[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]


 
                  REGULATIONS, COSTS, AND UNCERTAINTY
                    IN EMPLOYER PROVIDED HEALTH CARE

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

                                HEARING

                               before the

                        SUBCOMMITTEE ON HEALTH,
                     EMPLOYMENT, LABOR AND PENSIONS

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE

                     U.S. House of Representatives

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

            HEARING HELD IN WASHINGTON, DC, OCTOBER 13, 2011

                               __________

                           Serial No. 112-44

                               __________

  Printed for the use of the Committee on Education and the Workforce


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                COMMITTEE ON EDUCATION AND THE WORKFORCE

                    JOHN KLINE, Minnesota, Chairman

Thomas E. Petri, Wisconsin           George Miller, California,
Howard P. ``Buck'' McKeon,             Senior Democratic Member
    California                       Dale E. Kildee, Michigan
Judy Biggert, Illinois               Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Robert E. Andrews, New Jersey
Joe Wilson, South Carolina           Robert C. ``Bobby'' Scott, 
Virginia Foxx, North Carolina            Virginia
Bob Goodlatte, Virginia              Lynn C. Woolsey, California
Duncan Hunter, California            Ruben Hinojosa, Texas
David P. Roe, Tennessee              Carolyn McCarthy, New York
Glenn Thompson, Pennsylvania         John F. Tierney, Massachusetts
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          Rush D. Holt, New Jersey
Richard L. Hanna, New York           Susan A. Davis, California
Todd Rokita, Indiana                 Raul M. Grijalva, Arizona
Larry Bucshon, Indiana               Timothy H. Bishop, New York
Trey Gowdy, South Carolina           David Loebsack, Iowa
Lou Barletta, Pennsylvania           Mazie K. Hirono, Hawaii
Kristi L. Noem, South Dakota         Jason Altmire, Pennsylvania
Martha Roby, Alabama
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania

                      Barrett Karr, Staff Director
                 Jody Calemine, Minority Staff Director

         SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS

                   DAVID P. ROE, Tennessee, Chairman

Joe Wilson, South Carolina           Robert E. Andrews, New Jersey
Glenn Thompson, Pennsylvania           Ranking Minority Member
Tim Walberg, Michigan                Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee          David Loebsack, Iowa
Richard L. Hanna, New York           Dale E. Kildee, Michigan
Todd Rokita, Indiana                 Ruben Hinojosa, Texas
Larry Bucshon, Indiana               Carolyn McCarthy, New York
Lou Barletta, Pennsylvania           John F. Tierney, Massachusetts
Kristi L. Noem, South Dakota         Rush D. Holt, New Jersey
Martha Roby, Alabama                 Robert C. ``Bobby'' Scott, 
Joseph J. Heck, Nevada                   Virginia
Dennis A. Ross, Florida              Jason Altmire, Pennsylvania


                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on October 13, 2011.................................     1

Statement of Members:
    Andrews, Hon. Robert E., ranking minority member, 
      Subcommittee on Health, Employment, Labor and Pensions.....     4
    Roe, Hon. David P., Chairman, Subcommittee on Health, 
      Employment, Labor and Pensions.............................     1
        Prepared statement of....................................     3

Statement of Witnesses:
    Donahue, Dennis M., on behalf of the Council of Insurance 
      Agents and Brokers.........................................    14
        Prepared statement of....................................    15
    Piper, Robyn, president, Piper Jordan........................    25
        Prepared statement of....................................    27
    Pollack, Ron, executive director, Families USA...............    19
        Prepared statement of....................................    21
    Turner, Grace-Marie, president, Galen Institute..............     6
        Prepared statement of....................................     8

Additional Submissions:
    Mr. Andrews:
        Article, ``Misrepresentations, Regulations and Jobs,'' by 
          Bruce Bartlett, New York Times.........................    54
        Press release, ``Kaiser Report''.........................    57
        Letter, dated Oct. 28, 2011, from Joyce A. Roberts, AARP.    65
        News release, the Henry J. Kaiser Family Foundation, 
          Sept. 27, 2011.........................................    66
    Mr. Roe:
        Report, U.S. Chamber of Commerce, ``Q3 Small Business 
          Outlook Survey,'' Oct. 12, 2011........................    59
    Thompson, Hon. Glenn, a Representative in Congress from the 
      State of Pennsylvania:
        Article, ``New Study Underlines Unfulfilled Promises of 
          Health Care Bill,'' Sept. 29, 2011.....................    41
        Article, ``New Survey Projects Higher Employee Health 
          Premiums,'' New York Times, Oct. 2, 2011...............    43


                  REGULATIONS, COSTS, AND UNCERTAINTY
                    IN EMPLOYER PROVIDED HEALTH CARE

                              ----------                              


                       Thursday, October 13, 2011

                     U.S. House of Representatives

         Subcommittee on Health, Employment, Labor and Pensions

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:02 a.m., in 
room 2175, Rayburn House Office Building, Hon. Phil Roe 
[chairman of the subcommittee] presiding.
    Present: Representatives Roe, Thompson, Walberg, 
DesJarlais, Hanna, Bucshon, Andrews, Kucinich, Kildee, 
Hinojosa, Tierney, Altmire, and Holt.
    Staff present: Jennifer Allen, Press Secretary; Andrew 
Banducci, Professional Staff Member; Casey Buboltz, Coalitions 
and Member Services Coordinator; Ed Gilroy, Director of 
Workforce Policy; Benjamin Hoog, Legislative Assistant; Marvin 
Kaplan, MemberWorkforce Policy Counsel; Ryan Kearney, 
Legislative Assistant; Brian Newell, Deputy Communications 
Director; Krisann Pearce, General Counsel; Molly McLaughlin 
Salmi, Deputy Director of Workforce Policy; Todd Spangler, 
Senior Health Policy Advisor; Linda Stevens, Chief Clerk/
Assistant to the General Counsel; Alissa Strawcutter, Deputy 
Clerk; Aaron Albright, Minority Communications Director for 
Labor; Daniel Brown, Minority Junior Legislative Assistant; 
Jody Calemine, Minority Staff Director; Brian Levin, Minority 
New Media Press Assistant; and Michele Varnhagen, Minority 
Chief Policy Advisor/Labor Policy Director.
    Chairman Roe. A quorum being present, the Subcommittee on 
Health, Employment, Labor and Pensions will come to order.
    Good morning, everyone. I would like to welcome our guests 
and thank our witnesses for being with us today. We have 
assembled a fine panel and look forward to your testimony.
    It has been stated time and again, if you like your current 
health plan, you will be able to keep it. Let me repeat that; 
if you like your plan, you will be able to keep it.
    Those remarks were delivered by President Obama and similar 
sentiments were expressed during the many months of Congress' 
effort to reform health care. The promise was made to the 
public, a public concerned about the changes a government 
takeover of health care would impose on their businesses and 
families.
    As it turns out, there was reason for concern. Rules 
released by the Obama administration contradict that statement. 
The health care law allows Americans to keep their health care 
coverage, so long as their health care plan doesn't make any 
significant changes. The reality is health care plans 
constantly change out of necessity. And now when they change, 
Americans will be at risk of losing their existing health care 
plan, like it or not.
    I think the 31 years I was in practice, I don't recall a 
year that we didn't change our health care plan some. It 
changed almost every year.
    As I have learned through many years of practicing 
medicine, health care is an extremely personal matter. Though 
most people recognize the importance employers play in the 
delivery of health care, they prefer to keep the details 
between themselves and their doctors.
    The idea of a federal government intervening in that 
relationship between the patient and his or her health care 
provider is downright terrifying to many individuals.
    Perhaps that is why the president promised so adamantly 
that reform would not disrupt the health care millions of 
Americans rely upon and wish to keep. The linchpin of this 
promise was an exemption or grandfathered provision in the law.
    This was intended to provide relief from new rules and 
regulations for insurance plans in effect the day the president 
signed the bill into law. Unfortunately, in just 3 months, the 
administration defined the terms of the grandfather provision 
so narrowly that it became meaningless.
    By the administration's own estimates, up to 80 percent of 
small-employer plans and between 34 and 64 percent of large-
employer plans will not retain their grandfathered status, 
meaning millions of workers face significant changes to their 
health care.
    Employers have confirmed this startling fact. In May of 
2011 survey by Price Waterhouse Coopers, 51 percent of the 
employers surveyed did not expect their plans would keep their 
grandfathered status.
    Each year, as employers grapple with the constraints 
brought on by an unsustainable health care costs, they must 
choose from a range of difficult options, including reduced 
benefits and lower wages. The ability to adjust and manage the 
benefit plans of their workers has offered employers an 
opportunity to minimize disruption and modify care to best meet 
the needs of the workplace.
    That flexibility is severely undermined by the new law and 
its flawed grandfather regulation. Today, even a modest change 
can trigger a loss of a benefit plan's exempted status.
    Employers are faced with an impossible decision: pay more 
to keep their current coverage, buy higher-cost insurance that 
is subject to the law's new mandates, or drop coverage 
entirely. As is often the case, good intentions can lead to bad 
consequences.
    This is certainly true for much of the law's complex scheme 
of rules, mandates, and price controls. Take, for example, the 
medical loss ratio provision, which was designed to limit the 
corporate profits of insurance companies to ensure consumers 
received the most value for every dollar they spend.
    However, the regulation implementing this provision 
actually creates a disincentive for insurance providers to 
attack waste and abuse, leading to higher premiums and co-pays 
for American consumers. If these regulatory challenges weren't 
creating enough uncertainty in our workforce, employers and 
workers continue to confront higher health insurance costs.
    Despite the president's promise that his reform plan would 
lower premiums by up to 2,500 dollars for the average family, 
the facts reflect a different reality. A recent study by the 
Kaiser Family Foundation reports that premiums increased by 9 
percent this year. A separate study estimates employer health 
care costs will increase by 8.5 percent next year.
    It is clear our system of employer-provided health care is 
experiencing dramatic changes due in large part to a deeply 
flawed health care law. Today's hearings provide members of the 
subcommittee an important opportunity to examine these changes, 
their impact on workers and employers, and to discuss the 
solutions our nation needs to chart a better course.
    Again, I look forward to the witnesses' testimony.
    I now yield to Mr. Andrews, the senior Democrat member of 
the subcommittee, for his opening remarks.
    [The statement of Mr. Roe follows:]

           Prepared Statement of Hon. David P. Roe, Chairman,
         Subcommittee on Health, Employment, Labor and Pensions

    Good morning, everyone. I would like to welcome our guests and 
thank our witnesses for being with us today. We have assembled a fine 
panel and we look forward to your testimony.
    It was stated time and again: ``If you like your current [health 
care] plan, you will be able to keep it. Let me repeat that. If you 
like your plan, you will be able to keep it.'' Those remarks were 
delivered by President Obama and similar sentiments were expressed 
during the many months of Congress' effort to reform health care. The 
promise was made to a public concerned about the changes a government 
takeover of health care would impose on their businesses and families.
    And it turns out, there was reason for concern. Rules released from 
the Obama Administration contradict that statement. The health care law 
allows Americans to keep their health care coverage--so long as their 
health care plan doesn't make any significant changes. The reality is, 
health care plans constantly change out of necessity, and now when they 
change, Americans will be at risk of losing their existing health care 
plan--like it or not.
    As I have learned through many years of practicing medicine, health 
care is an extremely personal matter. Though most people recognize the 
important role employer play in the delivery of health care, they 
prefer to keep the details between themselves and their doctors. The 
idea of the federal government intervening in the relationship between 
a patient and his or her health care provider is downright terrifying 
to many individuals.
    Perhaps that is why the president promised so adamantly that reform 
would not disrupt the health care millions of Americans rely upon and 
wish to keep. The linchpin of this promise was an exemption or 
``grandfather'' provision in the law. This was intended to provide 
relief from new rules and regulations for insurance plans in effect the 
day the president signed his bill into law.
    Unfortunately, in just three months, the administration defined the 
terms of the grandfather provision so narrowly that it became 
meaningless. By the administration's own estimates, up to 80 percent of 
small-employer plans and between 34 to 64 percent of large-employer 
plans will not retain their grandfathered status, meaning millions of 
workers face significant changes to their health care. Employers have 
confirmed this startling fact.
    In a May 2011 survey by Price Waterhouse Coopers, 51 percent of the 
employers surveyed did not expect their plans would keep their 
grandfathered status.
    Each year, as employers grapple with the constraints brought on by 
unsustainable health care costs, they must choose from a range of 
difficult options, including reduced benefits and lower wages. The 
ability to adjust and manage the benefit plans of their workers has 
offered employers an opportunity to minimize disruption and modify care 
to best meet the needs of the workplace.
    That flexibility is severely undermined by the new law and its 
flawed grandfather regulation. Today, even a modest change can trigger 
a loss of a benefit plan's exempted status. Employers are faced with an 
impossible decision: pay more to keep their current coverage, buy 
higher-cost insurance that is subject to the law's new mandates, or 
drop coverage entirely.
    As is often the case, good intentions can lead to bad consequences. 
This is certainly true for much of the law's complex scheme of rules, 
mandates, and price controls. Take, for example, the Medical Loss Ratio 
provision, which was designed to limit the corporate profits of 
insurance companies to ensure consumers received the most value for 
every dollar they spend.
    However, the regulation implementing this provision actually 
creates a disincentive for insurance providers to attack waste and 
abuse, leading to higher premiums and copayments for American 
consumers.
    If these regulatory challenges weren't creating enough uncertainty 
for our workforce, employers and workers continue to confront higher 
health insurance costs. Despite the president's promise that his reform 
plan would lower premiums by up to $2,500 for the average family, the 
facts reflect a different reality. A recent study by the Kaiser Family 
Foundation reports that premiums increased by 9 percent in 2010 and are 
expected to increase by an additional 8.5 percent next year. Democrats 
in Washington got their government-run health care, and the American 
people are left with broken promises.
    It is clear our system of employer-provided health care is 
experiencing dramatic changes due in large part to a deeply flawed 
health care law. Today's hearing provides members of the subcommittee 
an important opportunity to examine these changes, their impact on 
workers and employers, and to discuss the solutions our nation needs to 
chart a better course. Again, I look forward to the witness testimony, 
and will now yield to Mr. Andrews, the senior Democrat member of the 
subcommittee, for his opening remarks.
                                 ______
                                 
    Mr. Andrews. Well, good morning, Mr. Chairman. Thank you 
for your courtesy for assembling such a fine panel.
    The chairman talks about dramatic changes. He is right. The 
middle class of this country has seen a lot of dramatic changes 
in the last couple years. Fifteen million people are without 
work.
    This is another day that is--for many people, this is going 
to be the day the foreclosure is executed and they lose their 
home. Half the people in this country surveyed this year said 
the American dream is either dead or on life support.
    That is the problem we should be talking about, 
unemployment. The president came before the Congress more than 
1 month ago and put forward a proposal to put people back to 
work, to put construction workers back to work building roads 
and bridges and wiring schools for Internet access, a proposal 
to put people back to work by cutting taxes for small business 
who hire people, a proposal to put people back to work by 
stimulating consumer demand, by avoiding a 1,500 dollar tax 
increase that will hit middle class families on January 1, if 
Congress doesn't act.
    To put forth a plan that would keep police officers and 
firefighters on the job and teachers in the classroom. This 
committee, this majority has not spent 1 hour on that proposal 
in the last month. That is what the committee should be doing.
    Instead, what we are doing is relitigating, regurgitating, 
rearguing the same old argument about the health care bill. Now 
I understand that part of the catechism from the other side is 
the health care bill is a job killing health care bill, filled 
with job killing regulations, and that job killing regulations 
are the reason why America's economy is stagnant and the middle 
class' American dream is dying.
    That is not true. A survey by the Small Business Majority 
this July asked 1,257 small business owners to name the two 
biggest problems they face; 13 percent of them said government 
regulations; 50 percent said lack of demand.
    The Bureau of Labor Statistics looked at layoffs that 
occurred last year in 2010 around the country. And they looked 
at the cause of those layoffs, as to why they occurred.
    Here is what they found: 2,971 of those layoffs, 0.2 
percent, were attributable to government regulation; 384,505 
layoffs, 30 percent, were due to lack of demand for the service 
or product the business was selling.
    The job killing health care bill, since President Obama 
signed the law in March of 2010, the economy has added 2.4 
private sector jobs--2.4 million private sector jobs. Five 
hundred thousand of them have been in the health care industry.
    We should be having a hearing today about how to have the 
economy create jobs for the American people, not relitigating 
the same old tired argument about the health care bill. Now 
chairman, I look forward to an exchange on the issues about the 
health care bill.
    But I would urge Chairman Klein and you and Speaker Boehner 
to put on the floor of the House of Representatives the 
president's jobs proposal, amended as you wish. But let it come 
up for a vote. That is the business we should be doing for the 
country here this morning.
    I yield back.
    Chairman Roe. I thank the gentleman for his opening 
remarks.
    Pursuant to Committee Rule 7-C, all members will be 
permitted to submit written statements to be included in the 
permanent hearing record. And without objection, the hearing 
record will remain open for up to 14 days to allow such 
statements and other extraneous material referenced during the 
hearing to be submitted for the official hearing.
    Now it is my pleasure to introduce our distinguished 
guests. We have a great panel today.
    Grace-Marie Turner is president of the Galen Institute, a 
public policy research organization that she founded in 1995 to 
promote an informed debate over free market ideas for health 
reform. She is the editor of ``Empowering Health Care Consumers 
Through Tax Reform,'' and produces a widely read weekly 
electronic news letter, ``Health Policy Matters.''
    Dennis Donahue is the national practice leader for employee 
benefits at Wells Fargo Insurance Services. He is a member of 
the Council of Insurance Agents and Brokers, and a Trade 
Association for Commercial Insurance and Employee Benefits 
Brokers. Mr. Donahue has over 30 years in the benefits 
business.
    Mr. Ron Pollack is the founding executive director of 
Families USA. Families USA's mission is to achieve high quality 
affordable health coverage for everyone in the U.S. Prior to 
his current position at Families First, Mr. Pollack was the 
dean of the Antioch School of Law.
    Robyn Piper is the founder and president of Piper Jordan, a 
San Diego based consulting firm that helps Fortune 1,000 
companies craft employee benefit solutions. She has overall 
responsibility for the firm's business operations, including 
its regional operations at several business units, life, 
disability and health care consulting, voluntary work site, 
limited benefit health, and franchise solutions.
    Welcome. Before I recognize you to provide your testimony, 
let me briefly explain our lighting system. You have 5 minutes 
to present your testimony. When you begin, the light in front 
of you will turn green. With 1 minute left, the light will turn 
yellow. And when your time is expired, the light will turn red, 
at which point I would ask you to wrap up your remarks.
    I won't gavel you. I will let you finish your thoughts. 
After that, members will each have 5 minutes for questioning 
and the chairman will attempt to stay with the 5 minutes.
    I will now start with Ms. Turner.

