[House Hearing, 112 Congress]
[From the U.S. Government Printing Office]
BARRIERS TO LOWER HEALTH CARE
COSTS FOR WORKERS AND EMPLOYERS
=======================================================================
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
SECOND SESSION
__________
HEARING HELD IN WASHINGTON, DC, MAY 31, 2012
__________
Serial No. 112-62
__________
Printed for the use of the Committee on Education and the Workforce
Available via the World Wide Web:
www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=education
or
Committee address: http://edworkforce.house.gov
----------
U.S. GOVERNMENT PRINTING OFFICE
74-392 PDF WASHINGTON : 2012
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800;
DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC,
Washington, DC 20402-0001
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 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 May 31, 2012..................................... 1
Statement of Members:
Andrews, Hon. Robert E., ranking 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:
Fensholt, Edward, J.D., senior vice president, director,
compliance services and health reform advisory practice,
Lockton Benefit Group...................................... 6
Prepared statement of.................................... 8
Hall, Jody, owner, Cupcake Royale & Verite Coffee............ 18
Prepared statement of.................................... 20
Ramthun, Roy J., president, HSA Consulting Services, LLC..... 12
Prepared statement of.................................... 14
Streitberger, William, vice president of human resources, Red
Robin Gourmet Burgers, Inc................................. 23
Prepared statement of.................................... 25
Additional Submission:
Chairman Roe: PowerPoint slide, ``Tax Changes''.............. 52
BARRIERS TO LOWER HEALTH CARE COSTS FOR WORKERS AND EMPLOYERS
----------
Thursday, May 31, 2012
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. David P. Roe
[chairman of the subcommittee] presiding.
Present: Representatives Roe, Wilson, Thompson, Walberg,
DesJarlais, Rokita, Bucshon, Noem, Heck, Ross, Andrews, Kildee,
Hinojosa, Holt, Scott, and Altmire.
Also present: Representative Miller.
Staff present: Andrew Banducci, Professional Staff Member;
Katherine Bathgate, Deputy Press Secretary; Adam Bennot, Press
Assistant; Casey Buboltz, Coalitions and Member Services
Coordinator; Molly Conway, Professional Staff Member; Ed
Gilroy, Director of Workforce Policy; Benjamin Hoog,
Legislative Assistant; Barrett Karr, Staff Director; Ryan
Kearney, Legislative Assistant; 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; Tylease Alli, Minority
Clerk; Jody Calemine, Minority Staff Director; John D'Elia,
Minority Staff Assistant; Richard Miller, Minority Senior Labor
Policy Advisor; Megan O'Reilly, Minority General Counsel; and
Michele Varnhagen, Minority Chief Policy Advisor/Labor Policy
Director.
Chairman Roe. Call the meeting to order, and today before
we get started we have a guest here today that I would like to
introduce from my home state. It is William Bell.
And William, if you would stand up just so people can see
you here?
William is--today he drew the short straw. He gets to
shadow me all day today for the Foster Youth Shadow Day
program, and he--William entered foster care at age 15 and he
represents now 3,000 young people in Nashville, Tennessee here
in Washington. Their foster care youth have come from all over
the country.
William is doing great. He is in one of our technology
centers studying to be an electrician and will finish in 6
months.
And, William, welcome today to our hearing. [Applause.]
A quorum being present, the Subcommittee on Health,
Employment, Labor, and Pensions will come to order. Good
morning, everyone.
I would like to thank our witnesses for being here and
offering their thoughts during today's subcommittee hearing on
health care costs.
With 160 million Americans acquiring health insurance
through an employer-sponsored plan, job creators clearly play a
critical role in the nation's health care system. As a result,
employers know all too well the difficult challenges of
expanding access to affordable health care.
To help control the cost of offering insurance employers
have traditionally maintained a great deal of flexibility over
the design of their health benefits plan they provide. This has
led to some tough decisions, especially during times when a
business is struggling to make ends meet. However, preserving
an employer's ability to navigate a complex health care market
even during an uncertain economic environment has served us
well for decades.
Many employers have found consumer-directed health care as
one way to better manage costs on behalf of workers. One
particularly popular choice is to pair a high deductible health
plan with a health savings account. This allows individuals to
guard against the cost of catastrophic medical treatment while
also setting aside a portion of their pretax income to pay for
future medical expenses.
Demand for consumer-directed health plans is on the rise.
For example, America's Health Insurance Plans report an
estimated 13.5 million individuals had a health savings account
last January, compared to just 3.2 million in 2006.
The popularity of health reimbursement accounts and
flexible spending accounts among workers is also growing, and
employers have shown their support, as well. According to the
Kaiser Family Foundation, nearly 70 percent of employees with a
workplace-sponsored health savings account received employer
contributions.
Consumer-directed health plans offer common-sense options
to help millions of individuals secure a benefit plan that
meets their health care needs at an affordable price.
Unfortunately, recent policy changes threaten the success of
these important plans.
President Obama's 2010 health care law placed an arbitrary
cap on contributions to flexible spending accounts, severely
limiting the annual amount workers are allowed to save. The law
also prohibited the use of flexible spending accounts and
health savings accounts when purchasing over-the-counter
medications, forcing individuals to spend more time and money
visiting their doctor to obtain prescriptions.
Additionally, a bulletin released by the administration
suggests government bureaucrats are crafting an unusual
accounting scheme that will severely undervalue the
contribution workers and employers make to a health savings
account, which may actually discourage employers from offering
this benefit in the future.
I am pleased that the Ways and Means Committee is
considering legislation today that will help roll back a number
of these harmful policies, reflecting a commitment by this
Congress to dismantle the job-destroying health care law.
However, even though more than 12,000 pages of rules and
regulations have been written there are still many unanswered
questions surrounding the law that make it virtually impossible
for any employer, large or small, to plan for the future.
We still don't know how the administration will ultimately
define the ``essential health benefit.'' Up to now the
administration has operated in the regulatory shadows and
outside the formal rulemaking process, delivering uncertainty
instead of the facts on its regulatory proposal. We still don't
know why the administration chose not to fulfill the intent of
the law's grandfather provision, choosing instead to raise
regulatory roadblocks that will significantly alter the health
care of millions of Americans.
And we don't know what small businesses will do now that a
highly touted tax credit has proven to be a failure. A
Government Accountability Office study reveals the small
business tax credit has helped few employers, thanks in part to
the costly administrative burden. As the Associated Press
reports, the tax credit ``has turned out to be a
disappointment.''
Forcing the nation into a costly government-run health care
scheme is perhaps the greatest obstacle to more affordable
health care. The American people deserve every opportunity to
pursue new initiatives that will lower health care costs.
We should empower individuals and employers to create a
health care plan that best fits the needs of their families and
workplaces. Unfortunately, the 2010 health care law stands in
their way.
As members of Congress we have a responsibility to examine
federal policies and hear directly from those who live with the
consequences. I am pleased that we have a number of employers
who will share their thoughts on health care costs, as well as
various experts to help inform the subcommittee of the
technical aspects of the policies we will address today. I look
forward to our discussion.
I will now recognize my distinguished colleague, Rob
Andrews, the senior Democratic member of the subcommittee, for
his opening remarks.
[The statement of Chairman Roe follows:]
Prepared Statement of Hon. David P. Roe, M.D., Chairman,
Subcommittee on Health, Employment, Labor and Pensions
Good morning, everyone. I would like to thank our witnesses for
being with us and offering their thoughts during today's subcommittee
hearing on health care costs.
With 160 million Americans acquiring health insurance through an
employer-sponsored plan, job creators clearly play a critical role in
the nation's health care system. As a result, employers know all too
well the difficult challenge of expanding access to affordable health
care.
To help control the cost of offering insurance, employers have
traditionally maintained a great deal of flexibility over the design of
the health care benefits they provide. This has led to some tough
decisions, especially during times when a business is struggling to
make ends meet. However, preserving an employer's ability to navigate a
complex health care market, even during an uncertain economic
environment, has served us well for decades.
Many employers have found consumer-directed health care as one way
to better manage costs on behalf of workers. One particularly popular
choice is to pair a high deductible health plan with a health savings
account. This allows individuals to guard against the cost of
catastrophic medical treatment while also setting aside a portion of
their pretax income to pay for future medical expenses.
Demand for consumer-directed health plans is on the rise. For
example, America's Health Insurance Plans reports an estimated 13.5
million individuals had a health savings account last January, compared
to just 3.2 million in 2006. The popularity of health reimbursement
accounts and flexible spending accounts among workers is also growing,
and employers have shown their support as well. According to the Kaiser
Family Foundation, nearly 70 percent of employees with a workplace-
sponsored health savings account received employer contributions.
Consumer-directed health plans offer commonsense options to help
millions of individuals secure a benefit plan that meets their health
care needs at an affordable price. Unfortunately, recent policy changes
threaten the success of these important plans.
President Obama's 2010 health care law placed an arbitrary cap on
contributions to flexible spending accounts, severely limiting the
annual amount workers are allowed to save. The law also prohibited the
use of flexible spending accounts and health savings accounts when
purchasing over-the-counter medications, forcing individuals to spend
more time and money visiting their doctor to obtain prescriptions.
Additionally, a bulletin released by the administration suggests
government bureaucrats are crafting an unusual accounting scheme that
will severely undervalue the contribution workers and employers make to
a health savings account, which may actually discourage employers from
offering this benefit in the future.
I am pleased the Ways and Means Committee is considering
legislation today that will help roll back a number of these harmful
policies, reflecting a commitment by this Congress to dismantle the
job-destroying health care law. However, even though more than 12,000
pages of rules and regulations have been written, there are still many
unanswered questions surrounding the law that make it virtually
impossible for any employer--large or small--to plan for the future.
We still don't know how the administration will ultimately define
an ``essential health benefit.'' Up to now, the administration has
operated in the regulatory shadows and outside the formal rulemaking
process, delivering uncertainty instead of the facts on its regulatory
proposal.
We still don't know why the administration chose not to fulfill the
intent of the law's grandfather provision, choosing instead to raise
regulatory roadblocks that will significantly alter the health care of
millions of Americans.
And we don't know what small businesses will do now that a highly
touted tax credit has proven to be a failure. A Government
Accountability Office study reveals the small business tax credit has
helped few employers, thanks in part to its costly administrative
burden. As the Associated Press reports, the tax credit ``has turned
out to be a disappointment.''
Forcing the nation into a costly, government-run health care scheme
is perhaps the greatest obstacle to more affordable care. The American
people deserve every opportunity to pursue new initiatives that will
lower health care costs. We should empower individuals and employers to
create a health care plan that best fits the needs of their families
and workplaces. Unfortunately, the 2010 health care law stands in their
way.
As members of Congress, we have a responsibility to examine federal
policies and hear directly from those who live with the consequences. I
am pleased we have a number of employers who will share their thoughts
on health care costs, as well as various experts to help inform the
subcommittee of the technical aspects of the policies we will address
today.
I look forward to our discussion. I will now recognize my
distinguished colleague Rob Andrews, the senior Democratic member of
the subcommittee, for his opening remarks.
______
Mr. Andrews. Thank you, Mr. Chairman. The term ``senior''
is so grave.
Okay. Thanks for your friendship and thanks for this
opportunity.
William, welcome to Washington. You are shadowing a person
with a lot of integrity and ability and we are very hopeful
that you will be able to achieve great things in your life.
Welcome. We are happy to have you with us.
I would like to also thank the witnesses for being here and
begin with a couple of points in which I would part company
with the chairman's statement, and then talk about some things
we have in common that I hope we can work on today to find some
solutions to our country's problems.
I do agree that the--we are disappointed with the number of
businesses that have taken advantage of the tax credit thus far
to buy health insurance for their employees. I think the record
will show the reason for that is the credit isn't quite
generous enough and it doesn't extend to enough employers. And
frankly, if we could find a way to make it reach more small
businesses in a more dramatic way, it might increase the
uptake, and that is something we should work on together.
With respect to the proposition that we don't want to force
people into a government-run health plan, I agree completely.
And that is why the 2010 law does not do that at all. What it
does is create more choices and more attractive options for
employers and individuals to find the health care that best
suits their families.
There is no government health plan created by the 2010 law.
What there is are marketplaces set up around the country called
exchanges that, if you think about it, they are almost like a
Costco or a Sam's Club, where you can go into a marketplace and
increase and leverage your purchasing power to get more for
your business or your family.
And finally, we heard that it is a job-destroying health
care law. This is part of the narrative of the season. It is
the campaign season.
The fact is, of course, that private sector employers have
added more than 4 million new private sector jobs since the law
went into effect in March of 2010. Now, let's talk about what
we agree on.
We want to do something so that we can control rising
health care costs for employers and families while improving
the quality of health care for employers and families and not
rationing it or limiting it in any way. And I think there are
three strategies that would help us achieve that objective.
One is to encourage more people to take personal
responsibility for their own health care--diet, exercise,
wellness checkups--a sense where we all are the CEO of our own
health care plan, in that respect. To the extent that we can
educate and encourage people to do that, I think there is
essential unanimity on that point.
Second, we need to change the way hospitals and doctors and
medical organizations deliver health care. Right now, if you
run an MRI center and I run an MRI center--I am very glad I
don't run one; I wouldn't be very good at it--if I do more
procedures than you do I make more money than you do,
particularly for Medicare. The more procedures you do the more
money you make.
We really ought to have a payment system that measures the
quality of how well we work. If your MRI system or business has
an outstanding track record of identifying problems early on
and helping someone heal and recover from them, you should be
rewarded for your success rate and encouraged to do that; and
if I am not so good at it, there ought to be some economic
consequences for me. So changing the way hospitals and health
care providers provide health care is another important thing
that we have to do.
And then finally, I think that we can help achieve this
goal of more affordable health insurance for employers, and
families, and individuals by having more competition in the
health insurance marketplace. Virtually every American lives in
a health insurance marketplace where only one or two or
sometimes three health insurance underwriters have 90 or 95
percent of the market. This is not true of our cell phones;
this is not true of the groceries we buy; this is not true of
the coffee that we buy; it is not true of the restaurants we
eat at; it is not true of the hotels that we stay at; it is not
true of the banks that we put our money in.
Competition works in the American economy and there is not
enough competition among health insurance underwriters.
I believe the new law facilitates the progress toward each
of those three points. It can encourage wellness; it can
encourage reform of our delivery system; and it can encourage
fruitful competition among health insurance plans to provide
the best deal for employers and for families.
These are the issues on which we should focus, and I know
we have four witnesses this morning who can help us in a very
significant way.
I thank you for traveling to be here and I look forward to
your testimony.
Chairman Roe. Thank you.
It is now my pleasure to introduce--excuse me. Pursuant to
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 14
days to allow such statements and other extraneous material
referenced during the hearing to be submitted for the official
hearing record.
It is now my pleasure to introduce our distinguished panel.
First is Mr. Ed Fensholt. He is the senior vice president
and director of compliance services at Lockton Companies LLC,
Lockton's Benefit Group, in Kansas City, Missouri, and you
have--your group has testified here before. We welcome you
back.
Roy Ramthun is the president of HSA Consulting Services, in
Washington, District of Columbia.
Welcome.
Jody Hall is the founder and owner of Cupcake Royale, in
Seattle, Washington. I have had the privilege of summiting Mt.
Rainier four times, so I have been out in your great state many
times. That doesn't say much about my intelligence, but anyway
I enjoy it.
Bill Streitberger is the vice president of human resources
at Red Robin International, in Greenwood Village, Colorado.
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
the--you will turn green; when 1 minute is left the light will
turn yellow; and when your time is expired the light will turn
red at which point I will ask you to wrap up your remarks as
best you are able to.
After everyone has testified members will each have 5
minutes to ask questions of the panel.
I will now begin with Mr. Fensholt?
STATEMENT OF ED FENSHOLT, SENIOR VICE PRESIDENT,
LOCKTON COMPANIES, LLC
Mr. Fensholt. Chairman Roe, Ranking Member Andrews, and
members of the committee, my name is Edward Fensholt and I am a
senior vice president of Lockton Companies, LLC, the world's
largest privately-held insurance brokerage and consulting firm.
We provide employee benefits expertise to 2,500 mostly middle
market employers.
We and our clients appreciate the stated goal of the
Affordable Care Act and very much appreciate the efforts made
to date by federal agencies to take employer concerns into
account in crafting regulations and other guidance. Yet there
is no question that the act has, to this date, bent the health
insurance cost curve north, not south, and the forecast in that
regard is growing darker.
The act requires health care plans to cover individuals
they did not cover in the past, eliminate lifetime and annual
dollar maximums, and provide a great many preventive care
services, including, beginning several months from now,
contraception drugs and devices at no out-of-pocket cost to the
enrollee. These mandates have increased our clients' health
plan costs 2 to 3 percent on average to this point. For some
sectors the increase is more.
In 2014 or shortly thereafter plans must reduce waiting
periods to 90 days and automatically enroll eligible full-time
employees in coverage. Reductions in waiting periods will add
up to 25 percent to the cost of plans that now have a 6-or 12-
month waiting period, which is not uncommon in the construction
and trucking industries.
Our actuaries expect the automatic enrollment requirement
to add 4.4 percent to health insurance costs--more than that in
the retail, restaurant, and hospitality sectors.
The act levies billions of dollars in excise taxes against
health insurance, pharmaceutical and medical device
manufacturing industries, and on third party payers of self-
insured medical claims. The taxes on health insurers and TPAs
alone amount to $20 billion in 2014. Insurers we have talked to
and our own actuaries estimate that the price of group health
insurance in 2014 will rise $10 to $15 per employee per month
as a result of these excise taxes.
