financial risk lever to help the plan manage what 
they believe their exposure to be. The lower the stop-loss 
deductible that they choose to buy, the greater the premiums.
    And so by ceding the risk back to an insurance company, 
their favorable experience below that deductible starts to 
erode. It goes back to the reinsurance or the stop-loss 
carrier.
    That being said, one of the benefits to self-funding is to 
benefit from the increased cash flow and positive results. It 
is common to see a group or a plan move their stop-loss 
deductible based on their balance sheet, based on their risk 
tolerance level, and a number of other key factors.
    But the stop-loss, it is important to note that more often 
than not, the percentage of stop-loss premiums that make up the 
entire annual spend is typically between 5 and 15 percent of 
the total spend, so it tends to be a small piece.
    Mr. Messer. Okay. And your testimony provides great 
examples of how self-insurance--self-insured plans allow the 
employer more flexibility, as you just described, to design a 
plan that is best for the employer and his or her workforce. 
Could you please share additional examples of a unique 
workforce and how an employer might design a plan that was best 
suited for that workforce?
    Mr. Melillo. So I could go through--I have an example of a 
group that used the data that came from their utilization 
experience where they identified that there was a great deal of 
emergency room visits occurring--greater than the national 
average, greater than the regional average, greater than their 
SIC code. That being said, they realized that it was a 
communication issue and they realized that they weren't being 
steered, informed, or incentivized to use clinics or walk-in 
centers for things like a runny nose or minor issues. We 
identified that data, made modifications to the plan design, 
and the E.R. costs went down dramatically.
    Mr. Messer. Great.
    For Mr. Ferguson, in a recent final rule issued by the 
Department of Treasury, the administration reiterated its 
concern regarding stop-loss insurance, stating stop-loss plans 
with low attachment points are a, quote--``functionally 
equivalent alternative,'' end quote, to a fully insured group 
health plan. Mr. Ferguson, are stop-loss plans the functional 
equivalent of a fully insured health plan? And what data exists 
to--what, if any, data exists to support the administration's 
concern that self-insured plans are utilizing stop-loss 
insurance with low attachment points?
    Mr. Ferguson. Thanks for the question. First, a bit of 
terminology correction: There is no really such thing as a 
stop-loss plan. There is the plan--the employer-sponsored 
plan--and then there is stop-loss insurance or a stop-loss 
product. So it is important to sort of separate the plan from 
the actual--the insurance arrangement that is--serves as the 
backstop for that plan.
    And again, as I mentioned earlier, the stop-loss is really 
the financial tool, which I think should be distinguished from 
the delivery of health benefits that is done through the plan.
    Mr. Messer. So comment on the Department of Treasury's--
    Mr. Ferguson. Well, the comment there is they are--you 
know, for some time we have been hearing concerns that the 
stop-loss insurance has facilitated, you know, a growth in the 
self-insurance marketplace and that is--potentially would have 
negative consequences, as one of the fellow witnesses has 
articulated. We don't agree with that.
    We believe that the self--this is one of the tenets of the 
ACA, right, was to build on the employment-based health care 
system, and we agree. Size and organization, we have no 
comments to offer as to the overall merits of the ACA. We will 
leave that to other parties.
    What we see our role here is to try to protect this segment 
of the marketplace that is working well. And to the extent that 
you have a regulatory process that has a result of making it 
more difficult for smaller and midsized employers to self-
insure, well, not only do we not think that is good for our 
members and folks that are in the marketplace but again, going 
back to the origins of the ACA, if that compromises the 
employment-based health care system from a larger standpoint, 
we don't think that is positive.
    Mr. Messer. Thank you.
    Chairman Roe. Thank you, Mr. Messer, and thank you for 
sitting in the chair.
    Dr. Holt, you are recognized for five minutes?
    Mr. Holt. I thank the chair and thank the witnesses.
    Ms. Calsyn, there has been reference to the CMS actuarial 
report that says 11 million workers in small-group plans will 
see premiums rise. That has been used as an argument that the 
Affordable Care Act is a failure. Wasn't that report responding 
really to a fairly narrow inquiry? Can you put it in 
perspective, please?
    Ms. Calsyn. The report was analyzing the effect of three 
discrete provisions in the law. It was looking at guaranteed 
issue, renewability, and community rating, I believe--
    Mr. Holt. Yes, you are right--
    Ms. Calsyn.--So there are plenty of other provisions of the 
law that are going to have an effect throughout the economy. 
And CMS stated that in the report and they are--I believe that 
they are looking into that and planning on issuing another 
report that is a little bit more comprehensive.
    The thing that I think that is also important to remember 
about the--you know, the 11 million, six million is it is 
really a snapshot in time. It is the 11 million small 
businesses that right now are healthier than average, have 
lower cost than average.
