[Senate Hearing 114-258]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 114-258

                 THE AFFORDABLE CARE ACT AT FIVE YEARS

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             MARCH 19, 2015
                               __________



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]




                                     
                                     

            Printed for the use of the Committee on Finance
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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)












                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                               WITNESSES

Holtz-Eakin, Douglas, Ph.D., president, American Action Forum, 
  Washington, DC.................................................     5
Wade, Holly, director of research and policy analysis, National 
  Federation of Independent Business, Washington, DC.............     7
Blumenthal, David, M.D., M.P.P., president, The Commonwealth 
  Fund, New York, NY.............................................     8

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Blumenthal, David, M.D., M.P.P.:
    Testimony....................................................     8
    Prepared statement...........................................    37
    Responses to questions from committee members................    54
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    57
Holtz-Eakin, Douglas, Ph.D.:
    Testimony....................................................     5
    Prepared statement...........................................    58
    Responses to questions from committee members................    62
Wade, Holly:
    Testimony....................................................     7
    Prepared statement with attachment...........................    64
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................   110

                             Communication

Markell, Hon. Jack A.............................................   113

                                 (iii)
 
                 THE AFFORDABLE CARE ACT AT FIVE YEARS

                              ----------                              


                        THURSDAY, MARCH 19, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 9:31 a.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Roberts, Cornyn, Thune, 
Burr, Portman, Coats, Heller, Scott, Wyden, Stabenow, Cantwell, 
Menendez, Carper, Cardin, Brown, Bennet, and Casey.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Kimberly Brandt, Chief Healthcare and Investigative 
Counsel; Preston Rutledge, Tax Counsel; and Jill Wright, 
Detailee. Democratic Staff: Joshua Sheinkman, Staff Director; 
Jocelyn Moore, Deputy Staff Director; Michael Evans, General 
Counsel; Elizabeth Jurinka, Chief Health Advisor; Juan Machado, 
Professional Staff Member; and Anne Dwyer, Professional Staff 
Member.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Good morning. Our hearing today will consider what has 
happened in the 5 years since March 23, 2010, when the so-
called Affordable Care Act was signed into law. In my opinion, 
this anniversary presents a perfect opportunity to take a look 
back and evaluate whether promises that were made to gain 
support for the law have been kept. It is also a good time to 
look forward and consider the many unanswered questions that we 
still have about the impact and viability of the ACA.
    At the time that the Affordable Care Act was enacted, there 
was great disagreement about whether it would effectively 
reduce costs or expand coverage. Five years later, the people 
of Utah, and others whom I hear from, are in total agreement 
about one thing with respect to this law: it just is not 
working. In fact, it is, by most objective accounts, an 
unmitigated disaster.
    The President and his allies claim that the law is a 
success, usually by cherry-picking particular data points and 
ignoring the larger picture. Most often, they point to the 
number of individuals who have signed up for health insurance 
since the botched roll-out of the HealthCare.gov website, 
somehow arguing that people opting to buy insurance under the 
threat of the government penalty is cause for celebration. What 
they do not talk about are the still-skyrocketing health care 
costs that are hitting families across this country, and they 
also ignore the widespread frustration and delay caused by this 
law, which many Americans are finding out about during this tax 
filing season.
    Let us talk about that frustration. According to H&R Block, 
in the first 6 weeks of this tax filing season, 52 percent of 
customers who enrolled in insurance through the State or 
Federal exchanges had to repay a portion of the advanced 
premium tax credit that they received under Obamacare. That 
same report found that individuals, on average, are having to 
repay about $530, which is decreasing their tax refunds by 
roughly 17 percent.
    Now, let us talk about delay. On February 20, 2015, the 
Obama administration announced that, due to an error in the 
health law, they sent out about 800,000 incorrect tax 
statements related to Form 1095-A, meaning that hundreds of 
thousands of Americans may be seeing delays in their tax 
refunds this year.
    Now, these are just some of the problems hardworking 
taxpayers are facing as they try to deal with Obamacare during 
this tax season. While the ramifications to taxpayers are 
significant, the overall impact on America's budget is even 
greater. The total overall cost of Obamacare so far has 
numbered in the tens of billions of dollars, and we are barely 
through the first phases of implementation. Unfortunately, a 
significant portion of that money resulted in no benefit 
whatsoever to the taxpayers.
    Specifically, an analysis done by my staff shows that in 
just five areas, over $5.7 billion went to projects which added 
no value to the taxpayers. That is $5.7 billion down the drain. 
Taxpayers have been left on the hook for funds that were doled 
out for Obamacare to States, corporations, and contractors, 
with little to no accountability.
    The following five examples are some of the most egregious. 
One, failed State exchanges. According to the Congressional 
Research Service, $1.3 billion in taxpayer funds have been 
spent on State exchanges that failed and were never 
operational,
    Two, Consumer Oriented and Operated Plans, or CO-OPs. The 
Centers for Medicare and Medicaid Services has loaned $2.4 
billion to 24 CO-OPs, one of which failed before it enrolled 
anyone. Taxpayers are set to lose nearly half of this money 
from default or artificially low interest rates. CMS has no 
plans to recoup any of the funds, meaning a total cost to 
taxpayers of around $1 billion.
    Three, the HealthCare.gov website. The Obama 
administration's website became a preexisting condition for 
many Americans who were forced to purchase insurance on the 
broken site or face a fine. Despite fixes to HealthCare.gov, 
the total cost of the failed enrollment system surpassed $2 
billion.
    Four, Serco. This contractor was awarded $1.2 billion to 
manage paper applications during the first enrollment period of 
the health care law; however, only a handful of the total 
applications received were paper applications, leaving Serco 
employees with little to do. The waste was so apparent that a 
whistleblower who worked at the company reached out to the St. 
Louis Post Dispatch, saying, ``I feel guilty for working there 
as long as I did. It was like I was stealing money from 
people.''
    Five, marketplace navigators. The administration spent over 
$120 million on the navigator program for the 2014 and 2015 
open enrollment periods. The purpose of the navigators is to 
provide individuals with information about health insurance, 
including signing up for the health insurance marketplace. The 
Kaiser Family Foundation estimates 2015 marketplace enrollment 
at approximately 11 million individuals. The overall value of 
the navigator program is at best inconclusive, and at worst it 
represents more waste of taxpayer dollars.
    Now, these five examples are just a handful of the 
countless misguided, poorly defined, and poorly implemented 
aspects of the Affordable Care Act. We mark the 5-year 
anniversary that passes today, but it is certainly no cause for 
celebration.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. I do want to thank our witnesses for 
appearing today to help discuss the impacts of this law, and I 
look forward to what I am sure will be a spirited discussion.
    I would now like to turn it over to my partner, Senator 
Wyden, for his opening remarks.

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman.
    Mr. Chairman and colleagues, my first choice for this 
morning's hearing would be to get past the well-worn talking 
points and begin to find bipartisan ways to improve the 
Affordable Care Act. There is not a law in the history of 
legislation that cannot be improved.
    What I have tried to do in my time in public service, 
particularly in health care, is to try to find bipartisan 
approaches, building on principles that both sides feel 
strongly about. That is simply, in my view, the best use of our 
time. Unfortunately, it looks like it is going to take a rear-
guard action to keep from going back to the dark days when 
America's health care system basically worked just for the 
healthy and the wealthy. Just this week, we have seen proposals 
that would rip the law up by the roots.
    Gone would be the guarantee of coverage that protects 
Americans who have preexisting conditions. Gone would be the 
tax credits that help working families to pay for health 
insurance. Back would be insurance company skullduggery that 
forces Americans to pay top dollar for rock-bottom coverage. 
Back would be locking out adopted children from their parents' 
insurance plans. Back would be the prospect of having insurance 
canceled the moment an American got sick. Back would be 
pregnancy being considered a preexisting condition.
    There are not any legitimate alternative legislative 
proposals that address these issues. In the last 5 years, 
Congress has taken more than 50 votes to undermine or repeal 
the Affordable Care Act and not one on legislation that 
comprehensively replaces it.
    The non-stop campaign that I have described to undercut the 
law is just bad news for Oregonians like Beth Stewart. She is a 
mother of three from La Grande, OR who had to pick out an 
insurance policy after a career change in 2003. The plan she 
chose had a $7,500 deductible. A few years later, Beth was 
diagnosed with Stage 4 thyroid cancer, and it had spread to her 
spine. On her road to recovery, she twice hit her out-of-pocket 
limit. Her medical bills grew to the tens of thousands of 
dollars. She worked hard to pay them off, but every year her 
check-ups cost thousands of dollars more. Last year she was 
finally able to buy a new health insurance plan that has given 
her, in her words, a welcomed safety net. Her deductible is now 
a tenth of what it was before the Affordable Care Act. Her out-
of-pocket maximum has been cut by nearly half. For this 
Oregonian, staying healthy while supporting a family is a lot 
less expensive.
    Kim Schmith is a resident of Madras, OR in her late 40s. 
Kim won a battle against breast cancer 6 years ago. Her husband 
is going to go on Medicare this year, and Kim will have to pick 
out an insurance plan of her own. She wrote my office about how 
she was once worried that being a cancer survivor meant she 
would never be able to find insurance. Under Federal law before 
the Affordable Care Act, an insurance company could have taken 
just one look at Kim's medical history and stamped her 
application ``denied.'' Now with this law, she has some peace 
of mind. She can find an affordable, high-quality health 
insurance plan. She does not have to panic or over-pay for 
bargain-basement coverage. As she wrote me, ``I fought for my 
life. I should not have to fight for insurance.'' That, in my 
view, is something that Democrats and Republicans ought to 
agree on right at the outset.
    As I mentioned in my first paragraph, there is not a law in 
history that cannot be improved on. But the pie-in-the-sky 
insistence that the Affordable Care Act is just going to be 
repealed and somehow everything is going to come out fine has 
no basis in reality. It is time to recognize the real-world 
consequences of this dysfunctional, old political battle. The 
debate is no longer about numbers on a page. More than 16 
million Americans have gained health insurance coverage thanks 
to the Affordable Care Act. Their health is at stake in every 
single vote for repeal.
    So again, I will tell my colleagues that I am willing to 
meet both sides at least halfway. That is what I have done on 
health policy really since my days when I was director of the 
Gray Panthers. We make progress by working in a bipartisan 
fashion rather than bringing back yesteryear when the health 
care system was for the healthy and wealthy.
    Mr. Chairman, again, I just want to say I would very much 
like to work with you in a bipartisan way, and I look forward 
to hearing from our colleagues.
    The Chairman. Well, thank you, Senator. I hope we can.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Our first witness is Dr. Douglas Holtz-Eakin, 
president of the American Action Forum. Dr. Holtz-Eakin was the 
Director of the Congressional Budget Office from 2003 to 2005, 
and, prior to that, he was the Chief Economist of the 
President's Council of Economic Advisors.
    Dr. Holtz-Eakin, we are sure happy to have you here. It is 
a pleasure to have you join with us today. We look forward to 
your testimony.
    Our next witness is Ms. Holly Wade, director of research 
and policy analysis for the National Foundation of Independent 
Business. Ms. Wade produces the monthly small business economic 
trend survey with NFIB's chief economist. Previously, she 
worked for the National Conference of State Legislatures.
    We certainly welcome you, Ms. Wade, and look forward to 
hearing from you today.
    Finally, our last witness is Dr. David Blumenthal, 
president of The Commonwealth Fund. Dr. Blumenthal was formerly 
a professor of medicine at Harvard Medical School and chief 
health information and innovation officer at Partners Health 
Care System in Boston. He was previously a practicing primary 
care physician, so we are really happy to have you here, Dr. 
Blumenthal, and we appreciate you joining us today.
    We will start with Dr. Holtz-Eakin first.

 STATEMENT OF DOUGLAS HOLTZ-EAKIN, Ph.D., PRESIDENT, AMERICAN 
                  ACTION FORUM, WASHINGTON, DC

    Dr. Holtz-Eakin. Chairman Hatch, Ranking Member Wyden, 
members of the committee, thank you for the privilege of 
appearing today to discuss the Affordable Care Act. You have my 
written statement. Let me just make a few introductory 
comments, and I look forward to your questions.
    The ACA is a sweeping law with vast impacts. It is hard to 
summarize them in a short fashion, as a result. But at the 
heart of it was a promise for affordable health insurance and 
high-quality health care, and I would argue that the ACA has 
failed to meet that promise and wasted valuable dollars in the 
process.
    If you look at affordability, I think one of the least-
discussed but most important aspects is the fact that the ACA 
was passed and implemented at a time when the U.S. economy was 
not delivering increases in incomes to middle-class America. 
There is nothing about the ACA, with its $500 billion in new 
taxes, its $1-trillion new entitlement spending program, and 
its vast regulatory burden, that is a pro-growth policy. It 
hurt the ability of Americans to meet all their needs, 
including the purchase of health insurance.
    The ACA promised to reduce insurance premiums: $2,500 for 
the average family, estimates of $3,000 for employers. In 
contrast, we have seen premiums spike for many Americans; in my 
written testimony, we document that. We have also seen 
increases in their out-of-pocket cost, so the affordability 
that was promised simply was not delivered.
    Embedded in the ACA are taxes which raise the cost of 
insurance--the Health Insurance Tax, the Medical Device Tax--
all of which will be passed along to consumers in the form of 
higher premium costs, and regulations that raise the cost. The 
essential health benefits, a very unnecessarily rich package, 
and the community rating and other rating band issues, all 
serve to raise premium costs for many Americans.
    Fundamentally, the ACA did not bend the so-called cost 
curve. If you look at the pieces of the ACA which were intended 
to do that, the Pioneer Accountable Care Organizations, the 
Medicare shared savings programs, these are all disappointments 
and did not deliver the promised reduction in the cost of 
quality care.
    I also believe that the ACA has endangered some of the 
existing high-quality programs that the Federal Government 
provides. There are sharp cuts in Medicare Advantage. Medicare 
Advantage is not a perfect program, but it is clearly the one 
thing that is not fee-for-service medicine. Everyone on both 
sides of the aisle has agreed that fee-for-service medicine is 
the problem in America, and the ACA has endangered the one 
program we have which is a bridge to the future and is not fee-
for-service medicine.
    It did the same thing with home health. The home health 
programs in Medicare apply to our most vulnerable seniors. They 
have been very effective at keeping those seniors out of 
hospitals, where they often end up being sicker than when they 
started--and at great expense. I believe the combination of the 
cuts to these things have really hurt the quality of the 
Medicare program and will be increasingly hurting it going 
forward, and I would urge the committee to reverse those cuts.
    Lastly, there are a lot of wasted dollars in this. The 
chairman mentioned HealthCare.gov, well documented, a nearly 
billion-dollar expenditure for something that did not work. 
There are many failed State exchanges, I can attest from 
personal experience. I actually had the employees of the 
American Action Forum buy insurance this year through the Shop 
Exchange in DC. It was a horrific experience, and we should get 
our money back for that; it does not work.
    There are big concerns about erroneous payments in the 
Affordable Care Act, which the chairman mentioned at the 
outset. We did some research. If you think about the structure 
of the subsidies, they are a refundable tax credit. The closest 
program we have to that in operation is the Earned Income Tax 
Credit, where the payment error rate is about 20 percent, 21 
percent. If the same error rate applies to the ACA, we are 
going to have erroneous payments of about $150 billion over the 
next 10 years. It is an enormous waste of money, and I would 
argue the ACA is more complicated than the EITC. Much more 
information is required to be matched and submitted correctly. 
I think the error rate is quite likely to be much higher yet.
    We have excessive subsidies due to the cost of the premiums 
themselves. This is a big burden on the taxpayer. The ACA 
relied far too heavily on using Medicaid expansions as the 
route for coverage instead of reforming Medicaid, which I would 
argue would be the right route forward. So, pouring more money 
into a program without reforms seemed like an unwise choice.
    I do not think anyone should question the intent of the 
drafters of the ACA. There was an agreement at that time that 
spanned the ideological spectrum that America needed a health 
care reform that provided affordable insurance options to every 
American and high-quality care at a lower cost. That was indeed 
the goal, but this law did not deliver.
    I look forward to answering your questions. Thank you.
    The Chairman. Well, thank you, Dr. Holtz-Eakin.
    [The prepared statement of Dr. Holtz-Eakin appears in the 
appendix.]
    The Chairman. Ms. Wade, we will take your testimony at this 
time.

   STATEMENT OF HOLLY WADE, DIRECTOR OF RESEARCH AND POLICY 
    ANALYSIS, NATIONAL FEDERATION OF INDEPENDENT BUSINESS, 
                         WASHINGTON, DC

    Ms. Wade. Good morning, Chairman Hatch, Ranking Member 
Wyden, and members of the Senate Finance Committee. Thank you 
for the opportunity to testify today on the Affordable Care Act 
at 5 years.
    The NFIB Research Foundation recently published the second 
of a three-part health insurance longitudinal survey titled, 
``Small Business's Introduction to the Affordable Care Act, 
Part II.'' The objective of the three surveys is to measure the 
impact of the ACA on small business owners and the small group 
health insurance market. The following are a few highlights 
from our survey.
    The cost of health insurance is the most critical issue 
facing small business owners. It is the main reason owners do 
not offer employer-sponsored health insurance and the main 
reason owners discontinue providing the benefit. For those 
offering, many owners annually confront the arduous task of 
adjusting profit expectations, insurance plans, cost sharing, 
and other mechanisms to help absorb often erratic changes in 
total premium costs.
    Unfortunately, the ACA does little to alleviate these 
problems 5 years into its implementation and, in most cases, 
contributes to the ongoing frustration small employers face in 
offering health insurance. The survey found that the ACA 
exacerbates market turmoil, evidenced by the large numbers of 
policy cancellations, shifting renewal dates to obtain better 
rates, changes in employer cost sharing, and adoption of 
different, although not necessarily more desirable, health 
insurance plans.
    Small business owners have also encountered repeated delays 
and confusion over major components of the law, including the 
SHOP exchange marketplaces, the Small Business Health Care Tax 
Credit, the employer mandate, and financial reimbursement 
options. All of the above are generating an uncertain and 
costly environment for many small business owners navigating 
the health insurance options for themselves and their 
employees.
    Two of the ACA's hallmark small business provisions, the 
SHOP exchange marketplace and Small Business Health Care Tax 
Credit, were established to provide cost relief and to offer a 
transparent, competitive marketplace for employers purchasing 
in the small group market. Unfortunately, both have provided 
little relief for those offering, or an incentive to offer for 
those who do not. Currently, only a few States have fully 
operational SHOP exchange marketplaces, and for those States 
that do, they are finding little interest among small employers 
or their insurance agents. Small employers typically find no 
reason to visit the websites. Just 13 percent of small 
employers visited HealthCare.gov to look for individual 
insurance, 4 percent for business insurance, and 8 percent for 
both.
    The Small Business Health Care Tax Credit is a targeted 
approach to help curb health insurance costs for offering small 
employers and was intended to provide an incentive for those 
that do not to start offering. However, the tax credit was 
largely ineffective on both fronts, as its design is 
exceedingly restrictive, complicated, and only offers temporary 
relief to a larger small business cost problem. The tax credit 
now serves as a windfall for the few who qualify and take the 
time, or pay an accountant, to file for it.
    While most small employers believe they are generally 
familiar with the health care law, many are still discovering 
new ways in which the laws impacts them. For instance, the law 
prohibits employers from reimbursing or otherwise providing 
financial support to employees in order to help them pay for 
individually purchased insurance plans. However, our survey 
found that about 18 percent of small employers offered this 
benefit last year and are now in violation of the law. NFIB 
continues to receive calls from owners, generally after having 
talked to their CPA or insurance agent, confused about the new 
rules prohibiting the practice and the substantial harsh 
penalties.
    In conclusion, the ACA's potential benefits for small 
employers have not materialized 5 years into enactment. 
Instead, the small employer experience more often consists of 
increased levels of uncertainty and frustration related to 
changes in the small group health insurance market and rules 
associated with the employer mandate.
    Thank you for the opportunity to summarize the findings of 
our survey. I look forward to answering any questions you may 
have.
    The Chairman. Well, thank you.
    [The prepared statement of Ms. Wade appears in the 
appendix.]
    The Chairman. Dr. Blumenthal, we will take your testimony.

