[Senate Hearing 111-974]
[From the U.S. Government Printing Office]

                                                        S. Hrg. 111-974



                                 OF THE

                          LABOR, AND PENSIONS

                          UNITED STATES SENATE


                             FIRST SESSION


                         EXAMINING HEALTH CARE


                             JUNE 11, 2009


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               EDWARD M. KENNEDY, Massachusetts, Chairman
CHRISTOPHER J. DODD, Connecticut     MICHAEL B. ENZI, Wyoming,
TOM HARKIN, Iowa                     JUDD GREGG, New Hampshire
JEFF BINGAMAN, New Mexico            RICHARD BURR, North Carolina
PATTY MURRAY, Washington             JOHNNY ISAKSON, Georgia
JACK REED, Rhode Island              JOHN McCAIN, Arizona
BERNARD SANDERS (I), Vermont         ORRIN G. HATCH, Utah
SHERROD BROWN, Ohio                  LISA MURKOWSKI, Alaska
ROBERT P, CASEY, Pennsylvania        TOM COBURN, M.D., Oklahoma
KAY R. HAGAN, North Carolina         PAT ROBERTS, Kansas
           J. Michael Myers, Staff Director and Chief Counsel
     Frank Macchiarola, Republican Staff Director and Chief Counsel



                            C O N T E N T S



                        THURSDAY, JUNE 11, 2009

Dodd, Hon. Christopher J., a U.S. Senator from the State of 
  Connecticut, opening statement.................................     1
Enzi, Hon. Michael B., a U.S. Senator from the State of Wyoming, 
  opening statement..............................................     4
    Prepared statement...........................................     5
Flowers, Margaret, M.D., Maryland Co-Chair, Physicians for a 
  National Health Program, Chicago, IL...........................     8
    Prepared statement...........................................     9
Williams, Ronald A., CEO, Aetna, Inc., Hartford, CT..............    21
    Prepared statement...........................................    23
Johnson, Randel K., Vice President for Labor, Immigration, and 
  Employee Benefits, U.S. Chamber of Commerce, Washington, DC....    25
    Prepared statement...........................................    26
Dennis, William J., Jr., Senior Research Fellow, National 
  Federation of Independent Business, Washington, DC.............    29
    Prepared statement...........................................    30
Andrus, Mary, Co-Chair of The Health Care Task Force, Consortium 
  for Citizens with Disabilities, Washington, DC.................    31
    Prepared statement...........................................    32
Rosman, Samantha, M.D., Board of Trustees, American Medical 
  Association, Chicago, IL.......................................    35
    Prepared statement...........................................    35
Scheppach, Raymond C., Ph.D., Executive Director, National 
  Governors' Association, Washington, DC.........................    38
    Prepared statement...........................................    39
Shea, Gerald, Assistant to the President, AFL-CIO, Washington, DC    43
    Prepared statement...........................................    44
Rivera, Dennis, Chair, SEIU Healthcare, SEIU, Washington, DC.....    48
Baicker, Katherine, Professor of Health Economics, Harvard School 
  of Public Health, Boston, MA...................................    49
    Prepared statement...........................................    50
Gruber, Jonathan, Ph.D., Associate Head, MIT Department of 
  Economics, Cambridge, MA.......................................    56
    Prepared statement...........................................    57
Trautwein, Janet Stokes, Executive Vice President and CEO, 
  National Association of Health Underwriters, Arlington, VA.....    62
    Prepared statement...........................................    63
Praeger, Sandy, Kansas Insurance Commissioner, Topeka, KS........    69
Gottlieb, Scott, M.D., Resident Fellow, American Enterprise 
  Institute, Washington, DC......................................    71
    Prepared statement...........................................    72

Steve Burd, President and CEO, Safeway, Inc., Pleasanton, CA.....    74
Harkin, Hon. Tom, a U.S. Senator from the State of Iowa..........    79
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......    82
Mikulski, Hon. Barbara A., a U.S. Senator from the State of 
  Maryland.......................................................    84
McCain, Hon. John, a U.S. Senator from the State of Arizona......    87
Bingaman, Hon. Jeff, a U.S. Senator from the State of New Mexico.    90
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont..    93
Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee    97
Casey, Hon. Robert P., a U.S. Senator from the State of 
  Pennsylvania...................................................   100
Merkley, Hon. Jeff, a U.S. Senator from the State of Oregon......   103


                                (PART I)


                        THURSDAY, JUNE 11, 2009

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 3:09 p.m. in Room 
216, Hart Senate Office Building, Hon. Christopher J. Dodd, 
    Present: Senators Dodd, Harkin, Mikulski, Bingaman, 
Sanders, Casey, Merkley, Enzi, Isakson, McCain, Alexander, and 

                   Opening Statement of Senator Dodd

    Senator Dodd. The committee will come to order.
    Let me thank all of you for being here and I apologize for 
being a couple minutes late. We just finished a vote for the 
Senate, let me thank my colleagues, as well, for those who are 
supportive of that last effort. It's a long time coming and no 
one, more than I do, wishes that Senator Kennedy was sitting in 
this chair and banging down that gavel. He has a great 
relationship with every member of this committee and we all 
wish him the very, very best, the speediest of recoveries, and 
the hopes that he'll be back in this chair with this gavel in 
his hand before this process is over.
    I want to thank my colleague from Wyoming, thank him for 
his support on this last vote we had on the tobacco issue, an 
historic moment that we're finally going to be able to regulate 
and control tobacco products which may be one of the major 
steps we can make in prevention and healthcare and begin to 
reduce the number of children who start smoking every day, the 
3,000 to 4,000 that begin that habit.
    I don't ever recall in my 29 years in this committee having 
a panel this large. I thought you were the audience when I 
walked in with this many people, but obviously we have a lot of 
ground to cover and so I want to be very brief in my opening 
comments, turn to my colleague from Wyoming for any opening 
comments he wishes to make, and then I'll introduce our 
witnesses, and we'll begin the process of hearing from each of 
you about this most important issue.
    As Mike Enzi has said and I'm sure he may repeat it again, 
but it deserves being said by all of us, I don't know of 
another issue that any of us either have dealt with or will 
deal with that will have an impact on every one of our citizens 
in this country.
    There are other issues that are huge and cover an awful lot 
of people, but this one touches 100 percent of Americans and 
every business, every consumer, every provider, as well, and so 
it's important we get this right. I'm very conscious of that, 
the magnitude of the job in front of us, to work in concert 
with the Finance Committee, Senator Max Baucus and Senator 
Chuck Grassley. I'm determined to achieve that same sense of 
comity and civility in this committee that's been a hallmark of 
the success in the past, to sit with each other, to listen to 
each other in these coming days as we try to fashion a product 
that all Americans can be proud of.
    That doesn't mean there won't be differences that we'll 
have to confront and deal with, but to the extent we can work 
with each other and achieve the common ground and unanimity on 
many issues that I believe we can, we can make major steps 
forward in the achievement of the healthcare reform that I 
think all of us are so anxious to achieve.
    Let me begin, as I said a moment ago, that there is no one 
who wishes our dear friend Ted Kennedy was sitting at this 
gavel more than I do. Many of us have been preparing for this 
moment for a long time but none longer than the chairman of 
this committee. Four decades, at least, he's been an advocate 
of healthcare reform.
    Reforming our system so that every American has access to 
affordable, high-quality healthcare has been the cause of his 
life. He's been a leader on this issue for 40 years and he 
continues to be a leader in so many different ways and that 
doesn't depend upon location per se.
    Today, we address an issue that affects, as I said, 100 
percent of our fellow citizens. For far too many Americans, the 
costs are too high, the quality of care is inadequate, and too 
many of our citizens, one in every six, have no health 
insurance at all, and in today's economy, too many of our 
families find that the cost of healthcare puts stress on a 
family budget, to put it mildly.
    We spend more than $2 trillion on healthcare each and every 
year in our Nation, more than 18 percent of our Gross Domestic 
Product. By the year 2040, we're told by many experts, 34 cents 
of every dollar we spend could be on healthcare. That is not 
simply unacceptable, I hope, to all of us, it's unsustainable 
and therefore the sense of urgency that we share about this 
    Premiums and out-of-pocket costs for individuals and 
families alike continue to skyrocket. In my home State of 
Connecticut, healthcare costs have shot up 42 percent in the 
last 8 years and today there are 322,000 people in my State 
that lack insurance.
    It is wrong that so many families in any State and across 
our country go to sleep at night wondering what they will do if 
their children get sick or how they'll care for an ailing 
parent. It's a worry that we all can share from time to time.
    Over the last few months, I have held town hall meetings, 
as many of my colleagues have, throughout my State. Ron 
Williams, by the way, of Aetna was a panelist at one of them 
and I thank him immensely. He's the CEO of a major insurance 
company, and he was there, listening to the concerns of people 
in Connecticut.
    At one event in Connecticut, I met a mother terrified about 
what losing her health insurance could mean for her disabled 
toddler's future. At another, I spoke with a cancer survivor 
who now pays as much for her healthcare as she does for the 
mortgage on her home because her husband passed away from 
leukemia and she's lost her employer-sponsored health 
    In fact, more than half of the families that go through 
bankruptcy in our country say that healthcare costs have 
contributed to putting them there. That's not the America we 
should be. I share and I believe that all of us share that 
    We know that health reform is a difficult issue. If it were 
easy, we would have reformed our country's healthcare system 
years ago to assure quality affordable health coverage for all 
Americans, but we owe it to our citizens to bring about the 
change they need so desperately and finally today we have a 
president who has made it a priority, and a Congress who's 
poised to act.
    If there is no other message out of today's hearing, it 
should be this: we will act to cut the skyrocketing costs of 
healthcare to our healthcare system, and we will at long last 
make quality affordable health insurance available to every 
man, woman and child in the United States of America.
    Our goal is to protect people's choice of doctors, their 
choice of hospitals and of insurance plans, reduce the costs 
for families, businesses and government, and to assure 
affordable high-quality healthcare for every one of our 
    Our goal is also to strengthen what works and to fix what 
doesn't. If you like the insurance you have today, you should 
be able to keep it. If you don't like what you have today, 
we'll give you a better choice, including a public option for 
    No longer will a pre-existing condition, such as a heart 
attack, cancer or even being the victim of domestic violence, 
prevent you from obtaining insurance. No longer will costs be a 
barrier to coverage.
    Our approach will be to offer affordable options for 
Americans struggling under the skyrocketing costs of 
    We have proposed a piece of legislation that we think will 
accomplish this great purpose. This is the first committee in 
Congress that will act on this important goal and as every 
single American will be affected by what we do in the coming 
weeks, we want to hear from a great variety of Americans on 
their views of how best to meet those goals and so we look 
forward to hearing from our witnesses today and witnesses 
tomorrow, as well, but even more importantly, we look forward 
to enacting real healthcare reform, that we'll be able to say 
to our citizens that we've advanced the cause of healthcare for 
every single American in our Nation. Delay or inaction is 
simply not an option for any of us. Healthcare reform cannot 
and must not wait.
    With that, again I thank my colleagues, and the staff, for 
the tremendous amount of work that's already been done over the 
past many months on this issue. This is not the first time that 
we've gathered and our determination again is to work together 
and achieve, if we can and I believe we can, a strong 
bipartisan piece of legislation.
    With that, let me turn to Senator Enzi.

                   Opening Statement of Senator Enzi

    Senator Enzi. Thank you. I have a full statement that I'd 
like to have put in the record.
    But I want to reserve as much time as possible for the 
roundtable and I do want to make some comments, besides what I 
have down here.
    I know all of you have been asked to take a look at the 
bill that we're marking up and that kind of disturbs me. You 
know, you can't have a bipartisan bill that's written by one 
side and that's what it is.
    We've been having a walk-through and I thank the Senator 
from Connecticut, Senator Dodd, for the tremendous way that 
he's working with us, so that we have an opportunity to look at 
options from everybody.
    I have been working on this for several years. A couple of 
years ago Senator Kennedy and I sat down and listed out some 
principles and then because higher education was a very high 
priority and he dedicated most of his time to that, I collected 
ideas from both sides of the aisle to come up with a way that 
we could take care of everybody with healthcare. I called it a 
10-step plan and I did 10 stops in Wyoming and promoted it and 
learned a lot more from that part of the process, as well, and 
I'm not the only one that's been working on that.
    A lot of other people have put together proposals and all 
of those need to be considered. I have worked on a lot of bills 
with Senator Kennedy and with Senator Dodd. I have never worked 
on one that was as comprehensive as this one. This one will 
affect every single American. This will affect every business, 
every provider and every consumer.
    We've never had a bill with so many moving parts and they 
have to be there in order to take care of the goal that we've 
set and I think both sides of the aisle have that goal of 
taking care of every American. How we get there, there's some 
differences on that, and our walk-through is pointing out some 
of those differences, some of the alternative ideas, and we've 
had some agreement through that process.
    In fact, I find it to work a lot better than the normal 
mark-up process where you have to put up a certain amendment 
and then you can argue about pieces of the amendment or the 
whole amendment and vote them up or down.
    This is a lot more constructive where staff have a chance 
to work on some specific language apart from the concept that 
we're doing and that's real important.
    If we don't get this right, America will suffer. If we get 
it right, it'll be a great thing and we do have an opportunity 
to get it right. We shouldn't be subject just to time tables. 
We should be subject to getting it right and that may take a 
little bit longer, but I think it's important for us to do 
    I'm anxious to hear your ideas, whether they are in the 
bill or not. As you probably noticed, there are three major 
sections that are blank and we will find out what's in those 
later. Unfortunately, we have to have amendments in probably 
Monday, and those are extremely critical and I understand the 
reason that Senator Dodd left those out was because there is 
some controversy over those and we need to have the time to put 
them together. That's what we're all hoping we can have, and 
that is some time to put it together.
    [The prepared statement of Senator Enzi follows:]

                   Prepared Statement of Senator Enzi

    Mr. Chairman, I firmly believe an ounce of prevention is 
worth a pound of cure. Congress has a unique opportunity to 
improve our health care system, but this bill misses the mark.
    As the Senate's only accountant, and the only Senator to 
serve on the HELP, Finance and Budget Committees, which share 
jurisdiction over health care reform, I am concerned about the 
vast amounts of wasteful spending in the health care reform 
bill released by HELP Committee Democrats this week. This bill 
will pave sidewalks, build jungle gyms, and open grocery 
stores, but it won't bring down health care costs or make 
quality coverage more affordable. In a time of record debt and 
deficits, how can you justify the wasteful spending in this 
    I believe we should instead focus on rooting out the waste, 
fraud and abuse that is driving up health care costs. Creating 
a whole slew of new wasteful programs will indeed bend the cost 
curve, but in the wrong direction.
    Instead of providing mandatory spending on a vast array of 
public health programs, we should provide the CDC with a 
Director's fund, similar to the NIH common fund, which the 
Director can use to set priorities. A Director's fund improves 
CDC's planning, because the Director would have a consistent 
funding source, and clear authority to set priorities.
    I agree that we need to be able to target funding towards 
specific public health issues, like obesity. But instead of 
taking multiple attempts at trying everything we can think of, 
we should be both more selective and more flexible in our 
approach. Consolidating programs allows more funds to be used 
on a bigger picture goal rather than small amounts of funds for 
smaller goals. Targeting spending will result in better 
outcomes because the experts with boots on the ground decide 
how to spend the money, not politicians.
    We should allow States to streamline all health promotion 
and disease prevention funding to target the top 3 chronic 
conditions that cost that State the most. This provides the 
States with the flexibility to target their Federal grant 
dollars on the most costly chronic conditions. Finally, while 
States must be held accountable for spending Federal funds, 
they cannot achieve programmatic goals with multiple mandates.
    I believe we should be thinking and planning for the long 
term, instead of praying for a quick fix and throwing money at 
the problem in a knee-jerk reaction. For example, many chronic 
health problems are caused by behavior, and are therefore 
preventable. But changing behavior, whether it is quitting 
tobacco, eating healthier, or exercising more, is one of the 
hardest things to achieve. One way to tip the balance toward 
change is to incentivize the behaviors we want to see. I think 
we should be able to use the health care system to provide 
incentives to keep people healthy, both on an individual level, 
and on a system-wide level. Unfortunately, I don't see any of 
that in the bill we are scheduled to mark up.
    Some of the programs proposed in this bill may have value, 
but this is the wrong bill and the wrong process. With our 
Nation's health and economy at stake, this bill must not turn 
into a Christmas wish list for every partisan interest group in 
Washington. I urge my colleagues to reconsider this scattershot 
approach and work with me to tackle our biggest health problems 
in a targeted, prioritized way.
    Thank you.

    Senator Dodd. And we will do that. Let me just say to 
Senator Enzi and our colleagues, the goal is obviously to spend 
some time not only with you today listening to your thoughts 
and ideas on all of this and then tomorrow with another panel. 
This evening we will go back to our walk-through again as we 
listen to Senator Mikulski, who's got some thoughts, as well as 
Senator Murray, on the workforce issues and quality issues, and 
to revisit these other questions that have come up. As Senator 
Enzi pointed out, we left a couple of these sections blank very 
simply because they are controversial. Rather than trying to 
write something that could be seen as almost confrontational, I 
tried just to deal with the issues where I think there is at 
least some unanimity around purpose.
    There are obviously differences in how to achieve those 
purposes. We will continue in that vein and my hope is that we 
can eliminate a lot of the dissent in certain areas, achieve a 
common language, and then in those areas where we can't, we 
will have to engage in that kind of a debate. Our purpose is to 
try and achieve as much bipartisanship as we possibly can in 
this effort.
    Let me begin by thanking our witnesses. You are all very 
gracious to be here. A lot of you spent a lot of time on these 
issues and I want to introduce you all very briefly. My 
introductions of you will not do justice to your careers and 
your background and the experience you've brought to the 
positions you are in.
    Dr. Margaret Flowers is a Maryland pediatrician, represents 
Physicians for a National Health Program where she has 
tirelessly advocated the benefits of a single-payer system, and 
we thank you very much, Doctor, for being with us.
    I have already mentioned Ron Williams, the CEO of the Aetna 
Insurance Company, where he has focused on innovation and 
industry to improve access and affordability. I mentioned he's 
attended one of my very well-attended town hall meetings--700 
people at one, 500-600 at others--as an insurance company 
executive to listen to people and respond to their concerns.
    Mental health parity was one issue which Aetna took a 
leadership role on and again Senator Kennedy was a champion of 
that issue, but Aetna played a very constructive role in that, 
    Publicly, I want you to know how much we appreciate the 
efforts your company made in that regard.
    Randel Johnson is the Vice President of Labor, Immigration, 
and Employee Benefits at the U.S. Chamber of Commerce, and is 
primarily responsible for employee benefits issues pending 
before the Congress and Federal agencies. We thank you, as 
well, for being with us.
    Mr. William Dennis is a Senior Research Fellow at the 
National Federation of Independent Businesses, and he can 
provide insight on key healthcare issues that affect small 
business and that's been a major subject of our conversations. 
So we thank you, as well.
    Mary Andrus is the Co-Chair of Health Care Task force with 
a Consortium for Citizens with Disabilities as well as Vice 
President for Government Relations at Easter Seals and has been 
a strong advocate throughout this process for individuals who 
face extra challenges.
    Dr. Samantha Rosman is a member of the American Medical 
Association's Board of Trustees, has been a relentless 
physician advocate, even during medical school, for healthcare 
access to all, and we thank you, as well, for being with us.
    Ray Scheppach--is that how you pronounce that? Ray 
Scheppach is the Executive Director of the National Governors' 
Association, has expertise in State and Federal budgets as they 
relate to healthcare policy, very important issue for us, as 
    Dennis Rivera. Where is Dennis? Dennis, good to see you. 
He's a good friend, is chair of the Healthcare at SEIU, has 
worked tirelessly for the United Healthcare Workers in an 
effort to fix our Nation's broken system.
    Dr. Katherine Baicker--did I pronounce that correctly--is a 
Professor of Economics at Harvard University School of Public 
Health where her research focuses on the effectiveness of 
public and private health insurance.
    Dr. Jonathan Gruber is the Professor of Economics at MIT 
and has been appointed to the Board of the Massachusetts 
Insurance Connector. I have been talking about Massachusetts a 
lot over the last 7 or 8 hours as we have asked questions all 
the time about how are things working in Massachusetts. We 
appreciate your presence here today.
    Janet Trautwein, as well, is the CEO and Executive Vice 
President of the National Association of Health Underwriters 
and has a particular expertise in issues related to the 
uninsured, long-term care, and high-risk pools.
    Commissioner Sandy Praeger. Commissioner, we thank you for 
being with us. Ms. Praeger is the Commissioner of Insurance in 
the State of Kansas, has been responsible for regulating all 
insurance sold in Kansas which includes overseeing nearly 1,700 
insurance companies and 90,000 licensed agents. Is it a 
requirement to have white hair to be in Kansas? Kathy Sebelius, 
our new----
    Ms. Praeger. [Off microphone.]
    Senator Dodd. Well, I love to see younger people with white 
hair. I have a bias.
    Scott Gottlieb is a practicing physician and Resident 
Fellow at the American Enterprise Institute, has served as a 
senior policy advisor at CMS, and we thank you very much.
    And closing out, I missed--oh, I'm sorry. Gerald Shea, AFL-
CIO. Gerald, I apologize. Where are you? There you are. I 
apologize. I went right by you. Thank you. I apologize. Thank 
you for being with us.
    Closing our first panel is Steve Burd--we heard from him at 
lunch today, the Democrats did--who is the Chairman, President 
and CEO of Safeway, and incidentally, as I mentioned at lunch 
with the Democrats today in our Policy Committee lunch, left a 
very strong impression about what he's been able to do at 
Safeway, and thank you for being here with us, and we're 
anxious again to hear you today in this panel. Thank you, 
Steve, very much.
    I'm going to ask you to keep opening statements brief, if 
you would. I know many have supporting documents. Let me say to 
all my colleagues, any opening statements, comments, supporting 
material will be included in the record and that includes our 
witnesses, and so we begin with you, Doctor, and again thank 
you for joining us.


    Dr. Flowers. Thank you, Senator Dodd and to the other 
Senators, for inviting me to speak to you today.
    I speak on behalf of the majority of people living in 
America who desire a national health program. For decades, 
healthcare providers have struggled to provide care in an 
increasingly-difficult environment and it is taking a toll.
    Doctors are leaving practice, refusing to accept health 
insurance, and there's a new category of physicians, disruptive 
physicians, who are expressing the dysfunction of a healthcare 
situation that places obstacles between them and the treatment 
of their patients.
    The greatest obstacle is the private health insurance 
industry. This industry detracts from the health of our Nation 
rather than adding value to it.
    We have reached a point in American history which allows us 
to finish what President Franklin Delano Roosevelt set out to 
accomplish almost 75 years ago with the Social Security Act, a 
national health system.
    The lack of a coordinated and comprehensive nonprofit 
national health system sets us apart from other industrialized 
nations and we're seeing the results in increased costs and 
poor health outcomes.
    For decades, reliance on the market and efforts to patch 
together a system using a public and private mix has failed to 
guarantee quality healthcare to all Americans. This reliance on 
the market dates back to the 1960s when there was a strong 
belief that America was so different from the other nations 
that our unique American market would solve our healthcare 
problems. We were wrong then and it's disappointing to see us 
continue to cling to this idea. This is not the time for more 
    The healthcare market has allowed private health insurers 
to rake in obscene profits while nearly 50 million Americans 
lack health insurance and tens of millions more are 
underinsured. We are ranked the worst out of 19 industrialized 
nations in terms of preventable deaths which means a 101,000 
preventable deaths in this country every year.
    Healthcare in our country is already rationed based on 
ability to pay. Patients are waiting months to get in to see 
their doctors and some of them never even make it through the 
door. We provide little employment security, however we tie 
health insurance to employment. When people are most 
vulnerable, they are least protected.
    In what other country do patients hold bake sales in order 
to pay for life-saving treatment? What other industrialized 
Nation allows millions of people to go into bankruptcy due to 
medical debt every year?
    In 1809, Thomas Jefferson said, ``The care of human life 
and happiness, not their destruction, is the legitimate 
responsibility of good government.''
    We have a moral imperative to create a health system that 
provides healthcare to all people, and I want to emphasize 
care, not insurance. The plan being put forth at present may be 
considered to be politically expedient but it will not address 
the fundamental problems in America today.
    We need to have a full, open and honest discussion and I'm 
thankful for the opportunity to start that today. However, here 
are many experts who could help in the deliberations of this 
and I hope that we'll have a hearing on the topic of a national 
health program based on single-payer financing.
    The price we are paying for the profit-driven healthcare 
market is the squandering of our economic, mental and physical 
health as a Nation. The market is the wrong model. Healthcare 
is not a commodity. It is a human right.
    We must ask ourselves as we go through this process of 
reviewing health legislation today what are the results that we 
want to see. We consider success to be health security which 
means that every person will wake up knowing that if they need 
healthcare, they can get it, plain and simple, because it is 
their right and not their privilege.
    Thank you.
    [The prepared statement of Dr. Flowers follows:]

              Prepared Statement of Margaret Flowers, M.D.

    Dear Chairman Kennedy and Senators, thank you for inviting me to 
speak to you today from the perspective of a physician and activist. I 
am a pediatrician with experience both as the director of a hospitalist 
program and chair of pediatrics at a rural hospital and in community-
based private practice. I am currently co-chair of the Maryland chapter 
of Physicians for a National Health Program (PNHP). PNHP has over 
16,000 members nationwide. I also sit on the steering committee of the 
Leadership Conference for Guaranteed Health Care/National Single Payer 
Alliance which represents over 20 million people nationwide. I know 
that today I am speaking on behalf of the majority of people living in 
America who desire a national health program.
    For several decades now we have seen the health care situation in 
this country deteriorate. Health care providers have struggled to 
provide care in this increasingly difficult environment and it has 
taken a toll. We are seeing doctors, like myself, leaving practice, 
doctors who are refusing to accept health insurance and a new category 
of doctors, disruptive physicians. These demoralized physicians who 
become angry with their staff or patients are expressing the 
dysfunction of a health care situation that places obstacles between 
them and the treatment of their patients. The greatest obstacle is the 
private health insurance industry. This industry detracts from the 
health of our Nation rather than adding value.
    We have reached a unique point in American history and we have an 
opportunity for real health care reform. The economic downturn, the 
millions of Americans who can't get needed care and the election of a 
President who understands that health care is a human right place us in 
the position to finish what President Franklin Delano Roosevelt hoped 
to accomplish almost 75 years ago in the Social Security Act: a 
national health system. The lack of a coordinated and comprehensive 
national health system sets us apart from the other industrialized 
nations and we see the results in markedly increased costs and poor 
health outcomes.
    Current expectations are high. People are craving change. For 
decades, reliance on the market and efforts to patch together a system 
using a public and private mix have failed to guarantee quality health 
care to every person in America. The reliance on the market dates back 
to the 1960s when there was a strong belief that America was so 
different from the other nations that our uniquely American market 
would solve our health care problems. We were wrong then and it is 
disappointing to see us continue to cling to this idea. This is not the 
time for more tinkering. We cannot continue this Ponzi scheme of health 
insurance bailouts. This is the time to step back and look at the big 
    The health care market has produced a situation in which private 
health insurers rake in obscene profits while nearly 50 million 
Americans lack health insurance, and tens of millions more with 
insurance still cannot afford the care they need. We are ranked the 
worst of 19 industrialized nations in terms of preventable deaths, over 
101,000 each year. We have the highest infant and maternal mortalities. 
Health care in our country is already rationed based on ability to pay, 
even for those with insurance. Patients without insurance or with bare 
bones insurance may have to wait months to see a doctor, and many 
patients never even make it through the door. We provide little 
employment security compared to other nations, yet we tie health 
insurance to employment. As a result, when people have to stop working 
due to an illness or when a recession causes them to lose their jobs, 
they lose their health insurance as well. In other words, when people 
are most vulnerable, they are the least protected. In what other 
country do people hold bake sales to pay for lifesaving treatments? 
What other country allows millions of people to go into bankruptcy 
because of medical debt? Almost two thirds of bankruptcies are related 
to illness or medical bills in this country. Shockingly, over three 
quarters of those who go bankrupt had health insurance at the start of 
their illness.
    In 1809, 200 years ago, Thomas Jefferson said, ``The care of human 
life and happiness, not their destruction, is the legitimate 
responsibility of good government.'' It is time to end the destruction 
of human life in this Nation. We have a moral imperative to create a 
health system that provides health care to all people. Senator Kennedy, 
I know that you and others who are seated here today understand this 
and hold this same belief.
    The briefing paper put forth by this committee contains reform 
ideas that would improve health outcomes if they were part of a 
national system. However, the current reforms will not reach the goals 
of providing affordable high quality care for all people in America. 
These reforms will not be universal and will increase health care 
costs. I have outlined the reasons for this in my submitted testimony.
    The plan being put forth at present may be considered to be 
politically feasible, although I question even that. It will not be 
practically feasible in that it will not address the fundamental 
problems in America today. In order to create a national health system 
that improves health, we need to have a full, open and honest 
discussion about it. I am thankful that we will start this discussion 
today. However, there is much to be considered and many people who can 
provide you with the data that you need in order to have a full 
deliberation about a national health program based on single-payer 
financing. The LCGHC respectfully requests that your committee and the 
Senate Finance Committee hold a joint hearing on the merits of a 
national single-payer health system in order to accomplish this. Also, 
we request that the Congressional Budget Office score a single-payer 
bill, either S. 703 or H.R. 676, against any other reform proposals.
    The market has been very successful in providing enormous income to 
the few who administer and invest in the health industry. The price we 
pay for this is the squandering of our economic, mental and physical 
health as a nation. The market has failed to improve health and control 
costs because it is the wrong model. Health care is not a commodity, it 
is a human right. The United States signed the Universal Declaration of 
Human Rights in 1948. The other industrialized nations who have 
followed this human rights approach spend less and have better 
    We must ask ourselves, as we go through this process of reviewing 
health legislation today, what are the results that we want to see? 
Will we continue down this path that has failed us for decades? Will we 
continue to fear the power of the medical-industrial complex? Or will 
we grasp this opportunity for real change? Will we create a health 
system based upon these few principles: that everybody has access to 
the same standard of care, that there are no financial barriers to care 
or financial consequences as a result of getting needed care and that 
medical decisions are made by patients in consultation with their 
medical providers based upon what is best for the patient rather than 
what they can afford? Will we provide health security, as embodied in 
the American Health Security Act of 2009, so that every person will 
wake up in the morning knowing that if they need health care, they can 
get it, plain and simple, because it is their right and not a 


    The proposed reform is based on the belief that all we need to do 
is strengthen what works and fix what doesn't. While this sounds 
simple, it amounts to tinkering with a failed system rather than 
stepping back and looking at the root problems and addressing them. It 
is akin to continuing to add transmission fluid when what you really 
need is an overhaul. It isn't sustainable.
    The reason that the reform is becoming so complex is because we 
refuse to stop and examine what it would take to create a health 
system. Instead, we are trying to apply a case of band aids to hold a 
failing health hodgepodge together. We will add bureaucracy, regulate 
and throw money at the private insurance industry in the hope that we 
can get it to act the way traditional Medicare already acts. There is 
no evidence to show that this will be successful and much evidence to 
show that it will fail. Are we willing to continue to allow thousands 
of Americans to die while we try this experiment? Is that morally right 
when we have a proven solution that will not only provide care to each 
person and prevent death, but will also save money? The solution is to 
create a national health system that is coordinated and comprehensive 
and that is based on single-payer financing. It is the only fiscally 
responsible solution. The solution is health care, not health insurance 
coverage. The solution is everybody in and nobody out. It is that 
    President Obama said recently that we should make health insurance 
affordable, but exempt those who can't afford it. He also said that 
employers should have to share in the cost of health care, but that 
small businesses should also be exempt. We know that for 80 percent of 
the uninsured, the head of the household is employed, predominantly in 
small business. So we must ask what this would really accomplish. These 
exemptions mean that many of those who are currently left out will 
continue to be left out. This is not a solution.
    The President also stated that ``pouring money into a broken system 
only perpetuates its inefficiencies.'' Yet, pouring money into a broken 
system is exactly what is being proposed. As long as there is a 
multipayer system, even one that includes a ``public option,'' there 
will be the added costs of determining who is eligible for which plan, 
who gets subsidies, who can go where and receive what treatment, who 
pays co-pays and deductibles and what happens if you lose your job or 
move. There are also the added costs of billing and regulating multiple 
insurers. A single health system will greatly simplify administration 
and will allow transparency and public accountability. A single health 
system will allow everybody to receive care and may not even mean any 
increased spending, according to the Congressional Budget Office and 
General Accountability Office.
    I would like to discuss these revised legislative priorities:

    1. Assure a single standard of high quality and affordable health 
care to all people in America.
    2. Improve quality of health care by removing financial barriers to 
care so that patients can seek care early in their illness and receive 
needed treatment and simplify the administration/reimbursement of 
health care so that patients and providers spend less time on paperwork 
and authorization and more time discussing care.
    3. Build a public health system that promotes wellness and 
    4. Create a durable structure of long-term supports and services 
for all people who need them.
    5. Prevent fraud and abuse.
    6. Remove financial consequences such as bankruptcy from medical 
debt and establish a progressive method of financing health care.

    Assure a single standard of high quality and affordable health care 
to all people in America.
    There are people who have health insurance and like it. However, no 
person with health insurance in America has health security. That is 
why even well-insured Americans who face job loss will lose their 
health insurance and may find themselves uninsurable. And that is why 
even those who are satisfied with their insurance are finding their 
ability to pay for it unsustainable. So one would ask, why the fact 
that they like their insurance means that we should build a system 
around it. There are people who like to drive without wearing 
seatbelts, but that didn't stop us from passing seatbelt laws because 
the evidence shows that it saves lives.
    Americans often believe that they are well-insured, until they 
actually need to use their insurance and then encounter the 
complexities of it and the restrictions. The majority of people have 
low healthcare needs. In fact, 80 percent of the population is 
relatively healthy and hasn't faced the difficulties of navigating the 
health insurance maze.
    What Americans want is their choice of health provider and choice 
of treatment, not a choice of health insurance plan. Nobody is able to 
look at the different health plans and choose one that is ``right'' for 
them because health needs can change unpredictably. That is why one 
plan that covers all medically necessary care is the ``right'' plan. It 
is there when you need it and allows the patient to choose their 
medical provider and facility and to choose their treatment without 
interference from insurance administrators. A national health plan 
allows people to wake up in the morning and know that if they need 
health care that day, they can get it simply without having to search 
through provider networks and without waiting on the phone to get 
preauthorization for care.
    The idea of adding a health insurance exchange adds cost (4 percent 
to every premium in Massachusetts) and perpetuates the idea that people 
can find the ``plan that is right for them.'' And the idea of 
regulating insurance companies so that they will actually do what they 
are supposed to do, adds cost and administrative complexity. And, based 
on recent experience, regulation of health insurance companies is 
likely to fail to change their behavior.
    The current private health insurance business model in the United 
States is designed to create profit by collecting premiums and 
restricting and denying care. Changing our for-profit and ``not-for-
profit'' insurers into social insurance agencies, like there are in 
Europe, would require a radical amount of regulation and oversight. 
This seems like a lot of waste in order to preserve an entity that adds 
no value to health care.
    Rather than adding expense in the form of regulation and an 
exchange, we could save an estimated $350 billion on administrative and 
non-healthcare costs by creating a national single-payer system. These 
dollars would be applied to the delivery of actual health care.
    It was stated in the briefing paper that the public plan being 
proposed is necessary because it will provide fiscal discipline and 
full accountability. Private health insurance must be removed from the 
national health system because it has raised costs and been abusive to 
patients and providers for too long without accountability.
    Improve quality of health care by removing financial barriers to 
care so that patients can seek care early in their illness and receive 
needed treatment and simplify the administration/reimbursement of 
health care so that patients and providers spend less time on paperwork 
and authorization and more time discussing care.
    Under a national health system, every person will receive a medical 
card that they have for life. The card is accepted at every facility so 
that no matter where a person is (at home or traveling), they can get 
health care.
    There are multiple benefits to creating a national single-payer 
health plan:

     Every person has guaranteed care from the time that they 
are born until they die.
     There are no gaps or cracks to fall through so that care 
can be continuous.
     Patients can have a medical home because they will no 
longer be forced to change their doctor simply because they changed 
jobs, their employer changed plans or the plan changed its network.
     Out-of-pocket spending is reduced so that patients can get 
needed care. Currently about 53 percent of Americans delay getting care 
or filling prescriptions because of the cost. Multiple studies show 
that co-pays and deductibles usually lead Americans to make choices 
that are bad for their health.
     Health care costs are predictable and transparent for 
individuals, businesses, providers and facilities. Medical bankruptcies 
will end. Businesses, providers and health facilities will be able to 
devote their time and resources to doing what they do best: growing 
their businesses and taking care of patients.
     Medical decisions are made by the people who have received 
medical training rather than faceless insurance administrators who are 
looking at a computer screen rather than a patient. The doctor-patient 
relationship will be restored and improved as both work together to 
promote health.
     Patient privacy will be restored because administrators 
will not have access to clinical records in order to find pre-existing 
conditions that can be used to deny payment for care.
     Fewer providers will leave clinical practice and fewer 
providers will become disruptive under a system that is simpler to use 
and allows them to practice their medical skills.
     Public policy will be directed towards policies that 
improve health because there will be an incentive to invest in the 
health of the population being served by the system. It improves health 
outcomes and increases public approval.

    Build a public health system that promotes wellness and prevention.
    When every person is in the same plan, there is greater incentive 
to make it a high quality plan. At present, people who have low incomes 
are sometimes able to receive Medicaid, but across the United States, 
the quality of care under Medicaid is substandard. There is a saying 
that ``a program for the poor is a poor program.'' And this is 
unacceptable. We cannot be healthy as a nation if there are disparities 
in access to care. Unfortunately, health disparities in the United 
States are increasing, especially for those with chronic disease.
    Wellness will increase because care can be coordinated more easily 
when all providers are in the same network, similar to the way care is 
coordinated in the VA system. There is improved communication and less 
duplication of tests and treatments.
    Under a national system, there will be a large database of health 
information that can be used to determine best practices and to 
allocate health resources to areas that need them.
    Rather than wasting billions of dollars on administration, profits 
and marketing, we can use those dollars for public health education and 
prevention efforts.
    The Federal Prevention and Public Health Council will be a valuable 
part of a national health system.
    Create a durable structure of long-term supports and services for 
all people who need them.
    There is certainly a need for people in the United States to 
receive supports and services so that they can be productive members of 
society and lead high-quality lives. The idea of a debit card that can 
be used to pay for these services will be greatly simplified under a 
national health system that is transparent and accountable.
    The idea to retain a role for private insurance in long-term 
supports and services is questionable. One must ask why private 
insurance, which adds cost without adding value, is necessary. And one 
must also question why there would be a policy of requiring payment 
into the system for a number of years before receiving benefits. Our 
goal should be to meet the needs of everyone, not to exclude people. 
Such exclusions lead to poorer outcomes and less productive and 
satisfied lives.
    Prevent fraud and abuse.
    It is true that for any system, there must be a method to reduce or 
prevent fraud and abuse. A national health system will be transparent 
and held accountable, which will facilitate this process. The incentive 
for fraud and abuse decreases when the business model changes from the 
creation of profit to the provision of care.
    Under a multipayer system, a new bureaucracy will need to be 
created in order to investigate fraud and abuse. This will add more 
cost and will be of questionable effectiveness. Despite current 
regulation of health insurers, it is difficult to discover and 
prosecute their acts of fraud and abuse. We could have a series of 
Senate hearings on the fraudulent and abusive practices of for-profit 
    The solution is not more regulation. The solution is to remove 
private insurers from involvement in paying for the provision of needed 
health care and create a publicly funded and privately delivered health 
care system.
    Remove financial consequences such as bankruptcy from medical debt 
and establish a progressive method of financing health care.
    The position paper speaks of shared responsibility, which can be 
translated to say that individuals must purchase health insurance. This 
is in itself abusive and not the type of shared responsibility that 
will improve our health outcomes and make us a better Nation.
    To mandate that people purchase an over-priced product (private 
health insurance) that will still leave them at risk of medical 
bankruptcy if they become ill is cruel. It borders on extortion. In the 
States that have previously mandated the purchase of health insurance, 
such as Massachusetts, it has left people unable to afford health care 
and has required them to keep their income below a certain level in 
order to receive subsidies so they can afford insurance. More people 
(86 percent of the uninsured and 37 percent of the insured) are 
reporting difficulty affording health care in Massachusetts now than 
they were before the reform (85 percent uninsured and 29 percent 
    In addition, the United States ranks 54th in the world for fairness 
in financing of health care. Health care financing is very regressive, 
with those of lower income paying a greater proportion of their income 
for health care. Given the widening gap between the rich and the poor 
in this Nation, this must change.
    For years now, we have seen health insurers and employers shift 
more of the cost of health care onto the individual in the form of 
increased premiums, increased cost-sharing in payment for the premiums 
and increased co-pays and deductibles coupled with restrictions and 
caps on paying for care. The result is more uninsured people, more 
medically bankrupt people, more people skipping needed care, more 
people facing difficult choices of getting needed care or providing for 
their family's needs and more people suffering and dying.
    It is time to stop shifting the burden onto the individual for 
health care that should be treated as a human right and part of the 
social contract. Providing health care for the population is part of 
the social infrastructure that exists in civilized nations.
    The optimal form of shared responsibility is to create a single 
publicly funded and privately delivered health care system in which 
everybody participates based on their ability to pay (with exemptions 
for those with the lowest incomes) and everybody receives the health 
care that they need when they need it. This is how we will lift our 
Nation out of poverty and become productive and healthy once again.
      Attachment.--Medical Bankruptcy in the United States, 2007: 
                      Results of a National Study

  (By David U. Himmelstein, M.D.,* Deborah Thorne, Ph.D., Elizabeth 
             Warren, J.D., Steffie Woolhandler, M.D., MPH*

    Background: Our 2001 study in 5 States found that medical problems 
contributed to at least 46.2 percent of all bankruptcies. Since then, 
health costs and the numbers of un- and underinsured have increased, 
and bankruptcy laws have tightened.

