[Congressional Record Volume 145, Number 129 (Wednesday, September 29, 1999)]
[House]
[Pages H9001-H9007]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          MANAGED CARE REFORM

  The SPEAKER pro tempore (Mr. LaTourette). Under the Speaker's 
announced policy of January 6, 1999, the gentleman from Iowa (Mr. 
Ganske) is recognized for 45 minutes as the designee of the majority 
leader.
  Mr. GANSKE. Mr. Speaker, I thank the Majority Leader for yielding me 
the balance of his time.
  One can never say that the floor of Congress is a dull place. So this 
afternoon we have heard about art exhibits showing the blessed virgin 
with elephant dung on them. We had a 5-minute speech from the gentleman 
from Minnesota (Mr. Ramstad) who had told us that he lives in Lake 
Woebegone. So I am going to speak about managed care.
  I just thought I would ask the Majority Leader a question. I was 
wondering if the Majority Leader, in the spirit of a little levity, 
could tell me the difference between a PPO, an HMO, and the PLO.
  Mr. ARMEY. Mr. Speaker, if the gentleman will yield, I will rise to 
debate. Let me say to the gentleman, though, I am sorry I cannot tell 
him the difference between a PPO, an HMO, and a PLO.
  Mr. GANSKE. Well, Mr. Speaker, one can negotiate with the PLO.
  Mr. Speaker, I am going to use the balance of the time to discuss 
managed care reform legislation that we are going to be debating here 
on the floor next week. I appreciate the Majority Leader and the 
Speaker of the House for setting up this debate for next week.
  The rumors are that we will be using the bipartisan consensus managed 
care bill as the base bill. That is the bill that I support. It is a 
strong managed care reform bill.
  We are uncertain at this time as to what type of rule we will have. I 
would request that we have a clean rule; in other words, a rule that is 
limited to patient protection legislation and does not involve tax 
matters for which one could then get into discussions about offsets and 
other difficult problems.
  Well, Mr. Speaker, humor sometimes shows that the public is aware of 
a problem. I remember, a few years ago, my wife and I went to the movie 
``As Good As It Gets.'' Many people saw this movie. It featured Helen 
Hunt and Mr. Nicholson.
  It was about a waitress played by Helen Hunt. She had a young son who

[[Page H9002]]

had asthma. In one of the lines of the movie, which I cannot repeat 
here on the floor, Helen Hunt, with expletive waste language described 
her HMO as preventing her son who had asthma from getting the type of 
care that he needed. The forcefulness of her statement caused 
audiences, not just to laugh, but in many instances to stand up and 
clap and cheer, as occurred in the movie theater that my wife and I 
attended this movie, indicating that the public understands that there 
is a problem in the delivery of health care by HMOs.
  It is not so funny when we look at real life cases. We have 
headlines, and this probably is directly related to the humor or at 
least the understanding of the statement by Helen Hunt in the movie 
``As Good As It Gets.'' We have a headline here from the New York Post: 
``HMO's cruel rules leave her dying for the Doc she needs.'' Just like 
the HMO's cruel rules would not allow Helen Hunt's son in the movie to 
get the asthma care that he needed, so he was also ending up in the 
emergency room.
  How about this headline from the New York post: ``What his parents 
did not know about HMOs may have killed this baby.''
  Which brings us to an issue in HMO reform that we have been working 
on which deals with an issue that started this debate several years 
ago.
  Now, before I came to Congress, I was a reconstructive surgeon in Des 
Moines, Iowa. I still go overseas and do charitable surgery. So I am 
still involved with the practice of medicine in some respects.
  But a few years ago, it became known that HMOs were writing contracts 
in which they said that, before a physician could tell a patient all of 
their treatment options, they would first have to get an okay from the 
HMO. These are called gag rules. That then spawned a number of 
cartoons.
  Here we have one, and I will read this for my colleagues because it 
is hard to see. We have a physician sitting at his desk, and he says: 
``Your best option is cremation, $359, fully insured.'' The patient is 
sitting there saying, ``This is one of those HMO gag rules, isn't it, 
doctor?''
  Or how about this one. The physician is sitting, talking to his 
patient. The physician says, ``I will have to check my contract before 
I answer that question.''
  Now, think of that. Now say one is a woman, one has a lump in one's 
breast, and one goes in to see one's doctor, he takes one's history, 
does one's physical exam. Then he says, ``Excuse me. I have to leave 
the room.'' He goes out in the hallway. He has to get on the 
phone, phone the HMO, and says, ``Mrs. So-and-So has a lump in her 
breast. She has three treatment options, one of which may be expensive. 
Is it okay if I tell her about all three treatment options.''