Of great frustration to our clients are the act's many
additional administrative burdens. Under federal law and
regulations today a simple group health care plan is required
to supply up to more than 50 separate notices, disclosures, and
reports to enrollees or the federal government, many of these
more than once. The Affordable Care Act added more than a dozen
of these.
Here are some of them: Plans are or will be required to
notify enrollees regarding the plan's retention of
grandfathered status, the plan's temporary waiver from the
annual dollar limit prohibitions, and the availability of
health insurance exchanges, just to name a few. Employers must
report the value of medical plan coverage on Forms W-2, not to
reflect a taxable event but simply because Congress wanted to
collect the information.
Plans must supply a four-page, double-sided summary of plan
coverage in a very hardwired format and at specific times not
only to enrollees but to individuals who are merely eligible
for coverage. And plans face fines of up to $1,000 per
violation of this requirement.
The ``play or pay'' mandate imposed on all but the smallest
employers in 2014 and beyond requires significant and frequent
reporting by employers regarding the employer's specific
medical coverage offerings, a roster of eligible and enrolled
employees, and the full-time or part-time status of those
employees, the cost of the employer's coverage offerings, and
the employer's and the employee's respective shares of that
cost, the actuarial value gauged against benchmarks of the
employer's coverage offerings, and the number of months during
the year during which an employee and each of his enrolled
dependents were covered by a plan sponsored by the employer.
In conclusion, our clients are already drowning under the
cost of providing robust health insurance to employees. Rather
than tossing employers a lifeline, the Affordable Care Act is
in many ways an anchor, albeit a well-intentioned one, by
piling on additional costs and burdens.
An Oliver Wyman report out yesterday reveals that two-
thirds of employers surveyed say health insurance cost trend is
unsustainable even if the trend is reduced 5 percent. And here
the ACA is adding cost.
Our clients simply do not understand, Mr. Chairman, why at
a time when they struggle to supply this valuable fringe
benefit, now the most expensive element of compensation next to
wages, Congress would make the process more expensive and more
complicated rather than less so.
Thank you.
[The statement of Mr. Fensholt follows:]
Prepared Statement of Edward Fensholt, J.D., Senior Vice President,
Director, Compliance Services and Health Reform Advisory Practice,
Lockton Benefit Group
Chairman Roe, Ranking Member Andrews and members of the Committee,
my name is Edward Fensholt and I am a Senior Vice President of Lockton
Companies, LLC. Lockton is the largest privately-held insurance
brokerage and consulting firm in the world. Domestically, Lockton
employs 2,300 associates in 24 offices nationwide who serve the
insurance risk needs of approximately 9,000 employer clients from coast
to coast. Lockton Benefit Group (``LBG'') is the employee benefits
consulting arm of Lockton Companies, LLC, and provides employee
benefits consulting services to approximately 2,500 of those clients.
LBG provides consulting expertise related to qualified and
nonqualified retirement plans, group life and disability insurance
programs, voluntary supplemental benefits, dental, vision, and
comprehensive group medical benefit packages. The majority of our 2,500
employee benefits clients employ us to assist in the design and
administration of their group medical insurance programs.
I am the Director of LBG's Compliance Services Division, and also
lead our Health Reform Advisory Practice, a multi-disciplinary team of
professionals formed to steer our clients through the federal health
reform initiative. On behalf of Lockton I thank you for the opportunity
to appear here today to share our observations and our clients' views
regarding the impact of aspects of last year's health reform law on the
group health plans sponsored by our clients.
Most LBG clients are ``middle market'' employers, employing between
500 and 2,000 employees. Our clients include private and governmental
employers, and employers across many industry segments, including
construction, healthcare, manufacturing, transportation, retail,
professional services firms, and the hospitality/entertainment
industry.
More than half of LBG's clients maintain self-insured group health
plans. The others purchase group health insurance from licensed
insurance companies.
The PPACA Imposes Additional Costs on Employment-Based Health Insurance
The Patient Protection and Affordable Care Act of 2010 (``PPACA'')
is a sweeping piece of legislation affecting the health insurance
marketplace, the Medicaid program, the Medicare program, and health
care providers from doctors to nurses to hospitals and community health
clinics. It affects health insurers, group insurance plans (both
insured and self-insured), the employers who offer them, and the
employees and their dependents enrolled in those plans. My comments
today are confined to the cost impacts on the latter, that is, the
impact of the PPACA on employers who sponsor group health insurance
plans, and the employees and dependents who receive coverage through
those plans.
Let me say at the outset that neither Lockton nor the vast majority
of its clients have any quarrel with the stated goal of the PPACA, that
is, to provide health insurance protection to millions more Americans
who want or need it, but cannot afford it. We and the law's proponents
may disagree on how that should be provided, who should bear the
administrative burden, who should pay for the new entitlements and how
to allocate the nation's financial resources to provide them. But we
appreciate the stated goal behind the measure.
As a firm heavily engaged in analyzing the statutory and regulatory
construct of the PPACA, and advising and shepherding our clients
through that construct, we have respect for and appreciate the efforts
of the federal administrative agencies working hard to implement the
law as Congress has mandated they must. In listening to and speaking
with officials from the Labor Department, the IRS and the Department of
Health and Human Services, and analyzing the guidance they have issued
thus far, it's clear that federal regulators are making a strong effort
to listen to the employer community, to understand the concerns of
employers, and to endeavor to balance the needs of employers with the
needs of those individuals the PPACA was intended to benefit.
That said, there's no question the PPACA has, to this date, bent
the health insurance cost curve north, not south. As additional taxes,
fees and mandates on employer-based health coverage come on line, we
fear the health insurance affordability forecast will continue to
deteriorate. Let me mention a few examples for the Committee.
2011 Coverage Mandates
Health plans are already complying with the obligations to cover
adult children to age 26 (even if married and non-dependent upon the
employee), to waiver pre-existing condition restrictions on newly
enrolled children, and to eliminate lifetime and annual dollar maximums
on what the PPACA terms ``essential health benefits.'' Most plans in
our book of business have lost grandfathered status under the PPACA,
subjecting them to additional mandates such as the obligation to cover
a wide-variety of preventive care services--including, beginning
several months from now, well women care, including contraception drugs
and devices--at no out-of-pocket cost to the enrollee.
The increase in health insurance costs to employers in our book of
business, to implement these mandates, has been 2-3 percent. For some
sectors the increase is more, for some it is less.
There is also a new nondiscrimination rule that applies to fully
insured medical coverage. Lockton has clients--such as regional and
national restaurant chains, retail establishments and other employers
in the hospitality industry--who currently supply typical medical
coverage to corporate staff and select others (such as restaurant,
store or hotel managers) but cannot afford to offer the same level of
coverage, at the same rate of employer subsidies, to hourly employees.
Maintaining the status quo, however, might subject these employers to
excise taxes of $100 per day per hourly employee who does not receive
an equivalent offer of coverage.
It is possible, depending on how federal regulators flesh out the
requirements of the nondiscrimination rule, that these employers will
simply have to terminate their existing group coverage. However, the
nondiscrimination rule has yet to be interpreted by the regulatory
agencies, and therefore our actuaries have not yet estimated the cost
impact of this mandate.
2014 Coverage Mandates
Additional coverage mandates apply beginning in 2014. For example,
health plans must reduce waiting periods to 90 days, and auto-enroll
eligible full-time employees in available employer-based coverage.\1\
Depending on the employer's industry segment, these additional expenses
can be substantial. For example, our clients in the construction and
transportation industries--where we find 6-month or even 12-month
waiting periods--can expect to see significant cost increases. Our
actuaries tell us these clients with 6-month waiting periods currently
should see a cost increase of an additional 4% in 2014; those with a
12-month waiting period should see a cost increase of nearly 25%.
---------------------------------------------------------------------------
\1\ Federal regulators recently deferred the compliance deadline
for the automatic enrollment rules, concluding guidance regarding how
to implement the requirement will not be ready by 2014.
---------------------------------------------------------------------------
Our actuaries tell us that, across all industry segments other than
retail and hospitality, our clients can expect to experience a 4.4%
cost increase attributable to the automatic enrollment requirement.\2\
---------------------------------------------------------------------------
\2\ In modeling the effect of the automatic enrollment provision,
our actuaries assumed that 75% of employees who are newly eligible for
coverage but have not affirmatively enrolled, and who are automatically
enrolled by the employer, will opt out of coverage.
---------------------------------------------------------------------------
Taxes and Fees
To at least partially offset the cost of the health reform law,
Congress (in the PPACA) levied excise taxes against the health
insurance, pharmaceutical and medical device manufacturing industries,
and on third-party administrators (TPAs) of medical claims. Of course,
health insurers and TPAs will simply pass along these additional costs
in the price of their products.
The taxes on health insurers and TPAs amount to $20 billion in
2014. Insurers we've talked to, and our own actuaries, estimate that
the price of group health insurance in 2014 will rise $10-15 per
employee, per month (or about 2-3 percent) on account of these excise
taxes alone.
Health plans are also subject to a $1 per covered life fee in 2012,
increasing to $2 per covered life next year and beyond (subject to
inflation-based adjustments), to pay for ``comparative effectiveness
research,'' or research into medical ``best practices.''
Administrative Burdens
Of great frustration to our clients are the many additional
administrative burdens, and their attendant costs, imposed by the
health reform law. The majority of our clients want to continue to
supply health insurance, but they struggle with the cost and the
federally-imposed complexity of plan administration.
For example, under federal law and regulations today, a simple
group health plan is required to supply up to more than 50 separate
notices, disclosures and reports to its enrollees and the government
(many of those more than once). Virtually every aspect of plan
administration, from enrollment to benefit summaries to specific
eligibility and benefit requirements, to claim processing times and the
timing, form and cost of post-employment coverage, are now under
(primarily federal) statutory or regulatory dictates.
The PPACA has added more than a dozen additional notice and
disclosure obligations to health plan administration. This frustrates
our clients immensely. They do not understand why, at a time when they
struggle to supply this valuable fringe benefit--which is now the most
expensive element of employee compensation, behind wages--Congress
would make the process more expensive and more complicated, rather than
less so.
A full 80 percent of our clients said, in responding to a survey we
conducted last year, that they were ``concerned'' or ``very concerned''
about the additional administrative complexity created by the PPACA.
They tell us the additional costs, complexity and uncertainty wrought
by the PPACA affect their ability to hire additional workers, or to
retain full-time employees.
Here are just some of the additional administrative obligations
imposed upon health plan sponsors by the PPACA:
Plans are (or will be) required to notify enrollees
regarding the plan's retention of grandfathered status under the PPACA,
the plan's obtaining a waiver from the annual dollar limit
prohibitions, the right of enrollees to designate certain physicians as
a child's primary care physician, the availability of health insurance
exchanges, the plan's participation in the Early Retiree Reinsurance
Program, and the retroactive loss of coverage due to misrepresentation
or fraud.
Employers must report the value (employer- and employee-
paid) of medical plan coverage on Forms W-2, not to reflect a taxable
event, but simply because Congress wanted to collect the information.
Because many employees change their level of health coverage during the
taxable year (due to marriage, domestic partnership, divorce, birth or
emancipation of a covered child, etc.), employers must track the
changes in values of the coverage, to ensure accurate reporting.
Although the Employee Retirement Income Security Act
(ERISA) already required most employers to supply health plan enrollees
with a ``summary plan description'' summarizing their health coverage,
the PPACA imposes an additional requirement to supply a four-page
(double-sided) summary of plan coverage, in hard-wired format and at
specific times, to not only enrollees but also to individuals merely
eligible for coverage. Health plans face fines of up to $1,000 per
violation of this requirement.
The ``shared responsibility'' obligations imposed on all
but the smallest employers in 2014 and beyond will significantly
ratchet up the administrative obligations on employers subject to those
obligations. o Many employers will face substantial complexity in
determining when their employees are considered ``full-time'' for PPACA
purposes, triggering an obligation on the employer to offer them at
least ``minimum essential coverage'' or risk various penalties. The
challenge will be particularly acute for seasonal employers. While the
administrative agencies--the IRS in particular--have done an admirable
job working to strike a balance between pragmatism and the PPACA's
literal requirements, we expect the process to remain significantly
burdensome.
In order for federal authorities to coordinate employers' ``shared
responsibility'' obligations with the availability (to the uninsured)
of taxpayer subsidies in the new health insurance exchange, federal and
state authorities will need employers to submit detailed reports on a
regular basis, reports reflecting:
The employer's specific medical coverage offerings,
A roster of eligible and enrolled employees, and the full-
time or part-time status of the employees,
The cost of the employer's coverage offerings, and the
employer's and employees' respective shares of that cost,
The actuarial value, gauged against designated benchmarks,
of the employer's coverage offerings, and
The number of months (during the year) for which an
employee, and each of his enrolled dependents, were covered by a plan
sponsored by the employer.
Last week came word from Washington that the IRS is re-evaluating
how to assess the ``affordability'' of an employer's coverage offering
to a full-time employee. Under the PPACA, if the employer's offer of
coverage requires the employee to pay more than 9.5 percent of his or
her household income for coverage, the coverage is considered
``unaffordable'' and the employee may qualify for taxpayer-supplied
subsidies to buy insurance in a health insurance exchange. If that
occurs, the employer will incur a $3,000 annual nondeductible penalty
with respect to that employee.
The legislative history to the PPACA is scant, but what history
exists is clear that the ``affordability'' test was to be applied to
employee-only coverage, not family coverage. The IRS has initially said
this is how it interpreted the statute.\3\
---------------------------------------------------------------------------
\3\ The IRS has also indicated a willingness to allow employers to
utilize W-2 wages as a surrogate for ``household income'' in the
affordability calculation.
---------------------------------------------------------------------------
Now comes word that the IRS might, in fact, require that family
coverage meet this affordability test. If federal authorities are going
to require employers to heavily subsidize a full-time employee's family
coverage, so that family coverage does not cost the employee more than
9.5 percent of his or her household income, the number of employers
exiting the group insurance market, and dumping their employees into
the health insurance exchanges, will be far greater than the
Congressional Budget Office has estimated to date. That has profound
implications for the dollars budgeted to supply taxpayer-funded
subsidies in the exchanges.
The flight from the group insurance marketplace will most acute in
industries where the employees tend to be modestly paid, hourly
workers. Employers will opt to pay the relatively modest $2,000 per
full-time employee penalty for offering no insurance, rather than pay
larger subsidies for health insurance for the employees and their
dependents. Congress can also expect to see many employer sectors
transition full-time employees to part-time status, to take the
employees out of the penalty equation.
What Employers Appreciate About the PPACA
This is not to say that employers are concerned about every aspect
of the insurance reforms reflected in the PPACA. Some employers who buy
group insurance (as opposed to self-insuring medical coverage) will
receive refunds this August from insurers who failed to reach specific
medical loss ratios in the given state.
And the PPACA supplies greater leverage to employers to encourage
employees to make lifestyle changes to improve their health. The law
allows employers to require unhealthy employees to pay an additional
amount--up to 30 percent of the total cost the employee's coverage, up
from 20 percent under pre-PPACA rules--for their health insurance, to
account for the additional risks they pose to the health plan.
Conclusion
Lockton greatly appreciates the opportunity to appear before you
today. In assessing the impact of the health reform legislation, we
urge you to place yourselves not only in the shoes of those Americans
who need access to affordable insurance, but in the shoes of the
employers who supply valued coverage to 160 million of us.
Employers are burdened and frustrated by aspects of the health
reform law that add costs and complexity to their health plans, and may
lead some of them to eliminate group coverage and full-time jobs.
We welcome the opportunity to work with you to mitigate these
burdens on the employer community.
______
Chairman Roe. Thank you.
Mr. Ramthun?
STATEMENT OF ROY RAMTHUN, PRESIDENT,
HSA CONSULTING SERVICES
Mr. Ramthun. Chairman Roe, Ranking Member Andrews, and
other members of the committee, I would like to thank you for
this opportunity to testify before your subcommittee today. My
name is Roy Ramthun and I am a private consultant here in the
Washington, D.C. area.
I would like to take this opportunity to discuss one of the
bright spots in health coverage benefits, that known as
account-based health plans--health insurance plans paired with
an HSA or HRA. These are the fastest-growing product in the
market for employer-based group health plans.
It is my opinion that account-based health plans have
helped to arrest the decline in employer-based health coverage.
That said, I am uncertain that even account-based health plans
can overcome the new employer responsibilities and costs of
complying with the Patience Protection and Affordable Care Act.
I will touch on some of these issues during my testimony today.
Account-based health plans now account for about 15 percent
of all employer-sponsored health coverage. The consulting firm
Towers Watson states that nearly 60 percent of employers have
implemented account-based health plans and that number will
increase to 70 percent by 2013. Twelve percent of employers now
offer total replacement plans, where account-based health plans
are the only option offered to employees.
What is fueling this growth? Certainly one of the reasons
is the dramatic increase in health insurance costs over the
past decade. Milliman Incorporated recently reported that
health care costs for the typical family of four are projected
to reach over $20,000 through an employer-sponsored PPO plan
this year.
In contrast, companies with at least half of their workers
enrolled in an account-based health plan report that their per-
employee costs are over $1,000 lower than companies without an
account-based health plan. This is hard evidence for bending
the cost curve that is so elusive for the rest of our nation's
health care system.
Several insurance carriers have similarly reported dramatic
savings for employers that switch to account-based health
plans. This potential for reducing health care spending was
recently confirmed by researchers at the RAND Corporation.