          STATEMENT OF GRACE-MARIE TURNER, PRESIDENT,
                        GALEN INSTITUTE

    Ms. Turner. Thank you, Chairman Roe, Ranking Member Andrews 
and members of the committee for the opportunity to testify 
today about the impact of regulations on costs and uncertainty 
in employer provided health coverage.
    The Affordable Care Act's potential impact on jobs and 
economy has been a subject of debate and controversy from the 
start, as Mr. Andrews pointed out. Yet a recent U.S. Chamber of 
Commerce study found that 33 percent of business owners cited 
uncertainty about the health law as either the biggest or 
second biggest reason they are not hiring new workers.
    Dennis Lockhart, the president of the Federal Reserve Bank 
of Atlanta, said in a speech recently, ``We have frequently 
heard strong comments to the affect my company won't hire a 
single additional worker until we know what health insurance 
costs are going to be.''
    So I think this uncertainty of future regulations and costs 
is a huge factor impacting job creation. The new health law 
will add new costs, by forcing employers to either provide 
workers with expensive, government approved insurance or pay a 
fine. Many employers anticipating these costs are simply 
unwilling to add new workers.
    The health law also discourages small businesses from 
becoming mid size businesses because of the mandate that they 
provide health insurance kicks in when they have 50 or more 
employees. Small businesses are the engine of job growth in our 
economy.
    But a recent survey found that 70 percent have no plans to 
increase hiring in the next year. Certainly lack of demand is a 
big factor. But also the uncertainty of future regulations and 
health costs is a big factor.
    As for those companies that have more than 50 workers, the 
burden of having to buy government approved health insurances 
discourages them from hiring all but essential staff. Larger 
companies are already pairing back on entry level jobs and are 
using automation to avoid adding the costs of mandatory health 
insurance for lower income workers.
    McDonalds and CVS, for example, are replacing some human 
order takers and cashiers with electronic systems. This 
especially harms entry level jobs for those who need to get the 
skills to enter the workforce. It is not the surprising then 
that the unemployment rate among teenagers is about 25 percent. 
The jobs they need are evaporating.
    Many people argue that the Affordable Care Act's 
regulations are necessary to keep employers from cutting 
benefits or imposing higher health costs onto their employees. 
But employees actually pay a price for higher health costs. The 
cost of health coverage are part of employee compensation.
    A recent Rand study found that most of the pay increases 
that employees have received over the last 10 years have been 
consumed by health costs.
    I would like to briefly mention two particular regulations 
resulting from the Affordable Care Act, grandfathering and the 
medical loss ratio, which others will discuss today as well. 
While most companies hoped they would be able to preserve much 
of their existing coverage under the grandfathering provisions, 
the administration's own estimates indicate, as you said, Mr. 
Chairman, that most employers will not be able to maintain 
their grandfathered status.
    The grandfathering rules really block employers into a 
corner. They can't make changes other than minor modifications 
to their health plans in order to keep costs down, without 
being forced to comply with expensive Affordable Care Act 
regulations that increase their health care costs, a real Catch 
22.
    Health care costs are directly related to the creation of 
new jobs. Higher health care costs put additional pressures on 
the employers' bottom line and increase the cost of hiring new 
workers, in turn discouraging job creation.
    This is bad news for the economy and bad news for 
unemployed workers. The ACA already is costing jobs in the 
health broker community because of misguided regulations 
concerning the medical loss ration requirements. 21 percent of 
independent health insurance agency owners have already been 
forced to downsize their businesses. And many are anticipating 
even more cuts in the future.
    HHS rules require that their commissions be counted against 
insurers' allowable administrative costs, even though they are 
independent and none of their commissions actually go to the 
insurers. Bipartisan legislation has been introduced, as well, 
to address this issue.
    Chairman Roe, your leadership on health reform is 
particularly important because of your experience as a 
physician and because you have first hand experience with the 
damage that government controlled health care can do through 
Temcare.
    Your support for repeal of the Independent Payment Advisory 
Board, for example, shows your commitment to control of doctors 
and patients over medical decisions. You have made it very 
clear that this is a priority.
    And I know Doctors Bucshon and Dr. Desjarlais and Dr. Heck 
on this committee, as well as, of course, the others on the 
committee, are also concerned about making sure that we keep 
doctors and patients in control of medical decisions. That 
means less government control and less regulation.
    Thank you for the opportunity to testify.
    [The statement of Ms. Turner follows:]

  Prepared Statement of Grace-Marie Turner, President, Galen Institute

Executive summary
     The unemployment rate is stuck at 9.1 percent, and there 
is good reason to believe that PPACA is a major contributor to the jobs 
picture. Employers fear the costs, mandates, and regulations of hiring 
new workers as a result of PPACA.
     While most companies initially hoped they would be able to 
preserve much of their existing group health plans under the new 
grandfather provisions of the law, a survey by Aon Hewitt Consulting 
found almost all will not. The administration's own estimates indicate 
most employers will not be able to maintain grandfathered status.
     The grandfathering rules box employers into a corner. They 
cannot make changes, other than minor modifications, to their health 
plans to keep costs down without being forced to comply with expensive 
PPACA regulations that increase their health costs.
     Health costs are directly related to creation of new jobs. 
Higher health costs put additional pressures on the employer's bottom 
line and increase the cost of hiring new workers, in turn discouraging 
job creation. This is bad news for the economy and for unemployed 
workers.
     Many people argue that PPACA's restrictions are necessary 
to keep employers from cutting benefits or imposing higher health costs 
onto their employees. But employees actually pay the price for rising 
health costs.
     A recent RAND study found that most of the pay increases 
that employees have received over the last ten years have been consumed 
by health costs. The typical family had just $95 a month more to devote 
to non-health spending in 2009 than a decade earlier. Had the rate of 
health care cost growth kept pace with general inflation, the family 
would have had $545 more per month in spendable income--a difference of 
$5,400 per year.
     PPACA already is having a direct impact on jobs in the 
health broker industry because of misguided regulations concerning the 
Medical Loss Ratio requirements in the law.
    Health costs are a jobs issue. It is in the interest of both 
employers and employees to keep health costs down, and the 
grandfathering and MLR regulations issued by HHS restrict their ability 
to do that.
Regulations, Costs, and Uncertainty in Employer Provided Health Care: 
        Saving Jobs from PPACA's Harmful Regulations
    Committee on Education and the Workforce Subcommittee on Health, 
Employment, Labor, and Pensions October 13, 2011 By Grace-Marie Turner, 
Galen Institute
    Thank you Chairman Roe, Ranking Member Andrews, and members of the 
Committee for the opportunity to testify today about the impact of 
regulations on costs and uncertainty in employer-provided health 
coverage and particularly the impact of provisions in the Patient 
Protection and Affordable Care Act (PPACA) on employers, employees, and 
job creation in America.
Impact on job creation
    PPACA's potential impact on jobs and the economy has been the 
subject of debate and controversy from the start. The president 
promised it would be a boon to both; former Speaker Nancy Pelosi said 
the law would create 400,000 jobs ``almost immediately.'' Others 
argued, however, that the law's costs and mandates would make 
businesses much less likely to hire new workers.
    That debate should now be over.
    The Heritage Foundation's James Sherk, a senior policy analyst in 
labor economics, recently released a paper\1\ comparing the rate of net 
job growth before and after PPACA's passage in March of 2010. The 
findings show that job creation came to a virtual halt after the health 
law was enacted.
    The low point of the recession came in January 2009, when U.S. 
employers shed 841,000 jobs in just that one month. But the economy 
slowly started to recover over the next 15 months; private employers 
began hiring workers at an average rate of 67,600 per month (net of 
layoffs). The economy's high point came with the April 2010 report, 
when 229,000 jobs were added.
    But the health law was signed into law in late March, and the 
hiring freeze began. In the following months, the economy added an 
average of just 6,500 net private sector jobs per month--less than a 
tenth of the pre-ObamaCare average.
    This doesn't prove that the health law is a major cause of the 
problem. But there is no question that the jobs recovery stalled after 
ObamaCare passed, with no new jobs created in August and unemployment 
stuck at 9.1 percent. There's good reason to believe that the health 
law is a major contributor to the hiring halt.
    In a recent U.S. Chamber of Commerce study, 33 percent of business 
owners cited uncertainties about the health law as either the biggest 
or second-biggest reason they're not hiring new workers.
    Those findings were backed up by the words of Dennis Lockhart, 
president of the Federal Reserve Bank of Atlanta, in a speech: ``We've 
frequently heard strong comments to the effect of `My company won't 
hire a single additional worker until we know what health-insurance 
costs are going to be.' '' \2\
    The health law discourages hiring in several ways. First, it adds 
unknown costs to hiring new workers. Companies already must consider 
the cost of taxes for Social Security, Medicare, unemployment 
insurance, and workers' compensation when hiring new staff. Combined 
with health benefits, these costs explain why a $50,000-a-year employee 
costs a company $62,500 to $70,000 (according to MIT business professor 
Joseph Hadzima).\3\ The health law will add new costs by forcing 
employers to either provide workers with expensive, government-approved 
insurance or pay a fine. Employers anticipating these costs are simply 
unwilling to add new workers.
    The health law also discourages small businesses from becoming mid-
size businesses because the mandate to provide insurance kicks in once 
you reach 50 or more employees. This is profoundly wrongheaded. Small 
business is the engine for job growth in America, but a recent survey 
found that 70 percent have no plans to increase hiring in the next 
year.
    As for those companies that already have 50 or more workers, the 
burden of having to buy expensive government-approved policies or pay 
penalties discourages them from hiring all but essential staff. Indeed, 
larger companies are doing everything they can to pare back on entry-
level jobs and are using automation to avoid the added cost of 
mandatory health insurance for lower-income workers. McDonald's and CVS 
drug stores, among many other large companies, are replacing some human 
order-takers and cashiers with electronic systems.
    This especially hurts entry-level would-be workers who need jobs so 
they can get the skills to enter the workforce. Is it any surprise that 
teen unemployment has now hit 25 percent? The jobs they need are 
evaporating because of the president's health overhaul law.
Employees pay the price of higher health costs
    Many people argue that the PPACA's regulations are necessary to 
keep employers from cutting benefits or imposing higher and higher 
health costs onto their employees. But employees actually pay the price 
for these higher health costs.
    The cost of health coverage is part of employee compensation. A 
recent RAND study found that most of the pay increases that employees 
have received over the last ten years have been consumed by health 
costs.
    Between 1999 and 2009, a median-income family of four that received 
health insurance through an employer saw their real annual earnings 
rise from $76,000 to $99,000 over the ten year period. But nearly all 
that gain was consumed by rising health care costs, according to the 
paper by David Auerbach and Arthur Kellermann of RAND.\4\
    After taking into account the price increases for other goods and 
services, they said the typical family had just $95 a month more to 
devote to non-health spending in 2009 than they had a decade earlier. 
By contrast, the authors say that if the rate of health care cost 
growth had not exceeded general inflation, the family would have had 
$545 more per month in spendable income instead of $95--a difference of 
$5,400 per year. Workers are paying the price for higher health costs.
    Many companies have introduced plans that engage their employees as 
partners in managing health costs, giving them more control over health 
care and health spending decisions. These companies have had success in 
holding down health cost increases. A 2011 survey for the National 
Business Group on Health on ``purchasing value in health care'' found 
that companies that offered account-based health plans, such as Health 
Savings Accounts or Health Reimbursement Arrangements, had coverage 
costs that were $900 lower than average for employee-only coverage and 
$2,885 lower for Preferred Provider and Point of Service (PPO/POS) 
plans.\5\ ``The cost of [account-based health plan] coverage is 
considerably more affordable than either PPO/POS plan or HMO plan 
coverage in 2011,'' the survey found. These premium savings benefit 
both employers and employees.
    The number of people with HSA/HDHP (high-deductible health plan) 
coverage rose to more than 11.4 million in January 2011, up from 10 
million in January 2010, 8 million in January 2009, and 6 million in 
January 2008.\6\
    Of course consumer-directed plans are only one option of the wide 
array of policy choices offered in the private marketplace. But many 
employees and employers value this choice. Flexibility, rather than the 
top-down regulations PPACA is imposing, is essential for employers and 
employees to find ways to hold down health costs.
Grandfathered health plans
    Many employers said that assurances their health plans would be 
``grandfathered'' was a key reason that led to their support or to 
their taking a neutral stance on passage of the PPACA.
    People who have and value their health coverage were also 
reassured. Surveys have shown that 88 percent of Americans are 
satisfied with their health coverage.\7\ While most companies initially 
hoped they would be able to preserve much of their existing group 
health plans under the new grandfather provisions, a survey by Aon 
Hewitt Consulting found almost all will not.\8\
    ``If you like your health insurance, you can keep your health 
insurance,'' the president repeatedly promised. Even administration 
experts now admit this promise will not be kept. The Department of 
Health and Human Services expects that, by 2013, between one-third and 
two-thirds of the 133 million people with coverage through large 
employers will lose their grandfathered status. And up to 80 percent of 
the 43 million people in small employer plans will lose their 
grandfathered protection. Up to 70 percent of those with coverage in 
the individual market would be forced to comply with expensive new 
federal rules within a year.\9\ Few of them are likely to lose coverage 
in the short term, but most will lose the coverage they have now.
    The grandfathering rules box employers into a corner. They cannot 
make changes, other than minor modifications, to their health plans to 
keep costs down without being forced to comply with expensive PPACA 
regulations that increase their health costs.
Health costs are the issue
    The human resources consulting firm Towers Watson released a survey 
of large employers regarding health costs.\10\ Seven out of ten of the 
employers surveyed expect to lose grandfathered health status in 2012--
subjecting them to all of the new regulations and mandates under the 
new health law. Of even greater concern, nearly three in ten employers 
(29 percent) are unsure whether or not they will continue offering 
coverage to their current workers after all of the provisions of the 
new health law take effect.
    Towers Watson reports that overall health plan costs are projected 
to rise at a 5.9 percent rate in 2012, continuing to rise faster than 
the rate of overall inflation. Because of rising health insurance costs 
and the other cost pressures that employers face, a majority of firms 
say they will be forced to increase the employee share of premiums in 
2012. Only one percent of firms say they will be able to decrease the 
employee share of premium contributions next year.
    Health costs are directly related to creation of new jobs. 
Employers continue to face a fragile economy. Higher health costs put 
additional pressures on their bottom line and increase the cost of 
hiring new workers, in turn discouraging job creation. This is bad news 
for the economy and for unemployed workers.
What all employers must cover
    Under the Affordable Care Act, all health plans--whether or not 
they are grandfathered plans--were required to provide certain benefits 
for plan years starting after September 23, 2010, including: \11\
     Restrictions on lifetime limits on coverage for all plans. 
Starting in 2014, insurance plans must provide coverage without 
imposing any annual or lifetime limits on the amount paid to individual 
beneficiaries. During the transition years between now and 2014, 
however, insurance firms can impose annual limits, subject to HHS 
rules. The HHS regulations issued last June dictated how high these 
limits must be. In 2011, insurance companies can continue to impose an 
annual limit, but it must be at least $750,000 per enrollee. In 2012, 
the limit will have to be at least $1.25 million, and in 2013, $2 
million. In 2014 there can be no limit on payouts for any individual's 
care.\12\ This is the particular regulation that has led to at least 
1,578 waivers being issued by HHS, primarily covering limited benefit 
plans offered by employers such as McDonald's who said the higher cost 
could force them to drop the coverage altogether.\13\
     No rescissions. Plans may not rescind coverage after 
enrolling a participant, except in the case of fraud or limited 
circumstances.
     No coverage exclusions for children under age 19 with pre-
existing conditions, and no pre-existing condition exclusions for 
anyone starting in 2014.\14\
     Group health plans that provide dependent coverage are 
required to extend coverage to adult children up to age 26 with no 
conditions on dependency.
    A recent employer survey said that 28 percent of employers believe 
that compliance with PPACA rules already is increasing their health 
cost.\15\
Restrictions on plans hoping to keep grandfathered status
    What do plans have to do in order to maintain their grandfathered 
status? A Health and Human Services Department fact sheet describes the 
restrictions.\16\
    Compared to policies in effect on March 23, 2010, employers:
     cannot significantly cut or reduce benefits
     cannot raise co-insurance charges
     cannot significantly raise co-payment charges
     cannot significantly raise deductibles
     cannot significantly lower employer contributions
     cannot add or tighten an annual limit on what the insurer 
pays
     cannot change insurance companies. (This rule was later 
amended to allow employers to switch insurance carriers as long as the 
overall structure of the coverage does not violate other rules for 
maintaining grandfathered plan status. The amended rule specifically 
directs that the new insurance carrier must precisely match the same 
terms of coverage that were previously in place.)
    These rules mean, for example, that health plans and employers with 
plans in effect on March 23, 2010, lose their exempt--or 
grandfathered--status if they were to raise co-payments by the greater 
of $5 or a medical inflation rate plus 15 percent. Deductibles couldn't 
go up more than medical inflation plus 15 percent. In addition, 
employers couldn't cut the amount of the premium that they contribute 
by more than 5 percent.
    Plans that lose their grandfathered status become subject to all of 
the requirements in PPACA, including first-dollar coverage for 
preventive care, required coverage for certain clinical trials, quality 
reporting requirements, and implementation of internal and external 
appeals processes.
    A survey by Aon Hewitt Consulting found that ninety percent of 
companies said they anticipate losing grandfathered status by 2014, 
with the majority expecting to do so in the next two years. The study 
found that among those companies with self-insured plans, 51 percent 
expect to first lose grandfathered status in 2011 and another 21 
percent expect to lose it in 2012. The survey
    found that ``Most employers would rather have the flexibility to 
change their benefit programs than be restricted to the limited 
modifications allowed under the new law.'' \17\
Why employers need flexibility
    The employment-based health system in the United States has evolved 
from decisions made during World War II that gave favored status to 
health insurance offered through the workplace. Our system of employer-
based health insurance is underpinned by generous tax incentives that 
allow employers to deduct the cost of health insurance as a part of 
their employee compensation costs and through a separate tax provision 
that shields the value of the policy from being taxed as income to the 
worker. These dual tax incentives have provided strong incentives for 
people to get their health insurance at work and have led to the system 
in which 158 million Americans get health insurance through the 
workplace.
    Employers work very hard to find the balance in keeping the cost of 
health insurance as low as possible while offering the benefits that 
employees want and need. Part of the way they are able to do this is by 
seeking bids from competing insurers and amending and adjusting benefit 
structures. But under the grandfathering rules, employers are very 
limited in their ability to adjust current benefits without losing 
their grandfathered status. This also means they are limited in what 
they can do to help keep costs down.
    The U.S. Chamber of Commerce, the largest U.S. business advocacy 
group, presented written comments on the grandfathering rules in August 
2010, saying its first concern is with the restriction on cost-sharing. 
``By so severely restricting changes in cost-sharing, the regulations 
will effectively force plans to lose grandfathered status in order to 
remain solvent,'' the Chamber wrote.\18\
Medical Loss Ratio regulations as job killers
    PPACA already is having a direct impact on jobs in the health 
broker industry. Janet Trautwein, Executive Vice President and CEO of 
the National Association of Health Underwriters (NAHU), reported in 
recent testimony before the House Energy and Commerce Subcommittee on 
Health that ``the economic outlook for many health insurance agents and 
brokers across the country continues to be bleak. As health insurance 
companies renew and revise their agent and broker contracts for the 
coming year, it is clear that the financial situation for many of these 
business owners is getting worse.'' \19\
    She reported that: ``NAHU recently surveyed its members and found 
that 21 percent of independent health insurance agency owners have been 
forced to downsize their businesses, including laying off employees. 
Twenty-six percent have also had to reduce the services they provide to 
their clients * * * Five percent of respondents who were not principals 
in their agencies have already lost their jobs due to producer revenue 
reductions caused by the MLR regulation, and agency owners report that 
if their compensation continues to plummet more job loss will follow.''
    The main reason for this is a rule imposed by the Department of 
Health and Human Services involving the Medical Loss Ratio (MLR) which 
mandates that health insurance carriers spend 85 percent of their 
premiums for large groups and 80 percent of their premiums for 
individual and small group policies on direct medical care.
    The HHS rule requires health plans to treat independent agent and 
broker compensation as part of health plan administrative costs--even 
though they aren't employed by health insurance carriers. Brokers and 
agents run their own businesses, hire their own employees, and pay all 
of their own office expenses, working for their clients to find the 
best and most affordable health insurance, usually from a range of 
health carriers.
    None of the compensation goes to the health insurer, yet HHS rules 
require that it be counted against the insurer's allowable 
administrative cost.
    Agents bring a great deal of value to their clients, yet this 
clumsy rule is shoving them aside. Not only do they help individuals 
and small businesses find the most appropriate and affordable policy 
from many competing carriers, but they also help companies find and 
establish wellness and disease-management programs and navigate the 
often-complex claims process. They are a crucial element in the 
equation of helping businesses find the most appropriate and affordable 
health policies for their employees.
    Agents and brokers often act as an external human resources 
department for companies. Many smaller companies do not even have an HR 
department so, as the Congressional Budget Office has noted, agents and 
brokers often ``handle the responsibilities that larger firms generally 
delegate to their human resources departments--such as finding plans 
and negotiating premiums, providing information about the selected 
plans, and processing enrollees.''
    Janet Trautwein testified that NAHU ``members are spending 
significant amounts of time educating their clients about the new law's 
provisions and helping them comply with its resulting regulations. 
Regardless of what the final outcome of PPACA may be, the need for 
licensed, trained professionals to help individuals, employers and 
employees with their health insurance needs will always be there. So we 
need to make sure this industry survives.'' She made it clear that 
``PPACA-related regulations * * * are costing American jobs and 
hindering American business owners every single day. In every state, as 
a direct result of the new law's MLR provisions, agency owners are 
reporting that they are reducing services to their clients, cutting 
benefits and eliminating jobs just to stay in business. In some 
instances, they are simply closing their doors.'' NAHU recommends 
``eliminating independent producer commissions from the MLR 
calculation,'' adding that this ``will go a long way toward providing 
uniform and needed relief to all health insurance markets--and the 
consumers who reside within them--during the transitional period as 
PPACA requirements are fully implemented over the next three years.''
Relief from the grandfathering regulation
    It is in the interest of both employers and employees to keep 
health costs down, and the MLR and grandfathering regulations issued by 
HHS are just two examples of rules that are restricting their ability 
to do that. Health costs and jobs are at stake.
    I understand that legislation is being drafted to reverse the 
interim final regulation issued by HHS addressing grandfathering. 
Reversing this regulation would give employers the flexibility they 
need to manage their health costs and find the balance between health 
costs, wages, and hiring new workers. In addition, Reps. Mike Rogers 
and John Barrow of Georgia have introduced legislation, the Access to 
Professional Health Insurance Advisors Act of 2011, to remove 
independent health insurance producer commissions from what is 
currently defined as premiums for MLR calculation.
    Chairman Roe, your leadership on health reform issues is 
particularly important because of your experience as a physician and 
because you have first-hand experience with the damage of government-
controlled health care through TennCare. Your support for repeal of the 
Independent Payment Advisory Board is both important and relevant. You 
have made it very clear in your work that you believe health care is 
best provided when doctors and patients--not Washington bureaucrats--
are in charge of decisions. It is fortunate that Drs. Bucshon, 
DesJarlais, and Heck are also serving with you on this committee to 
provide physician leadership in Congress to restore the proper control 
over health care decisions to doctors and patients.
    Thank you for the opportunity to testify today, and I will be happy 
to answer your questions.