  STATEMENT OF DAVID BLUMENTHAL, M.D., M.P.P., PRESIDENT, THE 
                COMMONWEALTH FUND, NEW YORK, NY

    Dr. Blumenthal. Thank you, Chairman Hatch, Senator Wyden, 
members of the committee, for this invitation to testify about 
the Affordable Care Act at 5 years. My name is David 
Blumenthal. I am president of The Commonwealth Fund, which is a 
nonpartisan health care philanthropy. As you noted, Senator, I 
was a practicing primary care physician for over 35 years.
    The Commonwealth Fund and other sources demonstrate that 
the Affordable Care Act is helping to reduce the number of 
Americans who are uninsured and to improve access to health 
care. Currently, more than 25 million Americans are estimated 
to have health insurance under provisions of the Affordable 
Care Act; 11.7 million have selected a plan through the 
insurance marketplaces; an additional 10.8 million have 
enrolled in Medicaid or the Children's Health Insurance 
Program, or CHIP; and nearly 3 million more young adults are 
now covered under their parents' plans compared to 2010.
    As a result, the number of uninsured has fallen. This week, 
the U.S. Department of Health and Human Services reported that 
16.4 million previously uninsured people had gained coverage 
since the law passed in 2010. Similar gains in coverage have 
been documented in a number of government and private-sector 
surveys. Furthermore, the groups that historically have had the 
greatest difficulty getting access to insurance--young men and 
women and adults with low or moderate incomes--have experienced 
among the greatest gains in coverage.
    To see how the newly insured are faring with their 
marketplace coverage, The Commonwealth Fund conducted a survey 
of these adults in the second quarter of 2014. We found that 
three-quarters of the newly insured were satisfied with their 
insurance; a majority had already used their new plans to get 
health care, with most saying they could not have afforded or 
accessed this care previously. Most people who had tried to 
find a new doctor reported being able to do so with relative 
ease. Among all working-age adults, the percentage reporting 
not being able to get needed care because of the cost of care 
fell from 2012 to 2014, from 43 percent to 36 percent, a 
decline of 14 million people nationwide.
    Overall, health plans sold in the insurance marketplaces 
created under the ACA appear to be relatively affordable. The 
majority of consumers with marketplace coverage have reported 
it being ``very'' or ``somewhat easy'' to pay their premiums. 
The Federal and State insurance marketplaces have also turned 
out to be quite stable and competitive. Nationwide, marketplace 
premiums did not increase at all, on average, from 2014 to 
2015. This is unprecedented, in light of historical trends in 
the small group and private insurance market. The number of 
insurance carriers participating in the marketplaces also grew 
by 25 percent.
    States have had considerable flexibility in implementing 
the Affordable Care Act's coverage reforms, and, as a result, 
the people in different States have experienced the law very 
differently. The most significant source of variation involves 
the decision to expand eligibility for Medicaid. Twenty-two 
States have not yet expanded Medicaid, though six of those are 
discussing ways to do so.
    An unforeseen occurrence with implications for the 
Affordable Care Act has been the slow-down in the rate of 
health care spending growth in recent years. Partly in 
response, the Congressional Budget Office recently lowered its 
projections for the net Federal cost of the Affordable Care Act 
coverage provisions by an additional $142 billion over the 
period 2016 to 2026.
    The 160 million people who have their coverage through an 
employer are also benefitting from new protections, like the 
ability to stay on a parent's health plan through age 25, or 
preventive care, which is now covered without cost sharing.
    It is important to remember that the Affordable Care Act is 
not just about coverage, it is also about health system reform. 
The new Center for Medicare and Medicaid Innovation, for 
example, has launched an array of initiatives involving changes 
to health care payments and organization that together reach 
thousands of hospitals, tens of thousands of clinicians, and 
millions of patients across all 50 States. These reforms are 
incremental so far. I actually disagree with Dr. Holtz-Eakin 
about their track record to date. Most impressive to me is the 
fact that the number of hospital-acquired conditions has 
dramatically fallen from 2010 to 2013. As a clinician, I have 
seen people die from these. Seventeen thousand fewer lives have 
been lost as a result of these initiatives, and $12 billion has 
been saved.
    At the 5-year mark, there is strong evidence that the 
Affordable Care Act has resulted in gains in coverage, 
affordability, and access to health care services. It may also 
have created the foundation for significant improvements in the 
way we deliver care and in the quality of care that we provide.
    Taken together, a promising picture emerges. Five years, 
however, is a short time for a law of this comprehensiveness 
and impact, and additional studies and evaluations will 
undoubtedly be necessary to ascertain the full impact of the 
law over time.
    Thank you, Mr. Chairman.
    The Chairman. Well, thank you, Doctor.
    [The prepared statement of Dr. Blumenthal appears in the 
appendix.]
    The Chairman. Let me just ask this question to our panel 
about an aspect of the ACA that concerns me greatly, and that 
is the Consumer Oriented and Operated Plans, or CO-OPs, 
experiment.
    Now, how does not setting premiums appropriately harm all 
consumers in a market? In some States, do traditional health 
insurers pay assessments that then fund paying the claims of 
the failed CO-OP, so really all consumers in a market are 
impacted, not just those in the failed CO-OP? Now, CO-OPs had a 
dismal track record in 2014; nearly all had negative cash flow 
in the first three quarters.
    How likely is it that CO-OPs turn the corner and offer 
stable coverage and repay their loans, and is there a need for 
higher scrutiny and oversight of pricing and enrollment in CO-
OPs to protect Americans from losing their plans and taxpayer 
dollars? Was it irresponsible of OPM to certify some of the CO-
OPs to sell multi-State plan products?
    Now, a recent S&P report found that net losses from the 
first three quarters of 2014 ranged from $2.9 million to $39.8 
million, and the same report found the percentage of premiums 
that goes toward paying medical claims was ``hopelessly high'' 
for several CO-OPs.
    With these alarming figures in mind, what steps should the 
States and the Federal Government take to protect consumers as 
we monitor the stability and viability of these CO-OPs? Now, 
that is a lot of questions, but we will start with you, Dr. 
Holtz-Eakin, and then move across the table.
    Dr. Holtz-Eakin. Well, as you said, Mr. Chairman, the track 
record to date is quite poor. The CO-OPs are not successful in 
pricing their products effectively, they are losing money, and 
in some cases have gone bankrupt. That clearly spills over to 
everyone in the marketplace, because other insurers will have 
to raise premiums to cover the cost of those losses, whether it 
is through the risk corridor program or through other State-
based mechanisms.
    To my eye, the CO-OPs have a bad set of incentives. It is 
generally bad incentive to operate with someone else's money, 
and these are funded by taxpayers and not by equity investors 
in these programs. They have restrictions on their business 
models--the inability to advertise, for example--pricing 
restrictions, and what they do with their earnings.
    They appear unable to effectively compete, so it seems to 
me that the Congress faces a decision point where either they 
are modified to be able to compete effectively, or it would be 
unwise to allow them to use any more taxpayer dollars, because 
they are simply not going to be able to succeed. I think that 
is really the juncture at which we find ourselves.
    The Chairman. All right.
    Ms. Wade?
    Ms. Wade. I will pass.
    The Chairman. You will pass.
    Doctor?
    Dr. Blumenthal. Mr. Chairman, the CO-OP is an experiment. 
Often CO-OPs are the only insurance programs in the markets in 
which they operate. Some have not done well; some have done 
better. The CO-OPs are modeled on a very, very popular and 
successful form of insurance, such as the Group Health 
Cooperative of Puget Sound, in which consumers have a very 
important role in governance. Some of these are among the most 
successful Medicare Advantage plans that are celebrated, 
justifiably, by advocates of Medicare Advantage.
    When the health maintenance organizations that have now 
become Medicare Advantage plans were founded, many of them 
started with government loans. These are in difficult markets 
often; they are difficult to start. Not all of them will be 
successful. They are an experiment. I think we will have to 
judge how well that experiment plays out.
    The Chairman. Well, thank you.
    Ms. Wade, let me ask you a question. The provisions of 
Obamacare targeted at providing cost relief to small employers 
are ineffective and too complicated, in my view. My question 
for you is whether premium costs have continued to rise for 
small businesses and, if so, what actions they are taking to 
offset these increases in premiums.
    Ms. Wade. Certainly. So the cost of health insurance is the 
most critical issue facing them in running their business, for 
providing insurance for themselves and also offering it to 
their employees. Increases have continued even though the rate 
has slowed, but all projections are that premium increases will 
start ramping up in the future.
    So this problem is still not being confronted in a large 
way that helps benefit small business owners, and they take 
every measure possible to try to absorb these costs, the 
number-one being lower profits and lower earnings for 
themselves. That is their first line of attack. Outside of 
that, it is rearranging the benefits that they offer their 
employees in all different ways, whether it is cost sharing, or 
deductibles, or benefits designed for their insurance package. 
So, those are the many ways that they try to deal with the 
issue of increased cost.
    The Chairman. My time is up.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    Mr. Chairman, we heard again this morning, as has often 
been the case with critics of the Affordable Care Act, that in 
some way Medicare Advantage has been endangered by the 
Affordable Care Act. As someone who, like yourself, Mr. 
Chairman, is a very strong supporter of Medicare Advantage--
Oregon has the second-highest percentage of Medicare Advantage 
in the country, and it is good Medicare Advantage--the 
proposition that the Affordable Care Act has in some way, I 
think the word was ``endangered'' Medicare Advantage, is just 
belied by the facts.
    According to the Centers for Medicare and Medicaid 
Services, in September of 2014 they announced that between 2010 
when the ACA was enacted and 2015, enrollment in MA is expected 
to increase 42 percent, and premiums will have decreased by 6 
percent. So there are clearly, colleagues, a lot of 
opportunities for, once again, Democrats and Republicans to 
work together to build on what is a very promising feature of 
American health care.
    Chairman Hatch and I have been particularly interested in 
Medicare Advantage over the years, and I just wanted to set the 
record straight on that particular point, given the fact that 
we have the statistics from the Centers for Medicare and 
Medicaid Services.
    Let me go to you, Dr. Blumenthal, with respect to how the 
health care landscape would change if you just pulled the 
Affordable Care Act out root and branch, I guess would be the 
characterization that has been made.
    What I feel is so important about the Affordable Care Act 
is that before it, we essentially had a system that worked best 
for the healthy and the wealthy. If you had a preexisting 
condition, for example, you were sick, the system was pretty 
much dysfunctional. You would go to bed at night knowing that 
you could be wiped out when you got up.
    Essentially, in the old days, if you were healthy, you did 
not have a problem; if you were wealthy, you did not have a 
problem. But if you were not healthy or wealthy and you had a 
preexisting condition, you were already sick, you were in 
trouble. So that changed. I think that that is a huge, huge 
transformational feature of what has happened.
    But in your view, what else are the major parts of the 
health care landscape that have changed? I will just throw one 
other one out. I think that there has been a lot of innovation 
as a result of the Affordable Care Act. Every day, I get a 
mailing from some exciting group that is offering a service, 
like here is how you compare various providers in your State 
and the like. But tell me what you think are the most positive 
features of the health care landscape now with this law.
    Dr. Blumenthal. Well, you have to come back to the point 
that the law was about getting people insured, that insurance 
is a public health intervention. Without insurance, people are 
less healthy, they die younger, they find cancers at a later 
date, their cancers are more likely to kill them. Insurance 
saves lives. I believe it is saving lives right now.
    So the most important thing is that 16.4 million people who 
are newly insured as a result of the Affordable Care Act means 
people alive tomorrow who would not have been otherwise. It 
also means healthier children. Children are getting preventive 
services; they are not being excluded from the accessibility of 
insurance as they were before. They are getting oral and vision 
care which they were not getting before. These are investments 
in our future as a country.
    Our health care system is being made more innovative. 
PricewaterhouseCoopers has estimated that 90 new small 
businesses have started as a result of the Affordable Care Act.
    Senator Wyden. These are essentially digital health 
companies, these 90 new businesses.
    Dr. Blumenthal. Some of them are digital, some are just 
oriented toward reducing health care costs, which is, of 
course, where we want innovation to occur in our health care 
system. The new Accountable Care Organizations that have been 
established under the law have, by CMS estimates compared to 
control populations, saved $700 million in the Medicare Shared 
Savings Program version, and about $200 million in the Pioneer 
version of the Accountable Care Organization.
    Senator Wyden. Let us do this, because my time is almost 
out. I would find it very helpful if you could get us a list of 
the most promising innovations that have taken place under the 
Affordable Care Act. I have been particularly attracted to some 
of the new models for oncology care, and I know you have had an 
interest in that area as well. So, if you could get back to us 
with what you think have been the most promising innovations 
since the law passed, that would be helpful.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman and Mr. 
Ranking Member.
    Well first, let me just start out and say that 16.4 million 
people who have insurance today who did not before, I would 
suggest, is a pretty big deal. I would suggest, for them and 
their families, they would consider that a pretty big deal. 
Three million young adults who have been able to stay on their 
parents' insurance, I know that has been a big deal in my 
family.
    I have literally seen life-and-death issues come up where 
folks are now healthy and doing well because of that, and 10.8 
million poor seniors, families, and children are able to be 
covered under Medicaid and CHIP. So I think that is a pretty 
big deal. I also think that the Kaiser Family Foundation saying 
that the average employer-based family coverage increased just 
3 percent in 2014, which is tied for the lowest rate in the 
last 15 years--and we have heard even beyond that--is also 
pretty significant.
    I want to talk about the structure for a moment on the 
small business side, because I am concerned about making sure 
things work for small business. As one of the folks who worked 
very hard to help author the small business tax credit, I would 
love to see that become much more robust and do more to be able 
to help small business.
    But in Michigan, for years prior to the ACA, I heard over 
and over again, we as small businesses want to pool our 
companies together so that we can get the same rate as General 
Motors. Usually in Michigan it is General Motors or Ford. We 
want to be able to get the same rate. So they wanted to be able 
to pool their companies together to be able to get a better 
rate. Is that something that, Ms. Wade, you still hear from 
businesses?
    Ms. Wade. Certainly. And they are open to all sorts of 
options in their ability to pool purchasing power and lower 
rates. The more options they have in offering health insurance 
to their employees, they find, the better. Currently being able 
to pool small employers together, say, in the SHOP exchange--
the small group market has a number of cost increase 
limitations that they face in that market.
    So unfortunately, where they are able to find some of these 
benefits, there are restrictions and limitations that limit 
their ability to afford health insurance----
    Senator Stabenow. But you would agree that in order----
    Ms. Wade. But that is certainly an option.
    Senator Stabenow. Certainly, pooling competition--that is 
really what the exchanges are for. So what we ought to be doing 
is working together to make sure that those work well, because 
that is what creates leverage for small businesses. What 
creates leverage for consumers is to go into an exchange where 
the insurance companies are competing against each other to be 
able to lower rates, and that is what we have in the Affordable 
Care Act, the exchanges.
    That is exactly what I have been hearing about from small 
businesses for years: why do we not do this? It actually was a 
Republican idea in the beginning, when we really had hoped this 
would get beyond partisanship, actually be something bipartisan 
rather than partisan. We thought this would be a major way to 
get that done by accepting a Republican idea of competition 
through exchanges. So I am very interested in seeing ways where 
we can make sure that that works, for businesses to be able to 
do that.
    I also want to just mention one thing--as I am getting 
ready to go to the Budget Committee where we are debating the 
big picture and the budget for the future--that it is very 
interesting that in the House budget, as they look to 
restructure Medicare, they are proposing to eliminate exchanges 
and competition for businesses and consumers and create 
exchanges for Medicare.
    This is the most interesting thing. It actually says in the 
budget, ``This system would set up a carefully monitored 
exchange for Medicare plans.'' So they want to Obamacare 
Medicare. So this is a very interesting discussion.
    I think what it points out is that we should just stop all 
the partisanship and actually deal with the fact that Democrats 
get sick, Republicans get sick, people who do not care about 
politics get sick. This is about how we can create and continue 
to have a system that lowers cost, increases quality, and makes 
sure that when somebody gets sick, they have the health care 
they have been paying for all their lives, and that they can 
turn around and make sure that they do not get dropped if, in 
fact, someone in the family gets sick.
    So I just have to say for the record, Mr. Chairman, I find 
it very fascinating, as we go forward, that our House 
colleagues, who have voted over 50 times to repeal health care 
exchanges and the Affordable Care Act, are now proposing the 
same system for Medicare. It is going to be very interesting to 
see how that debate continues.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Roberts?
    Senator Roberts. Well, thank you, Mr. Chairman. I want to 
assure my distinguished friend and colleague from Oregon, who 
was born in Wichita, KS but for some reason went to the land of 
Beavers and Ducks when he could have been supporting Shockers 
and Jayhawks and Wildcats--but I did not know that he was a 
Panther, a Gray Panther.
    Senator Wyden. It is true.
    Senator Roberts. I certainly do not want to do anything to 
anger a Panther. That would be----
    Senator Wyden. Oh, a big mistake.
    Senator Roberts [continuing]. Bad news and a big mistake. I 
hope that is not coming out of my time. I hope I am granted 
another 30 seconds, Mr. Chairman. [Laughter.]
    These are not well-worn talking points. These are egregious 
complaints by my constituents, and they deserve an answer. I 
would remind everybody the President told them this law would 
reduce premiums for the typical family by $2,500. Jim from 
Overland Park, KS now tells me his 2015 premium went up 21 
percent. William from Olathe, his monthly premium more than 
doubled if he wanted to keep his same plan, but as he says, 
``The devil was in the details, as the deductible increased and 
virtually none of our doctors was in the new network.''
    Now April 15th is approaching. The confusion and 
frustration is bubbling up again as folks prepare their taxes. 
Here is an example. An independent contractor told our office 
that, due to an unexpected contract he received, his estimated 
income was off for last year. As a result, all of the previous 
tax credit he received over the course of the year is now 
taxable income. Instead of foregoing coverage and paying a $700 
penalty, he now owes the IRS $6,700. He tells me he has since 
dropped his coverage. Those are not well-worn talking points, 
those are real problems that constituents are facing, 
regardless of whether it is my State or any other.
    Dr. Holtz-Eakin, the administration announced this week--
and this was underscored by Dr. Blumenthal and by folks on the 
panel--there are 16.4 million people who have gained coverage 
since enactment of the law, but another survey that took into 
account insurance losses during some of those years had a much 
lower estimate of 9.7 million.
    How might the administration's figures be off? Can you help 
us drill down on the number? Are some of these folks 
technically new enrollees only because their employers dropped 
coverage and they moved to the exchange? Too many individuals 
were previously insured, but, because of the rate increases, 
they are choosing to simply pay the penalty this year and 
forego coverage.
    So who has dropped out of coverage? Who came in, with 
regards to what you see?
    Dr. Holtz-Eakin. There are lots of possibilities. The first 
and foremost would be people who had policies which they could 
no longer keep because of the law, so they lost that coverage 
and then went into the exchanges to get new coverage. That is 
one possibility.
    The second is, as you mentioned, some people will simply 
forego coverage because there is no effective enforcement of 
the individual mandate, and they will pay a penalty if indeed 
they are found and asked to pay a penalty. I am skeptical of 
the ability to do that in the 2015 filing season.
    Employers have incentives to drop coverage. The financial 
math is that for basically any employee up to 300 percent of 
the Federal poverty line, it is in the financial interest of 
both the employer and the employee for that employee to get 
coverage in the exchanges. They can get coverage that is just 
as good or better than what the employer was providing, and 
they can get a raise in the process, and the employer can make 
a little money in the process. The bad news is, that all ends 
up on the taxpayers' dime. So, those incentives will begin to 
play out as time goes on. There are a variety of ways in which 
the sort of simple number of how many people buy a policy 
misleads on the net increase in coverage.
    Senator Roberts. I appreciate that.
    Mr. Chairman, my main concern here, regardless of the exact 
number of new folks with coverage, is whether these individuals 
actually have access to care. Are their deductibles so high as 
to prohibit them from actually seeking the care that they need? 
Are there enough doctors in the networks, in particular in 
rural areas, for them to be seen? The answer to that is ``no.'' 
We have some real problems here. It is a bipartisan problem, 
and we need bipartisan answers to those problems.
    I appreciate your comments about home health care. We used 
to have 424 outlets with regards to home health care providers 
in the big region before we went to the bid basis. CMS sent out 
bids. It was almost impossible for people to bid, but I will 
get past that. We delayed that.
    Then there were 20 bids that were accepted. They are in 
Kansas City, they are in Wichita, they are in Topeka. They are 
not in Sabetha, KS, or Holton, or whatever it was in the 
outlying areas in Kansas in the northeastern part. I have asked 
repeatedly: there were 424, 20 bids; what happened to the other 
404 in regards to home health care providers and durable 
medical equipment, et cetera, et cetera? Exactly what you 
touched on: nobody knows and nobody cares, and that is a 
problem.
    Thank you.
    The Chairman. Next, Senator Casey.
    Senator Casey. Mr. Chairman, thank you very much. I 
appreciate the hearing that you and the ranking member have put 
together.
    I wanted to focus, first and foremost, on children. We 
appreciate all the testimony that has been provided by our 
witnesses. One of the great bipartisan breakthroughs in the 
Congress--both the chairman and ranking member were and have 
been great supporters of the Children's Health Insurance 
Program. Of course, Medicaid plays a significant role as well 
in children's health insurance.
    But all the while, we had these programs that provided 
health care for children, and yet we had what I think was an 
abomination, where you had children whose parents had health 
coverage for them for years and they were paying their 
premiums, and yet, if the child had a preexisting condition, he 
or she might not be protected.
    That abomination, that insult, is all but gone from our 
system, but I would argue we should never, ever, ever allow 
that to come back. Anyone proposing changes to the ACA, 
repealing the ACA, altering it in any way, should make sure 
that that is a central plank, because that was a moral failing, 
in my judgment.
    So now we have the ACA in place, and coverage has been 
expanded greatly. Dr. Blumenthal, I wanted to ask you about, 
first of all, the impact on something as fundamental as dental 
care for children. We know that, according to one source, 
15,000 children are diagnosed with cancer each year, and their 
parents should not have to worry about becoming uninsured 
because of any kind of arbitrary limits on coverage. So with 
the ACA ban on lifetime limits, that was the right thing to do. 
We also know that when parents are insured, their children are 
more likely to be insured.
    So, with all of that and more that we could say, what would 
be the impact on children if the ACA did not exist, or maybe 
the better question is, if the ACA were repealed?
    Dr. Blumenthal. Thank you, Senator, for that question. 
Well, as you have pointed out, oral care is now a preventive 
benefit under the Affordable Care Act. Children cannot be 
excluded from coverage because of preexisting conditions. That 
is, if a child has cancer, they cannot be forbidden or denied 
coverage because they have cancer.
    The expansion of coverage to parents has an enormous 
benefit for children, because families that are in bankruptcy 
because of the expenses of a parent obviously affect the 
welfare of a child. We know from our surveys that the numbers 
of families who are struggling with medical debt has declined 
since the Affordable Care Act was passed, for the first time 
since we have been tracking that number for over 15 years.
    The expansion of coverage for preventive services generally 
affects children, so that is another benefit for them. Nine 
hundred thousand children were in households that selected 
coverage, family coverage, in 2014 to 2015 through the 
exchanges and the Affordable Care Act, so these are all ways in 
which the law has positively affected children.
    Senator Casey. Doctor, I also wanted to ask about the 
uninsured rate for young adults. I am looking at page 7 of your 
testimony. You state there, ``The uninsured rate for young 
adults ages 19 to 34 has declined sharply.'' Can you tell us 
about that? That is part of, I know, the survey result. But 
this would be for the 19- to 34-year-olds.
    Dr. Blumenthal. Yes. The exact proportion of young adults 
with and without insurance, I would have to get back to you on. 
There is no question, though, that the combination of 
availability of coverage under parents' plans, the individual 
mandate, and the expansion of Medicaid have dramatically 
reduced the numbers of young adults in the United States who 
lack insurance.
    One of the under-recognized facts around the Affordable 
Care Act is that many young adults are eligible for Medicaid 
because they have low incomes. It is actually the expansion of 
Medicaid, as much as the availability of insurance through 
parents' policies, that accounts for the reduction in the 
numbers of uninsured young Americans.
    Senator Casey. The one point that you made--I know we are 
low on time, and I will come back to it later--looking towards 
the end of your prepared testimony, about the health insurance 
marketplaces, one of your headlines is ``Health Insurance 
Marketplaces Have Been Both Stable and Competitive.'' Can you 
walk through that? I know I am out of time, but I will not ask 
another question.
    Dr. Blumenthal. Sure. Very simply, the rate of increase in 
individual insurance policy premiums in the marketplaces was 
zero over the last year. That is absolutely without precedent 
in the history of the individual insurance market.
    More plans are entering the market to sell insurance in 
those markets. The ease with which people were able to find 
insurance in the marketplaces this year was quite remarkable. 
Despite the failings in the first year of its launch, there 
were very few glitches in this past year. So we have 
competition, more plans, reduced premiums, and more people 
insured. I just do not see what is wrong with that picture.
    Senator Casey. Thanks very much.
    The Chairman. Senator Cornyn?
    Senator Cornyn. Thank you, Mr. Chairman. Thank you for 
having this hearing.
    Unfortunately, I think people are becoming desensitized to 
the rhetoric upon which Obamacare was sold to the American 
people. I think as you go back and reconstruct it, virtually 
all of the promises that were made ended up not being true.
    If you are looking to try to expand health coverage 
availability to hardworking American families, the last thing 
that strikes me you want to do is to increase the price by 
$3,500, which is what happened under Obamacare because of the 
mandates. Premiums in the individual market have gone up 49 
percent; so, rather than make health care more affordable and 
more accessible, we have made it less affordable.
    Indeed, Obamacare was sold, as I recall it, in part also 
based on a concept of universal coverage, that everybody would 
be covered by insurance--and indeed, approximately 35 million 
people still remain uncovered--then the administration touts 
the Medicaid expansion. I have to tell you that the studies I 
have seen on outcomes for Medicaid are really no better. The 
medical outcomes are no better than for people who do not have 
insurance at all. Indeed, as the States have seen with the 
increasing costs of Medicaid to the States, they have crowded 
out, in many instances, their ability to fund other important 
State functions like education, law enforcement, and the like.
    So at this point, we are left with the States asking the 
Federal Government's permission for waivers so they can conduct 
some innovative experiments in how to provide lower-cost, 
better-access coverage under Medicaid. But it strikes me as 
fundamentally wrong that the States have to ask the Federal 
Government how they can spend their money.
    But, Dr. Holtz-Eakin, can you tell me--I still remember 
that Senator Schumer from New York, after the election, gave a 
speech at the National Press Club. He said he felt like this 
focus on the Affordable Care Act was really a mistake and that 
our Democratic friends paid for that at the polls on November 
4th, and that really what they should have focused on is 
middle-income families. But would you speak to what the 
Affordable Care Act has done to median household income? 
Because it strikes me that it has made things worse, not 
better.
    Dr. Holtz-Eakin. I would concur with Senator Schumer. I 
mean, put the politics aside--that is his business. The 
Affordable Care Act is damaging for economic growth, and it was 
enacted at a time when we had very poor growth in the United 
States to begin with.
    Even since we started to create jobs, we have not seen 
those jobs carry increases in real wages and the kinds of 
incomes that Americans have expected, so the size of the pie 
just was not getting bigger, and this did nothing to help that. 
It, in fact, hurt it. And on top of that, in my view, it 
increased the cost of health insurance, one of the key things 
you want to use your income to cover. So it really had a double 
whammy on the average American family.
    Senator Cornyn. I know the Independent Payment Advisory 
Board has been a feature that has caused bipartisan concern, 
and that of course was this idea that Congress would be taken 
out of the equation when it comes to actually determining what 
Medicare would cover.
    While the threshold has not been triggered yet for the 
invocation of that authority, I am hopeful that we will be able 
to repeal that either in conjunction with congressional 
response to King v. Burwell or in some other context.
    But I might ask you, Ms. Wade. The idea that Obamacare did 
something that only Obamacare could do, which is cover 
preexisting conditions and cover young adults under their 
family coverage--the only way you could do that is by passing 
the 2,700-page bill--is specious, it strikes me. But also, the 
fees on insurers are sort of hidden taxes that are indeed 
passed on down to consumers, and indeed this new health 
insurance tax is going to rise to more than $14 billion by 
2018.
    Could you speak to how that tax affects consumers and small 
businesses?
    Ms. Wade. Absolutely. So the NFIB Research Foundation has 
looked into the health insurance tax, and we have estimated 
that the tax itself will reduce private-sector employment by 
between 152,000 to 286,000 employees, and 57 percent of those 
will be in the small businesses. It will also reduce U.S. real 
output by 2023 by between $20 billion to $33 billion.
    One of the major issues for small businesses regarding the 
health insurance tax is that it affects the fully insured 
market, which is the market where most small businesses 
purchase their health insurance. So they are the ones absorbing 
these costs, and, whether it is the health insurance tax or 
other fees that affect the fully insured or their marketplace, 
they are the ones absorbing these costs, and they are unduly 
hit by increases, and they are the ones least able to afford 
increased premium costs. That is their number-one issue in 
health insurance.
    Senator Cornyn. Mr. Chairman, if you would permit me, just 
a quick anecdote. I remember, after the employer mandate was 
passed, having a conversation at lunch with a friend of mine in 
San Antonio, TX who runs an architecture firm. When he realized 
that the employer mandate would kick in at a certain employment 
threshold--I believe it is 50--he said what he would end up 
doing is basically laying off his employees over that cap and 
then out-sourcing the drawings that they depend on in their 
firm to other firms not even in the United States. So this has 
had a pernicious effect in so many different respects.
    I appreciate your indulgence. Thank you.
    The Chairman. Thank you, Senator.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman. I appreciate you 
and Senator Wyden having this hearing. Thanks to our panel for 
joining us today.
    The promises made during the lead-up to and passage of 
Obamacare were that premiums were going to go down by $2,500. 
Since 2009, premiums for the average family have increased by 
nearly $3,500, but we have supporters of the law who would 
argue that these premiums actually are not going up, that they 
are the same--that they were going to be the same as people's 
cell phone bills after this passed.
    The other thing that gets lost in all this, in addition to 
the hike in the premiums, is that the deductibles are pretty 
staggering. According to HealthPocket, in 2015 the deductible 
for an average family with a Silver plan is $6,010. A family 
with a Bronze plan faces a $10,545 deductible. So you have the 
premium issue.
    Even if the argument is made--and it is, often, by some of 
our colleagues who have supported the law--that premiums have 
not gone up all that dramatically, when you promise a $2,500 
reduction and you see a $3,500 increase, that seems to me to be 
a pretty big increase.
    But I am curious, Dr. Holtz-Eakin. Would you define a 
health plan with these types of deductibles as affordable to a 
middle-income family in this country?
    Dr. Holtz-Eakin. No. Clearly this has been a concern. As I 
mentioned in my opening remarks and in the testimony, the out-
of-pocket costs have been rising, whether it is the 
deductibles, the co-pays, all the things that individuals are 
exposed to.
    In the end, as insurers try to provide products and 
compete, they are forced to do some things to try to control 
these things. Passing these costs on to individuals is one; 
another is restricting the networks so that, once you pay that 
out-of-pocket cost, you are still not seeing the provider of 
your choice. So, it has hit both aspects: the affordability and 
the access to care.
    Senator Thune. And this whole issue of restricting networks 
seems to be the other thing--that you have fewer and fewer 
choices. You are collapsing your choices, you are paying more 
for less, basically. But just in your experience, the folks who 
have had their networks restricted or have fewer options 
available to them, do you see, in the insurance industry 
generally, just a lot of plans, a lot of companies, that have 
done this, that have gone and just said, look, we cannot 
continue to offer any kind of an affordable rate unless we have 
this dramatically smaller-sized network? Is that something that 
is kind of pervasive throughout the industry?
    Dr. Holtz-Eakin. Yes. We have seen this in Medicaid, we 
have seen it in the exchange plans. We saw it in Medicare 
Advantage, where not only have roughly a quarter of the MA 
plans disappeared since the cuts began, we have seen 
announcements of lay-offs of doctors and others from the large 
MA providers. So, this is something that is going on in the 
medical landscape.
    Senator Thune. Ms. Wade, I have a similar story. In South 
Dakota, we had a small business that contacted us and said that 
they were trying to provide coverage to their employees and 
that in 2014 their maximum out-of-pocket costs doubled. Their 
out-of-pocket cost per employee now is well over $10,000 a year 
for family coverage.
    So my assumption is, and your experience bears on this 
issue as well, but I think you mentioned that, after 5 years, 
benefits for small businesses have yet to materialize, and 
instead they are left with more uncertainty.
    How impactful--I would use the word devastating, I guess--
has this flawed law been on the sustainability of America's 
small businesses and their ability to hire more people? I mean, 
we talk about the impact on jobs. You would be someone who 
could speak specifically to your experience when it comes to 
the impact of the law on job creation.
    Ms. Wade. Sure. So increased costs in compensation, which 
includes wages and benefits, affect what the employer is able 
to provide based on their profits and how they are doing in 
sales and revenues. So in the last 6 years through the 
recession, they have certainly struggled in keeping their doors 
open, first of all, but then also in retaining their most 
talented employees and things like that.
    But it is all based on the profitability of their company. 
That is the bottom line for them. What they can provide after 
that is based on the structure of their employees, their 
workforce, and also whether they see predictable increases in 
revenues going forward.
    So the uncertainty part of all this and the erratic changes 
in premium costs affect them in their willingness and ability 
to bet on a long-term benefit for their employees, whom they 
certainly do not take lightly, and it is very costly going 
forward. So, there is a lot of hesitation still about the 
benefit.
    Senator Thune. So, higher premiums, higher deductibles, 
fewer doctors and providers, and fewer jobs. That is, I think, 
the story 5 years later.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, sir.
    Senator Grassley?
    Senator Grassley. Yes. I only have one issue to discuss, 
and I want to do that with Ms. Wade. In your testimony, you 
point out that small businesses have been caught off guard by a 
little-known provision in Obamacare that essentially makes it 
illegal for people you represent to pay for their employees' 
health premiums on an individual market. Small businesses who 
fail to recognize this could face as much as a $100-per-day 
per-employee penalty simply because they want to help their 
employee obtain health insurance. This, of course, does not 
meet the common sense test.
    In order to correct this, I have been working with 
Congressman Boustany from the House on a legislative proposal 
to permit small businesses to continue to reimburse their 
employees for health insurance premiums on a pre-tax basis. The 
reason I feel it is so important for Congress to address this 
issue is because of the stories I have heard from small 
business owners in my own State.
    So, two questions at the same time, but they are very much 
related. I would like to have you elaborate on what small 
businesses from across the country are telling you about the 
damaging impact of the rule on their businesses and employees, 
and could you also speak to the transition relief that the 
Treasury announced in February and why addressing this issue 
legislatively remains important to small businesses?
    Ms. Wade. Absolutely. Thank you for the question. It is a 
fairly large population of small business owners that are 
offering this benefit. About 14 percent of those not offering 
provide financial support for their employees to purchase 
individual insurance, and also about 4 percent of those 
offering. Equally important are the 21 percent that we have 
found that are offering that are interested in maybe looking at 
this as a way to help support some or all of their employees in 
purchasing health insurance.
    So it is affecting a great number of small employers. The 
main reason they are finding out about this is talking to their 
insurance agent or their CPA when it comes time for renewal, or 
if they are shopping for a new plan. We have received a number 
of calls where their CPA and their insurance agent are telling 
conflicting stories, whether this is permissible or not 
permissible. So then they call us, asking if we can help 
clarify.
    So there is a lot of confusion, and one of our worries is 
that if they are not talking to their CPA or their health 
insurance agent or they are not finding out some other way, 
there is no way for them to know that this is a prohibitive 
benefit for their employees, and they will be stuck with the 
penalties this coming year.
    The delay was helpful to a point, but not helpful in that 
this next year we are still going to have a number of employers 
that are providing this benefit that do not know that they are 
not supposed to otherwise. Then also there is the challenge of 
taking away a benefit in the middle of the year. If their 
renewal date or their benefit restructuring plans are at the 
end of the year, they are stuck having to deal with this from 
now until, I believe, June or July, whenever the penalties kick 
in.
    So it is a large population of employers that are in this 
mix of providing this benefit, wanting to provide this benefit, 
and the frustration of not knowing that this is not allowed 
anymore.
    Senator Grassley. So a legislative alternative is 
necessary?
    Ms. Wade. We believe so, yes.
    Senator Grassley. Yes. Thank you, Mr. Chairman. Thank you, 
Ms. Wade.
    The Chairman. Thank you.
    Senator Coats?
    Senator Coats. Thank you, Mr. Chairman. This is an 
interesting hearing here that we are having.
    I just wanted to mention to my colleague Senator Wyden, who 
I think legitimately gave some examples of people who have 
benefitted from the program, that I have hundreds, if not 
thousands, of letters in my office--and I have just a few of 
them here--from people who have been disadvantaged under this 
program, who have had their premiums increased up to 90 percent 
from what they were before, their deductibles doubled to 
unaffordable levels.
    They fall in that so-called gap of the working middle 
class. Many have been decimated by this program, dropped from 
their 
employer-covered plans, stunned by affordable plans they had 
been paying for for 10, 15, 20 years suddenly being dropped 
because the plan did not meet the mandated requirements of the 
ACA. So there are two sides to this story. I know my colleague 
also indicated he is open and ready for a discussion on reforms 
for those things that do not work.
    As our first witness mentioned, there are a lot of things 
that are not working well in this plan. Simply to tout some of 
the things that do work, which we celebrate, has to be put in 
the context of things that have just thrown a lot of people 
into a situation where they are desperate in terms of getting 
the kind of insurance for their family that they can afford. So 
that is one thing.
    The question I want to put to our witnesses is this. 
Indiana has received permission to put together a plan that is 
much more 
consumer-oriented, much more feasible in terms of our State, 
which does not have a State exchange. The statement that Doug 
Holtz-Eakin made--yes, many people have flooded into Medicaid, 
but the reforms have not been put into Medicaid, and that is a 
burden, a continued burden now, on the Federal Government as 
well as the State government.
    But Indiana passed something called Healthy Indiana Plan 
2.0. Indiana Plan 1.0 was initiated by our former Governor, 
Mitch Daniels, and 2.0 by our current Governor, which is an 
extension of that plan. It incorporates a number of reforms in 
Medicaid. It preserves incentives, but it has disincentives 
also. It is carrots and sticks for people to put in place 
personal responsibility.
    Advance-driven health care has been based primarily on a 
health savings account type of plan and requires personal 
responsibility. It aligns with the commercial health insurance 
market. It is going to bring several hundred thousand, if not 
half a million, people into the system. It is a model that I 
think a number of States that have not signed up for the 
exchanges can take a look at.
    I would just ask Dr. Holtz-Eakin if he is aware of that, 
and perhaps Dr. Blumenthal also, or any of our panelists, if 
they have had a chance to look at that. And is this a reform 
that potentially can address some of these issues that are not 
being addressed currently under the ACA?
    Dr. Holtz-Eakin. I am aware of it. We have seen, under 
Healthy Indiana 1.0, tremendous success, in my view. I thought 
that was an extremely successful public policy. I think 2.0 is 
very promising, and we will watch it as it evolves to see if it 
continues to have the characteristics of getting people access 
to care and controlling costs, which 1.0 seems to have done 
very, very well. So I think the use of the waiver to reform the 
Medicaid program is exactly the right thing to do, and this is 
a promising innovation.
    Dr. Blumenthal. Senator, I do not know the precise details 
of the latest Indiana plan. I would point out that it 
illustrates the flexibility that States have, often overlooked 
under the Affordable Care Act, to tailor programs to their own 
situations.
    I also would point out that there is a great deal of change 
going on within the Medicaid program under the auspices of the 
Affordable Care Act, some of it sponsored by the Center for 
Medicare and Medicaid Innovation. In the State of New York, 
which is my place of employment, the State has totally revamped 
its Medicaid delivery system under the flexibility that has 
been created by the Affordable Care Act.
    So I think it is fair to say that the Affordable Care Act 
does open opportunities for Medicaid reform at the delivery 
system level, which is where everything needs to take place.
    Senator Coats. Well, my time has expired. Mr. Chairman, let 
me just say that, regarding flexibility, it took the State a 
year and a half to get the Federal Government to respond to 
allow them to add these changes and reforms to Medicaid, so 
flexibility is a word that may not directly apply here.
    But hopefully the plan will now be looked at and will be 
successful, as Dr. Holtz-Eakin had said about the first 
iteration, and the second iteration greatly expands that. 
Hopefully it can be a model for other States and they will get 
the flexibility to be able to follow that.
    Mr. Chairman, thank you.
    The Chairman. Thank you, Senator.
    Senator Scott?
    Senator Scott. Thank you, Mr. Chairman.
    Dr. Holtz-Eakin, as we continue to discuss this 5th 
anniversary--and certainly from my perspective, it has been a 
failure for the last several years as an opportunity to provide 
affordable health care. Frankly, having the government run a 
sixth of the economy and take over the responsibilities of 
providing affordable and accessible health care has been a 
complete failure, from my perspective.
    Many of my constituents, who are some of the sickest 
Americans, find themselves unable to afford the out-of-pocket 
expenses. Whether it is the maximum out-of-pocket, your 
deductibles, co-pays on medicine, the fact of the matter is 
that the ability to afford seeing a doctor, even if you have a 
card that says you have access, is becoming harder and harder 
for so many of my constituents.
    It seems to me that Obamacare plans often leave individuals 
with sticker shock and less access. I would appreciate your 
comments and your thoughts on what should be next as we look at 
ways to provide real access to health care. Mine would be, of 
course, to look at a private-sector model that would work, as 
opposed to continuing down a path that seems to lead to limited 
access, higher cost, higher deductibles, higher out-of-pocket 
expenses--now for the next 3 years, 8.5-percent increases in 
premiums.
    Dr. Holtz-Eakin. This is a real concern. We saw for years 
this manifest itself in the Medicaid program, where access to 
providers was quite limited. We are now seeing the exchange 
plans often replicate the Medicaid limited network problems as 
a way to sort of keep the premiums down, shifting to higher 
out-of-pocket costs. All of these things are a deep concern.
    In the end, they are rooted in the sort of regulatory 
inflexibility for the kinds of insurance plans that could be 
offered--the rating bands and other restrictions on the pricing 
of those plans. So the way forward is to allow the private 
sector to innovate in the insurance options, to bring back 
insurance that provides the benefits that individuals value, 
not a one-size-fits-all benefit package but one that tailors 
products to different points in the life cycle when people have 
different insurance needs. Those things are missing from the 
design in the Affordable Care Act.
    Senator Scott. Yes, sir.
    Also, when you look at the recent studies that show that a 
majority of individuals below 400 percent of the Federal 
poverty level do not have sufficient assets to pay the 
extremely high deductibles offered in Obamacare, a very similar 
question arises. It seems that we are celebrating, or some are 
celebrating, the 5th anniversary without truly appreciating the 
lack of access, specifically in rural areas of my State where 
you have fewer health care providers. And by most estimates, by 
the year, I think it is 2025, another 100,000 doctors will be 
out of the health care system because of the cost.
    I take into consideration the fact that we siphoned off 
about $716 billion from Medicare. It seems to me, those seniors 
who are also very sick, who also live in rural areas, will have 
even greater challenges, more hurdles to overcome, as we look 
for an affordable, hopefully, replacement at some point in the 
future for Obamacare.
    Dr. Holtz-Eakin. As I mentioned earlier, I am concerned 
about the future, about some key components of the Medicare 
program where the cuts, I think, will impinge on access to 
care. Home health is one. Medicare Advantage, I am also 
concerned about. Despite its current condition, the future does 
indeed look dangerous to me.
    There is a generic problem with access to care, and we need 
to provide more flexible options to get people access to that 
care. That will be true regardless of whether it is an exchange 
plan or a Medicaid plan. That is how it is going.
    The last thing I will just point out that the low-income 
face uniquely is, there is this phenomenon of people 
transitioning from Medicaid eligibility into exchange 
eligibility. There is a high probability that a low-income 
family will do that in any given year, and in fact a remarkably 
high probability that they might even go back.
    That means every time you cross that line, you are changing 
your insurance product, which means you are changing your 
providers, and your care is being disrupted. That has been a 
concern since the beginning with the Affordable Care Act.
    Senator Scott. Thank you. I think my last comment will be 
more of a comment than a question. We have heard in recent days 
that the cost of the ACA is going down to an estimate of about 
$1.2 trillion, with somewhere between 27 and 34 million 
Americans still uninsured in the next 10 years. My thought is 
that we ought not celebrate the reduction of a cost, because 
fewer people are actually using it. Thank you.
    Senator Wyden [presiding]. Senator Heller is next.
    Senator Heller. Thank you very much. I also appreciate the 
chairman and the ranking member bringing this issue in front of 
us. I want to thank the witnesses. Thank you very much for 
taking time, for being with us, and for making sure that we get 
answers to our questions.
    I want to talk, Doctor, a little bit about Medicaid 
expansion, mostly because you brought that up in your earlier 
testimony. But we have seen in the State of Nevada, actually, a 
doubling in the Medicaid population. Here is the problem: we 
may have doubled our Medicaid population, but we do not have a 
corresponding increase in the number of Medicaid providers. I 
have serious concerns about that. Hospitals are stressed.
    It is not just the State of Nevada. Obviously out west and 
across this country, we are seeing some really stressed-out 
hospitals, and they are asking, what is the difference? If you 
expand Medicaid but you do not expand providers, you are going 
to end up in the hospitals anyway, in the emergency rooms.
    What has changed? What has changed from 5 years ago?
    Dr. Holtz-Eakin. The fundamental strategy in the Affordable 
Care Act, with which I politely disagree, was to expand 
coverage first and worry about providers, delivery system 
reform, and those things second. The expansion of coverage 
gives people access to the financial wherewithal to look for 
providers, but they are just not there.
    This concern was voiced from the very beginning of the 
debate over what became the ACA, and it is now playing out in 
many parts of the country. There are not the providers to deal 
with the increasing number of Medicaid- and exchange-covered 
individuals.
    Senator Heller. Yes. We are seeing that from our medical 
hospitals, that a number of our graduating students cannot find 
internships, cannot find temporary jobs at other hospitals. 
They have to wait another year before they are accepted in 
these hospitals for the work that they do in their training. It 
is becoming very, very difficult.
    I want to talk a moment about the tax season that is upon 
us now. Many Americans who have already dealt with confusion 
regarding their health plans and potential increased costs are 
now discovering a variety of surprises, as you are well-aware 
of, in the filing of their taxes. There are new forms to fill 
out. Their refunds are much lower than they expected.
    The administration has also admitted that 800,000 incorrect 
1095-A forms were sent out. There could be more from States 
that have set up their own exchanges. The 50,000 people who 
have already filed do not have to amend their returns, but the 
750,000 who have not may end up owing additional taxes and 
further delaying their returns.
    I think this is adding insult to injury. It is often 
discussed how the regulatory burdens of this law affected 
businesses, but what kind of impact from these do you foresee 
for individual taxpayers this year, and what do you see in the 
future?
    Dr. Holtz-Eakin. The difficulties that individuals will 
face this year, in the tax filing season, are hardly a 
surprise. This was utterly predicted and, indeed, in testimony 
I gave to the House Ways and Means Committee, it basically 
said, this is coming, get ready. I can share this with anyone 
who wants it. This is the design of the subsidy verification 
system. This is what it takes to get the subsidy right.
    There is no way this is going to happen in a world where 
the employer mandate is not being enforced, so the information 
that comes with it is not going to be available. This is a 
dream, not a way to check on actual subsidies. This year we 
will see lots and lots and lots of problems. I think the larger 
concern is, I do not think this can ever be implemented 
successfully.
    As I mentioned earlier, the Earned Income Tax Credit, which 
is simpler by far, has an error rate of 21 percent. I do not 
see how this ever comes even close to 21 percent, because it is 
just too complicated. Every year then, those who are in the 
subsidy system are going to find themselves in a tax nightmare.
    Senator Heller. Yes.
    Mr. Chairman, thank you. No further questions.
    Senator Wyden. Senator Carper is next.
    Senator Carper. Thanks so much.
    To each of you, welcome. It is nice to see you, Doug. It is 
a good thing we do not have to pay for every time you testify. 
We would be running up the national deficit even more than it 
is. It is way nice to see you.
    Dr. Blumenthal, it is nice to know that one of the 
Blumenthal boys turned out well. [Laughter.] For those of you 
who do not know, he has a brother who serves here with Senator 
Casey, Senator Wyden, Senator Heller, and I, and actually does 
a great job. I wish we could get him to swim more, wish he was 
in better shape. Actually, he is a great swimmer.
    We have around here, on Wednesday morning, a prayer 
breakfast, and on Thursday we have a Bible study group for 
about six or seven of us who need the most help. We meet with 
the Senate chaplain. Oftentimes the Senate chaplain reminds us 
of the moral obligation that we have to the least of these in 
our society, and he will sometimes remind us of Matthew 25 and 
the words you probably have all heard before: ``When I was 
hungry, did you feed me? When I was naked, did you clothe me? 
When I was thirsty, did you give me to drink? When I was sick 
and in prison, did you come to visit me?''
    It does not say anything like, ``When I did not have any 
health care coverage, when I could not get any health care 
coverage, when I could not afford any kind of health care 
coverage, did you do anything about it? '' But I think the 
message is the same. We have a moral obligation to the least of 
these in our society, not just to people who are homeless or 
people who do not have anything to eat, but really people who 
do not have access to decent health care.
    For years we talked about trying to meet that moral 
obligation, and failed miserably. I was a fairly new member on 
this committee. Senator Wyden was a grizzled veteran, but I was 
a fairly new member when an effort was begun, under the 
leadership of Max Baucus--who is as good as anybody I have ever 
known at reaching across the aisle--a negotiation with three 
Democrats and three Republicans that lasted for months to try 
to find common ground, and failed.
    I am not a very partisan guy, as my colleagues will tell 
you, but I think they failed, not for the best of reasons. We 
ended up as Democrats drawing up and pretty much writing the 
bill ourselves. To our shame, we stole two good Republican 
ideas and included them in the bill.
    One of those was the idea that we should create these large 
purchasing pools in order to try to bring down and make more 
affordable the cost of health care, and the other was--some guy 
up in Massachusetts, I think he had been Governor, had an idea 
about an individual mandate in order to make sure we did not 
end up with insurance pools with just the lame, the halt, and 
the blind, but we actually had some young, healthy people in 
there. So we stuck those two Republican ideas in, and actually 
they are two of the main pillars of our bill.
    When I listened to the comments of some of my colleagues 
here on the floor, over in the House, people just seem to 
forget that we had, and we still have, a huge problem in our 
country. We have a moral obligation to meet the challenge, and 
we have a fiscal obligation to try to do it, to meet that moral 
responsibility in a fiscally responsible way.
    That is a long run-up to my question, but here is my 
question: I hope we are not going to just throw the baby out 
with the bath water here. I hope we will find a way to make 
this baby a lot healthier, and you have given us some ideas 
today.
    Let me just ask this and start with you, Dr. Blumenthal. 
Where do you think the three of you agree on some logical steps 
where we sort of get this venom out of our system, some logical 
steps that we can take to improve access further and maybe 
actually make some progress on the cost side?
    Dr. Blumenthal. Well, Senator----
    Senator Carper. Where do you think you all agree? A couple 
of good ones.
    Dr. Blumenthal. Well, we have not had a chance to put our 
heads together. If you all took 3 or 4 months and were not able 
to come to agreement, I am not sure that we would take a lot 
longer or shorter.
    Senator Carper. I am not so sure that all six were trying. 
[Laughter.]
    Dr. Blumenthal. But I would be glad to caucus with my 
colleagues here and see if we could come up with something. I 
would not have the temerity to suggest what it was ahead of 
time. I have some ideas about ways in which the law could be 
made better, but I am not at all sure that they would be ways 
that my colleagues here would agree with.
    I would say in general that I personally agree that the law 
was created with some haste with an unusual process and did not 
have the chance to get the kind of vetting that laws ought to 
get. That was unfortunate. It can certainly be improved. The 
Commonwealth Fund welcomes any opportunity to work on ways to 
improve it. It does need to be improved.
    The health system of our country is as large as most 
independent nations. The GDP of our health care system, were it 
an isolated country, would be the fifth largest in the world. 
To expect that any single piece of legislation will fix all of 
its problems in 5 years or 10 years is unrealistic. The 
Medicare program was not the Medicare program we know now. When 
it was passed it needed lots of improvement over time. It got 
it. It is now incredibly popular and, despite its problems, 
remains popular.
    Senator Carper. Excuse me. My time has expired. The 
chairman has been very patient with me. I am going to ask you 
just to hold it right there. I am going to ask you, for the 
record, to give me an idea or two you think the three of you 
might actually agree on going forward. But thanks so much. 
Sorry to have to interrupt you.
    Ms. Wade, same question. Where do you think the three of 
you might agree on some common-sense changes, some practical, 
reasonable improvements?
    Ms. Wade. Improvements for small employers with the law 
would be lifting the taxes, fees, and paperwork burdens, all 
the increased cost components for them providing insurance for 
themselves, but also offering it for their employees, and also 
not locking more employers into the employer-sponsored system 
through the employer mandate.
    Business owners, businesses, are varied, with different 
workforce compositions, profits, and things like that. Forcing 
more of them into this structure of offering health insurance 
certainly restricts their ability to grow and improve their 
business.
    But also, in the small group insurance market where they 
purchase insurance, for those under 50 employees, lifting some 
of the costs and restrictions on that pool makes sense, because 
now there is even a further divide between those that purchase 
in the small group market and those that purchase in the large 
group market. The small group market is just becoming more 
restrictive and costly for small employers to purchase 
insurance.
    Senator Carper. All right. Thank you.
    Could we get maybe 60 seconds from Doug? Doug, please.
    Dr. Holtz-Eakin. Thank you, Senator. First of all, I want 
to echo what you said about our moral obligations. My concern 
has always been that, in meeting those, we are not meeting a 
comparable test for the next generation and are leaving behind 
too large a fiscal burden for them in an economy not performing 
as well. Meeting the first obligation while not failing on the 
second is really the goal here.
    The second thing I would say is, on the exchanges, we 
needed, and still need, better competition in insurance 
markets. No one should be confused about the quality of the 
competition in insurance markets circa 2009-2010. I think that 
would be on the list of things we can continue to do better on.
    Senator Carper. All right.
    Dr. Holtz-Eakin. I do not think we are there yet. The third 
thing I would mention would be Medicare. Medicare needs reforms 
on behalf of its beneficiaries who are often not receiving the 
care that they deserve, and again to meet the fiscal 
sustainability issue. And Medicare reform, in my view, is the 
first step in delivery system reform.
    I would encourage the committee to focus on Medicare reform 
going forward. One of the unfortunate side effects of the ACA 
is, because it used Medicare as a pay-for and it used Medicaid 
as an expansion, it froze real progress in those two 
entitlement programs that need reforms, because touching them 
meant touching the ACA, and we know how that has played out.
    The last thing I would say is, on the nuts and bolts, this 
committee could do a lot of improvement. Take the health 
insurance tax. I understand the need for revenue, but that tax 
is a disgrace. It makes no sense from a tax policy point of 
view to say, we are going to take $8 billion, rising to $14 
billion, from an industry regardless of the economic 
circumstances in which they find themselves, and in the process 
of doing so discriminate between those who are liable for the 
corporation income tax, those who are not liable for the 
corporation tax, and those who happen to have a product line 
that focuses on seniors and low-income people. That violates 
all the rules of good tax policy that say you should not drive 
the market with the tax decisions. That tax is horrible. So, 
get the money if you must, but get it in a way that makes 
sense.
    Senator Carper. Thank you all.
    Thanks, Mr. Chairman. Thanks for your patience.
    Senator Wyden. Thank you very much.
    At this point, Chairman Hatch has many obligations, so I 
think, by unanimous consent, I would like to put his closing 
statement in the record.
    I am going to ask one additional question, and then I know 
Senator Casey has one additional question. I think it is our 
understanding from Chairman Hatch's folks and our folks that we 
will let Senator Casey wrap up after one additional question 
from me.
    Dr. Blumenthal, a question with respect to what has 
happened in States that have had the Medicaid expansion and the 
States that have not. This is for you, Dr. Blumenthal. We know 
that when patients come to the hospital emergency room, there 
is a Federal law that hospitals must treat them whether or not 
they are able to pay. We also know that paying for their care 
has to come from somewhere. There are no free goods and 
services anywhere in the American economy.
    Now, it is my understanding that, in 2014, States that 
expanded Medicaid saved an estimated $5.7 billion. I am curious 
and genuinely do not know the answer. Is it your sense that, in 
those States, there may be less cost shifting going on with 
hospitals and other providers?
    Dr. Blumenthal. Senator, while I cannot give you a number, 
I am quite sure that that is the case. I know that safety-net 
institutions, those that see disproportionate numbers of 
previously uninsured and Medicaid patients, are doing better 
and are feeling the positive effects.
    I know that uncompensated care is going down in States that 
have expanded Medicaid. That puts less pressure on those 
institutions to raise their private insurance fees and makes it 
possible for them to see those less well-endowed, less well-
protected patients.
    So Medicaid expansions, as has been well documented, are 
worth tens of billions of dollars to the economies of States 
that expand, and also tens of billions of dollars to the health 
systems, including to community health centers and Federally 
Qualified Health Centers.
    Senator Wyden. How about the States that have not expanded 
Medicaid?
    Dr. Blumenthal. We know that they have had the least 
reductions, the lowest reductions, in rates of uninsurance. So 
Medicaid has been an important part of the reductions in 
uninsurance and a benefit for their young, poor, and ethnic 
minorities.
    Senator Wyden. All right. I am going to have to leave. I 
just want to say in wrapping up, before I turn it over to 
Senator Casey, from my vantage point I have worked with all 
three of you and have appreciated the candor, the scholarship. 
Obviously we have some differences of opinion. But I continue 
to believe there is an opportunity for some bipartisanship here 
and some reforms that can bring people together.
    We are going to spend $2.9 trillion, apparently, this year 
on health care in our country. Structurally there is no 
challenge. I have outlined, a number of colleagues have 
outlined, what I think are benefits. I have tried to highlight 
some of the examples where I think there is common ground, like 
Medicare Advantage. Chairman Hatch is not here, but he has been 
a very outspoken proponent of that, as have I.
    So there are opportunities for us to build on, and I think 
that is what Senator Carper was driving at. I think we build by 
going forward, as I say, not going back to the days, for 
example, when insurers could clobber the people with a 
preexisting condition.
    So I very much look forward to working with all three of 
you. We have relied on your input and ideas in the past, and we 
are going to continue to do it.
    Senator Casey, you may proceed and close the hearing for 
the Finance Committee.
    Senator Casey [presiding]. I want to thank the ranking 
member, and, as he leaves, I will have one question. But just 
for the record, there are a lot of arguments, predictions and 
arguments, made about the impact of the ACA on the economy. 
Some of the numbers, I think, belie that. In the 5 years since 
enactment, 12 million jobs created in that period, 60 
consecutive months of private-sector job growth. The 
unemployment rate went from 10 percent to 5.5. So, I think 
those arguments--and of course the coverage now is 16.4 million 
people.
    Dr. Blumenthal, I just have one question I meant to get in 
before. On page 15 of your testimony--a lot of your work in The 
Commonwealth Fund is on surveys. I think they are relevant 
here. This is simply an analysis of public policy. Part of what 
we are trying to do is ascertain the feeling or the attitude 
that people have about the ACA.
    You talk on page 15--and you have a footnote with it--about 
how 61 percent of adults with marketplace coverage report that 
it has been ``very'' or ``somewhat easy'' to pay their 
premiums. So if you could just comment on that and how you 
arrived at that.
    Dr. Blumenthal. Well, we asked them, and that is what they 
told us.
    Senator Casey. And that is a 2014 survey?
    Dr. Blumenthal. That is right. So the data that we quote in 
our testimony is data derived either from our surveys or from 
surveys done by other credible organizations like the National 
Center for Health Statistics, the Urban Institute, or Gallup.
    Senator Casey. Thanks very much.
    Mr. Chairman, thank you.
    The Chairman. Thank you, Senator. We appreciate it.
    Let me just ask one more question of Dr. Holtz-Eakin. You 
recently put out an analysis on the House SGR bill that is 
currently being drafted. I am especially interested in the 
inclusion of the two structural entitlement reform proposals, 
means-testing and Medigap reform, that are being included in 
the bill. Tell us what the long-term impact of these policies 
will be on Medicare solvency.
    Dr. Holtz-Eakin. So my analysis was prompted by the fact 
that the reports were that the proposed legislation would not 
pay for $140 billion of the cost of the SGR repeal. I, at first 
blush, found that unappealing. We have serious fiscal problems, 
and everything should be paid for.
    But there are these structural reforms, and so I just asked 
the question, well, if we extend the analysis from 10 years to 
the second 10 years, what are the potential savings from 
structural reforms in Medicare and would that compensate for 
the $140 billion that was not paid for up front?
    The answer is, there are substantial savings--$230 
billion--more than enough to compensate, with interest, for not 
paying the $140 billion. As usual, providing people good price 
signals with both premiums and with deductibles gives you 
changes in behavior, and that is at the heart of those 
analyses.
    The Chairman. Well, I am glad to have that.
    I want to address something that Ranking Member Wyden 
mentioned earlier on Medicare Advantage. Obamacare did cut 
hundreds of millions of dollars from the Medicare Advantage 
program. CMS actuaries warned at the time that cuts could cause 
up to 7 million of the nearly 16 million seniors in Medicare 
Advantage to lose their plans by 2017. Many of those cuts have 
been masked by administrative actions that have not yet gone 
into effect, including new taxes on health insurance plans.
    I remain concerned about the future of the popular Medicare 
Advantage program as the Obamacare cuts continue to be 
implemented. So I look forward to continued work with the 
ranking member to protect Medicare choices for our seniors, and 
I want to especially express my gratitude to the three of you 
for appearing here today and helping us to understand this 
better.
    I think, Doctor, I personally believe, that we can do much 
better than the Affordable Care Act. A lot of it has not 
triggered yet, and a lot of the cost. I think it is going to be 
an awful mess as the future goes on. Your goal, and mine too, 
is to make sure we take care of everybody in this country and 
do a good job in doing so. The problem is, the Affordable Care 
Act has been seriously flawed from the beginning. I have 
criticized it over the years.
    As someone who has passed probably more health care bills 
than anybody in the Congress, I have to say that I am very 
concerned about it. Yes, there are some good things about it, 
but there are an awful lot of bad things.
    Let me just thank you witnesses for being here today. I 
also want to thank all of the Senators who participated. This 
has been a fairly robust discussion, and I appreciate 
everyone's participation.
    Senator Menendez, do you want to ask some more questions?
    Senator Menendez. I do, Mr. Chairman.
    The Chairman. Then we will turn to you. I was going to shut 
this place down here.
    Senator Menendez. I have been here three times, Mr. 
Chairman. Unfortunately, it did not work out in the order, but 
I appreciate your forbearance.
    The Chairman. Glad to do it.
    Senator Menendez. Let me say that I guess that one can look 
at a painting and see it in many different ways. However, I 
think the facts, as they relate to the Affordable Care Act, are 
beyond the beauty in the eye of the beholder.
    For me, I see it extending coverage to more than 60 million 
Americans, many Hispanic Americans who have seen among the 
largest increase in insurance coverage when they were one of 
the largest groups that was uninsured. It now guarantees that 
nearly 130 million Americans can no longer be denied coverage 
because of a preexisting condition, which, prior to the 
Affordable Care Act, meant insurance companies could deny 
coverage to a woman who had a C-section or a child with 
allergies.
    It sharply reduced the cost of prescription medications 
under Part D, saving seniors $11.5 billion while keeping 
premiums flat. It has improved the quality of coverage, so that 
when an unfortunate diagnosis occurs, families will know that 
their insurance has the coverage they need and that they cannot 
be dropped from coverage entirely because they need care. So I 
look at some of the statements that have been made, and I 
guess, again, there is a different way to look at it. I hear 
the question of, well, higher deductibles.
    Dr. Blumenthal, is it not true that there are no annual or 
lifetime limits and new annual out-of-pocket limits? As I 
understand it, beginning in 2014, the law banned annual limits 
on coverage in new health care plans, extending the protection 
to millions. As well as that, additionally, most insurers must 
place a hard limit on enrollees' annual out-of-pocket spending 
for essential health benefits, providing protection against 
catastrophic costs.
    Dr. Blumenthal. You are correct, Senator. There are now 
limits on the deniability of coverage, with guaranteed 
renewability, and you can no longer set lifetime limits on 
benefits.
    Senator Menendez. Now, the next thing I have heard 
consistently is ``more limited benefits,'' which I really find 
difficult to understand. As I understand it, the Affordable 
Care Act ultimately--health care plans cover proven 
preventative services, which has resulted in more than 76 
million Americans gaining coverage of preventative benefits 
with no cost sharing or deductible. Is that a fair statement?
    Dr. Blumenthal. That is correct.
    Senator Menendez. And then I hear ``fewer doctors.'' Under 
the health care law, for the first time insurers are required 
to cover a range of doctors, specialists, and community 
providers and meet minimum network adequacy standards. It seems 
to me that that gives consumers the opportunity, the tools, and 
the information to shop for a plan that meets their needs, and 
it ensures families do not face higher cost sharing if they 
have to go to an out-of-network emergency room. Is that a fair 
statement?
    Dr. Blumenthal. That is correct.
    Senator Menendez. Now, let me talk about what the plan has 
not caused, which I heard when we were passing the Affordable 
Care Act. It has not caused an economic catastrophe. In fact, 
in the last 5 years, the U.S. has seen the longest stretch in 
job growth ever, adding 12 million jobs, cutting the 
unemployment rate in half.
    It has not led to the creation of what some have called a 
part-time economy, since more than 90 percent of that record-
breaking job creation has been full-time jobs. It has not led 
to massive increases in health spending or premiums, but rather 
it slowed the growth in health costs to the lowest level in 
half a century, resulted in below-predicted premiums for 
private-market insurance plans, and led to historically low 
increases in employer-sponsored health premiums.
    It has not--I repeat, not, and this is particularly 
important as we go into the budget debates we are going to 
have, Mr. Chairman--added to the deficit. In fact, the 
Congressional Budget Office has, on every occasion, stated that 
the Affordable Care Act reduces the budget deficit in both the 
near and long term.
    So, while my friends on the other side of the aisle might 
not want to recognize this fact, the budget proposal they 
released just yesterday admits it, because it explicitly 
prohibits raising a budget point of order against adding to the 
country's long-term deficit that would be caused by repealing 
the Affordable Care Act. To top things off, their budget 
continues to count the billions of dollars in revenue generated 
by the Affordable Care Act in the budget's baseline, despite 
having repealed the ACA and all of the policies that generate 
the revenue it contains.
    So, you cannot have it both ways. You cannot have all the 
benefits under the law and account for all the revenue under 
the law and then say it should just be repealed. That does not 
work, and that is not even realistic. I think the American 
public gets that.
    Thank you, Mr. Chairman, for the opportunity.
    The Chairman. Thank you.
    Well, we have come to the end of this particular hearing. I 
would just like to ask one more question. Dr. Holtz-Eakin, you 
have heard Senator Menendez. Do you have any differences of 
opinion with what he just said about how we are actually saving 
money?
    Dr. Holtz-Eakin. I would disagree, politely, with the 
reading of the economic history and the performance of the U.S. 
economy over the past 5 years. It is true that the labor market 
has generated jobs, but it has not generated income. The vast 
majority of Americans had a job, but they are not getting a 
raise, and I think that is due, in part, to the $40 billion a 
year in regulatory burdens placed on small businesses and 
others, the tax increases. I do not believe that this adds up 
budgetarily.
    It was passed with the use of a lot of front-loading of 
revenues, back-loading of spending. That bill will come due, 
and it will be placed unfairly on the next generation in a way 
that I have never approved of. So, in a variety of ways, I 
disagree with the reading of the record on the economy and the 
budget. The Affordable Care Act has had a big impact.
    The Chairman. Do you expect them to ever get the total 
spending under control if we cannot find some way of changing 
Obamacare?
    Dr. Holtz-Eakin. I do not. Many advocates for the 
Affordable Care Act trace the recent slow-down in the pace of 
national health expenditure to the Affordable Care Act, and I 
do not think that is a fair reading of the record.
    Two things about that. Number one, it started before the 
ACA was passed. It is not related to the ACA. The second, there 
is a lot of talk about how medical inflation is lower than it 
has ever been. But the reality is, we are in a low-inflation 
environment. The overall inflation rate is something like 1.3 
percent.
    If you look at medical inflation relative to overall 
inflation, there is nothing special about the post-ACA period. 
What we have really seen is people not utilizing as much, and 
that is probably because of the recession. It may not even be 
desirable health policy if people are not utilizing things they 
should be, and I have a far less sanguine reading of that 
record than many.
    The Chairman. Some have said that Obamacare is going to go 
up in price 8 percent for each of the next 3 years. Do you 
agree with that?
    Dr. Holtz-Eakin. I do not know the exact figure off the top 
of my head, but that is consistent with the projections we have 
seen in the past.
    The Chairman. Well, it does not sound to me like it is 
saving money if it is going to do that. My contention is, we 
can do much better than this and give people better 
opportunities for health care than what they get under 
Obamacare. It is always a very difficult issue.
    I have worked on health care matters every year since I 
have been in the Senate, but I have to say that I think, if we 
cannot reform Obamacare or replace it with something better, we 
are going to wind up with a terrible, costly mess on our hands 
that is going to eat up everything else in the budget. Am I 
that far off-base?
    Dr. Holtz-Eakin. Well, it might be Obamacare and Medicare, 
sir, but both are a problem.
    The Chairman. Well, yes. I am concerned about it. I want 
the American people to have the best health care we can give 
them, but I also want to have us live within our means too, 
which is a crucial aspect of all of our lives, it seems to me.
    I have appreciated each of you three here today and have 
appreciated my colleagues taking this much interest in this. So 
with that, we are going to keep the record open, and any 
questions for the record should be submitted by no later than 
Thursday, March 26th. We will just adjourn this hearing for 
now.
    Thank you so much for being here.
    [Whereupon, at 11:27 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