Their analysis suggests that the health care spending in
the U.S. could drop by $57 billion per year if account-based
health plans grow to represent half of all employer-sponsored
in the U.S. They estimate that the annual savings would be as
high as $73.6 billion if all these individuals were enrolled in
HSA plans.
But account-based health plans are not just about saving
money. It is also about how the money is saved--by changing how
employees think about their health and taking action to
improvement. In my written testimony I address some of the
common misperceptions about account-based health plans,
including that account-based health plans don't cover
preventive services and generally offer skimpier coverage, that
individuals will forego needed care just to save money, that
individuals will go bankrupt due to high out-of-pocket costs,
and that patients will be overcharged and unable to navigate
the complex world of health care.
Why isn't every company offering account-based health
plans? Well, they may have to if the so-called ``Cadillac
plan'' tax goes into effect in 2018.
I believe that companies have few other options as
effective as account-based health plans to keep their costs
below the thresholds where the excise tax will affect them.
However, other issues are or will create challenges much sooner
than 2018.
For example, employees with HSAs, HRAs, and even FSAs must
now obtain a prescription from their doctor to seek
reimbursement for over-the-counter medicines. In 2014 the
health reform law will require employer-based health plans to
limit their plan deductibles to no more than $2,000 for single
persons and $4,000 for family persons. Many employers are
already offering account-based health plans with deductibles
above these limits.
Also in 2014, the law will require employer-based health
plans to provide a minimum actuarial value of at least 60
percent. While this sounds reasonable, recent guidance issued
by the Internal Revenue Service and HHS proposed to devalue the
typical employer contributions to HSAs and HRAs when
determining whether a plan provides the minimum actuarial
value. Thus, some account-based health plans might not meet the
minimum 60 percent standard.
In my written testimony I cite statements from the American
Academy of Actuaries and the Congressional Budget Office
suggesting that this policy should be changed. I agree
completely and I believe that employer and employee
contributions to HSAs should be valued at the full amount of
the contributions, not adjusted.
Another issue of concern is the new minimum medical loss
ratio requirements. Unfortunately, the regulations do not
adequately take into account HSA or HRA contributions, thus
making it extremely challenging for account-based health plans
to meet the MLR requirements, limiting the availability of
these plans to small-and medium-sized employers in the future.
In closing, strategies like account-based health plans that
reduce employer health benefit costs free up money that
companies can use to stimulate the economy by raising wages,
creating jobs, or making critical investments for the future.
We also need to ensure that workers will be permitted to keep
the coverage they have, as was promised throughout the health
reform debate.
Mr. Chairman and members of the subcommittee, I appreciate
the opportunity to provide this testimony today. I look forward
to the opportunity to discuss these issues in greater detail
and am pleased to answer any questions you may have.
Thank you.
[The statement of Mr. Ramthun follows:]
Prepared Statement of Roy J. Ramthun, President,
HSA Consulting Services, LLC
Chairman Roe, Ranking Member Andrews and the other members of this
Committee, I would like to thank you for this opportunity to testify
before the Subcommittee on Health, Employment, Labor and Pensions about
the barriers to lower health care costs for workers and employers. My
name is Roy Ramthun, and I am a private consultant in nearby Silver
Spring, MD. My consulting practice focuses primarily on helping
employers, financial institutions, and consumers to better understand
and take advantage of the benefits offered by consumer-driven health
care programs such as Health Savings Accounts (HSAs), Health
Reimbursement Arrangements (HRAs), and their associated health
insurance plans.
I have had the distinct honor to serve our country in positions at
the Department of Health and Human Services (HHS), the Treasury
Department, the White House, and the U.S. Senate Committee on Finance.
While at the Treasury Department, I led the implementation of the
Health Savings Account program after its enactment in 2003. I started
my own consulting practice after leaving the White House in 2006 to
devote my full time and attention to this program and related issues.
Account-based health plans--health insurance plans paired with HSAs
and HRAs--are the fastest growing product in the market for employer-
based group health plans. There is no disputing the fact that the
number of employers offering group health plan coverage to their
employees has declined as the cost of providing coverage has increased.
It is my opinion that account-based health plans have helped arrest
this decline. That said, as employers wrestle with the decisions
whether or not to continue sponsoring health insurance benefits, I am
uncertain that even account-based health plans can overcome the new
employer responsibilities and costs of complying with the Patient
Protection and Affordable Care Act. I will touch on some of those
issues during my testimony today.
Account-based health plans are approximately 10 years old, but have
grown substantially over the past decade. Estimates vary, but account-
based health plans now account for about 15 percent of all employer-
sponsored health coverage. The Employee Benefit Research Institute
(EBRI) says approximately 21 million Americans were covered by an
account-based health plan in 2011, up 40 percent from 2010. The number
is certainly higher for this year as the number of Americans covered by
HSA-based plans is approximately 13.5 million, as reported just this
week by America's Health Insurance Plans (AHIP). There is no reliable
survey of HRA-based plans, but my best guess is that another 11-12
million Americans are covered by these plans.
The consulting firm Towers Watson states that nearly 60 percent of
employers have implemented account-based health plans, and that number
will increase to 70 percent by 2013. Twelve percent of employers now
offer ``total replacement'' plans--where account-based health plans are
the only option offered to employees--up from 7.6 percent in 2010.
Enrollment by employees in account-based plans has nearly doubled in
the past two years, from 15 percent in 2010 to 27 percent in 2012.
What is fueling this growth? Certainly one of the reasons is the
dramatic increase in health insurance costs over the past decade.
According to the 2011 Kaiser Family Foundation/Health Research &
Educational Trust annual survey of employer benefits, the cost of
family coverage more than doubled over the previous 10 years (see
exhibit below). Other surveys suggest that costs may be even higher.
For example, Milliman Inc. recently reported that health care costs for
the typical family of four are projected to reach $20,728 through an
employer-sponsored preferred provider organization (PPO) plan this
year. The 6.9 percent increase over 2011 is actually the lowest rate of
increase Milliman has seen in the 10 years of this study.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Contrast that to the experience of employers who have account-based
health plans. According to Towers Watson and the National Business
Group on Health, companies that successfully move their employees into
account-based health plans can achieve significant savings on their
health benefit costs. For example, companies with at least half of
their workers enrolled in an account-based health plan report that
their per-employee costs are over $1,000 lower than companies without
an account-based health plan. This is hard evidence for ``bending the
cost curve'' that is so elusive for the rest of our nation's health
care system.
Similarly, Aetna reported late last year that employers who
switched to account-based health plans as their only plan option had
saved $21.8 million per 10,000 members over the past five years. Aetna
found that employers who offered an account-based health plan along
with other traditional plan options (e.g., PPO, HMO) also had realized
savings, but not as significant--only $8 million per 10,000 members
over five years.
Finally, Cigna published a study earlier this year concluding that
employers can save an average of $9,700 per employee over five years by
switching to account-based health plans. Given these results, Cigna
believes that if the share of Americans enrolled in account-based
health plans rose to 50 percent and achieved the same results as this
study, the U.S. could save $350 billion over 10 years and the level of
patient care would improve.
This potential for reducing health care spending was recently
confirmed when researchers at the RAND Corporation published in the
journal Health Affairs the results of their analysis of the potential
impact of account-based health plans on the American health care
system. The RAND analysis suggests that if account-based health plans
grow to represent half of all employer-sponsored insurance in the
United States, health care spending could drop by $57 billion
annually--about 4 percent of all health care spending among non-elderly
Americans. The study acknowledges that HSAs are far more cost-
effective, and estimates that if all of these people were in HSA plans,
the annual savings would be as high as $73.6 billion. I believe that is
a conservative estimate.
But account-based health plans are not just about saving money.
It's also about how the money is saved--by changing how employees think
about their health and taking action to improve it. I would like to
take a few moments to clear up some common misperceptions about
account-based health plans.
First, research is increasingly suggesting that lifestyle behaviors
account for approximately three-quarters of health care spending in the
U.S. This is likely to only get worse as diet, obesity, lack of
exercise, and smoking take its toll on our bodies and our health care
system. Fortunately, account-based health plans cover preventive care
services and usually do so without applying a deductible or other out-
of-pocket expense. In fact, preventive care was included in the
original design of HSAs, long before the PPACA made it a requirement of
all health plans. Data from Aetna, Cigna, EBRI, and others suggests
that utilization of preventive care services is higher when individuals
are enrolled in account-based health plans. Additional data suggests
higher compliance with disease management and treatment regimens for
individuals with chronic conditions. While there is always a risk that
people will seek less care when spending their own money (several
studies have raised this concern), I am not aware of any evidence to
suggest that the health status of individuals enrolled in account-based
health plans has declined, and in most cases it appears to be
improving. Obviously, this is an issue to monitor for the future.
Second, individuals enrolled in account-based health plans are more
engaged in their health care. The most recent survey by EBRI suggests
that enrollees in account-based health plans are more likely to: (1)
check whether their plan would cover their care; (2) talk to their
doctor about treatment options and costs; (3) talk to their doctor
about prescription drug options and costs; (4) ask for a generic drug;
(5) check the price of service before seeking care; (6) use an online
cost-tracking tool; and (7) develop a budget to manage health care
expenses. Similar findings have been reported by insurance carriers.
Third, HSA-qualified account-based health plans provide true
catastrophic protection by virtue of their annual limits on out-of-
pocket expenses. Under the PPACA, these limits will be applied to all
plans starting in 2014, but account-based health plans already provide
this protection and have been doing so since 2004. These limits apply
both to medical and pharmacy expenses and therefore provide an
extremely important benefit to people with chronic conditions and/or
high annual health care expenses. Most people don't understand that
their traditional pharmacy coverage likely does not have any limit on
out-of-pocket prescription expenses.
Fourth, covered benefits and services are generally identical to
traditional plans, not ``skimpier'' as some critics believe. What is
different is the amount of covered benefits paid by the account-based
health plan. So while the exact same benefits may be covered by each
plan, the account-based health plan may only cover 60 or 70 percent of
the cost of covered benefits, whereas a traditional HMO or PPO plan may
cover 80 or 90 percent of the cost of covered benefits, on average.
However, the difference in out-of-pocket costs for covered benefits is
typically offset almost dollar-for-dollar by a difference in premiums.
For example, a plan with a higher deductible (by $2,000) will typically
have a premium that is $2,000 lower. Many people understand this
concept when applied to their auto and homeowners insurance policies,
but the concept is relatively new to many people for their health
insurance.
Fifth, even though individuals enrolled in account-based health
plans typically have higher out-of-pocket expenses, they still receive
the benefit of the discounted prices for medical services negotiated by
their insurance plan. For example, a patient may have an office visit
with his or her personal physician. While the physician may charge $150
for each office visit, he usually accepts a discounted fee of $70 to
$100 depending on the insurance plan. In these cases, the patient would
pay only $70 to $100, not the full $150 charged by the physician.
Sixth, there is a growing industry of companies providing
complementary information and services to help people manage their
medical care and health care finances. Companies like Compass, Medibid,
BidRx, Direct Labs, Healthcare Blue Book, change:healthcare, IF
Technologies, INSNET, and others are responding to the needs of
patients by providing better information about the price and quality of
health care services. Another industry is responding to the demand for
``wellness'' services to help people maintain and improve their health
to avoid disease and chronic conditions. These companies would likely
not exist without the growing consumer demand for better value for
their health care dollar.
Finally, even though individuals enrolled in account-based health
plans are typically subject to higher up-front deductibles, most
employers are providing a contribution of funds to the associated HSA
or HRA which helps lessen the sting of the deductible. Data from the
most recent Kaiser Family Foundation/HRET survey indicates that workers
enrolled in HRA plans receive an annual employer contribution to their
HRA of $861 for single coverage and $1,539 for family coverage, on
average. Workers enrolled in HSA plans receive an annual employer
contribution to their HSA of $886 for single coverage and $1,559 for
family coverage. With HSAs, unspent funds automatically roll over each
year. However, approximately 30 percent of workers enrolled in HSA
plans receive no contributions from their employer. Although I believe
these individuals primarily work for smaller companies, we all should
be mindful of government policies that may discourage employer
contributions in the future, such as changes to tax policy and how
health plan actuarial values are calculated.
Why isn't every company offering account-based health plans? They
may have to if the so-called ``Cadillac plan'' tax in PPACA goes into
effect in 2018. I believe that companies have few other options as
effective as account-based health plans to keep their costs below the
thresholds where the excise tax will affect them ($10,200 for single
coverage; $27,500 for family coverage). The recent surveys suggest that
private employers are taking action and moving to account-based health
plans, but public and non-profit employers appear to be lagging.
The one exception is the State of Indiana. Indiana has been
offering account-based health plans to state employees since 2006. In
2012, its seventh year for account-based plans, 90 percent of Indiana
state workers with its health insurance coverage participate in an
account-based health plan. The state says these plans have already
reduced the state's overall health benefit costs by more than 10
percent, and only 2 percent have switched back to a traditional plan.
In the 22 other states where enrollment in account-based health
plans is voluntary, only 2 percent of government employees have signed
up. Last year, Arizona, Louisiana, Minnesota, Utah and West Virginia
joined 18 other states that already offer an account-based health plan.
If Indiana's program continues to hold down costs while satisfying
state employees, more states can be expected to try account-based
health plans.
Barriers to Future Growth
For larger employers, cost pressures will continue under the PPACA
as the ``Cadillac plan'' tax looms in 2018. However, other issues are
or will create challenges much sooner than 2018. For example, employees
with HSAs, HRAs, and even Flexible Spending Accounts (FSAs) must obtain
a prescription from their doctor to seek reimbursement for over-the-
counter medicines. The irony is that these medications have been
approved by the U.S. Food and Drug Administration (FDA) as safe and
effective for purchase without a prescription. But a provision in the
PPACA requires individuals to obtain a prescription for these products
or they will have to pay income tax plus a 20 percent penalty if they
use their HSA, HRA, or FSA funds to pay for these medicines. This
provision has been in effect since January 1, 2011.
In 2014, the PPACA will require employer-based health plans to
limit their plan deductibles to no more than $2,000 for single persons
and $4,000 for family policies. Many employers are already offering
account-based health plans with deductibles above these limits,
especially employers that have been offering account-based health plans
for several years. If companies are required to lower their
deductibles, they will likely see their costs go up and will have to
raise their premiums offset the lower out-of-pocket costs. This would
send account-based health plans in the wrong direction!
Also in 2014, the PPACA will require employer-based health plans to
provide a minimum actuarial value of at least 60 percent. This means
the plan must be designed to pay at least 60 percent of the cost of the
benefits covered by the plan, and the employee/patient must pay the
remaining 40 percent. While this sounds reasonable, recent guidance
issued by the Internal Revenue Service (IRS) and HHS reflects a bias
against account-based plans in favor of traditional first-dollar
coverage plans. The guidance proposes to devalue the typical employer
contributions to HSAs and HRAs when determining whether a plan provides
the minimum actuarial value. Thus, even if an employer is providing the
same amount of total contributions, the plan might not meet the minimum
60 percent standard.
Here is an example of how this could happen. Consider an employer
that is providing coverage through a traditional PPO group health plan
at a cost of $5,000 per employee. The company then chooses to switch to
an account-based health plan and lowers its per-employee premium costs
to $4,000 but contributes the $1,000 savings to each employee's health
savings account. From the employer's perspective, his total costs
remain $5,000 per employee. But under the IRS/HHS guidance, the
employer's $1,000 contributions to employees' HSAs will not receive
full credit (e.g. might be cut in half or more) towards the plan's
actuarial value, putting the employer at risk of not meeting the
minimum actuarial value of 60 percent. This again sends the wrong
message to employers about account-based health plans.
In its comment letter to HHS dated May 16, 2012, the American
Academy of Actuaries said the following:
``This adjustment * * * could have the effect of discouraging
employers from contributing to HSAs/HRAs. For a given amount of
employer spending toward health insurance, a higher [actuarial value]
likely would be achieved by devoting more of those dollars directly
toward a health insurance program than to an HSA/HRA. To the extent
that HSAs encourage plan enrollees to seek cost-effective care,
discouraging this option may run counter to goals of achieving more
effective use of health care dollars.''
Likewise, in its 2008 report analyzing major health insurance
proposals, the Congressional Budget Office (CBO) said that:
``* * * the actuarial value of consumer-directed plans would
include the expected value of any contributions that an insurer or
employer sponsoring the plan would make to an enrollee's account--so
that contribution could be set to make the overall actuarial value of
the consumer-directed plan equal to the value of a conventional health
plan.''
I agree completely with the Academy and CBO. I believe that
employer contributions to HSAs should be valued at the full amount of
the contribution, not ``adjusted.'' In addition, employee contributions
made through payroll deduction should be counted as well and in full
(not ``adjusted''). Currently, the guidance does not provide any credit
for employee contributions.
Another issue that will impact the availability of account-based
health plans to some companies is the new minimum medical loss ratio
(MLR) requirements under the PPACA. This issue impacts plans sold by
insurance carriers to small and medium-size companies. Unfortunately,
the MLR regulations do not take into account HSA or HRA contributions,
thus making it extremely challenging for account-based health plans to
meet requirements they were not designed to meet. I have been seeking
changes to the regulations to reflect the unique circumstances of
account-based health plans, but no changes have been made so far.
In closing, we should all keep in mind that premiums paid by
employers for workers' health benefits are another form of compensation
in lieu of wages earned by employees. Strategies like account-based
health plans that reduce employer health benefit costs free up money
that companies can use to stimulate the economy by raising wages,
creating jobs, or making critical investments for the future. We also
need to ensure that workers will be permitted to keep the coverage they
have, as was promised throughout the health reform debate.