  Is that bizarre? Is that ridiculous? Does that strike at the heart of 
a patient having confidence that his physician is going to tell him all 
of his treatment options.
  Well, it was not such a funny story for a real life patient. This 
woman in the middle of this picture is dead today because her HMO 
prevented her from knowing all of her treatment options. This story is 
fully documented in Time Magazine from about 2 years ago.
  Or how about the problem that one has had with HMOs in delivering 
emergency care. Frequently, HMOs, if one has gone to an emergency room, 
will deny payment.
  Let me give my colleagues an example. You wake up in the middle of 
the night. You have crushing chest pain. You are sweaty. You know that 
the American Heart Association says this could be a sign that you are 
having a heart attack. So you go to the emergency room right away like 
you should, because if you delay, you may be dead. You have the tests 
run, and the electrocardiogram shows it is normal. But, instead, you 
have severe inflammation of your stomach or your esophagus.
  So the HMO, ex post facto, says, ``See, the EKG was normal. You were 
not having a heart attack. You are stuck with the bill, man, because 
you did not need to go.''
  Next time somebody thinks about that and then delays going to the 
emergency room when they should under what a common layperson would say 
is truly an emergency, they may not get a second chance.
  So here you have a cartoon that sort of deals with this. You have a 
medical reviewer saying, ``Cuddly Care HMO. My name is Joan. How may I 
help you? You are at the emergency room, and your husband needs 
approval for treatment? He is gasping, writhing, eyes rolled back in 
his head? Does not sound all that serious to me.'', the medical 
reviewer at the HMO says.
  Then she says, ``Clutching his throat? Turning purple? Uh-huh? Have 
you tried an inhaler? He is dead? Well, then, he certainly does not 
need treatment, does he?''
  Then the medical reviewer from the HMO turns to us and says, ``Gee, 
people are always trying to rip us off.''
  That is black humor. That is black humor, I will tell my colleagues. 
But that rings a bell with a lot of people who have trouble with their 
HMOs.
  Here you have a picture from a TV show a long time ago. You have a 
nurse here. She is on the phone, and she is saying, ``Chest pains? Let 
me find the emergency room preapproval forms.''
  How about a real life example of an HMO patient having significant 
problems with their HMO during an emergency. This young woman who is 
strapped to a board was hiking not too far from Washington. She fell 
off a 40-foot cliff. She was lying at the base of the cliff, semi-
comatose with a fractured skull, a broken arm, and a broken pelvis.
  Fortunately, her boyfriend had a cellular phone, and they got her 
airlifted into an emergency room. She was in the ICU on morphine drip 
for a long time, but she is doing okay now. But then she got a refusal 
of payment from her HMO. They would not pay for her hospitalization. Do 
my colleagues know why? They said, well, she did not phone ahead for 
preauthorization.
  I mean, think of that. She was supposed to know that she was going to 
fall off the cliff, break her skull, break her arm, fracture her 
pelvis. Maybe her HMO thought that, as she was laying at the bottom of 
the cliff, she should wake up, with her nonbroken arm, pull a cellular 
phone out, dial a 1-800 number, and say, ``Hello. I just fell off a 
cliff. I broke my pelvis. I need to go to the emergency room.''

                              {time}  1400

  And then when she was in the hospital on a morphine drip in the ICU, 
after it became silly, when the HMO was confronted with their denial, 
they said, well, she was in the hospital and she did not notify us in 
the first couple of days, so now we are not going to pay for it on that 
reason.
  Well, she was finally able to get some help from her State ombudsman, 
but many people who have health insurance, particularly through their 
employers, would not have that option. So what we have in the bill that 
we are talking about, the patient protection bill, the bipartisan 
consensus managed-care reform bill, is a provision that says, look, if 
an average person has what they would say truly is an emergency, they 
get to go to the emergency room and the HMO has to pay.
  How about some of these plan guidelines the HMOs use to determine 
medical necessity. Remember these? Remember when the HMOs were talking 
about drive-through delivery of babies or mandating only 24-hour stays 
in the hospital? Boy, they were embarrassed by that. But under Federal 
law, they can define medical necessity anyway they want to. And even if 
a patient suffers an jury, they have no recourse under Federal law.
  Here we have a cartoon with Dr. Welby, and he is saying, ``She had 
her baby 45 minutes ago. Discharge her.'' I mean, imagine that line on 
that program years ago. People would have thought that was absolutely 
crazy, and yet that is what the HMOs have mandated in some cases.
  Here we have a cartoon that says maternity hospital, and then we have 
the drive-through window with the caption, ``Now only 6-minute stays 
for new moms.'' And the person at the window says, ``Congratulations, 
would you like fries with that?'' And look at the mother. Her hair is 
all out like this; the baby is crying. And then there is a little thing 
that says, ``Looking a little like scalding coffee situation,'' in the 
corner.
  Now, this may be a little bit funny, but it was not funny to a woman 
by the name of Florence Corcoran, whose baby was sent home within the 
mandated 24

[[Page H9003]]

hours. The baby ended up dying of an infection that would have been 
discovered had the baby been allowed to stay in the hospital just a 
little bit longer.
  I was talking a little bit about the HMO's ability under Federal law 
for employer plans to define medical necessity any way they want to. 
Well, I have taken care of a lot of children with this birth defect, a 
cleft lip and a cleft palate. There are some HMOs out there that are 
defining medical necessity as the ``cheapest, least expensive care.'' 
Think of that for a minute. They can deny any treatment that is not the 
cheapest, least expensive care.
  So for this child with this birth defect, instead of authorizing a 
surgical correction of the roof of this child's mouth that would enable 
the child to be able to learn to speak correctly, not to mention not 
having food go out of his nose, that HMO, under Federal law as it 
currently exists, could say, no, that is not the cheapest care. We are 
going to prescribe a little piece of plastic to shove up in that hole 
in the roof of the mouth, what is called an obturator. Of course, will 
the child be able to learn to speak properly with that? No. But quality 
does not matter to the HMOs when they are defining care as the 
cheapest, least expensive care. And under Federal law they could do 
that with impunity. We need to fix that.
  Here we have another cartoon. We have the operating table. We have 
the doctors, the HMO bean counters, and anesthesiologist at the head of 
the table. And the doctor says, scalpel. The HMO bean counter says, 
pocketknife. The doctor says, suture. The HMO bean counter says, Band-
Aid. The doctor says, let us get him to intensive care. And the HMO 
bean counter says, call a cab.
  They can do that under current Federal law, because they can define 
medical necessity as the cheapest, least expensive care.
  Here is a cartoon that says, ``Remember the old days, when we took 
refresher courses in medical procedures?,'' one doctor is saying to a 
colleague as they walk in the HMO medical school. And the course 
directory in the HMO medical school is: First floor, basic bookkeeping 
and accounting; second floor, advanced bookkeeping and accounting; 
third floor, graduate bookkeeping and accounting.
  Now, look, I think some HMOs do a reasonable job, and they should be 
a choice for people to have. And some HMOs are truly trying to do an 
ethical job as well. But the HMO field is very competitive, 
particularly on prices, and there are some bad apples out there that 
are cutting corners too close. And they are able to do that because 
this Federal law that I was talking about that passed 25 years ago put 
nothing in place of State insurance oversight. It took the oversight on 
quality away from the States. Not a very Republican idea. It took it 
away from the States, put it in the Federal arena, but then placed 
nothing in its place in terms of some standard rules on fairness to 
patients or on quality.
  Here we have another cartoon that says, ``the HMO bedside manner.'' 
``Time is money'' is the sign on the edge of the bed. ``Bed space is 
loss. Turnover is profit.'' And the health care provider is saying, 
``After consulting my colleague in accounting, we have concluded you're 
well enough. Now, go home.'' And here we have a patient with his arms 
in traction looking like he has a fractured face with his jaw in 
traction.
  The bottom line should not be the bottom line if it is going to 
interfere with quality health care.
  Here we have another cartoon where the patient is saying to the HMO 
physician, ``Do you make more money if you give patients less care?'' 
The HMO spokesperson says, ``That's absurd, crazy, delusional.'' The 
patient then says, ``Are you saying I'm paranoid?'' And the answer is, 
``Yes, but we can treat it in three visits.''
  It reminds me of the well-known joke about the three physicians who 
died and went to heaven. One of them was a neurosurgeon, and he said to 
Saint Peter, You know, I fixed people who were in accidents and had 
blood clots on their brains and I saved their lives. And Saint Peter 
said, Enter my son. The next person is an obstetrician, and she says to 
Saint Peter, I have delivered hundreds of thousands of babies, and I 
have given a lot of free care. And Saint Peter says, Enter, my 
daughter. And the last one is an HMO medical director who says, Well, 
Saint Peter, I was able to save millions of dollars by denying care and 
getting people out of the hospital earlier. And Saint Peter says, 
Enter, my son, for 3 days.
  Here we have a cartoon that is the HMO claims department, and the HMO 
bureaucrat says, ``No, we don't authorize that specialist.'' Then she 
says, ``No, we don't cover that operation.'' And then she says, ``No, 
we don't pay for that medication.'' And then, apparently, there is some 
strong language or something as she is listening, and then she looks 
rather cross and says, ``No, we don't consider this assisted suicide.''
  Now, look, if all of this seems a little off the wall, let me just 
say that it has real-life consequences when HMOs are not accountable 
for their medical decisions. And is there anyone that doubts that HMOs 
are making medical decisions every day? Not by the hundreds, not by the 
thousands, but by the tens of thousands every day they are making 
medical decisions. And under Federal law they are not liable for the 
bad results, the negligent results of those decisions that could result 
in loss of life or limb.

