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




 
       OBAMACARE: WHY THE NEED FOR AN INSURANCE COMPANY BAILOUT?

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

                                HEARING

                               before the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 5, 2014

                               __________

                           Serial No. 113-89

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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                      http://www.house.gov/reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              TAMMY DUCKWORTH, Illinois
DOC HASTINGS, Washington             ROBIN L. KELLY, Illinois
CYNTHIA M. LUMMIS, Wyoming           DANNY K. DAVIS, Illinois
ROB WOODALL, Georgia                 PETER WELCH, Vermont
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan        Vacancy
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 5, 2013.................................     1

                               WITNESSES

The Hon. Marco Rubio, U.S. Senator, Florida
    Oral Statement...............................................     6
Mr. John C. Goodman, Ph.D., President and CEO, National Center 
  for Policy Analysis Washington, D.C.
    Oral Statement...............................................     8
    Written Statement............................................    11
Mr. Doug Badger, Former Senior White House Adviser for Health 
  Policy to President George W. Bush
    Oral Statement...............................................    19
    Written Statement............................................    21
Professor Timothy S. Jost, Washington and Lee University
    Oral Statement...............................................    36
    Written Statement............................................    38

                                APPENDIX

5 Devastating Obamacare Facts from CBO's Latest Economic Report, 
  by Sean Davis..................................................    74
Statement of Cori E. Uccello, MAAA, FSA, FCA, MPP, Senior Health 
  Fellow American Academy of Actuaries...........................    78
Hon. Gerald E. Connolly, a Member of Congress from the State of 
  Virginia, Opening Statement....................................    82
CRS Report submitted by Rep. Farenthold..........................    84
Letter from the U.S. Chamber of Commerce submitted by Rep. 
  Connolly.......................................................    87
For the Record Statement by America's Health Insurance Plans, 
  submitted by Rep. Horsford.....................................    89


       OBAMACARE: WHY THE NEED FOR AN INSURANCE COMPANY BAILOUT?

                              ----------                              


                      Wednesday, February 5, 2014

                   House of Representatives
       Committee on Oversight and Government Reform
                                           Washington, D.C.
    The committee met, pursuant to call, at 9:35 a.m., in Room 
2154, Rayburn Office Building, Hon. Darrell E. Issa [chairman 
of the committee] presiding.
    Present: Representatives Issa, Mica, Turner, Duncan, 
Jordan, Walberg, Lankford, DesJarlais, Gowdy, Farenthold, 
Woodall, Massie, Collins, Meadows, Bentivolio, DeSantis, 
Cummings, Maloney, Norton, Tierney, Connolly, Speier, Kelly, 
Horsford, and Lujan-Grisham.
    Also Present: Mr. Griffin and Mr. McHenry.
    Staff present: Ali Ahmad, Professional Staff Member; Brian 
Blase, Senior Professional Staff Member; Molly Boyl, Deputy 
General Counsel and Parliamentarian; Joseph A. Brazauskas, 
Counsel; David Brewer, Senior Counsel; Caitlin Carroll, Press 
Secretary; Sharon Casey, Senior Assistant Clerk; John Cuaderes, 
Deputy Staff Director; Brian Daner, Counsel; Adam P. Fromm, 
Director of Member Services and Committee Operations; Linda 
Good, Chief Clerk; Meinan Goto, Professional Staff Member; Ryan 
M. Hambleton, Senior Professional Staff Member; Christopher 
Hixon, Chief Counsel for Oversight; Mark D. Marin, Deputy Staff 
Director for Oversight; Aryele Bradford, Press Secretary; 
Susanne Sachsman Grooms, Deputy Staff Director/Chief Counsel; 
Jennifer Hoffman, Communications Director; Chris Knauer, Senior 
Investigator; Una Lee, Counsel; Juan McCullum, Clerk; Dave 
Rapallo, Staff Director; and Mark Stephenson, Director of 
Legislation.
    Chairman Issa. The committee will come to order.
    I first ask unanimous consent that our colleague from 
Arkansas, Mr. Tim Griffin, be allowed to participate in today's 
hearings. Without objection, so ordered.
    The Oversight Committee exists to secure two fundamental 
principles. First, Americans have a right to know that the 
money Washington takes from them is well spent. And second, 
Americans deserve an efficient, effective Government that works 
for them. Our duty on the Oversight and Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold Government accountable to taxpayers because 
taxpayers have a right to know what they get from their 
Government. Our job is to work tirelessly in partnership with 
citizen watchdogs to bring the facts to the American people and 
bring genuine reform to the Federal bureaucracy. This is our 
mission.
    And today we continue our mission with a hearing as the 
American people confront ObamaCare. They are faced with a 
complex web of taxes, subsidies, mandates, regulations, and 
price controls. Yet, they are receiving little upfront 
information from the administration.
    Our hearing today is one of many that we have had and many 
more we will have, but it is that important. 18 percent of our 
economy is in healthcare, and today we are seeing healthcare 
costs grow and the Affordable Care Act exceed expectations in 
job loss and in cost.
    Four months ago, when ObamaCare opened for business, the 
administration had to that date refused to release complete 
enrollment data or how we were going to get it. Today we still 
do not know how much it has cost, how many people have signed 
up, what coverage is there because it is, in fact, one of the 
most opaque government programs to date.
    What little enrollment data we have is, in fact, not good 
news. For the numbers to balance, the administration officials 
originally claimed that 39 percent of enrollees needed to be 
young adults. As of January, only 24 percent of enrollees were 
young adults, and many of those young adults may be highly 
subsidized. Affordable Care depends on healthy young people 
buying a plan to subsidize the cost of the aged and the sick. 
It needs enrollment to balance. It is not something you can 
force. It is something that must be chosen.
    In just the last few days, the administration announced 
hundreds of millions of dollars will be spent trying to 
advertise for and recruit those people to sign up for a program 
that we were told people would flock to because it was good and 
they needed it. The fact is the Affordable Care Act is not 
working and the numbers are not working.
    Just yesterday, the Congressional Budget Office released 
figures that showed dramatic adverse effect on total enrollment 
and a cost of $2 trillion over the next decade, a trillion 
dollar difference in their estimates. The fact is the act is 
not performing. CBO is now being forced to recognize, not as 
the White House would say, that we would--not what the White 
House would say that people are choosing not to work as much 
and they have flexibility, but in fact, people who want full-
time jobs are finding themselves with less than full-time jobs 
and often without health care.
    Additionally, the GDP of this country, the engine that 
creates jobs, is likely to slow by as much as 1 percent over 
the next decade. That is a long-term bad news for our economy.
    This does not mean that the goals of the Affordable Care 
Act are, in fact, to be given up. This committee and all 
committees of the Congress have an opportunity to seize better 
choices in how we fashion health care opportunities for the 
American people. Health care insurance companies make money off 
of the Affordable Care Act, and the profit is theirs to keep. 
In fact, although they are not villains, they certainly were an 
organization--many organizations that were previously vilified, 
vilified in a big way until it became convenient to get them on 
board with the Affordable Care Act. The Affordable Care Act 
guarantees subsidies and higher enrollment for the health care 
companies.
    Today we will take a number of items, including our first 
witness who will speak to one of the flaws in the system, which 
is in fact a guarantee of profit for the health care providers, 
one that may cause them to price their product in a way that is 
not in the best interest of competition. This program is called 
``reinsurance.''
    A key question we will ask today is what will trigger the 
bailout provisions and how will it take effect. Under 
ObamaCare's risk corridor program, if an insurance company 
cannot cover the losses of its less successful plans, the 
Treasury will use taxpayer funds to cover up 80 percent of the 
loss.
    Yesterday, the Congressional Budget Office estimated 
ObamaCare's risk corridor would give Government a gain of $8 
billion in profits. It is important to note that that is based 
on another program in which every year the American people have 
found themselves overpriced relative to a shrinking cost of 
prescription drugs. It is not necessarily a valid model. It 
certainly has one critical difference, which is Medicare Part D 
was a program which, by definition, was new and did not have a 
large pool of history. In the case of the Affordable Care Act, 
most of the carriers are providing exactly the same type of 
insurance to the exact same pools as they always have.
    CBO's projections also concluded that the Affordable Care 
Act will cost the economy 2.5 million job equivalents. The 
agency report found the negative impact effects of the law 
would be substantially larger than had been believed. When they 
say ``substantially larger,'' let us understand. According to 
the then-Speaker, Nancy Pelosi, the Affordable Care Act was 
going to create 4 million jobs. It is now going to cost us 2.5 
million jobs.
    CBO is a respected, nonpartisan agency on which the ranking 
member, Mr. Cummings, and I rely daily. But even CBO can only 
make projections based on information available and on hand, 
and in fact, the Affordable Care Act continues to migrate. It 
is well known that at the time the Affordable Care Act was 
being projected, CBO was much more optimistic as to what would 
occur. In 2011, CBO estimated, as the law was being 
implemented, that it could cost 800,000 full-time job 
equivalents. Again, today they now estimate 2.5. CBO's revised 
estimate is based on a better understanding of the law. 
Remember, this is a law that we had to pass before we could 
find out what was in it. More importantly, out of the 2,400 
pages of the original law, we have now mushroomed into over 
70,000 pages of regulations and they are still being made.
    The law's reinsurance program levels a fee on health 
insurance consumers to subsidize plans in the exchange, meaning 
people who already had a plan that they wanted to keep that 
they may or may not be able to keep are being taxed as part of 
the Affordable Care Act. Most, if not all, Americans were 
unaware that they would be taxed for a program even if they had 
a program they liked, meaning that the programs they are in 
cost more because of an ObamaCare tax.
    The noble aspirations are not enough to make ObamaCare 
cost-effective or fair, and it is driving up the cost of 
insurance and driving up the cost of providing health care. Its 
implementation has been marked by arbitrary and unilateral 
delays made by the White House, many of them beyond any fair 
interpretation of the four squares of the law.
    In closing, I think my colleagues are aware that no one on 
my side of the aisle voted for the Affordable Care Act. We did 
not believe in element after element after element of it, even 
though we would have liked to have done a few of the elements 
of this law. Therefore, we are not neutral observers.
    But CBO is a neutral observer, and I believe that the 
testimony that is going to be given today by our distinguished 
Senator from Florida, Senator Rubio, who has proposed a bill to 
repeal the risk corridors in the President's health care law, 
comes both with a timely proposal and with the recognition that 
after you guarantee that insurance companies cannot lose money, 
it is little surprise that when the President makes changes, 
which will adversely affect the profit projections of insurance 
companies, you hear not a word. You hear not a word because, in 
fact, the taxpayer is paying for the arbitrary decisions of the 
President and, in fact, not the health care providers.
    And with that, I recognize the ranking member, Mr. 
Cummings, for his opening statement.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I welcome you, Senator Rubio, to this hearing, and it is 
certainly good to have you here.
    Today's hearing is our committee's 24th--2, 4--24th--on the 
Affordable Care Act. And after this hearing ends, we will be 
holding our 25th this afternoon. I am not sure what the line is 
between oversight and obsession, but our committee has 
obviously crossed it.
    I will begin, as I do, at all of our ACA hearings by 
highlighting the single most important fact before us today. 
Millions of Americans are now receiving critical medical care 
they did not have before. I know that is important to you, 
Senator Rubio, and it should be important to all of us. People 
who are sick, trying to get well, people who are well trying to 
stay well are getting care that they could not receive before.
    No more discrimination against people with cancer, 
diabetes, and other preexisting conditions. That is so 
important. No more discrimination against women. Free 
preventative care for millions of people. Billions of dollars 
in rebate checks sent to consumers across the country in all of 
our districts and in Florida. And the lowest growth in health 
care costs in 50 years.
    These amazing results are not happening because of 
Republican efforts. They are happening in spite of them. 
Republicans have done every single thing they could do in their 
power to repeal, defund, and eviscerate the Affordable Care 
Act. And sadly, so sadly, today's hearing is just the latest 
example.
    According to press reports, while House Republicans were at 
their retreat last week they were desperately searching for 
something, anything to attach to the debt ceiling legislation. 
They could not simply pay our Nation's debts. They had to come 
up with something, anything to politicize the issue.
    At first they discussed the Keystone Pipeline, but then 
they settled on the issue before us today, the so-called 
Affordable Care Act bailout of insurance companies. They seized 
on several provisions in the ACA designed to distribute risk 
across insurance companies and prevent the artificial inflation 
of premiums for consumers. Under one of these provisions called 
the ``risk corridor program,'' the Government collects funds 
from insurers with large financial gains and uses those funds 
to make payments to insurers with large losses.
    The irony of this Republican attack is that the Republicans 
first proposed these measures as part of the 2003 law to create 
the Medicare Part D drug benefit. It was a Republican idea.
    Senate Minority Leader Mitch McConnell and House Speaker 
John Boehner both voted in favor of these provisions, and so 
did Paul Ryan, the chairman of the Budget Committee, as well as 
our chairman, Chairman Issa. And at the time, Republican 
Senator Chuck Grassley described the risk corridor program as 
one of the, ``incentives that the Secretary can use,'' to get 
new plans started, ``in a strong way.'' He said ``these plans 
are enabling many beneficiaries to lower their out-of-pocket 
costs substantially, and that is particularly true for 
beneficiaries with chronic illnesses.'' I did not say that. 
Senator Grassley said that.
    The risk corridor program was a good idea during the Bush 
administration, and it worked. Rather than a bailout for 
insurance companies, the program has resulted in $7 billion in 
net gains to taxpayers. But now since these same mechanisms are 
part of the Affordable Care Act, Republicans argue that they 
are a bailout for insurance companies.
    Senator Rubio, who I have great respect for, calls them--
and I ``Government favoritism and corporate cronyism at its 
worst.'' He claims that we are getting, closer to the reality 
that billions of dollars in taxpayer money is going to be used 
to bail out these exchanges.'' And he introduced legislation to 
repeal this program.
    Just this week, however, the nonpartisan Congressional 
Budget Office issued a new report that completely obliterates 
this argument. CBO projects that the ACA risk corridor program 
will result in net gains to taxpayers of $8 billion over the 
next 10 years. So where is the bailout? There isn't one.
    Just as in the Medicare Part D program, the Affordable Care 
Act risk corridor program will save taxpayers money, and if we 
were to adopt legislation to eliminate this program, billions 
of dollars in savings would simply disappear.
    I ask unanimous consent, Mr. Chairman, that the CBO report 
be entered into the official hearing record.
    Chairman Issa. Without objection, so ordered.
    Mr. Cummings. Thank you, Mr. Chairman.
    Finally in conclusion, I am surely no advisor to the 
Republican Party, but if you are trying to create a new image 
for yourselves, one of truly caring for people facing hardship, 
why in the world would you eliminate a program that you 
invented that has been working for nearly a decade and that 
saves taxpayers billions of dollars? And why would you increase 
premiums for Americans across the country in the process? This 
approach makes no sense unless you are putting politics ahead 
of people.
    So for the next week, I would like to make a suggestion. 
Rather than holding our 26th hearing on yet another false 
criticism of the Affordable Care Act, I ask that we turn to 
more constructive efforts. Let us hold a hearing to help our 
constituents, not just the constituents from my district, from 
all of our districts. Let's get ourselves involved in 
constructive efforts to help our constituents learn about the 
health care coverage they can now obtain and let us help them 
enroll. That would benefit them more than anything we will do 
today.
    And with that, Mr. Chairman, I yield back.
    Chairman Issa. I thank the gentleman.
    Members may have 7 days to submit opening statements for 
the record.
    Chairman Issa. We now go to our first panel. After Senator 
Rubio, we will immediately go to a second panel.
    And I would advise all witnesses that it is not customary 
to interview Members of the House or the Senate afterwards. And 
I say this because we did have our counterparts from the Senate 
for a very long back and forth just a few weeks ago, but that 
was an exception.
    Senator Rubio comes today to give testimony specifically on 
his proposal but, more broadly, on his study of the ongoing 
implementation of the Affordable Care Act. Senator Rubio, we 
appreciate your being here. You will be welcomed back for the 
26th and the 27th and the 28th hearing, if it becomes 
necessary, in order to do appropriate oversight of this new 
law. Senator, you are recognized.

