[Senate Hearing 114-782]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 114-782

                      SMALL BUSINESS HEALTH CARE:
                           COSTS AND OPTIONS

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

                                HEARING

                                 BEFORE

       THE SUBCOMMITTEE ON PRIMARY HEALTH AND RETIREMENT SECURITY

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                                   ON

  EXAMINING SMALL BUSINESS HEALTH CARE, FOCUSING ON COSTS AND OPTIONS

                               __________

                             JUNE 28, 2016

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions



[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





      Available via the World Wide Web: http://www.gpo.gov/fdsys/

                                  ______

                         U.S. GOVERNMENT PUBLISHING OFFICE 

20-670 PDF                     WASHINGTON : 2018 














          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                  LAMAR ALEXANDER, Tennessee, Chairman

MICHAEL B. ENZI, Wyoming             PATTY MURRAY, Washington
RICHARD BURR, North Carolina         BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia              BERNARD SANDERS (I), Vermont
RAND PAUL, Kentucky                  ROBERT P. CASEY, JR., Pennsylvania
SUSAN COLLINS, Maine                 AL FRANKEN, Minnesota
LISA MURKOWSKI, Alaska               MICHAEL F. BENNET, Colorado
MARK KIRK, Illinois                  SHELDON WHITEHOUSE, Rhode Island
TIM SCOTT, South Carolina            TAMMY BALDWIN, Wisconsin
ORRIN G. HATCH, Utah                 CHRISTOPHER S. MURPHY, Connecticut
PAT ROBERTS, Kansas                  ELIZABETH WARREN, Massachusetts
BILL CASSIDY, M.D., Louisiana
                      
               David P. Cleary, Republican Staff Director
         Lindsey Ward Seidman, Republican Deputy Staff Director
                  Evan Schatz, Minority Staff Director
              John Righter, Minority Deputy Staff Director

                                 ______

         Subcommittee on Primary Health and Retirement Security

                        MICHAEL B. ENZI, Wyoming

RICHARD BURR, North Carolina         BERNARD SANDERS, Vermont, Ranking 
SUSAN M. COLLINS, Maine              Member
MARK KIRK, Illinois                  BARBARA A. MIKULSKI, Maryland
TIM SCOTT, South Carolina            MICHAEL F. BENNET, Colorado
ORRIN G. HATCH, Utah                 SHELDON WHITEHOUSE, Rhode Island
PAT ROBERTS, Kansas                  TAMMY BALDWIN, Wisconsin
BILL CASSIDY, Louisiana              CHRISTOPHER S. MURPHY, Connecticut
LISA MURKOWSKI. Alaska               ELIZABETH WARREN, Massachusetts
LAMAR ALEXANDER, Tennessee (ex       PATTY MURRAY, Washington, (ex 
officio)                             officio)
                                       

                Sophie Kasimow, Minority Staff Director

                                  (ii)

  



















                            C O N T E N T S

                               __________

                               STATEMENTS

                         TUESDAY, JUNE 28, 2016

                                                                   Page

                           Committee Members

Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     1
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina.    21
Cassidy, Hon. Bill, a U.S. Senator from the State of Louisiana...    24

                               Witnesses

Glause, Tom, Commissioner, Wyoming Department of Insurance, 
  Cheyenne, WY...................................................     3
    Prepared statement...........................................     5
Hudak, Warren S., Jr., President, Hudak and Company, New 
  Cumberland, PA.................................................     6
    Prepared statement...........................................     6
Harte, Thomas M., President, Landmark Benefits, Inc., Hampstead, 
  NH.............................................................     8
    Prepared statement...........................................    10
Sarah Lueck, Senior Policy Analyst, Center on Budget and Policy 
  Priorities, Washington, DC.....................................    14
    Prepared statement...........................................    16

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.
    Senator Hatch, prepared statement............................    36

                                 (iii)

  

 
                      SMALL BUSINESS HEALTH CARE: 
                           COSTS AND OPTIONS

                              ----------                              


                         TUESDAY, JUNE 28, 2016

                                       U.S. Senate,
    Subcommittee on Primary Health and Retirement Security,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:05 p.m., in 
room SD-430, Dirksen Senate Office Building, Hon. Michael Enzi, 
chairman of the subcommittee, presiding.
    Present: Senators Enzi, Scott, Cassidy, Murphy, and Bennet.

                   Opening Statement of Senator Enzi

    Senator Enzi. I'll go ahead and call to order this HELP 
Subcommittee on Primary Health and Retirement Security 
roundtable, at a square table, but this is as close as we come 
to round around here. I got word from Senator Sanders to go 
ahead.
    I'll do my opening statement, and when he gets here, he can 
do his opening statement, and if he isn't here by the time I 
finish, then we'll go ahead and start having you give a summary 
of your testimony, and then following that, we'll have the 
discussion and questions.
    I'd like to thank all of you for coming today, and I'd like 
to thank the staffs on both sides of the aisle for working on 
putting together a bipartisan conversation about what's 
important to small business in the area of healthcare. I'd also 
like to thank all my colleagues for being interested in this 
and ready to engage in important discussion. There will be more 
here throughout the afternoon.
    I think we have here at the table representation from many 
experts who have a valuable perspective about what the reality 
is for small businesses helping their employees purchase health 
insurance. I'm anxious to get to the real discussion, but I'd 
like to touch on the heart of what I hope we can get to today.
    Small businesses are the backbone of our economy. In 
Wyoming today, we're watching our communities being decimated 
by the collapse of the energy sector. Thousands of jobs have 
been lost, but, as you know, those losses never happen in 
isolation. Main street businesses feel the hit with their 
customers. They feel the crunch of a down economy, and we have 
to consider what additional pressures they have to face.
    Small businesses as a whole are different than big 
businesses. Despite the fact that they're not legally required 
to offer health insurance, so many small employers do. Offering 
health insurance helps give their business a competitive 
advantage and incentivizes employee retention, but many 
employers also offer health insurance plans out of a sense of 
responsibility to their employees.
    We want employers to stay involved in the health of their 
employees. But Washington has done nearly everything possible 
to make it a bad business decision to continue to offer health 
insurance options. Policymakers often want to be supportive of 
small businesses but may not truly understand the challenges 
they actually have on the ground.
    I know that when I was running my small shoe store, I found 
out that any business that I looked at looked easy to operate, 
so long as I didn't have to get behind the counter and run it. 
People don't realize the decisions that have to be made, how 
long in advance they have to be made, how you train people, how 
you acquire people, and how difficult all that is. You may be 
the owner of a small business, but you're also usually the same 
person who opens the store, who waits on the customers, who 
cleans the bathroom, who stocks the merchandise, all while 
trying to meet payroll every week and keep up on any new 
government regulations.
    I also know the amazing satisfaction you get when you see 
your business take off, the point where you think that you're 
really going to make it work. The business owners I know see 
that as a shared success with their employees. It's a 
community. You know their families. You want to make sure those 
people are taken care of.
    The Federal Government has tried a variety of approaches to 
fix the small group market. There's general agreement that we 
still aren't there yet, and some would say that we've made 
things worse.
    Today, I'd like to focus the discussion on the biggest 
challenge for small businesses wishing to help their employees 
with health care, and that cost. It's the No. 1 reason that 
small businesses say they do not provide health insurance 
assistance for their employees. This is not a discussion about 
one particular bill or priority. I'd ask our panel today to 
think beyond what the market was before the Affordable Care Act 
and what it is under the Affordable Care Act. We need to look 
at what small businesses actually want in the next 10 to 15 
years. That translates into affordable options with more 
flexibility and fewer restrictions.
    The landscape in healthcare has rapidly changed. We must be 
willing to consider a variety of options. Perhaps it should not 
resemble today's market at all. If we try to fit health 
insurance into an outdated mold with priorities and sacred cows 
of a decade ago, we won't be able to make much progress.
    I think we agree here that cost is a problem. If the 
Federal Government has created an affordability problem or 
exacerbated it, we should identify it and figure out how to fix 
it. Our government is even more deeply embedded in healthcare 
now than ever, and we're seeing the impact of that in rising 
premiums and tighter family budgets.
    Just to clarify the process, after Senator Sanders speaks 
or prior to him being here, I'll ask each of the participants 
to speak briefly. You've submitted statements. Your entire 
statement will be a matter of record for this roundtable. After 
your introductory comments, if you'd like to respond to 
something that's been said or one of the questions that we ask, 
if you'd just stand your name tag up on end, we'll know to call 
on you and we'll try to keep track of the order of that.
    First, I'd like to welcome a fellow Wyomingite, Tom Glause, 
who is the Insurance Commissioner in Wyoming. He has firsthand 
knowledge of the insurance markets and how policies impact 
costs.
    I also understand that you have an accounting degree. I'm 
always glad to see that. There are two of us in the Senate.
    Next is Warren Hudak. Mr. Hudak is the president of Hudak 
and Company, an accounting firm in Cumberland, PA. He has seven 
employees and has personal experience in purchasing health 
insurance as a small employer.
    I appreciate you taking time away from your business to 
participate.
    I want to welcome Mr. Thomas Harte. He's the president of 
Landmark Benefits in New Hampshire. Mr. Harte's company 
provides employee benefit services to over 300 corporations and 
thousands of employees.
    You have participated in our roundtable before, and I 
appreciate you coming back again.
    Ms. Sarah Lueck is Senior Policy Analyst at the Center on 
Budget Policy and Priorities here in Washington, DC. Ms. Lueck 
works on issues related to health reform implementation, 
specifically, health insurance exchanges and private market 
reforms included.
    I want to thank you all for your time. Also, another thing 
that we do is at the conclusion, we allow a short period of 
time for people to submit written questions that we would hope 
that you'd be willing to answer as well, and those become a 
part of the record, too.
    At this point in time, we'll go ahead and begin the 
discussion, and if each of you would summarize your comments, 
which will be in the record completely, we'd appreciate it. 
That leaves more time for more questions and comments.
    We'll begin with you, Mr. Glause.

 STATEMENT OF TOM GLAUSE, COMMISSIONER, WYOMING DEPARTMENT OF 
                    INSURANCE, CHEYENNE, WY

    Mr. Glause. Good afternoon, Chairman Enzi and members of 
the Subcommittee on Primary Health and Retirement Security. 
Thank you for asking me to participate in this Roundtable 
Discussion on Small Business Health Care: Costs and Options. My 
name is Tom Glause. I am the Insurance Commissioner for the 
State of Wyoming.
    As the least populated State in our Nation, Wyoming faces 
challenges in providing health insurance coverage for its 
citizens. Since the passage of the ACA, a large number of 
health insurance companies have left the Wyoming market. 
Currently, Wyoming has only one insurer participating in the 
Federal marketplace for both individuals and small group plans.
    The exodus from the health insurance market has been for a 
variety of reasons, including financial insolvency, changing 
focus of product lines, and effects of the ACA. As the State is 
currently experiencing an economic downturn, employers are 
reporting that they must reduce or cut employer-provided health 
insurance in order to maintain employment positions.
    We have seen a slow but steady increase in the number of 
participants in the individual marketplace, but very little 
participation in the SHOP plans. As of May 31st, Wyoming's only 
SHOP carrier reports just 103 contracts covering less than 300 
lives. Wyoming has traditionally had the highest rate of 
employer-provided healthcare coverage in the Nation. According 
to the Kaiser Family Foundation, in 2014, the national average 
for employer-sponsored health plans was 49 percent, whereas 
Wyoming was 61 percent.
    The mandated coverage for essential health benefits has 
been costly and burdensome on small employers. Wyoming 
employers report that they want to provide coverage for their 
employees but feel constrained by the cost and the requirements 
that the small group plans must contain the ACA's 10 essential 
health benefits.
    In 2015, the Wyoming State legislature passed statutory 
language to clarify that if a small employer offers coverage to 
its employees, the employer has the option of offering coverage 
to the employees' dependents. In some cases, this legislative 
change has allowed the employees' dependents to obtain 
individual coverage on the marketplace.
    Network adequacy continues to be an issue. It was before 
the ACA, and it remains an issue today. Wyoming only has 196.7 
physicians per 100,000 residents, compared to an average of 
265.5 nationally. In addition, Wyoming covers almost 98,000 
square miles. Needless to say, our providers are widely 
scattered.
    Uncompensated care remains a concern in nearly all care 
facilities in our State. A May 2016 report from the Wyoming 
Hospital Association indicates a 3 percent annual increase in 
uncompensated care. The Association anticipates larger 
increases because of increasing unemployment, an increasing 
number of high deductible health insurance plans, and an 
increasing number of uninsureds.
    Wyoming has the second highest premium rates in the Nation, 
second only to Alaska. On the individual market, in 2016, the 
average monthly premium before the advanced premium tax credit 
was $571, compared to the national average of $396. Wyoming 
employers have reported that the tax benefits of providing 
coverage are often difficult and convoluted. Others report that 
it's less expensive to pay the tax than to provide health 
insurance coverage.
    The Wyoming Small Employer Reinsurance Plan has begun a 
run-out of the program and the claims. The number of ceded 
lives into the plan has continued to decline, indicating a 
decreasing number of small employer-sponsored plans.
    In conclusion, there are two primary considerations for 
small businesses when considering whether to provide health 
insurance to its employees. The first is cost: the cost of the 
premiums to the employer and the employee and the cost of time 
in administering the program. The second is choice. Can the 
small employers provide coverage that their employees need with 
networks that are sufficient and out-of-pocket costs that are 
reasonable?
    Thank you for inviting me to this roundtable discussion, 
and I look forward to your questions.
    [The prepared statement of Mr. Glause follows:]