    * Department of Medicine, Cambridge Hospital/Harvard Medical 
School, Cambridge, MA.
    Methods: We surveyed a random national sample of 2,314 bankruptcy 
filers in 2007, abstracted their court records, and interviewed 1,032 
of them. We designated bankruptcies as ``medical'' based on debtors' 
stated reasons for filing, income loss due to illness, and the 
magnitude of their medical debts.

    Department of Sociology, Ohio University, Athens.
    Results: Using a conservative definition, 62.1 percent of all 
bankruptcies in 2007 were medical; 92 percent of these medical debtors 
had medical debts over $5,000, or 10 percent of pre-tax family income. 
The rest met criteria for medical bankruptcy because they had lost 
significant income due to illness or mortgaged a home to pay medical 
bills. Most medical debtors were well-educated, owned homes, and had 
middle-class occupations. Three quarters had health insurance. Using 
identical definitions in 2001 and 2007, the share of bankruptcies 
attributable to medical problems rose by 49.6 percent. In logistic 
regression analysis controlling for demographic factors, the odds that 
a bankruptcy had a medical cause was 2.38-fold higher in 2007 than in 

    Harvard Law School, Cambridge, MA.
    Conclusions: Illness and medical bills contribute to a large and 
increasing share of U.S. bankruptcies.  2009 Elsevier Inc. All rights 
reserved.  The American Journal of Medicine (2009) xx, xxx.

    Keywords: Bankruptcy; Health care costs; Health economics.

    As recently as 1981, only 8 percent of families filing for 
bankruptcy did so in the aftermath of a serious medical problem.\1\
    By contrast, our 2001 study in 5 States found that illness or 
medical bills contributed to about half of bankruptcies.\2\
    Since then, the number of un- and underinsured Americans has grown 
\3\; health costs have increased; and Congress tightened the bankruptcy 
    Here we report the first-ever national random-sample survey of 
bankruptcy filers.


    We used 3 data sources: questionnaires mailed to debtors 
immediately after bankruptcy filing; court records; and telephone 
interviews with a sub-sample of debtors.
Sample Design
    Between January 25 and April 11, 2007, we obtained from Automated 
Access to Court Electronic Records, a list of all 118,308 bankruptcy 
petitions filed in the United States. We excluded filings in Guam and 
Puerto Rico, nonpersonal bankruptcies, and cases missing a name or 
address. Within 2 weeks of their filings, we mailed introductory 
letters to 5,251 randomly selected debtors; 275 were returned as 
undeliverable. We then mailed self-administered questionnaires to the 
4,976 debtors with valid addresses; 2,314 (46.5 percent) were completed 
and returned; 124 were returned incomplete (2.5 percent) and 83 (1.7 
percent) declined to participate; 2,455 (49.3 percent of those with 
valid addresses) did not respond.
    We compared court records (described below) of respondents with a 
random sample of 99 nonrespondents. Nonrespondents resembled 
respondents in income, assets, debts, net worth, market value of homes, 
and history of prior bankruptcy.

    Introductory letters described the study and offered debtors the 
option of obtaining a Spanish-language version of the questionnaire. 
The questionnaire and $2 were mailed a few days later. Nonrespondents 
received replacement questionnaires, another $2, and were invited to 
respond via telephone or on-line. Subsequently, we offered 
nonrespondents $50 to complete the questionnaire.
    The questionnaire asked about demographics, health insurance and 
gaps in coverage, occupation, employment, housing, and efforts to cope 
financially before filing. It also asked about specific reasons for 
filing for bankruptcy; the range of out-of-pocket medical expense 
(none, $1-$999, $1,000-$5,000, or >$5,000); loss of work-
related income; and borrowing to pay medical bills. Finally, it asked 
respondents if, for $50, they would be willing to complete a follow-up 

Court Records
    We obtained the public bankruptcy court records of respondents and 
the sample of nonrespondents from the Federal court's electronic filing 
system. Research assistants (mainly law students) abstracted each 
    The court records included the chapter of filing, income, assets, 
and debts outstanding at the time of filing. These records indicate the 
creditor to whom money is owed, but not why the debt was incurred.

Telephone Interviews
    There were 2,314 debtors who completed questionnaires, 2007 of whom 
were willing to be interviewed. By February 2008, research assistants 
had completed telephone interviews (in English or Spanish) with 1,032 
of them; 69 debtors no longer wished to be interviewed. We were unable 
to reach 906.
    Interviewers collected additional detail about employment, 
finances, housing, borrowing to pay medical bills, and whether medical 
bills or income loss due to illness had contributed to their bankruptcy 
(questions we used to verify written questionnaire responses from the 
entire sample of 2,314 debtors).
    The 1,032 telephone interviews identified 639 patients (debtors or 
dependents) whose health problems contributed to bankruptcy; details 
about medical expenses, health insurance, and diagnoses were obtained. 
Two physicians grouped diagnoses into 14 categories.
    Telephone survey participants resembled other respondents on most 
financial and demographic characteristics. They were slightly older and 
better educated.

Clinical Significance
     62.1 percent of all bankruptcies have a medical cause.
     Most medical debtors were well-educated and middle class; 
three quarters had health insurance.
     The share of bankruptcies attributable to medical problems 
rose by 50 percent between 2001 and 2007.
Data Analysis
    We used data from the questionnaires and court records to analyze 
demographics, health insurance coverage at the time of filing, and gaps 
in coverage.
    The questionnaires were the basis for our 2001-2007 time trend 
analysis. For this analysis, we replicated the most conservative 
definition employed in the 2001 study, which designated as ``medically 
bankrupt'' debtors citing illness or medical bills as a specific reason 
for bankruptcy; OR reporting uncovered medical bills >$1,000 in the 
past 2 years; OR who lost at least 2 weeks of work-related income due 
to illness/injury; OR who mortgaged a home to pay medical bills. 
Debtors who gave no answers regarding reasons for their bankruptcy were 
excluded from analyses.
    For all other analyses (i.e., those not reporting time trends) we 
adopted a definition of medical bankruptcy that utilizes the more 
detailed 2007 data. We altered the 2001 criteria to include debtors who 
had been forced to quit work due to illness or injury. We also 
reconsidered the question of how large out-of-pocket medical expenses 
should be before those debts should be considered contributors to the 
family's bankruptcy. Although we needed to use the threshold of $1,000 
in out-of-pocket medical bills for consistency in the time trend 
analyses, we adopted a more conservative threshold--$5,000 or 10 
percent of household income--for all other analyses. Adopting these 
more conservative criteria reduced the estimate of the proportion of 
bankruptcies due to illness or medical bills by 7 percentage points.
    To arrive at nationally representative estimates, we weighted the 
data to adjust for the slight underrepresentation of respondents who 
filed under Chapter 13 (bankruptcies with repayment plans). In 
calculating mean out-of-pocket medical expenses from our telephone 
interviews, we trimmed outliers at $100,000.
    Chi-squared and 2-tailed t tests were used for univariate analyses. 
We used forward stepwise logistic regression analysis on the 2007 
cohort to assess predictors of medical bankruptcy and predictors of 
home loss or foreclosure among homeowners. Finally, we performed 
logistic regression using the combined 2001 and 2007 cohorts to examine 
whether the odds of a bankruptcy being medical were higher in 2007 than 
in 2001, after controlling for demographics, income, and insurance 
status. SAS Version 9.1 (SAS Institute Inc., Cary, NC) was used for all 

Table 1.--Demographic Characteristics of 2314 Bankruptcy Filers and Comparison of Medical and Nonmedical Filers,
                                                                                                       P Value
                                                          All           Medical       Nonmedical     medical vs.
                                                     bankruptcies    bankruptcies    bankruptcies    nonmedical
Mean age..........................................      44.4 years      44.9 years      43.3 years          .01
Debtor or spouse/partner male.....................           44.5%           44.9%           44.3%           NS
Married...........................................           43.9%           46.3%           40.1%          .02
Mean family size--debtors + dependents............            2.71            2.79            2.63          .02
Attended college..................................           61.9%           60.3%           65.8%          .02
Homeowner or lost home within 5 years.............           66.7%           66.4%           67.8%           NS
Current homeowner.................................           52.3%           52.0%           53.2%           NS
Occupational prestige score >20...................           87.3%           86.1%           89.8%          .01
Mean (median) monthly household income at time of           $2,676          $2,586          $2,851         .002
 bankruptcy filing................................        ($2,299)        ($2,225)        ($2,478)
Debtor or spouse/partner currently employed.......           79.2%           75.5%           85.0%         .001
Debtor or spouse/partner active duty (military or            19.4%           20.1%           18.4%           NS
Market value of home (mean).......................        $147,776        $141,861        $159,145          .03
Mean net worth (assets--debts)....................        ^$41,474        ^$44,622        ^$37,650           NS
* Bankruptcies meeting at least one of the following criteria: illness, injury or medical bills listed as
  specific reason for filing OR uncovered medical bills >$5000 or >10 percent of annual family income OR, lost
  ; 2 weeks of work-related income due to illness/injury, OR depleted home equity to pay medical bills.

    Human subject committees at Harvard Law School and The Cambridge 
Health Alliance approved the project.


    The demographic characteristics of our sample are shown in Table 1. 
Most debtors were middle aged, middle class (by occupational 
prestige),\5\ and had gone to college. Their modest incomes reflect the 
financial setbacks common in the peri-bankruptcy period. Two thirds 
were homeowners.
    Compared with other debtors, medical debtors had slightly lower 
incomes, educational attainment, and occupational prestige scores; more 
were married and fewer were employed (reflecting more disability). 
Medical debtors were older and had larger families. Although similar 
proportions were homeowners, medical debtors' homes had 11 percent 
lower market value. The average net worth was similar (and negative) 
for medical and nonmedical debtors (^$44,622 vs ^$37,650, P >.05).

Medical Causes of Bankruptcy
    Illness or medical bills contributed to 62.1 percent of all 
bankruptcies in 2007 (Table 2).
    Unaffordable medical bills and income shortfalls due to illness 
were common; 57.1 percent of the entire sample (92 percent of the 
medically bankrupt) had high medical bills, proportions that did not 
vary by insurance status; 5.7 percent of homeowners had mortgaged their 
homes to pay medical bills; 40.3 percent of the entire sample had lost 
income due to illness; 95 percent of the lost-income debtors also had 
high medical bills.
    Data from the detailed telephone survey yielded confirmatory 
results. When asked about problems that contributed very much or 
somewhat to their bankruptcy, 41.8 percent of interviewees specifically 
identified a health problem, 54.9 percent cited medical or drug costs, 
and 37.8 percent blamed income loss due to illness. Overall, 68.8 
percent cited at least one of these medical causes. An additional 6.8 
percent had recently borrowed money to pay medical bills.

Insurance Status of Debtors and Dependents
    Less than one quarter of debtors--whether medical or nonmedical--
were uninsured when they filed for bankruptcy; an additional 7 percent 
had uninsured family members (Table 3). Medically bankrupted families, 
however, had more often experienced a lapse in coverage during the 2 
years before filing (40.0 percent vs 34.1 percent, P = .005).

              Table 2.--Medical Causes of Bankruptcy, 2007*
                                                             Percent of
                                                            [In percent]
Debtor said medical bills were reason for bankruptcy......          29.0
Medical bills >$5,000 or >10 percent of annual family               34.7
Mortgaged home to pay medical bills.......................           5.7
Medical bill problems (any of above 3)....................          57.1
Debtor or spouse lost  ; 2 weeks of income due to illness           38.2
 or became completely disabled............................
Debtor or spouse lost  ; 2 weeks of income to care for ill           6.8
 family member............................................
Income loss due to illness (either of above 2)............          40.3
Debtor said medical problem of self or spouse was reason            32.1
 for bankruptcy...........................................
Debtor said medical problem of other family member was              10.8
 reason for bankruptcy....................................
Any of above..............................................          62.1
* Percentage based on recent homeowners rather than all debtors.

 Table 3.--Health Insurance Status of Debtor Households With and Without
                      Medical Causes  of Bankruptcy
                                        Bankruptcy  Bankruptcy   P Value
                                            [In         [In
                                         percent]    percent]
Debtor or a dependent uninsured at            30.8        30.7       .93
 time of bankruptcy filing............
Debtor or a dependent had a lapse in          40.0        34.1      .005
 coverage during 2 years before
 bankruptcy filing....................

    In multivariate analysis, being uninsured at filing did not predict 
a medical cause of bankruptcy, while a gap in coverage did (odds ratio 
[OR] = 1.35, P = .002). Other predictors included: older age (OR = 
1.016/year, P = .0001), married (OR = 1.59, P = .0001), female (OR = 
1.34, P = .002), larger household (OR = 1.97/household member, P = 
.01), and lower income quartile (OR = 1.30, P = .0001).
    Medical debtors' court records identified more debt owed directly 
to doctors and hospitals than did nonmedical debtors', a mean of $4,988 
vs $256, respectively (P <.0001). Medical debtors with coverage gaps 
owed providers a mean of $8,338, vs $2,740 (P <.0001) for medical 
debtors with continuous coverage. Nonmedical debtors had few medical 
debts, averaging under $300 regardless of insurance status. (Medical 
debts financed through credit cards or other borrowing, or owed to 
collection agencies are not included because they cannot be identified 
through court records.)

Patients Whose Illness Contributed to Bankruptcy
    Telephone interviews identified 639 patients whose illness 
contributed to bankruptcy: the debtor or spouse in 77.9 percent of 
cases; a child in 14.6 percent; and a parent, sibling or other adult in 
7.5 percent. At illness onset, 77.9 percent were insured: 60.3 percent 
had private insurance as their primary coverage; 10.2 percent had 
Medicare; 5.4 percent had Medicaid; and 2 percent had Veterans Affairs/
military coverage. Few of the uninsured lacked coverage because of a 
pre-existing condition (2.8 percent) or belief that coverage was 
unnecessary (0.3 percent); nearly all cited economic reasons.
    By the time of bankruptcy, the proportion of patients with private 
coverage had fallen to 54.1 percent, while the percentage with Medicare 
and Medicaid had increased to 16.4 percent and 9.9 percent, 
respectively. The proportion whose employers contributed to coverage 
decreased from 43.2 percent to 36.6 percent.
    Out-of-pocket medical costs averaged $17,943 for all medically 
bankrupt families: $26,971 for uninsured patients, $17,749 for those 
with private insurance at the outset, $14,633 for those with Medicaid, 
$12,021 for those with Medicare, and $6,545 for those with Veterans 
Affairs/military coverage. For patients who initially had private 
coverage but lost it, the family's out-of-pocket expenses averaged 
    Among common diagnoses, nonstroke neurologic illnesses such as 
multiple sclerosis were associated with the highest out-of-pocket 
expenditures (mean $34,167), followed by diabetes ($26,971), injuries 
($25,096), stroke ($23,380), mental illnesses ($23,178), and heart 
disease ($21,955).
    Hospital bills were the largest single out-of-pocket expense for 
48.0 percent of patients, prescription drugs for 18.6 percent, doctors' 
bills for 15.1 percent, and premiums for 4.1 percent. The remainder 
cited expenses such as medical equipment and nursing homes. While 
hospital costs loomed largest for all diagnostic groups, for about one 
third of patients with pulmonary, cardiac, or psychiatric illnesses, 
prescription drugs were the largest expense.
    Our telephone interviews indicated the severity of job problems 
caused by illness. In 37.9 percent of patients' families, someone had 
lost or quit a job because of the medical event; 24.4 percent had been 
fired, and 37.1 percent subsequently regained employment. In 19.9 
percent of families suffering a job loss, the job loser was a 

Changes in Medical Bankruptcy, 2001 to 2007
    In our 2007 study, 69.1 percent of the debtors met the legacy 
definition of medical bankruptcy employed in our 2001 study, a 22.9 
percentage point absolute increase (49.6 percent relative increase) 
from 2001, when 46.2 percent met this definition (P <.0001). 
(Inflation, which might edge families over our $1,000 medical debt 
threshold, did not account for this change. An analysis that used all 
criteria except the size of medical debts found a 48.7 percent relative 
increase. An analysis limited to the 5 States in our 2001 study yielded 
virtually identical findings.
    In multivariate analysis, a medical cause of bankruptcy was more 
likely in 2007 than in 2001 (OR = 2.38, P <.0001) (Table 4).

 Table 4.--Multivariate Predictors of Medical Causes of Bankruptcy, 2001
                            and 2007 Combined
                                                95 percent
                                     Odds       confidence      P Value
                                     ratio       interval
Age..............................      1.02         1.01-1.02      .0001
Married..........................      1.32         1.13-1.55      .0006
Own home now or in past 5 years..      1.10         0.93-1.30         NS
All family members insured at          1.23         1.03-1.46        .02
 time of filing..................
Gap in health insurance coverage       1.64         1.38-1.94      .0001
 for any family member within
 past 2 years....................
Income quartile..................       .99          .82-1.07         NS
Attended college                       1.02          .87-1.18         NS
Year of bankruptcy filing, 2007        2.38         2.05-2.77      .0001
 vs. 2001........................


    In 2007, before the current economic downturn, an American family 
filed for bankruptcy in the aftermath of illness every 90 seconds; 
three quarters of them were insured.
    Since 2001, the proportion of all bankruptcies attributable to 
medical problems has increased by 50 percent. Nearly two thirds of all 
bankruptcies are now linked to illness.
    How did medical problems propel so many middle-class, insured 
Americans toward bankruptcy? For 92 percent of the medically bankrupt, 
high medical bills directly contributed to their bankruptcy. Many 
families with continuous coverage found themselves under-insured, 
responsible for thousands of dollars in out-of-pocket costs. Others had 
private coverage but lost it when they became too sick to work. 
Nationally, a quarter of firms cancel coverage immediately when an 
employee suffers a disabling illness; another quarter do so within a 
year.\6\ Income loss due to illness also was common, but nearly always 
coupled with high medical bills.
    The present study and our 2001 analysis provide the only data on 
large cohorts of bankruptcy filers derived from in-depth surveys. As 
with any survey, we depend on respondents' candor. However, we also had 
independent checks--from court records filed under penalty of perjury--
on many responses. Because questionnaires and court records were 
available for our entire sample, we used them for most calculations. 
The lowest plausible estimate of the medical bankruptcy rate from these 
sources is 44.4 percent--the proportion who directly said that either 
illness or medical bills were a reason for bankruptcy. But many others 
gave reasons such as ``aggressive collection efforts'' or ``lost income 
due to illness'' and had large medical debts. Indeed, detailed 
telephone interview data available for 1,032 debtors revealed an even 
higher rate of medical bankruptcy than our 62.1 percent estimate--at 
least 68.8 percent of all filers.
    Our current methods address concerns expressed about our previous 
survey. We assembled a random, national sample and asked far more 
detailed questions. In addition, we adopted more stringent criteria for 
medical bankruptcy. Adopting an even more stringent threshold for 
medical debts (e.g., eliminating those with medical debts below 10 
percent of family income) would reduce our estimate by <1 percent.
    Teasing causation from cross-sectional data is challenging. 
Multiple factors push families into bankruptcy. Yet, our data clearly 
establish that illness and medical bills play an important role in a 
large and growing proportion of bankruptcies.

Changes in the Law
    Between our 2001 and 2007 surveys, Congress enacted the Bankruptcy 
Abuse Prevention and Consumer Protection Act (BAPCPA), which instituted 
an income screen and procedural barriers that made filing more 
difficult and expensive.
    The number of filings spiked in mid-2005 in anticipation of the new 
law, then plummeted. Since then, filings have increased each quarter. 
They are likely to exceed 1 million households in 2008, representing 
about 2.7 million people.
    BAPCPA's effects appear nonselective. Current filers differ from 
past ones mainly in having struggled longer with their debts.\7\ New 
restrictions fall equally on medical and nonmedical bankruptcies, with 
no preferences for medical debts or sick debtors. It is implausible to 
ascribe the growing predominance of medical causes of bankruptcy to 
    Conversely, there is ample evidence that the financial burden of 
illness is increasing. The number of under-insured increased from 15.6 
million in 2003 to 25.2 million in 2007.\3\ Of low- and middle-income 
households with credit card balances, 29 percent use credit card 
borrowing to pay off medical expenses over time.\8\ Collection agencies 
contacted 37.2 million Americans about medical bills in 2003.\9\ 
Between 2005 and 2007, the proportion of nonelderly adults reporting 
medical debts or problems paying medical bills rose from 34 percent to 
41 percent.\10\

Adding to Other Studies
    We have reviewed elsewhere the older studies on medical 
bankruptcy.\2\ \11\ Most rely exclusively on court records where many 
medical debts are invisible, disguised as credit card debt or 
mortgages. In our cohort, most medical debtors had charged unaffordable 
medical care to credit cards.
    Similarly, debts turned over to collection agencies by doctors or 
hospitals may be unrecognizable on court records. Moreover, income loss 
due to illness cannot be identified. In short, even though such studies 
find substantial rates of medical bankruptcy,\12\ \13\ estimates based 
solely on court records understate medical bankruptcies.\9\
    Population-based studies also are problematic because many debtors 
are unwilling to admit to filing. Thus, a study based on the Panel 
Survey of Income Dynamics could identify only 74 bankruptcies (0.4 
percent of respondents), half the actual filing rate among the national 
population from which the sample was drawn.\13\
    A few studies employed novel methods to analyze medical bankruptcy. 
One found a high bankruptcy filing rate in a cohort of patients with 
serious neurologic injuries.\14\ A survey of cancer patients documented 
a 3 percent bankruptcy rate; 7 percent had taken a second mortgage to 
pay for treatments.\15\ A questionnaire-based study found medical 
contributors to 61 percent of Utah bankruptcies; 58 percent of families 
seeking help at bankruptcy clinics in upstate New York reported 
outstanding medical debts.\16\
    Medical impoverishment, although common in poor nations,\17\ \18\ 
is almost unheard of in wealthy countries other than the United 
States.\19\ Most provide a stronger safety net of disability income 
support. All have some form of national health insurance.
    The U.S. health care financing system is broken, and not only for 
the poor and uninsured. Middle-class families frequently collapse under 
the strain of a health care system that treats physical wounds, but 
often inflicts fiscal ones.


    Additional support came from Harvard Law School and the American 
Association of Retired Persons. Professors Melissa Jacoby, Robert 
Lawless, Angela Littwin, Katherine Porter, John Pottow, and Teresa 
Sullivan played key roles in the Consumer Bankruptcy Project.


    1. Sullivan TA, Warren E, Westbrook JL. The Fragile Middle Class: 
Americans in Debt. New Haven, CT: Yale University Press; 2000.
    2. Himmelstein DU, Warren E, Thorne D, Woolhandler S. Illness and 
injury as contributors to bankruptcy. Health Aff (Millwood). February 
2, 2005 [Web exclusive]. Available at http://content.healthaffairs.org/
cgi/reprint/hlthaff.w5.63v1. Accessed August 6, 2008.
    3. Schoen C, Collins SR, Kriss JL, Doty MM. How many are 
underinsured? Trends among U.S. adults, 2003 and 2007. Health Aff 
(Millwood). June 10, 2008 [Web exclusive: w298-w309]. Available at: 
Accessed August 6, 2008.
    4. Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 
Public Law No. 109-8, 119 Stat. 23 (2005).
    5. NORC (National Opinion Research Center). Occupational Prestige/
Summary. Available at: http://cloud9.norc.uchicago.edu/faqs/
prestige.htm. Accessed July 23, 2008.
    6. Pereira J. Left behind--casualties of a changing job market; 
parting shot: to save on health-care costs, firms fire disabled 
workers. Wall Street Journal. July 14, 2003:A1.
    7. Lawless RM, Littwin AK, Porter KM, et al. Did bankruptcy reform 
fail? An empirical study of consumer debtors. Am Bankruptcy Law J. 
    8. Zeldin C, Rukavina M. Borrowing to stay healthy: how credit card 
debt is related to medical expenses. The Access Project and Demos, 
2007. Available at: http://www.accessproject.org/adobe/
borrowing_to_stay_healthy.pdf. Accessed July 18, 2008.
    9. Doty MM, Edwards JN, Holgren AL. Seeing red: Americans driven 
into debt by medical bills. Commonwealth Fund. August 10, 2005. 
Available at: http://www.commonwealthfund.org/usr_doc/
?section=4039. Accessed July 17, 2008.
    10. The Commonwealth Fund Commission on a High Performance Health 
System. Why not the best? Results from the National Scorecard on U.S. 
Health System Performance, 2008. The Commonwealth Fund. 2008. Available 
at: http://www.commonwealthfund.org/usr_doc/
_2008.pdf?section=4039. Accessed July 17, 2008.
    11. Himmelstein DU, Warren E, Thorne D, Woolhandler S. Discounting 
the debtors will not make medical bankruptcy disappear. Health Aff 
(Millwood). 2006;25:W84-W88.
    12. Zhu N. Household consumption and personal bankruptcy. Social 
Science Research Network. February 2007. Available at: http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=971134. Accessed July 16, 
    13. Mathur A. Medical bills and bankruptcy filings. American 
Enterprise Institute. July 2006. Available at: http://www.aei.org/
BillsAndBankruptcy.pdf. Accessed July 16, 2008.
    14. Hollingworth W, Relyea-Chew A, Comstock BA, et al. The risk of 
bankruptcy before and after brain or spinal cord injury: a glimpse at 
the iceberg's tip. Med Care. 2007;45:702-711.
    15. USA Today, Kaiser Family Foundation, and Harvard School of 
Public Health National Survey of Households Affected by Cancer 
(November 2006). Available at http://kff.org/upload/7590.pdf.
    16. de Jung T. A Review of Medical Debt in Upstate New York. 
Albany, NY: Empire Justice Center; 2006.
    17. Xu K, Evans D, Carrin G, et al. Protecting households from 
catastrophic health spending. Health Aff (Millwood). 2007;26:972-983.
    18. Raccanello K, Anand J, Dolores EGB. Pawning for financing 
health expenditures: do health shocks increase the probability of 
losing the pledge? In: Wood D, ed. The Economics of Health and 
Wellness: Anthropologic Perspectives. Oxford, UK: Elsevier; 2008.
    19. Reid TR. Interviews with leading health policy experts in 
several nations. Available at: http://www.pbs.org/wgbh/pages/frontline/
sickaroundtheworld/interviews/. Accessed July 18, 2008.

             [The Philadelphia Inquirer, December 8, 2008]

        Coverage Mandate Will Fail as a Health-Care Reform Plan

                          (By Rose Ann DeMoro)

    It's time for Congress to stop getting carried away with financial 
bailouts for big industries, especially when it comes to some of the 
most-profitable and least-responsible companies: the health-insurance 
    Two major trade lobbies, America's Health Insurance Plans and the 
Blue Cross-Blue Shield Association, have announced that they would be 
willing to end their disgraceful practice of excluding people from 
coverage based on their health or age. In exchange, they want the 
Federal Government to force uninsured Americans to buy private 
    That would be exactly the wrong direction for health-care reform. 
Proposing mandatory coverage as the solution overlooks the one-fourth 
of insured Americans who are rationing their own medical care because 
they can't afford to pay the bills. One in eight late-stage cancer 
patients turns down recommended care because of the cost, according to 
a recent report in USA Today.
    And let's not forget the insured patients who are denied needed 
treatments that their insurers don't want to pay for.
    A mandate for individuals turns the challenge of health-care reform 
on its head. It would be a massive bailout for one of the most 
merciless industries in America--and one that's already rolling in 
cash. The 18 biggest insurers reported $16 billion in profit last year.
    Now, in exchange for promising the coverage they should have 
provided all along, these insurers are demanding additional billions of 
dollars in profit from people who would face fines or other penalties 
if they didn't hand over the cash.
    The insurance giants' proposal came in concert with one by Senator 
Max Baucus (D., MT), the chairman of the influential Senate Finance 
Committee, who wants to make an individual mandate part of health-care 
reform. There is speculation that Senator Ted Kennedy (D., MA), the 
other leading Senate voice on health-care reform, is considering 
including an individual mandate in whatever measure emerges from his 
Health, Education, Labor, and Pensions Committee.
    Mandatory coverage also was a component of Senator Hillary 
Clinton's health-care proposal when she sought the Democratic 
presidential nomination. Barack Obama wisely opposed the idea during 
the primaries.
    A coverage mandate is the centerpiece of the Massachusetts health 
care law that many see as Kennedy's model. But the mandate is an 
unpopular disaster in Massachusetts; in California, public opposition 
to it helped kill a similar proposal.
    Coupled with Massachusetts' failure to rein in insurance price-
gouging, the State's mandate forces the typical middle-aged adult to 
spend more than $6,000 out-of-pocket on premiums and deductibles before 
medical expenses are covered.
    No wonder the insurers like it. Tony Soprano would, too.
    Ultimately, any reform plan that relies on such a mandate to 
establish ``universal'' coverage will fail.
    Without restraints on skyrocketing insurance premiums and out-of-
pocket costs, many families will face further economic distress, with 
little additional health security to show for it. And without tough 
regulatory oversight of insurers, patients will continue to endure 
inhumane denials of care.
    The most effective way to fix our broken health-care system would 
look like Medicare, but improved and expanded to cover everyone. A 
single-payer, Medicare-for-all bill sponsored by Rep. John Conyers (D., 
MI) had more than 90 co-sponsors in the last Congress--more than any 
other reform bill. It is expected to be reintroduced early next year.
    Such a program is the only way to control costs through negotiated 
fee schedules, global budgets, bulk purchasing, a huge cut in 
administrative waste, and other measures. And it's the only way to 
wrest control of our health from the insurers.

    Senator Dodd. Thank you very much.
    Mr. Williams.

                          HARTFORD, CT

    Mr. Williams. Thank you, Vice Chairman Dodd.
    This committee is to be commended for its efforts to 
address not just the access for the uninsured but also 
affordability and quality of care.
    Having been a senior executive in both nonprofit health 
plans and for-profit health plans and having operated in the 
individual, small group and large employer marketplace, I would 
like to briefly comment on the issues as they are at the core 
of this committee's and other committees' legislative work.
    I want to start by talking about the approximately 250 
million people who have healthcare coverage today. There is a 
highly competitive insurance market with over 1,300 plans and I 
know firsthand from our customers that there is a high 
satisfaction rate with the coverage.
    One hundred and seventy-five million Americans are insured 
through the commercial market, divided nearly evenly between 
for-profit and not-for-profit plans. More than 95 percent of 
the employers polled in a recent Conference Board Business 
Council Survey overwhelmingly want to continue to provide their 
employees this type of coverage.
    It is the employers' long-term commitment to their 
employees' health that has driven much of the innovation that 
we have today in terms of services. For example, we support 
significant insurance reforms that provide uniform access 
across the country, but these reforms cannot work without a 
companion requirement that requires all Americans to be part of 
the insurance system.
    Congress must also make certain that there is comprehensive 
affordable coverage that's available and subsidize it for those 
who cannot afford it. Simply put, we need a comprehensive 
package with guaranteed issue of insurance and everyone in the 
insurance pool.
    Insurance premiums are a direct reflection of underlying 
services in healthcare. In 2007, the cost of healthcare 
services grew at an annual rate of 6.4 percent. Premiums 
therefore increased at 6.1 percent. Making insurance affordable 
will require us to bend the healthcare cost curve and we 
insurers are committed to continuing our ongoing efforts as 
part of the president's overall cost reduction.
    Today, most experts agree that 30 percent of care is 
unnecessary and yet the majority of Americans believe they 
don't get the tests and treatment they need. Fifty-five percent 
of Americans say insurers should pay for what a doctor 
recommends, even if a treatment has not been proven.
    If our collective goal is to achieve affordable coverage 
for Americans, it is essential that we reach a consensus on 
these issues and make delivery system reform happen.
    In terms of the individual and under 10 small group 
markets, by reforming the individual market which should also 
include small businesses fewer than 10, we can tell our 
insurance market solutions to effectively address the needs of 
the uninsured, many of whom would see coverage in these markets 
without disrupting or possibly unraveling the entire insurance 
    There is risk in every great endeavor, but if the primary 
objective is to fix what is broken and provide comprehensive 
coverage for the uninsured, Congress must take care not to 
shift those who pay for insurance today into an untested 
structure that could cost more than they now pay.
    We can cover the uninsured if we guarantee issue insurance, 
strongly align it with an individual coverage requirement, 
subsidize those that truly need healthcare and provide 
affordable coverage options which improve choices and reduce 
    Congress must also deal with the issue of cross 
subsidization. In making the decisions, we need to be mindful 
of how reforms impact different segments of the population. 
While the purpose of every insurance pool is to spread risk, 
how much should a 23-year-old with a lower average income pay 
to lower the rate of a 60-year-old with higher-than-average 
income? These are the policy decisions that must be made.
    For groups of businesses between 10 and 50, 85 percent of 
whom offer employees health insurance, we need a package of 
solutions that make the current market work better. I believe 
the intent of the SHOP Act is the right approach as it provides 
a package of solutions intended to address the major issues of 
these larger small businesses which are rate volatility and 
affordability of coverage.
    I would call on the committee to leave some details to 
regulation, understanding that making our new model work will 
require time, experience and course corrections.
    Thank you for the chance to comment, and we look forward to 
working with you.
    [The prepared statement of Mr. Williams follows:]

                Prepared Statement of Ronald A. Williams

    Good Morning Vice-Chairman Dodd, Senator Enzi and members of the 
committee. My name is Ronald A. Williams, and I am the Chairman and CEO 
of Aetna, Inc.
    I want to thank you for this opportunity to appear before you to 
discuss health care reform, something we feel passionate about at 
Aetna. I applaud Chairman Kennedy, Ranking Member Senator Enzi, and the 
full committee for your leadership in the effort to make health care 
work for all Americans.
    I also want to thank Vice-Chairman Dodd from Connecticut, my home 
State, for his leadership. This spring, I had the opportunity to 
participate in two of Senator Dodd's Connecticut town halls on health 
care reform and listened as several hundred seniors, students, parents 
and everyday citizens shared their experiences with the health care 
system and their desire for reform. We may not have all agreed on the 
details of reform, but we did and can agree that great nations do not 
have 45 million people who are uninsured.
    The committee is to be commended for its effort to address not just 
the issue of access for the uninsured, but to also focus on 
affordability and quality of care. I would like to briefly comment on 
these issues as they are at the core of this committee's and other 
committees' legislative proposals.

                          COMPANION SOLUTIONS

    I want to start by talking about the approximately 250 million 
people who have health care coverage today. There is a competitive 
insurance market with over 1,300 plans, which are nearly equally 
divided between for-profit and not-for-profit plans. I know first hand 
from our customers that there is a very high satisfaction rate with 
this coverage:

     175 million Americans are insured through the commercial 
market with coverage sponsored and subsidized by their employers.
     More than 95 percent of employers polled in a recent 
survey overwhelmingly want to continue to provide their employees this 
type of coverage.
     It is the employers' long-term commitment to their 
employees' health that has driven much of the innovation we have today 
in terms of services that help improve and sustain employee health.
     And although we know health care insurance works for many, 
it does not work for everyone. Therefore, we must work together to 
develop targeted solutions that address access, affordability and 
quality for all Americans.
     For example, we support significant insurance reforms that 
are uniform across the country. But these very reforms cannot work 
without a ``companion'' requirement that requires all Americans to be 
part of the insurance system.
     Congress must also make sure affordable coverage is 
available and to subsidize those who cannot afford it.
     Simply put, it all must be part of the same package.

                            COST AND QUALITY

    Insurance premiums are a direct reflection of underlying services 
in health care such as provider costs. In 2007, the cost of health care 
services grew at an annual rate of 6.4 percent. As a result, premiums 
also increased 6.1 percent.
    Making insurance affordable will require us to bend the health care 
cost curve, and we insurers are committed to continuing our on-going 
effort as part of the President's overall cost reduction plan. This 
also means reforming a provider payment system currently based on 
volume and quantity, and moving to a system based on outcomes and 
    Today most experts agree that 30 percent of care is unnecessary, 
and yet, the majority of Americans believe they don't get the tests and 
treatment they need. Fifty-five percent of Americans say insurers 
should pay for what a doctor recommends even if a treatment has not 
been proven to be more effective than a cheaper one. If our collective 
goal is to achieve affordable coverage for all Americans, it is 
essential that we address these issues and make delivery system reform 
 specific solutions for the individual and under 10 small group markets
    By reforming the individual market which should also include small 
businesses with fewer than 10 employees, we can tailor insurance market 
solutions to effectively address the needs of the uninsured, many of 
whom would seek coverage in these markets, without disrupting or 
possibly unraveling the entire insurance market. There is risk in every 
great endeavor, but if the primary objective is to fix what is broken 
and provide comprehensive coverage for the uninsured, Congress must 
take care not to shift those who pay for insurance today into an 
untested structure that could cost them more than they pay now.
    We can cover the uninsured if we:

     Guarantee issue of insurance and strongly align it with an 
individual coverage requirement;
     Subsidize those that truly need help; and
     Provide affordable coverage options which improve choice 
and reduce complexity.

    Congress must also deal with the issue of cross subsidization. In 
making policy decisions, we need to be mindful of how reforms may 
impact different segments of the population. While the very purpose of 
an insurance pool is to spread risk, how much should a 23-year-old with 
a lower than average income pay to lower the rate for a 60-year-old 
with a higher than average income? It's only when we truly reduce the 
cost of care that we will be able to provide affordable coverage and 
reduce overall health care spending.

                          SMALL GROUP 10 TO 50

    For small businesses with between 10 and 50 employees, 85 percent 
of whom offer their employees health insurance, we need a package of 
solutions that makes the current market work better. I believe the 
intent of the SHOP act is the right approach as it provides a package 
of solutions intended to address the major issues for these small 
businesses, which are rate volatility and affordability of coverage. We 
would propose some important changes to this bill that we believe would 
not jeopardize the desired result.
    I would call on the committee to leave some details to regulation 
understanding that making our new model work will require time and 
experience. This will allow greater flexibility in meeting different 
consumer needs and expectations. Examples on this point include benefit 
package design, where we need not legislate in a ``one-size-fits-all'' 
manner. Rate banding is another example; while moving to a national 
standard is advisable, we need to allow for flexibility in designing 
rate bands that are based on actuarial modeling and reflect our 
collective intent to expand access and increase affordability. This may 
take some experience with a new system to get right.
    Thank you for the chance to comment and we look forward to working 
with you to pass reform that addresses affordability, access and 

    Senator Dodd. Thanks very much.
    Mr. Johnson.

                         WASHINGTON, DC

    Mr. Johnson. Thank you, Senator Dodd.
    While there's been much focus in the press and elsewhere on 
the so-called public plan option, Senator Dodd, which certainly 
the Chamber has concerns with, I'd like to, today, focus on the 
new employer mandate which I realize is not spelled out in the 
bill but is sketched out in actually the Savings Clause, and I 
think this is highly ironic, given that this is, let's be 
clear, a sweeping new burden on employers of unprecedented 
proportion in the benefits area.
    Now, in contrast to the process before us, the Congress 
spent almost a decade in consideration of the Family Medical 
Leave Act which you were very much involved in, which provided 
for 12 weeks of unpaid leave, but that essentially was a 
process that stretched out over 7 to 10 years.
    Now the Congress is considering imposing a potentially 
sweeping new healthcare mandate on employers in less than 4 
months and with regard to process, I have to agree with Senator 
    I have to note that I was on the Hill when Mrs. Clinton's 
plan was being considered and she came under much criticism for 
drafting the plan behind closed doors, as you will recall, and 
then presenting the plan to Congress.
    However, there were many hearings on that bill. I was at 
many of those, at one committee, and I would have to argue that 
it was a model of transparency and full deliberative process 
compared to the accelerated process we are now apparently 
facing when people are talking about a final piece of 
legislation by September or October.
    I would also urge that the committee consider these new 
healthcare mandates not just in the context of the healthcare 
debate but in the context of the many other bills pending in 
front of this committee dealing with paid family leave, 
expansion of OSHA, uncapped punitive and compensatory damages, 
et cetera, and this is on top of a huge regulatory burden that 
our employers already have to face.
    Now, we don't know what an employer mandate's going to 
cost, but there are some studies out there. The RAND 
Corporation has come out with one study, and I'm just going to 
quote this,

          ``From our model, we estimate that firms newly 
        offering coverage will spend $9 billion to $17 billion 
        on premium contributions and penalty payments, under 
        the pay or play, will spend $4 to $12 billion.''

