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Hearing Of The Senate Health, Education, Labor And Pensions Committee - Health Care Reform

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SENATOR CHRIS DODD (D-CT): The committee will come to order. Let me thank all of you for being here and -- I apologize for being a couple minutes late. We just finished on the floor of the Senate. Let me thank my colleagues as well for those who are supportive of that last effort. It's a long time coming and no one wishes more than I do that the person sitting at this chair that just banged down that gavel -- am I on? I thought I was on. That's on. The red light is showing on, right? Is that on? Can you hear me?

No one more than I do wishes that Senator Kennedy were sitting in this chair and had just banged down that gavel. He has a great relationship with every member of this committee and we all wish him the very, very best, the speediest of recoveries and the hopes that he'll be back in this chair with this gavel in his hand before this process is over.

I want to thank my colleague from Wyoming -- thank him for support on this last vote we had on the tobacco issue -- an historic moment that we're finally going to be able to regulate and control tobacco products, which may be one of the major steps we can make in prevention in health care and begin to reduce the number of children that start smoking every day -- the three to 4,000 who begin that habit.

I don't ever recall in my 29 years this committee having a panel this large. I thought you were the audience when I walked in with this many people but obviously a lot of ground to cover. So I'm going to be very brief in my opening comments. I turn to my colleague from Wyoming for any opening comments he wishes to make and then I'll introduce our witnesses and we'll begin the process of hearing from each of you about this most important issue. As Mike Enzi has said, and I'm sure he may repeat it again, but it deserves being said by all of us, I don't know of another issue that any of us either have dealt with or will deal with that will have the impact on every one of our citizens in this country. There are other issues that are huge and cover an awful lot of people, but this one touches 100 percent of Americans -- every business, every consumer, every provider as well.

And so it's important we get this right. And I'm very conscious of that -- of the magnitude of the job in front of us -- to work in concert with the finance committee, Senator Max Baucus, Senator Chuck Grassley and members of his committee. And I'm determined to achieve that same sense of comity and civility in this committee that's been a hallmark of the success in the past, to sit with each other, to listen to each other in these coming days as we try to fashion a product that all Americans can be proud of.

That doesn't mean there won't be differences that we will have to confront and deal with, but to the extent we can work with each other and achieve the common ground and unanimity on the many issues that I believe we can, we can major steps forward in the achievement of the healthcare reform that I think all of us are so anxious to achieve.

So let me begin, as I said a moment ago, that there is no one who wishes our dear friend Ted Kennedy was sitting at this table more than I do. Many of us have been preparing for this moment for a long time but none longer than the chairman of this committee. Four decades, at least, he has been an advocate of healthcare reform; reforming our system so that every American has access to affordable, high-quality health care has been the cause of his life. He's been a leader on this issue for 40 years and he continues to be a leader in so many different ways. And that doesn't depend upon location, per se.

Today, we address an issue that affects, as I said, 100 percent of our fellow citizens. For far too many Americans, the costs are too high, the quality of care is inadequate and too many of our citizens -- one in every six -- have no health insurance at all. And in today's economy, too many of our families find that the cost of health care puts stress on a family budget, to put it mildly. We spend more than $2 trillion on health care each and every year in our nation -- more than 18 percent of our gross domestic product.

By the year 2040, we're told by many experts, 34 cents of every dollar we spend could be on health care. That is not simply unacceptable, I hope to all of us; it's unsustainable, and therefore, the sense of urgency that we share about this moment. Premiums and out-of-pocket costs for individuals and families alike continue to skyrocket.

In my home state of Connecticut, healthcare costs have shot up 42 percent in the last eight years and today, there are 322,000 people in my state that lack insurance. It is wrong that so many families in any state and across our country go to sleep at night wondering what they will do if their children get sick or how they'll care for an ailing parent. It's a worry that we all can share from time to time.

Over the last few months, I've held town hall meetings, as many of my colleagues have, throughout my state. Ron Williams, by the way, from Aetna has attended several of those and I thank him immensely as a CEO of a major insurance company to be there and listen to the concerns of people in Connecticut. At one event in Connecticut, I met a mother terrified about what losing her health insurance could mean for her disable toddler's future. At another, I spoke with a cancer survivor who now pays as much for her health care as she does for the mortgage on her home because her husband passed away from leukemia and she's lost her employer-sponsored health insurance.

In fact, more than half of the families that go through bankruptcy in our country say that healthcare costs have contributed to putting them there. That's not the America we should be. I believe that all of us share that goal. We know that health reform is a difficult issue. If it were easy, we would have reformed our country's healthcare system years ago to assure quality, affordable health coverage for all Americans. We owe it to our citizens to bring about the change they need so desperately and finally, today we have a president who have made this a priority and Congress is poised and I hope to act.

If there's no other message out of today's hearing, it should be this: We will act to cut the skyrocketing costs of health care to our healthcare system and we will at long last make quality, affordable health insurance available to every man, woman and child in the United States of America. Our goal is to protect people's choice of doctors, to their choice of hospitals and to insurance plans; reduce the cost for families, business, and government; and to assure affordable, high-quality health care for every one of our citizens. Our goal is also to strengthen what works and to fix what doesn't.

If you like the insurance you have today, you should be able to keep it. If you don't like what you have today, we'll give you better choices, including a public option for health care. No longer will a pre-existing condition, such as a heart attack, cancer, even being the victim of domestic violence, prevent you from obtaining insurance. No longer will cost be a barrier to coverage. Our approach will offer affordable options for Americans struggling under the skyrocketing costs of health care. We have proposed a piece of legislation that we think will accomplish this great purpose.

This is the first committee in Congress that will act on this important goal and as every single committee will be affected by what we do in the coming weeks, we want to hear from a great variety of Americans on their views of how best to meet those goals. And so we look forward to hearing from our witnesses today and witnesses tomorrow, as well. But even more importantly, we look forward to enacting real healthcare reform that will be able to say to our citizens that we've advanced the cause of health care for every single American in our nation.

Delay or inaction is simply not an option for any of us. Healthcare reform cannot and must not wait. And with that, again, I thank my colleagues for already the tremendous amount of work and the staff that's been done over the past many months on this issue. This is not the first time we've gathered and our determination again is to work together to achieve if we can -- and I believe we can -- a strong, bipartisan piece of legislation. So with that, let me turn to Senator Enzi.

SENATOR MIKE ENZI (R-WY): Thank you. I have a full statement that I'd like to have put in the record, but I want to reserve as much time as possible for the roundtable, and I do want to make some comments besides what I have down here. I know all of you have been asked to take a look at the bill that we're marking up and that kind of disturbs me. You know, you can't have a bipartisan bill that's written by one side and that's what it is.

Now, we've been having a walk-through and I thank the senator from Connecticut, Senator Dodd, for the tremendous way that he's working with us so that we have an opportunity to look at options from everybody. I've been working on this for several years. A couple of years ago, Senator Kennedy and I sat down and listed out some principles. And then, because higher education was a very high priority and he dedicated most of his time to that, I collected ideas from both sides of the aisle to come up with a way that we could take care of everybody with health care. I called it a 10-step plan and I did 10 stops in Wyoming and promoted it and learned a lot more from that part of the process, as well.

And I'm not the only one that's been working on that. A lot of other people have put together proposals and all of those need to be considered. I've worked on a lot of bills with Senator Kennedy and with Senator Dodd. I've never worked on one that was as comprehensive as this one. This one will affect every single American. This will affect every business, every provider and every consumer. We've never had a bill with so many moving parts. And they have to be there in order to take care of the goal that we've set and I think both sides of the aisle have that goal of taking care of every American.

How we get there -- there's some differences on that. Our walk- through is pointing out some of those differences, some of the alternative ideas. And we've had some agreement through that process. In fact, I find it to work a lot better than the normal markup process where you have to put up a very certain amendment and then you can argue about pieces of the amendment or the whole amendment and vote them up or down. This is a lot more constructive, where our staffs have a chance to work on some specific language apart from the concept that we're doing, and that's real important.

If we don't get this right, America will suffer. If we get it right, it'll be a great thing and we do have an opportunity to get it right. We shouldn't be subject just to timetables; we should be subject to getting it right. And that may take a little bit longer, but I think it's important for us to do that. So I'm anxious to hear your ideas, whether they're in the bill or not. As you probably noticed, there are three major sections that are blank and we'll get to find out what's in those later.

Unfortunately, we have to have amendments in, probably, Monday. But -- and those are extremely critical and I understand the reason that Senator Dodd left those out was because there is some controversy over those and we need to have the time to put them together so that's what we're all hoping we can have is some time to put it together.

SEN. DODD: And we will do that. I don't know if this is working or not -- let me just say to Senator Enzi and our colleagues: The goal is obviously to spend some time not only with you today and listen to your thoughts and ideas and all of this and tomorrow with another panel. And then we'll this evening go back to our walk- through again as we're doing to try and listen to Senator Mikulski who's got some thoughts, as well as Senator Murray, on workforce issues, quality issues and revisit these other questions that have come up.

And as Senator Enzi pointed out, we left a couple of these sections blank very simply because they are controversial and, rather than trying to write something that could be seen as almost confrontational, I tried just to deal with the issues where I think there's some at least unanimity around purpose, although there are obviously differences in how to achieve those purposes. So we'll continue in that vein and my hope is, again, we can eliminate a lot of the dissent and in certain areas achieve a common language and then in those areas where we can't we'll have to engage in that kind of a debate. But our purpose is to try and achieve as much bipartisanship as we possibly can in this effort.

So let me begin by thanking our witnesses. You're all very gracious to be here. A lot of you spent a lot of time on these issues and I'm going to introduce you all briefly. My introductions of you will not do justice to your careers and your background and the experience you've brought to the positions you're in. Dr. Margaret Flowers, a Maryland pediatrician, represents Physicians for a National Health Program where she has tirelessly advocated the benefits of a single-payer system. And we thank you very much, Doctor, for being with us.

I've already mentioned Ron Williams, the CEO of the Aetna insurance company where he has focused on innovation and industry to improve access and affordability. I mentioned he's attended a couple of my very well-attended -- 700 people at one, 500 or 600 at others -- as an insurance company executive to listen to people and respond to their concerns.

Mental health parity was an issue which Aetna took a leadership role on. And, again, Senator Kennedy was a champion of that issue but the Aetna played a very constructive role in that. Ron, I want you to know publicly how much we appreciate the efforts your company made in that regard.

Randel Johnson is the vice president of labor, immigration, employee benefits at the U.S. Chamber of Commerce and is primarily responsible for employee benefits issues pending before the Congress and federal agencies. We thank you as well for being with us. Mr. William Dennis is a senior research fellow at the National Federation of Independent Businesses. And he can provide insight on key healthcare issues that affect small business and that's been a major subject of our conversation so we thank you as well.

Mary Andrus is the co-chair of Health Taskforce with the Consortium for Citizens with Disabilities as well as vice president for government relations at Easter Seals and has been a strong advocate throughout this process for individuals who face extra challenges. Dr. Samantha Rosman is a member o the American Medical Association's board of trustees. She has been a relentless physician advocate even during medical school for healthcare access to all, and we thank you as well for being with us.

Ray Scheppach -- is that how you pronounce that Ray -- Scheppach is the executive director of the National Governors' Association, has expertise in state and federal budgets as they relate to healthcare policy, a very important issue for us as well. Dennis Rivera -- where's Dennis? Dennis -- good to see you -- is a good friend, is chair of the health care at SEIU, has worked tirelessly to unite healthcare workers in an effort to fix our nation's broken system.

Dr. Katherine Baicker -- did I pronounce that correctly -- is a professor of economics at Harvard University's School of Public Health where her research focuses on the effectiveness of public and private health insurance. Dr. Jonathan Gruber is the professor of economics at MIT and has been appointed to the board of the Massachusetts Insurance Connector. We've been talking about Massachusetts a lot over the last seven or eight hours as we've asked questions all the time about how are things working in Massachusetts. So we appreciate your presence here today. Janet Trautwein as well is the CEO and executive vice president of the National Association of Health Underwriters and has some particular expertise in issues related to the uninsured, long-term care and high-risk pools.

Commissioner Sandy Praeger -- Commissioner, we thank you for being with us -- is the commissioner of insurance in the state of Kansas, has been responsible for regulating all insurance sold in Kansas, which includes overseeing nearly 1700 insurance companies and 90,000 licensed agents. Is it required to have white hair to be in Kansas these days? Kathy Sebelius, our new -- well, I love to see younger people with white hair, I can tell you. I have a preference for that. Scott Gottlieb is a practicing physician and resident fellow at the American Enterprise Institute, has served as a senior policy adviser and CMS. And we thank you very much.

And closing out -- I missed -- oh, I missed I'm sorry Gerald Shea, the AFL-CIO. Gerald, I apologize -- where are you? There you are. I apologize; I walked right by. Thank you, I apologize -- thank you for being with us. And closing our first panel is Steve Burd, of course we heard from at lunch today -- the Democrats did -- is the chairman, president and CEO of Safeway. And incidentally, as I mentioned, had lunch with the Democrats today on our policy committee lunch and left a very strong impression about what you've been able to do at Safeway and thank you for being there with us and we're anxious again to hear you today in this panel. So thank you, Steve, very much.

I'm going to keep opening summons to a brief. If you would, I know many of you have supporting documents. Let me say to all my colleagues, any opening statements, comments, supporting material will be included in the record and that includes our witnesses. And so we begin with you, Doctor. Again, thank you for joining us. If the red light is on, it should be on.

MARGARET FLOWERS: Okay, there we go. Okay, thank you. Thank you, Senator Dodd, and to the other senators for inviting me to speak to you today. I speak on behalf of the majority of people living in America who desire a national health program. For decades, healthcare providers have struggled to provide care in an increasingly difficult environment and it is taking a toll. Doctors are leaving practice, refusing to accept health insurance and there's a new category of physicians -- disruptive physicians -- who are expressing the dysfunction of a healthcare situation that places obstacles between them and the treatment of their patients.

The greatest obstacle is the private health insurance industry. This industry detracts from the health of our nation rather than adding value to it. We have reached a point in American history which allows us to finish what President Franklin Delano Roosevelt set out to accomplish almost 75 years ago with the Social Security Act: a national health system. The lack of a coordinated and comprehensive nonprofit national health system sets us apart from other industrialized nations and we're seeing the results in increased costs and poor health outcomes.

For decades, reliance on the market and efforts to patch together a system using a public and private mix has failed to guarantee quality health care to all Americans. This reliance on the market dates back to the 1960s when there was a strong belief that America was so different from the other nations that our uniquely American market would solve our health care problems. We were wrong then and it's disappointing to see us continue to cling to this idea. This is not the time for more tinkering.

The healthcare market has allowed private health insurers to rake in obscene profits while nearly 50 million Americans lack health insurance and tens of millions more are underinsured. We are ranked the worst out of 19 industrialized nations in terms of preventable deaths, which means 101,000 preventable deaths in this country every year. Health care in our country is already rationed based on ability to pay. Patients are waiting months to get in to see their doctors and some of them never even make it through the door.

We provide little employment security, however we tie health insurance to employment. When people are most vulnerable, they are least protected. In what other country do patients hold bake sales in order to pay for lifesaving treatment? What other industrialized nation allows millions of people to go into bankruptcy due to medical debt every year? In 1809, Thomas Jefferson said, "The care of human life and happiness, not their destruction, is the legitimate responsibility of good government." We have a moral imperative to create a health system that provides health care to all people and I want to emphasize care, not insurance.

The plan being put forth at present may be considered to be politically expedient, but it will not address the fundamental problems in America today. We need to have a full, open and honest discussion and I'm thankful for the opportunity to start that today. However, there are many experts who could help in the deliberations of this, and I hope that we'll have a hearing on the topic of a national health program based on single-payer financing.

The price we are paying for the profit-driven healthcare market is the squandering of our economic, mental and physical health as a nation. The market is the wrong model. Health care is not a commodity; it is a human right. We must ask ourselves as we go through this process of reviewing health legislation today, what are the results that we want to see? We consider success to be health security, which means that every person will wake up knowing that if they need health care, they can get it, plain and simple, because it is their right and not their privilege. Thank you.

SEN. DODD: Thank you very much. Mr. Williams?

RON WILLIAMS: Thank you, Vice Chairman Dodd. This committee is to be commended for its effort to address not just the access for the uninsured but also for the ability and quality of care. Having been a senior executive in both nonprofit health plans and for-profit health plans and having operated in the individual, small-group and large- employer marketplace, I would like to briefly comment on the issues as they are at the core of this committee's and other committee's legislative work.

I want to start by talking about the approximately 250 million people who have healthcare coverage today. There is a highly competitive insurance market with over 1300 plans and I know firsthand from our customers that there is a high satisfaction rate with the coverage. 175 million Americans are insured through the commercial market, divided nearly evenly between for-profit and not-for-profit plans. More than 95 percent of the employers polled in a recent Conference Board Business Council survey overwhelmingly want to continue to provide their employees this type of coverage.

It is the employers' long-time commitment to their employees' health that has driven much of the innovation we have today in terms of services. For example, we support significant insurance reforms that provide uniform access across the country. But these reforms cannot work without a companion requirement that requires all Americans to be part of the insurance system. Congress must also make certain that there is comprehensive, affordable coverage that's available and subsidize it for those who cannot afford it. Simply put, we need a comprehensive package with guaranteed issue of insurance in everyone in the insurance pool.

