[Senate Hearing 113-253] [From the U.S. Government Publishing Office] S. Hrg. 113-253 IMPLEMENTATION OF THE AFFORDABLE CARE ACT: UNDERSTANDING SMALL BUSINESS CONCERNS ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP UNITED STATES SENATE ONE HUNDRED THIRTEENTH CONGRESS FIRST SESSION __________ JULY 24, 2013 __________ Printed for the Committee on Small Business and Entrepreneurship [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Available via the World Wide Web: http://www.fdsys.gov _____ U.S. GOVERNMENT PRINTING OFFICE 86-260 PDF WASHINGTON : 2014 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP ONE HUNDRED THIRTEENTH CONGRESS ---------- MARY L. LANDRIEU, Louisiana, Chair JAMES E. RISCH, Idaho, Ranking Member CARL LEVIN, Michigan DAVID VITTER, Louisiana TOM HARKIN, Iowa MARCO RUBIO, Florida MARIA CANTWELL, Washington RAND PAUL, Kentucky MARK L. PRYOR, Arkansas TIM SCOTT, South Caarolina BENJAMIN L. CARDIN, Maryland DEB FISCHER, Nebraska JEANNE SHAHEEN, New Hampshire MIKE ENZI, Wyoming KAY R. HAGAN, North Carolina RON JOHNSON, Wisconsin HEIDI HEITKAMP, North Dakota JEFFREY CHIESA, New Jersey ED MARKEY, Massachusetts Jane Campbell, Democratic Staff Director Skiffington Holderness, Republican Staff Director C O N T E N T S ---------- Opening Statements Page Landrieu, Hon. Mary L., Chair, and a U.S. Senator from Louisiana. 1 Risch, Hon. James E., a U.S. Senator from Idaho.................. 4 Witnesses Iwry, J. Mark, Senior Advisor to the Secretary, U.S. Department of the Treasury................................................ 11 Brooks-LaSure, Chiquita, Deputy Director, U.S. Department of Health and Human Services...................................... 19 Olafson, Meredith K., Senior Policy Advisor to the Administrator, U.S. Small Business Administration............................. 29 Clark, Nancy, President, Glen Group, Inc......................... 66 Lee, Jamal, Director and Chief Engineer, Breasia Studies, LLC.... 70 Settles, Kevin, President and CEO, Bardenay Restaurant & Distillery..................................................... 76 Katz, Lawrence K., President and CEO, Jomar Cafe, Inc., dba Dot's Diner.......................................................... 94 Houser, Jim, Owner, Hawthorne Auto Clinic, Inc................... 100 Dennis, Jr., William J., Senior Research Fellow, National Federation of Independent Business............................. 108 Alphabetical Listing and Appendix Material Submitted Brooks-LaSure, Chiquita Testimony.................................................... 19 Prepared statement........................................... 21 Response to post-hearing questions from: Senator Risch............................................ 140 Senator Enzi............................................. 142 Senator Fischer.......................................... 143 Senators Landrieu and Enzi............................... 148 Capitol City Legal Medical Solutions Letter dated August 4, 2013, to Senator Landrieu............. 151 Clark, Nancy Testimony.................................................... 66 Prepared statement........................................... 68 Cosponsorship agreement between the U.S. Small Business Administration and the Small Business Majority 132 Dennis, Jr., William J. Testimony.................................................... 108 Prepared statement........................................... 110 Response to post-hearing questions from Senator Risch........ 138 Hatch, Hon. Orrin Letter dated July 18, 2013, to James Hoffa, Joseph T. Hansen, and D. Taylor.............................................. 9 Houser, Jim Testimony.................................................... 100 Prepared statement........................................... 102 International Brotherhood of Teamsters Letter dated July 11, 2013, to Senator Reid and Representative Pelosi...................................... 7 Iwry, J. Mark Testimony.................................................... 11 Prepared statement........................................... 14 Response to post-hearing questions from: Senator Risch............................................ 144 Senator Fischer.......................................... 147 Johnson, Hon. Ron Kaiser Family Foundation and Health Research & Education Trust Employer Health Benefits............................. 51 Katz, Lawrence K. Testimony.................................................... 94 Prepared statement........................................... 96 Summary of Testimony......................................... 128 King, Howard ``Rocky'' Prepared statement........................................... 162 Landrieu, Hon. Mary L. Opening statement............................................ 1 Report titled ``The Individual Mandate in Perspective: Timely Analysis of Immediate Health Policy Issues''............... 58 Background Memo: ``Facts About the National Federation of Independent Business''..................................... 62 Lee, Jamal Testimony.................................................... 70 Prepared statement........................................... 72 Olafson, Meredith K. Testimony.................................................... 29 Prepared statement........................................... 31 Response to post-hearing questions from Senators Risch and Fischer.................................................... 129 Plank Road Cleaners Letter dated August 1, 2013, to Senator Landrieu............. 153 Raetzsch, Jr., Hugh W. Prepared statement........................................... 154 Risch, Hon. James E. Opening statement............................................ 4 Settles, Kevin Testimony.................................................... 76 Prepared statement........................................... 78 Small Business Majority Letter dated July 23, 2013, to Senator Landrieu.............. 160 Society of Actuaties Report titled ``ACA Impact Will Vary `Substantially Across State Lines' ''............................................ 165 Report titled ``Cost of the Future Newly Insured under the Affordable Care Act (ACA).................................. 168 The Perkins Group, LLC Letter dated August 4, 2013, to Senator Landrieu............. 152 IMPLEMENTATION OF THE AFFORDABLE CARE ACT: UNDERSTANDING SMALL BUSINESS CONCERNS ---------- WEDNESDAY, JULY 24, 2013 United States Senate, Committee on Small Business and Entrepreneurship, Washington, DC. The committee met, pursuant to notice, at 2:35 p.m., in Room SR-428, Russell Senate Office Building, Hon. Mary L. Landrieu, Chair of the Committee, presiding. Present: Senators Landrieu, Pryor, Shaheen, Heitkamp, Markey, Risch, Vitter, Rubio, Scott, Fischer, Enzi, and Johnson. OPENING STATEMENT OF HON. MARY L. LANDRIEU, CHAIR, AND A U.S. SENATOR FROM LOUISIANA Chair Landrieu. Good afternoon and thank you all for joining us for this hearing. I call the Small Business Committee to order. The purpose of today's hearing is to better understand how the Affordable Care Act is being implemented in various regions of the country, how it is helping America's 27 million small businesses as they struggle to afford health coverage that for too long has been out of reach, unattainable, and unsustainable, including 22 million self-employed Americans, as well as any special challenges of businesses with between 50 and 200 employees that are facing, as the implementation of the ACA continues. As it is well-documented, this law has no requirement for coverage or a penalty on businesses with fewer than 50 employees, which comprise 96 percent of all small businesses in the country. In fact, it actually offers help to the smallest of those businesses who do want to provide coverage. In today's hearing we will also hear about those businesses with over 50 employees, which is about 3 to 4 percent of businesses in the country, very important businesses, many restaurants and others that I have heard from who are also important job creators and very much appreciated entrepreneurs in our country today. During this hearing, we will hear from the Administration on the status of the implementation. We will also hear from small business owners who will be telling their own personal stories about how this Act is affecting them, their business plans, and their employees' access to quality care. In order to set the table for today's hearing on where the Affordable Care Act implementation is now and what it will look like in the future, I want to briefly take a look back at where we were just a few short years ago. In 2009, Congress took up the issue of national health care reform in earnest. It was not really, however, a new discussion. This issue had been debated in Washington for decades, going all the way back to President Theodore Roosevelt, and including Presidents and Congressional leaders from both parties. Given that history, we knew that getting a bill passed was going to be a long and hard road, and some in Washington even felt it would be too hard and contentious to try it all. Looking back, while it was hard and was difficult, I believe it was an important issue to address, particularly in face of highly unstable, unpredictable, and constantly rising health care costs, large and small businesses were struggling with how to provide affordable health care coverage to their valued employees, many of whom are like family. Many small businesses have paid historically, on average, of 18 to 25 percent more than large businesses for less coverage. They would see their health care costs increase faster than the price of their goods and services that they sold, four times faster than the rate of inflation, in fact, between 2001 and 2009. Average annual family premiums for workers at small firms in that year, 2009, before the Affordable Care Act was passed, increased by 123 percent, from $5,700 to $12,700, while the percentage of small firms offering coverage fell from 65 to 59 percent. And it is absolutely no wonder at all to me that since 1986, 24 years prior to the passage of the ACA, the number one concern for small businesses every year has been access to affordable health care, and this is according to the National Federation of Independent Businesses. I want to repeat, since 1986, 24 years prior to the Affordable Care Act, this has been the number one issue of the National Federation of Independent Business. To address these concerns and many others during the passage of this Act, I held several hearings and round-tables to focus on how the current health care system then before ACA was undercutting our efforts to provide affordable health care to businesses and their employees, to curb volatile health care costs, and to ensure that small business had a voice in the legislative process. There was no doubt in my mind then, and no doubt in my mind now, that maintaining the status quo prior to the ACA of insecure, unaffordable, and unpredictable insurance was unsustainable for American families as well as small businesses. As Chair of this Committee, I take my role as advocate for the small business community very seriously. Once the amendment process began, I co-sponsored several small business amendments that did become part of the final law. I want to talk briefly about two of them that expanded the small business tax credit to more businesses and made the credits available immediately. First, to help small businesses bridge the affordability gap in providing insurance for their employees before the private marketplaces are up and running, the original bill created a temporary tax credit that would be phased in for small businesses with fewer than 25 or few employees with average wages of less than $40,000 beginning in 2011. An amendment I co-sponsored passed the Senate and made the initial credit available in 2010 so more small businesses could immediately afford to provide health insurance, if they wanted to voluntarily, for their workers, particularly the smallest businesses that need the most help and could virtually find it nowhere in any affordable way, shape, or form prior to the ACA. Second, the original bill only made the full value of these credits available to businesses with ten or fewer full-time employees with annual wages of $20,000 or less. Another one of my amendments increased the wage limit to $25,000 for both temporary and marketplace credits to allow more small businesses access to full credit. It expanded the wage limitation for partial credit from $40,000 to $50,000. In all, these amendments made an additional $13 billion in tax credits for a total of $40 billion, which are helping small businesses today, in states that are cooperating, to provide quality health care coverage for their employees, including small business owners testifying today. The law also included the creation of a new health care private marketplace known as the exchanges for small businesses with under 50 employees, and eventually under 100 employees, to allow them to pool together and access more affordable health care coverage. That had always been available for large businesses in America for a long time, but never to small businesses, either those with under 25 employees, under 50 employees, or between 50 and 200 employees. These new marketplaces, if implemented correctly, will give small employers the ability to band together, spread risk over a large number of people, giving them the same leveraging power and lower cost that large businesses enjoy. This means small businesses in these private marketplaces will no longer see huge rate spikes just when one employee gets sick. And we have heard this over and over and over again for small businesses. One employee gets cancer, the rates would go up 30 or 40 percent. Those days are quickly coming to an end. Today these marketplaces are being implemented, either by the state or, in some instance, by the Federal Government. Ultimately, the Affordable Care Act that was enacted builds on our existing private health care system and seeks to help those small businesses who need it most by, one, lowering premium growth costs that I said has been rising spectacularly 20 years before the ACA was passed, increasing access to quality, affordable health insurance, and encouraging a greater voice in competition in the health care marketplace, and most importantly, at least to me, is reducing what I call job lock, which prevents individuals from starting a new business and makes them stay in jobs they would otherwise leave because they have to have health insurance. And in the previous world before ACA when only large companies could provide affordable insurance because of their buying power, many people were job-locked, unable to be entrepreneurs, unable to go out on their own because there was virtually no insurance available at an affordable cost. And if you had a health care challenge yourself or, let us say, your wife was in the second or third stages of cancer, or your child was born with Down's Syndrome, you were in job lock. No longer. Now the Affordable Care Act is the law of the land. It is in the process of being implemented. It is the role of this Committee to continue to ensure that we have oversight over how this law is either working or not working, to change what we can should it become clear to us that it is necessary, and to advocate on behalf of all small businesses. And most small businesses have less than 25 employees, but many have less than 100, and there are some very important businesses that will testify here today that have between 100 and 200, and they are struggling with some of these requirements. I understand that. Just because the Affordable Care Act became law does not mean that the job of fighting to make it work is over for us. After the law was enacted, for example, I worked with my colleagues on both sides of the aisle to repeal the burdensome 1099 reporting provision. I was happy to help lead that effort in a bipartisan manner. That was done and it was a great relief. There are other things that could potentially be done to improve this law. As this law moves forward, I will continue to listen to small business owners in Louisiana and across the country to continue to fight to make sure their voice is heard and that the law works the way it was meant to work. I look forward to a spirited discussion and debate in our Committee today from both sides of the aisle. I welcome Senator Pryor, Senator Risch, Senator Rubio, Senator Johnson, Senator Enzi and others that will be joining us, and I am particularly interested in hearing about the Administration's efforts to implement the law in a way that focuses on helping small businesses that have for decades been priced out of being able to afford quality health care to their employees, many of whom are like family. And they need to be able to compete for some of the best employees, to compete against some of the larger businesses in our country and internationally to help provide quality, affordable health insurance, which is important. I am also excited to hear some very compelling stories from small business owners who will be speaking to us about how this Act is working for them, some that have still questions and comments about how it is continuing to be a challenge. We have an impressive list of witnesses here to talk about the implementation of the Affordable Care Act. I now turn to my ranking member, Senator Risch, for his opening statement. We will then accept opening statements in writing from the other members and go into our first panel of questions. That will be, hopefully, one round, potentially two, five minutes each. Senator Risch. OPENING STATEMENT OF HON. JAMES E. RISCH, A U.S. SENATOR FROM IDAHO Senator Risch. Madam Chairman, thank you so much. Let us talk about how we got here to start with. When I first ran for this job back in 2008, America was focused on a real need to reform our health care system. Both parties were arguing that we should do health care reform. The problem is, it turns out that we were singing off of two different sheets of music. Our side was talking about redoing health care to lower costs and make it more affordable for every American. The other side was talking about expanding coverage. At that time, 87 percent of Americans were covered by some sort of health insurance coverage and they wanted to move it to 100 percent. At the end of the day, of course, that