Mr. Chairman and members of the Subcommittee, I appreciate the
opportunity to provide this testimony today. I look forward to the
opportunity to discuss these issues in greater detail with you. I would
be pleased to answer any questions you have.
Thank you.
______
Chairman Roe. Thank you.
Ms. Hall?
STATEMENT OF JODY HALL, FOUNDER AND OWNER,
CUPCAKE ROYALE
Ms. Hall. Thank you.
Chairman Roe, Ranking Member Andrews, and members of the
subcommittee, I am honored to be here today to testify. My name
is Jody Hall and I own a business called Cupcake Royale, in
Seattle, Washington. It is a cafe and bakery.
I am also a leader in a group called the Main Street
Alliance of Washington that represents over 2,000 small
business owners because we--our voices weren't heard in groups
like NFIB. And that was pulled together about 3 or 4 years ago.
And I founded my business in 2003. When we opened our first
shop we took a big risk. We were the first cupcake bakery
outside of Manhattan to open.
The risk paid off. Our made-from-scratch cupcakes were an
instant hit and we since have expanded to five locations. I am
actually here--we started building our sixth location
yesterday--and am taking time out because I believe in this
issue. We employ currently 72 employees, 45 FTE equivalents,
and soon we will cross that 50-FTE threshold.
This year I was honored as Business of the Year by the
Greater Seattle Business Association and just wanted to talk a
little bit about this. I build my business on the notion that a
good business supports a strong local economy and gives back to
the community.
The community includes our employees. If I treat my
employers well they will treat our customers well and our
business will do well as a result.
This includes health care coverage. Since 2004 we have
offered health care coverage to our employees who work 28 hours
a week or more and we pay 75 percent of the cost. It is an
important part of our business values but it is also a huge
challenge.
Between 2004 and 2010 we were faced with rate increases
that exceeded 20 percent--30 percent and up to 40 percent in
2009. In 2011 our health care costs more than $67,000.
Before I started my business I worked in corporate America
for a little coffee company called Starbucks and one of the
biggest surprises I faced when I left my Starbucks corporate
job was how little benefit I got as a small business owner.
Basically I paid twice the amount for half the coverage as a
small business owner, and that was a big shock. And even now
businesses our size have very little bargaining power.
The ACA's state insurance exchanges are finally going to
change that. A state exchange will give me the opportunity to
band together with thousands of other small business owners
across Washington State to get access to better health care at
better rates.
Joining a group with hundreds of thousands of participants
will be a big leap in risk pooling, economies of scale, and
negotiation clout. We finally would be able to tap into the
kind of insurance that Starbucks and Microsoft have had all
along. And by adding competition of an exchange this will
create efficiency and cost savings in the private sector and
hopefully bring costs down, I would imagine, if we are a good
competitor.
On top of the state exchanges, other parts of the ACA are
already helping small businesses. The 80/20 value for premiums
rule is one example. Under this rule rebates for this year
alone are estimated at $1.3 billion and checks are due out in
the mail, which will add a nice shot in the arm for the
economy.
There also health care law--there are also the health care
law's rate review provisions, which are helping bring much-
needed transparency to the proposed rate hikes. These
provisions are making a difference. My rate increase this year
was a lot lower, and I have heard this from other small
business owners.
I would like to make a point about employer responsibility.
The part of this law is sometimes claimed to be a barrier to
job creation, and I don't see it this way at all. As a business
owner who offers health care coverage, the real barrier for me
is when other businesses my size--or dare I say bigger--don't
offer health care I am forced to subsidize their costs.
This health care cost shifting actually costs my business
hundreds of dollars per employee per year, and this is not fair
competition. The only way to fix this free-rider problem is
through a system that combines personal responsibility and
shared responsibility, a system where all businesses above a
certain threshold pitch in and nobody takes a free ride.
On the note of the business tax credit, I think that there
is an opportunity to make this work for more businesses. For
example, my business is a restaurant. We are open 7 days a
week; we staff 16 hours a day. It is hard for restaurants to
have less than 25 FTEs. So I think by expanding that to 50 or
75 that would be an opportunity to create a tax credit for a
lot more businesses.
So in conclusion, the Affordable Care Act is taking
critical steps to lower health costs and bring affordable and
quality coverage within reach for small businesses. And this
will allow--this kind of work is allowing small businesses like
me to focus on not how I am going to pay for my health care but
how I am going to grow my business, hire people, and strengthen
our local economies.
Thanks for your time.
[The statement of Ms. Hall follows:]
Prepared Statement of Jody Hall, Owner,
Cupcake Royale & Verite Coffee
Chairman Roe, Ranking Member Andrews, and members of the HELP
Subcommittee, thank you for the invitation to testify before your
subcommittee on the topic of barriers to lower health care costs for
business owners and workers. I appreciate the opportunity to share my
experiences and perspective on these issues as a small business owner.
My name is Jody Hall. I own Cupcake Royale, a cupcake bakery and
cafe business in Seattle, Washington. I'm also a leader in the Main
Street Alliance of Washington, a statewide network of local,
independent small businesses in Washington State that gives small
business owners like me a voice on the most pressing public policy
issues facing our businesses.
I founded my business in 2003. When we opened our first shop in
Seattle's Madrona neighborhood with 10 employees, we were taking a
risk. It was the country's first cupcake bakery to open outside of New
York City. The risk paid off. Our made-from-scratch-daily cupcakes were
an instant hit. Over the years, we've expanded to five locations in
Seattle and neighboring Bellevue.
Cupcake Royale is recognized as a local institution. We're proud to
employ 72 people (adding up full-time and part-time workers, we have 45
full-time equivalents). This year, I was honored as the Small Business
Person of the Year by the Greater Seattle Business Association. I'll be
rushing to get home to Seattle tonight to take care of the final
details for opening a new store in July near Pike Place Market in
downtown Seattle. That will be our sixth location, and I expect we'll
be hiring another 15 employees for the new store as we continue to
grow.
From day one, I built my business model on the notion that a good
business supports a strong local economy and gives back to the
community that supports it. We partner with Washington farmers and
producers as much as possible: our flour comes from a handful of wheat
farmers in Eastern Washington who mill it specially for our needs and
our dairy is local along with fresh fruit from nearby farmers. And we
donate over 40,000 cupcakes a year to help raise funds for local non-
profits.
I also built my business on a commitment to treating my workers
like family. That includes offering health care coverage. We offer
health care to all employees who work over 28 hours a week and we pay
75 percent of the cost. It's an important part of our business values
to offer health care. The way the costs have risen over the last
decade, it's also been a huge challenge. Between 2004 and 2010, we were
faced with rate increases routinely exceeding 20 percent--reaching as
high as 40 percent in 2009. In 2011, our health care costs were more
than $67,000.
We've got to take steps as a country to get these costs under
control. Small businesses--and the country as a whole--can't afford the
cost of doing nothing. And we've got to do it in smart ways that ensure
decent quality, promote informed choice, and guarantee good value for
our health care dollars. That's why I support the Affordable Care Act
and the measures it includes to lower health care costs while promoting
quality, choice, and value for small businesses and our employees.
Barriers to Lower Health Care Costs: How the Health Care Reform Law
Helps
Some of the biggest barriers we face to getting decent health
coverage as a small business stem directly from our size. Before I
started my business, I worked in corporate America for 13 years, and
one of the biggest surprises when I decided to go out on my own and
start my own enterprise was how little we got in terms of health care
benefits for almost twice the dollars (and these plans only covered
medical--not dental and vision, which were included in my corporate
packages). When we have to brave the health insurance market on our
own, whether with the 10 employees we started with or the 72-plus we
have now, we're still too small to have any bargaining power, effective
risk-pooling, or economies of scale.
A State Health Insurance Exchange
The state insurance exchanges made possible by the Affordable Care
Act are going to change that. A state insurance exchange will give us
the opportunity to band together with thousands of other small
businesses across Washington State. There are more than 120,000 private
sector firms in Washington State with fewer than 100 employees that
could be eligible to join the exchange, and these firms employ almost
900,000 people.\1\
---------------------------------------------------------------------------
\1\ Agency for Healthcare Research and Quality, Center for
Financing, Access and Cost Trends, 2010 Medical Expenditure Panel
Survey--Insurance Component; Table II.A.1(2010) Number of private-
sector establishments by firm size and State: United States, 2010,
http://www.meps.ahrq.gov/mepsweb/data--stats/summ--tables/insr/state/
series--2/2010/tiia1.htm; Table II.B.1(2010) Number of private-sector
employees by firm size and State: United States, 2010, http://
www.meps.ahrq.gov/mepsweb/data--stats/summ--tables/insr/state/series--
2/2010/tiib1.htm
---------------------------------------------------------------------------
I can't wait for Washington's exchange to open its doors for
enrollment. Joining a pool with hundreds of thousands of participants
will be a huge improvement in risk-pooling, efficiencies of scale, and
negotiating clout for my business and for small businesses across the
state. We'll finally be able to tap into the kind of bargaining power
that big companies like Starbucks and Microsoft enjoy.
Other Provisions of Health Care Reform that Put Downward Pressure on
Insurance Rates
The health insurance exchange is the biggest thing I'm looking
forward to from the health care reform law, but there are also other
provisions that are taking effect already and helping to put the brakes
on rising insurance premiums.
One example is the 80/20 value for premiums rule, or ``minimum
medical loss ratio'' requirement, which requires health insurers to
spend at least 80 percent of our premium dollars on actual health care
costs or pay a rebate to consumers. For small business owners who know
that offering good value to our customers is critical to our survival,
the idea that we deserve a basic guarantee of value from our health
insurance companies is common sense. The first rebate checks are due in
the mail this summer and independent researchers have estimated that
health insurance customers are going to get back in the vicinity of
$1.3 billion in premium over-payments. That's a nice shot in the arm
for small businesses and other insurance purchasers. And it doesn't
even count downward adjustments in rate hikes taken by insurers to
comply with the 80/20 rule and avoid owing even more in rebates.
Another example is the health care law's support for more careful
review of proposed rate increases. In Washington, where we already have
strong rate review laws on the books, this part of the law is allowing
our state to strengthen its systems for collection, analysis, and
reporting of data, and to increase transparency for consumers.\2\ For
small businesses in the many states across the country that didn't
already have strong laws like Washington's, the rate review rules are
doing even more to bring much-needed scrutiny to double digit rate
hikes by requiring insurers to publicly post the justifications for
their proposed increases and ensuring review of these proposed
increases by insurance experts.
---------------------------------------------------------------------------
\2\ ``Health Insurance Premium Grants: Detailed State by State
Summary of Proposed Activities,'' HealthCare.gov, http://
www.healthcare.gov/news/factsheets/2010/08/rateschart.html
---------------------------------------------------------------------------
These early provisions of the health care law are making a
difference. My rate increase this past year was a lot lower than I'd
come to expect from my experience over the past five years. And I've
heard stories of small business owners across the country who've seen
their rates held flat this year. Some have even had their rates cut,
while keeping the exact same coverage.\3\
---------------------------------------------------------------------------
\3\ ``Health care reform: good for business,'' The Baltimore Sun,
April 1, 2012, http://www.baltimoresun.com/news/opinion/oped/bs-ed-
obamacare-business-20120401,0,6828504.story
---------------------------------------------------------------------------
Employer Responsibility and Reducing Health Care Costs
The employer responsibility provision of the ACA is another way the
law will help lower insurance costs for businesses like mine. This
piece of the law is often presented as a problem for small businesses.
I believe the opposite is true. As a business owner who's doing the
right thing and offering health coverage to my workers, the real
problem for me is that when other businesses my size (and bigger) don't
offer health care, I'm forced to subsidize their health care costs. The
shifting of uncompensated health care costs to businesses that pay for
health insurance costs my business hundreds of dollars per employee per
year. How is that fair?
Opponents of the health care law argue that the employer
responsibility requirement will hurt job creation. I disagree. More
than 9 out of 10 businesses with 50 or more employees already offer
health coverage.\4\ Think about it this way: for every business around
the 50 FTE threshold that doesn't already offer coverage, there are
multiple others that do. Right now, the barrier to job creation for the
businesses that do offer health care--like mine--is the fact that we're
subsidizing the ones that don't. The only way to fix this is through a
system of shared responsibility where all businesses above the
threshold pitch in and nobody takes a free ride at the expense of the
rest of us.
---------------------------------------------------------------------------
\4\ Agency for Healthcare Research and Quality, Center for
Financing, Access and Cost Trends, 2010 Medical Expenditure Panel
Survey--Insurance Component; Table I.A.2(2010) Percent of private-
sector establishments that offer health insurance by firm size and
selected characteristics: United States, 2010, http://meps.ahrq.gov/
mepsweb/data--stats/summ--tables/insr/national/series--1/2010/tia2.htm
---------------------------------------------------------------------------
Opportunities to Keep Moving Forward on Health Care
Does more need to be done to fully fix health care for small
businesses? Yes. I believe we need to build on the new health care law
and take further steps to help small businesses, not tear it down and
throw us back into the broken health insurance marketplace that visited
rate hikes of 20, 30, and 40 percent on businesses like mine.
One opportunity to move forward that I would encourage you to
support is an expansion of the ACA's small business health care tax
credit. Not enough businesses are benefiting from the credit in its
current form. While some elected officials are using this news as an
excuse to criticize the credit and the whole ACA, that's not helpful to
small businesses. If you want to help us, it would make more sense to
ask the question, ``What can we do to make this credit work for more of
our small businesses?''
For my own business, we're not eligible for the credit because we
have more than 25 full-time equivalents (FTEs). Why not expand that FTE
requirement to 50, 75, or even 100 employees? Under a recent proposal
to expand the credit, I could be eligible for a credit of about 8
percent of my health care costs--around $5,000. If you've built a
bridge and you find out not enough cars can get across, you don't blow
it up, you find a way to build it wider. You have an opportunity to do
that with the small business health care tax credit. I hope you will
take it.
Alternative Proposals: Will They Work for Small Businesses?
Opponents of the Affordable Care Act say they want to replace it
with something else. Some of these ideas sound good as talking points,
but what will their real impact be on small businesses?
We hear a lot about the idea of ``letting health insurers sell
across state lines.'' This sounds fine, but in reality this is a back-
door way to get around basic protections put in place at the state
level to make sure when we buy an insurance policy, it's worth more
than the paper it's written on. ``Across state lines'' is really an
invitation to insurance companies to throw quality and value out the
window and start selling junk health insurance. If you want to give
small businesses more bargaining power, that's what the state insurance
exchanges in the ACA will do--without compromising the basic standards
of quality and value we have in place now. The state of Georgia passed
a ``cross state lines'' law last year and it didn't work: not a single
out-of-state insurer applied to sell a new product in the state.\5\
---------------------------------------------------------------------------
\5\ ``No out-of-state insurers offer plans in Georgia,'' Atlanta
Journal-Constitution, April 30, 2012, http://www.ajc.com/news/no-out-
of-state-1428329.html
---------------------------------------------------------------------------
Another ``alternative'' we hear a lot about is health savings
accounts. They're marketed on the idea that they will make people make
more responsible choices about health care utilization. But the reality
is HSAs are another form of high-deductible, low-coverage insurance,
which for many people in many years means paying a monthly premium to
basically be uninsured. This is not a solution, either--it's just
shifting more risk and shifting more costs onto small businesses.
Conclusion
The Affordable Care Act is taking critical steps forward to address
the barriers to lower health care costs and bring affordable, good
quality health coverage within reach for small businesses. Many
businesses are already seeing the benefits as early provisions of the
law take effect. We have even more to look forward to with the
establishment of the state health insurance exchanges and other
provisions that are still on their way.
We need to keep building on the foundation of the ACA, not tear it
down. Small businesses across Washington State and across the country
can't afford to go back to the broken health care marketplace we faced
before reform. We need to keep moving forward.
By taking full advantage of the opportunities created by the
Affordable Care Act, we can break down the barriers to lower health
care costs and finally level the playing field for small businesses.
Then business owners like me will be able to focus our full attention
on building our businesses, creating jobs, and strengthening our local
economies. Thank you.
______
Chairman Roe. Thank you, Ms. Hall.
Mr. Streitberger?
STATEMENT OF BILL STREITBERGER, VICE PRESIDENT OF
HUMAN RESOURCES, RED ROBIN
Mr. Streitberger. Chairman Roe, and Ranking Member Andrews,
and committee, my name is Bill Streitberger and I am the vice
president of human resources for Red Robin, and I appreciate
the opportunity to speak with you today. Red Robin is a casual
dining restaurant chain with more than 460 locations across the
United States. We were founded in 1969 in Seattle by an
independent business man, and during more than 4 decades of
history we have expanded to 42 states and also operate in two
provinces in Canada.
We pride ourselves in being, you know, America's gourmet
burger experts with over 24,000 team members across the
country. Every day we serve, you know, millions of guests.
Red Robin has been able to grow our business at a fairly
steady pace, opening new restaurants every year even during the
recent weak economic conditions. In fact, in the last 2 years,
even in a recessionary--with the recessionary environment that
saw a number of our restaurant concepts--competitors close
locations or even go out of business all together we were able
to open 30 new restaurants and still have another 12 on the
books to open this year.
This is important to us for a number of ways. First,
opening new restaurants allows us to grow our revenues, which
in 2011 surpassed $900 million. Secondly, by expanding to new
communities we serve even more of our guests, but more
importantly, opening new restaurants allows us to add to our
growing family of team members, creating new jobs at each
location and in the communities we serve.