    That's not chump change to our members.
    Now this is already against a backdrop of where employers 
are providing coverage to 170 million Americans. They're 
already spending $500 billion on healthcare on a voluntary 
basis and I guess I would say that employers already are 
underwater on this and they have been for a long time. I think 
we're doing our part.
    Now this is not to say that every employer is providing 
health insurance to their employees. Many simply cannot afford 
to do so and a new government mandate requiring that employers 
provide some level of healthcare benefits, apparently here to 
be determined by government boards, subject only to disapproval 
by Congress or pay an undetermined civil penalty, is not going 
to change this reality.
    Moses could change the Nile and make it run red but we 
cannot wave a wand and create profits. The payments will come 
off the bottom line, as these various studies have testified 
to. It will result in lower wages and job losses and in some 
cases, and this may sound apocryphal, but in some cases some 
businesses may go out of business.
    I'm just requesting that we refocus on the employer 
mandate. Let's go slowly on this issue and I appreciate your 
time, Senator.
    [The prepared statement of Mr. Johnson follows:]

         Prepared Statement of Randel K. Johnson, on behalf of 
                      the U.S. Chamber of Commerce


    The Chamber stands ready to work with Congress to enact health 
reform, this year. However, proposals being floated are not reform--
they would make the system even worse for employers and those who value 
free-market competition. The Chamber urges this committee to reconsider 
the approach it is taking.
    After meeting with stakeholders behind closed doors for nearly a 
year, the committee released a proposal that bears almost no 
resemblance to the points of consensus reached, which raises 
significant concerns to the employer community as a whole.
    The committee's draft proposal is focused largely on ideological 
efforts that will not solve the real problems Americans are facing in 
health care. Rather than focusing on improving quality and lowering 
cost, the proposal centers on creating new burdens on America's job 
creators, significantly expanding public programs, and a new 
government-run insurance company.
    The Chamber is gravely concerned by the process and the product 
thus far. As badly as reform is needed, we cannot support reform just 
for the sake of reform. Ironically, the current process has been less 
open and transparent than reform efforts in 1994, which involved more 
hearings, more time to consider legislation, and more public vetting of 
options than has been contemplated here. We, and the business community 
at-large, are still eager to work with Congress to develop a workable 
product that can garner broad bipartisan support, preserves the parts 
of the system that work, is fiscally responsible, and expands coverage, 
increases quality, and lowers costs. However, the products coming out 
of this committee over the past 7 days do not meet any of these goals, 
and would make the system, and America's overall financial situation, 
worse, not better.
    The U.S. Chamber of Commerce is the world's largest business 
federation, representing more than 3 million businesses and 
organizations of every size, sector and region.
    More than 96 percent of the Chamber's members are small businesses 
with 100 or fewer employees, 71 percent of which have 10 or fewer 
employees. Yet, virtually all of the Nation's largest companies are 
also active members. We are particularly cognizant of the problems of 
smaller businesses, as well as issues facing the business community at-
    Besides representing a cross-section of the American business 
community in terms of number of employees, the Chamber represents a 
wide management spectrum by type of business and location. Each major 
classification of American business--manufacturing, retailing, 
services, construction, wholesaling, and finance--numbers more than 
10,000 members. Also, the Chamber has substantial membership in all 50 
    The Chamber's international reach is substantial as well. We 
believe that global interdependence provides an opportunity, not a 
threat. In addition to the U.S. Chamber of Commerce's 101 American 
Chambers of Commerce abroad, an increasing number of members are 
engaged in the export and import of both goods and services and have 
ongoing investment activities. The Chamber favors strengthened 
international competitiveness and opposes artificial U.S. and foreign 
barriers to international business.
    Positions on national issues are developed by a cross-section of 
Chamber members serving on committees, subcommittees, and task forces. 
Currently, some 1,800 business people participate in this process.
    The U.S. Chamber of Commerce would like to thank the Chairman and 
Ranking Member, and other members of the committee for the opportunity 
to participate in today's roundtable and to submit this statement for 
the record. The Chamber appreciates your efforts to achieve access to 
affordable coverage for all Americans. The U.S. Chamber of Commerce is 
the world's largest business federation, representing more than 3 
million businesses and organizations of every size, sector, and region.
    The employer-based system voluntarily provides health benefits to 
over 178 million Americans. Overwhelmingly, employees are satisfied 
with these benefits and want their employers to continue providing it 
to them. Further, employers are currently spending over $500 billion on 
health benefits each year.
    According to the U.S. Census Bureau, nearly 46 million Americans 
lack health insurance. The Chamber believes that this number is 
misleading, and that we must acknowledge the difference between those 
that cannot afford to purchase coverage, and those that can afford 
coverage, but choose not to do so. This committee seeks to get both of 
these groups into the system.
    Covering those who cannot afford coverage does necessitate a myriad 
of approaches. The Chamber believes it is paramount to begin with a 
greater focus on enrolling those who are already eligible for 
government-subsidized or free insurance--and steps to use Gateways to 
accomplish this goal are a great stride in the right direction. An 
estimated 10 million people are currently eligible, but Federal and 
State agencies have not done an adequate job of streamlining 
procedures, putting boots on the ground, and signing them up. Nearly 
another 9 million of the uninsured are non-citizens; a solution for 
them will necessitate reopening the question of immigration reform.
    About 15 million of the 46 million uninsured have high enough 
incomes that they likely could afford insurance, if they chose to 
purchase it. Their reasons for going without could range from feeling 
young and invincible, lacking appealing insurance options (they are 
often uninterested in gold-plated PPO plans), being boxed in by State 
insurance mandates that limit their purchasing options, or lacking an 
understanding of the necessity of obtaining coverage. There are many 
proposals designed to prevent these individuals from opting out of the 
system, and to force them to shoulder their ``fair share'' of the 
expenses of providing medical care to the Nation. However, policymakers 
have a responsibility to address their concerns if these individuals 
are to be obligated to purchase coverage.
    This committee needs to make a U-turn on these issues--rather than 
defining a dangerously high actuarial value to determine the 
qualifications of a health insurance plan, Congress should only require 
that individuals have comprehensive catastrophic coverage that offers 
first dollar coverage of prevention. The creation of a Medical Advisory 
Council, a proposal that Tom Daschle dubbed the ``Federal Health 
Board'' when he invented it, would be disastrous and possibly 
unconstitutional. No new bureaucracy should be given the power to 
impose law without proper checks and balances--and requiring a joint 
resolution of disapproval is unduly burdensome. Advisory bodies should 
advise and make suggestions, not make law.
    If Congress creates an individual obligation to purchase coverage, 
we must first ensure that individuals will be able to obtain affordable 
coverage. This will require significant market reforms, new pooling 
options, removing State benefit mandates, and making available a full 
range of insurance options that will appeal to the young and healthy. 
All potential coverage solutions for the uninsured will be 
unsustainable unless Congress enacts meaningful delivery system, 
payment, financing, and entitlement reform. Some proposals to cover the 
uninsured are alarming and may well make the system worse, not better.
    The small group and individual insurance markets are in serious 
need of significant reform. Currently regulated at the State level, the 
costly and burdensome benefit mandates coupled with an arguable lack of 
competition have led to the need for Federal reform of the individual 
and small group markets. The Chamber has long supported granting small 
businesses the ability to pool risk and to offer uniform benefits 
across State lines to address these problems, to no avail. Large 
businesses have been successful in offering comprehensive benefits 
primarily because Federal law (ERISA) protects them from the patchwork 
of inconsistent State laws and regulations, and the vast majority of 
individuals enrolled in ERISA plans report a high level of satisfaction 
with their plans. Plans to limit self-insurance to only companies with 
more than 250 employees are a step in the wrong direction, and further 
changes to ERISA and new requirements to apply to ERISA plans will 
weaken the part of the system that is working well.
    A national insurance Gateway should serve as a marketplace where 
individuals and small businesses can go to obtain coverage that meets 
the new standards. This Gateway must facilitate meaningful pooling 
options for these individuals so that their risks can be shared, their 
premiums can be predictable, and their costs lower. Further, having 
learned from the arguable lack of competition and problems encountered 
at the State level, the Gateway must allow for a high amount of plan 
flexibility, greater risk pooling, and a range of options.
    The plans sold in the Gateway will have to meet some minimum 
benefit standard, and the Chamber feels the best course of action for 
designing this standard would be to look at existing high-deductible 
health plan products that offer first-dollar coverage of preventative 
services. It is absolutely essential that individuals have both access 
to and incentive to use preventative services, but also that the 
remaining parts of the plan be up to consumers--make the minimum a 
catastrophic plan, allow individuals and purchasers to determine how 
much richer of a plan they would like to select. This will provide 
appropriate safeguards against financial difficulties and ensure access 
to appropriate care.
    If Congress manages to maneuver these challenges in a way that 
successfully encourages individuals who can afford coverage to opt in, 
and also successfully enrolls those who are already eligible for free 
or subsidized care, there would still be about 10 million uninsured. 
This group is comprised of individuals who cannot afford coverage, the 
people who are driving the need for coverage reform in the health care 
system. Covering them will entail many challenges.
    The proposal to give Federal subsidies to individuals making up to 
500 percent of the Federal Poverty Level (FPL)--that would be $110,250 
for a family of four. Subsidies of this size are extremely fiscally 
irresponsible, unsustainable, and only feed into the growing cost 
problem. Expanding Medicaid to 150 percent of FPL will increase the 
program's fiscal woes. Relief for those who cannot afford insurance 
must be targeted, fiscally responsible, and in coordination with other 
reforms that lower costs and fix the insurance market.
    The Chamber does not believe that a mandate on employers to sponsor 
health insurance will make serious headway to cover the uninsured, but 
rather could lead to a loss of jobs. Employers who can afford to 
sponsor health insurance typically provide generous benefits--and most 
large employers do. Employers who cannot currently afford to offer 
health insurance benefits will not be able to do so simply because they 
are mandated to do so--small employers and businesses that operate on 
very small profit margins will still be unable to afford to provide 
    The decision to force employers to sponsor government-approved 
health plans is not one that should be taken so lightly. Congress spent 
nearly a decade debating policies relating to mandatory family leave--
unpaid leave at that. Under the Federal ERISA framework, very few new 
mandates have reached consensus to be forced upon employer-sponsored 
plans. Congress generally recognizes the importance of employer 
flexibility, autonomy, and ability to make the financial choices and 
take the necessary risks to create jobs, boost the economy, and drive 
the engine of prosperity.
    Employers have been great innovators in health care, and in many 
reforms we have led the way and have kept the unsustainable rising 
costs of health insurance from reaching the breaking point. A mandate 
on employers is sure to reduce flexibility and choice, while raising 
costs and providing little benefit. Existing mandates have proven 
inadequate in determining the scope of plans, helping to cover the 
uninsured, or properly distinguishing the good players from so-called 
free-riders. The push for a coverage mandate on employers is an 
ideological one, not a pragmatic one, and should not be viewed as a way 
to cover the uninsured.
    Employers support the notion of ``shared responsibility,'' when 
viewed through the lens of realism. Any objective observer would 
conclude that employers, who currently cover more than 178 million 
Americans and pay over $500 billion per year, are indeed being 
responsible. Mandating further ``responsibility'' on their part would 
exhibit confusion about the economic realities employers face. An 
employer mandate would be a job-killer, because it would force 
struggling employers to spend money they don't have.
    Another concerning proposal is the creation of a new government-run 
health plan, euphemistically referred to as the ``public option,'' or 
brazenly referred to as ``consumer-driven.'' Proponents say that this 
is necessary to ``keep private insurers honest,'' yet proposed market 
reforms should accomplish this goal without the creation of a new 
entitlement plan. Proponents claim that a government-run plan can 
compete on an equal playing field with private plans, but this would 
put the government in the position of being both a team owner and the 
referee; inevitably the government would move to give unfair advantages 
to the ``public option,'' just as they are considering doing now with 
the public financing of student loans.
    Even the op-ed page of the Washington Post has cited the ``public 
option'' as a backdoor way to bring the Nation to single-payer, 
socialized medicine. The President's promise that Americans will be 
able to keep the health insurance they have cannot be kept if we move 
to such a system--which we inevitably would if, as the Lewin Group 
estimates, up to 130 million people are shifted into this public plan.
    Employers are especially concerned with the prospect of a new 
government-run plan because of the bad experience we have had with 
current government-run plans. According to a recent study by Milliman, 
employer plans' costs are increased by an estimated 20 to 30 percent 
due to cost-shifting from Medicare and Medicaid. ``Public option'' 
proponents will say that this is denied by MedPAC, or that the new plan 
will not engage in this cost-shifting, but these assurances ring 
hollow--especially when we consider the incredible unfunded liabilities 
currently shrugged off by current government-run plans.
    The Chamber is gravely concerned by the process and the product 
thus far. As badly as reform is needed, we cannot support reform just 
for the sake of reform. Ironically, the current process has been less 
open and transparent than reform efforts in 1994, which involved more 
hearings, more time to consider legislation, and more public vetting of 
options than has been contemplated here. We, and the business community 
at-large, are still eager to work with Congress to develop a workable 
product that can garner broad bipartisan support, preserves the parts 
of the system that work, is fiscally responsible, and expands coverage, 
increases quality, and lowers costs. However, the products coming out 
of this committee over the past 7 days do not meet any of these goals, 
and would make the system, and America's overall financial situation, 
worse, not better.
    When you get past the ideological arguments, Democrats, 
Republicans, and business all want the same reforms--lower costs, 
improved quality, and better outcomes. We believe a key to 
accomplishing this is reforming the payment system to incent providers 
to give the best, most efficient care. The Chamber will strongly 
support Congress in enacting these needed reforms.
    The Chamber is eager to work with you to enact reform, but urges 
your consideration and caution when crafting proposals that could prove 
harmful to U.S. companies. If structured properly, a Gateway could be a 
boon to small business. Subsidies could realign Federal dollars in a 
way that seriously reduces the uninsured. Entitlement programs could be 
reformed, revamped, and improved. Even better, the coverage currently 
enjoyed by more than 250 million Americans could be secure and 
sustainable, have better quality, and be more affordable.
    The Chamber looks forward to working with Congress on this and 
other initiatives that will help more individuals, small businesses, 
the self-employed, and others gain access to the highest quality, most 
affordable, and most accessible health care possible. But we will not 
support reform for the sake of reform--it must be market-driven, 
preserve and boost the economy, and truly protect the parts of the 
system that work.

    Senator Dodd. Thank you very much. I'm glad you remember 
the Family Medical Leave Act. Nice of you to do so. By the way, 
the final version of it passed in 2 weeks.
    Mr. Johnson. After about two vetoes and many, many years.
    Senator Dodd. Thanks for remembering the vetoes.
    Mr. Dennis.


    Mr. Dennis. Thank you, Senator.
    Small business has been primarily concerned about the costs 
of health insurance to America's small employers and considers 
it a major reason for the increasing coverage problem.
    The importance of costs can be seen actually in 
Massachusetts. After coverage reforms, health spending jumped 
almost 25 percent in 2 years compared to 11 percent nationally. 
The reduction uncovered was 3 to 4 percentage points. I guess 
there's some dispute as to exactly how much these days, but 
anyway what happens in a State like Texas, where we already 
have 33 percent lacking coverage rather than Massachusetts 
which was like eight or nine before the reforms came in.
    Small business and NFBI have consistently opposed the 
employer mandate. We have two principle reasons for the 
opposition. The first is that employees ultimately bear the 
cost of their health insurance through lower employment, 
depressed wages and the loss of other economic opportunities.
    Congress must ask itself do we want an employer mandate 
that effectively requires low-wage employees to indirectly and 
opaquely pay for their own health insurance or do we want to 
face the problem directly and transparently and provide 
subsidies for the low-income to purchase it?
    The second reason that NFBI has consistently opposed the 
employer mandate is that in the initial costs, the up-front 
costs, before they can be transferred to employees, they must 
be borne by employers. Small employers particularly have 
difficulties with all these up front costs.
    Finally, NFBI supports and helped develop the SHOP Act 
sponsored by Senators Durbin, Snowe and Lincoln. The 
committee's draft captures the essence of SHOP in its market 
reform provisions, most prominently guaranteed issue and 
renewal, the disallowance of medical underwriting and modified 
community rating.
    In addition, the gateway connector concept is a positive 
step to facilitate small employers increasing their provisions 
of employee health insurance. Gateways perform a clearing house 
function, part of the small employers' HR function and 
insurance information functions. All substantially ease the 
small employers' search information and transactions costs 
directly addressing the actuarial value of small group plans.
    In addition, its section 125 capabilities also bring 
efficiencies and equity to affected employees and employers.
    Thank you very much, Senator.
    [The prepared statement of Mr. Dennis follows:]

              Prepared Statement of William J. Dennis, Jr.

    Small business has been primarily concerned about the cost of 
health insurance to American small employers and considers it a major 
reason for the increasing coverage problem. The committee draft appears 
not to address the cost problem to the extent necessary, and typically 
cannot expect results until well after substantial new demand is placed 
on the system. For example, NFIB does not consider the public option a 
means to control the increase in prices. Similarly, the concept of 
medical loss ratios, while designed to address an important problem for 
smaller firms may prove counter-productive, if for no other reason than 
administrative personnel assigned to ferret out waste and fraud, can 
reduce net costs rather than increase them. Electronic records are fine 
as are other committee recommended measures, but there are more 
including built in cross-subsidies that foul prices signals, re-
importation of prescription drugs that mean Americans subsidize the 
prescriptions of consumers in other developed countries, medical 
liability that yields unnecessary tests and procedures, and a host of 
    Small business and NFIB have consistently opposed the employer 
mandate. We have two principal reasons for opposition, though there are 
others. The first is that employees ultimately bear the cost of their 
health insurance through lower employment, depressed wages, and the 
loss of economic opportunities. So, the Congress must ask itself: Do we 
want an employer mandate that effectively requires low-wage employees 
to indirectly and opaquely pay for their own health insurance? Or, do 
we want to face the problem directly and transparently and provide 
subsidies for the low-income to purchase it? The second reason NFIB has 
consistently opposed the employer mandate is that the initial costs, 
costs before they can be transferred to employees, are bourne by 
employers. In effect, employers must ``front'' or initially lend the 
money for employees to purchase their health insurance. Many simply 
cannot do that.
    NFIB supports, and helped develop, the SHOP Act sponsored by 
Senators Durbin, Snowe, and Lincoln. The committee's draft captures the 
essence of SHOP in its market reform provisions, most prominently 
guaranteed issue and renewal, the disallowance of medical underwriting, 
and modified community rating. In addition, the Gateway/Connector 
concept is a positive step to facilitate small employers increasing 
their provision of employee health insurance. Gateways perform a 
clearinghouse function, part of a small employer's HR function, and 
insurance information functions. All substantially ease the small 
employer's search, information, and transaction costs, directly 
addressing the actuarial value of small group plans. Its section 125 
capabilities also bring efficiencies and equity to affected employers 
and employees.

    Senator Dodd. Thank you. Thank you very much.
    Mary, if you could bring that microphone close. I think 
members are having a hard time hearing.


    Ms. Andrus. OK. Senator Dodd----
    Senator Dodd. Thank you.
    Ms. Andrus [continuing]. Members of the HELP Committee, 
thank you for this opportunity to testify.
    I am Mary Andrus, Assistant Vice President for Government 
Relations at Easter Seals and I'm here today as a Co-Chair of 
the Health Care Task force on the Consortium for Citizens with 
    For people with disabilities and chronic conditions of all 
ages, the goal of healthcare reform is to have access to high-
quality, comprehensive and affordable healthcare that allows a 
person to be healthy and to live as independently as possible 
and participate in his or her community.
    This legislative proposal makes major positive changes in 
the insurance market. The proposal would require guaranteed 
issue, requiring insurance to be issued without regard to 
health status, and guaranteed renewal so coverage couldn't be 
dropped because of a change in someone's health status.
    The proposal would prohibit health status from being used 
in determining premium rates, making insurance more affordable 
for people with disabilities and chronic conditions.
    The prohibition of annual and lifetime insurance caps and 
limits on out-of-pocket spending would immediately widen the 
opportunity for people with disabilities to obtain and to 
retain quality insurance coverage.
    We strongly support the rehabilitation and habilitation as 
well as mental health services that were included in the 
outline of categories in the draft. However, we are concerned 
that the existing categories may not include the durable 
medical equipment, like wheelchairs or prosthetics, orthotics 
or other assistive devices, that are primary needs for people 
with disabilities.
    CCD enthusiastically supports inclusion of the Community 
Living Assistance Services and Support Section. The CLASS 
proposal would create a new national insurance program to help 
adults who have or who develop functional impairments to get 
the support that they need to remain employed and independent.
    The financing for that proposal is through a modest 
voluntary payroll deduction and would provide a cash benefit to 
be used for things that health insurance may not cover, such as 
housing modification, personal assistance services or 
transportation, to allow someone to remain in their home, to 
continue to go to work, and to be part of their community.
    Any one of us could become disabled any day and the cash 
benefit could provide access to a wide range of services to 
continue to function within families and communities.
    Alternatively, many people will continue to have to spend 
down their savings and go on to Medicaid. We support self-
sufficiency and independence rather than requiring people to 
impoverish themselves to get the services that are needed.
    We understand that one of the options under discussion is 
to make adjustments to the current tax structure to incentivize 
the purchase of long-term insurance. We believe that these 
changes are not comprehensive enough to address the number of 
people who need coverage and the consequences to an individual 
or a family if these services are needed over the long haul.
    Let me close with the idea that as you look at proposals 
for healthcare reform, look at them through the experience of a 
person with a disability and if the proposal meets those needs, 
it's highly likely to meet the needs of the rest of the 
    Thank you.
    [The prepared statement of Ms. Andrus follows:]

                   Prepared Statement of Mary Andrus

    Members of the HELP Committee, thank you very much for this 
opportunity to tell you about how changes in our health care system 
could impact people with disabilities. I am Mary Andrus, Assistant Vice 
President for Government Relations at Easter Seals, and I am here today 
as a co-chair of the Health Care Task Force and a representative of the 
Long Term Services and Support Task Force of the Consortium for 
Citizens with Disabilities (CCD), a coalition of national consumer, 
advocacy, provider and professional organizations who advocate on 
behalf of people of all ages with physical and mental disabilities and 
chronic conditions, and their families.


    CCD believes that the goal of health care reform should be to 
assure that all Americans, including people with disabilities and 
chronic conditions, have access to high quality, comprehensive, 
affordable health care and long-term services and supports that meets 
their individual needs and enables them to be healthy, functional, live 
as independently as possible, and participate in the community.

                        INSURANCE MARKET REFORMS

    The legislation that the HELP Committee has put forward, the 
Affordable Choices Act of 2009, contains very constructive changes 
regarding insurance market reform. These improvements to the private 
health insurance market have significant positive implications on the 
ability of all Americans to access affordable health insurance 
regardless of their health status. Specifically, providing guaranteed 
issue and guaranteed renewal rules on coverage in the individual and 
small group market and prohibiting pre-existing health condition 
exclusions in these markets would immediately widen the opportunity for 
people with disabilities to obtain and retain quality insurance 
coverage. To assure that insurance is not just available to people with 
disabilities and chronic conditions, but to commit to seeing that it is 
affordable, this legislation initiates restrictions on premium rating 
practices in these markets to prohibit the use of health status in 
determining premium rates.
    The combination of these modifications to the way business is 
currently conducted would constitute significant improvements for 
people with disabilities. But this proposal takes another big step 
toward protecting people from being overwhelmed by the cost of illness. 
CCD strongly supports the prohibition of annual and lifetime insurance 
caps. In addition, we strongly support limits on out-of-pocket spending 
to meaningfully address either catastrophic medical events or the 
accumulation of costs over years of living with a disability or chronic 
condition. It is important for medically necessary prescribed 
treatments and services that are eligible medical expenses under the 
IRS rules to be considered out-of-pocket expenses. Many people with 
disabilities and chronic diseases will be left without protections from 
catastrophic financial costs for services or treatments that their 
doctor prescribes but their plan fails to cover.

                           BENEFIT CATEGORIES

    One of the most critical aspects of the health care reform debate 
for the disability community is the assurance of an appropriate set of 
benefits to meet the needs of people with disabilities and chronic 
conditions. This community understands that the benefits package is not 
defined in the legislative proposal and we enthusiastically support the 
inclusion of rehabilitation and habilitation services as a category for 
further definition of what would be covered. Provision of acute and 
post-acute rehabilitation and habilitation services in multiple 
settings of care to match the level of intensity of services needed by 
individuals to return them to their home and community as quickly as 
possible is key to the goal of overall health care reform.
    CCD strongly urges the committee to include a category that 
provides a full complement of durable medical equipment (such as 
wheelchairs), prosthetics, orthotics (DMEPOS) and other assistive 
devices and related services. Such devices are critical in enabling 
people with disabilities to function. Without access to proper and 
affordable equipment of this nature, people with disabilities and 
chronic conditions can not have their needs met by private insurance 
and will, ultimately, be forced to avail themselves of the public 
programs that do offer such coverage. This result would not look a lot 
different from the status quo and is not consistent with the goals of 
this remarkable effort. We can not state strongly enough the importance 
of the inclusion of coverage of DMEPOS and assistive equipment as a 
general category in defining the essential health care benefits.
       community living assistance supports and services proposal
    An essential element of health care reform is ensuring that 
vulnerable populations have access to coverage that meets their care 
needs. For persons with disabilities and chronically ill older 
Americans--arguably the most vulnerable populations in the Nation--
long-term services and supports are their primary unmet care need, and 
are critical to promoting health and preventing illness. While 
approximately 45 million Americans do not have medical insurance, over 
200 million adult Americans lack any insurance protection against the 
cost of long-term services and supports. The inclusion of the Community 
Living Assistance Services and Supports (CLASS) language in this 
proposal is the threshold to meaningful change ensuring that 
individuals are able to function as independently as possible within 
their homes, families, and their communities. We strongly support the 
inclusion of the CLASS proposal. This provision should be retained as 
the legislative process moves forward.
    Many Americans who are born with or develop severe functional 
impairments can access coverage for the long-term services critical to 
their independence (such as personal assistance, assistive 
technologies, long-term therapies, and training in basic skills) only 
through the Federal/State Medicaid program. The Medicaid program has 
become the default long-term services program and the last resort for 
millions of individuals and families who have nowhere else to turn to 
have their long-term needs met. Families must impoverish themselves by 
spending down their life savings before they can access the care they 
need under Medicaid. To a family struggling to make ends meet, there is 
no difference between spending $20,000 on hospital care and spending 
$20,000 on home care or nursing home care. It is still $20,000 coming 
out of their pockets.
    The CLASS provision would create a new national insurance program 
to help adults who have or develop severe functional impairments to 
remain independent, employed, and stay a part of their community. To 
qualify for CLASS benefits, individuals must be at least 18 years old 
and have contributed to the program for a minimum ``vesting'' period of 
5 years. Eligibility for benefits would be determined by State 
disability determination centers and will be limited to individuals who 
are unable to perform two or more activities of daily living (ADL) 
(e.g. eating, bathing, dressing) or its equivalent.
    Financed through modest voluntary payroll deductions (with opt-out 
enrollment like Medicare Part B), this measure would help remove 
barriers to choice and independence (e.g., housing modification, 
assistive technologies, personal assistance services, transportation) 
that can be overwhelmingly costly, by providing a cash benefit to those 
individuals who need support for basic functions. The large risk pool 
to be created by this approach would make added coverage affordable. It 
would give individuals added choice and access to supports without 
requiring them to become impoverished to qualify for Medicaid. This 
should have a significant beneficial impact on the Medicaid program in 
the future as fewer people find it necessary to spend-down to become 
Medicaid eligible. Furthermore, many beneficiaries of working age could 
continue to remain in the workforce. We also believe that individuals 
could supplement their CLASS coverage through the private insurance 
    We believe that Option A would fail to make any progress in this 
critical area. While some of the provisions of Option B would be 
worthwhile in a limited market, it is not comprehensive enough and 
would do little to increase essential insurance coverage throughout the 


    People below age 65 become Medicare beneficiaries if they can no 
longer work due to disability and receive benefits under the Social 
Security Disability Income (SSDI) program, or if they require kidney 
dialysis due to end stage renal disease (ESRD). However, these Medicare 
beneficiaries have no Federal right to access supplemental insurance 
through Medigap as seniors do. The need for this supplemental insurance 
has been recognized by 27 States which mandate some level of Medigap 
access to Medicare enrollees under 65.
    As Congress considers how to improve the existing health care 
system, the guaranteed issue of Medigap policies to all Medicare 
beneficiaries with disabilities and ESRD below the age of 65 to bring 
access to Medigap policies in line with seniors on Medicare, would 
provide needed coverage to these individuals. Medigap policies should 
be accessible and affordable to all Medicare beneficiaries regardless 
of age or health condition.


    CCD appreciates the protections in this proposal to prohibit 
discrimination for insurance eligibility and marketing. We would like 
to suggest the addition of language that strengthens the protections 
and prohibits plan coverage designs that would discriminate against 
people with disabilities and chronic disease. Many people with 
disabilities and chronic conditions are uninsured and under-insured. 
With the consideration of this health care proposal, there is the 
opportunity to better ensure that the design of plans and their 
benefits (including any formulary and tiered formulary structure) do 
not substantially discourage enrollment by individuals with 
disabilities or chronic diseases.
    Thank you again for the opportunity to address this committee and 
for all the work you are doing to truly make a difference in the way 
people with disabilities and chronic conditions can live, learn, work 
and play in their communities.
    For additional information, please contact any of the individuals 
CCD Health Task Force Co-Chairs
      Mary Andrus, Easter Seals, (202) 347-3066.
      Tim Nanof, American Occupational Therapy Association, 
(301) 652-6611, Ext. 2100.
      Angela Ostrom, Epilepsy Foundation of America, (301) 918-
      Peter Thomas, American Academy of Physical Medicine & 
Rehabilitation, (202) 466-6550.
      Liz Savage, The Arc of the United States and United 
Cerebral Palsy, (202) 783-2229.
CCD Long-Term Services and Supports Co-Chairs
      Joe Caldwell, Association of University Centers on 
Disabilities (301) 588-8252.
      Marty Ford, The Arc and United Cerebral Palsy (202) 783-
      Suellen Galbraith, American Network of Community Options 
and Resources (703) 535-7850.
      Lee Page, Paralyzed Veterans of America (202) 416-7694.

    Senator Dodd. Thank you very much.
    Dr. Rosman. Did I pronounce----
    Dr. Rosman. It's Rosman, yes.
    Senator Dodd. Rosman.


    Dr. Rosman. Thank you. Thank you, Mr. Chairman.
    My name is Samantha Rosman, and I'm a member of the 
American Medical Association Board of Trustees and a Fellow in 
Pediatric Emergency Medicine in Boston.
    As an emergency physician in a city hospital, I see 
uninsured kids every day who are sicker than they need to be 
because they could not afford to seek care at the start of 
their illness.
    The AMA strongly supports making affordable health 
insurance available to all Americans. This can best be achieved 
through a combination of insurance market reforms and 
healthcare exchanges that offer a variety of affordable private 
insurance plans.
    A health insurance exchange would increase individual 
choice, simplify plan comparisons, and streamline enrollment to 
help individuals in choosing coverage that best suits their 
    The AMA strongly opposes a public health insurance plan 
operated by the Federal Government with a pay schedule that's 
based on Medicare. Insurance is about more than coverage. It's 
about access. Too often I see kids with public insurance and 
yet no access because the clinics treating them are under-
funded and overwhelmed and so instead they end up in my 
emergency department.
    We also oppose proposals to compel physicians to 
participate in a publicly sponsored plan as a condition of 
continuing to see their Medicare patients. However, the AMA is 
open to consideration of a new health insurance option that's 
market-based and not run by government. Those several concepts 
have been publicly discussed. No legislative details have yet 
been put forth and we do look forward to reviewing those ideas.
    Finally, the AMA strongly supports providing tax credits or 
subsidies that are inversely related to income, are refundable 
and payable in advance to low-income individuals who need 
financial assistance to purchase private health insurance.
    The AMA believes that once sufficient subsidies or tax 
credits are in place so that every American has the means to 
afford coverage, that every American should then have the 
responsibility to obtain health insurance.
    In closing, I would add that access to care for millions of 
patients remains in danger without action to eliminate a 
scheduled 21 percent cut in Medicare physician fees. Temporary 
patches that serve only to make the problem worse are not the 
    This is the time to repeal the failed SGR formula and 
ensure that our seniors will continue to have access to quality 
    Thank you.
    [The prepared statement of Dr. Rosman follows:]

     Prepared Statement of the American Medical Association (AMA), 
                   Presented by Samantha Rosman, M.D.


    We support making affordable health insurance available to all 
Americans. This can best be achieved through a combination of insurance 
market reforms and health care exchanges offering a variety of 
affordable private insurance plans.
    Insurance market reforms are needed to ensure greater accessibility 
and affordability and to make the health insurance market work better 
for both patients and physicians.
    The AMA supports streamlined, more uniform health insurance market 
regulation that establishes fair ground rules, while also protecting 
high-risk patients without driving up health insurance premiums for the 
rest of the population.
    The AMA supports establishing a health insurance exchange or 
exchanges to increase individual choice, facilitate plan comparisons, 
and streamline enrollment that will assist individuals in choosing 
coverage that best suits their needs.
    Public Health Insurance Option: The AMA strongly opposes proposed 
Option A--a public health insurance plan operated by the Federal 
Government with a payment schedule that is set in statute and is based 
on Medicare. The AMA is open to consideration of a new health insurance 
option that is market-based, not run by the government, does not compel 
physician participation, and truly competes on a level playing field. 
Though several potential ideas have been publicly discussed, no 
legislative details have been put forth. We look forward to reviewing 
these ideas.
    Upon implementation of subsidies or tax credits for those who need 
financial assistance obtaining coverage, the AMA believes everyone 
should have the responsibility to obtain health insurance.
    The AMA supports helping low-income individuals obtain health 
insurance coverage, and believes the safety net provided by public 
programs needs to be maintained and strengthened.
    The AMA supports providing tax credits or subsidies that are 
inversely related to income, refundable, and payable in advance to low-
income individuals who need financial assistance to purchase private 
health insurance.
    The AMA is committed to working with the HELP Committee, Congress, 
the Administration, and other stakeholders to advance proposals that 
expand coverage, improve quality, reform government programs, reduce 
costs, increase focus on wellness and prevention, and provide payment 
and delivery reforms.


    We support making affordable health insurance available to all 
Americans. This can best be achieved through a combination of insurance 
market reforms and health care exchanges offering a variety of 
affordable private insurance plans.
    Insurance market reforms are needed to ensure greater accessibility 
and affordability and to make the health insurance market work better 
for both patients and physicians.

     The goal of market reform should be to create a 
competitive insurance market in which plans compete on price and 
quality, and patients gain more control over their choice of health 
coverage and their own care.
     To that end, we support modified community rating, with 
some degree of premium variation based on individual risk factors. Some 
degree of age rating is acceptable, as are lower premiums for 
     Insured individuals should be protected from losing 
coverage or being singled out for premium increases due to changes in 
health status.

    The AMA supports streamlined, more uniform health insurance market 
regulation that establishes fair ground rules, while also protecting 
high-risk patients without driving up health insurance premiums for the 
rest of the population.

     Explicit, targeted government subsidies should be provided 
to help high-risk people obtain coverage without paying prohibitively 
high premiums. Such subsidies could take the form of high-risk pools, 
reinsurance, and risk adjustment. Financing risk-based subsidies with 
general tax revenues rather than through premiums avoids the unintended 
consequences of driving up premiums and distorting health insurance 


    The AMA supports establishing a health insurance exchange or 
exchanges to increase individual choice, facilitate plan comparisons, 
and streamline enrollment that will assist individuals in choosing 
coverage that best suits their needs.

     Insurers should provide understandable and comparable 
information about their policies, benefits, and administrative costs to 
empower patients, employers, and other purchasers and consumers to make 
more informed decisions about plan choice.

Public Health Insurance Option
    The AMA strongly opposes proposed Option A--a public health 
insurance plan operated by the Federal Government with a payment 
schedule that is set in statute and is based on Medicare.

     The AMA does not believe that creating a public health 
insurance option for non-disabled individuals under the age of 65 is 
the best way to expand health insurance coverage and lower costs across 
the health care system.
     The AMA does not support expanding Medicare enrollment to 
younger or non-disabled populations. Medicare is projected to 
experience solvency problems in the next decade under existing 
     The AMA opposes linking payment rates in a government-
sponsored plan to the Medicare fee schedule. Payment rates should be 
negotiated with physicians and other providers on a level playing 
     The AMA strongly opposes proposals to compel physicians to 
accept patients in a publicly sponsored plan as a condition to see 
Medicare patients.
     The AMA strongly supports improvements in the private 
health insurance market. In a reformed private health insurance market, 
with a health insurance exchange like the Federal Employee Health 
Benefits Program that provides a variety of plans from which to choose, 
a public plan option is unnecessary.

    Option B.--The AMA is open to consideration of a new health 
insurance option that is market-based, not run by the government, does 
not compel physician participation, and truly competes on a level 
playing field. Though several potential ideas have been publicly 
discussed, no legislative details have been put forth. We look forward 
to reviewing these ideas.
    Option C.--The AMA believes that with properly regulated private 
plans offered through an exchange, and made affordable through 
individual tax credits inversely related to income, a government run 
health plan option is not necessary to ensure access to health 
                 individual and employer responsibility
    Upon implementation of subsidies or tax credits for those who need 
financial assistance obtaining coverage, the AMA believes everyone 
should have the responsibility to obtain health insurance.
    The American Medical Association has no position on an employer 


    The AMA supports helping low-income individuals obtain health 
insurance coverage, and believes the safety net provided by public 
programs needs to be maintained and strengthened.

     There should be greater equity within the Medicaid program 
through the creation of basic national standards of uniform eligibility 
for all persons below the poverty line, and the elimination of the 
existing categorical requirements, which would allow for the coverage 
of low-income individuals based solely on financial need.
     We also support allowing the use of public funds (through 
tax credits or subsidies) to allow acute care patients to purchase 
coverage individually and through programs available though an 
     Access to care for Medicaid (and Medicare) beneficiaries 
becomes more limited when physicians cannot afford to accept them as 
patients. Limited access to care significantly impacts the level, 
frequency, and location (e.g., emergency room) of care recipients 
receive, potentially resulting in increased costs and poorer health 
outcomes. The AMA supports setting Medicaid payment rates at a level 
that encourages widespread physician participation in the program.

    The AMA supports providing tax credits or subsidies that are 
inversely related to income, refundable, and payable in advance to low-
income individuals who need financial assistance to purchase private 
health insurance.

     Individuals and families who can afford coverage should be 
required to obtain it. Those earning more than 500 percent of the 
Federal poverty level should be required to obtain at least 
catastrophic and preventive coverage, or face adverse tax consequences. 
Check with Rob about signalling that this threshold should be lowered 
as other reforms are implemented to increase the affordability of 
health insurance for those earning less than 500 percent of FPL.
     Those who cannot afford it and do not qualify for public 
programs should receive tax credits for the purchase of health 

    Senator Dodd. Thank you very much.
    Dr. Scheppach.


    Mr. Scheppach. Mr. Chairman, I'm pleased to be here on 
behalf of the Nation's governors. I'd like to comment on four 
issues in your draft legislation and options paper: insurance 
regulation, gateways, Medicaid, and implementation.
    With respect to insurance reform, NGA is supportive of the 
framework included in the draft legislation which has the 
Federal Government setting market rules while giving States 
time to conform but also leaving the overall State regulatory 
structure in place.
    There are a number of technical issues or problems in the 
current draft with respect to grandfathering in individuals and 
allowing providers to sell nonqualified plans outside the 
gateway. These are potential impediments to the market. It's 
also true that the draft is unclear whether the rate plans are 
maximum or minimums that States can exceed.
    With respect to the State role in gateways, NGA is 
supportive of this structure and I believe States can make it 
work well.
    We do have some concerns regarding the ability to integrate 
health IT into the gateway within 4 years and there are also 
some concerns about the degree of Federal oversight. The bottom 
line, however, is that the State role in creating and designing 
gateways is appropriate.
    On Medicaid, it seems that expanding to a 150 percent of 
poverty is too high. It would bring in another 18 million into 
Medicaid, bringing the total up to 76 million.
    We also have a problem with providing temporary financial 
assistance for the expansion. States are struggling to fund the 
existing program and therefore need permanent financial 
    While we support choice of individuals in Medicaid and 
SCHIP, we are concerned about whether we would have to continue 
EPSDT and all the wrap-around services if these populations 
were to go through a gateway.
    Overall, it may be better to leave this issue to the Senate 
Finance Committee as opposed to this committee.
    Finally, with respect to implementation, we appreciate the 
State grants to build capacity and the flexibility for States 
to implement when ready. However, if the final bill includes 
individual mandates and corporate mandates and tax credits for 
small business, work needs to be done to make sure that these 
are synchronized by States.
    It's important to perhaps set several benchmarks and 
certifications of governors when the insurance market is ready 
to receive the gateway and when subsidized populations come in 
needs to be synchronized with the mandates and so on. It seems 
to me additional work needs to be done in terms of the 
    I thank you, and I look forward to working with the 
    [The prepared statement of Mr. Scheppach follows:]

           Prepared Statement of Raymond C. Scheppach, Ph.D.


    Governors understand the vital role that health plays in 
productivity, competitiveness and quality of life and have made 
providing cost-effective health care to their citizens a top priority. 
Given its unsustainable course, significant reforms of the health care 
system are necessary. Health reform proposals must recognize that 
changing any one component will have direct and indirect impacts on 
other aspects of the health care system, and therefore, reform must 
move on parallel tracks to expand coverage, improve quality, and 
contain costs.


    Medicaid. The primary Medicaid issue for most Governors is how the 
expansions will be financed. Governors oppose changes to Medicaid that 
result in unfunded mandates and therefore any additional costs must be 
100 percent federally financed. Because future projections of State 
fiscal capacity show weak growth in the long run, a permanent increase 
in the Federal share of the program is also necessary. The other key 
issue for Governors is how Medicaid will be operated. The program needs 
greater State flexibility, not less. For example, States need greater 
flexibility to develop evidence-based benefit packages.
    Long-Term Care and the Dual Eligibles. Long-term care must be a 
robust component of health care reform. Reforms should include greater 
State flexibility and financial incentives within Medicaid to operate 
home and community-based services programs. However, true long-term 
care reform must acknowledge that Medicaid cannot continue to provide 
the majority of services. Governors support the provisions creating 
more options and tools for States to improve care for the dual 
eligibles and reduce overall government costs for their health care at 
the same time.
    State Regulatory Authority. State authority to regulate insurance 
must be preserved. While States are supportive of having the Federal 
Government establish certain insurance market reforms on such issues as 
the individual mandate and guaranteed issue, health care reform should 
not diminish or impede the long standing establishment of State 
regulation of health insurance. States need to maintain the authority 
to: protect consumers; ensure solvency of insurance plans and licensure 
of providers; and enact more stringent rating rules and other insurance 
laws above established Federal minimums.
    Support for State-Based Connectors or Other Exchange Mechanisms. 
States should have the ability to design the structure, specify the 
functions, and determine how insurance products operate within the 
exchange. Exchanges need to be established, operated, and regulated at 
the State, not Federal, level. States should also be able to choose to 
participate in a voluntary multistate exchange. No more than one 
exchange should be allowed to operate in any given State in order to 
avoid behavior based on risk avoidance. State authority to collect 
health insurance premium taxes must be preserved. There should be 
Federal support for the start-up costs for State and multi-state based 
    Transition Periods. Significant health care reforms require a 
lengthy process of State, Federal, and market changes. These cannot be 
accomplished overnight.
    Mr. Chairman and members of the committee, my name is Ray 
Scheppach, and I am the Executive Director of the National Governors 
Association. I appreciate the opportunity to be a part of this panel on 
behalf of the Nation's Governors to discuss health reform and 
specifically the important issues involving health care coverage. We 
are prepared to work with Federal policymakers to ensure that reforms 
are workable, cost-efficient, and sustainable over the long-term.