 STATEMENT OF HON. MARCO RUBIO, UNITED STATES SENATOR, FLORIDA

    Senator Rubio. Thank you, Chairman Issa and the ranking 
member, Mr. Cummings, for holding this hearing and for inviting 
me here today. I am a frequent watcher. I am a loyal viewer of 
this committee on C-SPAN. So I appreciate the invitation to be 
here with you today.
    My focus of my remarks this morning is going to be on 
section 1342 of ObamaCare, which I, in partnership with your 
colleague, Tim Griffin of Arkansas, have introduced legislation 
to repeal.
    Now, section 1342 deals with what has already been 
described as risk corridors. Now, under normal circumstances, 
risk corridors are a valid program. They provide insurers 
insurance against unanticipated major losses caused by 
anomalies that may occur in a competitive insurance market. 
This prevents disruption in services, for example, for patients 
and for customers.
    They are budget-neutral, by the way. These risk corridors 
can actually protect taxpayers from assuming too much of the 
risk.
    The problem with the risk corridor in ObamaCare is that 
this is not a normal circumstance. First of all, its failures 
are not anomalies. They are across the board. It is not one or 
two companies that are miscalculating on ObamaCare's long-term 
prospects; it is the entire industry that is being affected by 
its failures.
    And, by the way, ObamaCare and its exchanges are not a true 
competitive insurance market. In fact, it has increasingly 
become more like a high-risk pool.
    The risk of a bailout has always been high. As many of us 
predicted, these exchanges have not attracted enough young and 
healthy people to sign up, but the chances of the bailout have 
increased significantly in the last few months due to several 
unilateral actions taken by the President and by his 
administration.
    For example, this past November, in response to a public 
backlash from people who were losing their health plans and 
providers, President Obama delivered a speech in which he 
announced his unilateral action to, quote, fix his broken 
promise that if you like your plan, you can keep your plan. 
That same day, however, the Department of Health and Human 
Services issued a press release to go with the President's 
speech. And in that press release, they added a critical detail 
that was missing in the President's remarks. And here is what 
the press release said. ``Though this transitional policy was 
not anticipated by health insurance issuers when rate-setting 
for 2014, the risk corridor program should help ameliorate 
unanticipated changes and premium revenue.''
    Now, what this means is pretty straightforward. The rates 
being charged by the insurance companies in the exchanges were 
based on a certain number of young and healthy people signing 
up, but because that is not happening, companies in the 
exchange will not be able to offset the costs of insuring older 
and less healthy individuals. And as a result, the risk 
corridor will be needed to bail out the companies for their 
losses.
    Now, the administration and the law's supporters deny that 
this is where we are headed, but the proof already exists that 
a bailout will be required.
    For example, earlier this year, health insurance companies 
had to file their key disclosure documents with the Securities 
and Exchange Commission. In it, they had to explain to their 
shareholders what ObamaCare will mean for their bottom line in 
the coming year, and here is what it said. It will mean losses. 
That is why, based on these filings, the credit rating agency 
Moody's has downgraded the outlook for American health insurers 
to negative status.
    So health insurers are leveling with their shareholders 
about how ObamaCare's failures will affect their bottom lines, 
and credit rating agencies are leveling with investors about 
how ObamaCare's failures affect the health insurance industry.
    Now it is time for the President, for Secretary Sebelius, 
and for ObamaCare supporters to level with taxpayers about the 
fact that their hard-earned tax dollars will soon be needed to 
bail out the ObamaCare exchanges.
    The supporters of ObamaCare have defended the risk 
corridors by citing how it has worked for Medicare Part D, but 
these are two fundamentally different programs. Medicare Part D 
deals with a defined, a limited and a predictable population of 
seniors. Insurers knew who was going to sign up, and they had a 
pretty good idea of how much they were going to cost to insure, 
and so they could price for it accordingly. But ObamaCare 
exchanges deal with an open-ended, broad, and unpredictable 
group of enrollees. No one knew who was going to sign up, how 
many would sign up, and how much they would cost. But what they 
are now finding out is that the pool of enrollees that is 
signing up is smaller, older, and unfortunately sicker than 
what they had priced for. And soon they will be coming to 
Washington for their bailout to cover their losses as a result.
    Now, the law has a host of other problems. For example, as 
the chairman has already pointed out, just yesterday the 
Congressional Budget Office found that ObamaCare will cost 
millions of Americans their jobs, and it will add trillions in 
additional deficits. That, by the way, is why a growing number 
of Americans have come to realize that this law has so many 
flaws that it cannot be fixed.
    Now, I respect the fact that there are some who still hold 
out hope that ObamaCare will work, just like there were some in 
Denver this Sunday still holding out hope that the Broncos 
could come back and win in the fourth quarter. But no matter 
how you may feel about the law, we should all be able to agree 
that the American people should not have to pay for another 
taxpayer-funded bailout.
    Refusing to take that possibility off the table is like 
basically telling the American people that some are so devoted 
to protecting ObamaCare that they do not care how much it will 
cost taxpayers.
    The bottom line is that it is not right to allow a powerful 
industry to use its influence here in Washington to protect 
itself from the consequences of ObamaCare, and it is not right 
that hard-working Americans are forced to pay for it.
    So, Mr. Chairman, Ranking Member, I appreciate the 
opportunity to testify before you today, and I look forward to 
coming back. Thank you.
    Chairman Issa. Senator, we thank you for your input. We 
thank you for your insight in this area, and we thank you for 
being a loyal watcher.
    We will take a short recess and set up for the next panel.
    [Recess.]
    Chairman Issa. We now welcome our second panel of 
witnesses. Mr. John Goodman is President and CEO of the 
National Center for Policy Analysis and Senior Research Fellow 
at the Independent Institute. Mr. Douglas Badger is a former 
Senior White House Adviser for Health Policy to George W. Bush, 
and Mr. Timothy Jost, is Professor of Law at Washington and Lee 
University. I want to thank all of you for being here and, 
pursuant to the committee rules, would ask that you please rise 
to take the oath and raise your right hands.
    [Witnesses sworn.]
    Chairman Issa. Please be seated. Let the record reflect 
that all individuals answered in the affirmative.
    Since we have a full panel and the committee rules call for 
5 minutes for opening testimony, I would ask that you observe 
the lights and stay as close to the 5 minutes, recognizing that 
your entire opening statements will be placed in the record, 
along with additional, extraneous materials, should you choose 
to add it.
    And with that, we go to Mr. Goodman.

                       WITNESS STATEMENTS

              STATEMENT OF JOHN C. GOODMAN, PH.D.

    Mr. Goodman. Mr. Chairman, members of the committee, the 
people who created the health insurance exchanges were 
apparently of good intention, but they created perverse 
incentives for those at the bottom. And when people act on 
those perverse incentives, they are doing things that create 
perverse outcomes.
    The insurers are prevented from pricing risk accurately in 
the health insurance marketplace. As a consequence, people who 
are relatively healthy are overcharged at the point of 
enrollment and people who are relatively sick are undercharged. 
This gives every insurer an incentive to attract the healthy 
and avoid the sick because they make profits on the healthy and 
they make losses on the sick.
    The way they behave, in the face of this incentive, 
contrasts markedly with insurers in other markets. All of you 
have seen casualty insurers advertising on TV. You have seen 
the actor in front of the town that was wiped out in 2 minutes 
telling you with Allstate you will be in good hands. You have 
seen advertisements with car accidents. You have seen the Aflac 
ads, the Chubb ads. And every one of these ads pictures some 
bad thing that could happen to you, and the message in these 
ads is if the bad thing happens, the insurer will be there for 
you. You are never, ever going to see an ad like this by 
insurers selling insurance in the exchange. You are never going 
to see an ad that says if you get cancer, we are going to be 
the health plan for you, or if you get heart disease, come to 
us because they are running away from the sick instead of 
trying to attract them.
    Now, the insurers have their benefits regulated down to the 
smallest items. Yet, they are free to choose their own networks 
and their own premiums. What they are doing is they are 
selecting premiums and networks in order to attract the healthy 
and avoid the sick. They have become convinced that the healthy 
buy on price and that only sick people look really closely at 
networks. And so we are getting a race to the bottom on the 
networks. Blue Cross, for example, of California has only about 
a third as many doctors in its exchange network as it does in 
its normal network. We are seeing these networks leave out the 
best hospitals and the best doctors.
    Now, on the buyer side, it makes sense if insurance is 
guaranteed issue. If it has nothing to do with health 
condition, why would I not buy on price? And then if I get 
sick, if I get heart disease, I will look around for a better 
plan. If I get cancer, I will look around for a better plan. 
And what we all forget is that if everybody is chasing the 
healthy person, when I do get cancer, there may not be a plan 
there that provides decent cancer care.
    In the exchange, people who are overcharged will tend to 
under-insure. People who are undercharged will be inclined to 
over-insure. People with serious health problems will choose to 
go on platinum plans. People who are healthy will chose the 
bronze plan, or more likely, they will simply stay uninsured 
and wait until they get sick to enroll at all.
    To make these conditions even worse, we have outside groups 
who are allowed to do things that I regard as unconscionable. 
The Federal risk pool is about to dump all the enrollees in the 
risk pool into the State exchanges. All of the State-level 
exchanges are about to end their risk pools and dump high-cost 
enrollees into the exchange. We have cities and towns 
throughout the country that have unfunded post-retirement 
promises, and they are getting ready to unload on the 
exchanges. The City of Detroit is sending 10,000 retirees, who 
are older and therefore more costly, to the exchange. We have 
businesses thinking about doing the same thing, ending their 
post-retirement health care plans. We have all the people who 
are characterized as job lock employees who are working only 
because of the health insurance, and they will leave their jobs 
and enter the exchange. And then, as I understand it, hospitals 
now are allowed under the Affordable Care Act to actually sign 
people up in the hospital bed with the hospital paying the 
premium.
    In my written testimony, I do not talk about all the things 
that employers might do, but if you would for me to get into 
it, I think that there are many things they can do to game the 
system and we are going to see it happen.
    In summary, I think that we have underestimated the costs 
that are being piled onto the exchange, not overestimating. I 
think that this is a potential large strain on the taxpayer, 
and the remarkable thing is this is a small market, less than 
10 percent of the private insurance population. It was working 
reasonably well. And what we have done is unconscionable, bad 
policy, and bad ethics.
    [Prepared statement of Mr. Goodman follows:]

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    Chairman Issa. Mr. Badger?