                    Prepared Statement of Tom Glause

    Good afternoon, Chairman Enzi and members of the subcommittee on 
Primary Health and Retirement Security. Thank you for asking me to 
participate in this Roundtable Discussion on Small Business Health 
Care: Costs and Options. My name is Tom Glause. I am the Insurance 
Commissioner for the State of Wyoming, appointed to this position by 
Governor Matt Mead in January 2015.
    As the least populated State in our Nation, Wyoming faces 
challenges in providing health insurance coverage for its citizens. 
Perhaps some observations and information about my State may be helpful 
in discussions regarding small employer plans in general but 
specifically regarding the small employer market in rural settings.
    Since the passage of the ACA, a large number of health insurance 
companies left the Wyoming market. Currently, Wyoming has only one 
insurer participating in the Federal Marketplace for both individuals 
and the small group or SHOP plans. The exodus from the health insurance 
market has been for a variety of reasons, including insurer financial 
insolvency, changing focus of product lines, and effects of the ACA.
    As the State is currently experiencing an economic downturn, 
employers are self-reporting they must reduce or cut employer-provided 
health insurance in order to maintain employment positions. We have 
seen a slow but steady increase in the number of participants on the 
Individual Marketplace but very little participation in the SHOP plans. 
As of May 31, Wyoming's only SHOP carrier reports just 103 contracts, 
covering less than 300 lives. The individual Marketplace reports 23,770 
enrollees for 2016.
    Wyoming has traditionally had the highest rate of employer provided 
health coverage in the Nation. According to the Kaiser Family 
Foundation, in 2014, the national average for employer sponsored health 
plans was 49 percent, whereas Wyoming was 61 percent, followed closely 
by Maryland at 60 percent.
    The mandated coverage of the Essential Health Benefits (EHB) has 
been costly and burdensome on small employers. Wyoming employers report 
they want to provide coverage for their employees but feel constrained 
by cost and the requirement that these small group plans must contain 
the ACA's 10 Essential Health Benefits. Employers have expressed 
concern over their desire to provide benefits to their employees and 
the coverage mandate that is not required of large group employers. In 
2015, the Wyoming State Legislature passed statutory language to 
clarify that if a small employer offers coverage to its employees, the 
employer has the option of offering coverage to the employee's 
dependents. Wyo. Stat.  26-19-306(c)(vi). In some cases, this 
legislative change allowed the employee's dependents to opt for 
individual coverage on the Marketplace.
    Network Adequacy was an issue before the ACA and remains an issue 
today. Wyoming reports 196.7 physicians per 100,000 people whereas the 
national average is 265.5 per 100,000. In addition, Wyoming covers 
97,818 square miles--needless to say, our providers are widely 
scattered.
    Uncompensated Care remains a concern in nearly all care facilities 
in our State. A May 2016 report from the Wyoming Hospital Association 
indicates at least a 3 percent annual increase in uncompensated care 
but the association anticipates larger increases because of increasing 
unemployment, increasing numbers of individuals with high deductible 
plans, and increasing numbers of uninsured.
    Wyoming is a non-rate setting State; therefore, we rely upon the 
qualified health plan (QHP) determinations and rate approvals conducted 
by the Center for Medicare and Medicaid Services (CMS). Wyoming has the 
second highest premium rates in the Nation, second only to Alaska. On 
the individual market in 2016, the average monthly premium before the 
Advanced Premium Tax Credit (APTC) was $571 compared to the national 
average of $396. Some Wyoming employers have reported that the tax 
benefits for providing coverage are difficult and convoluted. Others 
report it is less expensive to pay the tax penalties than to provide 
health insurance coverage.
    The Wyoming Small Employer Health Reinsurance Plan (WySEHRP) plan 
has begun a run-out of the program and claims, after it was determined 
that the number of ceded lives has continued to decline as transitional 
plans will be exiting the market. The declining number indicate a 
decreasing number of small employer sponsored plans.
    In conclusion, in my opinion, there are two primary considerations 
for small businesses when considering whether to provide health 
insurance benefits. The first is Cost. The cost of the premiums to the 
employer and the employee, and the cost of time in administering the 
program.
    The second is Choice. Can the small employer provide coverage that 
the employees need, with networks that are sufficient, and out-of-
pocket costs that are reasonable?
    Again, thank you for holding this roundtable and for inviting me to 
testify. I look forward to your questions.

    Senator Enzi. Thank you.
    Mr. Hudak.

    STATEMENT OF WARREN S. HUDAK, Jr., PRESIDENT, HUDAK AND 
                  COMPANY, NEW CUMBERLAND, PA

    Mr. Hudak. Chairman Enzi and members of the Senate HELP 
Subcommittee on Primary Health and Aging, thank you for the 
opportunity to be before you today. My name is Warren Hudak. I 
own a central Pennsylvania based accounting firm. We specialize 
in bookkeeping, sales tax services, payroll, and tax 
representation.
    Our business is a typical small business. Hudak and Company 
is a growing firm. But rising healthcare costs continue to 
consume an increasingly significant share of our revenue. It's 
difficult to keep up with the constant implementation changes 
which can disrupt our business operations and consume 
increasingly more and more of our time. These changes are 
sometimes meant to help, but occur too late to provide 
substantial relief. I feel like most small businesses have been 
placed in an impossible situation. Healthcare costs are once 
again our No. 1 issue.
    Our business has always provided assistance to our 
employees for health insurance. Group health insurance was 
expensive and volatile for our business, but we had to offer it 
in order to compete. We live in the Harrisburg area, which is 
the State's capital, and we're competing for the same labor 
market that the State of Pennsylvania is competing for.
    We were early adopters of high-deductible group health 
plans paired with a health savings accounts. Our plan was 
canceled. We began offering health reimbursement agreements for 
employees to purchase health insurance on their own. The 
arrangement worked well for our employees, as they could choose 
the appropriate plans that fit their needs, even pre-existing 
conditions existed.
    I have long been a supporter of those consumer-based 
options and believe they are key to curbing unsustainable 
healthcare costs. I, too, believe that the answer here is 
flexibility and choice.
    [The prepared statement of Mr. Hudak follows:]

               Prepared Statement of Warren S. Hudak, Jr.

    Chairman Enzi, Ranking Member Sanders, and members of the Senate 
HELP Subcommittee on Primary Health and Retirement Security, thank you 
for the opportunity to testify before you today concerning rising small 
business health care costs and potential options for employers and 
employees to mitigate these cost increases. My name is Warren Hudak, 
president of Hudak and Company, a central Pennsylvania-based small 
business accounting firm specializing in payroll services, bookkeeping, 
sales tax services, and advanced tax transaction analysis.
    Our business is a typical small business in many ways. Hudak and 
Company is a growing firm, but rising health care expenses consume an 
increasingly significant share of our revenue. It is difficult to keep 
up with the constant implementation changes, which can be disruptive to 
our business. These changes are sometimes meant to help, but occur too 
late to provide substantial relief. I feel like small businesses have 
been placed in an impossible situation as costs increase and 
competition and flexibility decrease.
                         costs and limitations
    Our business has always provided financial assistance to our 
employees for health insurance. Group health insurance was expensive 
and volatile for our business, but we had to offer it in order to 
compete with larger companies and the Pennsylvania State Government.
    We were early adopters to a high-deductible group health plan 
paired with a health savings account (HSA). Our plan was canceled three 
different times, so we began offering a health reimbursement 
arrangement (HRA) for employees to purchase health insurance on their 
own. The arrangement worked well for our employees as they could choose 
the appropriate plans that fit their needs, even those with pre-
existing conditions. I have long been a supporter of consumer-driven 
health insurance arrangements, and believe they are key to curbing 
unsustainable health care cost increases.
    In 2013, the Internal Revenue Service (IRS) issued guidance \1\ 
that prohibited the use of employer payment plans, including stand-
alone HRAs. Enforcement of the prohibition began July 1, 2015. Facing a 
threat of $100 per employee per day penalties, we had to again change 
how we help employees. Any financial assistance must be treated as 
taxable income, decreasing the value of the contribution, and the 
contribution cannot be contingent on the purchase of health insurance. 
It felt like another punch in the nose.
---------------------------------------------------------------------------
    \1\ Notice 2013-54, Application of Market Reform and other 
Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain 
other Employer Healthcare Arrangements, https://www.irs.gov/pub/irs-
drop/n-13-54.pdf, (subsequent guidance included in Notice 2015-17).
---------------------------------------------------------------------------

    Our family's most recent individual policy premiums increased 
substantially this year. We shopped around but there was only one other 
carrier available in our county, and it excluded some of our current 
doctors, so we stuck with our current plan. Insurance company 
competition has not improved, it feels worse. It amazes me that there 
are not more choices in the area. Prescriptions costs have skyrocketed, 
as well. Costs went up, but coverage worsened.
                           options for relief
    I do feel there are policy solutions that can provide relief from 
high costs for small businesses, provide increased options for small 
business employees, and provide increased competition amongst insurance 
companies.
    Last week, the House of Representatives passed the Small Business 
Health Care Relief Act of 2016 by voice vote.\2\ The Senate should 
quickly consider the bipartisan companion bill.\3\ This bill would help 
employees afford health insurance, and allow employers to continue to 
play a role in supporting their employees through the utilization of 
HRAs. Certainly, lawmakers who drafted the ACA did not intend to punish 
small businesses for helping their employees with health care costs. 
Our business is proof that this arrangement worked.
---------------------------------------------------------------------------
    \2\ H.R. 5447, the Small Business Health Care Relief Act of 2016, 
introduced by Congressmen Boustany (R-LA) and Thompson (D-CA), https://
www.Congress.gov/114/bills/hr5447/BILLS-114hr5447pcs.pdf, passed on 06/
21/2016 (previous version was H.R. 2911).
    \3\ S. 3060, the Small Business Health Care Relief Act of 2016, 
introduced by Senators Grassley (R-IA) and Heitkamp (D-ND), https://
www.Congress.gov/114/bills/s3060/BILLS-114s3060
is.pdf, (previous version was S. 1697).
---------------------------------------------------------------------------
    In order to increase competition in my area and other places with 
limited options, interstate purchasing of insurance plans should be 
permitted. Interstate purchasing would allow new entrants into markets 
and force insurance companies to compete for small business and 
individual customers.
    Initial 2017 premium filings in Pennsylvania are discouraging, as 
insurance companies are requesting significant increases for individual 
market plans and moderate increases for small business plans. According 
to NFIB Research Foundation, small business owner optimism remains near 
historic lows.\4\ The political climate continued to be the second most 
frequently cited reason for why owners think the current period is a 
bad time to expand. The Senate can begin to restore much needed 
confidence by quickly sending the Small Business Health Care Relief Act 
to President Obama's desk, and working toward other solutions to lower 
the cost of health insurance.
---------------------------------------------------------------------------
    \4\ Small Business Economic Trends, NFIB Research Foundation, May 
2016, http://www.nfib.com/surveys/small-business-economic-trends/.
---------------------------------------------------------------------------
    Thank you again for allowing me to share small business concerns 
before the committee today. I look forward to answering any questions.

    Senator Enzi. Thank you.
    Mr. Harte.

