HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE
SUBJECT: HEALTH REFORM IN THE 21ST CENTURY: INSURANCE MARKET REFORMS
CHAIRED BY: REP. CHARLES B. RANGEL (D-NY)
WITNESSES: UWE E. REINHARDT, PH.D., JAMES MADISON PROFESSOR OF POLITICAL ECONOMY AND PROFESSOR OF ECONOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSITY, PRINCETON, NEW JERSEY; BILL VAUGHAN, SENIOR POLICY ANALYST, CONSUMERS UNION; WILLIAM D. HOBSON, JR., MS, PRESIDENT AND CEO, WATTS HEALTHCARE CORPORATION, LOS ANGELES, CALIFORNIA; DAVID BORRIS, OWNER, HEL'S KITCHEN CATERING, NORTHBROOK, ILLINOIS; KENNETH L. SPERLING, GLOBAL HEALTH MANAGEMENT LEADER, HEWITT ASSOCIATES, ON BEHALF OF NATIONAL COALITION ON BENEFITS; LINDA BLUMBERG, PH.D., PRINCIPAL RESEARCH ASSOCIATE, THE URBAN INSTITUTE.
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REP. RANGEL: The committee will come to order. And without objection the chairman of the Trade Subcommittee, gentleman from Michigan is recognized.
REP. SANDER M. LEVIN (D-MI): Mr. Chairman, I want to wait till more of our colleagues -- just give us 10 seconds -- sit down.
Mr. Chairman, we have been notified officially by the House historian that as of April 10th of this year that you and Mr. Stark became the longest serving members in the history of the Ways and Means Committee, in the history of our committee, and we all want to congratulate --
REP. RANGEL: Well, it's not true that when we came here that George Washington had black hair. That's just not so.
Well, thank you, thank you so much. This is the -- the committee will come to order. This is the third of a series of committee hearings on health reform. There is no question in my mind that this is not a Democratic Party issue or Republican Party issue.
All constituents are frustrated in getting access to health care, paying too much for health care, not knowing what is covered by health care, the frustration of not knowing what's in the private sector plan, not knowing where their government is. It has been a very costly experience and a very painful experience.
Pete Stark has worked very hard in making certain that we come up with an overall plan. I have assured the ranking member, David Camp, that on issues of health that we are going to get together, starting with staff, starting with subcommittee chairman, and making certain that at the end of the day we may differ in how we resolve the problem, but we darn sure are going to agree that this is a very, very serious national problem.
I like to yield to the chairman of the Health Committee and thank him publicly for the work that he's done over the years and congratulate him that we have a president that is now prepared to move in a direction that you had always hoped and dreamed for.
REP. FORTNEY PETE STARK (D-CA): Well, as the younger twin at today's celebration, I appreciate your yielding, Mr. Chairman. And I want to restate that this is an important hearing. This isn't just moving ahead to somehow mess around with the private market despite some feeling by people that that's our motivation.
Health reform has been a priority of the American public for decades, and precisely because the private marketplace doesn't work in the health insurance field today as -- that's why we have Medicare health. The private market wasn't there, and the government had to step in. That was not an easy accomplishment.
It isn't an optional consumer product. It's something that each of us will need at some point in our lives. And in the current system, those who need it most are the ones who have the most trouble being able to obtain it. Private health insurance companies make their money by avoiding risk, not managing it.
And we'll hear today from a number of witnesses who will talk about the problems of our existing system and the way to fix those problems in order to assume that every person in America has access to affordable quality health care.
Professor Uwe Reinhardt needs no introduction. He's a renowned health economist, Princeton professor. And he's been trying to help reform the American health system as long as I can remember, which may not be a resounding endorsement.
And as a matter of fact, there are some of us who traveled to Uwe's native state of Germany years ago to have him show us the German system, and found that he has been a great source for this committee for a long time.
Linda Blumberg is here from the Urban Institute. And she'll explain the problems of the existing marketplace and her thoughts on the best avenues toward reform.
We're also going to hear from David Borris, who has a small business in Northbrook, Illinois. Is it Hel's Kitchen?
MR. : Hel's Kitchen.
REP. STARK: Hel's Kitchen, all right. And so we're going to hear about the problems that Hel's Kitchen has.
We're going to hear from Bill Vaughan, who is well known to most members of this committee. He's with Consumers Union. And he'll emphasize the problems consumers face in today's system and what key reforms would help them obtain the coverage they need.
I believe that the -- Mr. Ken Sperling is the Republican witness. Am I correct?
MR. : Yes.
REP. STARK: Yeah. And he has -- he's a global health management leader, and has been publishing numerous trade and financial journals, and often quoted in New York Times. And he will talk to us about services for large employers and the retiree issues.
So we have a good panel. I look forward to hearing from each of our witnesses. And with that if chairman would -- I would yield to the distinguished ranking member, Mr. Camp.
REP. RANGEL: I want to make it clear again.
REP. STARK: Oh, I'm sorry. Whoop, I missed Mr. Hobson. And I apologize. He is the president, chief executive of the Watts Healthcare Corporation in Los Angeles. And he directs a staff of 300 people, manages a budget of $26 million, and is the -- has had many senior management positions in health services. We welcome you. I'm sorry, Mr. Hobson.
REP. RANGEL: Let me make it clear that although Mr. Camp and I hope that we can achieve a goal of a bipartisan agreement, the fact that that may be unattainable is not going to deter us from listening to each other, getting positions or ideas from the witnesses.
And I would want anyone in the audience that has ideas on how do we make certain that we have the broadest universal coverage, good coverage at less expense to our nation. That's what we both -- that's what both parties would want to achieve.
I yield now to Mr. Camp.
REP. DAVE CAMP (R-MI): Well, thank you, Mr. Chairman, for yielding. And congratulations to you and to Mr. Stark on your distinguished tenure in the Congress and certainly on this committee. That is a milestone, is a tremendous achievement.
REP. RANGEL: Thanks.
REP. CAMP: Last night I had a telephone town hall meeting with my constituents in Northern Michigan. And it was about health care reform. And I just want to begin by sharing the concerns of one of the many people I spoke to last night.
And this one particular woman was very -- they all were compelling, but one particular -- and I just want to mention what she said to me. She said, "We're a small business, and of course, we pay very high rates for medical insurance. I'm concerned because I'm a 44-year-old woman that is scheduled for surgery on Friday, and it's a bad surgery.
"I guess I'm worried that the government or socialized health care or anything that Canada does, I mean, the people that support those types of programs, I have to wonder, I have to ask, have they ever been through months and months of doctors and testing and wondering whether or not you're going to be chosen for surgery, chosen to live?
"I don't want to be one of those choices. We choose to pay for our health plan. It's not perfect. We don't get a lot. We have a high deductible. I'll be honest, I'm terrified. I don't know how we're going to pay for our medical costs. We are -- how we are going to pay for our medical costs we are racking up right now, but I choose to live. We have to do it. There is no other choice."
Well, Mr. Chairman, there ought to be a choice. And it's up to you, and me, the members of this committee, our colleagues in the Senate, and the president to come up with that choice. The time for comprehensive reform is overdue. And I'm committed, along with the members of this committee to help making it a reality this year.
In the press advisory announcing today's hearing, Mr. Chairman issued a quote that reads and I'm quoting, "America's health insurance market is dysfunctional. This is evident by the 87 million people who went without health insurance during the past two years and the millions more who have insurance that is increasingly unaffordable or inadequate.
"I am pleased to hold this hearing to examine the problems in our health insurance market and explore long-term solutions for reform." That's well said. I'd like you to know, the committee members to know, our witnesses and those in the audience to know, that's a statement I'd put my name on any day of the week and, yes, twice on Sunday.
The individual health insurance market is dysfunctional and costs for both families, and businesses, and taxpayers are far too high. It's just a great deal that Americans, such as the woman I spoke to last night, are willing to pay these exorbitant costs, and are still left with a mountain of bills. It says even more than having the federal government dictate their health care decisions scares them even more than, well, and I quote, "bad surgery," unquote.
I am confident we can work together on this issue. And I hope we can begin to do just that. Health insurance must be portable. That is, if you change your job or lose your job, you should not lose your health insurance.
Transparency is critical, both on the pricing side as well as the quality side. We must address pre-existing conditions, and we must make health insurance more accessible and affordable. On these issues, and many others, I think there is bipartisan agreement.
The American people want results with regard to health care reform, but they want the right results. As we meet, our Senate colleagues are working collaboratively and in a bipartisan manner to produce comprehensive health care reform. And I would like this committee to do the same. I think it's time, as we discussed just before this hearing, for our staffs to start meeting and begin those discussions, and hopefully begin negotiating.
If we do so, I see no reason why we cannot solve this problem in the coming months. If we do not do so, I fear the debate will disintegrate into the familiar though not necessarily partisan arguments that have prevented comprehensive reform from becoming a reality.
So, Mr. Chairman, I want to take you up on your suggestion. And I also propose that we begin this hearing, and that we start talking, our staffs start talking. And more importantly, we start writing a bill that will give every American access to quality, affordable health care.
And with that, I yield back the balance of my time.
REP. RANGEL: The chair -- the outstanding team of experts that Mr. Stark has suggested, we want to thank you individually and collectively for taking out your time to help us through this very complex, but important problem that we're facing.
We'll start off with Dr. Reinhardt, who is a professor of political and economic -- and economics and public affairs at Princeton. We thank you for coming.
As you know, we'd like to have as much time for questions by the members as possible, so therefore we have the parliamentary restrictions of five minutes. And without objection your full statements will be entered into the record.
So Dr. Reinhardt, let's hear from you.
MR. REINHARDT: Thank you, Mr. Chairman, and panels -- members of this panel for inviting me to this committee and to participate in this important hearing. My remarks are on the statement, which as you said will be submitted into the record.
I begin that statement by listening -- by listing the five basic functions a health system must perform. This comes from my teaching. Financing, risk pooling, purchasing, producing health care, and regulating it. And the question is who should perform each of these functions, the government, or the private sector, or, say, purchasing the individual?
And as far as I know, this hearing is really about the first three functions. Who should organize and control the financing, the pooling, and the purchasing of health care? Should it be private insurers only, should it be government only, or could there be a mixture of the two? I might as well say ahead of time I favor the mixture of the two.
As Congressman Camp said there should be choice.
And a choice of a public plan strikes me as one of the choices the American people should be offered along with private choices, which, of course, Canadians do not have. A private insurance for services covered by Medicare are not allowed in Canada, but we, of course, would, in fact, allow it.
And now which of these models you will pick really depends on the social goals you pose for health care, particularly on the social distributive ethic. If you treat -- as many Americans want to -- health care like private good, like food, for example, then there is a strong bias in leaving that all to the private sector.
If, on the other hand, it is the wish of the American people to treat health care like a social good like elementary education or secondary education, then it is unavoidable that government pretty much has to control or run the financing and the risk pooling functions, although it could delegate the purchasing functions as you do with Medicaid managed care or with Medicare Advantage. So those are the options, but the risk pooling would have to be controlled by the government.
Now the OECD countries and Canada included, Japan, Taiwan -- well, Taiwan isn't in it. But they all treat health care as a social good, like elementary education. And they build their systems off that ethic. And they stated in writing, you can see it, the Romanow Report of Canada puts the ethic upfront, these are our ethics, and from it follows the way we structure the system.
In the U.S., I've -- of course, I have lived here only 40 years, so it's a short time to get your head around this complex country. But I do not discern a shared common ethos for health care. It goes, some say it's a purely private good, it should be rationed by price and ability to pay, others say it's purely social good, like elementary. And in between you have incredible confusion.
I must be forgiven as an immigrant that I hear nothing but bad- mouthing of socialized medicine in this country. And that is exactly the system you preserve for the veterans. My son is a veteran. I always tease him, we don't like you because we put you into socialized medicine, the VA system. And we bad-mouth the system.
That to me is a cognitive dissonance that is very unhelpful in formulating health reform. The same is true when people say no one has the right to impose a mandate to buy insurance on me, but I have the right to get very expensive health care even if I can't pay for it by any. And this body participates in it by imposing EMTALA on a for- profit hospital. That is very confusing to anyone who can grow up here.
Now, from President Obama's statement, I infer he leans towards the social good ethic that he would like. That means health care should be financed primarily by ability to pay and should be distributed on roughly equal terms. If that be the ethic we want to pursue, then it can be fairly said, and I think industry members would agree, the private insurance industry does not now own to that ethic nor can it.
I don't think that -- of that industry as evil; vilifying, I think, is not the right thing. You just have to recognize that private insurer has to be actuarially sound; from it follows they have to raise premium when you're sicker. From it follows many of the things they do that look cruel but really are just the business that you're in. You have to deny people, you have to deny claims. That just comes with the turf.
So if you want President Obama's or the ethic that many members of this committee share, then you really have to take a hold of the financing and risk pooling. You have to very much regulate this industry with community rating, with guaranteed issue.
But if you put those two mandates on the industry, you must mandate the individual to be insured or the market will blow up as it has in New Jersey. There's famous literature -- (inaudible) -- Nobel laureate that shows these markets will destroy.
Now, I don't have time to go into all of the details of my statement. But I hear there is a problem that if you added a public health plan to private insurers in a reorganized market, that the public plan would have comparative advantage because Medicare pays lower rates. But if you look at my testimony, the range of prices paid by private insurers varies by a factor of six.
You have one insurer in a state, call him up and say, what do you pay for a colonoscopy? And what they pay, depending on which hospital it is, can vary by a factor of six. So I would flatly say there is no private payer level. There isn't one.
There is only a huge wide range of thousands of little. Every hospital gets a different rate from different insurers. And every insurer pays different hospitals differently. And sometimes one insurer will pay the same hospital five different rates depending on what the insurance product is.
So when you say you want to adapt the payment level of a public plan to the private industry, I would ask to which the lowest, the highest, the median, the average, the weighted average, what region do you average over? That's a huge can of worms. This is not easy to do.
If you took the average, then roughly half the private insurance plans would be Advantage because their prices would be lower than the public plan. So this is very difficult to do. And that requires a lot more thought.
But sort of in conclusion I would say, I believe that after having their retirement -- retiree health care blown away, 401(k) savings gone, revered companies marched towards bankruptcy, and a debauchment in the financial sector that is just nothing short of unspeakable.
It could be that the American people may have lost some faith in the private sector for their family's security, and that they would yearn for a government-run plan that's stable, permanent, and always there for them. After all -- I've said it in another committee -- in this country when the going gets tough, the tough do run to the government.
Some jet down here from New York, some drive cars from Detroit, but they do come to Washington for help because government is the only institution Americans ultimately trust. So to deprive Americans of the choice of a public plan would seem to me to require a very strong rationale and defense.
REP. RANGEL: Thank you, Doctor.
We now like to hear from Bill Vaughan. I join with Chairman Stark in congratulating you and Consumers Union for the contribution you made to our Congress over the years. And we like to hear you.
MR. VAUGHAN: Thank you very much, sir. And thank you for inviting us to testify.
Consumers Union is the independent, non-profit publisher of consumer reports. And we don't just test toasters. We try to help people with health issues and we -- big, big fans of comparative effectiveness research which we're using to save people, we think, millions of dollars in getting the most effective, safest, best buy drugs out there.
If Dante were alive writing about the independent health insurance market, it would be in the eighth circle just above where the uninsured are stuck. And it is exhibit number one for what's wrong with American health care.
I was going to go into that, but I think the opening statements of Mr. Camp, Mr. Stark -- (inaudible) -- New Castle, our statement documents why it's all goofed up and has some very moving heart rendering horror stories from people around the country stuck in that market.
It's easy to see why it's a dysfunctional market. First you've got basically for-profit insurance companies whose fiduciary duty is to make money for their stockholders. That's just the fact. And then you've got the distribution of health care costs.
Let's pretend that this Ways and Means Committee is the entire American health care system.
The 40 of you are it. And we're going to spend $2.4 trillion this year taking care of you guys.
And let's say the 50 percent of you who are -- (audio break) -- Mr. Rangel over to Mr. Pomeroy, Mr. Camp over to Ms. Brown-Waite would be 20 of you, 50 percent healthiest we'd spend 3 percent, ($)72 billion on you 20.
And God forbid, hope it never happens, but let me pick on the junior members, Mr. Yarmuth, Mr. Roskam. Let's say if you were the 5 percent least healthy, we would spend ($)1,200 billion on you two, ($)1.2 trillion on you two, ($)72 billion on the 20 in the upper row. It's a privilege of seniority, I guess. But you can try to regulate that. You could to try to get these for- profit insurance to try to cover you. It's like leading the horse to water, they won't always drink. It will always be a hassle. It's like, for a consumer point of view, you lose frequently. It's like that constant game of Whac-A-Mole, and it's just no fun. And that's why Consumers Union would like to see a public plan option out there, somebody whose fiduciary duty is to you and Congress, to the American public, and who would be delighted to insure you two.
Switching subjects a little bit, I have to say, unfortunately, on behalf of Consumers most of us are lousy insurance shoppers. We don't get a good deal. The evidence is everywhere in FEHB, in Part D. This is not something you go tripping off on a Saturday afternoon, let's go insurance shopping. We don't do a good job.
If you want to have consumers help drive this system towards value, and savings, and quality, we're going to need some help big time. My statement gets into it. But basically we're looking for an office that can help with what's the quality of insurers, place where you can go to complain, find out what others are complaining about, a place where you can get cost comparisons. And very, very important we need a place -- maybe it's NAIC, but the definitions of these terms.