did not happen. They did move the needle 7 percent so that 94 percent were covered after the adoption of Obamacare. In any event, we went through a spirited debate on the matter. The Democrats won; the Republicans lost. Indeed, the law was passed by an exact party line vote. And at the end of the day, we are saddled with Obamacare. Since Obamacare has come online, its difficulties, its problems, people who were disenchanted with it, grow every single day. And indeed, that is why I originally conceived the idea of holding a hearing like this, but it was going to be strictly on the Republican side, and I want to thank you, Madam Chairman, for expanding this and making it an official Committee hearing with both parties participating. We, on our side, are believing that this matter is a catastrophic failure and becoming more so every day. Indeed, the three groups that are affected by this, big business, small business, and individuals, average Americans, are learning every single day about what a horrible burden this is on them and how it is going to worsen the kind of medical care they get. As a result of that, we are being deluged, at least those of us on our side are being deluged, by complaints from average Americans, from small business, and indeed, from big business. I am sure that my colleagues here have had the parade of big business CEOs, small business CEOs, and individuals into their offices complaining about Obamacare as it has unfolded--and, of course, we do not know how it is going to completely unfold-- but as more and more is known, how it was going to affect them, detrimentally. Now, somebody was listening. The White House was listening. And what did they do? They gave relief, but they gave relief only and solely to big business. What about the rest of Americans? What about small businesses in America? They want relief, too, and that is one of the reasons why I asked to have this hearing. Hopefully, at the end of this hearing, everyone will agree that not only does big business need relief, so do the small businesses who this Committee is exactly dedicated to helping. They need relief, too. And small business should get the same relief that big businesses got. And the same is true with American individuals. The first rule that every school child can tell you about the delivery of health care and the first thing they learn about doctors is that they take an oath, and the oath they take is, ``do no harm.'' Well, we now know that Obamacare violated the very first principle--the very first doctrine of the delivery of health care services--and that is do no harm, because we are realizing every day that there is more and more harm being caused by this particular law. Now, you say, well, you are a Republican, you voted against it, your party voted against it. Well, let us talk to the people who actually supported this law. I have here a letter dated July 11th, 2013, from the International Brotherhood of Teamsters signed by its General President, James B. Hoffa, also by the UFCW and Unite Here, three unions in America. They start out by writing to Senate Majority Leader Harry Reid and House Minority Leader Nancy Pelosi, quote, ``When you and the President sought our help for the Affordable Care Act''--and by the way, they got it. They got it enthusiastically by these unions--``you pledged that if we liked the health plans we have now, we could keep them.'' Now, those of us who were on the other side of this were saying, ``You know, I am hearing you guarantee that you can keep your health care plans, but how can you be talking out of one side of your mouth saying that, while out of the other side of your mouth saying, ``Yes, but all of the plans are going to be written by the United States Government.'' Indeed, nobody's health care plan would exist after Obamacare was enacted. In any event, they go on to say, ``On behalf of millions of working men and women we represent and the families they support, we can no longer stand silent in the face of elements of the Affordable Care Act that will destroy the very health and well-being of our members along with millions of other hardworking Americans.'' They go on to say, ``We continue to stand behind real health care reform, but the law as it stands will hurt millions of Americans including the members of our respective unions.'' This is from the people who supported this law when the President brought it on board. Well, Madam Chairman, I would ask unanimous consent that the July 11th letter be included in the record, together with the response that Senator Hatch gave, dated July 18th, 2013, and I will have some more items for the record. Chair Landrieu. Without objection. [The information follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Senator Risch. At the end of the day, I hope, Madam Chairman, that you and your party will join us as we attempt to go back to the fundamental principle of this and that is to do no harm. That is, go back to what we had before. It was not great, there is no question about it, but by going forward with Obamacare, we are violating that standard of doing no harm. At the very least, every single American--every single small business--should get the same relief that the White House has given to big business, and put this off. I know it is only until after the election and I know that you hope that the brouhaha will calm down after that point, but I think if we give this time to reflect, maybe people will come to their senses and realize that we should do no harm. Thank you, Madam Chairman. Chair Landrieu. Thank you. I am happy for that spirited introduction, happy to know that you are an advocate for the Teamsters. I will be happy to share that with all the members of both the House and the Senate. Senator Risch. Madam Chairman, I cannot tell you how much I am an advocate for exactly what the Teamsters have said. Chair Landrieu. For the Teamsters, great. Our first panel is Mark Iwry as Senior Advisor to the Secretary of Treasury and is Deputy Assistant Secretary for Retirement and Health Policy at the U.S. Treasury Department. In that role, he is heavily involved in retirement and savings policy as a regulatory process relating to implementation of the Affordable Care Act. We welcome you, Mr. Iwry. Chiquita Brooks-LaSure is the Deputy Director of Policy and Regulation at the Center for Consumer Information Insurance Oversight. In this role, she oversees development and clearance of policy and regulation related to the implementation of private insurance reforms. We thank you for being here. And then finally, we have Meredith Olafson. Her role is Senior Policy Advisor to the Administration. She is responsible for overseeing the Small Business Administration education and outreach efforts around health care and the Affordable Care Act. And so we look forward to having all three of you. As we stated, Mr. Iwry, we will start with you and we will have five minutes for your opening statements and then a round of questions. STATEMENT OF J. MARK IWRY, SENIOR ADVISOR TO THE SECRETARY, U.S. DEPARTMENT OF THE TREASURY Mr. Iwry. Thank you, Chairman Landrieu, Ranking Member Risch, members of the Committee, appreciate the opportunity to discuss implementation of the provisions of the Affordable Care Act that relate to small businesses. The Affordable Care Act provides benefits for employees and owners of small businesses. Chair Landrieu. Can you try to pull the mic a little bit closer to you? It is a little difficult, but you have got to press the button and speak directly into your microphone. Mr. Iwry. Is this better? Chair Landrieu. Better. Mr. Iwry. For years, many small businesses across America have struggled to provide health coverage to their employees. The Affordable Care Act helps small businesses by increasing their bargaining power and lowering their costs. Small employers with 50 or fewer employees will be able to pool their buying power and reduce their administrative costs by purchasing affordable insurance through the Small Business Health Options program, or SHOP, and small business owners will receive standardized information that will make it easy to compare insurance policies on an apples-to-apples basis. New market rules will ensure that premiums small employers pay for most health insurance plans will not vary based on the type of business that purchases the coverage, or the health status or their employees. While the Affordable Care Act makes it easier for small businesses to offer health coverage if they so choose, the great majority of small businesses will not be required to offer coverage. Those with fewer than 50 full-time employees are completely exempt from the law's employer responsibility provisions. That means about 96 percent of all firms in the U.S. are exempt from those requirements. And almost all businesses with 50 to 200 employees already offer coverage, the great majority of those. The Affordable Care Act also provides tax credits for many small businesses that offer coverage to their workers. CBO has estimated that the tax credit will save small businesses around $14 billion over the current ten-year budget window. The small business qualifies for the credit if it employs fewer than 25 full-time or full-time equivalent employees during the taxable year, and if those employees have annual full-time equivalent wages that average less than $50,000. During 2010 through 2013, the maximum credit is generally 35 percent of the employer's contributions to premium, and for 2014 and later years, generally 50 percent. The credit is phased out on a sliding scale between 10 and 25 full-time equivalent employees, and between an average annual wage of $25,000 and $50,000. The Administration's budget for the last two years includes a proposal to simplify and expand the small business tax credit in order to increase its utilization. In addition to the tax credit available to small employers, the Act provides for a premium tax credit that will help about 20 million Americans afford health insurance on the new health insurance marketplaces. The Act also includes insurance market reforms providing important protections for employees and other individuals. The Treasury Department recently provided transition relief with respect to the employer reporting and employer-shared responsibility provisions. These provisions affect only employers with 50 or more full-time employees, which constitute less than 5 percent of all U.S. businesses. So most businesses, and particularly most small businesses, are not affected by the employer reporting or employer responsibility provisions. Treasury announced that it would provide one-year transition relief with respect to the information reporting requirements for insurance providers, the information reporting requirements for applicable employers, and the employer-shared responsibility provisions. This does not affect the effective date of other Affordable Care Act provisions. The Affordable Care Act is projected to increase by nearly 30 million the number of Americans with health coverage. The Administration is implementing this law to build on the progress already made toward better and more affordable coverage. We welcome the opportunity to further work with this Committee to achieve these objectives. Thank you, Chairman, and I look forward to answering your questions. [The prepared statement of Mr. Iwry follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you. Mrs. Brooks-LaSure. STATEMENT OF CHIQUITA BROOKS-LaSURE, DEPUTY DIRECTOR, U.S. DEPARTMENT OF HEALTH AND HUMAN SERVICES Ms. Brooks-LaSure. Chairwoman Landrieu, Ranking Member Risch, thank you very much for the opportunity to discuss the many benefits that the Affordable Care Act will provide for small businesses. Although many small businesses would like to offer their employees health benefits, they have faced many challenges. The way insurers have presented information may make it difficult for employers to comparison shop. Small businesses employing women, older workers, or workers with chronic or high-cost illnesses have faced higher insurance rates in most states. Changes in the age, health status, or gender mix of employees can add to the unpredictability of increases in a small group's premiums. The Affordable Care Act will remove these obstacles and help small employers provide their employees with high quality affordable health care coverage. On October 1st, 2013, the health insurance marketplaces will be open for business, giving Americans, including small businesses, a new way to shop for health insurance coverage. For small businesses the Small Business Health Options program, known as SHOP, will provide a new, streamlined way for small employers to offer health insurance to their employees. The SHOPs will offer the same level of benefits and coverage that have been available to larger employers while helping small employers better predict and control health care insurance expenses. There are signs that competition created by the SHOPs is resulting in lower prices for consumers. The lowest cost silver plan available to small employers in 2014 in the six states with available data is estimated to be 18 percent less expensive, on average, than the average premium that small employers would be paying for a comparable plan before the passage of the Affordable Care Act. The SHOPs will offer a single point of entry for small employers and their employees to apply for coverage, and, if eligible, the employer may qualify for a tax credit worth up to 50 percent of the employer's premium contribution. In addition, small businesses will be able to choose from among many plans by making side-by-side comparisons of health plans, their benefits, premiums, and quality, expanding options as well as increasing transparency and competition. The SHOP employer and employee applications, models of which are already available online, are smart, dynamic tools that will ask an applicant only the questions relevant to establishing eligibility for that applicant based on his or her particular situation. Clear instructions will help applicants apply online and HealthCare.gov, the website for the Federally- facilitated SHOPs, also includes information about what number to call in order to get help by phone if needed. HealthCare.gov will also link to state-based SHOPs and the applications used by those SHOPs. Both inside and outside the SHOPs, the Affordable Care Act also helps ensure that plans available to small businesses and their employees have a standard set of benefits and meet certain requirements. New market rules require that premiums for most health insurance plans available to small employers will not vary based on what type of small business they cover or the health status of the business employees. This means that the hardware store on Main Street will see similar premiums as the bakery down the street or a neighboring farmer. CMS is working closely with our partners at the Small Business Administration and the Department of Treasury to help educate and inform small businesses and their employees about the SHOPs, tax credits available to small businesses, recent insurance reforms, and other benefits of the Affordable Care Act. In June of this year, CMS relaunched a new consumer focused HealthCare.gov website and the 24-hours a day consumer call center to help Americans prepare for open enrollment and to ultimately purchase affordable health care coverage. To provide additional assistance to small businesses, CMS will open a SHOP call center next month. Until open enrollment begins, the call center will provide basic educational information about SHOPs for small employers. Beginning October 1st, the call center will provide customer support, including enrolling employers in insurance plans and helping them access the application and enrollment system. Chair Landrieu. Please try to wrap up. Ms. Brooks-LaSure. The call center will assist agents, brokers, navigators, and marketplace assistors on behalf of small employers. We look forward to continuing to work with the Committee improve the health care options for American small businesses. [The prepared statement of Ms. Brooks-LaSure follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you very much. Ms. Olafson, and please speak right into the mic. Ms. Olafson. Thank you. Can you hear me? Chair Landrieu. Yes. STATEMENT OF MEREDITH K. OLAFSON, SENIOR POLICY ADVISOR TO THE ADMINISTRATOR, U.S. SMALL BUSINESS ADMINISTRATION Ms. Olafson. Thank you, Chair Landrieu, Ranking Member Risch, and members of the Committee. I am pleased to be here today. America's 28 million small businesses are the backbone of our economy, creating two out of every three net new jobs and employing half of America's workforce. The U.S. Small Business Administration is committed to giving small business owners the resources they need to start and grow a business, including access to accurate, timely information about how the Affordable Care Act is opening up better health care options for small business owners and entrepreneurs. Many small business owners consider their employees to be part of their family, and providing benefits such as health care is one important tool they have to help retain their talented workforce and remain competitive. The Affordable Care Act helps these entrepreneurs provide insurance through measures designed to help small business owners have the same purchasing power and options as larger businesses. As my colleagues have mentioned, tax credits are also available for many small businesses to help cover up to 35 percent of the premium costs of health insurance. Hundreds of thousands of small business owners have already benefitted from these credits and the credits will rise to 50 percent in 2014. Also beginning in 2014, the Affordable Care Act will give self- employed entrepreneurs and small businesses, generally those with up to 50 employees, a better way to shop for insurance through the new individual and small employer marketplace. And the majority of small businesses will not be affected by the employer-shared responsibility rules which take effect in 2015. In fact, businesses with fewer than 50 full-time or equivalent employees are not subject to these rules. That is about 96 percent of our businesses. As the primary gateway for small business owners engaged with the Federal Government, the SBA