  Now, if an insurance company sells a policy as an individual, and 
they are under State insurance oversight, that insurance company does 
not have that kind of legal liability shield. But under this antiquated 
Federal law, it is the only group in this country, other than foreign 
diplomats, that have legal immunity for the decisions that they are 
making. The automobile manufacturers do not have that kind of legal 
immunity, the airplane manufacturers or the airlines do not. Only the 
group that provides health care for employers is totally immune from 
the consequences or responsibility of their decisions.
  So let me tell my colleagues about a case where this makes a real 
difference, where an HMO made a medical decision. I have here a picture 
of a little boy who is tugging his sister's sleeve. He is about 6 
months old. A few weeks after this picture was taken he is awake at 
about 3 in the morning with a temperature of about 105, and he is sick. 
And as a mother can tell, he is really sick and he needs to go to the 
emergency room.
  So Mom does what she should do. She phones that 1-800 number for that 
HMO and says, My baby, Jimmy, is sick. He has a temperature of 104, 
105, and he needs to go to the emergency room. And this voice from some 
distant place, certainly not familiar with her State, says, Well, all 
right. I will authorize you to take little Jimmy to this hospital. And 
Mom says, Well, where is it? And the reply from the medical bureaucrat 
is, Well, I don't know. Find a map.
  Well, it turns out that it is a long ways away. But Mom and Dad know 
that if they take little Jimmy to a different hospital, then their HMO 
is not going to cover any of the cost. So they wrap up little Jimmy and 
start the trek. Halfway through the trip they pass three emergency 
rooms with pediatric care facilities that could have taken care of 
little Jimmy, but they cannot stop. They are not medical professionals, 
but they do know if they stop at those unauthorized hospitals they 
would be stuck with potentially a huge bill. So they keep driving.
  Before they get to the hospital that has been designated, little 
Jimmy has a cardiac arrest and he stops breathing, and his heart stops 
beating. Imagine that, while Mom and Dad are driving, Mom is trying to 
keep this beautiful little boy alive.
  They come screeching finally into the emergency room. Mom leaps out 
screaming, Help me, help me, help my baby. A nurse runs out and does 
mouth-to-mouth resuscitation. They start IVs, they give him medicines, 
they pound his chest, and they get him back alive. But because of that 
medical decision that that HMO made, they do not get him back whole. 
Because of that circulatory arrest, he ends up with gangrene of both 
hands and both feet. And they have to be amputated.
  Here is little Jimmy after his HMO treatment, sans hands and sans 
feet. Under Federal law, the HMO which made this medically negligent 
decision is liable for nothing, zero, nada, because they have already 
paid for his amputations, and that is all they are liable for.
  Is that fairness? Is that justice?
  This little boy will never play basketball. I would remind the 
Speaker of

[[Page H9004]]

