    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

      HEALTH CARE SOLUTIONS: INCREASING PATIENT CHOICE AND PLAN INNOVATION

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

                                    HEARING

                                   BEFORE THE

                             SUBCOMMITTEE ON HEALTH

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                  MAY 11, 2016

                                   __________

                               Serial No. 114-143

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

                                       ______

                             U.S. GOVERNMENT PUBLISHING OFFICE

    20-983                         WASHINGTON : 2017
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                        COMMITTEE ON ENERGY AND COMMERCE

                              FRED UPTON, Michigan
                                     Chairman
    JOE BARTON, Texas                    FRANK PALLONE, Jr., New Jersey
      Chairman Emeritus                    Ranking Member
    ED WHITFIELD, Kentucky               BOBBY L. RUSH, Illinois
    JOHN SHIMKUS, Illinois               ANNA G. ESHOO, California
    JOSEPH R. PITTS, Pennsylvania        ELIOT L. ENGEL, New York
    GREG WALDEN, Oregon                  GENE GREEN, Texas
    TIM MURPHY, Pennsylvania             DIANA DeGETTE, Colorado
    MICHAEL C. BURGESS, Texas            LOIS CAPPS, California
    MARSHA BLACKBURN, Tennessee          MICHAEL F. DOYLE, Pennsylvania
      Vice Chairman                      JANICE D. SCHAKOWSKY, Illinois
    STEVE SCALISE, Louisiana             G.K. BUTTERFIELD, North Carolina
    ROBERT E. LATTA, Ohio                DORIS O. MATSUI, California
    CATHY McMORRIS RODGERS, Washington   KATHY CASTOR, Florida
    GREGG HARPER, Mississippi            JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            JERRY McNERNEY, California
    BRETT GUTHRIE, Kentucky              PETER WELCH, Vermont
    PETE OLSON, Texas                    BEN RAY LUJAN, New Mexico
    DAVID B. McKINLEY, West Virginia     PAUL TONKO, New York
    MIKE POMPEO, Kansas                  JOHN A. YARMUTH, Kentucky
    ADAM KINZINGER, Illinois             YVETTE D. CLARKE, New York
    H. MORGAN GRIFFITH, Virginia         DAVID LOEBSACK, Iowa
    GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
    BILL JOHNSON, Ohio                   JOSEPH P. KENNEDY, III,
    BILLY LONG, Missouri                     Massachusetts
    RENEE L. ELLMERS, North Carolina     TONY CARDENAS, California
    LARRY BUCSHON, Indiana
    BILL FLORES, Texas
    SUSAN W. BROOKS, Indiana
    MARKWAYNE MULLIN, OKlahoma
    RICHARD HUDSON, North Carolina
    CHRIS COLLINS, New York
    KEVIN CRAMER, North Dakota
                             Subcommittee on Health

                         JOSEPH R. PITTS, Pennsylvania
                                     Chairman
    BRETT GUTHRIE, Kentucky              GENE GREEN, Texas
      Vice Chairman                        Ranking Member
    ED WHITFIELD, Kentucky               ELIOT L. ENGEL, New York
    JOHN SHIMKUS, Illinois               LOIS CAPPS, California
    TIM MURPHY, Pennsylvania             JANICE D. SCHAKOWSKY, Illinois
    MICHAEL C. BURGESS, Texas            G.K. BUTTERFIELD, North Carolina
    MARSHA BLACKBURN, Tennessee          KATHY CASTOR, Florida
    CATHY McMORRIS RODGERS, Washington   JOHN P. SARBANES, Maryland
    LEONARD LANCE, New Jersey            DORIS O. MATSUI, California
    H. MORGAN GRIFFITH, Virginia         BEN RAY LUJAN, New Mexico
    GUS M. BILIRAKIS, Florida            KURT SCHRADER, Oregon
    BILLY LONG, Missouri                 JOSEPH P. KENNEDY, III,
    RENEE L. ELLMERS, North Carolina         Massachusetts
    LARRY BUCSHON, Indiana               TONY CARDENAS, California
    SUSAN W. BROOKS, Indiana             FRANK PALLONE, Jr., New Jersey (ex
    CHRIS COLLINS, New York                  officio)
    JOE BARTON, Texas
    FRED UPTON, Michigan (ex officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Joseph R. Pitts, a Representative in Congress from the
      Commonwealth of Pennsylvania, opening statement................     1
        Prepared statement...........................................     3
    Hon. Fred Upton, a Representative in Congress from the State of
      Michigan, opening statement....................................     4
        Prepared statement...........................................     5
    Hon. Frank Pallone, Jr., a Representative in Congress from the
      State of New Jersey, opening statement.........................     5
        Prepared statement...........................................     7
    Hon. Gene Green, a Representative in Congress from the State of
      Texas, opening statement.......................................     8

                                   Witnesses

    Scott Gottlieb, M.D., Resident Fellow, American Enterprise
      Institute......................................................    10
        Prepared statement...........................................    13
        Answers to submitted questions \1\...........................    73
    Avik Roy, Senior Fellow, Manhattan Institute.....................    24
        Prepared statement...........................................    26
    Sabrina Corlette, J.D., Research Professor, Center on Health
      Insurance Reforms, Georgetown University.......................    34
        Prepared statement...........................................    36
        Answers to submitted questions...............................    75

                               Submitted Material

    Statement of the Committee for Economic Development, submitted by
      Mr. Pitts \2\

    ----------
    \1\ Mr. Gottlieb did not respond to questions for the record.
    \2\ Available at: http://docs.house.gov/meetings/if/if14/
      20160511/104905/hhrg-114-if14-20160511-sd003.pdf.

      HEALTH CARE SOLUTIONS: INCREASING PATIENT CHOICE AND PLAN INNOVATION

                                  ----------

                            WEDNESDAY, MAY 11, 2016,

                                Subcommittee on Health,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 9:58 a.m., in
    room 2322, Rayburn House Office Building, Hon. Joseph R. Pitts
    (chairman of the subcommittee) presiding.
        Present: Representatives Pitts, Guthrie, Shimkus, Murphy,
    Burgess, Blackburn, Lance, Griffith, Bilirakis, Long, Ellmers,
    Bucshon, Brooks, Collins, Upton (ex officio), Green, Engel,
    Capps, Schakowsky, Butterfield, Sarbanes, Matsui, Schrader,
    Kennedy, Cardenas, Pallone (ex officio).
        Staff Present: Adam Buckalew, Professional Staff Member;
    Rebecca Card, Assistant Press Secretary; Graham Pittman,
    Legislative Clerk; Chris Sarley, Policy Coordinator,
    Environment & Economy; Jennifer Sherman, Press Secretary; Kyle
    Fischer, Minority Health Fellow; Tiffany Gurascio, Minority
    Deputy Staff Director and Chief Health Advisor; Samantha
    Satchell, Minority Policy Analyst; and Arielle Woronoff,
    Minority Health Counsel.

    OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN
             CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA

        Mr. Pitts. The time of 10 o'clock having arrived, we will
    call the subcommittee to order. The chair will recognize
    himself for an opening statement.
        The subcommittee is holding a hearing today to take a
    closer look at healthcare solutions centered on promoting
    patient choice and innovation in the design of health coverage.
        Health care is the most personal of any political issue,
    and when Congress gets involved in health policy we are
    changing people's lives. Decisions we make in Washington can
    have a tremendous effect on the well-being of families and
    their budgets.
        A country in which 45 million people went without health
    insurance was certainly in need of health reform. However, the
    Affordable Care Act is not the health reform this country
    needed. In fact, I believe it is a setback that makes true
    reform even harder to accomplish.
        The first thing health reform should accomplish is to
    stabilize or reduce the cost of health care. The number one
    complaint people have about health care is the rising cost. And
    yet the ACA has done little to decrease healthcare spending. In
    fact, many Americans are paying higher premiums and deductibles
    for health insurance and care as a result of the law. We can do
    better.
        We must make healthcare costs more transparent and give
    people the freedom to choose the insurance that they want, with
    the benefits that they value most, at a price that is fair.
    More government bureaucracy, regulations, and spending never
    successfully reduced the price of health care.
        Yet that is exactly the premise of how health insurance is
    regulated today with top-down mandates that empower Washington
    and remove control over healthcare decisions from states and
    small businesses and families and individuals. And this has to
    be changed if we truly want bottom-up solutions that provide
    better care at lower costs for patients.
        Some of the free enterprise solutions that I believe would
    truly help control costs and improve health care for all
    include portability, more pooling options, strengthening
    consumer-driven arrangements like health savings accounts, and
    innovation through less Federal benefit mandates.
        Employer-sponsored insurance is a critical part of our
    healthcare system and must be protected, but for many their
    health insurance is too closely tied to employment. People who
    are laid off, fired, or have to quit working can find
    themselves uninsured at a time when they can least afford it.
    We need better options so patients can truly own a plan of
    their choosing on the individual market.
        Before the President's healthcare law, I introduced the
    Small Business Choice Act, which would allow small businesses
    to form private health insurance cooperatives to buy insurance
    at lower rates while transferring catastrophic costs to a
    larger insurer, and the bill helps make small employers offer
    health insurance through a refundable tax credit of 65 percent,
    and self-employed people would save $5,000 a year on health
    insurance, and other small firms would save more than 34
    percent.
        Similarly, association health plans, AHPs, could allow
    rotary clubs, professional associations, and other groups to
    band together across state lines, form their own health plans,
    increasing their purchasing power and lowering costs.
        Health savings accounts should also be strengthened, and
    these accounts allow individuals to save money in an account
    they control, using the money to pay for everyday medical
    expenses. Only when major medical expenses are incurred does
    the insurance company step in after a high deductible paid out
    of the HSA is met. HSAs encourage individuals to make smart
    spending decisions, and cost them less over time than
    traditional insurance.
        We should never forget that innovation comes almost
    exclusively from the private sector. New drugs, therapies, and
    cures will only be developed if the companies that develop them
    are able to commercialize them. Empowering Washington is not
    the way we are going to promote innovation and invention.
        So our hearing today will examine options to reform
    insurance markets to better serve patients and examine better
    paths forward.
        My time has expired. With that I recognize Ms. Matsui, who
    is filling in as ranking member, for 5 minutes for an opening
    statement.
        [The prepared statement of Mr. Pitts follows:]

                   Prepared statement of Hon. Joseph R. Pitts

        The subcommittee will come to order.
        The Chairman will recognize himself for an opening
    statement.
        Today's hearing will take a closer look at health care
    solutions centered around patient choices and limiting, or even
    ending, government's role as an insurance regulator to allow
    insurance plans to innovate.
        Health care is the most personal of any political issue.
    When Congress gets involved in health policy, we are changing
    peoples' lives. Decisions we make in Washington can have a
    tremendous effect on the well-being of families and their
    budgets.
        A country in which 45 million people went without health
    insurance was certainly in need of health reform. However, the
    Affordable Care Act is not the health reform this country
    needed.
        In fact, I believe it is a tremendous setback and makes
    true reform even harder to accomplish.
        The first thing health reform should accomplish is to
    stabilize or reduce the costs of health care. The number one
    complaint people have about health care is the rising cost, and
    yet the ACA has done nothing to decrease health care spending.
    In fact, many Americans are paying more for health insurance
    and care as a result of the law.
        We can do better. Government bureaucracy and rules can
    never hope to contain costs. We must make health care costs
    more transparent and give people the freedom to choose the
    insurance that they want.
        I do not believe that more government bureaucracy,
    regulations, and spending will ever successfully control the
    price of health care. We have to put individuals and families
    in charge of their own health care. They need adequate
    information in order to make smart decisions and the freedom to
    choose what works best for them. Some of the free market
    solutions that I believe would truly help control costs and
    improve health care for all includes portability, more pooling
    options, consumer-driven arrangements, and innovation through
    vibrant plan competition.
        For many, their health insurance is too closely tied to
    employment. People who are laid off, fired, or have to quit
    working can find themselves uninsured at a time when they can
    least afford it. Patients should be able to own their insurance
    plan, and take it with them, even if they enter into the
    individual market.
        Before the president's health care law, I introduced the
    Small Business CHOICE Act, which would allow small businesses
    to form private health insurance cooperatives to buy insurance
    at lower rates while transferring catastrophic costs to a
    larger insurer. The bill helps small employers offer health
    insurance through a refundable tax credit of 65 percent. Self-
    employed people would save $5,000 a year on health insurance,
    and other small firms would save more than 34 percent.
        Similarly, association health plans (AHPs) could allow
    Rotary clubs, professional associations and other groups to
    band together across state lines and form their own health
    plans, increasing their purchasing power and lowering costs.
        Also, lack of consumer control has the effect of reducing
    people's motivation to make their own responsible decisions.
    There is little incentive to make wise decisions about when to
    see a doctor or to make healthy lifestyle choices. Instead,
    insurance companies try to reduce costs by requiring doctor
    referrals and insurance pre-certification. A better way to help
    people make responsible decisions it to transfer the motivation
    to be frugal from the insurance company to the individual.
        Health Savings Accounts (HSAs), created in 2003 by
    Republicans but still under-used, allow individuals to save
    money in an account they control, using the money to pay for
    everyday medical expenses. Only when major medical expenses are
    incurred does the insurance company step in, after a high
    deductible (paid out of the HSA) is met. HSAs encourage
    individuals to make smart spending decisions and cost them less
    over time than traditional insurance.
        We should never forget that innovation comes almost
    exclusively from the private sector. New drugs, therapies, and
    cures will only be developed if the companies that develop them
    are able to commercialize them. We should not nationalize
    healthcare and we should not weigh down innovation and
    invention with unnecessary new taxes and regulations.
        Our hearing today will examine options to reform insurance
    markets to better serve patients.

        Ms. Matsui. Mr. Chairman, I would like to reserve the time
    for Mr. Green until he returns.
        Mr. Pitts. All right. That is fine.
        Does anyone else seek time?
        All right. We will go to our chairman of the full
    committee, Mr. Upton, for 5 minutes for an opening statement.

       OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN
                  CONGRESS FROM THE STATE OF MICHIGAN

        Mr. Upton. Thank you, Mr. Chairman.
        Today's hearing is an important discussion on what Congress
    can do to help Americans across the country access better care
    at, indeed, a lower cost. Individuals and families across the
    country are seeing growing premiums and deductibles, yet are
    seeing provider networks narrow and restrict access to life-
    saving medicines and treatments. Folks in my State, as well as
    across the country, are frustrated. The healthcare system was
    turned upside down. Promises were not kept. Costs have gone up,
    while quality has often deteriorated.
        So we have to chart a better path forward to reforming our
    insurance markets so that they can better serve the patients.
    That is what this effort is all about. We can strengthen health
    coverage by expanding plan offerings that allow for real
    choice, as well as incentivizing market innovation without the
    mandates.
        I have laid out a number of ideas to do this in the Patient
    CARE Act that I authorized with Senators Hatch and Burr, and
    our committee members have laid out dozens and dozens of ideas
    that put the power to choose in the hands of patients.
        So let's establish another point from the start. House
    Republicans believe that no patient should be denied coverage
    or experience coverage shortages simply because they are sick.
    There are various ideas of how to accomplish our goals without
    interrupting the health insurance market, including guaranteed
    issue and continuous coverage protections. Continuous coverage
    means that if a patient gets a new job or retires or switches
    plans because their family moves, whatever, they will not be
    charged more than the standard rates, even if they are dealing
    with a serious medical issue or, as we know it, preexisting
    condition.
        Protecting our most vulnerable patients with preexisting
    condition safeguards is just as much about helping them keep
    health coverage as it is about creating an environment for them
    to get health coverage. Continued enrollment can lead to lower
    costs and stable markets, which gives consumers a pathway to
    choose more innovative options.
        So today we are going to talk about ways to achieve this
    through market reforms instead of government mandates, by
    encouraging States to lower costs through premium reduction
    programs. Options like advanced high-risk pools can also open
    new access points to the market while helping keep patient
    costs down.
        Headlines across the country confirm that patients are
    paying higher premiums and seeing fewer options. Patients are
    exiting the marketplace. Plans are leaving the exchanges. So
    simply put, we are 6 years into the President's healthcare law,
    and it is not working the way people thought it might.
        One disturbing fact that confirms the need for reform is
    that 19 of the 37 States on healthcare.gov--19 of the 37--saw
    double-digit premium increases for the second-lowest-cost
    silver plan. Even worse, three of those States saw benchmark
    rates go up to 30 percent. And S&P reported Monday that
    individual market costs jumped 23 percent in 2015.
        That is why we are here today, to discuss the merits of
    idea for increasing patient choices and incentivizing plan
    innovation. I look forward to the witnesses' testimony and
    would yield to any Republicans on my side. I yield back the
    balance of my time.
        [The prepared statement of Mr. Upton follows:]

                     Prepared statement of Hon. Fred Upton

        Today's hearing is an important discussion on what Congress
    can do to help Americans across the country access better care
    at a lower cost. Individuals and families across the country
    are seeing growing premiums and deductibles, yet are seeing
    provider networks narrow and restrict access to life-saving
    medicines and treatments. Folks in Michigan and the country are
    frustrated. The health care system was turned upside down,
    promises were not kept, costs have gone up while quality has
    deteriorated.
        We have to chart a better path forward to reforming our
    insurance markets so they better serve the patients. That's
    what this effort is all about. We can strengthen health
    coverage by expanding plan offerings that allow for real
    choice--as well as incentivizing market innovation without
    mandates. I have laid out many ideas to do this in the Patient
    CARE Act that I authored with Senators Orrin Hatch and Richard
    Burr. And our committee members have laid out dozens of ideas
    that put the power to choose in the hands of patients.
        Let's establish another point from the start: House
    Republicans believe that no patient should be denied coverage
    or experience coverage shortages simply because they are sick.
        There are various ideas of how to accomplish our goals
    without interrupting the health insurance market; including
    providing guaranteed issue and continuous coverage protections.
    Continuous coverage means that if a patient gets a new job,
    retires, or switches plans because their family moves, they
    will not be charged more than standard rates--even if they are
    dealing with a serious medical issue.
        Protecting our most vulnerable patients with pre-existing
    condition safeguards is just as much about helping them keep
    health coverage as it is about creating an environment for them
    to get health coverage. Continued enrollment can lead to lower
    costs and stable markets, which gives consumers a pathway to
    choose more innovative options.
        Today, we will talk about ways to achieve this through
    market reforms instead of government mandates, like encouraging
    states to lower costs through premium reduction programs.
    Options, like advanced high risk pools, can also open new
    access points to the market while helping keep patient costs
    down.
        Headlines across the country confirm that patients are
    paying higher premiums and seeing fewer options. Patients are
    exiting the marketplace. Plans are leaving the exchanges.
        Simply put, we are 6 years into the president's health care
    law and it is not working. One disturbing fact that confirms
    the need for reform is that 19 of the 37 states on
    HealthCare.gov saw double-digit premium increases for the
    second-lowest cost silver plan. Even worse, three of these
    states saw benchmark rates go up 30 percent. And S&P reported
    Monday that individual market costs jumped 23 percent in 2015.
        This is why we are here today--to discuss the merits of
    ideas for increasing patient choice and incentivizing plan
    innovation. I look forward to the witness testimony and I
    encourage a thoughtful dialogue about ideas.

        Mr. Pitts. The chair thanks the gentleman.
        I now recognize the ranking member of the full committee,
    Mr. Pallone, 5 minutes for opening statement.

    OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE
                IN CONGRESS FROM THE STATE OF NEW JERSEY

        Mr. Pallone. Thank you, Mr. Chairman.
        I believe we all share a common goal. We want a healthcare
    system that is more affordable, accessible, and higher quality,
    a system that works for all Americans.
        Now, how we achieve this goal tends to be a topic of
    intense debate, and it should be. The Affordable Care Act has
    greatly expanded access to quality, affordable health insurance
    in our country. There is, however, more that we can do to
    improve our health system for everyone.
        I believe the ACA has been a success. Twenty million more
    people now have health insurance. Women, minorities, and young
    people in particular have experienced substantial gains in
    coverage. Since 2013, the uninsured rate amongst young adults
    has dropped by 47 percent. And together we should be discussing
    how we can build on this success to give even more Americans
    the peace of mind that quality health insurance provides.
        The law also put in place important consumer protections
    that prevent insurers from discriminating against the most
    vulnerable, and it eliminated out-of-pocket costs for important
    preventative services, such as immunizations and cancer
    screenings.
        While we know the marketplaces still need time and room to
    grow, we can't forget what the individual market was like
    before the Affordable Care Act. Double-digit rate increases on
    subpar plans were the norm. The ACA gave HHS and States the
    tools they need to monitor insurers and put a stop to these
    harmful practices.
        This rate review program brings transparency to the
    process, greater stability to the market, and protects
    individuals from unreasonable price increases. It also resulted
    in subpar plans simply no longer being sold if they don't cover
    hospitalizations or prescription drugs or have limits on how
    much health care will be covered in a given year.
        The medical loss ratio ensures that insurers spend at least
    80 percent of premium dollars on actual health care and not
    executive bonuses or advertising.
        The ACA also created an entirely new marketplace that
    expanded coverage to individuals who prior to the Affordable
    Care Act had little to no hope of finding affordable health
    insurance. Our witnesses today will talk about giving consumers
    more choices, but let's not lose sight of the fact that before
    the ACA, millions of Americans with preexisting conditions had
    no choices at all.
        These marketplaces are still in their infancy and will
    continue to mature over time as insurers become more accustomed
    to calculating risk and as more individuals transition from
    grandfathered and grandmothered plans to marketplace plans.
        Creating a competitive and successful market in a system as
    complex as our own is certainly no small feat. Millions of
    Americans count on this coverage and therefore we should do
    everything we can to make sure that these marketplaces grow
    even stronger.
        And this hearing has the potential to be a starting point
    for a real discussion on bipartisan improvements that will
    strengthen the systems already in place and bring us even
    closer to high-quality, universal coverage. However, I also
    recognize that this hearing has the potential to be a
    continuation of a 6-year Republican assault against the
    Affordable Care Act and the millions of Americans who benefit
    from it.
        The ACA's marketplaces put power back into the hands of
    consumers, gave everyone the right to buy insurance, and forced
    insurers to compete based on price and value. We can't return
    to a time when insurers competed to find the healthiest, least-
    expensive consumers and left millions of Americans to fend for
    themselves. I think we have a duty to overcome partisan
    politics and work together to come up with the best solutions,
    and I am hoping that we will use our time today to do just
    that.
        And I would like to yield the remainder of my time to the
    gentlewoman from California, Ms. Matsui.
        [The prepared statement of Mr. Pallone follows:]

                 Prepared statement of Hon. Frank Pallone, Jr.

        Good morning everyone and thank you to the witnesses for
    being here today. I believe we all share a common goal: we want
    a health care system that's more affordable, accessible, and
    higher quality-a system that works for all Americans. Now, how
    we achieve this goal tends to be a topic of intense debate, and
    it should be. The Affordable Care Act has greatly expanded
    access to quality, affordable health insurance in our country.
    There is, however, more that we can do to improve our health
    system for everyone.
        The ACA has been a success. Twenty million more people now
    have health insurance. Women, minorities, and young people in
    particular have experienced substantial gains in coverage.
    Since 2013 the uninsured rate among young adults has dropped by
    47 percent. Together, we should be discussing how we can build
    on this success to give even more Americans the peace of mind
    quality health insurance provides. The law also put in place
    important consumer protections that prevent insurers from
    discriminating against the most vulnerable, and it eliminated
    out of pocket costs for important preventative services, such
    as immunizations and cancer screenings.
        While we know the marketplaces still need time and room to
    grow, we cannot forget what the individual market was like
    before the ACA. Double-digit rate increases on sub-par plans
    were the norm. The ACA gave HHS and states the tools they need
    to monitor insurers and put a stop to these harmful practices.
    This rate review program brings transparency to the process,
    greater stability to the market and protects individuals from
    unreasonable price increases. It also resulted in sub-par plans
    simply no longer being sold if they don't cover
    hospitalizations or prescription drugs or have limits on how
    much health care will be covered in a given year. The Medical
    Loss Ratio ensures that issuers spend at least 80 percent of
    premium dollars on actual health care, not executive bonuses or
    advertising.
        The ACA created an entirely new marketplace that expanded
    coverage to individuals who prior to the ACA had little to no
    hope of finding affordable health care. Our witnesses today
    will talk about giving consumers more choices, but let's not
    lose sight of the fact that before the ACA, millions of
    Americans with pre-existing conditions had NO choices.
        These marketplaces are still in their infancy and will
    continue to mature over time as insurers become more accustomed
    to calculating risk, and as more individuals transition from
    ``grandfathered'' and ``grandmothered'' plans to marketplace
    plans. Creating a competitive and successful market in a system
    as complex as our own is no small feat. Millions of Americans
    depend on this coverage, and therefore we should do everything
    we can to make sure these marketplaces grow even stronger.
        This hearing has the potential to be a starting point for a
    real discussion on bipartisan improvements that will strengthen
    the systems already in place and bring us even closer to high
    quality universal coverage. However, I also recognize that this
    hearing has the potential to be a continuation of a six year
    Republican assault against the ACA and the millions of
    Americans who benefit from it. The ACA's marketplaces put power
    back into the hands of consumers, gave everyone the right to
    buy insurance, and forced insurers to compete based on price
    and value. We cannot return to a time when insurers competed to
    find the healthiest, least expensive consumers and left
    millions of Americans to fend for themselves.
        We have a duty to overcome partisan politics and work
    together to come up with the best solutions. I'm hoping that we
    will use our time today to do just that. Thank you.

        Ms. Matsui. Thank you very much.
        The Affordable Care Act is improving millions of Americans'
    lives. Thanks to the ACA, nearly 18 million previously
    uninsured Americans no longer have to worry that they are one
    illness away from financial ruin.
        The Affordable Care Act is intertwined into the fabric of
    our healthcare system. It is time to recognize the ACA as the
    law of the land so we can move forward with the business of
    ensuring that every American has the opportunity to live a
    healthy life. As members of the Health Subcommittee, that
    should be our mission.
        Today we are talking about market reforms that increase
    transparency and access for patients. Because of the ACA,
    patients with preexisting conditions who never had a choice
    when it came to their health care now have options. These
    protections are particularly important for those over 30
    million individuals in this country who suffer from rare or
    serious chronic diseases.
        The ACA has helped millions of families gain access to
    quality, affordable coverage, and I do hope that our committee
    can work together to continue this progress to improve the
    health and lives of Americans.
        I yield the remainder of my time back to the ranking
    member.
        Mr. Pitts. The gentleman's time has expired.
        The chair now recognizes the ranking member of the
    subcommittee, Mr. Green, 5 minutes for an opening statement.

       OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
                    CONGRESS FROM THE STATE OF TEXAS

        Mr. Green. Thank you, Mr. Chairman. And I will ask for
    dispensation because I was actually speaking to Bill Flores,
    the Chamber of Congress, and they asked too many questions. I
    may have been the only Democrat they heard from that day.
        I want to welcome our panel. Good morning, and thank you
    all for being here today.
        It has been almost 2 \1/2\ years since the full reforms of
    the Affordable Care Act went into effect. The third open
    enrollment period built off the successes of the first and
    second, and there is even reason to believe that the fourth
    open enrollment period will continue this trend. The
    marketplaces created under the Affordable Care Act are in their
    relative infancy. As with any other, almost every new market,
    particularly in the healthcare space, there will be changes and
    adjustments in the early years. Insurers will both enter and
    exit as they navigate the new landscape of millions of new
    consumers, protections, and requirements.
        Medicare, when it was first created, experienced growing
    pains, as did Medicare Advantage and the part D plans. You will
    hear reports sounding the alarm that in 2016, 39 insurers left
    the Federal marketplace. Maybe actuary reports fail to mention
    that in the same year, 40 insurers entered the marketplace.
        The number of issuers in every State has grown each year at
    a year-over-year average of 8 in 2014, 9 in 2015, and 10 in
    2016. Nearly 90 percent of consumers that had coverage in 2015
    had a choice of three or more insurers for the 2016 coverage.
        The unfiltered facts clearly indicate that the marketplace
    is an attractive place for issuers to do business and for
    consumers to purchase quality, affordable insurance, many for
    the first time in their lives.
        Health insurance is a product that Americans want and need.
    The Affordable Care Act is creating a system that lends truth
    to the principle that health care is not a privilege for the
    few, but the right for all Americans.
        The Affordable Care Act has been resoundingly successful,
    but like any law, it is not perfect. As I have been known to
    say, if you want something done perfectly, don't ever come to
    Congress. That is why, after passing major reforms, Congress
    has very often revisited the legislation and come together to
    improve it.
        While I don't expect us to agree on a lot of solutions
    debated during this hearing, it is a welcome departure from the
    politically motivated hearings we have had over the last 6
    years which were only designed to score points and attack the
    law rather than look for ways to improve the exchanges on
    behalf of the American people. I am hopeful this is a genuine
    step toward getting back to the business of legislating. I
    thank the chairman for calling it.
        The core strength of the ACA is that it puts power back in
    the hands of consumers, contains key provisions, and requires
    insurers to compete based on their ability to offer high-
    quality insurance at an affordable price. In the pre-ACA world,
    the individual market was unstable, unfair, and inaccessible to
    many. Insurers competed to find the healthiest and cheapest
    consumers, and those with preexisting conditions were largely
    priced out. Women could be charged more just because of their
    gender, annual and lifetime limits hindered patients' ability
    to get care when they needed it, and people could be dropped
    from their plan when they got sick and needed it the most.
        In the post-ACA individual market, where everyone has the
    right to buy insurance and choices are transparent and easy to
    compare, consumers make issuers compete based on price and
    value, and with any market, some insurers are adapting faster
    than others to the new landscape. This is the nature of
    competition.
        Some insurers have already figured out how to succeed in
    the marketplace and they are growing and expanding their
    exchange business. Others will learn to adapt or else lose
    market share to those who already have. These are the features
    of a healthy market. This is the proof that ACA's market-based
    reforms are working.
        There are definitely ways to improve the ACA, to expand
    coverage to more Americans, and to lower cost. I look forward
    to exploring these with my colleagues. And, for example, my
    friend and Texan, good friend Joe Barton and I have a
    requirement for 12-month continuous enrollment in Medicaid and
    CHIP. Continuous coverage brings down administration burden,
    provides for continuous care, and keeps folks healthier while
    bending the curve in the long run.
        Again, I want to thank our witnesses for being here today,
    and I look forward to getting back to the business of
    legislating. Thank you.
        Mr. Pitts. The chair thanks the gentleman.
        As usual, all members' opening statements will be made a
    part of the record.
        I seek unanimous consent to submit the following document
    for the record: a statement from the Committee for Economic
    Development. \1\ Without objection, so ordered.
    ---------------------------------------------------------------------------
        \1\ The statement has been retained in committee files and is
    available at: http://docs.house.gov/meetings/if/if14/20160511/104905/
    hhrg-114-if14-20160511-sd003.pdf.
    ---------------------------------------------------------------------------
        Mr. Pitts. We have one panel before us today. I would like
    to thank you for coming. And I will introduce our panelists in
    the order of their giving testimony.
        First, we have Dr. Scott Gottlieb, resident fellow,
    American Enterprise Institute; Mr. Avik Roy, senior fellow,
    Manhattan Institute; and Sabrina Corlette, research professor,
    Center on Health Insurance Reform, Georgetown University.
        Thank you for coming today. Your written testimony will be
    made a part of the record. You will each be given 5 minutes to
    summarize your testimony.
        So at this point, Dr. Gottlieb, you are recognized for 5
    minutes for your summary.