is working closely with the Department of Health and Human Services, the Departments of Labor and Treasury, and others to ensure that small business owners know the facts about the Affordable Care Act. SBA is also partnering with HHS on the ground to leverage their expertise and connect them with small business owners across the country. As part of our outreach efforts, SBA disseminates a weekly, a biweekly interactive health care blog, as well as a direct e- newsletter that reaches more than 1 million subscribers. We have also created robust online content at SBA.gov as well as Business.USA.gov. These two sites combined have more than 2 million visitors per month. America's small business owners engage daily with SBA, HHS, IRS, and our other Federal partners through a variety of online sites. Therefore, as part of our ``no wrong door'' approach to online engagement, Business.USA.gov is leading the Administration's efforts to provide comprehensive health care information and easy to use tools for businesses across these sites. This ensures that small business owners get the information they need no matter their point of online entry. SBA has also developed a series of comprehensive small business webinar trainings for our staff, our extensive network of small business development centers, women's business centers, and SCORE, as well as staff from other Federal agencies. To date, we have trained more than 2,200 of these on the ground staff and partners so that they in turn can serve as resources for small businesses in their communities, and this training continues. At the same time, we are working with our regional and local partners to better educate small businesses that are served by SBA's 68 district offices. Since February 2013, SBA has helped to lead over 350 events serving approximately 24,000 attendees. And just last week on July 18th, we launched a weekly Affordable Care Act webinar series in partnership with Small Business Majority. The goal of these webinars is to educate small business owners across the country and the webinars are open to all small businesses. We have also worked to educate and train leaders and members of a number of national trade associations about the Affordable Care Act such as the International Franchise Association, the International Association of Plumbing and Mechanical Officials, and the International Bakers Association, as well as state organizations like the Louisiana Restaurant Association. The Affordable Care Act allows small employers to offer coverage in a way that makes sense for their business and works for their bottom line. SBA is committed to leveraging our resources and Federal partnerships to ensure that small business owners have the facts and the resources they need to understand the law. Thank you. [The prepared statement of Ms. Olafson follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you very much. We will start with our first round of questioning. Let me put something into the record and then start my question to you, Ms. Brooks-LaSure, if I could. 96 percent, underscore, of all firms in the United States, which is almost 6 million firms, have fewer than 50 employees. They are exempt from any employer responsibility, correct? Of the 5.8 million firms, do you know how many workers they employ? It is about 34 million. Does that sound right? Ms. Brooks-LaSure. Yes. Chair Landrieu. In Louisiana, 67,000 small businesses have less than 50 employees. About 91 percent of all businesses in Louisiana are exempt from the requirements of this Act. 184,000 small businesses in our state have between 50 and 249. All the Senators can get access to the information from their states from the census, which is where I got this, and in Louisiana, 3,800 businesses only--that is a small number, it is a significant number, but relatively small--have between 50 and 249 employees. So the point of this is that the vast majority of businesses, small businesses in America, do not have a mandate from the Affordable Care Act. So the implementation is happening really for businesses between 50 and above, and primarily between 50 and 249 employees. And that is what I want to ask about eventually. But for right now, my first question is this. The ACA created health marketplaces that you all have described where individuals can shop for health insurance. These marketplaces, including the SHOP Act which you all just talked about, the SHOP provision, will increase the--the idea is for it to increase competition in the private market and give small businesses individual choices that they never had before. How is HHS operating in states that choose not to set up their own exchanges? Because there have been some states that are busy cooperating and set up exchanges, others that have decided to sit on the sidelines. How is that happening? Chiquita, could you just talk for a minute about how small businesses are going to be helped in states that have not decided to engage in setting up exchanges? Ms. Brooks-LaSure. Absolutely. Thank you so much for the question. So in states that have chosen not to operate a state- based marketplace, we will be setting up a marketplace both for the individual market as well as for the SHOPs. In many of those states, they are still working with us to work to certify the qualified health plans. Those will be the private plans that are offering health insurance coverage. And so, as part of our process right now, we are in the middle of reviewing the plans, working with the issuers to get plans certified. Starting on October 1st in every state where we are running the marketplace, individuals and small businesses will be able to go online, fill out an application. It takes about 15 minutes. And then they can choose a plan to offer to their employees. Chair Landrieu. Now, you testified that in one of the states, and I do not know if you want to identify what it is-- where you said the average of states that have cooperated and engaged in setting up these exchanges for small business, the rates have gone down by 18 percent. Is that what you testified and could you elaborate, please? Ms. Brooks-LaSure. I would be happy to. So states have different rules about when they make data available, and six states have made data available about their---- Chair Landrieu. What states are those, please? Ms. Brooks-LaSure. I can get those for you. I do not have them, but we will get them for you for the record. And in those states, our research part of HHS did an analysis and looked at the silver plan that is being offered. That plan, when compared to an equivalent plan trended forward, before the Affordable Care Act, is 18 percent lower, and that report is on our website under the---- Chair Landrieu. And can you quickly, because I have just got a few minutes left, describe just quickly what a silver plan would look like? Ms. Brooks-LaSure. A silver plan means it is about--it is 70 percent. So it means that the plan itself pays about 70 percent of the cost when you go to the doctor, on average, and an individual would pay about 30 percent. So there would be likely a deductible and co-pays when you go to the doctor, and then an out-of-pocket cap. Chair Landrieu. But it would be a fairly--would you describe it as a fairly generous, a silver plan, or how would you describe it---- Ms. Brooks-LaSure. I would describe it as middle, silver. There is also bronze, which is a lower benefit, and we likely will see a lot of HSAs and high deductible plans. Silver is in the middle. Businesses will also be able to choose gold, which is 80 percent, which is the more generous benefit. And platinum. Those premiums will be higher. Chair Landrieu. Okay. I am going to add one more minute and give the same to my ranking member. I would like to ask you, Ms. Olafson, because there have been a lot of questions from small businesses that I represent, and I am sure many members, they do not seem to be getting a lot of information about what is going on and there is some uncertainty. You touched on this in your testimony, but can you describe in some more detail how you are obtaining and using information to get it out to small businesses, and explain a little bit more about what this ``no wrong door'' policy is? Ms. Olafson. Absolutely. Thank you, Chair Landrieu. So SBA is taking, which I highlighted in my opening statement, a three-prong approach to outreach. You know, we want to make sure that we reach business owners in their communities through various mechanisms and tools. So the three-prong approach, I mentioned online. You know, we disseminate the weekly interactive blog. We hear from a lot of businesses through that mechanism. And our e-newsletter is reaching more than 1 million subscribers. And then through SBA.gov as well as Business.USA.gov. Both of those sites together combined have more than 2 million visitors per month. The ``no wrong door'' approach is, we want to make sure that no matter where a business owner is going, whether it is to our site or to HealthCare.gov, they are not falling through the cracks. So they are getting the same consistent information across sites. Business.USA is working to leverage all of the content at those sites to provide information to business owners around the Affordable Care Act as well as---- Chair Landrieu. So if they cannot get this through their regular business associations, there are many options and you are trying to make that more public? Ms. Olafson. Exactly. Chair Landrieu. Thank you. I am going to turn this over now to Senator Risch, and add 1:41 to you. Senator Risch. Thank you, Madam Chairman. First of all, I am glad you cleared up the record. 96 percent of businesses, is that correct, are exempted from Obamacare? Ms. Brooks-LaSure. Exactly. Senator Risch. Is that what I am understanding? Chairman Landrieu asked you that question, is that right? Ms. Brooks-LaSure. She did. Senator Risch. I am assuming that the question and your answer is to indicate that those 96 percent are exempt is a good thing? Ms. Brooks-LaSure. Most small businesses are exempt, yes. Senator Risch. Well, if it is such a good thing, why do we not go the other 4 percent of the way and exempt all business, 100 percent of businesses, from Obamacare? That would be a great thing, would it not? Ms. Brooks-LaSure. The Treasury Department is responsible for overseeing employer responsibility. I will say, obviously, as part of the ACA, the idea is that both businesses, individuals have the responsibility to help provide coverage or to pay, because health care costs affect us all. Senator Risch. I am looking at--I am sorry. Ms. Olafson. If I may? Senator Risch. Sure. Ms. Olafson. For years, small business owners have been telling us that access to health care is one of their top concerns. They often have paid up to 18 percent more than their larger competitors for health care. The ACA is helping to level the playing field for small businesses. So the first thing we tell business owners is, Look at the facts and the opportunities around this law, the tax credits, the access to the affordable care markets, et cetera. Senator Risch. And by the way, I think that that particular provision of the law that allows the small businesses to pool was a good idea, and I think we probably would have gotten the bipartisan support to actually pass that here. Unfortunately, it was wrapped in 2,700 other pages that we did not particularly agree with. But the pooling seems to be a rational, reasonable idea that should be done. One of the difficulties I have is that we keep getting reports that the cost of health care keeps going up, notwithstanding the fact that everybody was promised it would go down, notwithstanding the figures, Ms. LaSure, that you had. I am looking at a table that was produced by Society of Actuaries. Now, they are not beholden to the Administration like an agency is. They are not Republicans, they are not Democrats, they are not Conservatives or Liberals. Their study shows that insurance premiums will go up quite substantially over the next few years. Senator Landrieu will be interested to hear that they are talking about a 28.6 percent increase in Louisiana. In New Hampshire, they are talking about a 36.8 percent increase. In North Dakota, they are talking about an increase of only 8.4 percent, so you are very fortunate there. Massachusetts is the big winner. They get actually a decrease of about 12.8 percent. Senator Johnson, I have got bad news for you. It is an 80 percent increase in Wisconsin. So these numbers, although we are hearing these statistics that you are throwing out, that is not what we are hearing from the Society of Actuaries, and, it is not what we are hearing from the witnesses who are going to testify here today. I hope you will stay around to hear the witnesses because you can look at the statistics all you want, but when you have live witnesses here who will tell you what is actually happening to their premiums, I think you will be interested. Chair Landrieu. And I want you to identify for the record the document that you are reading from, and---- Senator Risch. Yes. It was produced by the Society of Actuaries. Chair Landrieu. What date? Senator Risch. Cannot give you the date. Chair Landrieu. No date? Senator Risch. No date. Chair Landrieu. Okay. Senator Risch. It is not 1932. It is a very recent study, Madam Chair. Chair Landrieu. I would like to know the date for the record. Senator Risch. Thank you. We will get you that. Thank you, Madam Chairman. I yield back. Chair Landrieu. Okay. Senator Shaheen. Senator Shaheen. Yes, thank you, Madam Chair. Chair Landrieu. Let me just say welcome to Senator Markey. This is your first meeting of the Small Business Committee. We would like to all welcome you to our Committee. Thank you for joining us today where the exchanges seem to be working fairly well. We are anxious to hear your perspective from Massachusetts. Senator Shaheen. Senator Shaheen. Mr. Iwry, last month the Administration delayed the employer responsibility provision for a year, made the associated reporting requirements voluntary until 2015. I would like you to do two things, if you would. Could you answer who that employer responsibility provision applied to? I assume it was all business, not just large businesses. And also, can you talk about why the Treasury made that decision? Mr. Iwry. Senator, I would be happy to. The employer responsibility provision applies to employers with 50 or more full-time employees, or full-time equivalents, and does not apply to employers with fewer than that number. The decision process was one that was thorough and conducted within the Treasury Department. As policy decisions are typically coordinated with the White House, this decision was also coordinated with the White House. It stemmed from concerns that were expressed to Treasury and the Administration in general from the business community, including small business and larger, about the need for more time for them to adapt and ramp up their systems for reporting; that is, collecting the information they would need in order to report, and then their systems were actually reporting that information to the Government and to the individuals. They indicated that in order to smooth the path toward implementation, it would be far better if they had more time to adjust their systems to either adapt or develop systems, as the case may be. And second, they expressed a concern that those reporting requirements were not as simple or streamlined as they might be, as businesses hoped we could make them, and they asked whether we could do our best to show the same kind of flexibility with respect to these reporting requirements, that is, the way Treasury applies and interprets them, that we did with respect to some of the employer responsibility provisions where we worked with the business community over an extended time, a lot of dialogue, to see how we could make the provisions, as applied on a regulatory level, as workable as possible consistent with the statute. So we responded to those two concerns, Senator, by first, looking at them objectively and weighing whether they were sufficiently weighty to justify transition relief that people were asking for. Senator Shaheen. And have you gotten feedback from business as the result of the decision to delay the employer responsibility provision? Mr. Iwry. Yes, Senator Shaheen. We have received, indeed, business has provided feedback not in particular to us as opposed to publicly. The major business--many major business groups, including the U.S. Chamber of Commerce and the National Retail Federation, National Restaurant Association, others have indicated that they thought that the transition relief in response to the concerns that they had expressed, and many of them had expressed concerns not focused only on the reporting, but had asked for more time regarding employer responsibility generally. With respect to reporting in particular, that drove our decision and the commended us for having listened and been flexible enough not to agree to postpone these provisions indefinitely, but simply to give them the transition relief that they asked for so they could adapt their systems and have as successful and smooth an implementation as possible. Senator Shaheen. Thank you. My time is up. Chair Landrieu. Senator Rubio. Senator Rubio. Thank you for holding this hearing, Madam Chair. Ms. LaSure, how are you? Good morning. Ms. Brooks-LaSure. Good. Senator Rubio. Afternoon. Feels like morning. I want to talk a little bit about the Small Business Health Options Program and how that is going. There is an article here from Forbes. It is an opinion piece dated July 8th of this year. And it writes as follows, and I want to know if this is true. It said, Maryland, one of the first states to embrace Obamacare, announced in April that it would delay the launch of its Small Business Exchange by at least three months. A recent GAO report said that all 17 states that are building their own exchanges are behind schedule, missing deadlines on 44 percent of the key activities needed to get them up and running. Is it true that 17 of the states that are building their own exchanges are behind schedule? Ms. Brooks-LaSure. I would say no to that. We are working very closely with the state-based marketplaces to make sure they are meeting their critical milestones. There are