                                ENDNOTES

    \1\ James Sherk, ``Economic Recovery Stalled After ObamaCare 
Passed,'' The Heritage Foundation, July 19, 2011, http://thf--
media.s3.amazonaws.com/2011/pdf/wm3316.pdf.
    \2\ Dennis Lockhart, ``Business Feedback on Today's Labor Market,'' 
Federal Reserve Bank of Atlanta, November 11, 2010, http://
www.frbatlanta.org/news/speeches/lockhart--111110.cfm.
    \3\ Joseph G. Hadzima, Jr., ``How Much Does an Employee Cost?'' 
Boston Business Journal, http://web.mit.edu/eclub/hadzima/pdf/how-much-
does-an-employee-cost.pdf.
    \4\ David I. Auerbach and Arthur L. Kellermann, ``A Decade Of 
Health Care Cost Growth Has Wiped Out Real Income Gains For An Average 
US Family,'' Health Affairs, September 2011, http://
content.healthaffairs.org/content/30/9/1630.abstract.
    \5\ ``Shaping Health Care Strategy in a Post-Reform Environment: 
2011 16th Annual Towers Watson/National Business Group on Health 
Employer Survey on Purchasing Value in Health Care,'' Towers Watson/
National Business Group on Health, March 2011, http://
www.towerswatson.com/assets/pdf/3946/TowersWatson-NBGH-2011-NA-2010-
18560-v8.pdf.
    \6\ ``January 2011 Census Shows 11.4 Million People Covered by 
Health Savings ccount/High-Deductible Health Plans (HSA/HDHPs),'' 
America's Health Insurance Plans, June 2011, http://
www.ahipresearch.org/pdfs/HSA2011.pdf.
    \7\ Ruth Helman and Paul Fronstin, ``2010 Health Confidence Survey: 
Health Reform Does Not Increase Confidence in the Health Care System,'' 
Employee Benefit Research Institute, September 2010, http://
www.ebri.org/pdf/surveys/hcs/2010/ebri-notes-09-2010-hcs-rspm.pdf.
    \8\ ``Employer Reaction to Health Care Reform: Grandfathered Status 
Survey,'' Aon Hewitt, August 2010, http://www.aon.com/attachments/
Employer--Reaction--HC--Reform--GF--SC.pdf.
    \9\ ``Fact Sheet: Keeping the Health Plan You Have: The Affordable 
Care Act and 'Grandfathered' Health Plans,'' U.S. Department of Health 
and Human Services, HealthReform.gov, Accessed September 13, 2011, 
http://www.healthreform.gov/newsroom/keeping--the--health--plan--you--
have.html.
    \10\ ``Employers Committed to Offering Health Care Benefits Today; 
Concerned About Viability of Insurance Exchanges,'' Towers Watson, 
August 24, 2011, http://www.towerswatson.com/press/5328.
    \11\ ``Fact Sheet: Keeping the Health Plan You Have: The Affordable 
Care Act and 'Grandfathered' Health Plans,'' U.S. Department of Health 
and Human Services, HealthReform.gov, Accessed September 13, 2011, 
http://www.healthreform.gov/newsroom/keeping--the--health--plan--you--
have.html.
    \12\ John Hoff and John E. Calfee, ``The Contradictions of 
ObamaCare,'' The American, February 10, 2011, http://www.american.com/
archive/2011/february/the-contradictions-of-obamacare.
    \13\ ``Annual Limits Policy: Protecting Consumers, Maintaining 
Options, and Building a Bridge to 2014,'' The Center for Consumer 
Information & Insurance Oversight, Accessed September 13, 2011, http://
cciio.cms.gov/resources/files/approved--applications--for--waiver.html.
    \14\ PPACA was misdrafted, and the law did not explicitly require 
insurers, starting last year, to sell health insurance to families with 
children under age 19 who have pre-existing conditions. But health 
plans told Department of Health and Human Services Secretary Kathleen 
Sebelius they would voluntarily comply with the HHS rules requiring 
them to cover these children. For more information: Robert Pear, 
``Insurers to Comply With Rules on Children,'' The New York Times, 
March 30, 2010, http://www.nytimes.com/2010/03/31/health/policy/
31health.html.
    \15\ ``US employer health plan enrollment up 2% under PPACA's 
dependent eligibility rule,'' Mercer LLC, August 1, 2011, http://
www.mercer.com/press-releases/1421820.
    \16\ ``Fact Sheet: Keeping the Health Plan You Have: The Affordable 
Care Act and 'Grandfathered' Health Plans,'' U.S. Department of Health 
and Human Services, HealthReform.gov, Accessed September 13, 2011, 
http://www.healthreform.gov/newsroom/keeping--the--health--plan--you--
have.html.
    \17\ ``Employer Reaction to Health Care Reform: Grandfathered 
Status Survey,'' Aon Hewitt, August 2010, http://www.aon.com/
attachments/Employer--Reaction--HC--Reform--GF--SC.pdf.
    \18\ ``Comments on the Grandfathered Health Plan Status 
Regulations,'' U.S. Chamber of Commerce, August 16, 2011, http://
www.uschamber.com/issues/comments/2010/comments-grandfathered-health-
plan-statusregulatios.
    \19\ Janet Trautwein, Testimony for the United States House of 
Representatives Committee on Energy and Commerce Subcommittee on Health 
Hearing ``Cutting the Red Tape: Saving Jobs from PPACA's Harmful 
Regulations,'' September 15, 2011, http://
republicans.energycommerce.house.gov/Media/file/Hearings/Health/091511/
Trautwein.pdf.
                                 ______
                                 
    Chairman Roe. Thank you, Ms. Turner.
    Mr. Donahue?

STATEMENT OF DENNIS M. DONAHUE, MANAGING DIRECTOR, WELLS FARGO 
   INSURANCE SERVICES USA, INC., TESTIFYING ON BEHALF OF THE 
            COUNCIL OF INSURANCE AGENTS AND BROKERS

    Mr. Donahue. Chairman Roe, Ranking Member Andrews and 
members of the committee, good morning. Again, my name is 
Dennis Donahue. I am the managing director and national 
practice leader of employee benefits for Wells Fargo Insurance 
Services USA. And I am testifying today on behalf of the 
Council of Insurance Agents and Brokers.
    The Council represents the nation's leading commercial 
insurance agency and brokerage firms, with members in over than 
3,000 locations, placing more than $200 billion of U.S. 
insurance products and services, including group health 
insurance.
    The Council's members help employers provide their 
employees with the health coverage they need at the cost they 
can afford, serving tens of thousands of employer-based health 
insurance plans, covering millions of American workers.
    We appreciate the opportunity to testify today. And I will 
focus my comments on two particularly troubling aspects of the 
Patient Protection and Affordable Care Act, compliance with 
grandfathering and the medical loss ratio, MLR, provisions.
    With respect to grandfathering, under PPACA, a core 
objective was to allow everyone who had coverage the law was 
enacted to keep that coverage. To this end, group health plans 
that existed on March 23, 2010, are grandfathered, and are, 
therefore, exempt from some of the law PPACA requirements, 
provided that these grandfather plans comply with certain 
constraints on their evolution that have been imposed by HHS, 
DOL and the Treasury Department.
    To retain grandfathering status, for example, a plan cannot 
increase the percentage of co-insurance changes, significantly 
increase a planned participant co-pays, decrease the employer 
contribution by more than a specified amount or impose new or 
decreased annual dollar benefit limits. A grandfathered plan 
must also satisfy extensive record keeping and disclosure 
obligations to preserve its status.
    As straightforward as some of these rules and limitations 
might seem, it is never that simple for an employer that is 
trying to maintain their grandfathered plan. For practically 
any contemplated change in the design of a health benefit plan, 
the sponsor of that plan must seek some type of professional 
guidance if they wanted to ensure that the change does not 
jeopardize the plan's grandfathered status.
    This will likely have been done annually, because, as you 
mentioned before, the plan tends to make changes every year. 
And all of it costs employers time and money. It is naive to 
think that employee benefit plans are stagnant elections made 
by employers.
    Plans change historically. And they evolve as the markets 
evolve, with new cost containment measures, plans designed to 
promote more cost effective treatments, the changing of those 
insurance companies, their networks, deductibles, covered 
expenses and so forth.
    As consultants advising employers on compliance, we have 
received countless questions on the grandfathering rules alone. 
And many employers now hesitate to make any changes for fear 
for running afoul of these rules.
    All of this complexity costs employer health plans time and 
money. The clients with which we work, particularly those 
between 50 and 100 employees, do not have the administrative 
resources and the expertise to make the requisite 
grandfathering assessments.
    Many of those client employers are now actively evaluating 
whether to abandon offering these benefits at all, as they see 
the cost of compliance sky rocketing.
    There is also a number of other changes that would be 
implemented starting in 2014. Employers are equally concerned 
about how they and their employees would be able to absorb the 
cost of these additional requirements.
    With regard to the MLR, the medical loss ration 
requirements, our clients have also expressed concern about the 
effect of the MLR provision, that it may have on health 
insurance premiums in areas where health insurance carriers are 
leaving the marketplace because they are unable to meet the MLR 
requirements.
    In addition, the imposition of the MLR requirement creates 
some counterintuitive disincentives. For example, insurance 
carriers are discinentivized from negotiating better deals with 
medical providers and from developing new wellness programs 
because of all the associated expenses of such initiatives. And 
those will fall on the bad side--on the denominator side of the 
MLR equation.
    While any potential benefits that reduce their medical 
costs will actually further exacerbate the administrative cost 
issues in the short term. And they will certainly stifle 
innovation.
    More parochially, there is concern among health insurance 
agents and brokers about the impact of MLR. It will have on our 
business and on our jobs,.as carriers cut back and restructure 
commissions in order to meet MLR's administrative cost caps.
    Employers, too, are concerned, because they do not want to 
lose the readily access that they have to professional advice. 
And some have to come to rely upon their agents and brokers, 
particularly in light of the difficult of navigating new PPACA 
requirements, as discussed earlier.
    For these reasons, the council supports H.R. 1206, the 
Access to Professional Health Insurance Advisers Act of 2011, a 
bill introduced by Representative Rogers to help ensure that 
the MLR does not lead to the loss of agent or broker jobs, thus 
depriving consumers of the expertise that agents and brokers 
provide.
    Thank you, again, for the opportunity to testify today. And 
I am happy to answer questions.
    [The statement of Mr. Donahue follows:]

       Prepared Statement of Dennis M. Donahue, on Behalf of the
                Council of Insurance Agents and Brokers

    The Council of Insurance Agents & Brokers (``The Council'') is 
grateful to Chairman Roe, Ranking Member Andrews, and other members of 
the Subcommittee for holding this hearing to examine the impact of 
regulations, costs, and uncertainty on employer-provided health care. 
We appreciate the opportunity to testify, in particular, concerning 
compliance with the grandfathering and minimum medical loss ratio 
(``MLR'') provisions of the Patient Protection and Affordable Care Act 
(``PPACA'').
    Specifically, I will share my knowledge regarding some of the costs 
to employer-based health plans to comply with these provisions, based 
on my experience as a professional employee benefits consultant and 
health insurance broker to mid-sized employers who offer health 
coverage to their employees. The costs and burdens of compliance are 
considerable.
    My job title is Managing Director, National Practice Leader for 
Employee Benefits, for Wells Fargo Insurance Services USA, Inc. I am 
testifying today on behalf of The Council, of which I am a member as 
well as former Chairman of the Council of Employee Benefit Executives. 
The Council is the premier association for commercial insurance and 
employee benefits intermediaries in the United States. The Council 
represents leading commercial insurance agencies and brokerage firms, 
with members in more than 3,000 locations placing more than $200 
billion of U.S. insurance products and services, including group health 
insurance. The Council's members help employers provide their employees 
with the health coverage they need at a cost they can afford, serving 
tens of thousands of employer-based health insurance plans covering 
millions of American workers. As such, our membership has a thorough 
understanding of the group health insurance market, and has had a 
unique opportunity to observe the challenges group health plans have 
faced thus far in the PPACA implementation process.
    Wells Fargo is the fourth largest insurance broker in the United 
States and the fifth largest in the world. The majority of our 
commercial insurance customers are small and mid-sized employers, 
typically 50 to 500 employees. On a personal note, I have 34 years in 
the employee benefits industry and I am a national resource for 
approximately 1,000 employee benefit professionals within our firm.
Overview
    Recognizing that the grandfather and MLR provisions were included 
in PPACA with a view toward helping consumers of health insurance, I am 
here today to tell you that these provisions, as they have been 
implemented, are not cost-free. This is especially so for smaller 
employers and health plans that lack the staff and resources to devote 
to ensuring that their plan complies with the myriad restrictions on 
grandfathered plans, which range from limits on changing co-payment 
amounts, co-insurance charges and other cost-sharing amounts, to making 
changes in the types of benefits that are offered. This may sound more 
straightforward than it is. However, for practically any contemplated 
change in the design of a health benefit plan, the sponsor of that plan 
must seek some type of professional guidance if they want to ensure 
that the change does not jeopardize the plan's grandfathered status. 
This will likely have to be done annually because plans tend to make 
changes each year, and all of it costs employers money and time.
    At the same, these health plans may lack the resources to pay the 
higher premium costs that may be associated with losing grandfathered 
status. In particular, loss of grandfather status means a plan may have 
to provide new benefits such as preventive services for free. These 
plans may also have to implement new or different claims appeal and 
external claims review processes. And there are a number of other 
changes that would have to be implemented starting in 2014. Employers 
are concerned about how they and their employees would be able to 
absorb the costs for these additional requirements.
    Our clients have also expressed concern about the effect that the 
MLR provision may have on health insurance premiums in areas where 
health insurance carriers are leaving the market because they are 
unable to meet the MLR requirements.
    And finally, there is concern among health insurance agents and 
brokers about the impact the MLR will have on their businesses and 
their jobs, as carriers cut back and re-structure commissions to meet 
the MLR's administrative cost caps. Employers too are concerned, 
because they do not want to lose ready access to the professional 
advice they have come to rely upon from their agents and brokers. For 
these reasons, The Council supports H.R. 1206, the Access to 
Professional Health Insurance Advisors Act of 2011, a bill introduced 
by Rep. Rogers to help ensure that the MLR does not lead to the loss of 
agent and broker jobs, thus depriving consumers of the expertise agents 
and brokers offer.

Discussion
            I. The Impact of PPACA Grandfathering Provisions on 
                    Employer Health Plans
    Under PPACA, group health plans that existed on March 23, 2010 (the 
law's enactment date) are ``grandfathered'' and are, therefore, exempt 
from some of the law's new requirements. The U.S. Department of Health 
and Human Services, Department of Labor, and Treasury Department 
(collectively, the ``Departments'') issued a rule last year to 
implement the grandfather provision, and that rule basically 
establishes a list of things a health plan can and cannot do while 
remaining grandfathered, in addition to imposing new recordkeeping and 
notification requirements. I think of the requirements as a list of 
``do's and don'ts,'' as follows:

                   A Grandfathered Group Health Plan:
------------------------------------------------------------------------
                 Cannot--                               Can--
------------------------------------------------------------------------
 Eliminate all benefits to           Change carriers
 diagnose or treat a particular condition
 Increase percentage co-insurance    Change premiums
 charges
 Increase co-pays, fixed amount      Make sure
 cost-sharing ``significantly'' (med.        structural changes to plan
 infl. +15%)                                 (e.g., self-insured to
                                             insured)
 Decrease employer contribution      Change provider
 >5%                                         network
 New or decreased annual dollar      Change prescription
 benefit limits                              formulary
 Switch employees' plans or engage   Make changes to
 in mergers, etc. to avoid compliance        comply with other laws
------------------------------------------------------------------------

    The Departments' rule characterizes the permitted changes as ones 
that are ``routine'' in nature for health plans. It is naive to think 
that employee benefit plans, especially the medical, are stagnant 
elections made by employers. Our clients have multi-year objectives 
that attempt to ward off the rate of continued medical inflation. Plan 
changes historically evolve as the markets evolved with new cost 
containment measures, plan designs to promote more cost-effective 
treatments, the changing of carriers, networks, deductibles, covered 
expenses, and so forth. But in today's economic environment, it is not 
unusual for our clients to contemplate cost structure changes beyond 
those the rule treats as ``non-routine.'' When faced with a decision 
whether to keep offering insurance to employees or whether to give up 
in an age of incredible health cost increases, employers do contemplate 
the possibility of having to increase the employee's contribution by 
more than 5%, for example, a change that will cause loss of grandfather 
status.
    And as straightforward as some of these decisions might seem, it is 
never that simple for an employer that is trying to maintain a 
grandfathered plan. As consultants advising these employers on 
compliance, we have received countless questions from our clients in 
the year since the grandfather rule was adopted. Employers now hesitate 
to do something as basic as moving a group of employees from one health 
plan to another if the company is re-aligning its staff among different 
geographic locations or has undergone a corporate re-structuring, for 
fear of running afoul of the grandfather rule. They seek our advice for 
this and nearly every other type of change they consider making to 
their health plans, just to make sure they do not unwittingly end up 
affecting the plan's status.
    The grandfather rule includes recordkeeping and disclosure 
obligations, as I previously mentioned. These include a requirement 
that health plans maintain the records necessary to prove their 
grandfathered status, which entails keeping the paperwork describing 
each and every health plan benefit and each and every cost or 
contribution as they existed on March 23, 2010, and for any and every 
change, for an indefinite period of years thereafter. This is a 
dichotomy as health plans, and employee benefits in general (as a 
condition of one's overall compensation package), are viewed by 
employers as prospective, not retrospective. Tied to employee's 
compensation, they are unique and employer-specific in their design. 
These new recordkeeping rules will be especially burdensome and 
expensive for employers that have multiple locations and employee 
classes, all with varying benefit levels for purpose, that continue to 
evolve as our U.S. healthcare delivery system evolves.
    All of this complexity costs employer health plans time and money. 
And many of our clients say they are daunted by the grandfather rule's 
requirements. The companies we work with, particularly those with 50 to 
100 employees, do not have the administrative resources and expertise 
to make assessments about whether changes will cause loss of 
grandfather status, or when it becomes uneconomical to even try to 
maintain grandfather status. Admittedly, their inquiries and their 
resulting challenges mean business for my employer; but there is no 
doubt that our clients spend money on consulting fees for 
grandfathering compliance matters that they did not have to spend two 
years ago. That's an administrative expense that does not grow their 
business, and the Subcommittee is probably aware of the well-known data 
indicating that small businesses create more than 60% of the new jobs 
in our country.\1\
---------------------------------------------------------------------------
    \1\ U.S. Small Business Administration fact sheet, available at 
http://www.sba.gov/advocacy/7495/8420.
---------------------------------------------------------------------------
    One might ask why plans do bother attempting to maintain 
grandfathered status? The reason is because they may also be unable to 
afford the cost of the plan if they lose grandfather status. This is 
the case because a non-grandfathered plan may have to provide new 
benefits the plan sponsor did not anticipate (having to offer when it 
sought to design a plan that the employer and its employees could 
actually afford). Our clients are most concerned about the cost of 
needing to provide preventive services for free rather than with a co-
pay, and the cost of having to implement new or different claims appeal 
and external claims review processes. Both of these new requirements 
would have to be implemented now if a plan loses grandfathered status. 
There are several other new requirements that go into effect for non-
grandfathered plans starting in 2014, including having to provide a 
mandated benefits package and minimum 60% employer contribution for 
company plans with fewer than 100 employees. Thus, there can be 
considerable new costs involved if a plan loses grandfather status, 
especially for small businesses.
            II. The Impact of the Medical Loss Ratio
    From my perspective as a consultant to employers and as a 
professional insurance broker, the minimum MLR, which caps the amount 
of non-claims-related expenses a carrier can have at 15% or 20% 
depending on the market, is raising concerns among employers about what 
the MLR may ultimately do to their insurance premiums, and raises 
concerns about the impact on agents and brokers and the services we 
provide to employers.