Our current magazine issue has a story of a couple, thought they had hospitalization, fine print starts on the second day after the lab tests, after the surgical room fees. They get stuck with a big bill. Doggone it, hospitalization should be hospitalization should be hospitalization, drug coverage means drug coverage means chemotherapy means antiemetic. The common sense stuff the consumers need. And we need to define those out and -- so the public knows them.
The most important thing you can do is give us a manageable number of choices not this 40, 50, 60, even 80 choices of minor little differences that just confuse the marketplace. We need something like Medigap, which has A through L, even that's too much. Get it down to some meaningful choices.
And, yes, Mr. Camp, choices, but they could be A through G meaningful choices and before a person signs up, becomes eligible in whatever plan you guys put together the person has to see the cost and the quality ratings of the comparable plans that are out there. I bet you CBO would give you a ton of scorings -- savings for that.
Let me conclude, but just say I hope this Congress can become one of the great historical Congresses of our nation's history by finally after an almost 100 year struggle bringing every American affordable secure health care. Thank you very much.
REP. RANGEL: Mr. (Watson ?), president and CEO of Watts Healthcare Corporation from Los Angeles. Thank you so much for making that trip and being with us this morning.
MR. HOBSON: Thank you. And good morning Chairman Rangel, Ranking Member Camp, and distinguished members of the committee. You've received a copy of our written testimony, so I'll be brief with my remarks.
My name, again, is William Hobson. And I'm president and CEO of the Watts Healthcare Corporation in South Los Angeles where we operate the historic Watts Health Center, one of the very first community health centers in the country.
Over the past 40 years, which has been my entire professional career, I've worked with the community health centers across the country, starting in Cincinnati, Ohio, moving to Seattle, and most recently to California.
And I worked on the development and implementation of high quality health care services for the uninsured and at-risk populations in those communities. For two years, I oversaw the federal health center program at the Department of Health and Human Services as well. I had several years of federal service.
On behalf of the 18 million patients served by community health centers nationwide, I would like to take this opportunity to thank you for the committee's unyielding support for the national health center's program.
In this time of enormous challenges to our health care system in our economy, your faith in us and your support through the Recovery Act will allow us to rise and meet these challenges and continue to excel.
My testimony today will focus on the health center's role in the health care delivery system for the publicly insured and on the experiences of safety net providers in the insurance market. Last year, the Watts Health Center was a health care home to more than 23,000 patients. And we provided 98,600 medical, mental health and other specialty medical visits at three sites.
Approximately, 55 percent of our patients are African American and approximately 40 percent are Latino. A total of 8 -- 96 percent of our patients have incomes below 200 percent of poverty, which is quite poor when you look at the cost of living in Los Angeles County.
Our public hospital recently closed, so the community has lost access to specialty care providers and an emergency room. So now we see patients coming to us that are more sicker and with more complex health problems than ever before.
MR. HOBSON: Of the more than 23,000 patients that we saw in 2008, approximately 62 percent had no insurance coverage. These uninsured patients paid what they can out of their own pocket, and we use federal, state, and local grant funding and private donations to supplement the cost of their primary health care coverage.
Less than 1 percent of our patients had any form of private insurance coverage, and when they did have private insurance coverage, it mostly covered hospitalization and really did not cover primary care at all.
The rest of our patients are covered by public programs such as Medicaid, Medicare, and CHIP. These programs reimburse our health centers at very close to the cost of care through a health center specific payment rate.
From the perspective of the nation's health centers, our current public programs, Medicare, Medicaid, and CHIP, are uniquely qualified to meet the needs of the most vulnerable communities. Not only are we current -- our current public programs the only insurers that cover services necessary to meet the unique health needs of low-income and underserved people, they are also quite often the only payers that recognize the unique role of the safety net providers like health centers and the only insurance that pay them adequately.
By contrast, nationwide, the private insurance market pays health centers less than $0.50 on a dollar for the care that they furnish to the three million people nationwide that our health center program sees that are privately insured.
For all of these reasons, we believe that there is a real value in including a public health insurance plan as a part of any health care reform effort that this committee undertakes. The current third- party insurance payment structure disincentivizes many health care providers from offering patients coordinated case management and other enabling services, which quite often make the difference as to whether the care that's provided is effective.
By contrast, the prospective payment system, under which we operate for health centers, appropriately and predictably reimburses health centers for the comprehensive care that we provide. The same should be required in any expanded health insurance model whether public or private.
In Los Angeles County, we have formed an Independent Practice Association to provide Medicaid managed care services. And through that, we hold contracts with most of the HMOs that provide Medicaid managed care in the county. Though we're paid reasonable rates for our services by the county-owned plan, almost all of the private plans pay lower rates, and are much more difficult business partners from my perspective.
The private plans often move to exclude both hospitals and specialty networks that are the most geographically-accessible for our patients. We also experience poor customer service and difficult patient care management protocols with most of the private plans.
In conclusion, I would say that, in my opinion, there is a need for a public health insurance plan to assure that the most vulnerable populations and communities are not marginalized or redlined. I believe that members of this committee recognize the health center's program as an unprecedented health care delivery success improving patient outcomes and reducing health disparities in communities nationwide while at the same time providing quality care and estimated cost savings of approximately $18 billion annually to our health care system and to taxpayers.
I hope that you examine prudential reforms and that as you examine prudential reforms, you will look to health centers as a model, and consider the unique challenges health centers and other safety net providers face in the health insurance marketplace.
Thank you for your time. I look forward to taking any questions that you might have.
REP. RANGEL: Thank you. And you might want to share with us what it is with the community health centers that make you so popular so that when you do come to Washington, I'm amazed at the bipartisan support that the Congress gives what you do. And so the quality of care, but most importantly, the consumer sense of credibility of those that service them is absolutely amazing.
David Borris, the owner of Hel's Kitchen Catering from Illinois. I look forward to seeing the connection. Thank you for coming.
MR. BORRIS: Thank you, Chairman Rangel, Ranking Member Camp, distinguished members of the committee for the invitation to testify this morning on my experience with health insurance as a small business owner.
My name is David Borris, and I'm the owner of Hel's Kitchen Catering, a 24-year-old off-premise catering company located along suburban Chicago's north shore in Northbrook, Illinois.
Our business was born in a 900 square foot storefront with one employee, my wife, myself, and a handful of my mother and my wife's recipes. My wife and I both left good paying jobs in the hospitality industry to take our shot at the American dream of owning our own business.
Believe me, there were times mopping the floor at the end of a 16-hour day, with one baby and then two in the playpen in the office, when we weren't sure we'd made the right decision. But 24 years and three grown children later, we've a thriving business that now occupies 8,000 square feet. I'd say it's worked out pretty darn well.
I now employ 25 fulltime employees, and have been offering health insurance to my staff since 1992. When we began offering this benefit, we'd grown to eight fulltime employees, and felt a moral obligation to do right by the people who were making our life's work theirs as well.
Employees contributed 50 percent of the premium in their first year of coverage, and Hel's Kitchen picked up the entire premium after that. Beginning around 2002, though, we began to experience a series of annual premium increases that, taken together, now have us paying double per employee what we paid then, 2004, 21 percent, 2005, 10 percent, 2006, 16 percent, and 2007, 17 percent, and a change in carriers to avoid the quoted 26 percent renewal fee.
In 2008, we were finally forced to ask long time employees to again begin paying a portion of the premiums as the 17 percent increase was simply too much for us to absorb. I currently insure only 13 of my 25 fulltime employees. I spent 13 percent of my covered employees' payroll on health insurance premiums last year, and have no idea what the renewal is going to look like when it comes due this November.
Undoubtedly, we'll be forced to increase employees' contributions again, a pay --- an effective pay cut only further reducing their disposable income. This is no way to run a growing business. Six weeks ago, I was speaking with a number of my fellow business owners at a Chamber of Commerce networking function, and I was in the process of negotiating a renewal of our lease at the same time.
I asked them, "When we work on these lease deals, we look at 3- year, 5-year, 10-year, 20-year terms. How many of us would sign a lease with a landlord who said, 'I'll tell you what. I'll give you a one-year lease, and after 11 months, I'll let you know how much your rent is going to be for next year. Maybe it'll go up 3 percent, maybe 22 percent. I don't know. I'll let you know then.' How many of us would sign a deal like that?"
Well, you can imagine their response. And yet, that's precisely the situation we have with health insurance every year. I will pay approximately the same amount of money to insure half of my fulltime staff as I pay in rent in 2009. Surely, this is deeply broken. There must be a better way.
The small group insurance market is simply not working for small business. Let me share with you how the premium renewal/shopping game works in the current all-private health insurance market for small business. About four to six weeks before the year is up, our broker brings us quotes from five or six insurers.
We go over the benefit differences in the quoted premiums, and we choose the plan that we hope will work best for a majority of our employees. Then we're asked to collect and submit health histories from those employees. Two to three weeks later, we get the real premium. It could be 10 percent, 20 percent, or 66 percent more. We're not supposed to know why, but we're small businesses, our employees are like our family, we know.
We know that our 62-year-old general manager's wife has a kidney problem. We know that the chef's son is taking human growth hormone for his condition. We know. Because of the industry's routine discrimination against employees with health issues, small business owners like myself are faced with a moral dilemma that should not be ours to bear.
Are we to measure retention and hiring now with a yardstick that includes health insurance costs? Is it a value -- is a valued employee's job to be less secure, because they have the misfortune to have a sick child or a wife with cancer. These sorts of choices in the wealthiest nation in the world; it's unconscionable.
I want to make one thing perfectly clear as I conclude. As a small business owner, I'm willing to contribute to get good health coverage for my employees. But leaving cost containment and reform in the hands of the private health insurance industry, we've tried that, and it's failed.
We need a public plan that will reenergize true competition in the marketplace, set the bar for comprehensive benefits and cost controls, provide a quality alternative if the private market doesn't meet our needs.
The choice of a public health insurance plan can put the focus back on health outcomes and the quality of life, not profits and corporate bonuses. It can reinforce the best of what America has to offer, the promise that we all have, responsibilities toward each other.
We've waited long enough. The American economic recovery, the prosperity of businesses like mine, and our commitment to the employees that make our businesses what they are, all hang in the balance. Thank you.
REP. RANGEL: Thank you so much. I look forward to the testimony of Kenneth Sperling on behalf of the National Coalition of Benefits. It may appear as though the witnesses outnumber your view, but I intend to spent a little time I have in giving you an opportunity to express yourself beyond your testimony.
MR. SPERLING: Thank you, Mr. Chairman, Ranking Member Camp, and members of the committee. Thank you for the opportunity to testify at this important hearing on insurance market reform. My name is Ken Sperling, and I lead Hewitt Associates' global health care consulting practice.
Hewitt Associates is a human resources company, serving more than 2,000 U.S. employers from offices in 30 states. I've been asked to testify on behalf of the National Coalition on Benefits, a group of a 180 employers and business trade associations, who've joined together to work with Congress to enact reforms that preserves ERISA, and maintains uniform health and retirement benefits to employees and retirees across state and local boundaries.
We will discuss some of the issues we encourage you to think about as you consider rules governing the health insurance marketplace. We thank the committee for your leadership in preserving the employer-based system, and we appreciate your acknowledgment that many Americans want and should be able to keep the coverage that they have today.
NCB supports the need for health reform, but believes that reform should be careful not to disrupt or destabilize existing employer- sponsored coverage that most Americans rely on. Nationwide, the majority of Americans, a 177 million, participate in employer- sponsored health care plans.
This model works well, because it allows broad pooling of risk, enables participation by all regardless of health status, and creates efficient large scale purchasing. Even more important, employers have a vested interest in the health and productivity of their workforce and use the employer-based system to consistently produce innovative health care solutions that improve productivity, reduce absence from work, and lower disability costs.
But as good as it is, this system is increasingly at great risk given a combination of cumulative increases in health care costs and the current economic downturn. Despite the positive actions of many employers, there are many problems yet to solve. Federal health care reform is focused on several important priorities.
First, preserve and promote the employer-based health care system. Reform should seek to protect and expand the number of employers who provide health care benefits for their employees. The employer-based system has encouraged companies to be innovators of health care solutions and recent examples include extensive health coaching programs, incentives for wellness and pharmaceutical compliance, and efforts to improve cost and quality transparency.
There are promising outcomes emerging from programs that encourage people to engage in healthy activities, understand their risks, and manage their illnesses. Employees also understand and appreciate the employer's role in offering and financing health care benefits.
And a recent survey showed that three out of every four respondents valued health insurance as their most important employee benefit. And an equal number said they would prefer to have their employer provide this benefit rather than being provided a salary increase to purchase health coverage on their own.
Second, preserve and strengthen federal ERISA pre-emption of state laws to promote uniformity in coverage and reduce administrative costs. Approximately, 55 percent of employees who participate in employer-sponsored plans are in self-insured arrangements. The 45 percent are in insured programs. All of these plans are covered by ERISA.
Many of the employers who voluntarily sponsor these plans operate across state lines and they must be able to continue to offer uniform benefit packages to their employees, requiring employers to comply with a multitude of state and -- or a local government-imposed administrative requirements and benefit mandates would raise employer costs even further and result in unequal benefits for employees.
ERISA preemption gives each employer the flexibility to design coverage that meets the changing needs and disease burden of their unique workforce and apply these programs efficiently to all work locations.
Third, reform the insurance marketplace that individuals and small employers can have access to affordable insurance products. Insurance market reform is necessary so that small businesses and individuals can find affordable health insurance coverage.
Many large employers fear that rising health care costs may encourage smaller businesses to drop health coverage, and such a trend would lead to large employers assuming an even greater economic burden through increased cost shifting.
And fourth, build on the efficiencies that will come from continued investment in health information technology including the adoption of uniform federal standards to improve efficiency and patient safety. In closing, on behalf of the National Coalition on Benefits, we support the employment-based system in the preservation of ERISA so that employers have the ability to offer and maintain comprehensive and uniform benefit plans.
We believe that employers should remain an integral part of the U.S. health care system and that reforms that lead to lower health care costs will go a long way towards keeping American companies competitive.
Congress has the challenge of sorting through the details of how that would be accomplished with many competing views. As a member of the National Coalition on Benefits and independently, Hewitt would be pleased to offer its expertise, data, and tools to help the committee evaluate the impact of detailed reformed plans and coverage provided by employers today.
Thank you for your interest, and I would be pleased to respond to your questions.
REP. RANGEL: Well, thank you for your invitation of making the contribution to try to unwind some of the complex issues we face with dealing with energy and commerce, and also dealing with the Senate.
I do hope that you might submit a paper. And so I invite all of the witnesses to, as you see the direction that we're going, not that we're going to adopt it, but if we see that there is a sharp conflict, then -- and we have alternatives, I wish you would submit a paper and not wait to be called. That goes for all of you, but especially your organization that has such a wide membership.
Linda Blumberg -- Dr. Blumberg, who's the principal research associate of the Urban Institute. Thank you for being with us.
MS. BLUMBERG: Mr. Chairman, and distinguished members of the committee, thank you for inviting me to share my views on health insurance markets and health care reform. The views I express are mine alone, and should not be attributed to the Urban Institute, its funders, or its trustees.
Current health insurance markets suffer from many shortcomings. I'm going to focus my remarks on three that, I believe, are central, and what I think we might be able to do under reform to address them. First, private health insurance markets are not very organized making it difficult for individuals and employers to effectively compare options based on price, benefits, and quality of service.
Second, individuals and employers voluntarily participate as purchasers, but too often those who would like to buy coverage face barriers to doing so, including problems of affordability and discrimination based on health status.
Third, there is little competition between insurers, a consequence of a substantial amount of consolidation among insurers and health care providers in recent years fueling the growth in insurance premiums.
Insurance market reforms and subsidies to make coverage affordable for the modest-income population within the context of a more organized health insurance market are essential strategies to address these problems.
A health insurance exchange can be developed to organize the insurance market and to provide guidance and oversight in achieving reform goals. Making a public health insurance plan option available to purchasers can further promote competition in insurance markets, and could be an effective strategy for slowing health care cost growth.
Competition in private health insurance markets today focuses largely on obtaining the lowest-risk enrollees. Insurance market regulations are required to prevent risk-selecting behavior by insurers.
States allow insurers to risk select to varying degrees today so that they can protect themselves from the inherent nature of a voluntary insurance market, where individuals who expect to use significant health care services are those that are most likely to seek coverage.
However, the consequences of allowing insurers to use such strategies are that many who need coverage cannot obtain it, and many who have some type of insurance may not have adequate coverage to meet their health care needs.
In the context of a health care system that is universal where everyone is insured all of the time, there would be no longer any reason to allow discrimination by health status and coverage denials, benefit riders, preexisting condition exclusions, and medical underwriting can be prohibited with the costs of those with high medical needs spread broadly across the population.
In such a context, an exchange can penalize or exclude from participation companies that violate insurance market regulations, establishing market conduct rules to prevent evasion of regulations. An exchange can also provide for risk adjustment to account for any uneven distribution of risk across insurers.
Exchanges can also be designed to efficiently deliver health insurance subsidies, an essential element of reform intended to make coverage affordable for all incomes. Centralizing into a single agency such as an exchange, the subsidy determination, and the payments of subsidies to insurers would be a much more efficient approach to administration than under the HCTC experience we have -- are having today.
The exchange could exclude plans not meeting minimum coverage standards ensuring that all have access to meaningful coverage. Exchanges can also play an important role in cost containment. The lack of competitive pressures in the current insurance market leads to higher prices and less cost-efficient practice patterns.
An exchange can be given the authority to negotiate with health insurers over premiums. Other cost containment strategies would include requiring similar benefit packages be offered within an exchange to make it easier for consumers to compare prices for like policies, providing improved information materials, and incentives to choose lower cost plan options.