the House that this little boy will never wrestle. I would remind my 
colleagues that some day when he grows up and he gets married he will 
never be able to caress the cheek of the woman that he loves with his 
hand. I would remind the HMO people who always say do not legislate on 
the basis of anecdotes like little Jimmy Adams that this little boy, if 
he had a hand and you pricked his finger, it would bleed.
  We need justice. I am a Republican. I have stood on this floor and I 
have voted for responsibility for one's actions. If a murderer or a 
rapist is convicted, they should suffer the consequences. When we 
passed the welfare reform bill, we said it is your responsibility if 
you are able-bodied and you could work, it is your responsibility to 
get some education. We will help you with that, but you need to get out 
and get a job and support your family.
  Republicans are big on responsibility. But look, are my fellow 
Republicans going to say to the HMOs when they are responsible for a 
little boy losing his hands and feet that that HMO should not be 
responsible? And furthermore, we Republicans have said, you know what, 
we should devolve power back to the States. Let us get these things 
back to the States. This was a Federal law that took this oversight 
away from the States.
  In the name of justice, we should say that if an HMO makes this type 
of decision that results in this type of injury, they should be 
responsible for that. That is only fair.
  I will tell my colleagues what: Those bottom-line HMOs that are 
cutting the corners too close will be much more careful so we will not 
see injuries like this. A judge reviewed this case. The judge, in 
reviewing the HMO's decision making on this, said that their margin of 
safety was ``razor thin.'' I would add to that, as razor thin as the 
scalpel that had to cut off little Jimmy's hands and feet.
  What we are talking about next week when we have this debate is an 
issue that has a lot of importance to people every day around the 
country. We will have an opportunity to correct a wrong, to right a 
wrong. The bill, as it was written in ERISA 25 years ago, did not 
anticipate the changes that we have seen in the management of health 
care by HMOs where they are now managing medical decisions.
  I am a physician. I would never argue that if I had made a negligent 
decision that had resulted in an injury like this that I, as a 
physician, should be immune from the consequences. I do not know any 
physicians who would make that argument.
  I do not know an airplane manufacturer that, if it is negligent and a 
plane goes down and 200 people are killed, would make an argument on 
this floor that anyone would vote for that would give them legal 
immunity for their negligent actions. I just do not see it.
  Well, Mr. Speaker, we are going to have an opportunity to debate 
several bills next week. There is a difference in those bills. There is 
a bill that my good friends, the gentleman from Oklahoma (Mr. Coburn) 
and the gentleman from Arizona (Mr. Shadegg), have introduced.
  I would point out that the Health Insurance Association of America 
does not think that that is a very good bill because of the liability 
provisions that it has in it. But I would say that there are some 
problems with that bill.
  Let me give my colleagues an example. They have a provision in the 
bill that requires the exhaustion of all remedies and the internal and 
external review procedures in order to permit a cause of action against 
an HMO that would make this type of decision. I think that is a 
problem.
  For example, a patient like little Jimmy Adams could have already 
suffered an injury or he could have died before he ever went through an 
appeals process. Or, for instance, a patient might not discover an 
injury that is a result of an HMO decision until after the time period 
in which administrative remedies of internal and external review could 
have been used.
  There are some significant problems in the way that liability 
provisions are written, and I would encourage my colleagues to not 
support it.
  We are going to debate on the floor possibly a medical access bill. I 
think that bill should be handled on a separate bill. We will have to 
deal with that issue in the rule. But when it comes to the floor, I 
would encourage my friends to be very careful about the Talent-Hastert 
bill.
  Let me just read to my colleagues a press release that was put out by 
the Health Insurance Association of America. This is the insurance 
folks. On this issue I think they are correct.
  They say, there are two provisions in the plan announced by the 
gentleman from Illinois (Mr. Hastert) that are cause for concern. 
``HIAA opposes the plan's call for Association Health Plans and 
HealthMarts because they would hurt many small employers who provide 
coverage to their employees.'' Let me repeat that. This is the 
insurance industry talking about a bill to increase access. They oppose 
Association Health Plans and HealthMarts because they would hurt many 
small employers who provide coverage to their employees. ``This, in 
turn, will cause many of these employers to drop their coverage because 
it will become too costly.''
  A press release from the same organization speaks about a similar 
provision in the bill of the gentleman from Ohio (Mr. Boehner). His 
bill ``contains expensive mandates and problematic Association Health 
Plans and HealthMarts.''
  Then we have a press release that says, ``These bills,'' referring to 
bills that have Association Health Plans and HealthMarts, ``could 
destroy employer-sponsored health insurance.''
  I have a memo from the Blue Cross-Blue Shield Association entitled 
``Association Health Plans: The Unraveling of State Insurance 
Reforms.''
  I have another memo from Blue Cross-Blue Shield Association Health 
Plans. ``Association Health Plan legislation would require billions in 
Federal regulatory spending.''

  Here is another memo from the Blue Cross-Blue Shield plan. 
Association Health Plan legislation would reduce insurance coverage. I 
have another memo from the Blue Cross-Blue Shield Association Health 
Plan. ``Study claims coverage would increase under Association Health 
Plan legislation is fundamentally flawed.''
  I am pointing this out because of this bill that I support, the 
bipartisan consensus managed care bill, we do not have Association 
Health Plans in it.
  Here is another memo from Blue Cross-Blue Shield. ``Association 
Health Plan legislation would increase administrative costs for small 
businesses.''
  Here is another memo from Blue Cross-Blue Shield Association Health 
Plan. ``National survey finds that small businesses reject this type of 
legislation.''
  Mr. Speaker, we will soon have, hopefully, a full debate on the floor 
on patient protection legislation. There is one bill that has generated 
the endorsement of over 300 organizations around the country. We have 
not seen this type of coalition since the days of the civil rights 
bills. These are all of the patient advocacy groups, the consumer 
groups, the professional provider groups on board, the American Cancer 
Society, the American Heart Association, the American Lung Association. 
You could go down the list. They support one bill. And that is H.R. 
2723, the bipartisan consensus managed care improvement act of 1999.
  This is a bill that has reached across the aisle. It has come to a 
reasonable compromise on the liability issue. It says that an employer 
is not liable if an employer has not entered into the decision making 
that the contracted HMO has made.
  I have a clear legal brief that says our language is rock solid on 
that protection for employers. It says that if there is a dispute, a 
patient can then take that denial of care from the HMO and take it to 
an independent panel in order to get that reversed by the HMO. But, in 
fairness to the HMO, if they follow independent panel's recommendation, 
then the HMO is no longer liable for any punitive liability.
  This is a fair compromise, and it applies across the board not just 
to group health plans but to all plans. This would apply to insurers 
who are in the individual market, as well. That would be a good thing. 
That would be not leading to lawsuits but preventing injuries so that 
you do not end up with a little boy who has lost his hands and his 
feet.
  This is a fair compromise, Mr. Speaker. Let us gather together. Let 
us get past the $100 million that the HMO industry is spending to 
defeat this legislation. Let us do something right. Let

[[Page H9005]]

us agree with the American public that says, by an 85 percent margin, 
we think Congress should pass Federal legislation to protect patients 
from HMO abuses like this one.
  Mr. Speaker, next week we will have a historic opportunity to show 
whether we, as individual Members of Congress, are on the side of 
patients or on the side of the HMO bureaucrats. Support H.R. 2723.
  Mr. Speaker, I include the aforementioned articles for the Record:

AHP/MEWA Study: National Survey Finds That Small Businesses Reject MEWA 
                              Legislation

       Performed by: American Viewpoint, Inc.; Sponsor: BCBSA; 
     April 15, 1998.
       American Viewpoint, Inc., conducted a national survey of 
     small business owners and employees in order to assess their 
     views on proposed regulatory reforms regarding Multiple 
     Employer Welfare Arrangements (MEWAs) and Association Health 
     Plans (AHPs). A total of 500 interviews were conducted with 
     small business owners and 300 interviews were conducted with 
     employees of small businesses. Interviews were conducted by 
     telephone between March 20 and April 15, 1998.