Insurance premiums are a direct reflection of underlying services in health care. In 2007, the cost of healthcare services grew at an annual rate of 6.4 percent. Premiums therefore increased at 6.1 percent. Making insurance affordable will require us to bend the healthcare costs curve, and we insurers are committed to continuing our ongoing efforts as part of the president's overall cost reduction.

Today, most experts agree that 30 percent of care is unnecessary. And yet the majority of Americans believe they don't get the tests and treatment they need. Fifty-five percent of Americans say insurers should pay for what a doctor recommends, even if a treatment has not been proven. If our collective goal is to achieve affordable coverage for Americans, it is essential that we reach a consensus on these issues and make delivery system reform happen.

In terms of the individual and under-10 small-group markets, by reforming the individual market, which should also include small businesses fewer than 10, we can tailor insurance market solutions to effectively address the needs of the uninsured, many of whom would seek coverage in these markets without disrupting or possibly unraveling the entire insurance market. There is risk in every great endeavor, but if the primary objective is to fix what is broken and provide comprehensive coverage for the uninsured, Congress must take care not to shift those who pay for insurance today into an untested structure that could cost more than they now pay.

We can cover the uninsured if we guarantee issue insurance, strongly align it with an individual coverage requirement, subsidize those that truly need health care and provide affordable coverage options, which improve choices and reduce complexity. Congress must also deal with the issue of cross-subsidization. In making decisions, we need to be mindful of how reforms impact different segments of the population. While the purpose of every insurance pool is to spread risk, how much should a 23-year-old with a lower-than-average income pay to lower the rate of a 60-year-old with higher-than-average income? These are the policy decisions that must be made.

For groups of business between 10 and 50, 85 percent of whom offer employees health insurance, we need a package of solutions that make the current market work better. I believe the intent of the SHOP Act is the right approach, as it provides a package of solutions intended to address the major issues of these larger small businesses, which are rate volatility and affordability of coverage. I would call on the committee to leave some details to regulation, understanding that making our new model work will require time, experience and of course, corrections. Thank you for the chance to comment, and we look forward to working with you.

SEN. DODD: Mr. Johnson.

RANDEL JOHNSON: Thank you, Senator Dodd. And while there's been much focus on the so-called government public plan option -- I'm sorry -- while there's been much focus in the press and elsewhere on the so- called public plan option, Senator Dodd, which certainly, the chamber has concerns with, I'd like to today focus on the new employer mandate, which I realize is not spelled out in the bill, but is sketched out in actually a savings clause. And I think this is highly ironic given that this is, let's be clear, a sweeping new burden on employers of unprecedented proportion in the benefits area.

Now in contrast to the process before us, the Congress spent almost a decade on consideration of the Family Medical Leave Act, which you are very much involved in, which provided for 12 weeks of unpaid leave. But that, essentially, was a process that stretched out over seven to 10 years. Now the Congress is considering imposing a potentially sweeping new healthcare mandate on employers in less than four months.

And with regard to process, I have to agree with Senator Enzi. I have to note that I was on the Hill when Mrs. Clinton's plan was being considered, and she came under much criticism for drafting the plan behind closed doors, as you will recall, and then presenting the plan to Congress. However, there were many hearing on that bill. I was at many of those at one committee and I would have to argue that it was a model of transparency and full deliberative process compared to the accelerated process we are now apparently facing when people are talking about a final piece of legislation by September or October.

I would also urge that the committee consider these new health care mandates not just in the context of the healthcare debate, but in the context of the many other bills pending in front of this committee dealing with paid family leave, expansion of OSHA, uncapped punitive and compensatory damages, et cetera. And this is on top of a huge regulatory burden that our employers already have to face.

Now, we don't know what an employer mandate is going to cost but there are some studies out there. The RAND Corporation has come out with one study and I'm just going to quote this, "From our model, we estimate that firms newly offering coverage will spend $9 billion to $17 billion on premium contributions, and penalty payments under the pay-or-play will be $4 billion to $12 billion." That's not chump change to our members.

Now, this is already against a backdrop of where employers are providing coverage to 170 million Americans. They're already spending $500 billion on health care on a voluntary basis. And I guess I would say that employers already have their oar in the water on this and they've had it in there for a long time, so I think we're doing our part. Now, this is not to say that every employer has provided health insurance to their employees. Many simply cannot afford to do so, and a new government mandate requiring that employers provide some level of healthcare benefits, apparently here to be determined by a government board subject only to disapproval by Congress, or paying an undetermined civil penalty is not going to change its reality.

Moses could change the Nile and make it run red, but we cannot wave a wand and create profits. The payments will come off the bottom line, as various studies have testified to. It will result in lower wages and job losses, and in some cases -- and this may sound apocryphal -- but in some cases, some businesses may go out of business. So I'm just requesting that we refocus on employer mandate. Let's go slowly on this issue, and I appreciate your time, Senator.

SEN. DODD: Thank you very much. I'm glad you remember the Family Medical Leave Act. Nice of you to do so. By the way, the final version of that passed in two weeks.

MR. JOHNSON: After about two vetoes and many, many --

SEN. DODD: Thank you for remembering the vetoes, as well. Mr. Denis.

WILLIAM DENNIS: Thank you, Senator. Small business has been primarily concerned about the cost of health insurance to America's small employers and considers it a major reason for the increasing coverage problem. The importance of cost can be seen, actually, in Massachusetts. After coverage reforms, health spending jumped almost 25 percent in two years, compared to 11 percent nationally. The reduction in uncovered was three to 4 percentage points -- I guess there's some dispute as to exactly how much these days. But anyway, what happens in a state like Texas, where we already have 33 percent lacking coverage rather than Massachusetts, which was like eight or nine before the reforms came in?

Small business and NFIB have consistently opposed the employer mandate. We have two principal reasons for the opposition. The first is that employees ultimately bear the cost of their health insurance through lower employment, depressed wages and the loss of other economic opportunities. So Congress must ask itself, do we want an employer mandate that effectively requires low-wage employees to indirectly and opaquely pay for their own health insurance, or do we want to face the problem directly and transparently and provide subsidies for low-income to purchase it?

The second reason that the NFIB has consistently opposed the employer mandate is that in the initial costs, the up-front costs -- before they can be transferred to employees, they must be borne by employers.

Small employers particularly have difficulties with all these up- front costs. Finally, NFIB supports and helped develop the SHOP Act sponsored by Senators Durbin, Snowe and Lincoln. The committee's draft captures the essence of SHOP and its market reform provisions, most prominently guaranteed issue and renewal of disallowance of medical underwriting and modified community rating.

In addition, the gateway connector concept is a positive step to facilitate small employers increasing their provisions of employee health insurance. Gateways perform a clearinghouse function, part of a small employers' HR function and insurance information functions. All substantially ease the small employers' search information and transactions costs, directly addressing the actuarial value of small- group plans. In addition, its section 125 capabilities also bring efficiencies and equity to affected employees and employers. Thank you very much, Senator.

SEN. DODD: Thank you very much. Mary, if you could bring that microphone close -- I think members having a hard time hearing.

MARY ANDRUS: Senator Dodd.

SEN. DODD: Thank you.

MS. ANDRUS: Members of the Health Committee, thank you for this opportunity to testify. I am Mary Andrus, assistant vice president for government relations at Easter Seals and I'm here today as a co- chair of the Health Care Task Force of the Consortium for Citizens with Disabilities.

For people with disabilities and chronic conditions of all ages, the goal of healthcare reform is to have access to high-quality, comprehensive and affordable health care that allows a person to be healthy and to live as independently as possible and participate in his or her community. This legislative proposal makes major positive changes in the insurance market. The proposal would require guaranteed issue, requiring insurance to be issued without regard to health status, and guaranteed renewal so coverage couldn't be dropped because of a change in someone's health status. The proposal would prohibit health status from being used in determining premium rates, making insurance more affordable for people with disabilities and chronic conditions.

The prohibition of annual and lifetime insurance caps and limits on out-of-pocket spending would immediately widen the opportunity for people with disabilities to obtain and to retain quality insurance coverage. We strongly support the rehabilitation and habilitation as well as mental health services that were included in the outline of categories in the draft. However, we are concerned that the existing categories may not include the durable medical equipment like wheelchairs or prosthetics, orthotics or other assistive devices that are primary needs for people with disabilities.

CCD enthusiastically supports inclusion of the Community Living Assistance Services and Supports section. The CLASS proposal would create a new national insurance program to help adults who have or who develop functional impairments to get the support that they need to remain employed and independent. The financing for that proposal is through a modest, voluntary payroll deduction and would provide a cash benefit to be used for things that health insurance may not cover such as housing modification, personal assistance services or transportation to allow someone to remain in their home, to continue to go to work and to be part of their community.

Any one of us could become disabled, any day. And the cash benefit could provide access to a wide range of services to continue to function within families and communities. Alternatively, many people will continue to have to spend down their savings and to go on to Medicaid. We support self-sufficiency and independence, rather than requiring people to impoverish themselves to get the services that are needed.

We understand that one of the options under discussion is to make adjustments to the current task structure to incentivize the purchase of long-term insurance. We believe that these changes are not comprehensive enough to address the number of people who need coverage and the consequences to an individual or a family if these services are needed over the long haul. Let me close with the idea that as you look at proposals for healthcare reform, look at them through the experience of a person with a disability. And if the proposal meets those needs, it's highly likely to meet the needs of the rest of the population. Thank you.

SEN. DODD: Thank you very much. Dr. Rosman -- did I pronounce that?

SAMANTHA ROSMAN: It's Rosman, yes. Thank you. Thank you, Mr. Chairman. My name is Samantha Rosman and I'm a member of the American Medical Association board of trustees and a fellow in pediatric emergency medicine in Boston. As an emergency physician in a city hospital, I see uninsured kids every day who are sicker than they need to be because they could not afford to seek care at the start of their illness. The AMA strongly supports making affordable health insurance available to all Americans.

This can best be achieved through a combination of insurance market reforms and healthcare exchanges that offer a variety of affordable private insurance plans. A health insurance exchange would increase individual choice, simplify plan comparisons and streamline enrollment to help individuals in choosing coverage that best suits their needs.

The AMA strongly opposes a public health insurance plan operated by the federal government with a pay schedule that is based on Medicare. Insurance is about more than coverage; it's about access. Too often I see kids with public insurance and yet no access because the clinics treating them are underfunded and overwhelmed. And so instead, they end up in my emergency department.

We also oppose proposals to compel physicians to participate in a publicly sponsored plan as a condition of continuing to see their Medicare patients. However, the AMA is open to consideration of a new health insurance option that's market-based and not run by government. Though several concepts have been publicly discussed, no legislative details have yet been put forth and we do look forward to reviewing those ideas.

Finally, the AMA strongly supports providing tax credits or subsidies that are inversely related to income, are refundable and payable in advance to low-income individuals who need financial assistance to purchase private health insurance. The AMA believes that once sufficient subsidies or tax credits are in place so that every American has the means to afford coverage that every American should then have the responsibility to obtain health insurance.

In closing, I would add that access to care for millions of patients remains in danger without action to eliminate a scheduled 21 percent cut in Medicare physician fees. Temporary patches that serve only to make the problem worse are not the answer. This is the time to repeal the failed SGR formula and ensure that our seniors will continue to have access to quality health care. Thank you.

SEN. DODD: Thank you very much. Dr. Scheppach?

RAYMOND SCHEPPACH: Mr. Chairman, I'm pleased to be here on behalf of the nation's governors. I'd like to comment on four issues in your draft legislation and options paper: insurance regulation, gateways, Medicaid and implementation.

With respect to insurance reform, NGA is supportive of the framework included in the draft legislation, which has the federal government setting market rules while giving states time to conform but also leaving the overall state regulatory structure in place. There are a number of technical issues or problems in the current draft with respect to grandfathering individuals and allowing providers to sell non-qualified plans outside the gateway. These are potential impediments to the market. It's also true that the draft is unclear whether the rate bands are maximum or minimums that states can exceed.

With respect to the state role in gateways, NGA is supportive of this structure and I believe states can make it work well. We do have some concerns regarding the ability to integrate health IT into the gateway within four years and there are also some concerns about the degree of federal oversight. The bottom line, however, is that the state role in creating and designing gateways is appropriate.

On Medicaid, it seems that expanding to 150 percent of poverty is too high. It would bring in another 18 million people into Medicaid, bringing the total up to 76 million. We also have a problem with providing temporary financial assistance for the expansion.

States are struggling to fund the existing program and therefore need permanent financial assistance. While we support choice of individuals in Medicaid and S-CHIP, we are concerned about whether we would have to continue EPSDT and all the wraparound services if these populations were to go through a gateway. Overall, it may be better to leave this issue to the Senate Finance Committee as opposed to this committee.

Finally, with respect to implementation, we appreciate the state grants to build capacity and the flexibility for states to implement when ready. However, if the final bill includes individual mandates and corporate mandates and tax credits for small business, work needs to be done to make sure that these are synchronized by states. It's important to perhaps set several benchmarks and certifications of governors when the insurance market is ready to receive the gateway and when subsidized populations come in, needs to be synchronized with the mandates and so on. So it seems to me additional work needs to be done in terms of the implementation. I thank you and I look forward to working with the committee.

SEN. DODD: Thank you very, very much. Mr. Shea.

GERALD SHEA: Thank you, Senator Dodd and thank you and Senator Enzi and all the members of the committee and of course, Chairman Kennedy for the commitment you've shown and for your focus on this issue. It is past time that we take up this issue and I think we have a historic moment before us that we dare not let pass. The current system, as you said Senator Dodd, is truly unsustainable.

And America's unions have long supported a social insurance model for healthcare provision and if we had our druthers, that's what we'd be focusing on today. But we also have a lot of experience in bargaining health benefits. We negotiate health benefits every year for some 40 million Americans. And so if you're going to base this on the employment-based system with public supplements, then I want to comment on a few points that we think are essential.

And my main message is that you need to focus on stabilizing employment-based coverage because right now employment-based coverage has survived surprisingly long under the cost pressures, but it won't survive forever. And in fact, we're losing people out of employment- based coverage very rapidly and other people are just shouldering enormous costs. So you have to start, first of all, with cost containment.

And I want to congratulate the committee for, in your draft, addressing what, to us, are absolutely crucial long-term structural issues in health care. We need to reorganize healthcare, to modernize it and to improve the delivery so it is focused on quality. And your draft really reflects a lot of what has been done, not by government, particularly, although government's been involved, but by practitioners in the health field. And what we've learned in that process over the last 10 years -- there's been tremendous strides made in the last 10 years in improving the way health care is delivered. And they have great implications not just for quality of care, but also for efficiency and cost, long-term.

The second point on cost containment is we think that an immediate implementation as soon as feasible -- an immediate implementation of a public health insurance option is essential. We have to put competition into the insurance market. The private insurers have had plenty of opportunity to do this on their own, and they've failed to do it. I take at their word that they want to do different and they're ready to change. I think we need, as the president says, a way to keep them honest.

Secondly, in terms of stabilizing employment-based coverage, we have to have everybody participate. All workers should participate and all employers should participate. Most employers do now, as you know well. And those employers who don't, largely, are in markets where most employers don't provide coverage. So it's not as if you're going to be disadvantaging those employers by asking them to provide coverage. They'd be the same set of employers.

And of course, many of them are low-wage, small employers who would require subsidies and that would be absolutely appropriate. But it's essential, from our point of view, to have everyone in. I would say, by the way, that we're particularly pleased with the provisions in the bill for pre-Medicare retirees that you've put in -- employers who've been doing the good job of providing health care for their retirees need relief from high health costs. And your reinsurance mechanism is one way. We think it's a very good way to go at this issue and we would congratulate you.

Lastly, in terms of financing, I just want to note that there is much talk today about using health benefits and taxing them as the basis for financing. There's no surprise why this is being discussed. It is a very large pot of money. As you know, it's the largest loss to the Treasury -- larger than the home mortgage deduction. It's just a very large amount of money. But bear in mind that the people who have sleepless nights over being able to afford healthcare coverage now often have health insurance that is too expensive for them to use.

To ask them to pay more money for that health coverage is not only unfair, we think it is really politically very volatile. Plus, as employer after employer has told us and testified in various hearing before Congress, it is the sort of thing that could really destabilize the entire employment-based market. So with that, I thank the committee for your attention and appreciate the opportunity to present to you.

SEN. DODD: Thank you very much. Mr. Rivera, thank you for coming.

DENNIS RIVERA: I'm here today on behalf of 2.2 million members and their families of SEIU. Members like Pat DeLong (sp) of Levey, Montana, who works as a home-care aid. Pat and her husband, Dan, were ranchers but had a hart time finding affordable coverage and were uninsured when he was diagnosed with Hodgkin's lymphoma in 2000. The medical bills piled up for Pat and Dan, eventually forcing them to sell the land they loved, and that had been in Dan's family for over four generations. Dan's succumbed to cancer and Pat remains uninsured.

This is America. We can, we must do better for hardworking families like the DeLongs. The American people will judge what you do on healthcare reform based on whether it provides Pat with the choice of affordable, quality, private and public healthcare coverage. Reform will be meaningless if working people cannot afford to purchase coverage or can't afford to get the care they need once they are covered.