                    STATEMENT OF DOUG BADGER

    Mr. Badger. Thank you, Mr. Chairman, Ranking Member 
Cummings, and distinguished members of the committee. Thank you 
for inviting me to appear today to discuss the provisions of 
the health care law that have been characterized as insurance 
company bailouts.
    People generally understand that the health care law 
includes subsidies for individuals who buy insurance. It should 
not provide subsidies to corporations that sell it. It has been 
argued that insurers cannot make a profit without such 
subsidies. CBO's most recent estimate on risk corridors suggest 
that in the aggregate issuers in the exchanges will realize 
premium revenue that substantially exceeds their projected 
costs. Their expected profitability is attributable to powerful 
tools contained in the law. These provisions help companies 
that sells through the exchanges prosper without the need for 
various corporate welfare provisions.
    The law has handed such insurers enormous opportunities to 
increase their revenues and attract more customers, including 
healthy ones. It subsidizes the cost of their product. It 
penalizes people who do not buy their product.
    Regulators have required the cancellation of non-
grandfathered individual and small group policies and will 
cancel more later this year, leaving these people with little 
choice but to obtain insurance coverage through the exchange. 
It is an enormous Government effort that involves driving 
business to that segment of health insurers that sells through 
the exchanges.
    Collectively, these provisions should be sufficient to 
induce millions of people into plans sold through the exchanges 
without the need for additional Government intervention.
    The law's premium stabilization provisions raise concerns 
because they create the possibility of back-door assistance 
from taxpayers to insurance companies and the moral hazards 
that result. The law's risk corridors are among these 
provisions. CMS's decision to permit risk corridor 
disbursements in excess of receipts is what I find troubling. 
It creates the possibility that Government will use public 
money to mitigate losses incurred by insurers who improperly 
price their products.
    CBO's estimate that risk corridors will save the Government 
$8 billion over 3 years offers some comfort, but CBO, as we all 
know, is often wrong and its new estimate is accompanied by a 
number of caveats. There is simply too much uncertainty 
surrounding the law's implementation for Congress to rely 
exclusively on this latest CBO estimate, which is subject to 
change without notice.
    Instead, I believe we should amend the act either to repeal 
risk corridors or, in the alternative, to stipulate that 
aggregate risk corridor disbursements cannot exceed receipts. 
If CBO is correct, then the Government will get its $8 billion 
in deficit reduction. If it is wrong, taxpayers will be 
protected against unforeseen spending.
    Now, some might argue that even a change this small and, in 
my view, this prudent should not be taken because insurers were 
not expecting the change when they established their 2014 
premiums last spring. That is not a line of argument that 
Government has found terribly persuasive when applied to 
individuals and small firms. Millions of individuals and small 
businesses were expecting to renew their coverage. They did not 
expect to have it canceled, but that did not stop the 
Government from ordering the cancellations.
    More cancellations will come later this year, according to 
CBO, meaning that people will lose their coverage. That is not 
their choice but it is their fate. Put on a personal note, my 
mother-in-law expected to continue to receive care from the 
area's largest health system. She did not expect her Medicare 
Advantage plan to drop the system from its network, but that is 
one consequence of the Medicare cuts in the law.
    Millions of Americans have been asked to adjust, adapt, 
evolve, to endure adverse consequences without complaint and 
without relief. They are dealing with the unexpected. Congress 
should ask no less of insurance companies. Insurers should be 
able to make a profit in Government marketplaces even if 
Government repeals risk corridors or prohibits expenditures to 
exceed receipts. The law's combination of mandates, subsidies, 
cancellations, and tax penalties can be expected to induce or 
compel millions of people in relatively good health to buy 
their product. Individual competitors will suffer losses if 
their costs exceed their revenues. That is not the taxpayers' 
problem. The Government has established its marketplaces. Let 
the insurers compete.
    [Prepared statement of Mr. Badger follows:]

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    Chairman Issa. Mr. Jost?

                  STATEMENT OF TIMOTHY S. JOST

    Mr. Jost. Thank you, Mr. Chairman, Ranking Member, members 
of the committee.
    The Affordable Care Act's risk corridor program is not a 
bailout. It is a rational approach to risk sharing in a public/
private insurance partnership.
    The ACA's premium stabilization programs have arguably 
already saved consumers and the Federal Government billions of 
dollars, and as we have heard several times today, the CBO is 
now projecting that the program will produce $8 billion in 
revenue for the Federal Government over the next 3 years. A 
very strange bailout.
    But the risk corridor program is moreover a commitment of 
the Federal Government to private businesses, and breaking this 
commitment would not only be a breach of contract, it could 
possibly be an unconstitutional taking. The Federal Government 
must honor its debts and it must honor its contracts.
    The ACA's risk corridors are modeled after the risk 
corridor program in the Bush administration's Medicare Part D 
drug plan. The Bush administration used risk corridors and 
reinsurance to get private insurers to offer a product that 
they had not offered before and did not know how to price. 
Insurers that offered Medicare Part D drug plans would price 
their premiums based on actuarial estimates of what providing 
the coverage would cost. If actual costs were higher than 
expected spending, the Government would absorb part of the 
loss. Conversely, if actual expenses fell below expected 
spending, the Government would recover excess gains. 
Additionally, the Bush prescription drug legislation reinsured 
80 percent of all drug costs above a catastrophic threshold. 
These provisions, still in effect today, have been a key to the 
success of the Part D drug plan. Moreover, the Part D risk 
corridor program has turned out to be a net moneymaker for the 
Federal Government in every year it has been in effect.
    There is a long history of the Federal Government sharing 
risks with private insurers. Federal subsidies to the national 
flood insurance program, which Senator Rubio voted to extend 
last week, have for 35 years enabled private individuals to 
purchase flood insurance through the Federal Government. The 
farm bill passed by this body last week included Federal 
reinsurance for crop insurance.
    The ACA encourages private insurers to offer individual 
market coverage without underwriting for preexisting conditions 
through the exchanges. Congress built on the experience of the 
Medicare drug plan, creating a permanent risk adjustment 
program and temporary reinsurance and risk corridor programs. 
The Affordable Care Act risk corridors are, in fact, less 
generous than the Bush administration's programs, even though 
the risk that these companies are taking on is much greater, 
but they are intended for the same reason: to achieve stability 
for insurers and lower premiums for enrollees. In fact, because 
insurers did not have to charge a risk premium for this new 
product, premiums for 2014 came in 16 percent below CBO 
projections, saving the Federal Government billions of dollars.
    A bailout occurs when the Government intervenes to save a 
business from its own unwise decisions without a legal 
obligation to do so. With the risk corridor program, however, 
the Government has encouraged insurers to take a risk by 
sharing, not assuming the risk. The Federal Government has 
entered into a contract with insurers to provide coverage 
through the exchange. Insurers relied on the premium 
stabilization program in setting their premiums.
    But most importantly, removing the backstop of the risk 
corridor program would put private insurers at higher risk, 
possibly leading to insolvencies that would need to be covered 
at great expense by the State and Federal governments. It would 
lead to fewer participants and higher premiums in 2015. Since 
the full cost of premiums in the exchange is borne by the 
Federal Government, once lower and middle income enrollees pay 
a set percentage of their income, the cost of this program to 
the Federal Government would increase dramatically.
    The risk corridor program is a commitment of the United 
States Government to private businesses, which it has partnered 
with to offer a public service. It is modeled after a 
successful program created by the Bush administration. Just, 
again, as the United States must not default on its debts for 
narrow political purposes, it must not breach its promises. 
Doing so is not only a breach of trust, it is also a foolish 
and short-sighted public policy.
    Thank you.
    [Prepared statement of Mr. Jost follows:]

