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Hearing Of The House Ways And Means Committee- Health Reform In The 21st Century: Employer Sponsored Insurance

Hearing Of The House Ways And Means Committee - Health Reform In The 21st Century: Employer Sponsored Insurance

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REP. CHARLES RANGEL (D-NY): This is the fourth of a series of hearings that we had passed for National Health Care. We have a very exciting panel of witnesses. We hope in working with Energy and Commerce that we can combine their jurisdiction over Medicaid with our jurisdiction over Medicare that at the end of the day to make certain that no one falls between the cracks as we move on with the president's wish, desire, mandate that we have quality care, lower cost, and maximum coverage for everyone.

Today we will be concentrating on the employer sponsored insurance and making certain we recognize how important it is and that we do everything to strengthen it, and as the president says, if you like what you got, we're not thinking about doing anything except trying to lower the cost across the board. We want also to make certain that the private insurance plans do take the high risk people with preconditions not an issue and we will be entertaining the question of employer mandate, we will entertain the question of a public plan. All of these things will be discussed. And so again, some times on outside date that we believe that the hearings is the best that we can do, but it's almost not fair to the witnesses to prepare then have five minutes and just the questions. But we do hope all of you would make yourselves available if we have a roundtable where we don't have the five minutes, where you can expand on your visions as to how we can make a healthier America.

I'd like to yield at this time to Mr. Camp.

REP. DAVE CAMP (R-MI): Well thank you for yielding, Mr. Chairman. And before I make my opening statement I just want to take a moment and recognize the Chairman's commitment to the issue before us, Health Reform in the 21st Century and his receptiveness to work together to find the right way to reform health care in this country. Last week, I requested additional witnesses so that we could fully set the complexity involved in improving both health insurance and health care and I just want to say that the chairman has granted the minority an additional witness. Mr. Chairman, I need not tell you there are several new members on this committee, particularly on our side as well, and this is not an insignificant act on your behalf and I want to thank you personally very much for that.

I look forward to continuing this approach to health care reform and hopefully this will spur further bipartisan talks and negotiations. I remain confident that we can find common ground. Healthcare reform should not be a partisan issue, it is not a partisan issue, it's not Republican issue or a Democrat issue. It's an American issue. That's not to suggest we don't face difficult questions. In fact, today's hearing will explore one of the tougher challenges we face. How do we protect employer sponsored insurance and the access to affordable health care it provides millions of Americans. And today we'll hear from several employers, one of them Denny Dennis of the National Federation of Independent Business which represents hundreds of thousands of small businesses, businesses that typically employ about five people and collectively create 60 to 80 percent of the new jobs in America.

A particular concern to these job providers and creators is a federal mandate to provide insurance or pay a penalty. That tax per Mr. Dennis' testimony would harm small business, especially those operating at the margin and disproportionately impact low income workers.

Others today will suggest that a government run health plan must be a part of the solution, though such an option carries significant risks. As Mr. Sheils of the Lewin Group will testify, their April 2009 study that found the introduction of a government run plan that reimbursed providers at government set Medicare rates would have significant ramifications for those who already have health insurance. One finding almost 120 million Americans would lose their current health insurance coverage. Inside that data we found that of the 120 million who'd lose their coverage, 108 million are those who have employer provided insurance, a total of roughly 160 million Americans have health insurance through an employer. That means seven out of ten people, workers, husbands, wives, children, will lose their health insurance provided by employers due to a government run plan.

I think my colleagues on both sides of the aisle will agree that it is difficult enough to provide access and coverage for the 30 to 45 million Americans without insurance without having to take on the responsibility of an additional 108 million individuals with employer sponsored insurance, nor does an employer mandate which trades job creation for insurance coverage make our job any easier.

Employer provided insurance is under pressure and in many cases is already eroding. This is a trend we need to reverse, not accelerate. We need to improve upon our current health care system not end it.

Now I know some in the majority have suggested Republicans are making the government run plan an issue, and as I noted last week, even the White House has said that reform does not hinge on the inclusion of this provision. And just yesterday the Washington Post opined, and I quote, "it is entirely possible to imagine effective health care reform, changes that would expand coverage in health control costs without a public option". And the editorial went on to read in part, and I'm quoting again, "it's difficult to imagine a truly level playing field that would simultaneously produce benefits from a government run system. Medicare keeps costs under control in part because of its 800-pound gorilla capacity to dictate prices; in effect, to force private sector to subsidize it. Such power of exercise in a public health option eventually would produce a single payer system. If that's where the country wants to go, it should do so explicitly not by default.

And Mr. Chairman, I ask that the Washington Post editorial be submitted into the record.

And with that I yield back the balance of my time. Thank you.

REP. RANGEL: Without objection, Mr. Camp. In furthering an opportunity to make certain that we have maximum participation even if we don't get maximum support, if the minority really feels that there's some things here that can be worked out, without having formal hearings, there's no reason why we cannot get experts to take a look at that whether they use the library H-137 or even the hearing room but this is so important that even if you can't vote for it, we would like to be able to accommodate in terms of bringing the experts here that you might need or we might need to better understand some of the complexities that just may impede someone from wanting to receive the gold but just not being able to support a bill that has it or doesn't have it. So we'll work that out after.

We have an outstanding group of witnesses, Dr. Elise Gould, Randy MacDonald, Bill Pascrone (ph) from Jersey we'll be introducing, a small businessman from his district, Kelly Conklin, Denny Dennis's research policy person from the National Federation of Independent Businesses, John Sheils a senior vice president of the Lewin Group, and our last witness will be Gerry Shea who comes presenting the president of the AFL-CIO. So this is going to be a good day for all of us.

We'll start with Dr. Gould who's the director of health policy research, an outstanding background and author, lecturer, and she will give us some views on why a public insurance plan may be able to help us. Thank you for taking time out to share your views with us. You may proceed, as you know, we have five minutes more or less and we want to give the members an opportunity to ask questions while you're here.

Thank you. You may proceed.

MS. GOULD: Good Morning Chairman Rangel, Ranking Member Camp, and distinguished members of the Ways and Mean Committee. My name is Elise Gould, and I am a health economist and director of health policy research at the Economic Policy Institute. I appreciate the opportunity to appear before you today to share my views.

Employer-sponsored insurance (I will call it ESI from here on out) provides insurance for the majority of under-65 Americans. ESI, particularly among large firms, works because it pools risk, has low administrative costs, and offers a stable source of coverage for a large share of the population. Many of these people enjoy the benefits they receive and would like to keep them. However, we have seen a weakening in ESI over the last several years and it is important to examine strategies -- and I commend Chairman Rangel in holding a hearing to examine strategies -- to strengthen ESI and find ways to provide this high-value coverage to more Americans.

The employer-sponsored health insurance industry in the United States did not flourish until the middle of the 20th century. During World War II, employers offered health benefits as a way to attract workers when the National War Labor Board froze wages. In 1954, Congress amended the Internal Revenue Code to clarify and expand a 1943 administrative tax ruling that granted tax exempt status to employers' contributions for their employees' group medical and hospitalization premiums. Excluding premium contributions from taxable income made one dollar worth of health insurance less expensive to provide than one dollar worth of wages. In general, this tax exemption -- effectively a government subsidy -- reduced after-tax insurance premiums enough to encourage even the healthiest employees to enroll. In that way, sustainable risk pools were formed and group policies became more attractive to insurance companies. Over the latter half of the 20th century, employer-sponsored health insurance became increasingly popular. Workers have grown to rely on employers to provide health insurance, and employers have used it as a tool to attract and retain the best workers and improve the health of their workforce.

Employment-based coverage remains the most prominent form of health insurance today. About 63 percent of the under-65 population has insurance either through their own or a family member's employer. Over 80 percent of the college educated and 80 percent of those in the top half of the income distribution have ESI cover. In fact, if you break .the non-elderly population into fifths by household income, we would see that those in the top income fifth are nearly four times more likely to have coverage than those in the bottom fifth.

So, we see that the employer-sponsored health insurance system is working well for tens of millions of American workers and their families. That said, the problem remains that many folks are left out of or are ill-served by the employer-sponsored system.

Further, while ESI remained the dominant form of health coverage through the 2000s, the share of people covered by ESI declined five percentage points since 2000. This erosion, or unraveling, has been occurring even during the economic recovery. During an expansionary period, we would have expected coverage to increase as employment grew, but it simply did not. High and rising health costs are mostly to blame. Average premiums for an employer sponsored family plan have risen nearly 120% since 1999, three and a half times faster than workers' earnings and more than four times faster than general inflation.

Small business owners and their workforce face particular challenges in obtaining ESI. The coverage rates in firms of fewer than 10 workers is less than half that of workers in firms with more than 100 workers. Half of all the uninsured are employed by a business with fewer than 100 workers, and 36 percent work in firms with fewer than 25 employees.

Small firms that do offer health insurance face high costs, paying on average 18 percent more than larger firms for identical policies, This is due to higher and more variable health risks, a lack of competition amongst insurers, and greater administrative expenses

I know, in 2007, at the small firm where I work, with less than 30 days notice, our insurer raised rates by 27 percent, forcing us to switch carriers at the last minute, which is not easy in the limited marketplace. It is these high and unpredictable costs that have made it increasingly difficult for small firms to provide the insurance they want to offer their workers.

So, what does the future hold? It is truly bleak unless there is action. The current economic downturn and forecasts of high unemployment indicate continued erosion of employer-sponsored insurance in the near future. I estimate that by the end of 2009, nearly 50 million non-elderly will be uninsured. The link between insurance and work has become a tradition in this country. ESI, particularly in large group markets, can effectively pool risk, lower administrative costs, and maintain stability. But we must recognize its limitations.

There has to be a way for the non-workers, part-time workers, and even those full-time workers have been closed out of the current system to find affordable coverage. Private market reforms such as community rating and guaranteed issue can improve competition between insurance companies by insuring that this competition takes place on the grounds of efficiency and not on company's ability to sort the population for the lowest health risk.

The best way to ensure that coverage is universally made available to those who do not have good ESI is to construct a national insurance exchange that includes a public health insurance option. A public health insurance option is an essential part of a this exchange. While giving Americans more choices for coverage, it also has the added advantage of increasing competition to already limited markets, reducing costs and cost growth, driving quality advancement and innovation, and serving as a benchmark for the insurance market.

As we move forward towards meaningful health reform, we must be wary of quick fixes to our insurance system. One such fix involves taxing health benefits Research shows that taxing high-priced health coverage will heavily burden two groups -- workers in small firms and workers in employer pools with higher health risks, such as those with a high percentage of older workers.

Small businesses are paying high premiums for the insurance they provide to their employees not because the plans are especially lavish, but because they have high administrative costs and include too few employees to constitute the broader risk pool that would qualify them for lower premiums.

Capping the tax exclusion exacerbates the problems small firms already have. It would encourage the young and healthy to opt out of these pools, and upon their exit, premiums would likely rise for those remaining.

Instead, we should building on what works well in today's American health care system -- ESI for the bulk of the workforce as well as extremely popular public programs like Medicare.

Thank you and I am more than happy to answer any questions you may have.

REP. RANGEL: Thank you so much for your testimony.

Now I would like to call on J. Randall MacDonald who's the senior vice president for human resources at the IBM Corporation and he's the chairman of the board of the policy associations represents 250 of the largest corporations in the United States. And he is committed to providing health insurance to employees -- (inaudible) -- health care costs, so I'm very anxious to get your views and how we can be helpful -- (inaudible).

MR. MACDONALD: Good morning, Chairman Rangel, Ranking Member Camp and members of the Ways and Means Committee. My name is Randy MacDonald and I am the Senior Vice President of Human Resources for the IBM Corporation. As mentioned I also serve as the Chairman of the HR Policy Association, a group of the chief human resource officers of more than 260 of the largest corporations in America.

Simply put, IBM is building smarter health systems, with an more personalized experience for patients. A smart healthcare system will be better instrumented, interconnected and intelligence-centered around the patient. IBM intends to be a leading proponent of health care reform because it is both a competitive necessity and because it's good business for us. We believe that broad, systemic reform is necessary.

A successful agenda will build on a patient-centered, accountable and competitive health care market that delivers effective outcomes and improved unit costs. I must say, getting millions of people to an overburdened, underperforming system is somewhat like diverting water into the Red River while you're piling up sandbags. Change must be structured, it must be planned, and it must have incremental giant steps. IBM has 450,000 reasons to be an active participant in this national discussion . Those reasons are our employees, our retirees and their dependants, and the fact that we spend $1.3 billion on health care in 2008 alone.

Successful health care reform doesn't have to begin from scratch. Employer based health care is a good starting point, but we need a broad based approach to fix certain fundamental flaws, including effective incentives for wellness, prevention, primary care, low cost controls and higher quality outcomes.

Earlier this decade IBM had double digit cost increases. Accountability and transparency were non-existent for employee decision making. Real cost, prices, and subsidies were actually hidden. Between 2005 and 2007 our assessment showed dramatic decline in employee health risks including behaviors such as smoking. Participation in the wellness programs rose sharply while adopting healthy behaviors such as exercise and good nutrition. Program costs during this period were $81 million with a total savings approaching $200 million.

Today, our employee population is healthier, employee costs remain lower than our benchmarks. With this experience, we support a national health care reform agenda with seven recommendations.

First, strengthen the voluntary employer-based system of health care.

Second, adopt a comprehensive national reform agenda.

