[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
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED THIRTEENTH CONGRESS
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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
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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
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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:]
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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:]
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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:]
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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:]
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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.]
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