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    Chairman Issa. Thank you.
    I will now recognize myself for a series of questions, and 
I have a lot of questions.
    Mr. Jost, just so you understand--and you can comment back 
for the record, but I read the elements of the bill. The 
insurance companies are entitled to absolutely nothing unless 
Appropriations appropriates money. So technically we can take 
the tax, take all $16 billion of the tax, and pay none of the 
$8 billion. Statutorily we say we do it, but it is subject to 
appropriations. So I know the President is a constitutional 
scholar. I would appreciate it if you would answer for the 
record on your view of it after researching it.
    Chairman Issa. Mr. Goodman, I want to ----
    Mr. Jost. Can I respond to that or will I have time later?
    Chairman Issa. No. You helped write the bill. So the fact 
is that is what the bill says.
    Mr. Badger and Goodman, I have got a bunch of questions and 
very little time. Let me just understand a couple of things 
that the public needs to understand that are tangential but are 
part of this.
    There is an estimate of $16 billion to be gotten from 
overpayments, meaning I pay too much because I am in ObamaCare. 
I pay too much. The Government does not get it rebated when, in 
fact, I paid too much for my--I think it is a gold plan that we 
are required to buy. I pay too much. The Government takes that 
money. They do not let me get the discount for overpayment. Is 
that correct?
    Mr. Goodman. I think that is right.
    Chairman Issa. They then--let us just say the Blues, United 
Health, any of them. They have another one that is a loss 
leader that they charge too little on. They get my money for 
the one when they were trying to buy market share. Is that 
right?
    Mr. Goodman. That is right.
    Chairman Issa. Now, it could be the reverse. I could be 
getting the loss leader and somebody else could be paying.
    So this whole balancing act includes the assertion that you 
take from one group of people who pay too much and give it to 
another, give it back to the companies.
    Additionally, are they not taking $63 from every insurer in 
the way of a tax so that every American is paying $63 to fund 
exchanges?
    Mr. Goodman. For the next 3 years, yes.
    Chairman Issa. For the next 3 years. So Americans who are 
losing the health care plan they wanted, the doctor they 
wanted, and so on, but have a private plan are paying $63 to 
run these exchanges. It is just another tax, a hidden tax.
    Is there not another $100 billion or so in health insurance 
taxes that are also being paid that are funding ObamaCare?
    Mr. Goodman. Yes. Everybody is being taxed, even the 
Medicare Advantage plans, the Medicaid managed care plans. They 
are all being taxed.
    Chairman Issa. Okay. So Americans are seeing part of their 
health care costs going up, in fact, for taxes that are being 
paid for subsidies like the underwriting here in this bill.
    Mr. Goodman. Yes.
    Chairman Issa. It is amazing that they passed a bill that 
could hurt so many people, including the people who already 
were paying out of their own pocket for their insurance.
    Mr. Badger, you were active in Medicare Part D and you saw 
it. Is it true that Medicare Part D has a substantial 
difference in what we did or did not know about Medicare Part D 
versus what we did or did not know about these plans?
    Mr. Badger. Yes.
    Chairman Issa. And in the case of Medicare Part D, it has 
been giving us revenue. Is that correct?
    Mr. Badger. That is correct.
    Chairman Issa. And is that revenue not essentially from 
overcharging for Medicare Part D?
    Mr. Badger. It is revenue that derives from the fact that 
insurers' actual revenues exceeded their costs by more than 
they expected.
    Chairman Issa. So the source that CBO was scoring--and I am 
not going to get into as many things as some other members 
might, but the source of this revenue that we are talking about 
coming to the Government as a good thing is, in fact, taxing 
our senior citizens. Whenever there is an overpayment, too much 
for the insurance, instead of rebating it back to the senior, 
we are taking it as tax revenue. Right?
    Mr. Badger. The revenue is collected and it is not 
distributed ----
    Chairman Issa. So our seniors are being taxed on their 
paying too much for Medicare Part D. Right?
    Mr. Badger. It has to calculate that way.
    Chairman Issa. So it is not all that good a program when it 
goes on in perpetuity. Is it?
    Mr. Badger. A risk corridor program? I would agree. It is 
not one that goes on in perpetuity.
    Chairman Issa. So if we were going to do a risk corridor 
program, would it not be fair to make sure that at least the 
excesses in the reductions are fairly distributed back to the 
insured rather than going to the Federal Government as just 
another tax on people trying to buy necessary health insurance?
    Mr. Badger. I had not thought about that approach, Mr. 
Chairman, but at the very least, I would say that the 
Government should not pay out more in disbursements to 
insurance companies than it collects.
    Chairman Issa. You know, being a bleeding heart 
conservative I guess here, I am trying to figure out why 
people's necessary health care should be increased in price, 
called a revenue, so that if CBO is right, what we are really 
doing is taxing their health care and making it more expensive. 
And if they are wrong, what we are doing is taking the American 
people's hard-earned tax dollars to bail out insurance 
companies. We really lose either way as buyers of insurance. Is 
that not true, Mr. Goodman?
    Mr. Goodman. I would say so, yes.
    Chairman Issa. Mr. Jost, the one item I wanted to have you 
respond for the record. But any of the questions I ask now if 
you could briefly comment on them. I am certainly happy to hear 
it.
    Mr. Jost. Well, the purpose of the Affordable Care Act was 
to cover people in ----
    Chairman Issa. No. My questions, please, were all about are 
we not causing seniors to pay too much, are we not taxing 
health care. I mean, you helped write this thing, and I am 
seeing a series of taxes on hard-working Americans to pay for 
this that hard-working Americans did not know about. If you 
want to comment on that, that was my question.
    Mr. Jost. I actually had nothing to do with writing this 
legislation.
    Chairman Issa. You have previously testified on a number--I 
thought you were more involved.
    With that, I yield to the gentleman from Maryland for his 
questions.
    Mr. Cummings. Mr. Jost, please--first of all, thank you for 
clearing up that you did not write the legislation, you were 
not involved in that. And I want to thank you for your 
scholarly work.
    Now, would you now respond? I think you wanted to respond 
to something that you did not get a chance to respond to that 
was asked by the chairman.
    Mr. Jost. Yeah. An issue that I thought would come up 
today--and the chairman just raised it obliquely--was a CRS 
report that was made public yesterday that was actually passed 
on to the majority 10 days ago, but it was leaked to the press 
yesterday and first seen by minority staff and myself, claiming 
that appropriations are necessary before the risk corridor 
program can be operationalized. And I would just refer this 
committee to the case of Salazar v. Ramah Navajo Chapter from 
the Supreme Court in 2012 in which the Supreme Court said the 
United States are as much bound by their contracts as are 
individuals. Although the agency itself cannot disburse funds 
beyond those appropriated to it, the Government's valid 
obligations will remain enforceable in the courts.
    For better or for worse, the Federal Government--Congress 
through this statute has made a commitment to the insurers that 
if you enter this risky market, we will share the risk. We will 
not free you from the risk because the risk remains shared. 
Companies that under-price their products will not make a 
profit, but the Government is sharing the risk to draw them 
into this market. And at this point, after the insurers have 
set their rates after they have gone into the market, to turn 
around and tell them that we are not going to honor the 
obligation set out in the law I think would be unconscionable.
    Mr. Cummings. Let me just ask you a few questions to follow 
up on that.
    Medicare Part D was one of President Bush's signature 
legislative initiatives. It was supported by Senator Mitch 
McConnell, John Boehner, Speaker Boehner, Majority Leader 
Cantor, Budget Chairman Ryan, and Chairman Issa, all of whom 
voted for the bill. Medicare Part D included risk adjustment, 
reinsurance, and risk corridor programs. Is that right, 
Professor?
    Mr. Jost. That is correct.
    Mr. Cummings. Those are the same programs that Republicans 
are now calling a bailout now that they are part of the 
Affordable Care Act. I do not understand why Republicans were 
for these provisions before they were against them.
    But one real difference is clear. They are obsessed with 
destroying the Affordable Care Act, and this is just a new 
proposal to do just that.
    Professor Jost, can you explain why these risk mitigation 
programs were included in Medicare Part D? How did these risk 
mitigation programs impact the participation of insurers in the 
cost of premiums? And finally, do the Affordable Care Act risk 
mitigation programs work in the same way to increase 
participation of insurers and stabilize the cost of premiums? 
You got those three questions?
    Mr. Jost. Yes.
    The problem that the Bush administration faced in 2003 is 
that it was asking insurers to create a product that they had 
not previously marketed, a prescription drug plan for senior 
citizens. The three R's in the Bush drug plan served exactly 
the same purpose that they do here. They provided reinsurance 
for catastrophic costs. They provided risk corridors so that if 
insurers who priced their products inappropriately to begin 
with could have some comfort that they would not suffer great 
losses, although they did it differently, but risk adjustment 
to move profits from the insurers who ended up cherry-picking 
to those who did not deal with the problem that Dr. Goodman 
raised. Exactly the same thing happens under the Affordable 
Care Act.
    As the chairman pointed out, there are fees that are 
imposed on insurers throughout the group market and the 
individual market to move funds not just to the exchanges but 
to all individual insurers to reinsure high-cost cases to try 
to make the individual market work, which it has not in the 
past. There is risk adjustment so that if insurers cherry-pick, 
they will have to pay the ones who take on the high losses. And 
then there are these risk corridors which again are there as 
kind of a flywheel to stabilize the program.
    It was mentioned that risk is going to be higher because of 
the transition policy announced by the Obama administration. 
The GAO factored that into account. It said that would decrease 
the revenue of the Federal Government from the program from 
$8.5 billion to $8 billion.
    Mr. Cummings. And the risk corridor program for the 
Affordable Care Act is 3 years. Is that right? It has a limit 
of 3 years?
    Mr. Jost. That is correct. It is only 3 years. So is the 
reinsurance program.
    Mr. Cummings. And what about the prescription drug program?
    Mr. Jost. That has turned out to be indefinite.
    Mr. Cummings. Indefinite?
    Mr. Jost. Yes. I mean, it is still in effect. It is 
actually still making money for the Federal Government.
    Mr. Cummings. Very well. That is the same one that Senator 
Grassley applauded as being so great.
    Mr. Jost. That is correct.
    Mr. Cummings. Very well.
    Mr. Farenthold. [Presiding] Thank you, Mr. Cummings.
    Mr. Jost, I was informed by the majority staff Mr. Jost 
made a comment that they had had this for quite some time, and 
they indicate our staff just got that yesterday as well. It was 
originally requested by the Energy and Commerce Committee. 
Without objection, I would like to enter the report into the 
record so everyone has access to it.
    Mr. Jost. I was informed that no minority staff of any 
committee had heard it or seen it heretofore.
    Mr. Farenthold. Thank you.
    At this point we will go to the gentleman from Florida, Mr. 
Mica.
    Mr. Mica. Well, thank you, Mr. Chairman and members of the 
committee.
    First of all, you know, I have the greatest respect. We 
have had a great working relationship with the ranking member, 
Mr. Cummings. But I really have to disagree with him on some of 
his opening comments. I made a few notes.
    You know, he gave the soliloquy about how we are covering 
all of these people. Actually if you look at the facts of the 
impact of ObamaCare, I have to say this that the facts differ 
with what the ranking member said in fact. Even if you took the 
best estimates of 2 million sign up, you have got about 40 
million people who we have left behind with health care. 
Republicans want to find a way to provide health care in a 
cost-effective manner in which we make affordable health care 
available, and that was the intent of this. The 2 million they 
have signed up--Mr. Badger just testified--did you not, Mr. 
Badger--about how many people--it is just a big cost-shifting 
scheme that we have got here. You told me Detroit--was it you 
or Goodman? You said, Detroit, 10,000.
    Mr. Goodman. Yes.
    Mr. Mica. Yes. I am a victim. I did not want to sign up for 
that. The chairman had--he has got the gold plan. I think I got 
the bronze plan. I am getting screwed. Excuse the terminology 
before the committee. I am paying more. My deductibles are 
three times as much. I am forced on it.
    But you are telling me here in the testimony we have heard 
today we have got cities shifting pension plans. We have got 
States dumping into the exchange. That is the great success, 
shifting the cost? Is that what you testified to, Mr. Goodman?
    Mr. Goodman. Yes, it is.
    Mr. Mica. This was predicted to be a train wreck. This is a 
massive train wreck. You know, you can only put so much--even 
at Thanksgiving, you can only put so much parsley around the 
turkey, and you have still got a turkey. This is sinful that we 
are spending billions of dollars to set up this mess. The 
Government is the worst in setting anything up, and we have 
seen that from a technological standpoint. But from a coverage 
standpoint, of signing up people.
    Okay, here is CBO. The chairman started out today--this is 
the great success. We have displaced 2.5 billion people in 
work. Did you see this, Mr. Goodman?
    Mr. Goodman. Yes.
    Mr. Mica. I think that is an underestimate because if I was 
in business--I was in the private sector. The first thing you 
do--the 29 hours. He has forced already millions of people into 
part-time employment. Would you agree with that?
    Mr. Goodman. I would.
    Mr. Mica. Yes. They have been doing it. They did it in 
anticipation. These are full-time jobs--CBO.
    Here. I want to put this in the record too. In 2024, there 
will be 31 million people still uncovered in a decade. That is 
sinful. That is a shame. And we are trying to cover people in a 
decade. Did you agree with this, Mr. Goodman or Mr. Badger? Did 
you see this?
    Mr. Goodman. Yes.
    Mr. Mica. Here is another point. Surprise. Millions of 
people who liked their insurance plan will lose their plan. 
They predict--and I have heard it is 5 to 6. They are 
predicting 6 to 7 fewer million people will have employment-
based coverage. This is, again, CBO, not mine. This is not my 
estimate.
    And then a fourth point. I am going to make five of them 
out of this report. ObamaCare reduces the incentive to find and 
keep a job. Not my comment. Boy, this is great getting people 
productive, employed, self-reliant, contributing to society and 
they are being able to support their family. This is a shame.
    And then finally, here people are struggling to put gas in 
their car, pay their fuel bills, keep their kids in school, 
trying to make it, and the CBO says their paycheck--wait, 
listen--will be borne primarily by workers in the form of 
smaller, after-tax compensation. Do you agree with that, Mr. 
Goodman, Mr. Badger?
    Mr. Goodman. I do.
    Mr. Mica. This is a disaster for the working people of 
America and people without health care who need health care who 
should be covered by health care and then shifting the burden. 
This is just a big scheme to shift costs that has failed. Is 
that right, Mr. Goodman?
    Mr. Goodman. Well, I do not know if I would use those exact 
words.
    Mr. Mica. I would. I did.
    Well, you said insurance is a business game. Somebody has 
to cover the costs. Right now we are shifting the costs. We are 
dumping the costs on the taxpayers, and it is going to be a lot 
to pay. And we are shifting the costs on people who had 
insurance who will lose insurance or see higher premiums. 
Gentlemen, Mr. Badger, Mr. Goodman, is that not the case?
    Mr. Goodman. I believe it is.
    Mr. Badger. Yes.
    Mr. Mica. Thank you.
    I yield back the balance of my time.
    Mr. Farenthold. Thank you, Mr. Mica.
    We will now go to the gentlelady from the District of 
Columbia, Ms. Holmes Norton.
    Ms. Norton. Thank you very much, Mr. Chairman.
    Just to make it clear about the so-called 2 million jobs 
being lost, the Affordable Health Care Act has apparently freed 
2 million who wanted to retire, wanted to leave the workforce, 
or perhaps get part-time work or to start their own businesses, 
but did not do so because there was no other way to keep their 
health care except to keep the jobs they did not want to hold.