An exchange could also reduce administrative costs due to lower churning across insurance plans. Adding a public plan option to those offered within an exchange would significantly increase the cost- containment potential of reform.
A public plan could be modeled after the traditional Medicare program, paying providers based upon the payment systems Medicare uses, but with different cost-sharing rules and possibly some differences in covered benefits. Payment rates could be set between Medicare and private rates.
Medicare payment policies have been shown to reduce cost growth relative to private insurers. A public plan could create competitive pressures necessary to induce private insurers to be tougher negotiators with the providers in their plans.
The public plan could also be an innovator in the development of other cost-containment mechanisms. It would also create a lower administrative cost option for purchasers, putting pressure on private insurers to hold down their own costs.
I do not believe that a public plan option would destroy the private insurance market, or lead to a government takeover of insurance, as some fear. Those plans that offer high-quality services and good access to providers would survive. Those that innovate and offer limited networks may even be able to offer lower-cost plans than the public option.
I consider the public plan a very promising catalyst for cost containment, and one that I think would be considerably less of a dramatic change than other effective options, such as having the exchange negotiate rates on behalf of all participating plans or moving to an all-payer rate-setting system.
Thank you very much, and I'm happy to answer any questions that you might have.
REP. RANGEL: Thank you.
Mr. (Sterling ?), does your general testimony support a public plan option?
MR. SPERLING: First, let me clarify, Mr. Chairman, that the National Coalition on Benefits does, to my knowledge, not have a position on a public plan. I can speak from our experience at Hewitt working with large employers.
And employers are generally weary of a public plan option, because of the potential there is for cost shifting from public to private if such a public plan option's reimbursements were set at current public plan rates. And they -- the detail --
REP. RANGEL: Well, I would've thought that your group, with all of the complexities and conflicts we have, with our honest attempt to give the broadest possible best service at the least amount of expense that your group would've -- not you, but your -- not just employers, but that you would've given us the benefit of your group's feeling so that if you could persuade us to not have a public plan that we'd have solidarity and whatever.
But -- let me ask you then, if you're speaking for the employer is that if we have a transportation problem, say, that we have in the city and state of New York, and we're fighting desperately hard to have a set rate so that everybody would be able to go from one location to the other with quality service at the least consumer cost. And then we had a private limousine service that said we can kick up the quality of service, but you have to pay more.
Is that a poor analogy as relates to health care, that someone really wants to get the quality care at a community health center, because it has a great reputation, but others may not want to be seen at a public place, and so they want to pay higher? But to get a different quality and feel more comfortable with it, and they would go to an unregulated limousine service that's whole design is to make a profit.
I mean, that's their job. Is -- what's wrong with that analogy in saying that you stick with what you feel comfortable with, if you want your own services that you feel that you're entitled to, pay for it?
MR. SPERLING: Well, Mr. Chairman, I'm probably the wrong person to ask, because when I'm in New York I take the subway. And I really enjoy it.
REP. RANGEL: But you enjoy knowing that if you wanted to take a cab or a limo, it's there for you.
MR. SPERLING: Yes, Mr. Chairman. I think the difference is that if the fact that I wanted -- might want to take a limousine service and others want to take a subway, if the cost of my limousine service goes up because the subsidy towards the subway is not enough to cover its cost, then I might have a problem with that.
And that's the -- the issue that employers have, is whether or not their costs are going to go up by the existence of a public plan that might not --
REP. RANGEL: You know, what bothers me though and I did want to give you all of my time is that you don't represent employers. That's what bothers me really.
So I don't really think you're the best person to ask the question as does an alternative plan adversely affect the private sector in what they do, and for some, do very well, as opposed to one- size-fits-all with a public plan that they just may resent the whole idea.
In any event, what group of employers would you suggest we go to, to allay their fears that the price would go up by the private sector if there was a responsible competitive public alternative? Who would I go to that talks to you, so that you feel comfortable in expressing their view?
MR. SPERLING: At Hewitt, Mr. Chairman, we have relationships with mainly large employers, and those large employers would be a -- an important constituency to speak to about potential objective to a public plan.
REP. RANGEL: But how would I invite the large employers without knowing who they are? That's okay.
MR. SPERLING: I'm sorry, I -- I'm --
REP. RANGEL: It's all right.
MR. SPERLING: I'm not sure I can answer that question, Mr. Chairman.
REP. RANGEL: But it's kind of hard to say it's -- that that's your view about employers. But we all have different views. And I just want to make certain that our Republican friends who have real serious problems with the public plan would be able to bring those who have talked with employers, or those who really believe that it threatens to help delivery system so that there could be not just debate with politician lawmakers, but -- so that the public would have a better understanding of the difference in views or a combination of those things.
So I don't -- I appreciate your testimony. I yield to Mr. Camp, Camp --
MR. SPERLING: Well, thank you.
REP. RANGEL: And I'd like to ask Mr. Stark to provide the --
MR. : Thank you.
REP. RANGEL: -- direction for the witnesses. Mister --
REP. CAMP: Well, thank you, Mr. Chairman. And just for the record, Mr. Sperling is here on behalf of the National Coalition of Benefits. They represent a 180 employers, but I want to go to another point.
We're beginning these hearings on health care reform. We had one before the recess. The majority chose six of the seven witnesses. We got one. The majority again is choosing, at this hearing, five of the six witnesses, we have one. And I would say on this issue and that may've been the tradition of this committee.
But I'd say on this issue, at this time, on health care only, why don't we try to have a more balanced panel? I mean, I -- actually, there are things that Mr. Vaughan and Mr. Hobson said that I agree with, particularly with regard to transparency, Mr. Vaughan, community health centers, Mr. Hobson, but for the chairman to then say, we don't have the employers here to talk to when we're only given one witness.
So I guess I would propose, let's do things differently. I know that the chairman's been on the committee a long time. I know we've done it when we were in the majority a certain way, but we never had this historic opportunity on this important of an issue. And perhaps some more balance. We could have more debate. I mean, clearly, whether there's a government run plan or private option, is a very contentious issue.
Even the White House has signaled that they're not wedded to a public plan in the health care reform issue. So there are a lot of concerns. I'd like to vet that in a more thorough way simply than us only being able to have one witness who had to cover many other issues. But let me just say I think that --
REP. RANGEL: What did -- (off mike.)
REP. CAMP: I'd be happy to yield.
MS. : Chairman.
REP. RANGEL: Let me say that they're right. I have been stumped by the tradition of the committee, whether it's Republican or Democrat, but I want you to get your people that oppose the so-called public plan, and we would arrange to meet in the library to invite Republican and Democratic members to listen.
REP. CAMP: Yeah, the public record would be nice as well, but I would be happy to join the chairman --
REP. RANGEL: But you select the -- this is not on usual time at all, but the major issue has been not that we all don't want quality health care, but it has been opposition to the public plan. And I really, mistakenly, thought that since the witness you selected would represent the employers that he would cover it.
So whether it's public record or not, I would do all I can to make certain that we get broader representation on those people who oppose the public plan, because I want to make certain I feel comfortable.
REP. CAMP: Yes.
REP. RANGEL: And include that --
REP. CAMP: Well, and you --
REP. RANGEL: -- whatever time I've taken, I --
REP. CAMP: Well, and your comment was that --
REP. : But ranking member --
REP. CAMP: I'm reclaiming my time. Thank you.
REP. : Will you --
REP. CAMP: Just in a moment. Let me just --
REP. : Will you yield?
REP. CAMP: I will in a minute, but let me just say, and Mr. Chairman, you said the witnesses outnumber your view to Mr. Sperling. Well, clearly they do, because you will be able to get the five witnesses. But look, I -- we are going to have a number of hearings on this, I think we should also focus on some of those areas where we can maybe work together, transparency in pricing and quality.
I think Dr. Blumberg mentioned that. That is something that I think we can come together on. Obviously, preexisting condition, prevention, wellness, care coordination, what does that look like. How is that defined?
I think those are areas, I think some -- if we could have some more diverse testimony, I think it would be helpful. Clearly, information technology is something all of us on both sides have talked about. But let me just say, there is a lot of concern with regard to this, because look at Medicare's high readmission rates. The government doesn't always do it perfectly.
Most seniors have Medigap coverage because the, quote, "public option," isn't quite adequate, 65 percent, for example. Most insurers -- many insurers in many states require that their insurance companies be non-profit. We still have high costs. We still have all of the problems that have been mentioned.
So I guess I would say as we move forward, I hope that we can have a greater approach, and Mr. Lewis, I would be happy to yield to the gentleman from Georgia.
REP. JOHN LEWIS (D-GA): Mr. Camp, thank you for yielding.
We're sitting here thinking, in the past did you ever raise the question with -- when we were in the minority, with Mr. Thomas (ph)?
REP. CAMP: Yes, and --
REP. LEWIS: Maybe you want us --
REP. CAMP: Well, I'll let you finish.
REP. LEWIS: -- to be a little bit giving?
REP. CAMP: Now, Mr. Lewis, what I said was it has been the tradition of this committee. I wasn't in charge of it, frankly, to have -- the minority have only one or two witnesses. But this I think is a different issue. And I'm suggesting for health care only. So on tax issues, on human services issues, still do the five to one, or the six to one, or the seven to one.
REP. LEWIS: I think we -- you know, we --
REP. CAMP: You know, how about on health care?
REP. LEWIS: We had a --
REP. CAMP: How about on this issue alone --
REP. LEWIS: Well, we'd be --
REP. CAMP: -- let's do something different.
REP. LEWIS: I think, Mr. Stark would correct me here, and maybe Mr. Rangel. What about Medicare. How do we go by doing Medicare? How many witnesses do we have?
REP. CAMP: I'm suggesting on health care reform -- let's try something -- you are in charge you can do what you want. But let me just ask, I have a couple of questions I would like to ask.
Mr. Borris, you know, I appreciate your efforts in trying to provide heath insurance to your employees, and how difficult that must be. And I thought your testimony was very good. I've heard from a number of small business owners just like you, who are finding it very difficult to pay for their health insurance because it's more unaffordable.
I know in your testimony you suggested a choice between private and public plans. So you still would like to have a private plan available to your employees if they so choose, is that correct, a choice. But would that private choice that they have, would those costs come down, if maybe you were able to team up with other catering companies in Chicago to offer health insurance options to your employees. Do you think that would help you reduce costs, if for those who choose the private plan?
MR. BORRIS: Well, we've -- well, I actually had a guy in my office who was talking to me about, you know, could we get some sort of an association together, would we be interested. I assured with him that I'd certainly be interested in looking at it, but I don't know that the -- getting that together necessarily gives us any benefit in how we really control the costs in either in the provider costs or in the -- in the costs of our premiums coming down. Nothing has been put in front of me yet that has shown me clearly where that would be a benefit.
REP. CAMP: But if small businesses were able to join together and pool their risk, is that something -- is that a type of a reform. I'm not saying the only reform, but is that the type of reform you might support?
MR. BORRIS: My concern is that we've been suffering under this for about the last -- well, for a couple of decades, but particularly in the last six or eight years --
REP. CAMP: Yeah. Not to the exclusion of other reforms that may be out there, but is this one of many reforms that could occur?
MR. BORRIS: I would have to look at it and see, but I -- but leaving this solely in the hands of the private insurance industry hasn't worked yet, and I'm quite skeptical that it will work --
REP. CAMP: All right, thank you very much. I would like to ask Mr. Sperling, you know, we have studies that show that a government- run plan could force as many as 120 million Americans out of their currently held employer-sponsored insurance. And obviously, if we have choices, you obviously need to have a private plan as well.
How would the creation of a plan impact the cost of providing employer-provided insurance, and would it -- would it exacerbate the so-called cost shift that we've heard about, and how would employer- risk pools be effective?
MR. SPERLING: Yes, Mr. Camp, the studies I think you are referring to there were several. There was one that was done by the Lewin Group. There was another one that was done by Milliman. They have tried to quantify the cost shift that exists in the current system from uncompensated care and public plans to private payers.
Some estimates quantify that uncompensated care burden as 2 to 3 percent and the cost shift currently, from public to private cost shift as much larger. And those studies assume that a public plan would use Medicare as a basis for reimbursement. So a new public plan that might draw as much as a 120 million Americans into, kind of a Medicare-based reimbursement would certainly exacerbate the degree of cost shift that goes on today.
Lewin estimated that that cost shift might be as much as 30 percent, and put the private plans at a significant cost of advantage to a pubic plan. Now, I can't speak to the accuracy of those numbers, but if this kind of gap were to exist, it would significantly impact the viability of the employer-based system and call to question some employer's ability to be able to continue offer those kind of benefits to their employees.
REP. CAMP: Thank you very much.
I see my time has expired. Thank you Mr. Chairman.
REP. RANGEL: I would ask for now, Mr. McDermott, would you like to inquire?
REP. JIM MCDERMOTT (D-WA): Thank you, Mr. Chairman. It seems to me that we have assumed for today's hearing that there will be a public option. That may not be true, but let's talk about it as though there is going to be a public option. My problem with the public option is how to design it, so that it does not become a dumping ground for the problem cases of the insurance industry that they want to get rid of.
And I would like to ask whomever, maybe Dr. Reinhardt or Bill can start, if Medicare was made the public option, what would be necessary in national insurance regulation to prevent the private companies who want to dump their people who are problematic into, either the private insurance companies or the private manufacturers, into the government plan. What would you have to do to make that so, it would actually work?
MR. REINHARDT: Well, most other nations that have only private insurance options or that could have a public one, use a risk adjustment mechanism. Germany, quite explicitly, does that. So after the enrolment period is over, they assess the risk that each plan ended up with, and then have compensation payments.
That is, plans that end up with younger people, healthier people, make a payment to this risk fund, and plans with sicker people get a payment from that. So if you have an insurance market with a public plan and private plans, you would use that same mechanism. The Dutch do it, the Germans do it. I think the Swiss do it as well.
And the risk adjusters you need for that are pretty well understood now by health services researches that that's the most practical way to deal with it. So if the public plan actually ended up with a sicker risk pool, private plans, with a healthier pool, would have to make a payment so that the risk pool would be equalized.
I actually talk about that in my statement. You see, the playing field issue is not just payment. It is also the risk pool you end up with. Those are the two things. And the risk pool gets equalized in these other countries by having this compensation mechanism.
REP. MCDERMOTT: Is it your view that the creation of a public option, like Medicare for all would be a -- would force people out of the private industry. Is -- we've heard this number, 30 percent would be forced out of their private plan and into the public plan. Is that your understanding of a -- of such a plan?
MR. REINHARDT: Well, that's the language that gets used. Lewin doesn't use it, but the Lewin Group might imply it. What that would mean is that many, many employers simply say, we will no longer offer public employer-based insurance. Of course, those employees then would still have a choice of the public plan and private plans that sell individually based insurance. So I find that argument specious.
I don't think the word "forced" is the correct English here, because, yes, you wouldn't get it from the employer anymore, but you would still be able to buy private insurance in the individual market, a restructured market. I've never understood the scenario. I don't simply buy the scenario that a public plan would ultimately squish the private plans out of existence.
Simply, and the argument I've heard at Galen Institute makes it that the public plan will then deteriorate and give very low quality care and they paint the Canadian system. But if there is the option of a private plan, even if they had shrunk initially, they would grow again. I mean, these people don't seem to understand how markets work.
And I'm an economist. I cannot believe that if a public plan really didn't play well by the American people that you wouldn't have immediately a private insurance industry growing out of the ground offering them a better deal. Isn't that how markets work. So somehow there seems to be a lack of faith in the market, and that --
REP. MCDERMOTT: Mr. Vaughan.
MR. VAUGHAN: Just the thought is that it does become a bit self- correcting in that no, Medicare can't get too out of line with the private sector. You get access problems. And I think you guys have done a great job trying to protect Medicare. The doctor fix that goes on year after year, you are not going to let doctor pay get too far below where it is.
And sure, it's below, but it doesn't get too far out. And if it started to, you guys would either come in and protect the Medicare beneficiaries. So in a sense, there is a limit to how much Medicare can become cheaper, and so attractive to people that they will all leave the employer system.
REP. MCDERMOTT: Thank you Mr. Chairman.
REP. RANGEL: Thank you.
Mr. Herger, would you like to inquire?
REP. WALLY HERGER (R-CA): I would. Thank you. Mr. Chairman.
And before I get in my questioning, I just have to say that I share the incredible concern by Congressman Camp the fact that an issue that is so incredibly important to our nation, health care, that we have a panel that's basically, totally biased in one area. And just saying that's the way we've always done it, I don't think is the adequate excuse for what we are hearing here this morning.
And I just can't state that strongly enough, particularly on an issue when we talk about a public plan, i.e., a government run plan, which is what it is. And we see what takes place in Canada and every place they have a government plan, how you -- how can a private plan compete with that, but to not hear virtually any testimony on the other side, Mr. Chairman, I think is completely unacceptable on an issue that's this important.
And then to come back and say that we're going to meet in the library in a private area, is there something that the majority party would like to keep from the American public that you want to keep it private. That's my question, but --
REP. : Would the gentleman yield?
REP. HERGER: Not at this point. Later, I will.
Mr. Hobson, I want to appreciate. I want you to know that I appreciate all the work that you are doing to provide care to the uninsured and underserved in Los Angeles. And I've been a proud supporter of community health center for many years. And like you, I believe health centers play a critical role in our health care system and serve as a point of care of those who need it the most.
You've stated in your testimony that Medicare and Medicaid pay community health centers adequately while private insurers reimburse you below costs. That runs counter to everything we've heard from hospitals and physicians. So I think it's important for the committee to understand that the payment system for health centers is really quite unusual.