                        Summary and Conclusions

       After arguments on both sides of the debate are presented, 
     small business rejects this proposal by 42%-26%. That is, 42% 
     say Congress should not pass it and just 26% support passage.
       By 54%-21% small business owners and employees say their 
     state insurance commissioner is better able than the U.S. 
     Department of Labor to regulate health insurance in their 
     state.
       In fact, there is very little confidence in the U.S. 
     Department of Labor's ability to enforce the law without a 
     major increase in the size of the bureaucracy. Only 17% think 
     the Labor Department could enforce the law while 68% say it 
     cannot.
       Overall, anti-federal government sentiment is a major 
     factor in the opposition to proposed legislation on MEWAs and 
     AHPs. In all, 63% are less favorable and only 26% are more 
     favorable toward the legislation when they learn that these 
     plans would be regulated only by the federal government--not 
     by the states.


 Small Business Does Not Favor the Use of Federal Legislation to Avoid 
                               State Laws

       63% are less favorable toward the legislation, and 20% are 
     more favorable, in response to the argument that this 
     legislation ``creates a large loophole through which healthy 
     small employers and certain individuals could exit the state 
     regulated markets, leaving only the sickest remaining in 
     these insurance pools.''
       59% are less favorable and 26% more favorable toward the 
     legislation when they learn that plans would be exempt from 
     other state laws such as limits on out-of-pocket expenditures 
     and requirements to include certain specialists.
       A majority (55%) are less favorable toward the legislation 
     when they learn that it would exempt affected small group 
     health plans from more than 1,000 consumer protection laws at 
     the state level. Only 24% are more favorable.
       54% are less favorable (31% are more favorable) toward the 
     legislation because it would allow health plans to operate 
     without having to comply with each state's laws on premiums, 
     benefits, and financial standards.
       Fairness is also an issue. A majority (54%) say it is not 
     fair that exempting these groups from state regulations would 
     allow them to escape the cost of state assessments for 
     programs to help low-income and high-risk individuals who are 
     unable to find affordable health coverage.
       A majority (52%) say that federally-regulated group health 
     plans should not be allowed to have lower financial standards 
     than those now required by the states. Only 23% say they 
     should be allowed to have lower standards.
       Small employers are very sensitive to price. A 55% majority 
     say they would not be able to continue offering insurance if 
     their premiums went up by 20%. One in three say they would be 
     unable to continue offering insurance to their employees if 
     premiums rose by 10%.
       Clearly, anti-federal government sentiment is a major 
     factor in small businesses' rejection of the AHP legislation. 
     However, several other factors are also important 
     considerations. First, they think the bill is unfair to those 
     with a less healthy work force. Second, they think it would 
     lower standards for exempted plans and expose them to health 
     and financial risks from which they are now protected under 
     state law. Third, only one in three think the bill would have 
     a positive impact on their ability to provide health 
     insurance.
       In short, although small business may agree with the 
     motivations for this legislation, they realize that the bill 
     itself threatens their ability to provide health insurance to 
     employees, the quality of their coverage, the security of the 
     state-regulated insurance pools, and the quality of insurance 
     regulatory oversight. As a result, a plurality (35%) would be 
     less likely to vote for a Member of Congress who supports 
     this legislation and just 27% are more likely. 22% say it 
     depends.
       Note: The margin of error for a random sample of N=800 is 
     3.5 percentage points at 95% confidence. The margin of error 
     for N=500 is 4.5 percentage points and the margin for N=300 
     is 5.8 points.
                                  ____


  AHP/MEWA Study: Association Health Plan Legislation Would Increase 
               Administrative Costs For Small Businesses

       Performed by: William M. Mercer, Inc.; Sponsor: BCBSA; 
     March 22, 1999.
       An analysis by the benefits consulting firm of William M. 
     Mercer found that AHPs/MEWAs have unique administrative 
     costs, such as royalties and membership dues, that make it 
     more expensive for small firms to purchase coverage through 
     these groups. Moreover, Mercer found that general 
     administrative costs for AHPs/MEWAs are similar to insurance 
     companies and that this legislation provides no opportunity 
     for AHPs to reduce administrative costs for small firms.


                             key findings:

       Associations often require additional administrative loads: 
     According to a 1995 survey of associations, 80% of group 
     health insurance programs sponsored by associations produce 
     revenue for the association. Association revenue comes from 
     marketing fees, administrative fees, and royalties and 
     licensing fees. Association-specific fees can be substantial. 
     According to one survey, association administrative fees 
     averaged 3.8%, while royalties (i.e., licensing fees charged 
     to insurers) average 2.2% of premiums for national plans.
       Association membership fees can add to the cost of 
     coverage: Association membership fees are an additional cost 
     that must be borne by small firms that purchase health 
     coverage through an AHP. ``As a result of the fees required 
     to join an association, firms and individuals may face higher 
     total costs in the association market than they would if they 
     purchased coverage directly from a health insurance company 
     without joining an association.''
       AHPs and insurers have similar administrative costs: 
     ``Administrative costs borne in the small group market would 
     generally apply to federally certified AHPs as well.'' Sales 
     commissions, employer billing, and underwriting expenses tend 
     to be higher for small employers as compared to those for 
     large employers. However, offering small group health plans 
     through AHPs does not eliminate these costs.
       AHPs would not reduce administrative costs: ``Based on our 
     review, this legislation would provide no material 
     opportunity for AHPs to reduce health insurance 
     administrative costs for small businesses.'' AHPs could 
     assume responsibility for administrative activities. 
     ``However, it is unlikely that AHPs could perform these 
     activities at lower cost than insurers. Negotiating prices 
     with vendors that are below the insurers' costs would be 
     equally unlikely.''
       Mercer concludes that, ``. . . for small group health plans 
     offered by AHPs, the potential administrative cost increases 
     typically would exceed the potential administrative cost 
     savings. We estimate that the additional costs for small 
     firms who buy AHP coverage typically would range from 1.5% to 
     5% of premiums.''
                                  ____