  STATEMENT OF THOMAS M. HARTE, PRESIDENT, LANDMARK BENEFITS, 
                      INC., HAMPSTEAD, NH

    Mr. Harte. Chairman Enzi, good morning.
    Ranking Member Sanders, thank you.
    Members of the subcommittee, thank you for having me back 
again to discuss some of the challenges that are being faced by 
all of my clients as it relates to health insurance premiums, 
access to care, access to plans, bifurcated networks, and the 
many challenges that small businesses are facing in the wake of 
healthcare reform.
    As you mentioned in your opening remarks, Senator Enzi, I 
own an agency back in New Hampshire called Landmark Benefits. I 
have a bit of a unique position in conversation with you today, 
because not only am I an employee benefit broker representing 
thousands of brokers across the country who work tirelessly 
every single day in advocating for lower premiums for our 
clients, but also I'm a small business owner.
    I have 17 employees, a lot of employees, just like you had 
back in Wyoming, and I struggle with trying to make sure that 
they can afford their health insurance premiums for their 
families, that I can afford to be generous to them. But I sit 
in that seat of that employer every single day that's faced 
with these significant rate increases.
    I'm also here representing the National Association of 
Health Underwriters. We represent approximately 100,000 
employee benefit professionals across the country. I had the 
honor of being their national president 2 years ago and served 
on their board of trustees for a time period of approximately 
10 years.
    Before I go into some of my comments about some of the 
challenges that we're faced with, last year, when I was here, I 
shared with you some of the issues that we needed to face as it 
relates to affordability, and I wanted to share some positive 
comments first.
    First, we have talked about the PACE Act, and, Senator 
Scott, thank you so much for your sponsorship of that bill and 
your leadership with Senator Shaheen. It has certainly made a 
difference in my home State, but has also made a difference in 
many States across the country.
    What my concern was when we were discussing the PACE Act 
was this concept of what's called rate grid overload, where 
small employers have these rate grids that are three columns 
wide, and you can have one family paying $3,000 to $4,000 a 
month in premium and another family paying $1,500 a month in 
premium. The invoices are four to five pages long, and it's 
impossible for small business to manage that process. So I'm 
grateful, Senator Scott and Senator Shaheen, and thank you for 
that.
    I also am very pleased to share with you that the 
moratorium on the medical device tax, the delay of the excise 
tax to 2020, and the health insurance tax suspension for 2017 
has been received with open arms in the marketplace, because 
it's all about affordability. As I may say later, my guiding 
light is always ``Are decisions that we make leading to the 
accessibility and affordability of health insurance?'' I say 
that to you as Members of Congress, but I also ask that 
question back home when I'm talking to the health insurance 
plans.
    Now back to the real world of what my clients are facing. 
Even though we've made some improvements over the past year, I 
am still delivering rate increases to my clients that are 
difficult for me to communicate to them, but even more for them 
to absorb those cost increases. In the past couple of weeks, I 
have delivered to two clients, who are small businesses, rate 
increases of 29.96 percent. In my prepared testimony, you will 
see other clients who are faced with significant double-digit 
rate increases.
    That contradicts recent trend reports that you've seen in 
national publications where we're seeing healthcare trends has 
come down, which is a positive step and a step in the right 
direction. However, when you have wage growth far below the 
cost of healthcare, when you have the cost of goods and 
services across the country rising at a slower rate than 
healthcare inflation, then we have to ask ourselves the 
question of how can we really start addressing the underlying 
issue in our health insurance premiums, which is the cost of 
healthcare.
    I also want to share with you--and I'm sure my friend to my 
right has faced--when he looks at his own health insurance 
plan, he has seen that the health insurance companies are 
making mandatory changes to their plans without the discretion 
of the employer. Primary care office co-pays are doubling. 
Specialist office co-pays are doubling. Many people across this 
country are paying upwards of $500 a month for a 30-day supply 
for a prescription. That's unaffordable, and what's happening 
is that individuals are foregoing necessary medical treatment 
and prescriptions to make sure that they can live a healthy 
life, and that's not what we want.
    The bottom line for me is in order for us to address the 
affordability of health insurance, health plans are eliminating 
plan benefits for individuals. That was never the intent of the 
Affordable Care Act.
    Two more quick issues for you is the recent success that 
we've seen about the adult uninsured rate dropping--again, good 
news for the United States of America. However, we have more 
and more people falling into the category that we commonly 
refer to as the underinsured. Deductibles have gone through the 
roof. They've actually increased by 47 percent in recent years, 
and many employers are purchasing plans that have $5,000 or 
$6,000 deductibles. Individuals couldn't afford $1,000 
deductible, let alone a $5,000 deductible.
    The State of Wyoming is not alone. Your home State is not 
alone. Losing carriers, lack of access to healthcare plans is a 
growing concern. As a matter of fact, this week, in the State 
of Minnesota, the largest individual health insurance company, 
Blue Cross and Blue Shield of Minnesota, announced that they 
will be exiting the individual marketplace in 2017. So you're 
not alone.
    With that being said, I thank you again for having me back, 
and I look forward to sharing some other insights with you.
    [The prepared statement of Mr. Harte follows:]

                 Prepared Statement of Thomas M. Harte

    Good afternoon. My name is Tom Harte and I am the president of 
Landmark Benefits Inc. in Hampstead, NH. I started my small business in 
1997 and it has become one of the largest independent employee benefit 
companies in New Hampshire. Today, my company provides services to over 
300 corporate clients and the majority are small to mid-sized 
businesses. Our primary goal for clients is to provide innovative 
solutions that address the continued increases in premiums by 
emphasizing both healthcare quality and healthcare cost containment.
    I am proud to be here today on behalf of my professional 
association, the National Association of Health Underwriters (NAHU), 
which represents approximately 100,000 health insurance agents, 
brokers, general agents, consultants and other employee benefit 
specialists nationally. Last year, I completed 6 years of service as a 
member of our national Board of Trustees, including serving as the 
NAHU's national president for 2013-14. As an association member engaged 
on the national level since 1996, I know thousands of brokers from all 
over the United States who serve small businesses with health insurance 
challenges. Not only did I consult with my own clients about their most 
critical challenges and opportunities with small group coverage that 
they have asked me to communicate at today's roundtable, but I also 
reached out to my colleagues nationwide so that I could share their 
message today.
    Prior to my responding to the primary topics for the consideration 
of the subcommittee, I want to share with you some of the successes 
within the market since my last visit in July 2015.

     The passing of PACE allowed States to determine if 
increasing the definition of small group to 100 was in the best 
interest of their small businesses.
     Delay of Excise Tax to 2020 (Thresholds: $10,200 / 
$27,500).
     To address the affordability issues in the market, both 
the Moratorium on Medical Device Tax of 2.3 percent and health 
insurance tax were suspended for 2017.
     Gallop has reported that the adult uninsured is at 11.0 
percent, which is the lowest it has been in 8 years. (http://
www.gallup.com/poll/190484/uninsured-rate-lowest-eight-year-
trend.aspx).



    At the same time, it is important to share with you that small 
businesses continue to face significant premium increases.

 
----------------------------------------------------------------------------------------------------------------
                                                                                                  Rate Adj.  (In
                          Client Location                              Enrolled     Deductible       percent)
----------------------------------------------------------------------------------------------------------------
Manchester, NH.....................................................           65          $5,000           29.96
Nashua, NH.........................................................           46          $5,000           29.96
Kittery, ME--SHOP..................................................           12     $2,600 HDHP           12.61
Lowell, MA.........................................................            2          $2,000           29.22
Derry, NH..........................................................           86          $5,000           18.45
Salem, NH..........................................................           10            $500           11.47
Cambridge, MA......................................................           19          $2,000           17.73
Methuen, MA........................................................            8          $2,000           15.47
Chelmsford, MA.....................................................            3          $2,000           19.01
----------------------------------------------------------------------------------------------------------------

    It is also important to understand that most small employers are 
faced with mandatory health plan changes from the health plans. For 
example:

     Primary care office copays are increasing from $25 to $30 
or $40;
     Specialist office copays are increasing from $50 to $60 or 
$80; and
     Prescription drug copays are increasing dramatically and 
cost shares are increasing up to a monthly maximum of $400.

    Finally, the recent success of the adult uninsured rate at 11.0 
percent does not take into consideration the ``under insured.'' For 
example, most employers are increasing plan deductibles and many have 
increased to as high as $5,000 or $6,000; however, most employees can't 
afford a deductible event of $1,000 let alone $5,000 or $6,000--this 
would result in a financial catastrophe.
    With regard to the topics of interest to the subcommittee, I have 
focused my remaining remarks on these issues:

    (1) Factors driving healthcare costs for small businesses;
    (2) Health insurance market policies that have affected premiums 
for small businesses; and
    (3) Factors that small businesses must consider when assisting 
their employees in purchasing health insurance.

    It is my and NAHU's hope that now, 6 years into the implementation 
of the Patient Protection and Affordable Care Act (ACA), that Congress 
and President Obama will come together with bipartisan solutions to 
improve the outcomes of the ACA and resolve many of the unintended 
consequences that are making coverage more expensive and creating 
burdens for health insurance consumers.
         factors driving healthcare costs and health insurance 
         market policies that have affected premiums for small 
                               businesses
    The leading causes of increased health plan premiums are increased 
utilization and government regulation.

Increased Utilization

    In 2014, utilization increased in virtually every metric, with more 
physician visits, hospitalizations, and prescriptions filled than in 
2013. Prior to the recession, higher utilization of services accounted 
for 43 percent of the increase, fueled by factors such as increased 
consumer demand, new and more intensive medical treatments, defensive 
medicine, our aging population, and unhealthy lifestyles. As American 
consumers return to increasing use of healthcare services, including 
many newly insured individuals under the ACA, utilization has increased 
significantly.
    Changes in the rate of utilization could also be attributed to plan 
design and the use of technologies in place of traditional medicine. To 
help offset the impact of increasing premiums, insurers and plan 
administrators have increasingly turned to higher deductibles. From 
2009 to 2014, premiums increased by 26 percent in employer-sponsored 
plans while deductibles increased by 47 percent. In 2006, only 10 
percent of employers offered plans with deductibles over $1,000 and 3 
percent had deductibles over $2,000, compared to 40 percent and 18 
percent in 2014, respectively.

 
------------------------------------------------------------------------
       Deductible Expenses            X > $1,000          X > $2,000
------------------------------------------------------------------------
2006............................  10 percent of       3 percent of
                                   employers.          employers
2014............................  40 percent........  18 percent
------------------------------------------------------------------------

    This increased out-of-pocket expense before coverage is deterring 
many individuals from seeking necessary healthcare services. This delay 
of care will exacerbate medical conditions, requiring more expensive 
care at a later date. Telemedicine is a way that some patients are 
seeking care without receiving more expensive care in person, as these 
services can be available at a significantly reduced first-dollar cost 
to the patient. Other plan design changes include value-based insurance 
design, which encourage chronic disease management while reducing the 
need for more expensive care.

Government Regulation

    The ACA has imposed significant compliance burdens on employers, 
employees, individuals, and local and State government. Many of these 
compliance burdens discourage employer-sponsored coverage by adding 
onerous requirements and responsibilities that must be performed on 
behalf of employees. For small employers, many of the ACA's arbitrary 
provisions, such as narrow rating bands, limits on composite rating, 
new levels of minimum coverage, and employer reporting requirements, 
have resulted in higher costs. However, the compliance burden does not 
end with just employers, as individuals, providers, State and local 
governments, and all other elements of the healthcare delivery and 
financing system must meet the requirements of the law.
    On June 14, 2016, the House Energy & Commerce Health Subcommittee 
held a hearing on ``Advancing Patient Solutions for Lower Costs and 
Better Care,'' which included a discussion of the age rating bands. The 
age rating bands require insurers to charge their older policyholders 
three times that of younger policyholders while older policyholders 
tend to use up to six times as much healthcare in dollar value. This 
current 3:1 age band rating is a change from what was in effect in the 
States prior to the ACA when States were able to select their own age 
band rating, with the most commonly used rating being 5:1. The shift in 
age rating bands to 3:1 caused an increase in cost to younger 
policyholders, many of whom would rather drop coverage than pay the 
increase in premium; however, these are the same group of young, 
healthy policyholders that are needed in the market in order to avoid 
adverse selection. I believe that the policy in place prior to the ACA, 
which allowed States to determine the appropriate age rating bands to 
implement within their borders, is a far better way to control costs, 
and in the absence of State action, requiring a 5:1 age band rating 
would encourage young, healthy policyholders to maintain their coverage 
and support a far more sustainable health insurance market.
    Further, final regulations concerning employer reporting have also 
burdened employers of all sizes. I can testify that some of my employer 
clients have spent 100's of hours in preparation, coordination, and 
deployment of these reporting demands. Additionally, the cost for 
reporting with either a payroll company or third-party administrator is 
excessive at best. In March 2014, the Department of the Treasury and 
the Internal Revenue Service (IRS) released final regulations on what 
health plan information all employers will be required to report to the 
Federal Government annually for enforcement of both the health reform 
law's individual and employer mandates. Unfortunately, the final 
regulations are confusing and extremely complicated for businesses of 
all sizes. I am concerned that many employers may stop offering health 
insurance coverage to their employees, especially small employers that 
are not mandated to do so, because the reporting compliance burden is 
too much for their business to bear.
    There is legislation pending (H.R. 2712 and S. 1996) that will ease 
the compliance reporting requirements for employers offering health 
insurance coverage to their employees. The bill clarifies that any 
information regarding health insurance that is communicated to 
employees must be aligned with the processes that are already in place 
by employer or employee, including the use of electronic notification 
for all notification forms. We believe that providing employees with 
multiple and similar notices is confusing for employees and both costly 
and confusing to employers.
    Finally, the legislation requires that the Department of the 
Treasury, in consultation with the Department of Health and Human 
Services (HHS), Department of Labor, and Small Business Administration, 
write a report to Congress that would detail the processes necessary to 
develop a prospective reporting system. Greater sharing of employer 
plan information between the IRS and HHS to improve exchange subsidy 
eligibility determinations would work best if the Administration would 
also allow greater employer flexibility to provide information to 
employees and health exchanges regarding the employer health coverage 
offered on a prospective basis. Under a voluntarily prospective 
reporting system, employers could provide to the IRS information about 
coverage offered to employees electronically at the employer's open-
enrollment period or by the January 31 statutory deadline at the 
employer's election. I believe if greater flexibility was provided and 
prospective reporting allowed, it will result in greater coordination 
between the exchanges and the IRS, leading to fewer faulty subsidy 
determinations and penalty assessments, which, in the long term, will 
aid in deterring the steady increase of premium costs.
   factors that small businesses must consider when assisting their 
                employees in purchasing health insurance
    It is no surprise that one of the leading factors in considering 
the purchase of health insurance is cost: cost to both the employee and 
to the employer. When I spoke to this subcommittee's roundtable last 
year, I spoke about the dangers of implementing the Cadillac tax. In 
contrast, today, I am going to shift to address a tax benefit that is 
in jeopardy, and I would like to take this opportunity to encourage the 
committee's support for the continuation of the ``employer exclusion.''
    The employer exclusion is used to reference the tax benefit that 
excludes employer-provided contributions toward an employee's health 
insurance from that employee's compensation for income and payroll tax 
purposes. This exclusion makes employer-provided health coverage an 
attractive form of compensation for workers. According to a new poll 
from Accenture, three-quarters of workers see health benefits as a 
``vital reason'' for continuing to work for their employers, and one-
third would quit if their employers stopped offering insurance. A 
similar percentage said they wouldn't work as hard if their benefits 
disappeared.
    Employer-sponsored coverage is the bedrock of private insurance 
coverage in the United States. According to the Bureau of Labor 
Statistics, about 175 million Americans have employer-sponsored 
coverage and are statistically more likely to maintain coverage year 
after year. Providing coverage through employers or other group 
arrangements offers controlled entry and exit in the health insurance 
market, which ensures the spreading of risk, federally guaranteed 
consumer protections, like portability rights, the ease of group 
purchasing and enrollment, and the economies of scale of group 
purchasing power. In addition, it is a means for employers to provide 
equitable contributions for their employees.
    Several recent health insurance and tax-reform proposals have 
suggested eliminating or capping the tax exclusion provided to 
individuals who have employer-provided group coverage and perhaps 
substituting it for some other tax preference. Capping the exclusion 
for employees would degrade the benefit and serve as a tax increase for 
middle-class Americans. Eliminating the exclusion would mean that most 
of the advantages of employer-provided coverage would no longer exist: 
No longer would there be a potent means for spreading risk among 
healthy and unhealthy individuals; employers and individuals would lose 
many group purchasing efficiencies; workers would be less likely to 
have their employer as an advocate in coverage disputes; employers 
would be less likely to involve themselves in matters of quality 
assessment and innovation; and employers could suffer in terms of 
worker productivity and labor costs because employer-sponsored 
insurance leads far more workers to purchase health insurance than they 
would on their own. Some employers would not meet participation 
requirements for group coverage so the entire workforce would lose 
employer-sponsored coverage. This shift might seem minor, but it could 
compel employers to stop providing health insurance, according to the 
Congressional Budget Office and the Joint Committee on Taxation. 
Companies will expect their employees to secure affordable coverage in 
the individual market. For many people, particularly older and lower-
income workers, that may be impossible, even with the implementation of 
the ACA.
    One plan would eliminate the tax exclusion for employer-provided 
health insurance, preventing companies from purchasing coverage with 
pre-tax dollars, and instead provides individuals with a tax deduction 
of $7,500 a year for buying insurance. Families would receive a 
deduction worth $20,500. These types of tax deductions would encourage 
young, healthy workers to forgo employer-sponsored insurance because 
they could purchase cheaper plans elsewhere. Employers would be left 
with an older, sicker risk pool, thus higher costs--if they can get 
group coverage at all. As costs escalate, even the most generous 
employers may quit offering health insurance altogether. De-linking 
coverage from employment like this would make health insurance more 
expensive and less accessible, thereby contradicting the objectives of 
the ACA.
    Adding to the threat to employer-sponsored insurance is the 
increase in cost to the employers. In a recent survey, almost 90 
percent of businesses reported that their costs had increased because 
of the law. Employers are responding by laying off workers, making 
full-time employees part-time so the mandate doesn't apply or dropping 
coverage altogether. In all three cases, the result is fewer people 
with employer coverage.
    Getting businesses out of the healthcare business would be a 
mistake. We urge you to maintain the system that has worked for 
Americans for decades, and preserve employer-sponsored health coverage 
through the continuation of the employer exclusion.