     STATEMENTS OF SCOTT GOTTLIEB, M.D., RESIDENT FELLOW, AMERICAN
       ENTERPRISE INSTITUTE; AVIK ROY, SENIOR FELLOW, MANHATTAN
      INSTITUTE; AND SABRINA CORLETTE, J.D., RESEARCH PROFESSOR,
       CENTER ON HEALTH INSURANCE REFORMS, GEORGETOWN UNIVERSITY

                      STATEMENT OF SCOTT GOTTLIEB

        Dr. Gottlieb. Mr. Chairman, Mr. Vice Chairman, thank you
    for the opportunity to testify here today.
        My name is Scott Gottlieb. I am a physician and resident
    fellow at the American Enterprise Institute. I previously
    worked at CMS and FDA and have experienced and evaluated the
    insurance market as a provider, as a policy analyst, and as an
    investor in the space, and it is from three perspectives I want
    to offer some thoughts today. We face some continuing
    challenges with respect to our current insurance market and
    some new pressures, and I want to focus not on how we got here,
    but what we can do about it.
        Improving the existing market for insurance inside the
    state-based exchanges or transitioning to an entirely new
    framework for how we pool risk and help consumers buy coverage
    should include, in particular, four principles that I want to
    outline today.
        First, more rating and regulatory flexibility for insurance
    products to enable more competition between different and,
    hopefully, more innovative plans. I believe that regulatory
    standards and how CMS is interpreting its own rules limit the
    ability of plans to offer innovative designs.
        Because health plans must adhere to a narrow formula to
    fall within the discrete metal tiers, it leads to an
    environment where plans are designed from the top down, off
    actuarial targets, rather than based on a bottoms-up approach
    to build off principles that may lead to more innovation and
    coverage.
        To these ends, insurers can be required to simply report
    the actuarial value of their plans so long as they meet a
    minimum level of coverage. Instead of making decisions based on
    rigid targets that are tied to metals, consumers can make
    choices based on the actual actuarial value of the plan.
        I believe allowing more regulatory flexibility around
    rating and plan design would enable a wider selection of high-
    value options, such as value-based insurance designs or designs
    that reduce premiums and other costs for consumers that stay
    with an insurer over time.
        Second, we need clear rules on open enrollment periods to
    enable a viable risk pool while using incentives rather than
    mandates as a way to keep people in the insurance market. We
    absolutely must maintain some exemptions for people who
    confront some discrete challenges obtaining coverage during
    open enrollment periods. But carefully defined enrollment
    windows can form a key element of rules that use incentives to
    encourage people to enter the insurance market and stay
    continuously insured, rather than relying on penalties to
    enable these same outcomes.
        Right now the lack of tightly defined enrollment periods,
    verification requirements, and fluid exemptions largely
    forecloses the ability to use the requirement for continuous
    coverage as a way to create incentives for people to get into
    and stay in the insurance market.
        Third, subsidies need to be tied more closely to risk, and
    risk adjustment must provide plans with incentives to enroll
    and improve the health of people with chronic conditions. In
    the plan that I helped co-author at AEI with my colleagues, we
    advocate a system of tax credits. These are set initially as a
    fixed-dollar amount based on age. Under our framework, older
    individuals would get larger subsidies reflecting their
    tendency to use more healthcare services.
        Another option is to match the magnitude of the tax credits
    more closely to the varying insurance costs that real
    purchasers will face in a less regulated market. This second
    option would make the tax credit amounts more open-ended
    initially in response to the premiums that may vary with age,
    geography, and perhaps some form of preexisting risk. This
    initial floating cost subsidy structure could then be adjusted
    in later years to set a ceiling on maximum tax benefits to curb
    overspending and add additional subsidies for more economically
    or medically vulnerable populations.
        Any approach should be coupled to proper risk adjustment so
    that health plans have an incentive to enroll individuals with
    certain preexisting conditions and improve their health.
        The credit the health plans receive can be adjusted
    prospectively based on a defined set of healthcare conditions
    and a methodology that the insurers agree to in advance, since
    they are the ones who know best where the economic
    sensitivities are.
        Fourth, and finally, we need to contemplate policies that
    offer incentives for new plan formation and alternatives to the
    hospital-led consolidation of providers that are driving up
    costs. With respect to health plans, there has been no new net
    health plan formation since 2008. By this, I mean new health
    carriers. I believe that a big culprit is the caps on the
    operating margins, which makes it hard for new plans to enter
    the market even with some of the concessions that are made
    available to startup plans.
        On the provider side, we need to consider policies to
    create alternatives to the consolidation of physicians around
    local hospitals, which is increasing in a number of markets and
    is giving a single health system the sort of monopoly position
    that is driving up costs.
        Our healthcare reform should be aimed at increasing choice
    and competition as a way to give consumers more options and
    more opportunities to access affordable coverage. I hope that
    these concepts I outline here today can advance some of these
    goals, and I am grateful for the opportunity to testify before
    the committee. Thanks a lot.
        [The prepared statement of Dr. Gottlieb follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pitts. The chair thanks the gentleman.
        I now recognize Mr. Roy, 5 minutes for your summary.

                         STATEMENT OF AVIK ROY

        Mr. Roy. Chairman Pitts, Ranking Member Green, and members
    of the Health Subcommittee of the Energy and Commerce
    Committee, thanks for inviting me to speak with you today. My
    name is Avik Roy. I am a senior fellow at the Manhattan
    Institute where I conduct research on health care reform.
        In my remarks, I will focus on two areas. First, I will
    discuss flaws in the design of the ACA's insurance exchanges.
    Second, I will describe the principles and policies that
    Congress should consider in order to achieve better reform.
        The ACA has reduced the number of uninsured, but its
    premiums on the exchanges have been so high that enrollment in
    the exchanges has been poor. 2016 enrollment was around 11
    million, far below the CBO's original 21 million estimate.
        The exchanges were built on a theory called the three-
    legged stool. First, the law would impose a raft of regulations
    to transfer costs from the sick to the healthy. Second, it
    would impose an individual mandate in order to force the
    healthy to purchase this highly costly coverage. Third, it
    would lessen the burden of the mandate for the poor using
    subsidies.
        The problem is that the legs of the three-legged stool in
    the ACA were poorly designed. The regulatory leg is too long,
    driving up the cost of nongroup coverage. The mandate leg is
    too short, allowing healthier individuals to avoid buying
    costly coverage. And the subsidy leg is too wobbly to correct
    the imbalances of the other two legs.
        By far, the law's most damaging regulation is its age-based
    community rating, forcing insurers to charge their oldest
    customers no more than three times what they charge their
    youngest. This has more than doubled the cost of health
    insurance for younger individuals in most States. Because the
    individual mandate's fines are so small relative to the cost of
    this coverage, young people are staying out. For most
    Americans, the ACA's subsidies don't offset far higher
    premiums. As a result, exchange enrollment for people with
    incomes above 250 percent of the Federal poverty level is well
    below 20 percent.
        Furthermore, the ACA's subsidy system has proven to be
    extremely convoluted. It requires people to estimate their
    future income on a rolling monthly basis and then pay the
    government back if the Treasury Department determines that they
    have overestimated their eligibility.
        In 2014, MI published Transcending ObamaCare, a health
    reform plan that would cover more people than the ACA but with
    far less Federal intervention than either current or prior law.
    Here are some key concepts from that plan that Congress should
    consider.
        The most important thing Congress can do is to repeal the
    ACA's three-to-one community rating age band, which makes
    coverage unaffordable for young people. This discriminatory
    policy is the single greatest driver of the exchange's poor
    performance. Repeal of the age band can be paired with
    transitional funding for the near-elderly such that current
    enrollees can keep their current plan.
        If the age band is repealed, a reformed system can preserve
    guaranteed issue and prohibit medical underwriting. In other
    words, it can protect those with preexisting conditions without
    an individual mandate. The mandate can be replaced with late
    enrollment penalties, a shorter open enrollment period, and the
    option of insurance contracts of 2 to 5 years instead of only 1
    year on the current ACA exchanges.
        Congress should put patients back in charge of their own
    healthcare dollars wherever possible. It should maximize
    personal choice and improve the flexibility of health savings
    accounts. It should repeal the ACA's tax increases, especially
    those like the health insurance tax, the medical device tax,
    and the drug tax, that directly translate into higher premiums.
        Finally, Congress should replace the ACA's convoluted
    subsidy system with transparent, means-tested, age-adjusted tax
    credits. Some have proposed a uniform tax credit in which the
    poor and the wealthy receive the same financial assistance.
    That approach is unwise in my view because it severely limits
    the amount of assistance we can provide to the poor.
        In 2017, the average exchange subsidy per subsidized
    enrollee, according to CBO, will be $4,550. By contrast, one
    uniform tax credit proposal that has been widely circulated
    would offer a subsidy of $2,100 to those in middle age
    regardless of need. That difference would be highly disruptive
    to the poor and the sick and result in millions fewer insured.
        Instead, an ACA replacement should preserve a sliding scale
    of means-tested tax credits but do so based on income from the
    previous tax year. That way the IRS has verified income date
    with which to base its tax credit calculations.
        Based on our fiscal modeling, the reforms described above,
    combined with others, could reduce Federal spending by $10
    trillion over the next three decades and increase the number of
    individuals with health insurance by 12 million over and above
    current law, and they would reduce the cost of single health
    insurance policies by 18 percent by 2021.
        The ACA's shortcomings should not discourage Congress from
    striving to achieve the law's stated goal, affordable health
    coverage for every American. That objective remains as
    important as ever.
        Thanks again for having me. I look forward to your
    questions and of being of further assistance to this committee.
        [The prepared statement of Mr. Roy follows:]

       [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pitts. The chair thanks the gentleman.
        Ms. Corlette, you are recognized for 5 minutes for your
    summary.

                     STATEMENT OF SABRINA CORLETTE

        Ms. Corlette. Thank you, Chairman Pitts and Ranking Member
    Green. Thank you for the opportunity to testify today.
        I am going to make two primary points. First, the
    Affordable Care Act has led to an unprecedented expansion in
    access to affordable comprehensive health insurance. And
    second, 6 years in, we have new opportunities to build on and
    strengthen the law in order to ensure its benefits can be truly
    universal.
        The last time I sat before you, it was just after the
    launch of the ACA's health insurance marketplaces. Many were
    questioning whether the law would work. What a difference 2
    years makes. Since the rollout of the ACA, we have strong
    evidence of improved access, the ACA has expanded health
    insurance coverage to 20 million people, and as a result, the
    number of uninsured Americans is at its lowest level in 5
    decades with almost 90 percent of people now covered, an end of
    health status discrimination. Up to 122 million Americans with
    a preexisting condition now have peace of mind that if they
    leave work to care for a loved one, start a new business, or go
    back to school, they will no longer be denied access to
    affordable health insurance.
        Improved quality of coverage. The ACA's reforms have
    improved not only access to coverage, but the quality. The vast
    majority of people newly enrolled are satisfied with their new
    health insurance plan and the doctors in it.
        And bending the cost curve. The ACA has contributed to an
    unprecedented slowdown in healthcare cost growth. Further,
    several of the payment and delivery system reform experiments
    launched by the ACA are offering some hope that we can reduce
    waste, lower costs, and maintain the quality of care for
    patients.
        To understand how far we have come, it is helpful to pause
    and remember where we were before the ACA. Back then, the
    individual insurance market suffered from a lack of access. As
    many as 40 percent of applicants were denied coverage because
    of a preexisting condition.
        Inadequate coverage. Before the ACA, in most states
    insurers were permitted to permanently exclude any preexisting
    conditions, and many excluded maternity coverage, mental
    health, and prescription drugs as a matter of course.
    Deductibles of $10,000 or more were not uncommon, and many
    policies came with lifetime or annual caps on benefits.
        And coverage was often unaffordable. Before the ACA, 70
    percent of people with health problems reported it very
    difficult or impossible to find an affordable plan.
        At the same time, none of the nightmare scenarios that some
    ACA opponents predicted have come to pass. The ACA has not
    caused employers to drop coverage for their workers, nor has it
    resulted in reductions in employment. On the whole, coverage
    trends for ESI have remained stable.
        No law is perfect, and the ACA is not perfect. Six years
    in, I encourage members of this subcommittee to consider some
    pragmatic improvements, including providing incentives to
    States to expand Medicaid. In 19 states, families just below
    the poverty line are denied access to coverage because they
    don't make enough money to be eligible for the marketplace tax
    credits. Congress should adopt the President's proposal to
    allow any state that expands Medicaid to receive a 100 percent
    match for the first 3 years.
        Fix the family glitch. Congress can and should clarify the
    law to ensure that working families are able to access the tax
    credits.
        Improve affordability. Even with those tax credits and
    cost-sharing reductions, many low- and moderate-income
    Americans face very high costs when they purchase insurance. I
    encourage Congress to reduce the amount of income families are
    expected to contribute and to improve cost-sharing support.
        Support outreach and enrollment assistance. As many as 16
    million Americans are eligible for but not enrolled in either
    Medicaid or subsidized marketplace insurance. Many just don't
    know about the availability of these coverage options and the
    financial help, and they need assistance through the enrollment
    process. A relatively small investment in funds could ensure
    that more people are enrolled in the coverage that is right for
    them.
        And make the plan shopping experience as easy as possible.
    The marketplaces need a stronger infrastructure to support
    eligibility determinations and the plan shopping experience.
    This should include improved call centers and appeals
    processes, as well as better Web-based tools.
        The ACA has ushered in much-needed reforms that have
    dramatically improved access to affordable, high-quality
    coverage. In just 2 short years, these changes have helped to
    reduce the percentage of uninsured to its lowest point in over
    a generation, and that is a huge accomplishment. However, we
    are also beginning to see areas in which we can build on and
    improve the law to make it work better for more people.
        I look forward to the discussion of how best to achieve
    that. Thank you.
        [The prepared statement of Ms. Corlette follows:]