         Prepared Statement of David Blumenthal, M.D., M.P.P., 
                    President, The Commonwealth Fund
The author gratefully acknowledges the contributions of David Squires, 
Sara Collins, Rachel Nuzum, Sophie Beutel, Melinda Abrams, Jordan 
Kiszla, and Chris Hollander to this testimony.

The views presented here are those of the author and not necessarily 
those of The Commonwealth Fund or its directors, officers, or staff.
                           executive summary
    Thank you, Chairman Hatch, Senator Wyden, and members of the 
Committee, for this invitation to testify on the Affordable Care Act at 
5 years. Research from The Commonwealth Fund and other sources 
demonstrate that the Affordable Care Act is helping to reduce the 
number of Americans who are uninsured and improving access to health 
care.

    Currently, more than 25 million people are estimated to have health 
insurance under the provisions of the ACA. About 11.7 million have 
selected a plan through the insurance marketplaces--8.8 million through 
the federal website HealthCare.gov and 2.8 million through state-based 
marketplaces. An additional 10.8 million have enrolled in Medicaid or 
the Children's Health Insurance Program, or CHIP. Finally, nearly 3 
million more young adults are covered under their parent's plan 
compared to 2010.

    As a result, the number of uninsured adults has fallen. This week, 
the U.S. Department of Health and Human Services reported that 16.4 
million previously uninsured people had gained coverage since the law 
passed in 2010. Similar gains in coverage have been documented in a 
number of government and private-sector surveys. Furthermore, groups 
that historically have been most likely to lack insurance--young men 
and women, and adults with low or moderate incomes--have experienced 
among the greatest gains in coverage. These gains have occurred across 
racial and ethnic groups.

    To see how the newly insured are faring with their marketplace or 
Medicaid coverage, The Commonwealth Fund conducted a survey of these 
adults in the second quarter of 2014. We found that three-quarters of 
the newly insured were satisfied with their insurance. A majority had 
already used their new plans to get health care, with most saying they 
could not have afforded or accessed this care previously. Most people 
who had tried to find a new doctor reported being able to do so with 
relative ease; they also were able to get appointments within 
timeframes similar to those reported by the general population of 
adults in prior surveys.

    Other indicators demonstrate that improvements in insurance 
coverage have helped remove cost barriers to care. Among all working-
age adults, the percentage reporting not being able to get needed care 
because of the cost fell between 2012 and 2014, from 43 percent to 36 
percent--a decline of 14 million people. Similarly, better insurance 
coverage has meant fewer Americans experiencing financial difficulties 
related to health care. The number of adults who had problems paying 
their medical bills, or were paying off medical debt, declined from 75 
million to 64 million between 2012 and 2014. This is the first time 
these numbers have declined since The Commonwealth Fund began asking 
these questions, with the changes likely reflecting improvements in 
coverage and in the economy. However, rates for these problems remain 
high, particularly for low-income adults.

    Overall, health plans sold in the insurance marketplaces created 
under the ACA appear to be relatively affordable. A majority of 
consumers with marketplace coverage has reported it being very or 
somewhat easy to pay their premiums. This has especially been true for 
those with low incomes who are benefitting from the ACA's insurance 
subsidies.

    The federal and state insurance marketplaces have also turned out 
to be quite stable and competitive. Nationwide, marketplace premiums 
did not increase at all, on average, from 2014 to 2015. This is 
unprecedented in light of historical trends in the individual and 
employer-based health insurance markets. The number of insurance 
carriers participating in the marketplaces also grew by 25 percent. 
However, these trends varied substantially by state: 14 states saw 
average premiums decline, while 10 states and the District of Columbia 
saw double-digit increases.

    States have had considerable flexibility in implementing the ACA's 
coverage reforms. As a result, consumers, insurers, and providers are 
experiencing the reforms somewhat differently from state to state. The 
most significant source of variation involves the decision to expand 
eligibility for Medicaid. So far, 22 states and the District of 
Columbia have expanded Medicaid under the law's provisions, and six 
states have received approval to expand Medicaid eligibility in a 
somewhat different fashion. Twenty-two states have not yet expanded 
Medicaid, though six of those are discussing ways to do so.

    The impact of these decisions is clear. As several surveys have 
shown, uninsured rates are falling to the lowest levels in those states 
that have expanded Medicaid eligibility. Because state flexibility in 
whether to expand Medicaid stems from the 2012 Supreme Court decision, 
it was unforeseen by the drafters of the ACA.

    Another unforeseen occurrence with implications for the ACA has 
been the slowdown in the rate of health care spending growth in recent 
years. This slowdown has been observed across the board, in public 
programs as well as private insurance. Partly in response, the 
Congressional Budget Office recently lowered its projections for the 
net federal costs of the ACA's coverage provisions by an additional 
$142 billion over the period 2016 to 2026. The CBO's most recent report 
also notes that, between 2015 and 2019, these federal costs will be 29 
percent lower than the agency originally projected in 2010. While a 
number of factors have contributed to these downward revisions, slower 
cost growth has been one important contributor.

    The 160 million people who have their coverage through an employer 
are also benefitting from new protections, like the ability to stay on 
a parent's health plan through age 25, and preventive care coverage 
without cost-sharing. Even with these changes, premium growth in 
employer-based health plans has slowed in the majority of states since 
2010, when the provisions went into effect.

    The CBO projects the law will have only minor effects on the labor 
force, driven almost entirely by workers' voluntary choices. For 
example, people who had been locked into their jobs because of the need 
for health insurance may now choose to retire early, stay home to care 
for children or elderly parents, or earn a college degree.

    Finally, it's important to remember that the ACA aimed to do more 
than strengthen access to, and the affordability of, health insurance 
and health care; it also sought to improve how care is organized, 
delivered, and paid for.

    There is widespread agreement that the U.S. health care delivery 
system is inefficient and fragmented, leaving patients, providers, and 
payers dissatisfied with the value of care provided and received. The 
ACA includes several reforms to improve health system performance.

    The new Center for Medicare and Medicaid Innovation, for example, 
has launched an array of initiatives involving changes to health care 
payment and organization that together reach thousands of hospitals, 
tens of thousands of clinicians, and millions of patients across all 50 
states. These reforms, incremental so far, are quickly gathering 
momentum. A number of the initiatives have the potential to 
dramatically improve the value of health services received by patients 
throughout the United States.

    Earlier this year, Secretary Burwell announced a goal to have at 
least 50 percent of traditional Medicare payments linked to some form 
of alternative payment method by 2018. A private-sector consortium 
comprising leading health systems, payers, and purchasers has set 
similar goals. The alignment of public- and private-sector activity 
around such goals sends a strong signal to providers and payers alike 
that the momentum around delivery and payment reform will only be 
accelerating. The ACA's delivery system reforms have helped to catalyze 
this new public-private alliance.

    At the 5-year mark, there is strong evidence that the Affordable 
Care Act has resulted in gains in coverage, affordability, and access 
to health care services. It may also have created the foundation for 
significant changes to the way we deliver and pay for care. Taken 
together, a promising picture emerges. Five years, however, is a short 
time in the life of legislation as ambitious and sweeping as the ACA. 
Additional studies and evaluations will be necessary to paint a fuller 
picture of the law's impact on Americans and their health care system.
                         the commonwealth fund
    Thank you, Chairman Hatch, Senator Wyden, and the members of the 
Committee, for inviting me to testify. I am David Blumenthal, president 
of The Commonwealth Fund. The Commonwealth Fund is a private foundation 
that aims to promote a high-performing health care system that achieves 
better access, improved quality, and greater efficiency, particularly 
for society's most vulnerable, including low-income people, the 
uninsured, minority Americans, young children, and elderly adults. The 
Fund carries out this mission by supporting independent research on 
health care issues and making grants to improve health care practice 
and policy.

    I am honored to testify before the Committee about the Affordable 
Care Act at five years. Research from The Commonwealth Fund and other 
sources demonstrates that the ACA is helping to reduce the number of 
Americans who are uninsured and improving access to health care. 
Further, the ACA is reforming the way care is delivered and paid for in 
our country. Taken together, the ACA is the most sweeping overhaul ever 
of our nation's health system. And while it's too early to assess the 
impact of many provisions and programs, a review of progress to date 
suggests a number of positive trends.
   the affordable care act has reduced the number of uninsured adults
    More than 25 million people are estimated to have health insurance 
under the provisions of the ACA (Exhibit 1). During the most recent 
enrollment period, about 11.7 million have selected, or were 
automatically reenrolled in, a health plan through the insurance 
marketplaces, and special enrollment periods are still open in several 
states.\1\ About 8.8 million people selected a plan through the federal 
website HealthCare.gov--an increase of more than 3 million over last 
year--and more than 2.8 million selected a plan through the state-based 
marketplaces. An additional 10.8 million have enrolled in Medicaid or 
the Children's Health Insurance Program, or CHIP, since October 
2013.\2\ Finally, we estimate nearly 3 million more young adults are 
covered under their parents' health plan compared to 2010.\3\
---------------------------------------------------------------------------
    \1\ Health Insurance Marketplaces 2015 Open Enrollment Period: 
March Enrollment Report, Office of the Assistant Secretary for Planning 
and Evaluation, Department of Health and Human Services, March 10, 
2015: http://aspe.hhs.gov/health/reports/2015/MarketPlaceEnrollment/
Mar2015/ib_2015mar_enrollment.pdf.
    \2\ V. Wachino, ``Nearly 10.8 Million Additional Individuals 
Enrolled in Medicaid as of December 2014,'' Department of Health and 
Human Services, Feb. 23, 2015: http://www.hhs.gov/healthcare/facts/
blog/2015/02/medicaid-chip-enrollment-december.html.
    \3\ Commonwealth Fund Biennial Health Insurance Survey, 2014.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]   
    

    As a result, the number of uninsured adults has fallen. This week, 
the U.S. Department of Health and Human Services reported that 16.4 
million previously uninsured people had gained coverage since the ACA 
was passed in 2010. Government and private surveys by The Commonwealth 
Fund, the Kaiser Family Foundation, the RAND Corporation, the Urban 
Institute and the Centers for Disease Control and Prevention have 
documented declines in the uninsured population of 7 million to 11 
million adults over the past year. These declines are unprecedented 
(Exhibit 2).\4\
---------------------------------------------------------------------------
    \4\ M.E. Martinez, R.A. Cohen, ``Health Insurance Coverage: Early 
Release of Estimates From the National Health Interview Survey, 
January-June 2014,'' Centers for Disease Control and Prevention, Dec. 
2014; S.R. Collins, P.W. Rasmussen, M.M. Doty, and S. Beutel, The Rise 
in Health Care Coverage and Affordability Since Health Reform Took 
Effect, The Commonwealth Fund, Jan. 2015; S.R. Collins, P.W. Rasmussen, 
and M.M. Doty, Gaining Ground: Americans' Health Insurance Coverage and 
Access to Care After the Affordable Care Act's First Open Enrollment 
Period, The Commonwealth Fund, July 2014; R. Garfield and K. Young, 
Adults Who Remained Uninsured at the End of 2014, The Henry J. Kaiser 
Family Foundation, Jan. 2015; K.G. Carman and C. Eibner, ``Changes in 
Health Insurance Enrollment Since 2013: Evidence from the RAND Health 
Reform Opinion Study,'' RAND Health Quarterly, 2014 4(3).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Groups that historically have been most at risk for lacking 
insurance have experienced some of the greatest gains in coverage. For 
example, the uninsured rate for young adults ages 19 to 34 has declined 
sharply, falling from 27 percent in 2010 to 19 percent in 2014 (Exhibit 
3).\5\ There have also been striking declines among low-income adults. 
The uninsured rate for people with incomes below 200 percent of the 
federal poverty level dropped from 36 percent in 2010 to 24 percent in 
2014 (Exhibit 4). Uninsured rates for low-income and young adults are 
the lowest observed since 2001.
---------------------------------------------------------------------------
    \5\ S.R. Collins et al., Rise in Coverage and Affordability, The 
Commonwealth Fund, Jan. 2015.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 


    Coverage gains have also occurred across racial and ethnic groups. 
Between 2010 and 2014, the uninsured rate, fell from 15 percent to 10 
percent for non-Hispanic whites; from 24 percent to 18 percent for 
African Americans; and from 39 percent to 34 percent for Latinos 
(Exhibit 5).\6\
---------------------------------------------------------------------------
    \6\ S.R. Collins et al., Rise in Coverage and Affordability, The 
Commonwealth Fund, Jan. 2015.

    Despite these declines, African Americans and Latinos continue to 
---------------------------------------------------------------------------
be much more likely than non-Hispanic whites to be uninsured.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    To see how the newly insured are faring with their marketplace or 
Medicaid coverage, The Commonwealth Fund surveyed these adults in the 
second quarter of 2014.\7\ We found that three-quarters of the newly 
insured were satisfied with their insurance (Exhibit 6). People who had 
been insured prior to gaining their new coverage and those who had been 
uninsured were equally satisfied. Compared to people who selected a 
marketplace plan, larger shares of those who newly enrolled in Medicaid 
were satisfied with their new coverage.
---------------------------------------------------------------------------
    \7\ S.R. Collins et al., Gaining Ground, The Commonwealth Fund, 
July 2014.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    At the time of the Commonwealth Fund survey, a majority of the 
newly insured had already used their plans to go to a doctor or a 
hospital or to pay for a prescription drug (Exhibit 7). Sixty-two 
percent of these adults said that they could not have afforded or 
accessed this care previously. Rates were particularly high for those 
who had previously been uninsured (75%). But nearly half of those who 
previously had insurance (44%) said that they, too, would not have able 
---------------------------------------------------------------------------
to get this care before enrolling in their new plan.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Of those survey respondents who had tried to find a new primary 
care physician or general doctor with their new insurance, three-
fourths reported that doing so had been very or somewhat easy (Exhibit 
8). Two-thirds of respondents who said they found a new primary care 
doctor were able to get an appointment within two weeks. Wait times 
were longer for some--for example, 15 percent waited longer than one 
month--but average wait times were consistent with those reported in 
prior Commonwealth Fund surveys of the general population, including 
both insured and uninsured Americans.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 improvements in insurance coverage are removing cost barriers to care 
                and reducing problems with medical bills
    Other indicators demonstrate that improvements in insurance 
coverage have helped remove cost barriers to care. Among all working-
age adults surveyed, the percentage who reported not getting needed 
care because of the cost fell between 2012 and 2014, from 43 percent to 
36 percent, a decline of approximately 14 million people (Exhibit 
9).\8\ This is the first year that this indicator has fallen since The 
Commonwealth Fund began tracking it in 2003.
---------------------------------------------------------------------------
    \8\ S.R. Collins, et al., Rise in Coverage and Affordability, The 
Commonwealth Fund, Jan. 2015.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The decline in cost-related access problems likely reflects the 
ACA's expansions of coverage as well as the law's improvements in 
coverage, such as the inclusion of preventive care services without 
cost-sharing. The decline may also reflect some improvement in the 
economy. Still, these rates remain quite high, particularly among those 
with low incomes. Forty-five percent of adults with incomes below 200 
percent of poverty reported problems getting care because of the cost, 
---------------------------------------------------------------------------
including one-third of those with insurance.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Better insurance coverage and an improving economy have also meant 
fewer Americans are reporting health care-related financial 
difficulties. The number of adults saying they had problems paying 
their medical bills in the past year declined from 75 million people in 
2012 to 64 million in 2014 (Exhibit 10).\9\ This included 8 million 
fewer people paying off bills over time, and 5 million fewer people 
being contacted by a collection agency for unpaid medical bills. As 
with cost-related access problems, though, rates of financial problems 
remain high, particularly for adults with low incomes.
---------------------------------------------------------------------------
    \9\ Ibid.
---------------------------------------------------------------------------
     health insurance marketplaces have been stable and competitive
    The health insurance marketplaces created under the ACA have turned 
out to be quite stable and competitive. Nationwide, marketplace 
premiums did not increase at all, on average, from 2014 to 2015. This 
is unprecedented in light of recent trends in the individual and 
employer-based health insurance markets (Exhibit 11).\10\ Furthermore, 
the number of carriers participating in the marketplaces increased by 
25 percent. Trends in both premiums and participating carriers, 
however, varied substantially by state: 14 states saw average premiums 
decline, while 10 states and the District of Columbia saw double-digit 
increases. This heterogeneity reflects local market conditions and 
differences between urban, suburban, and rural areas.
---------------------------------------------------------------------------
    \10\ J.R. Gabel, H. Whitmore, S. Stromberg, et al., ``Analysis 
Finds No Nationwide Increase in Health Insurance Marketplace 
Premiums,'' The Commonwealth Fund Blog, Dec. 2014:
    http://www.commonwealthfund.org/publications/blog/2014/dec/zero-
inflation-nationwide-for-marketplace-premiums.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Overall, health plans sold in the marketplaces also appears to be 
relatively affordable for consumers. A majority of adults (61%) with 
marketplace coverage reported it has been very or somewhat easy to pay 
their premiums (Exhibit 12).\11\ This is especially true for those with 
incomes below 250 percent of the poverty level, of whom two-thirds 
reported that paying their premiums was somewhat or very easy. These 
adults benefit from the ACA's insurance subsidies, including reduced 
cost-sharing to protect from high out-of-pocket expenses.
---------------------------------------------------------------------------
    \11\ P.W. Rasmussen, S.R. Collins, M.M. Doty, and S. Beutel, Are 
Americans Finding Affordable Coverage in the Health Insurance 
Marketplaces? Results from the Commonwealth Fund Affordable Care Act 
Tracking Survey, The Commonwealth Fund, Sept. 2014.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    In contrast, having trouble paying insurance premiums was somewhat 
more common among people with higher incomes, who receive smaller 
subsidies or none at all: 44 percent of adults with incomes that put 
them at or above 250 percent of the poverty level said it was somewhat 
difficult, very difficult, or impossible.
     the affordable care act has unfolded differently in each state
    States have had considerable flexibility to implement the ACA's 
insurance coverage reforms. This flexibility stems from the statute 
itself, from how federal regulations have been implemented, and from 
decisions made by the Supreme Court. As a result, consumers, insurers, 
and providers are experiencing the reforms somewhat differently from 
state to state.

    Significant differences have arisen regarding states' management of 
their insurance marketplaces (Exhibit 13). Sixteen states and the 
District of Columbia opted to run their own marketplaces, although this 
year three of these states--Oregon, New Mexico, and Nevada--are using 
HealthCare.gov. Thirty-four states are using the federal marketplace, 
but there is a great deal of variation in their involvement in 
operations. For example, seven states using the federal marketplace 
take responsibility for plan management, and seven more are undertake 
both plan management and consumer assistance.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The most significant source of variation in how states have been 
affected by the ACA concerns their decision to expand eligibility for 
Medicaid. So far, 22 states and the District of Columbia have expanded 
Medicaid under the law's provisions, and six states have received 
approval from the Department of Health and Human Services to expand 
Medicaid eligibility under Section 1115 waiver authority (Exhibit 13). 
Twenty-two states have not yet expanded Medicaid, though six of those 
are discussing ways to do so. The impact of these decisions is clear: 
several surveys have shown uninsured rates falling to the lowest levels 
in those states that have expanded Medicaid eligibility.
   health care spending growth has slowed, reducing federal costs of 
                        aca coverage provisions
    One unforeseen event with implications for the ACA has been the 
slowdown in the rate of health care spending growth in recent years. 
This slowdown has been observed across the board, both in public 
programs and in private insurance. Real (inflation-adjusted) Medicare 
spending per beneficiary has actually fallen,\12\ and 31 states and the 
District of Columbia have experienced slower growth in employer-
sponsored insurance premiums from 2010 to 2013 compared to the 7 prior 
years (Exhibit 14).\13\
---------------------------------------------------------------------------
    \12\ M. Sanger-Katz, ``Per Capita Medicare Spending Is Actually 
Falling,'' New York Times, Sept. 3, 2014: http://www.nytimes.com/2014/
09/04/upshot/per-capita-medicare-spending-is-actually-falling.html.
    \13\ C. Schoen, D.C. Radley, and S.R. Collins, State Trends in the 
Cost of Employer Health Insurance Coverage, 2003-2013, The Commonwealth 
Fund, Jan. 2015.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Partly in response to this slowdown in spending growth, the 
Congressional Budget Office recently lowered its projections of net 
federal costs for the ACA's coverage provisions over the period 2016 to 
2026 by $142 billion.\14\ The CBO's most recent report also notes that 
between 2015 and 2019, these federal costs will be 29 percent lower 
than the agency originally projected in 2010. A number of factors have 
contributed to these downward revisions, including changes in law, 
changes in the CBO's economic projections, and the Supreme Court's 
decision regarding Medicaid. However, slower spending growth has been 
sufficiently broad and persistent to convince the CBO to lower its 
projections of federal costs for health care.
---------------------------------------------------------------------------
    \14\ Updated Budget Projections: 2015 to 2025, Congressional Budget 
Office, March 2015: http://www.cbo.gov/publication/49973.
---------------------------------------------------------------------------
       the law is benefitting people in employer-based plans and 
                    freeing people from ``job lock''
    The 160 million people with health coverage through an employer are 
also benefitting from new protections, like the ability to stay on a 
parent's health plan through age 25, and preventive-care coverage 
without cost-sharing. And despite these changes, premium growth in 
employer-based plans slowed in the majority of states since 2010, when 
these provisions went into effect.

    The CBO projects only minor effects on the labor force from the 
law. The agency estimates the ACA will reduce hours worked by 1.5 
percent to 2 percent over the period 2014 to 2017. This translates into 
a decline in full-time-equivalent workers of 2 million in 2017, rising 
to 2.5 million in 2024. The CBO believes this reduction will occur 
almost entirely because workers will chose to work less as a result of 
the law's new coverage options.\15\ For example, workers who have been 
locked into their jobs because of the need for health insurance may now 
chose to retire early, stay home or work part-time to care for children 
or elderly parents, or earn a college degree.
---------------------------------------------------------------------------
    \15\ Congressional Budget Office, The Budget and Economic Outlook, 
Appendix C: Labor Market Effects of the Affordable Care Act, February 
2014:
    http://www.cbo.gov/sites/default/files/cbofiles/attachments/45010-
breakout-AppendixC.pdf.
---------------------------------------------------------------------------
                         delivery system reform
    Finally, it's important to remember that the ACA aimed to do more 
than strengthen access to, and the affordability of, health insurance 
and health care. It also sought to improve how care is organized, 
delivered, and paid for.