times where we adjust and make changes, but we are working very closely with the state-based marketplaces and expect them all to be up and running on October 1st. Senator Rubio. So you anticipate all the exchanges, including the Federal one, to be operational on October 1st of this year? Ms. Brooks-LaSure. Yes. Senator Rubio. Can you guarantee that? Ms. Brooks-LaSure. Of course I cannot. Senator Rubio. Okay. Ms. Brooks-LaSure. But we are working very hard to achieve that. We are working constantly, as I said, working with states. There may be, again, pieces where we take time and prioritize and may make some adjustments, but in terms of being open, the marketplaces will be open on---- Senator Rubio. One of the concerns the article raises is that in some states this is--obviously, these exchanges are built on choice because the choice leads to competition and hopefully lower premiums. The article goes on to say that just one insurer signed up to provide coverage in Washington, in New Hampshire, and in North Carolina, and in Mississippi not a single insurance company signed up until recently. I think Humana finally stepped up. Are we going to see multiple choices in each of these insurance marketplaces on October 1st? Ms. Brooks-LaSure. We have been very pleased in the Federally-facilitated marketplace with the interest from the issuer community. We have said there have been over 120 issuers that we are working on. Certification happens in September. That is when we finalize the final actual agreements, and so that is when we will be able to announce what all of the choices look like. Senator Rubio. How confident are you that every exchange out there, the 17 states, the 33 Federal ones, that all of them will offer multiple choices for patients? Ms. Brooks-LaSure. I am very confident that we will have choice. Again, this is---- Senator Rubio. In all of them? In all of them? Ms. Brooks-LaSure [continuing]. I cannot speak to specific states, but I will also say, this is a voluntary engagement. This is based on the private sector, and so we are working with them, and private sector companies make choices. But we think this is a very attractive option for them and expect many issuers to participate. Senator Rubio. If you are a worker at a small business, can we guarantee that none of them will lose their existing coverage if they are happy with it? Ms. Brooks-LaSure. Well, in terms of what they are being offered, small employers will have additional options. Again, there are changes being made which benefit small employers, meaning that their insurance companies have requirements about what they need to offer for them. Senator Rubio. But the point being, one of the problems that was made in this law was if you have insurance and you are happy with it, you will get to keep it. Can we guarantee that due to this law, no one will lose coverage that they are happy with? Ms. Brooks-LaSure. People will make choices about what kind of coverage they choose. Senator Rubio. So we cannot guarantee it? In essence, there will be people that will lose their existing coverage that they are happy with because their employer will make a change as a result of the requirements of the law? Ms. Brooks-LaSure. I cannot answer that question. Senator Rubio. Okay. What about doctors? Can we ensure everyone that has a doctor that they are happy with that they are going to be put on a plan that includes that doctor in the network? Ms. Brooks-LaSure. Doctors in this country make choices about whether they want to participate. Again, we are working with issuers, issuers are working and needing to meet certain state and Federal requirements about network adequacy. Senator Rubio. So is it possible that someone who today has an existing relationship with a doctor that they are happy with will no longer be able to see that doctor because they are now going to be moved to a plan that that doctor is not part of the network? Ms. Brooks-LaSure. No one is moved to a plan. People make choices about what kind of coverage they choose. Senator Rubio. Well, their employer may make choices, right, as a result of the law's requirements? Ms. Brooks-LaSure. The employer makes choices, exactly. Senator Rubio. I know I am running out of time. Just real quick, Ms. Olafson, I wanted to ask you about the tax credit. According to the General Accounting Office, the participation on it has been less than anticipated. Is that not correct? Ms. Olafson. So, you know, the tax credit is a significant part of the Affordable Care Act. I certainly have my colleagues here from Treasury to talk about the uptick on that, but we do know, as Chairwoman Landrieu said in her opening statement, that it is really targeted to those small business owners who most need help getting coverage. We know that hundreds of thousands of business owners have already taken advantage of it and that the credits will rise in 2014 for those employers that are choosing to purchase coverage through SHOPs. So it is a critical part of this Act and we know that many of our businesses are taking advantage of it. Chair Landrieu. Thank you. Senator Heitkamp. Senator Heitkamp. Ms. Brooks-LaSure, I have a quick question. If there was no Affordable Care Act, would there be any guarantee that an employee would be able to keep the coverage that they currently have if an employer made a different decision? Ms. Brooks-LaSure. No. Senator Heitkamp. If there were no Affordable Care Act, would there be any guarantee that the employer would continue to offer the same kind of coverage that he or she or it is currently offering? Ms. Brooks-LaSure. No. Senator Heitkamp. So a lot of this is about the choice. A lot of this is about whether, in fact, employers make a different choice to go to a different plan and then whether employees make a choice to go to a different plan and whether the choice options have been broadened for those entities. Can you tell us what percentage of American businesses plan on, at least in your estimation right now, maintaining the same coverage that they currently provide? Ms. Brooks-LaSure. All the evidence that we have, based on previous experience, the experience we have seen with Massachusetts in implementing their exchange, is that employers want to offer coverage and employer coverage increases. And so, we fully expect employers to continue to offer and hope that more small employers will now see opportunities to offer. Senator Heitkamp. Many of the--Ms. Chairman, many of the businesses that I talk to in North Dakota who have, over the years, offered great plans, plan on sticking with the great plans that they have, and that is certainly what Blue Cross and Blue Shield, which is the majority provider in our state, anticipates, that a lot of their corporate accounts will stay very, very similar. And so, as we look, North Dakota is obviously a state where a lot of small businesses will not be subjected to the Affordable Care Act, if we want to use that word. And so, you know, the challenge in all of this, as we anticipate and we look forward to what the changes will be, is that we really do not know what choices people will make. There are a lot of assumptions, I think, on both sides about what those choices might be. I guess, you know, delaying the mandate for an extra year will make the opportunity to collect additional information and maybe will make changes even more apparent. But I want to just use what remaining time I have to talk to Ms. Olafson. One of the concerns that I have is small businesses that are not affiliated with a trade organization or an entity that may be like the Chamber of Commerce, do not necessarily have direct access, and that is key information. I encourage people to go out on Kaiser because I think that is a site that that has independent evaluation. People right now hear arguments on both sides. But I am curious, if Denver is a region that is affiliated with the Small Business Administration. What are you hearing or what are you focusing on in terms of our opportunities to get the information out to our rural small businesses, our small manufacturers who may not otherwise have access to information? Ms. Olafson. Thank you, Chairwoman--I am sorry--thank you, Senator. So as I said, we are leveraging all of the resources that are available to us. You know, many of our small businesses--and we know this from market research--do access information online, they coming to us, anyway, over 2 million visitors per month at our website. But for those businesses that want or need sort of more direct on-the-ground resources, we are leveraging our 68 district offices. We have both trained those folks so they can serve as resources. We have trained our Women's Business Centers, our SCORE, our Small Business Development Centers, so that as our business owners come to us for counseling about access to capital, Government contracting, they also know they can get current, accurate information about the health care law. So we are trying to build out that network across the board, whether it is online, in person engagement, webinars, free webinars open to the small business community. Senator Heitkamp. Well, one of the concerns that I have is that where you saw in Medicare Part D a big public information campaign which was, in fact, funded by the Federal enactment, we do not see that in this situation. So it really is dependent on using available resources. And I would suggest taking a look at non-traditional ways of getting information out and making sure that that information has a level of credibility, because one of the concerns that we have is that every time you turn around or every time I visit with folks, I am in the spot of having to say, That is not the way I understand it. Can I get back to you? Can I get information out there? And so, some sites that are readily pointed to with some credibility I am frequently asked questions of could be enormously helpful. Ms. Olafson. Absolutely, and that is critical. You know, we know that business owners are not going to make decisions based on misinformation. And so, our role--we really view our role as providing facts, cutting through the misinformation, and helping business owners make the decision that is best for their individual circumstances. Chair Landrieu. Thank you, Senator Heitkamp. Let me just interject here that I really appreciate you pointing out that there were no guarantees before the ACA, there are very few guarantees after, but there are a few important guarantees. One of them is that there are going to be no lifetime caps come January on policies. The other one that is--well, lifetime caps is now. The other is there will be no annual caps come January. And the other is that there is, pre-existing conditions are, you know, irrelevant now and that people--so there are some guarantees. But the guarantees that Senator Rubio asked about were doctors, which is a legitimate question, were not in place before or after the Affordable Care Act. And just to clear the record, the Ranking Member submitted a document and I want to just make this clear, that we have gotten some more information about this, Senator Risch, and the study was published in March of 2013, according to this document that I am going to put into the record. It was an article written about it on April 18th. The person that ran the study was Kenny Clan, who is the Chief Actuary at a Maryland-based CareFirst Blue Cross/Blue Shield. He is not independent. He works for a large insurance company. They are actuaries, but most of the actuaries work for insurance companies. And that is just the record. If you want to submit anything else, that is fine. Chair Landrieu. Senator Johnson. Senator Johnson. Thank you, Madam Chair. There actually was one guarantee that certainly sticks in my mind and that was President Obama repeatedly promised that if we passed the health care law, the average cost of a family plan would decline by $2,500 a year by the end of his first term. In fact, it has increased by about $2,370 from 2009 to 2012. Is that correct, Ms. Brooks-LaSure? Ms. Brooks-LaSure. Again, I do not believe so. For years, health insurance rates have been increasing faster than wages, and in the last few years, we have seen that it has slowed. I think it is very critical that when we look at these studies, that we are making apples to apples comparisons about the benefits. Senator Johnson. What do you disagree with, though? That President Obama did not make that promise repeatedly? Ms. Brooks-LaSure. No, I am sorry. You had said that rates were going up---- Senator Johnson. Premiums for family plans are up almost $2,500, according to a Kaiser study, and we can submit that to the record. Ms. Brooks-LaSure. Okay. I guess what I wanted to make clear are two points. One, that rates have been going up over time. In the last few years, we have seen rates starting to slow. I believe the President described that this morning. And second, that it is important to compare apples to apples; that when talking about the cost of plans, it is important to compare what benefits were being offered in the original plan versus the future plans. So there may be---- Senator Johnson. Right now, we are comparing apples to apples because when the President made that promise, the average premium was somewhere around $13,000. Now it is over $15,000 for the same plan. So that is an apple to apple comparison. That is a promise. That is a guarantee that was broken. Mr. Iwry, you talked about information that the businesses are not able to report to the Government. Specifically, what information, after three-and-a-half years of the implementation of this law, are they unable to comply with? Mr. Iwry. Senator, the business community has told us that the information reporting requirements under the law---- Senator Johnson. Yes. What type of information? I want to know the type of information. Mr. Iwry. That the information reporting requirements, which include the month-by-month determination of who are full- time employees of the employer, and whether they were offered affordable, minimum-value coverage by the employer, and related information to determine whether the employer responsibility provision is satisfied and whether the individuals have coverage from the employer or not, that that information was something that their systems could, with more time, more smoothly and readily provide. They also did ask sir, and recognizing where your question is coming from, they did ask us whether we could simplify or streamline those information requirements consistent with the statute. Senator Johnson. Here is some information that I am concerned that is not going to be gathered. Senator Shaheen talked about the delay in the employer mandate. I am concerned about the delay in basically a verification of income, verification of qualification for the subsidies, that that is just being waived for the first year of implementation. So basically, people could self-report. Is the Treasury Department a little concerned about fraud in that waiver? Mr. Iwry. Senator, the Treasury Department is not too concerned about the risk of fraud in connection with the verification provision that you are referring to because the people at HHS, the officials at the Centers for Medicare and Medicaid, have advised us that the verification adjustment, and I will defer to Ms. Brooks-LaSure to explain, that the adjustment for one year, for 2014, in the verification procedures is rather limited. Ms. Brooks-LaSure. So if I could just, Senator---- Senator Johnson. I want to know who in the end is going to verify those numbers. What agency within the Federal Government is going to verify the qualifications of individuals for subsidies? Ms. Brooks-LaSure. We start, and so, when someone comes to the marketplace, they go through a process that is determined whether they are eligible. We use data systems from the IRS, SSA, other systems, private insurance--a private system where we get data from employers. So we are verifying income. We were never using the data that Treasury gets in terms of employer reporting because that data is available in 2015 for the first year and we need the data at the beginning of open enrollment. So on October 1st, we will start verifying whether people are eligible for tax credits. Senator Johnson. So HHS will now have information from the IRS on an individual's income because of the Affordable Care Act. Now HHS has that very private income information. Ms. Brooks-LaSure. There are strict privacy standards. Senator Johnson. Well, that gives me a lot of comfort. Chair Landrieu. Thank you very much. Senator Enzi. Senator Enzi. Thank you, Madam Chairman. Appreciate you holding this hearing. I am not only on the Small Business Committee. I am also on the Finance Committee and on the Health, Education, Labor, and Pensions Committee which handles this, so I have been to a number of hearings on it. And every time I go to one, I get a little more confused. I can tell you that in all of the Committees, there is a whole lot more interest in what is going to happen, and that is because starting January 1st, all the Senators, all the Congressmen, and all of their staff are going to have to go on the exchange to get their insurance, and there are a lot of unanswered questions about that. So both sides of the aisle are rather intense on this exchange. Some of the questions that they have asked is because we were told that it was beta tested, the exchange is beta tested already, so one of the people on the other side of the aisle asked, Who tested it and if they could have a list. And that is apparently not available. Ms. Brooks-LaSure. In terms of our testing, thank you, Senator, for the question, we are undergoing very rigorous testing. So we at HHS are testing with our Federal partners. That has been ongoing for the last year. Senator Enzi. How do you write the program without having a basic plan defined? That is another question that has been asked in all three of these Committees. Ms. Brooks-LaSure. So I am not sure if I am understanding your question. Senator Enzi. You give the silver plan as being 70 percent, gold 80 percent, and bronze. But what does that consist of? Ms. Brooks-LaSure. It is based on our standards and our regulation and then states are---- Senator Enzi. Can you send me the list of the exact things that are on that, not just the