Specifically, I believe Medicaid is required by law to pay community health centers on a cost basis, which is far better treatment than most providers receive. In fact, in our own state of California, which has the lowest Medicaid rate in the nation, many health care providers get about $0.50 on the dollar. I have Critical Access Hospitals in my district who actually get paid based on cost on Medicare, yet are barely able to stay open because their Medicaid payments are so low.
Mr. Hobson, if Medicaid payments, to your center were cut by 50 percent, and again, I think members should understand that's exactly the situation in which many California health care providers find themselves, how would that affect your budget and your ability to deliver these critically needed medical services to our underserved communities?
MR. HOBSON: Well, first of all, thank you for your support of our program, Congressman. Congress established a prospective payment system that allows us to receive what is called a reasonable cost that is developed on a formula basis for reimbursement for patient visits for people that are on the MediCAL program in our case in California.
What this does is that it leaves the federal grant dollars that are made -- that are made available to us for the uninsured to actually go for uninsured. And this program was really designed to sort of have a bulwark against a cost shift in the other direction so to speak.
So if we weren't able to receive a full reasonable cost reimbursement for our Medicaid patients, then what would happen is that our ability to see a lot of the underinsured patients would be -- and uninsured patients would be diminished. And so that would really be the net effect of essentially a change in the reimbursement methodology that we have. I hope that answers your question.
REP. HERGER: Oh, that does. In other words, you wouldn't be able to continue functioning if you were paid the same way our hospitals are in California, you wouldn't be able to continue the services you have.
MR. HOBSON: Yes.
REP. HERGER: Given that same type of reimbursement.
MR. HOBSON: Right, particularly to the uninsured. Basically, this allows us -- when we are able to capture reasonable cost for the patients who are covered, then we essentially can -- our grant dollars then are focused, if you will, on our uninsured patients. And that is really what Congress intended -- it's at least that's my understanding, with the grant program that we have for community health centers nationwide is really to help, provide resources for care of the uninsured. So this is just one methodology that essentially Congress adopted that trust to make sure that the federal grant dollars are really maximized for care for the uninsured.
REP. HERGER: Thank you, Mr. Hobson.
REP. STARK: Thank you, Mr. Herger.
I heard you want to ask consent request.
REP. : Yes, Mr. Chairman, I ask unanimous consent to enter into the record, a study letter from the business coalition for benefit tax equity that has to do with the benefits for marital partners and it represents a number of organizations that are already providing and want some changes in the tax laws.
REP. : Without objection. Before I recognize Mr. Lewis, I just want the record -- because I'm afraid, Mr. Lewis is going to be upset that we don't have more witnesses representing his issues. I have not heard from Mr. Camp or Mr. Herger about requesting an additional witness or more witnesses, nor has our staff heard from the minority staff requesting an additional witness. And I find it somewhat disingenuous to raise that issue at this point.
REP. CAMP: Will the gentleman yield.
REP. : The worst part --
REP. CAMP: Will the gentleman yield?
REP. : Yeah.
REP. CAMP: We did through staff request more witnesses.
REP. : Like hell you did.
REP. CAMP: Yes, we did.
REP. : And I --
REP. CAMP: We decided to get everybody together.
REP. : That's wrong. You did not.
REP. CAMP: We did and if not for this hearing, we will for the future. Let's move forward then.
REP. : It would be better if you did it as we have always done it, instead of raising the issue here as a political issue, in what otherwise was decided to be an --
REP. CAMP: Mr. Chairman, look -- look -- I -- Mr. Chairman, the chairman said the witnesses outnumber your view in the opening statement. He is the one --
REP. : Mr. Chairman, may I just --
REP. CAMP: -- who brought this issue up.
REP. : Yeah.
REP. : And it's --
REP. : Bring in order.
REP. : -- and my point only is that this is a --
REP. : Well --
REP. : Mr. Chairman, there are many of us who would like to ask questions.
REP. : I have --
REP. : Okay. We can --
REP. : I just wanted to let the record show --
REP. CAMP: Let the record show that we did request additional witness.
REP. : Tell me who requested?
REP. CAMP: Both our health staff and also through the staff director.
REP. RANGEL: I deny that. Mr. Lewis.
REP. LEWIS: Thank you, Mr. Chairman.
Let me thank each of the witnesses for being here today -- (laughs) -- Mr. Chairman, I want to thank each of the witness for being here today.
Dr. Reinhardt, I want to thank you for your brilliant, well- stated statement, your views, this idea of the social good, the common good, that we all are in this thing together. I just think the time has come for us to do more than talk the talk. It is time for us to walk the walk. It is time for us to act. So I want to ask you what if we don't pass universal health care coverage, what are the costs if we fail to achieve universal coverage?
MR. REINHARDT: What are the costs?
REP. LEWIS: Yes.
MR. REINHARDT: Well, there are two costs. The first one is that individual families bear incredible agony. There was a front page story in the New York Times, yesterday, about a couple that lost their jobs and have a child with cancer and can't get care. And my wife read me the language. And it's revolting.
So there are -- and there are too many of these. I travel a lot abroad. I speak in Berlin and Beijing, et cetera. And if one relates to them those stories they cannot believe this happens in America, but it does. And then is of course the cost that people postpone early, timely intervention, and get to the emergency room only when they are very sick. And that also is of course a major cause.
And then the third cost is the job lock. I mean, one -- I'm not an enthusiast. And I'm generally known not to be an enthusiast of the employer-based system because the system where you lose your job, the minute your company loses interest in you, which is to say fires you, is really not a very reliable system.
And in Canada, there is much greater job mobility, because you can switch jobs and you don't lose your insurance. Here you don't have that. So there are these three costs.
REP. LEWIS: Furthermore, do you accept the idea, the concept, that health care is a right. Is a right, that's to be guaranteed by a government?
MR. REINHARDT: I certainly believe that's -- certain kinds, obviously, not everything, plastic surgery. But there is a presumption in this country that certain critically needed care is in fact a right, or you wouldn't have passed EMTALA, and you did.
So, yes, the bulk of health care that, for example, members of Congress and their families have, I believe, is a moral right, not a constitutional right of living in a civilized country. Mind you, I'm biased. I grew up in post-war Germany and in Canada. I live there. So my soul was programmed substantially there.
REP. LEWIS: Do the other members of the panel care to comment? Mr. Vaughan?
MR. VAUGHAN: We certainly agree. It's a right and it's time that it got fixed. I thought you might enjoy for just one second, we wrote to our subscribers that there is now no doubt of the growing wave of popular sentiment in favor of an efficient public health program to become obvious that the people of the country intend to see to it that the whole population shall benefit from the discoveries of modern medical science.
The only question before the country now is how soon, I'm afraid, sir, that was from our 1939 auto issue. I think we analyze cars better than we do the political situation. We supported the Wagner and Dingell's daddy's bill and we're still waiting after 70 years.
And the sadness is that the Institute of Medicine is half right on the number of deaths that you have because some people are uninsured. They said about 18,000 a year. They are half right.
More Americans have died since we wrote this, than were killed in World War II, and that's kind of sad.
REP. LEWIS: Ms. Blumberg, Dr. Blumberg.
MS. BLUMBERG: From my personal perspective, I do believe that access to affordable adequate medical care for necessary services should be an -- an ethical right in this country. I think we get caught not so much on the ethics; we get caught on the financing. And that's really where the rubber meets the road.
Because whenever we are going to make change of the type that we're discussing, it's going to involve a tremendous amount of redistribution. And who is going to pay and how much they are going to pay is really what catches us. Not so much the notion that we want people to get the kind of care that they need, because I think we could all agree to that.
REP. LEWIS: Thank you.
Thank you, Mr. Chairman.
REP. RANGEL: Thank you.
Mr. Johnson, would you like to inquire?
REP. SAM JOHNSON (R-TX): Thank you, Mr. Chairman.
You know I've said before it's our goal to get every American in this country access to affordable health care that's universal coverage. Health care coverage of their choice. In order to accomplish that goal, Congress needs to look at the insurance market to see what's keeping everyday Americans from being unable to afford health care coverage. When looking at the demographics of those currently uninsured in this country, we see they are all uninsured for different reasons.
Therefore our solution needs to address each of these problems. It can't be one-size-fits-all. Mr. Vaughan, as part of your testimony, you recommend the health care reform plan to include a core package of health benefits that must be offered to every single American. A national standard, if you will, for health insurance.
Since I'm assuming this national standard would be decided by government bureaucrats sitting around a table in DC, do you have any advice about what services and providers should be included in this standard. And since you were in the staff earlier, you may have tried to push some of those plans earlier. I don't know.
MR. VAUGHAN: Yes, sir. Thank you. There are bills out there that say -- and this resonates pretty well that everybody should have access to a health plan, kind of like what your member of Congress gets, which I think in AmeriCare bill, one of the bills that put in is Blue Cross Blue Shield standard, which is a pretty good package.
It's not as good actuarially as the Fortune Top 50, Fortune 100, but it's your most popular FEHB plan. The other thing to do is turn it over to NAIC. Give them six months to -- the National Association of Insurance Commissioners -- give it to them for six months to come up with a package, and but, no, I wouldn't expect --
REP. JOHNSON: They've got a lot of money to do that wouldn't they?
MR. VAUGHAN: Oh, they would want a contract --
-- to do some polling and get people in. And but, yes, sir, it has to be flexible. It has to evolve, as technology evolves, but --
REP. JOHNSON: Yeah, but there are things that are covered in some plans that aren't covered in others. I mean, how about mandating every insurance policy cover the cost of orthotic or prosthetic devices, for example. And this is already mandated in New Jersey and California.
MR. VAUGHAN: And it's covered in Medicare. The thing is -- the thought -- and in my testimony there would be this core package that everybody would have as a sense of security that they wouldn't lose their house, they wouldn't go bankrupt with this core package.
REP. JOHNSON: Well, I understand that, but what kind of -- what kind of deals are we going to cover. I mean, would we mandate every policy to cover acupuncture, for example.
MR. VAUGHAN: No, no but you could buy. In this market I was talking about where we would have some number. A through L, hopefully fewer, A through J -- G perhaps. You would have packages of extra. In Massachusetts, I think, it's, was it a bronze, silver, and gold package. And one is not too much value, and one is middle, and one is a Cadillac.
REP. JOHNSON: Well, how can you have a public plan that has various prices --
MR. VAUGHAN: Oh, that's the core, sir.
REP. JOHNSON: For example --
MR. VAUGHAN: Everybody --
REP. JOHNSON: For example, I think a 25-year-old male can purchase an insurance policy for under a $1,000 in Kentucky, and that same policy would cost ($)6,000 in New Jersey.
MR. VAUGHAN: Yes, sir. Be careful of that Kentucky one. We've done some articles that it doesn't cover too much, perhaps, but again the -- sir, the core -- a core security, and then, yes, go into the marketplace and buy extra packages, and compete on those extras, but everybody at least has a foundation. Does that -- hope that makes sense.
REP. JOHNSON: Thank you.
MR. VAUGHAN: Thank you.
REP. JOHNSON: Mr. Hobson, you stated in your testimony that 60 million Americans lack access to primary care because of physician shortage. I have heard from my constituents, doctors, I had a doctors' meeting just this week -- last week.
It is true in Texas, for Medicare, and recently, I think the docs, the seniors in my district have told me stories where it has taken almost a year to find a doctor that would take them, and then under certain conditions. You know, the Medicare program is getting to the point where the docs just don't want to take part in it, because they don't get reimbursed. Can you talk to that for me?
MR. HOBSON: Yes, sir. One of the things that we have to do as a community health center in the modern world is provide managed care services, and one of our obligations is to put together a network specialist that we have to refer our clients to.
We do that both for about 600 seniors that we have in a Medicare Advantage Plan and we have about 14,000 individuals in Medicaid managed care plans. We have a very difficult time trying to find various specialists who will accept Medicaid rates for the services that are really offered.
We have to address as, in my opinion, as a part of any managed care plan, any kind of health care reform plan, a way of making sure that we can provide a reasonable level of reimbursement for a lot of the providers. That we really need to make sure that we've got an integrated system of care operating with primary care connected to specialty care to subspecialty care in treating at least the most difficult to treat patients.
And I feel like that we have -- we're spending a lot of money in the system we have today. I think that there are a lot of efficiencies that really can be had in our system that would allow us to do that. That would allow us to pay a lot of the providers better.
Yes, I saw the issue -- the article in the Wall Street Journal about the fact that there are a number of providers that are dropping out of Medicare today. What that really tells me though is that Medicare is in drastically need of a tune-up and modernization in order for it to --
REP. JOHNSON: And what if Medicaid is worse.
MR. HOBSON: Medicaid is even worse. Well, that program as well, in order to make it in today's health care marketplace. Some low- income individuals on Medicaid essentially just can't get specialists available to them in --
REP. JOHNSON: Well, Medicaid being worse, that is a public plan, you know.
MR. HOBSON: Yes.
REP. JOHNSON: Thank you, Mr. Chairman. I appreciate the time.
REP. RANGEL: Thank you.
Mr. Becerra, would you like to inquire?
REP. XAVIER BECERRA (D-CA): Thank you, Mr. Chairman, and thank you to all the panels for your testimony. As usual, it's enlightening. Many of you've been saying much of what we heard today for quite some time, but we're pleased to have you come here and once again see if we can get it right.
Let me begin with a question to Mr. Hobson --first, by the way, congratulations on the work that you have done over the years in Los Angeles. We recognize that without some of the work that has been done by your clinic, the foundation, there would be a lot more Americans who would be in far worse condition health-wise. And so we thank you and all those who at the nonprofit level with very little money figured out a way to serve people who otherwise have no alternative.
Mr. Hobson, cost shifting. We hear that there is a big concern about cost shifting going on in Medicare. You have very little Medicare that you deal with, because most of the folks you see don't have insurance or have very little insurance.
MR. HOBSON: That's correct.
REP. BECERRA: And I'd like to ask you, do you have any sense about whether you see cost shifting as a community clinic?
MR. HOBSON: Well, as I mentioned during my testimony, the rates that we're paid by private insurance really requires us to cost shift in the other direction, to other sources of revenue because we can't get paid what it really takes to take care of them. And most of our patients that we have through that are in the managed care area.
But essentially we have -- we have very, very few privately insured patients. But my concern is really that we come up with a way of reimbursement for health care services that really recognizes what it really takes to get people well.
And if an individual really requires more health care navigation, health care coaching, some of the kinds of things that have been shown through studies that are most successful in preventing the kind of readmission rate that we wind up having in other programs, then, we can really address that problem. Certainly some cost shifting really occurs, but as I mentioned a little bit earlier, I think that's because of some of our systems really need a serious tune-up.
REP. BECERRA: Right.
MR. HOBSON: It's sort of like level the playing field and I agree with Dr. Reinhardt that basically we've got a situation where we've got the tools and skills in the risk adjustment area that I think could be a major avenue or approach for dealing with this.
REP. BECERRA: In essence, we have a system which almost encourages a provider whether a public insurer, a private insurer, a for-profit insurer, a nonprofit insurer, to figure out how to shift very heavy costs away from them; otherwise they won't hang around.
MR. HOBSON: That's correct.
REP. BECERRA: And so I think that's where most of us agree with what most of you've said that we need to figure out a system that, one, includes everyone, so you can't figure out ways to gain this system if you're an insurer. And two, which does it in a way that controls the costs that are involved.
Let me ask you all a quick question. Choice, should someone who has a decent health insurance policy have to be at risk of losing that through some kind of reform done by the Congress working with the president. Most of us believe, no, if you've got something you really like we're here to try to improve it, not take it away.
So you should have the choice of keeping what you've got. Is there any reason why we should limit choice, and as Dr. Reinhardt said, meaningful choice, not just a maze of choices, but meaningful choice. So that the consumers decide based on good information which hopefully will get them to become more educated about health care and its cost, but that the consumers make the choice about which plan to use.
And so does anyone disagree with the notion that if we're going to have choice or limit choice, it's the consumer who should limit the choice by the decision he or she makes on what provider to work with. Does anyone disagree with that?
Okay. Disagree, I don't want to -- with my time running short, I don't need you to agree with me, I just want to hear any disagreement. You need your microphone.
MS. BLUMBERG: I'm sorry. I would say that you have to be careful about how much choice you provide.
REP. BECERRA: I agree, and I said that earlier, you got to have -- as Dr. Reinhardt said "meaningful choice," but otherwise agree that consumers should have a choice. Should not -- we should not limit them from the get-go on what choices they have.
MS. BLUMBERG: I think we need to be careful about choice in insurance markets, because the -- when you have a great deal of choice, while there should be some options available to individuals, reselection becomes a huge problem.
REP. BECERRA: Okay. Dr. Blumberg, we're not disagreeing. I agree, if you give them a choice as we've seen so often with Medicare Part D, the prescription drug plan, where there were so many choices, people didn't understand what the differences were.
And by the time they got into them, some of plans decided to kill the program, and all of a sudden people had applied to a program because they thought it was the best -- it now doesn't exist. And now they have to go through the whole maze of figuring out what's best -- that I understand, but just the notion of choice.
The notion of choice belonging to the consumer not to the government, not to the insurance companies, but to the consumer. Does anyone disagree with residing the choice in the hands of the consumer?
No, good. And so Mr. Chairman, I know my time has expired, so I'd just ask one quick question of Dr. Reinhardt. So then if we should have this choice reside with the consumers, is there any reason why we would think that the consumers would not be able to make an informed decision on whether to have a plan that is based on a private, nonprofit insurer, a private for-profit insurer, or a public health insurance option.