    There is widespread agreement that the U.S. health care delivery 
system is inefficient and fragmented, leaving patients, providers, and 
payers dissatisfied with the value of care provided and received. The 
ACA includes several reforms to improve health system performance.

    The new Center for Medicare and Medicaid Innovation (CMMI), for 
example, has launched an array of initiatives involving changes in the 
way care is paid for and organized that together reach thousands of 
hospitals, tens of thousands of clinicians, and millions of patients 
across all 50 states. While the general direction of CMMI activities is 
promising, it is for the most part too early in the evolution of these 
nascent initiatives to assess them rigorously. It is reasonable to 
infer, however, that the reforms are contributing to the gathering 
momentum across the country around payment and delivery system reform.

    One ACA payment initiative currently being tested is the Medicare 
Shared Savings Program. Established as a way of encouraging providers 
to form accountable care organizations, or ACOs, the Shared Savings 
Program provides an opportunity for provider groups that are serving as 
an ACO and take responsibility for the quality and cost outcomes for a 
specified patient population to split the savings with the federal 
government if they meet quality and spending targets. Currently there 
are more than 400 Shared Savings ACOs, and together they serve 13 
percent of the Medicare population. Although provider participation has 
exceeded expectations, first-year results were mixed, with only 24 
percent earning shared-savings bonuses (Exhibit 15).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Another payment change relates to how Medicare reimburses hospitals 
for higher-than-expected numbers of readmissions. Since the program 
began at the end of 2012, there have been approximately 150,000 fewer 
Medicare readmissions each year. In large part because of the financial 
penalties associated with the ACA's policy change, 30-day hospital 
readmission rates have declined from 19 percent to 17.5 percent 
(Exhibit 16).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Earlier this year, Secretary Burwell announced a goal to have at 
least 50 percent of traditional Medicare payments linked to some form 
of alternative, value-based payment method by 2018. A private-sector 
consortium comprising leading health systems, payers, and purchasers 
has set similar goals. The alignment of public- and private-sector 
activity around such goals sends a strong signal to providers and 
payers alike that the momentum around delivery and payment reform will 
only be accelerating. The ACA's initiatives seem to have played an 
important part in catalyzing this public-private alignment, which is 
crucial to improving health care for all Americans.
                               conclusion
    At the 5-year mark, there is strong evidence that the Affordable 
Care Act has resulted in gains in health insurance coverage, the 
affordability of coverage and care, and access to health services. The 
law may also have laid the foundation for significant improvements in 
the way we deliver and pay for care. Taken together, a promising 
picture emerges. Five years, however, is a short time in the life of 
legislation as ambitious and sweeping as the ACA. Additional studies 
and evaluations will be needed to paint a fuller picture of its impact 
on Americans and their health care system.

                                 ______
                                 
       Questions Submitted for the Record to Dr. David Blumenthal
               Questions Submitted by Hon. Sherrod Brown
                economic benefits of medicaid expansion
    Question. Dr. Blumenthal, can you speak to the impact of Medicaid 
expansion on state economies? How does Medicaid help create jobs in 
expansion states?

    Answer. A number of studies have shown Medicaid expansion to have a 
significant positive economic impact for states.\1\ These benefits 
accrue not only to newly insured individuals, but also to health care 
providers, to state governments, and to the state's economy as a whole.
---------------------------------------------------------------------------
    \1\ For a round-up of several of these studies, see: Economic 
Impact of the Medicaid Expansion, Office of the Assistant Secretary for 
Health Planning and Evaluation, Department of Health and Human 
Services, March 2015: http://aspe.hhs.gov/health/reports/2015/
medicaidexpansion/ib_MedicaidExpansion.pdf.

    Most directly, because the federal government covers the vast 
majority of the costs--100% until 2016, decreasing to 90% by 2020--
Medicaid expansion results in a net influx of federal dollars. These 
funds are substantial--a Commonwealth Fund study found California would 
receive $10 billion, Ohio $7.8 billion, and New York $8.6 billion in 
2022.\2\ The 24 states that had not expanded Medicaid as of July 2014 
will forego $88 billion in federal funding between 2014-2016.\3\ These 
funds directly boost state domestic product and create jobs. This has 
been borne out by experience, as health care sector jobs grew faster in 
2014 in expanding states than in non-expanding states.\4\ Health care 
providers in states expanding Medicaid also saw their uncompensated 
care costs fall $2.6 billion more than in the non-expanding states.\5\
---------------------------------------------------------------------------
    \2\ S. Glied and S. Ma, How States Stand to Gain or Lose Federal 
Funds by Opting In or Out of the Medicaid Expansion, The Commonwealth 
Fund, December 2013.
    \3\ The Council of Economic Advisors, Missed Opportunities: The 
Consequences of State Decisions Not to Expand Medicaid, Washington, 
D.C.: The Council of Economic Advisors, July 2014.
    \4\ J. Furman, The Economic Benefits of the Affordable Care Act, 
Presented to the Center for American Progress, April 2015: https://
www.whitehouse.gov/sites/default/files/docs/20150402
_aca_economic_impacts_fifth_anniversary_cap_0.pdf.
    \5\ Impact of Insurance Expansion on Hospital Uncompensated Care 
Costs, Office of the Assistant Secretary for Health Planning and 
Evaluation, Department of Health and Human Services, March 2015: http:/
/aspe.hhs.gov/health/reports/2015/MedicaidExpansion/ib_Uncompensated
Care.pdf.

    Furthermore, Medicaid expansion is a good deal for state taxpayers. 
This is because states' costs for expanding are more than offset by 
savings in other state health programs and increased tax revenue. In 
Ohio, for example, Medicaid expansion is estimated to boost the state 
budget by $1.4 billion between 2014 and 2022.\6\ A similar study of 
Kentucky estimated the boost to be $919 million between 2014 and 
2021.\7\
---------------------------------------------------------------------------
    \6\ C. Candisky, ``Study backs expanding Medicaid in Ohio,'' The 
Columbus Dispatch, January 16, 2013.
    \7\ Commonwealth of Kentucky: Medicaid Expansion Report, 2014: 
Updated February 2015, Deloitte: http://governor.ky.gov/healthierky/
Documents/medicaid/Kentucky_Medicaid_Expan
sion_One-Year_Study_FINAL.pdf. 

    Finally, it is important to recognize the economic benefits that 
redound to individuals and society from insurance coverage. Insured 
adults are more likely to be working and productive.\8\ They are less 
likely to have unpaid medical bills or declare bankruptcy.\9\ And they 
are more likely to receive preventive services that reduce the need for 
more costly treatment down the road.\10\ Medicaid is also the country's 
third largest poverty-reducing program.\11\ For these reasons, 
expanding Medicaid has clear short- and long-term benefits for states' 
economies.
---------------------------------------------------------------------------
    \8\ A. Dizioli and R. Pinheiro, Health Insurance as a Productive 
Factor, June 2012. Available at SSRN: http://ssrn.com/abstract=2096415.
    \9\ S.R. Collins, P.W. Rasmussen, M.M. Doty, and S. Beutel, The 
Rise in Health Care Coverage and Affordability Since Health Reform Took 
Effect, The Commonwealth Fund, January 2015; D.U. Himmelstein, D. 
Thorne, E. Warren et al., ``Medical Bankruptcy in the United States, 
2007: Results of a National Study,'' American Journal of Medicine, Aug. 
2009 122(8):741-46.
    \10\ S.R. Collins, et al., The Rise in Health Care Coverage and 
Affordability Since Health Reform Took Effect.
    \11\ B. Sommers and D. Oellerich, ``The Poverty-Reducing Effect of 
Medicaid,'' Journal of Health Economics, September 2015 32(5):816-832.

               prescription drug access and affordability
    Question. Dr. Blumenthal, when assessing financial burden, how do 
shifts in cost-sharing impact low-income individuals or those with 
chronic health conditions or rare diseases that must be managed through 
prescription drugs? What more must be done to ensure access to 
affordable prescription drugs?

    Answer. By increasing the number of Americans with health 
insurance, restricting insurers' ability to deny coverage based on pre-
existing conditions, and limiting annual out-of-pocket costs for 
insured patients, the ACA has made tremendous strides in improving 
access to pharmaceuticals. Between 2012 and 2014, the percentage of 
working-age adults who reported not filling a prescription because of 
the cost fell from 27% to 19%--a decline of 15 million people.\12\ This 
was the lowest rate since the Commonwealth Fund began tracking this 
statistic in 2003.
---------------------------------------------------------------------------
    \12\ S.R. Collins, et al., The Rise in Health Care Coverage and 
Affordability Since Health Reform Took Effect.

    However, among those who remained uninsured in 2014, cost-barriers 
to prescription drugs are all-too common. Thirty-two percent of 
uninsured, working-age adults did not fill a prescription due to its 
cost; and, among those with chronic conditions, 35 percent skipped 
doses or did not fill a prescription for a drug for their 
condition.\13\ These findings speak to the importance of further 
reducing the number of Americans without health insurance, particularly 
by expanding Medicaid. Ensuring that insurance plans offer adequate 
financial protection will also remain important, as many patients who 
are ``underinsured'' also report cost-barriers to pharmaceuticals.
---------------------------------------------------------------------------
    \13\ The Commonwealth Fund Biennial Health Insurance Survey (2014).

    Drug coverage and affordability poses a particular problem in the 
present moment because, after a decade-long slowdown, spending on 
pharmaceuticals is now growing by more than 10% 
annually.\14\, \15\ This growth is largely being driven by 
high-priced specialty drugs. The poster drug for this trend is 
Sovaldi--a highly effective treatment for hepatitis C, priced at 
$84,000 for a standard course. The high prices that specialty drugs 
like Sovaldi can command threaten the budgets of public and private 
payers: Sovaldi's release coincided with a greater than 1,500% increase 
in Medicare spending on treatments for hepatitis C.\16\ Furthermore, 
not all specialty drugs can boast the effectiveness of Sovaldi to 
justify their high prices.
---------------------------------------------------------------------------
    \14\ D. Blumenthal and D. Squires, Drugs and Dollars, The 
Commonwealth Fund Blog, July 2014.
    \15\ Insights From Monthly National Health Spending Data Through 
February 2015, Altarum Institute, Health Sector Economic Indicators, 
April 2015.
    \16\ C. Ornstein, ``New hepatitis C drugs are costing Medicare 
billions,'' The Washington Post, March 29, 2015.

    In the years ahead, policymakers will likely need to take steps to 
ensure specialty pharmaceuticals are affordable for those who need 
them, so that we can all benefit from the breakthroughs coming down the 
pharmaceutical pipeline. This may require re-examining the extend and 
duration of current patent protections; encouraging competition from 
generics, including for biologics; funding comparative effectiveness 
research so that society can assess drugs' added value; and demanding 
---------------------------------------------------------------------------
larger rebates or negotiating power for the Medicare program.

    Question. Dr. Blumenthal, can you please speak to the consequences 
of being uninsured as a child and what risks it poses for later on in 
life?

    Answer. Being insured has been shown to significantly improve 
children's health as well as their long-term outcomes. A number of 
recent studies have looked at the impacts of expanding Medicaid and S-
CHIP for children in the 1980s-1990s, and these have found:

    Childhood Medicaid eligibility increases rates of high school and 
        college completion,\17\ leads to higher lifetime earnings,\18\ 
        and promotes greater intergenerational mobility.\19\
---------------------------------------------------------------------------
    \17\ S. Cohodes, D. Grossman, S. Kleiner, and M.F. Lovenheim, ``The 
Effect of Child Health Insurance Access on Schooling: Evidence from 
Public Insurance Expansions,'' NBER Working Paper No. 20178, May 2014.
    \18\ D.W. Brown, A.E. Kowalski, and I.Z. Lurie, ``Medicaid as an 
Investment in Children: What is the Long-Term Impact on Tax Receipts,'' 
NBER Working Paper No. 20835, January 2015.
    \19\ R.L. O'Brien and C.L. Robertson, Medicaid and 
Intergenerational Economic Mobility, Institute for Research on Poverty, 
Discussion Paper No. 1428-15, April 2015.
---------------------------------------------------------------------------
    The government recoups most of the cost of childhood Medicaid 
        coverage through higher tax revenue and lower EITC payments 
        down the road.\20\
---------------------------------------------------------------------------
    \20\ D.W. Brown, et al, ``Medicaid as an Investment in Children: 
What is the Long-Term Impact on Tax Receipts.''
---------------------------------------------------------------------------
    Childhood Medicaid eligibility leads to fewer hospitalizations and 
        emergency room visits among blacks once they become adults, 
        especially among those living in low-income neighborhoods.\21\
---------------------------------------------------------------------------
    \21\ L.R. Wherry, S. Miller, R. Kaestner, and B.D. Meyer, 
``Childhood Medicaid Coverage and Later Life Health Care Utilization,'' 
NBER Working Paper No. 20929, February 2015.

    Given the crucial role that health insurance plays in improving 
children's lives, it was promising to see the passage of H.R. 2, the 
Medicare Access and CHIP Reauthorization Act. This bill assures that 
the 10 million children and pregnant women who rely on CHIP will remain 
insured. However, the bill only authorized CHIP for an additional two 
years. Furthermore, policymakers will need to make careful decisions in 
the coming years regarding the interplay between CHIP and the ACA's 
Marketplace. One important step would be to fix the ``Family Glitch,'' 
which locks out millions of low- and middle-income children and spouses 
from receiving Marketplace subsidies. Until these and other steps are 
taken, CHIP will continue to serve as a crucial safety net for 
---------------------------------------------------------------------------
America's children.

    Finally, while CHIP and other programs have sharply reduced the 
uninsured rate among children in recent decades, 7 percent are still 
without insurance.\22\ The majority of these are likely eligible for 
Medicaid or CHIP but have not yet enrolled. Several states--including 
Massachusetts, Hawaii, and Vermont--have considerably lower uninsured 
rates among children, demonstrating that progress is indeed possible 
given sufficient political attention and will.\23\
---------------------------------------------------------------------------
    \22\ G.M. Kenney et al., A First Look at Children's Health 
Insurance Coverage Under the ACA in 2014, Urban Institute, September 
2014.
    \23\ D.C. Radley, D. McCarthy, J.A. Lippa, S.L. Hayes, and C. 
Schoen, Aiming Higher: Results from a Scorecard on State Health System 
Performance, 2014, The Commonwealth Fund, May 2014.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a committee hearing 
examining Obamacare's broken promises and wasted taxpayer dollars, 5 
years after the law's enactment:

    The committee will come to order.

    Good morning. Our hearing today will consider what has happened in 
the 5 years since March 23, 2010, when the so-called Affordable Care 
Act was signed into law.

    In my opinion, this anniversary presents a perfect opportunity to 
take a look back and evaluate whether the promises that were made to 
gain support for the law have been kept. It's also a good time to look 
forward and consider the many unanswered questions that we still have 
about the impact and viability of the ACA.

    At the time that the Affordable Care Act was enacted, there was 
great disagreement about whether it would effectively reduce costs or 
expand coverage. Five years later, the people of Utah and others that I 
hear from are in total agreement about one thing with respect to this 
law: It just isn't working. In fact, it is, by most objective accounts, 
an unmitigated disaster.

    The President and his allies claim that the law is a success, 
usually by cherry-picking particular data points and ignoring the 
larger picture. Most often, they point to the number of individuals who 
have signed up for health insurance since the botched rollout of the 
HealthCare.gov website, somehow arguing that people opting to buy 
insurance under the threat of a government penalty is cause for 
celebration.

    What they don't talk about are the still skyrocketing health care 
costs that are hitting families across this country. And, they also 
ignore the widespread frustration and delay caused by this law, which 
many Americans are finding out about during this tax filling season.

    Let's talk about that frustration.

    According to H&R Block, in the first 6 weeks of this tax filing 
season, 52 percent of customers who enrolled in insurance through the 
state or federal exchanges had to repay a portion of the Advance 
Premium Tax Credit that they received under Obamacare. That same report 
found that individuals, on average, are having to repay about $530, 
which is decreasing their tax refunds by roughly 17 percent.

    Now, let's talk about delay.

    On February 20, 2015, the Obama Administration announced that, due 
to an error in the health law, they sent out about 800,000 incorrect 
tax statements relating to Form 1095-A, meaning that hundreds of 
thousands of Americans may be seeing delays in their tax refunds this 
year.

    These are just some of the problems hardworking taxpayers are 
facing as they try to deal with Obamacare during this tax season.

    While the ramifications to taxpayers are significant, the overall 
impact on America's budget is even greater. The total overall cost of 
Obamacare so far has numbered in the tens of billions, and we're barely 
through the first phases of implementation.

    Unfortunately a significant portion of that money resulted in no 
benefit whatsoever to the taxpayers. Specifically, an analysis done by 
my staff shows that in just five areas, over $5.7 billion went to 
projects which added NO value to the taxpayers.

    That is $5.7 billion dollars down the drain. Taxpayers have been 
left on the hook for funds that were doled out for Obamacare to states, 
corporations, and contractors with little to no accountability.

    The following five examples are some of the most egregious:

  1.  Failed State Exchanges: According to the Congressional Research 
        Service, $1.3 billion in taxpayer funds have been spent on 
        state exchanges that failed and were never operational.

  2.  Consumer Oriented and Operated Plans (Co-ops): The Centers for 
        Medicare and Medicaid Services has loaned $2.4 billion to 24 
        co-ops, one of which failed before it enrolled anyone. 
        Taxpayers are set to lose nearly half of this money from 
        default or artificially low interest rates. CMS has no plans to 
        recoup any of the funds, meaning a total cost to taxpayers of 
        around $1 billion.

  3.  HealthCare.gov Website: The Obama Administration's website became 
        a pre-existing condition for many Americans who were forced to 
        purchase insurance on the broken site or face a fine. Despite 
        fixes to HealthCare.gov, the total cost of the failed 
        enrollment system surpassed $2 billion.

  4.  Serco: This contractor was awarded $1.2 billion to manage paper 
        applications during the first enrollment period of the health 
        care law. However, only a handful of the total applications 
        received were paper applications, leaving Serco employees with 
        little to do. The waste was so apparent that a whistleblower 
        who worked at the company reached out to the St. Louis Post-
        Dispatch, saying: ``I feel guilty for working there as long as 
        I did. It was like I was stealing money from people.''

  5.  Marketplace Navigators: The Administration has spent over $120 
        million on the Navigator program for the 2014 and 2015 open 
        enrollment periods. The purpose of the Navigators is to provide 
        individuals with information about health insurance, including 
        signing up for the Health Insurance Marketplace. The Kaiser 
        Family Foundation estimates 2015 marketplace enrollment at 
        approximately 11 million individuals. The overall value of the 
        Navigator program is, at best, inconclusive, and, at worst, it 
        represents more wasted taxpayer dollars.

    These five examples are just a handful of the countless misguided, 
poorly defined, and poorly implemented aspects of the Affordable Care 
Act. We mark the 5-year anniversary of its passage today, but it's 
certainly no cause for celebration.

    I want to thank our witnesses for appearing today to help discuss 
the impacts of this law, and I look forward to what I am sure will be a 
spirited discussion.

    I'd now like to turn it over to Senator Wyden for his opening 
remarks.

                                 ______
                                 
           Prepared Statement of Douglas Holtz-Eakin, Ph.D., 
                   President,* American Action Forum
---------------------------------------------------------------------------
    * The views expressed here are my own and not those of the American 
Action Forum, the Partnership for the Future of Medicare or the Center 
for Health and Economy. I thank Brittany La Couture for her assistance.
---------------------------------------------------------------------------
    Chairman Hatch, Ranking Member Wyden, and members of the committee 
thank you for the privilege of appearing to discuss the Patient 
Protection and Affordable Care Act (``ACA'') on the 5th anniversary of 
its enactment. This milestone is the perfect time to more closely 
examine the law, the promises that were made to gain support for its 
passage, and, most importantly, how many of those promises have been 
kept.

    The main promise that we heard repeated over and over again was 
that the ACA would provide universal access to affordable coverage of 
high-quality health care. In these remarks I will discuss (1) coverage, 
(2) affordability, (3) quality, and (4) access to care under the ACA.

    The ACA has been riddled with wasted money and broken promises. It 
has proven to be poor growth policy, red-ink budget policy, flawed 
insurance policy, and poor health care policy. Instead of growth, it 
has contributed to a mediocre recovery. Instead of fiscal 
responsibility, it has exacerbated the red ink that plagues the 
government. Instead of universal coverage for the uninsured, the 
retention of valued policies and lower premiums, it has produced 
spotty, uneven coverage expansions, the forcible loss of valued polices 
and higher premiums for all. And instead of bending the cost curve and 
raising quality, it has delivered limited access to doctors and the 
loss of preferred providers.
                               background
    The ACA was first passed in the Senate in 2009 on a partisan vote 
on Christmas Eve, and subsequently through the House in a similarly 
partisan fashion. The American public was, and remains, deeply divided 
over the law. Prior to passage and after enactment, President Obama and 
the ACA's supporters made numerous and oft-repeated promises about all 
the ways in which the ACA would improve Americans' lives by allowing 
for universal coverage while simultaneously lowering the cost and 
increasing the quality of care. Instead, the law has produced $43.8 
billion in regulatory burden, 163.5 million annual paperwork hours.\1\ 
Five years later it is clear that the law cannot deliver on those 
promises.
---------------------------------------------------------------------------
    \1\ http://americanactionforum.org/week-in-regulation/30-billion-
in-regulatory-costs.

                           universal coverage
    One of the main selling points of the ACA was that all Americans, 
including 46.3 million uninsured individuals, would be guaranteed 
access to insurance coverage either through their employer or current 
provider, the private market health insurance exchanges created under 
the law, or Medicaid and CHIP. Yet 5 years later, over 35 million 
Americans are still uninsured.\2\
---------------------------------------------------------------------------
    \2\ http://www.cbo.gov/sites/default/files/cbofiles/attachments/
43900-2015-03-ACAtables.pdf.

    Prior to passage of the ACA, most Americans had insurance plans 
that they liked, typically through an employer-sponsored plan. 
President Obama assured them on at least 37 separate occasions that 
``if you like your health care plan, you can keep it.'' \3\ As the law 
went into effect in 2014, however, 4.7 million Americans lost their 
insurance coverage.\4\ Many were able to re-enroll in new plans, but 
often with higher premiums and new provider networks.
---------------------------------------------------------------------------
    \3\ http://www.politifact.com/truth-o-meter/article/2013/dec/12/
lie-year-if-you-like-your-health-care-plan-keep-it/.
    \4\ http://finance.yahoo.com/news/policy-notifications-current-
status-state-204701399.html.

    Another feature Americans were promised was an easy to use online 
health insurance portal. About one-third of the states established 
their own health care exchanges and websites with varying degrees of 
failure during the first year. Some states were forced to completely 
rebuild their exchanges, others bought software developed by more 
successful states, and two states gave up completely and relinquished 
their exchange to the Department of Health and Human Services (HHS).\5\
---------------------------------------------------------------------------
    \5\ http://kff.org/health-reform/state-indicator/state-health-
insurance-marketplace-types/.

    Speaking about the federal website operated by HHS, President Obama 
promised, ``Now, ultimately, this website, HealthCare.gov, will be the 
easiest way to shop for and buy these new plans, because you can see 
all these plans right next to each other and compare prices and see 
what kind of coverage it provides.'' \6\ This statement also turned out 
to be patently false--software glitches, incompatibility between 
Medicaid and exchange software, and miscommunication between the 
exchange and insurers left millions of Americans frustrated, confused, 
and without insurance coverage at the end of the first open enrollment 
period. This disaster of a website cost the American taxpayer nearly 
$840 million.\7\ The second year open enrollment was slightly smoother, 
but has been extended to allow people to make changes once they realize 
how the ACA affected their tax liability in 2014.\8\ The fact that 5 
years after the law was passed people still do not understand what it 
means for them is a striking indictment.
---------------------------------------------------------------------------
    \6\ http://insider.foxnews.com/2013/10/30/transcript-president-
obamas-health-care-law-speech-boston.
    \7\ http://www.nationaljournal.com/health-care/obamacare-website-
has-cost-840-million-20140730.
    \8\ http://content.govdelivery.com/accounts/USCMSHIM/bulletins/
f80de2;
    http://americanactionforum.org/videos/policy-in-60-seconds-the-aca-
and-your-tax-bill.

    Low-income Americans who cannot afford to purchase individual 
market insurance plans were promised free access through Medicaid. 
However, the Medicaid program that the ACA actually created is not as 
targeted or complete as supporters promised it would be. In 2012, the 
U.S. Supreme Court ruled that the ACA's Medicaid expansion was 
unconstitutional and that states cannot be forced to participate. As a 
result, Medicaid eligibility varies by state and in some places leaves 
low-income Americans with less support than higher-income 
individuals.\9\ The enhanced payment structure of the ACA Medicaid 
expansion causes counter-intuitive incentives for states to try to 
enroll these newly eligible individuals--those with more resources--
rather than focusing on helping the neediest among us.
---------------------------------------------------------------------------
    \9\ http://kff.org/health-reform/state-indicator/state-activity-
around-expanding-medicaid-under-the-affordable-care-act/.

    As a result of new coverage restrictions in the employer market, 
eligibility limitations in the individual market, and chaotic Medicaid 
eligibility standards, adults below the poverty line and children are 
falling through the cracks. Perverse incentives created by the ACA have 
caused phenomena like the Family Glitch, leaving millions of 
individuals and families unable to enroll in affordable health 
insurance.\10\
---------------------------------------------------------------------------
    \10\ http://americanactionforum.org/research/the-family-glitch.
---------------------------------------------------------------------------
                             affordability
    During passage and implementation of the ACA, Americans heard many 
promises about ``bending the cost curve'' and ``helping middle-class 
families'' by reducing the cost of insurance thousands of dollars a 
year.\11\ But as it has played out, the ACA has not reduced the cost of 
health insurance for the federal government, states, businesses, or 
American families.
---------------------------------------------------------------------------
    \11\ http://www.nationalreview.com/corner/359352/obamacare-bends-
cost-curve-upward-avik-roy.

    Before the ACA reached his desk, President Obama promised, ``I will 
not sign a plan that adds one dime to our deficits--either now or in 
the future.'' \12\ The ACA, however, was riddled with budget gimmicks 
that hid the fact that it did not add up over the long term.
---------------------------------------------------------------------------
    \12\ https://www.whitehouse.gov/the_press_office/Remarks-by-the-
President-to-a-Joint-Session-of-Congress-on-Health-Care/.

    The Secretary of HHS promised that ``[t]he state doesn't pay'' for 
the ACA's Medicaid expansion, but that is simply untrue.\13\ States are 
currently being held hostage by maintenance-of-effort provisions that 
force state Medicaid agencies to continue paying for temporary programs 
that have long since expired. Next year, most states will begin paying 
for a portion of Medicaid expansion to new populations. They will also 
become responsible for funding and maintaining their own exchanges if 
they do not use the federal platform.
---------------------------------------------------------------------------
    \13\ http://talkingpointsmemo.com/dc/hagan-obamacare-burwell-
hearing.

    In 2009, employers were told ``cost savings could be as much as 
$3,000 less per employer. [. . .]'' \14\ It is unclear whether and how 
much employers have saved as a result of the law, but many employers 
generated savings by offering less generous plans with more restrictive 
networks. Some employers also dropped dependent coverage to lessen the 
burden of providing ACA-compliant coverage for their employees' 
families. For some, these efforts still barely covered the new 
administrative costs of the law.
---------------------------------------------------------------------------
    \14\ https://www.whitehouse.gov/the-press-office/remarks-president-
health-insurance-reform-fairfax-virginia.

    There is also evidence that when the employer mandate is actually 
enforced (it is one of a number of provisions the administration has 
unilaterally decided to delay), many employers will face tax penalties 
as well. Employers will have to pay a $2,000 penalty per employee not 
offered coverage above the first thirty, and an even greater penalty 
will be assessed for offering non-compliant coverage.\15\
---------------------------------------------------------------------------
    \15\ http://americanactionforum.org/research/primer-employer-
mandate.

    The president promised the ACA would ``cut the cost of a typical 
family's health insurance premium by up to $2,500 a year.'' \16\ In 
2014, average individual market premiums increased by 50 percent, and 
they went up another 4 percent in 2015 with the greatest changes seen 
in low-cost plans.\17\ These increases are attributable, among other 
things, to market uncertainty caused by the law, guaranteed issue and 
community rating requirements, and the mandatory inclusion of 
``essential health benefits.''
---------------------------------------------------------------------------
    \16\ http://www.huffingtonpost.com/2008/12/04/obamas-long-list-of-
promi_n_148598.html.
    \17\ http://www.washingtonpost.com/blogs/monkey-cage/wp/2014/11/17/
obamacares-premiums-are-going-up-at-the-same-rate-as-everyone-elses/.

    There are plenty of other ways premiums could increase besides the 
actual cost of the plan going up.\18\ A new job, a raise, marriage, 
moving or being auto-enrolled in an exchange plan are all ways that the 
mere structure of the ACA could effectively increase the cost of 
private market insurance. Some of the greatest premium increases, 
though, hit individuals and families who did not purchase the benchmark 
silver plan--if the benchmark decreased, so did subsidies, and an 
individual or family's share of the premium for any other plan 
proportionately increased. This is what happened to enrollees in non-
benchmark plans in 361 of 461 rating areas where 2015 data was 
available, and for individuals and families in 234 of these rating 
areas, switching plans to the new benchmark would mean leaving their 
current insurance carrier and provider network, causing discontinuity 
of care.\19\
---------------------------------------------------------------------------
    \18\ http://americanactionforum.org/insights/seven-ways-your-
exchange-premium-can-increase.
    \19\ http://americanactionforum.org/weekly-checkup/an-analysis-of-
benchmark-premiums-in-year-2-of-the-affordable-care-act-exch.

    Americans' out-of-pocket expenses are also increasing. In 2014 the 
average deductible for a bronze plan was $5,081--42 percent higher than 
in comparable group market plans.\20\ Insurers are using large 
increases in deductibles to offset slower premium growth caused by 
competition in the exchanges. Before the ACA, average annual deductible 
growth was about 5 percent, but it spiked to 10 percent as the ACA was 
implemented, though it is now beginning to settle.
---------------------------------------------------------------------------
    \20\ http://www.thefiscaltimes.com/Articles/2014/02/03/Obamacare-
Sticker-Shock-Found-Deductibles-Not-Premiums.

    Just as the cost of insurance has increased under the ACA, the cost 
of not having comprehensive insurance has increased. Individuals who 
choose not to be insured or purchase only catastrophic coverage are now 
subject to an individual mandate penalty that will increase annually as 
a percentage of the individual's income.\21\ There is hardly anything 
less ``affordable'' than paying for something you don't have.
---------------------------------------------------------------------------
    \21\ http://americanactionforum.org/weekly-checkup/state-by-state-
estimates-of-individual-mandate-payments.
---------------------------------------------------------------------------
                                quality
    One of the first promises made by President Obama in his rush to 
get health reform passed was ``I will protect Medicare.'' \22\ Yet the 
ACA makes substantial cuts to the Medicare program and uses Medicare 
money to fund the law's subsidies for non-seniors, while simultaneously 
being used on paper to delay the Medicare trust fund's insolvency.
---------------------------------------------------------------------------
    \22\ https://www.whitehouse.gov/the_press_office/Remarks-by-the-
President-to-a-Joint-Session-of-Congress-on-Health-Care.

    Cuts to Medicare mean seniors will have less access to the doctors 
and care they need, yet the law does next to nothing to improve the 
quality or efficiency of the Medicare program.\23\ Voters were also 
told that ``the law prohibits IPAB [the Independent Payment and 
Advisory Board] from rationing health care.'' Since that statement was 
made some supporters of the law have acknowledged that some rationing 
in Medicare is inevitable, while then-Secretary Sebelius suggested that 
CMS will avoid this limitation through its ability to define 
``rationing.'' \24\
---------------------------------------------------------------------------
    \23\ http://americanactionforum.org/insights/accountable-care-
organizations-what-the-demonstration-projects-tell-us.
    \24\ http://www.dpc.senate.gov/docs/fs-112-2-193.pdf.

    ``The final bill [. . . will] make sure that people are getting the 
care they need and the checkups they need and the screenings they need 
before they get sick--which will save all of us money and reduce 
pressures on emergency rooms.'' \25\ We were told that the Medicaid 
expansion would work by using preventive care to increase overall 
health and decrease utilization of emergency rooms. Yet there is 
evidence from studies done in Oregon and the RAND Health Insurance 
Survey that show that Medicaid coverage does not increase overall 
health or reduce emergency room use.\26\ In fact, Medicaid coverage 
arguably leads to the worst health outcomes because reimbursement rates 
for providers are so low that it makes non-emergency room care 
virtually inaccessible. Yet the expansion of Medicaid will cost 
American taxpayers around $33.5 billion between 2014 and 2020, $12 
billion of which will be paid by the states for administrative 
costs.\27\
---------------------------------------------------------------------------
    \25\ https://www.whitehouse.gov/the-press-office/remarks-president-
after-meeting-with-senate-democrats.
    \26\ http://qje.oxfordjournals.org/content/127/3/1057.full; http://
www.rand.org/health/projects/hie.html; http://americanactionforum.org/
insights/more-insurance-shouldnt-lead-to-more-emergency-room-visits-
but-it-might.
    \27\ http://www.heritage.org/Research/Reports/2010/07/Obamacare-
Impact-on-States.
---------------------------------------------------------------------------
                             access to care
    Medicare and Medicaid enrollees are not the only ones whose access 
to quality health care has been impeded by the ACA. Individuals and 
families in individual and group market plans have seen networks 
constrict to keep premiums low.

    ``If you like your doctor, you will be able to keep your doctor'' 
is another promise that has not been kept. The ACA restricts insurance 
plans' ability to control costs in a number of ways, leaving narrow 
provider networks as one of the few cost control mechanisms still 
available to insurers. As a result insurers are creating narrow 
networks where only a few providers are covered, and those providers 
are sent high volumes of patients at lower reimbursement rates.\28\ 
While having the choice of narrow network plan options is not a bad 
thing for consumers, the ACA incentivizes this type of plan structure 
to the exclusion of more robust provider options. Other studies 
indicate that many providers and hospitals have decided not to 
participate in one or more ACA exchange plans because of the extremely 
low reimbursement rates. Many sole practitioners and small physician 
groups have similarly indicated an intention to switch to cash-only 
practices or even enter early retirement to avoid the burdensome new 
mandates and financial obligations imposed on them by the ACA, further 
limiting patients' choice of providers and driving up wait times in the 
offices where enrollees are being accepted.
---------------------------------------------------------------------------
    \28\ http://americanactionforum.org/insights/health-care-providers-
are-opting-out-of-obamacare-exchang-plans.

    As a result of these incentives, individuals may find that while 
they have insurance coverage and access to doctors and hospitals, they 
may have access to an in-network hospital but not have coverage for the 
doctors inside it. Likewise, individuals may have access to an in-
network doctor, but none of the hospitals in which he or she 
operates.\29\ This is hardly access to care.
---------------------------------------------------------------------------
    \29\ http://www.huffingtonpost.com/2014/04/10/obamacare-patients-
without-doctors_ n_5044270.html.
---------------------------------------------------------------------------
                               conclusion
    The past 5 years have revealed how the promises made by President 
Obama and the ACA's supporters, however well-intentioned, do not match 
the reality of the law. The number and scope of broken promises around 
the ACA show that the current law is not what Americans wanted and is 
not the kind of reform American health care needed. With this clearer 
understanding of the past, perhaps we can make the most of lessons 
learned and start moving towards more effective reforms in the future.

                                 ______
                                 
     Questions Submitted for the Record to Dr. Douglas Holtz-Eakin
               Questions Submitted by Hon. Sherrod Brown
                economic benefits of medicaid expansion
    Question. Medicaid expansion has meant more than just providing 
insurance coverage to the uninsured. For hospitals and health care 
providers, it means treating people in the appropriate and least costly 
setting. Dr. Holtz-Eakin's testimony focused on how the Medicaid 
expansion has created ``counter-intuitive incentives for states to try 
and enroll newly eligible individuals . . . rather than focusing on 
helping the neediest.'' However, both non-expansion states and 
expansion states, like Ohio, have experienced a ``woodworking effect'' 
in the number of non-expansion 
Medicaid-eligible individuals who have signed up for insurance.

    Dr. Holtz-Eakin, can you speak to the Medicaid ``woodworking 
effect'' that we've seen in states--both expansion and non-expansion 
states--across the country? How many individuals have gained coverage 
through this effect, and why is this concerning to states (particularly 
their budgets) that have chosen not to expand Medicaid?

    Answer. The woodwork effect is an expensive phenomenon whereby 
publicity and outreach by the federal and some state governments to 
increase enrollment for one population of Medicaid eligible individuals 
that are funded entirely by the federal treasury has caused a 2.8 
percent increase in enrollment in the previously eligible population, 
for which the FMAP has not been increased. This places a significant 
financial burden on state treasuries that are now responsible for 
paying for health services for at least an additional 550,300 
individuals.\1\, \2\ Naturally, state officials are 
concerned that they may be unable to fund these new enrollees, 
particularly in light of the stringent Maintenance of Effort and 
Minimal Essential Coverage provisions being enforced under the ACA.
---------------------------------------------------------------------------
    \1\ http://avalere.com/expertise/managed-care/insights/avalere-
analysis-medicaid-non-expansion-states-experience-up-to-10-enrollme.
    \2\ This number is likely larger, as the analysis was unable to 
include states where data was incomplete or where there was 
inconsistent treatment of CHIP enrollees.

