[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
__________
Printed for the use of the Committee on Education and the Workforce
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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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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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