MR. REINHARDT: (Off mike) -- point. I think that choice should be made available. The analog by not making it available would be to tell the American people, you can't have an elementary and secondary school public anymore. You must only private -- choose private schools. I would consider that limiting choice.
And I would have the faith in the consumer to regulate that. If the public plan does not behave, it would lose customers in this kind of country. Particularly, if we had the transparency on prices and everything, we crave for. It seems to me almost daunting to tell the American people, we don't really care what you want, but you're not going to get this choice.
So I agree with you.
REP. BECERRA: Thank you.
Thank you, Mr. Chairman.
REP. RANGEL: Thank you.
Ms. Brown-Waite, would you like to inquire?
REP. GINNY BROWN-WAITE (R-FL): Yes, I would sir. Thank you.
First of all, I want you to know, I love community health centers. They are -- Mr. Hobson, you know, your -- your model is duplicated in so many of our congressional districts and you do such a great job. Community health centers are a great resource and my hats off to you.
Mr. Vaughan, as I read through your testimony, and I saw the six pages of stories from people having health insurance policies, where they had problems with them, and I don't know how much of this you include in the article in consumer reports. But as I read through them, so many of them can and should be resolved through a plans appeals process --
MR. VAUGHAN: We would think so, yes.
REP. BROWN-WAITE: But it's almost like the rest of the story isn't told, like you told part of the story and the question is was the appeals process used. One of your statements, it said that a state legislator had to intervene.
And I'm sure every member of this panel has occasionally had to do that including, which I had to do this past week with the VA, which I know some of the first panelists mentioned. I mean, I had to do that with the VA in a health care issue relating to a veteran. So I don't think that any of the -- any of the plans out there right now are perfect.
MR. VAUGHAN: No.
REP. BROWN-WAITE: And I believe that Americans want and deserve better health care and better access to health care, but I just -- I question whether or not -- and believe me, as a state legislator, I fought for appeals panels and having the absolute right of consumers to be able to have that right.
I'm not sure how many other states have laws as pro-consumer as Florida does when it comes to health insurance appeals. But I just have a concern that a lot of these could have and should have been resolved. So I think my question to you is, is this the end of the story, or is this the middle of story? And could you document your comments?
MR. VAUGHAN: I will certainly get you and your staff the complete story, and I -- we went around the country, and we collected these and we asked people to send in, in their own writing. And I -- the only thing I changed was a few grammatical mistakes, and typing mistakes. So those are what I got from our field staff, and I will get you the full.
And yes, if it did -- I mean, that poor guy that, you know, he got in an auto accident and the air ambulance took him to a hospital and then it was told it wasn't a preferred air ambulance. He said, wait a minute. You know that had to be -- there had to be a way to fight that through.
REP. BROWN-WAITE: And sir, I want to point out to you that, in clearly the majority of states that is there, because it's up to the ambulance driver, the ambulance, the EMTs to say this is a critical situation, we need the nearest available transportation.
MR. VAUGHAN: Right. But --
REP. BROWN-WAITE: And insurance companies have to follow through if that medical determination is made.
MR. VAUGHAN: But that's part of the I think the lesson in these stories is, pretty educated people who responded, typed, web -- came in to us, felt so hassled, felt unable to do it themselves, or didn't find a way to get it resolved. This system is so hassle-prone and so -- I use the term Whac-A-Mole -- we need help by Congress really in setting some standards for what grievance and appeals system should be.
And 30 percent -- also in the statement -- 30 percent of the American public is considered health illiterate. You've got to do things at the sixth grade level, and when an insurance company starts hassling them ---
REP. BROWN-WAITE: Sir, I have to probably agree --
MR. VAUGHAN: -- a whole lot of people just throw up their hands and give up.
REP. BROWN-WAITE: Reclaiming my time.
MR. VAUGHAN: I'm sorry.
REP. BROWN-WAITE: I have to personally agree that we need more education on health insurance. The same way we need an auto insurance or any other kind of insurance. And I come from Florida; we have very high homeowners' insurance rates, which brings me to my next question.
Mr. Borris, you mentioned the fact that in seeking health coverage for your employees -- I'm sorry, Mr. Heller's head is in the way, I don't want to not look directly at you -- in seeking health insurance coverage for your employees. They would only give you a one-year rate. I assume you, like most Americans have homeowners or renters insurance and/or auto insurance.
MR. BORRIS: Sure.
REP. BROWN-WAITE: And, you know, I don't know about where you live in Illinois, but I can't -- and Illinois is certainly the home of lots of insurance companies. Most insurance doesn't give you a two- year rate on auto, or home, or anything.
MR. BORRIS: Sure, and I --
REP. BROWN-WAITE: The five-year rate you mentioned or a 10-year rate that's not going to happen because its risk adjusted.
MR. BORRIS: Except that -- our experience, at least, my experience hasn't been with the auto policies that we have for the fleet of five vehicles that we run with our general liability coverage that we have for our business that contains content coverage as well as our liability coverage for the food that we bring out to people, we have not seen the kinds of premium increases over the past several years that we've seen in health insurance. So if there is a conversation about reforming auto insurance and general liability and homeowners insurance, maybe I am not the guy to be here, but --
REP. BROWN-WAITE: I think that we fundamentally agree that you can't get a two or a five-year insurance policy any place for any kind of coverage. Would that be an accurate statement --
MR. BORRIS: Well, when I --
REP. BROWN-WAITE: -- disregarding -- disregarding cost.
MR. BORRIS: I understand, but when I'm making hiring decisions right, health care insurances is part of that hiring decision. When I hire people, I know I'm going to pay 7.65 percent to my FICA and Medicare. It's a clause that I can count on; it's a clause that I know is there.
If I had a public option that I could count on, and understand that there is a percentage of my payroll that perhaps and this would be my choice. I mean, I could leave myself in the private health insurance market, but if I had this choice where I could pay a percentage of my payroll to cover all my employees, not just half of my employees, but understand that upfront this was my point.
I know --
REP. BROWN-WAITE: But sir, you need to --
MR. BORRIS: -- would know what my clauses are.
REP. BROWN-WAITE: -- you need to also realize people thought that with Medicare and their yearly rates go up. So that's a, quote, "government plan," and those rates go up, that's not fixed, that's not locked in for three or five years, believe me as somebody with very high percentage of constituents on Medicare, I hear about it all the time.
MR. BORRIS: It's the contribution rate --
REP. BROWN-WAITE: Health care, health care --
MR. BORRIS: -- doubled that what it was in 2002.
REP. BROWN-WAITE: Health care costs are going up substantially and I've owned a small business, sir, and I know, I know exactly where you are. You want to help your employees in every -- the majority of small business owners want to be exactly there. And I think that we can --
MR. BORRIS: So you're saying that we can solve this problem strictly in the private -- I mean, is that --
REP. BROWN-WAITE: No, I think that we can come to a reasonable solution to this without totally freezing out and having, having taxes go through the roof to subsidize health insurance in the private plan. That's what my constituents say, they don't want, because what it will do is put small business owners like you and like I previously was, out of business. That's what my constituents are concerned about.
MR. BORRIS: Well, I would agree that --
REP. BROWN-WAITE: Thank you. And I yield back the balance of my time, Mr. Chairman.
REP. RANGEL: Thank you.
Mr. Pomeroy, would you like to inquire?
REP. EARL POMEROY (D-ND): Yes, Mr. Chairman. Thank you.
I want to begin by complimenting the panel. Mr. Borris, if your catering is anything like your testimony, you've got a wonderful business. I hope to be able to sample your wares sometime.
MR. BORRIS: Thank you.
REP. POMEROY: You have done a tremendous job this morning, appreciate it.
MR. BORRIS: Thank you.
REP. POMEROY: And Dr. Reinhardt, I used to be the insurance commissioner in the '80s. I have enjoyed you and your opining on health care for 20 years and you haven't lost a step.
MR. REINHARDT: Thank you.
REP. POMEROY: And so thank you for guiding us. Bill, good to see you in the Ways and Means Committee again.
Okay, I better get to the question. You know you try and find, and I guess I'm going to go off the topic of public plan. I am fascinated about community health centers. And I just think there's been so much good accomplished with community health centers, I am surprised health reform debate has not looked at that platform as a way of expanding cost-effective care options to people that are uncovered.
Or to people that are paying premiums that might be able to insure on a -- on a community health center and get therefore a lower cost premium, because of the lower cost provider. But maybe they haven't been talking about it, I am not sure why. Mr. Hobson, do you -- do you think that there is something there in the framework of community health centers as a care delivery format that could be more broadly applied in this health reform debate.
MR. HOBSON: Well, thank you very much for those observations. I am here really today to essentially to try to make the point that any kind of health reform option that you should consider should make sure that there is a clear place for community health centers in that option. Because I think that all of the studies that have been done show that we're both cost-effective as well as we're successful in terms of managing the clinical care of patients to the --
REP. POMEROY: I believe in fact that -- just because I am going to -- my time is going to run, I'd loved to have heard a longer part of that answer, but to follow, I agree with you in terms of what you've achieved. I mean basically, if there is a medical home in operation --
MR. HOBSON: Yes.
REP. POMEROY: -- it's in community health centers. And so if there's a chronic care being provided in a coordinated way, it's in community health centers. Many of the innovations we hope to advance through payment reform into health care delivery in this country for the purpose of elevating health care delivery and improving outcomes are already being done in community health centers.
MR. HOBSON: Absolutely.
REP. POMEROY: But the -- I've heard at least this thought that maybe mandated insurance get everybody a coverage, they don't go to community health centers anymore. They go to the places that are doing all the elaborate marketing, and is that -- have you seen a drop off at all in Massachusetts, for example, in utilization of community health centers as people have coverage or are going elsewhere.
MR. HOBSON: Well, I know in Massachusetts there has been a major increase in the number of patients at community health centers since they adopted their health care reform plan. But I can speak best to Los Angeles County.
Basically, people on Medicaid have an option of a Kaiser plan, a Blue Cross plan, Molina plan, and several different plan options through which that they can get care. And so they basically can access any providers that will take a Medicaid patient.
But we've got a very large number of patients in that system voting with their feet, continuing to go to community health centers, because essentially that's where they feel that they are really best served.
REP. POMEROY: Professor Reinhardt, is there -- do you view that -- are we missing something here, why aren't we looking at community health centers more robustly as part of the reform -- health reform and coverage answer.
MR. REINHARDT: I think for a lot of people that is actually a very good option, particularly if they're endowed with modern health information systems, so you can monitor them. In fact my wife and I help consult with China on what they are having health reform. And we said for your urban population those centers are actually a highly efficient way to treat people. You just have to make sure they get adequate funding.
REP. POMEROY: Right.
MR. REINHARDT: That is the important thing.
REP. POMEROY: That's the key.
MR. REINHARDT: The other thing in New Jersey, I know, our centers are also very excellent, but they have the same problem of access to specialist care. They are usually very, very good and primary care, but at least in our state, there isn't a backup with specialist care, which you could either put into the centers or you have to have a referral system.
REP. POMEROY: So in Medicare, we're seeing for example, we are getting killed with uncoordinated specialty care that proliferates in some places in this country, and adds the cost factor almost double to where you don't have such a specialist prone environment.
But in community health centers, another place where we're federally paying dollars there is no access to specialists. That's very interesting.
MR. REINHARDT: Well, there is this novel -- we call it the medical home. It came out of the Institute of Medicine and the community health centers are natural medical homes that could coordinate this care better than the fee-for-service, any fee-for- service plan normally would. So yeah, I'm very supportive of these centers too.
REP. POMEROY: I thank the gentleman. As long as the chairman is pre-occupied I am going to keep going here.
Dr. Blumberg, your observations.
MS. BLUMBERG: I agree with what Dr. Reinhardt said. I mean I think one of the big issues for many of the community health centers is making sure that they get integrated with specialty care and inpatient care. And that when health care reform is done and there is greater financing for those in low income populations that could be an infusion into these health centers to help them to do even better work and more work. And we're certainly seeing that in Massachusetts.
REP. POMEROY: You know if it was restructured in a way Mr. Borris would get a very substantial premium reduction, if he's still directing as a preferred provider at the community health center, at their lower reimbursement rates. I see my time has elapsed, Mr. Chairman, I yield back.
REP. RANGEL: Thank you.
Mr. Brady, would you like to inquire?
REP. KEVIN BRADY (D-TX): Yes, I would, Mr. Chairman. If you would like to go on and read that book while I do my questioning, I would like a few extra minutes as well, so.
I think it's important to have this discussion. I do think -- I wish it were more balanced. Truth is we do need serious efforts on reform in health care and I do believe though that the public has serious concerns about a government-run shadow plan that would go with whatever reforms we're trying to make here.
And I am not convinced the Medicare is necessarily the model we should be following. I mean, just take a look at it as it is today. It has serious quality issues to go with its care. It is rampant with fraud; some believe 20 to 30 percent of the funding is waste within it. It is bankrupt actuarially unsound.
Bankrupt, here in the next 10 years, making promises that it can't possibly hope to keep, making underpayments to not just providers, not just to doctors, but the hospitals as well that results in cost shifting to private plans that we all acknowledge.
The cost is not being held down, it's expected to triple over the years, so there is no cost containment as far as price, no transparency whatsoever. Ask any senior about their medical care bill, they will tell you about it.
And we've had a number of people testifying sitting in those very same seats who say that the procedures-based health care program under Medicare is the problem, not the solution to health care reform in America. So I have real concerns about a government-run shadow program. And I also, just from a free enterprise system, you know, you wonder, you know, why don't we have government-run options for catering companies.
Not all businesses can afford those catering costs and if we had a government-run option, you wouldn't have to make a profit; you wouldn't have to pay pesky taxes. They wouldn't have to even be actuarially sound, the taxpayers could pick it up, and there would be no overhead because that's just part of the government.
Truth is, I think there are very serious concerns about a government-run plan, rationing perhaps may be the fear that most people have that the government will be making decisions on their behalf, especially end-of-life decisions.
Mr. Reinhardt, I know you've testified today that what we need is a more logical form of rationing. Given that other country's initiatives in government rationing hasn't slowed cost growth, you know, why do you think rationing health care rather than providing medically necessary care is the best option for Americans?
MR. REINHARDT: When you talk about rationing, there are two forums of rationing. One is price and ability to pay. As every economics textbook will tell you, the role of prices in a market economy is the ration. And that's one approach.
And the other one is to do it through some non-price mechanism as the Canadians do it, which I must say puzzles me, why don't they get a few more MRI machines, it's not going to cost so much. Canada spent half per capita on health care, what we do and for that half you have to admit, you'd give them high marks for what they do deliver in spite of the fact that they ration.
REP. BRADY: Mr. Reinhardt -- doctor, can I ask you this. Do you see some semblance of rationing already in our current Medicare system in the sense that you look at MedPAC's recommendations each years for just reimbursements. They don't really measuring what the cost of those equipment, medicines, and staff would be.
They determine what they think the overall usage should be and utilization should be of physician services. And then they ration back the price by cutting it 3, 5, 10, 21 percent in order to fit the model that they want. If I have the result of that price reimbursement rationing, is fewer and fewer physicians willing to see our Medicare patients. So don't we already have a model on ration occurring in the government-run program we have today.
MR. REINHARDT: Well, the number I look at is not the price, I look at how much money does the taxpayer give physicians collectively per Medicare beneficiary year after year. And I looked at '95 to 2005 that rose per year at 5.8 percent compound. So that's not a bad growth rate. It's just simply the volume expands so much --
REP. BRADY: Uh-huh.
MR. REINHARDT: -- that the prices have to be kept low to keep a growth of 5.8 percent per Medicare benefits --
REP. BRADY: But that's my point. In effect through MedPAC we're rationing reimbursements based on what we believe that dollar amount should be, and I think there is fear that we would do the exact same thing with patient care under a government-run plan that we do today. And perhaps that can be resolved.
But I think it's one of the issues, as we move forward there is so much in health care we need to improve that we could make better. That's one of those areas I think we have to be especially cautious on.
MR. REINHARDT: But as Mr. Vaughan said, there is a limit to which fees can be held, but if I could refer you to page 14, 13-14 of my testimony, you look at the huge variation here as a California insurer, and look at what they pay at different hospitals for an appendectomy. Hospital A gets $1,800, hospital E gets $13,000; now is that insurer rationing?
REP. BRADY: Yeah.
MR. REINHARDT: Is that insurer rationing?
REP. BRADY: So are you thinking that in the Medicare system where we have vastly different payments from county to county that that's really a model we ought to be pursuing?
MR. REINHARDT: Well, you have exactly the same in the private sector; they just don't publish their numbers, because they are proprietary.
Now, I --
REP. BRADY: So it's not a good model if it occurs in the private system, but it's acceptable if it's in the government system?
MR. REINHARDT: No, it's neither. What we are actually, as researchers, now are looking at is bundle payments like the DRG for example, which is half bundled at least for the hospital, very innovative, copied around the world. And ideally we would like to have bundled payments for everything.
And once you had bundle payments, you could then compare how much the different regions charge. And I think those bundled payments would sort of converge on a more uniform level.
REP. BRADY: Mr. Chairman, I know, we ran out of time. One of the points you made, and until we move away from these procedures- based reimbursement and align toward the patient, I don't think we will ever get exactly where we want to. So thank you.
REP. RANGEL: Thank you, Mr. Brady. Mr. Thompson, would you like to inquire?
REP. MIKE THOMPSON D-CA): I would; thank you, Mr. Chairman and thanks to all the witnesses for being here today.