                         A. IMPACT ON EMPLOYERS

    Our employer-clients have expressed concern that the MLR mandate 
will lead to less carrier competition and higher healthcare costs in 
some markets. In smaller markets where carriers do not enjoy the 
economies of scale that allow them to meet the administrative caps 
under the MLR mandate, carriers are abandoning the market altogether. 
As evidence, we have already seen the exodus of two prominent insurance 
carriers, The Guardian Life and The Principal, both of which have 
provided medical benefits to small employers for many decades, have 
withdrawn their medical plan offerings altogether. Both have signed 
agreements with their former competitor, United Healthcare, to 
transition employee coverages. Under the law, carriers must calculate 
their MLR in each market in each state where they operate. Recent 
reports, including a U.S. Government Accountability Office study from 
July 2011, reveal that more carriers are pulling out of, or plan to 
pull out of, some markets because they cannot meet the MLR mandate in 
those locations.\2\
---------------------------------------------------------------------------
    \2\ U.S. Government Accountability Office Report to Congressional 
Requesters, ``Private Health Insurance: Early Experiences Implementing 
New Medical Loss Ratio Requirements,'' GAO-11-711 (July 2011), at 19 
(hereafter, ``GAO Report''). And these revelations pertain to carriers 
selling policies in the individual market, a market for which states 
can at least ask HHS for temporary relief on the minimum MLR where they 
fear the requirement will destabilize the market. No such relief is 
available for the small group insurance market that small employers 
rely on, so there are fears about what may be on the horizon for that 
market.
---------------------------------------------------------------------------
    Stories like these mirror the concerns our clients are expressing 
to us, about the future of competition and choice among quality health 
plans. As we have seen in so many other industries, the simple law of 
economics tells us here that diminished competition may lead to higher 
premium prices for employers seeking to provide healthcare for their 
employees.

            B. IMPACT ON HEALTH INSURANCE AGENTS AND BROKERS

    The Council's agent and broker members are generally paid for their 
services by insurance carriers on a commission basis. The MLR 
calculation obviously affects these arrangements because it requires 
commissions paid by carriers to agents and brokers to be categorized as 
``other non-claims costs.'' Since a carrier will now pay rebates to 
subscribers if the carrier fails to limit its non-claims costs to 15% 
or 20% of premium revenue (depending on the market), the MLR 
requirement has put stress on agent and broker commissions. The 2011 
GAO report found that ``almost all insurers [GAO] interviewed were 
reducing brokers' commissions and making adjustments to premiums in 
response to the PPACA MLR requirements.'' \3\
---------------------------------------------------------------------------
    \3\ GAO Report at 18.
---------------------------------------------------------------------------
    My experience bears this out, as we are seeing carriers cut 
commissions or try to move to models that shift some or all of the 
administrative cost directly to the policyholder so that these amounts 
do not get counted as administrative and distribution costs for the 
carrier. This is particularly true for brokers servicing the individual 
and small business markets, which are already seeing their compensation 
slashed by 20-to-50 percent. It also happens that these markets are 
where agent and broker services are desperately needed by consumers and 
entrepreneurs, who find it difficult to navigate a complicated health 
insurance marketplace that will become even more complicated, 
unfortunately, as we approach 2014 and small businesses have to figure 
out what to do in the Exchange context.
    Despite what some observers might suggest, for employers, 
purchasing health coverage is not like buying an airline ticket. There 
are a host of variables to be considered that are unique to each 
employer. Company size, specific workforce health care needs, financial 
resources, available options, coverage costs, and the need or desire 
for additional programs such as wellness measures, are among the many 
factors that must be balanced by employers attempting to find health 
coverage. Thus, for many employers the personalized needs for 
compliance, communications and enrollment, can only provide limited 
support with toll-free telephone numbers and websites. That will remain 
true even when the Exchanges start operating in 2014. Without the 
professional advice of agents and brokers to guide them in the 
complicated process of selecting health coverage, employers may simply 
throw up their hands and not offer coverage, or settle for coverage 
that is less than a good fit for their employees.
    Prior to MLR, our services were covered within a component of the 
premium. While it may seem simple to just assume that small businesses 
can pay more in fees in lieu of carrier commissions, these new line 
items may be difficult for small businesses to take on in such 
challenging economic times. This may also adversely affect employers' 
willingness and ability to work with agents and brokers for services 
they have historically outsourced to us.
    The foregoing reasons highlight the importance of continuing to 
have a robust agent/broker presence in the group health market. It is 
important for policymakers to consider the costliness of regulatory 
measures that create downward pressure on commissions paid by carriers 
to agents and brokers, such as the MLR mandate. These measures can lead 
to fewer agents and brokers in business, fewer employer-broker 
relationships, lower quality and less tailored health care for 
employees, and potentially severe PPACA compliance problems and costs 
for employers that are left to navigate the system without the 
assistance they need.
    All of these concerns have prompted The Council to support H.R. 
1206, the Access to Professional Health Insurance Advisors Act of 2011, 
which was introduced by Rep. Rogers and presently has 129 co-sponsors. 
By excluding agent/broker compensation from the MLR calculation, H.R. 
1206 will help to ensure that the MLR does not lead to the loss of 
agent and broker jobs, thus depriving consumers of the expertise agents 
and brokers offer.
            III. Conclusion
    It is very important for policymakers to understand the costs and 
burdens associated with laws and regulations for all parties involved. 
I hope this hearing and my testimony contributes to that understanding 
as it relates to PPACA's grandfathering and MLR provisions. Again, I 
appreciate the Committee's willingness to examine these important 
issues and the opportunity to testify on behalf of The Council's 
members.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Donahue.
    Mr. Pollack?

   STATEMENT OF ROB POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA

    Mr. Pollack. Thank you, Mr. Chairman, Dr. Roe, Ranking 
Member Andrews, distinguished members of this panel.
    I am delighted to testify at today's hearing, because I 
believe that Affordable Care Act improves America's jobs and 
job markets. Health care, as you know, is one of the fastest 
growing job sectors in America's economy.
    And with 30 to 40 million people projected to gain health 
care coverage as a result of the Affordable Care Act, it will 
give a boost to that sector. According to the Bureau of Labor 
Statistics, as Congressman Andrews indicated, more than 500,000 
jobs were created in the health care and social assistance 
sector since the Affordable Care Act was enacted into law.
    The Bureau of Labor Statistics projects that nearly four 
million jobs will be created in that sector over the course of 
the next decade. And it will aid the job market because it will 
end job lock, people who cannot leave a job because they or a 
family member have a health condition, and they can't become 
entrepreneurs because they are afraid they are not going to be 
able to get health care coverage.
    So I want to make three points with respect to my 
testimony. First, by making insurance companies more 
accountable, the Affordable Care Act is improving the cost 
effectiveness of health coverage for employers and consumers.
    Number two, in contrast to a variety of cost shifting 
proposals offered in the House this year, most notably the Ryan 
Plan, the Affordable Care Act initiated significant steps to 
decelerate the rise of health care costs, rather than shifting 
costs onto those people who can't bear that load.
    And third, the Affordable Care Act provides very 
substantial and direct cost relief to small businesses and 
consumers.
    Now one quick area of background; over the course of the 
last 10 years, 2000 to 2010, we have seen a big decrease in the 
portion of the American public that have employer sponsored 
insurance. From 2000 to 2010, even though the population 
increased by 26.6 million people, we have seen a decrease of 
12.6 million people with employer sponsored insurance.
    So in 2000, over 65 percent of the American public had 
employer sponsored insurance. In 2010, it was about 55 
percent--55.3 percent.
    And why is that happening? Because, of course, premiums 
have sky rocketed during that period. In the year 2000, the 
average premium for family coverage, employer sponsored 
insurance, was $6,772. By 2010, it was $13,871. And as we 
learned from the Kaiser Foundation, it is now over $15,000.
    So here is how the Affordable Care Act is going to improve 
that. First, it improves that accountability of insurance 
companies, so that we get greater cost effectiveness on the 
premium dollar. And that is what the medical loss ratio system 
is about.
    When I buy insurance, either for myself or as the director 
of a small business--we have 50 employees--I want to make sure 
that my dollars are spent as cost effectively as possible. And 
from my perspective, having more of the dollars spent on 
advertising, marketing, administration and profits, as opposed 
to really providing health care, that is not efficiency.
    And so the medical loss ratio is going to improve that. And 
we have seen that it has already had a significant improvement 
in a number of states.
    And by making sure that excessive premium rates proposed by 
insurance companies get reviewed by the states--and they now 
have the wherewithal to do that--that too is going to improve 
cost effectiveness.
    Second, the House has offered a variety of cost shifting 
proposals, but not anything with respect to diminishing and 
decelerating costs. The Affordable Care Act does that. I have 
outlined how it does that. So I am not going to repeat that 
here.
    Last, the Affordable Care Act provides significant 
subsidies to help make coverage more affordable, both for small 
businesses and for individuals. With respect to small 
businesses, it provides tax credit subsidies for businesses 
with fewer than 25 workers, with average wages below $50,000. 
There are more than four million businesses who are eligible 
for those tax credits. And those tax credits will increase in 
2014.
    Eighty percent of all small businesses with up to 25 
workers are eligible for the tax credit. For individuals and 
families, they will receive tax credit subsidies. Those between 
133 percent of poverty and 400 percent of poverty for a family 
of four is $90,000. They will be eligible for tax credit 
subsidies that will help to make premiums more affordable.
    And lastly, let me just say that as more and more people 
gain health care coverage, that 32, 34 million that CBO 
projects will occur, it is going to decrease the hidden health 
tax that all of us who buy insurance have to pay because we 
ultimately experience a cost shift to pay for the costs of the 
uninsured.
    Thank you, Mr. Chairman.
    [The statement of Mr. Pollack follows:]

  Prepared Statement of Ron Pollack, Executive Director, Families USA

    Mr. Chairman and Members of the Committee: Thank you for inviting 
Families USA to testify today at this very important hearing about 
health care reform, employers and consumers. Since 1982, Families USA 
has worked to promote high-quality, affordable health care for all 
Americans. We are pleased to be invited to testify about how the 
Affordable Care Act will offer concrete help to employers, their 
workers and their families. The strength of the U.S. labor market is 
inextricably linked to the scope and size of America's health care 
industry. According to the Bureau of Labor Statistics, more than 
500,000 jobs have been created in the health care and social assistance 
sector since the passage of the Affordable Care Act. According to 
Bureau of Labor Statistics projections, nearly 4 million jobs will be 
added to the health care and social assistance sector between 2008 and 
2018.
The Affordable Care Act Will Spur Job Growth
    Our economy needs a jolt and policymakers should do as much as 
possible to encourage hiring and spur growth. When fully implemented, 
the Affordable Care Act will help promote economic growth by giving 
workers the freedom to move to new jobs at small firms and start-up 
companies without hinging their decision solely on the ability of the 
new employer to provide health care coverage to workers. In our current 
health care system, people with health conditions have a difficult time 
finding coverage in the individual market. Uncertainty about whether 
they'll be able to find affordable coverage leads many Americans to 
make decisions about which job to choose or whether to stay in a job 
based on whether the job provides health coverage. This phenomenon is 
known as ``job lock.''
    Workers who have health problems are less likely to leave a job 
that offers health coverage. One study found that chronically ill 
workers who rely on their employers for health coverage are about 40 
percent less likely to leave their job than chronically ill workers who 
do not rely on their employers for coverage. Another study found that 
workers with a history of health problems such as diabetes, cancer or 
heart disease, and those who have substantial medical bills, stay at 
their jobs significantly longer because of their job-based health 
coverage. And job lock has a particularly strong effect on workers who 
have family members with chronic illness. Research has shown that 
workers who rely on their employer to provide insurance for chronically 
ill family members stay in jobs they might otherwise leave. One study 
found that women with job-based coverage who have a chronically ill 
family member who depends on that coverage are 65 percent less likely 
to leave their job than women with job-based coverage who have a 
chronically ill family member who does not depend on that employer 
coverage.
    The fear of going without health coverage discourages individuals 
from leaving their existing jobs and starting new businesses on their 
own, especially if they have pre-existing conditions or if they have a 
family member with a health condition. Productivity is hurt when the 
new ideas, new products and competitiveness that new businesses bring 
to the economy are lost. The Affordable Care Act will reduce the 
problem of job lock: individuals will no longer have to base their 
employment decisions on whether a job offers health coverage.

Employer-Based Health Coverage Declining Due to Rising Insurance 
        Premiums
    The number of Americans who receive their health insurance through 
their employer has dropped precipitously in recent years. In the year 
2000, approximately two-thirds of the population (65.1 percent, or 
181.9 million) had employer-based health coverage. Ten years later, in 
2010, a little more than half of the population (169.3 million, or 55.3 
percent) had coverage through their job or the job of a family member. 
Once implemented, the help provided by the Affordable Care Act to 
employers and consumers is likely to change this trend.
    This trend is driven, in large part, by rising health insurance 
premiums. Between 2000 and 2010, premiums for job-based family coverage 
more than doubled, increasing from $6,348 to $13,770. These premiums 
continue to rise, growing to $15,073 by 2011. As premiums rise, it 
becomes more challenging for employers to offer quality, affordable 
health coverage to their workers, and employers are forced to make 
difficult decisions about such coverage.
    Employers often respond first with efforts to control their health 
care costs without eliminating benefits entirely. Some employers 
attempt to control health care costs by ``thinning'' health benefits--
offering plans with higher deductibles, copayments, and co-insurance, 
as well as plans that cover fewer benefits. Others cut costs by placing 
limits on which employees are eligible for coverage or by asking 
employees to pay more for coverage for spouses and children of 
employees (dependent coverage). In addition, many employers have 
stopped offering coverage to part-time, temporary, or seasonal workers.
    The decline in employer-based coverage has been further exacerbated 
by the economic downturn that began in 2007. Millions of Americans lost 
their jobs during the recession and, for many, the loss of a job also 
meant the loss of health insurance coverage. And while the safety net 
of public health insurance programs, including Medicaid and the 
Children's Health Insurance Program (CHIP), provides coverage to some 
who lose their job-based coverage, current eligibility rules limit who 
qualifies for coverage based on income and family status. Because of 
these eligibility rules, Medicaid and CHIP act as a highly effective 
safety net for children during economic downturns but do not work 
nearly as well for adults.
    Evidence of the critically important role that Medicaid and CHIP 
have played in protecting children can be seen in data from the Census 
Bureau. Between 2000 and 2010, enrollment in Medicaid and CHIP 
increased by 20.5 million, growing from 28.1 million to 48.6 million. 
More than half of this increase in enrollment was among children. 
Between 2000 and 2010, the number of children enrolled in Medicaid and 
CHIP rose from 14.9 million to 26.1 million, an increase of more than 
11 million.
    Faced with the loss of job-based health coverage, those who don't 
qualify for public health coverage must make a tough decision: Those 
who are eligible for COBRA continuation coverage under federal law (or 
``mini-COBRA'' continuation coverage under state law) may be able to 
keep their job-based health coverage. Those who do not qualify for 
COBRA may be able to purchase coverage on their own through the 
individual market. However, COBRA premiums are often unaffordable, and 
the cost of individual market coverage is often prohibitive, as well. 
In addition, in most states, insurers are currently free to deny 
coverage or charge people more in premiums based upon their age, health 
status, and even gender. As a result, many who lose their job-based 
coverage remain uninsured.
    Accordingly, the number and percentage of uninsured Americans has 
risen substantially in the last decade. Between 2000 and 2010, the 
number of uninsured grew by 13.3 million, rising from 36.6 million to 
49.9 million. During this same period, the proportion of the population 
who went without health insurance grew by 3.2 percentage points.
    The Affordable Care Act will help cut the cost of health care and 
lower costs for employers and consumers in three ways: First, the law 
will make insurance companies more accountable, giving states and the 
federal government more tools to hold down the cost of insurance 
premiums. Second, the Affordable Care Act contains a range of tools to 
control ever-escalating health care costs that will improve quality and 
make care more efficient. Third, the Affordable Care Act will provide 
concrete help to employers, in the form of tax credits and new 
regulated marketplaces to purchase insurance, and help to health care 
consumers, in the form of premium subsidies and out-of-pocket spending 
caps.

The Affordable Care Act Will Make Insurance Companies More Accountable
    The Affordable Care Act includes critical protections to hold 
insurance companies accountable for consumers' and businesses' premium 
dollars. The medical loss ratio (MLR) standards in the law ensure that 
a reasonable share of premiums go toward medical care and quality 
improvement, instead of marketing, administration, and excessive 
profits. This measure to cut out wasteful spending is particularly 
important for small businesses and individuals who buy coverage on 
their own, since they do not have sufficient negotiating power with 
major insurance companies to ensure fair premiums.
    Without the Affordable Care Act, insurers could continue to raise 
rates for consumers regardless of how little they spend on medical 
care. Under the new law, if a company spends less than a set share of 
premiums delivering care, it will owe rebates to enrollees. Starting in 
2012, up to 9 million Americans could be eligible for rebates worth up 
to $1.4 billion. These rebates will average an estimated $164 a year 
per person.
    The MLR requirements are already helping families. For example, 
effective last month, 15,000 Aetna enrollees in Connecticut's 
individual market received a 10 percent decrease in their premiums due 
to the Affordable Care Act's MLR requirements. Aetna implemented this 
change because its MLR in Connecticut was just 54.3 percent in 2010, 
far below the 80 percent standard that individual and small group 
market insurers must meet under the Affordable Care Act. (This standard 
is set at 85 percent for large group carriers).
    Connecticut is not the only state where carriers have demonstrated 
unacceptably low MLRs in recent years. A quarter of the 16 plans listed 
in Minnesota's individual market reported MLRs of less than 60 percent 
for 2010, with one company reporting a MLR of only 41 percent. That 
means, for every $10 this company collected in premiums, just a little 
over $4 was spent on medical care. For 2009, Anthem Health Plans of New 
Hampshire reported a MLR of just 63 percent in the individual market 
and Anthem Health Plans of Virginia reported a small group MLR of 67 
percent. (Note that before the implementation of a national MLR 
standard, states may have used different methods for calculating 
carriers' MLRs. The state figures cited here may not include quality 
improvement as a medical expense.)
    The rate review provisions are also essential to holding insurers 
accountable and keeping premiums reasonable for consumers. Carriers 
cannot increase rates by 10 percent or more without providing 
justification. The law also makes information on rate increases more 
transparent, including through a new section on HHS' healthcare.gov 
website that gives the public to access rate justification information 
for any rate increase of 10 percent or more.
    Further, the rate review funding has already had a significant 
impact on affordability. For example, when Regence BlueCross BlueShield 
of Oregon proposed a 22.1 percent rate increase for individual 
enrollees in the spring of 2011, the state used grant funding from the 
Affordable Care Act to hold its first public rate hearing in 20 years 
and to scrutinize the underlying assumptions and calculations used by 
the insurer to formulate its proposed increase. As a result, the state 
determined the 22.1 percent proposed rate increase was unjustified and 
approved only half of the proposed increase (12.8 percent). In 
Connecticut, a 19.9 percent Anthem BlueCross BlueShield proposed rate 
increase in the individual market was denied outright, due to rate 
review at the end of 2010. Last month, the state's insurance department 
found another of the company's proposed rate increases unjustified and 
is granting only a 3.9 percent increase for the plan's rates, instead 
of the 12.9 percent hike the company sought to impose. The rate review 
provisions, along with MLR requirements, are holding insurers 
accountable for how they spend consumers' dollars and keeping premium 
increases in check.