        [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. Pitts. The chair thanks the gentlelady, thanks each of
    our witnesses for your testimony. You have each provided
    thoughtful testimony. And so we will now begin questioning. I
    will recognize myself for 5 minutes for that purpose.
        Mr. Roy, we will begin with you. You have advised several
    high-level officials and candidates on health policy. Would you
    please describe some of the commonalities in the health reform
    plans offered by conservatives?
        Mr. Roy. Yes. So I was also a co-author of the plan that
    Dr. Gottlieb mentioned that was published by the American
    Enterprise Institute. So to take that plan as an example and
    the plan that we published at the Manhattan Institute as two
    examples, both of them the common element is replacing the ACA
    with a system of tax credits in which patients control their
    own healthcare dollars.
        The challenge with the ACA is twofold. One, a lot of
    discrimination against younger and healthy enrollees. And, two,
    the fact that there is very limited choice in the type of
    health insurance you can buy.
        And so the key commonalities here are to offer tax credits
    that help the uninsured afford coverage, but to make sure that
    people have a much wider range of choices in how they purchase
    coverage and the type of coverage they buy, and also to make
    sure that they have the opportunity not simply to use insurance
    to pay for health care, but to use health savings accounts.
        Mr. Pitts. Thank you.
        Dr. Gottlieb, in addition to being a physician, you have
    counseled various healthcare companies and firms on Federal
    policy. Would you please talk about any of the components of
    previous or current alternatives to the Affordable Care Act
    that you are convinced will increase choice and competition?
        Dr. Gottlieb. I will just touch on one. I think in terms of
    new health plan formation and new carriers entering the market,
    probably the single biggest obstacle has been the caps on the
    operating margins of plans, and I am talking here about the
    caps on the MLR. Because a new plan is going to have to spend a
    higher amount of its revenue on its overhead at the outset, and
    by capping the operating margin, you are discouraging capital
    formation, new carriers from entering the market.
        If you look at what has happened since 2008, there has been
    no new net health plan formation, and by that I mean new
    carriers. So when we talk about new health plans entering the
    market, we are talking about existing insurers just entering
    exchanges with differently named products but not new health
    insurers.
        And the analysis I am talking about actually goes back to
    last year, and it incorporated all the co-ops and the provider-
    sponsored plans. A lot of those--some of those have exited the
    market.
        So I would submit that it is probably the case, that there
    has been a net formation of new healthcare carriers since 2008.
        Mr. Pitts. Would the result or the effect of such
    components result in lower costs for patients?
        Dr. Gottlieb. Well, I think the opportunity for new plans
    to enter the market is going to result in more competition
    between different insurers and ultimately is going to lead to
    lower costs. I think when we look at premium costs, in
    particular for individuals, we have to look at it on a weighted
    basis, meaning that we look at the average premium increase,
    but we need to look at premium increases on the basis of where
    people are enrolling.
        And it is the case that premiums are going up for the plans
    that have the highest enrollment because they are the ones
    facing the biggest losses in the market right now. I think by
    creating more competition between different plans, ultimately
    you are going to create more competition between premiums as
    well.
        Mr. Pitts. Thank you.
        Ms. Corlette, you mentioned that, ``Even with the ACA's
    premium tax credits and cost-sharing reductions, many low- and
    moderate-income Americans face very high cost when they
    purchase insurance.''
        Absent more government mandates, more Federal spending,
    what would you propose that would help these patients receive
    care at a fair cost?
        Ms. Corlette. Thank you, Mr. Chairman.
        So one of the problems is that health insurance itself is
    an extremely expensive product. The average family premium for
    an employer-based plan is in the neighborhood of $17,000 a
    year. So I think you are absolutely correct to point out, and
    as I pointed out and others have in their testimony, the
    Federal Government can't pick up that entire tab.
        So the key is to get at what is driving that $17,000 cost
    for a family policy, which is extremely expensive. And that,
    frankly, goes to the fact that we have an inefficient delivery
    system. We are spending 30 percent of healthcare DDP on
    wasteful and unnecessary care.
        So, frankly, my proposals for getting at cost containment
    in health insurance would really target the delivery system and
    the way we pay for the delivery of those healthcare services.
        Mr. Pitts. Thank you. My time has expired.
        The chair now recognizes the ranking member, Mr. Green, 5
    minutes for questions.
        Mr. Green. Thank you, Mr. Chairman.
        Again, I want to thank our witnesses.
        Mr. Roy, some of us were on the committee when we were
    drafting the Affordable Care Act in 2008 and 2009. I know it is
    something that somebody in academia may not understand, but we
    actually have to legislate, even when it is a majority of
    Democrats, just like a majority of Republicans.
        The Affordable Care Act was built on our traditional
    insurance system that was started during World War II and
    continued, where in our country, unlike the countries we
    rebuilt in World War II that created some type of national
    care, whether it be Japan, Germany, France, Europe. And so we
    were building on that. So free enterprise was involved in it.
    And that is why the Affordable Care Act, it is not government--
    of course we regulate insurance, but it is based on that. And
    that was the decision made, that we would use this tried-and-
    true method, even though I think it is not as effective as
    other plans. But that is why we have this.
        Of course my biggest issue in my home State of Texas is
    that Texas has not expanded Medicaid, leaving more than 1.2
    million vulnerable low-income Texans without coverage. In fact,
    in our district, I have 50,000 constituents in an urban
    district in Houston who would have Medicaid if the states
    expanded it. I hope that my state will expand it, and I am
    willing to work with them. I have said this for a number of
    years. For every one dollar my home state would pay in Medicaid
    expansion, it would earn back $1.30 in new economic activity.
        But the hearing today is about private insurance and ways
    to make it stable. It is clear that marketplaces are working,
    and the individual insurance market increased in size by 46
    percent in the first year of enrollment alone. We need to
    continue to improve, however, and insurance markets function
    best when there is a large number of customers to spread the
    risk and keep costs down.
        Before we consider revising or backtracking on the progress
    we have made, one important thing we can do to stabilize the
    individual insurance market is to grow it. The more people
    enrolled, the greater the risk pool, the more stability we will
    see. There are more than 10 million Americans who are uninsured
    and eligible for marketplace coverage. Seven million of those
    were eligible for tax credits to help them pay their premiums.
        Ms. Corlette, initial research shows that Americans have a
    wide variation in knowledge of the options available on the
    ACA's exchanges and the assistance that can be made available.
    Could you discuss some of the harder-to-reach marketplace
    populations?
        Ms. Corlette. Yes. Thank you.
        So estimates are that we have between 29 and 31 million
    uninsured Americans, and many of them are uninsured because, as
    you point out, Congressman, they are in the Medicaid coverage
    gap.
        Mr. Green. So that includes Medicaid?
        Ms. Corlette. It does. But also some are just simply
    ineligible. They may be undocumented or they have other sources
    of coverage.
        But among those who are eligible for the marketplaces and
    would benefit the most from the financial assistance that is
    available, a recent study found that many live in families
    receiving EITC or other public benefits, such as SNAP. Many
    also have a school-age child in the home. These are avenues
    that the Federal Government could take advantage of to do
    targeted outreach, to educate these individuals not only about
    the coverage that is available, but also the financial
    assistance that can help make that coverage affordable.
        Mr. Green. OK. One of the issues I hear, and I heard it
    just this morning with a group of insurers, can you discuss the
    benefits of the medical loss ratio? Of course, let me explain
    my background. I managed a small business, and at one time it
    was hard to even get companies to offer us insurance for our
    small business.
        But the medical loss ratio, the 80 percent of that premium
    has to go to health care. And, to me, most employers would say
    we are getting a return on our money. And could you talk about
    the importance of that benefit?
        Ms. Corlette. Yes. Sure. The medical loss ratio basically
    says that of the premiums a health insurance company collects,
    80 percent, or in the case of a large group 85 percent, has to
    go back towards the benefits that they are supposed to be
    covering. So it is an important consumer protection. Before
    this standard went into effect, you would see in the market
    companies with loss ratios of 50 percent, 60 percent. That
    means the company was pocketing close to half of the premium
    that they were collecting from the consumer or the small
    business. So the medical loss ratio is really just designed to
    bring more value to the purchaser.
        Mr. Green. Thank you, Mr. Chairman. I will yield back my
    time.
        Mr. Pitts. The chair thanks the gentleman.
        I now recognize the vice chair of the sub, Mr. Guthrie, 5
    minutes for questions.
        Mr. Guthrie. Thank you.
        And these questions are for Mr. Roy. We have instances of
    people purchasing health insurance under the ACA when they are
    sick, and it distorts the market for other people
    participating. Patients need to get access to care. That is
    important. But we also want patients to keep their coverage.
    There have been various ideas put forward about the best ways
    to help patients keep care and give market stability.
        Medicare part D incentivizes participation by using late
    enrollment assessments. Patients are encouraged to join
    Medicare part D during their initial enrollment period because
    if they choose not to, their premium will be slightly higher.
    Do you believe this same model would be useful in the private
    health insurance market?
        Mr. Roy. Yes, Mr. Guthrie, I think that that is one of the
    points I was making in my prepared remarks where I discussed
    the fact that we don't need an individual mandate to have a
    system that works to protect people who have preexisting
    conditions, expand access, and be nondiscriminatory towards the
    healthy, while also discouraging people from dropping in and
    out of the system just when they are sick.
        If you have late enrollment penalties and other techniques,
    such as a tight open enrollment period, perhaps longer
    insurance contracts, those are all options on the table that
    help incentivize people voluntarily to be involved in their
    insurance continuously.
        Mr. Guthrie. Similarly, and you have covered some of this,
    but according to CMS, the part D late enrollment assessment is
    1 percent of the national base beneficiary premium times the
    number of full, uncovered months a beneficiary did not have
    part D or credible coverage.
        I think we can agree that Medicare part D is one of the
    most successful Federal healthcare programs. Could this
    reasonable guardrail also help improve private care programs?
        Mr. Roy. Absolutely. So one of the reasons why that
    particular provision is useful is that it modulates the late
    enrollment penalty based on how far away you are from the open
    enrollment period. So that way if you are really trying to game
    the system or the economic equivalent of that, the penalty is
    larger in that way. The penalty is well calibrated to the
    severity of how much you are going in and out of the system. So
    it makes the penalty as light as it needs to be but as
    effective as it needs to be to discourage that dropping in and
    out of the system.
        Mr. Guthrie. OK. And then another question. Another market
    lever to discourage people from only buying health care when
    they are sick is waiting periods. Let's say a patient gets a
    tough diagnosis and they rush to buy health care for the first
    time. Could a one-, two-, or three-month waiting period for a
    plan to become active encourage people to enter private markets
    while they are healthy instead of waiting until they are sick?
        Mr. Roy. Yes, it could. And, again, one thing that would
    tie in with that is longer insurance contracts. So if you have
    an open enrollment period every year, you still create a lot of
    incentive for adverse election because people can change plans
    every year based on their health status. But if they have the
    option to, say, buy a 2-year health insurance plan or a 5-year
    health insurance plan at a discount relative to what buying
    five 1-year plans would cost, you can incentivize people again
    to stay in a long-term relationship with their insurer where
    the insurer then also has an economic incentive to work with
    that patient over time to do things like wellness and
    compliance.
        Because the challenge is, if you have a 1-year insurance
    contract, then the insurer worries, well, if I invest a lot of
    time making this patient healthy, what if he signs up for
    somebody else's plan next year? Then I don't really get the
    benefit economically from having helped this patient.
        So encouraging insurers to have long-term relationships
    with their patients and long-term contracts with their patients
    would do a lot to align the incentives of the patient and the
    insurer.
        Mr. Guthrie. Thank you. I appreciate the answers to those
    questions.
        And I yield back my time.
        Mr. Pitts. The chair thanks the gentleman.
        I now recognize the gentleman, Dr. Schrader, 5 minutes for
    questions.
        Mr. Schrader. Thank you, Mr. Chairman.
        I appreciate the panel. It is nice to be talking about
    something other than full repeal of the Affordable Care Act and
    thoughtful discussions out here. So I like that.
        I guess the first opening question would be, I would be
    curious, actually the panel itself, Mr. Gottlieb in particular
    perhaps, I know the age thing has been talked about, we talked
    about that way back when we did the ACA, but what about
    lifestyle adjustment for premiums? That was something we
    considered very strongly early on. I know the President was
    interested in that. There is smoking, exercise, bunch of
    different variables. Sometimes hard to quantify, and we don't
    want to be discriminatory as we do that.
        Now, that seems to me another thoughtful way, to be a good
    incentive, quality health care is a good result. Is there any
    discussion on that in the academic circles at this point?
        Dr. Gottlieb. Yes, a lot of discussion. I think a lot of
    the approaches we are talking about here today aren't just,
    frankly, prohibited by the law, they are prohibited by the
    regulation.
        The challenge isn't just some of the prescriptive
    regulation in the law itself, but, frankly, the way the
    regulations have been written by CMS I think have been overly
    prescriptive in areas that would deem certain things like what
    you are suggesting to be discriminatory.
        Ultimately in the plan that we put forward with the
    American Enterprise Institute, we move towards a system where
    you could have subsidies based as a fixed percentage of the
    cost of the premiums, and you would ultimately cede back to the
    states more flexibility to allow plans to adjust premiums on a
    whole host of things, such as age, geography, maybe even some
    measure of preexisting condition. And then people, individuals,
    would get a subsidy that would be a fixed percentage component
    of that. And then you could go in if you wanted to as a matter
    of Federal law and increase the subsidies for certain
    individuals, including perhaps subsidizing certain kinds of
    risk in the marketplace and certain kinds of individuals with
    preexisting conditions.
        But we would envision a more flexible framework that would
    allow for what you are suggesting. I will tell you I think the
    way the regulations have been written, in a very prescriptive
    manner, there is very little that wouldn't be deemed
    discriminatory.
        Mr. Schrader. Ms. Corlette, comment on that?
        Ms. Corlette. Yes. Sure.
        So of course the Affordable Care Act already does include
    rating provisions that allow insurers to charge smokers or
    people who use tobacco up to 50 percent more than somebody who
    doesn't. It also allows employers to charge up to 30 percent
    more for people who don't meet certain wellness targets.
        I would say that the research that is out there to date on
    that suggests that linking achievement of a certain health
    target or changing a behavior, linking that to an increase in
    premium or a higher deductible is actually not very effective
    in changing behavior. What researchers found is that people are
    much more responsive to sort of more discrete short-term
    incentives. You know, maybe it is a gift card or a discount at
    the gym or something like that. Those tend to be much more
    effective strategies for getting people to lose weight or
    change other behaviors.
        We would be happy to discuss other alternatives with you.
        Mr. Schrader. Mr. Roy, a comment?
        Mr. Roy. Yes. I am less enamored of lifestyle-based health
    insurance pricing, and the reason why is that it is hard to
    enforce. Are you actually going to check and see, is the
    insurer supposed to check to see whether the patient is going
    to the gym one time a week versus three times a week, or
    smoking one pack a day versus half a pack a day?
        I believe that those pricing mechanisms are very difficult
    to do in a rational way, and I think it is simpler to have a
    system where you have a means-tested schedule and an age-based
    schedule. You can publish it in a table, in a book, and people
    can know every year after they file their taxes exactly what
    tax credit they qualify for, and you make it very simple for
    people, very transparent for people, and that eliminates the