American families must be protected from unaffordable, out-of- pocket costs and unaffordable premiums. The reality of what our broken healthcare system is costing American families is staggering. Over 60 percent of bankruptcies filed in 2007 were largely attributable to medical expenses. And nearly 80 percent of those who filed for bankruptcy had insurance coverage.

Healthcare costs must be reined in for all Americans. The best way to make this happen is through a public health insurance plan. Give Americans a choice -- the choice to keep their current plan or to join a public health insurance option that encourages competition and guarantees everyone access to better, more affordable healthcare solutions. A public health insurance plan not only gives America more choices, it will drive down costs for working families, small businesses -- everyone -- by increasing bargaining power and spreading risk, providing administrative savings and putting resources directly towards health care.

Business, government and individuals must come together and share responsibility in solving America's healthcare crisis. Building on the employer-based system will help people keep their health care if they like it. One in five American workers are currently uninsured, having increased by about six million in 10 years. Employers who choose not to provide coverage for their employees are putting responsible business at a competitive disadvantage and increasing costs for everyone. Employers should offer and continue to contribute meaningful coverage for their employees or pay into a fund -- a pay- or-play requirement with shared responsibility will have minimal disruption to our economy while providing greater security for working and stability.

Small businesses should be guaranteed protection to help control costs and keep them competitive. A small business should receive tax credits and the smallest businesses should be exempt.

True healthcare reform means giving Americans the freedom of choice to keep their current plan, including their current doctor, or choose another private plan, or to choose a quality, affordable public health insurance plan.

True health reform means insured families are guaranteed coverage; guaranteed coverage if they had an illness five years ago; or some other pre-existing condition; guaranteed coverage if they are laid off and can't afford cover of payments; guaranteed coverage that they can afford that provides quality care. True healthcare reform means individuals, government and business all share responsibility, for a uniquely American solution gives Americans peace of mind that they will always have quality, affordable health care.

The American Health Choice Act is an opportunity to put politics aside and stand up for the American people by increasing their healthcare choices and providing them with quality care while addressing the cost crisis that is crippling our economy and driving working families into financial ruin. Thank you. Thank you very much.

SEN. DODD: Thank you very much, and Dr. Baiker -- (inaudible, off mike).

KATHERINE BAICKER: Yes, thank you for the opportunity. Am I on? Yes? How's that? Excellent. The focus on both coverage and value that the committee has, I think, is crucial to the success of any health reform. And high-quality, high-value care is not just about insurance, but it's about the health care that Americans receive even when they are insured. There's been a lot in the news lately about the geographic variation that we see in health care.

And having started my research career at Dartmouth, I'm a huge fan of that body of work that shows us that even people with insurance coverage have very different quality of care and have a very different amount of money spent on their health care to achieve very similar outcomes. So that highlights for us the importance of driving people into high-value insurance that provides high-value care.

Dennis and I sat together on a commission that examined other inputs into health outcomes besides health care -- public investments that the bill touches on, but could be a really key component in driving better health outcomes for everyone in addition to the health insurance reforms that you're talking about. High-value health insurance means ensuring that that everybody has access to the crucial financial protections that insurance provides, not just today for expenses you might incur because of a sudden illness, but against the risk of incurring high cost for years going forward if you have an expensive disease.

And that involves innovative disease management and innovative insurance products that people can choose among to meet the needs of their families as best they can. That also means, I believe, providing a social insurance component that transfers risks between high-risk groups and low-risk groups, so that groups that face high and persistent health costs are subsidized. But that needs to be coupled with risk protection on the back end for insurers, so that they don't have an incentive to avoid enrolling high-risk enrollees, and so that high health-cost people, once insured, are guaranteed access to high-quality service so that insurers continue to provide them access to the best specialists and the best care that they can in the context of high-value disease management.

So achieving that high-value system is both about the insurance product that people get and the care that they consume when they're in it. And public dollars can drive higher value in both of those dimensions, by directing resources towards care that promotes long, happy, lives and reducing subsidies for care that is of questionable medical value.

SEN. DODD: Thank you. Dr. Gruber?

JONATHAN GRUBER: Thank you very much. Senator, and to the other Senators for inviting me here today, I'd like to congratulate the committee on a draft bill which really provides a terrific framework for fundamentally transforming healthcare in the U.S. This really builds on the success we've had in Massachusetts, where we have shown that such transformation can work. And let me give you some solid facts on this. First of all, the un-insurance rate in Massachusetts is down by more than two thirds; we've now got fewer than 3 percent of our population uninsured.

Second of all, employer-sponsored insurance is up in Massachusetts by 150,000 people. We don't have crowd-out; we have crowd-in in Massachusetts. Third, the costs are within budget. If you don't believe me, you can look at a report from the Mass. Taxpayers' Foundation, a organization which is not inclined to be friendly toward big-government interventions, which has said we actually came in under budget with our insurance reform.

Fourth, the mandate is working. We have mandate-compliance rates about 98 percent in the very first year. And fifth, it's popular: We have 75 percent public support for our reform. Now that said, the options memo before us today raises a number of issues, and I just want to hit the highlights on things which I discuss in more detail in my written testimony.

First of all, medical underwriting in health insurance must be banned with guaranteed issue-of-insurance-modified community rating that ensures real insurance coverage through time for those who suffer adverse health shocks. Second, lifetime and annual limits on services in insurance contracts should be banned, as well as other restrictions that take place in mini-med plans, which fool people into thinking they have real coverage when they don't.

Third, there's no reason to have multiple competing state exchanges. An exchange or gateway is a great process, but there is no reason to have more than one. Have the competition within the exchanges, not artificially across them. Fourth, and I think most important, an individual purchase requirement or an individual mandate is central to reform. Without an individual mandate, a number of states have tried to reform the insurance markets and failed. You cannot fundamentally reform insurance markets without individual mandate.

Fifth, private coverage subsidies must be part of this bill and they must extend to four times the federal poverty line. In Massachusetts, our subsidies -- probably the biggest failure of our law, is that our subsidies only extend to three times the poverty line; that's left some individuals unable to afford health insurance in our state, and we had to exempt them from our mandate.

Fifth and finally, I would say that small business credits should be offered and should be targeted most tightly to those firms that are least likely to offer health insurance. And that's the smallest and lowest-wage companies -- not just the smallest, but smallest and lowest-wage companies. I think with a strong credit, small business can be a big winner from this reform. In fact, just today the Small Business Majority released a report, for which I did the analysis, which showed that health care reform is a very positive feature for small businesses, not a negative as has sometimes been suggested.

Health care reform can end job-lock, freeing entrepreneurs to leave companies and start their own small businesses. It can provide continuous coverage in this most dynamic sector of our economy, as small businesses open and close, ensuring their employees are constantly covered. And it can lead to major savings through a more effective administration of insurance and bending the cost curve. The bottom line is that small business has nothing to fear from this reform; this can be a positive benefit for small business if we look at the entire picture. Thank you.

SEN. DODD: Very good, thank you very much, Doctor, that was very helpful. Janet, thank you for joining us.

JANET TRAUTWEIN: Well, thank you very much for inviting me, I do want to stress that we do believe this is an historic opportunity to put in place real solutions to improve quality, to reduce costs, if we do things the right way. Given that we're under a very short timetable, given the markups that are coming, I would like to talk about all the things that could be done the right way, but I think I need to comment very specifically on some of the things that are in this bill that we find particularly troubling and that need to be changed.

First of all, where we observe change being needed is in the individual and small-employer market. The market that's larger than that works pretty well already today, and so I want to comment very specifically on some things that we think are, I believe -- I am hoping that they are unintentionally in this legislation, and I want to comment on those.

First of all, one thing that I think is not unintentional are the rating rules that do apply the two-to-50 market. They're currently listed as two-to-one age bands, and this would cause significant rate shock for people that are trying to get coverage and for people that are covered already today. Given the grandfathering rules and the way they're structured, it would dump a lot of people in -- they wouldn't be able to be grandfathered for very long.

Now I want to specifically talk, though, about the size definitions. One thing that was very interesting in this legislation is that typically we see things like this addressed to the individual market, the small-group market, the large-group market -- and that's not what happened in this bill. It was the individual market and the group market. And I'm sure that some of this was done intentionally so that we would bring in some of the reforms into all markets, and we would support some of those reforms being in all markets.

But the rating reforms are what I want to focus on right now. We would specifically request that you change the legislation to allow claims experience to be used in groups of over 50. Now, I often hear people say, well, employer markets already use community rating, and that's true, but let me explain to you have the community rating works. The community rate their own group of employees based on the claims experience of their own group of employees.

The way this legislation is written today, any group that chose to fully insure -- and there are many groups over 50, over 250, over 1000, that for whatever reason, fully insure their policies -- they would be subject to the same modified community rating rules that an individual would be subject to. And this would cause significant rate shock, it would be horrible for employers. The cost increases for them and their employees would dramatic, and I highly encourage you and would be happy to work with you on how to change this provision so that we don't have this severe unintended consequence.

I also want to remark on the navigators that are in the bill. You know, we're really unclear on exactly what the purpose of the navigators is, the role of the navigators is already played by agents/brokers consulted in the market today. We really question whether entrusting organizations that have absolutely no health experience at all to advise people about their insurance decisions is really a very good idea. And at best, it seems the giant duplicative waste of money that could better be used to subsidize people who really need, can't afford, to buy coverage.

Beyond that I would be remiss to not mention that we have serious concerns about the creation of a government-run public health insurance plan, and the corrosive consequences it would have on the private health insurance market, and we do not believe that a level playing field can be established or maintained for a number of reasons.

And finally, I do want to reinforce that we do support change; we are very much in favor of an enforceable and effective individual mandate. And the mandate for those individuals is one thing; a mandate for employers is something else all together. We know that this is well-intentioned, but we believe that this would hurt American workers, particularly in the format that it's been recommended, and we can't really imagine one that wouldn't do that. We're concerned that it would actually harm current insurance levels, and it would decrease jobs and economic growth. And we don't think that's what we need in today's economy. Thank you very much.

SEN. DODD: Thank you very much, Janet. Ms. Praeger.

SANDY PRAEGER: Thank you, Senator Dodd, Senator Enzi and members of the committee. I am Sandy Praeger, I am the insurance commissioner in Kansas, and I also chair the National Association of Insurance Commissioners' health insurance and managed care committee. I really thank you for the opportunity to participate in the roundtable and to present the views of state insurance -- am I -- SEN. DODD: Is your mike on?

MS. PRAEGER: It says it's on. Okay.

SEN. DODD: I apologize, these microphones are not working very well.

MS. PRAEGER: Now is that better?

SEN. DODD: That's better, yes. You've got to speak right into it, unfortunately.

MS. PRAEGER: Again, I want to thank you for the opportunity to participate in the roundtable and to present the views of state insurance regulators, who will be responsible for implementing much of the legislation that's before the committee. And I just want to tell you I believe we are up to the task.

I want to applaud the committee for its recognition in the bill that health reform will be a state and federal partnership, and thank you too for preserving the state oversight of the health insurance industry. State regulators are closer to the consumers that they are protecting and have over 135 years of insurance regulating insurance products in the U.S.

We appreciate that most of the reforms contained in the bill will be implemented at the state level and we're pleased to see that the gateways envisioned, through which millions of Americans would purchase their coverage, will also be based at the state level. We also applaud the committee for enacting some long-overdue reforms in the individual market to ensure that health insurance coverage is available to all Americans -- reforms that are not possible without including a strong, enforceable individual responsibility requirement.

Now, while there are many good pieces to the bill, I want to take -- and I do believe it does take a very important step in realizing the committee's goal of expanding coverage, reducing costs, improving quality and protecting consumers -- we've identified a few areas where we do believe some technical improvements can be made to avoid adverse selection issues and to smooth the implementation of the reforms.

First, we would recommend that the implementation timeframe of the bill be extended to allow states four years from the date on which the final regulations are published in the Federal Register, rather than from the date of enactment as the bill is currently drafted. And I think that four-year timeframe is critical and the states need to know what the rules are before they can really begin the implementation process. We would also suggest that the committee think carefully about how the insurance marketplace outside of the gateways will interact with the markets within the gateways and ensure that there is no room for the two markets to be played off one another -- so uniformity and level playing field.

And then finally, we'd recommend that the states be closely involved in the drafting of the rules that will apply to coverage sold through the gateway for marketing and network adequacy and would recommend a model similar to the regulation of Medicare supplemental insurance, one that the former commissioner in Kansas, Kathleen Sebelius -- she's that other person with the white hair, Senator -- she's quite familiar, quite familiar with the way the states have worked over the years and are still working to develop the Medicare supplemental policies.

And I would just remind the members of the committee too that we have expressed concerns over the last several years about the Medicare Advantage products that are sold through Medicare where we don't have oversight and regulatory authority and we have identified marketing abuses. So again, I want to thank you for the opportunity to join in this conversation this afternoon, and for the seriousness with which you have approached this historic opportunity to improve the health of our nation. I look forward to the discussion and we look forward to working with the committee in enacting comprehensive reforms this year.

SEN. DODD: Thank you very much, Ms. Praeger. Dr. Gottlieb.

SCOTT GOTTLIEB: Thank you for the opportunity to be here today. The American healthcare system is capable of delivering unparalleled care. Our medical products sector is the world's source of innovation. But, as you noted, for too many people, these opportunities are inaccessible.

When I worked at the Centers for Medicare & Medicaid Services, I spent my weeks at the agency here in Washington and my weekends back home practicing medicine in an acute setting of a busy urban hospital, I can tell you firsthand that our perception of the problems from inside the Humphrey Building often didn't comport with what was really taking place on the wards, and as you'd expect, neither did our policy prescriptions for fixing what was wrong.

For example, you look at data on all the variation that exists in the way doctors in different geographies approached similar problems, and it's easy to conclude that supply must be creating its own demand. More cardiologists must mean more catheterizations. The solution seems obvious: We need to more closely regulate pay to shift money between providers. We need to limit the number of specialists we train. We need to restrict certain services according to demographics, or based on comparative data we develop in a new agency, or guidelines we write in another one.

I would suggest the data isn't so clear and it shows that we can identify the variation, but we don't really understand its causes nearly as well as we think we do. There are complex factors that go into local medical conventions. There are misaligned incentives driving medical behavior that have corroded over many years of shortsighted payments rules. Our problems exist precisely because of fixed rules and pay schemes hatched here in Washington, not in spite of them.

As the largest purchaser of healthcare services, Medicare shapes the entire market by its pricing schemes. It's not the medical decision-making that is flawed, but the incentives driving those judgments -- incentives detached from the outcomes we want to achieve. Or take, for example, the refrain around the need for more comparative data. There is no question many important clinical questions remain unanswered, but the reasons are often complex.

A lot of uncertainty about the relative benefits of two treatments remains in doubt because answering these questions is very hard. It takes long and large trials to discern small differences between active treatments. Yet we are proposing to do shorter, cheaper studies based on backward-looking databases rather than forward-looking trials to probe these questions. We should pay for these rigorous studies out of public funds, but we shouldn't cheat ourselves to believe that simple and cheap studies can resolve questions that persist despite close attention.

Proponents of comparative effectiveness research almost all point to the treatment of back pain or early prostate cancer as two areas in need of more research. On PubMed, there are literally thousands of studies addressing these topics. Questions persist because none of the studies are large enough and long enough to provide definitive answers that address all the variation in patient conditions. Managing disease isn't a commodity service amenable to designs and workforce rules hatched here in Washington. This isn't like building cars.

The current proposals for fixing health care rely on a lot of the usual patches. They increase political rather than individual control of the medicine through a collection of new commissions, boards, and agencies. The plan before this committee shifts to the government, and probably Medicare, more of the clinical decisions properly left to people and their doctors. Thank you.

SEN. DODD: Thank you very much, Doctor. And our last witness, and thank you again, Mr. Burd, for being with us.

STEVE BURD: Okay, you're welcome. I, too, appreciate --

SEN. DODD: Pull that close to you, that microphone, so we can hear you.

MR. BURD: I, too, appreciate the opportunity to share the experience we have at Safeway and also, maybe, share a few ideas. I've been a long-time advocate of healthcare reform going back some 15 years -- getting everybody in the insurance system -- and I feel that we're on the precipice of getting that done. And I applaud the Senate for addressing that in a bipartisan fashion.

I want to address something that I don't think any of the other panelists have yet addressed. I want to talk about bending the cost curve, because it's important to get everybody in but we also need to control these costs. And that's where Safeway has had a tremendously positive experience. About four years ago, we realized that about 70 percent of all healthcare costs are driven by behaviors, and as a business guy that was good news because it said if we could influence the behavior of our 200,000 employees, we could actually bend that cost curve and improve the health of our employees.

And the bottom line is, if you don't improve the health of the Americans, you won't control healthcare costs. So we designed a healthcare plan that focused on the fact that about 75 percent of all healthcare costs are confined to four chronic conditions: cardiovascular disease, which is about 80 percent preventable, cancer, which is about 60 percent preventable, diabetes, particularly type 2, that's at least 80 percent preventable and reversible, and then finally, conditions of overweight and obesity.

And we designed an incentive plan that has a premium difference between people that have the healthiest behaviors and those that don't have as-healthy behaviors. So there's a large dose of personal responsibility. There is a little-known provision in HIPA that allows for that. There is an overlay that ADA has on top of that to further constrain you, but one of the things that I would suggest to the Senate here is that we create more ability to do that.