    But especially for a lot of smaller businesses, you know, 
that can change overnight. You know, there was reference to the 
AOL situation with the high-cost babies, and if that happens to 
a smaller employer, you know, that person is automatically 
going to--that group is going to go from the 11 million losers 
to the six million winners. And I think that what is really 
important about the ACA is this risk--
    Mr. Holt. By six million winners you mean the premiums go 
down.
    Ms. Calsyn. Premiums go down, yes.
    Mr. Holt. Okay.
    Ms. Calsyn. And like any health care reform, any changes to 
our health care system, there are going to be people who 
benefit and people who, at a particular time, might see 
themselves as worse off. And I think that stepping back and 
looking at the benefits for people even who might be healthier 
now is always an important thing to keep in mind.
    Mr. Holt. Okay. Again, to make sure that the details and 
the complications here aren't misused as an indictment of the 
entire attempt to reform health care in America and go back to 
something that a lot of people thought was working fine but 
anybody who knew about it realized was unsustainable, unfair, 
inequitable, and provided worse health care coverage than we 
would want for our people.
    Let me ask you about job lock. How has the Affordable Care 
Act reduced job lock and how important is that?
    Ms. Calsyn. Well, I think that has always been a concern, I 
think, for members on both sides of the aisle, and the 
Affordable Care Act, by making the individual market an actual 
viable alternative for people they are able to not just see 
their current job as their only option for health care. As a 
result there are going to be productivity gains, there--lower 
health care costs, increased wages. So there are a large number 
of economic benefits to the law that CBO has pointed out.
    Mr. Holt. You spoke a little bit about churn, people moving 
in and out of self-funded, fully insured markets. What has been 
the--could you describe that a little bit better in terms that 
an ordinary person would understand? And how would one guard 
against any negative effects of that churn?
    Ms. Calsyn. Well, the churn would result if there--if we 
start with the assumption--and this is completely 
oversimplifying it--if you start with the assumption that there 
are X number of fully insured plans right now and they do an 
assessment and they decide that they have lower risk than 
average and that group decides to go into a self-funded 
arrangement, and then say three to five years down the line 
they realize: Oh, wow. My group that was, say, all in their 20s 
and 30s, now they are getting a little bit older, you know, as 
we all age--a little more risk of health issues, you know, and 
they might then do another assessment and then put their group 
back into the fully insured market.
    Now, this isn't something that they can do overnight. There 
is obviously a large--you know, there are a lot of business 
decisions that need to be made into this, but it is so much 
easier for--I should say it is so much financially more 
feasible for younger or healthier-than-average groups to self-
fund, and by drawing out those people, the people who remain in 
your fully funded market are probably going to see increased 
premiums.
    Mr. Holt. And so, that could be a nasty surprise for people 
who are unaware that they are involved in this churn.
    Ms. Calsyn. Right. Exactly. And again, I just--I think that 
it is so important to remember that, you know, even if you are 
healthy today, you are not going to be healthy--you might not 
be healthy tomorrow. And looking back at what the issues were 
and the horror stories we heard before the ACA is always kind 
of--is always very important to keep in the back of your mind 
when discussing these issues.
    Mr. Holt. Thank you.
    Thank you, Mr. Chairman.
    Chairman Roe. I thank you very much.
    And I thank the panel. Terrific job.
    And I am sorry I had to step out, but I am going to ask my 
colleagues here to support the bill I was over testifying, 
which is a bill of mine to build a memorial for Desert Storm/
Desert Shield veterans, so that is why I stepped out for just a 
minute.
    And I appreciate this. This was a very, very good panel and 
everyone did a good job of staying in time.
    I will now yield to Dr. Loebsack for his closing comments?
    Mr. Loebsack. Thank you, Dr. Roe. I do want to thank you 
again for convening this hearing.
    And I do want to thank all the witnesses today. It has been 
very informative, I think, for all of us here. It has been a 
great discussion about the self-insurance market and about the 
risks and the benefits, really, of self-funding health care.
    Do look forward to a couple of answers in terms of sort of 
what those premiums would have been had they stayed in the 
fully insured market, if that is possible. I don't know that it 
is possible, but it would be great to get those numbers so we 
can compare apples and apples on that. I appreciate that, Mr. 
Melillo.
    And as work continues going forward I think it is really 
critical that we think very carefully about how to balance the 
needs of both small and large businesses, but also what the 
Affordable Care Act's goal of increasing access to affordable, 
quality health care for all employees. This is a balancing act, 
there is no question about it.
    We have to take into account, clearly, what businesses' 
calculations are and all the rest, but we have to be thinking 
about the health care benefits that are there and available to 
folks, because the idea is to do what we can to make sure that 
everyone is covered and has access to quality, affordable 
health care.
    So, I look forward to working with my colleagues on both 
sides of the aisle as we go forward, hopefully fixing the ACA 
and doing everything we can to ensure that folks have that 
access. Thank you very much.