general ones like that? Ms. Brooks-LaSure. Certainly, but then plans are submitting that data to states. They are entering it into SURF and that is where the data is. Senator Enzi. So far, nobody has provided us with that. Small businesses have complained that they have spent thousands of hours attending seminars to try and find out how they are going to be taken care of on, and, of course, now that has been put off for a year. But what they do not understand is what happens to their employees now if they do not offer the insurance, employees have to go into the exchange. But the amount that they used to subsidize will not be subsidizable tax-free anymore, the way we understand it. But, Mr. Iwry, you raised something that was new to me, I guess. You talked about the full-time equivalency, I guess relating to the number of employees that an employer has. I thought it was just strictly full-time employees, not full-time equivalencies. Am I wrong? Mr. Iwry. Senator Enzi, for purposes of determining whether an employer is one of the 96 or so percent that are not subject to this employer responsibility provision because they are below 50 employees in size, the statute provides for counting the full-time employees, as you say, plus counting the full- time equivalents. So if I may answer with an example? Senator Enzi. No, I do not need an example. I know what full-time equivalency means. I just had not---- Mr. Iwry. Yes. Senator Enzi. That is going to be a surprise to a number of them, just as the 30 hours is a surprise. So actually, part- time is only 29 hours. If they hit that 30-hour mark, they are full-time. How come it is 30 hours? Forty hours has always been full-time. Thirty hours has always been part-time. A number of employers are pretty concerned about that number. Mr. Iwry. Senator, I was not involved in the crafting of that particular provision that set the number at 30. My understanding is that one of the reasons that 30 was selected in the legislative process was that there was concern that employers not be induced unduly to reduce employees' hours from, for example, 40 to 39 if the level had been set at 40, and that because there is a lot of variation and diversity in practices among small business and larger business, that that might be a very easy thing for employers to do. Whereas, while, of course an employer could reduce an employee's hours from 30 to 29, and there has been talk about that, because a majority of the full-time workers were, I think, thought to be working more than 30 hours, that that kind of gaming to avoid employer responsibility might be more difficult to do or less readily available with 30. Senator Enzi. It is not working very well for you, I do not think, and it is not working well for the employers or the employees. I know a lot of businesses that have--they have cut back to the 29, although there are a lot that cut back to the 30 thinking that would not be it. They are not aware of the full-time equivalency yet, so if they reduced two employees back to that, they still have one. But the 29 versus 30 hours is very troublesome. I realize that is in the law. It is one of those things that people did not know until after they had passed out. Thank you, Madam Chair. Chair Landrieu. Thank you, Senator. Senator Fischer and then we will get to Senator Vitter and then we are going to move to our second panel. Senator Fischer. Thank you, Madam Chair, and thank you, Ranking Member, for holding this hearing today. It is a vitally important hearing. In Nebraska, small businesses represent 96.6 percent of all employers and they employ 50 percent of the private sector labor force. So the impact of the Affordable Care Act on this sector of my state's economy, not to mention the economy of our country, is of great concern to me. I had heard from many small business owners and employers who are not seeing the positive effects of the ACA. Hours are being reduced, fewer people are being hired, and small businesses are afraid to expand with this uncertainty that is facing them. Ms. Brooks-LaSure, because of the Administration's delay of the requirement to provide employers with a choice of health plans, in your testimony you mentioned that the Federal SHOP Exchanges will allow--will allow--employers to choose one qualified health care plan to offer their employees. I have read that the Administration cited ``operational challenges'' as the reason for this delay. Can you tell me what these challenges were? Ms. Brooks-LaSure. Sure. Thank you so much, Senator, for the question. Senator Fischer. And thank you all for being here. I appreciate it. Ms. Brooks-LaSure. During our comment process where we worked through our regulations, we sought comment on employee choice, which we certainly think of as a very important part of the SHOP. During that comment process, we did receive comments from a variety of stakeholders, and based on those comments, we learned that many issuers felt that they needed more time to develop the apparatus, basically, necessary to implement employee choice, and we were concerned about making sure that there were many options available in the SHOPs. And so, as a result, we decided that for the Federally- facilitated marketplace, as were operating in many states across the country, we would wait one year before implementing employee choice because we thought more issuers would participate. And some states who are implementing state-based marketplaces are implementing employee choice this year. Senator Fischer. Do you think this one-year delay in implementation is going to make a difference, or are we going to be looking at another delay coming up? Ms. Brooks-LaSure. We are committed to 2015. That is what our regulations say. That is what we are working on. We just wanted to give all stakeholders more time because we want it to work well. Senator Fischer. Would it be fair to say that all stakeholders need more time and maybe we should have a delay for individuals as well as businesses? Ms. Brooks-LaSure. We have been working very hard throughout the implementation and the passage to really listen to stakeholders. We have given flexibility in many instances where we had administrative authority to do so. But we are fully prepared for the individual market October 1, and for SHOP for October 1. Senator Fischer. You mentioned earlier that the marketplaces will be open by October 1st. Did I hear you correctly on that? Ms. Brooks-LaSure. Yes. Senator Fischer. Can you tell me if they are going to be open in Nebraska by October 1st and where we are there? Because I know there is tremendous uncertainty in my state, and observing part of our legislative session back home this year, things are not settled. Ms. Brooks-LaSure. We are operating the Federally- facilitated marketplace in Nebraska. We are on track, as I mentioned. We are in the process of certifying plans now, working with them. Plans will start to see their data next month and start to be able to make sure it is correct. And then in September, we will sign issuer agreements and October 1, people will be able to see them and enroll. Senator Fischer. Thank you. Ms. Olafson, first of all, I want to let you know that I met with a number of the staff at the SBA in the Omaha metro area and had a great conversation with them recently. And so, I would thank you and thank them for being open for that. Ms. Olafson. That is great to hear. Thank you, Senator. Senator Fischer. You acknowledged in your testimony that the SBA has devoted considerable time and resources to the promotion of the ACA through events such as Small Business Week and agency-funded resources such as this website. There is no line item to fund this. And so, can you tell me the amount and the origin of the funds that have been used to support these efforts? Ms. Olafson. So as I mentioned earlier, SBA is leveraging all of the resources in our network, all the resources we have at our disposal to get the facts out to the small business community. Senator Fischer. Are you taking from other programs, you know, stealing from Peter to pay Paul so you can promote this? Ms. Olafson. So again, we have a robust network within SBA of our counselors, for example, that are meeting every day with small business on a variety of issues. This is one of the most critical issues that our counselors are getting questions about and our staff, so we are building and leveraging those resources. So that if a business owner is coming to us to talk about access to capital or health care, we can provide them with that information and those facts and tools to let them know where to go to get more information. Senator Fischer. If I could submit some questions to you, could you address just what programs are being affected by it, though? Ms. Olafson. Certainly. We would be happy to talk with you. Senator Fischer. Okay. Thank you so much. Chair Landrieu. Senator, we are going to try to move along. Let me ask you, did the State of Nebraska choose to set up an exchange or you are having to wait for the Federal Exchange? Senator Fischer. On the Federal. Chair Landrieu. Senator Vitter, do you want to go? And then Senator Scott. And then we are going to have to move on to the second panel. Senator Vitter. Thank you, Madam Chair, and I am eager to hear from the actual small businesses as well. I just want to briefly say, I share the concerns that have been expressed about this implementation. I think it is nothing short of a train wreck, and that is not my phrase. It is another member's. I echo the feeling that if business is being given a reprieve for one year or more than individuals, families, middle class families, workers should be given the exact same treatment. And also, this is a completely unrelated issue, but it is an important Louisiana priority for both the Chair and me. If the President has that administrative authority here, I would also ask him to use exactly the same authority and delay the implementation of completely unworkable flood insurance premiums under bigger waters, and I would specifically ask that. But again, I join the Chair in begin eager to hear from small businesses and I look forward to the second panel. Chair Landrieu. Senator Scott. Senator Scott. Thank you, Senator. I will make this a short question. Ms. Olafson, I believe there was a survey done by the NFIB earlier this year that found that the impact of the tax on providers, the $100 billion to tax, started, I think, next year. It starts at about $8 billion and it goes up over the years. If the small business community is, in fact, the economic engine that we see of recent, their survey suggests that private sector employment should fall about 146,000 to 262,000 because of the new tax. How is the Small Business Administration going to respond and how do we help change that direction? Ms. Olafson. So, thank you, Senator, for your question. You know, I think--and I cannot emphasize this enough. We have been hearing for years that access to affordable health care is one of the top concerns for business owners, and that as you have heard from many of us today, that often, historically, small businesses were paying as much as 18 percent more. And so, we know that there are many mechanisms and reforms within this law that help to bring down costs for small business, including the rule that requires insurance companies to cover--to spend at least 80 percent of dollars on health care, and the rate review mechanisms. As far as that particular provision you are talking about, I believe it is the health insurance assessment. I would certainly defer to my colleagues at Treasury for more nuanced information about that. But we know that--you know, we have been hearing this concern from the business community and the Affordable Care Act is helping to level the playing field for the first time for small businesses. Senator Scott. I would just suggest that having owned a business, and I was an Allstate agent for the last 14 or 15 years in business ownership, I will tell you that the notion that the ACA is somehow going to create a more competitive environment is inconsistent with the reality faced by many of the businesses that I have been talking to, and I quote one specifically, a guy named Gary Chastain, who owns a bunch of Moe's franchises in Charleston, when you talk to him about talking to insurance agents about what they anticipate on the market looking like, he gets six different answers from six different agents. So very consistently, the thing that seems to be most consistent about the ACA and its impact on small businesses is the lack of consistency that they are receiving. So I think we are in for a hard road as we see the inconsistencies of the Act, and its impact on businesses will be, I think, dire. Ms. Olafson. Well, and part of the challenge is, you know, really to make sure that business owners understand the facts, because as I have said before, we talk to business owners every day. There is still a lot of misinformation. I mean, a lot of business owners still think that they may be impacted by something like share responsibility without realizing sort of what are the exact facts around that. And that is our mission. You know, we are here to give that information to the hands of business owners, recognizing these are business decisions at the end of the day, but we need them to have the right information and the tools to make the best, most informed decision. Senator Scott. I think the fact that the regulatory environment seems to be still in creation is a part of the challenge that many business owners face today as it relates to the ACA and the inability to understand what has not yet been filled in on the pages of the regulations, perhaps, provides a great opportunity for discontentment than does the lack of clarity going forward on the plans that will be available, though that in and of itself is still uncertain as well. Mr. Iwry. Senator, may I? Senator Scott. Chime in, yes, sir, absolutely. Mr. Iwry. Treasury has issued a comprehensive proposed regulations on the employer responsibility provisions generally out of concern for the point you are making, that we do want small businesses and employers generally to have guidance that is clear and comprehensible and workable for them. And, Senator, we had four rounds of guidance in writing at the sub-regulatory level and then written comments on those concepts from the small and large business community and all stakeholders who were interested in the public process, and it was tremendously useful to get that feedback from small and larger businesses in order to enable us to put rules out that would enable them to go ahead and make their own best decisions about how to comply. Senator Scott. Yes, sir. I would say that I do not question the good intentions. There was some statement sometime about the road somewhere is paved with good intentions. I am not quite sure where that road leads, but I will tell you that from the folks--Senator Risch, you may know where that road leads. Senator Risch. I do. Senator Scott. Well, we will talk about that later. What we have learned, however, is that when you talk to business owners about the implementation and the challenges that they face, I spoke with a CPA just yesterday at a small firm with about four or five employees. And their coverage is leaving South Carolina because of the inability to understand the path forward. So the number of insurers available in states are becoming fewer insurers are available in states, not more, and I believe will cause more pressure on the rates in states. And so, you will see, in the end, higher rates. You will see the new health insurance tax, the HIT, coming into play which is only a pass- through down to employers that will help to pay for a part of their employees' premiums. And so, the pressure on small businesses will only increase. But I think I am out of time. Chair Landrieu. Yes, but thank you so much. I think it has been an excellent line of questioning and I think we have gotten some things very clear. As we go to the next panel, I want to just put some things into the record to clarify statements that were made, and if the Minority wants to put anything in addition to this record, because while we are all entitled to our opinion, as Chair of this Committee, I really would like to get some facts on the record about small business. The Ranking Member referred to a study. I am going to put the entire study into the record. It is here. The date on it is clear. The study focused solely on claims and not actuarial premiums which consumers will be paying. Kristi Bohn, the actuary who worked on the study, acknowledged it did not attempt to estimate the effects of subsidies, insurance, insurer competition, or other factors that could offset the increases. I am going to put the entire study in the record and some articles that were written about it. People can make their own determinations. [The information follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Secondly, I am going to refer to something that Senator Scott referred to. He talked about an NFIB study. We have some information about that I am going to submit. It says that the NFIB, the study that he referred to, was funded by the Group for Health Insurance Industry that worked on the repeal of the Affordable Care Act. [The information follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. And then thirdly, this urban study that I referred to, which is the average business with fewer than 50 employees, if they choose to offer coverage, would find cost per person reduced by 7.3 percent. I want to put into the record, this was done by four health economists, Linda Bloomberg, Matthew Buettgens, Judy Feder, and John Holahan, and that general spending as a group was reduced by 1.4 percent. [The information follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Now, if there is anything that you want to put into the record before we move to the next panel, Senator Risch? Senator Risch. Not at this point. Chair Landrieu. Okay. Thank you all very much and we will go to the second panel. Senator Johnson, if you will permit the Kaiser study, to put your Kaiser study reference in the record, please, the entirety of it. Now, members, I think we are going to have a vote at 4:30 or 5:00, so I am going to try to move this along as quickly as I can. I do want to give