This doesn't include the job expansion that takes place in
our home office in Greenwood Village, Colorado, just south of
Denver, as the growing restaurant base creates the need to grow
in the corporate support function and the additional business
that we are able to give to over 8,700 vendors and other
outside entities who we count on for all of our food, supplies,
services, and oversight that we need to develop and run our
businesses. We try very hard to buy everything American.
There is another benefit to a healthy, profitable, growing
Red Robin business, and it is manifested in the way we give
back to our communities where we do business. One example of
this is the great work of our Red Robin Foundation, an internal
resource. And because of this foundation many of our team
members receive support when disaster strikes, family
emergencies, and even a scholarship fund when there is an
opportunity for a college education.
In addition, we support our corporate giving program, such
as contributions to National Center of missing and Exploited
Children, Special Olympics, and countless other local
foundations that our team members and the restaurants organize.
We are proud to say that we like to give back and part of being
a good neighbor.
But running restaurants is not a high-margin business. Red
Robin's net income, as a percentage of revenues, was less than
3 percent in the last--each of the last 3 years. After we have
paid our team members, our vendors, our landlords, and all
other expenses including payroll, property, state, and federal
taxes, we use the remaining cash to reinvest in our business,
including opening new restaurants that create more jobs and
support the surrounding communities.
When health care and other costs increase we have fewer
resources to reinvest and grow the business. We can't simply
pass along higher costs to our customers. As you and your
constituents know too well, very few Americans have been immune
to the intense economic pressures in recent years and there is
very little appetite during these difficult times for even
marginal increase in retail prices.
In regards to health care specifically, taking care of our
team members is part of living our values as a company. We have
thousands of team members who are eligible to participate in
the health and welfare plans. In addition to providing these
team members with these health care benefits we try to create
and promote a well-being to all of our people, such as our
LiveWell program, which is--not only encourages healthy choices
but also provides channels outside the company such as athletic
events, volunteerism, to promote a healthy and fulfilling
lifestyle.
But health care coverage remains an essential component of
our benefit programs. During the last 3 years Red Robin's
health care cost per employee increased more than 6 percent
every year. This is a much greater pace than the growth of our
guest sales, same store sales, or net income.
Increasing the burden of health care costs through the 2014
mandates can negatively impact the ability of companies to grow
and offer benefits to other employees, forces companies like
Red Robin to decide on whether to reduce benefits and maintain
affordable coverage, or accept the burden of increased company
contributions, limiting our ability to continue to grow and
create new jobs. Either way, we feel it can be a lose-lose for
Red Robin and for our existing and prospective new team
members.
We hope you will consider the adverse impact of these
mandates on health care coverage and costs and--that these can
have on an employer like Red Robin. I know I speak for our
folks in our restaurants and office when I say that we are
excited about the prospect of opening new and additional
restaurants in new communities, creating new jobs, and
welcoming even more folks into the family.
As long as we can maintain our financial health, manage our
business profitably, and overcome any economic and other
pressures effectively we will continue to grow, and serve more
guests, and serve more communities in the years to come.
I want to thank you for your time and your opportunity,
again, to speak with you.
[The statement of Mr. Streitberger follows:]
Prepared Statement of William Streitberger, Vice President of Human
Resources, Red Robin Gourmet Burgers, Inc.
Chairman Roe, my name is Bill Streitberger and I am the Vice
President of Human Resources for Red Robin. Red Robin is a casual
dining restaurant chain with more than 460 locations in North America.
We were founded in 1969 in Seattle, Washington, and during our more
than four decades of history we've expanded to 42 U.S. states and we
also have restaurants in two Canadian provinces. We pride ourselves in
being ``America's Gourmet Burger Expert,'' and our 24,000 Team Members
across the country every day treat our guests with what we at Red Robin
call our ``Unbridled'' spirit, which includes living our values of
Honor, Integrity, Constantly Seeking Knowledge and, most importantly,
Having Fun.
On behalf of all of my fellow Red Robin Team Members, I want to
thank you for the opportunity to appear here today to share our
thoughts on the potential impact of health care reform on all of us as
employees, our many guests and the communities we serve.
In the many years since our first restaurant began serving guests
on the University of Washington campus, despite the many challenges to
maintaining a successful and profitable restaurant company, Red Robin
has been able to grow our business at a fairly steady pace, opening new
restaurants every year, even during the recent weak economic
conditions. In fact, in the last two years, even in a recessionary
environment that saw a number of restaurant concepts close locations or
even go out of business altogether, Red Robin opened more than 30 new
company-owned and franchised restaurants, and we have another dozen or
so new company-owned restaurant openings planned for this year. This is
important to us in a number of ways. First, opening new restaurants
allows us to grow our revenues, which in 2011 surpassed $900 million.
Secondly, by expanding into new communities, we can serve even more of
our guests, who, by the way, continue to thank us whenever we open our
first Red Robin in any neighborhood. But most importantly, opening a
new restaurant allows us to add to our growing family of Red Robin Team
Members, creating on average approximately 70 new jobs every time we
open a new location. This doesn't include the job expansion that takes
place at our home office in Greenwood Village, Colorado, as the growing
restaurant base creates the need for growth in the corporate support
function, and the additional business that we give to nearly 8,700
vendors and other outside entities who we count on for all of the food,
supplies, services and oversight we need to develop and run our
restaurants.
There's another benefit to a healthy, profitable and growing Red
Robin business, and it's manifested in what we give back the
communities where we do business. One example of this is the great work
of the Red Robin Foundation, an internal resource that was created in
the spirit of our ``Unbridled'' culture. Because of our foundation,
many of our Team Members receive support when disaster strikes, help
when there's a family emergency and scholarship funds when there's an
opportunity to get a college education. In addition, with the support
from our corporate giving programs such as our past contributions to
National Center for Missing & Exploited Children and the Special
Olympics, to the countless local fundraisers that our Team Members
organize at our restaurants, we are proud to say that giving back is
part of being a good neighbor.
Unfortunately, the rising costs of running our business, including
significant and escalating health care costs, make the prospects for
continued profitability, job creation and contributions to our
communities increasingly difficult. Running restaurants is not a high
margin business. Red Robin's net income as a percentage of revenues was
less than three percent in each of the last three years. After we've
paid our people, our vendors, our landlords, and all of our other
expenses including payroll, property and state and federal taxes, we
use remaining cash to reinvest in our business, including building new
restaurants that create more jobs and support the surrounding
communities. When health care and other costs increase, we have fewer
resources to reinvest and grow our business. And we can't simply pass
along higher costs to our consumers. As you and your constituents know
too well, very few Americans have been immune to the intense economic
pressures in recent years, and there is little appetite during these
difficult times for even marginal increases in retail prices.
In regards to health care specifically, taking care of our Team
Members is part of living our values as a company. We have thousands of
Team Members who are eligible to participate in our health and welfare
benefit plans. In addition to providing these Team Members with health
care benefits, we try to be creative to promote the well-being of our
people, such as our LiveWell program that not only encourages healthy
choices, but also provides channels outside the company such as
athletic events and volunteerism to promote a healthy and fulfilling
lifestyle. But health care coverage remains an essential component of
our Team Member benefits. During the last three years, Red Robin's
healthcare costs per employee increased more than 6% every year--a much
greater pace than growth in our guest visits or same store sales.
Increasing health care costs through mandates that can negatively
impact the ability of companies to offer attractive benefits to
employees forces companies like Red Robin to decide either to reduce
benefits and maintain affordable coverage or accept the burden of
increased company contributions--limiting our ability to grow the
business, attract talented people to our organization and add to our
payrolls. Either way, it's a lose-lose for Red Robin and for our
existing, and prospective new Team Members.
We hope you will consider the adverse impact that mandates on
health care coverage and costs that are not thoughtful and balanced
will have on employers like Red Robin. I know I speak for my many
fellow Red Robin Team Members when I say that we are excited about the
prospect of opening additional restaurants in new communities,
welcoming even more Team Members into our family and serving our
communities in the years to come.
Again, thank you for the opportunity to share our views and work
with the Committee.
______
Chairman Roe. Well, thank the panel for their testimony.
And I will now ask Mr. Andrews if he has any questions.
Mr. Andrews. I do, thank you.
I would also like to thank the panel for their preparation
and for great testimony today.
Mr. Streitberger, did I pronounce your name correctly?
Mr. Streitberger. Yes, sir.
Mr. Andrews. Welcome.
I am very sympathetic with your discussion of trying to
find ways to reduce the cost growth that you have experienced
so you can open more stores and hire more people. I think that
is something we all have in common.
I want to ask you some questions about the problem in the
broader context, though, that--you have 24,000 employees. About
how many of them are eligible to enroll in your health plan?
Mr. Streitberger. According to the--being at full time
about 8,000. We hire a great deal of students, part-time
workers.
Mr. Andrews. Of the 8,000 that are eligible to enroll do
you know how many choose to enroll?
Mr. Streitberger. Around 6,000.
Mr. Andrews. And if I were making--and tell me if this
number is off, but if I were making $25,000 or $30,000 a year
is that the typical wage of someone who is eligible to enroll
in your plan?
Mr. Streitberger. Yes.
Mr. Andrews. Okay. If I was trying to enroll my family, not
just myself but my family, what would my monthly premium be?
Mr. Streitberger. Well, we have several plans, and
depending on how you chose----
Mr. Andrews. Let's say I chose the least expensive one. I
know you have a high and a low.
Mr. Streitberger. The least expensive would be around $350
a month.
Mr. Andrews. Okay. So for a person making $30,000 a year
gross it would be $350 a month--their share--to enroll in the
plan?
Mr. Streitberger. Yes.
Mr. Andrews. Okay. That is a difficult thing to do, I am
sure you are aware----
Mr. Streitberger. Correct.
Mr. Andrews. I want to ask you what--let's talk about your
part-timers for a minute, that one of your part-timers--I am
sure some of your part-timers are older workers, too, that----
Mr. Streitberger. Some are, correct.
Mr. Andrews. I have gone to restaurants like yours and do
see people in their late 50s, early 60s, sometimes older. I am
sure some are there because they like the work experience;
others really have to work and that is why----
Mr. Streitberger. Sure.
Mr. Andrews. Let's take a case of a 61-year-old woman who
feels a pain in her side, she is one of your part-time
employees, so she is not eligible to be in your plan, right?
Mr. Streitberger. Well, they need to average the 30 hours
or more, correct.
Mr. Andrews. Okay. So she is 25 hours a week, let's say.
She is not----
Mr. Streitberger. Sure.
Mr. Andrews [continuing]. Eligible to be in your plan. Or
she is over 30 and just can't afford it because of the cost
that we just talked about.
She gets a pain in her side, she goes to the emergency room
today and they find out she has had appendicitis attack. She
needs to have her appendix removed.
She has no health insurance. What should we do? As a
country, what should our policy be about what happens to her
and who pays for it?
Mr. Streitberger. Well, I believe that the country already
has a safety net for folks that are in positions like that.
Mr. Andrews. What is the safety net?
Mr. Streitberger. Well, a lot of these folks use Medicaid
and Medicare.
Mr. Andrews. Let's assume she is not eligible for Medicaid,
which is, frankly, typical of a lot of people. Medicaid
enrollment, before the new law, of course, was usually 100
percent at poverty, which in my state meant about $18,000 a
year for a family of four. Now, we changed that in the new law
but she is probably not eligible for Medicaid under present
law. So what should we do?
Mr. Streitberger. Again, that is something that we try and
offer to all of our folks. They can, you know, in a case like
this----
Mr. Andrews. No, I am not saying what you should do. Don't
misunderstand me. I am not presupposing you should pay for it.
I am saying, what should we as a country do to solve that
problem?
As I see it there are really a couple of options. We could
say, ``Well, sorry, you can't get the appendectomy because you
don't have insurance.'' I don't think you would want to see
that happen, would you?
Mr. Streitberger. No.
Mr. Andrews. Okay. The second thing that we could do is
expand a public program like Medicaid to include her in it. For
instance, we could include families making up to $30,000 or
$35,000 a year under Medicaid. Would you think that is a good
idea?
Mr. Streitberger. Well, I think one of the ways to help
this, as you mentioned in your statement, was to look at ways
of driving the costs of health care down----
Mr. Andrews. No, but I understand that and I am all for
that, but I am talking about this woman in this circumstance
who needs this appendix taken out today. You think we should
enroll her in Medicaid and increase the Medicaid eligibility
limit?
Mr. Streitberger. If that gets some folks the coverage,
sure.
Mr. Andrews. Which is what we did in the Affordable Care
Act.
Do you think that she should be required to have health
insurance for herself or not?
Mr. Streitberger. No.
Mr. Andrews. If she is not required, who--and let's say we
don't get the Medicaid increase that we talked about--who
should pay her hospital bill?
Mr. Streitberger. Well again, I am not a tax person or a
politician, but----
Mr. Andrews. No, but you are a citizen and a taxpayer----
Mr. Streitberger [continuing]. You know, people need to
take personal responsibility for their actions and it is a
matter of choices.
Mr. Andrews. Okay. But if she makes----
Mr. Streitberger. People spend money on houses----
Mr. Andrews [continuing]. If she makes the choice not to
buy the health insurance for whatever reason, she is not
covered Medicaid under this example, who should pay the bill?
Mr. Streitberger. Again, that is not something I can help
you with.
Mr. Andrews. Well, I am not--it is not really an expert
question. I mean, all of us as citizens, I think, have a stake
in that answer. There are two choices, right? We could have
some publicly taxed and funded program that pays for her health
care or we should--or we could--three choices--we could require
her to do it and subsidize her purchase, or we could require
you to do it, as her employer. Which of those three would you
like to see us do?
Mr. Streitberger. That is something that we are taking a
hard look at to see what we as a business can afford.
Mr. Andrews. I understand. Thank you very much.
Mr. Streitberger. Thank you.
Chairman Roe. Thank you, Mr. Andrews.
Dr. DesJarlais?
Mr. DesJarlais. Thank you, Mr. Chairman.
And as I sit and listen to that conversation I noticed the
ranking member when we started out saying that the ObamaCare
was not a government health care plan--it was not a government
takeover of health care--but in that dialogue that I just heard
it sounds like he is saying exactly that, the government needs
to take more responsibility and make sure that these people are
taken care of. So in other words, I think that is exactly what
the ranking member is insinuating with that last line of
questioning is that personal responsibility is not really the
answer, it is more government responsibility, if I understood
it correctly. And certainly he could chime in if he would like.
Mr. Andrews. Would the gentleman yield?
Mr. DesJarlais. Yes, I would.
Mr. Andrews. Yes. I didn't want to interrupt his time.
I actually think it is a combination of people with very
low incomes being in Medicaid and having some personal
responsibility, people with somewhat higher incomes being in a
private plan, which is what the law requires.
Mr. DesJarlais. Okay. And again, we can look at the track
record right now of our government health care, Medicaid,
Medicare, and even the V.A., and I think that there is not
anyone sitting up here that can't agree that it is an abysmal
failure in terms of economics. The Medicare program, whether
you are Democrat, Republican, the CBO, AARP, is going broke in
10 years.
And we are suggesting somehow that the federal government
can step in, take over our health care services in this country
and somehow run them efficiently without rising costs and while
maintaining a quality of care that is acceptable to patients
and their doctors. And I just don't see, personally, how this
is going to work, considering there has been no model set forth
to this point that has done that. And I have been a family
practice physician for 20 years and I can say that in my
experience, talking with businesses around Tennessee's poor
district that they are very afraid of this health care law and
what it is going to do to their ability to provide the
services.
Ms. Hall, you had stated that, you know, you like to treat
your employees well and they will treat customers well, and I
think that is very true. But we have a couple of examples in
businesses that I visited--Valmont Industries is a large
business. They have got 5,000 or 6,000 employees. They pay up
to $12,000 a year per employee, which is a lot of money for a
health care plan.
But under the new ObamaCare they could pay a $3,000 penalty
and not have to provide that health care, and these employers
would probably get a lesser plan and be put into the public
health care exchanges. They don't want to have to do that and
it concerns them greatly, but you can do the math. That is
$9,000 per employee difference over 6,000 employees. There is
going to be some bean-counters in that company that are going
to do the math and see that it just doesn't make sense to
provide those employees with health care.
We have a smaller company that is in the same boat. They
have got a little less than 500 employees, and they would pay
the $2,000 penalty if they dropped their employees' health care
coverage and their company would save a couple of million
dollars. It is hard to look at that and see where it doesn't
make sense to do that.
So I do think that this health care law does create a
situation where employees are going to lose the coverage that
they had. And we had a little discussion earlier--I think Dr.
Roe mentioned health savings accounts, and I think Mr. Fensholt
was talking about--or maybe it was Mr. Ramthun was talking
about health savings accounts. And really, that is kind of what
we need to be getting to is personal responsibility, and when
people have health savings accounts and have skin in the game
and they have to help make their own decisions then that is the
kind of responsibility, I think, that we need from the American
citizens and not the federal government, who is burdening all
your companies with increased regulation.
Mr. Fensholt, you talked about what--you know, they are
piling on regulations--what you have to do just to provide your
health care--for your employees with the new regulations, and
it is these increased regulations that are driving up health
care costs. And frankly, the health care in this country is
driving our national debt, so the solutions that we need moving
forward do not come from ObamaCare; it is going to come from
repealing ObamaCare and taking stepwise fashions and personal
responsibility.
And, Ms. Hall, you said that you provide 75 percent of the
health care coverage to your employees but the cost was only
$67,000?