    The concern, for many, arises not from unwillingness to help needy 
individuals, but in part from the inability of state leaders to adjust 
to changing circumstances and help their own citizens in the best way 
available because of restrictions imposed by the law.
               medicaid payment parity and access to care
    Question. In his testimony, Dr. Holtz-Eakin stated that the ACA has 
impeded access to quality care for Medicaid and Medicare beneficiaries. 
The testimony went so far as to claim that Medicaid coverage ``makes 
non-emergency room care virtually inaccessible.''

    In fact, there are many provisions in the ACA that have improved 
access to health services for beneficiaries. For instance, one of these 
provisions increased reimbursement rates for certain Medicaid providers 
and services to the Medicare rates for 2013 and 2014. A study published 
in the New England Journal of Medicine examined this provision and 
found an association between increased Medicaid reimbursements and the 
availability of primary care appointments for Medicaid enrollees.

    This is an example of something in the ACA that ensures access to 
care and has helped individuals get to the doctor's office for critical 
primary care and preventive services. I understand how important it is 
to remove barriers to accessing quality care, which is one of the 
reasons I introduced The Ensuring Access to Primary Care for Women and 
Children Act. This bill would extend an expired provision of the ACA 
that guaranteed primary care reimbursement parity between doctors 
treating Medicaid and Medicare patients. It would also expand this 
payment parity to other health care providers who treat women and 
children, including ob-gyns, nurse practitioners, and physician 
assistants.

    Dr. Holtz-Eakin, can you discuss the increase in primary care 
appointment availability for Medicaid beneficiaries, as reported in the 
recent article published in the New England Journal of Medicine--
Appointment Availability after Increases in Medicaid Payments for 
Primary Care--and elaborate on how the Medicaid primary care payment 
enhancement provision from the ACA has helped increase access to care 
for the Medicaid population in non-emergency room settings?

    If the ACA is not doing enough to get individuals to the doctor, 
what do you suggest we do to help more Americans to gain access to the 
health sector?

    Answer. While access to Medicaid coverage does little to give 
enrollees better access to health care services, Medicaid primary care 
payment enhancements may very well have contributed to increased access 
to providers. Unfortunately, this provision was fiscally unsustainable, 
which is why it was allowed to expire last year. The New England 
Journal of Medicine article cited in the question supports the thesis 
that expanding Medicaid does not provide better care or even access to 
care in and of itself.

    The expiration of the program examined by the article demonstrates 
that simply increasing payment rates is likewise considered an 
inefficient way to provide low income Americans with consistent access 
to care. While the payment enhancement may have contributed to 
increases in access to care, the effect was moderate. There was an 
average 57 percent increase in reimbursement with only a 7.7 percent 
average increase in access, and results by state were similar 
regardless of the amount of the increase.\3\ For example, at the 
extremes, Montana increased its Medicaid reimbursement by 7 percent 
(the lowest) and saw a 6.8 percent increase in access, and New Jersey 
increased reimbursement by 109 percent (the highest increase) and saw a 
10.9 percent increase in access; yet Oregon had a 39 percent 
reimbursement increase, and a 2.8 percent decrease in access. This 
uneven result may imply that factors beyond the payment bump also 
contribute to accessibility.
---------------------------------------------------------------------------
    \3\ The numbers reported in the study appear slightly biased, as 
the study reported only on the 4 states with the highest increases in 
payments, and the bottom 6 states with the lowest increases in 
payments, skewing the average increase downward and potentially skewing 
the average increase in access upward.

    Rather than continuing to debate precise levels of reimbursements, 
we should begin thinking outside the box and consider allowing the 
market to provide dynamic solutions: for instance, loosening scope of 
practice laws, or looking to states with Sec. 1115 waivers for 
---------------------------------------------------------------------------
indications of how to more effectively manage the Medicaid program.

                                 ______
                                 
   Prepared Statement of Holly Wade, Director of Research and Policy 
      Analysis, National Federation of Independent Business (NFIB)
    Good morning, Chairman Hatch, Ranking Member Wyden, and members of 
the Senate Finance Committee. Thank you for the opportunity to testify 
today on ``The Affordable Care Act at Five Years.''

    The NFIB Research Foundation recently published the second of a 
three-part health insurance longitudinal survey titled, ``Small 
Business's Introduction to the Affordable Care Act, Part II.'' \1\ The 
objective of the three surveys is to measure the impact of the 
Affordable Care Act (ACA) on small business owners and the small group 
health insurance market. The following are a few highlights from the 
survey.
---------------------------------------------------------------------------
    \1\ http://www.nfib.com/assets/nfib-aca-study-2014.pdf.

    The cost of health insurance is the most critical issue facing 
small business owners. It is the main reason owners do not offer 
employer-sponsored health insurance and the main reason owners 
discontinue providing the benefit. And for those offering, many owners 
annually confront the arduous task of adjusting profit expectations, 
insurance plans, cost-sharing and other mechanisms to help absorb often 
---------------------------------------------------------------------------
erratic changes in total premium costs.

    Unfortunately, the ACA does little to alleviate these problems five 
years into its implementation, and in most cases contributes to the 
ongoing frustrations small employers face in offering health insurance.

    The survey found that the ACA exacerbates market turmoil evidenced 
by large numbers of policy cancellations, shifting renewal dates to 
obtain better rates, changes in employer cost-sharing, and adoption of 
different, though not necessarily more desirable, health insurance 
plans.

    Small business owners have also encountered repeated delays and 
confusion over major components of the law including the SHOP exchange 
marketplaces, the small business health insurance tax credit, the 
employer mandate and financial reimbursement options.

    All of the above are generating an uncertain and costly environment 
for many small business owners navigating health insurance options for 
themselves and their employees.

    Two of the ACA's hallmark small business provisions, the SHOP 
exchange marketplaces and small business health insurance tax credit 
were established to provide cost relief and to offer a transparent, 
competitive marketplace for employers purchasing in the small group 
market. Unfortunately, both have provided little relief for those 
offering, or an incentive to offer, for those who do not.

    Currently, only a few states have fully operational SHOP exchange 
marketplaces and for those states that do, they are finding little 
interest among small employers or their insurance agents. Small 
employers typically find no reason to visit the websites. Just 13 
percent of small employers visited the HealthCare.gov website to look 
for individual insurance, 4 percent for business insurance and 8 
percent for both.

    The small business health insurance tax credit is a targeted 
approach to help curb health insurance costs for offering small 
employers and was intended to provide an incentive for those that do 
not, to start offering. However, the tax credit was largely ineffective 
on both fronts as its design is exceedingly restrictive, complicated, 
and only offers temporary relief to a larger small business cost 
problem. The tax credit now serves as a windfall for the few who 
qualify and take the time, or pay an accountant, to file for it.

    While most small employers believe they are generally familiar with 
the healthcare law, many are still discovering new ways in which law 
impacts them. For instance, the law prohibits employers from 
reimbursing or otherwise providing financial support to employees in 
order to help them pay for individually purchased insurance plans. 
However, our survey found that about 18 percent of small employers 
offered this benefit last year and are now in violation of the law. 
NFIB continues to receive calls from owners, generally after having 
talked to their CPA or insurance agent, confused about the new rules 
prohibiting the practice and the subsequent harsh penalties.

    In conclusion, the ACA's potential benefits for small employers 
have not materialized five years into enactment. Instead, the small 
employer experience more often consists of increased levels of 
uncertainty and frustration related to changes in the small group 
health insurance market and rules associated with the employer mandate.

    Thank you for the opportunity to summarize the findings of our 
survey. I look forward to answering any questions you might have.



                                 ______
                                 
                               attachment

                        NFIB Research Foundation

                      The Voice of Small Business

                           1201 F Street, NW,

                               Suite 200,

                          Washington, DC 20004

                              www.nfib.com

   Small Business's Introduction to the Affordable Care Act, Part II

December 2014

The NFIB Research Foundation is a small business-oriented research and 
information organization affiliated with the National Federation of 
Independent Business, the nation's largest small and independent 
business advocacy organization. Located in Washington, DC, the 
Foundation's primary purpose is to explore the policy-related problems 
small business owners encounter. Its periodic reports include Small 
Business Economic Trends, Small Business Problems and Priorities, and 
the National Small Business Poll. The Foundation also publishes ad hoc 
reports on issues of concern to small business owners.

                           Executive Summary

_______________________________________________________________________

    Self-assessed familiarity with the Affordable Care Act (ACA) 
        continues to grow among small employers. Seventy-eight (78) 
        percent now claim familiarity with the ACA, 12 percentage 
        points more than in mid-2013. Those employing 50-100 people 
        have greater familiarity, 40 percent ``very'' familiar and 56 
        percent ``somewhat'' familiar, than those employing fewer 
        people.

    Industry sources, particularly health insurance industry sources, 
        have become an increasingly important place for small employers 
        to obtain information about the ACA. Still, the general news 
        media is the single most important source for more small 
        employers than is any other followed by the health insurance 
        industry and the healthcare industry (providers, hospitals, 
        etc.). Small employers currently offering health insurance are 
        much more likely to rely on industry sources while those who do 
        not offer lean heavily on the general news media.

    Twenty-five (25) percent of small employers visited HealthCare.gov 
        in the last 12 months, 13 percent to search for personal 
        insurance, 4 percent for business insurance and 8 percent for 
        both. Just 4 percent consider government as their most 
        important information source on ACA.

    A majority of small employers are satisfied with the information 
        they have obtained about the ACA by a 61-38 percent margin, a 5 
        percentage point tick upward from the prior year. Some sources 
        yield more satisfactory information than others. Those most 
        satisfied cite a business advisor, such as a lawyer or 
        accountant, a trade/business association, and an insurance 
        carrier (in that order) as their most important information 
        source.

    Fifteen (15) percent of small employers did not carry health 
        insurance on themselves in mid-2013. The Affordable Care Act 
        requires everyone (with limited exemptions), including small-
        business owners, to be covered, effective January 1, 2014 
        (delayed), or pay a penalty. The number of uncovered small 
        employers dropped to 8 percent in mid-2014.

    Forty-three (43) percent of the small employer population carrying 
        personal health insurance obtain their coverage under their 
        firm's employer-sponsored health insurance plan, 39 percent 
        under an individual insurance market plan, and 19 percent under 
        a spouse's plan.

    Nine percent of all small employers report that their personal 
        health insurance had been terminated or cancelled (for any 
        reason other than non-payment) in the prior 12 months. 
        Terminations, therefore, affect about one-half million small 
        employers on a personal level. Most appear able to find 
        insurance coverage elsewhere, but the new policies come with a 
        comparatively hefty price increase.

    Non-offering small employers are receiving little employee 
        pressure to offer health insurance despite employees now being 
        required to have coverage or to pay a fine. Just 4 percent 
        received a request from five percent or more of employees 
        (usually no more than one person) in the last six months to 
        institute an employer-sponsored health insurance plan, the same 
        number as last year at this time.

    Fourteen (14) percent of small employers not offering health 
        insurance reimbursed or otherwise provided employees financial 
        support to help them pay for health insurance that they 
        purchased on their own, about the same number as in the prior 
        year. However, 21 percent of those offering, but not currently 
        providing financial incentives have considered, 9 percent 
        seriously, helping employees pay for purchasing their insurance 
        on the open market in lieu of the business offering it. 
        Financial incentives to help employees purchase health 
        insurance as a substitute for an employer sponsored plan is an 
        employer option substantially more likely to be pursued than it 
        is as a means to help employees newly acquire insurance on 
        their own.

    Small employers perceive little change in insurance carrier 
        competition for their health insurance business over the last 
        two years. If anything, they perceive less (net 12 percentage 
        points less) competition for it. The perceived competitive 
        situation among health insurers does not differ between 
        offering and not offering small employers.

    Forty (40) percent of small employers report offering employer-
        sponsored health insurance, down 6 percentage points from the 
        prior year. Firm size is closely associated with offer rates. 
        Small employers with 50 or more employees increased their offer 
        frequency while those with 20 or fewer employees saw theirs 
        decline.

    Few small employers now self-insure and there is no stampede to do 
        so. Even among those with 20 or more employees, the group most 
        likely to be able to purchase re-insurance, just 10 percent of 
        the offering population pursue this course. Another one in ten 
        projects switching from fully-insured to self-insured in the 
        coming year. However, equivalent projections last year yielded 
        no net increases in self-insured small businesses.

    Change among individual firms is much greater than net change 
        across the small business population. Eleven (11) percent 
        changed offer status within the last year, more dropping their 
        employer-sponsored health insurance than adding it. Those 
        percentages represent an 4 percentage point escalation (both 
        adds and drops) in offers status change over the last 12 
        months.

    About 12 percent of offering small employers adjusted their 
        insurance renewal date in order to avert higher premium costs 
        and/or loss of a plan due to ACA rules that were effective 
        January 1, 2014.

    Eighty-nine (89) percent of small employers offer just one type of 
        health insurance plan. That falls to 70 percent among firms 
        with 50-100 employees. The most common type of plan used is a 
        conventional PPO (40%), an increase of 8 percentage points over 
        the last year. The use of HMOs as the most used type in small 
        businesses fell 7 percentage points in a year to 19 percent. 
        However, small employer choices among primary types of health 
        insurance blur as plan types lose their distinctiveness and 
        morph into one another.

    A recurrent theme in this report is a recent emphasis on employee-
        only (individual) coverage over the past year and a de-emphasis 
        on family and employee plus-one coverages. The evidence for 
        these changes appear in the relative frequency of offers, 
        employee take-up, employer premium contribution, premium costs, 
        and even the decline in employers who obtain their personal 
        coverage from a spouse's plan. The employee appears 
        increasingly the focus of coverage and family members less so.

    The size of the employer cost-share fell notably for family and 
        employee plus-one coverage over the past year while rising 
        modestly for employee-only coverage. The number contributing 75 
        percent or more of premium fell 7 percentage points for family 
        and 4 percentage points for employee plus-one coverage. 
        Meanwhile, contributions of that size for employee-only 
        coverage increased 4 percentage points.

    Employer-sponsored health insurance premium costs per employee 
        continue to climb for small employers, though at a reduced 
        rate. Sixty-two (62) percent claim per employee premium costs 
        were higher in mid-2014 than in mid-2013 compared to 64 percent 
        the prior year. Another 31 percent experienced no change (29 
        percent the prior year) and 8 percent premium decreases (6 
        percent the prior year). Per employee premium costs rose more 
        for family than for employee plus-one coverage, but declined 
        for employee-only coverage. These data do not account for 
        benefit changes, either desired by the small-employer plan 
        sponsors or forced on them by the ACA.

    Employee participation in employer-sponsored health plans appears 
        to be rising. Sixty (60) percent of offering firms have 75 
        percent or more participation among full-time, non-seasonal 
        employees compared to just 54 percent one year ago. Greater 
        employee participation (more people) in addition to premium 
        increases caused the per firm cost of health insurance to rise 
        substantially.

    Small employers faced with health insurance premium increases took 
        an average of 2.4 business actions to offset (pay for) them, 
        the number increasing as the size of the premium increase rose. 
        The most frequently taken actions were swallowing the increase 
        (lower profits), delayed, postponed or reduced business 
        investment, and raising productivity. Forty-five (45) percent 
        resorted to measures that affected employee pay checks.

    Between 35 and 40 percent of small employers reduced benefits in 
        their 
        employer-sponsored health insurance; somewhat less than 10 
        percent increased them. That net frequency of benefit cuts was 
        offset by ACA compelled benefit increases, increases that small 
        employers may not have known about, let alone approved. The 
        result likely approximates intent rather than actual outcomes 
        of which no one can be certain.

    Small employers who added health insurance as an employee benefit 
        within the prior 12 months report that sustained business 
        profitability allows them to now offer. Market competition for 
        employees is a second important reason for their action.

    Small employers who dropped health insurance as an employee 
        benefit within the prior 12 months most often report the cost 
        of insurance was an important reason for doing so. A notable 
        number from that group dropping their insurance also indicated 
        that employees were better off purchasing it on their own.

    About 90 percent of small employers in mid-2013 accurately 
        forecast on a longitudinal basis whether they would carry 
        employer-sponsored health insurance in the following 12 months. 
        Thirty-eight (38) percent in mid-2014 expected to sponsor an 
        employee health insurance plan in mid-2015 and 60 percent did 
        not. Expectations dropped 10 percentage points in the last 
        year.

    This is the second of three surveys conducted for the NFIB 
        Research Foundation by Mason-Dixon Polling & Research on the 
        introduction of small business to the Affordable Care Act. Nine 
        hundred (900) small employers participated in this year's 
        edition, 288 having also participated the year before. The 
        survey sample was selected using a random stratified pattern 
        with the approximately four equal strata representing small 
        employers having 2-9 employees, 10-19 employees, 20-49 
        employees, and 50-100 employees.

   Small Business's Introduction to the Affordable Care Act, Part II

_______________________________________________________________________

William J. Dennis, Jr., NFIB Research Foundation

    The Affordable Care Act (ACA) began its administrative public life 
with a troubled and glitch-filled Web site roll-out one year ago. The 
Web site, HealthCare.gov, the heart of the Act's administrative 
apparatus to enroll subsidized applicants, functioned very poorly when 
it functioned at all. Small business was not generally impacted by that 
debacle, except to the extent that some small employers and self-
employed business owners approached the exchange marketplaces to 
purchase health insurance (subsidized and not) and met the same success 
that others did. However, small business had its own set of issues.

    The bulk of small business issues were indirect, stemming from 
requirements that limited the policies that health insurers could sell 
to small employers. One visible result was market turmoil evidenced by 
large numbers of policy cancellations, shifting renewal dates to obtain 
better rates, changes in employer cost-sharing, and adoption of 
different, though not necessarily more desirable, health insurance 
plans. In addition, obvious policy U-turns and failure to implement 
publicized aspects of the ACA created confusion among small employers 
and their advisors. SHOP (Small Business Health Options Program) 
exchange marketplaces, a parallel to the shopping function of the 
individual exchange marketplaces, intended to help small-business 
owners transparently and competitively purchase their health insurance, 
did not get off the ground. Relatively few states launched a SHOP for 
2014; only 12,000 employers and 76,000 individuals purchased insurance 
through a SHOP; and 18 states have already delayed additional offering 
arrangements again to 2016.\1\ Since only small employers purchasing 
their insurance through SHOP are eligible for the small business health 
insurance tax credit, the credit's already limited eligibility fell to 
a trickle. Confusion even reigned over established policies. Could 
small business keep its existing, noncompliant insurance? The answer 
was not always clear. Some could; some could not; and, some could, but 
only for a limited time. The employer mandate was administratively 
delayed and then modified, good news for larger small employers. But 
then those most affected offered anyway and the delay may simply align 
the employer mandate deadline with the minimum essential health 
benefits package and community rating requirements to which they remain 
subject beginning in 2016. Perhaps the most consequential result of the 
mandate's delay was the effective elimination, at least temporarily, of 
the highly complex and largely unknown aggregation rules.
---------------------------------------------------------------------------
    \1\ Small Business Health Insurance Exchanges: Low Initial 
Enrollment Likely due to Multiple, Evolving Factors (2014). United 
States Government Accountability Office Report to the Chairman, 
Committee on Small Business, House of Representatives. GAO-15-15. 
November; Harrison, JD (2014). July 14. http://www.washingtonpost.com/
business/on-small-business/why-we-still-dont-know-how-many-small-
businesses-signed-up-through-obamacare/2014/07/10/773d0
cb6-0859-11e4-a0dd-f2b22a257353_story.html.

    The following pages document the turmoil caused by the ACA and many 
of the changes occurring within the last twelve months. Some of those 
changes result in noticeable net shifts in population totals. For 
example, the employer cost-share for family and employee plus-one plans 
fell notably. Small employers, as a group, are simply contributing less 
for them. However, a key to appreciating the turmoil and other 
challenges small employers face is individual firm change even when the 
population totals do not. For example, the net percent of all small 
employers changing offer status moved somewhat lower from the prior 
year. That reduction conceals the fact that one in ten changed offer 
status over the last 12 months. Adding and/or dropping employer-
sponsored health insurance is a significant change to a business with 
repercussions throughout the firm. Thus, even when matters seem 
---------------------------------------------------------------------------
publicly calm, they often are not within individual firms.

    While one assumes that much of the turmoil created for small 
business by the ACA will ebb as the compliant/non-compliant policy 
issue resolves itself, that is not necessarily true. The status of SHOP 
exchange marketplaces and the employer mandate implementation remain 
unsettled. Perhaps more important is the consequences of the 2016 
consolidation of the fewer than 50 employee and 50-99 employee groups 
into a single small group market. It is not known how, if at all, 
combining the two will affect the rates of different size firms. 
Healthcare cost pressures will continue to force insurance rates higher 
requiring small employers to make more painful choices between employee 
wages and benefits, between higher deductibles and cost-shares, between 
lower earnings and greater contributions to their employer-sponsored 
health insurance. The Cadillac tax provision of ACA (2018) is likely to 
affect a limited number of small employers initially, and the remainder 
of those offering long after large employers have adapted to it. The 
impact of subsidies to individual and families through the exchange 
marketplaces is likely to alter the offer pattern of small employers 
long before large. And then, there is always the possibility of further 
administrative change--even legislative change--for good or ill.
Familiarity with the Affordable Care Act
    It has been four years since the Affordable Care Act (ACA) became 
law. Millions of words have been written about the Act and likely more 
have been spoken of it during that time. Much has been polemical, 
obfuscating the Act's content and impact. Yet, in mid-2014 just 24 
percent of all small employers claim to be ``very'' familiar with the 
ACA (Q#68). Fifty-four (54) percent say that they are ``somewhat'' 
familiar with it. The remainder describe themselves either as ``not 
too'' familiar (15%) or ``not at all'' familiar with the Act (7%).

    Small employers with 50 to 100 employees, those presumably most 
affected by the new law, claim greater familiarity with the Affordable 
Care Act than do those with fewer employees. Forty (40) percent of that 
group assert that they are ``very'' familiar with it and another 56 
percent maintain that they are ``somewhat'' familiar with that law. 
Self-assessed familiarity among small employers declines gradually with 
the number of employees in the business. However, a noticeable gap 
occurs between owners employing fewer than ten people and those 
employing ten or more. The proportion claiming familiarity (``very'' 
and ``somewhat'') among those with fewer than ten employees is 76 
percent while 24 percent do not claim familiarity (``not too'' and 
``not at all'') compared to 88 percent and 12 percent respectively 
among those with ten or more employees. The gap is most noticeable in 
the ``very familiar'' response, 21 percent among the former group and 
37 among the latter.

    Familiarity is not related to health insurance offers. Offering 
small-business owners are no more likely to claim familiarity than 
those not offering. However, familiarity is modestly associated with 
recent premium cost increases. Small employers incurring premium 
increases in the last year are 9 percentage points more likely to claim 
familiarity than those either incurring premium decreases or premium 
stability (84 percent to 75 percent).

    ACA exchange marketplaces for individuals can be divided into three 
groups: state-run, partnership, and federally-run.\2\ (SHOP exchange 
marketplaces for small businesses cannot be similarly grouped because 
few states effectively operate one and because the federal government 
has postponed its participation in their operation.) As a general rule, 
states with state-run exchange marketplaces have embraced Obamacare 
more enthusiastically than have partnership states and partnership 
states more enthusiastically than federal-run states. It is reasonable 
to speculate that more enthusiasm results in more information available 
about ACA and hence greater small business familiarity with the Act. 
Some relationship does exist. Small employers in state-run states most 
frequently claim familiarity (84%) followed by partnership states (77%) 
and federally-run states (76%). But as will be shown shortly, few small 
employers use government as their primary source of information about 
the Act. Few small employers not relying on government for information 
does not negate the possibility that the relevant agencies provide more 
information to the general news media, etc., which in turn transmit it 
to business owners.
---------------------------------------------------------------------------
    \2\ State-based Exchange Marketplaces--CA, CO, CT, DC, HI, ID, KY, 
MD, MA, MN, NV, NM, NY, OR, RI, VT, AND WA. Partnership Marketplaces--
AR, DE, IL, IA, MI, NH, AND WV. 
Federally-facilitated Exchange Marketplaces: AL, AK, AZ, FL, GA, IN, 
KS, LA, ME, MS, MO, MT, NE, NJ, NC, ND, OH, OK, PA, SC, SD, TN, TX, UT, 
VA, WI, AND WY.

    Small employers in the Central region and to a lesser extent the 
Mid-western region report familiarity with ACA less often than do those 
in the Northeast, Southeast, and Pacific regions. The latter three 
---------------------------------------------------------------------------
report familiarity ranging from 81 to 83 percent.

    Self-assessed familiarity with the Affordable Care Act rose between 
mid-2013 and mid-2014. The proportion claiming familiarity (``very'' 
and ``somewhat'') rose 12 percentage points while those not claiming 
familiarity (``not too'' and ``not at all'') declined the equivalent 
amount. That increase is somewhat larger than the one experienced in 
the two year interval, mid-2011 to mid-2013, when the familiarity of 
small employers with fewer than 50 employees rose from 58 to 66 
percent.\3\
---------------------------------------------------------------------------
    \3\ Dennis, WJ, Jr. (2013). Small Business's Introduction to the 
Affordable Car Act, Part I. NFIB Research Foundation: Washington, DC.
    http://www.nfib.com/Portals/0/PDF/AllUsers/research/studies/ppaca/
nfib-aca-study-2013.pdf.

    The change in familiarity appears broadly based. For example, 96 
percent of employers with 50 to 100 employees claim familiarity with 
the Act compared to 89 percent in the year prior. At the other end of 
the size scale, 76 percent with 2 to 9 employees claim familiarity 
compared to 65 percent twelve months earlier.
Information Sources
    More small employers cite the general news media (34%) as their 
most important source of information about ACA than any other (Q#69). 
The insurance industry ranks second (22%) followed by the healthcare 
industry (13%). Small employers identified every other source in less 
than 10 percent of cases. Trade associations or business groups prove 
the prime source for 9 percent; a business advisor, such as an 
accountant or lawyer, account for another 8 percent; government, 4 
percent; other sources and no answer, 2 percent. Seven percent do not 
have a single most important source.

    The most important sources small employers use to obtain 
information about ACA changed somewhat over the past year. The most 
notable change was an 8 percentage point reduction in reliance on 
general news media and a 9 percentage point increase in the number 
identifying the health insurance industry. Five percentage points more 
identified the healthcare industry (providers, hospitals, etc.) this 
year than last. Primary reliance on other sources remained relatively 
stable. For example, 4 percent cited government in mid-2013 and 4 
percent cited it in mid-2014 despite the flurry of information 
surrounding the opening of the exchange marketplaces (much of it 
negative, encouraging small employers to look elsewhere); 10 percent 
cited business advisors in mid-2013 and 8 percent in mid-2014; trade 
associations/business groups declined from 12 percent to 9 percent. 
Seven percent claimed to have received no useful information this year 
compared to 1 percent last, a discouraging commentary on the country's 
ability to transfer useful information about a major government 
initiative.

    The smallest employers continue to be the size group most reliant 
on the general news media (42%) for information about the ACA. They are 
also the group most likely to think that they have not received any 
useful information about it (8%). Owners of the largest businesses are 
the most reliant on the health insurance industry (38%).

    The major difference in information sources about the ACA falls 
along the divide between those who offer employer-sponsored health 
insurance and those who do not. Fifty-eight (58) percent of small 
employers offering report their most important information source as 
the insurance industry (40%) or a healthcare provider (18%). Just 21 
percent of those not offering name one of those two industry sources. 
In contrast, 18 percent of offering small employers cite the general 
news media compared to 45 percent among small employers not offering. 
These results logically follow from the greater exposure that offering 
small business owners have to industry sources.

    Just less than one in four (24%) rely principally on a single 
source for most their information. Those who did identify a second 
source as important were distributed much as were the most important 
source. The noticeable difference is that the insurance industry and 
healthcare industries switched places. Twenty (20) percent identified 
the general news media; 12 percent a provider; 11 percent a carrier; 11 
percent a trade association/business groups; 10 percent a business 
advisor; 7 percent ``other''; and, 6 percent government (Q#70).

    Four combinations of sources (first and second choices) prove most 
common among those citing more than a single source. The most frequent 
(14%) is the general news media and insurance carriers, followed by a 
provider(s) (health-care industry) and the media (10%), trade/business 
associations and the media (8%), and trade associations/business groups 
and insurance carriers (6%).
            HealthCare.gov
    HealthCare.gov is the government Web site that the public can visit 
both to gather information about the ACA as well as to sign up for its 
benefits (during open enrollment). While plagued by a disconcertingly 
problematic roll-out, the site remains the single most visible place to 
learn about the Act's exchange marketplaces and the insurance available 
to individuals. It is also the place where small employers were 
supposed to take advantage of the SHOP provisions of ACA, a prospect 
now restricted to a small number of businesses operating in a few 
states and businesses that enrolled directly through an insurer or an 
insurance agent/broker.

    Small employers typically find no reason to visit HealthCare.gov. 
Sixty-five (65) percent report that they did not visit the site in the 
last year and another 10 percent say that they did so out of simple 
curiosity (Q#72). Still, one in four (25%) did visit HeathCare.gov for 
its intended purposes. The largest share visiting the site did so to 
inquire about the purchase of personal insurance (13%). Four percent 
visited the site about business insurance and another 8 percent visited 
to inquire about both business and personal coverage. Those percentages 
translate into a non-mutually exclusive 21 percent visiting 
HealthCare.gov for personal reasons and 12 percent for business 
reasons. Given that just 4 percent named government as their most 
important information source about ACA, HealthCare.gov apparently did 
not provide a great deal that small employers found helpful.

    As a general rule, small employers looking for business insurance 
on HealthCare.gov currently offer (66%-34%) and those looking for 
personal insurance do not (32%-68%). Those looking for both business 
and personal are more evenly divided (56%-44%). Seventy-seven (77) 
percent visiting for any insurance purpose expect to offer next year as 
do 98 percent of those visiting out of curiosity. Virtually no one (0 
of 70 cases) who does not expect to offer next year visited the site 
for either business or personal insurance. HealthCare.gov therefore 
appears to be a shopping tool for small employers already offering 
rather than a persuasive tool for those who do not. Once an affirmative 
offer decision has been made, small employers search for the best deal, 
often on the public Web site. If that decision is negative, they do not 
bother to search it. The unknown is whether the poor (or lack of a) 
SHOP roll-out will discourage small employers from using the tool in 
the future or whether greater site visibility will encourage them to 
try again.

    The number who visited HealthCare.gov is likely somewhat higher 
than reported doing so. Nearly half of those who claim to have 
purchased their personal health insurance through government also said 
that they had not visited HealthCare.gov (N=33). It is possible that 
some accessed the exchange marketplace using a different address, 
particularly in states with state-run exchange marketplaces. Or, it is 
possible that some simply did not recognize the site's name/address. 
Still, the inconsistency demonstrates the confusion many small-business 
owners have dealing with the ACA, its specific provisions, and its 
terminology.
            Information Satisfaction
    More small employers are satisfied than not with the information 
they have received to date about the Affordable Care Act. But, they are 
far from completely happy. Nineteen (19) percent say that they are 
``very'' satisfied (Q#71). Another 42 percent say that they are 
``somewhat'' satisfied, yielding a total of 61 percent on the satisfied 
side of the ledger. Thirty-eight (38) percent fall on the other side 
with 16 percent ``not at all'' satisfied with the information that they 
have received.

    With a single exception, little association appeared between 
information satisfaction and either size-of-business or offer status. 
The exception appeared among the group having the most employees, 50-
100. It is noticeably more satisfied with the information received 
(78%) than are the other three size group individually or combined 
(59%). It is likely that ACA requirements made them get satisfactory 
answers to more questions and their size provided them the resources to 
do so. Offer status showed no relationship to information satisfaction.

    Satisfaction is slightly higher in mid-2014 than it was in mid-
2013. A net 5 percent more are now satisfied than last year and the 
same number not. The largest change came among those ``not at all'' 
satisfied, which fell 6 percentage points between mid-2013 and mid-
2014.

    Some most important information sources yield greater satisfaction 
than others (Exhibit 1). Small employers who rely on business advisors 
and trade association/business groups, for example, are usually more 
satisfied than those relying on other sources. Sixty-six (66) percent 
primarily sourcing business advisors are satisfied with the information 
they have received and 24 percent are ``very'' satisfied with them. 
Sixty-five (65) percent primarily sourcing trade association/business 
groups are satisfied with the information they have received and 28 
percent are ``very'' satisfied with them. Insurance carriers also 
produce a 66 percent satisfaction level, but only 15 percent of 
affected small employers give them the highest mark. The general news 
media and the healthcare industry produce least satisfaction, 
particular the healthcare industry. As many relying on it for ACA 
information are as dissatisfied with the information received as are 
satisfied. Just 8 percent relying on the industry are ``very'' 
satisfied.

_______________________________________________________________________

                                                                        Exhibit 1
                                              Information Satisfaction by Most Important Information Source
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                      Most Important Information Source
                                                   -----------------------------------------------------------------------------------------------------
                   Satisfaction                          Health
                                                       Insurance       Health Care        Business      Trade/Business    General News       Total 
                                                        Industry        Providers         Advisors          Groups           Media
--------------------------------------------------------------------------------------------------------------------------------------------------------
Very                                                           15%               8%              24%              28%              21%              19%
Somewhat                                                        51               42               42               37               38               41
Not too                                                         23               33               17               18               21               22
Not at all                                                      12               17               17               17               21               18
(DK/Ref)                                                         *                *                *                *                *                *
--------------------------------------------------------------------------------------------------------------------------------------------------------
Percent                                                       100%             100%             100%             100%             100%             100%
N                                                              277              157               89              111              143              818
--------------------------------------------------------------------------------------------------------------------------------------------------------
 Includes sources with too few cases to report--Government (N = 36) and Other (N = 5).


    The frequency of citations as the single most important source does 
not indicate overall satisfaction. The general new media, one of the 
two most common sources, receives relatively low satisfaction marks 
while insurance carriers, the other most important source receives, 
moderate satisfaction marks. Just 9 percent identify a trade 
association or a business group as their most important source and 
another 8 percent identify a business advisor, such as an accountant or 
lawyer. Yet, small employers are likely to be more satisfiedwith these 
two ACA information sources than those more frequently relied upon.

    Every source has a significant number of small employers relying on 
them who are ``not at all'' satisfied with the information received 
from it. The health insurance industry has the fewest who are ``not at 
all'' satisfied with its efforts (12%) while the general news media has 
the most (21%). The other three listed sources each have 17 percent who 
are ``not at all'' satisfied. One in six suggests all sources could do 
a better job producing relevant information about the ACA for small 
employers.
Personal Insurance

    Fifteen (15) percent of small employers did not carry health 
insurance on themselves in mid-2013. The Affordable Care Act requires 
everyone (with limited exemptions), including small-business owners, to 
be covered, effective January 1, 2014, or pay a penalty. By mid-2014, 
the number of uncovered small employers dropped to 8 percent, almost 
half the number uncovered one year prior (Q#5).

    Nine of ten (90%) small employers have personal health insurance 
(2% did not respond). A plurality (39%) have individual coverage (43% 
of the covered population). Another 34 percent obtain (38% of the 
covered population) their coverage from their firm's health plan. 
Nineteen (19) percent obtain their insurance through a spouse's plan 
(21% of the covered population). The key difference in the distribution 
of sources for personal coverage from last year is the greater 
importance of individual plans. It would appear that a substantial 
share of those moving from an uninsured to an insured status buy an 
individual plan rather than sponsoring an employee plan and joining it 
or obtaining a plan through a spouse. The number with individual plans 
rose 9 percentage points while the number with business plans fell 4 
percentage points and the number covered by a spouse's plan was 
unchanged.

    Particular interest falls on the 39 percent purchasing individual 
market health insurance plans because that market has been volatile, 
suffering severe disruptions, typically due to the government 
imposition of mandated minimum essential health benefit requirements. 
Small employers searching for non-employer-sponsored (individual) 
health insurance can purchase this non-group insurance directly in the 
private market or through a government-sponsored individual exchange 
marketplace. Seventy-two (72) percent who purchased individual market 
insurance (28 percent of covered small employers) claim they bought it 
directly through the market and 19 percent bought it through an 
exchange marketplace (Q#6). The remaining 9 percent are not certain. 
That relatively high uncertainty is understandable given the 
consumer-opaque relationships between the exchange marketplace and the 
non-
exchange individual market.

    The individual exchange marketplace is the location where people 
sign up for ACA subsidies when purchasing their health insurance. While 
almost one in five (18%) of the 39 percent who purchased an individual 
policy through the exchange marketplace (7 percent of the covered small 
employer population), too few cases are available (N=33) to estimate 
the proportion who obtained a subsidy (Q#7). However, the limited cases 
available suggest that a substantial portion of small employers who 
went through the individual exchange marketplace did receive one.

    Complaints are common from people holding individual health 
insurance policies that their plans have been terminated despite 
assertions from the President that people could keep their insurance if 
they liked it. Nine percent of all small employers claim that their 
personal health insurance was terminated or cancelled (for any reason 
other than non-payment) in the prior 12 months (Q#8). One in ten 
translates into about one-half million small-business owners who lost 
insurance in this manner. The data do not show the source of insurance 
among those who lost policies (at least temporarily) due to their 
plan's termination.