We've had a remarkable experience. In the last four years, we've held our healthcare costs flat. And we didn't do that by terminating 20 percent of our workers. That is, the per-capita healthcare cost is flat. And for the healthiest employees in our organization, their contribution to healthcare is down some 25 percent. If the entire country had taken Safeway's plan design in 2004, by my calculations, since they're up about 38 percent, we would have a healthcare bill in this nation that's $600 billion lower than it is today. So the cost curve can in fact be bent.

The other thing I would focus on is transparency. I think everybody here has come to understand that there are vast differences in charges for some standard procedures. Within 30 minutes of our general office in California, there is a 10-fold difference in the cost of a colonoscopy. Within 10 minutes of our office, there's a five-fold difference in the cost of a blood test.

The only thing we've done to flatline our costs is focus on plan design and behavior and its role in driving costs and the health of Americans. We're cobbling together transparency. We could get some help from the Senate on that and you would see another dramatic step down. If we do healthcare reform correctly, I believe you can take 45 percent of the costs out of the system, because it's terribly inefficient, and I believe you can cover all of the Americans that are not covered today.

SEN. DODD: Well, that's very exciting news. Congratulations on what you've been able to achieve with your company. Well, this has been very, very helpful, and again, it's a large group of witnesses and I'm grateful to all of you for sharing your thoughts with us here. Let me put the clock on here for five minutes and I'll try and move some of these -- through these quickly if I can and turn to my colleagues for their comments and thoughts as well.

Let me begin, if I can, Dr. Rosman of the AMA -- they made some news today in talking about how the AMA would oppose a government- sponsored insurance plan. And you had in your testimony and the press release that went out -- you left the door open, it seems to me, a bit as well. And as I read it -- and, again, I don't want to try and put words in your mouth or that of the AMA; obviously, the position of the AMA is important -- but you indicated you're open to consideration of some new health insurance options that is market-based, not run by the government, did not compel physician participation, truly competes on a level playing field.

And if you haven't seen some of these, there have been several ideas. Our colleague, Senator Conrad, has been talking about a cooperative option. Senator Jack Reed, who is not here right now, has been talking about using state-based health organizations that already have experience in this as a possibility. There was ideas of contracting out, where the government would contract out with, say, a Blue Cross/Blue Shield where there is some experience. Give us some ideas that would be more -- put a little more flesh on this if you will, other than just sort of the vague concept here that you're willing to support something other than a public option.

DR. ROSMAN: Yes, thank you, Senator. I think that you stated it very accurately, that we are very committed to getting everybody affordable coverage. Our position is that we think this can be done with market reforms in the private insurance market, but we're very interested in some of these alternatives that have been put out there -- as you mentioned, Senator Conrad's co-ops. I think that we really need to see more details of those plans before we can comment specifically, but we are certainly interested in those as options for covering everybody.

SEN. DODD: Options for what? Options for what? Are we talking about -- what do you see as the value in having an alternative idea? What is the point?

DR. ROSMAN: Well, I think we -- again, I think we need to see more details before we can comment on the specifics. We believe that everybody can be covered in a private insurance market with tax subsidies or tax credits to allow people who cannot afford coverage to purchase into that private insurance market, choose the plan that works best for themselves and their families. We believe that with that, we can give everybody access to affordable coverage, and not only coverage, but most importantly, access to the care that they need.

SEN. DODD: What I wanted to get at here is, do you see any value in an alternative idea -- using your definitional terms here -- with that alternative idea to be a cost-driver, since cost obviously, and bending that curve, is a tremendous interest -- an overwhelming interest, obviously.

If we're not doing that -- as Mr. Burd has pointed out, and others -- if we don't bend the costs down here and just go through and adding cost to this, then obviously, we have achieved nothing. In fact, the fears of reaching 30 or 34 percent of GDP become far more real. So the value in this idea to those of us who are advocating something like this is to bend that cost. I'm presuming you're seeing a bending cost -- a value -- to these alternative ideas as well?

DR. ROSMAN: Again, I think we need to see details of the plan before we can comment to that --

SEN. DODD: Yeah, I understand.

DR. ROSMAN: -- but we are very committed to reducing health costs and excited to work on mechanisms through quality measures, best practices to reduce the growth of health costs.

SEN. DODD: Let me jump quickly here to, if I can, Dr. Gruber as well, and we thank you for your work in Massachusetts. And there has been a lot of conversation over the last number of days about Massachusetts as we're meeting among ourselves. There is a pay-or- play provision in the Massachusetts healthcare plan. Is that correct?

DR. GRUBER: A very modest one.

SEN. DODD: Well, tell me how it's working and how modest is it, and is that -- what's the effect of this in terms of employers that are participating or non-participating and the like?

DR. GRUBER: Sure. So we have a pay-or-play requirement which says that employers with more than 10 employees who do not offer health insurance have to pay $300 per employee per year. So it's a very modest pay-or-play requirement. We've not collected much revenue from it. And quite frankly, we don't think it's having a very big influence on the market. We think the main reason that employer- sponsored insurance is up in Massachusetts is not the pay-or-play component but the individual mandate, which has led individuals to go to their employers and ask for insurance coverage so they can meet that legal requirement.

SEN. DODD: So what is the number? What would you -- how did you come up with $300? Where did that number come from?

DR. GRUBER: That was basically a compromise. Initially, there was a desire to have a higher level among some, none among others, and it was viewed as a compromise where it was a real employer contribution that was substantive but not viewed as too onerous by the business community.

SEN. DODD: Can you, Mr. Dennis of the NFIB -- I wonder if you might comment: One of the suggestions here that's being talked about is to provide tax credits for smaller businesses to make that -- because it's been a constant complaint. All of us hear it from our constituents -- providing some tax relief for them, obviously, if they're going to take on these additional costs, particularly in an environment like this, and yet, there be a requirement, I suppose, that if you're going to get these tax advantages, that you also then provide some basic kind of healthcare for these employees. What's your reaction to that?

MR. DENNIS: Well, it seems to me that if you're going to do -- I mean, why would you give tax incentives if -- excuse me, let me reverse that -- why would you require somebody to do something if you're going to turn around and give them tax incentives to pay for the same thing? In other words, it's like putting it in one pocket and pulling it out of the other pocket. That doesn't seem to make a lot of sense.

One of the things you're trying to do with the taxes, that I've seen, is that you're focusing those tax provisions you do have on certain employers which employ lower-wage employees, and they're the ones that tend not to provide insurance. One of the things to remember is that the small employers who don't provide insurance also tend to be those employers who don't take very much out of their businesses and their flexibility is severely limited.

In fact, there is a direct relationship between what an employer takes out of his business -- smaller businesses now -- what they take out of their business, the wages they pay, whether or not they have a pension plan and whether or not they provide insurance. So when you're targeting those tax subsidies on folks who tend not to pay very much, you certainly have the right target.

SEN. DODD: My time has expired. Senator Enzi.

SEN. ENZI: Thank you, Mr. Chairman. And I want to thank everybody that testified. This is a huge panel. What you may not know is that you volunteered to answer questions that senators may submit as well, and hopefully do that in a timely manner so that, you know, we can use your information as we go through the legislation. And we're on a fast track to get the legislation done too. And that was the message that Senator Coburn asked me as he left.

SEN. DODD: Can I make a suggestion in that regard too, by the way? All of you have made some various suggestions and some technical ideas, and it's awfully hard just listening to this in addition to your testimony. If you've got some of those ideas, if you could submit them to the committee as quickly as you could it would be very helpful to us in these coming days to have those ideas in front of us. I apologize.

SEN. ENZI: That's fine. Mr. Burd, I wanted you to go into a little bit more how -- I know that there is a proximity of different prices in the market that your employees can tap. Can you tell me a little bit more how that transparency of prices helps out?

MR. BURD: The transparency component is something that we're just building now, but let me tell you how we framed it. In the local Bay Area of San Francisco, there is this -- you can get a colonoscopy for $700 and one for $7,000. And so we did some research with the help of our claims processor to determine what was the right set of quality and cost that would be a reasonable cost. And there was a time when we paid 80 percent of the cost of a colonoscopy. We stepped that up to 100, but we were paying 100 even for the $7,000 colonoscopy.

We now believe that a $1,500 colonoscopy in that market is the appropriate number, and so we pay 100 percent, because we think it's preventative, to have that colonoscopy done, and if someone wants the $7,000, the other $5,500 is essentially on them. So we're using our own claims data to cobble together a transparency system so our employees will go on our Web site, they'll put in their zip code, a 30-mile radius will be drawn, and they will be told what it costs for the procedure that they're looking at on each of those items.

SEN. ENZI: Thank you. I know that's just one small idea, or one big idea from a number of them, and I appreciate the time that you've taken on the Hill to help educate us all on possibilities for really bending that cost curve because that's one of the things we're wrestling with in the bill. Mr. Johnson, could you tell me what impact the employer mandate would have with your members and their ability to create jobs, particularly at this time in the market?

MR. JOHNSON: Well, of course, we're dealing with a bit of an unknown since it's not spelled out in the bill, but when you have a mandate on employers and it costs X amount of money, that X amount of money is not just going to be created; it's going to come out of some other pocket of the employers, whether it's profit margins or operating expenses or money he set aside to expand. So studies ranging from CBO to the RAND Corporation have said that this will result in some job loss, particularly impacting lower-income workers because the money has to come from somewhere.

There is not a free ride here. So it's tough to extrapolate exactly what the effect would be on it, but when the RAND study is talking in terms of $9 to $17 billion for premium contributions and penalty payments -- and of course that's the -- there's the play part and then there's the pay part -- and I'll call it a civil fine, which I think is what it would be -- penalty payments ranging from $4 to $12 billion. That's going to have an impact. And it's not a new concept that when an employer -- when the Congress imposes a mandate in one area, that's going to be paid for from another area.

SEN. ENZI: Thank you. And, Dr. Baicker, I'm hearing some concern that if we do a government-run health plan we'll wind up with something like Fannie Mae or Freddie Mac. Are those concerns that a government-run health plan could have with the private market?

DR. BAICKER: I think there are a number of concerns one might have with the public plan, and clearly --

SEN. DODD: Sit closer to it, now, so we can hear you.

DR. BAICKER: How's that? Okay, I'm learning -- slowly. I think there are a number of concerns one might have with the public plan, and clearly, the devil is in the details in terms of whether it would provide real competition for private plans or inhibit competition with private plans because it had either unfair advantages or unfair disadvantages.

I think the key things that I would look at to figuring that out are the pricing that the public option can use -- is it negotiating based on additional clout beyond which private plans wouldn't be able to compete, or is it required to take on sicker enrollees and subject to worse risk selection? And those issues show up as well in the Medicare Advantage plans, which maybe provide a model of what you might expect from a public-private hybrid. And I would look to that to see, first of all, the potential success of risk adjustment.

We do have a risk-adjustment element in the Medicare Advantage plans that I think is really promising for thinking about risk adjustment among private insurers if we look out at a reform that lets people to go a variety of different insurers, but also then the risk of administered pricing where the variation that we see in the cost of care for Medicare beneficiaries in high-cost parts of the country relative to low-cost parts of the country can be a factor of two or three times as much for care that doesn't seem to go to patients that start out sicker or end up healthier.

It's very hard to explain that level of variation and care through any story about efficiency. It looks more like extra money is going into parts of the country that practice a more intensive style of medicine in a way that the government regulation is not inhibiting. So that makes me very nervous about a monolithic public plan.

SEN. ENZI: Thank you. And my time is expired. I have questions for everybody and I'll get those out.

SEN. DODD: Thank you very much, Senator Enzi. Senator Harkin.

SENATOR TOM HARKIN (D-IA): Thank you, Mr. Chairman. Again, it comes as no surprise to anyone here that I have a great deal of admiration for Mr. Burd and what he's done at Safeway because I think the only way we're ever going to bend this cost curve is keeping people healthier in the first place.

I don't mean to get on my soapbox but, you know, as long as we continue to kind of dance around this issue of how we pay and how we're going to arrange the insurance thing, we're going to do all this mechanism, but unless and until we put more emphasis on prevention and wellness, we're just pouring money -- we're just throwing it out there and we'll never get our costs under control.

Mr. Burd is right that's the only way to bend our cost curve. And we've got to put more on prevention and wellness and we just haven't done this in the past. None of us have done it. I'm not blaming any of you; none of us have done it either. It seems to me in this healthcare reform that that really ought to be the central part. That's what we ought to be focused on. How do we incentivize healthy behavior?

How do we -- all the incentives now in our healthcare system is for one -- is to patch and fix and mend -- it's pills, surgery, hospitalization, disability. Why don't we put more incentives up front? We know how to do it. Safeway did it. They know how to incentive this. Pitney Bowes did it. They know how to do it. And there were other, smaller companies out there that have done this.

And yet we keep wrestling with all this -- how we pay and how we shape all this stuff when the focus ought to be, I think, on how we keep people healthy in the first place and provide those incentives out there and move those incentives up front. Dean Ornish has this famous cartoon he uses all the time. It's of a -- there's a sink and it's overflowing. The faucets are on, the sink is overflowing, the water is going on the floor, and there's two guys furiously mopping up the floor. His point is that we've got to shut the faucets off, and we haven't been very good at doing that.

But we know -- we've got good data on this. In the next panel we have the Trust for America's Health coming on, and they have done some really good work on it, but a lot of our private businesses have done this. And I just throw that out there, that we've got to pay more attention to that. And so I kind of throw it out there. Mr. Williams, you and I have talked about this in the past, from Aetna. Now, you're an insurance company. What do you think about this? Should we put more into prevention and wellness or should we just keep jacking up insurance rates? (Laughter.) I say that friendly because he's a great guy.

MR. WILLIAMS: Taken in the spirit in which it's offered, Senator. I think that there is a fundamentally important opportunity to focus on wellness and prevention. We do it with our own employees. Every Aetna employee can earn $1,200 of credits for participating voluntarily in wellness programs where they know their numbers in terms of blood pressure, their statin levels -- cholesterol -- and their BMI, and participating in fitness and wellness programs.

There is an opportunity to earn $1,200 -- 600 for the employee and 600 for the spouse. And what we saw is, last year, our medical costs went up 3 percent -- no benefit changes, strictly based on the engagement of the employees in their own wellness and fitness. And I've heard Steve Burd many times, and I agree 100 percent, that there is a huge opportunity to focus on prevention and focus on wellness. Now, that's not the whole problem, and there is much more we have to do. We have to get everybody covered. We have to make it affordable for people. We have to make certain people have good, solid coverage, not just coverage.


MR. WILLIAMS: But I do believe wellness is absolutely important and prevention is absolutely important, and the individual really has to get in the game and, within the appropriate level of their participation, be able to help participate.

SEN. HARKIN: The problem is, we can address this on a clinical basis, but if we don't address it outside the clinic, it doesn't do much good. If people don't have access to better foods, to better exercise, having more of a knowledge base on how to stay healthy, you can do all the clinical work you want, but if our communities are unhealthy and our schools are unhealthy and our workplaces are unhealthy, it doesn't do much good to have it clinically based.

That's why I keep saying that prevention and wellness must be clinically based, community-based, school-based, workplace-based --

MR. WILLIAMS: It has to be holistic program, Senator, as you're describing. Of our 19 million members, we have 2.2 million members who are identified as in chronic disease-management programs where they have diabetes, hypertension, asthma, allergies. But the object is to avoid the creation of the next 2.2 million, which is exactly through the mechanisms you're describing.

SEN. HARKIN: Well, I do have something -- I'm out of time, but go ahead.

DR. FLOWERS: Oh, okay. Do I have time to speak, or --

SEN. DODD: Quickly.

DR. FLOWERS: I wanted to make the comment from the perspective a primary care provider on prevention. I mean, the reason that having a national health system would actually improve our public health is that the incentives completely change. Right now so much of our health care is driven by profit. When you have a national health system, it's actually driven by providing better health, and we see this in other countries around the world that have national systems.

They know that if they have a healthier population, they spend less money on their population's health. And since they're responsible for paying that money, it makes it more of a responsibility for them to save money. And so there is a greater incentive to create these public policies that you're talking about, like improving transportation, improving food.

But also, in this country, we have a shortage of primary care doctors, and a lot of that is because, as I left practice -- because, really, because we're not reimbursed easily by the health insurance companies for the work that we do, we're required to see more patients and spend less time with them, and spend less time doing, well, for me, well-child visits, where I could actually take the time to explain to parents the things that they need to know to raise healthy children.

And so we've got to change that so that, again, if we're fighting for reimbursement and having to see more and more patients and spend less time with them, we're not going to have a healthy population. Thank you.

SEN. DODD: Senator McCain.

SENATOR JOHM MCCAIN (R-AZ): Senator Hatch --

SEN. DODD: Fine, all right. I'm just following the Kennedy rules here. I apologize. Orrin, you've been the chair of this committee --

SEN. MCCAIN: I'll wait. Senator Hatch has been very patient. I'd rather wait until after he's gone.

SEN. DODD: Okay. All right, fine. Orrin, welcome.

SENATOR ORRIN HATCH (R-UT): If you want to defer to John, it would be fine with me, but --

SEN. DODD: You've got to speak in there, Orrin. These microphones are not very good, so I apologize.

SEN. HATCH: Ms. Trautwein, there has been a lot of talk recently about creating a level playing field between a government-run plan --

MR. : We can't hear you.