    waste, fraud, and abuse that we are seeing in the way the
    subsidies are administered now in the exchanges.
        Mr. Schrader. Ms. Corlette, there has been a lot of
    discussion about the special enrollment periods and people
    taking advantage of that. CMS recently came out with some
    rules. Do you think those rules get to at least a bunch of what
    the concerns have been here recently?
        Ms. Corlette. Yes, I think they do. Although I would just
    say I think the solution is not fewer people taking advantage
    of SEPs. It is actually we need more people taking advantage of
    SEPs. One of the problems is that only 15 percent of people
    eligible for these special enrollment periods are actually
    taking advantage of them.
        And there is nothing about the triggering events, right,
    that would suggest this should be a sicker population. It is
    people having a baby or getting married or leaving a job. That
    happens to healthy people. It happens to sick people. But it is
    the sicker people that are motivated, right, to find out about
    the opportunity.
        So I do think that, coupled with documentation
    requirements, which I think are perfectly legitimate to ask
    people to verify what is going on in their lives, but we also
    need to be doing more aggressive outreach and education to all
    people who are eligible for SEPs.
        Mr. Schrader. I yield back. Thank you, Mr. Chair.
        Mr. Pitts. The chair thanks the gentleman.
        I now recognize the gentleman from Missouri, Mr. Long, 5
    minutes for questions.
        Mr. Long. Thank you, Mr. Chairman.
        Mr. Gottlieb, last week I had a manufacturing tour in my
    district back home and saw several manufacturing facilities,
    which is vital to my part of the country. And we had a little
    shoot-off with the Democrats yesterday, Republicans against
    Democrats shooting skeet and trap. And one of the things I saw
    was a clay pigeon mold that I have never seen before where a
    lot of those are made to mold the clay pigeons right in my
    district.
        Another thing that I saw was DMP, Digital Monitoring
    Products Company, bank-monitoring products. It is a 41-year old
    company. A 41-year old company. They are adding 74,000 square
    feet and doubling the size of their engineering department. So
    manufacturing is really, really important in my area.
        Another company that I went to see has done all of the work
    on the new African History Museum that they are putting up here
    on Washington, on the windows and all the structure there. They
    have also done all the work up here on the Native American
    Museum. They are doing one of the largest projects ever up in
    Manhattan right now. All the tall glass you will see on all
    those big new buildings going up in that section are coming out
    of my district.
        So manufacturing is huge in my district. So I will preface
    my remarks with that.
        Today large companies are able to use the size of their
    workforce to negotiate better rates with healthcare plans. Many
    healthcare thought leaders have suggested that individuals and
    small businesses should have the same benefit. In fact, before
    the enactment of the Affordable Care Act reforms, the Missouri
    Association of Manufacturers was able to operate two health
    consortiums providing quality health care to over 2,500 lives
    spread among 81 businesses, large and small, just as those that
    I described a minute ago on my tour last week.
        On this issue of pooling, do you think that allowing
    individuals to join together to increase their purchasing
    authority would help lower costs?
        Dr. Gottlieb. I think I would favor all kinds of pooling
    arrangements, including allowing small business to band
    together, including the concept of association health plans.
    There is nothing inherently wrong with pooling on the basis of
    state-based exchanges. I wouldn't want to see a marketplace
    where that is the only way that people can pool together.
        Just as an aside----
        Mr. Long. Now, what do you mean, the only way they can pool
    together?
        Dr. Gottlieb. Well, right now, the way the law is trying to
    force the market, the only way you can pool individuals is
    either to self-insure or to go on the state-based exchanges.
    The kinds of construct you are talking about or the kinds of
    construct that the chairman introduced with respect to
    association health plans wouldn't be allowable in today's
    marketplace. There are really only two places to pool risk
    outside of government programs: it is on the state-based
    exchanges or if you self-insure.
        There is now a secular shift toward self-insurance by small
    businesses who previously probably were too small to self-
    insure but are self-insuring to try to get out from some of the
    mandates and the regulation. I think one thing that should
    concern this committee and concern all of us is we are seeing
    efforts on the part of CMS now to apply more of their
    regulation to the self-insured businesses. And so you are
    seeing CMS regulation in certain instances potentially supplant
    ERISA law.
        Mr. Long. Well, when you say small companies can self-
    insure, pool, I guess they pool within themselves. But I am
    talking about all these manufacturers in Missouri were pooling
    among other manufacturers to come up with very good rates for
    their people.
        Would the concept of individual health pools, or IHPs, make
    rates more competitive, in your opinion?
        Dr. Gottlieb. Right. Absolutely. What it would do is it
    would allow small businesses to band together and negotiate for
    insurance contracts as self-insured businesses and put them on
    par with a large business. A large business that employs tens
    of thousands of people is getting better rates from the
    insurance companies who administer their products. It would
    allow self-insured small businesses to do the same thing.
        Mr. Long. So just like corporations and labor unions do,
    you think that they should be able to pool together?
        Dr. Gottlieb. Yes. And just like small businesses are able
    to pool together to purchase office supplies in the marketplace
    and do other things like that, yes.
        Mr. Long. And finally, could these individual and
    association plans lead to more patients getting health care?
        Mr. Gottlieb. I think that they would lead to more
    businesses being willing to self-insure. We are already seeing
    that in the marketplace, that businesses that are right on the
    cusp of having enough employees in order to reliably self-
    insure and take that actuarial risk are doing it. I think it
    would lead to more businesses being willing to do that.
        We are also seeing innovation in companies that are forming
    to help very small businesses self-insure. So if you create the
    mechanism you are suggesting, it is going to just expand the
    ability of small businesses to do that.
        Mr. Long. OK. Thank you.
        I think for the first time in 6 years I have time to yield
    back.
        Mr. Pitts. The chair recognizes the gentlelady from
    California, Mrs. Capps, 5 minutes for questions.
        Mrs. Capps. Thank you very much, Mr. Chairman. I appreciate
    our witnesses being here today for your testimony.
        And I would like to just bring into this conversation more
    of the California experience with health reform. As we have
    seen time and time again, our healthcare markets hinge on the
    buy end and efforts at the State level. The network has a
    direct influence on the patient experience in finding and
    getting quality affordable health insurance.
        As of June 2015, 1.3 million people in California are
    actively enrolled in health insurance, and our uninsured rate
    has been cut in half. In a time where there is a lot of
    rhetoric about how we must deregulate our health system,
    California has used smart regulation--this is my opinion, but
    they believe it too--to take a solutions-based approach to
    health reform. Our state exchange has required health insurance
    companies to build consumer tool that encourage participation
    and transparency, and such tools help with outreach by letting
    consumers compare plans in an apples-to-apples way by looking
    at out-of-pocket costs and quality.
        So in using all the tools at our disposal to regulate the
    market and be active purchasers of health care, California has
    emerged as the leader in this space and has succeeded in
    providing important healthcare services to citizens.
        Ms. Corlette, how do these state tools and others protect
    consumers?
        Ms. Corlette. Yes, absolutely. So California is leading the
    way on many fronts, and I think is showing many of the other
    state-based marketplaces how to do things that can really help
    consumers have a better shopping experience.
        So, for example, one thing California does is require the
    benefit designs to be standardized, and that is good for two
    reasons. One, it really helps consumers make apples-to-apples
    comparison among the plans, and allows them to focus on price
    and network and really important differentiators between the
    carriers. The second thing it does is it really limits the
    ability of the insurers to design discriminatory packages that
    can discourage enrollment by sicker people. So, for example, we
    saw in other States where insurers were putting all of the HIV-
    AIDS drugs on the very highest specialty tier, including
    generics. Well, that was clearly designed to try to discourage
    those individuals from enrolling.
        So standardized designs are used pretty commonly in private
    exchanges, like Ayon and Mercer and Towers Watson, they require
    benefit designs to be standardized because it helps consumers
    make those comparisons. So California is doing that, and I
    think they have found it very useful.
        Mrs. Capps. Not that we are doing everything perfect in
    California, that is for sure. But is there a way that we can--
    and I will put it this way--we need to learn in California from
    other states, and the successes that they are having. Are there
    ways other states could adopt these same practices for states
    who don't take these steps? What are their consumers faced
    with? And should the Federal exchange be doing anything about
    this? This is a lot to dump on you in one question, but if you
    don't mind.
        Ms. Corlette. Yes, sure. So a number of other states are
    looking at, or have standardized benefit designs. They have
    also been implementing things like out-of-pocket costs
    calculators that not only tell you what your premium is going
    to be, but if you are high risk or low risk or medium risk what
    your total out-of-pocket spend might be during the year to
    come. And that is really important for consumers to be able to
    compare plans.
        Another thing that the Federal marketplace is going to be
    bringing online, which I think could be useful, goes to the
    issue of network design and helping consumers discern whether
    or not a network is narrow, medium, or broad, because right now
    there is no easy way to tell. And many consumers are willing to
    make the trade-off between price and the narrow network, but
    you need to at least know what you are looking at, and so those
    kinds of tools can really help.
        Mrs. Capps. I still have a minute. And that question is a
    little bit open-ended. Would either Mr. Roy or Dr. Gottlieb,
    would you like to respond to that particular question?
        Mr. Roy. Sure, I am happy to. Thank you. I have a bit of a
    different view about the California experience. California
    actually had the most robust nongroup health insurance market
    in the country prior to the ACA, where individuals enjoyed a
    broad range of choices and diversity in the kinds of plans they
    could purchase. The reason why the uninsurance rate has gone
    down in California is not because of the regulations that have
    made health insurance in California cost more than double in
    many cases what it cost before. The reason is the subsidies,
    which, of course, help people afford these much higher
    premiums.
        So I think it is great that there is financial assistance
    for the uninsured to purchase health insurance, but I think
    that the regulatory scheme that California imposes has actually
    dramatically increased the cost of health insurance. As an
    example, I can give you specifically, in Kaiser, a plan in
    Sacramento, that exactly the same plan with exactly the same
    network, exactly the same cost-sharing provision, exactly the
    same actuarial value, costs double as a result of the ACA's
    regulations than it did before. So that is a big problem in
    California. And, yes, people at below 200 percent of the
    Federal poverty level are getting a lot of financial
    assistance. But as you go up that income scale, the increased
    premiums are pricing a lot of people out of the market, and
    that is why enrollment in the exchanges nationally and in
    California has fallen well short of expectations.
        Mrs. Capps. Well, I am going to have another round since I
    started that, Mr. Chairman. But I will yield back my time.
        Mr. Pitts. The chair thanks the gentlelady and now
    recognize the gentlelady from North Carolina, Ms. Ellmers, for
    5 minutes of questions.
        Mr. Ellmers. Thank you, Mr. Chairman.
        And my questions are for you, Dr. Gottlieb. As you know,
    plans are starting to exit the Federal marketplace. Namely, one
    that has been highly publicized is United Health Group. United
    will be pulling out of 26 States because they project a $650
    million loss this year. Some supporters of the status quo have
    tried to downplay this, arguing that United was not a major
    player in the Federal exchanges. But their departure from the
    marketplace has the potential to significantly limit
    competition in some markets where patients may only have two,
    or maybe even one option for plans to purchase.
        So my question is, should consumer advocates be concerned
    about this trend, or as this is happening in these markets, and
    will it limit choice based on what is left in the market?
        Dr. Gottlieb. And so, I don't think United's exit was
    trivial, because United has the potential of dramatically
    expanding its footprint. They lost over, I think, $1.2 billion
    over 2 years, and they exit the market, and it is not growing
    its footprint either. I think is what even more concerning is
    the Blues who have dominated the market to date are also
    experiencing losses, and we are seeing some signals that some
    of the Blues' plans may exit.
        The observation that is worth making in my view is that as
    these plans do exit the market, the plans that are growing
    their footprint in the market, and actually offering the best
    price, and quite frankly, are the Medicaid plans. And I think
    that is because this is becoming a much more Medicaid-like
    benefit, where plans are competing on network design and
    formulated coverage alone and trying to cheapen the benefit,
    and the plans with the experience in the market of offering
    cheap benefits, cheap enough to offset the high costs of the
    regulation in this scheme are the Medicaid carriers, and they
    are, in fact, the ones that are growing their footprint quite
    dramatically. I think Molina doubled their footprint in the
    market. Centene came close to that this year, and they are
    also, frankly, making money, too. The few plans that are making
    money are the Medicaid plans.
        Mr. Ellmers. Thank you for--that is actually along my line
    of questioning. And you point out the Blue Cross, and that is
    going to be significant in North Carolina, where we do only
    have a couple of insurers participating. And Blue Cross has
    announced that they will be. I am very concerned about this,
    because we have got to do everything we can for these patients
    to get good healthcare coverage, and they are offering the
    coverage that they have been satisfied with. They may have had
    to have cancelled whatever plan they had before in order to get
    on it, but they have become accustomed to it, and now, even
    that is ending.
        So that is my line of questioning here. Again, pointing out
    that Centene and their Medicaid-like plan said they would be
    likely turning a profit in the exchanges.
        In fact, they say about 90 percent of Centene's exchange
    enrollees are subsidy eligible and have incomes at the level
    that leaves them moving in and out of Medicaid. So United, who
    is offering broader networks and better coverage, has dropped
    out of 26 States, while Centene, who offers narrower networks
    and higher deductibles, has projected that they will be
    profiting in the exchanges.
        So there, again,--do you see this as a trend, or, in your
    opinion, is this a trend? And does this not demonstrate that
    basically, as I would put it, this current law is almost a race
    to the bottom for patient coverage?
        Dr. Gottlieb. Well, I think it is a race to a Medicaid-like
    benefit. Not to oversimplify, but I think the issue is that all
    the traditional tools--and I agree with--that it is a problem.
    All the traditional tools that insurers use to try to manage
    costs have largely been regulated away. Not all but many of
    them. And the only way that insurers can manage costs in this
    exchange market is to cheapen the benefit. The only way to
    cheapen the benefit is either you own the doctors and you try
    to regulate what they do very closely, or you network with very
    few doctors, very cheap doctors, doctors who don't see a lot of
    patients in the community, and you offer a closed formulary and
    you start tightening up your formulary design, and the plans
    with the experience doing that and the plans that have the
    cheap networks are the Medicaid carriers, and that is why we
    are going to see them continue to grow their footprint.
        Mr. Ellmers. I have only got a limited time left. So,
    basically, what this is going to do is limit care, limit access
    to care?
        Dr. Gottlieb. And limit choice of plans, unfortunately. And
    I think the real thing that should concern individuals are when
    the Blues plans are experiencing losses and start pulling out
    of this market.
        I raised this issue with folks in the administration about
    the Medicaid carriers growing their footprint, and the response
    was, well, they haven't really dominated the exchanges. It has
    been the Blues plans that have dominated the exchanges. And
    that is true, but we are seeing a lot of pain on the Blues plan
    as well. And when they start dropping out, I think that really
    is going to signal a downward spiral here.
        Mr. Ellmers. Thank you.
        And I yield back the remainder of my time.
        Mr. Pitts. The chair thanks the gentlelady.
        I want to apologize to the gentlelady from California, Ms.
    Matsui. I missed you in the queue. You were here. You should
    have been recognized earlier.
        The chair recognizes Ms. Matsui for 5 minutes for
    questioning.
        Ms. Matsui. Thank you, Mr. Chairman.
        And I want to thank the witnesses for coming here today.