     AHP/MEWA Study: Study Claiming Coverage Would Increase Under 
      Association Health Plan Legislation is Fundamentally Flawed

       Performed by: Barents Group/KPMG; Sponsor: BCBSA; February 
     12, 1999.
       A recent analysis by the Barents Group/KPMG found that a 
     National Federation of Independent Business (NFIB) funded 
     study that asserted that AHP legislation would help solve the 
     uninsured problem contains serious deficiencies that 
     undermine its credibility. Moreover, the NFIB study, 
     performed by CONSAD Research Corp., neglects the primary 
     problem with this proposal: that it would undermine state 
     reforms, thus reducing access for many small employers.
       The Barents Group's review of the NFIB study found problems 
     that ``. . . raise serious concerns regarding the accuracy of 
     the estimates.'' Given these problems, Barents concluded that 
     ``. . . the report fails to provide an adequate justification 
     for the assertion that coverage would increase under the 
     proposed association health plan (AHP) legislation.'' Flaws 
     identified include:
       Unsubstantiated claims of AHP savings: The projected 
     increase in coverage is based on assumed savings for AHPs of 
     between 5 and 20 percent. According to Barents, ``. . . these 
     assumptions . . . are not based on any evidence that such 
     savings would actually exist. In fact, other studies have 
     shown that AHPs would actually increase costs for many small 
     firms by skimming off employers with healthy workers and 
     undermining state reforms.''
       Unrealistic assumptions: Barents found the results of the 
     NFIB study to be ``. . . implausible because they are 
     inconsistent with the existing body of literature on working 
     health insurance coverage.'' For example, the study inflates 
     the estimates by assuming that people are three to six times 
     more likely to buy coverage than one would expect based on 
     the academic literature.
       Use of inflated numbers: The base population used for the 
     estimate is ``inflated, which results in overestimation of 
     the number of people who would obtain coverage.'' For 
     example, it appears that individuals covered by Medicare, 
     Medicaid and other public programs may also be in this base, 
     despite the fact that they would typically not participate in 
     AHPs.

[[Page H9006]]

       Neglecting the effects of income on the decision to 
     purchase insurance: The report fails to account for the fact 
     that low-wage workers would be less likely to obtain 
     coverage. ``The net effect of not accounting for 
     affordability is to overestimate the number of workers that 
     would obtain coverage,'' according to the Barents analysis.
       The Barents analysis supports BCBSA's position that the 
     principal effect of this legislation would be to force 
     employers to move from the small group insurance market to 
     AHPs--not increase the number of people with insurance. As 
     the Barents analysis points out, ``. . . if AHPs are 
     successful in reducing costs by attracting a healthier risk-
     pool, any increase in coverage could be offset by reductions 
     in coverage for the rest of the small group market.''
                                  ____


   AHP/MEWA Study: Association Health Plan Legislation Would Reduce 
                           Insurance Coverage

       Performed by: Len Nichols, Ph.D., of the Urban Institute; 
     June 16, 1999.
       Although association health plans are touted as a 
     ``solution'' for the uninsured, preliminary results of an 
     Urban Institute study indicate that AHP legislation would 
     actually reduce overall health insurance coverage. The 
     results of this study, which were outlined in testimony by 
     Len Nichols, Ph.D. before the House Commerce Health 
     Subcommittee, reaffirm concerns raised by numerous groups 
     regarding the potential for this legislation to undermine 
     state reforms and make coverage more expensive for firms and 
     individuals with greater health care needs.


                              Key findings

       AHPs will be most attractive to healthy individuals: 
     According to Nichols, ``. . . our research simulations 
     suggest that by far the most important factor determining the 
     attractiveness of various health insurance options is the 
     pool with whom the firm's workers will be joined for premium 
     rating purposes. AHPs and Health Marts . . . will be more 
     attractive to the good risks and less attractive to high 
     risks in search of more heterogeneous pools.''
       AHPs would undermine pooling in the insurance market: AHPs 
     will appeal to good risks since they can practice more 
     segmented premium rating practices than the commercial 
     insurance industry. . . . This segmentation increases the 
     chances that firms will be pooled only with firms with 
     similar cost structures.'' In other words, AHPs will fragment 
     the insurance market into smaller and smaller pools, rather 
     than increasing pooling as proponents claim.
       AHPs will pull people from existing insurance arrangements, 
     rather than attract the uninsured into the market. Nichols 
     found that ``. . . extremely few new firms are enticed to 
     offer health insurance which did not offer [coverage] before 
     the reform options were made available. The net effect would 
     be a lot of churning of insurance policies, but few uninsured 
     would gain coverage and some firms with insurance would drop 
     coverage.
       AHPs will result in more uninsured Americans. Nichols said 
     his projections indicate that ``net coverage is reduced 
     because the commercial and [existing] MEWA pools lose some of 
     their best risks to the AHPs, and thus their pools 
     deteriorate. Because of this risk pool deterioration, some 
     firms drop coverage rather than pay the new higher prices 
     that go with this deteriorating risk pool. These firms do not 
     join the AHPs . . . because that risk pool is too segmented 
     for their taste and risk profiles.''
       These preliminary results are part of a growing body of 
     literature that refutes claims that AHP legislation would 
     reduce costs for small firms or help the uninsured. BCBSA 
     believes that AHP/MEWA legislation would raise costs for many 
     small firms without making any progress toward solving the 
     uninsured problem.
                                  ____


   AHP/MEWA Study: AHP Legislation Would Require Billions in Federal 
                          Regulatory Spending

       Performed by: Bill Custer, Ph.D. and Martin Grace, Ph.D., 
     Georgia State University; Sponsor: BCBSA; June 2, 1999.
       In this update of a 1996 study of MEWA regulatory costs, 
     Georgia State University researchers Bill Custer and Martin 
     Grace conclude that AHP legislation would create a 
     significant regulatory burden for the federal government. 
     They estimate that billions of dollars in federal regulatory 
     outlays would be needed to oversee AHPs. Moreover, they 
     conclude that provisions that allow federal officials to cede 
     regulation of certain AHPs back to the states would require 
     the creation of a duplicative regulatory system that would 
     actually increase overall regulatory costs.