Dr. Blumberg, you mentioned that in your testimony the issue of meaningful coverage. And Mr. Hobson talked about preventive health care and how important that is. And that's something that I care a great deal about, and so I would like to direct my questions to the two of you, to begin with.
I believe that preventive health care needs to be a critical component of any health care reform that we do. I think it's extremely important and very soon I'm going to be introducing a bill that would require preventive health care for kids, from birth through 18 years of age, absent any co-payments or any deductibles that would make that prohibitive for families to provide that type of coverage.
As I say, I think it's the right thing to do. And I think the data clearly shows that it saves a lot of money for a whole bunch of reasons. Everything from catching a problem before it becomes acute saves money no matter how old you are. And with kids it saves even more money, and we've seen that preventive health care can provide smoking cessation, successful smoking cessation, intervention, and detect drug use.
I mean, there's just all kinds of reasons why it makes good sense to do that. I would like to know from the two of you if you believe it's important to set minimum benefit standards to ensure quality coverage and whether or not preventive care should be part of that. And then -- and maybe, Dr. Blumberg from you, how you would suggest that we best establish preventive health care standards for kids?
MS. BLUMBERG: Well, I will start by saying that the preventive care can provide a great deal of value and increased quality of life, so no doubt it's important to be considering that. We do need to remember that not all preventive care is cost reducing. Some of it is cost increasing, it doesn't necessarily mean it's a bad thing to do, it may be the very right thing to do, but there's a lot of variation in terms of the cost savings.
Certain types of preventive care will be cost savings and others will not. So I just didn't want to lead you astray. The literature is quite variable on that depending upon the type of preventive care we are talking about. I do believe that reform should have minimum standards for -- to make sure that individuals have adequate benefits.
Those standards should include necessary care to the extent that we leave particular components of medical care out. We leave that to be financed individually by those who need it the most. Once we include it in a package, that is shared broadly, and we spread the rest of that very broadly in the package. We allow individuals to get the care that they need for a low marginal cost because it's spread broadly, and still left on those who need it the most.
I do believe we should have particular components of preventive care in that package. I'm not, I have to tell you, I'm not an expert on prevention, and so I wouldn't want to be the one to be telling you which pieces are to be in, and which pieces are to be out.
REP. THOMPSON: Is there some place that we should look to establish what those standards should be?
MS. BLUMBERG: I definitely think that this ought to be a discussion that's done in conjunction with the organization. There is a number of organizations, I can provide you with some names afterwards, if you like, that focus on preventive care and also with the -- particularly since you are concerned with children, the American Pediatrics Association.
REP. THOMPSON: Thank you. Mr. Hobson?
MR. HOBSON: Yes. I concur with many of the comments that were made. I think that it is really essential that we make sure that the basic preventive services are part of any benefit package that's really adopted under a health care reform.
I feel that -- to make sure that we have pediatricians that are really involved in establishing the preventive services for kids. That we have specialists in adult medicine that basically can look at the various age groups, and establish the essential preventive services, so that the list that you would come out of that kind of analysis really wouldn't include everything, but really would include those kinds of things that based on evidence-based medicine that you really would not want to leave out.
And it's just been our experience that all the time that these items are not necessarily covered. But in addition to that, the kind of information that we can make available by health education classes, like we have every single day of every week in our program, I think, are of immense benefit, particularly to patients who are at risk of diabetes, and patients who don't basically have the resources for -- say for instance, exercise classes. We basically have exercise classes available for our patients free of charge every Thursday at our health center.
REP. THOMPSON: Okay. I don't want to minimize the importance of preventive care for adults, that's important too, and I'm a proponent of that, but I did want to focus primarily on the kid stuff. So thank you all very much.
Thank you, Mr. Chairman.
REP. RANGEL: Mr. Davis, would you like to inquire?
REP. GEOFF DAVIS (R-KY): Thank you, Mr. Chairman. I appreciate the time that all you have taken to prepare and come in today. I think in particular, when Mr. Vaughan made his comment on Kentucky, I owned a small business, provided a Cadillac plan 100 percent paid for by me.
And when Kentucky House Bill 250 was enacted in 1996, it had the nickname, Hillary Light (ph) in the business community. It actually drove people off of health insurance, because of the increased state mandates, and in fact 45 or 47 carriers left the state.
I watched my rates nearly triple by the time I came to Congress. And that was one of the things that made me a political activist. Frankly, it was the inefficiency of the government plans that actually drove cost up, and many people found themselves uninsured as a result of that.
But just shifting over, I appreciate Mr. Borris' comments as well. Being a business owner, I think we've shared some of the same things. You tend to get active on the issues you care about, it certainly influenced me. But just for the record, I just would like to confirm one thing, are you a Democratic committee man back in Illinois?
MR. BORRIS: Yeah, back in Illinois, we, in our little Lake County, in my Moraine Township precinct, yeah, I am a Democratic precinct committee man.
REP. DAVIS: Okay, thank you. I just wanted to confirm for the record that you were in fact an activist as I was before I ran for office.
MR. BORRIS: However, I also want to assure you that my customers are both Republicans and Democrats.
REP. DAVIS: It's always good to maintain bipartisanship in business, I agree with you.
MR. BORRIS: Right.
REP. DAVIS: Actually just shifting over, coming back to the business side for a moment, my question actually is to Mr. Sperling with the Coalition of Business Benefits. The consumer union supports restricting employers' ability to tailor health care coverage to best meet the needs of employees.
It concerned me, certainly, as a business owner, I faced many challenges to tailor a plan that we wanted. It didn't necessarily fit with the state mandates, actually different types of coverage. What do you think about such a proposal on restricting that flexibility for employers? Do you think maintaining flexibility is important?
MR. SPERLING: Thank you, Congressman. The coalition that I represent is -- feels very strongly that maintaining the flexibility that ERISA provides is probably their number one issue. And that having state mandates and having to deal with the cause of those state mandates, and the cost of administering, and complying with those mandates would cause problems for employers.
It would cause a multitude of issues in moving employees from location to location, because there would be winners and losers. They would want to see equal treatment for all employees. At the very worst, it would drive the employers to make decisions on where they wanted to do business, to states that might have the least burdensome mandates.
And at some point, employers would start to rethink whether to continue offering health care benefits at all. I think your question also gets to kind of standard benefits, if I am come, correct? Or minimum benefits?
You know, speaking from a Hewitt standpoint, working with many large employers, the employers really value the flexibility that they have in designing their plans, tailored specifically to their workforce needs, and health concerns.
And I think a lot of employers would want to preserve that flexibility and that choice. And for prescribing a standard benefit, it would be concerning to many employers, because they don't think of their health care benefits as one-size-fits-all.
In some cases they have identified health risks in their populations like cardiovascular risk or diabetes risk and improved benefits for those types of conditions to make sure that there was no financial barrier to access care, and employers like having that flexibility.
REP. DAVIS: Would anybody else on the panel like to comment on that issue of restricting flexibility?
MR. : And sir, our hope would be that there is a minimum level of health care for everybody in this country, and most ERISA plans I think, I wouldn't -- we wouldn't affect or you wouldn't be in this marketplace I was talking about.
We are talking about for the people who don't have adequate coverage, or are in and out of the market, or whatever. They would have a chance to select among a range of plans, but enough that not so many as to be confusing. Enough to have choice, enough choice where there could be competition between these plans and people would get a better price, but for the good ERISA plans I don't see anything we are saying that would change that. But we do hope there is a minimum.
REP. DAVIS: And you know, my concern with the inefficiencies in the process; the way the funding for health care works, if I look at Center for Medicare Services, for example, the Part B premiums have doubled since 2001. And we are going to be dealing with spiraling cost increases there as well.
Would you agree that the Center for Medicare Services doesn't simply need more money but it needs to be significantly reengineered to be more efficient in service delivery?
MR. : Sir, I think, it's the whole American health care system. Medicare just sort of fluctuates around what the private sectors, so we are all in trouble --
REP. DAVIS: Well, I would disagree with you. I would suggest that every medical provider that I know in this -- in my district, which are many, many doctors, hospitals, secondary care, other forms of professional care, are all constrained by the structure that's imposed upon them by the Center for Medicare Services.
Their billing, their overhead, the regulatory framework that produces cost -- you know, we could go, we could go on and on. And so those costs are going to be carried -- Mr. Borris' business had that, had to deal with that indirectly. My business had to, Ms. Brown- Waite's business.
Wouldn't you agree though that if we are going to move into a dialogue about improving it overall that very substantive changes would need to be made to the actual process by which CMS functions to make it more entrepreneurial, that a person in the private sector could actually understand?
MR. : I would urge everyone go back and read the MedPAC testimony that an eighth of the nation's hospitals that are the best hospitals in terms of not killing us, of giving us the best care, they make money on Medicare. It's the other seven-eighths whose costs have been unrestrained, and the insurers are not holding down costs.
The question is not so much is Medicare underpaying, it is why aren't these big insurance companies in this country doing a better job of restraining costs?
REP. DAVIS: Well, having seen it firsthand with my mother's death, she was processed through the Medicare system, I would suggest to you that it's not simply an academic matter. That the reality what I observed personally, and hundreds of other folks my age, and middle age watching their parents go through the end-of-life decisions that you've mentioned I think was maybe two of us up here would consume the majority of costs.
The thing that I witnessed, which comes back to this issue of driving costs for procedures, they were driven. They drove costs and this was entirely within the framework of Medicare, it wasn't in private insurance.
I know I've exceeded my time and I will yield back to the Chairman. Thank you for your greatest indulgence.
MR. : Thank you.
REP. RANGEL: Thank you. Mr. Larson, would you like to inquire?
REP. JOHN LARSON (D-CT): Yes, I would, Mr. Chairman. And congratulations on your longevity, and quite a remarkable achievement, Mr. Chairman.
And I have a couple of questions for Dr. Blumberg and for Mr. Sperling, and they are in this context. Of course, the whole notion as you suggest in your testimony, Dr. Blumberg, about innovation is something that is very promising for the whole field of health care.
And one of the things that has been highlighted is the creation of a public option within an insurance exchange will, as you indicate, force insurers to innovate. Could you elaborate on that or could you give me any kind of specific illustrative example of what innovations we might see?
MS. BLUMBERG: Sure. I think right now there are really in most markets, particularly in metropolitan areas what we are finding is that there is very little competitive pressure on private insurers. There's been a great deal of consolidation both at the insurer level and at the provider level in recent years. And that has lead to increasing helping to push further the growth in health insurance premiums.
And when we don't have a real competitive market, putting in a public plan actually could be a catalyst for competition, because suddenly then there is a competitor in the marketplace that has the potential through a number of avenues, through payment rules, through lower administrative costs, to provide a potentially lower cost option in the marketplace.
This should then, kind of get those entrepreneurial, those creative juices going in the private sector that have been allowed to atrophy for a lack of need essentially because the cost, the growing cost had been able to -- been pushed back on purchasers.
And say, listen, you know, in order to maintain your market share, you are going to have to think about what's going into your administrative costs, what can you do to hold them down? What's going on with in terms of your negotiations with providers it's time to get really serious about it and look at costs.
It's time to look at management techniques that are going to help to lower costs. It's time to be serious about managing high cost medical cases, which the private insurers do believe that they can do. So I think there is -- there really are a number of avenues that we value private insurers on, but that we really haven't been able to take advantage of in the marketplace off late, especially public private enterprise.
REP. LARSON: Mr. Sperling, would you have a different take or would you agree with Dr. Blumberg's assessment?
MR. SPERLING: I would add from a Hewitt perspective working with large employers, where 55 percent of employers are covered by self- insured plans. We are not talking about insurance company money here, we are talking about the money of the corporation, and these companies push their insurance companies extremely hard and they take it upon themselves to innovate.
And we've seen a tremendous amount of innovation coming out of the private sector in terms of health care with -- as I mentioned in my testimony with coaching programs, consumer-oriented designs, value- based benefits.
These innovations have been coming through the private sector to try to improve the health and productivity of the workforce and try to control cost. And say that the employer marketplace supports the concepts that are evident in the large marketplace that work well like large pooling to spread risk and purchase efficiently.
And if that will end up increasing access to small companies and individuals, those concepts should be considered very seriously, because that works in the private sector.
MR. LARSON: Well, in Mr. Borris' testimony, he talked, and what I hear most frequently when I'm back in Connecticut, is how small businesses, you mentioned large corporations, but when you talk about a small business, how this innovation in essence help out the small businessman?
Will the competition work, or do we, as Mr. Borris suggests in his testimony, does he need to be a part of a pooling mechanism that allows him to join with, let's say, municipalities or states, or be able to pool resources in a way that you can lower rates. Would you agree, disagree, how do we help Mr. Borris out?
MR. SPERLING: Certainly, certainly mechanisms that will allow small businesses and individuals to come together and purchase like large businesses will be valuable because it ends up creating more efficiencies in the system. But the innovations that the private sector has driven by largely large corporations find themselves into the small business marketplace, because they are adopted by insurer companies as standard practice.
REP. LARSON: Dr. Blumberg, will you?
MS. BLUMBERG: I think that what we need to remember with the small businesses is that they are at a number of disadvantages. Number one, they have higher administrative costs than the large businesses, and that affects their premiums.
They also have a much lower ability to pull health care risks than the large businesses where self-insuring do. And we also know that they have by and large a lower wage workforce. And so, we really need a multi-prong approach to help the small businesses.
What an exchange can do for you, which an association health care plan cannot, is you bring together a significant portion of the population, the small businesses, the individuals to pool risk very broadly. Not to select based on risk as we see now, not to have prices varying, as Mr. Borris had experienced as a function of the health status of his particular employees. And then we also need the support of low income subsidies because a lot of these workers are low waged and lower --
MR. LARSON: In the final analysis, doesn't the government have to take stock or at least be aggressive in pursuing if we want to make sure that all preexisting conditions are covered.
MS. BLUMBERG: I completely agree.
REP. LARSON: And if we want to make sure that catastrophic care, which of course accounts for the great actuarial swings that people -- experience is taking care of -- if government takes care of those pieces, can't we allow the entrepreneurial and innovations to take over in the private sector and join collectively with an option plan?
MS. BLUMBERG: I think what we've seen by the dominance of a very small number of insurers in most markets and the consolidation of providers and their strengthening power in the marketplace to avoid having to negotiate rates with the insurance plans is that we are not really seeing true competition in these private insurance markets.
And that's why I think something more aggressive such as the introduction of a public plan could catalyze that. I think that the public plan option is less aggressive than other options that we might have to pursue down the line, if we don't go there such all-payer rate setting.
MR. LARSON: Thank you.
I'm sorry, Mr. Chairman.
REP. RANGEL: Thank you. Mr. Reichert, would you like to inquire?
REP. DAVE REICHERT (R-WA): Yes; thank you, Mr. Chairman. I thank all of you for your time today.
We all come from obviously different backgrounds. My experience in the health care world is from my previous law enforcement experience as the sheriff in the Seattle area. And with 1,100 employees, and watching my insurance costs go up, trying to provide service to King County.
Insurance costs were increasing by about 17 percent a year. So we have to try and balance the budget that's allowed to you by the county council. And of course all those employees wanting to be covered by health care and all sorts of questions. And it is now, you know, great to have the opportunity to be here to ask some experts about what their thoughts are on behalf of those people that are back in the King County and Pierce County in Washington state.
Dr. Blumberg, you mentioned cost management. Can you kind of expand of that just a little bit for me?
MS. BLUMBERG: Sure. For example, we saw that when there were greater financial pressures on the health care system in about 10-15 years ago, when we saw a greater presence of managed care in the markets that the insurers took great attention at innovating to finding ways to reduce cost growth in order to gain market share.
So that we know that insurers can innovate, they can create management systems that are both going to address the way that care is delivered. And the extent to which it is delivered efficiently to look at the high cost cases which are, you know, the largest amount of health care dollars are going to a very segment of the population. How can we better manage those cases efficiently and but right now, there really isn't a lot of incentive for them to do so, but I do believe --
REP. REICHERT: Now, we do know that some hospitals are engaged in cost management. Are you aware of some hospitals and insurance companies working with -- I just visited last week Children's Hospital in Seattle.
We have been frequent visitors over the last year to Japan, to the Toyota production line there and looking at how they efficiently run --
It sounds a little bit bizarre, but they apply the cost-effective ways of examining their business, and how they manage their production line, and they have applied some of those things to Children's Hospital in Seattle. Are you aware on any insurance companies that are or other hospitals that might be engaged in that same sort of process, and looking at sort of a process mapping adventure?
MS. BLUMBERG: There certainly are hospitals and insurance companies that are thinking about costs, but what I'm suggesting is that the way the market is structured right now there really isn't a strong incentive for them to do that in a lot of markets.
Some markets are very different. We see certain markets where there is a lot more competition, but the majority of them, there isn't. And so that's why, I think we need to do something in order to give them the -- a bit of a stronger incentive to do just what you are discussing.
REP. REICHERT: Well, in your testimony you suggest that a new government run plan, should implement price controls to keep provider reimbursements under control. Is that correct?
MS. BLUMBERG: I do believe that we could hold down provider payments below the levels at which they are and still provide high quality care, yes.
REP. REICHERT: But studies -- some studies have shown that 120 million Americans could lose their employer-based health coverage if a government plan was created. Are you concerned about that?
MS. BLUMBERG: I think that what you are referring to is the cost-shift argument, is that correct?
REP. REICHERT: Yes.