        The passage of the Affordable Care Act eliminated exclusion
    of over 129 million Americans living with preexisting
    conditions from receiving affordable health insurance. These
    preexisting conditions include not only rare diseases, but also
    common diseases, like asthma or diabetes.
        Ms. Corlette, can you talk about the experience of those
    with preexisting conditions attempting to purchase insurance in
    individual markets before the ACA?
        Ms. Corlette. Sure. Absolutely. I will just say that the
    individual market was a very inhospitable place before the ACA.
    People with preexisting conditions were frequently denied
    access, up to 40 percent were denied outright a policy. It was
    frequently unaffordable, because rating factors related to
    their health status or gender or age, could sometimes be as
    much as nine times the amount of the unhealthy person. They
    found it often unaffordable to get a plan, and then that
    coverage was what we used to call Swiss cheese coverage;
    preexisting conditions were often excluded.
        So, for example, a breast cancer survivor would be told
    that no oncology services would be covered under the plan. Or
    if you had incidences of asthma, you would be told that no
    upper respiratory conditions would ever be covered under the
    plan. Those are the kinds of things that are now thankfully in
    the past.
        Ms. Matsui. Thank you. I also want to consider this,
    because protection against preexisting condition discrimination
    is important for the over 30 million individuals in this
    country who suffer from rare or serious chronic diseases, and
    they are in another situation too, which is even more
    difficult. These diseases can be debilitating, not only to the
    patient's health, but also to a family's financial stability,
    especially when diseases inhibit the ability of a patient to
    work. Patients sometimes need to rely on the goodwill of third-
    party nonprofit charity organizations to help them access the
    care they need. We need to preserve the ability of patients to
    rely on third-party payments from charities. And I am working
    with CMS to do that.
        The ACA has been very good for millions and millions of
    Americans, and we are looking to see how we might improve that,
    too. And this is an area we are looking at because of the
    serious financial instability of the patient's family. So I do
    hope that we can work with you as we move forward on that. And
    thank you.
        And I yield back the rest of my time.
        Mr. Pitts. The chair thanks the gentlelady and now
    recognize the gentleman from New Jersey, Mr. Lance, 5 minutes
    for questions.
        Mr. Lance. Thank you very much, and good morning to the
    panel.
        I am concerned about the fact that exchange participants,
    based upon their 2015 plans, did not necessarily continue for
    2016. A recent study, as I understand it, has found that only
    one-third of exchange participants kept their plan year to
    year. And I think this reveals significant market instability.
        Could the panel comment on that?
        Mr. Roy. Yes. So I would say it is not entirely about
    market instability. If you are going to have a 1-year insurance
    contract, people are free to shop year over year for the plan
    that is the best plan for their needs, and it might be that the
    prices have evolved in a different way. Just like you might not
    fly the same airline next week as you did last week, you might
    have a different plan next year than you did this year.
        So much of this is quite natural. But I do think that
    instability is important insofar as, again, the insurance
    company does not reap the economic reward from making you
    healthy over the long term if you are switching plans year over
    year over year.
        So maybe it is good for some people to have plans where
    they switch year over year, because that helps create the price
    discipline, that encourages insurers to compete for your
    business and be held accountability for the premiums they
    charge, but it would be nice for there to be an option in the
    individual market for people to shop for plans with longer time
    horizons so that, again, for a discount, perhaps those insurers
    would say, ``Hey, if you sign up with me for 5 years, your
    insurance would cost 20 percent less, but we will be able to
    work together to make sure you stay healthy in the long run.''
        Mr. Lance. Would anyone else in the panel like to discuss
    this? Yes, Ms. Corlette.
        Ms. Corlette. Yes. Sure. I think the factor to keep in mind
    is historically the individual market was called the residual
    market, and that is simply because the primary source of
    coverage for most people under 65 is through their employer.
        Mr. Lance. Yes.
        Ms. Corlette. And, certainly, for people of lower income,
    they may come in and out of Medicaid. So one of the reasons we
    are seeing a lot of transition in the marketplaces is because
    people might be gaining coverage because they get a job, or
    because they dip below the poverty line and so they are then
    eligible for Medicaid. So that is just an important factor to
    keep in mind when you think about these marketplaces.
        Mr. Lance. Thank you.
        Doctor.
        Dr. Gottlieb. I think your observation reflects the fact
    that the plans that experience the largest enrollment are the
    ones that increase their premiums the most in a subsequent
    year, because they are the ones that experience the biggest
    losses. And that is why when we are looking at the premium
    increases over the course of this year, we really should
    enrollment-adjust them, and think about the premium increases
    on enrollment adjustment basis, because it is going to be the
    case that the plans that take the biggest premium increases
    will be the ones that have the biggest enrollment, and then
    that is going to cause a subsequent churn that you are talking
    about in the subsequent years.
        I think the other trend that is worth watching is that this
    is becoming a market that is increasingly narrow to a very
    narrow income demographic, and that is people who are eligible
    for the cost-sharing subsidies because of the high costs. We
    talk about the premiums and the subsidies for the premiums, but
    the out-of-pocket costs are very, very high in a lot of these
    plans.
        And so, the only people for whom this is economically
    attractive, if you will, increasingly are going to be those who
    fall around 200 percent of Federal poverty level who qualify
    for the cost-sharing subsidies. And I think we talked at the
    outset about there hasn't been, sort of, the dumping, if you
    will, from the employer market into the exchanges. I think we
    are going to start to see that, start to see people who work
    for large employers who fall within that income range find
    themselves in the exchanges, and lose their employer-provided
    coverage, and it could, potentially, make the American health
    care less egalitarian overall.
        Mr. Lance. Thank you. And would anyone else on the panel
    like to comment on what the doctor has just said regarding the
    narrowed market?
        Mr. Roy. Yes. One thing I might add, too, is that we have
    been talking a lot about preexisting conditions, and there's
    been an enormous amount of disruption of the individual market
    for health insurance because of the claim that we needed to do
    all the disruption to protect people against preexisting
    conditions. And that is not actually true. It turns out,
    actually, the CBO did a study where they asked the long-term
    uninsured why they didn't have coverage. Seventy-one percent
    said it was because the insurance cost too much, the premiums
    were too high. Only 3.5 percent said that because of a
    preexisting condition or other health status-related issues
    were denying them coverage.
        We also have the evidence from the Affordable Care Act's
    own preexisting condition insurance program, a high-risk pool
    that was designed to be a bridge between the enactment of the
    ACA and 2014, when the guaranteed issued regulations came into
    effect. That provision allowed anyone who could demonstrate
    that they had been denied coverage by an insurer because of a
    preexisting condition, anyone, any person who could prove that
    could sign up for this program. Only 250,000 people in the
    entire country signed up for this program. And we disrupted
    health insurance for 300 million people, allegedly, because we
    needed to fix health insurance for these 250,000.
        So it is really important to understand that we should
    address the problem of preexisting conditions, but there are a
    lot more efficient ways to do so that don't disrupt coverage
    for the people who had it under the old system.
        Mr. Lance. Thank you.
        My time has expired.
        Mr. Pitts. The chair thanks the gentleman. I now recognize
    the gentleman from Maryland, Mr. Sarbanes, 5 minutes for
    questions.
        Mr. Sarbanes. Thank you, Mr. Chairman. Thanks to the panel.
        Just on that last point, there is a distinction between
    people that were being outright banned or denied coverage based
    on a preexisting condition, versus people whose premiums were
    being adjusted significantly or a lot higher based on the fact
    that they had a preexisting condition. So the observation by
    90-something percent that it was the cost that was the barrier
    to them could still be linked to the preexisting condition
    situation, I would imagine, in a lot of cases.
        The question I have, and I will start with you, Ms.
    Corlette, is I have heard some increasing discussion about the
    high-deductible plans and the impact that is having on the
    affordability, but also a discussion of how there is a wide
    variation in the kinds of benefits or services or products, for
    example, drugs, that are exempted from the deductible, and how
    that can affect affordability and behavior and access and so
    forth.
        And I think, for example, California is an example--is a
    state where they have been pretty proactive in looking at that
    issue of where the exemption should be for certain kinds of
    services to try to make the coverage more affordable and more
    useful, frankly.
        So could you start a discussion among the panel about that
    deductible issue, because I think it has implications
    potentially for some improvements that we could do with
    guidance in that area?
        Ms. Corlette. Yes. I am so glad you asked that question. So
    two quick points about deductibles. One is I find it ironic
    that a lot of people who right now are complaining about the
    high deductibles on the marketplaces are the same people who
    have been calling for more high deductible health plans
    generally.
        The second thing is, we have to think about where we were
    before and where we are today. Pre-ACA, deductibles were as
    high as $10-, $15,000 sometimes. So the financial protection
    that exists in the marketplace right now is way better than it
    was previous to the ACA.
        But to your point, when you tell a lower income family that
    they have a $5- or $6,000 deductible, it doesn't matter, right?
    That is still a huge amount of money for them to lay out before
    they can get healthcare services.
        There are a couple of things that are really helpful and
    important. Number one is, of course, the ACA provides first
    dollar coverage for preventive services and important
    screening. But, interestingly, California is a State that is
    doing this and other States are looking at it as well, is
    encouraging, or in some cases, requiring insurers to cover
    important primary care services, generic drugs, some urgent
    care before somebody has to pay up the deductible. So that
    allows a consumer to get more upfront value than they otherwise
    would, and I think that is an innovation that we should be
    looking at more broadly.
        Mr. Sarbanes. Anybody else?
        Mr. Lance. Yes. So, Ms. Corlette thought it was curious
    that people might critique the high deductible in the ACA. So
    let me try to explain why people do that.
        The problem is that, in theory, high deductibles are good,
    because if you have the option of a low deductible and a higher
    premium and a high deductible and a lower premium, some people,
    naturally, might want a lower premium and a high deductible. If
    people are truly trying to seek protection from bankruptcy due
    to medical bills, the most affordable way to do that is through
    a high-deductible plan combined with a health savings account.
        The problem with the ACA is the deductibles are higher, and
    the premiums are higher, too. So people are paying 50 percent
    more for their monthly premium and the deductible is 2,000,
    $3,000 higher than it was before because of all the regulations
    and mandates in terms of how those insurance products have to
    be designed. And this is why the regulatory scheme of the ACA
    has been a major focus of criticism, because it is directly
    responsible for the fact that people are not only just paying
    higher deductibles, they are also paying higher premiums.
        Dr. Gottlieb. So I will just comment. I think the idea of a
    high-deductible plan, some sort of a conservative theology, if
    you will, was that the high deductible was tied to a lot of
    consumer selection on the more routine care. And here you have
    a regulatory scheme that mandates a lot of first dollar
    coverage for ordinary, routine care, but still is coupled to a
    high deductible, and that is not really a high-deductible
    consumer-driven plan. And what is happening is because the
    insurers have to cover first dollar of a lot of the routine
    stuff, and they can't take premium increases; they can't offset
    those costs in other ways, they are offsetting it by, in my
    view, narrowing the coverage for the catastrophic fees. Exactly
    a place we want the most generous coverage. And that is being
    coupled--as you mentioned, drug formularies that is being
    coupled, for example, and it is manifesting in the form of
    closed drug formularies, where you have very narrow lists of
    drugs on formulary, and all the drugs that aren't on the
    formulary aren't covered at all. And what consumers spend out
    of pocket for those medicines doesn't count against your out-
    of-pocket maximums, so their deductibles are completely on
    their own.
        And I would say, I think all the silver plans on the
    Affordable Care Act are closed drug formularies. I have gone
    through and I have looked at 30, 40 plans, and published this
    data, and they were all closed plans, and I just assume that it
    is almost all the silver plans are closed formularies. That is
    really a new development in the marketplace. We never saw
    closed formularies used so predominantly. The only place we
    really saw that was in Medicare Part D and Medicare Part D
    coupled it with a lot of regulations and modeled formulary
    protected classes.
        And I will just sum up by saying I don't think the health
    plans are doing anything wrong. I think they are taking
    flexibility where they still have it. A lot of the flexibility
    that they have to or they have traditionally used to try to
    manage costs have been taken away from them, and the few places
    that it is left, they are exercising it.
        Mr. Sarbanes. Thank you.
        Mr. Pitts. The chair thanks the gentleman, and recognize
    the gentleman, Dr. Murphy, 5 minutes for questions.
        Mr. Murphy. Thank you, Mr. Chairman.
        It is a sad thing to me when I look at, as we reflect on
    this committee, and also the subcommittee on Oversight and
    Investigations has looked over the last few years of the kind
    of spending we have had on the Affordable Care Act. We have had
    it for advertising, Web sites that didn't work. I think Oregon
    spent a couple of hundred million and finally, they decided
    since they didn't sign anybody up and it was filled with
    political corruption; it wasn't going to work. We have seen
    half the co-ops fail, administration costs. Secretary Sebelius
    went back to the insurance companies and said, Hey, we need
    some more money from you to donate to keep it going. And none
    of that money went for even a single Band-Aid. Nothing helped
    there. So we have got to find a different approach on how we
    are handling health care.
        Now, one of the things I want to talk about are the high-
    risk pools, and particularly, invisible risk pools. I think,
    Mr. Roy, you have talked about these things. I want to see if
    you can elaborate. So are high-risk pools still today a fair
    pathway for helping to cover some of our sickest friends and
    neighbors?
        Mr. Roy. They can be, but they face a lot of limitations.
    And I think that to the degree that we have talked about high-
    risk pools, we have to understand the risks of high-risk pools.
    So, for example, the AEI proposal proposes giving States
    funding for high-risk pools as a bridge for those who are very
    sick and don't get coverage for the traditional market. The
    challenge is that once States, State governments, just like
    State exchanges can be messed up, if State governments are
    running high-risk pools, they have incentives, an incentive to
    overpromise and underdeliver. They say, Oh, we are going to
    expand this high-risk pool to everyone because the politicians
    will have to pay the bill for that and the voters will have to
    pay for----
        Mr. Murphy. I understand.
        Mr. Roy [continuing]. Or 20 years down the road. So----
        Mr. Murphy. So where would they pay that, on the back end,
    then.
        Mr. Roy. Well, yes. So if you sign people up, but most of
    the health costs happen 10 years down the road as those
    patients age, and have higher medical costs as a natural
    combination of their aging and their health care. Once the
    government is actually determining the price of a risk, a lot
    of things can go wrong. I would argue it is actually simpler to
    preserve guaranteed issue, but get rid of the distorting and
    discriminatory regulations in the ACA exchanges that make
    guaranteed issue unaffordable. So you can actually preserve
    guaranteed issue in a very simple way that doesn't require the
    use of high-risk pools, have everyone in the same insurance
    market, and that way, the people who are high risk, the people
    with diabetes, people with chronic conditions, have a broader
    choice of health insurance plans than they would have on the
    high-risk pool.
        Mr. Murphy. Dr. Gottlieb, do you agree with that approach?
        Dr. Gottlieb. I think we talk about high-risk pools as an
    interim step. My view is that I think with proper risk
    adjustment, that would be able to be done prospectively, and a
    subsidy structure, that you allow some adjustment for risk, you
    can achieve what you are aiming to achieve with high-risk pool
    and help underwrite the increased risk of certain individuals
    with chronic conditions much more effectively in a viable pool.
        Mr. Murphy. Let me ask this, too, then: As someone who has
    identified, so we know that people who are healthy are trying