                              Key findings

       The proposal requires major new regulatory outlays: Custer 
     and Martin estimate that regulatory costs would increase by 
     between $431 million and $3.2 billion over a seven-year 
     budget period. Federal regulatory costs could be as high as 
     $2.4 billion over seven years, while state regulatory costs 
     could exceed $1.1 billion.
       The AHP proposal creates new federal bureaucracy: The 
     legislation requires federal officials to create a new 
     regulatory bureaucracy to regulate AHPs, which are now 
     overseen by the states. ``Although the federal government 
     already has regulatory responsibility for ERISA plans, AHP 
     regulation should result in significantly higher federal 
     regulatory costs. The Department of Labor (DOL) has testified 
     that they have the resources to review each ERISA health plan 
     once every 300 years. This level of oversight will not be 
     adequate for AHPs, which are much more like insurers than 
     single-employer health plans.''
       The proposal creates costly dual regulation scheme: Custer 
     and Grace dismiss proponents' claims that allowing states to 
     enforce certain federal standards will limit regulatory 
     outlays. ``In fact, the most costly regulatory model is one 
     in which the federal and state governments take an equal role 
     in regulating AHPs, which is the most likely regulatory model 
     under this legislation. This is because dual regulation would 
     require both the federal government and the states to develop 
     and maintain duplicative and costly regulatory systems.''
       Undermines state insurance laws: Many states have passed 
     reforms that limit insurers' ability to compete on the basis 
     of risk. Although the legislation attempts to limit the 
     ability of AHPs to exclude groups on the basis of claims 
     experience, ``. . . the primary factor in deciding to form 
     one of these groups will be risk. . . . As such, both insured 
     and self-funded AHPs would pull better risks out of the small 
     group market, increasing premiums for those who remain in the 
     state-regulated market or are without access to the 
     association plan.''
                                  ____


 [Blue Cross Blue Shield Association, Washington, DC, September, 1995]

         AHPs/MEWAs: The Unraveling of State Insurance Reforms

       As Congress considers federal health care reform, Congress 
     should reject proposals to exempt Association Health Plans 
     (AHPs) and Multiple Employer Welfare Arrangements (MEWAs) 
     from state law and regulation. These proposals would unravel 
     insurance reforms that most every state has enacted to assure 
     access to health insurance for small firms and their workers.
       Rather than enhancing the ``pooling'' of small firms, as 
     claimed by AHP/MEWA proponents, this legislation would lead 
     to smaller and smaller insurance pools as healthy groups 
     leave the state market. The result will be large premium 
     increases for many firms and more uninsured.


                          what are ahps/mewas?

       Association Health Plans are health plans sponsored by 
     business and professional groups. Many AHPs exist today under 
     state regulation and can play a valuable role in providing 
     health coverage to their members. Associations and other 
     business groups that provide health benefits to two or more 
     employers are generally called Multiple Employer Welfare 
     Arrangements (MEWAs).
       MEWAs can self-fund or purchase insurance from health plans 
     that are regulated by the states. States currently have 
     authority to regulate MEWAs and require self-funded MEWAs to 
     comply with state insurance standards because they are risk-
     bearing entities and operate like insurers.


 impact of congressional proposals to preempt state law for ahps/mewas

       Congressional AHP proposals would exempt self-funded AHPs/
     MEWAs from state law and transfer oversight to the Department 
     of Labor (DOL). These entities would be exempt from numerous 
     state standards, including solvency requirements, managed 
     care rules, benefit mandates and certain rating laws. Minimal 
     federal standards would replace state rules. This change 
     would:
       Allow AHPs/MEWAs to ``Cherry-Pick'': Exemption from state 
     mandated benefits would allow MEWAs to avoid offering 
     benefits that attract sick individuals (such as autologous 
     bone marrow transplants). This proposal also would allow 
     AHPs/MEWAs to be experience rated, rather than pooled with 
     other small groups for rating purposes, as required in many 
     states. Despite certain rules against discrimination in the 
     proposal, AHPs/MEWAs could be designed and marketed in a 
     manner that would attract members with lower expected health 
     care costs.
       Destroy State Insurance Reforms and Increase Premiums: 
     Preemption of self-funded AHPs/MEWAs from state regulation 
     would allow a large segment of the health insurance market to 
     escape state regulation. The movement of healthy individuals 
     into self-funded arrangements would leave high risk 
     individuals in the insured pool, but reduce the number of 
     enrollees over which to spread costs. The resulting premium 
     increases would drive away more healthy individuals and 
     ignite another round of premium increases. States would be 
     unable to stabilize rates because such a large portion of 
     individuals would be outside their authority.
       Increase the Number of Uninsured: Rather than being a 
     solution for the uninsured, a recent Urban Institute analysis 
     found that AHP legislation would actually reduce overall 
     health insurance rates. According to testimony by Dr. Len 
     Nichols of the Urban Institute, net coverage is reduced 
     because the state-regulated pools lose some of their best 
     risks to the AHPs, and thus the pools deteriorate. Because of 
     this risk pool deterioration, firms drop coverage rather than 
     pay the new higher prices that go with this deteriorating 
     risk pool.
       Transfer Insurance Regulation to the Federal Government: 
     This proposal would allow large numbers of AHPs to avoid 
     state rules through self-funding. The number of plans 
     regulated by DOL would increase dramatically, requiring a 
     significant increase in federal regulatory capacity. Under 
     the current