everybody an opportunity for questions, so we may just do three minutes, but let us see. We have a large panel that I am happy to hear because these are small business owners. If we could move as quickly as we can just because our time is getting short, I would appreciate it. So let me begin. We have six distinguished witnesses joining us for today's second panel. Thank you all for being here today. Let me start by just referencing and introducing Mr. Lawrence Katz. Senator Vitter will do a broader introduction in a minute. But he is from our home State of Louisiana. He is the owner of Dot's Diner with six locations in Louisiana. He is the President of the City Park, incoming President of City Park Board. I welcome him. I am going to turn it over to Senator Vitter for a brief introduction. Senator Vitter. Thank you, Madam Chair. First I want to recognize the testimony of another of our constituents, Hugh Raetzsch. He is not here, but his testimony is being passed out to members. Hugh is President of the Lyons Speciality Company in Port Allen, Louisiana, and his testimony not only represents his personal experiences as a small business owner, but also his experiences serving as the Chairman of the American Wholesale Marketers Association. And then, Madam Chair, as you said, I also certainly want to welcome, recognize, and introduce Larry Katz, the Founder and President of a great small business in Louisiana, Dot's Diner. And I think we will also see Larry's testimony goes right to the bottom line for small business, and it is very compelling. Larry and Dot's Diner are true Louisiana success stories. Seventeen years ago, he took his life savings and opening his first Dot's Diner restaurant, a small diner with about 20 seats. Through hard work and determination, Larry's business has grown to six locations employing about 85 employees, of which 65 are full-term. Through this expansion of the business, Larry has received numerous awards, including Best Diner in New Orleans and Best Value in New Orleans. His experience and the threats he now faces in terms of increased costs and mandates under Obamacare are exactly what is facing millions of small businesses throughout Louisiana and around the country. Chair Landrieu. David, try to make it brief. Senator Vitter. And so, I really appreciate his sharing his experience because it is better than any study, better than any press report. It really goes to the bottom line of what this means to small business. So thank you, Larry, for being here. Chair Landrieu. I would like to introduce Jim Houser. Mr. Houser opened Hawthorne Auto Clinic 30 years ago. Hawthorne Auto Clinic offers full health care for all 12 full-time employees and their families. He also serves on the Oregon Individual Employer Consumer Advisory Committee and he will share some of his story with us today. We are also joined by Jamal Lee, owner of Breasia Studios and Audio, Lighting and Video Production Company in Laurel, Maryland. Mr. Lee is going to share with us a heart-wrenching story about his wife and business partner of 30 years, suffered from a life-threatening illness, and how the Affordable Care Act has affected their business. Our next witness is Nancy Clark, a small business owner from New Hampshire. I will now turn it over to Senator Shaheen to introduce Ms. Clark. Senator Shaheen. Thank you, Madam Chair. We are very delighted to have Nancy Clark, who is from North Conway, New Hampshire, here today to testify at this hearing. Nancy is the owner and president of the Glen Group, which is a full-service advertising agency in a small town in rural New Hampshire. The company employs nine employees in North Conway and they all receive health insurance from the company, which has benefitted from the premium health care tax credit in the Affordable Care Act. In addition to her experience as a small business owner, Nancy brings a unique perspective because she is a member of the Health Exchange Advisory Board in New Hampshire. She is also a board member of the New Hampshire Business and Industry Association where she chairs a health care committee and served on the Executive Committee of the Mount Washington Valley Economic Council. So we are delighted to have you here and I look forward to hearing your perspective and the perspective of everyone who is on the panel. Thank you. Chair Landrieu. Kevin Settles joins us here today from Idaho. Mr. Settles is a small business owner who was appointed by Governor Otter to serve on Idaho's Exchange. I will now turn it over to my Ranking Member, Senator Risch, to do a further introduction. Senator Risch. Thank you, Madam Chairman. We are glad to have Kevin Settles here with us--Kevin, we are glad to have you here. Kevin owns Bardenay Restaurant and Distillery with locations in Boise, Eagle, and Coeur d'Alene, Idaho. He has been written up in USA Today, Wall Street Journal, many other publications. He has been on TV. In 2011, he was named the Idaho Restauranteur of the Year. More importantly than all of that, or at least equally as important with all of that, he is a member of numerous organizations dealing with small businesses. He is also a Commissioner for the Idaho Human Rights Commission, and a Board member for the Idaho Health Insurance Exchange that is attempting to make this monstrosity work. We thank you for your service in Idaho. Mr. Settles is angry. I am just really disappointed that the representatives of the Treasury Department, the Department of Health and Human Services, and the Small Business Administration, who just gave us all these glowing stories about how wonderful Obamacare is, could not stick around for just a few minutes to hear that that is all baloney and how this is actually working on the ground. Kevin, thank you for coming, and I know you are going to be very candid with us about your thoughts on this. Chair Landrieu. And our final witness today is William Dennis. Mr. Dennis is currently a Senior Research Fellow with the National Federation of Independent Business Research Foundation in Washington. As part of that employment, he spent five years as a staff member for the U.S. House of Representatives. And what member was that, Mr. Dennis? Mr. Dennis. Vernon Thomson from Wisconsin. Chair Landrieu. Great. Ms. Clark, why do we not go ahead and start with you? And if we could try to limit your opening remarks to four minutes each? You can submit it to the record. If you could summarize your remarks so we can really get our questions in? STATEMENT OF NANCY CLARK, PRESIDENT, GLEN GROUP, INC. Ms. Clark. Sure. Thank you very much for the opportunity to be here. I can tell you, I am part of the 96 percent. I am the 96 percent that has benefitted from the Affordable Care Act. I have nine employees. I am currently recruiting for two more, which is fantastic, and I have long been an advocate of the improvement in our health care system, because as a small business owner, I really believe that a healthy workforce is a more productive workforce. And that helps me ensure the success of my business and allows me to continue to retain jobs and create new jobs. I absolutely believe that health care should be a right, not a privilege. So I instituted a health care plan when I bought my business in 1997 and have never, ever considered not offering that, even in the darkest hours of the recession, and my industry like many others got hit pretty hard. When we literally had to turn down the heat and shut off the lights, health care was never, ever on the chopping block. And it is a big expense for me. That is a struggle. Short of payroll, it is my second largest expense. But the good news this year, after seeing six years of rising premiums, my premiums actually went down for every single employee including the family plans. So that, to me, is a really nice step in the right direction. And I am a supporter of the Affordable Care Act because I believe it is a step towards a solution. It is a proactive step towards no matter what side of the aisle you are on, it is a step towards fixing the health care system in our country. And what matters most to me is that we are moving forward. We are taking these steps forward and we are continuing to provide a mechanism so that small employers can offer health care. And I have taken advantage of the tax credit ever since its inception three years ago. Now, it has been about $1,100 each year, which is not meaningful to a lot of businesses, but it is to mine. And it is meaningful to me for two reasons. One, because we had a rough few years, and so it has contributed to the bottom line of my business. We are not quite break-even yet, but we will be in 2013. And secondly, as I mentioned just a minute ago, it is meaningful because it truly helps businesses where it matters most, in our bottom line. But thirdly, I hope once I break even that I can give it back to my employees, which I believe was the intent of the tax credit, that I can help offset some of their expenses. So I am very pleased that I was appointed to the Health Exchange Advisory Board in New Hampshire, both as a small business member, but also I was appointed as a consumer member. And we have this diverse great group of people on that Board and we are all committed to implementing the exchange component of the Affordable Care Act. So I am delighted to be a voice at that table and to encourage those initiatives to improve our health care in the U.S. So thank you so much for your time today. I do really look forward to answering questions you might have as a real business, boots-on-the-ground owner in the store. So thank you very much for your time. [The prepared statement of Ms. Clark follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you, Mrs. Clark. Mr. Lee. STATEMENT OF JAMAL LEE, DIRECTOR AND CHIEF ENGINEER, BREASIA STUDIOS, LLC Mr. Lee. Okay. Thank you so much. Thank you so much, Chair Landrieu and Ranking Member Risch, as well as the Committee members. It is an honor and a pleasure to be a part of this. This is an opportunity that allows us to speak our words about very serious issues, this particular issue. So my name is Jamal Lee and I am the owner of Breasia Productions. We are an audio, lighting, and video streaming production company in Laurel, Maryland. I also sit on the Network Council for the Small Business Majority. The Small Business Majority is a national small business advocacy organization that works to find solutions for the larger problems that smaller businesses face today. I volunteer my time and entrepreneurial expertise to help the Small Business Majority find pragmatic solutions to many issues concerning small businesses today. That is kind of what I wanted to talk about today. I started my career in movie production in movies like Runaway Bride and Wedding Crashers, and I worked my way up to be the head audio producer and engineer for the Washington Nationals baseball team, and then I eventually opened up Breasia Productions, which has been enormously successful at this point. Although Breasia Productions has gained a lot of recognition in regard to the kind of work that we do for the MEs and the inaugural galas and things of that nature, a feature on Oprah Winfrey and that sort of thing. But as a new business owner, I knew I could not afford $400 to $600 in premiums for health care for my employees. With great regret, I chose against, at the time, having health insurance because the prices were astronomical, in my opinion. In fact, I did not have coverage since college in my mid-20s or early 20s. When I needed a medical procedure done, I actually left the country and flew to a neighboring country to have my procedures completed. And I would vacation and I would shop and I would dine and I would have the procedures done and it would still be less, the whole trip would be less than what I would pay for the procedure here in my own backyard. That is a hard pill to swallow for me because I am a patriotic and I love my country. I believe we live in the best country on the planet. I considered it a blessing to learn of Governor O'Malley's Working Family and Small Business Health Care Coverage Act of 2007. I was eligible for the small business grant that helped me to make health insurance more affordable, and I am fortunate to live in Maryland. Maryland is a state that has made small business coverage a priority. Beyond this, for me, it is very personal, this entire issue because of my business manager, Nailah Govern. She fell ill last year and she needed emergency surgery, and I found her face down on the floor and she was gasping for air. In fact, she was dying. The doctor said that if I had not rushed her to the hospital when we had gotten her there, that she would not be with us. Without the Affordable Care Act, she would have been, I believe, shifted around from medical system to medical system receiving--not receiving the immediate treatment that I believe she required at the moment. Because of that support of the affordable health care, today she is with me and I actually made her my wife. I think she had to marry me because I saved her life. So in all that to say, I really appreciate the time that we have here today. Ask any questions. We are right in the midst of the firing squad, if you will, and it is difficult, but we are here to help grow the economy and build our workforce, and I believe that we are the backbone of the economy right now. So we really need the assistance of what we have in place. Thanks. [The prepared statement of Mr. Lee follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you, Mr. Lee. To make this more fair, you all sat sort of pro and con. I am going to go to Mr. Settles and then come back. So, Mr. Settles, please proceed. STATEMENT OF KEVIN SETTLES, PRESIDENT AND CEO, BARDENAY RESTAURANT & DISTILLERY Mr. Settles. Chairwoman Landrieu and Ranking Member Risch, members of the Committee, I would like to thank you for your time today. My testimony today will focus on some of the issues that my company has been struggling with while trying to understand the health care law. I want to ensure that my company, Bardenay, is fully compliant with the law while remaining healthy and vibrant. These issues are the definition of a full-time employee; (2) employee classifications, and that is full-time, part-time, variable hours, seasonal; (3) auto-enrollment; and (4) non- discrimination rules. After more than three years, there is still a tremendous amount of uncertainty surrounding the laws. This uncertainly has been a key factor in extending the longest time period without expansion in all my years as an independent businessman. Bardenay is operated for the long run. We do not make long- term commitments to unmanageable expenses, and we cannot know how to manage for PPACA until all of its rules are known. While the law's definition of a full-time employee of 30 hours has been published for some time now, how it actually applies to my operation is trickier to calculate. My restaurants are very busy places and it takes a well- trained staff of restaurant professionals to make them run. We are also very much affected by the seasons. The number of people it takes to run my restaurants in the winter is much lower than in the summer. While we do hire some people to work just through the summer, we have many more that want to work year-around, but vary the hours that they work to fit the seasons. This is where the Federally defined classifications of full-time, variable hour, and seasonal come into play. These rules will affect our ability to allow our employees to have the variable hour schedules that they find so attractive. The hours they work are often based upon their needs. Maybe they are returning to college. We have a lot of parents who are splitting child care duties. This is the freedom that has caused a number of my employees to decline health insurance because to get it through my company, you have to work a fixed schedule and that does not fit their lifestyle. And in our industry, lifestyle is a critical factor in attracting employees. It is our ability to use the work schedules to determine--pardon me. Our ability to use it when determining work schedules is diminished under the law. With the significant added cost to insurance and penalties for not offering it, we cannot let them inadvertently slip between part-time and full-time. Since many of our employees like to work about 30 hours a week, their schedules will have to be managed very closely. When it comes to auto enrollment, this is the specific provision that has stopped me from looking at expanding. While I now know that we are exempt from it for now, it is the uncertainty regarding how this rule would be applied, combined with not knowing what a policy is going to cost, that has stopped me from looking into expansion. As an employer, life gets a lot more complex when you pass 50 full-time equivalents in employees. I have discussed this issue with the CEOs of the three largest health insurance providers in Idaho and they have confirmed that you need to be covering at least 400 employees to get the best rates. For now, Bardenay is subject to the requirements to offer coverage under the health care law, but we do not qualify for the best rates and yet, we are too large to take advantage of the Exchanges that are being set up. When it comes to the non-discrimination rules, I have to be careful that I do not offer a better policy to my CFO, who has an M.B.A., than I do to any other employee. Today's restaurants are very sophisticated businesses and its employees must have a variety of skill sets for it to succeed. Restaurants are the place where many people learn to work. Our staff varies from young people, working their first job, to industry veterans with college degrees. I need to ensure that I can retain my highly skilled staff by providing them with the benefits that they expect. To meet the law's requirements, we may end up asking participating employees to contribute financially. The law allows for this and sets out the terms for calculating the maximum employee contribution. The danger is that we need a certain percentage of the eligible employees to participate or the carrier will decline to bind coverage. In Idaho, that rate is generally 75 percent to 80 percent of the eligible people that will have to participate. Since the law has passed, Bardenay has thrived, yet