Small Group Market Policy Recommendations

    We all have a stake in having a functioning, viable health 
insurance marketplace for small employers. While the ACA has brought 
many changes and market resources to consumers and employers, I am 
concerned about policies threatening the small group's viability that 
could lead to its erosion. The membership of the National Association 
of Health Underwriters feel that the following policy changes would 
have a significant impact on improving the cost and coverage options 
available today for our Nation's small employers and their employees:

     To address the affordability of health insurance we need:

           Further delays of the Excise tax;
           Continued suspension of the health insurance tax;
           Continued moratorium on medical device tax; and
           Legislation that allows States to increase the law's 
        age rating bands from the current 3:1 spread to bands that more 
        closely resembles the natural breakdown of age and meet the 
        needs of a particular State. If a State does not set its own 
        bands, the default should be 5:1.

     Preservation of the law's risk-adjustment mechanisms 
(often referred to as ``The Three Rs'') since they are crucial to 
preserving long-term private insurance market stability.
     To address the accessibility of health insurance we need:
           To remove agent and broker commissions from the 
        medical loss ratio calculation in the small and individual 
        health insurance markets, to ensure small business access to 
        agent and broker services and to economically help the hundreds 
        of thousands of agent small business owners nationwide.
     To address the simplification of health insurance we need:
           A repeal of the employer mandate, or failing, that 
        establishes the eligibility threshold at 101 or more employees; 
        and
           To allow employers to set the definition of a full-
        time employee as one that works 40 or more hours a week for 
        health coverage purposes.
    In closing, I would like to thank Chairman Enzi, Ranking Member 
Sanders and all of the members of the subcommittee for the amazing 
opportunity to share information about the opportunities and challenges 
small business owners like me and my clients are having in today's 
health insurance marketplace. If you have any questions or need more 
information, please do not hesitate to contact me at either (603) 329-
4535 or [email protected].

    Senator Enzi. Thank you.
    Ms. Lueck.

  STATEMENT OF SARAH LUECK, SENIOR POLICY ANALYST, CENTER ON 
          BUDGET AND POLICY PRIORITIES, WASHINGTON, DC

    Ms. Lueck. Thank you, Mr. Chairman, and thank you, members 
of the subcommittee, for having me here today. I really 
appreciate the opportunity to talk about issues facing small 
businesses with their healthcare.
    As my other co-panelists have mentioned, there are 
longstanding system-wide trends in healthcare costs that 
absolutely affect small businesses, and that's a key question, 
obviously, one that we'll be discussing as we get into the 
conversation here today. As has been widely documented, also, 
the overall healthcare cost growth has slowed considerably in 
recent years with health reform likely a key contributor. While 
we don't have all the answers, we certainly appear to be making 
some improvements in bending that cost curve.
    Another piece of good news is that contrary to predictions, 
the ACA hasn't caused employers to drop coverage for their 
workers so far, and that's really good news. I'm impressed to 
hear those small business owners that are on this panel talking 
about how important it is to offer benefits. It's nice to hear 
the commitment that they have to their employees and the 
variety of considerations they make when they decide whether to 
offer benefits and what kind of benefits to offer.
    As somebody who focuses a lot on the ACA and supports so 
many of the provisions that were in that law, I really wanted 
to mention the way in which the coverage expansions under the 
ACA have actually helped small businesses, the employees of 
those small businesses, by making sure that they have access to 
coverage and can maintain their health regardless of whether a 
small employer that they work for is able to offer them 
coverage. That's very important, if they're a low-wage worker, 
that they have access to Medicaid in a State that has taken up 
the coverage expansion and that they can also access subsidized 
coverage through the marketplace, where they both get 
assistance with affording the coverage and then reductions in 
the high deductibles and other cost-sharing so that they can 
also have some access to healthcare.
    Notably, many self-employed people have also newly obtained 
insurance as a result of the ACA, and it's just worth thinking 
about--the situations that people used to face before the law 
was in place. Self-employed people might have had trouble 
getting access to coverage if they had a preexisting health 
condition, and now they can get access to coverage in the 
individual market.
    The essential health benefits were mentioned as something 
that was sort of bad news. In some ways, I think, for many 
people, it's good news to have some minimum standards about the 
benefits that are covered under small group plans. Before the 
ACA, there might have been gaps in the coverage that small 
employers were able to choose from in their State. Their 
employees, just like individuals that don't have employer 
coverage, want access to maternity benefits, for example, or 
mental health treatments, and those sorts of things may not 
have been covered in their policies before in some cases.
    Another story we used to hear before the law was in place 
is those cases where a small business might have a sick 
employee, somebody diagnosed with a very expensive illness or 
an employee who has a baby that's born with a lot of 
challenging health problems and has to be hospitalized. Those 
sorts of huge costs that one person in a small firm could face 
could really impact the cost of coverage for that small 
business just the following year.
    That might put a small firm, a small business owner, in the 
position of thinking, ``Can I even offer coverage now that I 
have this expensive claim on my books?'' That is not an issue 
now under the ACA. There's broader pooling and limits on the 
way that the insurers can rate small groups, just as there are 
with the rules in the individual market.
    I think with that, I'll pause. I'll just say, also, that 
there's a lot of good news here. I think that there's a lot of 
flexibility, also, for States that want to take some 
opportunities to do things in their own markets to stabilize 
it, to make things more competitive, and, hopefully, we will 
get into some of those issues as we continue our discussion 
today.
    Thank you very much.
    [The prepared statement of Ms. Lueck follows:]

                   Prepared Statement of Sarah Lueck

    Chairman Enzi and Ranking Member Sanders, thank you for the 
opportunity to discuss the challenges and opportunities for small 
businesses that want to provide health benefits to their workers.

What factors are driving health care costs for small businesses?

    Longstanding system-wide trends in health care costs and 
utilization affect all health care payers, including small employers 
that offer health insurance to their workers. For example, the entry of 
high-cost specialty drugs into the market can raise premiums for small 
businesses and the workers they cover. Other trends, however, can slow 
growth in health care costs and premiums, including adoption of new 
payment models that encourage the use of high-value services and 
efforts to increase competition among insurers based on price and 
quality of care.
    As has been widely documented, overall health care cost growth has 
slowed considerably in recent years, with health reform likely a key 
contributor. Premium increases for employers have been similarly modest 
in most States since the Affordable Care Act's (ACA) enactment; average 
job-based premiums rose only 4 percent between 2014 and 2015. Premiums 
between 2010 and 2015 rose 27 percent, which was significantly lower 
than the 69 percent increase from 2000 to 2005.\1\ There has been, 
however, a long-term trend toward workers paying a growing share of 
premiums and cost-sharing charges under employer-sponsored plans. For 
example, annual deductibles continue to rise, and more workers are 
enrolled in plans that include deductibles.
---------------------------------------------------------------------------
    \1\ Kaiser Family Foundation and Health Research & Educational 
Trust, ``Employer Health Benefits 2015 Annual Survey,'' September 2015.
---------------------------------------------------------------------------
    Contrary to predictions, the ACA hasn't caused employers to drop 
coverage for their workers. From 2014 to 2015, the percentage of 
employees who reported that their employers offer health coverage 
increased slightly, as did the share who reported being eligible for 
the coverage offered, according to a new analysis of Census data. 
Overall coverage rates remained stable for people working at both small 
and large employers during that period. \2\
---------------------------------------------------------------------------
    \2\ Joelle Abramowitz and Brett O'Hara, ``New Estimates of Offer 
and Take-up of Employer-Sponsored Insurance,'' June 2016, forthcoming 
publication in Medical Care Research & Review.
---------------------------------------------------------------------------
    Smaller employers remain less likely than larger ones to offer 
coverage, however. In fact, the smaller the firm, the less likely it 
offers coverage. For example, in 2015, 37 percent of firms with three 
to nine workers reported offering coverage, as compared to 63 percent 
of firms with 10 to 24 workers, 82 percent of firms with 25 to 49 
workers, and 92 percent of firms with 50 to 199 workers. Firms that do 
not offer health benefits cite cost as the main reason.\3\
---------------------------------------------------------------------------
    \3\ Kaiser Family Foundation and Health Research Educational Trust, 
op cit.
---------------------------------------------------------------------------
    The ACA's coverage expansions have undoubtedly helped small 
business employees by ensuring that more people have access to coverage 
through Medicaid and the marketplaces. Many small business employees 
and their family members who may have been uninsured in the past can 
receive needed medical care and maintain their health. Notably, many 
self-employed people have also newly obtained insurance as a result of 
the ACA. Self-employed people often could not get coverage before the 
ACA, when insurers in most States' individual markets could deny 
coverage or charge far higher rates based on pre-existing health 
conditions. For example, more than one-fifth of the enrollees in 
California's individual-market exchange (known as Covered California) 
were self-employed as of June 2016.\4\
---------------------------------------------------------------------------
    \4\ Covered California data is available upon request.

What Federal insurance market policies have affected premiums for small 
---------------------------------------------------------------------------
businesses?