SEN. DODD: We can't hear you. You've really got to speak up.

SEN. HATCH: My gosh, I don't know what I can do here -- (laughter) -- between a government-run plan and the private plans. First of all, I personally think that's impossible because of all the state and federal regulations that are imposed on private plans that a government plan would never be subjected to, including paying state assessments in all 50 states, for example, along with federal taxes.

Now, history already teaches us this lesson. In 1965, Medicare started as a political compromise where it would pay the same rates as the private sector. Faced with rising budgetary concerns, Congress soon decided to implement price controls on the program, and today, as you know, it pays doctors 20 percent less and hospitals 30 percent less than the private sector. Now, do you think it's possible ever to really, truly create a level playing field between a government-run plan and the private plans?

MS. TRAUTWEIN: Well, I don't think it's possible, but I'm not just saying that from some sort of philosophical perspective. This is a reality. There are many things that we could do. We could say that everyone had to pay the providers the same price. We could have a whole list of ways that we tried to make things equal. But one of the ways that I don't think that it will ever be equal is something just as simple as state premium tax. Now, I can't imagine a federal or a state public program paying state premium taxes as just one item of those to a state. I can't see that happening.

And maybe Ms. Praeger could comment more on that, but it's a significant amount of money, and when they don't pay equally, what happens is the cost-shift increases and we have that much more that's shifted over to the private sector. And then that is an undue -- it's completely at odds with these affordability goals that we have.

SEN. HATCH: That's just one idea. Mr. Williams, what do you have to say about that question?

MR. WILLIAMS: Yes, I would say that I've tried to avoid a philosophical response to the notion of a government plan to really wait to see the specific proposals that have come forth. And based on what I've seen so far, I would be opposed to a government plan.

I think there is a great confusion about profit in the for-profit sector. The total profits of the publicly traded healthcare sector is about $12 billion. The taxes that we pay are roughly equal to what we earn in profits. In our case, we earn about 6 percent in profit and we pay, in state, federal and premium taxes, 5 percent. And we believe the value that we add in the system more than makes up for the 1 percent difference. And you have to also look at the fact that only half of the members are in plans that are for-profit.

So I think we get diverted from the fundamental issue, which is how do we get and keep individuals and small groups covered and focus on the particular barriers to accomplishing that and develop meaningful and substantive programs, along with prevention and wellness, including changing the reimbursement structure so that we do pay primary care better and pediatricians better.

SEN. HATCH: Let me ask Randy Johnson and Dr. Becker -- Baicker, excuse me -- this next question. Our national unemployment rate is almost 10 percent and it's rising. It's the highest rate in decades. And one of the policies being discussed here of course is the employer mandate where employers will be charged a penalty if they don't provide a defined level of coverage.

Now, according to a 2007 National Bureau of Economic Research, imposing an employer mandate could result in the loss of more than 220,000 jobs in this country. And in an environment where we should be creating jobs, I'm afraid that we're simply creating more incentives for employers to actually stop offering jobs and move their operations overseas, as some have already done. And I'd like your thoughts very briefly on this, both of you.

MR. JOHNSON: Well, I certainly agree with your observation, Senator Hatch. I think there is the cost that smaller, or any business, would have to bear in this -- either the new healthcare mandate or pay the civil penalty, which I have to take some disagreement with others who have pretended the "Massachusetts miracle" is in fact that.

Lots of other studies have shown there's problems with Massachusetts, including the pay-or-play mandate. And we could submit some follow-up studies on that. But there's another problem also, Senator, with regard to even companies that provide a generous package.

One of the questions that's come up as we've talked to members on my employee benefits committee is would their plan, which is seen as generous by their employees, fit the definition of what the play part of the mandate would be?

In other words, they could have X plus, but that X plus may not fit exactly how this medical board, under the legislation, is going to define as the minimum benefit package. People think it's easy to define these plans' actuarial values, but we've been told it's really not that easy. So there's the question of cost. And, again, smaller employers bear that. And then for larger employers, will what they do for their employees now fit the so-called play part of the pay-or-play mandate?

SEN. HATCH: Ms. Baicker?

MS. BAICKER: Thank you. I think there is a real difference between employer mandates and individual mandates. And the real risk of the employer mandate is that employers don't pay for health insurance premiums; employees do, either in the form or lower wages because, as healthcare costs rise, their wages rise more slowly than they would otherwise, or even fall, or in the form of fewer jobs if healthcare costs rise so high that employers can no longer afford to offer a job with benefits and they either cut down on their workforce or move workers from full-time jobs with benefits to part-time jobs without benefits.

So I think employer mandates really are about shifting the burden of who's bearing costs among employees and risking low-wage workers in particular losing their jobs rather than getting more employer dollars in the game because I don't think employer dollars are in the game to begin with. Those costs are borne by workers. So that's the real risk of employer mandates.


SEN. MIKUKSKI: Any corporation with school-marmish admonitions?

MR. BURD: Sure. I'd be happy to answer that. The statement I gave earlier was across this nation, 70 percent of the health care costs are driven by behaviors. And that really is one of the keys to cracking the code here for how to bend the cost curve. Because we're self-insured -- which means we pay every dollar -- there really is no insurance company. The insurance company behind us really processes claims. We're free, as are all other large companies -- people with over a thousand employees -- to design their own healthcare plan. So that's what we did. And we focused on the chronic conditions and the behaviors that lead to them. And we set up a series of incentives. We structured it as a carrot, but I would quickly tell you that the carrot is nothing more than the mirror image of a stick, and vice versa.

SEN. MIKULSKI: What were there?

MR. BURD: What we did was we chose four basic -- we have a program we call Healthy Measures, which you opt into. Seventy-four percent of our organization has opted in. And we measure body mass index; we measure smoking -- I mean, we actually test for it -- cotton swab tests and high blood pressure and high cholesterol levels.

In the Healthy Measure effort this last year, 17 percent of our employees discovered that they had hypertension. That was a good thing because we could prevent some future event. And the way our program works, if you are a smoker, you will pay more for your insurance. You will pay roughly a little over $300 more than a non- smoker.

But then we provide 100 percent of the cessation products that you typically buy to wean yourself away from smoking. And if you quit smoking by the end of the year, or if your body mass index is reduced by 10 percent, or if your hypertension is under control, or if your cholesterol is under control, we write you a refund check equal to the elevated premium.

SEN. MIKULSKI: Do you have a health coach? In other words, do you say, stop smoking, here's the patch? Or do you actually have health coaches? What is it that you --

MR. BURD: You know, in three minutes it's hard to describe the whole system, but we have a very elaborate, holistic approach to health care that includes calorie information in the cafeteria, subsidies only for healthy food -- although we have cheeseburger and fries. We have a 17,000-square-foot fitness center on campus with a nurse practitioner; we have a 24/7 hotline for any issue that might develop seven days a week; we have a med expert service that deals with chronic conditions; we have nutrition coaches; we have counseling coaches; we allow employees to work out midday if they have a weight issue.

We actually believe -- I know this sounds bold -- but we believe that we've cracked the code on obesity. And we actually think we can continue to reduce the obesity levels in our company. Our obesity rate is 28 percent. The nation's is 40. Our smoking rate is 14 percent. The nation's is 21 --

SEN. MIKULSKI: And that's in a grocery store. I mean, you got a lot of -- (inaudible, laughter). I'm in your stores. These ones I talked about, I know about them. (Laughter.) There have been sightings in them. (Chuckles.)

MR. BURD: Yeah. So we've made good progress and I challenged a couple of other CEOs. We were going to try to bend the obesity curve in this country and I challenged them. I said, look you've got to do it in your own organization first. And I committed that in 120 days, I would make further progress on obesity. And we just did. And so these incentives work.

The problem I have is the incentives that we're able to put in place don't come anywhere close to matching the cost implications. The smoker is $1400 a year. Toby Cosgrove is here. He'll give you a number that's probably close to $3,000. But it's at least $1400. And yet, the premium difference is only $300. I took notice when the tobacco taxes went into effect. They were raised the equivalent of about $300 a year for a one-pack-a-day smoker.

In the state of Michigan, the cessation centers that offer free products for quitting smoking had a 19-percent increase in their calls. California, which has the second lowest smoking rate in the country, had a 300-percent increase in their calls. My e-mail box is full of thank yous from employees that have lost 100 pounds, 120 pounds, 40 pounds, become marathon runners, stopped smoking, and they said the incentives were the key. Seventy-eight percent of our employees absolutely loved this plan -- they said it's good, very good or excellent. And 74 percent asked for changes that were increased financial incentives.

SEN. MIKULSKI: Well, thank you. I know my time is up. Dr. Rosman, actually Senator Dodd asked some of the questions I would do for you. Just one quick question with Dr. Flowers.

First, of all, Dr. Flowers, I wanted you to know, number one, you're welcome here and we really welcome your insights as a sister Marylander. We're glad to see you.

DR. FLOWERS: Thank you.

SEN. MIKULSKI: Your testimony was excellent. Why doesn't a public option meet the needs that you have outline as you've articulated the needs for a single payer? When we do a public option, why wouldn't it accomplish the six things that you talked about?

DR. FLOWERS: Well, I wish it would, but the reality is is that the problem is that we have about 1,300 different insurance plans in this country, and it's this fragmentation which is keeping us from being able to take all of our dollars and actually use them for health care because so much money is wasted to create this fragmentation.

So creating another public plan is going to further fragment our pool. And what we've seen -- two things. One is that if you look at our experience with Medicare Advantage plans -- and his happens over and over again -- is that the private insurers are very good at attracting the healthier patients -- we call this cherry-picking -- and so the public plans are often left with the patients who have the greater health needs and therefore carry a greater proportion of the burden of the cost.

So that's one thing that's a problem, and the other is the whole billing infrastructure because, you know, there's so much talk about, oh, if we go to a uniform billing form, this is going to help things. We already have that for hospitals but we still have hospitals with many, many billing employees.

And what happens for us is one of the first things, when we admit a patient to the hospital, is we get a visit from the Utilization Review Department and we have to -- you know, those people have to be employed to be an interface between the insurers and the hospital, and that costs a lot of money. And so we don't do away with that if we're adding one more plan.

So we just can't see the cost savings with the public/private partnership. It further complicates things. If you look at what's happened in Massachusetts with their connector, which they're talking about in exchange, it adds 4 percent to the cost.

So those are the problems.

SEN. MIKULSKI: Well, thank you. That was a great clarification. I appreciate it. My time is up.

SEN. DODD: Senator McCain.

SEN. MCCAIN: Thank you, Mr. Chairman. Mr. Scheppach, there has been -- we're in unchartered waters here as far as a national healthcare program is concerned. For the record, perhaps you could give us what's been tried in other states, ranging from Massachusetts to TennCare to various other states.

We would be very interested in knowing because the states are generally the laboratories for this kind of innovation and experimentation on a number of areas, and particularly in health care. Okay?

Mr. Dennis, as you know, one of the proposals is that the small businesses either provide a certain level -- as yet unspecified -- health care for their employees or they pay a certain amount of whatever you want to call it -- tax levy, amount of money -- and that number has been unspecified. But if it's too high, then it drives small business people to layoffs and if it's too low they pay it and go on with business as usual. What's your view on this particular issue?

MR. DENNIS: Well, pay or play is a mandate by, you know, another name, but essentially we're opposing it, but it's important to remember why. You have to remember what the consequences of this are, and that is employees pay the cost of this in the long run.

And when the employees pay for it, it's normally lower-income employees that pay for it. So there is a real problem there. There is a problem initially when a small employer has to absorb the initial cost before they pass it on. That's a problem. A lot of small employers don't have that flexibility.

And then, finally, there is also another thing, and that is that we found, in some research that was done over at George Mason in the Experimental Economics Lab, that frequently low-margin, larger employers -- I don't mean great big ones, but low-margin, larger employers act very much like small employers, and some of the more profitable larger employers, who basically already provide health insurance, tend to act a little bit more like the larger ones. So you have a marginal profitability issue as well.

So those are the three reasons why I think this doesn't make a lot of sense.

SEN. MCCAIN: Dr. Gottlieb, the elephant in the room is how we pay for all of this. Estimates range from 1 to 2 to more trillion dollars. One of the proposals that's now being bandied about is the taxation of employer-provided health care.

A proposal I made a long time ago was also accompanied by a $5,000 refundable tax credit to families in America, but now the part that's being considered -- although certainly no one as yet confirmed that -- is the removal of some or all tax treatment for employer- provided health care.

What's your view of that particular proposal?

DR. GOTTLIEB: Well, whether we do it as some kind of tax rebate or by making the tax code equivalent, whether you go out and purchase your insurance in the private market or get it through your employer, I think we need to consider strongly trying to level the playing field between people who are buying insurance in the open market on their own and those who are getting it from their employer.

We know one of the reasons why insurance is so unaffordable on the private market is because people don't have the benefit of the tax subsidy that's being afforded when they purchase it through their workplace.

So I think, generally speaking, we need to consider how we go about trying to level that playing field so people in the private market can have the same benefits as if they were getting it through their employer.

SEN. DODD: Ms. Trautwein, same question. What do you believe -- do you believe that the idea of removing the tax exemption for employer-based healthcare benefits is a good idea, and taxing it?

MS. TRAUTWEIN: We have a lot of concerns about doing that, frankly. We've very concerned about unraveling the employer-based system.

You know, having said that, we know that we have to find some money to pay for a lot of the health reform, and so that we're very interested to look at the alternate proposals such as those for putting some caps in and so forth.

But we do -- I would just agree, though, relative to the individual market, that as a bare minimum we've got to make sure that we have tax equity in every market so that individuals can have the same benefit that those in employer-sponsored plans have.

SEN. MCCAIN: But that's not the case today.

MS. TRAUTWEIN: It's not, and we would need at a minimum to have that.

SEN. DODD: Dr. Gruber?

DR. GRUBER: Yes, Senator McCain, I actually think that reforming the tax exclusion to employer-provided health insurance is absolutely a win-win source of financing for the kind of bill we're talking about today. We can take a source of financing which right now is regressive. It's inefficient. It induces excessive health insurance consumption, and by capping that in one form or another we can raise the money we need to achieve the goals we're talking about today.

So I think it's a terrific direction to go for financing healthcare reform.

SEN. DODD: Dr. Baicker, you're next.

MS. BAICKER: I couldn't agree more that the way we finance private health insurance through the tax code today subsidizes, disproportionately, high-income people and the least-efficient health insurance plans, and that if we could capture some of that public expenditure on high-income, high-cost health plans and redirect it towards ensuring everybody has access to at least basic care, that would both improve efficiency and improve progressivity. It seems like a win-win option.

SEN. MCCAIN: Mr. Rivera, how are we going to pay for the healthcare reform?

MR. RIVERA: Well, I think that what we need to do is find the efficiencies in the healthcare system, namely by making it more efficient. We're spending 17.5 percent right now probably more than any country in the world, and at the same time, when we do studies with other countries in the world, we are getting less in terms of outcomes.

So in that sense we believe that inside the healthcare system we could find efficacies and savings, particularly in terms of bending the curve going forward.

The other thing that I believe, in going back to what Senator Harkin was saying, is the whole question of wellness. Ms. Baicker and I, we're part of the study of the Robert Wood Johnson Foundation for over a two-year period, which we concluded that we need a new national culture of health, which is basically we have a healthcare system which is a curative healthcare system. We've got to prevent people from getting to our hospitals and our healthcare facilities.

And basically we believe that that's a responsibility of the government, of the individuals, of the communities, and we can't even make it happen. Right now, for example, Senator McCain, the government buys about $60 billion in food a year. We buy $40 billion for people who are on food stamps -- excuse me, no, on children's school breakfasts and school lunches, and we basically don't have any limitations on what food do we serve there.

So that's -- you know, only about 2 percent of the high schools in America have physical education. So I believe this is a very complex issue, and I believe that we can find the savings, but it will be -- there's no silver bullet. We have to work all the moving parts to make it happen.

SEN. MCCAIN: Remarkable. Dr. Rosman?

DR. ROSMAN: Yes, thank you.

SEN. MCCAIN: You also believe that efficiencies and then wellness and fitness will solve our problems. That's good. I appreciate that.

MR. RIVERA: Thank you.

DR. ROSMAN: We believe --

SEN. MCCAIN: Go ahead. You're welcome.

DR. ROSMAN: Is your question about payment or prevention? I'm sorry.

SEN. MCCAIN: I'm talking about how we pay for --


SEN. MCCAIN: -- the trillion to 2 trillion (dollars) or more of costs associated with any proposal that seems to be being considered by this committee or by the Finance Committee.

DR. ROSMAN: So I would start by picking up on your former line of questioning. We absolutely support eliminating the tax exclusion and redirecting those funds in the form of tax credits of vouchers on a sliding scale to the low-income and uninsured so that they can afford to purchase health insurance.

As several people mentioned, it is currently a regressive subsidy to the tune of $125 billion, and we believe that can certainly go a long way in helping to fund coverage for those who need it.

We are working hard on comparative effectiveness research, on quality measures. I agree that we certainly need to focus on prevention. One of the most heart-breaking things as a physician is to see -- I'm a pediatrician, so I'm seeing kids not even barely into their second decade of life who already have serious health consequences of lifestyle issues, and that is costing our system beyond kind of measure at this point.

So there are a lot of aspects that need to go into this. Thank you.

SEN. MCCAIN: Thank you, Mr. Chairman.

