[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]








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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.
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    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:]
    
    
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    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:]
    
    
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    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:]
    
    
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    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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