    Governors understand the vital role that health plays in 
productivity, competitiveness and quality of life and have made 
providing cost-effective health care to their citizens a top priority. 
Given its unsustainable course, significant reforms of the health care 
system are necessary.
    More than 45 million Americans are currently uninsured, and 
millions more are underinsured. Achieving greater access to affordable, 
quality health care is a critically important goal. However, health 
reform proposals must recognize that changing any one component will 
have direct and indirect impacts on other aspects of the health care 
system, and therefore, reform must move on parallel tracks to expand 
coverage, improve quality, and contain costs.


    Within the discussion on health care coverage, we wish to share the 
views of governors in five basic areas:

    1. Insurance Regulation
    2. Medicaid
    3. Exchange Mechanisms
    4. Long-Term Care and the Dual Eligibles
    5. Transition Timelines

1. Insurance Regulation
    While States are supportive of having the Federal Government 
establish certain insurance market reforms on such issues as guaranteed 
issue, health care reform should not diminish or impede the long 
standing establishment of State regulation of health insurance.
    States strongly encourage Federal policymakers to avoid measures 
that would pre-empt stronger State laws and regulations, and urge that 
any Federal standards operate as floors rather than ceilings. Among the 
many regulatory authorities that should remain under State 
determination are to ensure the solvency of health insurance plans, and 
the enforcement of marketing requirements on those plans; the proper 
licensure of providers; and the protection of consumer rights and 

2. Medicaid
    Governors recognize Medicaid's important role in meeting the needs 
of our most vulnerable populations and they are committed to 
modernizing the program so that it better responds to their needs. 
There are several aspects of this transformation that I wish to 
    Governors understand that proposals under consideration would 
eliminate the categorical nature of the Medicaid program for 
individuals under a certain income threshold. While there is a 
reasonable case for streamlining eligibility policies, proposals to 
mandate a significant expansion of the Medicaid program raise important 
questions and some concerns.
    Medicaid (Costs)--First of all is the cost. Governors oppose 
changes to the Medicaid program that will result in an unfunded mandate 
imposed on the States. Any increase in the mandatory minimum 
eligibility threshold will cost States tens of billions of dollars per 
year. States must take into consideration not only the actual cost of 
including additional individuals on the rolls, but also the complex 
interaction of reimbursement rates and access.
    With any coverage expansion, States must consider the direct and 
indirect impact on provider reimbursement rates as well as health care 
workforce capacity, particularly primary care providers. There simply 
are not enough providers willing to treat additional Medicaid enrollees 
with complex conditions and situations at current reimbursement rates. 
Currently, Medicaid reimbursement rates average 72 percent of Medicare 
rates nationwide, and Medicare rates are often significantly lower than 
rates paid by private insurance. Those States that have already 
experimented with expanding Medicaid coverage broadly have demonstrated 
that Medicaid reimbursement rates must be increased to approximately 
Medicare rates to ensure access.
    Combining the existing program expenditures with those required to 
meet new requirements and needs, without other changes to the program 
or adequate Federal funding, could overwhelm States' budgets. Our 
initial estimate of the State impact of the Medicaid expansion as 
described in the Senate Finance Committee's proposal, including the 
reimbursement rates increases that would be necessary to ensure access 
would cost tens of billions of dollars per year in State funds alone. 
This would represent a significant percentage of total State general 
    Finally, Medicaid has become the Nation's de factor source of long-
term care coverage as well as a critical source of coverage for 
individuals eligible for both the Medicare and Medicaid program--known 
as the dual eligibles. I will discuss those two issues later, but it is 
critical to remember that Medicaid's continued coverage of these 
responsibilities may be fiscally incompatible with an increased role in 
coverage of all low-income Americans.
    States are in dire financial straits now and any additional costs 
in the short run must be 100 percent federally financed. Furthermore, 
future projections of State fiscal capacity show a slow recovery and 
weak growth in the long run. This will necessitate permanently 
increasing the Federal share of the program to account for not only the 
increased eligibility and reimbursement rates, but also the demographic 
trends for long-term care, which alone could bankrupt the States.
    Medicaid (reforms)--States would also like to work with Federal 
policymakers to do more to streamline the Medicaid program and 
eliminate cumbersome requirements which make the program difficult to 
administer and sometimes work against the interests of both 
beneficiaries and taxpayers. For example, the committee's proposals 
seek to limit the use of categorical eligibility determinations, but 
still leave in place a patchwork system for determining eligibility for 
the program and for specific services.
    Should Federal policymakers approve mandatory income eligibility 
changes, these must be balanced by the pressing need to modernize the 
Medicaid program as well as establish a path to incorporate State 
innovations as permanent parts of the State Medicaid plan. States 
require new flexibilities to administer a more efficient Medicaid 
program that better meets today's needs of low-income and vulnerable 
populations and reduces costs for both States and the Federal 
    Specifically, States support providing new flexibility to develop 
evidence-based benefit packages. This could minimize complexity in 
determining which services are medically necessary. States need 
flexibility to determine which services are purchased and how they are 
delivered. This would help ensure that expansion populations have 
access to the Medicaid services they need while providing States 
flexibility to improve the value of services offered to beneficiaries 
and manage costs. In addition, if the exchange is used to connect any 
low-income population to Medicaid coverage, new State flexibility will 
be needed to break down barriers to building systems of care and 
supporting care coordination.

3. Health Insurance Exchanges
    A properly designed health insurance exchange can help correct 
inefficiencies in the existing health insurance markets and should be 
considered in the context of other proposed reforms. If Federal 
policymakers adopt the exchange concept, States support the following 
approaches for developing the exchange framework:

     Exchange mechanisms should be established, operated, and 
regulated at the state-level. States also should retain the right to 
establish and participate in no more than one multistate-based 
exchange. Enhancing the ability of States to establish such mechanisms 
could help realize efficiencies in the health insurance marketplace as 
well as coordination between Medicaid and other subsidized populations.
     The number of exchanges in a State should be limited to 
one and no other exchange should pre-empt, compete, or interfere with 
State and multistate-based exchanges. The presence of multiple 
exchanges in a State is likely to perpetuate competition based on risk 
     State flexibility is needed to design the structure, 
specify the functions, and determine how insurance products operate 
within a marketplace that has an exchange. This state-based approach 
can minimize disruption in the marketplace, ease the transition of 
market reforms for all stakeholders, leverage existing State 
infrastructure and public-private partnerships, and avoid disruption of 
the reforms already underway in some States.
     Provide Federal support for start-up costs for State and 
multistate-based exchanges.
     Preserve the right of States to collect health insurance 
premium taxes on insurance businesses offered through the exchange.

4. Long-Term Care and the Dual Eligibles
    It is clear that Medicaid can no longer be the financing mechanism 
for the Nation's long-term care costs and other costs for individuals 
eligible for Medicare and Medicaid--known as the dual eligibles. The 
demographic changes and escalating costs make it critical for States to 
begin to transition to the Federal Government much of their current 
financial responsibility in Medicaid for financing of long-term care. 
As stated in my testimony to the Subcommittee on Health of the Finance 
Committee earlier this year, postponing the discussion on long-term 
care perpetuates the fragmented system of care that exists today. 
Efforts to improve the financing mechanisms, care coordination and 
quality of long-term care services can be complementary and very 
important in the efforts related to strengthening the rest of our 
health care system.
    Additionally, more than 7 million Americans are dually eligible for 
full Medicare and Medicaid benefits, and nearly 2 million others 
receive financial assistance to cover out-of-pocket costs, such as co-
payments and deductibles. These individuals represent just 18 percent 
of Medicaid's caseload, and despite the fact that they are fully 
insured by Medicare, a disproportionate percent of all Medicaid 
expenditures is consumed by filling in the gaps in Medicare services. 
In fact, they are responsible for over 42 percent of all Medicaid 
expenditures and 24 percent of Medicare expenditures ($250 billion in 
fiscal year 2008).
    Health care reform must include a streamlining of the current 
dysfunctional silos that dual eligibles currently access. There are at 
least two options for approaching this challenge. Full federalization 
of financing the care for this population would serve many policy 
goals, including creating enormous efficiencies and savings for both 
States and the Federal Government and treating the most medically 
fragile citizens in a holistic manner that dramatically improves the 
quality of their health care.
    Alternatively, if the Federal Government does not provide the 
financing to improve the care of these beneficiaries, provide States 
with the tools to do so. Despite recent State and Federal efforts to 
address structural problems, the existing system for dual eligibles is 
predominantly a fragmented, uncoordinated, and inefficient system of 
care. Misaligned benefit structures, opportunities for cost-shifting, 
and unresolved tensions between the Federal and State governments as 
well as an uncoordinated system of care for beneficiaries remain. 
Specifically, States must be credited for generating savings to 
Medicare when making Medicaid investments for this population. States 
also should have a certain level of influence over the coverage and 
financial decisions being made for the duals. And certain 
administrative rules and policies between Medicare and Medicaid must be 
streamlined to improve care for the dual eligibles.
    In addition to specific reforms to improve care for the dual 
eligibles, a stronger, more equitable partnership between Medicare and 
States is essential to the success of health reform efforts. Medicare 
has significant influence in shaping cost and coverage decisions in the 
public and private domain and thus has a tremendous impact on health 
care trends. Yet Medicare largely is not engaged in State specific 
health reform initiatives which involve both public and private 

5. Transition Timetable
    Federal policymakers should work with States and the territories to 
determine an appropriate transition and implementation timeline for all 
health care reform changes. This includes changes both to State 
administered programs such as Medicaid and the Children's Health 
Insurance Program (CHIP), as well as any national reforms to the health 
insurance marketplace. It also may be helpful to have early planning 
grants to States while the Federal Government promulgates rules. It 
also would involve general certifications by governors at given 
    Significant health care reforms will require a lengthy process of 
State, Federal, and market changes. This includes sufficient transition 
time for any coverage expansions, the proposed removal of income 
disregards, changes to benefit package requirements and services, new 
requirements which may involve a health insurance exchange entity, and 
other changes being considered.
    States also urge Federal policymakers to consider the health care 
workforce capacity, particularly with regard to the implementation of 
any coverage expansions that may be approved. Proposed coverage and 
delivery system reforms must be coupled with Federal support for 
developing and retaining health care workers who are prepared to 
deliver quality care across the health care spectrum.


    Any reforms approved at the Federal level must allow States 
flexibility to adapt to local conditions and retain the primary State 
roles of administration, regulation, and consumer protection. It is 
also important that this framework support the role that States play in 
innovations around delivery system reform and value-based purchasing.
    If a Federal framework is developed it should include sustainable, 
sufficient financing mechanisms (through a combination of public 
programs and private sector incentives) to ensure that coverage and 
delivery system reform goals can be met. On their own, States are not 
well-positioned to sustain increases in their health care budgets.
    Governors look forward to working with our Federal partners on a 
bipartisan basis to address these important issues.

    Senator Dodd. Thank you very, very much.
    Mr. Shea.

                         WASHINGTON, DC

    Mr. Shea. Thank you, Senator Dodd, and thank you and 
Senator Enzi and all the members of the committee and, of 
course, Chairman Kennedy, for the commitment you have shown and 
for your focus on this issue.
    It is past time that we take up this issue and I think we 
have a historic moment before us that we dare not let pass.
    The current system, as you said, Senator Dodd, is truly 
unsustainable, and America's unions have long supported a 
social insurance model for healthcare provision and if we had 
our druthers that's what we'd be focusing on today, but we've 
also had a lot of experience in bargaining health benefits.
    We negotiate health benefits every year for some 40-million 
Americans and so if you're going to base this on the 
employment-based system with public supplements, then I want to 
comment on a few points that we think are essential, and my 
main message is that you need to focus on stabilizing 
employment-based coverage because right now employment-based 
coverage has survived surprisingly long under the cost 
pressures but it won't survive forever and in fact we're losing 
people out of employment-based coverage very rapidly and other 
people are just shouldering enormous costs.
    You have to start, first of all, with cost containment and 
I want to congratulate the committee for, in your draft, 
addressing what to us are absolutely crucial long-term 
structural issues in healthcare.
    We need to reorganize healthcare, to modernize it, and to 
improve the delivery so it is focused on quality and your draft 
really reflects a lot of what has been done not by government 
particularly, although government's been involved, but by 
practitioners in the health field and what we've learned in 
that process over the last 10 years. There have been tremendous 
strides made in the last 10 years in improving the way 
healthcare is delivered and they have great implications not 
just for quality of care but also for efficiency and cost long-
    The second point on cost containment is, we think that, as 
soon as feasible, an immediate implementation of a public 
health insurance plan option is essential.
    We have to put competition into the insurance market. The 
private insurers have had plenty of opportunity to do this on 
their own and they have failed to do it. I take at their word 
that they want to do different and they're ready to change. I 
think we need, as the president says, a way to keep them 
    Second, in terms of stabilizing employment-based coverage, 
we have to have everybody participate. All workers should 
participate and all employers should participate. Most 
employers do now, as you know well, and those employers who 
don't largely are in markets where most employers don't provide 
coverage. It's not as if you're going to be disadvantaging 
those employers by making or asking them to provide coverage. 
They'd be in the same set of employers and, of course, many of 
them are low-wage small employers who would require subsidies 
and that would be absolutely appropriate, but it's essential 
from our point of view to have everyone in.
    I would say, by the way, that we particularly are pleased 
with the provisions in the bill for pre-Medicare retirees that 
you've put in. Employers who've been doing the good job of 
providing healthcare for their retirees need relief from high 
health costs and your re-insurance mechanism is one way, we 
think it's a very good way to go at this issue and we would 
congratulate you.
    Last, in terms of financing, I just want to note that 
there's much talk today about using health benefits and taxing 
them as the basis for financing.
    There is no surprise why this is being discussed. It is a 
very large pot of money, as you know. It's the largest loss to 
the Treasury, larger than the home mortgage deduction. It's 
just a very large amount of money. But bear in mind that the 
people who have sleepless nights over being able to afford 
healthcare coverage now often have health insurance that is too 
expensive for them to use. To ask them to pay more money for 
that health coverage is not only unfair, we think it is really 
politically very volatile.
    Plus, as employer after employer has told us and testified 
at various hearings before Congress, it is the sort of thing 
that really could destabilize the entire employment-based 
    With that, I thank the committee for your attention and 
appreciate the opportunity to present to you.
    [The prepared statement of Mr. Shea follows:]

                   Prepared Statement of Gerald Shea

    Thank you for the invitation to participate in this roundtable 
discussion and offer our perspective, on behalf of working women and 
men, on the committee's draft legislative options for health care 
reform. The AFL-CIO represents 11 million members, including 2.5 
million members in Working America, our new community affiliate, and 56 
national and international unions that have bargained for health 
benefits for more than 50 years. Our members have a significant stake 
in health care reform as consumers and, for some, as sponsors of 
coverage and health care workers.
    Even as we continue to negotiate benefits for our members, American 
labor has long advocated for health care for everyone, not just those 
in unions or with stable jobs. For over 100 years, America's unions 
have called for universal coverage to health care built on a social 
insurance model, an approach that has been proven effective and 
efficient across the globe and one we have employed successfully for 
decades to provide income security and health security for the elderly.
    The AFL-CIO was the leading lobby force behind the enactment of 
Medicare in 1965, and we have backed many legislative efforts since 
then to expand coverage. We continue to believe that a social insurance 
model is the simplest and most cost-effective way to provide benefits 
for all.
    It is in our national interest to assure health coverage for 
everyone, from active workers to retirees, to those who lose their jobs 
and those unable to work due to disability. Clearly, it would make 
sense to cover everyone through the same program and system of 
coverage. We regret that the social insurance approach to health care 
has been marginalized to a great extent in the health care debate in 
Washington, even as it remains very popular around the country.
    But our health care situation is too problematic and too important 
for those of us lucky enough to have good coverage to debate what would 
be the best approach to health reform. And health reform has been 
stymied for far too long by those who advocate one approach and reject 
all the others.
    Health care costs are hobbling American business and bankrupting 
American families. Even those with good coverage worry about what will 
happen next year if cost increases remain unchecked as they have for 
    It's time--indeed, its past time--for the comprehensive health care 
reform that most in Congress and our President have called for.
    So, in 2009, our members are ready to stand with President Obama 
and Congress for a plan that builds on what works in our system while 
creating new options for obtaining coverage and lowering health care 
costs for families, business and government at all levels.
    On behalf of America's working families, I want to thank the 
committee, especially Chairman Kennedy, Senator Dodd, and Ranking 
Member Enzi, for the leadership, commitment and determination you've 
shown in assuring quality, affordable health care for all.
    America's working families need comprehensive reform to constrain 
the cost increases that are killing good jobs, to ensure people who 
currently have coverage can afford it in the future, to bring everyone 
into coverage, and to modernize the delivery of health care in America. 
The draft ``Affordable Health Choices Act'' is a very strong start on 
that path.
    Employer-based coverage is the backbone of our health care 
financing and coverage system. The majority of non-elderly Americans 
obtain coverage through employer-sponsored health plans. And despite 
its flaws--including higher cost sharing and the hassles and outright 
denials they have come to expect from insurance companies--most 
Americans are happy with their employer-based health benefits, in large 
part because they know it is still far superior to being on their own 
in the individual insurance market. Building on this core piece of our 
health care system will both minimize disruption and garner greater 
public support. Our comments on the options will focus on this element, 
particularly since it is an area on which the committee has said they 
are seeking input.
    We strongly support the committee's proposal to stabilize the 
employment-based system with ``Shared Responsibility'' and a 
requirement that employers either offer coverage to their workers or 
pay into a fund to subsidize coverage for uninsured workers. There are 
significant benefits of this approach, sometimes called ``pay or 
play.'' First, it will create a more level playing field between firms 
that offer health benefits and those that don't. It will also eliminate 
the cost shift that occurs when employers offering good family coverage 
see their costs rise when they provide coverage for spouses employed in 
firms that either offer too costly coverage or no coverage at all. To 
the extent policymakers may choose to construct pay or play in a way 
that allows families to be enrolled in the same employer plan, we 
believe one approach to consider would be to require a dependent's 
employer to make a contribution to the employer covering the whole 
    Furthermore, given other policy elements under consideration and 
the Federal fiscal challenges affecting health reform, pay or play will 
be a necessary component if health reform is to succeed. If reform 
includes a new requirement that all individuals obtain coverage, 
expanding employer-based health benefits will be key to making coverage 
affordable for workers that do not qualify for income-based public 
subsidies. It will also generate revenue to help fund subsidies for 
low-income individuals and extend coverage to many of the uninsured 
since most are in families with at least one full-time worker. Finally, 
without a requirement that employers participate in the new system, 
health reform that includes publicly subsidized coverage for low-wage 
workers will prompt many employers of low-wage workers to eliminate 
their coverage to take advantage of public subsidies. The resulting 
increase in Federal costs may well doom reform efforts.
    The design issues involved in a pay or play approach are critical, 
as they can create both opportunities and limits. Employers opting to 
``play'' must be required to offer benefits that are at least adequate 
enough to allow their employees to meet an individual requirement to 
purchase coverage. The ``play'' test should also require employers to 
make a defined minimum contribution to the premiums for that coverage.
    For those firms not offering coverage, a ``pay'' requirement could 
take a number of forms, from a payroll tax to an amount per worker, and 
there are tradeoffs associated with each. Setting the contribution rate 
based on payroll would lessen the impact on low-wage workers and would 
be a better measure of a firm's capacity to contribute to health 
benefits than the number of employees. Alternatively, a requirement 
tied to each individual employee will be more effective at reaching the 
entire workforce than a requirement tied to a percentage of total 
payroll, since it will protect against an employer meeting the percent 
of payroll test by offering relatively generous benefits to only a 
share of their workforce. However, such an approach, if applied only to 
full-time workers, would create incentives for employers in certain 
sectors to hire part-time workers or reduce workers' hours to minimize 
the application of the contribution rate. We support the approach 
included in the summary of legislative options, in which the 
contribution rate is prorated for part-time workers in order to protect 
workers and to ensure adequate revenue for subsidized coverage.
    Policymakers will also have to prescribe which firms are covered 
under an employer obligation to offer coverage. While many proposals 
exempt small businesses, since those firms face higher premiums in the 
current market, we believe this ignores important factors. First and 
foremost, the number of employees is a poor predictor of a firm's 
ability to pay: a doctor's office or small law firm may have more 
capacity than a larger restaurant or store. A carve out for small firms 
also creates a potentially costly hurdle for firms near the threshold 
to hire additional employees. In addition, the committee's legislative 
options include a proposal that would allow small businesses to meet 
the ``play'' requirement by allowing them to buy coverage that meets 
fair rating rules through a newly constructed ``Gateway,'' including a 
public health insurance plan that would make coverage more affordable 
and a proposal to give low-wage employers additional subsidies. If 
policymakers choose to treat small business differently in the 
application of pay or play, we would prefer an approach that sets the 
threshold based on payroll rather than number of employees. If set at 
an appropriate level, a payroll threshold could effectively eliminate 
small, low-wage firms from the employer requirement while protecting 
against the cliffs associated with a requirement based on number of 
    Opponents to including an employer requirement in health reform 
will raise objections based on new costs for firms. However, the vast 
majority of firms will likely meet any new coverage requirement and the 
impact on businesses that would be affected would vary depending on 
whether they are currently offering health coverage or if they are 
offering coverage that is inadequate. Those firms that do not offer 
health benefits would be directly affected by a new ``pay'' 
requirement, and others will have to spend more on the benefits they 
now offer in order to meet the requirement. These objections are 
    Opponents may argue that employers subject to new health care costs 
may be less likely to raise wages in the short term; however, the 
widely endorsed economic view is that these employers would still raise 
wages over the long term. Opponents may also argue that employers 
subject to new health care costs may eliminate jobs or hire more 
slowly. However, we can expect results similar to the experience with 
raising the minimum wage. Recent studies of minimum wage raises have 
found no measurable impact on employment.\1\ Furthermore, economists 
often note that employers faced with higher costs under a minimum wage 
increase can offset some of the costs with savings associated with 
higher productivity, decreased turnover and absenteeism, and increased 
worker morale.\2\ We can expect similar results with a pay or play 
    \1\ A. Dube, T.W. Lester, M. Reich, ``Minimum Wage Effects Across 
State Border: Estimates Using Contiguous Counties,'' Institute for 
Research on Labor and Employment Working Paper Series No. iiwps-157-07, 
August 1, 2007.
    \2\ J. Bernstein, J. Schmitt, ``Making Work Pay: The Impact of the 
1996-1997 Minimum Wage Increase,'' Economic Policy Institute (1998); D. 
Card, A. Krueger, ``Myth and Measurement: The New Economics of the 
Minimum Wage,'' Princeton University Press, 1995.
    There are other factors that will compensate for any increase in 
employer cost. First, the majority of firms that currently do not offer 
health benefits are in markets where their competitors also do not 
provide benefits, so they would see increases similar to those of their 
competitors. Second, firms that will pay more for health care than they 
currently do will see at least some of those costs offset by a 
healthier workforce. Third, broadening the pool of employers that would 
contribute to health financing could improve competition among firms 
within sectors by creating a more level playing field based on health 
benefit costs. Fourth, to the extent there is currently a shift of 
uncompensated care costs to employer-sponsored plans, all firms now 
offering coverage will see their costs decrease as we expand coverage. 
Finally, our economy as a whole will benefit from more rational job 
mobility and a better match of workers' skills to jobs when health 
benefits are no longer influencing employment decisions.
    Another element on which the committee is seeking input is the 
inclusion of a public health insurance option, which we strongly 
support. A public health insurance plan will be key to holding down 
costs for consumers and government. It will make coverage more 
affordable with lower administrative costs and will inject needed 
competition into an imperfect market. And it can help drive delivery 
system reforms in conjunction with private payers, as Medicare has done 
with the quality improvement work underway already. Two of the options 
included in the committee's summary in our view are not necessarily 
mutually exclusive. We support a level playing field for a public 
health insurance option to compete alongside private plans but believe 
the payment schedule should be set at a fair and reasonable level that 
ensures access to providers. The key will be to not hamstring the 
public health insurance plan so that it can't produce the savings or 
competition that are essential to the success of the plan and health 
    In addition, we applaud the committee's comprehensive plan to 
foster innovation in health care delivery by building on the 
significant quality measurement and improvement underway within health 
care in recent years. Title II of the draft legislation, ``Improving 
the Quality and Efficiency of Health Care,'' provides a blueprint for 
how we can greatly expand this work and take a giant step towards a 
truly 21st Century health system. It would put into place a system of 
broad consultation with consumers, purchasers, physicians, insurers and 
health care organizations in setting national priorities for health 
care quality improvement and in implementing standardized measures of 
quality throughout health care. With quality measurement as a 
foundation, it empowers those who deliver care, pay for care and 
oversee care to work with those who receive care to innovate and 
modernize health service delivery.
    The draft legislation also calls for the use of quality measurement 
and improvement processes in private health insurance. There is very 
strong support for this among insurers and purchasers. I would call the 
committee's attention to the need for the legislation to link the 
quality approaches in the private sector to those you've proposed for 
the public sectors. We believe this could and should be more explicit 
in the final legislation than in the draft released earlier this week. 
Title II provides a comprehensive framework for quality measurement and 
improvement that should--indeed must, in order to drive the kind of 
systemic change that is necessary for improvement to take place--be 
applied to private as well as public purchasing of coverage.
    Beyond these elements, there are laudable provisions that lay the 
groundwork for comprehensive, affordable coverage for all. The market 
reforms for all buying coverage in the individual and group market will 
make coverage more fair, transparent, affordable and secure. We fully 
support the prohibition on rating based on health status, gender and 
class of business, as well as the prohibition on the imposition of pre-
existing condition exclusions, guaranteed issue and renewal, and 
greater transparency and limits on plans' non-claims costs. While we 
would prefer a prohibition on rating based on age, we believe the 
proposal to limit age rating to 2 to 1 is a strong alternative. Any 
variation allowed above that limit threatens to make coverage 
unaffordable for older individuals.
    We strongly support the proposal to establish a temporary, 
federally funded re-
insurance program for employers that provide health benefits to 
retirees age 55 to 64. This provision represents a positive initiative 
to address the health care needs of this vulnerable population. We also 
support the Gateway proposal as a mechanism for simplifying enrollment 
in coverage and applying standards for plans regarding benefits, 
affordability, transparency and quality. We applaud the committee's 
proposal to extend Medicaid coverage to all under 150 percent of 
poverty, with sufficient resources to States to offset new costs, and 
to provide subsidies for coverage to those with incomes up to 500 
percent of poverty. We also support the inclusion of a new Medical 
Advisory Council to make recommendations for evidence-based benefits 
that plans in the Gateway would be required to cover. And we support 
the inclusion of long-term care services and supports and in 
particular, the Community Living Assistance Services and Supports 
(CLASS) Act.
    I want to offer one final note of caution. Some of your colleagues 
in the Finance Committee are considering changes to the current 
exclusion of health benefits from income and payroll taxes. We believe 
this would be a step in the wrong direction. A cap on the tax exclusion 
would disproportionately affect firms with higher cost plans because of 
factors other than the level of coverage, including a higher percentage 
of older workers, higher risk in the industry and firm size. There is 
also likely to be some employer response even to capping the exclusion, 
including increases to employee cost-sharing to a level where they may 
become unaffordable for low-wage workers. Finally, capping the tax 
exclusion would undermine the place where most Americans now get their 
coverage before we have built a proven effective, sustainable 
alternative to employer-based plans.
    Thank you for the opportunity to offer our comments and participate 
in this roundtable discussion. We commend the committee for your 
commitment to enacting legislation that will guarantee quality, 
affordable health care for all. We agree that we can no longer wait for 
reform--our economy depends on the success of reform--and we stand 
ready to help move this legislation forward. We thank you for the 
leadership you are providing on this vital issue.

    Senator Dodd. Thank you very much.
    Mr. Rivera, thank you for coming.

                         WASHINGTON, DC

    Mr. Rivera. I'm here today on behalf of 2.2 million members 
and their families of SEIU, members like Pat DeLong of Libby, 
MT, who works as a homecare aid.
    Pat and her husband Dan were ranchers but had a hard time 
finding affordable coverage and were uninsured when he was 
diagnosed with Hodgkin's Lymphoma in 2000. The medical bills 
pile up for Pat and Dan and eventually forcing them to sell the 
land they love and that they had been in Dan's family for over 
four generations. Dan succumbed to cancer and Pat remains 
    This is America. We can, we must do better for hard-working 
families like the DeLongs. The American people will judge what 
you do on healthcare reform based on whether it provides Pat 
with the choice of affordable quality private and public 
healthcare coverage.
    Reform will be meaningless if working people cannot afford 
to purchase coverage or cannot afford to get the care they need 
once they are covered. American families must be protected for 
unaffordable out-of-pocket costs and unaffordable premiums.
    The reality of what our broken healthcare system is costing 
American families is staggering. Over 60 percent of 
bankruptcies filed in 2007 were largely attributable to medical 
expenses and nearly 80 percent of those who filed for 
bankruptcy had insurance coverage. Healthcare costs must be 
reined in for all Americans. The best way to make this happen 
is through a public health insurance plan.
    Give Americans a choice: the choice to keep their current 
plan or to join a public health insurance option that 
encourages competition and guarantees everyone access to 
better, more affordable healthcare solutions.
    A public health insurance plan not only gives Americans 
more choices, it will drive down costs for working families, 
small businesses, everyone, by increasing bargaining power and 
spreading risk, providing families savings and putting 
resources directly toward healthcare.
    Business, government and individuals must come together and 
share responsibility in solving America's healthcare crisis. 
Building on the employer-based system will help people keep 
their healthcare if they like it. One in every five American 
workers are currently uninsured, having increased by about 6 
million in 10 years.
    Employers who choose not to provide coverage for their 
employees are putting responsible business at a competitive 
disadvantage and increasing costs for everyone. Employers 
should offer and continue to contribute meaningful coverage for 
their employees or pay into a fund, a pay or play requirement. 
A share responsibility will have minimal disruption to our 
economy while providing greater security for worker stability.
    Small businesses should be guaranteed protection to help 
control costs and keep them competitive. Small businesses 
should receive tax credits and the smallest businesses should 
be exempt.
    True healthcare reform means giving Americans the freedom 
of choice to keep their current plan, including their current 
doctor, or choose another private plan or to choose a quality 
affordable public health insurance plan. True health reform 
means families are guaranteed coverage--guaranteed coverage if 
they had an illness 5 years ago or some other pre-existing 
condition, guaranteed coverage if they are laid off and can't 
afford payments, or guaranteed coverage, if they can't afford, 
that provides quality care.
    True healthcare reform means individuals, government and 
business all share in the responsibility for a uniquely 
American solution that gives Americans peace of mind that they 
will always have quality affordable healthcare.
    The American Healthcare Choice Act is an opportunity to put 
policies aside and stand up for the American people by 
increasing their healthcare choices and providing them with 
quality care while addressing the cost crisis that is creeping 
at our economy and driving working families into financial 
    Thank you.
    Senator Dodd. Thank you very much.
    Katherine Baicker.


    Ms. Baicker. Yes. Thank you for the opportunity.
    The focus on both coverage and value that the committee has 
I think is crucial to the success of any health reform and 
high-quality, high-value care is not just about insurance but 
it's about the healthcare that Americans receive even when they 
are insured.
    There has been a lot in the news lately about the 
geographic variation that we see in healthcare and having 
started my research career at Dartmouth, I'm a huge fan of that 
body of work that shows us that even people with insurance 
coverage have very different quality of care and have a very 
different amount of money spent on their healthcare to achieve 
very similar outcomes. That highlights for us the importance of 
driving people into high-value insurance that provides high-
value care.
    Dennis and I sat together on a commission that examined 
other inputs into health outcomes, besides healthcare. Public 
investments that the bill touches on could be a really key 
component in driving better health outcomes for everyone, in 
addition to the health insurance reforms that you're talking 
    High-value health insurance means ensuring that everybody 
has access to the crucial financial protections that insurance 
provides, not just today, for expenses you might incur because 
of a sudden illness but against the risk of incurring high 
costs for years going forward if you have an expensive disease 
and that involves innovative disease management and innovative 
insurance products that people can choose among to meet the 
needs of their families as best they can.
    That also means, I believe, providing a social insurance 
component that transfers risks between high-risk groups and 
low-risk groups, so that groups that face high and persistent 
health costs are subsidized, but that needs to be coupled with 
risk protection on the back end for insurers so that they don't 
have an incentive to avoid enrolling high-risk enrollees and so 
that those high health cost people, once insured, are 
guaranteed access to high-quality services, so that insurers 
continue to provide them access to the best specialists and the 
best care that they can in the context of high-value disease 
    Achieving that high-value system is both about the 
insurance product that people get and the care that they 
consume when they're in it and public dollars can drive higher 
value in both of those dimensions by directing resources toward 
care that promotes long happy lives and reducing subsidies for 
care that's of questionable medical value.
    [The prepared statement of Dr. Baicker follows:]

                Prepared Statement of Katherine Baicker

    My name is Katherine Baicker, and I am a Professor of Health 
Economics in the Department of Health Policy and Management at the 
Harvard School of Public Health. I would like to thank Senator Kennedy, 
Senator Enzi, and the members of the committee for giving me the 
opportunity to participate in this discussion of how we can address the 
crucial policy challenge of comprehensive health care reform.
    I would like to discuss several general principles about the nature 
of health insurance that may be helpful in thinking about the impact of 
particular provisions on cost and coverage, including how well 
insurance markets pool risk and the value of care delivered. This 
testimony is derived in large part from recent academic work with my 
colleague Amitabh Chandra that appeared in the journal Health Affairs.
    A key distinction can be made between health care and health 
insurance. Insurance works by pooling risks: many pay a premium up 
front, and then those who face a bad outcome (getting sick, being in a 
car accident, having their home burn down) get paid out of those 
collected premiums. The premium is the expected average cost of 
treatment for everyone in the pool, not just the cost of treating the 
sick. Because not everyone will fall sick at the same time, it is 
possible to make payments to those who do fall sick even though their 
care costs more than their premium. And this is also why it is 
particularly important for people to get insured when they are 
healthy--to protect against the risk of needing extra resources to 
devote to health care if they fall ill.
    Uncertainty about when we may fall sick and need more health care 
is the reason that we purchase insurance--not just because health care 
is expensive (which it is). Many other things are expensive, including 
housing and college tuition, but we do not have insurance to help us 
purchase them because they are not uncertain in the way that 
potentially needing very expensive medical care is. The more 
uncertainty there is, the valuable insurance is.


    Insured sick people and uninsured sick people present very 
different issues of public policy. People who have already purchased 
insurance and then fall sick pose a particular policy challenge: 
insurance is not just about protecting against unexpected high expenses 
this year, but also about protecting against the risk of persistently 
higher expenses in the case of chronic illness. This kind of protection 
means that once insured, enrollees' premiums would not rise just 
because they got sick, but this is not always the case today. In fact, 
insurers have an incentive to shed their sickest enrollees, suggesting 
a strong role for regulation protecting them. Nor are insurers held 
responsible when inadequate coverage raises the costs of a future 
insurer, such as Medicare for those over 65. These problems highlight 
the limited availability of true long-run insurance offerings, a reform 
issue that is often glossed over in the conflation of health care and 
health insurance.
    Uninsured Americans who are sick pose a very different set of 
problems. They need health care more than health insurance. Insurance 
is about reducing uncertainty in spending. It is impossible to 
``insure'' against an adverse event that has already happened, for 
there is no longer any uncertainty. If you were to try to purchase auto 
insurance that covered replacement of a car that had already been 
totaled in an accident, the premium would equal the cost of a new car. 
You would not be buying car insurance--you would be buying a car. 
Similarly, uninsured people with known high health costs do not need 
health insurance--they need health care. Private health insurers can no 
more charge uninsured sick people a premium lower than their expected 
costs. The policy problem posed by this group is how to ensure that 
low-income uninsured sick people have the resources they need to obtain 
what society deems an acceptable level of care and ideally, as 
discussed below, to minimize the number of people in this situation.
    This highlights one of the many reasons that health insurance is 
different from car insurance: the underlying good, health care, is 
viewed by many as a right. Furthermore, we may want to redistribute 
money from the healthy to the sick, in the same way that we 
redistribute money from the rich to the poor. This kind of 
redistribution is fundamentally different from private insurance: it is 
social insurance, and it is hard to achieve through private markets 
alone.\1\ Medicare, which insures the aged and disabled, is an example 
of a social insurance program. Private markets can pool risk among 
people starting out with similar health risks, and regulations can 
ensure that when some members of those risk pools fall ill, insurers 
cannot deny them care or raise their premiums, but transferring 
resources to people who are already sick and uninsured or transferring 
resources from lower health risk groups to higher health risk groups 
requires social insurance.
    How then do we provide the sick and uninsured with socially 
acceptable care? Private health insurance alone is unlikely to achieve 
this goal: no insurer will be willing to charge a premium less than 
enrollees' likely health costs. Instead, they could be provided with 
health care directly or a premium subsidy equal to their expected 
health care costs. Alternatively, we could force sick people and 
healthy people to pool their risks, such as through community rating 
coupled with insurance mandates (to preclude healthy people from opting 
out of subsidizing sick ones). These kind of transfers are based on 
social choices about redistribution.
    The advantage of social insurance programs, including a 
nationalized health care system, is that they can achieve 
redistribution that private markets alone cannot. They may also provide 
benefits with lower administrative costs (although, in the case of 
moving to a single payer system, the size of administrative savings 
relative to overall health care cost growth is likely to be small).\2\ 
There are, of course, costs associated with social insurance programs 
as well. First, there is the drag on the economy imposed by raising 
revenues to finance them. Second, there is the loss of competition, 
diverse offerings for diverse preferences, and market discipline that 
private provision brings--and that promote higher value and innovation. 
This means that the social insurance program may be both expensive and 
inefficient, and thus impose an even larger burden on already strained 
public budgets. These pressures have, perhaps unsurprisingly, spawned 
additional misconceptions that suggest that the costs of expanded 
insurance are lower and the benefits higher than the data support.


    A common and deceptively appealing argument for expanding insurance 
coverage is that we could both spend less and achieve better health by 
replacing the inefficient emergency room care received by the uninsured 
with an insurance plan. Unfortunately, this argument finds little 
empirical support. ER care for the uninsured is indeed inefficient and 
might have been avoided through more diligent preventive care and 
disease management. Diabetes treatment is a good example; it is much 
cheaper to manage diabetes well than wait for a hospitalization which 
requires a leg amputation. Having health insurance may lower the costs 
of ER and other publicly provided care used by the uninsured through 
better prevention and medical management. But empirical research also 
demonstrates that insured people consume more care (and have better 
health outcomes) than uninsured people--so universal insurance is 
likely to increase, not reduce, overall health spending.\3\
    Why does insurance cause greater consumption of health care? 
Insurance, particularly insurance with low cost-sharing, means that 
patients do not bear the full cost of the health resources they use. 
This is a good thing--having just made the case for the importance of 
the financial protections that insurance provides--but comes with the 
side-effect of promoting greater consumption of health resources, even 
when their health benefit is low. This well-documented phenomenon is 
known as ``moral hazard,'' even though there is nothing moral or 
immoral about it. The RAND Health Insurance Experiment (HIE), one of 
the largest and most famous experiments in social science, measured 
people's responsiveness to the price of health care. Contrary to the 
view of many non-economists that consuming health care is unpleasant 
and thus not likely to be responsive to prices, the HIE found 
otherwise: people who paid nothing for health care consumed 30 percent 
more care than those with high deductibles.\4\ This is not done in bad 
faith: patients and their physicians evaluate whether the care is of 
sufficient value to the patient to be worth the out-of-pocket costs. 
The increase in care that individual patients use because of insurance 
has even greater system-wide ramifications. R&D in new medical 
technologies responds to the changes in aggregate incentives driven by 
health insurance. While these technologies may improve welfare, they 
also raise premiums because of larger armamentarium of treatments 
available to the sick. There is evidence of these system-wide effects: 
when Medicare was introduced in 1965, providers made spectacular 
investments beds in high-tech care, and hospital spending surged over 
25 percent in 5 years.\5\
    Even increases in preventive care do not usually pay for 
themselves: in general prevention is good for health, but does not 
reduce spending. Some preventive care has been shown to be cost-
saving--such as flu vaccines for toddlers or targeted investments like 
initial colonoscopy screening for men aged 60-64--but most preventative 
care results in greater spending along with better health outcomes. 
Indeed, some money spent on preventive care may not only cost money, 
but may be no more cost-effective than some ``high-tech'' medical care. 
For example, screening all 65-year-olds for diabetes, as opposed to 
only those with hypertension, may improve health but costs so much 
(about $600,000 per Quality Adjusted Life Year) that that money might 
be better spent elsewhere.\6\
    All of this suggests that insuring the uninsured would raise total 
spending. This doesn't mean that it would not be money well spent 
(which I believe it would be). Spending more to attain universal 
insurance is not a problem if it generates more value than it costs, 
and the view that health care is a right is not inconsistent with this 
framework. First, and sometimes overlooked, is the security that 
insurance provides against the uncertainty of unknown health care 
expenses. The value of this financial smoothing alone is estimated to 
be almost as much as the cost of providing people with insurance.\7\ 
Second, much of the additional health care that the newly insured would 
receive is likely to improve health. (But this is by no means 
automatic, for as discussed below, being insured is not enough to 
guarantee good health care.) Extending health insurance coverage is 
worth it for these reasons--but not because it would save money.