The Affordable Care Act Will Help Slow the Growth of Health Care Costs
    In addition to holding insurance companies accountable, the 
Affordable Care Act authorizes multiple initiatives and demonstration 
projects designed to improve quality and reduce the rise in health care 
costs. The law seeks to reduce costs through a range of solutions 
focused on doctors, hospitals, insurance companies, employers, and 
patients.
    Unlike other approaches to reducing health care costs, these 
provisions do not resort to simply reducing payments for health care 
services or shifting costs to consumers through higher deductibles and 
copayments. Rather, the aim of these provisions is to provide higher-
quality care more efficiently and with less waste. These provisions 
fall into the following categories:
    Provisions designed to test ways that doctors and hospitals can 
better coordinate care, especially for people with chronic health 
problems: The current fragmented nature of our health care system 
leads, for example, to the unnecessary duplication of tests and 
procedures. Through better care coordination, much of the excess costs 
can be prevented.
    Provisions that promote preventive services so costly complications 
can be avoided: The Affordable Care Act eliminates deductibles and 
copayments for preventive services in Medicare and private coverage. 
Preventive services include tests such as mammograms, Pap tests, 
colorectal cancer and diabetes screenings, autism screenings for 
children, as well as wellness check-ups and immunizations. If problems 
are identified early, and treated before they become serious, dollars 
can be saved.
    Provisions that promote the sharing of unbiased information about 
which medical treatments work and which do not: Every day, new drugs 
and treatments are identified; they may be life-saving breakthroughs or 
they may have little benefit to patients. But busy doctors struggle to 
stay abreast of new developments. The law creates a new independent, 
nonprofit entity charged researching what drugs and treatments work 
best, so doctors have the information they need to provide the best 
possible care to patients.
    Provisions that promote real competition among health insurance 
companies in more transparent insurance marketplaces: The Affordable 
Care Act will help people shop for the best health care plan for the 
price, and it will promote competition among different health care 
plans. Beginning in 2014, the establishment of state exchanges will 
provide regulated marketplaces where small businesses, the self-
employed and eligible consumers can choose from a range of health 
insurance plans. In the new exchanges, insurance companies will have to 
clearly explain what care is covered and at what cost.

The Affordable Care Act Will Help Employers and Workers with the Cost 
        of Health Care
    Along with slowing the growth of health care costs and holding 
insurance companies accountable, the Affordable Care Act will provide 
much-needed financial relief to millions of small businesses, families, 
and large employers.
    While small businesses are the backbone of America's economy, our 
health care system has been failing them. The current system makes it 
difficult, if not impossible, for small business owners to provide 
their workers with quality, affordable coverage. The Affordable Care 
Act provides small businesses with fewer than 25 workers and average 
wages of less than $50,000 with a tax credit for employee coverage. 
More than 80 percent of all American small businesses (those with up to 
25 workers) were eligible for this tax credit in 2010.
    Other provisions of the Affordable Care Act will also provide 
critical assistance to small businesses struggling to afford health 
coverage. For example, the SHOP exchanges will create a new competitive 
marketplace where small employers and their workers will be able to see 
transparent information about health plans on a user-friendly website. 
In the SHOP, employers and workers will be able to choose from a 
variety of plans that meet strong quality standards so that they know 
they're getting good value for their money. In addition, new consumer 
protections, such as those that prohibit insurers from imposing 
lifetime or annual dollars caps on how much they'll pay for enrollees' 
care, will ensure that the coverage that small employers buy actually 
works for them and their workers when illness strikes.
    Lower- and middle-income individuals and families will get help 
with the cost of care in two ways: 1) a new tax credit to assist with 
the cost of health insurance premiums; and 2) protections on how much 
they spend on out-of-pocket costs.
    The new premium tax credits will help both insured individuals who 
struggle to pay rising premiums and uninsured individuals who need help 
to be able to purchase coverage. Generally, the premium tax credits 
will be available to individuals and families who have incomes between 
133 and 400 percent of poverty (between about $30,000 and $90,000 for a 
family of four in 2011). The credits can be used to purchase insurance 
in the new health insurance exchanges. People who have an offer of 
health coverage from their employer may be eligible for a premium tax 
credit if their employer's plan would be unaffordable for them. 
Approximately 28.6 million Americans will be eligible for the tax 
credits in 2014; more than half (52 percent) are currently insured.
    The Affordable Care Act will also protect how much consumers must 
spend out of pocket each year on health insurance deductibles and 
copayments for covered benefits. It is estimated that the number of 
people who are ``underinsured,'' that is, who have high medical costs 
as a share of their income, will be cut by 70 percent due to this 
provision in the Affordable Care Act. Too many lower- and middle-class 
families are only one health crisis away from financial devastation. 
For example, the average hospital charge nationally for a stay 
associated with a heart attack is nearly $63,000, and for people with 
inadequate coverage, their share of these costs can quickly drive them 
into bankruptcy. The law will mean that insurance coverage actually 
covers the medical bills. A family of three with an income between 100 
and 200 percent of poverty (or about $18,500 and $37,000) would not 
have to pay more than $3,967 out of pocket for their care in one year. 
Moreover, the law will provide some additional cost-sharing subsidies 
for low-income families who purchase insurance in the new exchanges.

The Affordable Care Act Does Not Shift Costs to Consumers
    Many of the deficit reduction proposals under discussion this year 
in Congress do nothing to address the underlying causes in the rise in 
health care costs. Instead, many deficit plans merely shift the burden 
of health care costs from the federal government either to states, or 
to consumers, or to both. For example, cutting federal Medicaid 
spending--either through a block grant or reduced funding for states--
would ultimately increase the number of uninsured Americans. That would 
raise health care costs for the rest of us. Family coverage costs an 
extra $1,000 or more a year, on average, to pay for health care costs 
for the uninsured. A growth in the uninsured results in an increase in 
the ``hidden health care tax'' for those who have insurance, because 
health care providers must pass along the costs of caring for the 
uninsured. Repealing the tax credits in the Affordable Care Act would 
effectively increase taxes on middle class families and leave them with 
no assistance to purchase health insurance. If the tax credits were 
repealed, the increased tax burden on these families would total $777 
billion between 2012 and 2021. The Affordable Care Act is designed to 
slow the growth in health care costs while providing concrete 
assistance to businesses and families to pay for the cost of insurance.
                                 ______
                                 
    Chairman Roe. Thank you, Mr. Pollack.
    Ms. Piper?

       STATEMENT OF ROBYN PIPER, PRESIDENT, PIPER JORDAN

    Ms. Piper. Thank you, Chairman Roe and Ranking Member 
Andrews and members of the committee for the opportunity to 
testify today.
    I would like to start by stating that I am in a privileged 
position to represent primarily Fortune 1000 employers. 
However, my firm itself is a small employer. So my testimony 
today is going to bring forth the challenges that are 
experienced by both large and small employers.
    Flexibility is a key element in a successful employer 
sponsored benefits program. Although it has been said that 
grandfathering allows plans to innovate and contain costs by 
allowing insurers and employers to make routine changes without 
losing grandfather status, we have recognized the opposite 
impact.
    In evaluating plan design, employers who wished to maintain 
grandfathering have many limitations that must be followed. Is 
it very important to note that these limitations are not 
applied annually and further restrict employers.
    Plan modification is the main method applied by benefits 
professionals in order to control costs and to improve health 
of the employees, by customizing around the demographics and 
around abuse and utilization. Although the administration has 
shown support for such value based insurance design, a pursuit 
in maintaining grandfather status restricts the employer from 
applying such techniques to drive improvements within the plan.
    An example; one of our large employers made the decision to 
lose grandfathering very recently. They did so partially based 
on the fact that their outpatient service costs were 9 percent 
higher than national trend, benchmarked by their issuers 
benchmark, primarily due to non-emergency E.R. costs.
    There were 47 claimants with three or more E.R. visits, two 
with nine visit in 1 year, more than $1,000 in costs. To 
protect that plan from the abuse and utilization of non-
emergency related E.R. visits, we had to increase the 
deductible, to protect the entire population that is on that 
plan, not just the 49 people that I am referring to.
    Loss of grandfathering took place. Grandfathering 
restrictions do limit the ability for benefits professionals to 
properly protect the plan for all participants.
    To maintain status requires acceptance of necessary rate 
increases and budget increases for employee benefit spending. 
And such acceptance stands contrary to what PPACA's supporters 
wish to accomplish
    In weighing this decision whether to lose grandfather 
status or not, employers must consider the additional 
requirements that come along with non-grandfather status. While 
some of these requirements simply are not problematic for 
employers, others have caused concern.
    First of all, an employer will have to deal with cumbersome 
appeals provision. Any flip in compliance can cause 
consequences, which is a significant issue that needs to be 
considered by every single employer.
    For a small employer, the compliance with appeals could 
require addition of staff, as well as to the planned cost 
administratively.
    Secondly, there is a consequence for discrimination 
testing, although the effective date and related sanctions have 
been delayed. Without clear guidance, an employer will attempt 
to comply at this point. But even that attempt may fail to 
comply once those regs are set.
    Lastly, preventive care must be covered without cost 
sharing. Large employers really have not had a tremendous issue 
with this. However, small employers and employees with hourly 
employees who are covered under a limited plan have struggled.
    For employers maintaining grandfather status last year, 
primarily large--and again, depending on the type of employer 
group, PPACA provisions added an additional one to 4 percent to 
the premium cost. For non-grandfathered plans, the steepest 
increases and continue to be received by small employers, 
myself included, and employers offering limited benefit health 
plans.
    As many employers are financially incented to lose 
grandfather status in order to control costs, this has resulted 
in higher deductibles and higher cost shift to those employees. 
These design changes are necessary to control unnecessary 
utilization, to control employer premium spending, and to 
reduce the risk of penalties in 2014.
    Job stability and continuation will be an issue for hourly 
employees. While the IRS Notice 2011-36 proposes safe harbor, 
whereby employers could use a look back period to determine for 
old time employees for a coverage period, there is still a 
significant risk to employers who do not strictly define hours 
and position.
    Many employers right now are entertaining the 
implementation of specific job hour limits in order to protect 
the organization from penalties. Hour limits will reduce the 
employees' take home pay.
    A well circulated Q&A document posted on HealthReform.com 
tells the consumer that the new insurance regulation will not 
drive up health insurance costs. This Q&A is still posted. And 
we know that this statement is not entirely true.
    PPACA provisions, employer burdens and general health care 
trends have caused loss of grandfather status and have most 
certainly caused health insurance costs to increase. It has 
been said that the grandfather provision was put in place to 
keep employers offering insurance and to prevent employers from 
cutting benefits.
    Contrary to popular debate, a mass majority of employers 
want to continue to offer meaningful benefits. And 
grandfathering was not needed to enforce that measure. The 
grandfather provision has created cumbersome restriction on 
many employers and added unnecessary costs to many plans, 
creating an adverse scenario than desired by the 
administration.
    A number of thoughtful considerations have been provided to 
the administration as it relates to unduly restrictive rules 
and the need for clarification, for example, on wellness 
programs. To date, employers and advisers have not been 
provided with a response.
    Employers have been forced to operate under good faith that 
we are in compliance and understand that there is risk to such 
an assumption. There is tremendous need for guidance from the 
administration.
    Grandfather provisions have not rewarded the most generous 
employers. In many instances, employers finding the great ease 
of compliance right now are those that offer the least generous 
plan.
    Thank you for the opportunity to testify.
    [The statement of Ms. Piper follows:]

       Prepared Statement of Robyn Piper, President, Piper Jordan

Executive Summary
     The goal of grandfathered status was to preserve the 
ability of American people and employers to keep their current plan if 
desired. Unfortunately, many employers did like the health plan they 
offered but have been forced to either lose grandfathered plan status 
due to restrictive limitations or are seriously considering losing 
status in the near future.
     The impact of maintaining grandfathered plan status, in 
addition to the loss of grandfathered plan status, has had significant 
impact on American workers. As many employers have been challenged with 
maintaining status, plan enhancements and cost-containing measures have 
been delayed. For those workers employed by organizations that have 
chosen to lose grandfathered status, many have witnessed increased 
premiums and cost-shifting.
     The decision to maintain grandfathered plan status or to 
lose grandfathered plan status brings numerous burdens to employers. 
Many of these employers were already offering generous plans to their 
employees. These burdens include additional time needed for already 
lengthy renewal cycles and significant consideration around additional 
procedures, rules, and reporting that would be required if status is 
lost.
     Employers have recognized financial impact in maintaining 
grandfathered status. Additional PPACA enhancements, the inability to 
apply value-based insurance designs, and the inability to continue 
appropriate cost-sharing measures with employees have added to an 
already heavy burden on employers. Unfortunately, employers anticipate 
health plan increases from year to year. However, PPACA, especially for 
small and midsize employers, has created substantial financial burdens.
     Employers and advisers are making plan status decisions 
without firm guidance; operating under ``good faith'' that they are in 
compliance with PPACA. Operating under these conditions causes legal 
expense over the constant pursuit of answers and great concern over 
making a decision that will cause detriment to the company once final 
guidance is received.

    Thank you Chairman Roe, and members of the Committee for the 
opportunity to testify today about the impact recognized by employers 
and employees under the ``grandfathering'' provisions of the Patient 
Protection and Affordable Care Act (PPACA).
    It is important to note that we must distinguish between types of 
employer groups and the unique challenges they face under PPACA. To 
overgeneralize will be a disservice to this hearing. PPACA has impacted 
the following employer structures: large employers which primarily 
employ full-time employees and currently offer employer-sponsored 
coverage; multi-size employers which have a full-time and benefit-
eligible population but also have a significant hourly, non-benefit 
eligible employee population; and, small employer groups. Examples of 
their unique challenges will be included in this testimony.
    Grandfathered regulations were issued to make good on a promise 
that individuals and businesses could keep their current plan, to 
provide consumer protections to Americans in order for them to control 
their own health care and to provide stability and flexibility to 
insurers and to businesses.\1\ Unfortunately, and especially in the 
group market, these promises have not been widely recognized and, 
instead, we have experienced a near opposite effect. This is especially 
true when reviewing the initial assumptions made as to which employers 
would maintain or lose grandfathered plan status. It was assumed that 
large employers would likely maintain status for Due to many factors 
such as increased employer burdens and cost, the opposite result has 
been recognized.
---------------------------------------------------------------------------
    \1\ ``Fact Sheet: Keeping the Health Plan You Have: The Affordable 
Care Act and 'Grandfathered' Health Plans,'' U.S. Department of Health 
and Human Services, HealthReform.gov, http://www.healthreform.gov/
newsroom/ keeping--the--health--plan--you--have.html.
---------------------------------------------------------------------------
    PPACA burdens are felt by many employers and certainly through many 
provisions of the law. According to the HR Policy Association, the 
Administration is recognizing these burdens and has expressed a 
willingness to work with employers in minimizing burdens under PPACA. 
As stated in a recent press release, on a Health Care Policy Committee 
call, several regulatory proposals were described which attempt to 
streamline the massive information swap between employers, exchanges, 
and the federal government. Yvette Fontenot, Deputy Director of the 
Office of Health Reform at HHS, noted that large multi-state employers 
simply ``may not have the capacity to deal with that many reporting 
requirements.'' Fontenot recognized that allowing state exchanges to 
regulate employer ERISA plans would cause problems for plan sponsors 
and that the administration is trying to minimize potential burdens 
because it ``wants employers to continue to offer coverage.'' \2\ Such 
recognition is greatly appreciated but it is only one step towards many 
needed corrections.
---------------------------------------------------------------------------
    \2\ ``Administration Wants to Work With Employers to Minimize 
Burdens Under PPACA, HR Policy Association, http://www.hrpolicy.org/
issues--story.aspx?gid=33&sid=4606&miid=3
---------------------------------------------------------------------------
Employer Concerns
    Flexibility is a key element in a successful employer-sponsored 
benefits program. Although it has been said that grandfathering allows 
plans to innovate and contain costs by allowing insurers and employers 
to make routine changes without losing grandfathered status 1, again, 
we have recognized the opposite impact. In evaluating plan design, 
employers who wish to maintain grandfathering must not raise co-
insurance charges, nor may they ``significantly'' raise comore than 5 
percent. It is very important to note that these limitations are not 
applied annually which further restricts employers. Modifying plan 
deductibles, co-insurance, co-payments and contributions is the main 
method applied by benefits professionals in order to control costs and 
to improve the health of their employees by customizing plans around 
demographics and abuse in utilization. The Administration has shown 
support for such value-based insurance design. A pursuit in maintaining 
grandfathered status restricts the employer from applying value-based 
design techniques to drive improvements within the plan. One of our 
large employers, who made the decision to lose grandfathered plan 
status this year, did so partially based on the fact that their 
outpatient service costs were 9% greater than the issuer's benchmark 
primarily due to usage of emergency rooms (ER). There were 47 claimants 
with three or more ER visits and two claimants with pain-related 
conditions who had nine visits each averaging over $1,000 in claims 
each visit (over $18,000 in total costs for only two claimants). 
Clearly, our employer needed to protect the plan for all participating 
employees and, therefore, has elected to increase the deductible for ER 
visits. Grandfathering restrictions do not allow benefits professionals 
to properly protect the plan for all participants.
    The term ``health insurance'' has received little other than poor 
press over the past two years and this has placed pressure on employers 
to make careful decisions that create the least amount of employee 
noise. This has added length to the renewal process as it has been 
difficult for employers to make final program decisions. Typically, for 
large employers, the renewal process begins approximately six months 
prior to the actual renewal date. For most of our sponsors, that 
process now begins approximately eight months prior to renewal which 
taps into employer made the difficult decision to lose grandfathered 
status in exchange for protecting the plan itself and making 
appropriate and necessary plan changes. Their next challenge is to 
develop a careful communication campaign around changes and loss of 
grandfathering. Employees have been well-advised that loss of 
grandfathering means that the plan they are being offered either 
significantly reduces their benefits or increases their out-of-pocket 
spending above what it was when PPACA was enacted1. Employers and 
advisers must spend money and resources in developing a positive 
campaign. Although annual communication strategy has always been a part 
of the renewal process, the task is even tougher in terms of receiving 
a positive employee response.
    Employers need to be in a position of strength for 2014 to avoid 
the stiff penalties that PPACA has indicated. Most of our employers 
offer plans ranging between a 70% to a 90% actuarial value. PPACA 
states that a 60% actuarial value is the minimum in order to avoid 
penalty exposure. Advisers and employers are working with 60% actuarial 
models to run penalty analysis. Ultimately, most employers will begin 
to offer a 60% actuarial plan in order to protect themselves from high, 
and still slightly vague, penalties for ``unaffordable'' plans. It 
seems unfair for the Administration to set the standard at 60% but 
penalize employers with loss of grandfathered plan status as employers 
make necessary plan changes that will eventually lead to their 2014 
benefit offering.
    It has been frequently noted that the pursuit to maintain 
grandfathered status does not allow for normal annual plan evaluation 
or the ability to implement value-based design methods. To maintain 
status requires acceptance of necessary rate increases and budget 
increases for employee-benefit spending. Such acceptance seems contrary 
to what PPACA's supporters wished to accomplish.
    In weighing the decision of whether to lose grandfathered status or 
not, employers must consider the additional requirements that come with 
non-grandfathered status:
     Comply with additional standards for internal claims and 
appeals and external review.
     Not discriminate in favor of highly compensated 
individuals for insured health plans.
     Cover emergency services without pre-authorization and 
treat as in-network.
     Allow designation of gynecologist, obstetrician or 
pediatrician as primary care provider.
     Cover immunizations and preventive care without cost-
sharing.
    The requirements related to emergency services and designation of 
primary care providers have not been significant issues for employers. 
However, the other requirements have been significant. First of all, an 
employer will have to deal with the cumbersome appeal provisions. This 
requires attention to strict time zones. It also requires a number of 
other administrative tasks including timely notices which, for a small 
benefits department, even in large organizations, is cumbersome. For a 
small employer, all this could require the addition of staff as well as 
add to plan cost administratively. Some companies do not want to give 
up the ability to handle appeals to a carrier/TPA organization. This is 
due to the fact that they do not want to relinquish control. Any slip 
could result in compliance consequences. This is a expanded standards 
for appeals adds an additional burden to an already tasked human 
resource area. Secondly, there is the consequence of discrimination 
testing although the effective date and related sanctions have been 
delayed. Without clear guidance, an employer will attempt to comply at 
this point, but even with an attempt, the effort may not comply. 
Lastly, preventive care must be covered without cost-sharing. Large 
employers have not had much difficulty adapting this into their plan 
design. However, employers with hourly employees, and offering limited-
benefit health plans, have had significant issue. Even with a waiver on 
annual limits, employers wishing to make plan enhancements to their 
limited-benefit health plan, resulting in loss of grandfathered status, 
have been met with 11% to 22% premium increases to accommodate the 
unknown usage that may occur once cost-sharing measures are removed. 
Although claim history will illustrate that, even when preventive care 
is included in limited-benefit health plans, the member claim frequency 
is low--regardless of the strength of the benefit. However, as carriers 
are preparing for the unknown with removal of cost-sharing, we have 
seen premium increases as high as 22% for preventive care. Small 
employers are also at risk for premium increases due to loss of cost-
sharing. As a small employer who received a 25% increase at renewal, I 
can strongly testify that PPACA and loss of grandfathering status can 
have a profound effect on certain employer groups.