SEN. DODD: Thank you, Senator. Senator Bingaman.

SENATOR JEFF BINGAMAN (D-NM): Thank you all very much. Dr. Gruber, let me ask you a couple of questions. You endorse the idea of premium variation based on both tobacco use and adherence to wellness lifestyle programs. I'm a little unclear as to what you believe we need to do in this legislation to bring that about.

Mr. Burd has certainly described what he is doing, which amounts to that. He has indicated that we need to change HIPPA because HIPPA does not allow him to give a sufficient financial incentive, as I understand it, and he would like that changed. But what else should be done in this legislation to bring about this -- or to encourage this premium variation based on tobacco use or advance wellness and lifestyle?

DR. GRUBER: Senator Bingaman, that's a great question because it has an easy answer, which is nothing. What this legislation should do is not rule out the possibilities of doing what Mr. Burd --

SEN. BINGAMAN: And do you think that the community rating that we're talking about does rule that out?

DR. GRUBER: I believe in the language as it's written, it may rule it out. I'm not a scholar --

SEN. BINGAMAN: So we need to clarify that nothing we're doing in community rating would interfere with the variation of premium to accomplish these kinds of programs that Mr. Burd talked about?

DR. GRUBER: Absolutely.

SEN. BINGAMAN: Okay. You also talk about your view that the proposal to have consumer rebates based on insufficient medical loss ratios is a mistake. It's a mistake to put that in the legislation at this time and instead we should require reporting on medical loss ratios and then come back in the future if we think this is something that the Congress or the government really needs to legislation on it. Is that right?

DR. GRUBER: Yes, I believe that's right. I think medical loss ratios are very hard to define because the key question is what defines an acceptable expense? If a company spends money on wellness and management, we clearly think that is an acceptable expense.

How are you going to separate that from other kinds of expenditures, not to mention the fact that companies are very good at figuring out how to make things look like qualified expenditures versus not, and I thing we really need to learn more in a more transparent environment about where companies are spending their money before we dive in and commit to rebate of this magnitude.

SEN. BINGAMAN: Let me ask a question of all the panel. It seems striking to me -- I mean, we've been talking about differences of opinion that exist, but it's striking to me that it seems to me that there is near-uniform agreement on several things.

I know Dr. Flowers feels differently and favors the single-payer program, but without exception it seems as though all of the panel are in favor of the various insurance market reforms, at least a substantial number of the insurance market reforms that we contemplate in this draft legislation.

All panel members are in favor of the individual mandate, which we contemplate in here. Maybe that's wrong. Mr. Dennis, you are not in favor of an individual mandate?

MR. DENNIS: We're kind of up in the air. We're open to it, but it depends upon a lot of things.

SEN. BINGAMAN: You're agnostic on the question?


MR. DENNIS: We're agnostic. I like that. Thank you very much.

SEN. DODD: You're not even a member of this committee.


SEN. BINGAMAN: Are there others who do not favor -- yes?

MR. SHEA: Senator, we believe that everyone should have health coverage and every employer should offer health coverage and help fund health coverage. In that context, we think individual mandates are appropriate. To simply rely on individuals we think is inappropriate and puts the burden on the wrong place.

SEN. BINGAMAN: So if we're not able to also require employers to have it, you think we should not require individuals to have it.

MR. SHEA: With all due respect, I would put it the other way. You should require both to do it, and you can do that.

SEN. BINGAMAN: Well, I know that. I know that's your view, but I'm just saying, if we were to require it of individuals, would you support that?

MR. SHEA: Senator, we would support that if there were substantial subsidies to make it affordable.

SEN. BINGAMAN: Right, and that was my next --

MR. SHEA: But that's a very expensive prospect.

SEN. BINGAMAN: Yeah, that was my next question. It seemed to me that all members of the panel were in favor of substantial private coverage subsidies. Is that accurate? And I believe everyone on the panel is in favor of small employer credits to encourage small employers to provide coverage. Is that accurate?

Mr. Burd, you're not in favor of that?

MR. BURD: I'm not. I know that probably upsets the Small Business Administration, but the reality is that large businesses that have insurance, like us, are paying the tab for those that do not have it. I'll give you one example of a local Bay area hospital that lost $70 million on their Medicare patients, $20 million on their Medicaid and under-insured patients, and then made $110 million on their insured patients, for a $20 million profit.

And so I don't really buy into the notion that small business -- I like the individual mandate. I don't buy into the notion that small business, if you go the other way, should in any way be exempted because maybe the cost of cleaning a shirt at the laundry will go up 20 cents, but it will go up 20 cents for everybody. And a pizza that may normally cost $8, it may cost $8.50.

That's fair. That's okay. I don't buy the argument that they will go out of business. I think they'll adjust their price structure.

SEN. BINGAMAN: So your view is there should be an employer mandate. It should apply to all employers?

MR. BURD: No, my view is that -- I like what you said originally. I would favor an individual mandate. I think it's cleaner. Senator McCain didn't ask me, but I would not be in favor of eliminating the tax deductibility for business because the first -- my first reaction would be if I'm not going to get a tax deduction for that, then what I'll probably do is put it in wages and allow them to buy on the open market, but I will lose my influence and control over their behavior.

And the reason most large employers want to stay in this game is they believe that they get additional benefits in productivity from the wellness of their workforce. And so there is no one in the Coalition to Advance Health Care Reform, of the 61 companies that are in it, that want to get out of the insurance game, because they believe that they can fundamentally affect behavior.

And so, if you want to do a mandate, I'm in favor of the individual mandate as opposed to the business mandate, because I'm afraid somebody will exempt small business, which I think is wrong.

SEN. BINGAMAN: Thank you very much.

SEN. DODD: Do you agree with that, Ron, too?

(Cross talk.)

SEN. DODD: I asked Ron if he --

MR. WILLIAMS: Yeah, I would --

SEN. DODD: Oh, sorry.

MR. WILLIAMS: -- basically say that I think that the individual mandate is in fact the way to go. I think that there are strong feelings on multiple sides on the employer mandate, and I think the real issue is getting at the individual in the sense that the individual either can afford insurance or that we have mechanisms to really help them come up with insurance.

Just a couple of other critical points I would like to take to make. There was a question on the whole medical loss ratio question. And I think that one of the points I would make is that if there were to be such a thing, I think you have to have it for health plans, I think you have to have it for hospitals, I think you have to have it for physicians, because I think it has to be a level playing field.

I think a big problem with it is that it is a gap accounting measure that is created to measure an accounting notion, not a how we direct our resources. So if, for example, we have 2 million members who are in chronic disease management programs, under a medical loss ratio definition, that would be bad administrative expense that we would be penalized for investing in.

The $1.8 billion we've spend in the past four years investing in health information technology, we would be viewed as bad administrative expense. And I think the marketplace is much better able, in the form of people like Steve Burd and other sophisticated purchasers, to decide whether they're getting value through the overall administrative expense structure we have -- which, by the way, in our case is about 11 percent and is nowhere near the allegations that are made in the contexts of it.

So I think, again, it's a red herring. I think we should focus on what we're doing to change the medical trend. I've got one other quick point I'd like to make, if I may.

If I told you that in year one medical costs went up 8 percent; in year two I could take it down to 5 percent; in year three 1.1. percent, and in year four I could make the trend go negative by 1 percent, people would feel that was a pretty good performance, I would assume. Now, the reality is that's what happened '92, '93, '94 and '95. Medical costs went negative.

Now, the problem is that we got there through mechanisms that turned out not to be the right mechanisms. We had mandatory medical homes, which we called the gatekeeper. We had bundled payments, which we called capitation. We had narrow networks that limited the access of members where they couldn't go to the physician they wanted to see.

We had coordinated care that we called "referrals required," and we had very low cost-sharing because everything was on a co-payment. And physicians had great incentives. It was risk-sharing, and there was great concern about physicians being inappropriately remunerated for denying care as opposed to providing care.

So we bent the trend, and I think the opportunity as we go forward is to make certain that we do bend the trend through more appropriate mechanisms like wellness, like administrative simplification where the industry has committed one claim form, one method of providing eligibility information, one method of really interfacing with the whole physician community.

So I think there is a lot we can do and I do believe that we can bend the trend because it's been done before, but I think this time we have to do it collaboratively with physicians, with consumers, with the provider community and the government and regulatory apparatus.

So just a couple of points.

SEN. DODD: Thank you. Senator Sanders.

SENATOR BERNARD SANDERS (I-VT): Thank you, Mr. Chairman, and --

MR. JOHNSON: Could I just -- I'm sorry. Just for the record, the medical law's ration provisions has been troublesome to some of our members.

It's interpreted as a cap on profits, a governmental cap on profits. I'm sorry, Senator -- just for the record because Senator Bingaman asked about that.

SEN. SANDERS: Mr. Chairman, thank you very much for holding this hearing. I want to thank all of the panelists for being here, and I especially want to thank you for allowing, for the first time in this debate, an advocate for a single payer program to be here tonight. (Applause.) Shhh, you may get arrested. (Laughter.)

And the truth is that of any program out there, single payer is the most popular. It has the support of the most people. It has 15,000 physicians on board. It has the major nursing organizations on board, and it's about time that we at least began to hear, at least for a few minutes, from a single payer advocate.

The truth of the matter is that our current health care system is disintegrating. You have not only 46 million Americans without any health insurance; you have even more who are underinsured.

And what's not talked about very often is that at a time when we have 60 million people who do not have a doctor of their own, close to 18,000 people die every single year because by the time they get to the doctor, it's too late to treat their illnesses.

Meanwhile, in the midst of that disaster, we end up spending far, far more than any other country on Earth, all of which guarantee health care to all of their people. So I think we can't just tinker with the system; we have to understand the system is fundamentally broken. We have to understand why it is broken. And we need a new system.

Now, I want to start off by asking Dr. Flowers a very simple question, and that is, tell me, in your judgment, why is its that our current healthcare non-system costs so much and gets so little value, not only in terms of the people who are uninsured and under-insured, but in terms of healthcare outcomes like longevity and low-rate babies and so forth. And so, why are the outcomes so poor despite the fact that we spend so much?

DR. FLOWERS: All right, thank you very much. So we spend, as you know, more than two to three times more what the other industrialized nations spend on health care, and their health outcomes are much better than ours in terms of infant mortality. Our maternal mortality is two to three times more what the other industrialized nations have. Our life expectancy is lower.

And it's because we don't have an actual system. We have this hodge-podge that's very fragmented, it's very non-transparent. There are a lot of barriers that are put into place between the patients and their healthcare providers. And so, our whole incentive is wrong. It's not based in creating better health; it's based on -- I'm sorry, I disagree, Mr. Williams, it is based on profit because the number of these insurance administrators are there to cherry pick, to deny and to restrict care.

Also, we've linked our health insurance to employment, and that leaves us in the most insecure position because when a person becomes ill, if they are unable to work, they lose their job and then they have nothing. They have not access to care, no treatment.

Also, because people will lose their insurance if they change jobs, they won't change jobs. People are now getting married for health insurance.


DR. FLOWERS: I mean it's perverse; it's crazy. And so now doctors are spending about -- with all this, you know, health insurance model, we're spending up to a third of our time on paperwork and telephone calls to get authorization.

What makes it a little crazy is if you think about it, a doctor writes a prescription for medication, right? They hand that to the patient and the patient takes it to the pharmacist, and then the doctor gets a call from the pharmacist: You have to call the insurance company and get authorization for this patient to have this medicine. Well, doesn't the patient serve as authorization? Didn't they make that decision --

SEN. SANDERS: Dr. Flowers, I have a limited time and I want to --

DR. FLOWERS: But I'm sorry. Okay, well, anyway, so it's because we don't have coordination. It's not comprehensive. We're wasting our money.

SEN. SANDERS: Well, I want to ask Mr. Williams -- he's sitting right next to you.


SEN. SANDERS: And I want to ask you, sir, what do you think about the appropriateness and morality of private insurance companies denying people coverage because of preexisting conditions? A woman has breast cancer three years ago -- clearly that's what's on her mind -- and yet there are many insurance companies -- I don't know about Aetna -- who deny her insurance. My understanding is that in some cases pregnancy is a pre-existing condition not to be covered. What sense does that make?

MR. WILLIAMS: I would say, Senator, that in 2005 I called for the insurance industry to guarantee issue insurance to all comers. In order to assure affordability that requires that everyone be in the insurance market. In states where --


MR. WILLIAMS: Well, you asked me a question --

(Cross talk.)

SEN. SANDERS: I know, but I have a limited amount of time. I asked you a simple question.

MR. WILLIAMS: And you don't want the answer.

SEN. SANDERS: The morality or the appropriateness of denying coverage to somebody because of a preexisting condition. That's what goes on today, not what you called for three years ago.

MR. WILLIAMS: Senator, I am personally, and as an organization, in support of issuing insurance to everyone without a preexisting condition. If there is another answer you would like me to give, then just tell me. I'd like to give it.

SEN. SANDERS: That's great, but does that exist today? I'm glad that you believe that, but that reality of denying people coverage to preexisting conditions exists all over the industry today, does it not?

MR. WILLIAMS: The answer to your question, Senator, is in many states, based on state laws and regulations, and the 60 different entities that regulate the industry, there are many states where health status is a basis for issuing health insurance. That is correct.

SEN. SANDERS: Let me ask you this, Mr. Williams. There are 1,300 -- as I understand it -- separate private health insurance companies in this country, providing thousands of different plans, and at a time when we have a desperate need for primary health care, doctors and dentists and other health care professionals, in the last 30 years, the number of administrative personnel -- that's the bill collectors, that's the bureaucrats that work for private health insurance companies -- has grown by a rate of 25 times greater than the number of physicians in the United States of America.

Do you think it makes sense that we are seeing a rate of increase by 25 times of healthcare bureaucrats who do not deliver one baby, do not care for one cancer patient, just shuffle paper, driving people crazy about their bills? Do you think that makes sense if we're trying to move toward a cost-effective health insurance program?

MR. WILLIAMS: Well, Senator, what I can tell you is what I know about Aetna, which is 20 percent of the staff who work in our company are clinical personnel who are involved in trying to make certain that our patients who have chronic conditions are identified, that they understand the condition that they have, that they're getting the opportunity to make certain they can have a good, constructive dialogue with their physician.

I don't know your numbers.

I certainly can't speak to them. I --

SEN. SANDERS: A dialogue with their physicians. That sounds to me what Dr. Flowers was saying, that she prescribes a drug and some bureaucrat working for an insurance company tells her that that's not the right drug. Is that the dialogue we're talking about?

MR. WILLIAMS: No, Senator. We'd be glad to have you visit and explain what we do and how we do it.

SEN. SANDERS: How do you feel -- I mean, everybody here, regardless of political persuasion, is worried about the soaring costs of health care. My understanding is that in California, one out of every three dollars in health care goes to administration and bureaucracy. Does this sound like a sensible system to you?

MR. WILLIAMS: Senator, I would find that hard to believe as a fact, personally.

SEN. SANDERS: You would?

MR. WILLIAMS: Yes. I think --

SEN. SANDERS: All right, then we will get --

MR. WILLIAMS: -- our administrative rate of expense is 11 percent.

SEN. SANDERS: We will get those -- well, it's not only you; it's the people at the other end. There was a study that came out recently that doctors spent two weeks a year arguing with insurance companies about forms of therapy. That's an administrative expense. Nurses, every small practice in America has to have somebody who does nothing else but fill out forms. All of that adds up, so I think the number of one-third may well be appropriate.

MR. WILLIAMS: Senator, if that's true, I'd love to see it. But what I would say is that whatever we're spending, it's too much. There is -- and I think the industry has worked very hard and has a whole series of comprehensive proposals that are designed to significantly enhance administrative expense.

(Cross talk.)

SEN. SANDERS: Thank you. My last question is for Dr. Rosman. A recent poll came out, done by the Kaiser Family Foundation, which said that 67 percent of Americans either strongly favor or somewhat favor a public health insurance option similar to Medicare to compete with private health insurance plans.

Why do you think two-thirds of the American people want to see, at the very least, a Medicare-type plan for all Americans yet the AMA does not think it's a good idea?

DR. ROSMAN: Senator, I don't think I can speak to those individuals' reasons, but I can tell you the reasons for the AMA's concern are based on the history of Medicare and Medicaid, our public insurance options.

SEN. SANDERS: But Medicare is a much more popular program than Aetna is, with all due respect.


DR. ROSMAN: I would absolutely agree that we need insurance market reforms so that we have uniform standards so that there are high-risk pools so that people can renew their insurance, even if they develop a health condition. We absolutely agree with those market reforms.

We are concerned with a Medicare-based public plan option because reimbursements aren't high enough that physicians can keep their offices open. We see -- my adult colleagues see patients day after day who can't get in to a primary care physician. Nobody is accepting their Medicare and they can't find a primary care --

SEN. SANDERS: I think we agree that we need to take a hard look at reimbursement rates.


SEN. SANDERS: Thank you very much, Mr. Chairman.

SEN. DODD: Thank you, Senator, very much. Senator Alexander.

SENATOR LAMAR ALEXANDER (R-TN): Thank you, Mr. Chairman.

Mr. Burd, one of the -- as we've talked in the committee, one area where we have great consensus is in the importance of prevention and wellness, and we, on the Republican and the Democratic side, have heard from you about what Safeway has done.