MS. BLUMBERG: Okay. Well, the literature -- the economic research literature really does not empirically support the existence of a significant cost shift. The Medicare Payment Advisory commission has just recently come out with a study in March which looked precisely at this and also confirmed results of other researchers, colleagues of mine at the Urban Institute that they had done research in this area, a number of years ago. And what they found is really that the -- those hospitals that have high costs are those hospitals that are not in areas in which the financial pressure of the --
REP. REICHERT: But that's only for hospitals, right? What about physicians?
MS. BLUMBERG: Whether there is a specific literature on cost shift on physicians, I'm not aware, but the big dollars are in the hospital sector, and you really don't find any evidence --
REP. REICHERT: The price controls in Medicare, I don't think we -- excuse me.
MS. BLUMBERG: -- in the cost shift in the hospital sector.
REP. REICHERT: In price controls in Medicare, aren't they expected to resolve at a 21 percent cut in physician reimbursements for next year?
MS. BLUMBERG: Well, I think we should talk about -- I mean, I think the issue of the sustainable growth rate is an important one when we think politically about this.
REP. REICHERT: Well, but let me ask you one more question. Do you believe that a key principle for health reform is that people shouldn't lose what they already have?
MS. BLUMBERG: I think people should have access to high quality medical care. Whether every person is going to have the same --
REP. REICHERT: What about people that have an insurance program that they already have, that they want to stay with? You believe that that's a reform that -- well, that should be included in any reform?
MS. BLUMBERG: I believe that there should be broader based risk pooling than we have today. And by allowing some people to have --
REP. REICHERT: You believe that people should be able to keep their current insurance policy that they have, if they choose to keep that insurance policy as a part of a reform, yes or no.
MS. BLUMBERG: I don't believe that every person needs to have the precise insurance policy that they have today, no.
REP. REICHERT: So that's a no. Thank you.
REP. RANGEL: Thank you.
Mr. Blumenauer, would you like to inquire?
REP. EARL BLUMENAUER (D-OR): Thank you, Mr. Chairman. I was intrigued, Dr. Reinhardt, your line that you casually offered early in the hearing, where you talked about the health care that we provide our veterans is socialized by any definition of the term. Yet, it doesn't appear to be attacked by people, they are either quiet or in some cases they are actually out there boosting, helping, protecting.
You talked about a cognitive dissident here and I'm curious if you had some sense of why that is? Why do people who are -- get so worked up about Canada or Great Britain, and socialized medicine, somehow don't be -- are not concerned about our veteran's health, and it's cost control and it's high quality.
MR. REINHARDT: I really can't answer it. I have asked that many, many times in a letter in the Wall Street Journal, and people just sidestep it.
REP. REICHERT: Great, good.
MR. REINHARDT: But that has puzzled me for sure.
REP. REICHERT: I just wanted to make -- it is, it's fascinating. I wonder, after having sat through gazillions of hearings, having in earlier life being involved with employee benefits for organizations that I was responsible for I wonder if some of this complexity that we have layered on our system is just a result of trying to protect some of the abhorrent results.
That if we really cut to the chase that it really doesn't have to be this complex dealing with things like giving people information for end-of-life decisions, for not getting caught up in some of this. Then point of rationing -- I mean, we are already rationing right now by price, by availability, by information. There is a very uneven flow, isn't there of who gets Medicare -- medical attention in this country based on factors?
MR. REINHARDT: There is no question, the Urban Institute scholars that were just mentioned, in their most recent paper, it showed that the uninsured people get roughly about half the health care that equivalently ensured Americans get. And then, as an economics teacher, I say that clearly is the effect of rationing by price.
REP. REICHERT: Well, it's interesting to me that we have people who get -- there was rationing because of how health insurance policies operate, pricing as you -- another version of pricing in terms of availability and shifts in the market.
I wonder, Mr. Vaughan, I was intrigued with some of the data that is provided in your testimony about how hard it is for people to be informed consumers of insurance. Meaningful choice we are familiar with, you don't sell as much jam with 26 varieties, as you do with six. People are confused. In some cases, they go into a shutdown mode, in others they make poor decisions.
MR. VAUGHAN: Deer in the headlights kind of effect, yeah.
REP. REICHERT: Or they are just -- people are overloaded. They have got lots of choices on an ongoing basis, and for some reason, this appears one that people sidestep.
And I appreciate your talking about having some specific elements that would be included in all insurance policies and something that struck me in your testimony that I thought --
I don't know if it was written or whether you articulated it, but the notion of requiring that people get examples of how the health insurance policy would apply for specific real life examples. So people know what in the Dickens they are getting. Can you elaborate on that for me?
MR. VAUGHAN: Yes, sir. And I don't know if any of you've -- since most of you are in FEHB, whether you've all plugged a competitor I guess; Washington Consumer's Checkbook, that has nothing to do with us, guide the health plans.
And what they will do is they will walk through, kind of, are you a fairly healthy, what this plan will cost covering your premiums, if you have sort of moderate level of illness, what it will cost, and if you have something horrific, cancer or so forth, and you will see how the plan actually works.
But even in this FEHB plan for educated workers, the editor has to say unfortunately the reimbursement structure for many plans is so complicated there is no simple way to present or compare these payments. So as you work on legislation, you need to make it, you need to make it simpler.
And in the May issue that we just came out with, we compared two plans, one in Massachusetts, monthly premium of $399, and an annual deductible of $2,200, and then in California, a $1,000 deductible and $246 a month premium. So you would say, jeez, California is going to be better, right, lower deductible, lower premiums?
If you had breast cancer, or if you had a serious cancer, the Massachusetts plan that didn't seem very good, you would only be out of pocket $7,668. That California plan you would be out of pocket, $37,767. So the poor consumers looks at a plan, and it seems like a no-brainer, Oh, let's go with this California one. But if you get sick, well a different story. We've got to get that information to consumers.
REP. REICHERT: I really appreciate the thrust of the panels from small business to the academic in terms of providing the context for the types of decisions that this committee, may be helping to drive with our decisions and I think you have helped to make it -- help demystify it a little bit. I hope we can translate that into our legislative product.
REP. RANGEL: Thank you. Mr. Boustany would you like to inquire.
REP. CHARLES W. BOUSTANY (R-LA): Thank you Mr. Chairman. Yes, I would.
Mr. Borris, congratulations on your entrepreneurial spirit and working to achieve the American dream, and certainly you've benefited from a market-based economy that has allowed you to do this. And my question to start with is suppose, right across the street, a government run catering program opened that could undercut you on cost prices, wages, and so forth, could you compete?
MR. BORRIS: Well, it's an interesting question and Mr. Brady mentioned that in his comments, but didn't ask me to comment on it. I would say that one of the fundamental differences is that the catering party -- catering a party is not a fundamental human right. So I don't know that we can apply the same market conversations to people who help --
REP. BOUSTANY: But you don't, hold -- reclaiming my time. I think you are dodging the question there. We are not talking about whether this is right or not, because there are some disputes. I'm a medical practitioner and I do understand the personal responsibility side of health care as well. We can talk about that in the limited time we have, but put that aside for a moment; could you compete, that's the simple question?
MR. BORRIS: It's a false question. I mean, yeah.
REP. BOUSTANY: Could you compete?
MR. BORRIS: I would work toward competing at that and I wouldn't be able to answer the question for you until that thing opened, until we really saw what the parameters of it were. And I could make decisions about --
REP. BOUSTANY: I think you are dodging --
MR. BORRIS: Where are my supplies -- I'm dodging the question.
REP. BOUSTANY: Sure, you are dodging the question.
MR. BORRIS: Are they going to pay the same amount for chicken and lettuce, as I am going to pay for? If they are, then certainly I can probably compete --
REP. BOUSTANY: But if they could undercut you on the cost --
MR. BORRIS: Pardon?
REP. BOUSTANY: If they could undercut you on those costs, could you compete?
MR. BORRIS: The question is how would they undercut me? If you are asking me a question that --
REP. BOUSTANY: Because they can control prices --
MR. BORRIS: If somebody opens up a business that has access to cost that I don't have access to, would it be more difficult?
REP. BOUSTANY: What I'm trying to -- reclaiming my time, what I'm trying to highlight is that there are a number of concerns and questions that we have about a government-run option, that being one whether it is for your competition.
And whether secondly whether there are mechanisms in that type of approach that would actually bring down cost and maintain quality, certainly given their -- that what we have seen with Medicare and Medicaid, where we do have uncontrollable costs, where we do we have quality issues, we have access problems, and then a whole host of problems.
So I guess, the point I'm trying to make here is that we are looking at one particular path that we will look at that we are going down on health reform without looking at a whole number of other options.
MR. BORRIS: Can I --
REP. BOUSTANY: For instance, Dr. Blumberg, I think we were talking, you were mentioning about the need for a connector as being a better source for small businesses. Then why not combine a connector with associated health plans?
MS. BLUMBERG: The problem with the association health plan, sir, is that they tend to create lower prices by risk selecting, by taking in certain groups that are going to be lower cost. And what that does is take the lower cost groups out of the mainstream commercial insurance, increasing the costs there. So if you fundamentally want to spread risk more broadly that's not the way to do that.
REP. BOUSTANY: But reclaiming my time, I think the point again is, we are not looking at all the options. We are not putting all the options on the table, and we are using unfair standards of judgment as we go forward in looking at the positive sides solely of the government-run option, and not looking at the positives on some of these other options.
There are many other options that would create a natural real functioning market in health care, which I will tell you from personal experience, we do not have. Dr. Reinhardt, you want to comment.
MR. REINHARDT: Well, actually in my statement, I look at an option of having a private only, but then I say, the regulation would amaze you. In fact, I think, Bill Thomas, Congressman Thomas at one point had a plan like that, and he told me privately there's a lot of regulation of the insurance industry, and he described what it is. Community rights, guaranteed issue, you have to mandate people to be insured.
Look to Germany, look to the Netherlands and Switzerland, those are functioning markets that work without a public plan. But unless you are willing to impose that regulation on the insurance industry, you would still have the uninsured, you would still have policies you find out what they cover only when you are sick, and so on.
Plus it is true that Medicare has very low administrative cost itself but imposes cost on providers. But everyone who serves on the board of a hospital will tell you, around the board, they will tell you that the managed care bureaucracy that cost is much, much higher.
Because Medicare pays pretty punctually and the other plans don't, so one would have to seriously think about reducing the administrative cost of the private system which are simply, disproportionately high in spite of what Medicare cost is.
I think the president of Johns Hopkins told me -- told in a speech, in a paper he said, we deal with 700 distinct private health insurance company -- managed care contracts. And I serve in the board of the Duke Health Systems, and we also have that problem, and huge administrative claims processing, which with Medicare is simple. It's automatic, it comes in --
REP. BOUSTANY: But couldn't we just simply -- we could create a structure that would simplify that claims processing.
MR. REINHARDT: Yes, that's one --
REP. BOUSTANY: And that would work -- and I've seen that in my own practice, where I had to deal with many, many different types of claims processing. But that could be simplified.
MR. REINHARDT: It should. I think -- I always -- my friends in the private insurance industry, I tell them that is your challenge, is to reduce. McKenzie had a report out showing how much more we pay on administration relative to other countries, and that they, McKenzie attributed the bulk of it to private insurers.
And they should have common claims forms, electronic billing, and all of these things. I hope they will, in this decade, go that way.
REP. BOUSTANY: Thank you. Mr. Chairman, I know my time is up, but I wanted to ask Dr. Reinhardt if he can offer a clarification on his tables on page 14 --
REP. RANGEL: Certainly.
REP. BOUSTANY: -- if that's okay. In looking at the coronary artery bypass grafting column, and you have different payout rates for hospitals. Are those averages or actual individual episodes of --
MR. REINHARDT: No, no. Those are, what this large insurer pays for the average for a whole bunch --
REP. BOUSTANY: I see, okay.
MR. REINHARDT: -- of these and these are not charges. They are actual payments.
REP. BOUSTANY: Okay. And I guess the other question that follows on that is, does -- did you consider the different cost structure for those hospitals? In other words, some hospitals employ the surgeons and the anesthesiologists in other services, others have those separately, where the charges would go separately to those providers.
MR. REINHARDT: That probably is a good question.
REP. BOUSTANY: Okay.
MR. REINHARDT: And I don't know if it's in here.
REP. BOUSTANY: That might account for the discrepancy in the --
MR. REINHARDT: Well, I just want to doubt, because not that many hospitals employ surgeons, they are mainly affiliated.
REP. BOUSTANY: That's not necessarily true in cardiac surgery. But anyway, thank you sir.
MR. REINHARDT: Thank you.
REP. RANGEL: Let's see, Mr. Pascrell, would you like to inquire.
REP. BILL PASCRELL (D-NJ): Thank you, Mr. Chairman.
Mr. Sperling, I read your -- listened to your testimony and read your testimony. And I agree with a lot of what -- your testimony is and even though you're supposed to be one of many, but you made a lot of sense in what you were talking about.
One thing you made sense, I believe in is, you said on page five that our health care system rewards physicians when they provide more services for sick care rather than rewarding them equally for spending time to help patients avoid the 80 percent of illnesses that are lifestyle related. I think that's a mouth full. I agree with you.
Much of the debate on health care over the past 15 years has gone to finding money to cover people, rather than getting folks to understand what they're paying for and how we could prevent these kinds of situations.
And if that's at the basis of our health care system in the future, we will not be on this one path that my good friend Congressman Boustany talked about very briefly. I don't agree with you at all on your ERISA comments. I believe they need not only renovation and review, but revamping, tremendous amount of changes need to happen in those ERISA laws for us to get on equal footing.
And Dr. Reinhardt, there is no debate that the current market for health insurance is failing folks, looking to buy health insurance on their own and small businesses. Back in '92, in New Jersey, you're very familiar with New Jersey, New Jersey adopted sweeping health -- health insurance market reforms.
We standardized -- the standardization of plan options for small businesses and individuals. We ended discrimination against sick people, and we provided subsidies to people who could not afford to purchase individual coverage and a lot of other things, but I think they were the main things that happened in that so-called reform.
These are some of the most progressive policies supposedly in the nation. However, healthier individuals disproportionately enrolled in the cheaper, more bare bones option or dropped coverage all together. That's a fact, I'm not making this up, it's not conjecture, the numbers indicate that that's exactly what happened. You tell me if I'm missing something.
The premiums quickly began to increase. The subsidies disappeared and overall enrollment declined. So I think that there is an important lesson here. And if you could define that New Jersey thing very quickly, because that is not my question.
I want two questions, besides the question of affordability. With the experiences of New Jersey in mind, and I think it's a good -- a good basis here for --to get off on our discussion about how we are going to change health policy in the country.
What are the key pieces of health reform that ensures that healthy and sick people are optimally pooled together and that long- term affordability is sustained and could you explain to us clearly and concisely the economic need for more standardization and a minimum benefit in terms of risk spreading and adverse selection?
But give us a very brief point about why the plan in New Jersey, I think, failed?
MR. REINHARDT: In a sound bite, it failed because it wasn't accompanied by a mandate to be insured for a defined package. It doesn't have to be Cadillac, it should however cover what is necessary.
And there was an initial study of it by Kathy Swartz of Harvard and it looked all hunky dory, but we -- her colleagues, economist says, this cannot be true, this will unravel, and sure enough it did unravel. And I quote, a paper here by Moon Hyde (ph) and others that showed what happened to this market.
REP. PASCRELL: Well, I'm very proud of the fact that I'm the only legislator that voted against it in New Jersey at the time. And my worst analysis came true, unfortunately.
MR. REINHARDT: Yes, you thought -- you are an economist or thought like one, because if those three things don't go together markets will unravel. It's simply predictable; young people will not insure and wait till they can throw themselves on the mercy of a community rated product. That's why I favor a mandate. And there are various ways to rig this. One could tell people look, if you postpone insurance and then want to join, you have to have a long waiting period or your premiums will be higher.
See -- in this country, we invite risk -- games with risk because we allow people every year to change. If it were my druthers I would not allow Medicare beneficiaries to join the private plan and come back within a year. I would say you have to do this for five year periods, somehow to eliminate these games.
But that is what happened in New Jersey. So, this is why, in my testimony, I stressed those three things do have to go together -- g guaranteed issue, community rating and a mandate to be insured -- which, of course, means you're forcing healthy young people to subsidize older, sicker people.
REP. PASCRELL: Can I just continue just for a second?
Mr. Sperling, what would your reaction be to Dr. Reinhardt on the three basic points that must -- this reform of health care must have within it at -- as ingredients in order to -- in Italian, we say jum- but (ph) -- in order for this too to work?
MR. SPERLING: Congressman, I've been in this business for 30 years. And one of the first things I learned is never to argue with Dr. Reinhardt.
The concept of having everybody in, in order to have risk pooling is something that is unassailable. He is absolutely right.
REP. PASCRELL: So you agree with him?
MR. SPERLING: He is absolutely right.
REP. PASCRELL: You agree with that point?
MR. SPERLING: Yes.
REP. PASCRELL: Go ahead. What else?
MR. SPERLING: Well I think there is several aspects of this self insured market place that work and can be applied as we try to expand access --
REP. PASCRELL: So my point is this. That we can't come to an agreement. This does not have to be us against them, whoever "us" is and whoever "them" is. We can come to some real basic common ground here if we listen to one another. Because I think you've said many good things in your presentation. And you were not just a corporate head here.
You are listening to our needs, our concerns and Dr. Reinhardt does not want to provide a doorway into socialized medicine, but we do have to understand what the imperatives are today. And on a simple thing like this Mr. Chairman --
REP. RANGEL: Thank you.
REP. PASCRELL: -- we've lost out when this country moves away from manufacturing, and those jobs in those particular jobs there was coverage.