we have been conservative in our actions. We have sat on the sidelines and worked on our internal system so that we are ready to grow if that still seems prudent once we know the full impact of the law. Chair Landrieu. Can you try to wrap up, Mr. Settles? Mr. Settles. In closing, I would like to state that I am not against offering health care coverage. We have offered it to our salaried staff since shortly before we opened and we picked up 100 percent of the cost. Since the health care law has passed, the cost of that policy has doubled, and it would have gone up higher except we have allowed the deductible to triple--actually, it has gone up fourfold. So that kind of price increase is not sustainable. More than three years after the law's enactment, we still do not know if it will make it easier for employers like me to cover more employees or not, and we do not know--for those of us with the goal of growing a business, and the thing has just gotten much more complex. Thank you. [The prepared statement of Mr. Settles follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you. Mr. Katz. STATEMENT OF LAWRENCE K. KATZ, PRESIDENT AND CEO, JOMAR CAFE, INC., DBA DOT'S DINER Mr. Katz. Good afternoon, Madam Chair Landrieu, Ranking Member Risch, and the other distinguished members of the Committee. My name is Larry Katz and I am the owner of the Dot's Diner Restaurant Group based in Metairie, Louisiana. I would like to thank Senator Vitter for his invitation to appear today. While there is no question that the Federal Government needs to reform and strengthen our health care system, I believe that the law as currently written will negatively impact job growth, start-up expansions, and raise prices, not just of health care, but of all products and services that we buy. It certainly has had a direct effect on my company, and I anticipate it will leave me in a position of being less competitive than other local restaurants going forward. I will detail these observations, but first of all let me tell you a short history of Dot's and me. After college, I moved to New Orleans and took a job with a clothing manufacturer, eventually becoming President. In 1996, the company was sold. Not wanting to continue with the new concern, my dream was to own my own company. I cashed in my whole life insurance, calculated credit card availability, and emptied my entire savings into my dream. With less than $200,000, I opened the first Dot's Diner Restaurant. Well, fast-forward 12 months. I had stopped sleeping, was down to less than $10,000 in savings, and at that point, I had just a few options. Second-mortgage our home or declare bankruptcy. The third option of admitting to my wife that I had made a mistake was off the table. By the grace of God, perseverance, and some good luck, we broke even that week. It was in April 1997 and I can remember the day like it was yesterday. The following week we made a few hundred dollars and the tide had been turned. Today I own six diners, employ 85 people, and I am proud that I constantly get calls from landlords asking us to consider opening a store in their area. We offer paid holidays, vacation, dental, vision, term life, and health insurance. We currently employ 65 FTEs and, thus, will not be able to benefit for most of the subsidies and tax credits offered to similar companies under the ACA. And in addition to not benefitting, we will be hurt by virtue of being over the 50 employee limit. Smaller restaurant companies will now have their employees covered by the Exchanges at little or no cost to them, while larger companies generally offer health insurance and will not be impacted as much. Well, we are caught in this unintended donut hole and, thus, will be saddled with the options of either dropping our current health insurance plans and pay the penalty, or cover 100 percent of our employees and incur its result in much higher cost. While I have, unfortunately, made the decision to quit offering coverage as soon as the employer mandate kicks in. As the penalty, while huge, is less than the cost of offering the required coverage to all of our employees. So beginning January 1, 2015, my employees and I will become part of the Federal system and the company will be saddled with a $70,000 after tax penalty. At inception, I will be forced to raise my prices between 2 and 3 percent to cover these expenses. The biggest issue to me, though, is the two major business decisions I am facing. One option is either selling or closing the two least profitable diners. This action would jettison 12 FTEs. At that point, I would juggle the hours of the remaining employees to get us under the 50-person limit. And sadly, I have made the calculation that the corporation would be better off if I were to do exactly this, as the penalty owed would be less than the profit I would lose if I were to close them. So is it not a shameful position to be put into? I, the business owner, am now forced to put 16 people out of work just to save himself from the negative effects of the ACA. Fearful of the future, I am also currently in the process of having Dot's valued and will consider selling the entire company based on what I learn from this evaluation. So after 17 years, the first few facing bankruptcy, the next eight investing 100 percent of our profits back into the company to fuel growth, I now strongly am considering getting rid of my life's work and dream. As to expansion, that option is off the table. I want no part of adding employees over the 50-person limit. I recently went to look at a new restaurant location. The rent, the demographics would be perfect. My instincts tell me that it would be our best location, and with all that, I decided not to open a restaurant there. Why? Because I determined that the prospect of adding 15 more employees and permanently assuring myself of being over the 50-person employee limit would be more harmful than the profits I might gain from opening the diner. So in conclusion, with all the benefits that one side of this Committee truly believes will happen, I wanted to point out the very real side effects to this Act, the loss of jobs, the raising of prices, no expansion, and the forcing of employees into the Federal Exchanges. Thank you all for the opportunity today to speak about this critical issue facing our country and its small businesses. [The prepared statement of Mr. Katz follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you, Mr. Katz. Mr. Houser. STATEMENT OF JIM HOUSER, OWNER, HAWTHORNE AUTO CLINIC, INC. Mr. Houser. Thank you, Chair Landrieu, Ranking Member Risch, and esteemed Senators. My name is Jim Houser. I am an ASC certified master automotive technician and co-owner of Hawthorne Auto Clinic of Portland, Oregon. I am also co-Chair of the Main Street Alliance of Oregon, and a member of the Executive Committee of the Main Street Alliance National Network, a nationwide network of state and locally-based small business groups. When my wife and I opened Hawthorne Auto Clinic 30 years ago, we made the commitment to offer those who worked with us a good benefits package, including comprehensive health insurance. We are in a high skill field where being able to offer good benefits to keep good people is very important. We would not want our best customers to even think of going anywhere else, and the same holds true for our staff. The business case for our decision to offer full health insurance coverage is underscored by the fact that the average tenure of our full-time staff is now almost 20 years. Plus, we are an aging profession. These factors make health care coverage critically important for the success of our business. Before the Affordable Care Act, in many ways, the health care cost dilemma for our business resembled the case of the proverbial frog in the pot of cold water gradually heated. By 2009, health care costs for our nine full-time employees and their families had doubled in just eight years, to equal over 20 percent of payroll. That year we paid over $100,000 for our insurance coverage. This increase far exceeded increases for any other business cost and was not possible to pass on to our customers. Clearly, we could not cut our employees' pay by passing the cost on to them and still expect to retain the loyalty we had earned over the past many years, so we kept paying even as rates rose rapidly, often by double digits, from one year to the next. Now, however, we have seen a reversal of the trend of skyrocketing rates that we had absorbed from 2000 to 2010. In 2011, and again in 2012, for the first time in my memory, our health insurance premiums actually declined and by over 3 percent. In Oregon, 22 different insurance carriers have applied to and been accepted by Cover Oregon. That is our Exchange. And many of these carriers have already lowered their premium requests in order to match the competition created by our new Exchange. I have the privilege of serving on the Consumer Advisory Committee of Cover Oregon and I am proud that we are setting an example for how the Affordable Care Act, when fully implemented, can help small businesses and consumers afford quality coverage. Rate review rules are giving states new tools to protect small businesses and other insurance customers from unreasonable rate increases. United Health customers save $274 per person when the Oregon Insurance Commission knocked back their 16 percent proposed increase to 10 percent. The 80/20 Rule is ensuring that small businesses get real value for our premium dollars. Requiring insurers to issue rebate checks when they fail to spend at least 80 percent of premiums on medical care, has returned millions of dollars to consumers throughout the country in the form of lower premiums and rebates. In Oregon, Regents had to return $499 per rate payer. Thanks to the law's small business health care tax credit, our business received a credit of $12,900. The Kaiser Family Foundation reports that the percentage of employers with between three and nine employees offering health care coverage has risen from 46 percent in 2009 to 59 percent in 2010, in part due to the small business tax credit. Here is the bottom line. The Affordable Care Act has been like a time machine for our small business. Insurance premium decreases, combined with the small business tax credit, have rolled our health care costs to what we were paying in 2007. Our customers have been returning, our business has been slowly recovering from the recession, health insurance pricing certainty has now enabled us to add two more full-time employees, including an Afghanistan war vet, an almost 25 percent increase in our prior staffing. We cannot go backward, we must go forward, and thank you very much. [The prepared statement of Mr. Houser follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you. Mr. Dennis. STATEMENT OF WILLIAM J. DENNIS, JR., SENIOR RESEARCH FELLOW, NATIONAL FEDERATION OF INDEPENDENT BUSINESS Mr. Dennis. Thank you, Madam Chairman, Senator Risch, members of the Committee. On July 2nd, the Administration announced a one-year delay in the reporting requirements of the employer mandate, and hence, the mandate itself. I think the first small business reaction was one of relief. Small businesses were pleased because there has been so little specific information from which to make concrete business decisions. The law is complex. There are many non-decisions, important provisions of the law on which there has been no guidance, no regulations. And the communication has been terrible, quite frankly, for the small business population. But there was a second reaction and that second reaction was that nothing has happened. The substance has not changed. The lack of confidence, which is continuing to dampen economic output, in part caused by the uncertainty surrounding ACA, has not changed either. So small business continues with minimal hiring, minimal investment, and not performing particularly well economically. The one thing the delay did was provide an opportunity to assess the problems and make revisions to the Act itself, and I hope you will take the opportunity to think about some of these things. I have listed just five potential issues. Some of the gentlemen here have also listed some as well. I do not want to repeat, so let me just say first, the definition of full-time, part-time is an obvious issue, both for employers large and small, and employees as well as employers. I also have some questions about Section 6055 and Section 6056, reporting requirements that Mr. Iwry made some comments about. There have never been any rules put forward on these sections, but the law lays out substantial reporting requirements. Clearly, those that must offer are covered by the mandate. However, we also think that small employers who are not covered are going to have substantial reporting requirements because the information they have is necessary for some other parts of the Act. So if someone else is going to provide the information, fine. We will be more than happy. But I will believe it when I see it. Business aggregation rules. I think this is the sleeper. Few know about them. The issue is what is a single business, and in a sense, it is quite simple. If I own a business here and if I own a business there, I just add up the employees for purposes of ACA. If I am over 50, I have to offer. The problem is that there are many businesses that have multiple owners and many owners have multiple businesses. So that leaves us to the tender mercies of the ERISA rules, and the ERISA rules are some of the most complex we have, requiring very fine interpretations by employee benefit specialists. I do not know where small business owners are going to get advice from that. We have the $100 billion HIT tax. If you can believe it or not, this was an idea to make insurers pay for extra business that was generated by ACA. The practical effect, however, is to pass those costs on to those in the small group market. Now, do not trust me. The Joint Tax Committee, the CBO, and most economists will tell you that. We tax only those offering small firms, precisely the firms that we want to encourage. Precisely the behavior we want to encourage we are taxing. Chair Landrieu. Try to wrap up, please. Mr. Dennis. Okay. In essence, the primary issue about this is cost, and I am sure we will talk a little bit about health insurance cost and how we get to it as we proceed in the discussion. Coost clearly remains a problem. Thank you. [The prepared statement of Mr. Dennis follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Chair Landrieu. Thank you all very much. There still have not been votes that have been called. I intend to try to keep this hearing open at least until 5:00 or 5:15, if that is okay with the members. We are just going to go through a round of questioning three to four minutes each and we will try to do the best we can. Mr. Katz, let me start with you. I really, really appreciate the story of which you have built your business, and as I opened my--I mean, the risk that you took to open your business and the success of your business in Louisiana, we are very blessed to have so many people like you in our state that are working hard. When I opened this hearing, I called out specifically that you would be, I think, in this group of businesses in Louisiana. There are 67,000 small businesses with fewer than 50 people that will not be affected at all. You referred to those in your testimony. And then there are 3,800 businesses, yours included, that have between 50 and 249 employees, and you fall in that group. Now, you testified that you did provide health insurance to your--and dental and vision. I read your testimony. Did you provide before the Health Insurance Act, insurance for all your employees or just a portion of your employees? Mr. Katz. We offer it, Senator. Chair Landrieu. You offered it before the Affordable Care Act? Mr. Katz. Some of the benefits we pay for. The health insurance is the employees' options. Chair Landrieu. So try to clarify that. Mr. Katz. Sure. Chair Landrieu. You did not provide health insurance for your employees before? Mr. Katz. We do not pay 100 percent of it. The ones who elect to take it pay about a third. We pay two-thirds. Chair Landrieu. Okay. So for those that chose to pay it, they paid a third and you paid two-thirds---- Mr. Katz. Correct. Chair Landrieu. [continuing]. Before the Affordable Care Act. And what percentage of your workers chose to participate? Mr. Katz. Of the eligible workers, today it is about 50 percent. Chair Landrieu. So 50 percent did not, for whatever reasons. They did not think they could afford it? Mr. Katz. Some were covered by their spouse. Chair Landrieu. Some were covered by their spouse, et cetera, et cetera. Mr. Katz. Either they could not afford it. Chair Landrieu. I want to acknowledge that even as the ACA passed, I had some, you know, serious concerns about the group of companies like yours that would get caught. It is a small number, but it is an important number, between 50 and 240. As you said, the larger companies can take advantage of the lower rates for groups. The smaller companies will be able to pool their assets through the Exchange. And then companies like yours will have a challenge. So I am going to really read the testimony that you have submitted to this and see if we can come up with some solutions to help you all, because we most certainly do not want businesses to close, we want businesses to expand, and we want to be very focused on some of the issues that you raised. Mr. Settles, let me ask you this. You did testify sort of in opposition to the bill. I want to just be clear that in your testimony, though, you did serve on the Idaho Health Care Law. You did advocate for the creation of the Exchange. Have you changed your position or could you try to clarify that for me? Mr. Settles. Chairman Landrieu---- Chair Landrieu. You advocated for the creation of the Exchange? Mr. Settles. I did. You know, historically, Idaho has had some of the lowest health care rates in the Nation, and so it did not make any sense to me to let an organization that had much higher average rates take over our state system. So I was very involved in the Governor's task force that looked into this. Although we still, we lose a lot of control, we are able to make a few decisions that we think can