Third, significantly improve wellness, prevention, and primary care.

Fourth, create a competitive and accountable marketplace.

Fifth, control costs, improve quality and reduce cost shifting.

Sixth, ensure assure adoption of health information technology.

Seventh, ensure all Americans have health insurance.

Mr. Chairman, a forum can only succeed with an approach built on shared responsibility. All stakeholders must come here with an open mind and share the burdens as well as the benefits of reform. In my written testimony and through the work of the HR policy association, I have detailed what we see as those stake holder responsibilities.

In sum, we believe that the crisis in American health care is too complex for any one person, for any one organization, or one sector of our society to figure out the best solution. We -- (inaudible) -- comprehensive solution. Not a -- (inaudible) -- here or there, but a solution. The panacea in health care is a system that does more than just deliver quality care at reasonable cost. Our interest should be to make all Americans healthier and our economy stronger.

Thank you.

REP. RANGEL: Thank you Mr. MacDonald. -- (inaudible) -- feel that we don't -- (inaudible) -- what's already working for IBM and for America and so thank you for your contribution.

REP. BILL PASCRELL (D-NJ) (?): Thank you Mr. Chairman I'm proud that we have on our panel today Mr. Kelly Conklin who both lives and works in the district. Mr. Conklin is the co-founder of Foley-Waite Associates, an architectural woodworking company in Bloomfield, New Jersey -- (inaudible) -- and business partner started a business in 1978. Foley-Waite Associates specializes in the fabrication of architectural woodwork and serves an exclusive -- (inaudible) -- in New York. He employs highly skilled experienced craftsmen -- (inaudible) -- Mr. Conklin and his wife are lifetime residents of New Jersey, they currently live in Greenwich and Mr. Chairman if you note the testimony, if you haven't read the testimony, specifically he has any question of transparency -- (inaudible) -- premium dollars go.

So Mr. Conklin thank you for joining us. Mr. Chairman, thank you for letting me introduce him.

REP. RANGEL: Mr. Conklin, the Chair anxiously awaits the comments of the business gentleman from New Jersey.

MR. CONKLIN: Thank you, Mr. Chairman, members of the committee, Mr. Pascrell. My name is Kelly Conklin and I'm here to talk about health care and its impact on small business. I'd like to make one thing clear right up front, I'm not a policy expert on health care, but I do have -- (inaudible) -- policy everyday in my business. I am with my wife Kit as Congressman said and our business is in Bloomfield, New Jersey. And my purpose today is to give you a window into small companies like mine and how they mess that is our current health care system impacts us -- (inaudible) --.

I'll start with some background, try to explain where we are and finally I add a few ideas as to where we might go.

A little history: My wife and I opened Foley-Waite in 1978 in a 700 square foot shop in Montclair, New Jersey. In 1987, we expanded and hired four employees and we started offering health insurance. The premiums were about five percent of our payroll, and we paid it all.

Today we employ 13 people, occupy 12,000 square feet of wall space and serve some of the most influential people in the world. And we fork over $6,000 a month in health insurance premiums. That's 20 percent of our payroll, one of the largest single expenses in our budget. Why do I still offer coverage? Practically it's necessary to attract and retain skilled employees, but I do it because it's the right thing to do for my people. It's the responsible thing, too. If I didn't offer coverage, I'd just be shifting cost onto someone else.

We've got to stop pretending that we can escape this cost. It's a fixed cost. When responsible employers offer coverage, and others don't, it creates an unlevel playing field, If I'm contributing to my employees and a competitor isn't, they have an advantage. We would be much better off in a system where all employers contribute to a reasonable amount, instead of this game of cost-shifting. That's what I support a system of shared responsibility where employers pitch in their fair share.

April is a month I dread, but not for taxes. Taxes are simple, I call my accountant. But health insurance renewal is a nightmare.

Rising cost have forced us to cap our contributions for employees' coverage and we're switching carriers each year.

We had Horizon Blue Cross/Blue Shield, but they just raised our rates 25 percent, so we're switching to Health Net. That means new primary care physicians and, for my wife, who has a chronic illness, a new doctor who knows nothing of her medical history. It's very frustrating, as the person who writes and signs the check every month, to know that a lot of that money we spend is not going to health and isn't going to care. My shopping for health insurance, my choice, is who is the cheapest this year, -- (inaudible) -- insurance companies and over the past two months as we transition to our new carrier, our premium grows by $8,700 per month. While I'm writing the check to the new company, I am paying the full freight for the old company. This is efficiency? This is not bureaucratic? This is cost effective? Really?

The health insurance market has failed to deliver on its promise for small business. It fails to contain costs, enhance efficiency or improve outcomes. It fails to provide coverage to millions, our dry cleaners, our corner store owners, Joe the plumber and Al the mechanic. Something has to be done.

I think transparency is critical. It's time to have insurance companies come clean and say up front what's covered and what's not. It's time to assure everyone access to affordable health care based on shared commitment where employers like me, our workers, health providers, and the government all pitch in.

We can take a big step by creating a public health insurance option. A well designed public health insurance plan would finally give small businesses like mine real bargaining power, provide a guaranteed back up, and introduce greater transparency. Most importantly, by creating genuine competition and restoring vitality to market dynamics, innovation in the private sector will occur.

I'm not against private insurance. I'm just saying we need more options. As a cabinet maker, my trade, I think about it like this: a toolbox holds a variety of tools, each perfected to perform its specific task. You can't drive nails with a screwdriver or cut wood with pliers. And in my experience, when the critical tools is missing, well things can get ugly.

With health care, we've tried to do everything with a hammer. The public plan option is a critical tool missing from the toolbox, the one that could extend life and costs. According to the Commonwealth Fund, reform with a public option would save employers $231 billion between 2010-2020, and $3 trillion for the nation. Without a public plan we lose three quarters of that. (Billions ?) for the little guy. Imagine what we could do with it.

I read about ideas I can't support. I don't think new tax credits are the solution to this problem. I would rather have real health reform that addresses costs than a tax credit that will only be consumed by skyrocketing premiums. We don't need to fiddle with taxes or giggle the tax code. We need policies to stabilize the health care system in critical condition.

I know I'm not alone. I'm a member of the New Jersey MainStreet Alliance, a coalition of over 300 New Jersey businesses working for health reform that works. In a survey referenced in my written testimony, small business owners said three things:

One, we need to contribute but we can't go it alone. Seventy- three percent said they could, they would, 12 percent said they wouldn't. That's a six to one ratio.

We support reform that improve choice of public insurance plan, 59 to 26 percent, two to one.

We want government to play a stronger role in making health care work, 70 to 16 percent, four to one.

Small businesses are looking to you for leadership. We look to you to enact health reform that works for us and our employees this year so we can do our part for economic recovery.

Thank you, Mr. Chairman

REP. RANGEL: Mr. Conklin, tell our friends in New Jersey help is on the way.

MR. CONKLIN: Thank you, Mr. Chairman.

REP. RANGEL: I'd like to yield to Mr. Camp to introduce our next couple of witnesses.

REP. CAMP: Well thank you. Our next witness is Denny Dennis he's the senior research fellow at the NFIB Research Foundation and following that we'll hear from John Sheils, Senior Vice President of the Lewin Group in Falls Church. Thank you.

Mr. Dennis.

MR. DENNIS: Thank you very much, Mr. Chairman and Mr. Camp. This is an interesting day because Friday I start my 34th year at NFIB.

I'd like to leave two points for my initial testimony. The first one is that employer mandated health insurance that's in the form of just funding premiums, pay or play, the payroll tax, they're all the same thing, they're all mandated, are bad for small business, they're bad for low income people, and they're bad for the economy.

Second point I would like to make the health care costs must be addressed preferable prior to coverage expansion, certainly no later than -- (inaudible) -- coverage expansion, and hopefully not later than coverage expansion. As to the former, we think they're bad for small business because initially and I'm going to underscore the word initially, in the short term small business will absorb the brunt.

Now, since there's a direct correlation between the amount of income that a small business owner takes from the business and his propensity to provide health insurance -- meaning if you take a lot out, you tend to almost always provide health insurance -- if you take a little bit out, you tend not to provide health insurance.

Under those circumstances, the abrupt necessity to absorb additional costs attacks then the most marginal and vulnerable of employers. The same is true not only with low income employers, but low margin businesses.

Second, we have a situation where an employer mandate effectively requires not only subsidization of low income but also sometimes high income -- which means it's a very blunt instrument in looking for a targeted instrument.

Finally, it really embeds an employer-based system on smaller firms when an employer-based system clearly does not work for smaller firms. One of the things we're going to have to talk about is who the system works for and who it doesn't -- and clearly in small businesses it doesn't.

Now, the employer mandate is also bad for low income people because they're eventually going to have to pay for this. They pay for it in lost wages. They pay for it in lost employment. They pay for it in other opportunities, such as shorter hours. This is generally understood by economists. This isn't new. In fact, I cite several prominent articles in my written testimony. One of them is a very interesting one; it comes from New York Economic Review, 1989, written by someone I think most of us -- probably all of us in this room -- have heard of, a fellow by the name of Larry Summers. Recently I penned an article in the Journal of the American Medical Association, JAMA, whom also you've seen some people you've probably heard of, Ezekiel Emanuel and Victor Fuchs, which indicate that this is all passed back for low income people.

Thirdly, it bogs the carrier because it's essentially an aggressive tax; it's a very aggressive tax. Supposedly what the concern is, is that you manage around income inequality. Within the time, it can add more cost on lower income people. So your choice is this when it comes to employer mandates: make low income people pay for their health insurance effectively; in hidden amounts, the employer could easily (lay ?) under the guise of employer money on the table.

Or, you could subsidize the health insurance of the lower income, target your subsidies, and do so in a politically difficult way.

Now, with regard to costs -- I'm sorry, I'm using up my time -- I think we all agree the major reason for the coverage problem is cost. I don't think that's in dispute. What we're talking about here is a sequencing issue. Let's take a look at Massachusetts. Massachusetts took up coverage first and now they're concerned with costs -- so what happens?

Between 2005 and 2007, Massachusetts cut its uninsured rate by about half -- there's some argument about numbers but it's about half. Meanwhile, the entire cost of health care in Massachusetts rose 23 percent. The entire health care cost in the United States, comparatively, rose 11 percent.

If we do the same sequencing in the United States that they did in Massachusetts and had the same results that they had in Massachusetts, we're going to have a much worse problem. Massachusetts started out with a very low uninsured rate -- much lower than the nation as a whole -- plus they had a series of other advantages. So, your choice then is really to enact cost-control reforms before or simultaneous to coverage because after which there will be a huge demand placed on the system from which there will be no offsets.

Thank you very much, Mr. Chairman, I would be more than happy to answer questions at the end and also to go a little more into the employer-based system and why it doesn't fit small business very well. Thank you.

REP. RANGEL: Thank you, our next witness.

REP. CAMP (?): Thank you. Mr. Sheils, you have five minutes.

MR. JOHN SHEILS: Thank you. I'm the vice president for The Lewin Group, we're a nonpartisan health management consulting firm, specializing in health care. We don't advocate for or against any legislation.

President Obama's proposal while running for the presidency last year was to create a public plan that would be available to people who are self-employed and small businesses that want to offer insurance to their employees. Senator Baucus's proposal includes the states that did not have a plan would be similar to the Medicare program. Even within a program in a manner that is consistent with Medicare, there are some huge implications.

If you turn to page four of the testimony, right now payment rates for providers under the Medicare program include about 71 percent that private payers pay. For physician's care, the payment rate is about at 81 percent of what private insurers pay. So you have a 25 percent to 30 percent lower price, lower premium, as a consequence of that.

In addition, the administrative costs are lower under the program; for the private sector insurance, administrative costs average around 13.4 percent of claims. In the public program, we expect the cost to be about seven percent of claims. So you have a premium that is 20 percent to 30 percent lower than the premium that you have in private insurance today.

If you look at the chart on page five, the average private coverage premiums right now are about $970 per month, per family coverage. Those drop to $7,600 per family if you were to buy it through this public plan; that's a savings of about $2,500 over the course of a year. It's a really attractive option; a lot of people are going to want to go into it.

On page six, we show what happens under the proposal, which being a better context, the public plan that's been proposed is part of efforts to expand coverage. One of those requirements is the requirement of the employer through the payer tax to provide insurance. Also President Obama's proposal included some expansions of Medicaid and some of the tax credits to help them provide insurance.

We ran the model and did our estimates that supported those assumptions. If you look at the right side of the chart, we show, first of all, there are about 28 million people who are uninsured today who would become covered under the program as a result of the program; that includes an increase of 16 million people on Medicaid. The public plan would cover about 132 million people, but most of that is going to be people dropping their private coverage and moving into the public plan -- that's about 120 million people, or 70 percent of the private insurance market.

In our paper, we also looked at the impact -- and we'll just limit it to small firms -- that's the left side of this page. In that case and limited just to small firms over others that lost private coverage, about 32 million people. For employer coverage specifically -- again, on the right hand side of the table -- private employer insurance would go down by 107.6 million people. There would be an increase in the number of employers who are buying coverage for their workers through the public plan of 113 million; it's really the net increase in the number of employers contributing to the cost of the insurance for the worker -- that derives primarily from the pay-or- play requirement that you have to provide insurance or pay a tax. So this is really a very large shift away from employer coverage.