The more we moved into the service industries there was less coverage, and therefore affected everybody. There are a lot of particulars here that make it complex. But I think we can come together. That's my opinion, maybe I'm foolish. That's what I think.
REP. RANGEL: Thank you.
Ms. Schwartz, would you like to inquire?
REP. ALLYSON Y. SCHWARTZ (D-PA): Thank you, and I appreciate the prior dialogue because I do think that there is some agreement. There are lots of specifics that we have yet to really hammer out. And I think that's where some of the different agreements may come, but the -- I was interested in following up on several of the points that were just made and ask a few more specifics.
I've been sitting here a long time, so I appreciate that and your willingness to work with us. But I'm interested in the market reforms that we have some agreement on and some that are a little more uncertain. Many of you talked about it -- everyone being in, I appreciate that.
We certainly talked about pre-existing condition exclusions being fully unacceptable. I think even David Camp put that on his list of what he agrees on, which is huge. For many of my constituents, they can't find insurance, or obviously, this is a huge issue for small businesses, if somebody gets sick and it changes it dramatically.
Community rating, you talked about that, would change things for small businesses as well. You wouldn't be just the 20 employees you have and the illnesses they may have is really important.
And the ability to have some transparency that you really compare apples to apples, if you're looking at different plans, so that, as a recent report showed someone who got catastrophic coverage, got cancer, thought that was catastrophic. But what catastrophic coverage meant was hospitalization and most of her care was outpatient and therefore not covered. That's pretty unacceptable in this environment going forward.
My question is a couple that didn't come up. And it has to do very much with people who are employed, who don't take their coverage. And I want to know what you thought about this.
There are people who have waiting periods; their employer says you have to be employed for six months before you can get coverage. I can understand some of that because people come in and out of jobs and they are not covered then for six months.
There are others who say you have to sign up in 30 or 60 days, otherwise you can't sign up in the future, ever again. And some would say you could sign up if you have a life change -- unless you have a life changing incident; you get married, divorced, if someone dies.
So that even those who are employed and want to take coverage, can't now get it if they make one little error, sort of, you know, they don't sign up in time, they have a pre-existing condition, or they move jobs too often. They can have huge gaps in coverage.
So my question for you is what do you think of requiring those who -- who are employed to sign up. Now, they can opt out if they have coverage elsewhere, or if they wanted to -- but actually making it automatic that when you're employed, you sign up. And that's one question.
We did that with 401(k)s by the way, and it changed participation rates by double. I mean it doubled the number of participation rates for 401(k) plans. To say you don't have to sign up, we are not going to make it complicated, you're in.
You are employed, you know, you get a lunch break and you get -- health insurance have been provided. I am not saying that employers have to provide it. It's a different question.
So one is you opt in. What do you think about ending waiting periods? Now, what do you think about, you know, the -- and, of course, we already talked about pre-existing conditions.
And if you do think that we should do all of these changes in the market, are you talking about just making these changes in requirements for those who are in the exchange, or is it for everyone?
So even if you are an employer who decides to continue to provide coverage, and we expect most will, will these market changes, will these consumer protections, however we want to look at it, be true for them as well? Because our constituents, I think that they feel very strongly that they want this insurance to be meaningful and they want -- now, this is a huge struggle for them coming in and out of their employer situations and -- (inaudible.)
As we know, more and more employees are going to change jobs over time. Many of us who got the same job, stayed in the same business for 35 years and then retired with a pension is kind of not the way the world is for the future. People are going to move around in jobs, certainly young people do.
So maybe just really quickly, I would like to start with Dr. Blumberg. Mr. Vaughan, I would like you to talk about this, and Dr. Reinhardt, if we have time. It would be great just to have a -- so a quick response on what you think about these additional consumer protections, market reforms, and should they apply to everyone, every insurance company, every employer?
MS. BLUMBERG: I think that we are talking ideally about a context where we have an individual mandate that everyone is required to have insurance of at least a minimum acceptable amount. And in that context, if everyone is required to be covered, there should be no reason to have situations where you have waiting periods. Everybody is covered, they should be covered all of the time.
So along with pre existing conditions we should be able to get rid of that. In terms of open enrollment periods, which is the signing up within the 30 to 60 days and I think what we need to do is to make sure that we are making it as easy as possible for people to comply with the mandate.
So doing that would be, would require that we use employers because we know that people have very high rates of participation in the employment signing with health insurance, so to the extent that even if the employer is not contributing, we can use the employer to help facilitate that enrollment. I think we should do that.
If somebody does not enroll and cover within a determined period of time and then we look back and say well, you should have signed up at the beginning of the year, but you haven't been covered for the last two months. We need to think about at least in the long-term, probably not in the near -- in, right away, after the reform is in place, but what do we do in order to create incentive to make sure people are complying --
REP. SCHWARTZ: -- saying that if someone did forget to sign up for 30 days -- in those 30 days, how do they get in?
MS. BLUMBERG: No, we have to let them in, but I think we need to have incentives for them to do it in a timely way so we don't have risk selection problems. So maybe if I signed up three months late, and I went without three months, I have to pay those back three months in premiums depending upon my income, I might be subsidized, I won't have to pay the whole thing, but I have to pay that back premium and --
REP. SCHWARTZ: -- people sign up and then you can opt out if you want to and it would just be easier to have people signed up?
MS. BLUMBERG: We need to make it easy for people to sign up but then we also have to enforce the requirements and that may -- that's going to require some kind of penalties but I think we never exclude people under this type of reform.
REP. SCHWARTZ: Any other quick comments.
MR. : I just want to thank you very much for your sponsorship of that bill the -- eliminate pre-existing conditions on children, which -- to have children denied care is crazy. So, thank you. And I agree with what was just said.
Other than -- a lot of people -- the copays and their share of premiums in some companies can be high enough that a very low paid worker would just say, "Wow, I can't afford my car." And so, in whatever reform plan is adopted hopefully everybody has at least a minimum and it's affordable. And whether that is 5 percent of adjusted gross income or 10 or something that's between you and CBO and what you can work out, but it has to be affordable as well as signing up.
REP. SCHWARTZ: Yeah. I do -- I think that there -- we hear stories all the time, particularly young people, and I think Dr. Reinhardt referred to the young people that are thinking they are -- they -- that they are not at risk, you know. And they don't sign up because they also don't think that they can afford the $20 a week or $40 a week.
And they never thought maybe they could afford it. So some of it is helping people to know that they actually can participate in a way that is affordable and just suddenly getting -- then getting sick and having a bill for $10,000, $20,000, $40,000 that they can never repay. It's a huge risk to them. And I think a lot of people don't understand that the risk benefit to them personally, economically as well as in terms of getting the right kind of health care.
So I'd just encourage you to think about this. I'm going to pursue this a bit more and just because -- so we make sure that when we say everyone is in they really are. And we make it easier -- it's the best way but I think sometimes a lot is on your plate and people don't sign up and we ought to make it a whole lot easier for people to sign up by assuming they -- if they want health insurance they get it through the employer and we don't create obstacles three months, six months down the road.
REP. RANGEL: Thank you.
Mr. Etheridge, would you like to inquire?
REP. BOB ETHERIDGE (D-NC): Thank you, Mr. Chairman.
Let me thank each of you. I know you've been seated there a long time and you've noticed we've been moving around and you've been in your seats. So I thank you for that.
Mr. Vaughan, let me ask you a question very quickly, and you know, we talked about access and others but it seems to me that in this country if you want to drive an automobile, we require you to have car insurance. You know, it varies depending on what you feel like you can afford and what your exposure might be.
And yet, for our own health care, of maintaining our own bodies we don't require that. It's sort of interesting. But my question to you is -- and probably one of the most complex problems with the health care insurance market is that insurance don't generally rely on business I guess of dealing with people who have the most costly and complex conditions.
By and large, as a result, people who tend to have the worst health care needs, people don't really want to insure and if you are already in and if you're in we don't find a way to get out at some point.
MR. VAUGHAN: That's the way you compete if you're --(laughs.)
REP. ETHERIDGE: I can understand that. Our rules are written that way and I'm not blaming the insurance companies, but that is sort of the way the rules are written.
MR. VAUGHAN: That's capitalism, yeah.
REP. ETHERIDGE: And you got to be actuarially sound, you can't make it. And if at some point you have diabetes or breast cancer or heart disease -- companies really don't have a great incentive to share their excellence in management or because of the way they have worked in enthusiasm, excellent things that happen.
But it's not in their best interests to go out and share that data because if they do, they are going to attract more people who have the same condition and --
MR. VAUGHAN: Amen.
REP. ETHERIDGE: Just sort of -- we are sort of working against ourselves. So my question is this. What can be done to encourage best practices, because I mean that's really what we all are about, and we aren't doing it.
We don't do it just because our system is set up differently, and number one it would benefit the consumer if we had access to this information. And the private market has shown sort of an unwillingness to do it simply because the rules are stacked against them, and it's not in their best interest to do it.
MR. VAUGHAN: Right.
REP. ETHERIDGE: So how do we do that in terms of making it a better deal for the private sector, so they can be in and benefit all of us who are the consumers?
MR. VAUGHAN: To the extent that you do get a mandate that everybody has to have a basic package that gets rid of any need for pre-existing conditions, you'd get rid of that, and you'd risk adjust -- now, risk adjustment isn't perfect, so they are still going to try to avoid the very sick, for example.
REP. ETHERIDGE: Sure.
MR. VAUGHAN: And this is a long-range solution, but in the comparative effectiveness research the ($)1.1 billion you did this winter in the -- and hopefully some more. Some of the research requests that are coming in we understand might be on systems of how do you best treat complex cases and we've got -- there must be a thousand flowers blooming out there of different ways to treat the chronically ill. And we don't have a real good answer and the best one.
And I know research manyana, manyana -- yeah, you want a quick answer, but I think we need some more data.
REP. ETHERIDGE: Yeah, I agree. I was in a rural health clinic yeah, where they -- they are moving along with RT-type (ph) to one of our major hospitals, WakeMed. And there is some very promising stuff there as we start to gather that data, it's very early.
But they've already seen this is driving some of their costs down in that regard. And I think that's hope -- Ms. Thompson (ph) in the limited time I have let me move to another one because in the past two years, my home state of North Carolina, the uninsured numbers have climbed to 22.5 percent, which is one of the biggest jumps in the nation.
And according to the analysis done by the North Carolina Institute of Medicine, nationwide about 22 percent of adults do not have a health insurance, in my home state it's about 25 percent. And as a result of the unemployment numbers climbing, we are the fourth highest in the nation now being unemployed.
That means that all these numbers are getting even worse, it was about 10.7 percent -- (inaudible.) So my question is, we are using rural health clinics in our state and they are now seeing their numbers climb markedly simply because people who are uninsured are finding this as an avenue to go. And we are, at the federal level, putting in some money in to help offset some of that.
And at the same time, it doesn't totally offset. So my question is as we look at CHCs as a possible ingredient in all this, we don't -- someone mentioned earlier -- we don't talk about it a lot. But if we -- whatever we do, we have a lot of rural isolated areas --
MR. VAUGHAN: Uh-huh.
REP. ETHERIDGE: -- who invariably are going to be uninsured or underinsured no matter what we do, because we -- we don't have enough primary care physicians and more and more people want to move to rural areas. Is this an avenue for the CHCs to, at least to have a role in this process?
MR. VAUGHAN: Absolutely. I think that rural health centers play a role of a key access point in medical home, in some of the areas where fewer options are really available to all of our citizens. And when I talked to my colleagues both from rural and urban parts of California, we are starting to see a greater percentage of people coming in who have some insurance coverage through their employment, but basically lost it during the past year, either because they lost their jobs or because the economy has driven their employer to drop the health insurance option.
So I really feel that what we may look at down the road is essentially that the resources that we have on the table for health centers might get stretched with this increasing new population of patients who seem to be finding their way to our doors given the state of the economy that we are seeing today.
REP. ETHERIDGE: Okay, thank you.
Thank you Mr. Chairman, I yield.
REP. RANGEL: Mr. Yarmuth, would you like to inquire?
REP. JOHN A. YARMUTH (D-KY): Thank you, Mr. Chairman. I may be in bad shape but I hung around long enough to ask questions so --
REP. RANGEL: There is no hex -- (laughs) -- I apologize.
REP. YARMUTH: There is a point that's been made here a couple of times and it's been used to make -- or a fact -- or a prediction that is being used to make -- support two arguments that I don't quite get.
One, and this is the idea that if we have a public plan that 120 million or so people are going to move from the private insurance arena into the public plan. Mr. Boustany used it to support his saying that private insurers can't compete with the government, which I think is kind of ironic because many times my colleagues on that side are making the argument that the private sector is the ultimate competitor. They are saying they can't compete with the government, but Mr. Sperling also used it to talk about how it would increase costs on the private employer based plans.
And -- but I also wonder whether if -- if it's true that a huge proportion of people who are now insured in the private arena move to the public plan, doesn't that undermine your point that the private employer based system is so popular?
And doesn't even -- doesn't it underscore the need for a public plan if so many people would move to a public plan? Doesn't that kind of prima-facie support the case for a public plan?
MR. VAUGHAN: Well, speaking on behalf of the Union and our experience with employers sir, I think the study that Lourent (ph) and others have done looking at a public plan, modeled those enrollment shifts based on the fact that the public plan and the private plan are not competing on an equal footing. So it's comparable coverage. But people would move to a public plan because the cost is so much lower, not because it's more efficient --
REP. YARMUTH: And that's a bad thing?
MR. VAUGHAN: -- because it is paying the providers less.
REP. YARMUTH: Isn't that one of the objectives that we are trying, presumably, all of us are interested in, in achieving, is lower cost?
MR. VAUGHAN: I think we are trying for lower efficiency, but I think the study that was done looks at the fact that the reimbursements under the private plan would be so much lower, that those two programs would not compete on a level playing field and would undermine the employer sponsored system --
REP. YARMUTH: Okay, I don't -- I don't actually argue with that. But I'm -- (laughs.)
Second question, you talked about the polls that showed that people prefer their coverage coming through their employer.
And I've talked to pollsters about the first question, are they satisfied with their insurance? And basically they are satisfied that they have insurance, not necessarily that it comes through their employer.
And isn't one reason they'd prefer to have it through their employer is because they doubt if they are not getting it through their employer that they can get good insurance? Isn't that a possibility anyway?
MR. VAUGHAN: What we hear from employers is that employees look to their employers to do some of the decision making for them because the insurance market place is fairly complex.
REP. YARMUTH: Right, okay. I don't argue --
MR. VAUGHAN: So having that ability of the experts to make those choices is something that employees value.
REP. YARMUTH: I don't argue that either. One other question about a point you made and that was that -- and I agree, many private insurance plans, employer based plans do promote wellness and exercise and smoking cessation programs and so forth. You wouldn't argue that those things are impossible to do outside of an employer based system either --
MR. VAUGHAN: No.
REP. YARMUTH: -- or you don't make that argument. I had a young woman who worked for me some several years ago, and she was -- had just gotten out of college and just been -- become -- she has aged out of her family policy. She had a life-long allergy situation, which required her to take medication that was $500 or more a month. And when she went into the private system the only insurance she could get anywhere in Kentucky was something that excluded her medications.
Would you say that she would be in a better shape with the existence of a public plan and a competitive situation with -- involving a public plan or under a system that resembles the current system that we have now? Dr. Reinhardt, Dr. Vaughan -- I mean Mr. Vaughan, would you specifically respond to that?
MR. VAUGHAN: I think she would. And again though, if the core benefit package is pharmaceuticals and hospitalization, the private sector may have to provide it too. Again, if she is really expensive, there will be an effort to hassle her, go somewhere else. And that's where it would be nice to have the public plan that would welcome her with open arms.
REP. YARMUTH: Dr. Reinhardt?
MR. REINHARDT: Yeah, of course. In its present shape, the private market for individual policies really doesn't serve the needs of the American people, of anyone at all. So there would have to be very stringent reforms, including defined packets, in this case this probably would be in there.
I just want to comment though, this idea that the Lourent study, which I actually have here, that people somehow would lose their insurance. See, when I married my wife, I didn't lose all these other women, I chose my wife. So I'm an immigrant and I don't speak English too good, but I don't understand the word "lose" in this case.
The idea is that people would favor the public plan because not only the money, they might -- because it is permanent that if they lose their job -- they lose. I'm a unique American because I'm a tenured Ivy League professor, I'm not really part of the American experience and therefore this has never faced me.
But I look at all kinds of people when they lose their employment, the minute you lose your employment cover, the employer no longer cares about you, whether you're well or not. That's it. And that kind of insurance, I think cannot forever be preferred by people. They would want to have an insurance that even if they lost the job in x corporation, they'd still have insurance, but now they don't.
And I think that's the big challenge of the employers. How could you provide some sense of permanence here so that when you are down, the worst time in your life. I met two journalists, the other day, both lost their jobs and they don't have insurance and they just had a baby.
Now, I -- I think that's a terrible situation for them, in this fix, where they don't have income, also not to have insurance. And this is why, in general, I think there has to be a stable plan, and if the private insurance industry could guarantee it, good for them. But if they can't, you have to ultimately own up to this public plan.
REP. YARMUTH: I agree totally with you. Thank you for your testimony. I thank all of you.
Thank you, Mr. Chairman.
REP. RANGEL: Thank you. And I want to thank all the witnesses for your patience, your endurance. As we ground through this all today, it was very helpful. And I hope you will continue to give us your input as you hear from time to time which direction we are going over the next couple of months as we attempt to come up with some kind of a plan that will provide affordable quality health care to every American. Thank you all very much.
The hearing is adjourned.