    Federal policies under the ACA have produced a much better 
functioning small-group market than existed prior to health reform. 
Some of these policies have enabled small employers to improve the 
coverage they offer, while others have lowered premiums, particularly 
for firms with older workforces in poorer health.
    Insurers offering coverage in the small-group market must now cover 
a package of ``essential health benefits,'' which includes critical 
benefits like maternity services and treatment for mental health and 
substance abuse disorders; before health reform, these benefits were 
often omitted from small-group plans, even if small employers wanted to 
offer them. The ACA also bans annual and lifetime dollar limits on the 
benefits that insurers pay out and requires plans to limit enrollees' 
out-of-pocket costs each year for deductibles, copayments, and other 
cost-sharing charges. While these reforms made small-group coverage 
more comprehensive and hence pushed up premiums somewhat, they also 
enabled small firms to offer coverage more similar to the offerings 
from large employers, a choice that many small firms did not have 
before the ACA.
    Other Federal policy changes affect how insurers set premiums for 
the small-group market, including a prohibition on charging higher 
premiums based on employees' health status, gender, industry type, or 
the overall claims history of a small business, as well as a limit on 
how much more insurers can charge older employees than younger ones. 
While some small businesses have seen premium increases due to these 
changes (for example, those whose workers are mostly younger, 
healthier, or male), other firms have seen premium decreases (for 
example, those whose workers are mostly older, sicker, or female). As a 
result, all small employers covered by ACA-compliant policies, 
including those with younger and healthier workers, can rest easier now 
that a sudden illness among their workers or their workers' families 
will not result in a sudden spike in the firm's premiums the following 
year, which was a substantial risk for small businesses prior to 2014.
    The ACA also requires each insurer in the small-group market to 
pool their enrollees in that market when determining what they will 
charge for coverage. Advocates for small businesses have long wanted 
the ability to pool small firms together to get more affordable and 
stable premiums, similar to large employers, rather than having each 
small firm looked at independently when setting premiums. Broader 
pooling, too, has allowed some firms to see their rates decrease or to 
stay the same. Other firms (such as those with healthier and younger 
workers) may have seen higher premiums as a result, but in the long 
run, premiums in the small-group market will likely be more stable over 
time due to this single risk pool requirement than they would otherwise 
have been.
    The ACA also required insurers in the individual and small-group 
markets to spend 80 percent of the premiums they charge on patient care 
and quality improvement efforts. Prior to health reform, only about 70 
percent of insurers in the small-group market met this ``medical loss 
ratio'' (MLR) standard, which means that more than 20 percent of small 
business premiums were going to overhead and profit rather than medical 
care. The MLR requirement helps ensure that small businesses get good 
value for their premium contributions. In addition, ACA-mandated 
improvements in information transparency for small businesses make it 
far easier for business owners to compare plan and coverage options. 
For example, a standard form called a Summary of Benefits and Coverage 
(SBC) allows apples-to-apples comparison of virtually any plan's 
benefits and cost-sharing charges. The ACA's standards for plan 
benefits and cost-sharing charges, including the ``metal levels'' that 
small-group plans must meet, also help consumers compare coverage 
options, promoting competition based on price and quality among 
insurers--which can help reduce premiums.
    While health reform established some minimum Federal standards for 
State small-group markets, States remain primarily responsible for 
their markets. States have a number of tools to improve affordability 
for small businesses (as well as individuals) and create more 
affordable, competitive, and stable markets. For example, States that 
have the authority to review and either approve or disapprove health 
insurers' proposed rates have helped reduce premium increases compared 
to what insurers wanted to charge. Some States operate Small Business 
Health Options Program (or SHOP) marketplaces, which offer a choice of 
plans and carriers to small business employees and allow some small 
employers to receive Federal tax credits for offering coverage.
    A few States have taken additional steps to ensure that their risk 
pools are well-balanced and as competitive as possible. For example, 
Vermont and Massachusetts each merged their individual and small-group 
markets. Vermont includes small businesses with up to 100 employees in 
its merged market, rather than up to 50 employees as in most States.
    Many States also decided not to extend the availability of non-ACA-
compliant plans for small businesses. In States that allowed such plans 
to continue (under an Administration policy), some degree of adverse 
selection likely occurred that weakened the stability of the small-
group market. Firms with healthier workers are likely 
disproportionately enrolled in those plans. States that did not 
continue to make those plans available likely helped create more 
balanced risk pools more quickly in their small-group markets, with 
more stable premiums.

What factors must small businesses consider when assisting employees in 
purchasing health insurance?

    Small employers have a number of options for assisting workers with 
purchasing insurance. The first question is whether to offer health 
benefits at all, if the employer is small enough to be exempt from the 
``shared responsibility'' penalty. Clearly, many small employers view 
health benefits as critical to attracting and retaining high-quality 
workers and will continue offering them even if not required to. Other 
small firms may decide not to offer health coverage, recognizing that 
the reformed individual market is far more accessible due to the ACA. 
Workers and their family members with pre-existing health conditions 
now have guaranteed access to an individual-market plan that covers a 
comprehensive set of benefits and protects against very high out-of-
pocket costs.
    Many small business employees may also qualify for Federal premium 
tax credits and cost-sharing subsidies for coverage purchased through 
an individual-market exchange or marketplace if they are not offered 
employer-sponsored coverage or the coverage is not affordable or 
comprehensive.
    Another option for small employers is to offer small-group health 
coverage to their workers, possibly by working with an insurer or a 
broker, much as they did before the ACA. Some may use private exchanges 
to access small-group coverage.
    One additional option created by the ACA within the small-group 
market is SHOP, as noted above. SHOP gives small businesses an easier 
way to comparison shop for insurance options, receive tax credits, and 
offer multiple plan options to their workers. The SHOP exchanges got 
off to a slower start than the individual marketplaces and have 
suffered from some technical and operational problems, so enrollment 
remains low. However, it appears the technical issues have largely been 
resolved. In 2016, employee choice--which allows employers to select a 
metal tier and employees to choose any SHOP plan in that tier--became 
available in all States served by the federally run SHOP. This was an 
important advance; previously, small firms typically could offer only 
one insurance plan from one carrier. In addition to reducing the effort 
involved with offering coverage, the SHOP enables small businesses that 
want to contribute to the cost of a small-group plan on a tax-
advantaged basis to do so.
    Yet another option in many States--and one that raises significant 
concerns for the stability of premiums in the small-group market--is 
the possibility that small businesses will increasingly decide to self-
insure, meaning they would bear the risk of employees' medical claims. 
Some small employers might find this attractive, at least at first, 
because it would allow them to offer coverage that doesn't meet many of 
the ACA's requirements for the small-group market. Insurers offering to 
help small employers self-insure also provide a reinsurance or stop-
loss policy to cover unexpectedly large claims. However, self-insurance 
would most likely attract employers with workers that tend to be 
healthier and cost less to cover. If a large share of small employers 
with lower cost employees opt to self-insure, this would disrupt the 
newly balanced risk pools in States' small-group markets and make 
premiums less affordable and stable over time.
    Finally, the House recently passed a bill allowing firms with fewer 
than 50 workers to use a health reimbursement arrangement (HRA) to 
contribute to the cost of workers' premiums on the individual market. 
Currently such ``standalone'' HRAs are not permitted because they 
cannot meet ACA standards for group health plans offered by employers, 
such as the requirement to cover certain preventive services at no cost 
and the prohibition against annual benefit limits. Similar to self-
insurance by small groups, standalone HRAs for small employers (which 
have been banned for all employers since 2014) could have a negative 
impact on States' small-group markets. It is unclear how many small 
businesses that now offer coverage might shift their workers to the 
individual market using an HRA and how that might affect workers and 
the risk pool in a given State. However, large numbers of small firms 
could decide to make this jump. If they tend to be firms with healthier 
workers, this could leave the small businesses remaining in the small-
group market with higher premiums and possibly fewer coverage options.
    Supporters of the HRA proposal claim that it would free up more 
low-income workers to get subsidized coverage through the marketplace, 
rather than requiring them to take an employer offer of coverage that 
might not be as affordable or comprehensive. But it isn't clear how 
employers would structure their offers in response to the HRA proposal. 
Employers have significant flexibility to define the terms of the HRA 
they offer, and many low-wage workers might not be better off. Such an 
option, if made available to small employers, seems ill-advised because 
of its risks for the small-group market.

    Senator Enzi. Thank you.
    We'll get into a little discussion. As I mentioned, this is 
a roundtable, so if somebody wants to make a comment, if you'll 
stand your name tag up, you can comment on anything that's been 
said or any of the questions that might come up. Of course, one 
of the things we're concentrating on here is cost, and I'd be 
interested in any suggestions that you might have--you may have 
already stated them--on ways to bring those costs down for 
small businesses.
    Does anybody want to answer that question?
    Mr. Glause.
    Mr. Glause. Thank you, Senator Enzi. One thing we need to 
focus on is that healthcare determines the cost of health 
insurance. Health insurance doesn't dictate the cost of 
healthcare. I think we need to really take a look at how we're 
going to control our healthcare costs and our pharmacy costs.
    When you talk to the health insurance companies, the No. 1 
driving factor for increase in rates is continued prescription 
cost. I think that our discussion, if we're going to really 
look at focusing on controlling the cost of insurance, has to 
include looking at the delivery of healthcare.
    Senator Enzi. Thank you.
    Mr. Harte.
    Mr. Harte. I figure I'll be a great segue to Commissioner 
Glause, because a lot of what we talk about at the Health 
Underwriters is something that I've been preaching from the 
rooftops for a very long time, and that is that health 
insurance is expensive because healthcare is expensive. As a 
matter of fact, within the ACA, it talked a lot about the 
medical loss ratios, and we've talked about that issue for 
years.
    When you think about the medical loss ratio from a cost of 
healthcare perspective, when formulating healthcare reform, 
when medical loss ratio came out, finally, it came out at 85 
percent for large group and 80 percent for small group. That 
speaks volumes to me about healthcare, because a lot of what we 
talk about across the country are health insurance premiums, 
but people are bundling it all together to say that the problem 
is health insurance premiums.
    In fact, when 80 percent to 85 percent of the cost of the 
premiums goes toward healthcare, a lot of our focus should be 
more on the healthcare side of the delivery equation. When I 
reflect back and I look at statistics going back to 2014, when 
we look at metrics--and we look at metrics as inpatient 
hospital care, physician visits, hospitalization--since that 
time, all of those metrics have gone through the roof. As a 
result, healthcare costs have exploded, which leads to higher 
health insurance premiums.
    Then, of course, like I mentioned before, the deductibles 
for the individuals are making it unaffordable for them to have 
access to care. A 47 percent increase in deductibles from 2009 
to 2014 makes healthcare unaffordable for a lot of people. Yes, 
they're insured, and that's what we wanted to do. That's what 
we wanted to accomplish with accessibility. But in the end, 
we're making healthcare very unaffordable.
    As it relates to prescriptions, what a lot of people don't 
know is when we talk to an employer, 26 percent to 28 percent 
of their premium goes toward prescription cost expenses. We 
tend to set that aside because we're simply paying a $10 or $25 
co-pay. But in the end, we have insureds who have prescriptions 
that cost $100,000 per month, $100,000 a month for one 
prescription. We need to address the cost of prescriptions.
    Then we move into high-cost claimants. Historically, Health 
Underwriters--we look at the total healthcare dollar, and it's 
commonly known that 5 percent of the claimants produce 50 
percent of the total utilization of an employer plan. That's a 
challenge for us, because as a health underwriter myself, as a 
compassionate individual, I desperately want to make sure that 
we take care of those people who are suffering from chronic 
illness. But we need a solution to address the 50 percent of 
the healthcare equation.
    I will yield my time over to Sarah.
    Ms. Lueck. I think he was next.
    Mr. Harte. Oh, I'm sorry.
    Senator Enzi. Mr. Hudak.
    Mr. Hudak. Fundamental to shaving the cost of care is 
transparency. Americans are great consumers. We consume better 
than anybody else. We know how to shop. One could argue under 
the Affordable Care Act that there's less transparency, not 
more transparency. There's less options, not more options. In 
our area, we have three viable options. We are paying $200 a 
month more for our family coverage just to keep our doctors, to 
stay in--so that my wife can keep her doctors.
    Consumer-based health plans gives the flexibility and 
allows us to be consumers. I have some stories about being a 
consumer. When going to the doctor and they see that you have a 
high-deductible health plan, they'll negotiate the price with 
you. ``Mr. Hudak, if you pay today, we'll give you a 20 percent 
decrease in the bill.''
    But it's more than that. It's how I get my care, what care 
I get. I had to have a procedure done on my back. The doctor 
deemed it elective. I said, ``No, I have a tremendous amount of 
pain. It's affecting my work. It's affecting my ability to run 
my business.'' The doctor said, ``I can't justify it with the 
insurance company.'' I had an HSA. I said, ``I'll pay for it. 
It's not a big deal.'' We negotiated our price. I had the 
procedure done.
    In 2 months, I lost 30 pounds, 30 pounds in 2 months. I 
felt better than I had in a decade. My productivity went up. My 
business thrived. Today, I need to have the procedure done 
again. Guess what? They don't want to do it. I don't have the 
flexibility. I don't have the options I had when I was a 
consumer. I'd like to be a consumer again.
    Senator Enzi. Ms. Lueck.
    Ms. Lueck. Thank you. I think one thing I wanted to point 
out is there is a lot of discussion about consumer-driven 
healthcare, and I think there are some things, particularly, as 
you mentioned, related to transparency that can help consumers 
be better informed. There are now standard forms called SBCs 
that exist for virtually every plan.
    If you are trying to decide what plan you want to buy, 
whether it's maybe your spouse's plan and yours from two 
different employers or you're in the marketplace and you're 
shopping for individual market coverage, you can lay these 
documents side by side, and this is the first time you've ever 
been able to compare apples to apples, sort of. What is the 
cost sharing for this plan versus this plan? Which benefits are 
excluded? The insurers provide those and the employers provide 
those for almost every plan. That's a really helpful thing for 
people to begin to understand their plans and how they work and 
to try to make wise choices about coverage when they're looking 
for coverage.
    But when it comes to consumer-directed healthcare, I think 
we're often talking about very high-deductible plans, which, as 
we've already said, are difficult for people. The problem with 
a very high-deductible plan is that it can be kind of a blunt 
instrument that makes the person perhaps decide not to get care 
and they may not be making the best decision in terms of 
whether to get high-value care or low-value care. They may just 
sort of be deciding ``I'm not going to get this care because I 
can't afford my deductible,'' and that's not something we want 
to see.
    Some of the more sophisticated and perhaps impactful things 
that are starting to go on, I think, to deal with healthcare 
costs have to do with driving provider behavior, because 
providers have a lot of power in the system. When they're 
dealing with consumers, as the anecdote showed, making 
decisions about cost and value of care and deciding how to 
proceed with treatment, often that's something the consumer 
can't do on their own or can't do enough to make a difference 
in healthcare costs, because a lot of things either aren't 
elective for them or they don't have enough information about 
the specific medical benefits and costs to make a decision or 
about the prices of the treatment.
    I think that we have a lot of work to do. But I think that 
there's a lot of promise in trying to change payment structures 
in order to drive higher-value care, reduce inefficient care, 
and to maybe encourage providers to talk with patients about 
how best to proceed with treatments.