On page 10, we have an estimate of what happens to provider income where we need to set up a program related to all firms using Medicaid provider payment rates. Hospitals would lose about $36 billion in net income. Physicians would lose about $33 billion. If you limit it to small firms, actually hospitals come out a little bit ahead and that reflects the fact that there's an uncompensated tier that's reduced by covering more people. These are net figures but covering everyone under Medicaid and Medicare our payment rates would have a fairly substantial negative effect.

The last thing I'm going to talk about is cost-shifting. This is a chart on page 11 which summarizes the payment system for hospitals in the United States and we've related people by their source of coverage and we've expressed the payments as a percentage of costs. Right now in the middle, Medicare -- actually in 2003 -- these were about 95 percent of costs. Medicaid payments were about 89 percent, and then the uninsured accounted for a substantial amount of uncompensated care.

To cover those shortfalls, the hospitals and physicians involved would increase what they charge private payers. Private payers were paying 122 percent of costs. The key to understand here is when you put more people in Medicare where the payment rates are at this level, it will push down revenues for hospitals for those people and require the hospitals to increase their charges to privately-insured people.

Here, the final page here, we estimated that if we were to set up that program, (we're all in ?), using Medicare rates, there would be a cost-shift to privately insured people of about $526 per person, per privately insured person and $1,500 for a family policy. It may use -- related to just small employers. Small firms -- the program would have less of a cost shift; in fact, because of the reduction in compensated care, it would actually be a small reduction in the cost shift.

The point of the paper was to explain that there are different ways that you can construct this program -- it doesn't care if you use Medicare rates; you could use mid-points between private and Medicare. There are a number of choices. In our study, we look at the impacts, all of these impacts, under those various -- several -- scenarios. Thank you.

REP. RANGEL: Thank you very much. Now we'll hear from Gerald Shea, who is the Special Assistant to the President, John Sweeney, right?

GERALD SHEA: Thank you, Mr. Chairman, I am Gerry Shea, I'm the assistant to John Sweeney.

REP. RANGEL: Let me ask you this, does the Service Employee International Union -- are they working with the AFL in terms of monitoring what we're going through and seeing what they would think is best for their members?

MR. SHEA: Very closely. My last meeting yesterday was at a meeting with a number of unions, including both the service employees and the United Food and Commercial Workers, neither of which are affiliated with the AFL-CIO, as well as a number of AFL-CIO unions in the NEA, by the way.

REP. RANGEL: That's very helpful. We'll anxiously await your testimony.

MR. SHEA: Thank you, Mr. Chairman, and Mr. Camp. We appreciate the invitation to share our perspective, based on the union's bargaining experience with 40 million Americans. I'm honored, personally, to be before this committee. You have a tremendous responsibility in providing leadership on this crucial question.

I come to you, both with a plea for help, which you've heard before, and also a pledge for cooperation and flexibility in terms of approaching this.

We have to solve this problem this year. In part, we have to solve this problem because even though the employer-based system, which is, after all, the backbone, as you pointed out, of our health care coverage financing situation, it has served us pretty well. It is really holding on by its fingertips.

I can tell you that, based on our experience monitoring bargaining situations across the country, this continues to be the most difficult issue in bargaining. I could give you examples today if I were free to share some confidential information about current large bargaining where this is the only issue on the table and where strikes may ensue in short order in some very critical services because of this.

It is true the large firms still provide coverage, but when you look beneath those gross statistics, you see that there is very substantial cost-shifting to individuals. The studies are that the number of uninsured have grown and the percentage of underinsured have risen from 50 percent to 25 percent over the past five years -- those are people who have insurance but can't afford to get the care that they're prescribed to get. There's a serious erosion of the employment-based system. Even if you didn't want to do a national health care form and cover everybody, we would need your help to stabilize that system because it can't be done without government leadership.

I am involved many, many hours a day working with employers and with other unions on ways that we can restructure health care to make it higher quality and more efficient; those are very, very important conversations from our point of view. They're vital to the future of health care in this country. One of the clear lessons in that is we can't do it alone with the private sector; this has to be done by the private sector and the public sector -- that is, government working together.

What are the elements of stabilizing an employment-based coverage in our opinion? One, it's controlling costs because without controlling costs, whether you look at a private employment-based system or a public place in the payer system, without controlling costs we can't afford the health system we now have -- it's simply unsustainable for everybody.

So that is priority number one in terms of employment-based coverage as well as other coverage.

Secondly, you have to have everybody in the system. If you're going to continue -- if you want to rely on an employment-based system -- we have to have all individuals and all companies participating in the financing of that care.

Thirdly, government has to play the role of making sure that there are fair rules that are enforced across the board, in our opinion, by sponsoring a public health insurance plan option.

Let me just elaborate a little bit. There's been costs; long term we need to restructure the way we deliver and pay for our care. The estimates from the Institute of Medicine are that $300 billion a year of what we spend go to care that is neither beneficial and sometimes downright dangerous for people; that is a lot of waste inefficiency and we know we can do better. We have shown in many institutions that we can reduce hospital-acquired infections. We have shown that we can reduce the readmission rates in many of the hospitals by taking certain proven steps. We have shown that we can reduce the horrific problem of mistakes in surgery by simple protocols, checklists, and time-out kind of procedures.

We can do this. It won't be easy and it wont' be overnight but we can do it and that is the most important thing long term. While there are a lot of ways that you could control costs in health care, we think that the best way and the most acceptable way to people in this country is going to be by improving the quality and efficiency of that care.

Secondly, the point about including a public insurance plan plays in here. Mr. Sheils has talked about the effect of a public insurance plan in terms of the savings that it could engender. We believe that while there is a lot of policy dispute about the number of people who would shift from the private insurance to the public insurance sector -- Mr. Sheils has rather high estimates of that -- in our opinion -- there is clear understanding that this would reduce costs and save us money; so we think that's a critical step.

On the issue of cost-shifting by the way of the private sector -- and this goes to the point about whether or not we should require everybody to pay -- let me just give you our experience. Workers regularly trade off wages to keep health benefits. They make this decision on the ground every day and the decision is consistently: we want health benefits even if it means trading off wages and, in some cases, even trading off jobs. It's that important to Americans for the simple reasons that we would all understand. We all hold the same position on this.

People want everyone to participate; they're willing to pay their fair share in this as long as everybody else does.

Lastly, the government must maintain the rules of the road for everybody. There doing it, they're starting this in a number of the quality improvement areas by requiring reporting on uniform national standards of quality and making that information public to inform both purchasers, individuals, and clinicians. We need to extend that beyond the sight.

Mr. Chairman, Mr. Camp, I appreciate the opportunity to appear before you. I just want to make one last point, if I could, and that is that the idea of taxation of health benefits has come up as a way to raise money. I just want to say -- going back to my point about what we need to focus on here is stabilizing the employment-based system. If we were to go to taxation of benefits, that would be the ultimate destabilizing step we could take. You may consider the employment-based system an accident just here in the United States. We heard some of the history from Dr. Gould. It is, however composed of several core elements -- one of which is a tax preferred treatment of benefits. You take that away and we're really pulling the rug out from under this system.

Now maybe we want to change the system all together -- there are lots of proposals to do that -- but this calculation of benefits would certainly destabilize it. In terms of the public support for health reform, asking people to pay, again, for the health insurance they already think they pay an enormous amount for, is not going to wash. This is not going to get public support, it's going to get tremendous public opposition. I would just caution against going down that road.

Thank you, Mr. Chairman.

REP. RANGEL: Mr. Sweeney. Let me make it clear, I want to thank the panel and to make it abundantly clear that we recognize that you're not Republican and Democratic witnesses. We invited you but we know that all of you are concerned about improving the health care of Americans and that they get access to affordable health care. I don't think it's necessary to say that but I just want to make the record clear -- as I turn to Denny Dennis (inaudible) (laughter)

Mr. Dennis, you made it abundantly clear that cost is a factor in terms of people having access to health care. We have, I guess, 35 million people, half of which work every day. If they have a serious illness in this great country of ours, they're going to get care. Do you agree? Where do they get this care?

MR. DENNIS: Where do they get this care today?

REP. RANGEL: They are going to be treated; they have the swine flu, colds, broken legs; they don't have insurance; they work hard every day; their employer loves them but can't afford health insurance -- where do they get it at?

They didn't ask whether Republican or Democrat -- they say, have you got insurance? They say, no, and some law mandates that people have to take care of these people -- especially in our hospitals, especially in the emergency rooms.

MR. DENNIS: Correct.

REP. RANGEL: What do you do with these people? Do you allow them to continue not to be insured, they don't pay for it, the taxpayer pays for it? What would you suggest we do for them?

MR. DENNIS: Now, one of the things at least in regards to as far as smaller firms are concerned --

REP. RANGEL: No, no, no, I'm talking about the employee. He is right now -- married, working every day, scared to death the kids are going to get sick; he can't afford insurance; the employer can't afford insurance -- they are here in large numbers -- millions of people. So we can't ignore them if we're talking about universal coverage, but, for you, recognizing costs, what do you do?

MR. DENNIS: Well, in terms of making sure that they have coverage and care, yes they do. The question becomes, who is going to pay for it? That's the issue. There are certainly better ways to deliver care for the low income folks who aren't insured when we're doing it today. We're doing it through emergency rooms. Why aren't we doing it through clinics?

There are a whole series of—

REP. RANGEL: Your contribution would be expansion into health care clinics.

MR. DENNIS: I'm suggesting that would be -- there are several steps that we could take, Mr. Chairman, that would—

REP. RANGEL: That's what we're here for because we have a serious problem; it's going to cost money, money. None of us truly believe -- that the facts yell at us that it's going to save money. They kind of believe -- I'm no doctor and neither are you. These people have preventive care, have examinations where they chided him: he should have come earlier, now you have to be admitted to the hospital. This is the most expensive type of care.

If they knew that their kids could get examinations; if they knew they had dignity to ask their employer, I've got to go for my checkup, you just don't have to be a scientist to know you're saving money. As a patriot and the chairman of this committee, to me it means that they're healthy, they'd be working, they'd be paying taxes.

MR. DENNIS: Mr. Chairman, these are done in the committee staff. We had a study done for us by Professor Rossiter at William & Mary to look at costs -- precisely places that we know can save costs.

REP. RANGEL: I've already said -- and we're not going to contradict that 48 million people that don't have health insurance -- if we give them -- overall the country is going to save money for getting productivity and all of that economist talk. You're going to save money in terms of them not costing society health care that they don't have insurance to pay for.

What I want you to do is not to admit that we have a problem, but we have mandated today to move forward and resolve this problem. We just need your expertise to say -- if I told you that one of our things we're considering is having a public plan and if this employer has a plan, you keep it if you like it. If, indeed, you've got a pre- condition and you can't get any plan, it's too costly, that the government would say, this is backup; this is backup for you and you've got to do it. Can you go along with it?



MR. DENNIS: No, not with that particular proposal. What we wood suggest instead is we have something like the Massachusetts plan.

REP. RANGEL: Forget Massachusetts. Tell me how it works.

MR. DENNIS: Well, essentially what we have is something called a Connector. What that does is it allows to bring in small business but, essentially, it provides a central clearinghouse where insurance companies register their plans and people can go in -- if they're smaller folks, can go and the big business can go to get their insurance; so it's like a big central marketplace.

REP. RANGEL: That will mandate that employers must insure these people, not with compassion—

MR. DENNIS: No, no it doesn't.

REP. RANGEL: That's the Massachusetts plan; it's an employer mandate.

MR. DENNIS: Well, it's $295 worth of employer mandate.

REP. RANGEL: I don't care what it is. I'm saying the employer has to provide insurance for the employee under the (inaudible) business plans.

MR. DENNIS: Why would you want to put people out of work? Why would you want to crash wages -- there's got to be a different way to approach this. The question becomes -- there's an interesting issue here, it's called -- and we use the politically really nice term of "shared responsibility."

REP. RANGEL: You're using it.

MR. DENNIS: I'm not, I'm just bringing it up. I'm not using it. I'm saying, I don't know what that means. I know what market—

REP. RANGEL: I didn't raise it. You can argue with yourself what it means. I am saying that we have to do something and you're suggesting: "I don't know what." We've got to take care of these people and if you don't help us to do it, we may have a way to do it that you don't like. We're going to say that the employer has the responsibility and the employee has a responsibility and the government has a responsibility.

We're not going to Massachusetts, we're staying right here and hammering this thing out. When you think of something that you say, well, that makes some sense -- I don't agree with it all -- then come back and talk.

MR. DENNIS: Let me say, Mr. Chairman, that the -- (inaudible) -- and the whole idea of getting rid of -- being able to deliver on claims experience and that sort of thing, which is all inherent in this system I'm talking about, is certainly very much directed towards the type of thing that you're talking about.

After all, the state cut its number of uninsured by half; that certainly looks to, I think, what you're looking at, isn't it?

REP. RANGEL: No, I've got full coverage.

MR. DENNIS: Well, it would be nice, yes, but at least we're moving in the right direction. This is clearly, I think, a very positive suggestion. We know, as well, other kinds of things that can easily be done -- excuse me, I'll take that one back, I'll get rid of the word, "easily." There are other things that can be done to lower costs, which would bring in more people into the system.

So I think, indeed, that we're proposing some very positive steps to directly go after the kind of concerns that you have.

REP. RANGEL: Well, would you provide an addendum to your written testimony and spell out what you think those are? By unanimous consent, I would put in the record. Once I see what your ideas are, then we'll get back to each other -- but it's not easy. I yield to David Camp.