help us drive down the cost. An example of that is that--there are fewer participating in the Federal Exchange, there is a 3.5 percent fee that is attached to all policies to help cover that, and they are not just the policies in the Exchange because all policies have to be priced the same in and out of the Exchange. In Idaho, we set that at 1.5 percent and we are hoping we can drive it lower. Chair Landrieu. So by setting up your own Exchange as opposed to sitting on the sidelines and letting the Federal Government do it, you were able to drive down cost? Mr. Settles. Absolutely. You know, you have people that are saying, Well, we are just going to kill this thing, but I am a business owner that has a significant out-of-pocket cost as this thing goes forward, and I cannot just stand back and say, I am going to kill it. I am going to be there to try and minimize the cost and take---- Chair Landrieu. And try to make it work? And I think that is admirable. How many employees do you have? Mr. Settles. We issue about 200 paychecks every pay period, but about 60 of those would be considered full-time under the law. Chair Landrieu. Okay. My time has expired. Senator Risch. Senator Risch. Thank you. First of all, Mr. Katz, your story is compelling. I cannot apologize for the Federal Government. If I could, I would. We could have killed that bill with one vote in this body. One vote would have stopped that bill from becoming law and you would not have had to have been in the position that you are in. It is really heartbreaking to hear what you went through living the American dream and now winding up in the position that you are in. Mr. Settles, so that we do not leave any question about this, there was a dynamic argument in Idaho whether or not to adopt the state Exchange, is that right? Mr. Settles. Oh, it was ugly, very dynamic. Senator Risch. Even the people that voted for it did not really want it, but the Federal Government told them, they said, ``Do you want to be shot or do you want to be hung, either way, you are going to have an Exchange.'' Is that a fair way to look at it? Mr. Settles. You know, it was the Supreme Court ruling when you finally heard a lot of people say, Okay, we do not like this, we are going to plug our nose and vote for it. Senator Risch. Do what we have to do to---- Mr. Settles. Yes. Senator Risch [continuing]. To cut our losses. People in Idaho were pretty happy, were they not, with what they had compared to what they are facing now. Is that a fair statement? Mr. Settles. You know, like I said, historically, mandates are what make a policy more expensive. Our neighboring state has over 100-something mandates added to their policies, things that have to be covered. We had four total. That is about as low as you can get. So under health care now, we have to add some things that were not in. Every policy in our state is going to have a component for pediatric dental. I have not had a baby tooth for years. But it is built into the cost of all policies. So those are the kind of things that we really want to try and have some control over. Senator Risch. And this business about being able to keep your policy if you like your policy, that is all out the window. Mr. Settles. Well---- Senator Risch. That was a joke, I guess, at the time it was promoted. Mr. Settles. I actually asked the CEOs of two of our largest carriers. The day before I flew out here we were in a meeting for the Health Exchange Board. They actually have a fair number of clients that have the Legacy policies. For me, the first year it passed I was looking at a 50 percent increase if I did not do something. So I gave up the right to have a Legacy policy. What is the advantage of having a Legacy policy if you are going to be subject to those kinds of price increases every year? Senator Risch. I am told that with the Exchange being set up, there are some issues with choice, that there is only going to be one choice of plan. Am I right or am I wrong on that? Mr. Settles. You know, I think that our carriers are going to be very competitive getting into the market, and the choice part, there is a component under the law that allows Exchanges to be set up so an employer could allow their employees to choose a certain metal plan, silver plan, but from different carriers. I am not sure I really see the value of that. It is called dis-aggregation and it is one of the first things that was backed away from the Federal Exchanges because it is so hard to manage, because then all of a sudden you start to figure out, how does the money get from the person paying the policy to the insurer? Does it start to have to flow through our health Exchange? And if our health Exchange actually has to start collecting premiums, it becomes a much bigger monster. Senator Risch. Mr. Settles, on behalf of all Idahoans, thank you for trying to diminish the tremendous damage that has been done by this law. Thank you very much. I yield back my time. Chair Landrieu. Senator Shaheen. Senator Shaheen. Thank you, Madam Chair. Mr. Settles, I was interested in your comment about pediatric dental coverage because I do not have any baby teeth either, but my grandchildren sure have a lot. So I assume that the policy you are referring to would require coverage for children as opposed to adults, but that everybody might be paying towards that. Mr. Settles. When they start to--when they calculate what they want to charge for a plan, they have to figure out all their potential costs, and because of the--the plans have to be like-like inside and out of the Exchange, et cetera, the discussion has been, Well, this plan has to have pediatric dental, so we have got to bury it in there. If this plan has to cost the same, then it has to be in all policies. And so, maybe they will drive down the ultimate rate for pediatric, but everybody picks it up. It is just like the 3.5 percent. You are paying to support the health care Exchange whether you can use it or not. Senator Shaheen [presiding]. You know, listening to the panel, it really struck me that this is a law that is working very well for some people, to the extent that it has been implemented to date, and for other people it is not working very well. Mr. Settles and Mr. Katz, I can tell you that many of the concerns you have raised I have heard from small business people, particularly in the hospitality industry in New Hampshire. I guess my hope is that we can look at what is not working very well and try and address that in a way that is much more positive, but recognize that the system that we had sure was not working for an awful lot of people. It was not working in terms of coverage and it was not working in terms of cost. In a lot of places, it was not working in terms of quality either. So that is certainly my hope going forward and that is what I intend to work on. But let me go back to you, Nancy, and I wonder if you could talk about the--you talked a little bit about this in your statement, but the challenge of health care costs in general as a small business. What other options, in the absence of ACA or some other option to address health care costs, how you would try and control that and whether you would be able to stay competitive without some way to control health care costs. Ms. Clark. I can--I would control my expenses other ways. I have no--I had no control over health care costs at all. It was a necessary evil to doing business. So that is why I was delighted that my premiums went down this year. But in order for me to be competitive as a professional industry in rural New Hampshire, I have to offer that as a benefit, likewise I offer 401(k) as well. But I control other expenses, not health care, but as I said, this year, and I am positive about the Exchange offering more choice down the road. Thank you. Senator Shaheen. And can you talk a little bit about-- because the earlier panel talked about some of the efforts under way to make sure that businesses know about what is in the health care law and how to take advantage of what can be helpful and how to understand other requirements. Can you talk about how you learned about the tax credit and how hard that was to implement? Ms. Clark. How I learned about the tax credit is because I am so involved in health care and fixing the health care system. And I have an accountant who does my taxes, so it is not at all hard to implement, for him at all, and if it was hard for him, I would have moved to a different accountant. So we hire experts. I hire people that are smarter than me. So yeah, it has not been an issue at all. Senator Shaheen. Thank you. Thank you, Madam Chair. Senator Vitter. Senator Vitter. Thank you. Thank you again, Mr. Katz. I think your testimony went right to the bottom line of a lot of small businesses. I would like to ask you to summarize what you went over in terms of the unfortunate cut-backs, sales, a possible closing two restaurants you are facing. And then spend more time, focus on a different category. If these impediments and costs did not face you, absent the Obamacare law, what would you probably be doing in terms of opportunities, in terms of the new location you described, et cetera. Mr. Katz. Well, I think along with Mr. Settles, I would be aggressively expanding at this point, Senator. Part of the problem is the cost. The other problem is the uncertainty, and we just do not know. And the issue--my concern today is, I almost think it is a house of cards, because we know the penalty is going to be $2,000, but it is irrational to think that it is going to remain that. And so, if I have to put my faith in myself to keep me in business or the Federal Government to not set rates to put me out of business, I am going to make my own decisions. And so, we have talked about it a little bit, but the global issue to me is, I never--I grew up thinking to be in the 96th percentile was good and the 4th percentile was bad, and I never knew how true that was until I have heard today, because I really want to get into the 96th percentile and get out of the 4th. Chair Landrieu. [presiding]. I would like to help you. Mr. Katz. And whether, if it cannot be done away with, whether that is increasing the definition of what a full-time employee is, maybe expanding to help some of these small businesses. The biggest issue to me is what I am faced with. You get the 48 or 49 people, do you want to go any higher? Do you want to hire anyone? Do you want to open another business? And you have got to have an awfully profitable business in order to say yes to that question. So my 15 or 16 employees, it is a crime, but that is going to happen tens of thousands of times. There are lots of people like me making these same decisions today, and that is my biggest concern, is what is going to happen going forward. Senator Vitter. Thank you. That is all I have. Thank you. Chair Landrieu. Senator Rubio. Senator Rubio. Thank you. Mr. Katz, I, too, am inspired by your story. It really is the epitome of what it means to succeed in America. This story is amazing. So you basically cashed out your life insurance, you took out your credit card availability, you emptied your life savings, and with that, you opened these restaurants and then you struggled at the beginning to make it. But today, you own six diners, you employ 85 people, 65 of them full-time, right? Mr. Katz. Correct. Senator Rubio. And you offer them today paid holidays, vacation, dental, vision, term life, and health insurance? Mr. Katz. Correct. Senator Rubio. Is it correct to say your employees are happy with that coverage that they are getting? Mr. Katz. I think so. We have very low turn-over for our industry. Chair Landrieu. It is 50 percent that have it. You offer it, but 50 percent have it. Mr. Katz. Correct, correct. Chair Landrieu. But the other 50 percent do not. Mr. Katz. Well, most of them are ineligible because of the hour requirement, Senator. Chair Landrieu. But they do not have--50 percent of your employees have it, 50 person do not. Mr. Katz. Yes. I would think a percentage of those do. Some of are covered by Medicaid. Some have other ways, through their spouses, of having coverage. Chair Landrieu. But they do not have your coverage. Mr. Katz. They do not have my coverage, that is correct. Senator Rubio. But the point is, you have a large number of employees that are currently covered by health insurance and are happy with that insurance? Mr. Katz. Correct. Senator Rubio. Okay. When the mandate kicks in, what are you going to do with that insurance? Mr. Katz. Day one, I am going to have to drop it. Senator Rubio. Okay. So is it fair to say that these employees that now have coverage and are happy with it are no longer going to have that coverage? Mr. Katz. Not through our company, correct. Senator Rubio. Earlier I heard statements made that that would be a choice, that people would make that choice. So let me ask you, were it not for Obamacare, would you have made that choice? Mr. Katz. No. We would have continued it. Senator Rubio. You have also discussed in your testimony, in your written testimony that I have read, about some of the decisions you are going to have to make. You described that one of your options is that you may have to close or sell two of your diners, right? Mr. Katz. Correct. Senator Rubio. Is that because of Obamacare? Mr. Katz. Correct. Senator Rubio. How many people would that--how many people will lose their jobs if you have to make that decision? Mr. Katz. Sixteen FTEs will get me to 49 and that is apparently the magic number. Senator Rubio. So 16 people may lose their jobs if you have to make---- Mr. Katz. Slightly more than that because some of those are going to be part-time people. Senator Rubio. So is it fair to say that 16 people could potentially lose their jobs because of Obamacare? Mr. Katz. Well, it is not just fair. It is an accurate statement, sir. Senator Rubio. And you also, like most businesses, would like to grow, right? Mr. Katz. Correct. Senator Rubio. In fact, you have identified a location that you may want to expand to, right? Mr. Katz. Correct. Senator Rubio. And everything you know about your business tells you, I should expand, this is exactly the right location? Mr. Katz. Correct. Senator Rubio. Are you going to do that? Mr. Katz. No, sir. Senator Rubio. Why? Mr. Katz. Because that will permanently--if I add 15 people, the after-tax penalty is going to be $30,000. So you are looking at roughly $42,000, $45,000 in profit that is going to go to that. I am looking at--my gut tells me it will be good. It could be unsuccessful. But the least, it might make us $40,000, $50,000. So I am looking at the option. Do I want to open a restaurant, invest a half million dollars or more to make $50,000, $60,000, $70,000 knowing that almost 50 of that is going to go to the Federal Government? So the odds are not in my favor. Senator Rubio. If you open that new restaurant, how many new people would you hire? Mr. Katz. Fifteen to 20 people, at least 15 FTEs. Senator Rubio. Okay. So there is a new business that is not going to open at least because of Obamacare? Mr. Katz. Correct. Senator Rubio. And there are 15 or 16 people that are potentially unemployed today or looking for a job that will not be able to find one because of Obamacare? Mr. Katz. Correct. Senator Rubio. There are 15 or 16 jobs that are not going to be created because of Obamacare? Mr. Katz. Correct. Senator Rubio. Had it not been for Obamacare, you would have probably created those jobs? Mr. Katz. Yes, Senator. Senator Rubio. Okay. Thank you. Chair Landrieu. Thank you, Senator Rubio. I would just mention that there are three other businesses that are expanding because of the Affordable Care Act, one that is decreasing, and Mr. Settles, we are not sure what you are doing, but you are just trying to make it work in Idaho, and Mr. Dennis, you are opposed to it completely. This has been a very, very instructive panel and I really do appreciate all the witnesses here testifying. Senator Risch. Madam Chairman, to comment---- Chair Landrieu. Could I finish, please? I really appreciate all the businesses that have testified, you know, how it is affecting you positively, how it is affecting you negatively. It is a debate that is continuing to go on in this Congress. As the Chair of this Committee, I really hope that we can continue to improve on a law that will provide, hopefully, affordable insurance for every family and every business with the shared responsibility for individuals, for business, and for the Government. So I thank you all very much. Senator Risch. Senator Risch. Madam Chairman, you know, I think it is a shame and really an embarrassment for the United States of America when the Federal Government passes laws that create winners and losers in the marketplace. It ought to be governed by the marketplace. It ought to be free people. It ought to be Americans that decide this, not the Federal Government doing this. I am glad to hear that you want to help do something about this. You can help us move this to where we do no harm. Let us go back to what we had, which does not do the harm that has been described by these people here. The situation in America today is that it is just disgusting that the Federal Government having botched this as badly as it has. And we are going to work at it. Thank you all for what you do in the free enterprise system. God bless you and keep up the good work. Chair Landrieu. Thank you, Senator Risch, but we are not going to go back to the time before people had affordable insurance, and there are many businesses that are growing and expanding their employment because of this Act. There are some glitches that need to be fixed. There are some, probably, good ideas. Mr. Katz suggested a few. We are going to follow up with you to see how that is done. We will not go back to a time when businesses cannot afford insurance and cannot grow because of it, or lose their coverage because they get sick or they have a disabled child and their whole firm loses coverage because one child is born with Down's Syndrome. I can assure you we are not going back. Thank you. Senator Risch. Madam Chairman, I sincerely hope you can fix this mess. Chair Landrieu. The record is closed. [Whereupon, at 4:58 p.m., the Committee was adjourned.] APPENDIX MATERIAL SUBMITTED [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]