Ms. Hall. We have 45 FTEs and they are all, you know--our
average age is probably 23, and some of them are obviously
covered under other plans or opt out even though we highly
encourage them to be involved.
Mr. DesJarlais. Okay. Well----
Ms. Hall. And obviously our costs are lower because we have
a younger workforce.
Mr. DesJarlais. Okay. So your example doesn't fit with some
of the other companies' examples, but I am out of time already
and I think we might get to two rounds so I will ask more
questions next time.
Chairman Roe. Thank you.
Mr. Kildee?
Mr. Kildee. Thank you, Mr. Chairman.
Ms. Hall, I agree with you that instead of repealing the
health care reform law we should instead work together to make
it better. Specifically, you mentioned the small business tax
credit. How would you change this tax credit to make it more
accessible for small businesses like your own? Are there other
aspects of the law that you would like to see changed that
might make it easier for businesses like you by providing----
Ms. Hall. Yes. I mean, I think that there is--the 25 FTE
requirement has a salary cap of--is it $50,000 per employee,
and 25 is--like for us folks, I mean, to run one Red Robin
needs more than 25 employees, yet we might have--let's say your
revenues are $5 million and your profits are 3 percent of that.
That is a lot of burden to ask for--and to look at expanding
that, especially for restaurant and hospitality, where we
employ 7 days a week, you know, 16, sometimes 24 hours a day. I
think a lot more businesses will participate.
And over 360,000 businesses did participate. That is more
than all the members in NFIB combined. So it is still a decent
level of participation, but we could expand that and really
look at solutions.
We are problem solvers up here. I started my own business,
and we are all thinkers around how to make things better. Let's
figure out a way to address that and make it a more powerful
incentive and opportunity to give a little--get a little money
back for doing the right thing by providing health care.
Mr. Kildee. Do you belong to any small business association
back in Seattle, or----
Ms. Hall. Right.
Mr. Kildee. In that group do you find some small businesses
who do feel that this bill, which passed by this Congress, can
be helpful both to themselves, to their employees, and to the
public in general? Some people picture this as something that
small business looks upon as not in any way with redeeming
factors. What do you find amongst the small business people you
associate with?
Ms. Hall. Right. The Main Street Alliance was formed after
health care policy was being written and we were finding--and
it spans across several states. I think it might be 15 to 20
states. I am not quite sure. But in Washington there are over
2,000-plus small business owners, and the reason that this
alliance was started was because we were misrepresented as
small business owners.
And what I said earlier around health care costs, I was at
Starbucks. I can't remember exactly what I paid. It was a
similar situation. The company paid 75 percent and I paid 25,
and I got dental, vision, and amazing health care.
And when I went to start my own business, obviously I paid
almost twice that just for the health care coverage. So it is
astonishing that the engine of our economy, which is small
business, has to have this--we have to pretty much throw our
health care out the window. We have to walk away from
affordable, quality health care to be able to start our own
business.
And that is why this--the Main Street Alliance was formed,
because we were being completely misrepresented. We want
quality, affordable health care for all, and we don't have
access to that. So the public option, I thought, was a great--
and something I fought hard for.
But the exchanges, I think, will also provide a great
opportunity for bargaining power. And we are very excited in
Washington State to participate in that and actually shop and
say no to the one, two, or three insurance providers that get
to just kind of set rates at will and increase rates without
any accountability. So we finally will have some clout, and
that is exciting.
And I would say that I speak for every business in the Main
Street Alliance. We are all aligned around this issue. It is
one of the galvanizing forces of creating this alliance.
Mr. Kildee. You mentioned also that this past year your
rate increase was less than in previous years. Can you expand
on this? Do you attribute this in any way to the health care
reform law?
Ms. Hall. I think part of that has to do with the 80/20
rule. And our health insurance went up only 6.8 percent, which
is phenomenal. I mean, I think the lowest it has gone up is 15
percent, and it usually is more like 20 to 30 percent. So it is
amazing. Like, I was actually relieved at only 6.8 percent.
And yes, I do think some accountability around spending 80
percent of that money on actual health care, versus marketing,
and admin, and things like that, is helping to keep those rates
at the--at an appropriate level, and also accountability and
where those rate increases are coming from.
Mr. Kildee. Thank you very much.
Ms. Hall. That the ACA brought. Thanks.
Mr. Kildee. Thank you.
Chairman Roe. Thank you.
Dr. Heck?
Mr. Heck. Thank you, Mr. Chairman.
And likewise, I thank all the committee members and the
panel members for being here today. You know, we heard Dr.
DesJarlais talk about the impact on large employers and
potentially not providing insurance because it would become
more cost effective for them to actually pay the fine than to
provide the insurance.
And I also have a small--I have a small employer in my
district, iMAGiNE Communications, that has 11 employees who
historically has paid 100 percent of their employees' health
care, and recently they have had to bring it down to 50 percent
because of increasing costs, and they are uncertain as to how
much longer they might even be able to do that. And I would
agree with the opening comments of the ranking member and some
of the other folks that have talked about the small business
tax credit, that the requirements to qualify for the credit are
too stringent and that they phase out too quickly for a lot of
small companies to benefit.
But regardless, at full implementation the Affordable Care
Act is going to require increased coverages from businesses,
whether it is the mandated services, whether it is the number
and types of people who must be covered, or how much the
employer must contribute to that coverage. And what I find even
more shocking is that even if you do all that as an employer,
if one of your employees opts out and gets insurance on and
exchange and receives a subsidy you can still be fined even for
doing all the right things.
So I would ask, you know, Mr. Streitberger--which, by the
way, didn't know you were going to be here today, but I
actually ate Sunday at one of your restaurants----
Mr. Streitberger. Thank you very much.
Mr. Heck [continuing]. In my district. The burger was
delicious. Love the bottomless fries, although my cholesterol
doesn't.
What would you say is the biggest impediment in providing
low-cost health coverage for your employees? And in a perfect
world, which laws or regulations would you change to make
coverage more affordable for you and your employees?
Mr. Streitberger. Well, I think what would be a big help--
and it was mentioned by Mr. Andrews--is that if we had more
competition in the marketplace--we, as a public company, we
have a great deal of competition every day. We are used to it;
we deal with it and it puts us in a place to do a better job
and offer better services. I think that would be a great help.
I also manage the other side of our insurance business on
workers comp, and in dealing with those two sides of the
business one thing that hasn't been mentioned and has--and in
business we are very concerned about, and that would be tort
reform. I mean, everything that we deal with usually has a
lawyer attached to it, which does drive up costs. I am sure
physicians do more testing to make sure that they are making
the best decision possible, and we see that it really can
ratchet up the business.
So I think, again, the competition helping to drive the
cost down so that we can offer more care, more affordable care
to our team members. And then also, you know, the outside
impact of any business, and that would be on that side, the
tort reform.
Mr. Heck. Thank you.
Thank you, Mr. Chair. I yield back.
Ms. Hall. If I could add to that, actually, I think one of
the biggest impediments to health care costs is the fact that
not everybody has to have health care. And I think that if we
were all involved with some kind of level of personal
responsibility as well as shared responsibility from the
employer side we are going to get preventative care and we are
not going to go to the E.R. when we need help. And if there is
a safety net for those that need it I think that would
actually, from what I understand, bring health care costs in
check and down.
Chairman Roe. Would the gentleman yield some of your time?
Just to clear the record up, there were 309,000 small
businesses that the Treasury Department said that is incorrect;
the number counted individual partners at firms, not actually
employees. The real number that GAO found was 100 and--I have
got it here somewhere--70-something-thousand. So it was
170,300.
Ms. Hall. Oh, I have from the White House fact sheet that
it was, in 2011, 360,000.
Chairman Roe. Dr. Holt?
Mr. Holt. Thank you. Thank you, Mr. Chairman.
I am not sure whom to ask this question of, but let me
start with Mr. Fensholt. What evidence to do you have that the
Affordable Care Act is responsible for the increase in premiums
that employers are--and employees are finding?
Mr. Fensholt. Well, part of the business of insurance is
you have very smart people--actuaries and underwriters--who
look at various laws like the Affordable Care Act and the
coverage mandates and they ask themselves, ``If we have got to
begin to cover, for example, adult children to age 26 even if
living apart from the employee, even if married, even if
gainfully employed themselves, what additional cost is that
going to impose on our plans?'' They do the same thing for the
abolition of lifetime and annual dollar limits on essential
benefits. And they come up with an estimate.
What we have seen, in talking to health insurance
underwriters and our own actuaries, is that--and about half of
our bulk of business are self-insured plans, so there we are
dealing with our own actuaries and their claims history. And
now we have a little track record under these provisions, as
well. So now you are actually tracking claims incurred by the
additional enrollees, claims incurred that are required to be
paid where they wouldn't have been paid before. And you can
assess a cost to that, and that is where those numbers come
from.
Mr. Holt. Yes. And there is a cost, but there is additional
revenue because you will have more people brought into the
coverage. Isn't that true?
Mr. Fensholt. Well, the way this tends to work is that--
let's take, for example, the case of the adult children who
gain coverage. The adult children who get enrolled under this
provision tend to be the ones who need the coverage. That is
why their parents enroll them.
The adult children of--who are healthy, the parents tend
not to do that. So that mandate tends to attract some of the
worst risks in that age category.
Mr. Holt. Yes, and isn't that the point, that expanding
coverage, bringing more people into the pool, will address that
very concern?
Mr. Fensholt. If you get significantly more healthy people
into the pool than sick people into the pool. That is the goal.
That is not happening in this context.
Mr. Holt. Oh, that is very much what is under this law.
That is very much----
Mr. Fensholt. Oh, that is the intent of the law.
Mr. Holt [continuing]. What is under consideration right
now.
I would yield to the ranking member.
Mr. Andrews. Thanks for yielding 1 second.
Mr. Fensholt, do you favor the individual mandate, then?
Mr. Fensholt. I can't speak for my company.
Mr. Andrews. Understood. What is your personal opinion
about it?
Mr. Fensholt. My personal feeling is that the individual
mandate makes some sense.
Mr. Andrews. Thank you.
Mr. Fensholt. Thank you.
Mr. Holt. Mr. Streitberger----
Mr. Streitberger. Yes, sir?
Mr. Holt [continuing]. I would like to pursue Mr. Andrews'
example of your employee earning $25,000 a year and ask you
what you mean by ``personal responsibility.'' You said you
would like to bring personal responsibility into this.
Mr. Streitberger. Sure.
Mr. Holt. Let me pursue this for a moment. Let's look at
the executives in your country--in your company. Are there any
of the executives in the company who don't carry health care
insurance?
Mr. Streitberger. There are some that don't carry it
through Red Robin.
Mr. Holt. But do you know any that don't carry health
care----
Mr. Streitberger. No.
Mr. Holt [continuing]. Insurance?
No.
Is there any reason to think that this $25,000-a-year
employee would be less interested in having health care
coverage than the executives?
Mr. Streitberger. First, many of those $25,000 to $30,000
income team members do carry the insurance, and that is where I
was going with----
Mr. Holt. But my question is, is there any reason why they
would be less interested in carrying----
Mr. Streitberger. Sure. Many of them make personal
choices----
Mr. Holt. Not to be insured?
Mr. Streitberger [continuing]. Not to be insured because
the money is spent on brand new cars, trips, tattoos. I mean,
they have other choices. And having raised three children of my
own I know at that age--the average age of our team members
they feel they are a little invincible and they make other
decisions with their money.
Mr. Holt. So the personal responsibility that you are
talking about, does that apply to this woman getting
appendicitis? Is that----
Mr. Streitberger. Again, we are in a hypothetical
situation----
Mr. Holt. Did she fail to take responsibility for her
appendix?
Mr. Streitberger. With our team members they have the
ability to request schedules that could get them to that. In
his situation why someone would request to be part time all the
time and then have a health situation, again, we offer choices
to our team members, full time and part time. And if she chose,
for reasons I can't explain, to stay part time then that is,
again, a personal choice.
Mr. Holt. And it is your choice not to make it more
affordable to her than you already do so that you can hire more
employees who will not have this coverage.
Mr. Streitberger. No, sir. We pay between 60 and 70 percent
of the premiums currently, and as the gentleman from Lockton
mentioned, we are one of those self-insured companies, but we--
--
Mr. Holt. Yes, but you want to grow.
Mr. Streitberger. We want to grow and create more jobs,
yes, sir.
Mr. Holt. More jobs that have that inadequate coverage.
Mr. Streitberger. More jobs that have the opportunity to
take out health care, yes, sir.
Chairman Roe. Mr. Wilson?
Mr. Wilson. Thank you, Mr. Chairman. Mr. Chairman, I have
been joined, too, by a foster person. Very proud Jasmine
Thompson is here as part of the shadowing program. [Applause.]
And we are looking forward to a big day, spending the day
with you.
Additionally, Mr. Streitberger, I have a high regard for
Dr. Heck's judgment regarding burgers, and so I just want to
invite you that the Southeast----
Mr. Andrews. Would the gentleman yield?
I am just wondering how this bottomless fry thing fits into
the wellness discussion, as someone who is addicted to the
french fries and would love the bottomless fries?
Mr. Wilson. The ranking member is actually correct on this.
This is good. [Laughter.]
But you are welcome to the Southeast, so please expand.
Mr. Streitberger. Yes.
Mr. Wilson. In fact, with 460 locations we welcome you.
What are some of the programs that your company has been
promoting to keep health care costs low for your employees?
Mr. Streitberger. Every year we look at plan design, based
on the wants and needs of our team members, what are their
usage. This past year we went to what we call a high-low plan--
high premium, low deductible, and vice-versa, which the low
plan offering lower premiums, again, to our team members and
giving them that choice on how to manage their health care.
And as I mentioned previously, we are self-insured, so we,
as a company, take the risk. Our stop-loss is at $250,000,
meaning for each covered individual we write a check for the
first $250,000 every year, and then in a plan if it should go
catastrophic. And that helps us, by taking that risk, to keep
our premiums low.
And what has helped that also is last year when we did
this, knock on wood, we had very good--we didn't have a lot of
high-risk claims come our way. As Ms. Hall, we have a younger
workforce, in general, and don't see a lot of issues that way.
So that helps. But these are all the things that we do.
Also, our wellness program. We try and promote better
living, health care in the sense of wellness programs,
exercising, diet, other activities, you know, for mental
wellness--anything that we can think of to try and help them
live a healthier, better life, which would drive down our
costs.
Mr. Wilson. Thank you very much.
Mr. Streitberger. Yes, sir.
Mr. Wilson. Mr. Ramthun, why do you believe more employees
are now selecting the consumer-directed health care plans? And
how do you feel that we should be encouraging health savings
accounts?
Mr. Ramthun. I think more and more employees are choosing
them one, for the premium cost. It is much lower than a
traditional plan.
Secondly, they get to keep some of the money. Some of the
money that used to go to the insurance now goes into their own
pocket. If they don't spend it they get to keep it; that money
accumulates from 1 year to the next.
So we need to make sure that those plans continue to be
available for workers going forward, and there are ways to make
that opportunity even better. Several bills have been
introduced in Congress to do that that would actually expand
HSAs.
Mr. Wilson. And you are explaining this fully to employees
so they know how to participate in the program and have a
deduction on their pay stub?
Mr. Ramthun. When my clients ask me to come in I absolutely
explain all of these things to them. They tend to not
understand that it is their money in the first place. This
would otherwise be wages that they would be getting and, you
know, they could go out and buy insurance on their own.
To Mr. Andrews' question earlier about what could we do to
help people with that responsibility, well, number one is the
tax treatment of insurance that is not acquired through the
employer. People who buy insurance on their own get absolutely
no tax benefit except when they deduct their medical expenses,
and the Affordable Care Act has made that harder.
The threshold for deducting any medical expenses is going
up to 10 percent of income where it has been at 7.5 percent.
And there you can only deduct the amount that is above that
threshold.
So there is a huge incentive to get their coverage through
the employer; many of them still don't take it. One way we
could help them if they chose not to purchase that coverage
through their employer is to give them the equal tax benefit if
they buy the insurance on their own.
Mr. Wilson. And that really leads to Mr. Fensholt, In
regard to companies dropping health insurance, what do you see
as, with the health care takeover, what the consequence will
be?
Mr. Fensholt. Well, we are going to see, we think, a
substantial erosion over time in the employer group market, and
that will start primarily on the smaller end of the spectrum.
We have many clients tell us substantially this: They say, ``I
am not going to be the first to go but I am not going to be
third.''
And so if you look at how easy it is for employers to drop
coverage and reap substantial savings--out of our bulk of
business on average a client would save about 44 percent off
their current health insurance spend by dropping coverage. The
only thing keeping them in the game is that they feel they need
to attract and retain employees. The moment one of their strong
competitors goes out of this market they are not going to hang
around and incur that expense.
So we think that when the Budget Office in Congress
estimated that by decade's end maybe 4 million or 5 million
Americans net will lose their coverage, we think they have
grossly underestimated that.
Mr. Wilson. Thank you very much, Mr. Chairman.
Chairman Roe. I thank the gentleman for yielding.
Mr. Hinojosa?
Mr. Hinojosa. Thank you, Chairman Roe.
I have a statement and some questions I want to ask but I
want to yield 1 minute to our Ranking Member Andrews.
Mr. Andrews. Thank you, my friend. I just want to ask Mr.
Ramthun to follow up on something he said about tax
deductibility for uninsured people.
Do you know what the median income is for an uninsured
person in the country?
Mr. Ramthun. I do not.