                        GETTING HIGH-VALUE CARE

    Having insurance may increase the quantity of care patients 
receive, but it is no guarantee that they will receive high quality 
care. A recent study found that Americans received less than 60 percent 
of recommended care, including preventive, acute, and chronic care, and 
including such low-cost interventions as flu vaccines and antibiotics 
for surgical patients.\9\ Beginning with the work of John Wennberg at 
Dartmouth, an immense literature in medicine and economics has found 
that even among Medicare enrollees, there are enormous differences in 
the quality of care received: in fact, in areas where the most is spent 
on Medicare beneficiaries, they are the least likely to get high 
quality care. The use of mammograms, flu-shots, beta-blockers and 
aspirin for heart attack patents, rapid antibiotics for pneumonia 
patients, and simple laboratory tests to evaluate the management of 
diabetes are all lower in higher-spending areas.\10\ Higher spending is 
not even associated with lower mortality, which suggests that more 
generous insurance provision does not necessarily translate to better 
care or outcomes.
    When these results showing the lack of relationship between 
spending and quality were first reported there were two predictable 
responses by skeptics: that high spending areas had sicker patients who 
were (appropriately) less likely to receive these therapies, and that 
patients in high-spending had higher satisfaction even if their 
measurable health outcomes were the same. Neither claim is supported by 
the evidence.
    What, then, do patients in high-spending areas get? Evidence 
suggests that this higher intensity is driven by greater use of 
procedures with questionable clinical value--that may even be 
associated with underuse of high value, less-intensive care. Patients 
in high-spending areas are no more likely to receive surgery, but see 
more specialists more frequently, have more diagnostic and imaging 
services, and get more intensive care in the end of the life--none of 
which has been shown through clinical trials to improve health.\11\ 
``Coordination failures'' in delivery may both raise costs and lower 
quality, even among the insured. Investments in health services 
research can help shed light on how we can consistently deliver higher-
value care.
    Thus, while health insurance increases the quantity of care 
patients receive, being insured alone is not sufficient to ensure high 
quality care. Insuring the uninsured will give them access to the sort 
of health care that the rest of us receive: a combination of valuable 
care, overuse of some costly interventions with little proven benefit, 
and underuse of some vitally important therapies, care that is 
sometimes coordinated but often fragmented. This is better than no 
care, but it highlights the problem of collapsing the entire debate 
about U.S. health care reform down to the issue of uninsurance: health 
insurance alone does not guarantee good health care.

                         THE ROLE OF EMPLOYERS

    Employees ultimately pay for the health insurance that they get 
through their employer, no matter who writes the check to the insurance 
company. The view that we can get employers to shoulder the cost of 
providing health insurance stems from the misconception that employers 
pay for benefits out of a reservoir of profits. Regardless of a firm's 
profits, valued benefits are paid primarily out of workers wages.\12\ 
While workers may not even be aware of the cost of their total health 
premium, employers make hiring and salary decisions based on the total 
cost of employment, including both wages and benefits such as health 
insurance, maternity leave, disability and retirement benefits.\13\ 
They provide health insurance not out of generosity of spirit, but as a 
way to attract workers--just like wages. When the cost of benefits 
rises, wages fall (or rise more slowly than they would have otherwise), 
leaving workers bearing the cost of their benefits in the form of lower 
    The uncomfortable arithmetic of this wage-fringe offset is seen in 
other contexts--for example, workers bear the costs of workers 
compensation, and mandated maternity benefits primarily reduce the 
wages of women of child-bearing age.\15\ When it is not possible to 
reduce wages, employers may respond in other ways: employment can be 
reduced for workers whose wages cannot be lowered, outsourcing and a 
reliance on temp-agencies may increase, and workers can be moved into 
part-time jobs where mandates do not apply. These adjustments are 
neither instantaneous nor one-for-one for every person (depending, for 
example, on wage rigidities, how much individuals value the insurance 
benefit, and how heterogeneous the employees' income and health are)--a 
fact that obscures the underlying connection. This also means that the 
claimed connection between health care costs and the ``international 
competitiveness'' of U.S. industry is murky at best: higher health 
costs primarily lower current workers' non-health compensation, rather 
than firms' profitability (although the same trade-off cannot operate 
in retiree health benefits, making their effects more complicated).\16\
    Why, then, do we have a private health insurance system based 
primarily on policies offered through employers? There is a preference 
in the tax code for premiums paid by employers relative to premiums 
paid by individuals or direct payments for health care. This tax 
preference drives both the predominance of employment-based policies 
and the prevalence of policies with low cost-sharing, because care paid 
for in the form of higher employer premiums comes at a lower after-tax 
price than care paid for out-of-pocket. Of course, this tie between 
employment and insurance comes at a well-known cost: workers who leave 
or lose a job risk losing their insurance or facing much higher 
premiums, sometimes forcing them to stay in a job to retain health 
insurance.\17\ Furthermore, differences in rating regulations in the 
large-group, small-group, and individual insurance markets can 
undermine risk-pooling, which is particularly harmful for those with 
high health costs who must find a new insurance policy.
    This is not to say that there are not important advantages to 
getting insurance through an employer instead of on the individual non-
group insurance market (especially given the current state of 
individual market), including better pricing and risk pooling. The 
employer market is the primary mechanism for maintaining cross-
subsidization from low-risk populations to high-risk ones, with tax 
subsidies adding an element of social insurance (albeit one that is not 
particularly progressive).\18\ It is these benefits that are the main 
advantages of access to employer policies, not the fact that employers 
nominally pay part of the premium.

                          EFFICIENT INSURANCE

    Greater patient cost-sharing could help improve the efficiency of 
health care spending, but it is not a cure-all. It is certainly true 
that first-dollar insurance coverage (that is, insurance coverage for 
the first dollar of health care expenditures or insurance with very low 
cost-sharing more broadly) encourages use of care with very low 
marginal benefit and that greater cost-sharing would help reduce the 
use of discretionary care of questionable value. But there is also 
evidence that patients under-utilize drugs with very high value when 
confronted with greater cost-sharing (whether because they lack 
resources or information). Worse, there is evidence that even $5-$10 
increases in copayments for outpatient care can result in some patients 
getting hospitalized as a result of cutting back too much on valuable 
care, offsetting the reduced spending.\19\ Capping total insurance 
benefits is also short-sighted and imprudent: not only does evidence 
suggest that such caps result in adverse clinical outcomes, worse 
adherence, and increased hospital and ER costs, but the presence of 
caps means that patients are not insured against catastrophic costs--
exactly what insurance is supposed to protect against the most.
    There is no reason to think that the optimal insurance structure 
would look like the typical high-deductible plan. Rather, it might 
subsidize high-value care such as treatments to manage diabetes or 
asthma, while imposing greater cost-sharing on care of lower value, 
such as elective surgeries with limited health benefits. People would 
choose the insurance plans that offered them the best benefit mix--
trading off higher premiums for plans that covered care of diminishing 
marginal value. Of course, what may be valuable to one patient could be 
wasteful for another, and the key challenge for ``value-based insurance 
design'' policies is to differentiate these cases. Many firms are 
experimenting with these plans.\20\ Focusing exclusively on high-
deductible plans that rely on a blunt structure of patient cost-sharing 
and perfectly forward-looking patients may forestall the development of 
even more innovative plans.
    This does not mean that competition and cost-sharing have no role 
in driving higher value spending, however. Competition between insurers 
to offer plans that have the mix of benefits enrollees find most 
valuable could drive the kind of innovative plans described above. 
Increased cost-sharing such as that promoted by high deductible 
policies coupled with health savings accounts can also be an important 
tool for improving the value of care. As the evidence from the RAND HIE 
discussed above shows, the low-cost sharing plans fostered by the 
current tax treatment of health insurance (which look more like pre-
paid health care than true insurance) promote the use of care that is 
of limited health benefit. While most spending is indeed done by people 
with very high total costs, well-designed cost-sharing programs could 
still have substantial effects on spending decisions. Most spending is 
not done in emergency settings, and even limited cost-sharing can have 
an effect on a substantial share of total spending.\21\ This suggests 
that carefully designed incentives could have a big effect on improving 
the value of care delivered.


    We know that our health care system is not delivering the 
consistently high-quality, high-value care that we should expect. While 
there are many open questions in the design of the ideal system, with 
millions uninsured and rising costs threatening to swamp public and 
private budgets alike, we cannot afford to wait to act.
    Focusing on the underlying issues discussed here suggests that the 
fundamental problems facing our health insurance system are unlikely to 
be cured by the extremes of either a single payer system or an 
unfettered marketplace. On the one hand, the unregulated marketplace is 
unlikely to provide long-run stable insurance. Private insurers will 
always have an incentive to try to shed their highest cost enrollees, 
so without regulatory safeguards even the insured sick will be at risk 
of losing the insurance protections to which they are entitled. Private 
insurance fundamentally cannot provide the kind of redistribution based 
on underlying health risk or income that social insurance can. On the 
other hand, a single payer system does not automatically provide high 
quality care: the provision of low-value care is as pervasive in the 
single payer Medicare system as it is elsewhere. Single-payer systems 
are also slow to innovate--as suggested by the fact that it took 
Medicare 40 years to add a prescription drug benefit, long after most 
private insurers had done so. Nor do calculations of the costs of a 
single-payer system measure the utility loss from forcing people with 
different preferences into a monolithic health insurance plan. The 
private facilities that have sprung up in Canada to meet the demands of 
those who want more health care than the public system provides 
fundamentally undermine the ``single payer'' nature of the system.
    How one balances these trade-offs is likely driven as much by 
philosophy as economics, and any reform will involve tough choices 
between competing values. Serious reforms would focus not exclusively 
on lowering costs, but on increasing the value that we get from health 
insurance and health care.\22\ Reforms that promoted higher-value 
insurance could both extend coverage so that more people benefit from 
the protections that insurance affords and ensure that those 
protections are secure for those who fall ill. These reforms would not 
be enough to achieve uniformly high-quality care, however. The frequent 
failure of the use of best practices and the tremendous geographic 
variation in the use of costly care of uncertain medical benefit are 
often obscured in the focus on the uninsured. That many nations, 
including both the United States and Canada, struggle with these 
challenges suggests that reforms of the payment system alone are 
unlikely to solve all of these problems. A comprehensive reform 
proposal that aimed both to extend insurance protections to those who 
lack them and to improve the value of care received by those who are 
insured would be more likely to succeed at each goal than proposals 
that focused on just one.
    Thank you again for the opportunity to meet with you. I would be 
happy to answer any questions that you might have.


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Worth Publishers, 2007).
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United States and Canada--Questionable Answers to a Questionable 
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Steffie Woolhandler, T. Campbell and David U. Himmelstein, ``Costs of 
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``Inside the Black Box of Administrative Costs,'' Health Affairs 
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Sinaiko, ``Can Multi-Payer Financing Achieve Single-Payer Spending 
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Article 2; Chapin White, ``Health Care Spending Growth: How Different 
Is the United States from the Rest of the OECD?,'' Health Affairs 26, 
no. 1 (2007): 154-161.
    3. John M. McWilliams, Ellen Meara, Alan Zaslavsky and John Z. 
Ayanian, ``Use of Health Services by Previously Uninsured Medicare 
Beneficiaries,'' New England Journal of Medicine 357, no. 2 (2007): 
143-153; Jack Hadley, John Holahan, Teresa Coughlin and Dawn Miller, 
``Covering the Uninsured in 2008: Current Costs, Sources of Payment, 
and Incremental Costs,'' Health Affairs (2008): hlthaff.27.25.
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All?: Lessons from the Rand Health Insurance Experiment (Cambridge, MA: 
Harvard University Press, 1993).
    5. Amy Finkelstein, ``The Aggregate Effects of Health Insurance: 
Evidence from the Introduction of Medicare,'' Quarterly Journal of 
Economics (2007).
    6. J.T. Cohen, P.J. Neumann and M.C. Weinstein, ``Does Preventive 
Care Save Money? Health Economics and the Presidential Candidates,'' 
New England Journal of Medicine 358, no. 7 (2008):661-663; L.B. 
Russell, ``The Role of Prevention in Health Reform,'' New England 
Journal of Medicine 329, no. 5 (1993): 352-354.
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Initial Impact of Medicare on Mortality and Out-of-Pocket Medical 
Spending,'' Journal of Public Economics 92 (2008): 1644-1669.
    8. Report of the Robert Wood Johnson's Commission to Build a 
Healthier America (2009).
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Adults in the United States,'' New England Journal of Medicine 348, no. 
26 (2003): 2635-2645; John Wennberg and Megan Cooper, The Dartmouth 
Atlas of Health Care (Chicago: American Hospital Association Press, 
    10. Katherine Baicker and Amitabh Chandra, ``Medicare Spending, the 
Physician Workforce, and Beneficiaries' Quality of Care,'' Health 
Affairs (Millwood) Suppl Web Exclusive (2004): W184-197.
    11. Elliott S. Fisher, David E. Wennberg, Therese A. Stukel, Daniel 
J. Gottlieb, F. Lee Lucas and E.L. Pinder, ``The Implications of 
Regional Variation in Medicare Spending. Part 1: The Content, Quality 
and Accessibility of Care,'' Annals of Internal Medicine 138, no. 4 
(2003): 273-287; ___, ``The Implications of Regional Variation in 
Medicare Spending. Part 2: Health Outcomes and Satisfaction with 
Care,'' Annals of Internal Medicine 138, no. 4 (2003):288-298.
    12. Lawrence Summers, ``Some Simple Economics of Mandated 
Benefits,'' American Economic Review 79 (1989): 177-183.
    13. Janet Currie and Brigitte Madrian, ``Health, Health Insurance 
and the Labor Market,'' In Handbook of Labor Economics, edited by Orley 
Ashenfelter and David Card. Amsterdam: Elsevier Science, 2000.
    14. Katherine Baicker and Helen Levy, ``Employer Health Insurance 
Mandates and the Risk of Unemployment,'' Risk Management and Insurance 
Review 11, no. 1 (2008): 109-132; Katherine Baicker and Amitabh 
Chandra, ``The Labor Market Effects of Rising Health Insurance 
Premiums,'' Journal of Labor Economics 24, no. 3 (2006).
    15. Jonathan Gruber and Alan Krueger, ``The Incidence of Employer-
Insurance: Lessons from Workers' Insurance,'' Tax Policy and the 
Economy 5 (1991): 111-143; Jonathan Gruber, ``The Incidence of Mandated 
Maternity Benefits,'' American Economic Review 84 (1994): 622-641.
    16. Len Nichols and Sarah Axeen, ``Employer Health Costs in a 
Global Economy: A Competitive Disadvantage for U.S. Firms,'' New 
America Foundation Working Paper (2008).
    17. Brigitte Madrian, ``Employment-Based Health Insurance and Job 
Mobility: Is There Evidence of Job-Lock?,'' Quarterly Journal of 
Economics 109, no. 1 (1994): 27-54.
    18. Mark V. Pauly and Bradley Herring, ``Risk Pooling and 
Regulation: Policy and Reality in Today's Individual Health Insurance 
Market,'' Health Affairs 26, no. 3 (2007): 770-779.
    19. John Hsu, M. Price, J. Huang, R. Brand, V. Fung, R. Hui, B. 
Fireman, J.P. Newhouse and J.V. Selby, ``Unintended Consequences of 
Caps on Medicare Drug Benefits,'' New England Journal of Medicine 354, 
no. 22 (2006): 2349-2359; Amitabh Chandra, Jonathan Gruber and Robin 
McKnight, ``Patient Cost-Sharing, Hospitalization Offsets, and the 
Design of Optimal Health Insurance for the Elderly,'' NBER Working 
Paper 12972 (2007).
    20. Michael E. Chernew, Allison B. Rosen and A. Mark Fendrick, 
``Value-Based Insurance Design,'' Health Affairs (Millwood)  26, no. 2 
(2007): w195-203.
    21. Katherine Baicker, ``Improving Incentives in Health Care 
Spending: Properly Designed Health Spending Accounts Can Be a Major 
Step,'' Business Economics (2006); Katherine Baicker, William H. Dow 
and Jonathan Wolfson, ``Lowering the Barriers to Consumer-Directed 
Health Care: Responding to Concerns,'' Health Affairs (Millwood) 26, 
no. 5 (2007): 1328-1332.
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Daniel J. Gottlieb, ``Creating Accountable Care Organizations: The 
Extended Hospital Medical Staff,'' Health Affairs 26, no. 1 (2007): 

    Senator Dodd. Thank you.
    Dr. Jonathan Gruber.


    Mr. Gruber. Thank you very much, Senator, and to the other 
Senators for inviting me here today.
    I'd like to congratulate the committee on a draft bill 
which really provides a terrific framework for fundamentally 
transforming healthcare in the United States. This really 
builds on the success we've had in Massachusetts where we've 
shown that such transformation can work and let me give you 
some solid facts on this.
    First of all, the uninsurance rate in Massachusetts is down 
by more than two-thirds. We've now got fewer than 3 percent of 
our population uninsured.
    Second of all, employer-sponsored insurance is up in 
Massachusetts by a 150,000 people. We don't have crowd-out, we 
have crowd-in in Massachusetts.
    Third, the costs within budget. If you don't believe me, 
you can look at a report from the Mass Taxpayers Foundation, an 
organization which is not inclined to be friendly toward big 
government interventions, which has said we actually came in 
under budget with our insurance reform.
    Fourth, the mandate is working. We had mandated compliance 
rates above 98 percent in the very first year, and fifth, it's 
popular. We have 75 percent public support for our reform.
    Now that said, the options memo before us today raises a 
number of issues and I just want to hit the highlights on 
things which I discuss in more detail in my written testimony.
    First of all, medical underwriting in health insurance must 
be banned. With guaranteed issue of insurance and modified 
community rating that ensures real insurance coverage through 
time for those who suffer adverse health shocks.
    Second, lifetime and annual limits on services in insurance 
contracts should be banned as well as other restrictions that 
take place in many med plans which fool people into thinking 
they have real coverage when they don't.
    Third, there's no reason to have multiple competing State 
exchanges. Exchange or gateway is a great process but there's 
no reason to have more than one. Have the competition within 
the exchanges, not artificially across them.
    Fourth, and I think most important, an individual purchase 
requirement or individual mandate is central to reform. Without 
an individual mandate, a number of States have tried to reform 
the insurance market and failed. You cannot fundamentally 
reform insurance markets without individual mandate.
    Fifth, private coverage subsidies must be part of this bill 
and they must extend to four times the Federal poverty line. In 
Massachusetts, our subsidies, probably the biggest failure of 
our law, is that our subsidies only extend to three times the 
poverty line. That's left some individuals unable to afford 
health insurance in our State and we have to exempt them from 
our mandate.
    Fifth and finally, I would say that small business credits 
should be offered and should be targeted most tightly to those 
firms that are least likely to offer health insurance and 
that's the smallest and lowest wage companies, not just the 
smallest and smallest wage companies.
    I think with a strong credit, small business can be a big 
winner from this reform. In fact, just today the Small Business 
Majority released a report for which I did the analysis which 
showed that healthcare reform is a very positive feature of our 
small businesses, not a negative as has sometimes been 
    Healthcare reform can end job lock, freeing entrepreneurs 
to leave companies and start their own small businesses. It can 
provide continuous coverage in this most dynamic sector of our 
economy as small businesses open and close, ensuring their 
employees are constantly covered, and it can lead to major 
savings through more effective administration of insurance and 
bending the cost curve.
    The bottom line is that small business has nothing to fear 
from this reform. This can be a positive benefit for small 
business if we look at the entire picture.
    Thank you.
    [The prepared statement of Mr. Gruber follows:]

              Prepared Statement of Jonathan Gruber, Ph.D.

    Thank you very much for allowing me to testify today on Health Care 
Reform Legislative Options. To summarize, my conclusions are:

     Medical underwriting in health insurance markets must be 
banned, with guaranteed issue of insurance and modified community 
rating that ensures real insurance coverage through time to those who 
suffer adverse health shocks.
     Insurance prices should be allowed to vary based on 
tobacco use or other lifestyle elements that are unambiguously 
associated with higher health care costs.
     Lifetime and annual limits on services in insurance 
contracts should be banned, as well as adding other restrictions that 
rid the market of ``mini-med'' plans that don't provide real financial 
protection against catastrophe.
     Legislation must contain anti-discrimination provisions 
that ensure that employer cannot charge lower income workers more than 
higher income workers for their insurance.
     Gateway must undertake selective contracting to obtain the 
best prices and avoid confusion among consumers facing an enormous 
range of choices.
     There is no reason to have multiple competing exchanges; a 
single State exchange should selectively contract and allow choice 
within the exchange.
     A monopoly exchange (with no competing outside nongroup 
market) is necessary for proper risk adjustment. If the exchange is not 
a monopoly, it can only function properly if the same regulatory 
reforms are imposed on the exchange and the outside market.
     Very low-income individuals should remain in, and become 
eligible for, public insurance rather than coming into the exchange. 
This will ensure that they receive the most cost-efficient coverage and 
reduce erosion of group insurance.
     Low-income employees who are income eligible for subsidies 
should be allowed to come into the exchange, but should bring with them 
their employer contributions as a ``voucher'' to offset government 
     An effective individual purchase requirement is central to 
reform. Without this requirement fundamental market reform is 
impossible, as has been illustrated by a number of States that have 
undertaken reforms of their non-group markets. Auto-enrollment is a 
complement to, not a substitute for, this requirement.
     Private coverage subsidies should extend to 400 percent of 
the Federal Poverty Line or some individuals will be unable to afford 
health insurance coverage.
     Subsidies should be expressed as a rising share of income. 
Subsidies should not be determined by the percentage of the premium 
that the individual pays, or there will be enormous inequities by age 
and family structure, with older individuals and families paying a much 
higher percentage of income.
     Small business credits should be tightly targeted to the 
smallest and lowest wage firms, with credits phasing out with both firm 
size and wages.
    Thank you very much for allowing me to testify today on Health Care 
Reform Legislative Options. Your committee, and the Congress as a 
whole, has before it a historic opportunity to fundamentally reform the 
health care system in the United States, covering all of our uninsured 
citizens, controlling health care costs, and improving health care 
quality. That said, there are a number of hard choices that must be 
made before this opportunity can be grasped. I am pleased that you have 
set up this opportunity to allow myself and other experts to weigh in 
on those hard decisions.
    Your options memo lays out a number of key questions about reform. 
In this testimony I will provide comment on some of them.


1. No Medical Underwriting
    I think it would be appropriate and useful to have premium 
variation based on both tobacco use and adherence to wellness/lifestyle 
programs. We know that financial incentives can induce proper behavior 
in these arenas. Indeed, the recent reform in Massachusetts allowed 
insurers in the State for the first time to differentiate premiums by 
smoker status.
    It is important to note that some have suggested not varying 
premiums, but rather varying cost-sharing within insurance plans (e.g. 
deductibles), based on these factors. That would be a mistake. The 
level of cost-sharing within a plan is a crucial determinant of medical 
access and utilization. Making those who smoke, or who do not undertake 
wellness activities, face a higher marginal price of medical care could 
be inefficient. If financial incentives are to be used, they should be 
used on the up-front premium.

2. Modified Community Rating
    A crucial accomplishment of this legislation must be to remove 
underwriting on the basis of health. Insurance markets that allow 
insurers to charge individuals much more based on unanticipated and 
unpredictable health shocks is an insurance market that doesn't work. A 
key goal for this legislation should be to provide ``insurance for 
insurance:'' to make sure that all can access insurance at affordable 
prices, even if they get sick.
    Age variation is a somewhat different issue because age is 
predictable. As such, the decision to charge more or less to workers of 
different ages is simply a question of redistribution from younger to 
older insured. A restriction that age bands be narrow invokes larger 
redistribution from young to old than does a restriction that age bands 
be broad.
    But there is one other consideration with age rating: the 
interaction with low-income subsidies. Most low-income subsidy schemes 
would charge individuals an income-dependent amount, regardless of age. 
But when subsidies end individuals are facing a market with age-varying 
prices. If there is large age variation, then older individuals could 
see a particularly large jump in their premiums when subsidies run out.
    This section also discusses consumer rebates based on insufficient 
medical loss ratios. I do not think this is a good idea, at least 
initially. Medical loss ratios are complicated because (a) it is very 
hard to define what is a legitimate medical care/management-related 
expense and (b) the insurance companies will always be one step ahead 
of the government in figuring out how to make these loss ratios look 
favorable. I think a much more sensible starting point would be with 
reporting requirements on medical loss ratios, and to revisit this 
issue down the road rather than impose rebates now.

3. Other Reforms
    No Lifetime or Annual Limits: To my mind this is one of the most 
important aspects of insurance reform. Many individuals buy insurance 
today where they do not understand the risk they are taking on by 
accepting limits on the insurance company's exposure either on a 
lifetime or annual basis. Real insurance reform requires that 
individuals be protected against extreme health shocks, and that in 
turn requires that insurance be an open-ended commitment to pay the 
medical bills associated with those shocks.
    Moreover, I would amend this section to say that the government 
should more broadly rule out ``mini-med'' or ``indemnity'' plans that 
don't necessarily include annual or lifetime limits, but instead impose 
a reimbursement schedule to the consumer which is well below the likely 
cost of the service. Plans which only cover, for example, $500/day 
towards the cost of a hospital stay place consumers at needless and 
unanticipated risk.
    More generally, I would suggest you follow what is currently in the 
regulations for minimum creditable coverage (MCC) in Massachusetts. 
These regulations rule out indemnity schedules of benefits, which is 
defined as ``A fixed dollar amount per service, set forth in the 
subscriber's certificate of coverage as the maximum amount that a 
health plan is required to pay to the beneficiary or to reimburse the 
provider of that service.'' The Massachusetts regulations also rule 

    1. an overall annual maximum benefit limitation for the plan that 
applies to all covered services collectively;
    2. an overall annual maximum benefit limitation based on dollar 
amount or utilization that caps covered core services for any single 
illness or condition, except as otherwise may be permitted by 
applicable law.

    Incentives for Quality Care. My only comment here is that I think 
allowing premiums to vary by tobacco use and other wellness elements 
provides an appropriate financial incentive, as noted above.
    Equitable Treatment for All Workers. This section must not be 
dropped and is a key element of reform which strives to maintain 
employer-based insurance--and minimize government costs. If firms are 
allowed to discriminate across workers on the basis of wages or income, 
then the saavy employer will charge his low-income workers (who are now 
eligible for government subsidies) a much higher contribution rate than 
his higher income workers. In this way the employer can induce his low-
income workers to leave the plan and take government subsidies, eroding 
the workplace pool and raising government costs.


1. Connector/Gateway
    Establishing the Gateway: There are a number of important issues 

    a. It is critically important that Gateways do selective 
contracting, based on providing value and access, for subsidized 
consumers to readily compare options--to allow hundreds of licensed 
carriers to offer thousands of different benefits packages will miss 
the opportunity for price competition and will only confuse low-income 
    b. There are a number of activities that can be coordinated at the 
Federal level to provide economies of scale to State connectors:

     The development of comparison shopping tools (Web site, 
decision-support, physician-finder software, etc.) that can be given to 
the State gateways.
     A federally established annual open enrollment period will 
significantly reduce the costs and confusion of giving consumers 
     A federally established risk-adjustment process and 
software will focus competition among carriers on value, access and 
quality of care rather than risk selection.

    c. Multiple, competing exchanges would create confusion, 
administrative waste, and undermine any exchange's ability to improve 
purchasing with Federal and private dollars. There is simply no reason 
for multiple competing exchanges.

    Market Regulation: The exchange will function best if it has 
monopoly power in the nongroup (and perhaps small group) market. If it 
does not, it is hard to conceive of doing proper risk adjustment. Risk 
adjustment involves taking from plans with healthy enrollees and 
redistributing to plans with less healthy enrollees. But if this risk 
adjustment occurs only within an exchange, and not outside, then there 
will be a natural tendency for less healthy individuals to select the 
exchange (where they are cross-subsidized) and more healthy individuals 
to stay outside of the exchange (where they do not have to cross-
subsidize). This will destabilize the exchange and undo the notion of 
market reform.
    If the exchange does not have monopoly power, it is critical that 
the regulations on insurance be the same inside the exchange and in the 
outside market. If not, this will further exacerbate the adverse 
selection problem noted above. For example, if health underwriting is 
allowed outside the exchange, but not within the exchange, then it will 
further skew prices downward for the healthy if they stay outside the 
exchange, raising prices inside the exchange and undoing market reforms 
    Qualified Individual: It would be a mistake to allow low-income 
individuals eligible for Medicaid into the exchange. This is for three 

    a. Medicaid coverage is less expensive than coverage in the 
exchange for this population because of low provider rates under 
Medicaid and tight management of some benefits (e.g. pharmacy).
    b. Low-income individuals who obtain coverage from their employer 
will be more likely to exit that coverage and move to employer-like 
exchange coverage than they would be to exit that coverage to move to a 
government-run Medicaid program (since the exchange would appear to be 
a closer substitute to what they already have). As such, if the 
entitlement for low-income individuals is to an exchange, disruption of 
existing employer insurance arrangements will be higher than if it is 
to a Medicaid.
    c. It is not clear how well consumer choice and structured 
competition can work for the lowest income populations who cannot 
afford to pay differentials across health plans.

    In light of these considerations, I would suggest a clear breakline 
for public insurance eligibility below which individuals are eligible 
for free public insurance, and above which they can come into the 
    Eligible Employee: One of the thorniest issues with subsidized 
exchanges is how to address the problem of low-income individuals who 
are offered employer-sponsored insurance, but at a cost that may be 
unaffordable. There are essentially three options here:

    a. A ``firewall:'' exclude such individuals from eligibility for 
exchange subsidies. This is by far the least expensive option--but also 
may leave millions of low-income Americans unable to afford insurance.
    b. Allow low-income individuals into the subsidized exchange if 
their employer-sponsored insurance is deemed unaffordable. This option 
addresses the fundamental inequity noted in (a), but at a high cost.
    c. An employer ``voucher:'' Allow low-income individuals into the 
subsidized exchange if their employer-sponsored insurance is deemed 
unaffordable, but their employer in this case must send to the exchange 
the monies they would have otherwise spent insuring that individual. 
This option addresses the fundamental inequity noted in (a), but at a 
lower government cost than (b). This seems to me to be the best option.


1. Individual Responsibility
    Shared Responsibility Payments: An individual requirement to 
purchase insurance is the centerpiece of successful reform. Without 
this requirement market reform may not be possible. Every State that 
has tried to community rate its non-group market without a mandate has 
in the process dramatically raised prices and restricted the size of 
the market.
    An effective individual requirement means an effective penalty on 
those who do not comply. There is no ``right answer'' as to how large 
that penalty has to be. The penalty in Massachusetts for noncompliance 
is 50 percent of the lowest cost insurance option available to 
individuals. This penalty has been sufficient to motivate at least two-
thirds of our uninsured to obtain coverage in the very first year.
    Auto enrollment of individuals should be considered as a complement 
to the individual mandate, not as a substitute. Auto enrollment does 
not reach many of the crucial uninsured who will determine the success 
or failure of market reform.
    Reporting of Health Insurance Coverage: A fundamental failure in 
the market for employer-sponsored insurance is that employees have no 
idea of the cost of insurance they are purchasing, limiting their role 
as advocates for lower cost coverage. Including that cost on the 
worker's W-2 form would help mitigate this problem.


1. Medicaid Expansion
    As noted earlier, dropping the Medicaid expansion and enrolling 
individuals in the exchange would, in my view, be a mistake. Medicaid 
expansions are cheaper and reduce disruption of existing employer 
relationships, and many low-income individuals do not have the 
disposable income necessary to shop across multiple options.

2. Private Coverage Subsidies
    Premium Credits: The fundamental affordability problem facing the 
uninsured cannot be resolved without sizeable credits towards the 
purchase of insurance. Given the high cost of insurance, such subsidies 
must extend to 400 percent of the Federal Poverty Line. Below that 
level, insurance may be unaffordable for many, in particular older 
persons and families within an age-rated system. In Massachusetts, 
where we were restricted from extending subsidies beyond 300 percent of 
the Federal Poverty Line, we were forced to exempt many individuals 
above that level from the mandate because of affordability issues.
    It is critical that credits be based on income and not be 
determined as a share of premium costs. That is, the tradeoff with low-
income subsidies should be all about affordability, to the individual 
vs. to the government. This suggests that the debate should be over 
what percentage of income individuals are required to pay. This debate 
has nothing to do with the premium rates actually facing those 
    For example, a sensible credit scheme would be one where 
individuals pay a percentage of their income that rises with income 
(e.g. 1 percent of income at 100 percent of poverty to 10 percent of 
income at 400 percent of poverty). Such a system would ensure 
affordability for the individual, and the levels could be set based on 
the interplay between individual affordability and government budgetary 
    A much less sensible scheme would be one where individuals receive 
a subsidy as a percentage of the average premium in their area, which 
can lead to enormous differences in what individuals pay as a 
percentage of income based on age and family structure. Consider, for 
example, individuals with income of $25,000. Imagine that a single 
policy for someone who is 40 years old is $4,000. Suppose we decide 
that someone at that level should be paying 6 percent of income based 
on affordability considerations. This would imply that everyone at that 
income level charged a premium of $1,500. That same target could be 
obtained with a subsidy that is a percentage of premiums of 62.5 
percent; if the government pays 62.5 percent of the costs of insurance, 
then the 40-year-old individual pays $1,500.
    While this example works for this particular individual, it leads 
to huge underlying differences across individuals. Suppose that the 
market allows 3:1 age rating. This would imply that, for example, the 
premium for a 64-year-old is $9,000 and the premium for a 25-year-old 
is $3,000. If you offer each the same percentage subsidy (they each get 
62.5 percent off the price of insurance), then the 25-year-old pays 
$1,125 (which is 4.5 percent of income) and the 64-year-old pays $3,375 
(which is 13.5 percent of income). So you could end up with individuals 
earning only $25,000 a year who have to pay 13.5 percent of their 
income towards premiums, which is much too high. This problem is only 
exacerbated when you consider differences across couples and families.
    For this reason, when we discuss low-income credits, the 
conversation should be focused on the percentage of income that 
individuals have to pay, and not on the subsidy rate towards the cost 
of insurance.

3. Small Employer Credits
    Small business credits can be an integral part of reform by 
promoting health insurance offering among small firms. But there is a 
clear efficiency gain to targeting such credits to those firms least 
likely to offer without the credit. These types of firms are clear: 
small and low wage firms. Firms that are above 25 employees, or firms 
where average wages are more than $40,000 per year, are much more 
likely to offer insurance.
    Moreover, the amount that the firm contributes towards insurance 
does not much determine the likelihood that individuals enroll in that 
insurance. Numerous studies over the past decade have shown that 
employee participation decisions in employer-sponsored insurance are 
fairly in-sensitive to the prices charged those employees.
    These two considerations suggest that small business credits focus 
on small- and low-wage firms, and do not focus much on how much those 
firms contribute towards health insurance (subject to contributing some 
minimum percentage of the cost, say 50 percent). Given these 
suggestions, there are some flaws with the small business credit 
proposed here.

     The credit should be focused on firms with fewer than 25 
employees, not 50 employees, which is where non-offering is most 
concentrated. In particular, the bulk of any new dollars should flow to 
firms with fewer than 10 employees. Among firms with fewer than 10 
employees, the rates of insurance offering in 2008 were below 50 
percent; for those firms 10-24 employees, the rate was 78 percent, and 
for those firms 25-49 employees, the rate of offering was 90 percent. 
Thus, the more that credits can be focused on the smallest firms, the 
more effective they will be.
     The credit amounts should decline with firm average wages, 
or otherwise be targeted to the lowest wage employees in a firm. A 
cutoff at a fixed wage level such as $50,000 can lead to adverse firm 
behaviors when paying a worker $1 more can lead to thousands of dollars 
less in employer subsidies. A more sensible scheme would phase the 
credit out smoothly as worker wages rise rather than having such a 
``cliff ''.
     Bonus payments for higher employer contributions do little 
to increase coverage. Available funds should be spent solely on 
encouraging employers to offer insurance since that is the key 
determinant of coverage.

    Senator Dodd. Very good. Thank you very much, Doctor. That 
was very helpful.
    Janet, thank you for joining us.

                         ARLINGTON, VA

    Ms. Trautwein. Well, thank you very much for inviting me. I 
do want to stress that we do believe this is an historic 
opportunity to put in place real solutions to improve quality, 
to reduce costs, if we do things the right way.
    Given that we're under a very short time table, given the 
mark-ups that are coming, I would like to talk about all the 
things that could be done the right way, but I think I need to 
comment very specifically on some of the things that are in 
this bill that we find particularly troubling and that need to 
be changed.
    First of all, where we observe change being needed is in 
the individual and small employer market. The market that's 
larger than that works pretty well already today and so I want 
to comment very specifically on some things that we think are--
I believe, I'm hoping that they are--unintentional in this 
legislation and I want to comment on those.
    First of all, one thing that I think is not unintentional 
are the rating rules that do apply to the 2 to 50 market. 
They're currently listed as 2:1 age bans and this is really--
this would cause significant rate shock for people that are 
trying to get coverage and for people that are covered already 
    Given the grandfathering rules and the way they're 
structured, it would dump a lot of people in. They wouldn't be 
able to be grand fathered for very long.
    Now, I want to specifically talk, though, about the size 
definitions. One thing that was very interesting in this 
legislation is that typically we see things like this addressed 
to the individual market, the small group market, the large 
group market, and that's not what happened in this bill. It was 
the individual market and the group market and I'm sure that 
some of this was done intentionally so that we would bring some 
of the reforms into all markets and we would support some of 
those reforms being in all markets, but the rating reforms are 
what I want to focus on right now.
    We would specifically request that you change the 
legislation to allow claims experience to be used in groups of 
over 50. Now, I often hear people say, well, ``employer markets 
already use community rating'' and that's true, but let me 
explain to you how the community rating works.
    The community rate their own group of employees, based on 
the claims experience of their own group of employees. The way 
this legislation is written today, any group that chose to 
fully insure, and there are many groups over 50, over 250, over 
a thousand, that for whatever reason fully insure their 
policies, they would be subject to the same modified community 
rating rules that an individual would be subject to and this 
would cause significant rate shock. It would be horrible for 
employers. The cost increases for them and their employees 
would be dramatic, and I highly encourage you and would be 
happy to work with you on how to change this provision so that 
we don't have this severe unintended consequence.
    I also want to remark on the navigators that are in the 
bill. You know, we're really unclear on exactly what the 
purpose of the navigators is. The role of the navigators is 
already played by agents, brokers, and consultants in the 
market today.
    We really question whether entrusting organizations that 
have absolutely no health experience at all, to advise people 
about their insurance decisions is really a very good idea and 
at best, it seems a giant duplicative waste of money that could 
better be used to subsidize people who really can't afford to 
buy coverage.
    Beyond that, I would be remiss to not mention that we have 
serious concerns about the creation of a government-run public 
health insurance plan and the corrosive consequences it would 
have on the private health insurance market and we do not 
believe that a level playing field can be established or 
maintained for a number of reasons.
    And finally, I do want to re-inforce that we do support 
change. We are very much in favor of an enforceable and 
effective individual mandate and a mandate for those 
individuals is one thing. A mandate for employers is something 
else all together.
    We know that this is well-intentioned. We believe this 
would hurt American workers, particularly in the format that 
it's been recommended, and we can't really imagine one that 
wouldn't do that. We're concerned that it would actually harm 
current insurance levels and it would decrease jobs and 
economic growth and we don't think that's what we need in 
today's economy.
    Thank you very much.
    [The prepared statement of Ms. Trautwein follows:]

              Prepared Statement of Janet Stokes Trautwein

                           EXECUTIVE SUMMARY

    The National Association of Health Underwriters (NAHU) is pleased 
to be able to play a constructive role in crafting bipartisan, 
comprehensive health care reform legislation this year. We have an 
historic opportunity to put in place real solutions to reduce costs, 
improve quality and ensure choice and access for all Americans in a way 
that will strengthen our health system and our economy.
    There are a number of desirable improvements to our health care 
delivery system that are included in The Affordable Health Choices Act, 
however other proposals should be considered further, as our experience 
reveals they could pose unforeseen and unintended problems in health 
insurance marketplaces.
    Our first concern is the rating reforms that have been proposed. 
NAHU believes that these should only apply to individual health 
insurance products and fully insured small group plans of 2-50 lives. 
The rating rules need to allow variations for applicant age at the 
natural age breakdown rate of at least 5 to 1 with additional 
variations allowed for participation in wellness programs, smoking 
status and geography. We also specifically request that groups over 50 
be permitted to use claims experience. This is different than 
prospective health status rating and is the way all large groups 
develop premiums today. When we hear that large groups ``community 
rate'' their employees, what this really means is that the group 
develops rates that are the same for all participants in their employer 
group based on that employer's claims experience. Eliminating the 
ability to develop premiums in this manner will result in significant 
rate shock for many employers and their employees.
    NAHU is unclear on the purpose health insurance navigators will 
serve and feels that their functionality is duplicative of some of the 
role licensed agents and brokers already serve in the marketplace. Many 
services provided by agents and brokers would never be able to be 
assumed by a navigator because they lack the expertise to perform those 
functions. NAHU questions the wisdom of entrusting organizations with 
no prior health insurance background with the authority to advise 
individuals on their insurance decisions. It is doubtful that community 
organizations with no relevant health care background can deliver the 
policy knowledge, service, value, and accountability that distinguishes 
the professionally licensed and trained agent, broker, and benefit 
specialist. If a State feels the need to establish navigators as part 
of its Gateway, then NAHU feels that such navigators should be subject 
to the same rigorous licensing and continuing education requirements 
that licensed agents and brokers are required to abide by. Concerning 
the proposed Gateways, any subsidies or other insurance requirements 
should mirror to the largest extent possible existing State laws and 
regulations. This is discussed further in our primary testimony.
    NAHU has significant concerns about the creation of a government-
run public health insurance plan and the likely corrosive consequences 
it would have on private insurance markets because a ``level playing 
field'' cannot be established or maintained. Would a government plan 
comply with the many requirements placed on private plans, such as 
State licensure, capital requirements, financial solvency, provider 
network adequacy standards, rate approval, and Federal and State taxes 
and assessments, just to name a few?
    The idea of an enforceable and effective individual responsibility 
requirement for all Americans to purchase health insurance could help 
with adverse selection issues which exist in our current system and we 
support this concept. A mandate to force employers to provide health 
insurance to their employees is another matter. While well intentioned, 
this could actually hurt American workers and health insurance coverage 
levels. It would decrease jobs and economic growth and do little to 
address the current uninsured population compared to other initiatives.
    Our full testimony follows.
    As an association representing more than 100,000 health insurance 
agents, brokers and benefit specialists from every State in the 
country, the members of the National Association of Health Underwriters 
(NAHU) work with both individual and corporate health insurance 
consumers to help provide them with high-quality affordable health 
plans specifically suited to their unique needs. NAHU has analyzed the 
proposed American Health Choices Act and has the following questions, 
comments and concerns.
    There are a number of desirable improvements to our health care 
delivery system that are included in The Affordable Health Choice Act, 
such as promoting health prevention initiative, enhancing nutrition 
labeling, increasing our health care workforce, setting up more 
mechanisms to combat health care fraud and abuse, and providing for the 
development of follow-on or generic biologics.