    Virtually all who lost their personal insurance in this manner were 
able to replace it, but typically at a higher cost. Over 70 percent 
replaced their terminated policies with more expensive ones; 28 percent 
were able to find a cheaper product (Q#9). Though the number of cases 
is small (N=78), actual price changes appear substantial. Only 14 
percent experienced price changes between plus 10 percent and minus 10 
percent.\4\ Both the median increase (between 25 and 30 percent) and 
the average increase proved considerably higher than the median and 
average decrease. Factors, such as benefits, deductibles, etc., are not 
included thereby yielding a change in cost, but not necessarily in 
policy value. Given that many of the terminated plans were also likely 
to have been plans with relatively modest benefits, the steep price 
increases reported are not implausible. Additional benefits will raise 
the cost regardless of whether the purchaser wanted them or not.
---------------------------------------------------------------------------
    \4\ If less than plus or minus 10 percent is classified as no 
change, 60 percent experienced a price increase, 18 percent no change, 
and 23 percent experienced a price decrease.

    Virtually all of those who are currently without personal coverage 
did not have a plan cancelled in the last 12 months (N=42). That 
implies members of the current uncovered small-employer group have 
probably been uncovered for more than a single year.
Two Incentives
    The ACA created or changed numerous incentives affecting health 
insurance buying decisions; some were intended, some not. The author 
isolates two that may have significant effects on small business, but 
which will likely take some time before their impacts are known fully. 
One has received considerable public attention; the other has not. The 
under-publicized incentive appears first.
            Increased Employee Demand for Insurance
    With Americans required to have health insurance by January 1, 2014 
(with limited exceptions), non-offering small employers are likely to 
face increased pressure from uninsured employees to offer a health 
insurance plan. This is particularly true of employees who cannot 
receive a subsidy from an individual exchange marketplace, or who do 
not understand that they will be eligible to receive one. The situation 
creates two questions: how much pressure can and/or will employees 
exert on non-offering small employers to offer a health insurance 
benefit? After all, an 
employer-sponsored health insurance plan could lower employee out-of-
pocket expenses for many, though not all, simply because the employer 
typically shares the cost. The second question is: how will non-
offering small employers respond to employee requests? Only the first 
can addressed directly, in large part because there are so few cases of 
reported requests.

    Four percent of non-offering employers report that in the last six 
months more than five percent of their employees or representatives of 
more than five percent of their employee asked that the business 
institute an employer-sponsored health insurance plan (Q#10). The 
current level represents no increase from the prior year. Noteworthy is 
that the time frame used to gauge the change covers the period in which 
for the first time individuals must purchase health insurance or pay a 
penalty. Employee interest in obtaining an employer-sponsored plan 
logically would spike at this time (and perhaps in the next twelve 
months).

    Five percent of employees, the threshold for answering 
affirmatively about employees requesting health insurance, likely mean 
no more than a single employee in a small business. In a 40 employee 
firm, the threshold means requests from just two employees, or one 
employee speaking on behalf of himself and one other. Since that is an 
insignificant portion of the workforce, the data capture a minimal 
expression of interest.

    No increase in employee requests for health insurance from a small 
base during a period when a strong expression of interest might be 
expected, combined with a modest definition of employee request 
(usually a single person), indicates that uncovered employees are 
putting little pressure on non-offering employers to make health 
insurance part of the employee benefit package. That situation could 
change as more uncovered and formerly uncovered employees look for a 
place to lay-off their health insurance costs or experience non-
coverage penalties. Change could also occur as a result of a stronger 
economy and employees having a more advantageous bargaining position. 
But, the fact that demand remains modest questions whether pressure on 
small, non-offering employers will ever rise substantially. That leads 
to a search for the reason why. Topping the list of candidates is 
composition of the workforce and its attachment to a specific workplace 
(turnover). Increased participation among full-time, non-seasonal 
employees in offering small businesses, a topic discussed subsequently, 
supports these possibilities.
            Reimbursement/Financial Incentives
    Incentives exist within the ACA for employers, particularly small 
employers with relatively low paid employees, to dump their employer-
sponsored health insurance, reimburse or otherwise adjust employee 
wages upward to compensate for the lost insurance, and let employees 
purchase their health insurance, often with subsidies, in the 
government exchange marketplaces. Over time the incentive to adopt this 
course is likely to become stronger. Still, inertia, uncertainty over 
the quality and cost of insurance in the individual exchange 
marketplaces, fear of adverse employee reaction when confronted with 
the change, etc., gives many small employers pause.

    In the months between mid-2012 and mid-2013, 14 percent of small 
employers not offering health insurance reimbursed or otherwise 
provided employees financial support to help them pay for health 
insurance that employees purchased on their own. That figure is the 
same one year later. However, 18 percent of the entire population 
(offering and not) afforded incentives (Q#11).

    A larger percentage (25% compared to 14%) of those offering 
insurance claim to offer financial incentives for employees to help 
them purchase health insurance on their own than do those who do not 
offer. Discrimination rules generally do not allow separating employees 
for purposes of providing tax subsidized employee benefits. However, 
these small employers may be using financial incentives to help full-
time employees with family coverage when not offered by the firm or, to 
help part-time employees, that typically are not covered, or even to 
purchase associated types of services, such as dental or vision 
insurance. Those not offering family coverage (but offering insurance) 
are about three times as likely to provide such financial incentives as 
those offering family coverage. A substantial number of small employers 
may therefore being using the financial incentive to help employees 
with their familiar obligations. The part-time hypothesis has less have 
merit. Less than 20 percent of offering firms with part-time employees 
have a reimbursement policy. Since the survey collected no data on 
health benefits beyond insurance, it is not possible to determine 
whether these financial incentive from offering firms are intended for 
such purchases. Other sources indicate, however, that many small 
employers give such benefits.\5\ The result leaves a sizeable number of 
offering firms providing unexplained reimbursement or financial 
incentives to purchase health insurance or uncovered healthcare outside 
the business.
---------------------------------------------------------------------------
    \5\ Kaiser Family Foundation (2014). 2014 Employer Health Benefits 
Survey. Section 2, p. 50. September 10. http://kff.org/private-
insurance/report/2014-employer-health-benefits-survey/.

    Employees earning wages/salaries are directly related to financial 
incentives or reimbursement to purchase health insurance. If a firm's 
average wages are $12.50/hour or less (annual salary equivalent of 
$25,000), 15 percent receive this additional benefit; if averages wages 
are $27.50/hour or more (annual salary equivalent of $55,000), 44 
percent do. The middle wage group receives the benefit in 26 percent of 
---------------------------------------------------------------------------
cases.

    One would think that non-offering firms would be the ones giving 
employees incentives to purchase health insurance outside the firm. 
Fourteen (14) percent do. However, providing financial incentives to 
purchase insurance outside the firm in lieu of the firm offering health 
insurance is even more popular among those who currently offer, at 
least conceptually, than those who do not. Twenty-one (21) percent of 
offering small employers who do not already provide some additional 
financial incentive to purchase insurance have considered one in lieu 
of offering, 9 percent ``seriously'' (Q#13). Small employers not 
offering health insurance and not already providing some incentive are 
less attracted to financial incentives to help employees make the 
purchase. Just 2 percent in that group have ``seriously'' considered 
the move and another 8 percent have considered it. The result is that 
financial incentives to purchase health insurance or reimbursement for 
having purchased insurance is an employer option substantially more 
likely to be pursued as a means to drop an existing benefit than it is 
as a means to help add a non-existent one.

    If those small employers who have considered providing a financial 
incentive and do not now offer one were to proceed, the most likely way 
(41%) they would implement the change is to offer a flat amount per 
employee (Q#14). The flat-amount method is the most equitable, most 
transparent, easiest to administer, and provides minimal incentives for 
over-insuring. It is also one that higher paid employees and those with 
dependents would be least likely to favor. The second most likely 
method is a percent of the employee's health insurance premium (23%). 
Percent of premium would be more popular with employees expending more 
on insurance. The remaining methods had negligible numbers with the 
employee's length of service (5%) and a percent of the employee's wages 
or salary (2%) trailing. Twenty-nine (29) percent have not thought 
about the switch seriously enough to consider a method to implement it. 
The depth of consideration this latter group has given to a switch is 
likely superficial.

    The downside of such financial incentives is their tax status. The 
Internal Revenue Service (IRS) issued sub-regulatory guidance 
prohibiting employers from reimbursing employees with tax-preferred 
contributions in order to purchase health insurance. Penalties for 
violating this prohibition can be severe. In the past, many small 
employers, in lieu of offering expensive employer-sponsored health 
insurance, were able to provide employees with tax-free contributions 
to reimburse healthcare costs. The reimbursement was commonly provided 
in the form of stand-alone Health Reimbursement Accounts [HRAs] or 
Section 125 plans. Now, any reimbursement must be subject to payroll 
taxes for the employer and the employee and individual income taxes for 
the employee, significantly reducing the value of the contribution, 
particularly for better paid employees.
Health Insurance Offers

    Forty (40) percent of small employers with 2-100 employees offer 
employer-sponsored health insurance; 61 percent do not (Q#15). That 
number is six percentage points fewer than one year ago. The decline 
was associated with small employers having fewer than 20 employees.

    Employee size-of-firm continues to be highly associated with 
offers. Ninety-six (96) percent of small-business owners employing 50-
100 people offer employer-sponsored health insurance and 81 percent in 
20-49 employee group offer as well. One year ago, 92 percent of the 
largest offered as did 80 percent of the second largest. The number 
owning the largest small businesses, those originally covered by the 
employer mandate, raised their propensity to offer four percentage 
points, while small employers with 20-49 employees did not change 
theirs. The two size groups with less than 20 employees presented a 
very different look. Two-thirds (66%) in the 10-19 employee group 
offered in mid-2014 in contrast to 74 percent the year before for a 
drop of 8 percentage points. Employers with the smallest businesses are 
least likely to offer. Twenty-eight (28) percent did among those 
employing 2-9 people compared to 34 percent twelve months year earlier, 
meaning a fall of 6 percentage points. Just one in five (20%) of the 
numerous 2-4 employee group sponsored a plan in mid-2014.

    Because owners of larger, small firms offering insurance increased 
in number while the owners of smaller, small firms offering decreased 
in number, the net total of employees offered employer-sponsored health 
coverage did not change as dramatically as the net total offering 
firms. It is even possible that the number of employees offered 
coverage in small businesses did not change. The data available here 
cannot answer that question.

    Average wages paid in small businesses are not associated with 
employee size-of-firm. However, higher average wages paid in a small 
business are highly associated with health insurance offers. If a 
firm's average wages are $20.00/hour or less (annual salary equivalent 
of $40,000), there is a 33 percent chance the firm offers employer-
sponsored health insurance; if averages wages are more than $20.00/hour 
or more, there is an 86 percent chance the firm offers.

    Small employers offer health insurance in the Northeast region more 
frequently than in other regions. Those sponsoring employee insurance 
plans are about 20 percentage points fewer in the four remaining 
regions. The remaining four, the Mid-west Southeast, Central, and the 
Pacific, trail in that order. The 2-9 employee group generates the gap. 
Forty-seven (47) percent of the smallest employers offer in the 
Northeast compared to the low to mid-20s elsewhere.

    Eighty-three (83) percent offer health insurance to full-time 
employees only (70 percent have full-time employees exclusively), the 
same percent as the prior year (Q#20). Fifteen (15) percent 
theoretically offer it to both full- and part-time people, four 
percentage points more than 12 months earlier. However, 19 percent with 
part-time employees actually do. The smallest businesses appear 
modestly more likely to offer health insurance to part-time people, 16 
percent among those with fewer than 20 employees and 11 percent among 
those with 20 employees or more. The reason for this unexpected 
relationship may be due to the inclusion of family members working 
part-time in the smallest firms.
            Renewal
    January 1, 2014, was more or less a magic date for the Affordable 
Care Act. Everyone required to do so was to have signed up for an 
insurance plan by that date (eventually postponed three months). Newly 
issued and renewed health insurance plans were required to comply with 
all of the new ACA requirements. Renewal of employer-sponsored health 
insurance prior to January 1 could thereby provide many small employers 
at least some temporary financial advantages.

    If renewal/purchase were random, one would expect about 25 percent 
of small employers to renew their health insurance each quarter. That 
did not occur. Renewals bulged in the last quarter of the year, just 
prior to the deadline. Thirty-six (36) percent of offering small 
employers purchased their health insurance in the fourth quarter of 
2013 (Q#18). Similar percentages purchased in each of the other three 
quarters--16 percent in the third quarter, 2013; 19 percent in the 
first quarter, 2014; and 22 percent in the second quarter, 2014. Seven 
percent could not recall their quarter of purchase. Over one in eight 
(11%, 14% adjusted for ``don't know'' responses) who purchased 
therefore renewed earlier than expected.

    Sixty-eight (68) percent of small employers renewing in the fourth 
quarter report doing so because it was the normal renewal time (Q#19). 
The remainder renewed in the fourth quarter apparently to beat the 
January 1 dead-line. Eighteen (18) percent renewed at that time to keep 
their existing policy for at least another year. Fourteen (14) percent 
renewed at the time because their premiums would be cheaper than if 
they waited until the new year with the new requirements imposed on 
insurers. The latter two reasons are likely not mutually-exclusive.

    The ability to retain one's existing, noncompliant health plan (and 
save costs) continues to be a moving target, like many aspects of ACA 
implementation. So, it is possible some small employers will be able to 
take advantage of existing, noncompliant, and more affordable policies 
either directly or by making it administratively unfeasible for 
insurers to offer them. If given the opportunity small employers are 
likely to continue to do as they did at the end of 2013. How long that 
will continue is another matter. Many states will not permit further 
extensions on plans that do not meet minimum benefits requirements.\6\ 
It is therefore possible that another, smaller round of ``beat the 
deadline'' will factor into many small employer insurance purchase 
decisions in the next few months.
---------------------------------------------------------------------------
    \6\ AHIP Coverage (2014). October 2. http://www.ahipcoverage.com/
2013/11/20/map-of-the-day-state-decisions-on-administrations-policy-on-
coverage-extensions/.
---------------------------------------------------------------------------
            Competition
    The rationale for Small Business Health Options Program (SHOP) 
exchange marketplace is to increase competition and transparency in the 
health insurance market for small employers. One can argue that the 
small group market is already highly competitive,\7\ but many small 
employers would not have agreed, let alone concur that the existing 
small group market is transparent. SHOP was effectively been put ``on 
ice'' (postponed for at least a year) in 2014 and questions have arisen 
even among ACA supporters about its utility.\8\ Still, with competition 
such a crucial element in controlling costs, it is important to 
understand that small-business owners are not impressed with what has 
transpired in the small group market over the last two years.
---------------------------------------------------------------------------
    \7\ See, Karaca-Mandic, P, JM Abraham, K Simon, and R Feldman 
(2013). Going into the Affordable Care Act. Working Paper 19719. 
National Bureau of Economic Research: Cambridge, MA., December.
    \8\ Ezekiel Emanuel, one of the architects of the ACA, and a 
continuing advocate, thinks that ``. . . few small businesses will join 
the SHOP exchanges set up for them. . . .'' See, Mandelbaum, R (2014). 
March 26. http://boss.blogs.nytimes.com/2014/03/26/why-employers-will-
stop-offering-health-insurance/?_r=0.

    Thirteen (13) percent of small employers think that competition for 
their firm's health insurance has risen over the last two years (4% 
``much more'' and 9% ``slightly more'') (Q#73). In contrast, almost 
twice as many (25%) think competition has decreased (15% ``much less'' 
and 10% ``slightly less''). A plurality (38%) see no change and another 
16 percent do not think the question is relevant to their situation. 
Eight percent did not respond. The overwhelming majority of the latter 
two responses come from small employers who do not offer and are likely 
out of the market. Regardless, the ACA has failed to this point, at 
least to the extent that it was intended, to increase competition in 
---------------------------------------------------------------------------
the small group market.

    The perceived competitive situation among health insurers does not 
differ between offering and not offering firms. Once eliminating the 
response ``not relevant to my business'' the distributions are similar. 
Small employers purchasing insurance perceive no more or less change in 
competition for their health insurance business than do those who do 
not offer.

    A change in competition is not the same as the level of 
competition. It is possible that small employers enjoy a high, but 
declining level of competition for their health insurance. While that 
is not likely, it is also beside the point. The issue is change, and 
small employers perceive competitive change as negative.
            Self-Insurance
    The potential for large numbers of small employers with relatively 
healthy labor forces self-insuring still concerns many, particularly 
supporters of Obamacare who prefer community rating to experience 
rating and do not want it threatened. Their fear is that by self-
insuring, the best risks will opt-out of the small group market thereby 
increasing risk within the remaining pool and forcing premiums higher 
for pool members. Yet, their concern, at least in the short-term, 
appears more theoretical than practical. The number of self-insured 
remains small and stable, and interest in switching from a fully-
insured product to self-insurance appears more wishful than practical.

    The small group market currently consists of those with fewer than 
50 employees. The market will be redefined in 2016 to include groups 
with fewer than 100 employees. That change makes the two size groups 
(fewer than 50 employees and 50-99 employees) noteworthy in a 
discussion of self-insurance. However, state insurance regulation 
effectively sets a minimum lower bound on group size for self-insurance 
through its requirements for re-insurance. Those rules vary from state 
to state. Reinsurers also impose minimum size requirements to avoid 
adverse selection. These lower bounds tend to cluster around 20 
employees, making 20 employees an arbitrary, but reasonable minimum for 
discussion of self-insurance.

    The 50 to 100 employee size group is more likely to self-insure 
than is the 20 to 49 employee size group, 9 percent compared to 8 
percent, totaling 8 percent for the two groups combined in mid-2014 
(Q#23).\9\ One year prior, 14 percent of the larger group and 6 percent 
of the smaller group reported self-insuring, a rounded total of 8 
percent for the two groups combined. The result is no net change 
occurred in the number self-insuring during the period.
---------------------------------------------------------------------------
    \9\ A few owners employing fewer than 20 people, even some 
employing fewer than 10 people, report that they, too, self-insure. But 
those reports are not likely accurate. Firms with fewer than 20 
employees let alone fewer than 10 typically cannot buy reinsurance 
either because state regulators prohibit it and/or insurers refuse to 
it. Without reinsurance, firms self-insuring with such a thin capital 
base borders on the edge of financial irresponsibility.

    These data do not account for businesses entering (formed) and 
exiting (dissolved). Nor do they account for a small employer moving 
directly from non-coverage to self-insurance or from self-insurance to 
non-coverage. The chances either dynamic has an appreciable impact on 
the totals is doubtful. Only a small fraction of total starts begin 
with more than 10, let alone more than 20 employees, the practical 
threshold for self-insurance.\10\ Further, just 3 of 48 
cases(unweighted) for which there are data in mid-2013 and mid-2014 
were a non-offering firm last year and a self-insured firm this year. 
Still, a rough one-half million businesses enter and exit every year, 
about one-tenth of the population. Average exit size is somewhat larger 
than average entry size. The self-insured estimate for the static 
population is there- fore not likely to be influenced significantly by 
annual population dynamics. But if they do influence the number, it is 
likely to be downward.
---------------------------------------------------------------------------
    \10\ Seventy-six (76) percent of starts with employees have 1-4 and 
another 13 percent have 5-9. Bureau of the Census Business Dynamic 
Statistics, Firm Characteristics Data Tables. http://www.census.gov/
ces/dataproducts/bds/data_firm.html.

    Small employer projections point to little change in the number of 
self-insured small businesses in the immediate future. Fifteen (15) 
percent in the 50 and over employee group say that it is ``highly'' 
likely or ``somewhat'' likely that they will switch and self-insure in 
the next 12 months. Seven percent say the same among the smaller group 
for a combined total of 10 percent (Q#24). Those projections are one 
---------------------------------------------------------------------------
percentage point lower, effectively, no different, than last year's.

    Two hundred and eighty-eight (288) cases, about 30 percent of 
sample, responded to the survey in both mid-2013 and mid-2014. That 
allows examination within the group of expressed intentions (last year) 
and subsequent follow-through (this year). Unfortunately, just eight 
cases qualify. But of the eight cases indicating that it was likely 
they would switch from fully-insured in 2013 to self-insured in 2014, 
just one actually changed.

    No stampede to self-insurance appears eminent. However, premium 
increases will continue to place pressure on small employers with young 
and healthy workforces to self-insure. A more immediate issue may be 
the pending consolidation of the larger (50-99 employees) and smaller 
(< 50 employees) groups into an expanded small group market in 2016. 
What type of incentives will the consolidation generate to either 
encourage or discourage self-insurance? Given prior relative stability, 
the probable answer is that incentives for individual firms will not 
change enough to make a noticeable difference in self-insurance totals. 
But that outcome is not a certainty.
            Type of Plan
    The principal type of health insurance plan small employers offer 
changed notably over the last 12 months and the reason is not obvious. 
The number subscribing to HMO plans declined 7 percentage points to a 
19 percent market share while those subscribing to regular PPO plans 
increased by 8 percentage points, leaving regular PPOs with 40 percent 
of the market (Q#21). High-deductible PPOs have a 27 percent share, 
climbing 2 percentage points in the last 12 months. POS (point of 
service) plans control 5 percent, no change from the prior year. 
Thirteen (13) percent of small employers are not able to identify which 
plan type they have, a single point higher than in the previous 
measuring period. There is good reason for the large number who are 
uncertain about their plan type as will be discussed subsequently.

    Except for POS plans which are more common as firm size increases, 
the principal type of health insurance plan was not associated with 
employee size-of-firm.

    Eleven (11) percent of offering small employers sponsor more than a 
single type of plan (Q#22), down 4 percentage points from the prior 
year. Among small businesses with 50 or more employees, the percentage 
rises to 30 percent. A change in the relative use of plans within firms 
offering more than one plan could impact the percentages identifying a 
plan type as the one used by most employees. Still, with only one in 
eight offering multiple plan types, the change in emphasis within firms 
offering more than one is at best a modest, partial explanation for the 
shift.

    The real question is whether these plan type categories are even 
relevant any longer. As PPO deductibles become higher, what is the 
difference between a high-deductible PPO and a PPO? As PPO networks 
shrink and the size of medical practices expand, what is the difference 
between a PPO and an HMO? Traditionally, HMOs were the low cost 
alternative, and the one often selected by budget-conscious consumers. 
High deductible PPOs began to change the relative cost difference while 
regular PPOs gravitated toward their high-deductible brethren. With all 
plan types now morphing into variants of one another, it is not obvious 
that the current terminology meaningfully categorizes health insurance 
plans generally, let alone from a small employer (health insurance 
consumer) perspective.

    Examine type of plan by per employee premium cost, for example. The 
median cost of an employee-only or a family HMO and high-deductible PPO 
plan are similar, though the median conventional PPO plan does cost 
somewhat more. However, 64 percent whose employees principally 
subscribe to historically cheap HMOs report that their per employee 
premiums rose in the last year. Sixty-two (62) percent with most 
employees in high deductible PPOs experienced increases and 64 percent 
in conventional PPOs did. In terms of cost and cost change, blending of 
types is apparent.
            Coverage Type
    One can address coverage in two ways: the first assesses whether a 
small employer offers a plan; the second assesses whether any 
employee(s) takes (subscribes to) it. The conceptual difference is that 
the offer of a plan is hypothetical until an employee is covered by it. 
An offer in this context means that the employer has it in the package 
should the demand arise. Take-up simply means that one or more 
employees use the type of plan offered.\11\ The objectivity of take-up 
makes it the better measure for most purposes, and will be the 
principal one employed in the following paragraphs.
---------------------------------------------------------------------------
    \11\ The take-up measure is calculated by subtracting the 
percentage reporting no employees taking the insurance type from the 
percentage reporting that they offer it.

    Exhibit 2 presents a summary of offers and take-up for family, 
employee-only (individual), and employee plus-one health insurance 
offerings for the years ending mid-2013 and mid-2014. Two points stand-
---------------------------------------------------------------------------
out on the exhibit.

_______________________________________________________________________

                                Exhibit 2
 Health Insurance Availability and Employee Take-Up by Health Insurance
                           Plan Type and Year
------------------------------------------------------------------------
                           2012/2013                   2013/2014
    Plan Type    -------------------------------------------------------
                  Availability     Take-Up    Availability     Take-Up
------------------------------------------------------------------------
Family:
     Yes                  79%           63%           73%           59%
    No                     21            36            27            40
    (DK)                    1             1             *             1
------------------------------------------------------------------------
    Total                100%          100%          100%          100%
    N                     664           584           620           532
------------------------------------------------------------------------
Employee-Only:
    Yes                   75%           70%           76%           71%
    No                     21            29            18            28
    (DK)                    5             1             6             1
------------------------------------------------------------------------
    Total                100%          100%          100%          100%
    N                     664           539           620           518
------------------------------------------------------------------------
Employee Plus-
 One:
    Yes                   40%           26%           42%           30%
     No                    55            73            55            69
    (DK)                    6             1             3             1
------------------------------------------------------------------------
    Total                100%          100%          100%          100%
    N                     664           329           620           335
------------------------------------------------------------------------


    First, a substantial numerical gap exists between small businesses 
that offer each type and small businesses that have at least one 
employee subscribing to it. For example, 73 percent of small employers 
claim to offer a family coverage, but just 59 percent have employees 
who subscribe it. Those differences between availability and take-up 
suggest that many small employers can be flexible and respond favorably 
should a new employee's needs be different than those chosen by current 
employees. Yet, a somewhat greater number of small employers would 
require an employee with different health insurance demands either to 
adjust his or her demands or request his employer to adjust the firm's 
offerings (100% minus availability).

    Second, 73 percent offered family coverage (Q#26) and 76 percent 
offered 
employee-only coverage in mid-2014 (Q#30). Substantially fewer (42%) 
offer employee plus-one plans (Q#34). Both availability and take-up 
increased for plus-one plans over the last year, did not change for 
employee-only plans, but declined for family plans. Plus-one plans are 
relatively new to the small business market and may substitute for 
family plans in some cases. But on balance, those offering employer 
health insurance appear to be offering their employees plans in the 
same proportion that they did in the prior year and employees are 
taking them up with the same frequency.

    The principal year-over-year difference in the plans offered 
appears to be the employer contribution to family and employee plus-one 
coverage; they declined notably (Exhibit 3). Yet, employer 
contributions did not change for employee-only plans. At least three 
reasons are likely associated with change in employer contributions: 
premium cost of family and employee plus-one coverage increased 
(measured by 25th, 50th, and 75th percentiles) while employee-only 
plans declined (see, Health Insurance Costs). Second, employee-only 
premiums cost less in absolute terms than family or employee plus-one 
premiums. Third, contributing less to multi-person plans can reduce 
costs substantially without affecting employee coverage as will be 
shown subsequently. Reducing employer contributions on family and 
employee plus-one coverage reduces employer insurance costs, maintains 
coverage for people working in the firm and does not intrude on 
insurer-imposed minimum employee participation requirements while still 
giving employees the option to carry multi-person coverage, albeit at a 
higher cost.

_______________________________________________________________________

                                                    Exhibit 3
              Employer Contribution for Family, Employee-Only, and Employee Plus-One Plans by Year
----------------------------------------------------------------------------------------------------------------
                                              2012/2013                                 2013/2014
                             -----------------------------------------------------------------------------------
                                              Employee-     Employee                    Employee-     Employee
                                 Family         Only        Plus-One       Family         Only        Plus-One
----------------------------------------------------------------------------------------------------------------
100 Percent--All                      27%           40%           20%           28%           42%           16%
75-99 Percent                          19            23            34            11            25            33
50-74 Percent                          29            27            20            27            27            17
1-49 Percent                           11             6             9            19             4            20
0 Percent--Nothing                      8             2            13            11             1            11
(DK)                                    6             2             5             5             1             3
----------------------------------------------------------------------------------------------------------------
Total                                100%          100%          100%          100%          100%          100%
N                                     512           517           265           474           494           277
----------------------------------------------------------------------------------------------------------------


            Family Coverage
    A noticeable difference in family plans from the prior year is the 
size of the employer contribution. While more than one in four (28%) 
small employers continued to pay the entire premium (Q#27), the number 
who contributed between 75 and 99 percent declined 8 percentage points 
from one year earlier. The decline increased to 10 percentage points 
including those contributing 50 percent or more (48% compared to 38%).

    Eighty-one (81) percent of small businesses that offer family 
coverage have at least some employees who subscribe to it. However, a 
relatively small and declining share of employees within those firms 
subscribe to the product. Sixty-one (61) percent with any family 
coverage subscribers have fewer than half using family coverage (Q#29), 
8 percentage points more than in the prior year (Exhibit 4).
_______________________________________________________________________

                                                    Exhibit 4
                  Employee Participation in Health Insurance Plan by Type of Coverage and Year
----------------------------------------------------------------------------------------------------------------
                                                       2012/2013                           2013/2014
                                         -----------------------------------------------------------------------
                                                       Employee-   Employee                Employee-   Employee
                                            Family       Only      Plus-one     Family       Only      Plus-One
----------------------------------------------------------------------------------------------------------------
Percent of Offering Firms:
    With Full-Time Employees                    79%         75%         40%         73%         77%         42%
     Participating
    N                                           664         664         664         620         620         620
 
Portion of Full-Time Employees
 Participating:
    All                                         14%         30%          6%         11%         28%          2%
    Most                                         19          24           9          14          34           5
    Half                                         12          12           4          13          13          12
    Some                                         53          33          77          61          24          79
    (DK/Refuse)                                   2           1           4           1           1           4
----------------------------------------------------------------------------------------------------------------
    Total                                      100%        100%        100%        100%        100%        100%
    N                                           523         525         227         474         494         277
----------------------------------------------------------------------------------------------------------------


            Employee-Only Coverage
    The employer cost share for employee-only coverage edged higher 
from the prior year. More than two of five small employers (42%) pay 
the entire health insurance premium for an employee only plan (Q#31), 
about the same number as one year ago. The number contributing 75-99 
percent of the premium was also similar at the two points in time. The 
year-to-year change for the two groups amounted to a 4 percentage point 
increase as the proportion contributing 50-74 percent remained 
constant. Of the three types of coverage, employee-only proved the type 
for which small employees increased support.

    Employee-only is the workhorse of small business employer-sponsored 
health insurance. Ninety-three (93) percent of small businesses that 
offer employee-only coverage have employees who subscribe to it. 
Twenty-eight (28) percent report that all of their employees use 
employee-only coverage with another 34 percent reporting most of them 
do (Q#33). The 62 percent with all or most of their employees using 
employee-only coverage represents a substantial increase, 8 percentage 
points, from the prior year. Part of the reason for the increase is 
employee choice and part of the reason is the amount the employer 
offers (or contributes to).
            Employee Plus-One
    Employee plus-one plans are a cross between employee-only and 
family coverages, a kind of mini-family plan. Small employers are 
choosing to treat them as such for purposes of employee cost share, 
that is, more favorably than family plans and less favorably than 
employee-only plans. Just 16 percent of small employers pay the entire 
premium of employees using it and another 34 percent contribute between 
75 and 99 percent (Q#35). One year ago the equivalent numbers were 20 
percent and 34 percent, a 2 point difference. However, contributions of 
between 50 and 74 percent were also 3 points less representing a 5 
percentage point decline.

    Seventy-one (71) percent of small businesses that make available 
plus-one insurance have employees who subscribe. Employee-plus coverage 
is the least common coverage small businesses offer. Not only is it 
offered least frequently, it is subscribed to less frequently when 
available. Seventy-nine (79) say that just ``some'' of their employees, 
meaning less than half, use the product, similar to the prior year's 
number. However, the percent of small firms experiencing substantial 
subscription fell by half over the same time.
            Change in Coverage Distribution
    The percentage of employees choosing one type of health insurance 
coverage compared to another has remained relatively stable over the 
last year or two. Eighty-eight (88) percent of offering small employers 
report that the distribution has not changed while 9 percent report 
that it has (Q#39). Three percent do not know. Of those who indicate 
that the distribution has changed, 54 percent identify the shift as 
toward employee-only coverage (Q#40). Another 13 percent identify a 
shift to family coverage and 12 percent employee to plus-one coverage. 
Just over one in five (21%) who report a change do not know its 
direction.

    Nine percent of offering small employers in mid-2013 also reported 
changes in their workforce coverage distribution. But differing from 
mid-2014 when the changes heavily tilted toward employee-only and away 
from family plans, the change one year ago showed no direction. Forty-
six (46) percent who experienced a distribution change witnessed a move 
towards family plans and 41 percent witnessed a move to employee-only 
plans.

    The reasons for the change in employee choices appear many and 
varied, but cost is never far away. Twenty-six (26) percent of affected 
small employers say the primary reason for type of coverage change is 
the change in employee costs (Q#41). Higher costs are incentives for 
employees to make different choices. A greater employee cost share for 
a family plan may encourage an employee with a working spouse, for 
example, to drop the family plan for an employee-only plan and have the 
spouse enroll in an employee-only plan in his or her place of 
employment. Twenty-eight (28) percent attribute the change to employees 
just making different choices. Fourteen (14) percent point to a 
changing composition of the workforce. However, 16 percent say the 
reason is more employees participating in the plan. Eight percent say 
the reason for change in the coverage distribution within their firms 
is fewer employees participating in the plan. In effect, 38 percent 
think the reason is associated directly or indirectly to changing 
employee profiles.
            Employee Participation
    The ACA's individual mandate requires virtually all Americans to 
carry health insurance or pay a penalty. The effective date of this 
requirement was January 1, 2014. The result is that one would expect 
uninsured people working in non-offering firms to approach their 
employer about offering an employer-sponsored health insurance plan 
while uninsured people working in an offering firms would simply sign 
up for coverage. The former group of employees as reported earlier 
(see, Increased Employee Demand for Insurance) did not respond as 
expected. They did not often ask their employer for insurance. But the 
latter group did respond as expected. They often signed up.

    More employees are participating in their employer's plan this year 
than last, though the data are not always consistent. Sixty-two (62) 
percent of offering small employers have 75 percent or more of their 
full-time, non-seasonal employees participating their firm's plan; 40 
percent have everyone (Q#25). The equivalent figures in mid-2013 were 
52 percent with 75 percent or more full-time, non-seasonal 
participation and 32 percent with complete participation. These data 
would appear to be contradicted by the number of small employers 
reporting more and less participation. Just 5 percent say that 
participation increased from the prior year, 10 percent say it was 
less, and 86 percent report no change (Q#56). The latter measure is 
driven by the 2-9 employee size firms. Just 4 percent of that group 
report greater participation and 23 percent report less. The skew is 
even greater in the 2-4 employee size group. Owners of larger firms 
meanwhile report greater participation.
Health Insurance Costs
    The cost of health insurance has been the principal concern of 
small-business owners during healthcare debates over the last 25 years 
or so. High cost led to lesser demand for health insurance over the 
last 10 to 15 years which exacerbated the coverage (uninsured) problem. 
The ACA and its supporters chose coverage rather than cost as its 
central focus. Presumably, the cost problem would be addressed later. 
And so, small business is still left with a cost problem that shows 
more signs of getting worse than of getting better.

    The cost of healthcare and hence health insurance is rising more 
slowly today than it has in a long time. But it is still rising, and 
rising faster than the rate of inflation. Ominously, CMS actuaries \12\ 
expect healthcare costs to accelerate and outstrip the cost-of-living 
and GDP growth, implying increases at unsustainable rates. They are not 
alone. Outside experts do as well.\13\
---------------------------------------------------------------------------
    \12\ Centers for Medicare & Medicaid Services (2014). National 
Health Expenditure Projections 2012-2022. http://www.cms.gov/Research-
Statistics-Data-and-Systems/Statistics-Trends-and-Reports/
NationalHealthExpendData/downloads/proj2012.pdf.
    \13\ Chandra, A, J Holmes, and J Skinner (2013). Is This Time 
Different? The Slowdown in Healthcare Spending. NBER Working Paper 
19700. National Bureau of Economic Research: Cambridge, MA., December; 
Roehrig, C (2013). U.S. Health Spending as a Share of GDP--Where Are We 
Headed? Altarum Institute Health Policy Forum, July 16. http://
altarum.org/health-policy-blog/u-s-health-spending-as-a-share-of-gdp-
where-are-we-headed.

    The data collected for this report generally find insurance costs 
lower than do other sources, but rising faster. These data are not 
always consistent, particularly with respect to size (in contrast to 
direction) of the cost changes. The author gives greater credence to 
reports that require less precise estimates, recognizing that all 
information supplied has value. This unfortunate lack of consistency in 
insurance cost reports suggests considerable market turmoil, not just 
in terms of actual outlays for premiums, but in terms of new and 
eliminated policies, and the benefits purchased in each. In fact, a 
substantial share of the rate discrepancy may lie with cost increases 
associated with additional, unwanted benefits that the ACA requires.
            Premium Increases
    Sixty-two (62) percent of offering small employers report that the 
per employee premiums for their current health plan rose between mid-
2013 and mid-2014 (Q#44). On the other side of the ledger, 8 percent 
now experience lower per employee premiums. Twenty-nine (29) percent 
report no change and 1 percent are not sure. On top of the 6+:1 ratio 
of premium increases to premium decreases, the size of change proved 
larger on the increased side than on the decreased. The median premium 
increase ran in the 13-14 percent range, while the median decrease was 
just over 10 percent (Q#45). The result is an average per employee 
premium growth well above any measure of real wealth increase.

    The frequency of per employee premium cost increases was less in 
the mid-2014 data than in the mid-2013, but marginally so. The number 
reporting increases fell 2 percentage points (from 64 percent to 62 
percent) while the number reporting decreases rose 2 (from 6 percent to 
8 percent). However, the prior year's median increase was some- what 
lower.
            Monthly Per Employee Premiums by Coverage
    The course of premium cost diverged over the year by type of 
coverage. Employee-only coverage costs actually fell while family and 
plus-one coverage costs rose. This assessment is based on comparisons 
of premiums at the 25th, 50th, 75th percentiles for the years ending in 
mid-2013 and mid-2014. The comparison is not exact. While these 
estimates include both the employee and employer shares, they do not 
account for net benefit changes either chosen or ACA mandated.