We received confirmation today that the Kennedy proposal we're considering would get rid of the 20 percent premium variation in the HIPPA regulation that allows employers like Safeway more flexibility to incent healthy behaviors. Can you tell us what this would do to your efforts to incent healthy behaviors among employees of Safeway?

MR. BURD: Let me start my answer by thanking a staff member back in the Bay area that quantified that number for me. (Chuckles.) It would raise our costs $27 million if we were just prevented from doing what we did right now, and I think it would have a fundamental effect on the ability to improve the health of our employees.

I really believe that without financial incentives, you have no chance of changing the behavior of Americans to lead a healthier lifestyle. That's how strongly I feel about it.

SEN. ALEXANDER: And, just to review, in your company. if you could in three sentences just summarize what you've accomplished so far -- the number of employees, the savings in the dollars?

MR. BURD: Yeah, we have 200,000 employees; 28,000 of them are on this particular plan because it's an opt-in plan. Most of the incentives that we've applied -- but not all -- are focused on the non-union population; the union population, about 170,000.

We're probably about 30 percent of the way through getting those incentives placed in the union contracts. And I believe, given my discussion with Joe Hansen of the UFCW and other union leaders that they are eager to --

SEN. ALEXANDER: And, if I may, because time is limited -- and you've saved how much money?

MR. BURD: Well, let's see, it's 38 percent -- about $60 million.

SEN. ALEXANDER: And the results in terms of healthiness among the employees?

MR. BURD: Obesity, 70 percent of the nation; smoking rate, 70 percent of the nation, and declining virtually every day.

SEN. ALEXANDER: But your testimony at other times you've been here is to say rather than get rid of the flexibility you now have to reward healthy behaviors by incentives, you'd like to have more flexibility. Is that not right?

MR. BURD: We would like more flexibility, and that translates into more personal responsibility for behavior.

SEN. ALEXANDER: And how much more flexibility would be helpful to you?

MR. BURD: You know, given the fact that a smoker costs $1,400 or more, obesity costs $800 or more, hypertension costs $600 or more, you could -- not to mention high levels of cholesterol, you could -- if you have two family members -- and you could have more with dependents; next year we'll measure BMI for dependents -- you could easily reach a number close to $5,000, which would be closer to a 50- percent premium.

SEN. ALEXANDER: Thank you, Mr. Burd.

MR. BURD: Senator, if I could just ask you -- I have a board meeting in five minutes and an airplane to catch after that -- I'm enjoying the discussion and I hate to walk away, but I would appreciate if maybe I could be excused.

SEN. DODD: Yeah, we'll let you go.

SEN. ALEXANDER: I'd like to be able to ask the rest of my questions after he -- after you --

MR. BURD: And we have no preexisting conditions at Safeway for 200,000 people.

SEN. DODD: For my other colleagues here who haven't had a chance, we'll leave the record open so we can submit some answers to their questions as well.

MR. BURD: All right. And I'll be happy to send you some thoughts that you asked about at the beginning.

SEN. DODD: We would appreciate any data and statistics which you think would be helpful to the committee as well.

MR. BURD: We'll do it.

SEN. DODD: We appreciate it very much.

MR. BURD: All right, thank you very much.

SEN. ALEXANDER: Can I take a couple more minutes, Mr. Chairman?

SEN. DODD: Sure. Go ahead.

SEN. ALEXANDER: Mr. Chairman, I'd like to address a question to Dr. Ray Scheppach, who has been with the National Governors Association for a long time.

Governors have seen firsthand the burden that Medicaid causes. I mean, the fact of the matter is that it's completely out of control and is the main factor, in my view, in terms of bankrupting the states, that it is filled with consent decrees, delays in efficiencies, that the rates of reimbursement for doctors are so low that many Medicaid patients aren't properly served, and that the costs are literally out of control for states because continuously changes in federal policy imposes new burdens on states.

One of the results is the dramatic deterioration of the American public university, and Senator Mikulski and I are writing a letter to the National Academies to ask them to take a look at the condition of our research universities and our great universities like the University of California, as an example, are suffering greatly from lack of state support.

But what I'm getting to is this: I got some information today from the governor of Tennessee about what the effect of 150 percent of -- expansion of Medicaid to 150 percent would mean for our state. If our state picked up its share of the cost, which is about a third, it would be nearly $600 million, according to our state.

That would be equal to imposing a new state income tax of about 5 percent on the people of Tennessee. We don't know where we'd get that money. If the federal government were to pick it all up, the cost to the federal government of just Tennessee's would be $1.6 billion unless the bill also requires reimbursing physicians at 110 percent of Medicare, and then the costs would be even higher.

That would suggest that the cost overall of taking Medicaid to 150 percent to states is going to cost somebody -- either the federal government or the state governments -- 4 (hundred billion dollars), 5 (hundred billion dollars), $600 billion over the next 10 years.

I wonder if you would want to want to comment about your view is of increasing the Medicaid expansion to 150 percent of Medicaid, and whether you believe that the federal government will actually pick that up or whether it's likely to shift the costs back on the states within a few years.

MR. SCHEPPACH: Well, as you know, Senator, the rate of growth of Medicaid since it came into place has been about 11 percent per year. State revenues have probably grown 5.9 percent per year. And, as you indicate, the reimbursement rates for the average state is about 72 percent, but some of the big states -- California and New York, New Jersey, are less than 50 percent. So there is clearly great concern when you essentially bring in another 46 million people of whether in fact reimbursement rates are going to have to go up to the Medicare rates or even in fact higher than that. And in fact, it's that increase in reimbursement rates on the base that's actually more expensive than the expansion is. But if you go up to 150 percent of poverty, you're talking about bringing in an additional 18 million additions taking Medicaid from 58 million about 75, 76 million.

Our preliminary estimates are that this could cost, depending upon your assumption, 50 to 60 billion a year in terms of the state share. To give you a sense of that, that's about 10 percent of general state revenues, and both of the bills of course essentially do a temporary pick up of that expansion for about five years --

SEN. ALEXANDER: Excuse me, you said 50 or $60 billion a year of the state --

MR. SCHEPPACH: The state care --

SEN. ALEXANDER: Would be increase in the state share of Medicare if we go to 150 percent. So over 10 years, that's 500 and $600 billion.

MR. SCHEPPACH: That's right. That's a very preliminary number.

SEN. ALEXANDER: Just in the states' share. And that's typically about a third, right?

MR. SCHEPPACH: It's probably about 42 percent.

SEN. ALEXANDER: About 40 percent. So the other 60 percent is going to be paid by the federal government.

MR. SCHEPPACH: That's right.

SEN. ALEXANDER: And if your figures are right, and it's going to cost five or $600 billion to the state, and that's just 42 percent, then you've got six or $700 billion federal, so we've already got a Kennedy bill that will cost $1.2 trillion just with that one provision.

MR. SCHEPPACH: Significant.

SEN. ALEXANDER: Thank you. (Inaudible, off mike.)

SEN. DODD: Thank you. Senator Casey.

SENATOR ROBERT P. CASEY (D-PA): Mr. Chairman, thank you very much. I want to thank the panel for being here.

We've missed the topic here. We haven't said much about children. I realize the next panel is going to deal more with that. But here's the reality that we face with regard to children. Unless we get this right -- this committee has done incredible things for children in this bill, and I want to commend, especially Senator Dodd because he's got a long record on this as do others. But unless we get this right in this committee, but more directly and more -- in a more determinative way in the finance committee -- and I favor the lifting of Medicare to 150 percent of poverty, but even just by doing that, we could put some poor children and children with special needs at risk.

I think the rule ought to be here -- not just a goal, not just a nice thing to do, not just an aspiration, the rule ought to be here four words when it comes to poor kids and kids with special needs: no kid worse off. No kid worse off. If we fail at that, I think we've failed in very large measure. That's just my opinion.

I wanted to get into this question of Medicaid for a second. Let me just -- I want to read something as part of the record.

This is a finance committee document, but I do want to make sure it's clear here in terms of what states -- because I realize governors are wrestling with this, and it's a very tough problem for governors. So here's the proposed option with regard to what is called Medicaid program payments. It's in that section what they're talking about.

"Through 2015, the federal government would fully finance all expenditures for benefits provided to individuals, newly eligible for Medicaid as a result of increases in income eligibility." And then it goes the other way, all right. "The states' share of these costs would be phased in over the next five-year period." And then it goes on to say, "After this phase-in period, the state's share of this cost would be equal." And little by little the state would have to continue to pay at a level. So I understand your concern about at some point down the road states may pay more under this option, which is not -- it's not in the bill, it's not law; it's an option.

But the question I have for the governors, the question I have for the AMA doctor -- and I know you have great experience with children -- and the question I also have for anyone else -- but Dr. Gruber spoke to this -- Dr. Gruber, you said on page five of your testimony, dropping the Medicaid expansion and rolling individuals in the exchange would, in my view, be a mistake. So I ask all of you, what about kids in this bill, in this bill and in the finance committee bill?

MR. SCHEPPACH: The finance committee bill I think takes them up I think to like 150 percent for women and children and leaves them essentially in Medicaid so that they get the wraparound and robust benefit packages. The bigger issue in Medicaid is what do you with childless adults, I think, and parents. I suspect parents it's better to keep in the same program with children because evidence indicates that they then go see the doctor -- bigger question about childless adults of whether they should stay in Medicaid or whether they should go into an exchange or a gateway.

I think the big issue there is we're fine if they stay in Medicaid, but I think in this bill they had the option, the individual had the option to go out of Medicaid and go into the gateway. If they bring the wraparound benefit with them into the exchange, that's just ministratively more difficult. It's not so streamline and it's probably more expensive. So it's probably better, excuse me, to leave those populations in Medicaid -- maybe not allow that option. If there are healthier components of that that want to go into the exchange, you may want to offer them to it, but it may be that they give up the wraparound package.

SEN. CASEY: Dr. Gruber.

DR. GRUBER: Yes, I think I would strongly advocate -- I don't know what the right number is -- 150 percent of poverty, or 125 percent of poverty or what it is, but I'd strongly advocate that the lowest-income people, both existing eligible populations and newly eligible populations, like childless adults, I strongly advocate they stay in Medicaid and be made eligible for Medicaid, and I'd say that for three reasons.

First of all, Medicaid is a more cost-effective option for these low-income populations than is private health insurance, largely because Medicaid pays providers less, but nonetheless, it's a more cost-effective option. Second of all, I think the evidence suggests the erosion (?) of employer-sponsored insurance will be smaller if the option is Medicaid, which people of employer-sponsored insurance are sort of averse to, versus a private exchange, which they may find more attractive and be willing to leave their employer-sponsored insurance for. So I think if people below poverty are put in an exchange that will increase the erosion (?) of employer-sponsored insurance.

And finally, the main advantage of the exchange is the ability to shop across options, and that relies on financial incentives. These low-income people, we can't put in financial incentive for them. They can afford to pay a differential for more expensive plan. So we lose the main advantage of an exchange. If there's no real financial incentive to shop, why put them in exchange? Why not just put them in Medicaid?

SEN. CASEY: And Dr. Rosman, I know that on the next panel we'll have Dr. Palfrey, from the American Academy of Pediatrics. But just in terms of -- among others I should say that will be on that panel -- but just in terms of the AMA, how do you answer the question, the strategy to make sure that this healthcare reform legislation leave no kid worse, off, and especially poor and kids with special needs?

DR. ROSMAN: Yeah, thank you. We absolutely agree that we don't want to leave any children worse off, and in fact hope that we can improve their situation. We believe that maintaining a safety net is very important as we go forward with these insurance options. We need to maintain that safety net, maintain access to preventive care, maintain a safety net for families and children that may not be eligible or able to effectively utilize an insurance exchange or purchase into those pools. And so we absolutely support greater equity within Medicaid, a uniform standard at poverty level at least for coverage. And I will leave it at that.

SEN. CASEY: Thank you. And let me -- I know I'm out of time. I think I'm out of time. But I'd say this with respect: I think the AMA should raise its voice on this. We need to hear what you just said more than just in response to a question. Thank you.

SEN. CASEY: Anybody else?

SEN. DODD: Yeah, Gerry, go ahead.

DR. FLOWERS: Can I respond?

MR. SHEA: Thank you. Senator, I know your question was about Medicaid, and we strongly support the strengthening of Medicaid along the lines as being discussed. But I just wanted to make the point that the loss -- the increase of the uninsured has come largely among the working population, and the biggest increase among the uninsured has been among children of people who are working. And so one of the reasons that we strongly support the idea that all employers are to participate and offer, is that that is just the most direct way to get children covered in terms of turning back this tide. So I just think that just has to be in the mix.

DR. FLOWERS: If I could --

SEN. DODD: Doctor?

DR. FLOWERS: -- comment. Thank you. The fastest-growing population of uninsured is that 300 to 500 percent of federal poverty level who can't afford private insurance but don't fall into the safety net categories. And Medicaid, while I understand it's valuable to pediatricians, in our state of Maryland, which is one of the wealthiest states, we're ranked 47th in the country for quality under Medicaid.

So I see that as -- there's a quote we often use is that a program for the poor is a poor program. And when you look at a national health system based on single pair financing, the key words to that are everybody in, nobody out. Nobody is left out. From the time that you're born until the time you die, you have access to health care, no cracks to fall through, no gaps.

And it's fiscally responsible because if we were take all of our healthcare dollars right now and put them towards health care with a very low administrative cost and bargain with pharmaceutical companies, we can actually provide very high-quality care to every person in this country. So I think that rather than tinkering around again, if we could really just go ahead and create a national health system, we would solve all of these problems. Thank you.

SEN. CASEY: Mr. Chairman, I know I'm out of time, but I do want to say, Mr. Rivera -- it's not a question, but I know your workforce -- we're going to be talking about workforce tonight, later tonight -- your workforce, your members have done great work in training -- or providing the kind of ground troops for the healthcare delivery system. We appreciate the work that you've done and your members.

MR. RIVERA: Thank you so much.

MR. PACH; Senator, could I just add one -- just the fiscal realities -- earlier this week, I announced based on a survey of states what the shortfalls are over the next three years. It's over $180 billion, and states are now recommending from their own tax base about $26 billion to raise taxes to close gaps. And this is after the 135 billion that was in the recovery package.

And I suspect that they're going to have to raise them more than that. And so when you begin to implement this particular program from the state perspective, they will have just closed three years of gaps of over 10 percent primarily now because they have been cutting so much on the spending side over the last two years, it's primarily going to come on the tax side. So you just need to understand that if in fact this -- you're only going to cover this for five years and phase it out, it's going to be a huge burden for states.

SEN. CASEY: No, and I appreciate that. Look, states have a very difficult problem. But what I hear around Washington there's no money for this, there's no money for that, somehow, the last administration figured out a way to give a couple hundred billion -- I don't know the exact number; I'll get it, but -- a couple hundred billion to the top 1 percent -- somehow they found it, okay. There's -- there are plenty of resources out there when you can find a couple hundred billion over eight years for not to the top 2 percent, or 5 percent, 1 percent. So I hope the governors would, when they're making suggestions to policy- makers in Washington, they say, how about that tax plan you had for eight years for a pretty wealthy group of people. Thank you.

SEN. DODD: Thank you, Senator. Senator Merkley.

SENATOR JEFF MERKLEY (D-OR): Thank you very much, Mr. Chair. Because we have another panel coming, I'm going to try to hold myself -- just two questions here. The first is, I wanted to -- sometimes I feel like we lose kind of commonsense along the way. And I'll give you an example of what I'm talking about. The numbers that Steve Burd shared with us were that four chronic conditions comprise 74 percent of healthcare costs, those being heart disease, cancer, diabetes, and obesity.

And indeed, my brother-in-law was in town this week. He's an occupational therapist, has worked the last 20 years with medical facilities throughout Sioux Falls, he said, you know, Jeff, I recently was walking around the hospital, and I went to the heart center and then to the pulmonary center, and then I was -- because he deals with occupational therapy to the amputation center, he said, you know, everywhere I went in the hospital, I saw obesity and diabetes, and whether -- no matter what part of the hospital I was in.

And yet, just a couple of the commonsense things I'm talking about, right now tobacco industry is test marketing tobacco candy in Portland, Oregon, intended to hook a whole new generation on tobacco. Well, that's a huge factor for cancer, which is one of those four conditions costing 74 percent of healthcare costs. A lot of practitioners have talked about the value of breastfeeding, and getting children off to a good start, that it reduces -- it provides immunity, provides molecules that are very relevant to the development of the brain, provides bonding, and yet we haven't done basic workforce efforts -- some states have, but we haven't at the national level -- to facilitate breastfeeding for moms who go back to work.

These are just a couple of examples. I just wonder if anyone would like to comment on that. I know we're involved in the financial models, but what about kind of the commonsense side of some of the things we can do to take on these four chronic conditions?

MR. WILLIAMS: I think one of the things that we have to do and that we're working on is early identification and prevention. For example, for children, we're seeing diabetes that's occurring -- it used to be referred to as adult onset, which it's no longer referred to. But what we're beginning to do is we're paying pediatricians to take the extra time to provide nutritional counseling and to be able to bring in a dietitian to work with the family in a culturally appropriate way because the dietician has to really understand the culture or the family to really help them.