REP. DAVID CAMP (R-MI): Thank you, Mr. Chairman. Thank you all for your testimony this morning.

Mr. Sheils, in your testimony, you mentioned that if a new government health plan paid providers at private market rates, the premiums in the government-run plan would be six to nine percent below those in the private market.


REP. CAMP: You cite the reason for that as being higher administrative costs in the private sector.

This has been a discussion in the committee over many months about comparing the administrative costs between the government and private sector health programs. My comment is, I believe that's an apples-to- oranges comparison.

There are many programs that significantly improve the health and well-being of those in private health coverage that I believe are considered administrative costs to these management programs, 24 hour nurse help lines. I think those serve critical functions.

But they're considered administrative costs in this comparison that often occurs. And private plans also spend money building provider networks, which can provide -- and can improve access. For example, the top quality providers and exclude poor performers.

And so this provides real value to the employee, but that also falls into the category of administrative cost. And similarly, anti- fraud programs, which help reduce the cost of healthcare, I mean, because they are relevant in private health plans, while government- run programs like Medicaid and Medicare have pretty poor records on fraud and abuse.

And in fact, there's a recent article in Congressional Quarterly that found that, and I'm quoting, "the government has never done a particularly good job detecting fraud in Medicare, much less preventing fraud in the first place." Most claims are never checked at all.

But these anti-fraud programs and other costs, they're also considered administrative. So I would ask committee's consent to submit for the record a letter to the editor in the Wall Street Journal that was written by the former administrator (to CMAS ?) that highlighted some of the problems of trying to compare administrative costs between Medicare and private health insurance. And I would just like to ask your comment on that.

MR. SHEILS: Sure. There are management -- (utilization ?) management functions that most private heath plans have, pre- certification (for ?) your - insurance card. You've got to call and get permission to go get an MRI, you've got to get permission to go to the emergency room too.

Most of these are estimated to save costs between four and eight percent. Our study came up with something in the neighborhood of four percent. The numbers we have on the cost of services are adjusted in here to roughly reflect that adjustment. So that we're not really counting it -- we're counting it the way I think we should count it, which is the cost of the utilization.

The administrative costs are what they are, but then the differences in utilization and the affect that has on the premium is also part of it. So it accounts for that very roughly. I can't say -- it roughly accounts for it.

REP. CAMP: Mr. Sheils, Lewin Group has done work for hospitals, physicians, but you've also done work for the Economic Policy Institute, who is testifying here today as well for the Commonwealth Fund. Is that accurate?

MR. SHEILS: That's right.

REP. CAMP: All right. Mr. Shea, would it be a fair statement to say most of your members would like to keep what they have?

MR. SHEA: That would be a fair statement, sir.

REP. CAMP: And would it also be fair to say that a Medicare-like coverage would probably not be an acceptable replacement for the level of benefits that most of your members have now?

MR. SHEA: We cover many retirees, including Medicare recipients, Mr. Camp, and we use a supplement to Medicare benefits to bring them to the standard of what the active workers get.

REP. CAMP: But particularly, non-retiree members would find a Medicare-like plan to be significantly below the benefit level they're receiving now.

MR. SHEA: We strongly believe that with a public plan, you need to allow for a private insurance or a private union fund role, to supplement or compete with, yeah. So you'd want to have something, not just a public plan.

REP. CAMP: Yes, but comparing the two, a Medicare-like plan has much -- the plan they have now is a much higher benefit level than a Medicare-like plan. Any --

MR. SHEA: Yeah. And widely, for many years, people have said if you were to extend Medicare to other people, you'd have to raise the benefits, and modernly.

REP. CAMP: Yeah. And so that for the retirees, as you've mentioned, you have a supplement. Thank you. Thank you all for your testimony. I yield back the balance of my time.

REP. RANGEL: (Inaudible.)

REP. : It's interesting, Mr. Sheils, that Mr. Camp had asked you about administrative costs and said that you were comparing apples and oranges. I think your answer to that is really not. (Inaudible) --

MR. SHEILS: You're correct. I would say that's correct.

REP. : Okay. I wonder if you couldn't just pick and choose -- (inaudible) -- but I think we can question your -- some of your assumptions. In terms of what would be the transfer from employer insurance to a public plan, because as people thought about transferring, the private sector might well respond to competition to competing with the public plan, right?


REP. : And so therefore, the, the private plan might become more effective, right?

MR. SHEILS: We expect improvements, but we don't think that they would be able to -- most plans wouldn't be able to survive in that environment. The ones that will survive will tend to be integrated systems, HMOs, and where -- for example, some of these HMOs -- (inaudible) -- hospitals, don't have to worry about the cost shift.

REP. : Let me ask you this. If you look at employer plans in the constructions industry, which -- (inaudible) -- brought up, you will see that the employers would shift to the public plan en masse?

MR. SHEILS: Based on the price for coverage that they'd be offered. The difference a little bit by firm size, but we basically figure out what the insurance is in today's market for individuals, which is kind of an involved process, and then we figure out what the cost of a plan is, firm plan. And then we use models of how people respond to changes in the relative prices of healthcare to figure out how many people are going to the public.

REP. : Okay. But to use these employer-based plans, are controlled by collected -- (inaudible) -- aren't they?

MR. SHEILS: Yeah, 16 percent of --

REP. : What about in the construction industry?

MR. SHEILS: In the construction industry, I believe that's correct, yes.

REP. : And your assumption is there'd be a massive shift that they're subject to collective bargaining agreements and the employee representatives would decide to shift to a public plan?

MR. SHEILS: Yes. There are two things to consider. First of all, in a competitive environment, you would not -- you'd almost have to. I mean, if your competitor uses a public plan and is saving $2,500 a year for family coverage, then you're going to be at a competitive disadvantage unless you do the same thing.

Of course, also, I just want to add that -- we should point out that locals expressively make these tradeoffs between cost and benefits.

And it seems to be likely that when a family has a chance to save that kind of money, the workers may develop a considerable demand for the changes.

REP. : But, okay, there -- (inaudible)?


REP. : (Inaudible) -- assume that there would be a major reduction in the uninsured, right?


REP. : Mr. Dennis, just to pick up what Mr. Chairman was saying, I re-read your testimony, and the problem is you don't make a mandate, you don't make a public -- what you have got planned? I mean, now, the problem with the opposition here, they didn't make a public plan, they didn't make a mandate. They had some other complaints. But kind of in the plan that will clearly reduce the uninsured, of course, the 50 million people in this country, there is no plan. And I think we should take up our Chairman's effort.

I have your small business principles, but I think what we need to do, if you don't make the mandate, and you don't like the public plan, is to come forth with a very specific proposal that would assure that 50 million uninsured in this country within a reasonable period of time, the number would be essentially zero, or close to that. Because otherwise, simply this change (slug it out by critique ?) -- it doesn't work if there is no alternative. My time is up.

REP. RANGEL: Mr. Herger, California.

REP. HERGER (R-CA): Thank you, Mr. Chairman.

As you know, at last week's hearing, Ken Sperling testified on behalf of the National Coalition of Benefits. The chair asked about the coalition's view on a government run plan. Since then, members of the National Coalition of Benefits Steering Committee who collectively represent hundreds of employers that sponsor health benefits, tens of millions of Americans sent a letter to you stating their position on a government run plan.

In part, the letter says, quote, "Proposals that have a public plan compete in the private marketplace are of grave concern to employers who provide health insurance coverage. The public plan's unfair competitive position, both by size and regulatory authority, will merely shift cost to a private sector, and employees covered by private plans." And then it goes on to say, "Medicare's underpayment results in private payers and people covered by these plans making up the shortfall. It increases the cost to employers of providing quality healthcare coverage. A public plan option administered by the federal government is inherently destabilizing to employer-based health insurance benefits," close quote.

Mr. Chairman, I would ask unanimous consent to enter the letter into the record.

REP. RANGEL: Without objection, Mr. Herger.

REP. HERGER: Thank you very much. Mr. Sheils, you estimate that a government run health plan paying Medicare rates would mean a $36 billion cut to hospitals, and a $33.1 billion cut to physicians, and that's just in one year.

Since it's paying below market rate, the government run plan could charge below market premiums. But while the government-run health plan might be cheaper, it doesn't mean it would be better. And the people enrolled in the government run plan could find themselves with health coverage, but without access to care.

Today, half of physicians are no longer accepting Medicaid patients, and 28 percent of Medicare beneficiaries searching for a new primary care physician are having a problem finding one. Wouldn't a public option, that is a government run plan, paying providers Medicare rates, only exacerbate access to care problems.

MR. SHEILS: I think you're correct. It would make it much more difficult for the providers, so much so that our numbers are showing that the physicians under these plans, or in hospitals, would be providing more services to more people for less money. And it's hard to imagine you can do that without something bad happening.

I think that we spend enough on healthcare in this country that through efficiencies, we could get by the level of spending. The question is, will the system actually give us those efficiencies, or will it simply, as you say, cause some providers to stop seeing private insured, the -- (inaudible). I don't think there would be a whole sale rejection of plans by providers, however, because so many people would go into the public plan.

If you didn't accept Medicare, who would you care for? There'd be 120 million people on it. (Inaudible) -- million people in Medicare plus, so it's 170 million people. I don't think any provider's going to be able to walk away from what is probably 60, 70 percent of the whole marketplace that way.

Providers will have to somehow do it within the amount that they're being paid. Whether that compromises the private care is an open question. It could be done in ways which are bad for patient health. It could be done in ways that are careful where it does not impact patient health so seriously.

But it's very hard to imagine taking this money -- this much money out of the system, but at the same time, increasing demand for services without something bad happening somewhere. So that was my -- (inaudible) -- about that, sir, and not terribly specific, I apologize, but --

REP. RANGEL: Let me thank you and tell you where we are. The bell that you heard means that we have to respond to the budget that is on the floor -- (inaudible) -- take 15 minutes -- (inaudible) -- to answer that. But in terms of -- (inaudible) -- that's roughly five minutes.

And so if we get this done, we will rejoin at 12:00. I apologize to the panel for this break, but you might be able to get something to eat, but we'll come back, start promptly at 12:00, and we'll try to proceed as expeditiously as possible. Thank you. We adjourn until 12:00.


REP. RANGEL: If the witnesses will take their seat, we will resume the hearing.

(Off mike.)

REP. MCDERMOTT (D-WA): Although I took the chair here, I also am the next one to ask questions, so I'll start.

I'm having a little trouble understanding where a couple of you people are coming from. I can understand a big company having their employees and want to keep them in private -- inside the company in some kind of a health plan. Because you've got them trapped today, they're scared of losing their jobs, so they're going to accept whatever you do, and you can keep offloading the healthcare cost onto the employees of the company.

But what I'm having trouble understanding is what happens to the smaller employer who sounds like their represented by the NFIB, but Mr. Conklin, I don't understand. You started off paying 5 percent of payroll, and now you're up to 10 percent of payroll?

MR. CONKLIN: No, Mr. McDermott, it's 20 percent.

REP. MCDERMOTT: You're at 20 percent of payroll. Now, I hear from your industrial organization there, that if you would have that kind of costs, why you had to lay off people. Have you laid off anybody?

MR. CONKLIN: No, sir. In fact, we just recently hired.

REP. MCDERMOTT: So the fact that healthcare costs go up does not mean -- to the employer -- does not mean you're going to lay off workers.

MR. CONKLIN: No. I mean, we have to offer that benefit in order to attract workers. It's an expectation.

REP. MCDERMOTT: So at what point -- you're paying -- I can't quite tell from your testimony, because I read it all. Are you paying $8,700 per person?

MR. CONKLIN: No, $8,700 for the company. I have ten people.

REP. MCDERMOTT: Per month?


REP. MCDERMOTT: So that's $870 per person per month?

MR. CONKLIN: Right. And I want to make sure for the record that this is well understood. This is during the transition. Now, what's happening is I have some employees coming off our old carrier and going on to a new carrier. And while that's happening, I have to keep the old policy in place, and pay a percentage of the new policy. Now, this process is taking two to three months, so we'll have $8,700 outlays for two to three months. And then at some point in the future, our old carrier, HMO Blue Cross, will return the unused portion, so to speak.

But like all insurance, I have to pay it up front. And in order to maintain coverage for everybody until this process is complete, that's my premium expense.

REP. MCDERMOTT: Why wouldn't you want to have, given that story you just told, why wouldn't you want to have a public option that you could say to your employers, "Go to this public option. It's a generous program. It's as good as what I'm able to buy for you," and be able to get it for, say, 10 percent of payroll?

MR. CONKLIN: I have no difficulty with that. My hope is that if that option were available, and I would hope from this process that it's done right, the public option would serve a couple of different purposes.

One is, and it's very important, is that it would make it easier for me, as an employer, to understand and explain to my employees what they're getting for our money, because they're making a contribution too. I don't pay the whole freight on this.

And if we could do that, and there was a plain-language component of the public sector solution, whatever form that public sector solution takes, then the private sector, which I think has some conflicts of interest, that it tends to camouflage in the way it presents the product, would be forced to reveal what the real costs are.

REP. MCDERMOTT: Tell me how they camouflage it.

MR. CONKLIN: Well, they camouflage it by presenting me with a three-quarter inch thick booklet of arcane legalistic language that explains what the policy really is. And what I'm looking for is a very plain English thing that says here's what you're getting. This is what the co-pays are, this is what -- that's all there. What the deductibles are. This is how much you're going to spend each month.