                        PROPOSED MARKET REFORMS

    The legislation creates significant market reforms to both the 
individual and group insurance markets. It would require all health 
plans, whether fully insured or self-funded, to accept enrollees 
regardless of health status, and would eliminate the use of pre-
existing conditions exclusions and annual or lifetime limits on 
benefits. For all fully insured plans, regardless of size, it would 
impose strict modified community rating standards consisting of 
variances only by family structure, community rating area (defined by 
the HHS Secretary based on the recommendation of the NAIC), actuarial 
value of the benefit and age bands that would limit premium differences 
for the oldest insured individuals to differ from the youngest insureds 
by a ratio of 2 to 1. No premium variations would be permitted for 
health status, gender, class of business, claims experience or any 
other factor not specifically described in the legislation.
    NAHU has very significant concerns about the proposed reforms, 
particularly that there is no distinction between small and large 
employer groups, as there is in today's marketplace. Under current law, 
fully insured employer groups over 50 lives are treated very 
differently than the small group market, and these groups are typically 
rated based on their past claims experience. This market is the health 
insurance market working best today, and the rating reforms proposed by 
this measure, which would apply to all fully insured groups regardless 
of their size would significantly increase costs in this market. It 
also would create adverse selection to the fully insured market, as the 
larger groups that chose to fully insure would only do so if they had 
concerns about their group's claims experience. NAHU does agree that 
reforms need to be made to the individual and small group markets 
concerning the way that premium rates are determined at the time of 
application. It is NAHU's view that these markets would benefit from 
greater premium standardization. The first step should be a uniform 
application for coverage. A clear and understandable uniform 
application would ensure full disclosure of accurate and consistent 
information, and it would make the process easier for consumers 
applying for coverage with several different insurance carriers.
    The second issue is that the rating reforms proposed should only 
apply to individual health insurance products and fully-insured small 
group plans of 2-50 lives. Furthermore, in order to protect against 
runaway costs, the Federal Government should ensure that wide-enough 
adjustments may be made for several key factors. At a minimum, 
variations need to be allowed for applicant age at the natural age 
breakdown rate of at least 5 to 1 (meaning that the rate of the oldest 
applicant may be no more than five times the rate of the youngest 
applicant). In addition to age, variations in premium rates should also 
be allowed for participation in wellness programs, smoking status and 
    Finally, we specifically request that groups over 50 be permitted 
to use claims experience. This is different than prospective health 
status rating and is the way all large groups develop premiums today. 
When we hear that large groups ``community rate'' their employees, what 
this really means is that the group develops rates that are the same 
for all participants in their employer group based on the employer's 
claims experience. Eliminating the ability to develop premiums in this 
manner will result in significant rate shock for many employers and 
their employees.
    We are pleased that the 250 employer size limitation on self-
funding was removed from the bill and we hope that change is permanent. 
The decision whether or not to self-fund or partially self-fund an 
employer group plan is based on many financial and other factors, group 
size being only one of them. A financial business decision of this 
magnitude should be left to the individual discretion of the employer, 
and should not be subject to an arbitrary cap imposed by the Federal 
    We do urge caution in eliminating annual limits on benefits. This 
could be a problem for services that have appropriate durational 
limits. It would be important if this is done to have a strong 
provision to allow limits based on medical necessity to avoid overuse 
of some services. We feel similarly about the elimination of lifetime 
caps. Lifetime caps are rarely met, even by the sickest individuals, 
but they do help provide a control on pricing for medical costs for all 
covered individuals. Private reinsurance for an unlimited maximum is 
expensive for both health plans and self-funded employers and will 
impact premium levels. While we do not want any 
individual to have coverage arbitrarily cut off due to a lifetime 
limit, we wonder whether a Federal financing/re-insurance backstop for 
those rare individuals whose medical expenses are so great they would 
exceed lifetime caps might not better serve the affordability goals we 
share for all consumers.
    In a similar vein, we would advise that a different mechanism be 
used than the risk adjustment system proposed. Especially during the 
time that market reforms are being put into place and the individual 
mandate is being enforced, a better system would be a system of re-
insurance at the State level, with some Federal funding assistance. 
This would ensure a much more stable transition to the new system. Once 
all of the reforms are in place, the issue of risk adjustment can be 
addressed to determine the best approach to long-term risk selection 

                          MINIMUM LOSS RATIOS

    For all fully insured health plans the legislation specifies 
minimum loss ratios. The measure requires insurers to track 
reimbursements for clinical services, activities that improve health 
care quality and all other non-claims costs. The Secretary will 
determine what ratios are appropriate for the individual and group 
markets. If non-claims costs cannot exceed those percentages, 
beneficiaries must be rebated on a pro-rata basis for the excess.
    NAHU has concerns about a minimum loss ratio requirement, as it 
does not address the true problem that is driving health insurance 
premium costs--the skyrocketing cost of medical care. The definition of 
administrative expenses in the bill is quite broad and may encompass 
many services that actually benefit consumers. In addition to profits 
and marketing, non-claims expenses include quality management, disease 
management programs, health information technology investment, claims 
processing, legal compliance, Federal and State taxes, employee 
salaries, consumer education, etc. A 2005 Price Waterhouse Coopers 
study found that health plan administrative costs were not a factor 
contributing to health care cost increases, rather increased 
utilization of services, an aging population, lifestyle choices, and 
new technologies were the primary cost drivers. In States that have 
adopted high loss ratio standards, consumers have suffered from less 
competition, fewer choices, and higher premiums.


    This provision requires each State to establish a variation of a 
health insurance connector or exchange which is termed a Gateway. If a 
State does not establish a Gateway within 4 years, the Secretary must 
establish one for them. The Gateways will use risk adjustment 
mechanisms to remove incentives for plans to avoid offering coverage to 
those with serious health needs. The stated purpose of the Gateway is 
to facilitate the purchase of health insurance coverage and related 
insurance products at an affordable price by qualified individuals and 
qualified employer groups (including self-employed individuals). The 
legislation specifically allows for group and individual private market 
coverage to exist outside of the Gateway. If individuals like their 
current coverage, they can keep it. State insurance regulators will 
perform their traditional obligations regarding consumer protection and 
market conduct.
    NAHU believes that if Gateways are part of greater health reform, 
it is critical that they be structured in such a way that does not 
damage or eliminate the traditional private insurance marketplace. 
While we appreciate the state-level approach concerning the structure 
of the Gateways, NAHU is concerned that this measure may still result 
in the creation of multiple state-level bricks-and-mortar institutions. 
This approach has proven costly in Massachusetts and is duplicative of 
existing private-market functions.
    It is important to keep in mind that a Gateway would not truly pool 
the risk of all participants. The structure of a Gateway would be more 
as an aggregator of plans. In this type of arrangement where multiple 
plans from different insurers compete, there is no common pooling among 
plans. For example, a pool with 5,000 participants that has 500 
enrollees in each of 10 different plans does not get a discount for 
having 5,000 participants. Even before the Massachusetts model, group 
purchasing arrangements like this were tried by many States, and few 
survived due to anti-selection issues among participating carriers, and 
the fact that they were unable to offer a less expensive product 
through the grouped arrangement. That's why pools have historically not 
been very successful in lowering cost, although they may provide 
choices for individual employees in small-group plans. Of course the 
cost of this choice has been more limited options than were available 
outside of the purchasing arrangement, resulting in most of these 
programs only being able to offer HMO coverage. The most successful 
State purchasing cooperative was operational in California for 13 
years, and the costs for small businesses always exceeded what was 
available in the traditional private market. This pool, the Health 
Insurance Plan of California (HIPC), closed its doors on December 31, 
2006, because it was not financially viable.
    With these facts in mind, we are concerned about any expectations 
some may have that a Gateway is going to lower cost, and even more 
important, to be sure it is not structured in such a way that it might 
increase cost. For this reason, we have grave concerns about attempting 
to create a single pool of risk within the Gateways for individual and 
group purchasers. Our experience in States that permit self-employed 
individuals to be a part of their small employer market is that small 
group rates are higher in those markets. This seems an unfair burden on 
small employers and we hope that if both individuals and small groups 
are permitted to participate in Gateways it will continue to be 
permissible to pool them separately.
    We feel strongly that Gateway subsidies and other requirements 
should mirror State laws outside the Gateways, otherwise adverse 
selection will be rampant. National experience with purchasing pools of 
all kinds shows that pools that operate at the State level that also 
fairly compete with plans outside the pool are the least disruptive to 
the market.


    The legislation allows States to enter into contracts with 
``navigators'' and provides them with Federal support to do so. Health 
coverage navigators could be private and public entities that could 
assist employers, workers, and self-employed individuals seeking to 
obtain quality and affordable coverage through Gateways. Entities 
eligible to become navigators could include trade, industry and 
professional organizations, unions and chambers of commerce, small 
business development centers, and others. The navigators will conduct 
public education activities, distribute information about enrollment 
and premium credits, and provide enrollment assistance. Health insurers 
or parties that receive financial support from insurers to assist with 
enrollment are ineligible to serve as navigators.
    NAHU is troubled by a number of aspects of these recommendations. 
Many of the roles described for navigators are already performed by 
licensed agents and brokers in every State. We know that the services 
of agents and brokers will be needed more than ever in a Gateway, and 
that they will continue to be needed to serve as counselors and 
advocates for the American consumer. Since agents and brokers are 
clearly an integral part of the health insurance market regardless of 
the setting, and are already performing these services as a normal 
course of business, we question the wisdom of spending precious 
financial resources on a new system such as the navigators described in 
the bill.
    Licensed specialists design benefit plans, explain coordination 
issues of public and private benefits to individuals/employees, and 
solve problems that may occur once coverage is in place. They are also 
at the forefront of helping to design and implement cutting-edge health 
promotion and wellness programs for employers--a focus that everyone 
agrees is key to combating increasing health care costs.
    Agents and brokers are subject to rigorous licensing and continuing 
education requirements and serve a proud and important role as 
advocates for their clients. They perform extensive needs analyses for 
their clients, and help them gain coverage matched to their unique 
needs. After coverage is placed, they provide extensive assistance to 
ensure that claims are paid on a timely basis, that questions are 
answered, and that their clients' specific needs are met.
    NAHU is unclear on the purpose of health insurance navigators will 
serve and feels that their functionality is duplicative of some of the 
role licensed agents and brokers already serve in the marketplace. And 
many services provided by agents and brokers would never be able to be 
assumed by a navigator because they lack the expertise to perform those 
functions. If a State feels the need to establish navigators as part of 
its Gateway, then NAHU feels that such navigators should be subject to 
the same rigorous licensing and continuing education requirements that 
licensed agents and brokers are required to abide by. In addition, NAHU 
feels that navigators, if used, should be limited to entities with 
prior experience in this area such as the SHIPs that provide seniors 
with assistance relative to the Medicare program.

                        MEDICAL ADVISORY COUNCIL

    The measure provides for the creation of a Medical Advisory Council 
by the Secretary of HHS, in consultation with NIH, CDC and others for 
the purpose of making recommendations on: (1) the schedule of items and 
services that constitute the essential health care benefits eligible 
for credits including the amount, duration, and scope of such items and 
services; (2) the coverage that should be considered minimum qualifying 
coverage and (3) the conditions under which coverage shall be 
considered affordable and available coverage for individuals and 
families at different income levels.
    Although we are supportive of new research that could be done to 
gather more information about best practices and better information on 
the efficacy of different treatments, NAHU has concerns about a 
creation of a new government-run entity tasked with making coverage 
determinations for the American people. In addition, we are unsure that 
this is an appropriate role for the NIH and CDC, as they have no 
expertise in the area of private insurance.
    Concerning the standard for minimum creditable coverage, we believe 
the goal should be one of ensuring that basic appropriate services are 
available. The standard should merely list those services, rather than 
the quantity of those services to preserve plan, employer and 
individual consumer flexibility. Just as an example, the standard 
should require inpatient and outpatient hospital services, physician 
services, lab and x-ray, and prescription drugs. The quickest 
implementation standard would be to use an existing definition, like 
the definition for HIPAA creditable coverage. Using this standard would 
ensure comprehensive coverage and would allow States to be of immediate 
assistance in helping with enforcement because this is a standard that 
is already embedded in law for all States.

                       GOVERNMENT-RUN PUBLIC PLAN

    The legislation leaves the structure of a public plan option to be 
determined. The initial draft of the legislation included a public plan 
option to be known as Affordable Access to be sold through the Gateway. 
If a provider accepts Medicare it must accept as payment in full the 
amount of the payment from an Affordable Access plan and the Affordable 
Access plans will pay Medicare rates plus 10 percent. The measure 
specifies that Affordable Access premiums must be an amount that will 
cover the costs of the plan.
    NAHU strongly opposes the creation of government-run plans to 
compete with the private insurance market. A government-run public plan 
could never compete fairly with the private market, nor would it be 
financially feasible in the long-run. The legislation, as proposed, 
would likely displace tens of millions of happily insured Americans 
from the conventional marketplace and exacerbate the worst elements of 
the current system: gross inefficiency, high costs and bureaucracy. 
NAHU believes that a far better use of Federal efforts and monies would 
be helping lower income Americans afford the cost of private coverage.

                          INDIVIDUAL SUBSIDIES

    The legislation creates a complicated system of sliding scale 
subsides for people purchasing coverage through the Gateway with 
incomes between 100-500 percent of the Federal poverty level (FPL).
    NAHU has serious concerns about limiting the use of the credit to 
products purchased through the Gateway. The credit should apply 
regardless of the place of purchase; otherwise the result will be an 
unlevel playing field of some kind. If subsidies are available only 
inside the Gateway, ``crowd out'' from existing private plan coverage 
will be dramatic and could destabilize the market. Subsidies only 
available in the Gateway can also result in higher-than-expected costs 
for those in the Gateway and an apparent larger number of uninsured 
than actually exist.
    Past market-reform experience clearly shows that whenever an 
unlevel playing field is created through a financial incentive or other 
means, one of the coverage options is always selected against, which 
ultimately harms the viability of all coverage options in the market. 
By allowing for an unlevel playing field between the Gateway and the 
rest of the private market, we are concerned that these options set the 
stage for long-term market failure.
    NAHU also objects to subsidies for families earning up to 500 
percent of the Federal Poverty Line (FPL), which for a family of four 
would be $110,000. We believe that this is far too great of an 
expansion of government assistance, particularly considering the 
current state of the Federal budget deficit. Similarly we also have 
concerns about the provisions that also would expand Medicaid to 150 
percent of the FPL when the current Medicaid program is financially 
unsustainable, particularly for the individual States. NAHU believes 
that any expansion of this program should be limited to the truly 
needy--no more than 100 percent of the FPL. Furthermore, to prevent 
reducing the crowd out of the private market that could occur with a 
Medicaid expansion, NAHU supports mandatory premium assistance when 
private coverage is available.

                           INDIVIDUAL MANDATE

    The legislation creates an individual mandate for coverage with a 
Federal income tax penalty on any individual who does not have in 
effect qualifying coverage for any month during the year. Health plans 
must provide a return to individuals as documentation of coverage.
    Exemptions will also be made for individuals for whom affordable 
health care coverage is not available or for those for whom purchasing 
coverage creates an exceptional financial hardship. The Secretary of 
the Treasury in consultation with DHHS will determine the minimum 
penalty needed to accomplish the goal of substantially increasing 
coverage. The mandate is not applicable in States where Gateways are 
not yet operating.
    NAHU supports the concept of individual responsibility in health 
coverage reform and believes that, in order to achieve universal 
coverage and ensure that market reforms are successful, an enforceable 
and effective individual mandate to obtain health insurance coverage is 
    Concerning the consequences of non-coverage, NAHU believes these 
penalties may not be sufficient to ensure adequate compliance. An 
individual mandate needs to be both effective and enforceable to make 
other market-reform ideas work. To improve this mandate's chance of 
success, we believe the Federal reporting by individuals and insurers 
should be accompanied by measures at the State level, including 
enforcement through schools and drivers' license bureaus, late 
enrollment penalties, and auto-enrollment and requirement of proof of 
coverage through employers.

                            EMPLOYER MANDATE

    The measure establishes definitions for an employer mandate or some 
other form of shared employer responsibility but leaves the policy 
details of this section to be determined. There is an exemption for 
employers in Hawaii.
    NAHU believes that the employer-based system must be at the core of 
any health reform effort. However, we believe that the provision of 
benefits must be a voluntary action on the part of the employer. We are 
opposed to an employer mandate as it would impact job availability, 
suppress wages and could result in some employers actually contributing 
a lower percentage of the premium for their employees' coverage than 
they had in the past.

                               HEALTH IT

    NAHU supports the measures efforts to extend health IT financial 
incentives to a broader range of providers as we feel that increased 
utilization of health IT will help reduce health care expenses and lead 
to higher-quality care for American consumers by reducing errors and 
improving patient satisfaction. In addition, we support the 
specification that interoperable technology be used, so that all record 
systems and providers are able to communicate with one another and 
individual health records are always up to date and complete.


    The bill creates a new national insurance program to help adults 
who have or develop functional impairments to remain independent, 
employed and stay a part of their communities. Financed through 
voluntary payroll deductions (with opt-out enrollment similar to 
Medicare Part B), this program will provide a cash benefit to 
individuals unable to perform two or more functional activities of 
daily living.
    To promote the purchase of private long-term care insurance, the 
bill allows LTC insurance premiums to be included in section 125 plans.
    NAHU believes the cost of providing long-term care to our aging 
population is one of the greatest burdens on our national medical 
safety-net. But rather than the creation of a large-scale government 
program, NAHU would prefer to see Congress enact some simple reforms 
and tax incentives to make it easier for people to purchase private 
long-term care insurance and ease the strain of providing long-term 
care coverage on the Medicaid system. In addition to the inclusion of 
LTC insurance premiums in section 125 plans, NAHU also believes that 
Congress should allow a tax deduction from gross income for long-term 
care insurance premiums and include long-term care insurance in 
flexible spending arrangements.
    We appreciate the opportunity to provide comments and look forward 
to any questions you may have.
    For questions following the hearing, please contact me at (703) 
276-3800, jtrautwein@nahu.org, or contact Jessica Waltman, Senior Vice 
President of Government Affairs, jwaltman@nahu.org, (703) 276-3817.

    Senator Dodd. Thank you very much, Janet.
    Ms. Praeger.

                           TOPEKA, KS

    Ms. Praeger. Thank you, Senator Dodd, Senator Enzi, and 
members of the committee.
    I am Sandy Praeger. I'm the Insurance Commissioner in 
Kansas, and I also Chair the National Association of Insurance 
Commissioners Health Insurance and Managed Care Committee.
    I really thank you for the opportunity to participate in 
the roundtable and to present the views of State insurance 
regulators who will be responsible for implementing much of the 
legislation that's before the committee, and I just want to 
tell you I believe we are up to the task.
    I want to applaud the committee for its recognition in the 
bill that health reform will be a State and Federal partnership 
and thank you, too, for preserving the State oversight of the 
health insurance industry.
    State regulators are closer to the consumers that they are 
protecting and have over a 135 years of experience regulating 
insurance products in the United States.
    We appreciate that most of the reforms contained in the 
bill will be implemented at the State level and we're pleased 
to see that the gateways envisioned through which millions of 
Americans would purchase their coverage will also be based at 
the State level.
    We also applaud the committee for enacting some long 
overdue reforms in the individual market to ensure that health 
insurance coverage is available to all Americans, reforms that 
are not possible without including a strong enforceable 
individual responsibility requirement.
    Now while there are many good pieces to the bill, I want to 
take--and I do believe it does take a very important step in 
realizing the committee's goal of expanding coverage, reducing 
costs, improving quality and protecting consumers, we've 
identified a few areas where we do believe some technical 
improvements can be made to avoid adverse selection issues and 
to smooth the implementation of the reforms.
    First, we would recommend that the implementation timeframe 
of the bill be extended to allow States 4 years from the date 
on which the final regulations are published in the Federal 
Register rather than from the date of enactment, as the bill is 
currently drafted, and I think that 4-year timeframe is 
critical and the States need to know what the rules are before 
they can really begin the implementation process.
    We would also suggest that the committee think carefully 
about how the insurance marketplace outside of the gateways 
will interact with the markets within the gateways and ensure 
that there is no room for the two markets to be played off one 
another, so there is uniformity and level a playing field.
    And finally, we'd recommend that the States be closely 
involved in the drafting of the rules that will apply to 
coverage sold through the gateway for marketing and network 
adequacy and would recommend a model similar to the regulation 
of Medicare Supplemental Insurance, one that the former 
Commissioner in Kansas Kathleen Sebelius, she's that other 
person with the white hair. She's quite familiar, quite 
familiar with the way the States have worked over the years and 
are still working to develop the Medicare Supplemental 
    I would just remind the members of the committee, too, that 
we've expressed concerns over the last several years about the 
Medicare Advantage products that are sold through Medicare 
where we don't have oversight and regulatory authority and we 
have identified marketing abuses.
    Again, I want to thank you for the opportunity to join in 
this conversation this afternoon and for the seriousness with 
which you have approached this historic opportunity to improve 
the health of our Nation.
    I look forward to the discussion and we look forward to 
working with the committee in enacting comprehensive reforms 
this year.
    Senator Dodd. Thank you very much, Ms. Praeger.
    Dr. Gottlieb.


    Dr. Gottlieb. Thank you for the opportunity to be here 
    The American healthcare system is capable of delivering 
unparalleled care. Our medical product sector is the world's 
source of innovation, but as you noted, for too many people 
these opportunities are inaccessible.
    When I worked at the Centers for Medicare and Medicaid 
Services, I spent my weeks at the agency here in Washington and 
my weekends back home practicing medicine in an acute setting 
of a busy urban hospital.
    I can tell you firsthand that our perception of the 
problems inside the Humphrey Building often didn't comport with 
what was really taking place on the wards and as you'd expect 
neither did our policy prescriptions for fixing what was wrong.
    For example, you look at data on all the variation that 
exists in the way doctors in different geographies approach 
similar problems and it's easy to conclude that supply must be 
creating its own demand. More cardiologists must mean more 
catheterizations. The solution seems obvious. We need to 
closely regulate pay to shift money between providers. We need 
to limit the number of specialists we train. We need to 
restrict certain services at point of demographics while based 
on comparative data we develop a new agency or guidelines we 
write on another one.
    I would suggest that the data isn't so clear and it shows 
that we can identify the variations but we don't really 
understand its causes nearly as well as we think we do.
    There are complex factors that go into local medical 
conventions. There are misaligned incentives driving medical 
behavior that have corroded over many years of shortsighted 
payment rules. Problems exist precisely because of fixed rules 
and pay schemes hashed here in Washington, not in spite of 
    As the largest purchaser of healthcare services, Medicare 
shapes the entire market by its pricing schemes. It's not the 
medical decisionmaking that's flawed but the incentives driving 
those judgments, incentives detached from the outcomes we want 
to achieve.
    Or take for example the refrain around the need for more 
comparative data. There is no question many important clinical 
questions remain unanswered but the reasons are often complex. 
A lot of uncertainty about the relative benefits of two 
treatments remains in doubt because answering those questions 
is very hard. It takes very long and large clinical trials to 
discern small differences between active treatments, yet we are 
proposing to do shorter, cheaper studies based on backward-
looking databases rather than forward-looking trials to probe 
these questions.
    We should pay for rigorous trials out of public funds but 
we shouldn't cheat ourselves to believe that simple and cheap 
studies can resolve questions that persist despite close 
attention. Proponents of comparative effectiveness research 
almost all point to the treatment of back pain or early 
prostate cancer as two areas in need of more research.
    On PubMed there are literally thousands of studies 
addressing these topics. Questions persist because none of the 
studies are large enough and long enough to provide definitive 
answers that address all the variations in patient conditions.
    Managing disease isn't a commodity service amenable to 
designs and workforce rules hatched here in Washington. This 
isn't like building cars. The current proposals for fixing 
healthcare rely on a lot of the usual patches. They increase 
political rather than individual controlled medicine through a 
collection of new commissions, boards and agencies.
    The plan before this committee shifts to the government and 
probably Medicare where more of the clinical decisions are 
properly left to people and their doctors.
    Thank you.
    [The prepared statement of Dr. Gottlieb follows:]

             Prepared Statement of Scott Gottlieb, M.D.\1\

    Mr. Chairman, Mr. Ranking Member, thank you for the opportunity to 
share my testimony with the committee. The American healthcare system 
is capable of delivering unparalleled care. Our medical products sector 
is the world's source of innovation.
    \1\ The views expressed in this testimony are those of the author 
alone and do not necessarily represent those of the American Enterprise 
    But for too many people, these opportunities are inaccessible. The 
same system capable of delivering innovative, intensive services 
sometimes fails to provide for the most routine care. High technology 
medical products that extend lives are leaving some families bankrupt.
    There is no single cause for these shortcomings, and no 
straightforward solutions. But as we embark on an effort to take the 
best attributes of our system and make these benefits more accessible 
and affordable to people closed out of these opportunities, we need to 
be mindful not to embrace solutions whose abiding quality isn't that 
they are optimal, but just undemanding.
    When I worked at the Centers for Medicare and Medicaid Services 
(CMS), I spent my weeks at the agency here in Washington, and my 
weekends back home, practicing in the acute setting of a busy, urban 
hospital. I can tell you first hand, our perception of problems from 
inside the Humphrey Building often didn't comport with what was really 
taking place on the wards. As you'd expect, neither did our policy 
prescriptions for ``fixing'' what was wrong.
    For example, look at data on all of the variation that exists in 
the way doctors in different geographies approach similar problems and 
it's easy to conclude that supply must be creating its own demand. More 
cardiologists mean more catheterizations. The solution seems obvious. 
We need to more closely regulate pay to shift money between providers. 
We need to limit the number of specialists we train. We need to 
restrict certain services according to demographics, or based on 
``comparative'' data we develop in a new agency, or guidelines we write 
up in another one.
    I would suggest the data also shows that we can identify the 
variation, but we don't understand its causes nearly as well as we 
think we do.
    There are complex factors that go into local medical conventions. 
There are misaligned incentives driving medical behavior that have 
corroded over many years of short-sighted payments rules. There are, as 
well, equal quantities of research that suggests that much of the 
geographic variation in health spending can be explained by differences 
in peoples' characteristics.
    Our problems exist precisely because of fixed rules and pay schemes 
hatched here in Washington, not in spite of them. As the largest 
purchaser of healthcare services, Medicare shapes the entire market by 
its pricing schemes. It's not the medical decisionmaking that is 
flawed. It's the incentives driving those judgments, incentives 
detached from the outcomes we want to achieve.
    Moreover, every hospital can't be a Mayo Clinic or Geisinger Health 
System. There are plenty of poorly performing hospitals, for example, 
which hobble along with the crutch of their not-for-profit status. I 
doubt that is going away. Paying for episodes of care rather than 
procedures--as many private insurers are increasingly doing--would 
better align incentives. But here again, politics has been the enemy of 
the optimal. I doubt Congress is willing to ``capitate'' doctors. Or 
exclude poor performing physicians from participation in Medicare. Or 
turn over care to private plans better able to implement payment 
reforms, as well as manage local delivery of care.
    Another idea for fixing Medicare is risk-adjusted or capitated 
payments that can adjust with quality, so people or Medicare would pay 
more for better overall quality. Right now, you can be certain that 
setting more payment and practice rules here in Congress, or at a new 
Federal Health Board, will shift the volumes but won't change the 
    Or take, for example, the refrain around the need for more 
comparative data. There is no question many important clinical 
questions remain unanswered. But the reasons are often complex. A lot 
of uncertainty about the relative benefits of two treatments remain in 
doubt because answering these questions is very hard. It takes long and 
large trials to discern small differences between two active 
treatments. Yet we are proposing to do shorter, cheaper studies based 
on backward looking databases rather than forward-looking trials to 
probe these questions.
    The knowledge we glean from looking back through databases of 
patient information adds context to these clinical questions. But it 
won't definitively answer them.
    If it were so easy to resolve these issues, simply by sifting 
through existing information, you'd think insurers or academic 
researchers would gather the $2 million it takes to do a really good 
database study. In many cases, definitive answers won't even come from 
a single study.
    We should pay for these rigorous studies out of public funds. But 
we shouldn't delude ourselves to believe that simple and cheap studies 
can resolve questions that persist despite close attention. Proponents 
of comparative research almost all point to the treatment of back pain 
or early prostate cancer as two areas in need of more research. On 
PubMed there are literally thousands of studies addressing these 
topics. Questions persist because none of the studies are large enough 
and long enough to provide definitive answers that address all the 
variation in patients' conditions.
    Getting those answers is going to be harder than sifting through 
payer claims. Simply placing the government's imprint on a finding 
won't close off scientific debate either. The underlying evidence needs 
to be rigorous. If we're going to set binding rules in Washington based 
on the results, we need to do these things with precision.
    This means we need to invest in a better infrastructure for doing 
more rigorous research, modeled perhaps after the success of the 
National Cancer Institute's (NCI) cancer cooperative groups. We need to 
make it less expensive, and easier to do these more rigorous 
investigations. But getting real answers that endure scrutiny isn't 
going to be nearly as easy as our policy proposals envision.
    Finally, take the catch phrases around ``access to affordable 
insurance.'' If you read the Washington Post, you'd think that 
insurance is synonymous with good healthcare. That is hardly true. But 
insurance has become the end in itself, paying no heed along the way to 
serious problems with our current programs.
    Medicaid recipients technically have insurance. But in some parts 
of this country, they might as well be uninsured when it comes to their 
ability to access specialized services or expensive procedures. Some of 
the most vulnerable Americans are confined to an insurance product that 
is healthcare in name only.
    Payment rates are so low, and regulations so burdensome, many 
doctors opt out of Medicaid entirely. More are also declining Medicare. 
As we supplant Federal for State regulation of health insurance, or 
create a new ``public'' plan modeled off Medicare, the best doctors may 
leave the system entirely, especially in urban markets that will 
support cash-only practice.
    Our efforts to fashion a more egalitarian system are creating more 
tiers of care based on income.
    In Medicaid, as in all these challenges, it seems our solutions 
always involve more rules. We call for more regulation of medical 
practice and more payment changes. When I was at Medicare, we compared 
this policy behavior to the carnival game ``whack-a-mole.'' As soon as 
we spotted a problem, we passed a rule to fix it, only to find that our 
solution wasn't the repair we expected. We had only caused a new 
problem to pop up somewhere else.
    Managing disease isn't a commodity service amenable to designs and 
workforce rules hatched here in Washington. This isn't like building 
cars. We shouldn't mislead ourselves to thinking we can understand all 
the reasons treatments often deviate from guidelines or to set 
treatment plans here in Washington to smooth out these variations. 
Agencies like Medicare can't even keep up with the guidelines as 
technology and science changes. By the time CMS issues a coverage or 
coding change, sometimes the standard of care has already changed.
    The current proposals for ``fixing'' healthcare rely on a lot of 
the usual patches. They increase political, rather than individual, 
control of the medicine, through a collection of new commissions, 
boards, and agencies. The plan before this committee shifts to the 
government, and probably Medicare, more of the clinical decisions 
previously left to people and their doctors.
    That means my colleagues at CMS, and all 20 of the agency's 
doctors, are going to be calling more of the shots on what patients can 
get access to. That's the rub. More political control, through Federal 
regulation or a public plan that displaces individual decisionmaking, 
doesn't mean better decisions. Medicare made 165 decisions about 
covering, and not covering, certain cancer products since 2000 without 
a single oncologist on its staff. We shouldn't let that kind of a 
process displace individual control over medical decisions by patients 
acting through private insurance.

    Senator Dodd. Thank you very much, Doctor.
    And last, the last witness, and thank you again, Mr. Burd, 
for being with us.

                         PLEASANTON, CA

    Mr. Burd. You are welcome. I, too, appreciate the 
opportunity to share the experience we have at Safeway and also 
maybe share a few ideas.
    I have been a long-time advocate of healthcare reform, 
going back some 15 years, getting everybody in the insured 
system and I feel that we're on the precipice of getting that 
done and I applaud the Senate for addressing that in a 
bipartisan fashion.
    I want to address something that I don't think any of the 
other panelists have yet addressed. I want to talk about 
bending the cost curve because it's important to get everybody 
in but we also need to control these costs and that's where 
Safeway's had a tremendously positive experience.
    About 4 years ago, we realized that about 70 percent of all 
healthcare costs are driven by behaviors and as a business guy 
that was good news because it said if we could influence the 
behavior of our 200,000 employees, we could actually bend that 
cost curve and improve the health of our employees.
    The bottom line is if you don't improve the health of 
Americans, you won't control healthcare costs. We designed a 
healthcare plan that focused on the fact that about 75 percent 
of all healthcare costs are confined to four chronic 
conditions: cardiovascular disease which is about 80 percent 
preventable, cancer which is about 60 percent preventable, 
diabetes, particularly Type II, that's at least 80 percent 
preventable and reversible, and then, finally, conditions of 
overweight and obesity.
    We designed an incentive plan that has a premium difference 
between people that have the healthiest behaviors and those 
that don't have as healthy behaviors. So, there's that large 
dose of personal responsibility.
    There is a little known provision in HIPAA that allows for 
that. There is an overlay that ADA has on top of that to 
further constrain you, but one of the things that I would 
suggest to the Senate here is that we create more ability to do 
    We've had a remarkable experience. In the last 4 years, 
we've held our healthcare costs flat and we didn't do that by 
terminating 20 percent of our workers. That is the per capital 
healthcare cost is flat and for the healthiest employees in our 
organization, their contribution to healthcare is down some 25 
    If the entire country had taken Safeway's plan design in 
2004, by my calculation, since they're up by about 38 percent, 
we would have a healthcare bill in this Nation that's $600 
billion lower than it is today. So, the cost curve can in fact 
be bent.
    The other thing I would focus on is transparency. I think 
everybody here has come to understand that there are vast 
differences in charges for some standard procedures. Within 30 
minutes of our general office in California, there's a tenfold 
difference in the cost of a colonoscopy. Within 10 minutes of 
our offices a fivefold difference in the cost of a blood test.
    The only thing we've done to flat-line our costs is focused 
on plan design and behavior and its role in driving costs and 
the health of Americans. We're cobbling together transparency. 
We could get some help from the Senate on that and you would 
see another dramatic step down.
    If we do healthcare reform correctly, I believe you can 
take 45 percent of the costs out of the system because it's 
terribly inefficient and I believe you can cover all of the 
Americans that are not covered today.
    Senator Dodd. Well, that's very exciting news. 
Congratulations on what you've been able to achieve with your 
    Well, this has been very, very helpful, and again it's a 
large group of witnesses and I'm grateful to all of you for 
sharing your thoughts with us here.
    Let me put the clock on here for 5 minutes and I'll try and 
move through these quickly, if I can, and then turn to my 
colleagues for their comments and thoughts, as well.
    Let me begin, if I can, with Dr. Rosman, of the AMA. They 
made some news today by talking about how the AMA would oppose 
a government-sponsored insurance plan and yet in your testimony 
and the press release that went out, you left the door open, it 
seems to me, a bit, as well.
    As I read it, and again I don't want to put words in your 
mouth or that of the AMA, obviously the position of the AMA is 
important, but you indicated you're open to consideration of 
some new health insurance options that are market-based, not 
run by the government, do not compel physician participation, 
truly competes on a level playing field and that you haven't 
seen some of these.
    There have been several ideas. Our colleague, Senator 
Conrad, has been talking about a cooperative option. Senator 
Jack Reed, who's not here right now, has been talking about 
using state-based health organizations that already have 
experience in this as a possibility.
    There are ideas of contracting out, where the government 
would contract out with, say, a non-profit BlueCross BlueShield 
where there's some experience.
    Give us some ideas, put a little bit more flesh on this, if 
you will, other than just sort of the vague concept here that 
you're willing to support something other than a public option.
    Dr. Rosman. Yes. Thank you, Senator. I think that you 
stated it very accurately, that we are very committed to 
getting everybody affordable coverage. Our position is that we 
think this can be done with market reforms in the private 
insurance market, but we're very interested in some of these 
alternatives that have been put out there. As you mentioned, 
Senator Conrad's co-ops.
    I think that we really need to see more details of those 
plans before we can comment specifically, but we are certainly 
interested in those as options for covering everybody.
    Senator Dodd. Options for what? Options for what are we 
talking about? What do you see as the value in having an 
alternative idea? What is the point?
    Dr. Rosman. Well, again, I think we need to see more 
details before we can comment on the specifics. We believe that 
everybody can be covered by--in a private insurance market with 
tax subsidies or tax credits to allow people who cannot afford 
coverage to purchase into that private insurance market, choose 
the plan that works best for themselves and their families.
    We believe that with that, we can give everybody access to 
affordable coverage and not only coverage but, most 
importantly, access to the care that they need.
    Senator Dodd. What I wanted to get at here is do you see 
any value in an alternative idea--using your definitional 
terms--that alternative idea to be a cost bender? There is cost 
obviously in bending that curve. There is a tremendous 
interest, overwhelming interest obviously.
    As Mr. Burd has pointed out and others, if we don't bend 
the cost down here, and just go through and adding cost to the 
system, then obviously we've achieved nothing. In fact, the 
fears of reaching 30 or 34 percent of GDP become far more real.
    The value in this idea to those of us who are advocating 
something like this is to bend that cost. I'm presuming you're 
seeing a bending cost value to these alternative ideas, as 
    Dr. Rosman. Again, I think we need to see details of the 
    Senator Dodd. I understand.
    Dr. Rosman [continuing]. Before we can comment to that, but 
we are very committed to reducing health costs and excited to 
work on mechanisms through quality measures, and best 
practices, to reduce the gross of health costs.
    Senator Dodd. Let me jump quickly here to, if I can, Dr. 
Gruber, as well, and we thank you for your work in 
Massachusetts and there's been a lot of conversation over the 
last number of days about Massachusetts as we're meeting among 
    There is a pay or play provision in the Massachusetts 
healthcare plan, is that correct?
    Mr. Gruber. A very modest one.
    Senator Dodd. Well, tell me how it's working and how modest 
is it and what's the effect of this in terms of employers that 
are participating or non-participating and the like?
    Mr. Gruber. Sure. We have a pay or play requirement which 
says that employers with more than 10 employees who do not 
offer health insurance have to pay $300 per employee per year. 
It's a very modest pay or play requirement. We've not collected 
much revenue from it and, quite frankly, we don't think it's 
having a very big influence on the market.
    We think the main reason that employer-sponsored insurance 
is up in Massachusetts is not the pay or play component but the 
individual mandate which has led individuals to go to their 
employers and ask for insurance coverage so they can meet that 
legal requirement.
    Senator Dodd. So what is the number? How did you come up 
with $300? Where did that number come from?
    Mr. Gruber. That was basically a compromise. Initially, 
there was desire to have a higher level among some, none among 
others, and it was viewed as a compromise to where it was a 
real employer contribution. It was substantive but not viewed 
as too onerous by the business community.
    Senator Dodd. Mr. Dennis, of the NFIB, I wonder if you 
might comment. One of the suggestions here that's being talked 
about is to provide tax credits for smaller businesses. There 
has been constant complaints here from all of our constituents 
for providing some tax relief for them obviously if they're 
going to take on these additional costs in an environment like 
this and yet there be a requirement, I suppose, if you're going 
to get these tax advantages, that you also then provide some 
basic healthcare for these employees.
    What's your reaction to that?
    Mr. Dennis. Well, it seems to me that if you're going to 
do--why would you give tax incentives if--excuse me. Let me 
reverse that.
    Why would you require somebody to do something if you're 
going to turn around and give them tax incentives to pay for 
the same thing? In other words, it's like putting it in one 
pocket and pulling it out of the other pocket. That doesn't 
seem to make a lot of sense.
    One of the things you're trying to do with the taxes that I 
have seen is that you're focusing those tax provisions you do 
have on certain employers which employ lower-wage employees and 
they're the ones that tend not to provide insurance.
    One of the things to remember is that the small employers 
who don't provide insurance also tend to be those employers who 
don't take very much out of their businesses and their 
flexibility is severely limited. In fact, there's a direct 
relationship between what an employer takes out of his 
business, smaller businesses now, what they take out of their 
business, the wages they pay--whether or not they have a 
pension plan and whether or not they provide insurance.
    When you're targeting those tax subsidies on folks who tend 
not to pay very much, you certainly have the right target.
    Senator Dodd. All right. My time has expired.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman, and I want to thank 
everybody that testified.
    This is a huge panel. What you may not know is that you 
volunteered to answer questions that Senators may submit, as 
well, and hopefully you will do that in a timely manner so that 
we can use your information as we go through the legislation 
and we're on a fast track to get the legislation done, too, and 
that was the message Senator Coburn asked me as he left.
    Senator Dodd. Can I make a suggestion in that regard, too, 
by the way?
    All of you have made some various suggestions and some 
technical ideas and it's awfully hard just listening to this, 
in addition to your testimony, if you've got some of those 
ideas, you could submit them to the committee as quickly as you 
could. It would be very helpful to us in these coming days to 
have those ideas in front of us.
    I apologize.
    Senator Enzi. That's fine. Mr. Burd, I wanted you to go 
into a little bit more how--I know that there's a proximity of 
different prices in the market that your employees can tap.
    Can you tell me a little bit more how that transparency of 
prices helps out?
    Mr. Burd. The transparency component is something that 
we're just building now, but let me tell you how we framed it.
    In the local Bay Area of San Francisco, there's this--you 
can get a colonoscopy for $700 and one for $7,000, and so we 
did some research with the help of our claims processor to 
determine what was the right set of quality and costs that 
would be a reasonable cost and there was a time when we paid 80 
percent of the costs for colonoscopy. We stepped that up to a 
100 but we were paying a 100 even for the $7,000 colonoscopy.
    We now believe that a $1,500 colonoscopy in that market is 
the appropriate number and so we pay 100 percent because we 
think it's preventative to have that colonoscopy done and if 
someone wants the $7,000, the other $5,500 is essentially on 
    We're using our own claims data to cobble together a 
transparency system. Our employees will go on our Web site, 
they'll put in their zip code, a 30-mile radius will be drawn, 
and they'll be told what it costs for the procedure that 
they're looking at in each of those items.
    Senator Enzi. Thank you. I know that's just one small idea, 
one big idea from a number of them, and I appreciate the time 
that you've taken on the Hill to help educate us all on 
possibilities for really bending that cost curve because that's 
one of the things we're wrestling with in the bill.
    Mr. Johnson, could you tell me what impact the employer 
mandate would have with your members and their ability to 
create jobs, particularly at this time in the market?
    Mr. Johnson. Well, of course, we are dealing with a bit of 
an unknown since it's not spelled out in the bill, but when you 
have a mandate on employers and it costs X amount of money, 
that X amount of money is not just going to be created. It's 
going to come out of some other pocket of the employer, whether 
it's profit margins or operating expenses or money he set aside 
to expand.
    Studies, ranging from CBO to the RAND Corporation have said 
that this will result in some job loss, particularly impacting 
lower-income workers, because the money has to come from 
somewhere. There is not a free ride here.
    It's tough to extrapolate exactly what the effect would be 
on it, but when the RAND study is talking in terms of $9 to $12 
billion, $9 to $17 billion for premium contributions and 
penalty payments and, of course, there's the play part and then 
there's the pay part and I'll call it a civil fine which is 
what I think it would be. For penalty payments ranging from $4 
to $12 billion, that's going to have an impact and it's not a 
new concept, that when the Congress imposes a mandate in one 
area, that's going to be paid for from another area.
    Senator Enzi. Thank you. Dr. Baicker, I'm hearing some 
concern that if we do a government-run health plan, we'll wind 
up with something like Fannie Mae or Freddie Mac.
    Are those concerns that a government-run health plan could 
have with the private market?
    Ms. Baicker. I think there are a number of concerns one 
might have with the public plan. Clearly the devil is in the 
details in terms of whether it would provide real competition 
for private plans or inhibit competition with private plans 
because it had either unfair advantages or unfair 
    I think the key things that I would look at to figuring 
that out are the pricing that the public option can use. Is it 
negotiating based on additional clout beyond which private 
plans wouldn't be able to compete or is it required to take on 
sicker enrollees and subject to worst risk selection and those 
issues show up as well in the Medicare Advantage Plans which 
maybe provide a model of what you might expect from a public-
private hybrid.
    I would look to that to see, first of all, the potential 
success of risk adjustment. We do have a risk-adjustment 
element in the Medicare Advantage Plans that I think is really 
promising for thinking about risk adjustment among private 
insurers, if we look out at a reform that lets people go to a 
variety of different insurers but also then the risk of 
administered pricing where the variation that we see in the 
cost of care for Medicare beneficiaries in high-cost parts of 
the country relative to low-cost parts of the country can be a 
factor of two or three times as much for care that doesn't seem 
to go to patients that start out sicker or end up healthier.
    It's very hard to explain that level of variation in care 
through any story about efficiency. It looks more like extra 
money is going into parts of the country that practice a more 
intensive style of medicine in a way that the government 
regulation is not inhibiting.
    That makes me very nervous about a monolithic public plan.
    Senator Enzi. Thank you. My time has expired. I have 
questions for everybody and I'll get those out.
    Senator Dodd. Thank you very much, Senator Enzi.
    Senator Harkin.