    Now, I want to ask about this risk corridor, Mr. Jost. 
Actually I was totally unfamiliar with the risk corridor until 
this hearing, and given the way in which it was framed, it 
seems strange for me to hear that Democrats were protecting the 
insurance companies. So I had to look further into it, and I 
said to staff, go get me how conservatives would justify these 
risk corridors that they are responsible for getting into Part 
D. And so they came back with some remarkable commentary that I 
would like to ask you about. I told them I wanted only to hear 
about how Republicans, who after all authored this notion, 
would justify this. And here is one they came back with.
    Christopher Holt of the American Action Forum. The risk 
corridor and reinsurance provisions in the Affordable Health 
Care Act made policy sense at the time the law was drafted, 
made policy sense today, and protect consumers. They do not 
constitute a bailout. It is a refutation of the total theme of 
this hearing.
    Do you agree with that, Mr. Jost?
    Mr. Jost. Yes. A number of conservatives ----
    Ms. Norton. If you could withhold statements, Mr. Jost. I 
just want to clarify where this came from and whether it is 
still justified by the conservatives who were responsible for 
it in the first place.
    Go ahead, sir.
    Mr. Jost. I would just say I assume you are going on, but 
this has been said by quite a number of conservative 
commentators, that this makes business sense.
    Ms. Norton. Let us take the consumers. Democrats have not 
been known for protecting insurance companies. They have been 
known for beating up--forgive me--on insurance companies for 
not protecting consumers. How do these provisions protect 
consumers?
    Mr. Jost. Well, the way in which they protect consumers is 
that if I were an insurer--and I am a consumer representative 
to the National Association of Insurance Commissioners. I have 
been on a lot of calls with insurance actuaries discussing the 
Affordable Care Act. This is a risk that is very hard to price. 
If I were an insurance company without any of this backstop 
that was put into the law, I would have priced premiums very 
high to make sure that I covered my risk. But insurers could 
look at it now and price their policies at a reasonable rate, 
in fact 16 percent less than what the CBO had projected, 
because they knew that if they were off the first year, there 
was a backstop. Now, second year, third year, we are going to 
have better estimates, and as in the Medicare Part D plan, 
premiums are going to be closer to pricing as to what the 
actual actuarial risk is. But these programs are very important 
for consumers to make sure that premiums are priced without 
charging a fortune to cover the risk that is there.
    Ms. Norton. So the ultimate benefit is to the consumer.
    Mr. Jost. Absolutely.
    Ms. Norton. So could these risk corridors in your view be 
characterized as a bailout in any sense of the word?
    Mr. Jost. No, not any more than the flood insurance program 
is a bailout, the crop insurance program is a bailout, the 
terrorism risk insurance--they are all programs where there are 
very high risks and actuarial uncertainties that the ----
    Ms. Norton. Let me just quote another. I just cannot get 
over what conservative commentators have said.
    Here is another from the Manhattan Institute. Risk 
adjustment mechanisms get you the buy-in of insurers, but they 
also keep premiums at manageable levels while insurers develop 
experience to properly price on their own. This helps encourage 
people to enroll in these plans which, in turn, helps insurers 
develop the necessary pricing experience, resulting in a 
virtuous cycle.
    Professor Jost, do you agree with the Manhattan Institute 
statements?
    Mr. Jost. I think for once they are right.
    Ms. Norton. You said what?
    Mr. Jost. For once they are right.
    Ms. Norton. You know, it is interesting, Mr. Chairman, 
where Republicans and Democrats have adopted the same mechanism 
and there are things about this bill that I think both 
Republicans and Democrats need to be fixed, but the very last 
thing I would focus on is something that Republicans and 
Democrats have agreed about in the first place.
    And I thank you very much, Mr. Chairman, and I yield back 
the remainder of my time.
    Mr. Farenthold. Thank you very much.
    We will now recognize the gentleman from Tennessee, Mr. 
Duncan, for 5 minutes.
    Mr. Duncan. Well, thank you very much, Mr. Chairman.
    Mr. Mica referred to the train wreck quote, and as almost 
everyone here knows, that quote about ObamaCare being a giant 
train wreck came not from a Republican, but from Senator 
Baucus, the chairman of the Senate Finance Committee and one of 
the health care leaders for the Democratic Party.
    And then, of course, Speaker Pelosi famously said we would 
have to pass this legislation before we could find out what was 
in it. And every week, the more we find out, the worse it gets 
including, as the chairman mentioned briefly, the estimate by 
the Congressional Budget Office that this is going to destroy 2 
million jobs over the next 3 years.
    But this was sold as being a law to get medical insurance 
or health care for those who were uninsured. I heard a program 
last night in which they said that the original estimates of 30 
million or a little more maybe being uninsured was really 
incorrect, that the number was more like 9 million or 10 
million who actually did not have it, and some of those were 
people who were between plans and were choosing not to have 
coverage.
    Dr. Goodman, I would be interested to know if you know what 
was the accurate figure then. And also, I have two articles in 
front of me that say that at least two-thirds of the people who 
have signed up now already had coverage. I did not get to hear 
your testimony. I was at another committee. Is it accurate that 
at least two-thirds of the people who have signed up so far 
already had coverage before this legislation was passed?
    Mr. Goodman. There are estimates even higher than that, 
estimates that only 11 percent in one survey were previously 
uninsured. So that means 89 percent had previous insurance. So 
we appear not to be doing a very good job at insuring the 
uninsured.
    Mr. Duncan. Would not the best way to get people--to get 
our health care costs under control would be to give 
individuals more control over their own medical spending either 
through the vouchers or tax incentives or other ways?
    Mr. Goodman. Well, the Affordable Care Act does some of 
that. The problem is that it does a lot of things that should 
not be done that I described in my testimony. It is allowing 
pools with a lot of high-cost sick people to dump into the 
exchange, to dump into the individual market which previously 
was a market that worked pretty well, and now it is going to be 
a very high-cost market.
    Mr. Duncan. So I am told that Detroit and Chicago and 
possibly other cities are considering or are in the process of 
dumping their older, sicker retirees onto ObamaCare. Is that 
correct?
    Mr. Badger. I believe Detroit has done the deal. That is 
about 10,000 retirees, and because they are older, they are 
going to be higher-cost. Chicago is considering it.
    But there are lots and lots of cities around the country 
that have made unfunded promises about post-retirement health 
care. So there are a lot of potential costs that could be going 
toward the exchanges.
    Mr. Duncan. Charles Krauthammer wrote this. He said the 
whole scheme was risky enough to begin with, but things have 
gotten worse. The administration has been changing the rules 
repeatedly. First, it postponed the employer mandate. Then it 
exempted from the individual mandate people whose policies were 
canceled by ObamaCare. And for those who did join the 
exchanges, Health and Human Services Secretary Kathleen 
Sebelius is strongly encouraging insurers to, during the 
transition, cover doctors and drugs not included in their 
clients' plans. The insurers were stunned, told to give free 
coverage, deprived of their best customers, forced off or 
stripped down catastrophic plans to over 30 clients contrary to 
the law. These dictates, complained their spokesman, could 
destabilize the insurance market. Translation: how are we going 
to survive this? End result: insolvency.
    And I think most of us feel that he is one of the most 
accurate and intelligent people on the scene today.
    Mr. Badger, I was asked by the staff to ask--they think 
that you may have some disagreement with Mr. Jost about the 
necessity of these risk corridors or a little different view.
    Mr. Badger. I have a different view. My concern has been 
regulatory issuances and pronouncements from CMS that had been 
repeated now throughout the time period that they could make 
payments to insurance companies out of the risk corridor plan 
that exceed the amount of money that other insurers have paid 
in. If the risk corridors are merely, as they are in Part D, 
and in the risk adjustment program both in Part D and in this 
law, simply moving money from insurers that are doing well to 
insurers that are struggling--I have no problem with that.
    The problem I have with the way the risk corridors are 
being applied by CMS is that it allows insurance companies to 
say to the taxpayer we have a problem, I lost money. And that 
is the behavior that I think should be of concern to Congress 
and that it should correct.
    Mr. Duncan. All right. Thank you. Unfortunately, I have run 
out of time. Thank you.
    Mr. Farenthold. The gentleman's time has expired.
    We will now recognize the gentlelady from California, Ms. 
Speier.
    Ms. Speier. Mr. Chairman, thank you.
    You know, I have a fantasy that I would like to share with 
you, and it is a fantasy that we would have a new House rule 
that would require members to wear Pinocchio noses every time 
they make a statement that is not true because if they had to 
walk around with Pinocchio noses on, they would be careful 
about the kinds of statements they make.
    Now, the statement that has been made by the leadership of 
both houses in the last 24 hours is that we knew it was true, 
it is true. The CBO now says it is true. 2 million jobs will be 
lost as a result of the Affordable Care Act. And that statement 
is just false.
    The ``Washington Post'' fact checker gave the claim three 
Pinocchio noses with a headline that read: ``No. CBO Did Not 
Say ObamaCare Will Kill 2 Million Jobs.'' The fact checker 
explains it like this.
    First, this is not about jobs. It is about workers and the 
choices they make.
    He further explains, look at it this way. If someone says 
that they have decided to leave their job for personal 
reasons--they just decided they wanted to retire early--we 
would not put them in the category of having lost their jobs.
    The ``New York Times'' editorial board called this a 
liberating result of the law.
    So in other words, the report is about the choices workers 
can make when they are no longer tethered to an employer 
because of their health insurance. And there are so many 
Americans that stay in jobs just because they have to keep 
their health insurance.
    So my question is to you, Professor Jost. Please do your 
best to clear this up. Can you explain how the Affordable Care 
Act frees individuals and how it does not kill jobs in this 
country, but has actually the reverse effect?
    Mr. Jost. Like you, I run into people all the time who tell 
me I would love to quit this job, but I cannot because I have 
to be here for health insurance.
    About 15 years ago, my brother-in-law basically quit his 
job. He had health insurance through his wife, fortunately, but 
he went out on his own and started a company that is now a 
household name that is worth billions of dollars. My wife and 
her family all were part of that startup.
    Ms. Speier. What is the name of it?
    Mr. Jost. Rosetta Stone.
    But he was able to do that because he did not have to worry 
about health insurance, or at least he was able to go out there 
on his own without it. There are many, many Americans like that 
today who would like to go out and fulfill their dream, but 
they are stuck in their job because of health insurance.
    What the Affordable Care Act says, if you are making less 
than 400 percent of poverty, which includes a lot of 
entrepreneurs in this country, you can go out and you can 
fulfill your dream or you can just stop working at 60 because 
you are tired and you can get health insurance regardless of 
your health status. That is a very liberating thing, and that 
is what the CBO recognized yesterday.
    In fact, they did say there are concerns about employers 
cutting back on employment and cutting back on hours. That did 
not figure into their calculation because they said there are 
just too many unknowns there. There are reasons why employers 
might expand their workforce. There are reasons they might cut 
back.
    But the 2.5 million full-time equivalents is people who are 
stopping work because they have the freedom to do so or 
reducing their hours.
    Ms. Speier. Let me ask you a further follow-up question on 
risk corridors. The risk corridors and reinsurance provisions 
in the ACA are really the same McConnell-Boehner provisions 
that were included in the Medicare Prescription Drug 
Improvement and Modernization Act. I know Mr. Badger is shaking 
his head no, but the truth is there is reinsurance in both 
programs. And this reinsurance, unlike the reinsurance in the 
Part D, is one that exists only to 2017, and there really is no 
Federal dollars involved.
    So my question, Professor Jost, is it is my understanding 
that the Congressional Budget Office just this week released 
its revised budget outlook for 2014 to 2024, and it scored the 
reinsurance program as budget-neutral. Is that correct?
    Mr. Jost. It is because under the statute, only the money 
can be spent that is brought in under the program.
    Ms. Speier. And is it not also true that in essence there 
is a transfer of funds between insurers, and thus it has no 
impact on the Federal budget?
    Mr. Jost. That is technically correct, yes. I mean, it is a 
tax that it has imposed on insurers in the group market 
primarily to subsidize the individual market for 3 years, in 
part because of these transfers from the group market to the 
individual market that have already been discussed.
    Ms. Speier. And when we talk about Medicare Part D, was 
there not also reinsurance involved in that program?
    Mr. Jost. Yes, there was.
    Ms. Speier. And how did that work?
    Mr. Jost. Well, there still is reinsurance. In fact, the 
risks borne by Medicare Part D insurers is very, very small, 
and up until recently it was very small because it was only up 
to the point you hit the donut hole. At that point, there was 
essentially reinsurance from Medicare beneficiaries who covered 
the full cost up until you got to the catastrophic. When you 
got to catastrophic, the Government picks up 80 percent of the 
risk. The insurers only picked up 15 percent, and the 
beneficiary picked up 5.
    Ms. Speier. Mr. Chairman, thank you. I see my time has 
expired.
    Mr. Farenthold. Thank you very much.
    I am up next. One of my least favorite times when I was in 
the private sector was the time I had to redo the insurance for 
my employees. I want to kind of step back a little bit and take 
an overview about this. I will start with you, Dr. Goodman.
    The way insurance works is they sell policies to a bunch of 
people, and hopefully the money that comes in from that covers 
the losses for the people in that group. So it ends up the 
healthy people end up subsidizing the 52-year-old, overweight 
Congressman with high blood pressure in a high-stress job. Is 
that basically how insurance works?
    Mr. Goodman. Well, that is true in every market. But in 
most insurance markets, the premium that was charged at the 
point of entry reflects the expected cost then.
    Mr. Farenthold. Right. What we had in ObamaCare then was 
the idea we have got a whole new market and the insurance 
companies are concerned that they do not know how to price this 
and what the actuarial risk is, how many unhealthy people 
versus healthy people. Is that an accurate statement of part of 
the problem?
    Mr. Goodman. Yes, and we could be stronger than that. We 
have built perverse incentives into the structure of the 
market, and I think that is totally unnecessary.
    Mr. Farenthold. All right. So as a result of this, part of 
the deal that was struck in ObamaCare is we put these risk 
corridors in so that taxpayers are potentially on the hook in 
the event that the loss ratio is out of whack. Is that a fair 
assessment of ObamaCare and what we are talking about today?
    Mr. Goodman. Sure.
    Mr. Farenthold. All right. So let me ask you a question. 
The President has been under a lot of fire for his statement, 
if you like your health insurance, you can keep it, and there 
have actually been some changes made to ObamaCare as a result 
of that. As a result, the policy offerings have changed. Is 
that going to run up the cost potentially to insurance 
companies and increase the amount taxpayers may be on the hook 
under these corridors?
    Mr. Goodman. Well, I think the way they have changed some 
of the rules of the game within the last month or so has 
increased the riskiness of the products in the market.
    Mr. Farenthold. All right. Now, assuming you owned an 
insurance company, would you have jumped into ObamaCare but for 
these risk corridors? I mean, would you have said, all right, I 
am out of the health insurance game or this is too risky, or 