But here are the limits of the policy. If you go into the hospital and you have a serious problem, and that problem is, let's say, cancer, the average cost of, say, a cancer treatment in the New York metropolitan area, or a serious illness is, say -- and I'm making all this up. Like I said, I'm not a policy expert, but this is sort of my thinking. And that problem, that illness on average costs $1.5 million to treat in New Jersey, okay. Our policy only covers $1.25 million. You're going to be on the hook for $250,000 because when you go in the hospital, you sign that little document that says whatever the insurance company doesn't pick up, I'll pay.

So one of the things I'm hoping is that if we have that sort of transparency in the process, then we can also have an honest discussion about medical bankruptcy. And then we're going to really know what health insurance should cost, and how we can fully cover everybody. Until we have that kind of transparency, I don't even think we know how much health insurance really costs.

REP. MCDERMOTT: Do you have an idea what's a fair amount for a small businessperson to spend on the healthcare of their employees, 5 percent, 2 percent, 1 percent --

MR. CONKLIN: Well, look, it would be great if it was 1 percent. I mean, it would be great if it was half of a percent. But if it costs 10 percent, then as an employer, I want to pay 10 percent, and I want the guy down the street to pay 10 percent, I want the guy up the block to pay 10 percent. But if what we have to do to cover everybody is create a progressive payment system, I'll live with that too.

When I started my business and it was my wife and I, we had no health insurance. But we were young, and we were healthy, and as I said in my written testimony, we were broke. So we weren't going to go out and buy any health insurance. That's a problem that has to be addressed. I don't know whether you're going to be able to address that level of detail in the legislation you're considering now.

And I hope that as this discussion continues, we realize that we're probably not going to get it right this time. It's probably not going to be perfect. Whatever you come up with. If you come up with a public option, it's probably not going to be perfect. And if we don't cast it into stone or steel and say that's it's a federal program, it can never be changed, but we recognize that through this process we're going to have to make adjustments and improvements, then I think great. Anything that gets it closer to a fair, equitable system that gets 100 percent coverage has to be reflected in my bottom line in reduced costs. And I'm giving it to you from my prospective, which is on the street.

You know, I was thinking earlier during the testimony that there used to be a TV program, "Homicide, Life on the Street." This is sort of like, "Healthcare, Life on the Street." And, you know, what I experience is something different than what I'm hearing from the other panelists, which is not to say that their testimony is inaccurate or that it hasn't been well thought out. It's just not quite -- doesn't quite jive with what happens in real life as I've experienced it.

REP. MCDERMOTT: You'd like a public option if you pay 10 percent?

MR. CONKLIN: Absolutely.

REP. MCDERMOTT: You'd move tomorrow to that?

MR. CONKLIN: Well, you know, I'd certainly give my broker the opportunity to convince me that it wasn't a good idea. And if he could do it at a competitive rate, and tell me why it wasn't a good idea in clear language, and if he had a competitor that who was giving me the real information, then he'd be forced to do that.

REP. MCDERMOTT: Thank you very much.

(Cross talk.)

MR. MACDONALD: This whole issue about migration to a public plan, I think if we took a real-life example that I have, is that I don't think that migration is going to occur as quickly as others would suggest it is.

And case in point would be a couple of years ago, through a consortium, several companies created what was called Retiree Health Access. And the actuaries in the IBM case thought that probably about 60,000 retirees would migrate to that plan. The first year was 2,000 people.

I think there is a general reluctance for people to migrate away from an employer plan, so I think a lot of it is going to be driven off of the design, the cost structure, the access. And I don't think you're going to see that migration as quickly as some would suspect that you would. I think the second thing is when you raise the issue around cost, is there an argument that's made, well, are you laying off people because of healthcare costs?

I think Jerry said it quite appropriately, there is a tradeoff, of cost. If the healthcare is rising at 20 percent or 10 percent or whatever the number is, then you make decisions around what are my raises going to be this year, what am I going to do with investing in human capital, what am I doing for training programs. Somewhere, there's always offset. It's not incremental upwards.

It's always trying to create a level playing field. So I don't see the migration as quickly as others do, just by real life. HAS --

REP. MCDERMOTT: Can I ask you one other question?


REP. MCDERMOTT: If you lay people off at IBM, where do they go? Can they afford the Cobra option?

MR. MACDONALD: Well, first of all, we have a continuation, a benefit continuation policy that's up to six months right off the bat, so that we pay for that and they go beyond that with Cobra.

REP. MCDERMOTT: And at the end of six months, they're on their own?

MR. MACDONALD: Well, then they go to Cobra. They go to a continuation.

REP. MCDERMOTT: Then they go to Cobra?


REP. MCDERMOTT: Where you're operating, is Cobra enough money -- I mean, can you make out of your unemployment insurance enough to pay Cobra and the house rent?

MR. MACDONALD: Well, in the spirit of bluntness, IBM'ers tend to be at the higher end of the pay scale, and so in the spirit of honesty, you know, our average wage is close to approaching $100,000, so you would assume there's some level of saving there to create that offset.

REP. MCDERMOTT: Thank you, very much.

REP. RANGEL: (Inaudible) -- IBM plan, they go to any public plan.

MR. MACDONALD: That's what I'm suggesting.

REP. RANGEL:: I know you are. It just make sense -- (inaudible) -- but the plan that we're talking about, I mean, Mr. Conklin, he says competitive with nothing if he's paying this much.

Mr. Dennis, you're here in Washington?

MR. DENNIS: Yes, sir.

REP. RANGEL: Talk with my buddy from New Jersey because, you know, you've got the theory and everything, but like he says, he has to deal with this every day. It's a cost on him, and I'm not talking about compassion, I'm talking about saving money, having people working every day not having to worry about their kids getting sick or their wife not being able to get medicine. But being able to concentrate on making some cabinet. But a person in trouble with no healthcare is not a productive person.

And so you know we've go to do something about it, and I would rather work with you so that we can get bipartisan support on this darn thing. If you come in with something -- you talk with Mr. Conklin, and if he's convinced, we got a deal. (Laughter.)

Let me call on my hero of the Congress, Mr. Johnson.

REP. JOHNSON (R-TX): Thank you, Mr. Chairman. You know, Mr. Dennis, the Economic Policy Institute's proposing imposing a healthcare "pay or play" mandate on businesses, and their proposal would require employers to pay 75 percent of individual premiums, and 66 percent of family premiums for all employees working at least 20 hours a week.

And employers who can't meet these requirements would be forced to pay 6 percent payroll tax. Now, the Lewin Group estimates this would represent a tax increase of nearly $1,600.00 per employee. Does this mandate the type of thing that small businesses could afford?

MR. DENNIS: Well, first of all, let me just say this, Mr. Johnson, that whether paying for the premium, pay or play or payroll tax is the same thing. So I mean, we're talking about a generic group here that's the equivalent to one another.

If initially, the business has to pay $1,600.00 per employee, then that's -- they have 10 employees, that's $16,000.00. $16,000.00, the question is where do you, where do you get that money? One of the places is you're going to have to take it off their salary. I don't think any of us want to have $1,600.00 taken or $16,000.00 taken off our salary.

So I mean -- yeah, I mean, this is just another mandate. It's going to end up in loss jobs. It's going to end up -- we've already talked about how employee wages are depressed, because of benefit costs.

REP. JOHNSON: Listen, it seems to me -- and I had a small business at one time, if you're not making money or on the margin a little bit, you're going to have to -- you can't afford another increase. Well, what you'll do is probably lease out your medical stuff. You know, fire the employees and let -- and work them out of a different organization.

You know, I don't think any of you realize what it costs to run a small business. It's not a simple operation, and some of your know. And you work sometimes some months just to make ends meet. And if we stick you with another tax, which is what that is, I don't think they're going to like it.

And, Mr. Conklin, I don't think you would either.

MR. DENNIS: Well, I think Mr. Chair -- or Mr. Johnson, there's one really important point in this. And that is we have about 5.9 million small employers in this country. Some of them are doing very well. It sounds like Mr. Conklin's business is doing quite well. That's great. I'm all for that.

There's some others that aren't doing so well, and there's some others that are just starting. So the condition of each business is very different. And I'm not talking about one business. I'm talking about the group of businesses, all of them together. Some provide. And it's a very fact that there's a relationship, and I will repeat, that the relationship between what you take on the business and whether or not you provide health insurance -- employee health insurance, direct relationship.

I think that speaks volumes. When business does well, the employer does well, and the employees do well. When the business doesn't do so well, the employees don't do so well, and the employer doesn't do so well.

REP. JOHNSON: Yeah, I know. And there are some companies that provide health insurance -- Exxon is one of them, and about 20 percent of their people don't take advantage of the program they offer, because they think they're bulletproof. You understand that, the 21 to 35-year-old guys. And in fact one of you testified that you didn't have insurance. I think it was Mr. Conklin.

Well, I appreciate, Mr. Conklin, the efforts you've taken to continue providing health insurance for your employees. And I've heard from a number of small business owners just like you that are finding health insurance to be increasingly unaffordable. And we need to reverse that trend.

You mentioned the inability to pool employees and spread risks the same way large employers do. I wonder if you'd support reforms that would allow small businesses to join together and pull their risks. You know, association health plans never have been passed up here. And the independent guys, i.e., realtors, for example, are all for that kind of a program, and they don't have health care, a lot of them.

So doesn't buying in bulk the supplies reduce costs?

MR. CONKLIN: Yes, Congressman, buying lumbar in bulk does reduce costs. I don't think you want to use the same model to determine what you're going to buy in health insurance. And I think one of the problems we have in the discussion we're having about health insurance is we keep applying this business model, as if we were talking about widgets.

What we're really talking about is people, and we're talking about the kind of care that's available to them. And when these larger groups, the question I have -- and I can't -- again, I'm admitting I'm not a policy expert.

But the question I have is: Who's going to determine who my carrier is in this larger group? Is that we're going to form an association, and we're going to go out in this group and shop for health insurance. And then we're all going to somehow agree that the best provider of health insurance for us is the XYZ company.

Now, I'm not sure who makes that decision. I'm not sure what that decision is based on, and we're still stuck with this sort of opaque process, by which I don't really have a choice, I have an option. Join the association/shop for health insurance in the open market.

REP. JOHNSON: Now, association health plans don't have to be one provider. It can be five or six, and they can pick.

MR. CONKLIN: Right. And we're still there, though. I mean, we may be saving a few dollars on the side, but the group and the way the group is structured and the, and the, and the available selections are still limited within this organizational model. So I don't see that as being a vast improvement over the system.

REP. JOHNSON: Well, it is because they don't have any insurance right now.

MR. CONKLIN: Well, look, I said earlier that all the solutions -- I used the toolbox analogy. If that's a tool -- if that tool functions the way some people are saying it might function, then it may be useful to add it. But it's not going to solve the problem.

MS. GOULD: Congress, do you mind if I respond as you brought up my --

(Cross talk)

REP. JOHNSON: Go ahead.

MS. GOULD: Okay, thank you. You brought up the estimates of what it might cost, six percent of payroll for small employers to contribute. But what wasn't -- also -- was also brought to light in that, in that research that Lewin Group, the Lewin Group did analyze, is that given national exchange with the public plan, small employers who are currently offer insurance would actually experience windfall savings with that kind of a framework.

In fact, firms with 10 or fewer workers would save about $3,500.00 per worker, compared to even lower savings that you would see across all firms. So small firms stand to gain a lot from that kind of structure.

REP. JOHNSON: Thank you, Mr. Chairman.

REP. RANGEL: (Off mike.)

REP. : Thank you, Mr. Chairman. I commend the panels. It's been a very interesting discussion. And, Mr. Conklin, you know, you're the, you're the guy off the street. You have had compelling testimony today. Absolutely delightful.

Start with Mr. MacDonald. In your capacity as a leader within the HR world, let alone IBM, you would have an expert view on the notion of whether or not the employer platform ought to be a base for the delivery of health benefits in the first place. Some believe it's time to move off of that.

I would tell you I disagree with that. I believe there's still enormous value, let alone the fact that we have got 65 percent, as Dr. Gould told us, covered with the employer model -- that platform, I believe that we keep that part and, and build out. Not blow it up and start all over.

What are your thoughts on that?

MR. MACDONALD: Clearly, as I think I said in my opening statement, we shouldn't start from scratch, and that the employer plan is a base or a foundation. As I look at whether we want to talk about it in terms of a public plan or some individual mandate, you know, perhaps we have to migrate there over time.

And I think part of the issue has to be that you use employer- based plans as that model. Employer-base plans typically have a foundation for wellness or a foundation for preventative care and a foundation for primary care. Those are, I think, absolute critical components to any plan that's designed, whether it be at a large employer or a small employer or a branch.

REP. : I'll mention, again, how about Medicare? I mean, I'm just mad that those elements did not seem to be advanced effectively in present Medicare reimbursement incentives.

Have you been able to achieve a greater role for primary care, preventative care, wellness and impacted your cost curve? If so, I mean, you've got information that we desperately need to consider as we develop federal reimbursement policy?

MR. MACDONALD: I would agree with you on the inefficiency and the lack of effectiveness in the Medicare arena. And the answer is yes. For instance, in a three-year study that we did where we fundamentally created what we call a healthy living rebate, where we focused on nutrition, childhood obesity, physical exercise, and smoking sensation, we invested around $81 million. And in that three- year period, we saved $200 million.