                       Statement of Senator Scott

    Senator Scott. Mr. Chairman.
    Senator Enzi. Tim.
    Senator Scott. These folks are fairly active with these 
name tags going up and down, so I figured I'd just jump in here 
now.
    Senator Enzi. Yes.
    Senator Scott. Thank you.
    Senator Enzi. We'll come back to that.
    Senator Scott. Yes, we certainly will, because I'm going to 
focus on the issues, because I think if we take a step back and 
realize what we're having a conversation about, we're having a 
conversation about healthcare affordability for small 
businesses, but really for employees of small businesses, for 
average families, who in the last several years have seen their 
real income go down, not up. We've seen more small businesses 
closed last year than opened. There's a reason why.
    In the economy that we are facing today, we have 12 million 
more Americans who are living in poverty. We have a 40 percent 
increase in Americans who are eligible for food stamps. There's 
something going wrong in our economy, and if you look at one of 
the primary challenges we face, especially as a former small 
business owner for 15 years, the regulatory environment that 
exists today is unparalleled in the history of our country.
    Six of the last 7 years, we've seen the greatest increase 
in regulatory burden: 80,000 new pages proposed last year with 
an economic impact of $1.8 trillion. We're asking small 
businesses to do what they've never had to do before. If you 
look at two of the primary causes for the regulatory burden 
that we see today--Dodd-Frank and the ACA.
    When you focus specifically on the ACA and you ask yourself 
the question between healthcare costs and health insurance, 
perhaps it's the wrong debate, because I would tell you that 
the ACA may actually be increasing the actual cost of 
healthcare, because what you talked about for a moment there, 
Mr. Harte, was what I call healthcare rationing. You may have a 
card that gives you access, but because of providers--and in 
South Carolina, we've had two rural hospitals closed. Yes, you 
have a card, but do you have access to healthcare?
    With higher deductibles--and we may be talking about HSAs, 
where your deductible is $5,000. But, actually, in South 
Carolina and throughout this country, it is difficult for the 
average American to put $400 together, not $5,000, but $400. 
We're talking about people working paycheck to paycheck, who 
are struggling to make a $1,000 deductible or a $500 
deductible. In November, we're going to hear about higher 
health insurance costs, not lower.
    Mr. Hudak, who had to negotiate for his healthcare cost 
because of the challenges of health insurance, may not always 
be in the position to negotiate again for the necessary back 
surgery that increases his productivity, not decreases it. I 
would love for us to continue the conversation on how small 
employers can better afford to provide healthcare coverage for 
their employees. But I want to make sure that we do so, looking 
through the prism of reality.
    Anyone who believes that when 12 out of 23 co-ops fail, 
740,000 more folks looking for coverage because of the failure, 
when the exchanges are challenged, when health insurance 
coverage is becoming more expensive, and when United 
Healthcare, one of the largest providers, is saying, ``No, I 
can't do that anymore. I'm pulling out''--for us to think that 
reducing competition somehow lowers prices, it's only in 
Washington where that makes sense, to be honest with you.
    Mr. Hudak, I do have a few questions for you and Mr. Harte 
as well, and the panel can answer the questions. I'll start 
with you, Mr. Hudak.
    Sixty percent of small employers suggest--and I would say 
states--that the reason why they don't have health insurance 
for their employees 52 percent of the time is because of cost. 
What are some of the reasons that you've seen, as an 
accountant, with folks that you're insuring? You're having a 
lot of interaction with folks financially. What are some of the 
things that you're hearing from the folks that you work with on 
the cost issue, if you can answer that question? No. 2, how 
will increased premiums--we see they're coming in November of 
this year--impact the number of folks that you think will be 
providing health insurance in the future?
    Then for the panel, I think--and I can't prove this yet--
but I think the employer mandate and the penalty will actually 
create a perverse incentive to provide less healthcare through 
your employer, not more healthcare--2,000 versus 10,000 might 
be an easy conclusion to reach for many employers. The actual 
burden on taxpayers will go up, not down.
    First, healthcare costs from the small business 
perspective--what have you seen? Mr. Hudak and Mr. Harte as 
well, I know that you are in the business. I sold health 
insurance for about 5 years and realized, OMG, I need to do 
something else. So I went into the property and casualty 
business and the financial services business.
    I see the pain. I've seen the pain that an increase has 
when someone who could barely afford their health insurance 
could see doubling of their health insurance costs, even though 
they have an HSA. In South Carolina, a guy in Greenville went 
from $425 a month to $800 for his family with a $25,000 
deductible, family deductible.
    Mr. Hudak. The small business community has always 
struggled with healthcare premiums. That's why we always liked 
the flexibility of consumer-based products. In order to compete 
with the State of Pennsylvania, because of our proximity to the 
capital, we provided an HRA, an allowance, allow our employees 
to have a certain dollar amount that we could afford. We can 
budget for it. We can plan. We can figure it into our growth 
plan.
    What we found, particularly amongst young people, 
millennials, is they love that flexibility. They love to be 
able to take that money--and maybe their wife has a medical 
plan at her employer, but maybe they don't have dental, or 
maybe they need help with their co-pays, or maybe they need 
help with their co-insurance. This enables us the flexibility 
to compete for that labor. All big businesses become big 
businesses with the help of great people, and we need to 
attract and retain those. Sure, we'd like to provide health 
insurance.
    You asked about what's happening. We have a business on our 
board, on the NFIB board in Pennsylvania. He had been providing 
health insurance for 40 years. He was prideful. It was a 
bragging point. Do you know that last year, he announced that 
he can no longer afford coverage for his firm anymore, and 
those individuals ended up in the marketplace? It's 
unfortunate. It made him less competitive. It made his 
business, some may argue, less attractive to young talented 
people that can maybe bring his business to the next level.
    What we've found with the Affordable Care Act is we have 
greater costs. We went from $1,200 a month for our family plan 
to $1,900, if we include my wife's prescriptions, which went 
from $100 to $600 a month. When we signed up for the plan, we 
specifically asked about the formulary for that drug. They 
assured me--but because of the confusion, even the insurance 
company got it wrong. We signed up for a plan, and they 
couldn't even--when we signed up, they didn't truly represent 
the cost to us. There's not less confusion. There's more 
confusion.
    Senator Scott. Mr. Harte.
    Mr. Harte. Thank you. Off testimony, because you were a 
broker yourself at one time--yes, maybe you were the smart one. 
You got out after 5 years. I've been doing this for almost 30 
years.
    Senator Scott. Let us pray.
    Mr. Harte. I would say brokers across the country--we 
struggle every single day. We struggle because those who become 
our clients become our family. We take them under our wing. We 
help them every single day, not just with the price increases 
that they are so fearful of every 12 months, but having access 
to care and the other challenges with their health insurance 
plan.
    Before I flew down here, I took a sampling of my most 
recent renewals that I've had, and I gathered 12 of them just 
so that I can share with you the insights from my employers. 
It's hard for me to walk into a small business and say, ``Your 
rate has increased by 29.96 percent,'' or 18.45 percent, 17.73 
percent, 15.47 percent. The fact is small businesses have to 
make a critical decision--How much of this am I going to pass 
on to my employees? How much of it can I absorb on my own? What 
must I cut? What type of cost shifting do I need to do? Do I 
need to reduce my prescriptions, increase the hospital co-pays? 
What do I need to do?--because they can't afford a 30 percent 
rate increase.
    As you indicated earlier, with the struggles within our 
economy, employers are struggling--small, medium, large 
businesses, and individuals who are purchasing insurance on the 
marketplace. It's unsustainable for us to continue to be faced 
with these significant rate increases.
    I know we talked briefly about transparency, and I believe 
transparency is one of the success factors that we really need 
to focus on. Anecdotally, it always helps me when I share 
numbers. On my phone, I have this really cool app. It's not 
available to you, Senator Scott, because you're in South 
Carolina. But I have this app in New Hampshire. It's called My 
Medical Shopper, and I can scroll through, and I can find out 
what the cost is within 30 miles of my home of any particular 
service that I need, and it's all bundled up. It brings one 
particular care together.
    For your interest, I threw together a couple of examples. 
I'll give you four, and they were picked at random for me when 
I was out in New Mexico yesterday. For an MRI of a lumbar spine 
without dye, the least expensive facility within 30 miles of my 
home is $485. The most expensive is $2,114. The percentage is 
436 percent. Colonoscopy--the least expensive is $458. The most 
expensive is $3,031. The percentage is 661 percent.