Mr. Andrews. Median family income is in the 30s. It is
somewhere between $32,000 and $38,000 a year. Let's say you
take a person with $35,000-a-year income and they go out to--in
my district family health insurance would cost them $12,000 to
$15,000 to buy a family policy. If that were fully deductible
the in-pocket benefit of that for them would be at a maximum
about 15 to 20 percent of that. In other words, if it was fully
deductible, given what their tax liability is.
So how do you buy a--how do we help a family with a $35,000
income by giving them a $5,000 or $6,000--it wouldn't be that
much, excuse me. It would be 20 percent--it would be $2,500 off
of that. It would still cost them $10,000. How does that help
them?
Mr. Ramthun. Well, you could also get them a tax credit.
Mr. Andrews. Well, that is what the Affordable Care Act
does. Thank you.
Mr. Hinojosa. Thank you.
I am very pleased that the chairman and Ranking Member
Andrews called this hearing. I was part of a family business
and I was president of the company and always the one to
negotiate the insurance policies for our employees, and there
were 300.
So I came here before this health care reform took place
and I saw how we had to stop paying 100 percent of the
insurance for our employees and went to 50 percent by the
employees and 50 percent by the company because the premiums
had been escalating. And I saw that some of the things that are
being said by the other side are predictions about the negative
impact of the Affordable Care Act, and what I see is that the
health care sector has led the way with more than 579,000 new
jobs because of the increase in people getting insured.
The premiums for employer-sponsored coverage increased by
only 9 percent in 2011, but if we look at the previous decade
we saw that the premiums increased by 113 percent between the
period of 2001 and 2011. The health care came in in 2010. So
that means that during the 8 or 9 years without the reform on
health care we already had close to 100 percent increase. So
let's not blame this health care reform bill on what happened
previously and continued to happen, because I was the one that
negotiated those insurance policy premiums with the insurance
companies and I know that it wasn't working.
So I am going to address my first question to Ms. Hall.
In your testimony, you stated that your business insurance
was twice as expensive and included no dental or vision. In
your testimony, I saw that you stated Republicans have offered
an alternative to offer insurance across the state lines. The
problem is--or with that, in my opinion, is that any time an
insured has a problem with a claim they would need to go to the
insurance commissioner of that state in which it is issued.
Companies would simply all set up shop in the state where the
consumer protection laws are the weakest, and so that wouldn't
allow this program to work.
So my question to you is, if you were offered a cheap plan
from an insurance company based on the Mariana Islands how
pleased would your employees be when they have a problem with
their claim?
Ms. Hall. I don't think they would be pleased at all. I
think that you don't know what you are buying if you are going
across state lines and you don't have an insurance commissioner
you could go to to----
Mr. Hinojosa. Being a businessman, I have a lot of friends
who had their self-insurance but they were always offshore and
there were lots of things about their insurance policies that
were not good for the employees. So that is why I am concerned
as to our not letting this health care go ahead and be
implemented over--until 2014 and that we can see a bigger pool,
as was said by Congressman Holt and others. Once we get the
pool much bigger and sharing in the cost it is going to be much
better.
And I will say this, that in my own experience in my
congressional district where we have a very high national
poverty level of folks who are uninsured--40 percent, one of
the highest in the whole country, compared to 16 percent for
our nation's uninsured, it is beginning to work. A lot more
people are insured.
So I thank you all for coming and giving us an opportunity
to listen to your point of view.
I yield back.
Chairman Roe. Thank the gentleman for yielding.
Dr. Bucshon?
Mr. Bucshon. Thank you, Mr. Chairman. I was a practicing
cardiothoracic surgeon for 15 years prior to coming here, just
for background, so everyone on the panel knows where I am
coming from.
I want to clear up a couple of assumptions that are always
made, one recently made by Mr. Holt that someone with
appendicitis, if they didn't have insurance, wouldn't get
surgery. And I just want to let everybody know, including
everybody in the country, that is absolutely, totally false,
that people that have severe medical problems come to the
emergency room and get taken care of regardless of their
ability to pay. Hospitals are required to do that. Physicians
ethically, because of our oath to our patients, do that.
Myself, personally, have operated on many, many patients
that had no insurance or had the best insurance money can
provide, and physicians treat all of those patients the same.
So I wanted to clear that up.
The other thing is this assumption that because you have
health insurance coverage all of a sudden you have miraculously
developed personal responsibility for your actions. I have had
patients with the best insurance that money can buy and they
take no care of themselves at all. They don't take their
medicine, they smoke, and they don't follow advice of
physicians.
I have had people that have no health insurance that are
diligent about taking care of themselves. They get their
medications because there are ways for people who don't have
insurance to do that and they do the best job they possibly can
to take care of themselves.
That is not a direct connection, that if we suddenly
provide people with health insurance we will change people's
moral character or their behavior. That is not true, in my
view.
The other question is I--first question, just briefly, for
Ms. Hall, do you think the uninsured or the Medicaid population
overutilize the E.R. the most? Which group?
Ms. Hall. The underinsured or----
Mr. Bucshon. Uninsured.
Ms. Hall. Uninsured or----
Mr. Bucshon. Or Medicaid?
Ms. Hall. I wouldn't know.
Mr. Bucshon. It is the Medicaid population. And the reason
is because the uninsured come to the emergency room when they
truly have an emergency, and if you provide services for free
with no skin in the game people take it willy-nilly, they just
show up whenever they want because guess what, it is free. That
data has been proven out many, many times.
So this assumption that providing--expanding the Medicaid
system is suddenly going to save us money in the health care
system is actually, in my view, going to have the complete
opposite effect. You are going to see a flood of patients
coming to the emergency room because it is free. So I wanted to
clear that up.
So, Ms. Hall, has your business discussed dropping their
private health insurance plan?
Ms. Hall. Have we discussed that?
Mr. Bucshon. Yes. Have you looked at the options of
financially what will happen if you drop you plan or versus you
don't if PPACA is fully implemented?
Ms. Hall. We haven't looked at the options of dropping our
health care coverage, but we have had to make adjustments with
these rate increases to--usually----
Mr. Bucshon. You have never even discussed--you never even
had on one piece of paper the cost without covering it and the
cost if you do? Because I would say as a business person that
would be something that is on everybody--everybody that I talk
to, that is on their list. They look at that. You have never
done that?
Ms. Hall. Absolutely not. I think the most important thing
that we can do--and this is something I learned from Howard
Schultz, CEO of Starbucks, directly, is if we take care of our
people they take care of our customers----
Mr. Bucshon. Fair enough.
Ms. Hall [continuing]. They take care of your shareholders.
Mr. Bucshon. Fair enough.
Mr. Streitberger, first of all, my son loves your
hamburgers. I know people have said that, but it is true.
Mr. Streitberger. Thank you.
Mr. Bucshon. Evansville, Indiana, he wants to go there
every time.
Mr. Streitberger. Thank you.
Mr. Bucshon. And you may or may not be willing to step out
on a limb on this--has your company, that you are aware of,
looked at your options under PPACA as far as what type of
health insurance coverage versus none that your company
provides?
Mr. Streitberger. All options we are currently
investigating, yes, sir----
Mr. Bucshon. So the answer is, which is consistent with
every business person I have talked to, is that an astute
business person that runs a business has looked at all of these
options and will make their decision partially based on their
competition, as was pointed out by Mr. Fensholt, and based on a
number of factors. But if the financial advantage is so massive
that they can't compete they will have no choice.
The other thing is, finally, just to finish up, I would--as
a physician I would recommend that anyone, including members of
Congress, that can avail themselves to a city emergency room to
visit and to get in--really get in the trenches on health care
and see exactly what actually is happening and--because a lot
of people want to talk about this issue in the abstract. I have
been there. A lot of other members have been there. And you
really can't get a good assessment for some of these things
without being there. If you can avail yourself to that
opportunity it would be a good thing.
I yield back.
Chairman Roe. Thank the gentleman for yielding.
Mr. Ross?
Mr. Ross. Thank you, Mr. Chairman.
Mr. Streitberger----
Mr. Streitberger. Yes, sir.
Mr. Ross [continuing]. We don't have any of your
restaurants in Florida, and I am apparently missing out, but--
--
Mr. Streitberger. We are coming there. We are coming there.
Mr. Ross. I obviously haven't missed too many hamburgers,
so I am pretty good there.
Profit per employee--are you familiar with that concept?
Mr. Streitberger. Yes, sir.
Mr. Ross. And that essentially would be an alternative to
50 or more employees in order for the Patient Protection and
Affordable Care Act to apply. And I came in late--has anybody
asked you about that?
Mr. Streitberger. No, sir.
Mr. Ross. Would you explain why that is a good idea?
Mr. Streitberger. Well, if I understand the question, we
have--as a public company, and probably a lot of private
companies, we look at our profitability in many different ways,
and profit for employee, or in the case of health insurance,
the cost per employee, and we try and keep that within a
manageable rate for the organization as well as an affordable
one for our team members, as well. And to Mr. Andrews' point,
some, you know, may find it difficult to pay the premiums based
on their annual salary----
Mr. Ross. Well, that affects your margins. I mean, if you
are on a----
Mr. Streitberger. Well, at 3 percent----
Mr. Ross [continuing]. If you are a tech company and your
profit per employee is, you know, several hundred thousand
dollars, and in the food industry, you know, it is----
Mr. Streitberger. Yes. Our business isn't in the clouds. I
mean, it is in our restaurants and we can't take our work, if
you will, offshore. I mean, it stays here in the United States.
Mr. Ross. Would you support a profit per employee, as
opposed to a threshold of 50 or more employees?
Mr. Streitberger. Yes, sir.
Mr. Ross. Mr. Fensholt, you talked about the grandfather
provision and being able to keep your doctor. Is there anything
in this act that would allow or require a doctor to keep a
patient?
Mr. Fensholt. Not to my knowledge, sir.
Mr. Ross. So it is somewhat unilateral, I guess. In other
words, if the doctor is not going to get the reimbursement, if
the doctor is not going to get the equitable fee for his
services then he may not keep the patient regardless of how
much the patient wants to keep the doctor.
Mr. Fensholt. I think that is a fair statement.
Mr. Ross. And, Mr. Ramthun, I want to talk to you a little
bit about the HSAs, and wellness, and portability. And I think
there are a lot of factors that come into play because I think
we as a country missed something when we decided to continue
employee-provided health benefits, because we don't provide
employer-provided auto insurance, property insurance, and most
other insurances.
For some reason, since the end of World War II we have
provided this as a benefit, and done so to the detriment of the
employee and to the employer, and to the doctors. And it seems
to me that a change in health policy would be to allow for
wellness, as Ms. Hall spoke about being very important, and
wellness being managed with HSAs that allow the employees to
have some sense of responsibility
In other words, when I buy property insurance I get a
discount if I have a smoke alarm, a fire alarm. I have some
risk in it. I am paying the premium but I also have the
discount because of my risk management.
It would seem to me that a policy in place that would allow
for the interstate sale of health insurance programs--because
we have interstate sale of a lot of investment products out
there that are done, I think, very effectively through consumer
advocacy enforcement, as well. But across state lines, health
savings accounts, tax policy that incentivizes somebody to buy
it, and incentives for wellness, and I think that we have got
not only somebody who will manage their care better and bring
down costs but also allow for portability so that the employer
doesn't have to burden that cost and that the employee can take
the advantage of not only the deduction but also the choice of
policy they want. Would you agree with that?
Mr. Fensholt. That would be a winning combination. And as
far as not being able to reach across state lines to talk to an
insurance commissioner, it works in the driver's license
system. If I am speeding in California and my license is back
in Maryland they can pull up all the tickets that I have ever
had in a matter of a few instances, so----
Mr. Ross. Thank you----
Mr. Fensholt [continuing]. I think those insurance
commissioners could work together to----
Mr. Ross. Oh, no question about it.
Ms. Hall, you know, you talk about junk insurance companies
selling across state lines. You know, I have got some concern.
You mentioned that you would prefer a public option but a
public option is essentially putting the federal government in
the business of insurance competing against private industry.
Ms. Hall. Yes.
Mr. Ross. And you think that is a good idea. And as I
understand it, insurance is basically an actuarial assessment
of risks--of lifetime risk that is backed by capital--capital
in the form of cash, securities, or reinsurance. And yet, if
you put the government into the business there is no cash,
there is no securities, there is no capital. All there is is
the obligation of the taxpayers, and you could have a
subsidized market.
It would seem to me that a public option would be one of
the worst things we could ever do for this country, and if that
is the course you want to take then if the price of milk is too
high why not put the federal government in the milk business?
Ms. Hall. I mean, the public option is off the table so
that is no longer an issue. And I guess I disagree, that I
think the government actually could create a really amazing
insurance----
Mr. Ross. A central government function, then?
Ms. Hall. I mean, I think that you take 50-plus years of
learning of where we have come and create a system, I think,
that can be more powerful across all states.
Mr. Ross. I see my time is up, but I tend to disagree with
you.
I yield back. Thank you.
Chairman Roe. Thank the gentleman for yielding.
Mr. Rokita?
Mr. Rokita. Thank you, Mr. Chairman. I thank the chair, and
the members, and the witnesses for your time today. It is very
educational. Not only do I learn about health care but I learn
about milk prices in a centralized economy. And by the way, I
completely associate with Mr. Ross.
I had some follow-up questions based on earlier testimony
and I want to focus first on Mr. Fensholt.
Sir, did you recall the discussion--excuse me--do you
recall the discussion about the consumer protection all moving
to one state--maybe the one state that has the lease, quote-
unquote, consumer protection if we went to selling insurance
across state lines? Do you recall that discussion just a little
while ago?
Mr. Fensholt. Yes, sir.
Mr. Rokita. Okay. I used to be in the consumer protection
business. I was a state securities regulator, so I am very
interested in that line of thinking from Ms. Hall's testimony.
Do you agree with that?
Mr. Fensholt. I don't think so, sir. And certainly in our--
in my business, what Lockton does, the bulk of our clients
provide self-insurance. They are not subject to state
regulation in any event.
So we look at health reform from the standpoint of these
midsize to large employers that provide their own insurance,
and they are subject only to the whims of the federal
authorities. And our view and the view of our clients is those
regulations are simply becoming too burdensome and too
expensive.
Mr. Rokita. Right.
Mr. Ramthun, do you have anything to add to that?
Mr. Ramthun. No, I don't. Sorry.
Mr. Rokita. All right. Thank you.
And, Mr. Streitberger, do you have anything to add to that?
Mr. Streitberger. No, sir.
Mr. Rokita. Okay.
Ms. Hall, do you have anything?
Ms. Hall. I think that letting insurance companies throw
quality and value out of the window it seems like--the across
state lines is just kind of a code for insurance companies to
not comply with quality, affordable health care coverage.
Mr. Rokita. So you don't believe that competition would
occur inside the state?
Ms. Hall. It just seems like if I live in Washington I can
go to my insurance commissioner to talk about what is going
now. You know, insurance is a lot different than a driver's
license. How many times do you call the Department of Licensing
about your license? Once every 4 years.
Mr. Rokita. Well, it is very different. I know that----
Ms. Hall. And you go to the doctor six times a year----
Mr. Rokita [continuing]. But that is not my question, so I
just wanted to see if you had anything to add to your testimony
in light of what was said.
Again, to Mr. Fensholt, to offset the health reform law the
Democrats included a host of new taxes and fees in the medical
device industry and in the insurance industry.
Mr. Fensholt. Yes, sir.
Mr. Rokita. I am a cosponsor of the Medical Device Repeal
Act, for example. Many others in Congress are, as well. It is
going to be heard next week for an up or down vote, so I am
interested to know you and your members' opinions on the effect
of these taxes and fees. We have heard from the Congressional
Budget Office that these new taxes will be passed through to
consumers in the form of higher premiums.
Mr. Fensholt. No question about it.
Mr. Rokita. And so consumers are going to be paying for
these higher taxes, or we are going to have less devices, I
would imagine.
Mr. Fensholt. Sir, with all due respect, I think this is
one of the most disingenuous aspects of the Affordable Care
Act. You can't levy billions of dollars in excise taxes--
penalty taxes--against entire industry segments and expect
those business people not to pass that cost on through in the
price of their products.
In the case of the taxes and fees on insurance companies
and third party claim payers, the insurance companies we deal
with and our own actuaries, as I said in my testimony, expect
both taxes and fees alone to amount to $10 to $15 per employee
per month increase beginning in 2014.
Mr. Rokita. Thank you, sir.
And then to Mr. Ramthun: Researchers from RAND recently
wrote in Health Affairs that an increase in consumer-directed
health plans could reduce annual health spending by about $57
billion. Are you concerned that the implementation approach by
this administration--the approach they are taking with respect
to consumer-directed health plans may actually discourage
employers from offering these plans?
Mr. Ramthun. Absolutely. I am very concerned and outlined
in my testimony several areas where the regulatory issues could
cause those effects.
Mr. Rokita. Okay. Thank you.
I yield back, Chairman.
Chairman Roe. Thank the gentleman for yielding.
Mr. Scott?
Mr. Scott. Thank you, Mr. Chairman. Could any of the
panelists respond to the effect on individuals and small
businesses of getting what is essentially the large group rate
under exchanges rather than what they have to go through now?
Mr. Fensholt. I couldn't hear the question. I am sorry.
Ms. Hall. Yes. I missed----
Mr. Scott. The effect of the exchanges on the rates that
would be paid by individuals and small businesses. Right now
the large businesses get the smaller rates. By going under the
exchanges wouldn't the individuals and small businesses be--
have access to lower rates?