[[Page H9007]]

     staffing structure, DOL could review each AHP only once every 
     three hundred years, which is inadequate for these new 
     federally licensed insurance arrangements. The regulatory 
     burden for these AHPs could be up to $3.2 billion over 7 
     years, according to a recent analysis by researchers at 
     Georgia State University.
       Expose Federal Government to Monumental Regulatory 
     Responsibilities: by transferring regulatory authority to the 
     federal government, DOL would become responsible for 
     regulating the solvency of hundreds of AHPs/MEWAs across the 
     country. MEWAs have a history of fraud and have left 
     thousands of consumers and providers facing millions of 
     dollars in unpaid medical claims. The National Governors' 
     Association, the National Conference of State Legislatures 
     and the National Association of Insurance Commissioners have 
     stated that solvency standards in the proposal remain 
     inadequate to protect consumers.
       BCBSA also opposes proposals to apply special rules (i.e., 
     ratings and exemption from mandated benefits) to insured 
     AHPs/MEWAs. These rules would allow insured AHPs to be 
     experience rated instead of pooled with other small groups 
     and individuals. This provides an opportunity for 
     segmentation of the market. The end result: higher premiums, 
     an unstable market and states that are powerless to address 
     the problem because federal law has overridden their 
     authority.


                          bcbsa recommendation

       BCBSA believes that the federal government should allow 
     states to retain the authority to regulate the health 
     insurance market. States are the most appropriate decision-
     makers to craft legislation that expand across without 
     disrupting insurance markets. However, the federal government 
     should take an active role in encouraging small firms to 
     provide health coverage though targeted tax incentives, such 
     as the small employer tax proposal that BCBSA unveiled in 
     February of this year.
                                  ____


[Press Release--Health Insurance Association of America, September 29, 
                                 1999]

   New ``Patient Protection'' Bills Could Destroy Employer-Sponsored 
                            Health Insurance

       Washington, DC.--Despite the assertions of Congressional 
     sponsors, new so-called ``patient protection'' legislation 
     would allow employers to be sued over health benefits 
     voluntarily provided to their employees, and could destroy 
     the employer-based health insurance system, according to a 
     new legal opinion released today by the Health Insurance 
     Association of America (HIAA).
       The new HIAA legal opinion demonstrates that the Shadegg-
     Coburn bill introduced last week--as well as the ``Dingwood'' 
     bill introduced last month--expressly authorize lawsuits 
     against any employer shown to exercise any oversight over its 
     health coverage. The opinion also states that the ``shield'' 
     in both bills--which the bills' sponsors claim would protect 
     employers against lawsuits--would apply only if an employer 
     gives up any involvement with any coverage decision.
       Under these bills, even an employer's simple act of 
     choosing health coverage for employees would be considered 
     exercising oversight over health coverage, thereby exposing 
     the employer to the possibility of a lawsuit.
       ``This legal opinion shows how both bills offer employers 
     who sponsor health coverage a `Hobson's choice' between the 
     horrific and the horrendous,'' remarked HIAA President Chip 
     Kahn. ``Employers either could pay for higher cost coverage 
     that they cannot control, or retain control and expose 
     themselves to costly lawsuits. Given these choices, many 
     employers are likely to throw in the towel and simply drop 
     coverage altogether, leaving millions more Americans 
     uninsured.''
       HIAA's new legal opinion was prepared by Washington, D.C.-
     based attorney William G. Schiffbauer.
       HIAA is the nation's most prominent trade association 
     representing the private health care system. Its members 
     provide health, long-term care, disability, and supplemental 
     coverage to more than 115 million Americans.
                                  ____


[Press Release--Health Insurance Association of America, September 29, 
                                 1999]

                   Boehner ``Care'' Bill A Mixed Bag

       The following statement was released today by Chip Kahn, 
     President of the Health Insurance Association of America 
     (HIAA):
       Consumers and employers can take some solace that the 
     ``Comprehensive Access and Responsibility in Health Care 
     (CARE) Act,'' offered today by Rep. John Boehner (R-OH), 
     would not saddle them with higher premiums due to expanded 
     liability. Our nation's health care dollars should go toward 
     providing coverage for Americans, and for improving quality-
     not for lining the gilded pockets of trial attorneys.
       Although Rep. Boehner's bill prudently lacks liability, it 
     does contain certain costly mandates and a problematic 
     provision calling for ``Association Health Plans'' and 
     ``HealthMarts.'' HIAA opposes Association Health Plans and 
     HealthMarts because they would undermine-not enhance-the 
     small employer market by increasing premiums for many, and 
     causing many of them to drop their coverage because it will 
     become too costly.
       On the one hand, Rep. Boehner's bill lacks liability, and 
     would make coverage more affordable because it calls for an 
     immediate, above-the-line deduction for the purchase of 
     individual health and long-term care insurance. On the other 
     hand, Rep. Boehner's bill contains expensive mandates and 
     problematic Association Health Plans and HealthMarts. All 
     told, Rep. Boehner's bill becomes a mixed bag of pluses and 
     minuses for American consumers and employers.
                                  ____


[Press Release--Health Insurance Association of America, September 29, 
                                 1999]

           Well-Intended Hastert Plan Has Pluses And Minuses

       The following statement was released today by Chip Kahn, 
     President of the Health Insurance Association of America 
     (HIAA):
       Speaker Dennis Hastert (R-IL), along with Reps. Jim Talent 
     (R-MO) and John Shadegg (R-AZ), clearly recognize the need 
     for increasing the number of Americans with health insurance. 
     The proposal that they released today is a step in the right 
     direction because it would allow a 100 percent tax deduction 
     for individuals and for self-employed Americans. Also, it 
     would provide a similar deduction for private long-term care 
     insurance, and allow people to set up Medical Savings 
     Accounts (MSAs).
       In this respect, their proposal is similar to HIAA's 
     ``InsureUSA'' proposal. HIAA also commends the Speaker and 
     Reps. Talent and Shadegg for recognizing that expanding 
     liability provisions undoubtedly will increase costs and 
     force employers to drop coverage for their employees.
       Two provisions in the plan announced by Speaker Hastert are 
     well-intended, but are cause for concern. HIAA opposes the 
     plan's call for Association Health Plans and HealthMarts 
     because they would hurt many small employers who provide 
     coverage to their employees. This, in turn, will cause many 
     of these employers to drop their coverage because it will 
     become too costly.

                          ____________________