                      Statement of Senator Cassidy

    Senator Cassidy. Does that include facility fees?
    Mr. Harte. Yes, it is.
    Senator Cassidy. Is that soup to nuts?
    Mr. Harte. Soup to nuts. This particular app will actually 
show you all of the other underlying care that happens with 
that particular colonoscopy. The one that's up on my phone 
right now is with a biopsy. It can drill down to a very 
specific and deliberate procedure. The MRI categories that are 
on this app go into maybe 30 or 40 different categories of 
MRIs, with dye or not, neck, back, legs, arms.
    Senator Cassidy. Is it the provider who is publishing that, 
or is it the insurance company which is publishing that rate 
schedule?
    Mr. Harte. For this particular app, they are doing a 
technology platform called scraping, where they're going in to 
the back end of the website for the health insurance company 
and pulling the data from the health insurance company.
    Senator Cassidy. That's pretty cool.
    Senator Scott. One last question before we hear more on 
this. One of the things that I think escapes us at times is the 
impact of the medical loss ratio on a small business person's 
opportunity to have an expert come in, because, essentially, 
you're shaving commissions, and, frankly, in a world that's 
becoming more complicated, you're having fewer experts come in 
to provide assistance, which makes it more likely that a small 
business owner will opt out of providing care. Remember that 60 
percent of employees work for a company with 20 or fewer 
employees.
    Mr. Harte. You're talking my language, Senator Scott. So, 
yes, and within healthcare reform, between small group and 
large group, the medical loss ratios must be 80 percent or 85 
percent, dependent upon where you fall as an employer. Broker 
compensation must be included within the administrative costs. 
We have argued for years that that should be pulled out, 
because there's no greater value to an employer than accessing 
the expertise of an employee benefit professional who can help 
small businesses like Mr. Hudak.
    The fact is purchasing health insurance is not like going 
down to your appliance store and buying a refrigerator. 
Purchasing health insurance is overwhelmingly complicated. 
Whether you talk about deductibles or co-insurance or 
transparency or bifurcated networks, it is likely the most 
complicated product that you will ever have to purchase, and 
you need the expertise of an employee benefit professional to 
help you navigate those challenges.
    Senator Scott. Thank you.
    Thank you, Mr. Chairman, for your indulgence.
    Senator Enzi. Thank you for your questions.
    Senator Cassidy, I know, has questions, because he's been 
working on this a lifetime, and since he's gotten to the 
Senate, he's spent another lifetime working on it.
    Senator Cassidy. And my hair has turned your color.
    [Laughter.]
    Senator Cassidy. It used to be, shall we say, blond.
    Ms. Lueck, you had a critique of consumer-driven healthcare 
that their high deductibles make perhaps less advantageous. 
Oftentimes, I think of consumer-driven healthcare as a health 
savings account associated with that catastrophic policy. On 
the other hand, the exchange policies typically have a $6,000 
deductible without the HSA component.
    Now, it seems as if you're OK with the one, but have kind 
of a negative critique of the other. How do you reconcile that 
impression that I have?
    Ms. Lueck. On the exchanges, for people who are low-income, 
who are under 250 percent of the poverty line, there are cost 
sharing reductions available, and it varies in terms of how 
that affects the deductible under a Silver Plan, but it can 
affect it quite significantly. For the people that are lowest 
income, the deductibles are substantially reduced, and that's 
important because there's a lot of research to show that lower-
income people are really sensitive to price, and they would 
possibly avoid care that they should be getting because they 
can't afford to pay the fee that they owe.
    Senator Cassidy. Though what we're hearing from Mr. Hudak 
and others is that, really, a single woman who's earning 
$70,000 a year would not qualify for a subsidy. Mr. Harte, how 
much does a single woman in New Hampshire who is 45 years old 
pay for an individual policy, Silver policy?
    Mr. Harte. Approximately $600 a month.
    Senator Cassidy. She is paying $7,200 a year on a pretax 
income of $70,000. She's paying probably roughly 15 percent of 
her after-tax income, if not more, and I find that if she has a 
$6,000 deductible, she also is foregoing care. Again, if you're 
limiting your comments to those who are getting subsidized, I 
guess I see your point. If we're going to be more inclusive of 
the middle class and these people who are typical employees, 
they're getting punished, and I'm not sure how--they have a 
$6,000 deductible with a pretax income of--you see where I'm 
going with that. Any comments on that?
    Ms. Lueck. Yes. I mean, I think that we definitely need to 
look closely at the affordability of cost sharing and how it's 
impacting people and whether the HSA-style plan with a high 
deductible is the best route to go, regardless of your income, 
and whether people are able to make the decisions about how to 
spend that money, when, as Senator Scott pointed out, a lot of 
people have trouble even spending $400 out-of-pocket if they 
needed to in a pinch.
    Another point I should make about the ACA compliant plan 
design is what we've seen over time. A trend that's different 
than what was there before in terms of plan design is that, 
often, even a plan that has a very high deductible of $6,000, 
like you're mentioning, may cover a lot of services that people 
commonly use without charging them that deductible.
    Senator Cassidy. It will for a colonoscopy, but it will not 
for the car accident or the trip to the urgent care center with 
their daughter's earache, and that is where they are foregoing 
care, anecdotally, in order to still put food on the table. 
That seems inherent in the rate structure that is part of the 
ACA exchanges.
    Ms. Lueck. There's a variety of ways that they design 
plans. When there's a car accident, people aren't able to 
decide one way or the other, right, and if they don't have the 
money to pay----
    Senator Cassidy. But they are left with that hanging over 
them, and although the ACA was supposed to eliminate medical 
bankruptcy, I gather it is actually a worse problem now. Let me 
ask as well--sitting here, it's like you're hearing two 
different conversations.
    From you, sir, I heard dramatic increases in premiums, and 
from you and from you, and then--or at least out-of-pocket 
exposure and the inability to afford. From Ms. Lueck, I heard 
from you that premiums are only rising 4 percent. It really is 
a kind of discordance as we listen.
    The way I reconcile that--but tell me if you disagree, Ms. 
Lueck, because people who defend the ACA mention that 4 
percent. But that's not out-of-pocket exposure. That is premium 
cost. Premium costs may be only rising 4 percent, but network 
is narrowing and out-of-pocket exposure is increasing. That 4 
percent rise means the policy now has a higher deductible, a 
higher co-pay, tiered benefits for pharmacies--I could go on.
    You're nodding your head, Mr. Harte.
    Ms. Lueck, do you agree even though premiums are not 
rising, that patients' out-of-pocket exposure has increased 
substantially?
    Ms. Lueck. Premiums are rising more slowly in recent years. 
They're still rising, and I think that's a longstanding trend, 
obviously. Then there's a longstanding trend toward individuals 
bearing more of their own out-of-pocket costs compared to the 
employer in things like deductibles and cost sharing. I don't 
point at the ACA. That's a trend that predates the ACA, and I 
think that the key thing that the ACA did is expand coverage 
for people so there are actually a lot fewer people that are 
facing the kind of bankruptcy that you're talking about.
    Senator Cassidy. I've seen the statistics. The statistics 
show that medical bankruptcies have not declined. Imagine a 
family in a wreck in December--they have complete exposure--
then they're in the wreck, so there's still pain through the 
next year. That's actually an unfulfilled promise, if you will.
    Ms. Lueck. We continue to have affordability issues. You 
mentioned the woman with a higher income level who's not 
subsidy eligible trying to buy her own policy. We should 
definitely be looking at the way that you described it, that 
global number of what percentage of people's income are they 
spending to get their health insurance coverage and to pay for 
their out-of-pocket costs for their healthcare and consider 
what's affordable and recognize that people at the lower end 
don't have the ability to pay as high a percentage of their 
income toward that care and that coverage as people with a 
higher income.
    Senator Cassidy. Mr. Hudak, you have a comment?
    Mr. Hudak. Yes. I want to just point out as part of our 
business of advising small businesses, as an accountant, more 
than 10 years ago, we probably did a financial analysis on HSAs 
hundreds and hundreds of times, and the way it worked is when 
you buy an HSA compliant plan, it provided no first dollar 
benefits except for the exception of prevention. Because of 
that, the way the HSA was cost, the savings in premiums would 
allow those contributions by the employer into an HSA account 
on behalf of the employee to give them the flexibility to use 
those dollars.
    Today, that's impossible to do. An employer not only has to 
deal with the insanity of the premium increases, but they don't 
have the ability to assist the employees in that way again, 
because the Affordable Care Act says--mandates that an HSA plan 
must provide those first dollar benefits. It's priced where an 
HSA no longer makes any sense. Some can argue that some of 
these plans--none of them make any sense from a financial 
perspective except for people who are running away from the tax 
penalty for not having a compliant plan. That's unbelievable to 
me.
    Senator Enzi. Mr. Glause, did you want to comment?
    Mr. Glause. Thank you, Chairman, yes. The deductibles for 
ACA plans are, in my opinion, extremely high--$6,350. The 
average person in Wyoming only spends $7,000 on healthcare 
annually, almost equal to the cost of the deductible. In many 
cases, these high deductibles are directly related to 
uncompensated care. Individuals just do not have the money to 
afford that deductible. Our healthcare facilities are then 
having to absorb that cost, and in many cases, it's raising the 
cost of healthcare.
    The providers are pretty sure that they're not going to get 
that first $6,000. They're building that into their rates, and 
it's caused the rates of healthcare to go up and uncompensated 
care to go up, which is threatening the existence of the sparse 
healthcare facilities that we do have in Wyoming.
    Senator Enzi. When we were first discussing healthcare 
changes, there were 49 million people that were uninsured. 
Today there are still approximately 30 million people 
uninsured. It's a different group of uninsured people. The ones 
that couldn't get insurance before have insurance, and the ones 
that had insurance can't afford the insurance.
    One of the things that comes up in the discussion is the 
effect of changing the bandwidths. Have any of you noticed an 
impact from that or have any suggestions for solving that?
    Mr. Harte.
    Mr. Harte. I didn't integrate a lot of my comments with 
regard to age bands, but for the edification of the committee, 
I will say that ACA declares that a three-to-one ratio is 
appropriate for small businesses across the United States. Most 
people would first ask me, ``Well, what does that really 
mean?''
    What you can't see right now is what the rate grids look 
like. The rate grids that are handed to a small employer start 
off with the age of 21 and go up through the age of 65, and 
every individual on the health insurance plan follows by that 
grid. That individual who is 21 versus the one who is age 65. 
It's a multiple of three or a 300 percent differential.
    The majority of healthcare is consumed by those who are 
older. Those over the age of 50 consume a lot more healthcare 
than those individuals who are younger than the age of 50. What 
we're seeing is the premiums for the younger population--and 
one of the objectives of healthcare reform was to insure the 
younger population--their premiums are too high. A five-to-one 
ratio would give greater flexibility to the insurance companies 
to make sure that they're collecting enough money for the older 
population to provide for their care while at the same time 
trying to provide more affordable options for the younger 
population.
    Senator Enzi. Mr. Glause.
    Mr. Glause. Thank you, Senator Enzi. What we've observed in 
Wyoming is with the--is that me?
    Senator Enzi. That's just us giving ourselves permission 
not to speak on the floor.
    [Laughter.]
    Mr. Glause. With the three bandwidths in the ACA as 
compared to the five bandwidths in our high-risk pool, we've 
actually found that the rates for young males with a five 
bandwidth in our high-risk pool is actually cheaper than 
getting coverage on the ACA. I think that that has constricted 
the bandwidth and has led to increased costs for the younger, 
healthier population.
    Senator Enzi. Ms. Lueck.
    Ms. Lueck. The other side of that would be if you changed 
it, it would obviously increase rates for the older population. 
Overall, we really want to make sure that there are healthier 
people of all ages in the risk pool so that we have as well 
balanced a risk pool as possible. But if you're talking about 
changing the age rating rules now from what they are, you're 
definitely going to see rate increases for certain groups of 
people.
    When the rating rules went into place, things changed for 
people as well. Women used to be rated more than men. That's a 
big change. There are some people that saw lower rates as a 
result of the changes and some people that saw higher rates, 
and I think they're just different groups of people.
    Senator Enzi. That's the 30 million I was talking about.
    Mr. Hudak.
    Mr. Hudak. I'm not an economist, but before the ACA, 
younger people weren't so interested in healthcare. Raising 
their prices hasn't made them more interested in healthcare.
    I do want to mention one thing. Connecticut some years ago 
had an exchange. The Chamber of Commerce had a small business 
exchange. If you were an employer, you could sign up for the 
exchange, and participating in there were all the different 
carriers, the insurance companies. The employee could select 
any company and any plan, and it would be billed as a group 
plan. It was fully medically underwritten. If you fell outside 
of the medical underwriting guidelines, you went into the risk 
pool.
    I always felt the best way to fund a risk pool would be 
based on market share of the insurance companies. If Anthem of 
Connecticut had a 30 percent market share, they would be 
responsible for funding 30 percent of the risk pool. This was a 
system set up by the Chamber of Commerce.
    I think it's a viable solution. I think it adds flexibility 
and choice, transparency, and, most importantly, one-size-fits-
all wouldn't have to be mandated. In other words, employees 
could have their choice of flexibility and the employer could 
be the true hero and provide the coverage that's needed.
    Senator Enzi. Just to followup on that, you were talking 
about the high-risk pool that the State had before?
    Mr. Hudak. Correct.
    Senator Enzi. Could you just go into that a little more? I 
must have missed part of it or something, but I think it was 
important.
    Mr. Hudak. It was fully underwritten, and if you fell 
outside the underwriting guidelines and didn't qualify for the 
plan, you would go into the risk pool, and your plan would be 
subsidized by the risk pool. Everybody--all comers would get--
it really addressed the adverse selectivity issue, because now 
you're dealing with a group plan where the qualifying event is 
new employment, marital change. You didn't have to worry about 
people jumping on and off, or if you lost your coverage for 
some reason. Right now, if for some reason, someone for 
whatever reason missed a premium bill, and their coverage 
lapsed, good luck trying to get it back. It's a very scary 
situation right now.
    Senator Enzi. Thank you.
    Mr. Glause.
    Mr. Glause. Thank you. In response to Ms. Lueck's response, 
I'd also like to point out that open enrollment without regard 
to preexisting conditions every year also increases cost to all 
consumers, whether you're young or old or middle aged. When the 
individuals elect not to obtain coverage until they have a need 
for it, costs are driven up, whereas if the bandwidth was wider 
and those individuals that were healthier had the opportunity 
to get into the insurance market at less cost, we may be able 
to get them coverage for when they need it without waiting 
until they had a condition that necessitated insurance.
    Senator Enzi. Ms. Lueck.
    Ms. Lueck. I just wanted to mention, since the guaranteed 
availability in the individual market and the open enrollment 
period issue came up, that it's one of the most important 
changes that's happened since 2014. One of the most popular 
changes, frankly, if you ask the public, is the fact that 
people can get access to coverage in the open enrollment period 
and that they don't get denied or that they don't pay higher 
premiums because of the fact that they have a preexisting 
condition.
    That was obviously something that was very concerning 
before to people who had those conditions, and it wasn't just 
people that had really expensive conditions that experienced 
those kind of problems. It was people that had taken 
antidepressants or had had chronic sinus infections. It was 
really a lot of us that would have faced barriers in the 
individual market.
    Now, we have a situation where small employers have a 
little bit of the pressure taken off, right, because they don't 
have to feel like they have to provide coverage. That used to 
be the case, right? They used to feel especially responsible to 
provide coverage because they may have employees that have 
health challenges and that wouldn't have been able to get 
coverage in the individual market, and now there's a backstop 
there, that people can get access to that coverage, and the 
open enrollment period is just a way of making sure that people 
can't actually enroll whenever they want to. They have to do it 
at a defined time.
    Senator Enzi. Thank you.
    Back to Mr. Hudak, did you ever look into the SHOP 
exchanges?
    Mr. Hudak. We did, and it appeared that the plans weren't 
very price competitive. Selections weren't very abundant, and 
in our area, my wife would have had to change her doctors, and 
she's had a preexisting condition for more than 15 years. We've 
always struggled with keeping coverage, but we've always 
maintained coverage. It's always been expensive. But I will say 
today our monthly costs are far above anything that we've ever 
faced in the past.
    To answer your question about the SHOP exchange, I think 
the selections aren't there, the choices aren't there, and the 
networks are limited.
    Senator Enzi. Anyone else want to comment on that?
    Mr. Harte. I would say to you, Senator Enzi, that I 
mentioned earlier that we represent 300 companies throughout 
New England, and it may be helpful to know that only two of our 
clients are involved in the SHOP. When I testified before you 
last year, I shared with you some significant challenges that 
the SHOP has had. I will share with you today that under the 
leadership of Mr. Counihan, the SHOP is better today than it 
was a year ago.
    However, it still presents the challenges outlined by Mr. 
Hudak, that sometimes you're going to find within certain 
States lack of options. You will find bifurcated networks, and 
sometimes you just don't find the solutions. It does attract a 
certain employer with less than 25 lives and an average income 
of less than $50,000 so you can take advantage of tax credits. 
But the ultimate question for a small business owner like Mr. 
Hudak will be: Is the aggravation going to be worth it?
    Senator Enzi. Thank you.
    Ms. Lueck.
    Ms. Lueck. I just wanted to say something, because I happen 
to agree with a lot of the panelists--I thought I would take my 
chance while I could--that the SHOP has obviously experienced a 
lot of challenges across the country in terms of getting 
started on time and working well. It had a lot of technical and 
operational problems when it first started. The reports that 
I've heard since, in the last year, are that it's better, and 
that a lot of those problems are resolved. But, of course, the 
enrollment still remains quite low.
    Small employers still have a lot of different options. They 
can keep buying coverage as they always have done on the open 
market directly from insurers through their brokers. That's 
still an option, and they don't have to go to the SHOP. It 
remains to be seen whether enrollment picks up there, whether 
there are more concerted efforts to educate employers, or to 
continue to bring more brokers into the SHOP marketplace, 
because that's another area where things have gotten better, 
but perhaps the brokers could have a larger role in the SHOP 
and that would help get more employers enrolled.
    The verdict is still out on the SHOP, and we'll have to 
wait and see what happens. Clearly, the enrollment has skewed 
toward those that are eligible for the tax credit that you can 
get when you're in the SHOP. If we want to assist the very 
small employers that are eligible a little bit more, maybe 
that's something to consider.
    Senator Enzi. Thank you.
    Mr. Glause.
    Mr. Glause. I'd just like to reiterate what I said in my 
opening comments, that in Wyoming, we have less than 300 lives 
covered in the SHOP, and the employers are telling us it's 
difficult to determine what the tax benefits are. It's 
convoluted, and they just aren't able to figure out what 
advantage, if any, there is to providing coverage under the 
SHOP. At least in our small State, we just haven't seen the 
benefits to date of the SHOP program.
    Ms. Lueck. Just one benefit I'll mention, for what it's 
worth. There is the ability in the SHOP to offer a defined 
contribution toward coverage. There's the ability to compare 
different plans. Obviously, the options are variable, depending 
upon the market and the State that you're in and the number of 
carriers that you have access to. But a number of SHOPs do have 
access to--they present access to multiple carriers so that 
small businesses can choose from those.
    They also have the advantage of not requiring, at least in 
the federally run shop, a contribution requirement from the 
small business. So often, we hear this idea that, oh, small 
businesses just want to provide a little assistance with the 
premium cost or to help their employees a little bit with the 
cost. That's an option in the SHOP, and those were the kinds of 
things that the SHOP was created for, and then, of course, the 
option to do employee choice and let employees choose either 
different plans in the same level or among different carriers 
on their own without the employer making those choices for 
them. That's a huge change and a new benefit, especially for 
small employers who haven't been able to do that in the past.
    Senator Enzi. Mr. Hudak.
    Mr. Hudak. I do want to mention that being able to provide 
healthcare in a flexible way is very important to small 
businesses. The No. 1 issue is, right now, one in three 
businesses have a position open that they can't fill. Trying to 
attract and retain key people is critical to our success. Great 
businesses are built with great people. We need to see 
flexibility in the healthcare system so that we can be 
inventive. We are finding that younger people like choices, 
like to be able to spend money--allow them to be true 
consumers.
    We hear this time and time again, and when the little guy 
is up against the big guy, it's very difficult for us to 
compete, and the only way we can compete with the limited 
dollars we have is with flexibility. That's why we believe HRAs 
are really critical to this puzzle. HRAs allow us to have the 
flexibility to let them purchase premiums, insurance plans, and 
a whole host of other benefits. But they are in the driver's 
seat, and there's a perceived and real value to being in the 
driver's seat when it comes to your healthcare.
    Senator Enzi. Ms. Lueck, in your opening comments, you 
mentioned the need for transparency of cost. Mr. Harte 
mentioned that in New Hampshire, they have transparency of 
cost. Does anybody know if that's available in any other States 
that way?
    I know of a couple of companies that testified before us 
before that were big enough that they could do those kinds of 
comparisons within their company. But I'd like to know more 
about this transparency.
    Mr. Harte, you talked about that app.
    Mr. Harte. In answer to your question, do other States have 
transparency tools, I want to answer that question, 
definitively, yes. However, I thought it might be helpful to 
also help you understand how New Hampshire was a bit of a 
pioneer in healthcare cost transparency, because approximately 
10 to 13 years ago, the State of New Hampshire Insurance 
Department under the leadership of Roger Sevigny came up with 
www.nhhealthcost.org, and it was a limited healthcare cost 
transparency tool.
    The first thing I'll share with you, Mr. Chairman, is that 
the first step could be that some of the States, through the 
insurance departments, can learn from the model in the State of 
New Hampshire, whereby the transparency conversation can start. 
That being said, the insurance industry is embracing the 
concept of helping their health plan members to have access to 
this information. As I shared with you before, the 
differentials can be greater than 600 percent from one facility 
to another, and, quite frankly, the lower cost facility can 
possibly be the higher quality of the two.
    There are some significant large companies who are in this 
marketplace right now, which I will share with you after 
today's hearing. But, also, health plans across the country are 
starting to get into the business of healthcare cost 
transparency.
    Senator Enzi. Mr. Glause.
    Mr. Glause. I was just going to echo Mr. Harte's comments. 
There are a number of States that have created either an all-
claims database or a multi-claims--multi-payers claims 
database. The problem is that research has not borne out that 
these all-payer claims databases or multi-payer claims 
databases have reduced cost. Even in certain instances, in 
California, we've seen them increase cost.
    I think the real challenge with the all-payer claims 
database is figuring out how to incentivize that for 
individuals. For instance, there is a Neiman Marcus approach to 
it, that if someone charges more, they must be better. It has 
to have a quality concept tied to it. And, as well, the 
individuals who have fulfilled their deductible--they no longer 
have any skin in the game. We have to figure out how to 
incentivize it.
    The other issue it creates is the providers have access to 
it as well, and you sometimes see providers bringing up their 
cost to meet the higher cost rather than bringing them down in 
limited competition areas.
    Senator Enzi. Thank you.
    I'll have some other questions that are probably a lot more 
specific, and so I'll submit those.
    [The information referred to follows:]
    [SUBCOMMITTEE INSERT]
    Senator Enzi. But does anybody want to make a closing 
comment?
    Mr. Harte.
    Mr. Harte. Thank you, Senator Enzi. Again, thank you for 
having me here today. I don't want this hearing to end without 
me talking about a couple of issues that are of great concern 
to my employer clients, one of which is the employer mandate 
and the management and administration of the employer mandate. 
Many employers issued their first tax forms just a few months 
ago, and the burden on employers from 50 and up is overwhelming 
at best.
    The volume of hours, administration, and management for any 
employer, regardless of size, to administer the employer 
mandate is overwhelming. Many employers, large employers, went 
to their payroll company last July and said, ``I need to start 
preparing for the employer mandate and my reporting. Can you 
help me with that?'' Now, as we know, a lot of healthcare 
reform reporting requires that hours be submitted on a monthly 
basis for individual employees. The clearinghouse for that is a 
payroll company.
    Many payroll companies shut down their clients and said, 
``I apologize. We cannot do your employer reporting,'' which 
left thousands of employers across this country looking for a 
third party solution without access to all that data, and they 
didn't talk to each other. My hope is that in this coming year, 
there will be better solutions so that the employers are not so 
overwhelmed.
    My other comment to you, Senator Enzi, is I wanted to share 
some concern that I have with regard to the consideration of 
eliminating the employer exclusion. As many of us know, the 
employer exclusion says that if a small business, like Mr. 
Hudak, contributes premiums toward their employees' health 
insurance benefits, then that benefit, the dollar benefit of 
the health insurance plan, is excluded from an individual's 
income.
    I will share with you, anecdotally, some of my clients. One 
of my clients is a large State employees union, and all of 
their employees will be subject to a significant tax increase 
absent the employer exclusion. In addition, as we're here today 
talking more about small businesses, since the rate grids came 
out, we have seen some significant discrimination in local 
businesses, because they look at these rate grids, and they 
say, ``It costs more to hire someone and provide benefits to 
someone who is age 55 and older.''
    What you'll also find by eliminating the employer exclusion 
is that there will be further discrimination amongst people who 
are my age and older, because when you work for a small 
business, if the volume of premium paid for that individual is 
higher than others, then, conversely, the tax to the business, 
for the payroll tax, as well as the individual tax to the 
employee, will be significant.
    I actually have some examples here that one taxable income 
for a 25-year-old will be an additional $12,900--and this is a 
real-life example from one of my clients--versus a $29,000 
additional income, almost like imputed income. Take their 
Federal tax rate of anywhere from 10 percent to 39.6 percent, 
and you're going to have a substantial tax burden to 
individuals.
    My concern, Senator Enzi, as you've known me through the 
years, my platform is we need to make health insurance more 
affordable. If in the event that we eliminate the employer 
exclusion, we will absolutely see an increase in the number of 
uninsured, because it will be significantly more unaffordable 
than you have it today. You'll also have employers who say, 
like Senator Scott said earlier, why don't employers just pay 
the $2,000 penalty?
    In my conversations with my clients every year, when I sit 
down and share with them a 10 percent to 30 percent increase, 
they're already considering walking away from their health 
insurance plan. By eliminating the employer exclusion, I can 
assure you that we will see a massive exodus from the small 
employer marketplace and the large employer marketplace by 
employers who are desperately concerned about the impact of 
losing the employer exclusion.
    Senator Enzi. Thank you.
    I appreciate all the comments today and all of the 
suggestions. I've got five pages of things circled here to 
followup on and see if we can work them into, again, making 
things more affordable for people that work for small 
businesses, because that's what we're trying to do, and I know 
a lot of people want to do that.
    I want to thank you all for your testimony and the ideas 
and suggestions. I hope I got them right. But they're very 
good. You're a knowledgeable group, and perhaps we'll have some 
more questions submitted for you. They have to be given to my 
office by close of business on Tuesday, July 5, 2016.
    Thank you very much. The roundtable is adjourned.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