Ms. Hall. I mean, I am a small business owner, and yes, we
would have access to lower rates, which is why we support this.
Mr. Scott. If we have an exchange, what is the expectation
of the number of companies--insurance companies that would
actually sign up with a reasonable panel of doctors? Does
anybody----
Mr. Streitberger. I don't know.
Mr. Scott. If the insurance companies have access to the
exchange, what would that do to their expenses? Would their
expenses be lower, having access to an exchange, everybody
going to an exchange rather than having the higher sales force
to go out and try to sell insurance?
Ms. Hall. I imagine it would be much lower.
Mr. Scott. Thank you, Mr. Chairman. I yield back.
Chairman Roe. I thank the gentleman for yielding.
I will now take my 5 minutes. First of all, I just want to
start by saying the problem has been clearly laid out. The
number one problem of the American health care system is it is
too expensive. That is number one.
Number two, it has been brought out we have a group of
people who work who don't have access to affordable health
care. And number three, we have a liability crisis. Those are
the three big problems.
Let me just give you some down-to-earth examples of what is
going on out in the real world. Our local hospital system has
9,000 employees. We have a medical school in our community.
They just laid off 168 people and did not fill 90 jobs--250
good jobs went away.
A small, rural hospital, in anticipation of this, had to go
borrow $800,000 from the county commission to pay operating
expenses--not to buy a new CT scanner but to keep their
hospital doors open. Why is this happening?
Well, the payer mix is changing in hospitals. You have the
government-run plans, Medicare and Medicaid, which don't pay
the cost of the care. And there are less private insurers not
because of everything getting better, because the economy has
been bad. That is why. People have lost their insurance and
people are not going to the--so the payer mix is changed.
And I think it is great. I have supported the 26-year-olds
on health insurance. That was one of the things I support to
begin with. They don't use hospitals. They figured it out. They
are not the ones that go. You provide the benefit but they
don't spend the money in the hospital.
So I talked to our CEO at the local hospital, and that is
going on all over the country, and you are going to see more
and more of that. That is from the real world.
Secondly, the expansion of Medicaid in our state, the
hospitals now tax themselves 2.5 percent of their gross revenue
to make up the state part of the Medicaid plan because the
state doesn't have the revenue to make its match. Well, if you
expand that I don't know how we are going to pay for it in the
state of Tennessee, so that expansion is causing great grief
among our governors who have looked at this, and the expansion
is 16-to 20-something million.
I agree, it is not government-controlled health care; it is
government-regulated health care--incredibly regulated because
I put up with it for over 30 years trying to jump through those
hoops that they put out there. I think this--what we ought to
be looking at is cost, and Mr. Ramthun had a great--his
testimony showed that the one thing that has been bringing cost
down for people are consumer-driven plans.
This is mine; I have a health savings account. That is a
wonderful way to provide health care for my family because if I
need something I don't have to call up the insurance company
and say, ``Can I get this done?'' And if I take care of myself
in wellness and so forth I keep the money, the insurance money
doesn't keep the money.
Where have we seen this done in public policy? And I want--
I know Mr. Rokita is gone, but the state of Indiana has done
this. We have done this for about 400 employees in our
practice, and they don't go back to conventional insurance.
People like this.
And I would like to have Mr. Ramthun speak to that. When
you look at the data it is overwhelming--at the money. It is a
different concept. You have to think about, ``Now I am in
charge of this debit card. I don't have to call anybody or do
anything.''
Could you comment on that?
Mr. Ramthun. Well, it is very easy to blame the insurance
for the rising costs of health care in this country, but the
fact is that most of the employees get their coverage through
self-funded employers, where the employer is the insurance
company. So they are not layering on all these other costs that
everybody thinks are excessive for insurance.
What they have seen is that the utilization of the health
care services is what is driving this total spending growth.
And so it is strategies of personal responsibility, wellness,
prevention that are making a difference and why the consumer-
driven plans are so successful. There is a financial reward at
the end of the day for doing so because you get to keep some of
the money that used to go to pay for your insurance.
I think we have lost the notion of what real insurance is,
and so we insure ourselves for all kinds of routine, very low-
cost things where there is absolutely no risk involved. That
has got to change. Consumer-driven health care is doing that
and why it is so promising as a strategy to bend the cost
curve.
Chairman Roe. Yes. When the rule-makers looked at this, why
would they treat HSAs differently when it has been shown that
that is the one thing out there that is lower cost for people?
Why would that be treated differently?
Mr. Ramthun. I don't think they fully understand exactly
how these policies work, and they are used to dealing with
traditional insurance, which I understand what they are trying
to achieve through their regulations. These policies are
different because they don't pay from the very first dollar and
so there have to be some special considerations made, which I
have yet to see in the regulations.
Chairman Roe. And the state employees in Indiana saved--the
state of Indiana saved 10 percent, which is a huge amount of
money.
Mr. Ramthun. Yes. And that has been documented by Mercer.
Chairman Roe. Yes. Huge amount. And only 2 percent of the
employees chose to go back to traditional insurance. They
stayed. When they found out and learned how to use it it is
very, very good.
I see my time is expired.
Mr. Walberg?
Mr. Walberg. Thank you, Mr. Chairman.
Appreciate reading the testimonies. Sorry I wasn't here to
hear them.
But let me ask Mr. Fensholt, first, at this time 2 years
ago in our state of Michigan, which led the nation into high
unemployment and is still working its way out of it.
Thankfully, in the last 2 years we have had new leadership in
Lansing--new governor, new legislature--that have been doing, I
think, things the right direction in reducing the heavy burden
upon businesses--small businesses, especially, in the state.
So we have gone from a statewide average 2 years ago of 13
percent, last year 10.6 percent. My district was at almost 15
percent and has now dropped to a state average. We are at 8.3
percent now. Things are starting to turn.
But in your testimony you discuss how the additional
complexities of the president's health care law will undermine
the private sector's attempt to grow. Could you be somewhat
specific in how many of your clients are concerned with how
this health care law will affect their businesses? And
secondly, have they discussed the option of laying off
employees or dropping health care coverage all together?
Mr. Fensholt. Yes, sir. We surveyed our clients about this
time last year regarding the--their concern about the bill, its
additional costs, its additional administrative burdens, and
the cost attendant to that. A full 80 percent of our clients
responded, and about half of our clients responded to the
survey, which was remarkable--said they were either concerned
or very concerned about the additional costs, administrative
burdens imposed upon them by the health care reform law.
The bottom line is this: There is a tension created by the
law between the finance offices in these companies who are
looking at what they are currently spending on health
insurance--$6,000, $8,000, $10,000, $11,000 per employee per
year--and the human resource managers who feel they need to
offer benefits to attract and retain talent. Ultimately, in
challenging economic times the CFO wins that argument and if
the business' survival depends on jettisoning health insurance
they will do it.
And what this construct does, by offering extraordinarily
generous federal subsidies to individuals to buy insurance in
these insurance exchanges if they cannot get it from an
employer, and it invites employers, in these challenging times,
to exit that marketplace and allow their employees to migrate
into the health insurance exchanges. Our fear--and I think our
clients, many of them view--is that that will simply have to
happen. They simply cannot continue to sustain these costs and
without relief in that regard--they would love to do it, but
without relief in that regard ultimately they will send their
employees into the health insurance exchanges where they will
draw federal money to buy coverage.
Mr. Walberg. Yes, okay. Thank you.
Mr. Streitberger, maybe I am drawn to ask you questions
because it is getting near lunch time and Red Robin is an
interest at this point. But you mentioned that over the last 3
years, in your testimony, health care costs per employee have
risen over 6 percent.
Mr. Streitberger. Yes, sir.
Mr. Walberg. And that it is--that is before the full
implementation of PPAC. If the president's health care mandate
continues to force your prices to rise rapidly how will you
limit the number of jobs Red Robin can create, and might you be
forced to shift to a model where some of your workers' hours
would be reduced, minimized, your company's exposure to the
employer penalties?
Mr. Streitberger. Well, those are all things that we are
going to--that we are currently considering in how to deal with
2014. And yes, we would have to look at limiting hours that
team members work, you know, to keep them below that because
the cost is a--will spiral upwards when this kicks in.
We do the best that we can, as I mentioned earlier. We are
self-insured. We pay the bills for our team members, which
helps keep all our premiums as well as their premiums down. And
with the lack of competition out there this is going to
continue.
Now, ours increased 6 percent over the last 3 years, and a
lot of that was in plan design and a lot of it with the fortune
of having low claims history of our current population. So that
6 percent includes last year, which we were at zero. We kept
our premiums flat.
Mr. Walberg. So it could have been worse.
Mr. Streitberger. This was not health care legislation;
this was just plan design and a little luck with low claims.
But we can't count on that every year. Again, we want to keep
affordable and robust health insurance, health coverage for our
team members so that we can continue to grow and--but with
these small margins the more we invest in things such as this,
the slower we would be forced to grow, and then having to also
entertain looking at limited hours.
Mr. Walberg. Thank you.
And, Mr. Chairman, I think the old saw that said the best
way to have health insurance is to have a job. This is going
directly opposite in promoting health care at the expense of
jobs, which ultimately does away with health care, as well.
Thank you.
Chairman Roe. I thank the gentleman for yielding.
I would now like to take this opportunity to thank our
witnesses for taking your valuable time, and preparing your
testimony, and coming to Washington and testifying. It has been
very enlightening.
I will now recognize the ranking member for closing
comments.
Mr. Andrews. Thank you.
I also would like to thank each of you for the time and
preparation, and the inconvenience you suffered. I know one of
our witnesses is going to go open another store in the state of
Washington. I wish her well.
And I hope--Mr. Streitberger, you are opening a lot of
stores. New Jersey is open to you.
I do want to express to the chairman my extreme
disappointment that in scheduling this hearing and having a
premier hamburger restaurant, premier cupcake vendor, that
neither were asked to bring samples, evidently, for the members
of the committee, and I want to express and register my extreme
disappointment in that--that disappointment.
Mr. Fensholt. I will second that, Mr----
[Laughter.]
Mr. Andrews. The premise of much of the argument against
the Affordable Care Act is that it is a job-killing health care
law. Since the president signed the law private sector
employers in this country have added over 4 million new jobs.
I think that there is a political dispute about the law; I
think it is one we ought to have in the election. But I think
the facts are clear that the argument that this is a job-
destroying health care law is not borne out by the evidence.
Matter of fact, the opposite is borne out by the evidence.
But I look at this through the prism of personal
experiences that some of you help us to edify this morning--all
of you really have. On Tuesday morning--you want to talk about
controlling cost--a woman went to a doctor to see how her
diabetes was being managed. She had a stroke in 2005, mildly
has been managing her blood sugar through exercise and diet,
and as just great news about her blood sugar, and about her
blood pressure, and about her blood tests, which all came back
looking like she is doing very well.
She is a Medicare recipient, and I will tell you, I am
especially glad that the prospect she will have another stroke
or heart attack are lower because she is my wife's mom. And she
swims every day, and she counts every carb that she eats, and
she takes care of herself.
And we didn't pass a law that said she had to do that.
Believe me, I can't pass any laws in my household that would
affect anyone, as far as I can tell. But she made a really good
personal choice, and she has got a higher quality of life, and
she is costing the federal Treasury less. We have got to figure
out a way to increase that behavior in any way we can.
On Sunday I encountered a constituent. She and her husband
were music directors for a local Catholic church and the church
has suffered a downturn in the collection plate because a lot
of the parishioners are out of work, so the church had to cut
back and make the two music directors part time instead of full
time.
They both lost their health insurance because they were
part time; the diocese couldn't afford to cover them anymore.
And the husband, who is six-five and 250 pounds, his pulse was
down to, like, 41, and my physician friends would understand
that there was something going on there. So he goes to a local
emergency room, they look at him, and they say, ``You have got
a serious problem. You probably need some heart surgery.'' And
they were uninsured.
Now, happily, there is an institution in our area called
the Deborah Heart and Lung Center that is like the Shriners
concept, that they will see anyone and take care of them
whether or not they can pay their bill. And they were lucky
enough to live near a facility like that.
The man had a pacemaker put in a few months ago and he is
alive today. I don't think he would be alive today were it not
for the fortuitous event that that hospital was accessible to
him.
That should not happen. These are hardworking, taxpaying,
mortgage-paying citizens who, through no fault of their own,
found themselves in a position where they were facing financial
ruin, and worse than that, loss of life because of lack of
health insurance.
That should not happen in this country. And I think that
this law should stay in effect because it will prevent that
from happening in this country.
And then the final thing that I saw this weekend that is a
very good thing is that on Monday morning I was at Memorial Day
breakfast at one of my American Legion posts and a friend of
mine there is an electrical contractor. And last year when I
saw him he was worried because he had one job left after the
one he was working on.
He now has a 4-month backlog of electrical contracting jobs
waiting for him throughout the rest of the summer and into the
fall. Now, he is not indicative of every employer in America.
He is certainly not, you know, a statistically significant
sample. It is one guy.
But we have talked about the health insurance bill. He has
about four or five employees. You know what he has to do under
the bill? Nothing. Nothing. Because for the truly small
businesses in the country there are no obligations imposed on
them because of the understanding of what that costs.
I would like Mr. Streitberger's company to open 5,000 more
stores. And I understand we have got to do something to control
health care costs to make that a realistic and affordable goal.
And for everyone here I would like to see them grow and be more
successful and more prosperous.
I understand the intensity of the political argument about
this. Boy, do I understand it. We all lived through it the last
couple years.
But these are not issues that should be decided by
ideological jihad; they should be decided by careful reasoning
of people that want to solve these problems. I think we can do
that together. I think we should build on this law--fix its
deficiencies, build on its successes, and put our country in a
different and better place. And I am confident that we can work
together and do that.
I thank you for participating in a meaningful discussion
that helps us do that, each of you. Thank you.
Chairman Roe. I thank the gentleman for yielding.
And I will finish by saying after 31 years of the practice
of medicine I never saw a Republican or a Democrat heart attack
in my life. I never delivered a Republican or a Democrat baby
in my life, and I have delivered lots of them. And I never
operated on a Republican or Democrat cancer. It is a people
problem, and unfortunately, this health care law was passed on
a partisan basis.
And I agree with the ranking member that we should work
together in a bipartisan way to solve this, because if not it
will never be accepted by the American people. Cost is a big
issue because if you can't afford to buy it then you can't have
it. I mean, it is that simple.
The only way I see that you can do this is to either go to
a consumer-driven system or to a single-payer system where care
is rationed. I mean, otherwise we are not--nobody is going to
be able to afford health insurance, even the wealthiest is not,
among us.
And the second thing that the ranking member brought up--
Mr. Andrews brought up--which is coverage. There is no question
there is a gap in coverage. I saw it every day in my practice,
where there were people who worked hard every day and couldn't
get affordable health care coverage. We have to address that in
this country.
To clear the record up, there is a law called EMTALA that
was passed, I think, in 1986, where if you show up in an
emergency room, whether you are legally here in this country,
illegally, whether you can pay or not pay, we give you care in
this country. And I am not saying that is the best way to do it
but it is done.
And I feel an obligation when someone--I am required and
would do it. When a patient shows up without a doctor if I am
on call I am going to take care of that patient in the
emergency room.
Physicians, and nurses, and health care people do it every
single day across this country and don't ask anything for it.
The problem is it leaves the burden on the hospital to figure
out how to pay for the bills--how to pay the bills, I should
say.
I held a hearing in Evansville, Indiana about a year ago--a
subcommittee hearing, and a small business person who was an
IHOP owner was there--something you would, Mr. Streitberger,
you would be familiar with. He had 800 employees in his 12
stores and he made about $3,000 per employee--netted about that
per employee, which he said was, in that business, pretty good,
and he thought was very good.
Since he had over 50 employees, if he provided what the
government said he had to provide, the essential benefits
package, which we don't know what it is yet and how much it is
going to cost, then it would cost him--he would be upside-down
about $7,000 per employee. He calculated--his H.R. people did.
If he paid the penalty he made no profit, made no money at all.
So what is he supposed to do?
Can he raise prices, as you pointed up? He can't do that.
We have to work through this.
Another issue that we did hear--a small issue, but very
much a big issue for me as a practitioner--is having someone
with a flexible spending account, which should be getting you
out of the most expensive part of health care, away from the
doctor, away from the system, lets you make those health care
decisions yourself and then purchase it with your own money,
now you are requiring someone to see me to get a prescription
for Nyquil. I mean, it is crazy when you see that. It makes no
sense whatsoever.
You are forcing that person into a higher cost or you are
forcing that person to make a phone call that day to the
doctor, wait until it is called in, and add more bureaucracy
and mandates to me with no payment for it at all, just more
work to do.
There is a much simpler way to do it. One of the simplest
transactions on this planet is a patient coming to see me as a
physician, me providing a service, and them going out with
whatever I do that day. And that is where consumer-driven care
gets the insurance companies out of it, and you insure yourself
for catastrophic problems--not for a headache or not for a cold
but for catastrophic things. And it is the only way I can see
we can actually get the health care costs under control.
And I think you can do it for our Medicaid population. I
think they respond exactly--there are folks and some of the
best shoppers in the world are people who are at lower income.
They have to be. So they make, probably, better decisions than
people that have more disposable income.
I think this has been a great hearing. I certainly
appreciate all of your testimony, appreciate your being here.
With no further comments, this meeting is adjourned.
[Additional submission of Chairman Roe follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
------
[Whereupon, at 11:51 am., the subcommittee was adjourned.]