    to avoid buying insurance, and then they start to get sick and
    they want to buy insurance, the same as people who have cars.
    They don't want to buy insurance until they get in an accident.
    But what happens here also is when you look at the incredible
    cost if these are not managed. So Medicaid, 55 percent of
    Medicaid spending goes to 5 percent of the population. And
    according to multiple reports, one of them Tom Insel, former
    head of NIMH, he said virtually all of them have mental
    illness. And yet, what happens is we maintain a system where
    medical records are kept separate but equal, which means you
    can't get information and know the higher risk, but the person
    who has a chronic illness and depression, for example, doubles,
    triples, quadruples the cost, if it is not treated. And so I am
    concerned about what we are talking about here is just a
    mechanism to pay for this, but not a mechanism to change this.
        And how do we look upon this? If someone is identified then
    with a chronic illness, with a mental illness, they are really
    beginning to coordinate and integrate care, which I think is
    the absolute key to deal with it more cost effectively.
        Mr. Roy, Dr. Gottlieb, and Ms. Corlette, if you could
    comment on that.
        Mr. Roy. Yes, I mean, they are all related, because the
    reason why we don't have a patient-centered healthcare system
    in which hospitals and doctors and insurance companies would
    have the incentive to really cater to the patient's needs in
    those regards, is because the patient doesn't control the
    health care dollars. In every other sector of the economy, the
    consumer controls the dollars, and that is why businesses go
    out of their way to cater to the consumers' interests and the
    consumers' needs. In health care, the government controls the
    dollars.
        Mr. Murphy. But they are concerned about their own health.
    I think in these cases, if it is not explained to them that you
    really have to coordinate these services together and enforce
    the position that they would be talking to each other across
    boundaries.
        Mr. Roy. Sure. But insurance companies and healthcare
    entrepreneurs, healthcare IT companies that integrate their
    patient records across providers, they can provide those
    services. And part of the challenge is that we have a culture
    in this country of patients who aren't engaged in their health
    care and the value of their health care because they are not
    paying for it directly. If they are paying for it directly, if
    they are choosing their own insurance plan and paying for care
    through, like, HSAs and able to shop, yes, you are not going to
    deal with the person who is like the schizophrenic who really
    doesn't have the necessary mental capacity and there, you need
    more of a role of the state to help navigate the healthcare
    system for those individuals, but a lot of the inefficiencies
    with those high utilizers is driven by the fact that they have
    zero economic incentive to save that money.
        Mr. Murphy. I agree to some extent. But I know I am out of
    time here. But I would also like to opine this, that you are
    right to some extent, but it is also an issue of if it is not
    managed by these companies, if there is no incentive for those
    companies to really manage and coordinate that person's care,
    then you end with increasing costs, the state or Federal
    Government is just going to pick up. And this is where I think
    we look at ways of financing this program inefficiently, but
    not really fixing it.
        I know I am out of time, Mr. Chairman.
        Mr. Pitts. The chair thanks the gentleman. Now we are going
    to recognize the gentlelady from Illinois, Ms. Schakowsky, for
    5 minutes of questions.
        Ms. Schakowsky. Mr. Roy, I don't even know. I am not going
    to spend my time disagreeing with you, because the idea that if
    only people had more control, that we would dramatically
    reduce. People can't afford the health care that they need, not
    that government is controlling it. But I am not even going
    there with you.
        According to a 2014 study done by HHS, the rate review
    requirement included in ObamaCare saved consumers nearly $1
    billion on insurance premiums in 2013. However, currently, the
    Secretary of HHS only has the authority to review rate
    increases, not modify, approve, or deny them. Many states have
    taken the extra step of enacting legislation to provide their
    insurance department with the authority to deny or modify
    unreasonable health insurance premium rates.
        Evidence shows that when insurance regulators have the
    authority to do so, consumers pay less. I am from a state that
    does not have that authority. In 2013, the Maryland Health
    Commission used such authority to modify the proposed rates for
    all nine carriers, who submitted plans for the Maryland health
    connector. The commissioner reduced the propose rate increases
    of all existing plans, one by more than 66 percent. And that is
    why I have introduced the Health Insurance Rate Review Act,
    which grants the Secretary of Health and Human Services the
    authority to deny or modify unreasonable premium rate increases
    in the states where insurance regulators don't have the
    authority.
        So, Ms. Corlette, here is the question: Would expanding
    rate review authority help to control the cost of premiums?
        Ms. Corlette. Thank you, Congresswoman, for that question.
    So the evidence is really strong that having an independent
    reviewer of insurers' rates, proposed rates, the assumptions
    they are making, the claims they are making about trend and
    cost, et cetera, is a critical consumer protection, and it has
    saved consumers millions of dollars.
        And it is a particularly critical function in areas that
    there is not a lot of competition among insurers. I would say
    that there are a number of states that are doing a really,
    really good job of this, but others where they either lack the
    authority or the resources to do it, and in that case, the
    Federal Government can be an important backstop.
        Ms. Schakowsky. What states would you cite as examples of
    who is doing a good job?
        Ms. Corlette. Who is doing a good job? I think that in
    Rhode Island and Oregon and Washington State, those are a few
    that come to mind immediately. Maine also has a good track
    record that are very proactive in how they are looking at
    insurers' claim.
        Ms. Schakowsky. Let me also ask you this: I also strongly
    support creating a public option to be offered in the
    marketplace. We discussed this during the development of the
    Affordable Care Act, and we actually passed one in the House. A
    robust public option would increase marketplace competition,
    lower premiums for consumers, lower the Federal deficit, all
    this has been documented. It is estimated the consumers would
    save between 5 and 7 percent on their premiums through a public
    option health plan; moreover, the Congressional Budget Office
    previously estimated a public option would save $158 billion in
    Federal spending over a 10-year period. I introduced
    legislation in the Public Option Deficit Reduction Act, which
    would create a publicly administered insurance plan that would
    be available in every marketplace, would be designed to include
    robust provider networks, and more affordable deductibles.
        So, again, Ms. Corlette, would availability, in your
    opinion, of a public option provide consumers with a more
    affordable plan and help to create more competition in the
    marketplace?
        Ms. Corlette. Yes, I think that the public option could
    really help keep costs lower, not only would it likely have
    lower administrative costs than a commercial insurance company,
    but it could also use its market power to ring lower prices out
    of providers. And also could be a really important backstop in
    rural or underserved areas where it is hard to get insurers to
    come in and compete. So for those reasons, I think it is
    definitely worth bringing back on the table.
        Ms. Schakowsky. OK. And I yield back. Thank you.
        Mr. Pitts. The chair thanks the gentlelady, now recognize
    the gentleman from Illinois, Mr. Shimkus, 5 minutes for
    questions.
        Mr. Shimkus. Thank you, Mr. Chairman. This has been a great
    panel, so I appreciate you all coming. I think people know that
    we have a system in place. Some people think it is the best
    thing since sliced bread, some people have concerns. I think
    everybody believes there are changes that could be made. So I
    think this is going to be a start of, hopefully, a lot of
    discussions.
        There was a section of our citizens that got help, and that
    was the Medicaid expansion for people who didn't have access to
    care. But I am told all the time, it is never refuted, that
    people are paying more and getting less coverage now than they
    had before, if they had a standard policy beforehand. I
    acknowledge that Medicaid expansion did cover some uninsured.
    And even those who have it--and also the promise to hospitals
    who are part of the negotiations, was that they would save
    costs, and there would be less access to emergency rooms. Now
    they have more people going to emergency rooms, and it is
    because of these high deductible plans.
        So there are a lot of problems and promises that were made
    that weren't kept on, what, $2,400 a year savings for a family
    of four, premiums would go down, copays would go down. If you
    like your policy, you keep it. If you like your doctor, you
    keep it. All those were not satisfied.
        So we are talking about tweaking and trying to fix--part of
    this is the cost sharing issue that we have been talking about,
    too, and how you incentivize. I am not a big supporter, and I
    am not a supporter of federally mandated plans without
    flexibility. But I do know that the cost sharing is based upon
    the silver and 60 percent amount.
        Dr. Gottlieb, would it make sense to shift that bronze to a
    50 percent, and not based upon the silver percentage? Would
    that help at all?
        Dr. Gottlieb. Well, I note that people have also talked
    about creating a copper plan for younger healthier people. It
    is probably going to be the case that a lot of the bronze plans
    end up pulling out of the market and insurers ship more towards
    the silver plans this year for a variety of reasons, not the
    least of which is the bronze plans ends up having to pay back
    the most amount of money because they ended up attracting the
    healthiest individuals.
        I think the problem stems from the rigid regulatory
    structure around the rating system and the fact that you can't
    vary the actuarial value more than 2 percent up or down from
    these metal tiers. I think what we should be thinking about
    doing is providing much more rating flexibility to the insures
    so they can offer wider variety of different kinds of plans and
    offer different schemes, things like value-based insurance
    designs.
        Right now what they do is they try to develop a plan to
    meet an actuarial target, rather than to develop a plan that
    sort of optimizes a set of circumstances.
        Mr. Shimkus. And even in part of the value-based, or even
    the hospitals are going to be now incentivized to have quality
    care and quality care measures, which financially would be a
    value-based system. Would it not be?
        Dr. Gottlieb. I think as providers take actuarial risk, we
    are moving toward that. And that is maybe one of the good
    benefits of the consolidation that is underway of the
    healthcare system. I have been critical of consolidation. With
    respect to the rating and the tiers and the metals, there was a
    view that by having discrete metals, it would make it easier
    for consumers to understand actuarial value. But, in fact, I
    think the evidence shows consumers don't necessarily understand
    actuarial value in relation to the metals. And we should think
    about conducting some real vigorous research around whether or
    not consumers can be educated around just what the actuarial
    value means so we can provide number the number to the
    consumers, not just the metal. I think the Healthcare.Gov Web
    site is doing a better job of translating what actuarial value
    means in some practical settings. There are better tools to
    help people understand that. We can move towards a more
    flexible framework.
        Mr. Shimkus. And let me end up with this statement saying
    to you, Dr. Gottlieb: This auto enrolling debate, helpful,
    harmful, or is there an incentive to, if you auto enroll,
    people are losing idea of cost and coverage by just letting it
    roll? If you auto enroll one policy down because they weren't
    engaged in making the decision, would that force a closer
    scrutiny of the policy?
        Dr. Gottlieb. Well, we talk about auto enrolling in the
    plan we put out through AEI. What we do is we provide a minimum
    subsidy level that is going to be sufficient for states to be
    able to auto enroll individuals in a basic plan. We give the
    flexibility of states to do that.
        Now, the reality is in our scheme, you are going to end up
    being auto enrolled into a basic healthcare plan that is only
    going to provide catastrophic coverage, so a lot of people are
    not going to like it. But we do talk about the concept in our
    plan.
        Mr. Shimkus. I talk about catastrophic coverage all the
    time, and I think that is where we need to be.
        Thank you, Mr. Chairman. I yield back.
        Mr. Pitts. The chair thanks the gentleman, and now
    recognizes the gentleman from New York, Mr. Engle, 5 minutes
    for questions.
        Mr. Engel. Thank you, Mr. Chairman. I thank you and the
    ranking member for holding today's hearing.
        Let me just say, you know, when you take a massive bill
    like the Affordable Care Act, of course, there are going to be
    problems with it. Major bills like this, whether it was
    Medicare or Medicaid or other large bills, you see how they
    work, and then you tweak them. You change things. You improve
    things. But, unfortunately, we haven't been able to do that.
    The majority seems to be more intent on trying to get us to
    repeal it 62 or 63 times, which really wastes everybody's time.
    We really should all put our heads together on both sides of
    the aisle and do some commonsense fixing. Not repeal it,
    because we really believe this Act is here to stay, and we
    believe that this is something that benefits people, because
    Ms. Corlette's testimony is a very apt reminder of the
    practices that were routinely employed prior to the passage of
    the Affordable Care Act.
        Let's state them, again: Denying insurance for people with
    preexisting conditions, forcing certain populations to pay
    exorbitant rates, applying lifetime limits to care. These
    practices, if you are under 26, you couldn't stay on your
    parents' plan. These practices were once commonplace in the
    individual insurance marketplace.
        So we have made this point numerous times, and I think it
    is important to, again, remind ourselves what the status quo
    used to be and how it affected people, people like our
    constituents, our families, and our friends. And as Ms.
    Corlette mentioned, like any law, the ACA is not perfect. But
    it has made a world of difference for those millions of
    Americans who were once denied coverage or couldn't afford it,
    and I think we need to keep working to ensure it continues to
    make a difference for millions more.
        Ms. Corlette, you notice that the ACA has allowed states to
    implement new delivery systems reforms, a space which New York
    has been tremendously successful. New York's delivery system
    reform incentive payment program is laying the groundwork to
    ease payers' and providers' transitions from a fee-for-service
    system to one in which reimbursements are based on value, not
    volume. Through this program, often referred to as DSRIP, New
    York will be able to allocate more than $7 billion in Medicaid
    savings towards improvements to its healthcare system over the
    next several years.
        So would you talk a little more about the kinds of delivery
    system reforms that have been spurred by the ACA, and how those
    reforms might benefit the health system as a whole?
        Ms. Corlette. Yes, absolutely. I mean, I talked earlier
    about how health insurance is such an expensive product. And
    one of the reasons health insurance is so expensive is because
    the delivery of care and the way we pay for care is often
    irrational. So some of the things that the Affordable Care Act
    did was really launch some experiments, primarily using
    Medicare, but also Medicaid, and I think Covered California is
    an example of how a state could maybe use its marketplace to
    also get at some of these payment and delivery system issues.
        So some examples are encouraging expansion of patient
    centered medical homes, where care is truly coordinated and
    there is a real emphasis on primary care for people with
    chronic conditions, bundling payments for a particular medical
    procedure, so that, in some cases, providers are actually
    taking on some risk if they overdeliver services. That is
    another example. ACOs, accountable care organizations, again,
    where providers are taking on some risk; if they are over
    budget and not delivering quality of care, then they take a
    financial hit.
        So those are just a few examples of some of the
    demonstration projects and other things that are being
    launched, and New York is a great example of a state that is
    taking it up and running with it.
        Mr. Engel. Thank you.
        Mr. Shimkus had asked a question to one of the other
    panelists about actuarial value. I am wondering if you would
    like to comment or respond to that question?
        Ms. Corlette. Yes, sure. So the actuarial value targets are
    built around the bronze, silver, gold, platinum level plans.
    And, I mean, we talked a little bit earlier about how consumers
    are making trade-offs, right, between higher deductible, lower
    premium, higher premium, lower deductible. And that, it
    simply--these are signals for consumers to be able to help them
    make those trade-offs in a clear and understandable way. And as
    far as I can tell, they are working. Predominantly, people are
    enrolling in the silver level plans, but, you know, with 86
    percent of people reporting satisfaction with their coverage in
    the marketplaces, it sounds like I think people are generally
    happy with their choices.
        Mr. Engel. Thank you.
        Thank you, Mr. Chairman.
        Mr. Pitts. The chair thanks the gentleman. I now recognize
    the gentleman from Indiana, Dr. Bucshon, 5 minutes for
    questions.
        Mr. Bucshon. Thank you, Mr. Chairman. This has been a
    productive discussion today. I was a cardiovascular and
    thoracic surgeon before coming to Congress, so, obviously, it
    is near and dear to my heart. The one thing we are not talking
    about, though, is the cost of the product, itself, is too
    expensive. I mean, that is not what this is about. You