And so I think there's a whole generation of what we call value- based benefit designs that looks at the circumstances of the individual and says you're a diabetic; you need a certain medication, beta blockers. And so in your case, instead of charging you the standard co-pay, we're going to reduce the co-pay and maybe we'll pay you to take the medication because it's that important to help you deal with your particular issues.

So I think there's a whole set of technology and a whole set of mind shift around really changing how we think about prevention and wellness much earlier in the process, because the people he saw in the hospital are the tip of the iceberg of what's coming as youth and children are really on the same trajectory. So I think those are things that I think we have an opportunity to do -- and help those people with basic health literacy so they understand their role in treating their condition, in terms of being compliant with their medication and really following their doctor's orders. Those would be a couple.


MR. SHEA: Senator, there's a -- you know, there are other countries that address this issue through basic public health programs. They're very cost-effective. You don't have -- you don't see the child obesity problem in a number of European countries with public health -- good public health systems because there is a concerted effort. It's not up to employers; it's not up to local school systems. There is a concerted effort as a nation to say this is a bad idea. We're going to teach moms when they are in their early child-bearing years about this and make that a value for the family.

So you're talking about this -- and I would just say, there are only baby steps being proposed in some of the legislation coming forward to -- in our -- the context of our system to get at some of these issues. But they're very important to look at. I would point out in Senate Finance, where they have -- they've looked at the readmissions issue and they've said we will pay extra for staff to follow up on hospital stays in order to cut down on this readmissions rate. This is a simple problem to solve, but it doesn't get solved if you simply hand the patient a piece of paper or the patient's relative a piece of paper even with a good talk as they go out the door and say good luck; don't forget to call your primary care physician.

We know that doesn't happen. It doesn't happen at least for a lot of populations. It is not expensive; in fact it is -- you save money if you have teams -- and the research on this is very clear -- you have teams that follow up people and identify these kinds of problems. You do medication management for many of these disease situations. We know how to solve these problems. We have to change the structures of our payment so that we're paying for quality treatment processes and teamwork processes as opposed to just individual practitioners -- this silo, that silo, the other silo. We know how to do it. And I think at least the initial steps are found in some of the legislation. I would encourage you to just push that as far as you can.

MS. PRAEGER: I just -- is this on now?

SEN. DODD: Why don't you introduce yourself too for the record so we know who's talking.

MS. PRAEGER: Sandy Praeger, the insurance commissioner in Kansas but representing also the National Association of Insurance Commissioners. And one issue that hasn't been talked about today -- it's been touched on, and I know it's something that Senator Roberts, if he were here would probably mention -- and that's the current payment structure for physicians really encourages -- well, first of all, they come out of med school with 140,000 in debt. So they're encouraged while they're in med school to pursue specialty care where they're going to be able to make more money. And the payment structure today, the fee-per-service medicine, encourages volume services rather than value services. And we want to be able to have primary care physicians encouraged to provide -- to take the time to do the counseling, to do the diet counseling. And the current payment mechanism just doesn't allow for that to happen. So that's part of the reform that needs to be included.

SEN. MERKLEY: I think there was a couple of other folks who wanted to chime in here.

MR. RIVERA: I just wanted to say before in the exchange with Senator McCain, I wanted to reiterate Dr. Baicker and myself, we're part of a group that one of your former colleagues, Senator Frist, participated too with the Robert B. Johnson Foundation. For two years, we did a study all across the country about what were the behaviors that absence of medical care that influence the care of people in the United States.

And we would love to submit that report to you.

SEN. DODD: Please do.

MR. RIVERA: Because clearly we have not done a good job of circulating it. And basically, that report has very concrete recommendations about changing and creating a new national culture of health and delve in the schools, in the jobs, in the communities, basically in almost in every -- in the workplace, in every -- in almost every place in our society. And I believe if we don't do that, we are not going to get to the bottom of it.

MR. MERKLEY: And Mr. Johnson, did you want to chime in?

MR. JOHNSON: Yes, sir, just that we are very -- at the U.S. Chamber, into wellness prevention programs, including trying to provide toolkits to our smaller- and mid-sized companies in terms of how to construct wellness programs on a voluntary basis. But I just -- I've always been curious as to why all of these bills pending in the Congress or about to be introduced haven't included funding for a public education campaign, frankly, along the lines that John F. Kennedy had in terms of educating people on the importance of physical fitness, et cetera. It may sound a little anachronistic or old- fashioned, but that's what wellness and prevention is all about.

And Senator Harkin has his bill with tax credits, which we support, but, again -- and the other speakers have commented on this -- but let's get back to basics in reminding people about the importance of certain fundamentals of keeping themselves healthy. And that has not been part of these -- well, maybe it's in there and I've missed it, but it has not been part of the various bills Congress seems to be looking at.

SEN. MERKLEY: I'll just wrap up by saying that I appreciate you pointing these things out, the fact that a dietician can be as important as a heart surgeon, that a social worker working to prevent a readmission, a second heart attack or whatever, might be as important as the medical care inside the hospital, and thank you all for your insights and comments. I appreciate that.

SEN. DODD: Thank you, Senator, very much. Just a couple of observations -- you've all been very, very patient, and very valuable your comments as well. And one -- Dennis we'd like to get -- that's a good report. Here I'm asking for your reports. I was going to recommend -- maybe you've looked at it -- all of you have looked at it, but I was very impressed with an article written by Dr. Gawande -- I think it's this week's addition of The New Yorker. I'm not here to promote a magazine, but it's, I found, a very -- a group of us went down and met with the president of the United States to talk about health care back -- what was that, Jeff, a week or so ago, I think. And I brought up the article, but before I could, the president had already read it, and the article as well.

And it goes to the issue of cost. And if you haven't read it, you will read it. But the point is it looked at one of the poorest counties in the United States, Hidalgo County in Texas, and particularly McAllen, Texas, and the cost per patient there was about $16,000 a year, as I recall in the article. And they compared that with the cost in El Paso, Texas, where there was not a substantial difference in poverty levels, and then compared that with Northern Minnesota, where the Mayo Clinic is, which is about a third of the cost.

And instead -- the assumption you might draw immediately -- well, of course, if you have a very poor area, obviously the cost would be more, and given the poorest county in the country, that's the reason the costs were more. That was not the reason the costs were more. It was the number of tests, exams, all of these other things that were being conducted in Hildago County that drove up that cost, more so than did in El Paso.

Anyway, it was an interesting article. The Institute of Medicine came out I think this week or so and talked about a third of the savings could occur just by reducing the number of unnecessary tests, exams, and the like that are being performed driving costs up. So I -- obviously there are a lot of ways to save money, and I think Mr. Burd's comments I think are tremendously exciting. I know at our luncheon today, people were very impressed with the idea of what company -- one company in Connecticut, obviously the company of -- Pitney Bowes rather did with Mr. Critelli there is the CEO and did something very, very similar in driving down costs.

I wanted to raise the question because Senator McCain raised the issue of how do you pay for all of this. And that's a very legitimate question, and obviously we need to get these numbers. And Senator Alexander raised the cost of 150 percent on Medicaid what the cost would be. I mentioned at the outset of my remarks that we're talking about statistics that indicate we could be seeing as much as 30 or 34 percent of GDP be healthcare costs by the year 2040.

We know it's 17 percent -- I think today is the number that most people accept. We know that 60 percent or so -- the report the other day of bankruptcies related to healthcare problems that are afflicted people. We know that over 80 percent of growth -- and again I listened to Ron Williams talk about this -- but roughly the numbers of increased costs in healthcare have gone up that month in 10 years.

The question I wanted to sort of ask -- sort of a parting question: What if we do nothing? If these numbers are right and we don't do anything. And so while the costs of investing in these things and getting this right and bending that curb are not cheap, but my fear is that we'll end up so bogged down in all of this that we end up doing nothing once again. And I wanted to raise -- if there's anyone here who thinks that doing nothing is a better alternative than trying to come up with something here that would allow us to bend that curve? I begin with you --

DR. FLOWERS: I don't want to say that doing nothing is the wrong thing, but doing the wrong thing is the wrong thing because we are talking about regulating health insurance companies to make them act like social insurers is going to add costs. You're talking about creating an insurance exchange. That's going to add costs. We're operating under this belief that people want a choice of health insurance, but people don't know how to choose health insurance. They don't know what their healthcare needs are because they change.

So we have studies from the Congressional Budget Office, from the GAO, and in multiple studies at the state level by the Lewin Group and also Mathematica showing that creating a health system based on single-pair financing saves money, and it's the only one that saves money.

SEN. DODDS: Mr. Williams?

MR. WILLIAMS: Yeah. I think it's clear that doing nothing is unacceptable, that we have to find a way to get and keep everyone covered. I think at the same time, we need to sharpen our focus so that we are really focusing on the things that make the most important progress and in terms of having a much more inclusive system. I think the individual market represents a huge opportunity to bring everyone into that market without the need for health status. I think that the small group breaks into two components, that the smaller-end to small group, there's a huge opportunity to address the fundamental fact that small employers don't offer insurance.

In the larger end, it really is much more about rating volatility, meaning those companies between 10 and 50. Eighty percent of them offer insurance. Their big concern is they see a lot of volatility in the rates. I think the SHOP Act gives us a pretty solid foundation to be able to address that.

I think in terms of bending the curve, I think there are a lot of things to do. Every suggestion, every idea ultimately has to be implemented. It turns into real work in terms of how we really incent and align physicians to really focus on long-term outcomes. I think we've got some great models. And I commend this committee and other committees who are focused on it. So I think doing nothing is not an acceptable idea, but I think we have to recognize this is a big lift, and if we sharpen our focus on the things that make a big difference, we can get a lot done.

SEN. DODD: Dennis, do you want to comment on this at all?

MR. RIVERA: Yeah. Well, first of all, it's clear that -- and by the way, we had had a group which participated and -- (inaudible) -- the American Medical Association, pharma, the AHIP, and the American Hospital Association, and we clearly -- in those meetings that we have been having, the question was can we become more efficient in the way that we deliver care? And the reality is that we all have an agreement that we could become more effective.

And that's where it is.

If we spend 17.5 percent of the gross domestic product of this country, and are 40th in terms of outcome in the world, and we are spending 6, 7 percent more than Japan or Germany, so in that context, we believe that we could find a great chunk of those savings inside the healthcare system by basically becoming more efficient and challenging all of us who are -- as providers to basically become more efficient. And I think that's an important issue.

And I think that that same article that you talked about, the places that had the better outcome were the places that it was cheaper. So in that sense, it wasn't necessarily that the places that were higher, they were having better outcomes. They got better outcomes in the places that was cheaper.

SEN. DODD: You know, I was going to mention, by the way, I had met last week with the head of Starbucks and the head of Costco who have had rather interesting healthcare programs. And to pick up on something Senator Merkley was brining up, an issue of marketing these ideas and getting people aware, I was stunned to learn what a small percentage of people actually take advantage of the annual medical exams that are offered by -- the number I think nationally is very low. It's only like 5 or 6 percent of people who have that kind of coverage actually take advantage of the medical exam. Is that a reflection of the failure to market these ideas or promote these ideas? I mean, they're existing within a policy, and yet for some reason people are not taking advantage of it. What's the reason for that? Does anyone have an answer to that question? Dr. Gruber, do you have an answer to that question?

DR. GRUBER: Well, I think there's many things we know that have to be sold. They always say that life insurance is a push not a pull. You've got to sell life insurance. You've got sell wellness, I think financial. You've got to both have a carrot and a stick whether you're selling it, but also giving people financial incentives to take advantage of it.

I want to come back to your original question, which is the key question, which is the cost of doing nothing. I think it's very important to recognize that the cost of covering every single American with health insurance is less than one year's growth in our national health bill. These are two -- problems of two totally different magnitudes. The problem of cost control just dwarfs the problem of coverage in terms of its magnitude. So for those who would say we can't spend less than one year's growth to cover people till we reign in this entire system, I just think that's inappropriate, and in fact I think it's the wrong way to think about it.

The right way to think about it is by covering everyone, we'll move closer to that day when we can rein in costs. And we've seen that in Massachusetts, where once we had covered everyone with health insurance, then we got much more serious about cost control and passed a much more serious cost control bill in our state.

So I think to say that we have to hold coverage hostage to cost control is to say we're going to hold this small piece hostage to this enormous piece. That's the wrong way to think about it. And I think we have to get costs under control, but doing coverage first is just a blip on that radar.

SEN. DODD: Yeah. Yes -- (inaudible, off mike).

MR. SHEA: Senator, your question on the physicals, we know that people don't take advantage of a lot of the opportunities they have to understand their health status and then to act on that health status. We also know that integrated health systems do a good job in many cases, not all -- but do a good job about dealing with that. And we now are developing models that don't require you to be part of a HMO or a Kaiser, but talk about bundled payments. And the example I gave before about follow-up care for admissions, the medical home notion -- these are all ideas that we need to not simply have a physician that -- you get a physician and then you go see the physician, and it's up to you to go back to see the -- but it's a more holistic -- somebody used the phrase earlier.

But on the general question, you know, we see -- that is, our unions who bargain benefits -- see every day the effects of high health costs. We're bleeding this system to death financially is what's going on. We're losing health care. We're also losing good jobs as a result. I mean, this -- we're just lowing the living standards of people because of our political lack of will to tackle this. So the -- I think the reasons to do this are evident and they're overwhelming based on our experience.

And let me just say lastly, you know, I know you're going to be working on your legislation quite a bit, and as I said at the beginning, if I had my druthers you'd be doing a different piece of legislation, and other people in this panel have said similar kinds of things. But I think what you've done is a very good strong start. You put a number of pieces together. You've built on what is working out there in many cases, and you've said, let's take the next step forward. That's the way we're going to get this done. I mean, I wish it could be different, but that's the way we're going to get this done.

I would just urge you to move ahead along the lines that you've done and strengthen what you do and not simply -- you know, don't take the criticisms too hard. You have a medical advisory council in there. People in the public health world have been saying for years, we need experts to say here's the kind of basic benefits that people have. Here's the protocols that people need to do. This isn't government control, as some people are now trying to criticize you for. These are just sensible kinds of approaches.

So I think you've put a lot of things in there that are good. We'd urge you to continue. I've spoken of some of the things that we think should be added to your package, but I would really thank you for the immense good start that you've made.

SEN. DODD: Thank you much.

First on this end. Ms. Mary, and then I'll go to you.

MS. ANDRUS: I wanted to go back to your question about whether or not doing nothing was an option. And I just wanted to point out from the perspective of people with disabilities in the way the current system works, it's not uncommon at all that they have to impoverish themselves and get into Medicaid to get the kind of care that they actually need. With the kind of proposals we're talking about in the Kennedy legislation and as well as the finance product as well, those kinds of changes can really make a difference to how those lives are lived in terms of being able to be in a work setting, be in their homes, be in their own communities. So from our perspective, moving forward, making change, opening those doors is really key to the future for a large number of people where doing nothing will either freeze them or pull them down, one or the other.

SEN. DODD: Yes, Mr. --

MR. DENNIS: For over 20 years, we've seen that the cost of health insurance has been the single-most important problem among small employers, for over 20 years. We can't go much longer and still have it happen. Meanwhile, while this problem has been going on of course fewer and fewer and fewer employers, particularly small employers are establishing health insurance plans. We think it's essentially people who are coming into the market, new employers that are postponing it longer and longer and longer, more so than people dropping it. But in any event, this can't go on forever.

SEN. DODD: Well, me just say that we need you as well. This is a very complex -- I don't know of another issue that we've grappled with as complex as this, and one that deserves our undivided attention. And the majority leader and others are determined that we go forward. But we really need you. Having heard all of you, basically I don't hear any dissenting voices that the status quo is acceptable. Our job here is then not to let that become the outcome. We need to get this right. And so we need your involvement and your participation if we're going to do this. And I know Senator Enzi is determined to do it; Senator Kennedy is certainly in his place. I'm going to do everything I can as well to keep this together.

We'll leave here. We begin again at 6:30 for another two or three hours tonight as just people sitting around the table, as colleagues to talk through this, and where we are, and how we can move this forward. And again, in the next week as we begin -- and then a process of moving forward, my experience is unless you have something on the table, it just becomes a lot of talk. We need to get beyond the talking stage of this. So I really appreciate -- you've been here for three hours. That's a long time to be sitting here in a large panel where you all didn't get to participate as much as you might at times. I'm very grateful to all of you.

I want to say to my colleagues as well, I want to say to Bob Casey who's taken a tremendous interest in children's issues, and I'm very grateful to him. I've worked on those issues for a long time. I saw a study the other day, by the way, on obesity, since that's one of the four areas that identified -- and I don't know whether Dr. Rosman, you've seen this, or you, doctor, as well, but there's some correlation between -- I wrote the legislation with Lamar Alexander on premature births in the last congress.

And now there's some study that's indicating that actually premature -- the relationship between premature births and obesity may be a direct correlation. And I would -- maybe that would be something worthwhile to look at here as well because maternal care is something I hope we're really going to get engaged in in this process because, again, the point that you've made, Doctor, and others, that Bob Casey made and Jeff Merkley made, that idea of that earliest stages of being involved. And I appreciate, Mr. Williams, your comments about those issues as well coming from a private carrier how important that is as well.

I don't know if my two colleagues have any closing comments you want to make or any additional questions. If not, we'll leave the record open. This has been tremendously valuable, and I want you to know that. And in Senator Kennedy's name, I think you. The committee stands adjourned. We're going to have the second panel tomorrow morning.

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