                      Statement of Senator Harkin

    Senator Harkin. Thank you, Mr. Chairman.
    Again, it comes as no surprise for anyone here that I have 
a great deal of admiration for Mr. Burd and what he's done at 
Safeway because I think the only way we're ever going to bend 
this cost curve is keeping people healthier in the first place. 
I don't mean to get on my soapbox but--as long as we continue 
to dance around this issue--but unless and until we put more 
emphasis on prevention and wellness, we're just pouring money--
we're just throwing it out there and we'll never get our costs 
under control.
    Mr. Burd is right. That's the only way to bend our cost 
curve and we've got to put more on prevention and wellness and 
we just haven't done this in the past. None of us, none of us 
have done it.
    It seems to me in this health care reform that that really 
ought to be a central part. That's what we ought to be focused 
on. How do we incentivize healthy behavior? All the incentives 
now in our health care system is to patch and fix and mend. 
It's pills, surgery, hospitalization, disability. Why don't we 
put more incentives up front? We know how to do it. Safeway did 
it. They know how to incentivize this. Pitney-Bowes did it. 
They know how to do it and there are other smaller companies 
out there that have done this and yet we keep wrestling with 
all this when the focus ought to be, I think, on how we keep 
people healthy in the first place and provide those incentives 
out there and move those incentives up front.
    Dean Ornish has this famous cartoon he uses all the time. 
There is a sink and it's overflowing. The faucets are on. The 
water's going on the floor and there's two guys furiously 
mopping up the floor. His point is, that we got to shut the 
faucets off and we haven't been very good at doing that but we 
know, we've got good data on this.
    In the next panel, we have the Trust for America's Health 
coming on and they have done some really good work on that, but 
a lot of our private businesses have done this, and I'll just 
throw that out there that we've got to pay more attention to 
    Mr. Williams, you and I have talked about this in the past 
from Aetna. You're an insurance company. What do you think 
about this? Should we put more into prevention and wellness or 
should we just keep jacking up insurance rates?
    Mr. Williams. Taken in the spirit in which it's offered, 
    I think that there is a fundamentally important opportunity 
to focus on wellness and prevention. We do it with our own 
employees. Every Aetna employee can earn $1,200 of credits for 
participating, voluntarily, in wellness programs where they 
know their numbers in terms of blood pressure, their statins 
levels, cholesterol, and their BMI, and participating in 
fitness and wellness programs. There is an opportunity to earn 
$1,200, $600 for the employee and $600 for the spouse, and what 
we saw last year was our medical costs go up 3 percent. No 
benefit changes, strictly based on the engagement of the 
employees in their own wellness and fitness.
    Ihave heard Steve Burd many times, and I agree 100 percent, 
that there's a huge opportunity to focus on prevention, focus 
on wellness. Now that's not the whole problem and there's much 
more we have to do. We have to get everybody covered. We have 
to make it affordable for people. We have to make certain 
people have good solid coverage, not just coverage.
    Senator Harkin. Yes.
    Mr. Williams. I do believe wellness is absolutely important 
and prevention is absolutely important and the individual 
really has to get in the game and within the appropriate level 
of their participation be able to help participate.
    Senator Harkin. The problem is we can address this on a 
clinical basis, but if we don't address it outside the clinic, 
it doesn't do much good. If people don't have access to better 
foods, to better exercise, having more of a knowledge base on 
how to stay healthy, you can do all the clinical work, but if 
our communities are unhealthy and our schools are unhealthy and 
our workplaces are unhealthy, it doesn't do much good to have 
it clinically-based.
    That's why I keep saying that prevention and wellness must 
be clinically-based, community-based, school-based, workplace-
    Mr. Williams. It has to be a holistic program, Senator, as 
you're describing. Of our 19 million members, we have 2.2 
million members who are identified as in chronic disease 
management programs where they have diabetes, hypertension, 
asthma, allergies, but the object is to avoid the creation of 
the next 2.2 million which is exactly through the mechanisms 
you're describing.
    Senator Harkin. I'm out of time.
    Dr. Flowers. Do I have time to speak?
    Senator Dodd. Quickly.
    Dr. Flowers. I wanted to make the comment from the 
perspective of a primary care provider on prevention.
    I mean, the reason that having a national health system 
would actually improve our public health is that the incentives 
completely change. Right now, so much of our healthcare is 
driven by profit.
    When you have a national health system, it's actually 
driven by providing better health and we see this in other 
countries around the world that have national systems. They 
know that if they have a healthier population, they spend less 
money on their population's health and since they're 
responsible for paying that money, it makes it more of a 
responsibility for them to save money and so there's a greater 
incentive to create these public policies that you're talking 
about, like improving transportation, improving food, but also 
in this country we have a shortage of primary care doctors and 
a lot of that is because, as I left practice, we're not 
reimbursed easily by the health insurance companies for the 
work that we do.
    We're required to see more patients and spend less time 
with them and spend less time doing, for me, well-child visits 
where I could actually take the time to explain to parents the 
things that they need to know to raise healthy children and so 
we've got to change that so that again if we're fighting for 
reimbursement and having to see more and more patients and 
spend less time with them, we're not going to have a healthy 
    Thank you.
    Senator Dodd. Senator McCain.
    Senator McCain. Senator Hatch.
    Senator Dodd. Fine. All right. I'm just following the 
Kennedy rules here. I apologize.
    Orrin, you've been chair of this committee.
    Senator McCain. Senator Hatch has been very patient.
    Senator Dodd. All right. Fine. Orrin, welcome.
    Senator Hatch. I have to defer to John. It's fine with me.
    Senator Dodd. Speak in there, Orrin. These microphones are 
not very good. So I apologize.

                       Statement of Senator Hatch

    Senator Hatch. Ms. Trautwein, there's been a lot of talk 
recently about creating a level playing field between a 
government-run plan and private plans. First of all, I 
personally think that's impossible because of all the State and 
Federal regulations that are imposed on private plans that a 
government plan would never be subjected to, including paying 
State assessments in all 50 States, for example, along with 
Federal taxes.
    History already teaches us this lesson. In 1965, Medicare 
started as a political compromise where it would pay the same 
rates as the private sector. Faced with rising budgetary 
concerns, Congress soon decided to implement price controls in 
the program and today, as you know, it pays doctors 20 percent 
less and hospitals 30 percent less than the private sector.
    Now, do you think it's possible ever to really truly create 
a level playing field between a government-run plan and the 
private plans?
    Ms. Trautwein. Well, I don't think it's possible, but I'm 
not just saying that for some sort of philosophical 
perspective. This is a reality.
    There are many things that we can do. We could say that 
everyone had to pay the providers the same price. We could have 
a whole list of ways that we tried to make things equal.
    One of the ways that I don't think that it will ever be 
equal is something just as simple as State premium tax. Now, I 
can't imagine a Federal or a State public program paying State 
premium taxes as just one item of those to a State. I can't see 
that happening.
    Maybe Ms. Praeger could comment more on that, but it's a 
significant amount of money and when they don't pay equally, 
what happens is the cost shift increases and we have that much 
more that's shifted over to the private sector and then that is 
an undue--it's completely at odds with these affordability 
goals that we have.
    Senator Hatch. That's just one idea.
    Mr. Williams, what do you have to say about that question?
    Mr. Williams. Yes, I would say that I have tried to avoid a 
philosophical response to the notion of the government plan to 
really wait to see the specific proposals that have come 
forward and based on what I have seen so far, I would be 
opposed to a government plan.
    I think there's a great confusion about profit in the for-
profit sector. The total profits of the publicly traded 
healthcare sector is about $12 billion. The taxes that we pay 
are roughly equal to what we earn in profits. In our case, we 
earn about 6 percent in profit and we pay in State, Federal and 
premium taxes 5 percent, and we believe the value that we add 
in the system more than makes up for the 1 percent difference.
    You have to also look at the fact that only half of the 
members are in plans that are for profit. I think we get 
diverted from the fundamental issue which is how do we get and 
keep individuals and small groups covered and focus on the 
particular barriers to accomplishing that and develop 
meaningful and substantive programs along with prevention and 
wellness, including changing the reimbursement structure so 
that we do pay primary care better and pediatricians better.
    Senator Hatch. Let me ask Randy Johnson and Dr. Baicker 
this next question.
    Our national unemployment rate is almost 10 percent and 
it's rising. It's the highest rate in decades and one of the 
policies being discussed here, of course, is the employer 
mandate, where employers would be charged a penalty if they 
don't provide a defined level of coverage.
    According to a 2007 National Bureau of Economic Research, 
imposing an employer mandate could result in the loss of more 
than 220,000 jobs in this country. In an environment where we 
should be creating jobs, I'm afraid that we're simply creating 
more incentives for employers to actually stop offering jobs 
and move their operations overseas, as some have already done, 
and I'd like your thoughts very briefly on this, both of you.
    Mr. Johnson. Well, I certainly agree with your 
observations, Senator Hatch. I think there is the cost that a 
smaller business or any business would have to bear under this. 
Either the new healthcare mandate or pay the civil penalty, 
which--I have to take some disagreement with others who have 
pretended the Massachusetts miracle is in fact--they had lots 
of other studies that have shown there's problems with 
Massachusetts, including the pay or play mandate and we could 
submit some follow-up studies on that.
    There is another problem, also, Senator, with regard to 
even companies that provide a generous package. One of the 
questions that's come up as we've talked to members of my 
Employees Benefits Committee is with their plan, which is seen 
as generous by their employees, fit the definition of what the 
play part of the mandate would be.
    In other words, they could have X-plus, but that X-plus may 
not fit exactly what--how this medical board under the 
legislation is going to define as the minimum benefits package.
    People think it's easy to define these plans as actuarial 
values, but we've been told it's really not that easy. There is 
the question of cost and can smaller employers bear that, and 
then for our larger employers, will what they do for their 
employees now fit the so-called play part of the pay or play 
    Senator Hatch. Dr. Baicker.
    Ms. Baicker. Thank you. I think there's a real difference 
between employer mandates and individual mandates and the real 
risk of the employer mandate is that employers don't pay for 
health insurance premiums, employees do, either in the form of 
lower wages because, as healthcare costs rise, their wages rise 
more slowly than they would otherwise or even fall, or in the 
form of fewer jobs. If healthcare costs rise so high, then 
employers can no longer afford to offer a job with benefits and 
they either cut down on their workforce or move workers from 
full-time jobs with benefits to part-time jobs without 
    I think employer mandates really are about shifting the 
burden of who's bearing costs among employees and risking low-
wage workers in particular losing their jobs rather than 
getting more employer dollars in the game because I don't think 
employer dollars are in the game to begin with. Those costs are 
borne by workers. That's a real risk of employer mandates, 
particularly for smaller firms that are on the cusp of offering 
insurance already.
    Senator Hatch. Thank you. My time is up, Mr. Chairman.
    Senator Harkin. I'm sorry. I guess I'm now in charge.
    Senator Mikulski. Senator Barb.
    Senator Harkin. Senator Barb.

                     Statement of Senator Mikulski

    Senator Mikulski. Senator Barb is OK. Senator Barb's OK.
    First of all, I want to thank everyone here for 
participating in the roundtable. You did it on a very short 
notice and with very content-rich presentations. I think we 
could engage in substantive conversation with each and every 
one of you.
    My questions, I'm going to start with Mr. Burd, go to Dr. 
Flowers and, if time, to Dr. Rosman.
    Mr. Burd, first of all, as a Marylander, I would like to 
thank Safeway for having the guts to have a presence in cities. 
We've had a terrible time in Baltimore being able to attract 
and retain grocery stores and the only ones who've shown a very 
visible and aggressive presence have been you and Giant.
    I want to thank you for that because in many of our 
communities, we can talk about fruits and vegetables and 
healthy foods and body mass and so on, but if all you have 
available for your food is going to convenience stores to buy 
potato chips or fast food stores to buy fast food, you've got a 
tough job.
    I want to thank you for your presence in two neighborhoods, 
Canton and Charles Village, neighborhoods that were teeter-
tottering. The mere fact that you are there helped turn those 
neighborhoods around.
    Mr. Burd. I appreciate that.
    Senator Mikulski. So you helped do healthy habitat.
    Now, the other thing that I'd like to ask because it's come 
up as we worked on quality which was my job, prevention, along 
with Senator Harkin, is behavior and you identified that 70 
percent of your employees' issues were related to behavior, 
particularly the chronic conditions.
    How did you impact on behavior? Did you use a carrot? Did 
you use a stick? Are you a nanny corporation with school-
marmish admonitions?
    Mr. Burd. Sure. I'd be happy to answer that. The statement 
I gave earlier was across this Nation 70 percent of the 
healthcare costs are driven by behaviors and that really is one 
of the keys to cracking the code here for how to bend the cost 
    Because we're self-insured, which means we pay every 
dollar, there really is no insurance company. The insurance 
company behind us really processes claims. We're free, as are 
all other large companies, people with over a thousand 
employees, to design their own healthcare plans. That's what we 
    We focused on the chronic conditions and the behaviors that 
lead to them and we set up a series of incentives. We 
structured it as a carrot, but I would quickly tell you that 
the carrot is nothing more than the mirror image of a stick and 
vice versa.
    Senator Mikulski. What were they?
    Mr. Burd. We have a program we call Healthy Measures which 
you opt into. Seventy-four percent of our organization has 
opted in and we measure body mass index. We measure smoking. I 
mean, we actually test for it. Cotton swab tests. High blood 
pressure and high cholesterol levels.
    In the Healthy Measure effort this last year, 17 percent of 
our employees discovered that they had hypertension. That was a 
good thing because we could prevent some future event.
    The way our program works, if you are a smoker, you will 
pay more for your insurance. You will pay roughly a little over 
$300 more than a nonsmoker. Then we provide 100 percent of the 
cessation products that you typically buy to wean yourself away 
from smoking and if you quit smoking by the end of the year or 
if your body mass index is reduced by 10 percent or if your 
hypertension is under control or if your cholesterol is under 
control, we write you a refund check equal to the elevated 
    Senator Mikulski. Do you have a health coach? In other 
words, say ``stop smoking'', ``here's, the patch'', or ``do you 
actually have health coaches''? ``What is it that you do?''
    Mr. Burd. We have a--you know, in 3 minutes, it's hard to 
describe the whole system--but we have a very elaborate 
holistic approach to healthcare that includes calorie 
information in the cafeteria, subsidies only for healthy food, 
although we have cheeseburger and fries. We have a 17,000-
square foot fitness center on campus with a nurse practitioner. 
We have a 24/7 hotline for any issue that may develop 7 days a 
week. We have a med expert service that deals with chronic 
conditions. We have nutrition coaches. We have counseling 
    We allow employees to work out midday if they have a weight 
issue. We actually believe, I know this sounds bold, but we 
believe that we've cracked the code on obesity and we actually 
think we can continue to reduce the obesity levels in our 
company. Our obesity rate is 28 percent. The Nation's is 40. 
Our smoking rate is 14 percent, the Nation's----
    Senator Mikulski. And that's in a grocery store?
    Mr. Burd. Yes.
    Senator Mikulski. You got a lot of temptation. I'm in your 
    Mr. Burd. I know.
    Senator Mikulski. The ones I have talked about, I know 
about them.
    Mr. Burd. Yes.
    Senator Mikulski. There have been sightings in them.
    Mr. Burd. We've made good progress and I have challenged a 
couple of other CEOs. We're going to try to bend the obesity 
curve in this country and I challenged them. I said, ``Look, 
you've got to do it in your own organization first,'' and I 
committed that in 120 days I would make further progress on 
obesity and we just did and so these incentives work.
    The problem I have is the incentives that we're able to put 
in place don't come anywhere close to matching the cost 
implications. A smoker is $1,400 a year. Toby Cosgrove is here. 
He'll give you a number that's probably close to $3,000. It's 
at least $1,400 and yet the premium difference is only $300.
    I took notice when the tobacco taxes went into effect. They 
were raised the equivalent of about $300 a year for a one pack 
a day smoker. In the State of Michigan, the cessation centers 
that offer free products for quitting smoking had a 19-percent 
increase in their calls. California, which has the second 
lowest smoking rate in the country, had a 300-percent increase 
in their calls.
    You know, my e-mail box is full of thank yous from 
employees that have: lost a hundred pounds, 120 pounds, 40 
pounds, became marathon runners, or stopped smoking; and they 
said the incentives were the key. Seventy-eight percent of our 
employees absolutely love this plan. They said it's good, very 
good or excellent, and 74 percent asked for changes that were 
increased financial incentives.
    Senator Mikulski. Well, thank you. I know my time is up.
    Dr. Rosman, actually Senator Dodd asked me to ask some of 
the questions I would have for you.
    Just one quick question for Dr. Flowers. First of all, Dr. 
Flowers, I wanted you to know, No. 1, you're welcomed here and 
we really welcome your insights. As a sister Marylander, we're 
glad to see you.
    Dr. Flowers. Thank you.
    Senator Mikulski. Your testimony was excellent. Why doesn't 
a public option meet your needs, the needs that you've outlined 
as you articulated the needs for a single payer?
    When we do a public option, why wouldn't it accomplish the 
six things that you talked about?
    Dr. Flowers. I wish it would, but the reality is, that the 
problem is that we have about 1,300 different insurance plans 
in this country, and it's this fragmentation which is keeping 
us from being able to take all of our dollars and actually use 
them for healthcare because so much money is wasted to create 
this fragmentation.
    Creating another public plan is going to further fragment 
our pool and what we've seen--two things. One is that if you 
look at our experience with Medicare Advantage Plans, and this 
happens over and over again, is that the private insurers are 
very good at attracting the healthier patients, we call this 
cherry-picking, and so the public plans are often left with the 
patients who have the greater health needs and therefore carry 
a greater proportion of the burden of the cost. That's one 
thing that's a problem.
    The other is the whole billing infrastructure because 
there's so much talk about, well, if we go to a uniform billing 
infrastructure, is this going to help things? We already have 
that for hospitals, but we still have hospitals with many, many 
billing employees and what happens for us is one of the first 
things when we admit a patient to the hospital is we get a 
visit from the utilization review department and those people 
have to be employed to be an interface between the insurers and 
the hospital and that costs a lot of money and so we don't do 
away with that if we're adding one more plan.
    We just can't see the cost savings with the public-private 
partnership. It further complicates things. If you look at 
what's happened in Massachusetts with their connector which 
you're talking about an exchange, it adds 4 percent to the 
cost. Those are the problems.
    Senator Mikulski. Well, thank you. That was a great 
clarification. I appreciate it. My time's up.
    Senator Dodd. Senator McCain.

                      Statement of Senator McCain

    Senator McCain. Thank you, Mr. Chairman.
    Mr. Scheppach, there's been--we're in uncharted waters here 
as far as a national healthcare program is concerned.
    For the record, perhaps you could give us what's been tried 
in other States, ranging from Massachusetts to various other 
States. We'd be very interested in knowing because the States 
are generally the laboratories for this kind of innovation and 
experimentation and on a number of areas, particularly in 
healthcare. OK?
    Mr. Dennis, as you know, one of the proposals is that the 
small businesses either provide a certain level that is yet 
unspecified healthcare for their employees or they pay a 
certain amount of whatever you want to call it, tax levy or 
penalty, and that number has been unspecified. But if it's too 
high, then we know it drives small business people to lay offs 
and if it's too low they pay it and go on with business as 
    What's your view on employer health insurance mandates and 
their impact?
    Mr. Dennis. Well, pay or play is a mandate by another name, 
but essentially they're opposing it but it's important to 
remember why. We have to remember what the consequences of this 
are and that is employees pay the cost of this in the long run 
and what employees pay for it, it's normally lower income 
employees that pay for it. So there's a real problem there.
    There is a problem initially when a small employer has to 
absorb the initial cost before they pass it on. That's a 
problem. A lot of small employers don't have that flexibility 
and then, finally, there's also another thing and that is that 
we found in some research that was done over at George Mason in 
the Experimental Economics Lab that frequently low-margin 
larger margin employers, I don't mean great big ones, but low-
margin larger employers act very much like small employers and 
some of the more profitable larger employers who basically 
already provide health insurance tend to act a little bit more 
like the larger ones.
    So you have a marginal profitability issue, as well. Those 
are the three reasons why I think this doesn't make a lot of 
    Senator McCain. Dr. Gottlieb, we have the elephant in the 
room is how we pay for all this. Estimates range from $1 
trillion to $2 trillion to more trillion dollars.
    One of the proposals that's now being bandied about is the 
taxation of employer-provided healthcare. The proposal I made a 
long time ago was also accompanied by a $5,000 refundable tax 
credit to families in America but now the part that's being 
considered, although certainly no one has yet confirmed that, 
is the removal of some or all of the individual tax exclusion 
for employer-provided healthcare.
    What's your view of that particular proposal?
    Dr. Gottlieb. Well, whether we do it as some kind of tax 
treatment, a tax rebate or by making the Tax Code equivalent, 
whether you go out and purchase your insurance in the private 
market or get it through your employer, I think we need to 
consider strongly trying to level the playing field between 
people who are buying insurance in the open market on their own 
and those who are getting it from their employer.
    We know one of the reasons why insurance is so unaffordable 
in the private market is because people don't have the benefit 
of the tax subsidy that's being afforded when they purchase it 
through their workplace.
    Generally speaking, we need to consider how we go about 
trying to level that playing field so people in the private 
market can have the same benefits as if they were getting it 
through their employer.
    Senator McCain. Ms. Trautwein, same question. What do you 
believe? Do you believe that the idea of removing the tax 
exemption for employer-based healthcare benefits is a good idea 
and taxing it?
    Ms. Trautwein. We have a lot of concerns about doing that, 
frankly. We're very concerned about unraveling the employer-
based system.
    You know, having said that, we know that we have to find 
some money to pay for a lot of the health reform and so we're 
very interested in looking at the alternate proposals, such as 
those for putting some caps in and so forth, but we do--I would 
just agree, though, relative to the individual market, that at 
a bare minimum, we've got to make sure that we have tax equity 
in every market so that individuals can have the same benefit 
that those in employer-sponsored plans have.
    Senator McCain. That's not the case today.
    Ms. Trautwein. It's not, and that we would need at a 
minimum to have that.
    Senator McCain. Dr. Gruber.
    Mr. Gruber. Yes, Senator McCain. I actually think that 
reforming the tax exclusion to employer-provided health 
insurance is absolutely a win-win source of financing for the 
kind of bill we're talking about today.
    We can take a source of financing which right now is 
regressive. It's inefficient. It induces excessive health 
insurance consumption and by capping that in one form or 
another, we can raise the money we need to achieve the goals 
we're talking about today. I think it's a terrific direction to 
go for financing healthcare reform.
    Senator McCain. Dr. Baicker, you have----
    Ms. Baicker. I couldn't agree more that the way we finance 
private health insurance through the Tax Code today subsidizes 
disproportionately high income people and the least efficient 
health insurance plans and that if we could capture some of 
that public expenditure on high-income, high-cost health plans 
and redirect it toward ensuring everybody has access to at 
least basic care, that would both improve efficiency and 
improve progressivity. It seems like a win-win option.
    Senator McCain. Mr. Rivera, how are we going to pay for the 
healthcare reform?
    Mr. Rivera. Well, I think that what we need to do is find 
the efficiencies in the healthcare system, namely by making it 
more efficient.
    We're spending 17.5 percent, right now probably more than 
any country in the world, and at the same time when we do 
studies with other countries in the world, we are getting less 
in terms of outcomes.
    In that sense, we believe that inside the healthcare system 
we could find efficiencies and savings, particularly in terms 
of bending the curve going forward.
    The other thing that I believe, and going back to what 
Senator Harkin was saying, is the whole question of wellness. 
Ms. Baicker and I, we're part of the study of the Robert Wood 
Johnson Foundation for over a 2-year period which we concluded 
that we need a new national culture of health which is 
basically we have a healthcare system which is a curative 
healthcare system. We've got to prevent people from getting to 
our hospitals and our healthcare facilities and basically we 
believe that that's a responsibility of the government, of the 
individuals, of the communities and we can't even make it 
    Right now, for example, Senator McCain, the government buys 
about $60 billion in food a year. We buy $40 billion for people 
who are on food stamps--excuse me, no, children's school 
breakfasts and school lunches, and we basically don't have any 
limitations on what food we serve there. Only about 2 percent 
of the high schools in America have physical education.
    I believe this is a very complex issue and I believe that 
we can find the savings, but it will be--there's no silver 
bullet. We have to work all the moving parts to make it happen.
    Senator McCain. Remarkable. Dr. Rosman.
    Dr. Rosman. Yes, thank you.
    Senator McCain. Do you also believe that efficiencies and 
then wellness and fitness will solve our problems? That's good. 
I appreciate that.
    Mr. Rivera. Thank you.
    Senator McCain. Go ahead.
    Dr. Rosman. We believe----
    Senator McCain. You're welcome.
    Dr. Rosman. Is your question about payment or prevention? 
I'm sorry.
    Senator McCain. I'm talking about how we pay for----
    Dr. Rosman. Yes.
    Senator McCain [continuing]. The trillion and two trillion 
dollars or more of costs associated with any proposal that 
seems to be being considered now by this committee or by the 
Finance Committee.
    Dr. Rosman. I would start by picking up on your former line 
of questioning. We absolutely support eliminating the tax 
exclusion and redirecting those funds in the form of tax 
credits or vouchers on a sliding scale to the low-income and 
uninsured so that they can afford to purchase health insurance.
    As several people mentioned, it is currently a regressive 
subsidy to the tune of a $125 billion and we believe that can 
certainly go a long way in helping to fund coverage for those 
who need it.
    We are working hard on comparative effectiveness research 
on quality measures. I agree that we certainly need to focus on 
prevention. One of the most heartbreaking things as a physician 
is to see--I'm a pediatrician. I'm seeing kids not even barely 
into their second decade of life who already have serious 
health consequences of lifestyle issues and that is costing our 
system beyond the measure at this point. There are a lot of 
aspects that need to go into this.
    Thank you.
    Senator McCain. Thank you, Mr. Chairman.
    Senator Dodd. Thank you, Senator.
    Senator Bingaman.

                     Statement of Senator Bingaman

    Senator Bingaman. Thank you all very much. Dr. Gruber, let 
me ask you a couple of questions.
    You endorsed the idea of premium variation based on both 
tobacco use and adherence to wellness lifestyle programs. I'm a 
little unclear as to what you believe we need to do in this 
legislation to bring that about.
    Mr. Burd has certainly described what he's doing which 
amounts to that. He has indicated that we need to change HIPAA 
because HIPAA does not allow him to give a sufficient financial 
incentive, as I understand it, and he would like that change.
    What else should be done in this legislation to bring about 
this or to encourage this premium variation based on tobacco 
use or advance wellness and lifestyle?
    Mr. Gruber. Senator Bingaman, that's a great question 
because it has an easy answer which is nothing.
    What this legislation should do is not rule out the 
possibilities of doing what Mr. Burd----
    Senator Bingaman. Do you think that the community rating 
that we're talking about does rule that out?
    Mr. Gruber. I believe in the language as it's written, it 
may rule it out.
    Senator Bingaman. We need to clarify that nothing we're 
doing in community rating would interfere with the variation of 
premium to accomplish these kinds of programs that Mr. Burd 
talked about?
    Mr. Gruber. Absolutely.
    Senator Bingaman. OK. You also talk about your view that 
the proposal to have consumer rebates based on insufficient 
medical loss ratios is a mistake. It's a mistake to put that in 
the legislation at this time and instead we should require 
reporting on medical loss ratios and then come back in the 
future if we think this is something that the Congress or the 
government really needs to legislate on, is that right?
    Mr. Gruber. Yes, I believe that's right. I think medical 
loss ratios are very hard to define because the key question is 
what defines an acceptable expense. If a company spends money 
on wellness and management, we clearly think that is an 
acceptable expense.
    How are you going to separate that from other kinds of 
expenditures, not to mention the fact that companies are very 
good at figuring out how to make things look like qualified 
expenditures versus not, and I think we really need to learn 
more in a more transparent environment about where companies 
are spending their money before we dive in and commit to a 
rebate of this magnitude.
    Senator Bingaman. Let me ask a question of all the panel. 
It seems striking to me--we've been talking about differences 
of opinion that exist--but it's striking to me that it seems to 
me that there's near uniform agreement on several things.
    I know Dr. Flowers feels differently and favors the single-
payer program, but with that exception, it seems as though all 
of the panel are in favor of the various insurance market 
reforms, at least substantial number of the insurance market 
reforms that we have--that we contemplate in this draft 
legislation. All panel members are in favor of the individual 
mandate which we contemplate in here. Maybe that's wrong.
    Mr. Dennis, you are not in favor of an individual mandate?
    Mr. Dennis. We're kind of up in the air. We're open to it, 
but it depends upon a lot of things.
    Senator Bingaman. You're agnostic on the question?
    Mr. Dennis. We're agnostic. I like that. Thank you very 
    Senator Dodd. So are members of this committee.
    Senator Bingaman. Are there others who do not favor, yes?
    Dr. Gottlieb. Senator, we believe that everyone should have 
health coverage and every employer should offer health coverage 
and help fund health coverage. In that context, we think 
individual mandates are appropriate.
    To simply rely on individuals, we think is inappropriate 
and puts the burden on the wrong place.
    Senator Bingaman. So if we're not able to also require 
employers to have it, you think we should not require 
individuals to have it?
    Dr. Gottlieb. With all due respect, I would put it the 
other way. You should require both to do it and you can do 
    Senator Bingaman. Well, I know that. I know that's your 
view, but I'm just saying if we were to require it of 
individuals, would you support that?
    Dr. Gottlieb. Senator, we would support that if there were 
substantial subsidies to pay to make it affordable.
    Senator Bingaman. Right. That was my----
    Dr. Gottlieb. That is a very expensive prospect.
    Senator Bingaman. Yes. That was my next question. It seemed 
to me that all members of the panel were in favor of 
substantial private coverage subsidies, is that correct? I 
believe everyone on the panel is in favor of small employer 
credits to encourage small employers to provide coverage, is 
that accurate?
    Mr. Burd, you're not in favor of that?
    Mr. Burd. I'm not. I know that you know, it'll probably 
upset the Small Business Administration, but the reality is 
that large businesses that have insurance, like us, are paying 
the tab for those that do not have it.
    I'll give you one example of a local Bay Area hospital that 
lost $70 million on their Medicare patients, $20 million on 
their Medicaid and underinsured patients and then made a $110 
million on their insured patients for a $20 million profit and 
so I don't really buy into the notion that small business--I 
like the individual mandate.
    I don't buy into the notion that small business, if you go 
the other way, should in any way be exempted because maybe the 
cost of cleaning a shirt at the laundry will go up 20 cents but 
it'll go up 20 cents for everybody and a pizza may normally 
cost $8, it may cost $8.50. That's fair. That's OK.
    I don't buy the argument that they'll go out of business. I 
think they'll adjust their price structure.
    Senator Bingaman. So your view is there should be an 
employer mandate, it should apply to all employers----
    Mr. Burd. No. My view is that I like what you said 
originally. I would favor an individual mandate. I think it's 
cleaner. Senator McCain didn't ask me, but I would not be in 
favor of eliminating the tax deductibility for business because 
my first reaction would be if I'm not going to get a tax 
deduction for that, then what I'll probably do is put it in 
wages and allow them to buy on the open market, but I will lose 
my influence and control over their behavior and the reason 
most larger employers want to stay in this game is they believe 
that they get additional benefits and productivity from the 
wellness of their workforce and so there's no one in the 
Coalition to Advance Healthcare Reform of the 61 companies that 
are in it that want to get out of the insurance game because 
they believe that they can fundamentally affect behavior.
    If you want to do a mandate, I'm in favor of the individual 
mandate as opposed to the business mandate because I'm afraid 
somebody will exempt small business which I think is wrong.
    Senator Bingaman. Thank you very much.
    Senator Dodd. Do you agree with that too, Ron?
    Mr. Williams. Yes, I would basically say that I think that 
the individual mandate is, in fact, the way to go.
    I think that there are strong feelings on multiple sides of 
the employer mandate, and I think the real issue is getting at 
the individual in the sense that the individual either can 
afford insurance or that we have mechanisms to really help them 
come up with insurance.
    Just a couple of other critical points I would like to 
make. There was a question on the whole medical loss ratio 
question, and I think that one of the points I would make is 
that if there were to be such a thing, I think you have to have 
it for health plans. I think you have to have it for hospitals. 
I think you have to have it for physicians because I think it 
has to be a level playing field.
    I think a big problem with it is that it is a GAAP 
accounting measure that is created to measure an accounting 
notion, not a how we direct our resources. If, for example, we 
have 2 million members who are in chronic disease management 
programs, under a medical loss ratio definition that would be 
bad administrative expense that we would be penalized for 
investing in.
    The $1.8 billion we've spent in the past 4 years investing 
in health information technology, would be viewed as bad 
administrative expense, and I think the marketplace is much 
better able in the form of people like Steve Burd and other 
sophisticated purchasers to decide whether they're getting 
value through the overall administrative expense structure we 
have which, by the way, in our case is about 11 percent and is 
nowhere near the allegations that are made in the context of 
    Again, I think it's a red herring. I think we should focus 
on what we're doing to change the medical trend.
    I have got one other quick point I'd like to make, if I 
may. If I told you that in year one medical costs went up 8 
percent, in year two I could take it down to 5 percent, in year 
three 1.1 percent, and in year four I could make the trend go 
negative by 1 percent, people would feel that was a pretty good 
performance, I would assume.
    Now the reality is that's what happened in 1992, 1993, 
1994, and 1995. Medical costs went negative. Now the problem is 
that we got there through mechanisms that turned out not to be 
the right mechanisms. We had mandatory medical homes which we 
called the gatekeeper. We had bundled payments which we called 
capitation. We had neural networks that limited the access of 
members where they couldn't go to the physician they wanted to 
see. We had coordinated care that we called referrals required, 
and we had very low cost-sharing because everything was on a 
co-payment and physicians had great incentives, it was risk-
sharing, and there was great concern about the physicians being 
inappropriately remunerated for denying care as opposed to 
providing care.
    We bent the trend and I think the opportunity as we go 
forward is to make certain that we do bend the trend through 
more appropriate mechanisms, like wellness, like administrative 
simplification where the industry has committed one claim form, 
one method of providing eligibility information, one method of 
really interfacing with the whole physician community.
    I think there's a lot we can do and I do believe that we 
can bend the trend because it's been done before, but I think 
this time we have to do it collaboratively with physicians, 
with consumers, with the provider community, and the government 
and regulatory apparatus.
    Just a couple of points.
    Senator Dodd. Thank you. Senator Sanders.
    Senator Sanders. Thank you, Mr. Chairman, and----
    Mr. Johnson. I'm sorry. Just for the record, the medical 
loss ratio provision has been troublesome to some of our 
members. It's interpreted as a cap on profits, a governmental 
cap on profits.
    I'm sorry, Senator. Just for the record because Senator 
Bingaman asked about that.