    And thank you, Dr. Roe.
    Chairman Roe. I thank the gentleman for yielding.
    And I will once again thank the panel for being here.
    And I am going to just think out loud for a minute as we 
close. When businesses are out there, as I was in for 30-
something years, and we grew our medical practice from four 
doctors and 12 employees, we now have 100 providers and 450 
employees, all primary care, all still independently operating 
in Johnson City, Tennessee.
    And when I became more aware of the self-insurance market--
we just use traditional insurance and, Mr. Kelley, I think you 
pointed it out extremely well--what I do every year is look at 
our budget and see how much money we are going to spend on 
health insurance coverage for our employees. And every year it 
changed a little bit. There would be some changes in the plan.
    But as you begin to look at whether you self-insure or not, 
I guess it is like--Mr. Melillo, you maybe brought this up 
about how much stop-loss insurance you will buy. It isn't 
cheap, by the way. I know when you buy it isn't inexpensive. It 
is a significant cost--5 percent or 10 percent of $900,000 is 
still a lot of money.
    And so the way I looked at it is, how much loss can I 
stand? The way I do it is like going into a casino and you 
write a check, and how much can I stand and walk out of here if 
I throw it in the garbage can, which if you walk into a casino 
you are going to do.
    So you just say, how much risk can I take in this business? 
And you look at it and then you calculate, can I work that into 
my business plan?
    And it is a very simple decision that you make and you are 
absolutely right, you have to have the right consultant. That 
consultant has to advise you to have deep enough pockets to 
sustain--I wish I could have heard Mr. Courtney--all of his 
testimony because, Mr. Kelley, you pointed out it is not just 
health insurance that can be mismanaged. We are dealing right 
now with multiemployer pension plans on this subcommittee--this 
very thing that we have to get right this year, so it is mainly 
employee benefits we are talking about.
    So you look at that, and this is a plan right now that is 
working very well in many places. And sure, there are places 
where it has been mismanaged. I am sure any plan can say that.
    But if you look at our community, the money we have saved, 
you are able to go in and initiate wellness programs that we 
did in diabetes, hypertension, smoking, weight loss, and so on 
that have really affected the lives and made the employees' 
lives better and made your insurance cheaper. And that is 
certainly what the scenario that you point out and Mr. Ferguson 
and all of you pointed out.
    And I think, Ms. Calsyn, that is the same thing you would 
want, too.
    As far as job loss is concerned--and I will have to 
respectfully disagree. I was at a--and hopefully when this 
works out five or 10 years from now if the ACA is still in 
effect it will do what you say, but I am in a hospital system 
that had a referral center with a medical school, of which I 
was on the clinical faculty for over 25 years. We have lost 
1,000 employees. There are registered nurses now that are 
worried to death that they are going to lose their jobs.
    There is a major medical center in my state that has laid 
off 1,000 people. These are great jobs. And you take a town my 
size of 65,000 people and we have lost 1,000 jobs. And it has 
caused great disruption.
    And I think right now what the federal government needs to 
do is stay out of the part--there is so much uncertainty out 
there about how businesses deal with the ACA--is before we do 
anything else to any part of the insurance market, let's just 
leave it alone. Let's do what I used to say in medicine and 
provide skillful neglect. That is also a thing you can do that 
is a good thing to do is just don't do anything right now and 
let this sort of settle out so we can see where the dust falls.
    And I would also like to ask, Ms. Calsyn, if you could 
supply any data that--on the last statement you made to Dr. 
Holt about job creation and so forth, and also about the 
churning of people getting in and healthy populations. I know 
in 30 years we never did that. We simply looked at how much our 
budget was, what we could afford, and we wanted to provide, as 
Mr. Kelley did, the absolute best benefits we could to our 
employees because we think--and I still think so today--you get 
a better employee by doing that. And I think that is what most 
employers want to do if they can afford it.
    So we had a very, very good hearing today and I certainly 
learned a lot. And I appreciate my colleagues on both sides of 
the aisle.
    Mr. Holt--
    Mr. Holt. Would the gentleman yield?
    Chairman Roe. I will.
    Mr. Holt. I will just in 15 seconds say that if the 
chairman is looking for a jobs program I think you can do 
better than setting up a health care system that neglects tens 
of millions of people and excludes them.
    Chairman Roe. Reclaiming my time, I totally agree with you. 
I think we should--I think we absolutely should look at a 
program, and I agree with the idea of increasing access, 
increasing quality, lowering costs, and trying to cover all 
Americans. I could not agree more with you on that.
    I want to thank, again, our witnesses.
    With no further comments, the hearing is adjourned.
    [Questions submitted for the record:]
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    [Whereupon, at 11:37 a.m., the subcommittee was adjourned.]

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