would you maybe have run your prices way up?
    Mr. Goodman. Well, you got to understand I do not have a 
problem with the risk corridor. What I have a problem with are 
the poor design of the exchange which is then going to put 
taxpayers at great risk to pay for those design mistakes. It is 
not insurance company mistakes.
    Mr. Farenthold. Mr. Badger, do you want to weigh in?
    Mr. Badger. Yes. Again, I do have concerns with the way 
risk corridors work in this law as opposed to Part D and 
particularly with the way CMS said they would work, and that is 
to say that because of the problems that are created for 
insurance companies, CMS is going to give them direct subsidies 
out of taxpayer funds, not out of revenues that come in.
    Mr. Farenthold. All right. So let us go to this scenario. 
Suppose we decide we are not going to do these corridors and we 
pull them out. The insurance companies are going to be on the 
hook for these losses. Is there a way they are going to be able 
to reinvent their policies and stay in business? How do we get 
out of this without bankrupting the insurance companies and 
have no insurance market at all left and potentially end up 
with the Government being the only insurer of last resort?
    Mr. Badger. Well, that raises other questions about the 
law's design that Dr. Goodman has raised.
    But I guess the principle I would like to lay out is this. 
If you cannot make a profit without corporate welfare, you 
cannot make a profit, and we should not be putting taxpayers in 
the position of having ----
    Mr. Farenthold. But were insurance companies not making a 
profit before ObamaCare?
    Mr. Badger. Yes, they are. And they may well make a profit 
in ObamaCare. CBO's announcement yesterday suggests that they 
will do very well. If they are paying $16 billion in and only 
taking $8 billion out of the risk corridors--I do not think 
they are right about that, but if they are, CBO thinks they are 
going to make a profit.
    Mr. Farenthold. Dr. Goodman?
    Mr. Goodman. There is a better way of doing this. We call 
it change of health status insurance. But the fundamental 
principle is the insurance pools do not get to dump their sick 
people on other insurance pools. If we would just follow that 
principle, the taxpayer would be far less at risk than they are 
right now.
    Mr. Farenthold. And you think this could be done as a tweak 
to ObamaCare somewhere? We got such a big, massive law. Our 
side, I think, wants to be done with it and start over. Can 
this be done short of starting over and maybe get some of our 
colleagues on the other side of the aisle to help?
    Mr. Goodman. Yes, but I would not call it a tweak. It would 
require a fundamental restructuring of the exchanges, and they 
would probably, at the State level, have to be instructed to 
move over time to a rational form of insurance.
    Mr. Farenthold. We could talk about this a good bit longer, 
but I see that my time has expired. Just because I am in the 
chair does not mean I get to break the rules. So I will move 
along and recognize Mr. Massie for 5 minutes.
    Mr. Massie. Thank you, Mr. Chairman.
    The chairman makes a good point. I would like to look into 
it a little bit more.
    Senator Rubio made the observation that when the President 
tried to retroactively make good on his broken promise, his 
empty promise that if you like your health care plan, you can 
keep it, by unilaterally forcing insurance companies to 
grandfather insurance policies that were not included in the 
Affordable Care Act, he actually increased the likelihood that 
the bailout provisions of the risk corridor program would be 
invoked.
    And I would like to give everybody on the panel here a 
chance to answer this. Do you agree with Senator Rubio's 
assertion that by changing the rules midstream that the 
President actually increased the probability that the risk 
corridor would have to be invoked?
    Mr. Goodman. Well, if all the insurers price their products 
on the assumption, let us say, by the end of this year, 80 
percent of the people in the individual market would be in the 
exchange and then we change the rules and say, no, if you are 
healthy and you are in a plan that you like, you can stay 
there, yes, of course that increases the cost and the riskiness 
of the exchange.
    Mr. Massie. Thank you.
    Mr. Badger?
    Mr. Badger. My understanding is that CBO quantified that at 
about half a billion dollars in payments that would come out of 
the risk corridor program to insurers.
    Mr. Massie. Mr. Jost?
    Mr. Jost. Yes, and therefore, it reduced the surplus to the 
Federal Government from $8.5 billion to $8 billion, but yes, 
that did increase the risk. It was, of course, a response to a 
political firestorm over the cancellation issue, which I think 
was largely a bogus issue, but that was the administration's 
response.
    Mr. Massie. Well, I am glad to hear that all the witnesses 
agree that the President actually, by trying to change this law 
midstream unilaterally without Congress, has increased the risk 
that taxpayers will be on the hook for the insurance companies' 
losses.
    Mr. Badger, you have stated that--I think you have stated 
in the past that the reinsurance provision and risk corridor 
provisions limit insurer competition. Does the risk corridor 
program, even if it worked as some people say it does by taking 
a pool of money and distributing it among the insurance 
companies, even if it worked that way and did not take taxpayer 
money--does it not just reward unsuccessful competitors with 
money it confiscates from successful ones?
    Mr. Badger. Well, there is no question that the formula, in 
effect, works that way so that if your losses exceed your 
target amount by more than 3 percent, that you would be 
entitled to payments out of the pool. So if it functions 
properly, it is a redistribution from insurers who were 
successful to those who were less successful.
    Mr. Massie. Let me ask you another question. You have 
argued that the individual mandate was put into place actually 
to benefit insurance companies, I believe. Is that correct?
    Mr. Badger. Yes. My point was, unlike Part D where we did 
not have the IRS penalize seniors who did not sign up for drug 
coverage, the argument here was that insurers could not succeed 
unless there were, in addition to subsidies, both penalties on 
people who did not buy and as well canceling policies that 
people would have liked to renew. So, yes, the idea is these 
were all provisions designed to help insurance companies 
succeed despite some of the distortions that Dr. Goodman has 
talked about.
    Mr. Massie. Speaking of distortions, does this risk 
corridor provision not incentivize the insurance companies to 
offer artificially low sort of introductory rates because they 
have a backstop? Would their first rates not be higher without 
this risk corridor provision?
    Mr. Badger. There is moral hazard. And understand again, 
unlike Part D, everybody is offering the same benefit package. 
So the only way to distinguish yourself really in the 
marketplace, aside from provider networks, is by price. So if 
we are both selling silver plans, chances are the person with 
the lower price will get the most enrollees. So, obviously, if 
you believe that the Government will share in your losses, 
there is a moral hazard that you will price too aggressively in 
order to drive competitors out and gain market share.
    Mr. Massie. Thank you.
    Mr. Goodman, in my remaining time, you mentioned in your 
opening statements that employers could game the system, I 
believe. Could you elaborate on that?
    Mr. Goodman. Well, one of the techniques that they are 
going to use is they are going to cover preventive care with no 
lifetime cap, and that gets them out from under the $2,000 
fine. But these could be mini-med plans. So if a worker gets 
sick and goes to the exchange, then the company can be fined 
$3,000. But if a worker goes to that length, his medical 
expenses will probably be way in excess of $3,000. So this is a 
way, just one--and we could talk about others--for employers to 
move their sickest, most costly employees over to that exchange 
when they have a health problem.
    Mr. Massie. And this is one reason that the way this 
program is set up it is just not going to work. Is it not?
    Mr. Goodman. Well, there are many, many ways to game the 
system, and if we do not deal with all of that, we are going to 
have huge problems in the future.
    Mr. Massie. Thank you. My time has expired.
    Mr. Farenthold. Thank you very much.
    We will now recognize the gentleman from Georgia, Mr. 
Collins.
    Mr. Collins. Thank you, Mr. Chairman.
    I think one of the things that we get lost in many times 
here is we lose--and I have tried to bring this to light over 
time--is we lose the human face of what we are talking about. 
It is easy to come up here and talk about bailouts, risk 
corridors. Frankly, that does not mean anything.
    And frankly, Mr. Jost, just a moment ago, you said that you 
felt like that the dropping of insurance coverage was a bogus 
issue. If you would like to come to the 9th District of 
Georgia, I will be happy to show you people who have lost their 
coverage who are dealing with this right now. I think that was 
one of the most callous statements that I have heard today in 
this hearing, and I think to say a bogus issue on people who 
are actually losing insurance and having trouble with this plan 
is not--there has been at least acknowledgement on both sides 
of the aisle that there is a problem here. And I mean, to say 
that is just, frankly, to me is just very callous to those who 
are having to deal with the results of what has become a very 
bad law.
    Mr. Jost. I would be happy to explain the response, if you 
want me to.
    Mr. Collins. At this point, I think your response was clear 
enough, Mr. Jost.
    Reclaiming my time. One of the issues that I have seen and 
one of the issues here dealing with insurance--and again, I 
think the insurance companies--we can deal with that in this 
risk corridor issue. We can deal with it from how the system 
was set up. Mr. Massie made a great point on how we are 
actually making it worse in some ways.
    But mine is overall and dealing with a system in which 
people are having to deal with. And one is a constituent of 
mine I talked to yesterday, Rebecca Lambert. She is from 
Stephens County. It is a little place up in northeast Georgia, 
Martin. She runs a small business, Calico Country Store. It is 
one of those one-stop shops. Up in my part of the world, you 
get a lot of these. You can buy groceries. You can buy plumbing 
equipment all in the same place.
    She is recently widowed and she is struggling to run the 
store. And in doing so, all of this for the first time, she 
pays her bills, she pays her taxes, she works hard. And she was 
not real thrilled to find out she was going to have to go 
through ObamaCare and do this to start with. She did not want 
the dictate of how she had to do it and went ahead. But being a 
good citizen, she said, okay, I will do it. This is the way I 
have got to do it because I do not want the penalty. She went 
ahead and bought insurance because that was the law. She signed 
up under healthcare.gov. She got a plan, she thought. She 
received a bill, paid her premium, but has not received any 
proof of insurance. 5 and a half hours on hold on Friday, 2 and 
a half hours on hold on Monday, and has not been able to talk 
to a soul. She is all paid up to her knowledge. She cannot even 
get someone on the line to confirm she is covered. That means 
she spent 8 hours over the course of the day trying to figure 
this out through a program she did not want to be a part of to 
start with, and at this moment, if she was to walk into a 
hospital or an emergency room anywhere, she has no proof of 
insurance that she has. And nobody can talk about it.
    With all due respect for what we are doing here--and the 
chairman has brought out--and there have been concerns on all 
sides--I am concerned more about the welfare of my constituents 
and how they are having to deal with this and how they are 
having to go through it than the bottom line of the insurance 
or anything else at this point.
    Why are we going through this in a way that puts people in 
positions of not understanding, of yes, losing the coverage 
that they had, trying to find other coverage, or in the case of 
many of the State employees in Georgia, paying more or equal 
for less coverage?
    I believe--and I will just say in a good-hearted effort--
for those trying to work this, there was an effort to help, but 
many times in the rush to help, when you only have one, you get 
tunnel vision. And what is happening is people like my 
constituent Rebecca are the ones that get lost in the tunnel 
vision. To help X, we do not realize what we hurt on the 
outside. That is what is coming up here. And whether it is the 
risk corridors or covering profits or going back and saying 
this was capped or not, this is just the problem that we are 
dealing with when you cannot get confirmation, when you cannot 
get issues that are going on.
    As I have said earlier from the floor of the House, I had a 
lady who is going through cancer treatment, and she has issues. 
It is not covered under her new plan. Her cancer treatments 
were halted until proof could be provided. Are you kidding me? 
This is what we are dealing with.
    So I think really--and not personal to any witness, but to 
be in a position where we are talking about this and removing 
it from the people, that is the problem I have here.
    I could question you and grill all three of you on many 
things. My people just want to know why has such a bad system 
been put on me and forced me to pay higher for less or forced 
me to change or forced me to look at insurance companies in a 
way that I had not looked at before or frustrated with before 
in a way that is very unreasonable and callous.
    With that, that is why we do these oversight hearings. It 
is time to fix this. It is now time to do it and it needs to be 
done away with.
    With that, Mr. Chairman, I yield back.
    Mr. Cummings. Would the gentleman yield?
    Mr. Collins. Yes.
    Mr. Cummings. I just want to give Mr. Jost a chance to just 
respond to what you said.
    Mr. Jost. Well, just very briefly, obviously there were 
many people and are many people who are losing the coverage 
that they had. They are all being offered alternative plans. 
Some of them are more expensive. Some of them have higher cost-
sharing. Many of them are less expensive. Many of them have 
lower cost-sharing. Many of those people are having access to 
premium tax credits that are making their health care insurance 
substantially less expensive.
    I misspoke. I would have to say that. It is not a bogus 
political issue. But to call these things cancellations instead 
of what they were, which was non-renewals of the current policy 
offering and an offer of an alternative, which happens all the 
time in the individual insurance market--I think to make it 
sound like these are people who are suddenly uninsured and have 
no chance of getting insurance--every one of them can get 
insurance, and many of them can get it for less than before.
    Mr. Collins. Mr. Chairman, reclaiming my time on this.
    Your first statement basically just summed up your last 
statement. It was callous. It did happen. And to say that it 
did not and it happens all the time is again a perpetuation of 
what we are talking about here, of being very honest with 
people. And yes, they have cancellations not because the 
cancellations occurred and they could not get other insurance. 
It was because the Government told them because of the ACA that 
these were not going to be renewable policies, and they could 
not have what they had. They do not have what they had. And to 
really say that--with all due respect to the ranking member, I 
appreciate him allowing--this is the problem we are talking 
about. But your first statement was summed up by your last 
statement.
    And with that, I do yield back.
    Mr. Farenthold. Thank you very much.
    We will now recognize the gentleman from Michigan, Mr. 
Walberg, for 5 minutes.
    Mr. Walberg. I thank the chairman, and I thank Mr. Collins 
for following up on that and pressing that issue because that 
is a crucial issue that we are addressing here. We are talking 
about real live people, and certainly we want to meet needs of 
those, a frankly smaller number right now, that are having 
better opportunity, and those are the people we could have 
fixed with a far more simple system dealing with the issue of 
cost.
    Mr. Badger, just to make sure it is clear, is it correct 
that the reinsurance provision is financed by a fee or a tax on 
all non-exchange health insurance plans?
    Mr. Badger. Yes, on group health insurance plans. That is 
correct.
    Mr. Walberg. Is it accurate that the vast majority of 
individuals with health insurance will be paying higher 
premiums to finance the reinsurance fund?
    Mr. Badger. Yes.
    Mr. Walberg. So essentially the reinsurance fund is a large 
transfer from the vast majority of Americans without an 
ObamaCare insurance plan to the few Americans with an ObamaCare 
plan.
    Mr. Badger. To their insurers. That is correct.
    Mr. Walberg. To their insurers.
    Moving on from that relative to cost, how do risk 
corridors, as implemented in ObamaCare, impact the pricing of 
health insurance, Mr. Badger?
    Mr. Badger. Well, I think arguably they should induce 
insurers to be willing to take on more risk. They also, as I 
mentioned earlier, provide a moral hazard. If you know that the 