    Employee-only costs at the 25th percentile stood at an identical 
$380 per month for both years. But they differed at the 50th (median) 
and 75th percentiles. The median declined from $555 a month (Q#32) to 
$515 a month, the equivalent of a 7 percent drop. The decline at the 
75th percentile was even greater, part of a pattern for both employee-
only and family coverage that shows the largest premiums changing the 
most on a percentage basis and the smallest the least. Reported premium 
costs for employee-only coverage at the 75th percentile fell from $800 
a month to $635 a month, a 19 percent decline.

    The cost of family coverage took the opposite path. It rose from 
the period ending in mid-2013 to the one ending in mid-2014 at all 
three measuring points. The change at the 25th percentile was a 15 
percent escalation, from $550 to $630 a month. The percent change at 
the median was 16 percent, from $810 to $940 a month (Q#28). Lastly, 
the percent change at the 75th percentile was an even larger, 19 
percent. The increase was from $1,155 to $1,370 a month or $215.

    The plus-one premium estimates fall between estimates for the other 
two types of coverage, but do on balance rise. The principal difference 
between plus-one costs and the other two coverages is that change 
decreases as premiums grow rather than the opposite. At the 25th 
percentile, costs increased from $450 a month to $575 a month or 28 
percent. At the 50th percentile, costs increased from $790 a month to 
$850 a month or 11 percent. But at the 75th percentile, costs actually 
declined. They fell $15 a month, from $1,075 to $1,060, just 1 percent, 
but they went down nonetheless.

    Premiums rose for two types of coverage, family and employee plus-
one, and declined for the third, employee-only. Apparently, the more 
people covered by a policy type, the greater the percent increase. 
Family coverage increased most, employee plus-one coverage increased, 
and employee-only coverage declined. That pricing pattern can be 
explained on an absolute dollar basis, but it is much more difficult on 
a percentage basis. Even if the cost estimates collected for this 
report are less precise than desirable, they strongly suggest a pricing 
shift underway among smaller firms. The price structure is tied to the 
package of benefits, deductibles, and co-pays, data which are not 
available here, and that obfuscates much. Still, the question is why 
premium costs of various plan types are changing in different 
directions. The data offer no obvious answers. Nor do they provide 
obvious answers to the question why the smallest premiums do not have 
the largest percentage rise (they do for plus-one). After all, the 
least costly packages should be the ones most often subject to the 
minimum essential health benefits requirements. On the other hand, the 
ACA's modified community rating encourages cross-subsidization and 
cross-
subsidies may provide part of the explanation.

    The NFIB premium estimates appear substantially lower than those 
produced by the Kaiser Family Foundation \14\ and the Medical 
Expenditure Panel Survey (MEPS).\15\ Part of the explanation is that 
Kaiser and MEPS use averages rather than medians as NFIB does. Average 
health insurance prices tend to inflate as the distribution is skewed 
to the high side; percentiles do not skew. NFIB does not ask 
respondents to consult records to obtain precise premium figures. 
Rather it asks for best estimates. Given the small employer outcry over 
health insurance costs, the assumption might be that they would 
exaggerate the premiums they pay. However, should NFIB data 
underestimate small employer health insurance costs as is likely, small 
employers do not fully recognize the cost impacts that provision of 
this employee benefit has on them.
---------------------------------------------------------------------------
    \14\ Kaiser Family Foundation (2014). op. cit., Section 1, pp. 14-
33.
    \15\ http://meps.ahrq.gov/mepsweb/data_stats/
MEPS_topics.jsp?topicid=7Z-1.
---------------------------------------------------------------------------
            Monthly Firm Premiums
    Median monthly premiums per offering firm rose between mid-2012/
mid-2013 and mid-2013/mid-2014. They amounted to about $3,800 per month 
($45,600 per annum) this year compared to about $3,420 the prior year 
($41,040 per annum) (Exhibit 5). The premium at the 25th percentile was 
about $2,150 per month ($25,800 per annum) compared to about $1,850 per 
month the year before ($22,200 per annum). The premium at the 75th 
percentile was $8,030 per month ($96,360 per annum) compared to $8,070 
per month ($96,840 per annum) the prior year. About 1 percent report 
spending more than $20,000 a month, about the same as last year. Thus, 
while spending is going up at the bottom, it has leveled, at least 
temporarily at the top. That pattern suggests owners of large offering 
firms can control their health insurance costs more readily than can 
owners of small offering firms.

    The reported increases underscore three points: health insurance 
premiums paid by small employers and their employees continued to 
increase above the rate of inflation even in times when healthcare cost 
increases are at an ebb. Note on Exhibit 5 that the percent with 
monthly premiums of less than $2,000 per month declined 20 percent in 
the last year. More affordable policies are being phased out, usually 
due to ACA mandates, and that appears in the per firm premium cost. To 
continue offering, a small employer must pay more. Second, the number 
of employees signing up for employer-sponsored health insurance is 
increasing when offered. Those newly insured do not affect the per 
employee cost of insurance (other factors equal), but they do affect 
its per firm cost and per firm cost is the issue here. Third, 
reductions in the number of firms offering coverage come from among 
smaller, small businesses; increases come at other end of the scale. 
The implication for present purposes is that the average firm offering 
is larger and a larger offering firm by definition has more people 
covered.
            Combination Coverage
    Twenty-three (23) percent of offering firms have employees who use 
each of the three types of coverage discussed above. Twenty-nine (29) 
percent use two of the three types and 48 percent use only a single 
coverage type. Breaking down those offering two types of coverage, 20 
percent use the employee-only and family coverage combination, 6 
percent the family and employee plus-one coverage combination, and 4 
percent employee-only and employee plus-one coverage combination. 
However, 31 percent subscribe to employee-only coverage exclusively, 16 
percent to family coverage only, and 1 to percent employee plus-one 
coverage only. If the choice had been made to define coverage in terms 
of its availability rather than its take-up (see, Exhibit 2), the 
distribution would have been quite different. For example, 36 percent 
have all three available, but only 23 percent have employees using all 
three. Similarly, 33 percent make just one type of plan available, but 
48 percent have employees using only one.

    The number of coverage types offered varies sharply by employee 
size-of-business. Half (50%) of the largest (50-100 employees) firms 
have employees using each type. Just 14 percent in that group have 
employees who use just one type. The situation among the smallest (2-9 
employees) is the opposite. Seventy-two (72) percent of that group have 
employees use just one type of coverage while 11 percent use all three. 
There are two likely causes for such coverage distribution. The first 
is simple probabilities. A larger workforce is more likely to have 
people in different situations than a smaller one, creating a broader 
set of employee demands/needs for health insurance. The second reason 
is more closely tied to the business. The smallest firms can find it 
relatively expensive and administratively difficult to offer more than 
a single coverage type and the smallest firms tend to be the most price 
sensitive. A single coverage type, most prominently employee-only 
coverage, also allows the small employer to forgo the cost-share for a 
more expensive family and/or employee plus-one plan types while 
complying with insurer minimum participation requirements.
            Monthly Firm Premiums
    Median monthly premiums per offering firm rose significantly 
between mid-2012/mid-2013 and mid-2013/mid-2014. They amounted to about 
$5,000 ($60,000 per annum) this year compared to about $3,400 the prior 
year (Exhibit 5). The premium at the 25th percentile was about $2,600 
per month ($31,200 per annum) compared to about $1,800 per month the 
year before ($21,600 per year). The premium in the 75th percentile was 
$10,000 ($120,000 per annum) compared to $7,500 ($90,000) the prior 
year.

    These data indicate premium costs per offering firm rose almost 
one-third over the period, an increase that is not plausible. Yet, the 
substantial reported increase underscores three points: health 
insurance premiums paid by small employers and their employees 
continued to increase substantially above the rate of inflation even in 
times when health-care cost increases were at an ebb. Note on Exhibit 4 
that the percent with monthly premiums of less than $2,000 was halved 
in the last year. More affordable policies are being phased out usually 
due to ACA mandates and that appears in the per firm premium cost. To 
continue offering, a small employer must pay more. Second, the number 
of employees signing up for employer-sponsored health insurance is 
increasing when offered. Those newly insured do not affect the per 
employee cost of insurance (other factors equal), but they do affect 
its per firm cost and per firm cost is the issue at stake. Third, 
reductions in firms offering coverage come from among smaller, small 
businesses; increases come at other end of the scale. The implication 
for present purposes is that the average firm offering is larger and a 
larger offering firm by definition has more people covered.
            Paying for Premium Increases
    Small employers experiencing employer-sponsored health insurance 
premium increases took an average of 2.4 actions to offset expense 
increases (Exhibit 6). The greater the average premium increase, the 
more actions small employers took in response. Those reporting a 20 
plus percent increase, for example, say they took an average of 3.3 
actions to offset their cost increases compared to 2.2 actions among 
those with increases of less than 10 percent.

    The most frequent single action taken was absorbing the higher 
costs with lower profits/earnings. Sixty-seven (67) percent, two-thirds 
of those experiencing an increase, paid for at least part of that 
increase out-of-pocket (Q#49). That is a generous but unsustainable 
response. The next most frequent action (37%) was delayed, postponed, 
and/or reduced business investment (Q#50). The future of the business 
therefore was at least temporarily mortgaged to pay for higher 
premiums. The remainder of possible actions were taken less frequently.

_______________________________________________________________________

                                                    Exhibit 5
                       Total Monthly Health Insurance Premiums Per Small Business by Year
----------------------------------------------------------------------------------------------------------------
                                                                          Year
  Monthly Per Firm Premium  (Employer  -------------------------------------------------------------------------
         and Employee Shares)                    Mid-2012/Mid-2013                    Mid-2013/Mid-2014
----------------------------------------------------------------------------------------------------------------
<$1,000                                                                12%                                   9%
$1,000-$1,999                                                           13                                   11
$2,000-$2,999                                                           15                                   17
$3,000-$3,999                                                           11                                   11
$4,000-$4,999                                                            5                                    7
$5,000-$7,499                                                           10                                   12
$7,500-$9,999                                                            5                                    5
$10,000-$12,499                                                          4                                    5
$12,500-$14,999                                                          1                                    3
$15,000-$19,499                                                          5                                    3
$20,000-$24,999                                                          2                                    2
$25,000-$49,999                                                          3                                    5
$50,000+                                                                 1                                    1
(DK)                                                                    13                                    9
----------------------------------------------------------------------------------------------------------------
Total                                                                 100%                                 100%
N                                                                      664                                  620
----------------------------------------------------------------------------------------------------------------


    Forty-five (45) percent of small employers faced with higher 
premium costs took one or more actions that directly affect employee 
wages and/or benefits. These actions became notably more frequent as 
average premium increases grew larger. Cuts in employees or employee 
hours were confined to a relatively small 2 percent if the premium 
increases were under 10 percent, but their frequency grew to 27 percent 
if premium increases rose to 20 percent or more (Q#47). The same 
pattern, though more extreme, appears with frozen or reduced wages and 
reduced non-health employee benefits. The former rose from 14 percent 
to 46 percent as the premium increase accelerated (Q#51) and the latter 
from 5 percent to 32 percent (Q#52). Small employers tended to take the 
three actions directly affecting employee compensation in concert. If 
they took one, there was a high likelihood that they would take one or 
more of the others as well. For example, if employee wages were frozen, 
there was a high likelihood that a job(s) or hours would also be lost.

    A fourth action associated with the three employee compensation 
actions is delay, reduce, postpone, or reduce business investment. 
Thirty-seven (37) percent scrimped on capital investment/reinvestment, 
73 percent when premiums increases reached 20 percent or higher. When 
premiums rise, small employers draw resources from their productive 
capacities, which ultimately have a long-term adverse effect on their 
businesses.

    Increasing an employee's cost share is an indirect way to 
effectively reduce or freeze wages. One in four (25%) with rising 
premiums raised employee cost-shares (Q#48). These data correspond with 
the generally falling employer cost-share appearing on Exhibit 3. 
Increasing an employee's cost share is treated somewhat differently 
than other forms of employee compensation. It is not associated with 
action on any other form of compensation. Rather, when small employers 
do not raise the employee's cost-share, they tend to absorb the greater 
cost of employer-sponsored health insurance premiums, and vice versa.

    Becoming more productive/efficient and/or raising prices are more 
attractive options than damaging productive capacity. However, they are 
not always possible. Thirty (30) percent said that they made their 
businesses more productive (Q#53). Greater productivity is a positive 
development. However, efficiency gains were more likely when cost 
increases were small. That atypical relationship between frequency of 
action taken and size of cost increase indicates that only small 
productivity gains were realized. Moreover, failure to take those 
efficiency actions previously begs the questions, why those steps had 
not been taken previously and what else is there to be done. Twenty-
five (25) percent chose to raise selling prices (Q#46). About the same 
percentage raised prices regardless of their premium increase amount. 
The latter fact suggests small employers will take the price increase 
option when they can. But inflation is very low, customers are 
resistant to price increases, and competition is keen. Over the last 
several years, small employer plans to raise prices have significantly 
outstripped their ability to do so.\16\ A fortunate 13 percent 
experiencing premium cost hikes in the last year were able to both 
raise prices and increase productivity to (help) offset them.
---------------------------------------------------------------------------
    \16\ Dunkelberg, WC and H Wade (series). Small Business Economic 
Trends. NFIB Research Foundation: Washington, DC.
---------------------------------------------------------------------------
_______________________________________________________________________

                                Exhibit 6
 Actions Taken to Defray Costs of Health Insurance Premium Increases by
            Percent Taking Them and Average Premium Increase
------------------------------------------------------------------------
                                        Average Premium Increase
 Cost Defraying      % Took    -----------------------------------------
     Action          Action         <10%         10-19%         20+%
------------------------------------------------------------------------
Raised Prices             25%           22%           29%           24%
Cut Employees/             12             2            10            27
 Reduced Hours
Increased                  25            17            32            25
 Employee Cost-
 Share
Took Lower                 67            50            75            75
 Profit
Delayed,                   37            18            32            73
 Postponed,
 Reduced
 Business
 Investment
Froze or Reduced           26            14            25            46
 Wages
Reduced Non-               14             5            10            32
 Health Employee
 Benefits
Became More                30            45            32            25
 Productive/More
 Efficient
------------------------------------------------------------------------
Ave. Number of            2.4           2.2           2.5           3.3
 Action Taken
N                         366           146           141            66
------------------------------------------------------------------------


    Responses to health insurance increases that small employers 
reported in mid-2014 mirror those reported in mid-2013. Effectively, 
they took the same actions with about the same frequency in both years. 
That is reasonable. Economic conditions at both points in time were 
similar. Under those circumstances, one expects small employers as a 
group to react in much the same way. Some differences in emphasis did 
appear, however. More average actions were taken one year ago, 2.7 
actions compared 2.4 actions, and the spread between actions taken when 
premiums rose less than 10 percent and 20 percent or more was somewhat 
smaller. The number able to defray costs with greater productivity also 
dropped from 48 percent to 30 percent. Perhaps much of the ``low-
hanging fruit'' was picked previously.
            The Benefit Side
    Health insurance policies provide a series of benefits. The more 
benefits in the plan, the more costly the plan, other factors equal. 
But other factors are not equal. The ACA undermines the actuarial value 
of benefits in two ways: it requires one set of consumers to subsidize 
another set (community rating) and requires many customers to purchase 
benefits that they otherwise would not (essential health benefits), 
creating more demand for them than would otherwise be the case. Thus, 
the small-employer consumer may pay more for benefits than actuarially 
warranted.

    Small employers on balance consciously offered fewer benefits in 
their health insurance package this year than last. Twenty-three (23) 
percent claim fewer benefits were offered in the mid-2013 to mid-2014 
period than the year before (Q54). Seven percent claim their benefit 
package contained more benefits. A substantial majority (69%) indicate 
that there was no change. The current figures show a considerable 
decline from the prior year when 5 percent reported more benefits, 9 
percent reported fewer and 75 percent reported the same benefits level. 
It would appear therefore that small employers increasingly are 
consciously reducing the benefits they can (not ACA deemed essential 
health benefits), almost certainly as a premium reduction mechanism.

    The disguised issue influencing the actual benefit package rather 
than the perceived benefit package is the number of small employers who 
now have benefits that they involuntarily offer and/or have no idea 
they are offering because the ACA requires them. As a result, the 
numbers provided above almost certainly understate benefit package 
increases. Rather the numbers more likely represent the conscious 
efforts of small employers to adjust their benefit packages to cost 
necessities. The effect is to trade the benefits small employers want 
to offer their employees for the benefits the ACA says that they must 
offer them.

    An indirect way to reduce benefits is to increase employees' cost-
share for the benefit. Smaller employer premium contributions, higher 
deductibles and greater co-pays/co-insurance are examples. Exhibit 6 
shows that 25 percent of those reporting premium cost increases also 
raised the employee cost-share. The question was posed only to those 
experiencing premium increases. The total therefore is likely even 
larger than suggested in Exhibit 3.

    Thirty-five (35) percent state that they raised deductibles 
compared to 2 percent who lowered them (Q#55). The majority (61%) did 
not change them. However, 13 percent of all respondents, and 36 percent 
of small employers raising deductibles indicate that their plan 
benefits were unchanged. It is clearly possible that the higher 
deductibles, which are a form of decreased benefits, could have been 
offset by benefit increases elsewhere in the package. But that is not 
likely for many given the small number who report increasing benefits. 
Adding the reported 23 percent to the 13 percent means the total 
lowering benefits over the year rises to a minimum of between 35 and 40 
percent of those offering. The remaining question is what portion of 
those reductions are off-set by additional benefit mandates forced on 
unsuspecting small employers by the ACA.
Small Business Health Insurance Dynamics
    The proportion of small employers offering employer-sponsored 
health insurance typically changes modestly from year to year, perhaps 
by a percentage point or two. Yet, that picture of slow change conceals 
a more pervasive dynamic. A notable number add employer-sponsored 
health insurance as a benefit each year while another notable number 
drop it. Since adds and drops are similar in number, the net percent of 
small employers offering employer-sponsored health insurance changes 
modestly. The number of new firms that offer health insurance and the 
number of exiting firms that by definition drop it add to the disorder. 
Since the annual population turnover is about 10 percent or one-half 
million firms, the changes numerically have the potential to influence 
the frequency of offers. However, as noted earlier, that is not likely, 
at least in significant amounts (see, Self-Insurance).

    Exhibit 7 presents the offer status of small businesses in mid-2013 
and mid-2014 and changes between the two dates. Eighty-nine (89) 
percent of small employers experienced no change. If they offered 
health insurance in mid-2013, a high probability existed that they 
offered it in mid-2014 as well, and vice versa. Eleven percent who 
currently offer did not offer the prior year. Eleven percent who 
currently do not offer did offer the prior year. The same number, 
excluding entries and exits, added as dropped. No net change is the 
result counting by firm even though at least one-half million 
businesses changed offer status. While the N is small the number of 
both adds and drops appear centered among firms in the 2 to 9 employee 
size group, though drops appear somewhat less so.

_______________________________________________________________________

                                Exhibit 7
 
------------------------------------------------------------------------
                                       Offer This Year (Mid-2014)
  Offered Year Before  (Mid-   -----------------------------------------
             2013)                Do Offer    Do Not Offer      Total
------------------------------------------------------------------------
Did Offer                               89%           11%           46%
Did Not Offer                            11            89            54
D/K                                       *             *             *
------------------------------------------------------------------------
Total                                  100%          100%          100%
N                                       620           280           900
------------------------------------------------------------------------


    Exhibit 7 raises another consistency question in the data. How can 
the percent of offering firms fall six percentage points, but the 
percent of changing offer status show 11 percent offering this year and 
not last, and vice versa. The answer is that the 11 percent changing to 
non-offer is on a larger base then the 11 percent changing to offer. In 
addition, and perhaps more important in this case, are the usual 
sampling errors.

    Changes recorded over the past 12 months are somewhat more frequent 
than over the prior 12 months, about 4 percentage points higher among 
both adds and drops. The difference suggests increasing turbulence in 
small business health insurance markets. While change has been a 
hallmark of that market since passage of the ACA with its accompanying 
elimination of various insurance policies and institution of the 
minimum essential health benefit package, the past 12 months has seen 
more than its share. But without a longer time series it is not clear 
whether the data are capturing a particular high-point in the 
percentage of firms changing offer status, or whether it is simply a 
measure of constant dynamism among smaller firms and their owners.\17\
---------------------------------------------------------------------------
    \17\ A 2011 survey of employers with 50 or fewer employees showed 
that just 1 percent added health insurance in the prior 12 month and 4 
percent dropped it. See, Dennis, WJ, Jr. (2011). Small Business and 
Health Insurance: One Year After Enactment of PPACA. July. http://
www.nfib.com/Portals/0/PDF/AllUsers/research/studies/ppaca/NFIB-
healthcare-study-201107.pdf.
---------------------------------------------------------------------------
            Offer Dynamics--Longitudinal Cases
    Two hundred and eighty-eight (288) cases, about 30 percent of each 
of the two samples, responded to the survey in both mid-2013 and mid-
2014. The health insurance offer dynamics of this longitudinal 
population reinforce the results of the two larger populations, 70 
percent of which represent cases in independent samples. Of those who 
said in mid-2013 that they planned to offer (``definitely'' and 
``probably'') in the coming year, 89 percent (177 out of 199 unweighted 
cases) offered in mid-2014. Of those who said they would not offer 
(``definitely'' and ``probably''), 90 percent (75 out of 83 unweighted 
cases) did not. The result is that these ``carry-over'' cases, where 
the survey recorded an individual small employer's plans and 
subsequently the same small employer's behavior, produced the 
equivalent outcomes for all intents and purposes as did the two 
independent samples. One can be reasonably confident, therefore, that a 
small employer's expectations to offer/not offer health insurance in 
the coming year will be quite accurate.

    Because these longitudinal cases were not weighted, they were 
divided into two groups, those employing 19 people and fewer and those 
employing 20 or more. The division led to a curious result. Owners of 
businesses in the smaller employee-size group were more likely to 
accurately forecast that they would not offer (92% correct) than that 
they would (80% correct). Meanwhile, owners of businesses in the larger 
group performed in the opposite manner. Ninety-four (94) percent of 
those who said that they would offer insurance in the coming year did; 
85 percent who said they would not offer, did not. The former 
population (19 people and fewer) tends not to offer while the latter 
(20 people and more) does. Small employers do follow-through on their 
plans for the most part, but they also seem influenced by the status of 
their peers, who effectively may also be their primary competitors, not 
only for customers, but for employees.
            Adding Insurance
    Every year perhaps one in ten small employers adds health insurance 
as an employee benefit. The reasons for their decision vary. The survey 
presented small employers who added health insurance in the prior 12 
months a series of possible reasons for their decision and asked them 
to evaluate the importance of each. This approach differs from 
traditional surveys asking small employers why they offer health 
insurance to their employees because the current effort focuses 
exclusively on those who have just introduced the benefit. It does not 
include those who have offered it for years, and may have different 
motives for retaining insurance than for introducing it. The number of 
cases (N=69) from the mid-2013 to mid-2014 survey and the mid-2012 to 
mid-2013 survey made it necessary to combine eligible employer 
responses for two years (two surveys) in order to report results.

    The reason cited most frequently (63%) as ``very important'' for 
introduction of health insurance is that profitability now allows them 
to offer the health insurance benefit (Q#57). Presumably these small-
business owners had wanted to offer previously, but were constrained by 
the profitability of their firms. The introduction of employer-
sponsored health insurance is a large payroll expense, even with a 
substantial employee cost-share. Ensuring adequate firm profitability 
prior to its introduction therefore seems prudent. Besides being 
``very'' important for more than a majority, it is also ``somewhat'' 
important for another 23 percent. Just 11 percent did ``not'' think 
current firm profitability is an important factor in their decision. 
This latter group has likely been consistently profitable for some 
time.

    The cost of health insurance is the reason typically associated 
with the failure to offer it as an employee benefit. The lack of 
profitability is simply the other side of the coin. If a firm is 
insufficiently profitable, and its prospects for sustained 
profitability remain problematic, introduction of a large, fixed cost 
is a dubious decision. A large fixed cost, in this case health 
insurance, undoubtedly affects profitability, but is only one of many 
factors.

    The ACA requires employers with 50 or more full-time equivalent 
employees to offer employer-sponsored health insurance to full-time 
employees or pay a penalty. (The employer mandate has been postponed or 
modified twice). Ninety (90) to 95 percent of that group already 
provides the benefit. That leaves about 5,000 to 10,000 firms without 
insurance and legally required to add it. An unknown number of others 
with fewer than 50 employees may also be legally required to offer due 
to rules requiring multiple businesses to be combined into a single 
entity for legal purposes (aggregation rules). The total number 
affected is, therefore, relatively minor compared to the small business 
population. Yet, 53 percent say that the Affordable Care Act is a 
``very'' important reason for them to introduce employer-sponsored 
health insurance (Q#58); 15 percent say that it is ``somewhat'' 
important; 27 percent say ACA is ``not'' an important reason. Another 5 
percent are undecided.

    Fifty-three (53) percent sounds excessive because the ACA will 
require relative few small businesses to offer. Recall, however, that 
the 53 percent responding affirmatively are just 53 percent of the 
roughly 5 percent who added health insurance in the last 12 months. 
That implies many small employers directly affected by the Act moved 
into compliance with what was at the time legally required. The sole 
group of small employers increasing their percentage offering employer 
sponsored health insurance was the 50 employee and over group, the one 
presumably most affected by the employer mandate (see, Health Insurance 
Offers).

    The ability to compete for employees is another important reason 
for many small employers to add the health insurance benefit. Forty-two 
(42) percent cite the reason as ``very'' important; 38 percent call it 
``somewhat'' important; 18 percent say that it is ``not'' important 
(Q#59). Good employees are difficult to attract and keep despite the 
number of unemployed and under-employed people. This is particularly 
true of higher skilled employees who have employment options. Smaller 
employers introduced the benefit because they thought they needed it to 
compete for employees. The labor market therefore exercised a strong 
influence over these employers' decisions to add health insurance.

    A non-offering small employer may find himself without good options 
for personal health insurance. The problem may become particular 
pressing given the 9 percent who saw their personal insurance 
terminated in the last year. He (or she) may therefore introduce an 
employee plan to acquire coverage for the family with more satisfactory 
terms than would otherwise be the case. Purchase for personal needs 
would likely be a last resort (on the margin) except in the very 
smallest businesses because the employer would be only one participant 
among many. Still, family considerations prove a ``very'' important 
reason for adding an employee health policy in 35 percent of cases 
(Q#60). It is ``somewhat'' important in another 53 percent, but it is 
``not'' important 12 percent of the time.

    The explanations given by the small employer population for 
maintaining the health insurance benefit for long periods focus on the 
need to attract and keep good employees and a moral imperative. But 
those explanations are possible only so long as business profitability 
allows it. The reasons offered by small employers for instituting an 
insurance plan (in contrast to maintaining a plan) underscore the 
sustained profitability issue. Small employers newly introducing a plan 
can now do so because the firm has become sufficiently profitable 
Continuing health insurance premium increases chip-away at that 
profitability as do a variety of other factors. Yet, business 
profitability (adequate and continuous) is the floor for offering.
            Dropping Insurance
    A small employer may drop employer-sponsored health insurance for 
several reasons. Those who chose that course of action within the prior 
twelve months evaluated five potentially important reasons that may 
have stimulated them to do so. Due to the small number of cases (N=75), 
the author combined their responses for the past two years (surveys) as 
was done earlier for those adding insurance. These data are again 
unique because they interview the individual dropping insurance shortly 
after they have done so, rather than asking them to reflect over a 
lengthy period or asking those who do not offer insurance the reason(s) 
for their reticence.

    The most important reason for dropping employer-sponsored health 
insurance is cost. Insurance simply became too expensive. Sixty-nine 
(69) percent claim cost was a ``very'' important reason that led them 
to drop employer-sponsored health insurance; 18 percent claim it was 
``somewhat'' important; and 11 percent claim it was ``not'' important 
(Q#63). With the cost of health insurance rising for small firms 
overall, and rising dramatically for a subset, this small employer 
reaction is predictable. The surprise is that more have not dropped 
insurance due to its cost. Their failure to do so demonstrates small 
employer reluctance to drop an employee benefit already given. Despite 
the financial logic, it is poor employee relations. However, there are 
consequences. The most notable is the reticence, and the built-in 
inertia accompanying it, that will likely slow the insurance drop rate 
even when employees would do better purchasing their own insurance 
through the individual exchange marketplaces.

    Another frequently identified reason small employers drop employer-
sponsored health insurance is that employees can do better on their 
own. Fifty-two (52) percent present this reason as ``very'' important 
compared to 22 percent presenting it as ``somewhat'' important, and 
another 26 percent as ``not'' important (Q#66). The ``do better on 
their own'' response is not necessarily wishful thinking. It is highly 
possible for low income employees to obtain subsidized health insurance 
through an individual exchange marketplace at a lower cost than the 
employee contribution to employer-sponsored insurance. That would be 
particularly true if the small employer supplements the employee's 
wages to help pay for subsidized coverage through an individual 
exchange marketplace. Since employees as a general rule must accept 
employer-provided insurance if it is affordable (less than 9.5 percent 
of the employee's income), dropping health insurance allows affected 
employees to benefit from the individual exchange marketplace. Some 
small employers appear to have discovered this strategy already. Yet, 
the number is currently modest, merely a few percentage points.

    A corollary of insurance cost is business profitability. Forty-
seven (47) percent say that business profitability has taken a turn for 
the worse and it is a ``very'' important reason that led to dropping 
employer-sponsored health insurance (Q#65). Thirty-three (33) percent 
say it is ``somewhat'' important, but 18 percent say that decreased 
profitability is ``not'' important.

    Two other possible reasons for dropping health insurance polled 
poorly. Relatively few affected small employers thought either of them 
``very'' or ``somewhat'' important reasons for their decision to drop. 
The first of the two is a decline in employee participation. Employees 
might decline to participate because of cost (their cost-share) or they 
are simply not interested. Even a small decline in participation can 
mean an insurance carrier will drop a small firm due to adverse 
selection. Small employers are keen to head-off such employee behavior 
and its possible consequences, particularly among the very smallest 
firmsas their continuing large percentage contribution of total 
premiums for employee-only coverage demonstrates. Earlier it was shown 
that participation is increasing on average (see, Employee 
Participation). That means participation problems may be easing. 
However, increases do not occur in every firm as the 28 percent who 
report the reason is ``very'' important for dropping insurance 
illustrate (Q#62). But this reason appears a relatively unimportant one 
in most instances.

    Employees often prefer wages to benefits even though benefits are 
typically tax sheltered. The ACA with its individual mandate has 
changed that trade-off for previously uninsured people. Yet, if there 
is a perceived positive reception, a small employer might drop health 
insurance and substitute higher wages to attract or retain employees. 
Relatively few employers (19%) currently think the trade is a ``very'' 
important reason for their elimination of the health benefit (Q#64). 
Another 8 percent think it is ``somewhat'' important. However, the 
overwhelming majority (69%) do ``not'' think it is important. Four 
percent did not respond.

    Profitability and health insurance costs are not surprisingly two 
important reasons causing small employers to drop their health 
insurance benefit. The ``new'' reason intruding on the prior stimulants 
for dropping insurance is that employees can do better on their own. 
This is a reason created by the ACA. Few small employers yet appear to 
drop insurance and justify it on those grounds. Still, employee 
reimbursement and/or financial incentives are more often associated 
with their consideration as a strategy to drop insurance than a 
strategy to help uninsured employees acquire it (see, Reimbursement/
Financial Incentives). The association merits continued attention.
            Expect to Offer Next Year
    Just 58 percent of small employers are definite about their offer 
status 12 months from now. Twenty-one (21) percent definitely expect to 
offer next year and 37 percent definitely expect not to offer (Q#67). 
Forty (40) percent are probable (17% ``probably'' and 23% ``probably 
not''). Most expect to retain the same offer status they now have. Just 
over one in 20 (6%) think they will change, 4 percentage points moving 
from offer to not offer and 2 percentage points moving from not offer 
to offer (Exhibit 8). No major net changes should therefore result in 
small employer offer status barring some earthshaking event in the 
interim.

    Expectations are notably lower in mid-2014 than they were in mid-
2013. Twelve months ago, 48 percent expected to sponsor a health 
insurance plan for employees, 48 percent did not, and 4 percent were 
not certain. Eventually 40 percent took out a plan while 61 percent did 
not. Thirty-eight (38) percent now think they will; 60 percent do not 
think they will; 2 percent are undecided. The mid-2014 offer 
expectations level is 10 percentage points lower than one year ago, and 
that level yielded a decline in offer rates of six percentage points. 
This year to year comparison provides a decidedly less favorable 
outlook than their reported plans.

    Employee size-of-business has virtually no association with 
expectations to offer once current offer status has been controlled.

_______________________________________________________________________

                                                    Exhibit 8
                                Expect to Offer Next Year by Current Offer Status
----------------------------------------------------------------------------------------------------------------
                                                        Expected Offer Status Next Year
                             -----------------------------------------------------------------------------------
    Current Offer Status       Definitely                                Definitely
                                   Yes      Probably Yes   Probably No       No        DK/Not Sure      Total
----------------------------------------------------------------------------------------------------------------
Yes                                   95%           92%           11%            3%           17%           40%
No                                      5             8            89            97            83            61
----------------------------------------------------------------------------------------------------------------
Total                                 21%           17%           23%           37%            2%          100%
N                                     358           237           122           166            17           900
----------------------------------------------------------------------------------------------------------------


Reasons Not to Offer
    Researchers keep asking small employers who do not offer employee 
insurance why they do not do so and the answer is always the same: 
health insurance is too expensive. The data here simply pile on. Forty-
nine (49) percent say that the single most important reason not to 
offer is the cost of health insurance (Q#16). That reason is followed 
in order by can't get enough employee participation (13%), too many 
employees are part-time or seasonal (composition of the labor force) 
(13%), employees can purchase insurance on their own (including in the 
new exchange marketplaces) (11%), revenue is too uncertain (10%), and 
the administrative hassles are too great (1%). Four percent did not 
provide an answer.

    Small employers identifying a reason for not offering were asked if 
they had a second reason as well. Twenty-seven (27) percent said that 
they had no second reason (Q#17). A majority of that group isolated 
``too expensive'' as their only choice. Nineteen (19) percent of owners 
who chose a second reason said the cost of insurance is a problem for 
them. That means 68 percent reported that cost is either the first or 
second major issue for them. Revenue too uncertain (18%) and employees 
can purchase on their own (15%) followed as did labor force composition 
(9%), low employee participation (6%), and administrative hassles (5%). 
The most frequent combinations of reasons joined too expensive and 
revenue too uncertain (16% of the total non-offering population), and 
too expensive and can't get enough employee participation (14% of the 
total population).

    The response that ``employees can purchase it on their own, 
including the new exchange marketplaces'' is a questionnaire option 
intended to help determine the extent to which non-offering employers 
recognize that employees have an additional, new alternative from which 
to obtain their health insurance. Pressure (market and social) to offer 
is reduced to the extent small employers consider the exchange 
marketplaces a viable option. Twenty-six (26) percent of small 
employers cite ``employees can do better on their own'' as either the 
first or second most important reason for not offering. But, no 
evidence suggests that this group of respondents is any more or less 
knowledgeable about the exchange marketplace option than others. That 
raises the question of whether the reason involves the exchange 
marketplace or something else.

    Profitability was not offered as an option, though it was a 
prominent reason for introduction of a plan. Yet, it effectively 
appears here as well. The combination of the revenue too uncertain and 
insurance too expensive is a product of the same profitability cause.
Conclusion
    The world of employer-sponsored health insurance appears tranquil 
to the public and most policy-makers with only fitful episodes, such as 
Wal-Mart's elimination of part-time employee coverage, occasionally 
intruding to remind them of the sweeping changes that the American 
healthcare financing system is undergoing. However, beneath the calm 
one in ten small employers in the last year changed offer status, one 
in ten had his or her personal health insurance terminated (for reasons 
other than non-payment), and one in 6 adjusted renewal dates to avoid, 
temporarily at least, ACA requirements. Another net one in two claims 
to pay higher insurance premiums, requiring adjustments in employer-
sponsored health insurance, other forms of employee compensation, 
capital investment, and even their own take-home pay. Small employers 
shop for employer-sponsored health insurance in markets that they see 
as relatively less competitive with types of insurance evolving so 
rapidly that conventional PPOs may now have higher deductibles than 
conventional high deductible PPOs and conventional PPOs may limit 
networks to a size challenging HMO networks. Owners consciously cut 
benefits to reduce costs while ACA mandates add benefits, jacking costs 
through the back door and leaving a very different plan than the 
purchaser originally envisioned. The rules continue to change, usually 
affecting small businesses indirectly, through the insurance they can 
and cannot buy, and the price they must pay for it. The next scheduled 
potentially significant change will merge the fewer than 50 employee 
group and the 50-99 group into a single small group market. Later, the 
Cadillac tax kicks in, though it is not likely to affect many small 
firms for several years, perhaps excepting some professional services 
businesses. The current small-business health insurance headline 
therefore is the turmoil, the turmoil that a significant portion of 
individual firms are now experiencing.

    No evidence in this report suggests that small-business owners as a 
group are moving abruptly in any direction, though the reduction in net 
offering firms and small employer expectations to offer next year give 
pause. There is no rush to self-insure or push employees, particularly 
lower paid employees, to the exchange marketplaces. But there are 
pressures building, many of which are temporarily dampened by the 
turmoil and constantly moving regulatory targets. Thus, change is more 
likely to come from a growing weight tipping and dragging small 
employers along rather than from any type of eruption. When and how 
that comes is more uncertain than the fact that small employers have 
major operating issues yet to confront when they do offer. One thing 
seems certain--non-offering small employers with minor exceptions are 
not about to reverse their stance.