And at the same time, we had a higher risk population that we identified to about 13 percent of our population. Fifty-five percent of that high-risk population is now down to less than 7 percent.

So we see a direct correlation for making investments in areas of preventative care, primary care that yields returns.

REP. : Did you elevate the role of primary care in your interaction with your insureds? Is that how you were able to obtain the behavioral modifications that produced this positive health result or --

MR. MACDONALD: It's a two-prong approach. Yes, working with our carriers and other insurers that we work with, that was one way we created designs off of that. But part of that investment was a significant investment in making the employee and their dependents educated consumers.

Let me just give you an example on childhood obesity. Now, you say why childhood obesity? They're not your workers. Well, it's also a statement of society, but more importantly, it really reflects that if an employee goes to work and feels good about their family situation, and there's not an issue there, they're going to be more productive. They're going to be more satisfied.

And one of the things -- what we did is we created IT tools, not surprisingly, for people to go on and look at what does it mean to have nutrition for children and exercise programs. One of the interesting by-products was that in coming back with the surveys, we found it was more family-friendly.

People began to discuss what they were eating at dinner, what they were doing during the day. A simple thing, like, not watching TV more than one hour, and the type of TV that the child was looking at, not being a couch potato. All those types of things helped immensely in intervening in those costs.

REP. : Now, your confidence in your plan indicates perhaps to me that IBM would be one in a new insurance world where large employers could continue to offer what they have been offering or send their employees to shop in an insurance exchange. You might very well continue to do exactly what you have been doing.

MR. MACDONALD: Regardless of your, your aspiration about a public plan or not, the thing that I would caution us as patriots, using Chairman Rangel's approach -- describing us appropriately so, by the way, we have to insure that we're still engines for innovation and transformation.

I mean, what I just was describing to you is a sense of transformation within the health care arena. And I think that that has to be a fundamental premise of what we're doing, going forward. I agree, by the way, with Jerry, that the whole concept of taking out the exclusion for tax deferral, we would completely agree. And I think there would be annuity at the date, so to speak, if that were to occur.

So I think there are fundamental things that we have to maintain.

REP. : Mr. Chairman, may Mr. Shea also respond?

REP. RANGEL: The time is all right.

MR. SHEA: Thank you, Mr. Chairman. I just wanted to take you back on Mr. MacDonald's comments, and to make the point that I really don't think it is useful for us to see this as either/or. Either Medicare is good or private is good. If you look at the experience of people who are working -- have been working together, and I'm talking about large employers, small employers, purchaser groups, consumer organizations -- and I would put us in that category or ARP, to mission groups, hospital groups, about how do you restructure this system to give better value?

A key component of that is what the government does. We can do these things if we do them together. That's the lesson from what's gone on in the last 10 years, and I think Mr. MacDonald would probably agree. It's really -- you know, Medicare has led the way in terms of quality measures and quality reporting. And they were the fairly modest investment. They've got every acute care hospital in the country reporting on a standardized set of measures.

And one of the things that the hospitals will tell you, the employers will tell you, is we don't want to have one measure set over here and one measure set over there. Medicare instituted a uniform set of measures that everybody reports on. And we know from the statistics, even in the first five years of that, that has improved quality. The performance has really improved on those measures.

That's something that Medicare did that the private sector wants to emulate, and be part of. So it's really a matter of working together. And one of the things that bothers me about the debate over the public insurance is it's, like, we're back to yesteryear. This is the polarized debate in my humble opinion, which has prevented us from straightening out our health care mess for now decades. It is this -- it is that precise kind of thing.

The only reason we talk about the public insurance program is because we think it's good cost containment mechanism. If the private insurance want to come up and present a credible case that they can control costs, then we'd be well -- we'd be very interested in hearing it. But their history does not indicate that they can make that case based on what they've done in the past.

So therefore, we simply say, "Well, let's try the public insurance alternative, and see if competition might get us some place." But the private insurance market has never been able to do this. Is not -- we're not enshrining a public insurance program. We're trying to get these costs under control.

REP. : Mr. Chairman, I thank this excellent panel.

REP. RANGEL: Mr. Brady of Texas --

REP. BRADY: Thank you, Chairman. I agree with Mr. Conklin, the churning of health insurance adds to the problem in great deal, not just in the private sector. We had Texas Children's Hospital and the Texas Medical Center, a trade in nonprofit health insurance program, try to lower costs, and they, they failed, as they told me. Mainly because small businesses have to turn -- go from insurance plan to insurance plan every one year, two year, three year, as they did in my small business to try to contain costs.

And until we appoint from the leaders of the Children's Hospital to connect behavior of that patient to their health care plan, prevention and other initiatives won't really help. I want to describe to you a model that I found in a small town east Texas, in Isabel, Texas. (Inaudible) -- there they've got a paper mill, and seven years ago the paper mill management and the union there, its steelworkers, agreed that the steelworkers would run the health care plan.

What they did is put together a very common sense patient consumer model. They had three parts of it. One, they built the clinic at the front gate of the plant, so that every union -- there are 3,000 workers, every union worker and their family had immediate access to preventative care. When the family, child, whatever, got ill, immediate access.

Secondly, they went out to bid for imagining and specialty services. Even had insurance companies bid on that. Put together a list of bid qualified specialty imagining services.

Thirdly, they hired Navigator, a group that would help their members navigate the health care system to the point where if you had a chronic disease or multiple illnesses, they would send a nurse along with them to go from doctor to doctor, and then sit down with that, with that steelworker, work through the options to continue the medication, make the right decisions. A very basic process.

That company pays an average health care cost -- (inaudible) -- who I visited with, toured the center, set down with the groups, haven't had a health care premium increase in seven years. When you talk to union workers, they say, "Look, if my child gets sick, I take them to the clinic immediately, because if I don't, not only do they not get well, but that money comes out of my pocket."

When they needed to even blacktop the front of the clinic, the union workers said, "No, don't use our money for that. Just buy the materials. We'll do it, because that's our health care money." We talked to a doctor who was there, who was hired by the steelworkers, said, "I'm practicing medicine where I always hoped to." Instead of spending 15 minutes with the patient and 15 minutes with the paperwork, he spends the whole 30 minutes providing quality care. One, because he loses his job if he doesn't, but secondly, he said, "I don't have to worry about them suing me. They're not anxious to sue themselves, because it's their health care money."

And then you talk to the PA and some of the -- they're all cross- trained in the office, and their point was that -- one had worked at another institution and because -- in a hospital, and someone came in with a sore neck. You know, they checked the insurance policy, and this imagining was allowed and that imagining was allowed. Everything was run, mainly because they could, and secondly, because they lost money on the ER and the uncompensated care of Medicare. So he said we don't do the cost shifting here. We don't shift cost.

The bottom-line was, there was a direct connection between the behavior of the patient -- of those who are being covered, and the health care cost. I'm convinced that no matter what model we create -- now, that was for 3,000 workers, so it wasn't a big model. In fact, smaller may be better if we're going to try to connect the consumer to the health care they get and the ultimate cost of it.

And the question is: Regardless of what model we pick, how do we really change behavior to prevention, immediate action to quality care, if we don't in this -- in whatever we do, connect that informed consumer, provide them easy access to prevention, and make sure they understand that those are their health care dollars. And I would just open up to the panel for any comments you have.

(Cross talk)

MR. : Can I get a job at that, at that mill? (Laughter)

It sounds great, and I -- you know, if you could come up with a workable model for a company of 13, I'd say, you know, we're in. And, again, I would say that these are the kinds of examples and these are the kinds of ideas that we really need to think through carefully, and see how they might apply within the broader marketplace.

One of the problems I see with that example in our, in our part of the country is that --

REP. BRADY: Well, it isn't geographic. That model works wherever you take it, as long as you --

MR. : Well, it may or it may not. It may or it may not. And it may work at 3,000, and not work at 20.

REP. BRADY: Well, obviously a model like that -- I don't want to cut you short, but let's get serious.

We're not talking about that model for 13 --

MR. : Right.

REP. BRADY: -- workers or 20. You're talking about putting together a mount that can create that synergy and do that bidding.

MR. : Yes.

REP. BRADY: Any other comment?

MR. : Congressman, I might suggest that one of the ways of doing that is to kind of focus on -- some of us are old enough to remember this, I'm not suggesting that we go back that far, but when the physicians visited us at our homes when we were in those young years. But I would also argue that now one of things that we have done to incent that behavior that you discussed, is really trying to focus on the primary care physician.

Making that, if you will, using a sports analogy of the quarterback, the ability to kind of coordinate care, the ability to try to take that medical home approach. You talk about paperwork. The inability -- and that's what it is, the inability of either the doc or the hospitals or the insurers to have a coordinated effort around the IT function that needs to be bought into the system.

Those are three or four things that could be done readily, and already have experience that have actually proved to be very beneficial to an awful lot of people.

REP. BRADY: Chairman, thank you.

REP. RANGEL: The members shorten their questions so that within the five-minute periods we might get the benefit of our distinguished guests that are here. Because it's embarrassing for the Chair to cut off the guests when we just asked the question, and time isn't permitted.

Well, having that said that, we'll go -- and I'll throw it to the gentleman from New Jersey with us today, Mr. Pascrell.

REP. PASCRELL: Thank you, Mr. Chairman. I thank the panelists, actually, all of you. I contend, Mr. Conklin. And I have a question for you, and I have a question for Mr. Dennis. I contend that an important part of health reform is providing at least a minimum benefit to ensure that individuals have meaningful coverage.

Without this component I fear we will have a race to the bottom, that leaves many sick people behind and others with coverage that fails to meet their needs. Some have argued that a health reform package that provides for minimum benefit will restrict employers' ability to tailor the benefit to the employees' needs.

In your testimony, you highlight the experience you faced each year when you were shopping for coverage. I use your word. And as I understand it, there is relatively no choice in either -- you're able to offer your employees, and consequently no choice in the options among which your employees can choose. Now, this is a problem that's not just unique to your business. I think you'd agree with that.

My question is this: Given your experience as in shopping for coverage that meets your employees' needs, do you really believe that a minimum benefit standard would impede your ability to provide an adequate coverage to your employees?

MR. CONKLIN: No, Congressman, I don't. I think it would be one of those very useful tools in helping us evaluate and understand what that minimum -- we don't know that that minimum is. I don't know what it is. And it would be great if somebody could inform me in that way, and my employees.

REP. PASCRELL: Thank you very much.

Now, Mr. Dennis. In your position paper, one of the primary points made against the employer mandate, "It fails to address the real problems of health -- the health insurance markets for small businesses, which is primarily affordability." I agree with you to a point an employer mandate alone will not even begin to solve the problems. But I would like to make it perfectly clear that no one here has claimed that making any single change will solve the problems of our health system. You haven't heard that from anybody on either side.

In fact, four of President Obama's eight health reform principles addresses cost growth and affordability. So I'd venture to say that affordability is the single most important issue in this debate. On that note, I'd like to point out that some of the options you've provided us in reducing health care costs include expanding high deductible plans. This is in your testimony. Pre-empting state laws that serves to provide assurances of adequate insurance coverage -- it's there, that tends to allow employers to offer the most bare-bones policies.

Now, let's get that to the nitty-gritty. Yes, I've heard some folks from the other side, my good friends, you would almost think that Medicare was a bare-bones plan. So my question to you is this: How do more bare-bones policies that ignore state laws and fail even to cover reasonable benefits provide protections for individuals, particularly those with chronic conditions or complex health care needs? Are you suggesting therefore, Mr. Dennis, that we ration, that we ration health care? Is that what you're suggesting?

MR. DENNIS: What you -- what we're talking about when you're talking about minimum benefit -- minimum benefit plans. You can have one with virtually nothing in it or you could have Cadillac, after Cadillac, after Cadillac compliances.

REP. PASCRELL: Now, we're not talking about that kind of --

MR. DENNIS: Well --

REP. PASCRELL: -- a distinction, because nobody on either side, sir, has ever, ever said it's an either/or proposition.

MR. DENNIS: Oh, no. I'm sorry. I didn't mean to leave you with that impression.

REP. PASCRELL: That's good.

MR. DENNIS: But I'm saying that there are two extremes to this. You can go with a very, very small and very bare-bone or you can go very expensive, let me put it that way. And there are all kinds of great in between. Whenever you set a minimum policy, whatever that policy is, there will be -- that's the level from where you start, and that's obviously the minimum benefit. It can be either a very good policy or a very poor policy.

REP. RANGEL: Yeah, it could be a good policy and a bad policy. Let's take notes --

MR. DENNIS: No, but it's directly -- my point is that it's directly tied to costs.

REP. RANGEL: I understand. Rates are --

MR. DENNIS: Directly tied to costs. And so what we're talking about here is a cost issue. I'm not sure if I -- maybe I don't understand the question.

REP. RANGEL: Well, we can't go through the question again, but it makes --

REP. PASCRELL: I thought the question was pretty clear, Mr. Chairman.

REP. RANGEL: Well, anyway, we got to move on. And we certainly appreciate that.

And now it's time to bring in Mr. Ryan. He's been waiting.

REP. RYAN: Thank you, Chairman. Mr. Shea, I enjoyed the point you made before. I actually agree with a lot of what you had said, which is -- you know, the current system is not getting costs down, and we're not attacking the root cause of health inflation. And I don't think anybody's going just try and defend the current system from that perspective.