Government, the taxpayer, will share in your losses and the 
only way you are allowed to differentiate yourself is by price, 
you may price more aggressively to gain market share. So there 
are some perverse incentives that actually would hurt consumers 
over the longer run.
    Mr. Walberg. So relative to that moral hazard, expand, if 
you would on the implications of companies under-pricing 
exchange plans versus non-exchange plans.
    Mr. Badger. Well, you know, to be honest, as the professor 
has noted, basically non-exchange plans will soon be 
nonexistent for all intents and purposes. But for those who are 
selling compliant plans both inside the exchange and outside 
the exchange, those issuers would participate in the risk 
corridor program. They do not, however, outside the exchange 
get subsidies for the coverage.
    Mr. Walberg. Do you think that companies did this in order 
to drive enrollment into the exchanges and the generous 
subsidies that are there?
    Mr. Badger. I do believe that the purpose of the policy 
that required the cancellations, yes, was to move more people 
into insurance policies sold through the exchanges.
    Mr. Walberg. How do risk corridors, as implemented in 
ObamaCare, impact the pricing of health insurance?
    Mr. Badger. Well, again, as we talked earlier, there is --
--
    Mr. Walberg. I am sorry. I missed it.
    Mr. Badger. No. That is quite all right.
    The issue there that we are concerned about is that 
insurers would price so aggressively to gain market share 
because of the fact they knew that the taxpayers would be on 
the hook for some of their losses. And so there could be a 
price effect in the near term that would be favorable, but it 
could have long-term negative implications.
    Mr. Walberg. So the longer it goes on, the more negative 
the implications for the price for the consumer.
    Mr. Badger. Potentially if it affects market share 
substantially.
    Mr. Walberg. And health care in general.
    Mr. Badger. Yes.
    Mr. Walberg. Thank you.
    Mr. Chairman, I yield back.
    Mr. Farenthold. Thank you very much.
    I see Ms. Maloney has just arrived. Do you have some 
questions?
    Mrs. Maloney. I do, and I apologize to the chairman and 
ranking member. I had a conflict.
    Mr. Farenthold. That is all right. We will be happy to give 
you your 5 minutes. We will give you a second to get settled, 
and we will start the clock as soon as you start.
    Mrs. Maloney. I want to thank all the panelists for joining 
us today.
    And I guess my question is for Professor Jost. It is my 
understanding that the risk corridor program is a key element 
of the Affordable Care Act that helps keep premiums in the 
exchange affordable by reducing uncertainty to insurers. We 
know if there is uncertainty, the price goes up. Right? So can 
you explain why insurers face such uncertainty in new programs 
like the Affordable Care Act and Medicare Part D and how the 
risk corridors operate to reduce this uncertainty?
    Mr. Jost. Yes. Again, the idea here is that insurers have 
traditionally priced their products based on their assessment 
of the health of the people that they were insuring. So they 
charged low rates to healthy people and high rates--or totally 
excluded, as they do in many instances, people who are 
unhealthy or exclude their unhealthy conditions. Under the 
reform law that this body adopted in 2010, they cannot do that 
anymore. And so that puts them in a situation where it is much 
harder for them to price their products. So there is this 
temporary program for 3 years called the risk corridor program, 
another temporary program for 3 years called the reinsurance 
program that provides a backstop for them so that they can 
price their products in a way that is affordable to consumers. 
And that has been very successful.
    Mrs. Maloney. That is wonderful.
    Were the risk corridors successful in getting insurance 
companies to participate in Part D?
    Mr. Jost. Yes.
    Mrs. Maloney. That did work that way. Well, thank you.
    I would also like to ask about the effect of risk corridors 
on premiums. Did the Part D risk corridor help stabilize 
premiums in the opening years of the program?
    Mr. Jost. Yes, and the premiums in the Part D program came 
in under projections for the first year.
    Mrs. Maloney. And what about the Affordable Care Act? I 
understand that premiums came in 16 percent below CBO 
projections. And is this in part attributable to the risk 
corridor program?
    Mr. Jost. Yes, and the CBO recognized that in its report 
yesterday and it is.
    Mrs. Maloney. Can you explain how the risk corridor program 
protects enrollees who are signing up for health insurance 
using the exchanges?
    Mr. Jost. Well, the risk corridor program means that 
insurers projecting their premiums for 2015 and 2016 and 
deciding whether to enter the exchange or deciding to stay in 
the exchange understand that for the first 3 years of the 
program, there is this flywheel. There is this backstop so that 
if their prices are off, they will get some help.
    Now, again, it is a risk-sharing program. It is not a risk-
transfer program. If an insurer under-prices their product too 
much, they are going to have no profit at all and possibly 
become insolvent. So they have to be careful. But they can take 
a little bit of risk there.
    Mrs. Maloney. I also understand that the risk corridor 
program reduces the risk for insurers participating in the 
exchanges from both extreme gains and losses. And is that 
accurate? And would that translate into saving taxpayer funds?
    Mr. Jost. That is correct. And also, if their gains are 
excessive, we still have the medical loss ratio program and 
there will still be rebates to consumers. So this is not just 
an open-ended profit for ----
    Mrs. Maloney. Can you elaborate how this would benefit 
taxpayers? How do they benefit from these risk exchanges?
    Mr. Jost. Well, the CBO projected yesterday that the risk 
corridor program will benefit taxpayers to the tune of $8 
billion.
    Mrs. Maloney. $8 billion?
    Mr. Jost. $8 billion.
    Mrs. Maloney. An $8 billion benefit to taxpayers?
    Mr. Jost. Yes. Some bailout.
    Mrs. Maloney. Wow, wow. Well, I think you made a strong 
case. This in no way sounds like a bailout to me. And these are 
CBO numbers. Right?
    Mr. Jost. That is correct.
    Mrs. Maloney. So these are independent numbers saying that 
there will be a benefit of $8 billion to taxpayers.
    Mr. Jost. That is correct.
    Mrs. Maloney. Thank you very much.
    Chairman Issa. [Presiding] Would the gentlelady yield just 
for a question?
    Mrs. Maloney. Yes, I will yield to the chairman.
    Chairman Issa. Thank you. I was quick on the draw.
    It is a benefit to taxpayers. What I am trying to 
understand is are not the people who pay the excesses that are 
then taken off--in other words, the excesses that are being 
gotten are excessed as payments by taxpayers. I appreciate the 
gentlelady's point that it has a scored revenue, but in fact, 
as a taxpayer I am also a ratepayer, and as a ratepayer that is 
where the money is coming from. So we tax people's health 
insurance in order to get this $8 billion. Is that not true?
    Mrs. Maloney. I would like Mr. Jost--usually adhering--it 
is not the panelists that are answering the question, but I 
would like Mr. Jost to answer this question.
    Mr. Jost. Thank you. I would be happy to answer that.
    No. The risk corridor program is funded--well, the $8 
billion in revenue will be excess profits of the insurers that 
are refunded to the Federal Government. There is also a second 
benefit to the Federal Government because the Federal 
Government is at risk for the premiums through the premium tax 
credit. So because the premiums came in 15 percent lower than 
expected, that is also going to save the Federal Government, 
one estimate, $190 billion over 10 years, although the CBO said 
that they could not determine the exact amount.
    Chairman Issa. Does anyone else need to answer that for the 
gentlelady?
    Mr. Badger. Well, just I know it is a very technical 
question. I am sorry. But, yes, what happens is, I think as 
Professor Jost has pointed out and I think as the chairman 
said, the money, that $8 billion, ultimately comes from the 
people who bought insurance. So it was in their premiums. And 
under the formula in the law, the insurers' actual cost 
relative to their premium was lower than they had anticipated, 
and as a consequence, they have to pay into the fund. What CBO 
is projecting is that more insurers will pay in than take out. 
I for one do not believe that, but I think Congress could, in 
fact, codify that to capture the savings by merely saying that 
CMS is not allowed to pay out any funds in excess of what they 
take in, and that would lock in your $8 billion.
    Chairman Issa. Thank you. Thank you all.
    We now go to the gentleman ----
    Mrs. Maloney. Mr. Goodman wanted to answer.
    Chairman Issa. If the gentleman could hold for a second. If 
you need to quickly answer on the gentlelady.
    Mr. Goodman. Sure. I would just like to say that that 
estimate is not based on our recent experience, and it is very 
likely to be wrong. It is unlikely that taxpayers will gain and 
most likely that they will lose.
    Chairman Issa. Thank you.
    The gentleman from North Carolina.
    So insurers that lose money will be bailed out to some 
degree by the taxpayers through the law's premium stabilization 
program. Would you all agree?
    Mr. Badger. I would agree, yes.
    Mr. Jost. Yes, I would agree.
    Mr. McHenry. Would you agree, Mr. Goodman?
    Mr. Goodman. Yes.
    Mr. Jost. That is the purpose of these programs, yes, to 
stabilize premiums.
    Mr. McHenry. But they will be bailed out to some degree--
the insurance companies. Right?
    Mr. Jost. Well, the insurance companies are sharing risk 
with the Federal Government.
    Mr. McHenry. Right, but anyway, I am actually quoting you, 
Mr. Jost, from your November editorial about this. Insurers 
that lose money will be bailed out, to some degree, by the 
taxpayers through the law's premium stabilization programs. I 
could not have said it better. So this is just another shameful 
part of ObamaCare.
    Look, I serve on the Financial Services Committee.
    Mr. Jost, you say that this risk corridor provision is very 
similar to flood insurance. Right?
    Mr. Jost. That is correct.
    Mr. McHenry. Do you know that the taxpayers are on the hook 
for over $50 billion in payouts? So the flood insurance program 
is under water to the tune of $50 billion for a taxpayer 
bailout.
    The example, I think, is perhaps a good one 
unintentionally. It is again a very problematic feature when 
the Government gets into the marketplace.
    And, look, I understand if you are a health insurer, this 
is probably a very positive provision for you. So, thus, when 
the administration makes their--I do not know how many 
additional changes they have made in the last 2 years above and 
beyond what they are really able to do under the law. Health 
insurers are not complaining as much, though, about this ad hoc 
rulemaking as perhaps they would be if they did not have this 
bailout provision within the law.
    Mr. Badger, is that approximately right? Is that how you 
would see it?
    Mr. Badger. Well, as I said before, when this announcement 
was made that at least the Federal Government would not enforce 
the law requiring cancellations, CMS responded with half a 
billion dollars in payments to insurance companies out of the 
risk pool, according to CBO's estimates.
    Mr. McHenry. Where does the money come from in the risk 
pools?
    Mr. Badger. Well, out of the risk corridors, it is supposed 
to come from payments from insurers who make, ``excessive 
profits.'' So it should be totally internally distributed. 
Unfortunately, CMS has indicated that they will throw taxpayer 
money on the table if the receipts are not enough to cover 
disbursements.
    Mr. McHenry. Okay. So that I understand this, if I pick a 
different policy in my exchange and that company is deemed to 
make excessive profits, where do those excessive profits come 
from?
    Mr. Badger. Well, the excessive profits obviously come from 
the premiums.
    Mr. McHenry. The premiums. So, therefore, I made a bad 
choice and perhaps I am paying a higher rate than someone else 
who is in another company that is getting the bailout. Right?
    Mr. Badger. Yes. It is certainly true that the money is 
supposed to come exclusively from the premiums, although 
sometimes taxpayers are implicated as well.
    Mr. McHenry. So if you have three providers in the exchange 
and you make a choice for one that is maybe the middle-priced 
one, you might be subsidizing the lower-priced one.
    Mr. Badger. The so-called excess premiums or excess profit 
based on your premium may well be funneled through to that 
other insurer, yes.
    Mr. McHenry. Okay, interesting. So this could be a taxpayer 
bailout in execution or it could actually be a bailout funded 
by those that are obligated to buy insurance through the 
exchange.
    Mr. Badger. Yes. The money either comes from the premiums 
that people pay or the taxes that people pay.
    Mr. McHenry. So this is not like the Federal Reserve 
printing money and making money from nowhere. Right?
    Mr. Badger. No.
    Mr. McHenry. Now, I asked this because it is a very common 
question I have got at home from my constituents about this.
    Look, the reason why we are talking about this is because 
of this grave concern about the Government overreach. Look, if 
you are health insurer, I see why this is a very positive--if 
you are in the business of health insurance, it is probably a 
pretty positive thing because it takes your risk away, and it 
also means you are a little more compliant with the 
administration when they make rules changes. So it benefits 
this administration's ad hoc rulemaking. Right?
    Mr. Badger. There are mutual interests there, yes.
    Mr. McHenry. Thank you, Mr. Chairman.
    Chairman Issa. I thank you.
    We now go to the gentleman from Virginia, Mr. Connolly.
    Mr. Connolly. Thank you, Mr. Chairman.
    Professor Jost--is it Jost?
    Mr. Jost. Jost actually.
    Mr. Connolly. Jost, okay.
    I do not know if you are aware of the fact that the Chamber 
of Commerce actually issued a statement warning against the 
Rubio legislation, the repeal of the risk corridors. And it 
says--``repeal would make it harder and less likely that 
companies will offer products to small businesses and 
individuals in the future and would certainly lead to 
significantly higher premiums for coverage offered next year 
without these protections. It would limit choice, increase 
premiums, and hinder the development of a robust private 
insurance market.''
    Mr. Chairman, I would ask that this letter from the Chamber 
of Commerce be entered into the record at this point.
    Chairman Issa. Without objection, so ordered.
    Mr. Connolly. I thank the chair.
    Professor Jost, do you agree with the Chamber of Commerce 
that repeal of the risk corridor might not only raise premiums 
but would reduce insurer participation in the exchanges?
    Mr. Jost. Yes, I think it would.
    Mr. Connolly. Could you elaborate a little?
    Mr. Jost. Well, again, the purpose of the risk corridors is 
to stabilize premiums, to share risk between the insurers that 
agree to participate in the exchanges and the Federal 
Government so that insurers will be comfortable coming into the 
exchange and charging reasonable premiums rather than to have 
to charge a high premium for risk. I mean, this is a very 
reasonable business decision, which is why the Chamber of 
Commerce supports it.
    Mr. Connolly. Speaking of that, the insurance companies 
themselves are helping to finance these risk corridors. Is that 
correct?
    Mr. Jost. That is correct. Some insurers chip in when they 
over-price their products and others receive subsidies when 
they under-price their products. It is exactly the same way as 
in Part D.
    And by the way, it has been said several times that the 
taxpayers are not on the hook for Part D. They are. Any 
overages in the Part D risk corridor program--so far there have 
not been any--would be paid out of the Medicare Trust Fund.
    Mr. Connolly. So the ACA risk corridors actually are sort 
of modeled on an existing program, the Medicare Part D risk 
corridors. Is that correct?
    Mr. Jost. They are less generous and they are temporary 
rather than permanent, but they are modeled on that.
    Mr. Connolly. But hardly a Government bailout.
    Mr. Jost. Right.
    Mr. Connolly. So one might even want--to sort of coin an 
expression Herman Kane made famous in the 2012 Republican 
primaries, I will do 16-8-8. The insurance companies, if I 
understand it correctly, Professor, are going to finance this 
to the tune of $16 billion. The estimated cost by CBO over the 
next 10 years is half of that, $8 billion, and the Government 
gets to essentially pocket the remaining $8 billion, thus 
saving the Federal Government $8 billion. Is that correct?
    Mr. Jost. That is correct according to the CBO.
    Mr. Connolly. So other than that, these risk corridors seem 
a terrible idea.
    Mr. Jost. Well, once again, it is not only that. It is also 
the fact that they have helped to lower premiums for 
individuals which, in turn, has lowered the premium tax credits 
for the Government, saving billions of dollars in that way as 
well and billions of dollars to consumers.
    Mr. Connolly. To consumers.
    Mr. Jost. Yes.
    Mr. Connolly. What is the intellectual thinking behind 
establishing risk corridors?
    Mr. Jost. Well, the premium stabilization programs, all 