    The lead for much of the employer-sponsored health insurance world 
is the slowdown in the rate of premium increases. The slowdown is good 
news for small-business owners who for years have placed health 
insurance costs at or near the top on their list of business 
difficulties. Still, perspective is important. The slowdown is 
projected to be temporary; premiums are still at an unsustainably high 
level; and, small employers are not impressed as they continue to 
report increases above, and at variance, with the estimates officially 
produced. Cost remains the serious and largely unaddressed pressure 
impacting smaller firms.

    If cost and, to a lesser extent, turmoil are the stimulants for 
action, what will be the small employer responses? Cost-sharing is 
already changing and has been for several years. Additional cost-
sharing increases for employees may become tricky however, particularly 
for owners of the smallest and largest, small businesses. Insurer 
participation requirements often force small employers to pay a 
substantial share of the premium to keep employees in the group. The 
ACA's individual mandate could reduce that pressure because it 
encourages employees to carry health insurance, which in turn relieves 
pressure on small employer cost-sharing. Larger small firms may be 
caught by the minimum contribution requirement of the employer mandate 
should it ever be enforced. Benefits will continue to be pared, though 
there may be practical limits because of the plans insurers can legally 
offer. More controversial is the withdrawal of support for family and 
employee plus-one plan types to compensate for greater support of 
employee-only plan types and greater employee participation. The 
evidence presented here to support such a developing trend is not 
overwhelming, but certainly enough to merit attention. Withdrawal of 
benefits for part-time small-business employees does not appear to be 
taking place, in part because so few offer them in the first place and 
in part because those that do offer part-time health benefits tend to 
be more profitable firms and pay employees more than average. Many 
smaller employers meanwhile are considering dropping their insurance 
plans and substituting some type of financial reimbursement. Yet, this 
approach to the health insurance benefit remains more conversation than 
real. At the other end of the spectrum, few non-offering small 
employers are considering financial incentives or reimbursement to help 
employees purchase insurance on their own.

    The Kaiser Foundation reports that between 1999 and 2014, a 15 year 
span including the introduction of ACA, the percentage of small 
businesses (defined as 3-199 employees) offering employer-sponsored 
health insurance declined from 65 percent to 54 percent, a 17 percent 
drop.\18\ The changes in small employer-sponsored health insurance 
financing suggest further declines. How much, how soon seems to be the 
question.
---------------------------------------------------------------------------
    \18\ Kaiser Family Foundation (2014). op. cit., Section 2, p. 42.
---------------------------------------------------------------------------

            NFIB Health Survey 2014--Frequency Distribution


 1. Not including yourself, approximately how many total employees does
                           your business have?
 
 
 
    1. 2-9 (unweighted)                                             222
    2. 10-19 (unweighted)                                           225
    3. 20-49 (unweighted)                                           228
    4. 50-100 (unweighted)                                          225
------------------------------------------------------------------------
Total                                                               900
 



  2. Not including yourself, approximately how many part-time employees
working less than 30 hours a week do you currently have working for you?
 
 
 
    0. None                                                         30%
    1. 1-4                                                           59
    2. 5-9                                                            8
    3. 10-19                                                          2
    4. 20-49                                                          1
    5. 50 or more                                                     *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



  3. Not including yourself, approximately how many full-time employees
 working 30 hours or more a week, do you currently have working for you?
 
 
 
    1. 1-4                                                           61
    2. 5-9                                                           18
    3. 10-19                                                         12
    4. 20-49                                                          8
    5. 50 or more                                                     2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



 4. Which best describes your full-time employees pay: In wages, salary,
 tips, commissions, etc., do half of your full-time employees earn more
                                 than:?
 
 
 
    1. <$25,000 per year or $12.50 per hour                         11%
    2. $25,000 per year or $12.50 per hour                           42
    3. $40,000 per year or $20 per hour                              23
    4. $55,000 per year or $27.50 per hour                            7
    5. $70,000 per year or $35 per hour                               7
    6. (DK/Refuse)                                                   10
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               864
 



5. Do you personally have health insurance, and if so do you get it from
  your business's health plan, a spouse's health plan, or an individual
                              health plan?
 
 
 
    1. Have business plan                                           31%
    2. Have spouse's plan                                            19
    3. Have individual plan                                          39
    4. Do not have health insurance                                   8
    5. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



6. Was your personal health insurance purchased through the government's
    new health insurance exchange or directly on the private market?
 
 
 
    1. Government Exchange                                          19%
    2. Private Market                                                72
    3. (DK/Refused)                                                   9
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               226
 



   7. Did you receive a reduced rate when you purchased your personal
            health insurance through the government exchange?
 
 
 
    1. Yes                                                          --%
    2. No                                                            --
    3. (DK/Refused)                                                  --
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                33
 



     8. In the last 12 months did you have your personal health plan
     terminated or cancelled for any reason other than non-payment?
 
 
 
    1. Yes                                                           9%
    2. No                                                            90
    3. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



  9. Is the cost of your current personal health plan compared to your
                      terminated or cancelled plan:
 
 
 
    1. 35 percent or more higher                                    28%
    2. 10 to 34 percent higher                                       37
    3. Less than 10 percent higher                                    6
    4. Less than 10 percent lower                                     8
    5. 10 to 34 percent lower                                        20
    6. 35 percent or more lower                                       1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                78
 



10. In the last 6 months, have more than 5 percent of your employees, or
representatives of more than 5 percent of your employees, asked that the
            business offer an employee health insurance plan?
 
 
 
    1. Yes                                                           4%
    2. No                                                            96
    3. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               280
 



  11. Does your business offer any employee reimbursement or financial
 support to help pay for a health insurance plan that employees purchase
                              on their own?
 
 
 
    1. Yes                                                          18%
    2. No                                                            81
    3. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



            12. Is that financial support based primarily on:
 
 
 
    1. A flat amount per employee                                    --
    2. A percent of the employee's health insurance premium          --
    3. A percent of the employee's salary or wages                   --
    4. The employee's length of service                              --
    5. Something else (specify)__________                            --
    6. (DK/Refused)                                                  --
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                45
 



    13. Have you seriously considered, considered, or not considered
   offering your employees a cash payment or a financial incentive to
 purchase health insurance on their own instead of directly offering the
                                benefit?
 
 
 
    1. Seriously Considered                                          4%
    2. Considered                                                    13
    3. Not Considered                                                80
    4. (DK/Refused)                                                   3
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               721
 



        14. Would that financial support be based primarily on:?
 
 
 
    1. A flat amount per employee                                   41%
    2. A percent of the employee's health insurance premium          23
    3. A percent of the employee's salary or wages                    2
    4. The employee's length of service                               5
    5. OR, Haven't you thought that far yet                          29
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               192
 



   15. Does your business currently offer health insurance coverage to
                               employees?
 
 
 
    1. Yes                                                          40%
    2. No                                                            61
    3. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



 16. What is the most important reason that you don't you offer employee
                            health insurance?
 
 
 
    1. Too expensive                                                49%
    2. Can't get enough employees to participate                     13
    3. Administrative hassle too great                                1
    4. Many employees are part-time, seasonal, or high turn-         13
     over
    5. Revenue is too uncertain                                      10
    6. Employees can purchase it on their own, including in          11
     the new exchanges
    7. (Other/DK/Refused)                                             4
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               280
 



              17. Is there a second most important reason?
 
 
 
    1. Too expensive                                                19%
    2. Can't get enough employees to participate                      6
    3. Administrative hassle too great                                2
    4. Many employees are part-time, seasonal, or high turn-          9
     over
    5. Revenue is too uncertain                                      18
    6. Employees can purchase it on their own, including in          15
     the new exchanges
    7. No second reason                                              27
    8. (Other/DK/Refused)                                             2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               280
 



  18. When did you last renew or take out your current health insurance
                         policy? Was it in the:?
 
 
 
    1. Third calendar quarter of 2013                               16%
    2. Fourth calendar quarter of 2013                               36
    3. First calendar quarter of 2014                                19
    4. Second calendar quarter of 2014                               22
    5. (DK/Refuse)                                                    7
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



19.  Why did you choose that time to purchase your health insurance? Was
                              it because:?
 
 
 
    1. It was the normal renewal time                               68%
    2. Could keep your current policy by renewing in 2013            18
    3. Could get a cheaper rate than waiting until 2014              15
    4. (Other)                                                        *
    5. (DK/Refuse)                                                    *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               331
 



 20. Is health insurance offered only to full-time employees or to both
                   full-time and part-time employees?
 
 
 
    1. Full-time only                                               83%
    2. Both full-time and part-time                                  15
    3. Part-time only                                                 1
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



 21. Under which one of the following types of health plans are most of
                         your employees covered?
 
 
 
    1. HMO                                                          19%
    2. High-deductible PPO                                           27
    3. PPO                                                           40
    4. Point of Service                                               2
    5. (DK/Refused)                                                  13
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



     22. Does your business also offer another type of health plan?
 
 
 
    1. Yes                                                          11%
    2. No                                                            89
    3. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               558
 



    23. Which best describes the health plan that covers most of your
                           employees? Is it a:
 
 
 
    1. A Fully Insured Plan in which you contract with a            87%
     health plan that assumes financial responsibility for
     the costs of enrollees' medical claims, OR
    2. A Self-Funded Plan in which you assume direct                  7
     financial responsibility for the costs of enrollees'
     medical claims, but have ``stop-loss'' coverage from
     an insurer to protect you against very large claims
    3. (Self-Funded with no stop-loss)                                2
    4. (DK/Refused)                                                   7
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



 24. Is it highly likely, somewhat likely, not too likely or not at all
 likely that you will switch to a self-funded employee health insurance
 the next time your policy comes up for renewal, or haven't you thought
                           about renewal yet?
 
 
 
    1. Highly likely                                                 6%
    2. Somewhat likely                                                7
    3. Not too likely                                                22
    4. Not at all likely                                             48
    5. Haven't thought about renewal yet                             16
    6. (Not Sure/Refuse)                                              1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               528
 



  25. How many of your full-time, non-seasonal employees participate in
                            your health plan?
 
 
 
    1. < 25 percent                                                  2%
    2. 25-49 percent                                                  8
    3. 50-74 percent                                                 26
    4. 75-89 percent                                                 19
    5. 90-99 percent                                                  3
    6. 100 percent                                                   40
    7. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



26. There are typically three types of health coverage policies: FAMILY,
 INDIVIDUAL, that is EMPLOYEE-ONLY, and PLUS ONE, that is, EMPLOYEE and
               ONE OTHER PERSON. Does your business offer:
 
 
 
    Family coverage?
    1. Yes                                                          73%
    2. No                                                            27
    3. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



27. Approximately, what percentage of the premium does your business pay
                  for a FAMILY health insurance policy?
 
 
 
    1. All of it--100%                                              28%
    2. 90-99 percent                                                  2
    3. 75-89 percent                                                  9
    4. 50-74 percent                                                 27
    5. 25-49 percent                                                 14
    6. 1-24 Percent                                                   5
    7. Nothing                                                       11
    8. (DK/Refused)                                                   5
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               474
 



   28. Including both employer and employee contributions, what is the
             average total MONTHLY cost per employee policy?
 
 
 
    1. < $500                                                       11%
    2. $500-$599                                                      8
    3. $600-$699                                                      8
    4. $700-$799                                                      5
    5. $800-$899                                                      8
    6. $900-$999                                                      8
    7. $1,000-$1,099                                                  4
    8. $1,100-$1,199                                                  5
    9. $1,200-$1,299                                                  7
    10. $1,300-$1,399                                                 4
    11. $1,400-$1,499                                                 2
    12. $1,500-$1,749                                                 7
    13. $1,750-$1,999                                                 8
    14. $2,000+                                                       3
    15. (DK/Refused)                                                 12
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               474
 



 29. Do all, most, half, some or none of the employees participating in
                 your health plan have family coverage?
 
 
 
    1. All                                                          11%
    2. Most                                                          14
    3. Half                                                          13
    4. Some                                                          61
    5. None (see text)                                                0
    6. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               474
 



   30. Does your business offer an INDIVIDUAL health insurance option?
 
 
 
    1. Yes                                                          77%
    2. No                                                            18
    3. (DK/Refused)                                                   6
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



31. Approximately, what percentage of the premium does your business pay
               for an INDIVIDUAL health insurance policy?
 
 
 
    1. All of it--100%                                              42%
    2. 90-99 percent                                                  8
    3. 75-89 percent                                                 17
    4. 50-74 percent                                                 27
    5. 25-49 percent                                                  3
    6. 1-24 percent                                                   1
    7. Nothing                                                        1
    8. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               494
 



 32. Including employer and employee contributions for INDIVIDUAL health
    care coverage, what is the average total MONTHLY cost per policy?
 
 
 
    1. Less than $200                                                4%
    2. $200-$299                                                      5
    3. $300-$399                                                     18
    4. $400-$499                                                     18
    5. $500-$599                                                     21
    6. $600-$699                                                     13
    7. $700-$799                                                      7
    8. $800-$899                                                      1
    9. $900-$999                                                      2
    10. $1,000+                                                       5
    11. (DK/Refused)                                                  7
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               494
 



 33. Do all, most, half, some or none of the employees participating in
               your health plan have individual coverage?
 
 
 
    1. All                                                          27%
    2. Most                                                          34
    3. Half                                                          13
    4. Some                                                          25
    5. None (see text)                                                0
    6. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               494
 



 34. Does your business offer a so-called ``plus-one'' health insurance
    option, that is, an option that covers the employee and one other
                                 person?
 
 
 
    1. Yes                                                          42%
    2. No                                                            55
    3. (DK/Refused)                                                   3
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



35. Approximately, what percentage of the premium does your business pay
               for a ``plus-one'' health insurance policy?
 
 
 
    1. All of it--100 percent                                       16%
    2. 90-99 percent                                                 12
    3. 75-89 percent                                                 21
    4. 50-74 percent                                                 17
    5. 25-49 percent                                                 10
    6. 1-24 percent                                                  10
    7. Nothing                                                       11
    8. (DK/Refused)                                                   3
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               277
 



   36. Including employer and employee contributions for ``plus-one''
health care coverage, what is the average total MONTHLY cost per policy?
 
 
 
    1. Less than $300                                                2%
    2. $300-$399                                                      2
    3. $400-$499                                                      4
    4. $500-$599                                                     18
    5. $600-$699                                                      9
    6. $700-$799                                                      5
    7. $800-$899                                                     11
    8. $900-$999                                                     13
    9. $1,000-$1,099                                                  6
    10. $1,100-$1,199                                                 3
    11. $1,200-$1,299                                                 9
    12. $1,300-$1,399                                                 3
    13. $1,400-$1,499                                                 1
    14. $1,500+                                                       6
    15. (DK/Refused)                                                  9
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               277
 



 37. Do all, most, half, some or none of the employees participating in
                your health plan have plus-one coverage?
 
 
 
    1. All                                                           2%
    2. Most                                                           5
    3. Half                                                          12
    4. Some                                                          79
    5. None (see text)                                                0
    6. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               335
 



 38. What is your business's total monthly health care insurance premium
 cost, for all types of health insurance offered? (Employer and Employee
                                 shares)
 
 
 
    1. < $1,000                                                      9%
    2. $1,000-$1,999                                                 11
    3. $2,000-$2,999                                                 17
    4. $3,000-$3,999                                                 11
    5. $4,000-$4,999                                                  7
    6. $5,000-$7,499                                                 12
    7. $7,500-$9,999                                                  5
    8. $10,000-$12,499                                                5
    9. $12,500-$14,999                                                3
    10. $15,000-$19,999                                               3
    11. $20,000-$24,999                                               2
    12. $25,000-$49,999                                               5
    13. $50,000 or more                                               1
    14. (DK/Refused)                                                  9
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               485
 



   39. Has the percentage of employees choosing INDIVIDUAL, FAMILY, or
 ``PLUS ONE'' options changed over the last year or two, or has the mix
                         held reasonably steady?
 
 
 
    1. Changed                                                       8%
    2. Steady                                                        90
    3. (DK/Refused)                                                   3
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



   40. Which type of policy option has increased its share of employee
             participation? (If asked, in ABSOLUTE NUMBERS)
 
 
 
    1. Individual policies                                          54%
    2. Family policies                                               13
    3. Plus one policies                                             12
    4. (DK/Refused)                                                  21
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



             41. What is the primary reason for this change?
 
 
 
    1. Change in employee costs                                     26%
    2. Changing composition of the workforce                         14
    3. More employees participating                                  16
    4. Fewer employees participating                                  8
    5. Employees just making different choices                       26
    6. (DK/Refused)                                                  10
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                74
 



  42. Was the change in employee cost primarily due to a change in the
employee/employer cost share or a change in the total price of the plan,
                                or both?
 
 
 
    1. Cost-share                                                   --%
    2. Plan price                                                    --
    3. Both                                                          --
    4. (DK/Refused)                                                  --
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                21
 



  43. Did you offer employee health insurance to any of your employees
                         LAST year at this time?
 
 
 
    1. Yes                                                          89%
    2. No                                                            11
    3. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               620
 



 44. Is the PER EMPLOYEE cost of your current health plan more, less or
    about the same as last year's plan? (Plan cost, not employer's or
                            employee's share)
 
 
 
    1. More                                                         62%
    2. Less                                                           8
    3. Same                                                          29
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               582
 


   45. Please estimate the PER EMPLOYEE percent change in cost of this
            year's plan compared to last year's plan. Was it:
 
                        Increases/More   Decreases/Less   Net More/Less
 
    1. Less than 5%                9%              --%               7%
    2. 5-9%                        27               --               29
    3. 10-19%                      36               --               36
    4. 20-34%                      11               --                9
    5. 35-49%                       3               --                3
    6. 50% or more                 10               --               11
    7. (DK/Refused)                 5               --                5
------------------------------------------------------------------------
    Total                        100%             100%             100%
    N                             290               32              322
 


    Did you do any of the following in order to pay for the increase?
 
                                         (DK/
                  Yes         No        Refuse)      Total         N
 
46. Raise           25%         67%          8%        100%         290
 prices?
47. Cut              12          86           3        100%         290
 employees
 or reduce
 their
 hours?
48. Increase         25          73           3        100%         290
 d employee
 cost-share?
49. Take a           67          32           2        100%         290
 lower
 profit or
 suffer a
 loss?
50. Delay,           37          60           3        100%         290
 postpone or
 reduce
 business
 investment?
51. Freeze           26          73           2        100%         290
 or reduce
 wages?
52 Reduce            14          83           3        100%         290
 non-health
 employee
 benefits?
53. Became           30          60          10        100%         290
 more
 productive,
 more
 efficient?
 



 54. Are the benefits in this year's plan more, less, or about the same,
                    as they were in last year's plan?
 
 
 
    1. More                                                          7%
    2. Less                                                          23
    3. Same                                                          69
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               582
 



 55. Are the deductibles in this year's plan higher, lower, or about the
                 same as they were in last year's plan?
 
 
 
    1. Higher                                                       35%
    2. Lower                                                          2
    3. Same                                                          60
    4. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               582
 



   56. Did more, less, or about the same number of eligible full-time
 employees choose to participate in this year's health insurance plan as
                         participated last year?
 
 
 
    1. More                                                          5%
    2. Less                                                          14
    3. Same                                                          86
    4. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               582
 


Please tell how important each of the following was in your decision to 
offer employee health insurance in the last year? (Newly Offering 
Employers ONLY_Combines Two Years of Data)



              57. Profitability now allows me to offer it.
 
 
 
    1. Very Important                                               63%
    2. Somewhat Important                                            23
    3. Not Important                                                 11
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                69
 



       58. The new health care law will soon require me to add it.
 
 
 
    1. Very Important                                               53%
    2. Somewhat Important                                            15
    3. Not Important                                                 27
    4. (DK/Refused)                                                   5
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                69
 



           59. Need to offer it to compete for good employees.
 
 
 
    1. Very Important                                               42%
    2. Somewhat Important                                            38
    3. Not Important                                                 18
    4. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                69
 



     60. Needed to find a more affordable plan for you and family to
                             participate in.
 
 
 
    1. Very Important                                               35%
    2. Somewhat Important                                            53
    3. Not Important                                                 12
    4. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                69
 



  61. Did you offer employee health insurance to any of your employees
                         LAST year at this time?
 
 
 
    1. Yes                                                          12%
    2. No                                                            88
    3. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               280
 


Please tell me how important each of the following reasons were that 
led you to drop employee health insurance in the last year?



             62. The number of participants in my plan fell.
 
 
 
    1. Very Important                                               29%
    2. Somewhat Important                                            15
    3. Not Important                                                 56
    4. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                75
 



                      63. It became too expensive.
 
 
 
    1. Very Important                                               69%
    2. Somewhat Important                                            18
    3. Not Important                                                 11
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                75
 



         64. My employees preferred cash rather than insurance.
 
 
 
    1. Very Important                                               19%
    2. Somewhat Important                                             8
    3. Not Important                                                 69
    4. (DK/Refused)                                                   4
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                75
 



          65. Business profitability took a turn for the worse.
 
 
 
    1. Very Important                                               47%
    2. Somewhat Important                                            33
    3. Not Important                                                 18
    4. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                75
 



             66. My employees could do better on their own.
 
 
 
    1. Very Important                                               52%
    2. Somewhat Important                                            22
    3. Not Important                                                 26
    4. (DK/Refused)                                                   1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                                75
 



   67. Do you expect to offer employee health insurance to any of your
                    employees at this time NEXT year?
 
 
 
    1. Definitely Yes                                               21%
    2. Probably Yes                                                  17
    3. Probably No                                                   23
    4. Definitely No                                                 37
    5. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



     68. A new health care and financing law, sometimes known as the
     Affordable Care Act, health care reform, or Obamacare, is being
        implemented. How familiar are you with this law? Are you:
 
 
 
    1. Very familiar                                                24%
    2. Somewhat familiar                                             54
    3. Not too familiar                                              15
    4. Not at all familiar                                            7
    5. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



 69. From what one source have you obtained the MOST useful information
 about your business's responsibilities and opportunities under the new
                      health care law? Has it been:
 
 
 
    1. Health insurance industry or insurer                         22%
    2. Health care industry or provider                              13
    3. Business advisor, like accountant or lawyer                    8
    4. Government                                                     4
    5. Trade associations or business groups                          9
    6. General news media                                            34
    7. (Other)                                                        *
    8. Have not received any useful information                       7
    9. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               866
 



           70. Is there a second source that has been useful?
 
 
 
    1. Health insurance industry or insurer                         11%
    2. Health care industry or provider                              12
    3. Business advisor, like accountant or lawyer                   11
    4. Government                                                     6
    5. Trade associations or business groups                         11
    6. General news media                                            21
    7. (Other)                                                        7
    8. (None/DK/Refused)                                             24
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               818
 



71. How satisfied are you overall with the clarity and usefulness of the
                     information received? Are you?
 
 
 
    1. Very satisfied                                               19%
    2. Somewhat satisfied                                            41
    3. Not too satisfied                                             22
    4. Not at all satisfied                                          18
    5. (DK/Refused)                                                   *
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               818
 



  72. In the last year, have you visited the ACA or Obamacare Web site,
  HealthCare.gov, to look for individual health insurance policies, for
   business insurance policies, for simple curiosity, or have you not
                               visited it?
 
 
 
    1. Individual                                                   13%
    2. Business                                                       4
    3. (Both, individual and business)                                8
    4. Curiosity                                                     10
    5. Not visited                                                   65
    6. (DK/Refuse)                                                    1
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



 73. Compared to two years ago, is there much more, slightly more, about
the same, slightly less, or much less competition for your firm's health
       insurance business or potential health insurance business?
 
 
 
    1. Much more competition                                         5%
    2. Slightly more competition                                      9
    3. No change in competition                                      38
    4. Slightly less competition                                     10
    5. Much less competition                                         15
    6. Not relevant to your situation                                16
    7. (DK/Refuse)                                                    8
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 


Demographics

The following questions are for classification purposes only


  D1. Over the next three to five years, do you want this business to:
 
 
 
    1. Grow a lot                                                   48%
    2. Grow a little                                                 35
    3. Stay the same                                                 11
    4. Downsize a little                                              3
    5. Downsize a lot                                                 2
    6. (DK/Refused)                                                   2
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



   D2. Compared to last year at this time, is this business currently:
 
 
 
    1. Much more profitable                                          4%
    2. Somewhat more profitable                                      23
    3. About as profitable                                           42
    4. Somewhat less profitable                                      21
    5. Much less profitable                                           7
    6. (DK/Refused)                                                   3
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



                          D3. How old are you?
 
 
 
    1. < 35 years old                                                4%
    2. 35-44 years old                                               11
    3. 45-54 years old                                               28
    4. 55-64 years old                                               37
    5. 65-74 years old                                               13
    6. 75+ years old                                                  2
    7. (Refused)                                                      5
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



                       D4. Region of the country.
 
 
 
    1. Northeast                                                    20%
    2. Southeast                                                     20
    3. Mid-west                                                      27
    4. Central                                                       22
    5. Pacific                                                       11
------------------------------------------------------------------------
    Total                                                          100%
    N                                                               900
 



                                 D5. Sex
 
 
 
    1. Male                                                         61%
    2. Female                                                        39
------------------------------------------------------------------------
     Total                                                         100%
    N                                                               900
 


Methodology
_______________________________________________________________________

The NFIB Research Foundation engaged Mason-Dixon Polling & Research in 
late 2012 to help it begin a projected three-year longitudinal survey 
of small business and the introduction of the Affordable Care Act. The 
purpose of this research was to follow small businesses as the new law 
took effect and measure the changes that they experienced over time. It 
likewise was intended to trace health insurance cost changes and small 
employer response to them. What the survey will not do was attempt to 
measure opinion about the Affordable Care Act. The answer to those 
questions appeared reasonably well-established and well-known and 
therefore required little additional attention.

    The Foundation's research strategy for the project was to draw a 
nationally representative stratified random sample of small employers 
and then follow small-
employer respondents to the first year's survey for an additional two 
years. A stratified random sample is necessary to conduct the project 
due to the distribution of the small employer population. Ninety (90) 
percent of all small employers have fewer than 20 employees and 60 
percent have fewer than five. Although the Affordable Care Act affects 
all small employers, its major direct impacts was expected to fall on 
larger, small firms, principally those approaching the 50 employee 
employer-mandate threshold and larger. It was, therefore, important 
that the survey contain enough cases to be able to say something about 
the larger, small business segment of the population. A sufficient 
number of cases from this group requires over-
sampling them. Hence the Foundation targeted a sample size of 225 cases 
from each of the four employee size strata: 2-9 employees, 10-19 
employees, 20-49 employees, and 50-100 employees. The choice to cap the 
definition at 100 employees rather than some other point is arbitrary, 
but probably not controversial. It is an intuitively satisfying 
dividing line; virtually all small business above the line offer health 
insurance; adding another stratum of say between 100-250 employees 
appears to offer little additional informational value; owners of 
increasingly large firms are increasingly difficult to interview; etc. 
In the end, Mason-Dixon initially interviewed 921 small employers from 
mid-June through July 2013, numerically distributed across the four 
strata from smallest to largest as follows: 231 cases, 224 cases, 238 
cases; and 228 cases. Use of a random stratified sample means 
population totals can only be reached by weighting cases, smaller, 
small firms (under-sampled) being given a greater weight per case and 
vice versa. Thus, population totals for a 2-100 employee firm size 
population, or totals for a 20-100 employee firm size population are 
presented using weighted numbers.

    A second round of interviewing occurred one year later, from mid-
June through July, 2014. Efforts were made to reinterview all initial 
participants. Two hundred and twenty-eight (228) who participated in 
2013 agreed to participate in the second year. They were distributed by 
firm size as follows: 74 cases, 66 cases, 83 cases, and 65 cases. Not a 
single case changed firm size classification. Recognizing that not all 
participating in 2013 would be willing to participate in 2014, on a 
parallel track Mason-Dixon also began interviewing a new stratified 
random sample in the same manner as in the prior year. Initial 
participants supplemented by the new ones yielded 223 cases (2-9 
employees), 227 cases (10-19 employees), 224 cases (20-49 employees) 
and 226 cases (50-100 employees) for a total of 900 cases.

    Participants in the mid-2013 survey were contacted twice during the 
next few months, once to advise them of the gift card incentive winners 
for random participants and once to provide a summary of survey 
results. They were then contacted for a third time by mail and 
telephone seeking their continued participation. The gift card 
incentive was repeated and they were given the choice of participating 
by telephone or e-mail.

    New participants were recruited in the same manner as were those in 
the first year. The sampling frame for both rounds was the Dun & 
Bradstreet file, an imperfect frame, but one the best currently 
available from a non-government source. Mason-Dixon mailed potential 
members of the new sample an introductory letter outlining the project, 
asking for cooperation, and announcing gift card incentives for 
randomly drawn participants. Telephone calls followed the introductory 
letters and respondents were given the choice of answering by telephone 
or by e-mail.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    My first choice for this morning's hearing would be to get past the 
well-worn talking points and begin the effort to find bipartisan ways 
to improve the Affordable Care Act. That strikes me as the best use of 
our time. Unfortunately, it looks like it'll take a rear-guard action 
to keep from going back to the dark days when America's health care 
system worked only for the healthy and the wealthy.

    Just this week, members of Congress are pushing budget proposals 
that would rip the law up by the roots. Gone would be the guarantee of 
coverage that protects Americans who have preexisting conditions. Gone 
would be tax credits that help hard-working families pay for health 
insurance. Back would be insurance company skullduggery that forces 
people to pay top dollar for rock-bottom coverage. Back would be 
excluding adopted children from their parents' insurance plans. Back 
would be insurance cancellations the moment people get sick. Again 
pregnancy could be considered a preexisting condition. And there's 
still no legitimate alternative legislation that addresses those 
issues. In the last five years, Congress has taken more than fifty 
votes to undermine or repeal the Affordable Care Act and not one vote 
on legislation that replaces it.

    This nonstop campaign to undercut the law is bad news for 
Oregonians like Beth Stewart. Beth is a mother of three from La Grande, 
Oregon, who had to pick out an insurance plan after a career change in 
2003. The plan she chose had a 7,500 dollar deductible. A few years 
later, Beth was diagnosed with stage four thyroid cancer, and it had 
spread to her spine. On Beth's road to recovery, she twice hit her out-
of-pocket limit. Her medical bills grew to the tens of thousands of 
dollars. Beth worked hard to pay them off, but every year her checkups 
cost thousands more. Last year, she was finally able to buy a new 
health insurance plan that's given her what she called a ``welcome 
safety net.'' Her deductible is now a tenth of what it was before the 
ACA. Her out-of-pocket maximum has been cut by nearly half. For Beth, 
staying healthy while supporting a family is a lot less expensive.

    Kim Schmith is a resident of Madras, Oregon, in her late forties. 
Kim won a battle against breast cancer six years ago. Her husband will 
go on Medicare this year, and Kim will have to pick out an insurance 
plan of her own. Kim wrote to my office about how she once worried that 
being a cancer survivor meant she'd never be able to find insurance. 
Under federal law before the Affordable Care Act, an insurance company 
could have taken one look at Kim's medical history and stamped her 
application ``denied.'' But the law gives Kim peace of mind. She'll 
find an affordable, high-quality health insurance plan. She won't have 
to panic or overpay for bargain-basement coverage. As Kim wrote in her 
letter, ``. . . I fought for my life, I should not have to fight for 
insurance.'' I couldn't agree more.

    There's never been a law in history that couldn't be improved--
including this one. But the pie-in-the-sky insistence that the 
Affordable Care Act will be repealed and everything will work out fine 
has no basis in reality.

    It's time to recognize the real-world consequences of this 
dysfunctional, old political battle. This debate is no longer about 
numbers on a page. More than 16 million Americans have gained health 
insurance coverage thanks to the Affordable Care Act. Their health is 
at stake in every vote for repeal. So let's find a bipartisan path that 
makes progress, rather than bringing back the dark days when health 
care was reserved for the healthy and wealthy.

                                 ______
                                 

                             Communication

                              ----------                              


      Letter Submitted for the Record by Governor Jack A. Markell

                           State of Delaware

                         OFFICE OF THE GOVERNOR

                     Tatnall Building, Second Floor

                 William Penn Street, Dover, De, 19901

Jack A. Markell                                            Phone: 302-
744-4101
Governor                                                     Fax: 302-
739-2775

March 17, 2015

The Honorable Orrin G. Hatch
Chairman, Committee on Finance
United States Senate
219 Dirksen Senate Office Building
Washington, DC 20510

Dear Senator Hatch,

The Affordable Care Act has brought security and peace of mind to 
thousands of Delawareans who no longer have to worry that an injury or 
serious illness could place them in significant debt. The ACA is making 
it possible for adults and children to be connected to quality health 
care--and the positive outcomes that we know our health care system can 
deliver.

More than 25,000 Delawareans have signed up for health insurance 
coverage since January 2014 via the Delaware Marketplace, established 
as a State Partnership Exchange. Subsidies available under the 
Affordable Care Act have helped more than eight in 10 of those Delaware 
residents afford their monthly premiums. Those getting financial help 
to enroll in 2015 plans received an average monthly advance premium tax 
credit of $264, reducing their premiums an average 65 percent, from 
$404 to $140.

In addition to those purchasing health insurance on the Marketplace, 
another nearly 10,000 newly eligible adults have found coverage under 
Delaware's expanded Medicaid program.

Recent national surveys show that Delaware is making progress in 
reducing the number of uninsured individuals in the state. The Kaiser 
Family Foundation recently reported that as of the end of the 2015 open 
enrollment period, 52% of Delawareans who are eligible for coverage 
through the Health Insurance Marketplace had enrolled, tying as the 
state with the third-highest enrollment rate in the country.

The impact of connecting our neighbors to the health care they need is 
profound. The Affordable Care Act has helped people like Felipe 
Hernandez, a 26-year-old machine operator from Wilmington, who is now 
able to get regular preventive checkups and prescriptions to manage his 
high blood pressure and high cholesterol. Hernandez says now that he is 
covered, he is less stressed and more hopeful about the future for him, 
his wife, Irene, and their 2-year-old daughter, saying ``I'm not going 
to go broke because I get sick.''

The Affordable Care Act has helped Stephanie Brown, 32, of Smyrna, who 
can now get the daily medications her 6-year-old son, Connor, needs to 
control his ADHD and asthma. ``This program has been a godsend for me, 
and Connor is a healthy, active 6-year-old boy because of it.''

The Affordable Care Act has helped Janice Baker of Selbyville, who like 
so many others was denied coverage prior to the ACA because of pre-
existing conditions. She was able to enroll on Delaware's Health 
Insurance Marketplace in 2013, with her coverage beginning Jan. 1, 
2014.

Overall:

    At least 6,000 young adults in Delaware who would otherwise have 
        been uninsured have gained coverage nationwide because of the 
        ACA's provision that allows parents to add or keep children on 
        their policy until they turn 26.

    The law's requirement that insurers cover those with pre-existing 
        conditions--like asthma, serious and persistent mental illness, 
        diabetes or cancer--has brought peace of mind and the promise 
        of care to Delawareans.

    Women made up 55 percent of Delaware's Marketplace enrollees in 
        2014, and because of the Affordable Care Act, did not pay more 
        for their health care coverage because of their gender.

    The health care law's expansion of mental health benefits, 
        substance use disorder benefits and federal parity protections 
        has benefited thousands of Delawareans.

    Health insurance companies now have to spend at least 80 percent 
        of premiums on health care or improvements to care, rather than 
        administrative costs or they have to provide their customers 
        with a refund, helping to ensure affordability of rates. In 
        2014, that meant more than 5,800 Delawareans with private 
        insurance coverage benefited from $734,000 in refunds from 
        insurance companies, for an average refund of $174 per family.

    The law bans insurance companies from imposing lifetime dollar 
        limits on health benefits--freeing patients with cancer, 
        individuals with serious and persistent mental illness and 
        individuals living with other chronic diseases from having to 
        worry about going without treatment because of their lifetime 
        limits.

    The ACA has also delivered new benefits in Medicare. In 2013, 
        approximately 21,000 Delawareans on Medicare saved more than 
        $46 million on prescription medications because the Affordable 
        Care Act filled the ``doughnut hole'' coverage gap.

    The Affordable Care Act increases the funding available to 
        community health centers nationwide. Health center grantees in 
        Delaware have used these funds to offer a broader array of 
        primary care services, extend hours of operations, hire more 
        providers, renovate or build new clinical spaces, and help 
        enroll uninsured Americans in the Health Insurance Marketplace.

We are always interested in ways upon which the ACA can be improved. 
Even as access to insurance has greatly expanded, our health care 
system continues to face challenges, particularly in reigning in rising 
costs.

Our state is taking steps to address this issue and the ACA in its 
current form is already providing some support. Delaware has received a 
$35 million federal grant to move toward high quality, well-coordinated 
patient-centered care that is financially sustainable. Our effort 
would:

        strengthen the primary care system so that patients 
            experience well-
            coordinated team-based care that delivers better health 
            outcomes;

        align incentives for providers and health insurers to 
            focus on quality and affordability;

        support patients to engage in their own health; and

        support communities to work together to promote health and 
            connect community resources to the health care system.
In Delaware, the Affordable Care Act has helped expand access to 
quality, affordable health care coverage for people across our state 
and has been a key component of our work and commitment to improve the 
health of all Delawareans and provide a sustainable health care system 
for future generations.

Sincerely,

Jack A. Markell

                                   [all]