                      Statement of Senator Sanders

    Senator Sanders. Mr. Chairman, thank you very much for 
holding this hearing. I want to thank all the panelists for 
being here and I especially want to thank you for allowing for 
the first time in this debate an advocate for a single-payer 
program to be here tonight.
    Senator Dodd. Shh. You may get arrested.
    Senator Sanders. The truth is that of any program out 
there, single-payer is the most popular. It has the support of 
most people. There are 15,000 physicians onboard. It has the 
major nursing organizations onboard and it's about time that we 
at least began to hear at least for a few minutes from a 
single-payer advocate.
    The truth of the matter is that our current healthcare 
system is disintegrating. You have not only 46 million 
Americans without any health insurance, you have even more who 
are underinsured and what's not talked about very often is that 
at a time when we have 60 million who do not have a doctor of 
their own, close to 18,000 people die every single year because 
by the time they get to the doctor, it's too late to treat 
their illnesses.
    Meanwhile, in the midst of that disaster, we end up 
spending far, far more than any other country on earth, all of 
which guarantee healthcare to all of their people.
    I think we can't just tinker with the system. We have to 
understand the system is fundamentally broken. We have to 
understand why it is broken and we need a new system.
    Now, I want to start off by asking Dr. Flowers a very 
simple question and that is, tell me in your judgment why it is 
that our current healthcare nonsystem costs so much and gets so 
little value, not only in terms of the people who are uninsured 
and underinsured but in terms of healthcare outcomes, like 
longevity and low-weight babies and so forth and so on. Why are 
the outcomes so poor, despite the fact that we spend so much?
    Dr. Flowers. Right. Thank you very much. We spend two to 
three times more than what the other industrialized nations 
spend on healthcare and their health outcomes are much better 
than ours in terms of infant mortality.
    Our maternal mortality is two to three times more what the 
other industrialized nations have. Our life expectancy is lower 
and it's because we don't have an actual system. We have this 
hodgepodge. It's very fragmented. It's very nontransparent.
    There are a lot of barriers that are put into place between 
the patients and their healthcare providers and so our whole 
incentive is wrong. It's not based on creating better health. 
It's based on--and I'm sorry, I disagree, Mr. Williams. It is 
based on profit because the number of these insurance 
administrators are there to cherry-pick, to deny and to 
restrict care.
    Also, we've linked our health insurance to employment and 
that leaves us in the most insecure position because when a 
person becomes ill, if they are unable to work, they lose their 
job and then they have nothing. They have no access to care, no 
    Also, because people will lose their insurance if they 
change jobs, they won't change jobs. People are now getting 
married for health insurance.
    Senator Sanders. Right.
    Dr. Flowers. It's perverse. It's crazy, and so now doctors 
are spending about--with all this health insurance model, we're 
spending up to a third of our time on paperwork and telephone 
calls to get authorization.
    What makes it a little crazy is, if you think about it, a 
doctor writes a prescription for a medication, right, they hand 
that to the patient, the patient takes it to the pharmacist and 
then the doctor gets a call from the pharmacist, you have to 
call the insurance company and get authorization for this 
patient to have this medicine. Well, doesn't the prescription 
serve as authorization? Didn't they make that decision?
    Senator Sanders. I have limited time.
    Dr. Flowers. I'm sorry. OK. Well, anyway, so it's because 
we don't have coordination. It's not comprehensive.
    Senator Sanders. I want to ask Mr. Williams. He's sitting 
right next to you.
    Dr. Flowers. OK.
    Senator Sanders. I want to ask you, sir. What do you think 
about the appropriateness and morality of private insurance 
companies denying people coverage because of pre-existing 
conditions? A woman has breast cancer 3 years ago. Clearly 
that's what's on her mind and yet there are many insurance 
companies, I don't know about Aetna, who deny her insurance.
    My understanding is that in some cases pregnancy is a pre-
existing condition, not to be covered. What sense does that 
    Mr. Williams. I would say, Senator, that in 2005 I called 
for the insurance industry to guarantee issue insurance to all 
comers in order. To assure affordability that requires that 
everyone be in the insurance market.
    In States where----
    Senator Sanders. Wait.
    Mr. Williams. You asked me a question.
    Senator Sanders. I know, but I don't--I have a limited 
amount of time. I asked you a simple question.
    Mr. Williams. And I want to answer it.
    Senator Sanders. The morality or the appropriateness of 
denying coverage to somebody because of a pre-existing 
condition. That's what goes on today. Not what you called for 3 
years ago.
    Mr. Williams. Senator, I am personally and as an 
organization in support of issuing insurance to everyone 
without a pre-existing condition. If there's another answer 
you'd like me to give----
    Senator Sanders. That's great. Does that----
    Mr. Williams [continuing]. I'd be glad to give it.
    Senator Sanders. Does that exist today? I'm glad that you 
believe that, but that reality of denying people coverage to 
pre-existing conditions exist all over the industry today, does 
it not?
    Mr. Williams. The answer to your question, Senator, is in 
many States, based on State laws and regulations and the 60 
different entities that regulate the industry, there are many 
States where health status is a basis for----
    Senator Sanders. Wow.
    Mr. Williams [continuing]. Issuing insurance. That is 
    Senator Sanders. OK. Let me ask you this, Mr. Williams. 
There are 1,300, as I understand it, separate private health 
insurance companies in this country providing thousands of 
different plans and at a time when we have a desperate need for 
primary healthcare doctors and dentists and other healthcare 
professionals, in the last 30 years the number of 
administrative personnel, that's the bill collectors, that's 
the bureaucrats who work for private health insurance 
companies, has grown by a rate of 25 times greater than the 
number of physicians in the United States of America.
    Do you think it makes sense that we are seeing a rate of 
increase by 25 times of healthcare bureaucrats who do not 
deliver one baby, do not care for one cancer patient, just 
shuffle paper, driving people crazy about their bills? Do you 
think that makes sense if we're trying to move toward a cost-
effective health insurance program?
    Mr. Williams. Well, Senator, what I can tell you is what I 
know about Aetna which is 20 percent of the staff who work in 
our company are clinical personnel who are involved in trying 
to make certain that our patients who have chronic conditions 
are identified, that they understand the condition that they 
have, that they're getting the opportunity to make certain they 
can have a good constructive dialogue with their physician.
    I don't know your numbers. I certainly can't speak to them. 
I'd be----
    Senator Sanders. A dialogue with their physicians. That 
sounds to me like what Dr. Flowers was saying, that she 
prescribes a drug and some bureaucrat working for an insurance 
company tells her that that's not the right drug. Is that the 
dialogue we're talking about?
    Mr. Williams. No, Senator. We'd be glad to have you visit 
and explain what we do and how we do it.
    Senator Sanders. How do you feel--everybody here, 
regardless of political persuasion, is worried about the 
soaring costs of healthcare. My understanding is that in 
California, $1 out of every $3 in healthcare goes to 
administration and bureaucracy. Does this sound like a sensible 
system to you?
    Mr. Williams. Senator, I would find that hard to believe as 
a fact personally.
    Senator Sanders. You would?
    Mr. Williams. Yes, our administrative expense is 11 
    Senator Sanders. We will get those--well, it's not only 
you, it's the people at the other end. There was a study that 
came out recently that doctors spend 2 weeks a year arguing 
with insurance companies about forms of therapy. That's an 
administrative expense. Nurses, every small practice in America 
has to have somebody who does nothing else but fill out forms. 
All of that adds up. I think the number of one-third may well 
    Mr. Williams. Senator, if that's true, I'd love to see it, 
but what I would say is that whatever we're spending, it's too 
much. There is--and I think the industry has worked very hard 
and has a whole series of comprehensive proposals that are 
designed to significantly enhance administrative expense.
    Senator Sanders. Thank you. Last question is for Dr. 
    A recent poll came out done by the Kaiser Family Foundation 
which said that 67 percent of Americans either strongly favor 
or somewhat favor a public health insurance option similar to 
Medicare to compete with private health insurance plans.
    Why do you think two-thirds of the American people want to 
see at the very least a Medicare-type plan for all Americans, 
yet the AMA does not think it's a good idea?
    Dr. Rosman. Senator, I don't think I can speak to those 
individuals' reasons, but I can tell you the reasons for the 
AMA's concerns are based on the history that Medicare and 
Medicaid are public insurance options.
    Senator Sanders. Medicare is a much more popular program 
than Aetna is, with all due respect.
    Dr. Rosman. I would absolutely agree that we need an 
insurance market reform so that we have uniform standards, so 
that there are high-risk pools, so that people can renew their 
insurance, even if they develop a health condition. We 
absolutely agree with those market reforms.
    We are concerned with a Medicare-based public plan option 
because reimbursements aren't high enough that physicians can 
keep their offices open. My adult colleagues see patients day 
after day who can't get into a primary care physician. Nobody's 
accepting their Medicare and they can't find a primary care----
    Senator Sanders. I think we need to take a hard look at 
reimbursement rates.
    Dr. Rosman. OK.
    Senator Sanders. Thank you very much, Mr. Chairman.
    Senator Dodd. Thank you, Senator, very much.
    Senator Alexander.

                     Statement of Senator Alexander

    Senator Alexander. Thank you, Mr. Chairman. Mr. Burd, as 
we've talked in the committee, one area where we have great 
consensus is the importance of prevention and wellness and we, 
on the Republican and the Democratic side, have heard from you 
about what Safeway has done.
    We were served confirmation today that the Kennedy proposal 
we're considering would get rid of the 20 percent premium 
variation in the HIPAA regulation that allows employers like 
Safeway more flexibility to incent healthy behaviors.
    Can you tell us what this would do to your efforts to 
incent healthy behaviors among employees of Safeway?
    Mr. Burd. Let me start my answer by thanking a staff member 
back in the Bay Area that quantified that number for me.
    It would raise our costs $27 million if we were just 
prevented from doing what we did right now and I think it would 
have a fundamental effect on the ability to improve the health 
of our employees. I really believe that without financial 
incentives, you have no chance of changing the behavior of 
Americans to lead a healthier lifestyle. That's how strongly I 
feel about it.
    Senator Alexander. Just to review, in your company, if you 
could in three sentences just summarize what you've 
accomplished so far, the number of employees, the savings in 
the dollars.
    Mr. Burd. Yes. We have 200,000 employees, 28,000 of them 
are on this particular plan because it's an opt-in plan. Most 
of the incentives that we've applied but not all are focused on 
the nonunion population, the union population, about 170,000. 
We're probably about 30 percent the way through getting those 
incentives placed in the union contracts and I believe, given 
my discussions with Joe Hansen of the UFCW and other union 
leaders, that they're eager----
    Senator Alexander. And if I may because time is limited, 
and you've saved how much money?
    Mr. Burd. Well, we saved--well, let's see. It's 37 percent. 
It's about $60 million.
    Senator Alexander. And the results in terms of healthiness 
among the employees?
    Mr. Burd. Obesity 70 percent of the Nation's, smoking rate 
70 percent of the Nation, and declining virtually every day.
    Senator Alexander. Your testimony at other times is to say 
rather than get rid of the flexibility you now have to reward 
healthy behaviors by incentives, you'd like to have more 
flexibility, is that not right?
    Mr. Burd. We would like more flexibility and that 
translates into more personal responsibility for behavior.
    Senator Alexander. How much more flexibility would be 
helpful to you?
    Mr. Burd. You know, given the fact that a smoker costs 
$1,400 or more, obesity costs $800 or more, hypertension costs 
$600 or more, you could--not to mention high levels of 
cholesterol, you could--if you have two family members and you 
could have more with dependents. Next year we'll measure BMI 
for dependents.
    You could easily reach a number close to $5,000 which would 
be closer to a 50 percent premium.
    Senator Alexander. Thank you, Mr. Burd.
    Mr. Burd. Senator, if I could just ask you, I have a board 
meeting in 5 minutes and an airplane to catch after that. I'm 
enjoying the discussion. I hate to walk away, but I would 
appreciate it if maybe I could be excused.
    Senator Dodd. We'll let you go.
    Senator Alexander. I'd like to be able to ask the rest of 
my questions after you----
    Mr. Burd. We have no pre-existing conditions at Safeway for 
200,000 people.
    Senator Dodd. My other colleagues are here who haven't had 
a chance, we'll leave the record open so we can submit some 
answers to their questions.
    Mr. Burd. All right. I'll be happy to send you some 
thoughts that you asked about at the beginning.
    Senator Dodd. We would appreciate any data and statistics 
which you think would be helpful to the committee, as well.
    Mr. Burd. We'll do it.
    Senator Dodd. We would appreciate it very much.
    Mr. Burd. All right. Thank you very much.
    Senator Alexander. May I take a couple more?
    Senator Dodd. Yes.
    Senator Alexander. Mr. Chairman, I'd like to address a 
question to Dr. Ray Scheppach, who's been with the National 
Governors Association for a long time.
    Governors have seen firsthand the burden that Medicaid 
causes. I mean, the fact of the matter is that it's completely 
out of control and is the main factor, in my view, in terms of 
bankrupting States, that it is filled with consent decrees, 
delays, inefficiencies, that the rates of reimbursement for 
doctors are so low that many Medicaid patients aren't properly 
served, and that the costs are literally out of control for 
States because continuous changes in Federal policy imposes new 
burdens on States.
    One of the results is the dramatic deterioration of the 
American Public University and Senator Mikulski and I are 
writing a letter to the National Academies to ask them to take 
a look at the condition of our research universities and our 
great universities, like the University of California as an 
example, are suffering greatly from lack of State support.
    What I'm getting to is this. I got some information today 
from the Governor of Tennessee about what the effect of 
expansion of Medicaid to 150 percent would mean for our State. 
If our State picked up its share of the cost, which is about a 
third, it'd be nearly $600 million, according to our State. 
That would be equal to imposing a new State income tax of about 
5 percent on the people of Tennessee. We don't know where we'd 
get that money.
    If the Federal Government were to pick it all up, the cost 
to the Federal Government of just Tennessee's would be $1.6 
billion, unless the bill also requires reimbursing physicians 
at 110 percent of Medicare and then the cost would be even 
higher. That would suggest that the cost overall of taking 
Medicaid to a 150 percent to States is going to cost somebody, 
either the Federal Government or the State governments, $4-$5-
$600 billion over the next 10 years.
    I wonder if you'd want to comment about what your view is 
of increasing the Medicaid expansion to 150 percent of Medicaid 
and whether you believe that the Federal Government will 
actually pick that up or whether it's likely to shift the costs 
back on the States within a few years.
    Mr. Scheppach. Well, as you know, Senator, the rate of 
growth of Medicaid since it came into place has been about 11 
percent per year. State revenues have probably grown 5.9 
percent per year, and as you indicate, the reimbursement rates 
for the average State is about 72 percent, but some of the big 
States, California, New York, New Jersey, are less than 50 
    There is clearly great concern when you essentially bring 
in another 46 million people of whether, in fact, reimbursement 
rates are going to have to go up to the Medicare rates or even 
in fact higher than that and, in fact, it's that increase in 
reimbursement rates on the base that's actually more expensive 
than the expansion is.
    If you go up to a 150 percent of poverty, you're talking 
about bringing in an additional 18 million individuals, taking 
Medicaid from 58 million to about 75-76 million.
    Our preliminary estimates are that this could cost, 
depending upon your assumption, $50 to $60 billion a year in 
terms of the State share. To give you a sense of that, that's 
about 10 percent of general State revenues and both of the 
bills, of course, essentially do a temporary pick-up of that 
expansion for about 5 years but then----
    Senator Alexander. Excuse me. You said $50 or $60 billion a 
year of the State, would be----
    Mr. Williams. The State----
    Senator Alexander [continuing]. An increase in the State 
share of Medicaid if we go to a 150 percent. So over 10 years 
that's $500-$600 billion?
    Mr. Williams. That's right. That's a very preliminary 
    Senator Alexander. That's the States' share and that's 
typically about a third, right?
    Mr. Williams. It's probably about 42 percent.
    Senator Alexander. About 40 percent. The other 60 percent's 
going to be paid by the Federal Government?
    Mr. Williams. That's right.
    Senator Alexander. And if your figures are right and it's 
going to cost $500 or $600 billion to the State and that's just 
42 percent, then you've got $600 or $700 billion Federal, so 
we've already got a Kennedy bill that will cost $1.2 trillion 
just with that one provision.
    Mr. Williams. Significant.
    Senator Alexander. Thank you, Mr. Chairman.
    Senator Dodd. Thank you. Senator Casey.

                       Statement of Senator Casey

    Senator Casey. Mr. Chairman, thank you very much, and I 
want to thank the panel for being here.
    We missed the topic here. We haven't said much about 
children and I realize the next panel's going to deal more with 
that, but here's the reality that we face with regard to 
children unless we get this right.
    This committee's done incredible things for children in 
this bill and I want to commend especially Senator Dodd because 
he's got a long record on this, as do others, but unless we get 
this right in this committee, but more directly and more in a 
more determinative way in the Finance Committee, and I favor 
the lifting of Medicaid to a 150 percent of poverty, but even 
just by doing that, we could put some poor children and 
children with special needs at risk.
    I think the rule ought to be here not just to go oh and not 
just a nice thing to do, not just an aspiration, the goal--the 
rule ought to be here four words when it comes to poor kids and 
kids with special needs: no kid worse off, no kid worse off. If 
we fail at that, I think we failed in very large measure. 
That's just my opinion.
    I wanted to get into this question of Medicaid for a 
second. I want to read something as part of the record. This is 
a Finance Committee document, but I do want to make sure it's 
clear here in terms of what States--because I realize governors 
are wrestling with this and it's a very tough problem for 
governors. Here's the proposed option with regard to what is 
called Medicaid Program Payments. It's in that section what 
they're talking about.

          ``Through 2015, the Federal Government would, would 
        fully finance all expenditures for benefits provided 
        individuals newly eligible for Medicaid as a result of 
        increases in income eligibility,''

and then it goes the other way.
    All right. ``The States' share of these costs would be 
phased in over the next 5-year period,'' and then it goes on to 
say, ``after this phase-in period, the States' share of this 
cost would be equal'' and little by little the State would have 
to continue to pay it at a level.
    I understand your concern about at some point down the road 
States may pay more under this option which is not in the bill. 
It's not law. It's an option.
    The question I have for the governors, the question I have 
for the AMA, Doctor, and I know you have great experience with 
children, and the question I also have for anyone else, but Dr. 
Gruber spoke to this, Dr. Gruber, you said on Page 5 of your 
testimony, ``Dropping the Medicaid expansion and enrolling 
individuals in the exchange would in my view be a mistake.''
    I ask all of you what about kids in this bill, in this bill 
and in the Finance Committee bill?
    Mr. Scheppach. The Finance Committee bill, I think, takes 
them up, I think, to like 150 percent for women and children 
and leaves them essentially in Medicaid so that they get the 
wrap-around and robust benefit packages.
    A bigger issue in Medicaid is what do you do with childless 
adults, I think, and parents. I suspect parents, it's better to 
keep in the same program with children because evidence 
indicates that they then go see the doctor.
    A bigger question about childless adults of whether they 
should stay in Medicaid or whether they should go into an 
exchange or a gateway. I think the big issue there is we're 
fine if they stay in Medicaid, but I think in this bill, the 
individual had the option to go out of Medicaid and go into the 
    If they bring the wrap-around benefit with them into the 
exchange, that's just administratively more difficult. It's not 
so streamlined and it's probably more expensive. It's probably 
better, excuse me, to leave those populations in Medicaid, 
maybe not allow that option.
    If there are healthier components of that that want to go 
into the exchange, you may want to offer them to it, but it may 
be that they give up the wrap-around package.
    Senator Casey. Dr. Gruber.
    Mr. Gruber. Yes, I think I would strongly advocate--I don't 
know whether the right number is a 150 percent of poverty or a 
125 percent of poverty, what it is, but I would strongly 
advocate that the lowest-income people, both existing eligible 
populations and newly-eligible populations, like childless 
adults, I strongly advocate they stay in Medicaid and be made 
eligible for Medicaid and I say that for three reasons.
    First of all, Medicaid is a more cost-effective option for 
these low-income populations than is private health insurance, 
largely because Medicaid pays providers less, but nonetheless 
it's a more cost-effective option.
    Second of all, I think the evidence suggests the erosion of 
employer-sponsored insurance will be smaller if the option is 
Medicaid which people of employer-sponsored insurance is sort 
of averse to versus a private exchange which they may find more 
attractive and be willing to leave their employer-sponsored 
insurance for.
    I think if people below poverty are put in an exchange that 
will increase erosion of employer-sponsored insurance and, 
finally, the main advantage of the exchange is to be able to 
shop across options and that relies on financial incentives.
    These low-income people, we can't put financial incentives 
for them. They can't afford to pay a differential for a more 
expensive plan. So we lose the main advantage of an exchange. 
If there's no real financial advantage to shop, why put them in 
an exchange? Why not just put them in Medicaid?
    Senator Casey. Dr. Rosman, I know that on the next panel, 
we'll have Dr. Palfrey from the American Academy of 
Pediatrics--as among others, I should say, that will be on that 
    Just in terms of the AMA, how do you answer the question, 
the strategy to make sure that this healthcare reform 
legislation leaves no kid worse off and especially poor kids 
and kids with special needs?
    Dr. Rosman. Thank you. We absolutely agree that we don't 
want to leave any children worse off and in fact hope that we 
can improve their situation.
    We believe that maintaining a safety net is very important 
as we go forward with these insurance options. We need to 
maintain that safety net, maintain access to preventive care, 
maintain a safety net for families and children that may not be 
eligible or able to effectively utilize an insurance exchange 
or purchase into those pools, and so we absolutely support 
greater equity within Medicaid, a uniform standard at poverty 
level at least for coverage, and I will leave it at that.
    Thank you.
    Senator Casey. OK. I know I'm out of time, I think I'm out 
of time, but I'd say this with respect, I think the AMA should 
raise its voice on this. We need to hear what you just said 
more than just in response to a question.
    Thank you.
    Senator Dodd. Gerry, go ahead.
    Dr. Flowers. May I respond?
    Mr. Shea. Thank you. Senator, I know your question was 
about Medicaid and we strongly support the strengthening of 
Medicaid along the lines that's being discussed, but I just 
wanted to make the point that the increase of the uninsured has 
come largely among the working population and the biggest 
increase among the uninsured has been among children of people 
who are working and so one of the reasons that we strongly 
support the idea that all employers are to participate and 
offer is that that is just the most direct way to get children 
covered in terms of turning back this tide.
    I just think that just has to be in the mix.
    Dr. Flowers. If I could----
    Senator Dodd. Doctor.
    Dr. Flowers [continuing]. Comment--thank you--that the 
fastest growing population of uninsured is that 300 to 500 
percent of Federal poverty level who can't afford private 
insurance but don't fall into the safety net categories and 
Medicaid, while I understand is valuable to pediatricians, in 
our State of Maryland which is one of the wealthiest States, 
we're ranked 47th in the country for quality under Medicaid.
    I see that as, there's a quote we often use, a program for 
the poor, a poor program, and when you look at a national 
health system based on single-payer financing, the key words to 
that are everybody in, nobody out. Nobody's left out. From the 
time that you're born until the time you die, you have access 
to healthcare, no cracks to fall through, no gaps, and it's 
fiscally responsible because if we were to take all of our 
healthcare dollars right now and put them toward healthcare 
with a very low administrative cost and bargain with 
pharmaceutical companies, we can actually provide very high-
quality care to every person in this country.
    I think that rather than tinkering around again, if we 
could really just go ahead and create a national health system, 
we would solve all of these problems.
    Thank you.
    Senator Casey. Mr. Chairman, I know I'm out of time, but I 
do want to say, Mr. Rivera, it's not a question, but I know 
your workforce--we're going to be talking about workforce 
tonight, later tonight. Your workforce, your members have done 
great work in training, providing the ground troops for the 
healthcare delivery system.
    We appreciate the work that you've done and your members.
    Mr. Rivera. Thank you so much.
    Mr. Scheppach. Senator, can I just add one on the fiscal 
    Earlier this week I announced, based on a survey of States, 
what the shortfalls are over the next 3 years. It's over a $180 
billion and States are now recommending from their own tax base 
about $26 billion to raise taxes to close gaps and this is 
after the $135 billion that was in the Recovery package and I 
suspect that they're going to have to raise them more than that 
and so when you begin to implement this particular program from 
the State perspective, they will have just closed 3 years of 
gaps of over 10 percent, primarily now because they have been 
cutting so much on the spending side over the last 2 years and 
it's primarily going to come on the tax side.
    You just need to understand that if, in fact, you're going 
to only cover this for 5 years and phase it out, it's going to 
be a huge burden for States.
    Senator Casey. No, and I appreciate that. Look, the States 
have a very difficult problem, but when I hear around 
Washington there's no money for this, there's no money for 
that, somehow the last Administration figured out a way to give 
a couple hundred billion dollars, I don't know the exact 
number, I'll get it, but a couple hundred billion dollars to 
the top 1 percent. Somehow they found it. OK?
    There are plenty of resources out there when you can find a 
couple hundred billion over 8 years for not the top 2 percent 
or 5 percent but 1 percent.
    I hope the governors would, when they're making suggestions 
to policymakers in Washington, they say how about that tax plan 
you had for 8 years for a pretty wealthy group of people?
    Thank you.
    Senator Dodd. Thank you, Senator.
    Senator Merkley.

                      Statement of Senator Merkley

    Senator Merkley. Thank you very much, Mr. Chair.
    Because we have another panel coming, I'm going to try to 
hold myself to just two questions here.
    Sometimes I feel like we lose common sense along the way 
and I'll give you an example of what I'm talking about.
    The numbers that Steve Burd shared with us were that four 
chronic conditions comprise 74 percent of healthcare costs, 
those being heart disease, cancer, diabetes, and obesity, and 
indeed my brother-in-law was in town this week. He's an 
occupational therapist, has worked the last 20 years with 
medical facilities throughout Sioux Falls.
    He said, ``Jeff, I recently was walking around the hospital 
and I went to the Heart Center and then to the Pulmonary Center 
and then I went''--because he deals with occupational therapy--
``to the Amputation Center.'' He said, ``Everywhere I went in 
the hospital, I saw obesity and diabetes--no matter what part 
of the hospital I was in.'' These are just a couple of the 
common sense things I'm talking about.
    Right now, the tobacco industry is test marketing tobacco 
candy in Portland, OR, they are intended to hook a whole new 
generation on tobacco. Well, that's a huge factor for cancer 
which is one of those four conditions costing 74 percent of 
healthcare costs.
    A lot of practitioners have talked about the value of 
breast feeding, getting children off to a good start, that it 
provides immunity, provides nutrients that are very relevant to 
the development of the brain, and provides bonding. Yet we 
haven't done basic workforce efforts, some States have, but we 
haven't at the national level, to help facilitate breast 
feeding for moms who go back to work.
    These are just a couple of examples. I just wonder if 
anyone would like to comment on that.
    I know we're involved in the financial models, but what 
about the common sense side of some of the things we could do 
to take on these four chronic conditions?
    Mr. Williams. I think one of the things that we have to do 
and what we're working on is early identification and 
prevention. For example, for children we're seeing diabetes 
that's occurring, used to be referred to as adult-onset which 
it's no longer referred to, but what we're beginning to do is 
we're paying pediatricians to take the extra time to provide 
nutritional counseling and to be able to bring in a dietician 
to work with the family in a culturally appropriate way because 
a dietician has to really understand the culture of the family 
to really help them and so I think there's a whole generation 
of what we call ``value-based benefit design'' that looks at 
the circumstances of the individual and says you're a diabetic, 
you need a certain medication, beta blockers, and so in your 
case, instead of charging you the standard co-pay, we're going 
to reduce the co-pay and maybe we'll pay you to take the 
medication because it's that important to help you deal with 
your particular issues.
    I think there's a whole set of technology and a whole set 
of mind shift around really changing how we think about 
prevention and wellness much earlier in the process because the 
people he saw in the hospital are the tip of the iceberg of 
what's coming as youth and children are really on the same 
trajectory and so I think those are things that I think we have 
an opportunity to do and help those people with basic health 
literacy so they understand their role in treating their 
condition in terms of being compliant with their medication and 
really following their doctor's orders.
    Senator Merkley. Yes, sir.
    Mr. Shea. Senator, there are other countries that address 
this issue through basic public health programs. They're very 
cost-effective. You don't see the child obesity problem in a 
number of European countries with public health, good public 
health systems because there is a concerted effort. It's not up 
to employers. It's not up to local school systems.
    There is a concerted effort as a nation to say this is a 
bad idea. We're going to teach moms when they're in their early 
bearing years about this and make that a value for the family.
    So you're talking about this, and I would just say there 
are only baby steps being proposed in some of the legislation 
coming forward--in the context of our system--to get at some of 
these issues, but they're very important to look at.
    I would point out in Senate Finance where they have looked 
at the re-admissions issue and they have said we will pay extra 
for staff to follow up on hospital stays in order to cut down 
on the re-admissions rate.
    This is a simple problem to solve, but it doesn't get 
solved if you simply hand the patient a piece of paper or the 
patient's relative a piece of paper, even with a good talk, as 
they go out the door and say good luck, don't forget to call 
your primary care physician.
    We know that doesn't happen. It doesn't happen at least for 
a lot of populations. It is not expensive. In fact, you save 
money if you have teams and the research on this is very clear. 
You have teams that follow up people and identify these kind of 
problems. You do medication management for many of these 
disease situations.
    We know how to solve these problems. We have to change the 
structures of our payment so that we're paying for quality 
treatment processes and teamwork processes as opposed to just 
individual practitioners, this silo, that silo, the other silo. 
We know how to do it, and I think at least the initial steps 
are found in some of the legislation. I would encourage you to 
just push that as far as you can.
    Ms. Praeger. Is this on now?
    Senator Dodd. Why don't you introduce yourself, too, for 
the record, so we know who's talking?
    Ms. Praeger. I'm Sandy Praeger, the Insurance Commissioner 
in Kansas but representing also the National Association of 
Insurance Commissioners.
    One issue that hasn't been talked about today, and it's 
been touched on and I know it's something that Senator Roberts, 
if he were here, would probably mention, and that's the current 
payment structure for physicians really encourages--well, first 
of all, they come out of med school with $140,000 in debt. 
They're encouraged while they're in med school to pursue 
specialty care where they're going to be able to make more 
money and the payment structure today, the fee-for-service 
medicine, encourages volume services rather than value 
    We want to be able to have primary care physicians 
encouraged to take the time to do the counseling, to do the 
diet counseling, and the current payment mechanism just doesn't 
allow for that to happen. That's part of the reform that needs 
to be included.
    Senator Merkley. I think there are a couple other folks who 
want to chime in here.
    Mr. Rivera. I just wanted to say before in the exchange 
with Senator McCain, I wanted to reiterate that Dr. Baicker and 
myself are part of a group that one of your former colleagues, 
Senator Frist, participated in with the Robert Wood Johnson 
Foundation for 2 years. We did a study all across the country 
about what were the behaviors that absence of medical care that 
influenced the care of people in the United States and we would 
love to submit that report to you.
    Senator Dodd. Please do.
    Mr. Rivera. Because clearly we have not done a good job of 
circulating it and basically that report has very concrete 
recommendations about changing and creating a new national 
culture of health and in the schools and in the jobs, in the 
communities, basically in almost every--in the workplace, in 
almost every practice--place in our society, and I believe if 
we don't do that, we are not going to get to the bottom of it.
    Senator Merkley. Mr. Johnson, did you want to chime in?
    Mr. Johnson. Yes, sir. Just that we are very mindful at the 
U.S. Chamber of wellness and prevention programs, including 
trying to provide tool kits to our small and mid-sized 
companies in terms of how to construct wellness programs on a 
voluntary basis.
    I have always been curious as to why all these bills 
pending in the Congress or about to be introduced haven't 
included funding for a public education campaign frankly along 
the lines that John F. Kennedy had in terms of educating people 
on the importance of physical fitness, et cetera.
    It may sound a little anachronistic or old-fashioned, but 
that's what wellness and prevention is all about and Senator 
Harkin has his bill with tax credits we support, but again, and 
the other speakers have commented on this, but let's get back 
to basics and reminding people about the importance of certain 
fundamentals of keeping themselves healthy and that has not 
been part of these--well, maybe it's in there and I have missed 
it, but it has not been part of the various bills Congress 
seems to be looking at.
    Senator Merkley. Well, I'll just wrap up by saying that I 
appreciate you pointing these things out. The fact that a 
dietician can be as important as a heart surgeon, that a social 
worker working to prevent a re-admission, a second heart 
attack, might be as important as the medical care inside the 
hospital. I thank you all for your insights and comments. I 
appreciate that.
    Senator Dodd. Thank you, Senator, very much.
    Just a couple of observations. You've all been very, very 
patient and very valuable with your comments, as well, and 
Dennis, we'd like to get--that's a good report. Here I'm asking 
for your reports.
    I was going to recommend, maybe you've looked at it, all of 
you have looked at it, but I was very impressed with an article 
written by Dr. Gawande in The New Yorker. I'm not here to 
promote a magazine, but, I found it very insightful. In fact, a 
group of us went down and met with the President of the United 
States to talk about healthcare back--what was that, Jeff--a 
week or so ago, I think, and I brought up the article.
    Before I could, the President had already read it. The 
article, goes to the issue of cost and if you haven't read it, 
you should, but the point is it looked at one of the poorest 
counties in the United States, Hildalgo County in Texas, 
particularly McAllen, TX, and the cost per patient there was 
about $16,000 a year, as I recall, in the article, and they 
compared that with the costs in El Paso, TX, where there was 
not a substantial difference in poverty levels and then 
compared that with northern Minnesota where the Mayo Clinic is, 
which is about a third of the cost.
    The assumption you might draw immediately, well, of course, 
if you have a very poor area, obviously the costs will be more 
and given the poorest county in the country, that's the reason 
the costs are more. That was not the reason for why the costs 
were higher. It was the number of tests, exams, all these other 
things that were being conducted in Hildalgo County that drove 
up that cost, more so than it did in El Paso. Anyway, it was an 
interesting article.
    Leading experts have talked about a third of the savings 
could occur just by reducing the number of unnecessary tests, 
exams and the like that are being performed driving costs up.
    Obviously there are a lot of ways to save money and I think 
Mr. Burd's comments, are tremendously exciting. I know at our 
luncheon today people were very impressed with the idea of what 
one company in Connecticut, Pitney-Bowes, did with Mr. Critelli 
there as the CEO--did something very, very similar in driving 
down costs.
    I wanted to raise the question because Senator McCain 
raised the issue of how do you pay for all of this and that's a 
very legitimate question. Obviously we need to get these 
numbers and Senator Alexander raised the cost of 150 percent on 
Medicaid--what the costs would be.
    I mentioned at the outset of my remarks that we're talking 
about statistics that indicate we could be seeing as much as 30 
or 34 percent of GDP be healthcare costs by the year 2040. We 
know it's about 17 percent today.
    We know, from a recent report, that 60 percent or so of 
bankruptcies are related to healthcare problems that have 
afflicted people. We know that over 80 percent of growth, and 
again I listened to Ron Williams talk about this but roughly 
the numbers of increased costs in healthcare have gone up that 
much in 10 years.
    The question I wanted to sort of ask all of you as sort of 
a parting question, what if we do nothing? If these numbers are 
right and we don't do anything and so while the costs of 
investing in these things and getting this right and bending 
that curve are not cheap, but my fear is that we'll end up so 
bogged down in all of this that we end up doing nothing once 
again and I wanted to raise if there's anyone here who thinks 
that doing nothing is a better alternative than trying to come 
up with something here that would allow us to bend that curve.
    I'll begin with you.
    Dr. Flowers. I don't want to say that doing nothing is the 
wrong thing but doing the wrong thing is the wrong thing 
because you're talking about regulating health insurance 
companies to make them act like social insurers which is going 
to add costs. You're talking about creating an insurance 
exchange. That's going to add costs.
    We're operating under this belief that people want a choice 
of health insurance but people don't know how to choose health 
insurance. They don't know what their healthcare needs are 
because they change.
    We have studies from the Congressional Budget Office, from 
the GAO, and in multiple studies at the State level, by the 
Lewin Group and also Mathematica, showing that creating a 
health system based on single-payer financing saves money and 
it's the only one that saves money.
    Senator Dodd. Mr. Williams.
    Mr. Williams. I think it's clear that doing nothing is 
unacceptable, that we have to find a way to get and keep 
everyone covered.
    I think at the same time, we need to sharpen our focus so 
that we are really focusing on the things that make the most 
important progress and in terms of having a much more inclusive 
    I think the individual market represents a huge opportunity 
to bring everyone into that market without the need for health 
status. I think that the small group breaks into two 
components, the smaller into small group. There is a huge 
opportunity to address the fundamental fact that small 
employers don't offer insurance.
    In the larger end, it really is much more about rating 
volatility, meaning those companies between 10 and 50. Eighty 
percent of them offer insurance. Their big concern is they see 
a lot of volatility in the rates. I think the SHOP Act gives us 
a pretty solid foundation to be able to address that.
    I think in terms of bending the curve, I think there are a 
lot of things to do. Every suggestion, every idea ultimately 
has to be implemented. It turns into real work in terms of how 
we really incent and align physicians to really focus on long-
term outcomes.
    I think we've got some great models, and I commend this 
committee and other committees who are focused on it. I think 
doing nothing is not an acceptable idea, but I think we have to 
recognize this is a big lift and if we sharpen our focus on the 
things that make a big difference, we can get a lot done.
    Senator Dodd. Dennis, you want to comment on this at all?
    Mr. Rivera. Yes. Well, first of all, it's clear that--and 
by the way, we had a group which participated, the American 
Medical Association, Pharma, the AHIP, and the American 
Hospital Association, and we clearly in those meetings that we 
have been having--the question was can we become more efficient 
in the way that we deliver care, and the reality is that we all 
have an agreement that we could become more effective and 
that's where it is.
    If we spend 17.5 percent of the Gross Domestic Product in 
this country and are 40th in terms of outcome in the world, and 
we are spending 6-7 percent more than Japan or Germany, so in 
that context, we believe that we could find a great chunk of 
those savings inside the healthcare system by basically 
becoming more efficient and challenging all of us who are asked 
as providers to basically become more efficient and I think 
that's an important issue.
    I think that same article that you talked about, the places 
that had the better outcome were the places that it was 
cheaper. So in that sense, it wasn't necessarily the places 
that was higher that were having better outcomes. They got 
better outcomes in the places that it was cheaper.
    Senator Dodd. You know, I was going to mention, by the way, 
I had met last week with the head of Starbucks and the head of 
Costco who have had rather interesting healthcare programs and 
to pick up on something Senator Merkley was bringing up, the 
issue of marketing these ideas and getting people aware of, I 
was stunned to learn how few--what a small percentage of people 
actually take advantage of the annual medical exams that are 
offered by--the number I think nationally is very low, 
something like 5 or 6 percent of people who have that kind of 
coverage actually take advantage of the medical exam.
    Is that a reflection of the failure to market these ideas 
and promote these ideas? I mean, here they're existing within a 
policy and yet for some reason people are not taking advantage 
of it. What's the reason for that? Does anyone have an answer 
to that question? Dr. Gruber, do you have an answer to that 
    Mr. Gruber. Well, I think there's many things we know that 
have to be sold. They always say that life insurance is a push, 
not a pull. You've got to sell life insurance. I think you've 
got to sell wellness. I think financial--you've got to both 
have a carrot and a stick, whether you're selling it, but also 
giving people financial incentives to take advantage of it.
    But I come back to your original question--which is the key 
question--which is the cost of doing nothing.
    Senator Dodd. Yes.
    Mr. Gruber. I think it's very important to recognize that 
the cost of covering every single American with health 
insurance is less than 1 year's growth in our national health 
bill. These are problems of two totally different magnitudes.
    The problem of cost control just dwarfs the problem of 
coverage in terms of its magnitude. For those who would say we 
can't spend less than 1 year's growth to cover people until we 
rein in this entire system, I just think that's inappropriate 
and in fact I think it's the wrong way to think about it.
    The right way to think about it is by covering everyone 
we'll move closer to that day when we can rein in costs and 
we've seen that in Massachusetts where once we covered everyone 
with health insurance, then we got much more serious about cost 
control and passed a much more serious cost control bill in our 
    I think to say that we have to hold coverage hostage to 
cost control is to say we're going to hold this small piece 
hostage to this enormous piece. That's the wrong way to think 
about it and I think we have to get costs under control but 
doing coverage first is just a blip on that radar.
    Senator Dodd. Yes. Yes, Mr. Shea.
    Mr. Shea. Senator, to your question on the physicals, we 
know that people don't take advantage of a lot of the 
opportunities they have to understand their health status and 
then to act on that health status.
    We also know that integrated health systems do a good job 
in many cases, not all cases but do a good job about dealing 
with that, and we now are developing models that don't require 
you to be part of an HMO or a Kaiser but talk about bundled 
payments and the example I gave before about follow-up care for 
admissions, the medical home notion.
    These are all ideas that we need to not simply have a 
physician, but that you get a physician and you go see the 
physician and it's up to you to go back to see the physician 
but it's a more holistic--somebody used the phrase earlier, but 
on the general question, we see, that is our unions who bargain 
benefits, see every day the effects of high health costs.
    We're bleeding the system to death financially is what's 
going on. We're losing healthcare. We're also losing good jobs 
as a result. I mean, we're just lowering the living standards 
of people because of our political lack of will to tackle this.
    I think the reasons to do it are evident and they're 
overwhelming based on our experience, and let me just last, I 
know you're going to be working on your legislation quite a 
bit, but--and as I said at the beginning, if I had my druthers, 
you'd be doing a different piece of legislation.
    Other people on this panel have said similar kinds of 
things, but I think what you've done is a very good strong 
start. You've put a number of pieces together. You've built on 
what is working out there in many cases and you've said let's 
take the next step forward. That's the way we're going to get 
this done.
    I wish it could be different, but that's the way we're 
going to get this done. I would just urge you to move ahead 
along the lines that you've done and strengthen what you do and 
simply don't take the criticisms too hard. You have a Medical 
Advisory Council.
    People in that public health world have been saying for 
years we need experts to say here's the basic benefits that 
people have. Here's the protocols that people need to do. This 
isn't government control, as some people are now trying to 
criticize you for. These are just sensible sort of approaches.
    I think you put a lot of things in there that are good. 
We'd urge you to continue. I have spoken to some of the things 
that we think should be added to your package, but I would 
really thank you for the immense good start that you've made.
    Senator Dodd. Thank you. Mary, and then I'll go to you.
    Ms. Andrus. I wanted to go back to your question about 
whether or not doing nothing was an option, and I just wanted 
to point out from the perspective of people with disabilities 
and the way the current system works, it's not uncommon at all 
that they have to impoverish themselves and get into Medicaid 
to get the kind of care that they actually need.
    With the proposals we're talking about in the Kennedy 
legislation and the Finance product, as well, those kinds of 
changes can really make a difference to how those lives are 
lived in terms of being able to be in a work setting, be in 
their homes, be in their own communities.
    From our perspective, moving forward, making change, 
opening those doors, is really key to the future for a large 
number of people where doing nothing will either freeze them or 
pull them down, one or the other.
    Senator Dodd. Yes, Mr. Dennis.
    Mr. Dennis. For over 20 years, we've seen that the cost of 
health insurance has been the single most important problem 
among small employers, for over 20 years. We can't go much 
longer and still have it happen.
    Meanwhile, while this problem has been going on, of course, 
fewer and fewer and fewer employers, particularly small 
employers, are establishing health insurance plans. We think 
it's essentially people who are coming in to the market, new 
employers that are postponing it longer and longer and longer, 
more so than people dropping it.
    In any event, this can't go on forever.
    Senator Dodd. Yes. Well, let me just say that we need you, 
as well. This is a very complex issue. I don't know of another 
issue that we've grappled with as complex as this and one that 
deserves our undivided attention and the Majority Leader and 
others are determined that we go forward.
    We really need--having heard all of you, basically I don't 
hear any dissenting voices that the status quo is acceptable. 
Our job here then is not to let that become the outcome. We 
need to get this right and so we need your involvement and your 
participation if we're going to do this and I know Senator Enzi 
is determined to do it, Senator Kennedy is certainly and in his 
place I'm going to do everything I can, as well, to keep this 
    We'll leave here. We begin again at 6:30 for another 2 or 3 
hours tonight as just people sitting around a table, as 
colleagues to talk through this and where we are and how we can 
move this forward and again into next week as we begin and then 
a process of moving forward.
    My experience is unless you have something on the table, it 
just becomes a lot of talk and we need to get beyond the 
talking stage of this.
    I really appreciate it. You've been here for 3 hours. 
That's a long time to be sitting here and a large panel where 
you all didn't get to participate as much as you might like in 
that time. I'm very grateful to all of you.
    I want to say to my colleagues, as well, I want to say to 
Bob Casey who's taken a tremendous interest in children's 
issues and I'm very grateful to him. I have worked on those 
issues for a long time. I saw a study the other day by the way 
on obesity, since that's one of the four areas we've 
identified, and I don't know whether, Dr. Rosman, you've seen 
this or you, Doctor, as well, but there's some correlation 
between--I wrote the legislation with Lamar Alexander on 
premature births in the last Congress and now there's some 
study that's indicating that actually, there is a relationship 
between premature births and obesity. There may be a direct 
correlation. I would just point out to my colleague that may be 
something worthwhile to look at here, as well, because maternal 
care is something I hope we're really going to get engaged in 
this process because again the point that you've made, Doctor 
and others, that Bob Casey made and Jeff Merkley made, that 
idea of being involved at the earliest stages. I appreciate, 
Mr. Williams, your comments about those issues, as well, coming 
from a private carrier, how important that is, as well.
    I don't know if my two colleagues have any closing comments 
you want to make or any additional questions.
    If not, we'll leave the record open. This has been 
tremendously valuable and I want you to know that, and in 
Senator Kennedy's name, I thank you.
    The committee stands adjourned.
    [Whereupon, at 6:09 p.m., the hearing was adjourned.]