Financial Impact
    It has been well-noted that PPACA provisions and loss of 
grandfathered status has caused an increase to health insurance 
premiums. For employers maintaining grandfathered status last year, 
depending on type of employer group and plan, PPACA provisions added an 
additional 1% to be, received by small employers and employers offering 
limited-benefit health plans. For both small and large employers last 
year, some struggled with removing lifetime limits. For a majority of 
employers, this made very little impact. However, there were some 
employers that were required to continue care for members that had 
exceeded their lifetime maximum. While employers felt good about 
bringing members back into a plan, it is important to understand some 
of the consideration that took place between issuers, employers and 
advisers in order to handle increases in claim spending. One example is 
a very large employer of ours with a member who had exceeded their 
lifetime maximum due to hemophilia. This member's medicine was more 
than $35,000 a month. Significant work was done in an attempt to reduce 
the employer's increased pharmacy exposure. Unfortunately, tremendous 
relief was not available. Employers need help in controlling these 
costs. Financial burdens have been placed on employers but we have not 
recognized an increase in resources to reduce these burdens.

Impact to Employees
    As many employers are financially incented to lose grandfathered 
status in order to control costs, this has resulted in higher 
deductibles and higher cost-shift to employees. This is primarily 
happening with the large employer sector. These design changes are 
necessary to control unnecessary utilization, to control employer 
premium spending and to reduce the risk of penalties in 2014. However, 
these design strategies have had a financial impact to the employee 
typically in the form of increased out-of-pocket costs.
    Job stability and continuation will be an issue for hourly 
employees. As many hourly employees work unpredictable schedules, and 
have enjoyed the ability to do so, there is risk to an employer who has 
an hourly employee that consistently increases and decrease hours 
worked. While IRS Notice 2011-36 proposes safe harbor whereby employers 
could use a look-back period to determine full-time employees for a 
coverage period, there is still a risk to employers who do not strictly 
define hours and position. Many employers are entertaining the 
implementation of specific job hour limits in order to protect the 
organization from penalties. Hour limits will reduce the employee's 
take home pay which most certainly will negatively impact employees.
    A well-circulated Q&A document posted on HealthReform.gov\3\ tells 
the consumer that the grandfathered rule will allow them to keep their 
current coverage if they like it. Further, they are told that the new 
insurance regulation will not drive up health insurance costs. This Q&A 
is still posted on HealthReform.gov even though we know these two 
statements to not be entirely true. PPACA provisions, employer burdens 
and general health care trend have caused loss of grandfathered status 
and has most certainly caused health insurance costs to increase.
---------------------------------------------------------------------------
    \3\ Questions and Answers: Keeping the Health Plan You Have: The 
Affordable Care Act and ``Grandfathered'' Health Plans, 
HealthReform.gov, http://www.healthreform.gov/about/grandfathering.html
---------------------------------------------------------------------------
Summary
    It has been said that the grandfathered provision was put in place 
to keep employers offering insurance and to prevent employers from 
cutting benefits. Contrary to popular debate, a mass majority of 
employers want to continue offering meaningful benefits and 
grandfathering was not needed as an enforcement measure. The 
grandfathered provision has created cumbersome restrictions on many 
employers and added unnecessary costs to many plans, creating an 
adverse scenario than desired by the Administration. A number of 
thoughtful considerations have been provided to the Administration as 
it relates to concerns around the grandfathered provision. Such 
considerations include the unduly restrictive rules and the need for 
clarification on wellness programs. To date, employers and advisers had 
not been provided with a response. Employers have been forced to 
operate under good faith that they are in compliance and understand 
that there is risk to such an assumption. There is tremendous need for 
guidance from the Administration. Grandfathered provisions have not 
rewarded the most generous employers. In many instances, employers 
finding the greatest ease with compliance are those who offered the 
least generous plans.
    Thank you for the opportunity to testify today. I will be happy to 
answer your questions.
                                 ______
                                 
    Chairman Roe. Thank you, Ms. Piper.
    Mr. Andrews?
    Mr. Andrews. Thank you, Mr. Chairman. I agree with you that 
the witnesses were very well prepared, did a very nice job 
today. And we appreciate all four of you.
    Ms. Turner, my understanding of the word freeze is that 
things stay the same; numbers don't change. So if there is a 
freeze in a number, it doesn't change. You say on page three of 
your testimony that when the health care law was signed into 
law in late March of 2010, a hiring freeze began in the 
country.
    Are there more private sector jobs today or fewer than 
there were in March of 2010?
    Ms. Turner. I think it is sort of a term of art, hiring 
freeze. And it is essentially you begin to see the trend in 
hiring going in a much different direction.
    Mr. Andrews. It is a term of art? How would you define the 
term freeze?
    Ms. Turner. Well, the term freeze would basically mean no 
new jobs. But when you talk about----
    Mr. Andrews. No new jobs.
    Ms. Turner. But when you talk about 6,000 new jobs in 1 
month in an economy that needs 14,000 new jobs in order to 
begin to get people back to work, that hardly seems to be----
    Mr. Andrews. Well, I think most people would agree with 
your definition of no new jobs. But, of course, the facts are 
from the Bureau of Labor Statistics that in March of 2010, when 
the law was signed, the economy had 106,916,000 private sector 
jobs. And in September of 2011, the last month for which there 
are data, it had 109,349,000 jobs.
    That is an increase of 2.433 million private sector jobs. 
Is that a freeze?
    Ms. Turner. But when you have to also account the new 
workers that have entered the workforce----
    Mr. Andrews. But is it--no, I understand that. That is 
about the percentage and the rate. Is it a freeze?
    Ms. Turner. Well, you have to look at it in terms of the 
number of jobs that are required to move the unemployment rate. 
And the fact that the unemployment rate has been stuck at 9.1 
percent shows that we are not creating enough new jobs to even 
keep pace with the new workers that are entering the workforce.
    Mr. Andrews. But you would admit that there are 2.4 million 
new private sector jobs since the health care law was signed?
    Ms. Turner. But there are also----
    Mr. Andrews. Is that yes or no?
    Ms. Turner [continuing]. Entered the workforce----
    Mr. Andrews. But is it yes or no?
    Ms. Turner. There are new workers entering the workforce, 
but not enough to account----
    Mr. Andrews. I understand. I understand. Let me ask you 
this; you make the comment that there is good reason to believe 
that the health care law is a major contributor to the hiring 
halt. That is the halt that added 2.4 million new jobs.
    So on what basis do you believe there is good reason to 
believe that the health care law has led to this hiring halt?
    Ms. Turner. This was a study done by James Sherk at the 
Heritage Foundation, looking at hiring patterns between the 
beginning of the Obama administration and the point that the 
Affordable Care Act was enacted, and then, from then until 15 
months later, when the study was done.
    There was an increase of about 67,000 jobs, net private 
sector jobs, a month being created before the Affordable Care 
Act was enacted. After that, only 6,500 a month.
    Mr. Andrews. I know. I read your testimony. I know that you 
said that.
    How would you respond to the Wall Street Journal's July 
survey of business economists--and I am quoting--``the main 
reason the U.S. companies are reluctant to step up hiring is 
scant demand, rather than uncertainty over government policies, 
according to the majority of economists.''
    Are they wrong?
    Ms. Turner. There is a faltering economy. People don't have 
money, many of them because they don't have jobs. It is a very 
cyclical----
    Mr. Andrews. I absolutely agree. Would more people have 
jobs if we hired construction workers to build roads and 
bridges?
    Ms. Turner. Absolutely, but----
    Mr. Andrews. Would more people have jobs if small 
businesses got a tax cut when they hire people?
    Ms. Turner. Absolutely, as long as----
    Mr. Andrews. Would more people have jobs if we didn't have 
a $1,500 tax increase on middle class families on January 1st?
    Ms. Turner. As long as it is not being pushed onto future 
taxpayers?
    Mr. Andrews. Would more people have jobs if we stopped the 
layoffs of police officers and teachers?
    Ms. Turner. As long as we are not pushing the cost of----
    Mr. Andrews. Under the health care law, if a business has 
50 or fewer full time employees, what do they have to do?
    Ms. Turner. They don't have to provide health insurance.
    Mr. Andrews. They don't have to do anything, do they?
    Ms. Turner. Well, certainly many other regulations they 
must comply with.
    Mr. Andrews. No, but under the health care law, is there 
anything a business with fewer than 50 or more full time 
employees has to do?
    Ms. Turner. No, but each one of the individuals in that 
business all must have health insurance.
    Mr. Andrews. I understand.
    Ms. Turner. So even though the employer----
    Mr. Andrews [continuing]. An employer's ad. So if you have 
fewer than 50 people, you don't have to do anything, right?
    Ms. Turner. As far as mandatory health insurance, no. But 
that is on the employer. It still is on the individual employee 
to have health insurance.
    Mr. Andrews. I fully understand that.
    Thank you, Mr. Chairman.
    Chairman Roe. Dr. Bucshon?
    Mr. Bucshon. Thank you, Mr. Chairman. Thanks to Chairman 
Roe for holding this hearing, which I see directly related to 
job creation and retention in the United States.
    The fact of the matter is about 65 percent of the American 
people want us to be having this discussion about the 
Affordable Care Act. In fact, since enacted in March 2010, it 
is becoming increasingly less popular with the American people, 
now that we are, as was famously quoted, we found out what is 
in it.
    Businesses in my district are telling me that the 
Affordable Care Act and what will happen in 2014 is one of the 
top concerns they have with their ability to expand their 
business, start a new business or create jobs. So I think this 
is a very good hearing to discuss that.
    Ms. Turner, in your opinion, the overreaching scope of the 
grandfather regulation, do you think that is an attempt by the 
administration to effectively eliminate the possibility of 
grandfather status, forcing all the plans to be subjected to 
the insurance market mandates in the Affordable Care Act?
    Ms. Turner. Dr. Bucshon, it is difficult to know the 
administration's motivations. But you can certainly look at the 
impact. Many businesses, many employers supported passage of 
this Affordable Care Act, or at least were neutral, because 
they were told, don't worry, this is not going to affect you; 
you are going to be able to be grandfathered in; your plan will 
be fine.
    And when the rules and regulations were written, many of 
them were shocked to find out how difficult it would be. And 
even the administration's own estimates indicate that between 
51 percent of large employers and 80 percent of the small 
employers would lose their grandfather status before the 
Affordable Care Act triggers in.
    So I do think there is an effect in--the cause and effect 
is very clear.
    Mr. Bucshon. One of the biggest concerns I have about the 
MLR is not the MLR itself, but a precedent being sent about I 
think the federal government telling private businesses how to 
manage their finances. And from what I am hearing, the brokers, 
the people that are actually selling health insurance and 
stuff, are the ones being affected significantly by this.
    Again, the intent of the MLR is really not happening, about 
what the--I think the original intent.
    So, Mr. Donahue, do you have any comments about that, about 
how that is, you know, affecting the industry in general?
    Mr. Donahue. I agree with your assessment that yes, 
historically, insurance companies selling medical coverage have 
not had their own sales force. And they have outsourced that 
distribution responsibility to agents and brokers.
    Within that MLR, part of the operations that they need to 
contain is regarding that cost for distribution, and as a 
result, putting pressure on the insurance companies to dissect 
various elements of administration, their own retention, the 
cost of their doing business.
    The cost of doing business is distribution of their product 
and services. As a result, many insurance companies are 
reducing the commissions payable to agents and brokers.
    It is not that we just provide the transaction and the sale 
of that. But it is the value that we serve in representing the 
customer as part of the overall remuneration we receive from 
insurance companies, which is actually the premium paid for by 
employers.
    So employers are, indeed, paying for our engagement. But it 
is more than just the transaction. We are there with our 
customers, who are very thin in their operations, providing 
them with communications, compliance, enrollment, all those 
backroom services that human resources pushes off their desk 
onto ours.
    And it is going to be very, very difficult for us to 
continue to provide that value added service in the way MLR is 
constructed.
    Mr. Bucshon. Thank you very much.
    I yield back.
    Chairman Roe. Thank you.
    Mr. Tierney?
    Mr. Tierney. Thank you very much. Thank the witnesses as 
well.
    Mr. Pollack, I just want to clarify something with you. I 
know that premiums have gone up about 9 percent, according to 
the Kaiser Family Foundation. Is that correct, in the last 
year?
    But only 1 to 2 percent of that increase is attributable to 
the Affordable Care Act? Would that also be accurate?
    Mr. Pollack. Yes. I think yes. Kaiser Family Foundation 
said that they estimated that only 1 to 2 percent was related 
to the Affordable Care Act. And the provisions, of course, they 
were talking about was that it enabled young adults to stay on 
their family policies up to their 26th birthday. And there are 
no longer lifetime limits.
    And mind you, these are extraordinary benefits for families 
across the country. And yet for the cost implications to be so 
small is remarkable.
    Mr. Tierney. I guess, Ms. Turner, you were talking with Mr. 
Andrews about the job creation on this. And I think you finally 
agreed with, after some back and forth, that about 2.4 million 
private sector jobs have been created since the enactment of 
the law.
    I wonder if you knew that over 500,000 jobs have been in 
the health care sector. Did you know that?
    Ms. Turner. Yes, sir.
    Mr. Tierney. And I know that particularly, because a lot of 
them are in Massachusetts, where we have, as my friends and I 
say, Romney-care, which has been just wonderful for that state. 
And most people there highly favor it.
    And it has created a lot of jobs. Of the 10 million 
projected jobs--of the four million projected jobs over the 
next 10 years, we are expecting a lot of them to be in 
Massachusetts as well. So it is too bad we couldn't spend some 
time here concentrating on the creation of jobs, as opposed to 
fantasizing about what might be, what is never going to happen, 
in terms of any of these laws passing that are being proposed.
    Mr. Donahue, let me talk to you a little bit about the 
medical loss ratio. Do you think it is a good thing or a bad 
thing that the law requires transparency and accountability for 
insurance companies?
    Mr. Donahue. Oh, I think it is a very good thing. And----
    Mr. Tierney. Do you----
    Mr. Donahue. We have historically been transparent, as far 
as the components of where----
    Mr. Tierney. Who is we?
    Mr. Donahue. We? Sir, the representation that I have.
    Mr. Tierney. Right. But I am talking about insurance 
companies, because they notoriously have not been transparent 
and accountable on this. Unless of course--I don't know. Do you 
think it is a good idea for insurance companies, say some in 
Georgia or in other places, to pay 50 cents or more towards 
administrative costs, and less than 50 cents on actual health 
care costs to people?
    Do you think that is a good idea?
    Mr. Donahue. I can't speak on behalf of the insurance 
company perspective. I can assure you, though, from the 
broker's standpoint, we have full transparency.
    Mr. Tierney. Right. Now the National Association of 
Insurance Commissioners did not recommend that brokers be 
allowed to be counted in that 80 to 85 percent. Isn't that 
correct? They did not make that recommendation to the 
secretary?
    Mr. Donahue. I am not sure that was a recommendation. I 
don't know.
    Mr. Tierney. All right, well then we will----
    Mr. Pollack. Mr. Tierney, may I just say that National 
Association of Insurance Commissions looked into the very issue 
that Mr. Donahue addressed earlier. And I like brokers.
    But what they found is that they--and I am quoting--``we 
have not observed any problem with consumer access to insurance 
or producers as a result of the medical loss ratio.''
    So while I understand the fears that might exist within the 
industry, the National Association of Insurance Commissions, 
made up of Democrats and Republicans--it is not intended to be 
a partisan arm--found there was no evidence to that.
    Mr. Tierney. Well, look, the General Accountability Office 
did a study and they questioned like three people, some portion 
of whom decided that they thought it might be a problem. And 
people have started using that.
    But, in fact, employment of agents/brokers is up 5,500 over 
the last year, since--but the fact is what medical loss ratio 
is supposed to do is make these insurance companies pay more 
towards health care, or we call it medical expense of the bill, 
for your premium. I think that is what consumers expect.
    And we expanded it a little bit out when it got over to the 
Senate, because they are who they are. And they added in 
quality improving activity. But also, that was to be based on 
or grounded on evidence based practices that would increase the 
likelihood of desired health outcomes. So that is the aspect on 
there.
    I am not sure, Mr. Donahue, where I see brokers and agents 
as anything other than administrative cost, and how you make 
the argument that it is a medical expense. Can you tell me how 
you think brokers and agents qualify as a medical expense?
    Mr. Donahue. If you think about it from the employer's 
perspective, and the employers desire to help.
    Mr. Tierney. No. I want to think about it from the 
consumer's perspective, all right? Is that a medical expense 
for me,that the company's sales agent or broker is out there on 
the job selling for the--for the company?
    Mr. Donahue. Is it is an expense associated with your 
participation in that medical program.
    Mr. Tierney. But it is not a medical expense. It is not 
going to make me healthier. It is not going to fix my diabetes. 
It is not going to fix my pneumonia or anything of that nature.
    That is what we mean when we say medical expense.
    Mr. Donahue. From the consumer's perspective, employer and 
employee participants, they are not distinguishing between 
whether it is a claim for a medical provision or it is part of 
the overall administration in getting that plan done correctly.
    Mr. Tierney. But the law is distinguishing that. The law is 
saying you can no longer spend money on lobbyists and CEO 
bonuses and huge salaries and other administrative costs, and 
take that out of the premium, instead of giving health care to 
the employee.
    Do you have a problem with that?
    Mr. Donahue. Again, I can't answer on behalf of the 
insurance company. I can speak from our role as advisers and 
advocates on behalf of the workforce and the employers that 
sponsor those health benefits.
    Mr. Tierney. Look, again, as Mr. Pollack says, we are all 
friends of agents and brokers. The question is why should the 
person get less health care because the company tries to push 
that off in a different direction?
    Thank you.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Thompson?
    Mr. Thompson. Thank you, chairman.
    Mr. Donahue, I want to pick up on health insurance agent 
and broker commissions, because my perspective, having grown up 
in a small business--not insurance, let me clarify, sporting 
goods--that those individuals actually really play a key--have 
always, in my experience, played a key role of finding the best 
policies, finding the best buy, of actually controlling health 
care costs, because they are shopping it.
    You know, they are working in their broker role. Would you 
agree with that? Or am I completely off base?
    Mr. Donahue. I certainly agree with that. And as I 
referenced before, we are very much the back room on behalf of 
our customers, regardless of their size. We provide them 
guidance on compliance and help them navigate the myriad of the 
obligations that are in front of them at this point.
    We are involved on problem resolution at every degree, even 
to the individual claimant, helping them navigate the 
sophisticated health system. And from a layman's standpoint, if 
you don't understand, you are usually at a disadvantage.
    Mr. Thompson. It seems PPACA--the provisions of that are 
going to take away that important toll, which has been somewhat 
of a safety check, or a check of getting the best prices for 
our businesses.
    Ms. Piper, the grandfather regulation improves 
extraordinary limits on the kinds of changes employers can make 
to their health plans without triggering insurance mandates. 
Have you encountered a situation where this regulation has 
proven very disruptive to normal planned administration?
    Ms. Piper. As benefit professionals, you know, we are 
trained to look at many factors when we are handling any 
medical plan renewal. And traditionally, we started maybe 6 
months prior today. For the groups that we represent, we are 
talking 8 months prior.
    There is a tremendous amount that needs to be thought 
through as it relates to health care reform. And that has 
increased the time.
    And I make that point because many companies have to make 
decisions before we receive guidance. And that was particularly 
true last year. You know, first of all, you grab as much data 
as you possibly can.
    Secondly, there are budget meetings that have to happen at 
the employer level. And you walk a fine line between balancing 
the corporate budget and avoiding employee noise when you make 
any benefit changes.
    To not be allowed to follow standard protocol--and again, 
in my testimony, I identified this is what you do ever year. 
You look at your deductibles. You look at your co-pays. You 
look at the co-insurance. You look at the claims that come in.
    As an employer, I sit here. And last year, I didn't have 
the opportunity to choose whether I remained grandfathered or 
not. It was made for me by my insurance carrier.
    We had a 24.99 percent increase. And we were told that much 
of it had to do with PPACA provisions. But that choice was 
taken away from us.
    And I did. I moved us to a high deductible health plan. And 
was there noise? Yes, there was. And do I know that a couple of 
employees had claims that year that incurred more out of pocket 
costs? I did. I see it.
    So to not be allowed to operate and have that standard 
protocol is contrary to everything that we have talked about 
with value based design. So yes is my answer. I am a tremendous 
advocate for health and wellness programs.
    We are waiting for information to come back on how we can 
operate with those wellness programs within the restrictions of 
grandfathering rules. We have to understand that employees have 
to be a part of the solution.
    And I see trends all day long. And I see what is brewing. I 
look at how much we try to get people to get their wellness 
screenings. And very few people do. And that is just fact.
    And to not be able to function and to be able to try to get 
employees in that group where they take responsibility for 
their own health--and we will need that as a nation, regardless 
of what happens out of these hearings or regardless of what 
happens over the next couple of years.
    Citizens have to take responsibility for their own health 
care. And grandfathering has restricted that protocol.
    Mr. Thompson. Thank you.
    Are we going to be able to do a second round, do you think? 
I will ask my question then.
    Oh. Well, the Kaiser Foundation survey was referenced by 
one of my colleagues. And you know, the 2011 Kaiser Family 
Foundation survey found only that half, 56 percent of workers, 
were in plans that predate Obamacare's enactment.
    And the loss of employees pre-Obamacare coverage is 
occurring even faster than the administration's own estimates. 
It was concluded half of all employers, and as many as 80 
percent of small businesses will be forced to give up their 
current coverage by 2013.
    And just as important, by giving up their pre-Obamacare 
plans, both employers and employees will be subject to costly 
new mandates that increase premiums. As a reminder, candidate 
Obama said repeatedly his bill would cut premiums by an average 
of $2,500 per family, meaning premiums would go down, not 
merely just go up by less than projected.
    The campaign also promised that those reductions would 
occur within Obama's first term. A New York Times article 
entitled ``Health Plans From Obama's First Debate,'' dated July 
23rd, 2008, includes a quote from Mr. Obama's campaign economic 
adviser, Mr. Jason Furman, stating, ``We think that we could 
get to $2,500 in savings by the end of the first term, or be 
very close to it.''
    And it appears the administration is now doubling down, 
whereas on September 29th, ABC News reports that the White 
House Deputy Chief of Staff Nancy-Ann DeParle insists families 
will see savings by now 2019. Quote--``Many of the changes in 
the Affordable Care Act are starting this year and in 
succeeding years. And by 2019, we estimate that the average 
family will save around $2,000.''
    Well, this is obviously not what we were hearing about, 
this administration health care plan, for the past 3 years. It 
just appears that the president's promise just isn't holding 
up.
    Chairman Roe. Hold that thought. And we will get back to 
it.
    Mr. Hinojosa?
    Mr. Hinojosa. Thank you, Mr. Chairman.
    And thank you to the panelists for coming to be with us 
this morning.
    My first question is to Mr. Pollack. And the reason that I 
am concerned about this is because the area that I represent is 
about 10 percent younger than the average nationally. And so I 
am talking about--I am concerned about the 30 percent of young 
adults which are uninsured, representing more than one in five 
of our total uninsured population.
    Young adults have the lowest rate of access to employer-
based insurance, often because they have entry level or part 
time jobs, or jobs in small businesses. The ACA has started to 
increase access to insurance for young adults by allowing young 
adults to remain on their parents' health plan until age 26.
    According to the Census Bureau, 2011 current population 
survey, the ACA is working. So Republicans' proposal to repeal 
the Patients' Bill of Rights, what would happen to the advances 
we have achieved for these young adults?
    Mr. Pollack. Well, you know, I appreciate your focus on 
young adults, because, as you know, young adults have for many 
years been the part of the age cohorts that are most likely to 
be uninsured. And the Affordable Care Act is going to help that 
group in a very significant way.
    Now you, of course, mentioned one of the key ways. And we 
have already seen the evidence of this. And this is that young 
adults, up to their 26th birthday, can stay on their parents' 
policy.
    And the current population survey tells us that 1.2 million 
young adults gained health care coverage over the course of the 
last year. That is very impressive.
    But starting in 2014, beyond the ability to stay on a 
parent's to your 26th birthday, young adults, as you mentioned, 
are the ones who have the greatest difficulty getting jobs. 
They are more likely to be in entry level jobs. They are likely 
to be paid lower than others.
    And they are likely to have fewer fringe benefits like 
health care coverage. And they now can go into this new 
marketplace, the so-called exchange. And because of their 
modest income, they will receive tax credit subsidies that will 
make insurance premiums far more affordable.
    As I said, those premium subsidies will go up for with 
families of four, up to $90,000. So a lot of these folks are 
going to be eligible for those tax credit premium subsidies.
    But in addition to that, they will get significant 
protection in terms of their out of pocket costs when they seek 
health care. Because people with incomes up to 250 percent of 
the federal poverty level--and for a family of four, we are 
talking about annual income of $56,000. There will be a 
significant limitation on how much they have to pay out of 
pocket when they get care.
    So the group that you are referring to is really going to 
helped disproportionately by the Affordable Care Act.
    Mr. Hinojosa. Thank you.
    My next question is for Dennis Donahue. On page eight of 
your written testimony, you relate a story of one of your 
clients, a large employer dealing with an employee who exceeded 
their lifetime limit because of hemophilia. And their medicine 
costs the plan more than $35,000 a month.
    What kind of tremendous relief were you looking for? The 
ability to drop the coverage of that employee in the middle of 
treatment, or to reinstitute any arbitrary limit for that 
individual's care?
    What would happen to the worker if he or she couldn't get 
the medicine they needed to stay alive?
    Ms. Piper. I am glad that you brought this up, because what 
you just asked me is not the intent of that example at all.
    The intent of the example that I used for this particular 
employer--and this employer had probably about 35,000 
employees. You have about 5,000 that are eligible for the 
employer sponsored plan. And then you have another 30,000, 
35,000 that are eligible for a limited benefit plan.
    In going through the renewal last year, when we took a look 
at lifetime limits--and this is the only client that I had that 
was impacted. There was a hemophiliac that had exceeded their 
maximum. There was no complaining about taking that employee 
back in.
    The problem was the medicine was $35,000 a month, or 
$33,000. I am not looking at it currently. The relief that I 
talked about was what do we do in situations like that? That is 
a high ticket item. You know, employers have a certain bucket 
of money, and it doesn't grow every year.
    You have employers that have seen huge decreases to their 
profit margins. They are trying to keep coverage out there for 
their employees. They are trying to--every employer that I have 
tries to keep the same percentage of contribution.
    It is not this game where everybody just tries to just dump 
on to the employees. In this particular example that I laid out 
for you, it was a 6 hour meeting with the insurance carriers. 
We sat there and went through their specialty pharmacy.
    We simply couldn't find any relief. Maybe $8,000, $9,000--
and I don't have that stat in front of me that we actually 
gave, that I could actually provide you.
    But it had to be absorbed into the plan. So again, there 
was no complaining about taking that person back in. It is 
simply a statement out there that where are the resources that 
we can try to reduce the drug costs or help people like that, 
instead of simply passing along that high of an amount on to an 
employer.
    So that was my point on that.
    Mr. Hinojosa. I wish that thethat last point you made would 
be taken very seriously by my friends on the other side of the 
aisle. And that is, reducing the cost of prescription 
medication. I think that that is a very serious problem for 
young and senior citizens.
    With that, I yield back.
    Chairman Roe. Thank you. I thank the gentleman for 
yielding.
    Mr. Hanna?
    Mr. Hanna. I would like to yield my time to Mr. Thompson.
    Chairman Roe. Gentleman yields his time to Mr. Thompson.
    Mr. Thompson. I thank my neighbor from up north for 
yielding.
    Mr. Chairman, I want to ask unanimous consent to enter into 
the record two articles that basically, you know, provides what 
President Obama said in his campaign and, frankly, what the 
administration has recently said, moving the bar in terms of 
that $2,500 cost number to 2019.
    [The information follows:]