three of them--the idea behind them is that you create a market 
in which private businesses will participate because they know 
that their risk is going to be shared, at least initially until 
they can figure out how to price these products and until the 
market stabilizes. I mean, it has been said many times today 
that there are only 2 million. Well, there are at least 3 
million, probably many more by now. There will probably be 6 
million by the end of March. But the CBO still projects 3 years 
from now there are going to be 25 million. So it is going to 
take a little while for this market to develop.
    Mr. Connolly. And again, not something unique to the ACA. 
We have done it before.
    Mr. Jost. Right.
    Mr. Connolly. And it is certainly something welcome in the 
business community as something that can help smooth the bumps 
while we figure out, with experience, just how big and elastic 
the market is going to be.
    Mr. Jost. Correct.
    Mr. Connolly. Thank you, Professor Jost. Thank you for your 
testimony.
    Chairman Issa. The gentleman yields back.
    We now go to the gentleman from Nevada, Mr. Horsford.
    Mr. Horsford. Thank you, Mr. Chairman.
    I appreciate the panel this morning and this hearing, but 
one of the areas that I would like to focus on, since I am 
towards the end of this hearing, is on the significant changes 
within the Affordable Care Act dealing with preexisting 
conditions and the fact that insurance companies are no longer 
able to prohibit denying coverage to individuals with 
preexisting conditions. They are also prevented from 
discriminating against individuals with preexisting conditions 
by charging them higher prices for coverage. And I think that 
that is an important achievement in the underlying legislation.
    But as, Professor Jost, you have talked about, this means 
that insurers need to be able to provide people with 
preexisting conditions, who are generally a sicker population, 
affordable insurance. And one of the purposes of the 
reinsurance program in the Affordable Care Act is to prevent 
insurers from pricing their premiums too high at the outset due 
to an influx of these new enrollees.
    And so I would like to read just a quote from the 
Association of Health Insurance Plans which stated that the 
reinsurance program will help health plans meet the needs of 
high-cost enrollees who previously have not had health 
insurance coverage, while making individual market premiums 
more affordable for consumers. It went on to say that the 
Department of Health and Human Services estimates that the 
reinsurance program will reduce premiums in the individual 
market in 2014 by 10 to 15 percent compared to what they would 
have been without this program.
    So, Mr. Chairman, without objection, I would like to enter 
the full statement on behalf of America's health insurance 
plans into the record.
    Chairman Issa. Without objection.
    Mr. Horsford. Thank you.
    Professor Jost, can you explain how the reinsurance program 
helps insurers provide affordable insurance to these sicker 
individuals?
    Mr. Jost. Yes. The reinsurance program is a program where 
if a person who has coverage under the Affordable Care Act in a 
qualified health plan--in or out of the exchange, but in a 
qualified health plan--presents claims of more than $45,000 in 
a particular year, the Federal Government bears 80 percent of 
the risk of those claims up to $250,000. The insurers is at 
risk above that amount and also below the $45,000 amount. But 
that provision was purposely put into the act, and it is 
projected to reduce the cost of insurance by 10 to 15 percent 
across the individual market because of the fact, as we are 
seeing now, many of the people who sign up the earliest are 
high-cost people. They are people who are coming from the State 
and Federal high-risk pools. They are people who retirees who 
have been without coverage. They are older people 
predominantly, just as in the individual market now. And so 
this reinsurance program was put there to make insurance 
affordable to those people.
    Mr. Horsford. And is the reinsurance program funded solely 
by contributions from insurance companies?
    Mr. Jost. That is correct.
    Mr. Horsford. So it is not funded by taxpayers.
    Mr. Jost. It is not funded by taxpayers. However, I think 
it would be fair to say that some of those costs are being 
passed on to consumers.
    Mr. Horsford. So can you explain briefly why the insurance 
premium reductions in the individual market in 2014 will 
decline compared to what they are currently?
    Mr. Jost. Because the reinsurance program is funded at $10 
billion this year, I forget the exact amounts, but it is cut in 
about half the following year and then reduced further in the 
third year and then it goes away. It is basically a program for 
the first year to cover the costs of this migration to the 
individual market.
    Mr. Horsford. Thank you for clarifying.
    And, Mr. Chairman, I know it is just you and Mr. Lankford 
here that are on the other side, and I listened to some of my 
other colleagues, one that spoke prior to my question. And I 
just find it remarkable that Republicans are calling this a 
bailout, a bailout which helps individuals with preexisting 
conditions, people who were previously unable to obtain 
coverage and purchase affordable health insurance. So I really 
think that we need to, again, get away from the rhetoric, look 
at the facts, and if you want to refer to this as a bailout, 
then I ask you is it a bailout for people with heart disease. 
Is it a bailout for those with cancer or diabetes? Is it a 
bailout to protect our constituents with preexisting conditions 
from being gouged? Is that what we refer to as a bailout?
    You know my circumstance, Mr. Chairman. Last year I had 
six-way open heart bypass surgery. It is only because of the 
grace of God that I am here and because I was able to access a 
health insurance plan similar to one that my constituents are 
being asked to enroll in. I am in the exchange as well, and it 
is only because of that that I am not bankrupt.
    And so this is important, and we continue to just have 
these hearings that want to demagogue the issue rather than 
work to repair it, to make it better or to implement it right.
    And I yield back my time.
    Chairman Issa. Will the gentleman yield?
    Mr. Horsford. I yield back my time. My time has expired.
    Chairman Issa. I thank the gentleman.
    We now go to the gentleman from Oklahoma.
    Mr. Lankford. Thank you, Mr. Chairman.
    Mr. Horsford, I do understand, and we are grateful for a 
very successful surgery for you. But also I have people in my 
district and in my State that had a cancer doctor last year 
that they can no longer access this year, and they are in the 
middle of treatments. I have people that are in my district 
that have to have two knee replacements, had one knee replaced, 
and then they go back this year to get the second knee replaced 
and find out, no, you cannot use this doctor because the plan 
has changed. And part of the issue that we are faced with seems 
to be extremely narrow provider networks to try to control the 
premium costs, and then we have less access to doctors.
    So I would ask Mr. Goodman or whoever maybe that wants to 
be able to address this. What are you seeing in the provider 
networks to be able to hit some of the target numbers?
    Mr. Goodman. That we are getting a race to the bottom and 
that the insurers are putting out fees that are very low and 
taking all the doctors who would accept the low fees and not 
taking any others. That often excludes the best doctors and 
best hospitals.
    Mr. Lankford. So the best care, the most experienced, the 
greatest insight as far as treating multiple patients--those 
individuals now have lost access to those doctors, and they are 
getting new, young--which, great. I am glad they have been well 
trained, but they are not getting access to maybe the doctor 
they had or the one that they prefer.
    Mr. Goodman. I do not know what all the profiles look like 
because it is still early. But it is clear that the networks 
are very narrow and you have to pay a lot more to have a 
network that looks like the old network you were in.
    Mr. Lankford. Mr. Badger, let me ask you about this concept 
of picking winners and losers and some of the change that has 
happened in some of the plans and grandfathering in health 
plans and some of the transitions and the rollouts and 
everything else. Do you have a perception that right now we are 
picking winners and losers as far as insurance companies as 
well?
    Mr. Badger. Well, we are certainly preferring coverage in 
the exchange to coverage outside the exchange.
    And if I might, I know you are on the clock.
    Mr. Lankford. We both are.
    Mr. Badger. But it was said earlier that, well, you know, 
if your plan is canceled, they just did not get it renewed. It 
happened all the time. Prior to enactment of this law, there 
was something called HIPPA that was passed by Congress in 1996 
that guaranteed renewability in the individual and small group 
market. The effect of this law, coupled with the regulations, 
is it became illegal to renew that coverage, and the resulting 
cancellations were precisely to push people into exchanges.
    Mr. Lankford. So the question is on some of the rules and 
what we are dealing with today as well. There seems to be a 
preference to say if you played ball with the administration 
and got involved in the exchange, we will make sure you are 
taken care of. If you did not get involved in one of the 
exchanges, then you are kind of outside this loop.
    Mr. Badger. Insurers in the exchanges definitely enjoy 
tremendous advantage under the law with respect to these 
provisions.
    Mr. Lankford. This is part of the struggle that we face as 
a Federal Government, the cronyism and the fact that if you are 
willing to come into the administration and play by the rules, 
do it their way, then we are going to make sure that we protect 
you. Otherwise then, no, you do not have those same 
protections. So that pushes industry to say, well, we better 
come to the table or else we will be on the table. And that is 
a problem in a free market system and in a system where we want 
there to be the greatest amount of transparency and the least 
amount of interference from Government.
    Mr. Goodman, do you want to comment anything on that?
    Mr. Goodman. Well, I think all of the sectors were 
pressured in that very same way. And what I heard was if you do 
not come to the table, you are going to be the lunch, but it is 
the same message. So here in this city, a lot of organizations 
did a poor job of representing people out in the hinterland and 
cooperated with something that now in retrospect looks like it 
is very poorly designed.
    Mr. Lankford. Mr. Badger, the insurance companies have 
argued that it is unfair to change the rules now, that they 
already have the parameters set. Please do not change the 
rules. Do you consider that a fair argument?
    Mr. Badger. It is an understandable argument. The problem 
is, again, we have had a number of people, certainly people who 
have benefited by this law, but people who were hoping to renew 
their coverage, people that perhaps were able before to see a 
particular doctor and no longer able--we changed the rules on 
them.
    Mr. Lankford. So how many times do you think CMS has 
changed the rules during this process?
    Mr. Badger. They have changed considerably. In the 
reinsurance alone, as the professor said, they are still 
changing the rules. They are not solid as yet.
    Mr. Lankford. Which again goes back to our same issue. The 
rules seem to change consistently and there does not seem to be 
a consistent plan, and the consumer is very much out of 
control. And for the American people that they just want to be 
able to choose for themselves and be in control of their own 
health care, now suddenly even the health care provider that 
they go to is not in charge of their health care and is not 
making decisions for them. And they make another phone call, 
and they are not in charge of it either. And they are trying to 
find out who is controlling my health care. How far do I have 
to go to be able to find the person that is making the choice 
on where I can go, what I am going to pay, what doctor I am 
going to have access to, what treatment that I am going to 
have? And it is very distant in this process and it is 
continuing to frustrate Americans. Agree or disagree with the 
policy change, Americans just want to have control back of 
their own health care again and be able to make decisions.
    So with that, I yield back.
    Chairman Issa. I thank the gentleman.
    Today we covered a number of subjects, some of which our 
first and second panel were very critical to. Many of the 
things that were covered were tangential to the hearing today.
    On the board, in closing, you have the original projection 
in 1967 dollars of the cost of Medicare and the actual cost of 
Medicare. Again, these are 1967 dollars. They are very reduced.
    Just yesterday, the CBO similarly is adjusting by threefold 
the cost of jobs to America and, by seemingly double, another 
trillion dollars the cost of this plan.
    Today much of our discussion centered around a plus or 
minus $8 billion bailout. Mr. Horsford wanted to know who was 
being bailed out. The fact is that under this program, whether 
it was done in the past or not, it guarantees that the health 
insurance insurers will get their full 3 percent by over-
billing, and if they make an error on one of maybe a dozen or 
two dozen policies and they lose, they will be covered out of 
the excesses. In no case will the ratepayer--and since 
ObamaCare has been ruled to be a tax, the taxpayer--who is 
paying excess monies in for health insurance--in no case does 
that health insurance payer get his or her money back. These 
are undeniable truths. ObamaCare is getting much more expensive 
both in jobs and in cost. ObamaCare's excess monies paid in by 
people for their health care do not come back to the ratepayer, 
and in fact, there are a number of embedded taxes.
    As we continue to look at the Affordable Care Act, this 
chair, along with our ranking member, have an obligation to 
ensure that we do look at the cost drivers of health care and 
the areas that are, in fact, in need of consideration. This was 
a small area, although we touched on larger areas.
    I want to thank our panel of witnesses for coming prepared.
    I will hold the record open for 3 days for additional 
thoughts that any of our witnesses may have and extraneous 
material by members on the dais.
    Chairman Issa. Does the ranking member have any closing 
statements? The gentleman is recognized.
    Mr. Cummings. Thank you, Mr. Chairman.
    I want to thank the witnesses for being here today.
    Clearly, as has been said earlier, it may seem like we are 
in disagreement today, but the fact is that these risk 
corridors were something that under Medicare Part D are still 
in existence and will continue to be and has been for 10 years. 
And under the Affordable Care Act, you are talking a 3-year 
limit. Very interesting.
    As I listened to Mr. Collins, I am concerned that--he said 
that he had some constituents who are not able to have the type 
of insurance policy that they had before. And I think that 
those kind of issues ought to be addressed. It should be 
addressed soon, and I am sure they will be. At the same time, I 
could give him story after story of people who were suffering 
from cancer, heart disease that had absolutely no way of 
getting any kind of treatment. Period. Or if they got 
treatment, it was an emergency room, and it was basically to 
save their life but there was no follow-up. And so they were 
basically out there on their own.
    You know, Emerson said we should not be pushed around by 
our problems and our fears, but we should be guided by our 
hopes and our dreams. And I think one of the major things that 
we need to concentrate on is how do we take care of all 
Americans. Why do we leave anybody behind? And when we are 
basing it on our hopes and dreams, our hopes and dreams should 
be that we keep people well, and if they get sick, we do 
everything in our power to help them get well. There are a lot 
of people who suffer.
    You know, it just seems to me that we need to move from 
just criticism to actually making the repairs that are 
necessary. Nobody said the law was perfect. This is a very 
complex law, and it took many, many years to bring this about. 
A lot of Presidents tried to do it. This President accomplished 
it. And so hopefully, moving forward, we will be able to do 
just that.
    One of the things that I did want to ask Senator Rubio and 
did not have a chance to--but I wanted to ask him, you know, 
you got 850,000 people in Florida who have no insurance. And 
still, the Governor down there has made a decision that he 
would not open the door for them to enter into Medicaid, and 
those are people--many are sick and are in need. Automatically 
you put 850,000 people--give them insurance, provide them with 
insurance. That is significant.
    So, again, we have got work to do. I think all of us have 
to pull together and, again, move forward, not based on our 
fears, not based on our problems, but based on our hopes and 
our dreams.
    Thank you very much.
    Chairman Issa. I thank the ranking member. I thank our 
witnesses.
    We stand adjourned.
    [Whereupon, at 11:55 a.m., the committee was adjourned.]


                                APPENDIX

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