I guess there's just going to be two big different approaches here on how best to attack the root cause of inflation -- health inflation.

We need to do a better job of offering an alternative if we don't think that this is the plan to go with.

Now, on that -- is it Shea or Shiles?

MR. SHEA: Shea.

REP. RYAN: Shea, okay. I was in -- I've been on the floor with the budget all day, so I apologize. I just arrived. I want to get into your actuarial analysis of the EPI plan, and Mrs. Gould, if you want to jump in, because I don't want to unfairly characterize your plan.

Walk me through what it seems to me, a sort of a death spiral in private plans that occurs. How do you arrive at the $119 or $120 million figure, whereby people lose their private health insurance and go on to the government plan, as you've done in your analysis?

MR. SHEA: Well, we --

REP. RYAN: What's the dynamic that occurs that makes that happen?

MR. SHEA: The dynamic that occurs is that people are going to gravitate to the lowest-cost plan. The difference here for a family in annual coverage costs is $2,500.00 a year. And that's shoes for kids, it's getting the car fixed so you can go to work, and it's for uninsured people and people living that -- those things are very, very important. So it's a huge amount of money.

REP. RYAN: And that is because the payment rates are set at the Medicare rates?

MR. SHEA: That's right.

REP. RYAN: Which are lower on average than the private pay rate.

MR. SHEA: Essentially, yes.,

REP. RYAN: And because of the cross subdivision that inevitably occurs with these lower rates than the private rates, more people are going toward the lower public rates will push up prices in the private rates, making private insurance that much more expensive.

(Cross talk)

REP. (MS.): Excuse me, would the gentleman yield? Mr. Ryan, I'm sorry, would the gentleman yield?

REP. RYAN: Not right now, thank you.

So go ahead. I'll pick up my thought.

MR. SHEA: This isn't the EPI policy. This is the public plan. EPI has a different focus.

REP. RYAN: Okay, got you.

MR. SHEA: It's not the public program that people are talking about.

REP. RYAN: Okay, so your $120 million estimate is based upon the assumption that we apply Medicare rates to the public plan?

MR. SHEA: If you were to do that. We also show what happens if you are less aggressive in the pricing. It is quite a fair rate, or it's something in between.

REP. RYAN: That's cost over, right?

MR. SHEA: Right. And the idea is to sort of give people a sort of a smorgasbord of options, so that you can look at what the impact is on providers, on cost shifting; and arrive at some decision of your own, where you want to place things.

REP. RYAN: Dr. Gould, let me ask you then about your plan. Tell me if I'm wrong, please. Your payment rates here are income below 200 percent of poverty, premiums fully subsidized. Above 200 percent of poverty, you phase in between 200 and 300 percent of poverty, $70 for an individual, $140 for a couple, $200 for a family of four, non-workers different payment schedule. But the same for everybody based upon their income qualifications. Is that essentially?

MS. GOULD: You're talking about the subsidy, sir, from -- (inaudible) ?


MS. GOULD: That's correct.

REP. RYAN: And that caps their out of pockets, right, when you fill in the co-insurance and everything else, right?

MS. GOULD: That's correct.

REP. RYAN: Yes. So, here is my question and concern -- that's why I want to ask doctor, Mr. Sheils and yourself. If we're going to pay the same for the services regardless of the quality of the services, how are we going to expect the quality to improve? Meaning, not all doctors are the same. Not all hospitals are the same. They don't give us the same quality of care.

But if we're going to be paying the same rates for the services, regardless on the quality of these services, if a person has the same health insurance which -- regardless of whether you're a smoker, or you have bad behavior. If you're going to get the same deal, aren't we basically having a system where the good cross (uncertain ?) subsidize the bad in the health care provision of services based on quality?

And aren't we having a system where we're making it harder for us to incentivize healthy living and wellness management and those kinds of things; if we had such a standard plan and the same fixed rates applied against employers -- against providers regardless of their quality?

MS. GOULD: I think you're neglecting employer-sponsored insurance will continue. And what we'll see is what we see are the examples of the IBMs and other large corporations that are able to innovate with their delivery system and change those incentives. Those can continue. There is no question that those kinds of innovations could continue.

MR. SHEILS: I don't think we've talked today yet about things that are really wrong with the health care system; the things that would really control costs. Controlling payments, control what we pay providers it reduces your costs. But it doesn't' effect the basic inefficiencies in the system.

REP. RYAN: Right.

MR. SHEILS: We don't do anything here to correct the underlying problem in the system. And that is, that the incentives for providers are way out of whack. We know that in some parts of the country you get twice as much health care as you do in other parts of the country.

Yet, it's been proven that there is no correlation to your health status as a result. So, there's a great deal of suspicion that much of what we do is just plain unnecessary. None of these proposals -- the public plan proposal does not fix that.

REP. RYAN: Right.

MR. SHEILS: It does mean we pay less for the services that we use. But it doesn't address the root cause of -- (inaudible).


MR. SHEILS: I mean, in California we worked on a workers' comp problem. And people were saying you know our utilization in workers' comp is four times what it is in the neighboring states. Well, we looked at it, but it turned out the costs were pretty much the same in the neighboring states.

The difference was that in California the payment rates were much, much lower. I mean, dirt cheap, low rates. And there was an increase in utilization that was generating the increase -- the revenue so they were able to maintain that kind of revenue.

We don't want to move to a system like this. And I don't think that we have at all whether the public plan, whatever you want, I don't think we've gotten to the nub of the issue at all here.

REP. RYAN: Well, he's going to -- (inaudible) -- the gavel on me. There it is.


REP. RYAN: Thank you.

REP. RANGEL: Soon and very soon the bell is going to ring. And we'll have a 15-minute vote, two five-minute votes. But also, a new member is being sworn in. And so, it will be at least an hour that we'll be away from the hearing.

We have ten members who have not yet had an opportunity to inquire. And I'd like at this time to see how many of those here that haven't asked questions would be willing to come back at 2:00. And I can't hold the witnesses who have to stay here. But those that can, depending on the number of members that would respond, will make a difference.

So by hands, those who haven't had an opportunity, how many will be coming back at 2:00?

So I think at this time, after Mr. Blumenauer gets his five minutes that we will then ask everyone that's left, in order to ask a question. And ask who they would want to answer. And I would ask the panel to submit an answer in writing. And apologize to all of you for the awkwardness of this time. But I can't thank you enough for the valuable information that you're giving to us.

And I may have to see Mr. -- Ms. Wells run in New Jersey to get this all straightened out; because you told it like it was and we understand that.

So Mr. Blumenauer, we're going to stay as long as we can; and you're recognized.

REP. EARL BLUMENAUER (D-OR): Thank you, Mr. Chairman. And I'll try to heed your admonition in terms of short questions.

I would just say that I was very impressed with the track record of IBM as being creative, promoting wellness. We've got some legislation we've introduced in a stand alone basis to try and further incent that. And I appreciate the clarification that was made that a private -- even if we have a public plan, there will still be tens of millions of people through the private sector driving those issues of cost containment and promotion.

I have one specific question, Ms. -- Dr. Gould just with the reference that I'm hearing about people that are going to be crowded out, that we're going to be seeing. If there is an employer mandate, that it is going to lead to significant job losses or reductions in wages. This is reminiscent to me of what we heard when it was argued that we shouldn't increase the minimum wage; because that was going to have a massive, negative effect.

In my state of Oregon and others around the country, the higher minimum wage states actually appeared to be growing, not shrinking. Does the research on minimum wage have any application to having an employer mandate for health care?

MS. GOULD: It absolutely does. When we think about how firms paying for health care are going to be offset, you can think at the high end there would be different forms of competition that could give perhaps. At the low end, you're right; you're constrained by the minimum wage.

But what we're talking about here perhaps is something like a five, six, even seven percent payment that would be required, but compare that to the minimum wage. We've seen in the last two years a 27 percent increase in the minimum wage. You know, it's out, we don't know yet really what the effects are of that unemployment. But if we look again, as you say to the minimum wage literature in the '90s, we can see that there were no employment effects of that kind of increase.

And in fact, I would go one step further in saying, if were to try to really contain costs; and I think one thing that hasn't really been mentioned here is that the introduction of the public plan would actually do a good deal to contain costs and bend that costs curve. If we were to do that, it actually can increase the competitiveness of our firms.


REP. RYAN: I would challenge that. I think the literature --

REP. BLUMENAUER: Excuse me, my time.

REP. RYAN: I'm sorry.

REP. BLUMENAUER: My time. I asked the witness a question. I would like to ask another witness a question, if you don't mind.

REP. RYAN: Okay.

REP. BLUMENAUER: Is that all right?

I would like to let -- Mr. Conklin --

REP. RYAN: I apologize if I've offended you, sir.

REP. BLUMENAUER: That's fine. I just want to ask my question.

To Mr. Conklin, you've referenced that the byplay (ph), that you're on sort of a merry go round having to switch plans. You're going back and forth trying to -- what impact does that have on you and your employees being on this health care merry go round?

MR. CONKLIN: Well, it has various impacts. One of them is uncertainty for me and my employees. So these transition periods cover a quarter of the year in essence. And during that quarter of the year, people still get sick. They don't stop getting sick because we're changing our health plan. So there is always the question of which card do I use.

And then there is the question of and what am I getting. You know is it going to be 25 bucks when I go to the drug store this time? Or is it going to be 40 bucks -- the co-pay? But really, one of the more significant impacts of the constant shifting is, who's your doctor; and who's choosing your doctor? Because you're not choosing your doctor, the health insurance provider is choosing the doctor.

I've got a stack -- I almost wanted to bring them with you so you could see it. I've got a stack about this high that I've collected over the last five years of the list of doctors for each insurance company. Now sometimes they cross over and you'll find them in there; and sometimes they don't.

So if you're going to go to the doctor and get care, you're going to get it from somebody who is as familiar to you as the guy who drives the taxicab. And how would, you know, how do you feel going to the doctor sharing some of the most intimate aspects of your life with a perfect stranger. I mean, there is a disincentive to go to the doctor that's part of the system.

And I think, and this I think is a really important part of this discussion. It leads to the perception that they're doing this on purpose. They're doing this to keep me from going to the doctor. They're doing this because it keeps their costs down. And there is an element of distrust that now has completely permeated the private insurance system. There is a lot of repair work to do.

REP. BLUMENAUER: Thank you, Mr. Chairman.

REP. RANGEL: Let's see what we can accomplish with the time that is left.

Mr. Boustany, why don't you inquire for a minute. And we'll ask our panelists to respond in a minute so that we can move on. Okay?

Oh, I'm sorry.

No, Mr. Boustany arrived earlier, John.

Mr. Boustany.

REP. CHARLES W. BOUSTANY, JR. (R-LA): Thank you, Mr. Chairman.

Mr. Dennis, President Obama promised if you've got health care already, and probably the majority of you on the panel do; then you can keep your plan if you're satisfied with it. But you have research that shows employers and especially small businesses that would stop offering private coverage because employees could receive coverage under a government plan. Wouldn't a bill that forces workers to lose existing coverage, as has been described by Mr. Sheils, be contrary to the president's campaign promise?

MR. DENNIS: I'm not going to get into that about campaign promises. Clearly, I mean, we have a situation that the current system itself, the current, employer-based system does not work for smaller firms. And we really -- while you can start with the employer-based system as a system which you work around, you can start as a base. Clearly, something has to be done at the bottom to help on that regard.

I look at it from the employer perspective. The costs are relatively high, Mr. Sheils, to your point. There was a quote earlier about an 18 percent increase. There is another study that shows you get 78 to 83 percent of insurance equivalent, which is effectively the same thing. You have greater volatility of premiums because you're a small group.

You have real hassle with consequences. This was brought up with your experience. Everybody agrees on this. A series of people, who are business owners who do not, are not experts in insurance; unfortunately they are having to become in some way.

And we're talking about wellness and prevention. You know small business a 13-man firm. I don't think so. And then, we have bizarre things that happen in this system. For example, you'll see that the small businesses are much more likely to pay 100 percent of the premiums than the large ones. Forty percent of small businesses with insurance paid a whole fare.


REP. RANGEL: May I interrupt you.

Mr. Kind, would you inquire for two minutes?

REP. RON KIND (D-WI): Great, thank you, Mr. Chairman. I'll try to be brief.

First of all, I want to thank Mr. MacDonald for kind of showing is the IBM way, what up front preventive investment does to drive down costs at a larger employer setting. And I think the testimony was real impressive. And hopefully, as we move forward on reform; we'll figure out ways to further incentivize what IBM and others are doing across the country. Because a lot of this is a lot of common sense, you know, the free market working to drive costs down.

Mr. Dennis, let me agree with you in your opening testimony. Where I'm afraid that if coverage gets out ahead of costs, this could become politically very dangerous and the system could be very tough to reform. But I don't want NFIB to walk away leaving the impression you don't stand for anything. Because I know over the last few years, I've worked closely with NFIB, but not just NFIB but AARP, SEIU, a restaurant association, the realtors, to come up with what I think is a very viable national purchasing pool plan that we've introduced on a bipartisan basis, with tax incentives, with prohibition against risk rating. And also, virtual H.R. managers for small business that could answer a lot of the problems small businesses encounter in the free marketplace right now.

Could you comment on the wisdom of such an approach?

MR. DENNIS: Surely. And the answer is yes. And we've distributed an outline, I believe, to the dais of what the basic current shop act contains. But essentially what we're looking at is a pooling mechanism, a very large pooling mechanism where we're going to draw employers in. And we're going to cap or control the ability to rate on the basis of experience -- health experiences and claims histories and that kind of thing.