    
    
    
    
    
    
    
    
                                ------                                

    Mr. Thompson. Ms. Turner, obviously costs are just one 
aspect where Obamacare is falling short. Can you elaborate on 
other points that may put employer based coverage at risk?
    Ms. Turner. The cost of health coverage was the main issue 
that employers were concerned about. That was one of the 
reasons that they supported health reform.
    So if we don't get costs down, then I think employer 
coverage is increasingly at risk. One of the other provisions 
that I think puts employer coverage at risk is the employer 
mandate, oddly, because employers are required to pay for 
incredibly expensive government required health insurance, 
which may cost as much as $15,000 to $20,000 for a family.
    And their option is to pay a $2,000 fine or a $3,000 fine 
if their employees go to the exchange. The economics--and we 
have seen from a number of independent studies, McKenzie and 
others, Towers Perrin, who have said that employers are 
seriously considering dropping employer based coverage, because 
they see the economics are just so much more attractive.
    So I think that is a very big risk that many more employees 
could lose their health insurance as a result of this law, 
because the mandates are so perverse.
    Mr. Thompson. And I think the administration, as I have 
read, is banking on saving $77 billion from computerized 
medical records. Frankly, I don't think, having worked in 
health care and worked around computerized medical records, 
there is always a legacy cost to that.
    I don't think the administration realized that it is just 
not a one time thing. And also reducing administration costs in 
insurance industry would yield up to $46 billion. I would argue 
that most health care providers I know, at least 50 to 60 
percent of their overhead cost is compliance with Medicare 
billing.
    So that is not something we are talking about, but that may 
be something we could do about. And then improving prevention 
programs and chronic disease management, $81 billion is the 
numbers I have read.
    You know, that is just one side of health care. I am 
curious, panel, for health care providers, what are the 
variables under PPACA that may drive up costs of delivering 
care? And specifically two things I would like your opinion on; 
one is compliance costs, which are significant, 150--I think my 
last count over 150--at least over 100 new bureaucracies were 
created----
    Ms. Turner. One hundred fifty nine,
    Mr. Thompson. Yes. You would, you know--and then also the 
fact that we are going to put 18 million more Americans on 
Medicaid, that only pays 40 to 60 percent of cost. That is a 
huge cost driver, my opinion. But I want to get the experts' 
opinions on those two issues, compliance and expanded Medicaid.
    What does that do to the costs of delivering care?
    Ms. Turner. If I might start, with Medicaid, the Affordable 
Care Act will add as many as 16--some estimates say 25 million 
more people to Medicaid. And with the additional incremental 
growth or expected growth in the program, that is going to mean 
that between 85 and 90 million people are going to be on 
Medicaid, which is one of the lowest paying health plans in the 
country.
    And those costs have traditionally been shifted to 
employers. So the cost shifting is a huge issue. Obviously, 
compliance costs, but maybe Ms. Piper or Mr. Donahue could talk 
more specifically about those.
    Mr. Thompson. Mr. Donahue?
    Mr. Donahue. Compliance from the employers' standpoint is 
quite arduous. As I reference before, most of our customers are 
spread very thin now dealing with an additional layer of 
compliance. Just in the current environment, pre-health care 
reform, our customers are dealing with over 2,100 different 
state statutes.
    And if they are an employer of multi-sites, they have got 
to look at the variations of benefits from region to region, 
coincide and comply with those benefits that states mandates. 
And what we are also concerned with is once essential benefits 
are designed, how will the states weigh in relation to state 
mandated benefits, in comparison with essential benefits?
    And how many special interest groups will be lined up 
making sure that their coverages, their diseases, their 
equipment is indeed covered. This will add a tremendous of 
complexity to the whole scenario, and the cost burdens 
associated with that.
    Mr. Pollack. Mr. Thompson, you raised the question of 
Medicaid. I know that this committee does not have jurisdiction 
over Medicaid.
    But as I was citing earlier in my testimony, there has been 
a sharp drop in the number of people, and certainly the 
percentage of people who get their coverage through an 
employer. And this occurred over the course of the last decade.
    It has nothing to do with the Affordable Care Act. This is 
what occurred between 2000 and 2010. Had it not been for 
Medicaid, we would have a huge increase, far above what we have 
already seen, in terms of the number people who are uninsured.
    And----
    Mr. Thompson. But----
    Mr. Pollack. And what is important about that point that 
you raised is that that is where the cost shift takes place, 
when we have more and more people joining the ranks of the 
uninsured.
    Mr. Thompson. Just reclaiming my time, and I understand 
that, but I also see that that has shifted--cost shifted back 
to commercial insurance. That is one of the primary drivers.
    Just a point of clarification, a quick question, yes or no 
answer, if the chairman will give me a little leniency here.
    It was part of your testimony. I just want to clarify I 
heard what you said, that under PPACA that an individual who 
makes $90,000 a year--trust me, in the Pennsylvania Fifth 
Congressional District, that is a whole lot of money--depending 
on family size, is now under PPACA, is eligible for taxpayer 
subsidy.
    Mr. Pollack. Yes. And I said for $90,000,that is for a 
family of four.
    Mr. Thompson. A family of four, that is a whole lot of 
money. So thank you.
    Chairman Roe. I thank the gentleman for yielding.
    Mr. Donahue. If I may make one more comment about----
    Chairman Roe. Actually, we will get to that. I will give 
you a chance, Mr. Donahue, in just a minute.
    Mr. Kildee?
    Mr. Kildee. Thank you, Dr. Roe.
    Mr. Pollack, some claim that the immediate consumer 
protections included in the health care reform law, such as the 
coverage of young adults up to age 26 and the coverage of 
preventive care, are an enormous burden on health plans and 
employers. Could you talk about the benefits, not just to the 
individual, but the societal benefits of those provisions?
    Mr. Pollack. I think all of us, and I presume that is true 
of the physicians on this panel, know that we want a health 
care system, not a sickness system. And by promoting preventive 
care, we promote a health care system, so that people get exams 
each year. They get tests so that at the outset of a pain, or 
the outset of a disease, we can detect what is wrong before the 
disease spreads and becomes a whole lot worse.
    So certainly from the perspective of improving America's 
health care system, this is something we should savor. I think 
all of us have said at one time, to one another, we want to 
promote preventive care.
    Now there are some additional costs, obviously, that are 
associated by people going to a physician and getting a check 
up and having tests. But the real costs in America's health 
care system are for people with major illnesses and especially 
for people with chronic illnesses.
    And you want to maintain these folks' health before the 
problems get a whole lot more serious and you need a heroic 
intervention, which is going to be very costly and is not good 
for somebody's health.
    And I would say since this panel cares about employment and 
jobs, the more we are able to keep people in the job because 
they are healthy, that is going to be significant help to our 
economy.
    Mr. Kildee. You know, it is interesting, the first wave of 
thanks I got--as you know, the bill was quite controversial, 
the division in the Congress. But the first wave of thanks came 
to me from the young people and their parents who were being 
carried up to age 26.
    That touched their lives immediately, made it easier, by 
the way, for them to seek employment, too, made it easier for 
many of their employers. It seemed to have a pretty strong 
societal positive effect.
    And it is just refreshing when you go back home, because 
sometimes you don't get thanks. You get some other expression 
of thought.
    Mr. Pollack. And Mr. Kildee, I have to say that since I am 
no longer in that age group under 26--just barely above that 
now--I think about my children. And as a parent whose 
thankfully has three children, to know that they have health 
care coverage makes me sleep a whole lot better.
    So it is not just those young adults who no doubt are 
grateful. And I am glad you are being thanked for it. But for 
all of us who are parents who can sleep better at night because 
we know that our children have health care coverage, this is an 
extraordinary improvement.
    Mr. Kildee. Thank you very much, Mr. Pollack.
    Mr. Andrews. Will the gentleman yield? Will the gentleman 
yield?
    Mr. Kildee. Be happy to yield.
    Mr. Andrews. I wanted to ask Ms. Piper a question. I was 
alarmed when I heard about the 24.99 percent increase that you 
in your own firm had. And your broker told you it was because 
of the ACA.
    What exactly about the ACA was the problem that caused the 
increase? Did they tell you?
    Ms. Piper. A little. I am probably--you know, because I do 
represent employers, of course, I don't ask many questions. I 
go straight to the source.
    I am my own broker in many cases. But there was a broker 
involved here. You know, certainly they said that--and I did 
see it in smaller employers. 1 to 2 percent was where we really 
were with large employers. Some of my small employers say they 
have an increase----
    Mr. Andrews. But what reason did they give you for your 
firm?
    Ms. Piper. Well, up to 8 percent was for age 26. And I am a 
California employer, lifetime limit.
    Mr. Andrews. How many employees do you have?
    Ms. Piper. I have got 13.
    Mr. Andrews. Do you have anybody with kids under 26?
    Ms. Piper. My business partner is the only one that has 
children under age 26.
    Mr. Andrews. And didn't California law already require 
that?
    Ms. Piper. I don't write any other business in California. 
I write large groups.
    Mr. Andrews. I think it did.
    Ms. Piper. I would be a bad case.
    Mr. Andrews. How did that change boost your premium? I 
don't understand. I thought California already requires.
    Ms. Piper. Well, I can only tell you what I was told. It 
was up to 8 percent for certain provisions. And then I was told 
that the biggest piece of itm the 24.99, was not all attributed 
to PPACA, first and foremost.
    Mr. Andrews. Right.
    Ms. Piper. So there was standard trend there, which was 9 
percent.
    Mr. Andrews. Right.
    Ms. Piper. Then you had 4 to 8 percent. Now remember in 
California, you are pretty much a small employer. You are all 
in one bucket.
    Mr. Andrews. Right.
    Ms. Piper. So there was a fairly fair amount that was 
applied for certain provisions. Then wellness, we are moving 
cost share. I have been told over and over and over again that 
that was the biggest----
    Mr. Andrews. No, that is a different point. What other ACA 
reasons attributed to 24 percent? That is what I am asking.
    Ms. Piper. 24.99 percent was the total overall. So they 
didn't give me a breakdown of what percentages applied. They me 
not random numbers, but they gave me 4 to 8 percent for 
lifetime maximum. Right?
    They gave me 11 to 15 percent for cost share removal on the 
preventive. And the rest of it being standard trend.
    Mr. Andrews. Did you ever have an employee hit the lifetime 
policy limit?
    Ms. Piper. Did I ever have anyone that exceeded? No, I have 
not. In fact----
    Mr. Andrews. A little odd that they would charge you with 
that.
    Thank you.
    Ms. Piper. Only one that I----
    Chairman Roe. Thank the gentleman for yielding.
    I will finish the questioning by making a brief statement.
    The problem with the American health care system, after 
practicing medicine for over 30 years, was that it cost more 
and more and more for patients to come and see me, to go to the 
hospital to get the care they need. Cost is number one.
    Number two, we have a group of people in our country that 
didn't have access to affordable health insurance coverage. 
They couldn't afford it. Let us say a carpenter in my area that 
worked and maybe the wife worked in a diner. And they make 
$35,000, $40,000 a year together.
    They can't pay $1,000 a month in health insurance coverage. 
That is a problem I saw in my state.
    Thirdly, we have a liability issue in America, forcing up 
the costs. And I can assure you as an obstetrician, when I saw 
my health care--when my liability insurance went from $4,000 a 
year when I started practice in 1977 to $74,000 a year, with no 
top in sight, when I left practice, that is a huge problem in 
defensive medicine.
    And lastly, health care decisions should be made by a 
patient, their family and a doctor, not an insurance company 
and certainly not the federal government mandating what should 
be done. That should be a decision made by them.
    Having said that, I looked at this. And I have read the 
bill. And I know Mr. Andrews has read the bill. Twenty seven 
hundred pages and now 10,000 pages of rules that I am not going 
to read. I am going to--I plead ignorance on the first 2,700 
pages. But I am not going to read the next 10,000 pages of 
rules that we have to abide by to do this.
    The simplest financial transaction on the Earth is a 
patient coming to see me. I perform a service and they pay me. 
It didn't get any more complicated than buying a loaf of bread. 
That is how hard it is to come to the doctor.
    All this extraneous stuff has added cost without value to 
the patient. When I get to the examining room and see that 
patient, it hasn't added any value. I could have taken two 
paragraphs and done what the 2,700 pages has done by doing two 
things.
    The 26 year old, I agree with that. I have had three kids, 
as you have Mr. Pollack, that when they got out of college, 
they didn't have health insurance coverage. And I bought them 
individual policies.
    The problem with this is this bill changed for someone my 
age. I used to have to pay six times what it was actuarially to 
a young person who was healthy. Now it is three to one. For 
those who don't have a parent paying for that, their costs have 
gone up.
    So you have actually made it more expensive for some young 
people to get affordable health insurance coverage.
    Number two, and Mr. Foster at CMS said this, we think it 
will expand Medicaid by as much as 25 million people. The 
estimates of CBO were 15 million. That is where that number 
came from. And the 24.5 million came from CMS, their estimates, 
because I asked Secretary Sebelius when she was here in front 
of our committee.
    So those two things could have done that without all this 
complicated stuff that we are talking about. What I think we 
need to do--and Ms. Piper, you have said this clearly--is we 
have got to change the incentives in medicine.
    We have to change the way we pay for it or you will never 
get control. And I think a high deductible plan with a health 
savings account does it. I used that; 84 percent of my 300 
employees in my practice used that.
    It has helped hold the costs down. We have been innovative 
in how to do that. This will be taken away from us with the 
Affordable Care Act. We are not going to be able to move and 
help hold our costs down.
    Another company in my district has been able to use some 
very, very innovative things. And they have had one small 
premium increase in 5 years. And they have done this by doing 
if--let us say you were a hypertensive, diabetic, smoking obese 
patient. You were a train wreck waiting to happen.
    What they did was they paid you if you lowered your 
hemoglobin A1c, if your nicotine level was normal, if you went 
on a weight loss program. They switched the incentives from 
sickness to wellness.
    And it absolutely made a difference. There is no question 
about that. We need to get--and back to Mr. Donahue, I am going 
to give you a chance to answer. You wanted to.
    For 30 years, I have used your business. It was very 
helpful to us to use a broker to be able to help us wade 
through this insurance every--we didn't have an HR department, 
so we used you.
    So you wanted to answer a question a minute ago and I cut 
you off.
    Mr. Donahue. Thank you.
    No, I was just going to weigh in about the Medicaid 
expansion that was referenced by a number of the speakers here. 
It is one thing that we are not considering, though, although 
Medicaid provides very cost effective reimbursement in the way 
physicians are reimbursed, our concern with the movement into 
Medicaid expansion, that there will be enough providers to 
cover that kind of population, considering potentially the lack 
of interest of those providers entering into Medicaid-based 
patients.
    So it is very disconcerting. Where are those providers?
    Chairman Roe. 31 percent or 32 percent of primary care 
providers, as I am, are not accepting Medicare.
    Mr. Donahue. Yes. So if you look at current statistics as 
to how many are actually embracing Medicare patients, it is 
especially disconcerting with the potential Medicaid expansion. 
And how are those individuals going to be serviced?
    Chairman Roe. Let me clarify what I said, new Medicare 
patients.
    Mr. Donahue. Yes, yes.
    Chairman Roe. My time has expired.
    Mr. Andrews, for any----
    Mr. Andrews. Mr. Chairman, Mr. Holt has arrived here. And I 
wanted to know if he wants to take question time.
    Chairman Roe. Dr. Holt?
    Mr. Holt. With the chairman's permission.
    Mr. Andrews. Thank you, Mr. Chairman.
    Mr. Holt. It is an important hearing as much for what it 
doesn't bring as for what it does. But, you know, I would like 
to ask something about these claims that I keep hearing from 
constituents that this health care reform is responsible for 
the increase in premiums.
    I have looked and I have looked. And in the letters that 
the insurance companies send for why premiums are going up and 
that sort of thing, if they ever cite specifics, it is things 
that haven't even taken effect yet, and won't for a long time.
    And so it seems to me that the increase in premiums that 
are real, that our constituents are feeling, are the best 