                  Prepared Statement of Senator Hatch

    Small businesses in Utah, and across our Nation, are an 
important source of employment and economic activity while 
serving as the foundation of our communities. According to the 
Small Business Administration, Utah small businesses employ 
more than 520,000 individuals, which is nearly half of the 
private sector workforce. Firms with fewer than 100 employees 
make up the largest share of small businesses in Utah. Small 
businesses spark innovation, create jobs and complement the 
economic activity of large organizations. However, small 
business creation and growth is faltering in Utah and 
throughout the country because of the Affordable Care Act and 
its increased costs.
    According to a study conducted by the National Federation 
of Independent Business Research Foundation, ``the cost of 
health insurance is the most critical concern for small 
business owners in operating their business . . .'' This is 
further exacerbated by mandates and taxes imposed by Obamacare. 
It is time for the Federal Government to stop this assault on 
small businesses and hardworking Americans. Through my work as 
a member of this committee, as Chairman of the Finance 
Committee, and as a Utahn seeking common sense solutions to 
unnecessarily complex problems, I have fought to decrease 
health care costs for small businesses in a variety of ways.
    At the end of 2015, I ensured that Obamacare's 40 percent 
excise tax on high cost employer-sponsored health benefits--
referred to as the Cadillac Tax--was delayed until 2020. 
Similarly, I worked to enact a 1-year moratorium on the health 
insurance tax, which is estimated to increase premiums on 
average for small employers by more than $200 per employee. 
While these are small steps to address the rising cost of 
health care, they provided meaningful relief in the short term.
    As Chairman of the Finance Committee, I have also worked 
with my colleague, Senator Chuck Grassley, to support the Small 
Business Health Care Relief Act (S. 3060). This measure would 
allow small businesses that have no more than 50 employees to 
offer stand-alone Health Reimbursement Accounts (HRAs) to their 
employees if certain conditions are met without subjecting them 
to an onerous excise tax that went into effect last July. HRAs 
are an important tool used by employers to help employees pay 
for health insurance premiums and medical expenses. I will 
continue to work with Senator Grassley on avenues to advance 
this important piece of legislation.
    Many of the other ideas I believe will help to decrease 
health care costs for small businesses are included in the 
Patient Choice, Affordability, Responsibility, and Empowerment 
(CARE) Act I proposed with my colleagues, Senator Richard Burr 
and Congressman Fred Upton. The Patient CARE Act would repeal 
Obamacare, and instead build the economy, empower the 
individual, and reduce health care costs. Of particular 
interest for employers should be the repeal of the employer 
mandate that imposes a one-size fits all requirement on small 
businesses that offer health insurance coverage to their 
employees. Small businesses know their employees and their 
health needs better than Federal bureaucrats in Washington, and 
should have flexibility to design benefit packages that work 
best for them. Furthermore, this proposal would allow small 
businesses to join together to negotiate small business health 
plans to leverage purchasing power, which could help expand 
access to coverage and lower health care costs.
    Another component of the Patient CARE Act is giving 
employers and employees more access to Consumer Directed Health 
Plans, also known as HSA-Eligible Health Plans. As the lead 
sponsor of the Health Savings Act of 2016, I feel strongly that 
giving employees more choice and greater control of their 
earnings will enable smarter, more personal decisions about 
their health needs.
    Starting, maintaining and growing a small business demands 
hard work, dedication, and focus. The Federal Government should 
do all it can to support small business employers and 
employees, rather than increasing burdensome regulations that 
make it difficult for businesses to grow and hire more workers. 
I will continue to advocate for ways to bend the cost curve for 
small businesses purchasing health insurance coverage, and I 
invite anyone--Republican or Democrat--to work with me to 
address rising health care costs, which is a top issue facing 
the economic engines of our country.

    [Whereupon, at 3:25 p.m., the hearing was adjourned.]

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