    addressed some of that.
        The only way that we are going to get a handle on this is
    we are looking at ways to cover a product that continues to be
    too expensive itself, and so in some future hearings, hopefully
    we can address that. There is no price transparency in health
    care, very minimal from a consumer perspective, and it is
    third-party payer. The consumer doesn't care what things cost,
    essentially, because they are not paying the bill for the most
    part.
        Quality transparency, which is improving. The Society of
    Thoracic Surgeons, my society, has had a database for almost 25
    years that I participated in. The expansion of has is leading
    to some consumer-driven type health care, Healthy Indiana plan
    is the way we are covering our Medicaid population that is
    leading to decreased cost in that space, because consumers have
    a little bit of their own skin in the game. And we need to
    further incentivize preventive care by paying for it better
    because the people don't get sick, it doesn't cost you any
    money.
        So that is my lead-in. I would also like to say some of the
    mentioned problems in the marketplace that were just mentioned
    were recognized by both sides of the political aisle. Everybody
    recognized preexisting conditions was the problem. Everybody--
    all of those--it is everything else that the ACA did that was
    the issue. We could have solved those problems in a different
    way, in my opinion.
        The average Federal exchange premiums jumped 12.6 percent
    for bronze plans, and this is 2015; 11.3 percent for silver
    plans. Deductibles were up by $500 in the silver plans. The
    reality is the people I talked to, healthcare costs are going
    up for everyone. And I think even though, in fairness, there
    are many people that are happy with their insurance coverage,
    there are also complaining about the costs.
        The Gallup Poll recently said that healthcare costs are at
    the top of American families' financial concerns, number one.
        So that said, a lot goes into rates: experience, trends,
    reinsurance, taxes, benefits, medical loss ratio, many of which
    are mandates in the ACA.
        Ms. Corlette, in your testimony, you note Congress should
    approve affordability. I think we all would agree with that.
    You say that we can achieve that through premium cost-sharing
    arrangements. Can you identify--and this would be for the full
    panel, but I will start with you. One, government mandate that
    could be eased today that would alleviate costs? You may not be
    willing to mention, to say----
        Ms. Corlette. Yes, I have to take a minute to think about
    that. But I would happily cede to my counterparts while I am
    thinking about it.
        Mr. Bucshon. Yes, I mean, I think since I am one of the
    last to ask questions, some of them have been answered, right?
    The 3-1 age premium limit is a big one, the MLR is a big one.
    Others?
        Ms. Corlette. I would only point out that by expanding the
    age rating you would be lowering costs for younger people, but
    raising them for older people. So, there are winners and losers
    when you do that.
        Mr. Bucshon. Except for the fact that that is limiting the
    ability of younger people to enroll because the costs are too
    high for them to enroll in the plan in the first place. So--Mr.
    Roy.
        Mr. Roy. Correct.
        So in my written testimony, I provide a written
    illustration of this fact that, actually, the narrow age spans
    in the ACA end up increasing the cost of health insurance for
    older individuals as well, because the younger people don't
    enroll, which increases premiums for everyone in the end
    through adverse selection. So I definitely would highlight
    that, as you mentioned.
        One thing I would bring up, since the goal is--you started
    in your question talking about, well, there are things in the
    ACA that we should change, and there are things that we should
    change, and there are things we should change to reform the way
    we pay for health care, and we absolutely do that as the core
    problem.
        But one area that I would highlight that we haven't talked
    about today that is outside the scope of this today's hearing,
    but I would encourage you to consider is hospital
    consolidation. The fact that hospitals are consolidating and
    taking market power in a particular locality and using that
    market power to basically dictate prices to insurance
    companies, which insurance companies and Medicaid is simply
    forced to pass on in the form of higher premiums. That is a
    huge problem. There's a lot we could be doing to address the
    problem of hospital consolidation.
        Mr. Bucshon. I am running out of time.
        Yes, and we are not even talking about the tax treatment of
    hospitals and the more complicated situation that we are in.
    Hospitals and insurance companies are building all the new
    glass buildings in every city that I visit, including my own.
    And it is getting harder and harder to justify to the
    constituents that their costs are going up, but yet, it appears
    that some of the providers of those things are doing quite
    well.
        I am out of time. I yield back.
        Mr. Pitts. The chair thanks the gentleman, now recognize
    the gentleman, Mr. Cardenas, 5 minutes for questions.
        Mr. Cardenas. Thank you very much, Mr. Chairman. And I
    really appreciate the opportunity to have this hearing. I hope,
    and it appears to me that maybe we are starting to speak more
    about how we can legislate and improve on the environment that
    we have post-ACA instead of just talking about how we should go
    back to a world before ACA. But here we are. So thank you very
    much, Mr. Chairman and colleagues.
        I am baffled that we would point out that healthcare costs
    keep rising, but it is my understanding--forget about my
    understanding. Could you answer the question, prior to the
    Affordable Care Act being passed, were healthcare costs going
    up in the United States in overall consumption, overall GDP, et
    cetera, et cetera? Was it on the rise before the Affordable
    Care Act even got enacted?
        Mr. Roy. Healthcare costs have risen every year since time
    immemorial, but one thing that is important, I think the
    question, sir, that you are trying to get at is, has the rate
    of growth in healthcare costs increased or decreased? And
    there's been, since 2003, a decline in the rate of growth in
    the increase of healthcare costs and healthcare spending that
    has continued with accelerated and exacerbated by the global
    recession. And so, now we are starting to see just in the last
    year, actually, the growth in healthcare spending and
    healthcare costs have turned up again. So there has been a
    significant increase in the growth rate of healthcare costs
    since the ACA's spending provisions went into effect.
        Dr. Gottlieb. I would just add to that and echo that. When
    you look at the analyst reports being put out and what the
    healthcare companies are reporting right now, they are
    reporting clearly at the end of what we call an underwriting
    cycle, where healthcare costs declined as consumption, but yet,
    it declined during the recession and now you are seeing
    healthcare consumption go back up, and costs are going back up
    with it, and that is what the insurers are reporting. So that
    should be concerning. I think we are going to see an
    acceleration in healthcare inflation in the coming years.
        Mr. Cardenas. But weren't we seeing double digit year over
    year healthcare costs going up prior to the Affordable Care Act
    being enacted? Go ahead.
        Ms. Corlette. Yes, sir. Before the Affordable Care Act was
    enacted, we were seeing double digit cost increases year over
    year, and since the ACA was enacted, we have seen lower costs
    growth year over year.
        Mr. Cardenas. And before the ACA was enacted, what would
    happen to somebody if they had a precondition? Say somebody had
    previously cancer, and it was in remission, and then all of a
    sudden they found themselves out of the insurance market? Say I
    want to get insurance. What would happen before the ACA was
    enacted? Would somebody likely, really, honestly, be able to
    get insurance with that precondition? Go ahead.
        Ms. Corlette. Likely not. And I would point out, too, that
    there's been a lot of discussion today about how much more
    expensive these health insurance products are post-ACA. Well,
    one reason health insurance was cheaper before the ACA is they
    didn't cover sick people. So, yes, you can offer cheaper
    product if you don't allow any sick people----
        Mr. Cardenas. If you legally exclude sick people.
        Ms. Corlette. Right. And if you don't cover benefits and if
    you don't cover mental health or prescription drugs, yes, the
    product will be cheaper. Will it provide the kind of financial
    protection that you and I and all of us with employer-based
    coverage are used to and expect? No.
        Mr. Cardenas. Also, let me ask you a follow-up. Prior to
    the Affordable Care Act passing, say somebody did get cancer
    and they wanted treatments and, thank God, they actually were
    cured, what was the likely deductible that that family or
    individual was likely going to be saddled with, with a full-
    fledged chemotherapy, maybe even some operations removing some
    tumors, et cetera, et cetera, et cetera? What was the
    likelihood of that individual or family being saddled with
    their own portion of the costs, even if they had insurance?
        Ms. Corlette. Financial stress is one of the biggest issues
    for cancer patients and their families, and not only can lead
    to medical bankruptcy and those kinds of things, but it also
    can really lead to worse health outcomes because of the trauma
    and stress of dealing with those financial costs.
        Mr. Cardenas. But what were the likely costs? Was it
    $5,000, maybe $10,000, $20,000?
        Ms. Corlette. No. If you have a cancer that it could be
    tens of thousands, hundreds of thousands of dollars depending
    on the kind of----
        Mr. Cardenas. Now, since the ACA has been passed, that same
    scenario, how much would that person be saddled with after all
    of that remediation and all of the treatments?
        Ms. Corlette. I am really glad you mentioned that, because
    one thing we haven't discussed is that the ACA provides a
    critical financial protection in terms of an out-of-pocket
    maximum----
        Mr. Cardenas. We are running out of time. What is that?
        Ms. Corlette. It is roughly $7,000 a year that it would be
    maximum you would have to pay.
        Mr. Cardenas. Thank you. And also, look, I have a daughter.
    She is educated. She is a professional, so is her husband, both
    working. And when they had to go out and buy their own
    insurance, they were complaining. And when I asked them how
    much they were paying for this healthy couple, young couple,
    they were in their late 20s, they were complaining about the
    costs. And having been a former employer myself, I said, what
    are you complaining about? How much would it be? It was like a
    couple hundred bucks a months for them to get that coverage
    with a maximum deductible, $7,000, et cetera, et cetera, et
    cetera.
        And I was sitting there going, you know what, complaining
    about your health care cost is a matter of perspective, and
    some Americans are so dammed spoiled, including my own family,
    that they don't even get the fact that we are in such a better
    place today.
        Thank you, I yield back.
        Mr. Pitts. The chair thanks the gentleman. I now recognize
    the gentleman, Mr. Bilirakis, 5 minutes for questions.
        Mr. Bilirakis. Thank you, Mr. Chairman. I appreciate it.
    Thank the panel for their testimony today as well.
        Mr. Roy, in your testimony, you mentioned the convoluted
    tax credit system leading of incidents of waste, fraud, and
    abuse.
        Today, we have more confusion during tax time as people
    need more tax forms. A means-tested tax credit that penalizes
    midyear pay raises, and as recently as January, the IT report
    that CMS can't, they cannot verify premiums paid before paying
    premium tax credits to insurance companies.
        Can you elaborate on some of these problems, and what we
    should do? Is there a better alternative to the current tax
    credit based-premium assistance program, the system? Is there a
    better way?
        Mr. Roy. Absolutely. And you correctly highlighted some of
    the examples of how problematic that system is.
        One thing you often find is that people whose incomes are,
    say, 200 percent of the Federal poverty level, their incomes
    are volatile. They are often working odd jobs and being
    freelancers, so their income goes up and down.
        So if they have to estimate what their income might be for
    the next month, and then it turns out they estimated that
    inaccurately and the subsidy they received is inaccurate
    because of that, theoretically, by law, the Treasury Department
    is supposed to go after them and recover what excess subsidies
    they received and vice versa.
        That is an incredibly cumbersome system, and it also
    incentivizes people to underestimate their income in order to
    receive subsidies, knowing that the Treasury Department doesn't
    really enforce that clawback provision as often as they should.
        So this is a serious problem, and the best way to deal with
    it is through a statutory change that, as I discussed in my
    written and oral testimony, would use the previous year's
    taxable income as the basis for whatever assistance you
    provided in the following year.
        Now, that of course would not 100 percent match with your
    daily or monthly income, but that is the tradeoff for a system
    that is much more easily enforced where there would be very
    limited waste, fraud, and abuse, compared to the system we have
    today where there is enormous--as you mentioned, the OIG
    reports and other reports have estimated that there have been
    billions of dollars of misplaced subsidies and misallocated
    subsidies as a result of the very cumbersome, technocratic
    system that the ACA imposed.
        Mr. Bilirakis. Dr. Gottlieb, do you have any thoughts on a
    better premium system, subsidy system?
        Dr. Gottlieb. This is the reality of--look, we have never
    done this before. We have never tried to provide middle class
    consumers a subsidy based on income that changes as their
    income grows. And trying to create that framework is going to
    lead to very odd structures like the clawback, and people might
    underestimate their income just to get the float for the coming
    year, not to mention what Avik mentioned with respect to the
    fact that there isn't real enforcement in terms of clawing back
    that money, so you are getting a lot of wasteful spending.
        This is why we advocate an age-based subsidy and a subsidy
    structure that allows the subsidies to be tied to a looser
    rate-setting environment where premiums can adjust based on
    risk. And I know there is a lot of criticism of an age-based
    subsidy because people who are in lower-income brackets might
    not get enough of a subsidy to be able to go into the market in
    as robust of a fashion as they are under the current scheme.
    These are the tradeoffs. I mean, an age-based subsidy and a
    risk-based subsidy will eliminate the need to have these really
    odd tax consequences that we have right now that I think aren't
    going to be fully enforceable.
        Mr. Bilirakis. Thank you for those suggestions.
        Dr. Gottlieb, you testified here in 2014 about the problems
    of narrow networks in the ACA. At the time, I used a very real
    example of the Moffitt Cancer Center, which is just outside my
    district--the only NCI-designated cancer center in Florida, by
    the way--only being available at that time in 1 out of 12 ACA
    plans in Florida.
        It seems to me that the people most disadvantaged by the
    law may be the sick patients with serious, chronic, complex
    medical conditions. Unfortunately, the problem of narrow
    networks seems to be growing, unfortunately.
        Can you talk about the growth of closed pharmacies, the
    continued narrow networks, and how we may build a system with
    more patient choices?
        Dr. Gottlieb. The insurers are doing what they can to try
    to control costs in the marketplace that I think where the pool
    has ended up much more skewed than what people anticipated. So
    they are trying to cheapen the benefit, and they are doing that
    by continuing to narrow the networks and close drug
    formularies.
        CMS is starting to apply more oversight on the networks and
    network adequacy right now. They are not applying as much
    oversight on the formularies. And so you are seeing very
    restrictive formularies. I went through and systematically
    looked at about 25 plans for the coverage around drugs for
    multiple sclerosis. I found that most plans excluded 6 or 7 of
    the 12 top drugs that you use to treat the disease, and that is
    a disease where you want to provide maximal flexibility to
    patients in treatment selection.
        I think these are just the consequences of a very
    prescriptive regulatory scheme that takes away a lot of the
    other tools insurers might have to try to manage costs. They
    are going to manage costs through the only vehicles they have,
    and this is all that we have left them. And so I think you will
    continue to see increased ratcheting down to the extent that
    CMS is going to allow it under regulation.
        Mr. Bilirakis. Mr. Roy, any thoughts?
        Mr. Roy. Yes. So I think that it is part of a continuum of
    problems with when you have a cumbersome system and you don't
    have the right enforcement, what are you going to do? You
    basically have to go through various complicated--the IRS
    doesn't audit people's monthly income statements.
        So, again, the simplest way to deal with this is, if you go
    by the previous tax year's income, and then you have an age-
    adjusted subsidy along with it, then what you can do is--it is
    very transparent. People can know ahead of time, OK, here is my
    age, here is my income in the previous tax year, here is the
    assistance I am going to get.
        And then you pair that with a regulatory system that gives
    people the flexibility so that insurers have the freedom to
    offer young people and healthy people plans that are affordable
    to them that accurately represent the expected healthcare
    consumption they might have in a given year.
        Mr. Pitts. The gentleman's time has expired. Thank you.
        That concludes the questions of the members present. We
    will have some additional questions from members. We will
    submit them to you in writing. I ask that you please respond.
        Terrific panel today. Thank you so much.
        Members have 10 business days to submit questions for the
    record. That will be close of business on Wednesday, May 25.
        Without objection, the hearing is adjourned.
        [Whereupon, at 12:02 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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