argument I have seen yet for why this legislation was and is 
necessary. So Mr. Pollack, let me ask you--and I know you have 
addressed this to some extent, but let me ask you how much of 
the premium increases that people are seeing around the country 
can be attributed to the law, as passed?
    Mr. Pollack. I appreciate your asking that question. A 
number of members of this distinguished panel raised the Kaiser 
Family Foundation study, which showed that premiums increased 
over the course of the last year. By the way, if you look at 
the history of the past decade, this was an extraordinary 
increase.
    It was larger than the year before, to be certain. But as I 
cited earlier in the testimony, in the year 2000, average cost 
of premiums for family coverage purchased through an employer 
was $6,772, in the year 2000.
    In the year 2010, it was almost $14,000. And in the 
previous year, it went up to $15,000. So it is not a 
significant change in the pattern at all.
    But most importantly, the Kaiser Family Foundation, which 
released the numbers that so much--you know, so much of this 
discussion is based on, said that only 1 to 2 percent of the 
increase in premiums is attributable to the Affordable Care 
Act.
    And they asserted two things that occurred with respect to 
the Affordable Care Act. One that we have discussed at great 
length here, is that young adults can now stay on their 
parents' policy up to their 26th birthday.
    Of course, that does increase premiums. But it is a very 
cost effective purchase and we have seen tremendous benefits 
for those young adults as a result; 1.2 million young adults 
were added to health insurance coverage over the course of the 
last year.
    And the other is there is no longer a lifetime limit in the 
payout by an insurance company. And when you have a lifetime 
limit, it is insurance that doesn't insure. Because what you 
want to be protected against is that you are going to be 
bankrupted from very high costs.
    And if you have a lifetime limit, for those people who need 
insurance the most, all of a sudden they have got no insurance, 
even though they have paid premiums for a long period of time.
    Those were the two factors that increased premiums by 1 to 
2 percent, according to the Kaiser Family Foundation. And I 
would say that was well worth it.
    Mr. Holt. Thank you.
    Ms. Piper, when you say that all--that is actually the word 
you use, I believe--of the large employers have made a decision 
to drop the grandfather coverage, how many employers does that 
include?
    Ms. Piper. All of my large employers, not nationally 
speaking.
    Mr. Holt. Yes, all of yours, which is one or two or----
    Ms. Piper. No, we represent probably 40. I also represent 
franchise organizations. So when you get to that level and when 
you drill down, I would consider those to be more small 
employers.
    Mr. Holt. Large enough sample that you probably can 
understand something of their motivation. If the cost of 
complying with the additional provisions of the Affordable Care 
Act are so cost prohibitive and burdensome to the clients, 
should we believe that employers chose to accept these 
additional burdens and costs rather than make the modest 
adjustments that would be appropriate perhaps to their existing 
plan?
    Ms. Piper. Well, when we have gone through renewals, 
especially on the large employer side--and I understand that to 
be your question, acceptance--yes, you laid out the law and we 
are following it. To make the small adjustments that were 
allowed is not reasonable in a renewal, not if you are trying 
to contain costs.
    Mr. Holt. Why not? Why not reasonable?
    Ms. Piper. Well, you know, looking at the example that I 
gave earlier--and I am not sure that you were here at the time. 
But we had a large employer who was 8 to 9 percent above the 
national trend on outpatient expenses.
    Forty seven employees went to the E.R. for non-emergency 
related issues. Three times a piece we had two that were 
abusive to the point of nine times a piece. There is a $75 co-
pay on the--or deductible on the plan design.
    To meet the allowances that we were provided, you simply 
can't. We could not maintain grandfathering. And overall, this 
is a very large employer. I have to get them into a position of 
strength for 2014.
    They have 26,000 hourly workers that are very low wage. 
When you look at the penalties that could be assessed against 
them for unaffordable penalties, that is large. So all large 
employers that we represent----
    Mr. Holt. Go ahead and wrap up your answer, if you would, 
please.
    Ms. Piper [continuing]. Are looking at high deductible 
health plans, which is a cost shift. It is a cost shift, 
because we need to get them to that position of strength, so 
they can look at a 60 percent actuarial value to minimize their 
penalty risk in 2014.
    Mr. Holt. Thank you, Mr. Chairman.
    Chairman Roe. Thank you, Dr. Holt.
    Mr. Andrews?
    Mr. Andrews. I would again like to thank the panel for 
obviously a lot of time preparing for this morning and very, 
very good testimony. Thank you for taking time out of your 
businesses and your work to do this work.
    We talked about two Americans today. And we didn't talk 
about one American. We talked about the American who has a 
$33,000 a month drug bill who is hemophiliac, which is just 
stunning. And the question in the air was what to do about that 
problem.
    And the Affordable Care Act does provide an answer. It says 
that if that person works for a very small employer, they will 
be able to go into the exchange, buy health insurance as good 
as mine, at at a price that is affordable given their income, 
and not run into an annual or a lifetime policy limit, and have 
the insurance cover the cost of the drug.
    And that cost will be spread upon all the participants in 
the exchange of that state. In my state, that will be about a 
million people, which is a cost that has to be borne. But 
spreading it over a million people is a pretty rational 
strategy.
    A person works for a larger employer, that larger employer 
is in a more difficult situation, unless they can get into the 
exchange. And I predict to you that by 2017, one of the issues 
will be whether Congress should encourage states to open up 
their exchanges to more people, because they are going to want 
to spread those costs that way.
    The second person we talked about--Dr. Roe talked about his 
constituent who is a carpenter, whose spouse is waitress at a 
diner, making $35,000 a year. What this law says for them is if 
they work for a business with more than 50 employees, they are 
going to get covered at work, with coverage as good as mine.
    If they work for a smaller business--I think they would in 
his case--they would be able to go into the exchange, buy a 
policy with a contribution from themselves that is reasonable 
given their income.
    Now whether this is good for the country or bad for the 
country is debatable and yet to be seen. But the American we 
didn't talk about today is the unemployed carpenter, the 
unemployed waitress, the unemployed teacher, and the unemployed 
real estate sales person.
    And that is who we should be talking about. I will tell 
you, the president has put forward a plan that addresses what 
we hear is the consensus among the real job creators in this 
country, which are small business people. Employers with 50 or 
fewer employees create two thirds of the jobs created in 
America, two thirds.
    And what they are telling us and what they are telling 
researchers is lack of demand is the main problem in their 
business. The president has put forward a plan that would put 
demand in the economy by employing construction workers, 
putting them back to work.
    But we haven't taken a vote on that. And he has put forward 
a plan that says we will cut the taxes of that small business 
if they hire an employee. But we haven't taken a vote on that.
    It says that we will avoid a shock to the demand in the 
economy by postponing a tax increase on middle class families 
of $1,500 a year January 1st. But we haven't taken a vote on 
that.
    It says that we will avoid a shock to demand in the economy 
by not laying off more teachers and police officers and 
firefighters. But we haven't taken a vote on that.
    This is the issue affectingeffecting the country. If you 
want to vote no, vote no. If you want to amend the plan, to 
come up with a better idea, that is the way the legislative 
process works.
    But I think it is the height of irresponsibility to deprive 
the House the chance to vote on that plan. And with all due 
respect, that is the American we should be talking about today, 
in addition to the ones that we did.
    Mr. Chairman, I appreciate the scope of this hearing. I did 
ask unanimous consent to include in the record two articles, 
one ``Misrepresentations, Regulations and Jobs,'' by Bruce 
Bartlett, an alumnus of the Bush and Reagan administrations. 
And the second is the ``Kaiser Report'' press release that has 
been cited.
    [The information follows:]

    
    
    
    
    
    
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    Chairman Roe. Without objection, so ordered.
    I thank the gentleman. And I think this panel has been very 
informative. And I will finish or conclude by saying that I 
agree with Mr. Pollack. What I would like to see in this 
country is that all Americans have affordable health insurance 
coverage, or as close to 100 percent as we can get.
    I share that. I came to Congress to try to do that. 
Unfortunately, I wasn't included in the discussion of it very 
much. But I still want that aim and that goal is there, to 
provide affordable coverage with quality health care for all 
Americans.
    I would love to see that in my lifetime. A few things that 
I think we can do--and I have mentioned, we held a hearing--and 
Mr. Andrews had an opening statement--in Evansville, Indiana. 
It is the only health care hearing that has been held outside 
the Beltway.
    And there was some very enlightening things that happened 
there when we talked about jobs. And I absolutely agree that 
the number one issue in America today are jobs and putting our 
people back to work, because that solves a lot of our problems, 
if you have a job.
    An IHOP owner testified there and said, look, I have 12 
IHOPs and about 700 employees. He said, I gross $58,000 per 
employee. And I net $3,000. And I found out in the restaurant 
industry, that is pretty good. Because a McDonald's franchisee 
came in and said he nets $1,200.
    So $3,000 per employee, says I have over 50 employees. I 
have 700. So now if I drop my people into the exchange, if I 
pay for this insurance that is mandated by the government, 
because I have got over 50 employees, I am upside down $7,000 
per employee.
    If I then pay the fine, which is not tax deductible, I have 
just spent all my profit, $2,800. He said, I either make no 
profit or I am $7,000 short. What do I do, Dr. Roe?
    I said, well, the best thing I can tell is you charge me 
$10 for a pancake that nobody will buy and you will lose jobs. 
I think that is what will happen.
    And there is a real issue out here, the consequences of 
what we did, instead of letting the market work. In a high 
deductible consumer plan--I have this right here, which is a 
health savings account. I don't call the insurance company if I 
need to get health care. I don't ask for some clerk on the 
phone to approve my care.
    I go in and do this. And in Indiana right now, Mitch 
Daniels, the governor there, is trying to do the same thing. He 
is trying to put consumers in charge of these decisions, not 
the government and certainly not an insurance company. I 
couldn't agree more with every one of you.
    So I totally agree with that. That is how a health savings 
account works. And Mr. Pollack, you should look at that for 
your business.
    I will finish by thanking the ranking member and also point 
out a survey that just came out yesterday from the United 
States Chamber of Commerce, Third Quarter Small Business Study. 
Despite its passage more than a year and a half ago, the 
challenges presented by the Patient Protection and Affordable 
Care Act continue to grow, with 51 percent of respondents 
citing the bill as a top concern in October, an increase from 
39 percent in July.
    And the president's jobs plan--certainly it is not the time 
to go into all that. But small business owners say there's 
little to be excited about in President Obama's jobs plan. More 
than three in four small business owners have an unfavorable 
opinion of the plan. And two thirds have a strongly unfavorable 
view of the plan.
    So businesses out there are not excited about that. I think 
both sides--we have differing opinions--want to get our people 
back to work. And Mr. Andrews is absolutely right I think that 
demand drives it.
    And just to give you a very simple view of that is if I go 
to church on Sunday and people say Dr. Roe, I can't get an 
appointment with you for 4 months, and I go back to my office 
and ask the receptionist; all the doctors are booked for 4 
months; it is time to hire a new doctor.
    But if I go back to my office on Monday and I have got 
appointments on Friday, I don't care how many tax cuts, breaks, 
everything else you give me, I don't have any demand for my 
services. I am not going to hire a new doctor.
    That is just the way it works. You are correct about that.
    I appreciate this great panel. And you all have done a 
wonderful job. I hope that you will continue. We hope to have 
you back.
    And without further, this meeting is adjourned.
    [Additional submission from Dr. Roe follows:]

    
    
    
    
    
    
    
    
    
    
    
    
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    [Additional submissions of Mr. Andrews follow:]

                                                      AARP,
                                  Washington, DC, October 28, 2011.
Hon. John Kline, Chairman; Hon. George Miller, Ranking Member,
House Education and Workforce Committee, U.S. House of Representatives, 
        Washington, DC 20510.
Hon. Phil Roe, Chair; Hon. Robert Andrews, Ranking Member,
Health, Education, Labor and Pension Subcommittee, U.S. House of 
        Representatives, Washington, DC 20510.
    Dear Representatives Kline, Miller, Roe and Andrews: I am writing 
to you on behalf of AARP's millions of members and the millions of 
older Americans and their families who may benefit from recently 
enacted consumer protections in health plans that will enable 
individuals to have access to affordable, quality healthcare. AARP 
believes these provisions can promote more cost-effective care, improve 
pricing transparency, and increase health insurance companies' 
accountability for quality health care.
Grandfathered Plans' Status
    In order to minimize the impact on current plans, Sec. 1251 of the 
Patient Protection and Affordable Care Act (ACA) provides that certain 
plans or coverage in effect as of March 23, 2010 (the date of the law's 
enactment), will be exempt from certain provisions of the Act. These 
plans, which may be either insured or self-insured group health plans 
or health insurance coverage purchased from health insurance issuers by 
individuals or groups, are referred to as grandfathered plans or 
coverage. The provisions that these plans or coverage are exempted from 
include (but are not limited to): prohibition of lifetime limits, 
prohibition on annual limits, prohibition on rescissions, extension of 
dependent coverage to children up to age 26, medical loss ratio 
provisions, prohibition of pre-existing condition exclusions, and 
prohibition of waiting period beyond 90 days (effective in 2014). 
Currently, a grandfathered plan must not make a substantial change to 
the plan or coverage benefits, cost-sharing, employer contributions, or 
access to coverage in order to maintain its grandfathered status; if a 
plan change exceeds those thresholds, the plan must then adhere to the 
patient protections from which they were previously exempt.
    AARP is concerned that the elimination of the change threshold that 
would cause a plan or coverage to relinquish its status would deny 
patient protections even if substantial changes are made to the plans. 
The ACA was designed to provide patient protections and insurance 
reforms that safeguard individuals from practices that lead to limited 
access to covered services and significant out-of-pocket costs. 
Allowing grandfathered plans to make substantial changes to their plans 
and still avoid consumer protections indefinitely would eliminate 
important protections for large segments of the population. Repealing 
this provision would effectively create two tiers of insurance rules 
that will continue indefinitely, undermining risk pooling as well as 
consumer protections.

Medical Loss Ratio (MLR)
    Section 1001 and Section 10101 of the ACA establish standards for 
the MLR. These sections require insurers or plans to spend 80 percent 
(individual and small group market) or 85 percent (large group market) 
of the premium revenue on medical services and quality improvement 
activities. Insurers or plans that do not meet these standards are 
required to provide consumers with a rebate of the difference. The 
intent of the ACA's MLR requirements is first, to establish greater 
transparency and accountability among health insurance issuers and 
second, to help ensure that consumers receive better value for their 
premium dollars. We urge you to retain the MLR provisions that help 
maximize the value of health insurance for consumers while at the same 
time recognizing issuers legitimate administrative costs.

Employer Mandate
    According to Sec. 1513, Sec. 10106, and Sec. 1003 of the ACA, 
employers with at least 50 employees are required, beginning in 2014, 
to offer affordable minimum essential coverage or be subject to a 
penalty. AARP believes this requirement will help ensure adequate 
funding--including for individual subsidies--to make coverage more fair 
and affordable for everyone.
    AARP therefore urges Congress to maintain these provisions that 
were designed to provide access to affordable, high quality care. If 
you have any questions, please feel free to call me or have your staff 
contact Leah Cohen Hirsch on our Government Affairs staff at 202-434-
3770.
            Sincerely,
                                           Joyce A. Rogers,
                         Senior Vice President, Government Affairs.
                                 ______
                                 
                                 
                                 
                                 
                                 
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    [Whereupon, at 11:38 a.m., the subcommittee was adjourned.]