So it's a program that I think is effective, could work for small businesses. It won't solve every problem that the world has ever come up with for us. But clearly, is a step forward. And I think I can speak to our legislative staff, which I'm not one, obviously. That they would welcome any member to join you in the co- sponsorship of this --

REP. KIND: Mr. Dennis, I think you'd also agree -- (inaudible) - if you do the proper health insurance reforms the right way, such as eliminating underwriting or rating based on health experience that too could benefit small businesses.

MR. DENNIS: Absolutely.

REP. RANGEL: Mr. Heller, could you inquire for two minutes?

REP. DEAN HELLER (R-NV): I will. I had a prepared question, but I'll make it brief.

Mr. Sheils, what else are we not doing here on this panel?

MR. SHEILS: Well, I guess the basic concerns for me are the incentives in the system. For physicians the incentives are to just provide as many services so that you crank out as many bills. We know, for example, well documented that if you slow the rate of growth in physician payment under Medicare, you get a 30 cents per dollar offset for increased utilization.

We know those are the things that are out of control. We know what works in terms of costs containment. We've done this, we've seen it twice. Once in the '90s, there is a terrific investment in managed care. It was made by employers in the early '90s. The rate of growth and spending per worker declined from 18 percent a year in 1989 down to 8/10 of one percent by 1996. Just in inflation that's a net reduction in what we spend on health care.

And then with the Medicare part D program, this was a competitive, market-based approach, as well. And we all were gratified to hear that the program came in costing a great deal less than what we had projected it would cost. And again, this has to do with the competition that results.

So the -- I think that the idea that has worked in the past is forming integrated systems where everybody has an incentive to keep people healthy. Everybody has an incentive not to do things that are unnecessary. And those models have worked. They're very unpopular. I'm talking about managed care. They could be pretty unpopular. But there are ways to build on that platform; if we've done it once or twice, we can do it again. So that's the direction I've tended to think in terms of.

REP. HELLER: Thank you very much, Mr. Sheils.

Mr. Chairman, I'll yield back.

REP. RANGEL: Would you please inquire for two minutes?

REP. (MS): Thank you very much.

And I do want to point out, I know there has been some frustration. I think I hear from the panelists that you haven't been allowed to -- or have been asked very much about all the other actions we should take to help improve quality, improve efficiency and contain costs. We have had other hearings and maybe we could invite you back to discuss some of those things. But the fact is that my understanding was that this was purposely set up to discuss employer- based health care.

I do want to say that I acknowledge Mr. MacDonald particularly speaking to health IT. We've done great work on that in this administration already. And in investing in health information technology, the committee has done great work on that under Medicare. And primary care, we're very, very aware of the increased need for primary care providers. In fact, I'm circulating a bill today that is going to address many of those issues; and I hope answer many of those questions.

And I do want to also just second Mr. Kind's really good work and important work in terms of the market reforms for small businesses, the -- (inaudible) -- who have joined together to purchase care.

The question I have is -- has to do with other market reforms. And I think I would ask Dr. Gould just to start with this, to reaction to the fact that we've talked about community rating. We've talked about of course maintaining the employer-based system of care. I don't think that we're all talking about that, most of us any way.

But we do -- actually that it's really hard for people to enroll. And I think that Mr. Conklin when you talked about this said, even when you have coverage, many employees don't take employer-based coverage. And either they don't sign up, forget to sign up, missed the 30-day notice; and didn't -- have to have a life-changing experience to sign up later. There are waiting periods for six months. So even if your employer covers you, you can't sign up.

I do want to change some playing fields on this. So my one question is, could we put questions --

(Cross talk)

REP. (MS.) : Maybe it's a yes or no answer, if I could. What do you think about doing an automatic sign up if your employer offers you health insurance?

Dr. Gould, do you think we could do it like we did for 40l (k) (C)s? And just have people automatically signed up. Of course they could opt out if they have coverage elsewhere. Do you offer insurance?

REP. RANGEL: Your two minutes have expired. If someone wants to answer yes or no.

MS. GOULD: I think auto enrollment would be a great idea.

MR. : It's fraught with problems.

REP. RANGEL: Congressman Roskam from Illinois, we'll recognize for two minutes.

REP. PETER J. ROSKAM (R-IL): Thank you, Mr. Chairman.

Anticipating the falling gavel, you know, just maybe a word, not really time for a question. But just to follow up with the exchange between Mr. Dennis and the gentleman from New Jersey.

I served in the state legislature in Illinois for 13 years and served on the insurance committee. And what was interesting was -- take Mr. Conklin's situation. Assume for the sake of argument, that he and his wife, his business partner decided they're going to put a salesperson out on the road; and they need to get a vehicle to do that. And let's say that the vehicle is sort of the analogy for a health insurance policy.

And the government comes in and says you've got to have a really safe vehicle. And you may say, well, Ford Taurus is pretty safe. But there's a government standard that says no, no, no, Ford Taurus not safe enough. You've got to put them in the best Volvo possible. And if you don't put them in a Volvo, you can't put them on the road.

So you're in a situation then, as the owner of a company that says now we really can't afford the Volvo. We can give them a Schwinn. But they're not going to let us do a Ford Taurus.

And that's not unlike insurances like in the state of Illinois and other places where mandate after mandate after mandate, after mandate comes in. And you listen to the testimony and it's sympathetic. And legislatures end up voting in favor of these mandates; but are really blind to the cumulative costs that goes up. So I think that having a legitimate no-frills policy has to be a part of this conversation. And with that, I yield back.

REP. RANGEL: Thank you.

Bob Etheridge.

REP. BOB ETHERIDGE (D-NC): Thank you, Mr. Chairman. Mr. Chairman, permission to submit a couple of questions to the record for the gentlemen. I'll only ask one question in the good use of time.

Mr. MacDonald, we've heard from a number of employers, not just you but others, that -- how valuable it is, as part of your health benefits if you were to have a prevention and wellness program. And in your testimony, you talked about your healthy choice; that translated into about an estimated $79 million in savings and health care claims between '04 and '07. And I happen to believe that preventive medicine has to be a part of any health system we put together. I just think without doing that, we don't get where we need to get to.

My question to you is this. Can you talk just very briefly about your program, about the specific costs savings? And secondly, do you have any data on this that you could share with this committee?

MR. MACDONALD: I won't give you the specifics, I'll respond in writing on the data. But there is an enormous amount of data that I'd be more than willing to share. And I really think that if the primary issue that we have focused on is trying to connect the employee and their dependents with the primary care physician. And that that begins to drive behavior faster than anything. The preventative wellness programs help. But the single most important focal point for us is the primary care, the medical-home approach to medicine.

REP. ETHERIDGE: Thank you, Mr. Chairman. I yield back.

REP. RANGEL: Thank you so much.

John Linder thanks for your patience.

REP. JOHN LINDER (R-GA): Thank you, Mr. Chairman.

Mr. Sheils, how many Americans choose their health care provider or their health care insurance?

MR. SHEILS: How many choose their provider?

REP. LINDER: How many choose their insurance?

MR. SHEILS: I think it's 80 percent or more of those that are offered it. Most of those people have coverage from some other -- (inaudible).

REP. LINDER: How many of those people though have it chosen for them by their employer?

MR. SHEILS: Probably 30 or 40 percent.

REP. LINDER: Don't the employers make most of the health care insurance decisions in this country?

MR. SHEILS: They have been, yes. Yes, sir.

REP. LINDER: Mr. MacDonald, what percentage of your payroll does IBM pay for health care?

MR. MACDONALD: It's a percentage of payroll that runs about seven percent. But you have to remember that we have almost 300,000 lives. And therefore, a lot of people, not a lot, but several thousand people opt out. So it actually could be higher and plus our wage, as I indicated before, tends to be at the higher end. So that percentage is a little deflated.

REP. LINDER: How much does the employee pay? Does the employee pay X percent of the premium?

MR. MACDONALD: We're one of the few corporations in America today that give a free PPO plan to all employees.

REP. LINDER: If you had a public plan to compete with, what percentage of your employees do you think might opt for it?

MR. MACDONALD: Before I mentioned to you in my opinion, that there would be little migration to a public plan initially.

I think that people are very reluctant to change as it relates to health care; as evidenced with HSA, they've been reluctant. I think a lot of it is really driven off of design, access, and pricing. And so, for me to opine directly on a public plan, I don't have the details yet.

REP. LINDER: Thank you, Mr. Chairman.

REP. RANGEL: (Off mike)

REP. : Thank you, Mr. Chairman.

Mr. Sheils, you mentioned earlier that -- when you were talking about why people would move to a public plan, you talked about cost savings and so forth. And seemed to imply that the only reason, at least the only one we discussed was that you could pay lower rates to providers. And that had a deleterious effect on the system.

Aren't there other factors involved that may make it cheaper like there is no profit component to the costs? There's also the potential of lower administrative costs like those achieved by Medicare that would allow the public plan to be less expensive.

MR. SHEILS: We shared earlier in the testimony that the costs of private insurance administration, including profits, et cetera is around 13.5 percent of benefits. Under this plan, that would be closer to seven percent, under this public plan.

REP. : Thank you.

Mr. Conklin, first of all thank you for saying a couple of things which I've been saying. And that is why I applaud you for saying them. One is, we aren't going to get it right the first time. They're going to be thousands of unforeseen consequences that we'll have to work on, but we need to start on this effort.

And secondly, that we're trying, I think this is the way I interpret it, that we're trying to apply business concepts to something that is not necessarily a pure business. If you wanted to leave your business right now, if you wanted to shut it down, or if you had a better opportunity somewhere else; given unfortunately, the condition of your wife, would you have an easy time getting insurance if there weren't some kind of public plan?

MR. CONKLIN: No, I don't think we would have an easy time getting insurance. And the insurance we got would be expensive. And I don't think -- we would be paying more and that scenario would yield better results for my wife. Right now, we have a pretty decent HMO. And she, we are paying for the best care she has ever gotten, 100 percent out of pocket.

REP. : Thank you.

One final question, did The Lewin Group, Mr. Sheils, estimate the -- or what did The Lewin Group estimate as the l1-year savings to national health expenditures under the Commonwealth Plan?

MR. SHEILS: I believe it was $4.8 trillion.

REP. : A significant amount. Thank you very much.

Thank you, Mr. Chairman.

REP. RANGEL: (Off mike) Mr. -- (inaudible) -- is recognized for two minutes.

REP. : Thank you, Mr. Chairman.

Would everyone on the panel agree that if an employee today is happy with and satisfied with their health plan that they should be able to keep it? Is there anyone who disagrees with that comment?

Mr. Sheils, if a new government-run health plan was created and it paid providers Medicare rates, how many Americans would lose their employee-based health insurance that they currently have?

MR. SHEILS: It would be about 108 million people.

REP. : And Mr. Chairman, I have one other concern. I fortunately have been blessed to work with Kent County, for Kent County in Seattle, Washington -- great wellness activities, preventative health care plan. I'm concerned about saving $18 million over the last few years promoting prevention, health prevention programs. Microsoft does the same thing. I'm concerned that if we move to a public health plan, a government-run health plan, I should say, that we may lose some of those innovative ideas. And I yield, thank you, Mr. Chairman.

REP. RANGEL: (Off mike)

REP. : Thank you so very much, Mr. Chairman.

Anyone on the panel, one of the main reasons that we're -- I mean, one of the main issues we run into with this whole health insurance issue is pre-existing conditions. And I just want to ask anyone who wishes to answer, what kind of incentives should be out there as it relates to government incentives to not only take on pre- existing conditions when we look at overall insurance?

MR. : Congressman, you know, the word comprehensive is often associated with reform in our discussion these days. And I really think it's worth bearing in mind that there are very concrete parts of that. One of those pieces is that we have to accept everybody into coverage. We can't exclude people because of pre-existing conditions.

But the correlate of that is if we get everybody in and if we get them in from birth, we need to provide them with the kind of preventative care, with the kind of early detection, with the kind of management of chronic diseases that come up. That's where the real costs savings are going to be in terms of managing health care. So it's one piece of the overall puzzle. And it's important that we address all of them together.

MR. : Congressman too you have not only the pre-existing conditions in the sense of someone coming on to the job. But you have something that, a similar situation when they're in a job and they face quite frankly right now, a job lock which happens quite frequently in smaller firms. Someone will be in a job, have insurance and then can't move to another job because of the health insurance situation.

REP. : It's something definitely we're going to have tackle because I can see it even going down to almost health care, employment discrimination. And saying, well if you have a pre-existing condition, I don't need you in my group or in my company, because you're going to cost us all more.

Thank you, Mr. Chairman.

REP. RANGEL: (Off mike) -- and one of the best panels that we've had. I cannot begin to tell you how many members who have so many things to do with so many other pieces of legislation. And they've stopped by to say what a great panel this has been and how important it has been.

I yield to Mr. Camp before we adjourn.

REP. DAVE CAMP (R-MI): Well, I would just agree with the chairman's comments. Thank you all for being here, appreciate your testimony very much.

REP. RANGEL: And most of you are veterans and know how it works here. But we regret the awkwardness here, but you made a great contribution towards our thinking. We've got to have a health bill and hope all of you would feel that your input has caused -- has been a part of what we're doing. Thank you so much.

The committee stands adjourned.

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