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Panel I Of A Hearing Of The Health Subcommittee Of The House Energy And Commerce Committee - Comprehensive Health Care Reform

Chaired By: Rep. Frank Pallone (D-NJ)

Witnesses: Richard Kirsch, National Campaign Manager, Health Care For America Now; Ralph Neas, Chief Executive Officer, National Coalition On Health Care; Stephen Parente, Ph.D., Director, Medical Industry Leadership Institute;

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REP. PALLONE: The hearing of the Health Subcommittee is called to order. And I'll start by recognizing myself for an opening statement.

Today we are meeting to examine a discussion draft on comprehensive health reform. The committee will also convene to receive testimony tomorrow and Thursday. In addition, the full committee will meet tomorrow morning to hear from the secretary of Health and Human Services, Kathleen Sebelius.

Comprehensive health reform is a goal that has eluded reformers, Democrats and Republican alike, for over a century. As a result, the problems that plague our health care system have continued to grow worse. The ranks of the uninsured continue to swell. The cost of insurance and medical care continues to skyrocket. The quality of care delivered becomes more and more erratic.

After years of failing to address these problems, we find ourselves in a situation where our broken health care system is a clear and present danger, in my opinion, to the economic health of this nation. Government budgets are being overrun by the mounting costs of health care crowding out funding for other key services. American businesses are disadvantaged as they try to compete in the global marketplace and American families are being driven into bankruptcy by ballooning medical debt or forgoing critical care altogether.

President Obama understands that these problems require urgent action, which is why he has called upon Congress to pass comprehensive health reform legislation this year.

And health reform is an issue that generates great interest and controversy. That, certainly, we know. And while we may not all yet agree on a common solution, I think we also know that we can't let this opportunity pass us by. Maintaining the status quo and allowing these problems to continue to fester is no longer an option, nor can we simply resign ourselves to making marginal improvements, as we've done in the past.

The time has come for comprehensive reform, and the discussion draft we are reviewing this week is a starting point for that debate. The discussion draft envisions a world where every American family has access to affordable and quality health coverage. Those who are currently unable to access coverage through our public programs, employers or the individual market will now be able to do so through a reformed insurance marketplace that guarantees access, quality and affordability. People who already have health coverage will be able to keep their coverage and their choice of doctors.

But health reform isn't just about improving coverage and access. It's also about improving the public health. Too many people are suffering from preventable illnesses and conditions such as cardiovascular disease, respiratory diseases and obesity-related illnesses. Accordingly, we must change the way we think about medical treatment by focusing on preventative care as well as the quality of care being given. And this discussion draft aims to do just that.

There are a lot of other important details about the discussion draft that I'm not mentioning which I hope will be explored over the course of the next three days. I just want to speak directly to those who will stand in opposition to our efforts. For those who have legitimate concerns with the draft, I simply urge you to talk to us about your ideas. We want to work with those of you who are truly interested in being constructive participants in enacting health reform this year. But for those that stand in opposition simply for opposition's sake, I urge you to rethink your position. After a century of inaction, the American people want to see change. They want to see health reform enacted, and we intend to deliver it to them.

Thank you.

And now I'll yield to our ranking member for the day, the gentleman from Texas, Mr. Burgess.

REP. MICHAEL BURGESS (R-TX): Thank you, Mr. Chairman.

You know, it seems like I've been waiting my entire career for just this time. I gave up a 25-year medical practice to run for Congress, and I didn't do so to sit on the sidelines with really what could be the biggest change in our system since the enactment of Medicare almost 45 years ago. And here we are, this morning, calling up 10 panels to walk us through a legislative proposal released late last week. And it's pretty skimpy on some of the details.

Now, I recognize what a draft is. And I understand that a draft means everything is not completed. But for a draft that mentions "fee" 54 times, "tax" 58 times and "penalty" 98 times, isn't it odd that we have nothing as pertains to financing of this legislation? So, Mr. Chairman, will we have a legislative hearing on the actual bill that this committee might mark up when that bill becomes available?

You know, I feel like we ought to emphasize the "care" part of health care, and this debate continues to be defined by two words, "cost" and "coverage." Yet we need to know how many people will be covered under this proposal or how much it will cost or how we're going to pay for it. Mr. Chairman, will you commit that we will at least have a CBO score on the bill that we will mark up, since we do not have one on this bill?

Now, even if the CBO were here to testify, which they're not, will they be able to tell us how much this bill will cost in the out years? Every change in the tax code, every cut in spending to achieve savings only gets us out 10 years. From there on out, it will mean Congress will be finding -- having to find tens of billions of dollars a year to keep whatever program we enact -- to keep that going.

And most importantly, as I've said, coverage does not equal access. What does this bill do for patients? What does this bill do to ensure that we'll have an adequate supply of physicians?

Now, Mr. Chairman, the president said in his break-outs -- after one of the break-out sessions last March that he just wanted to find out what works. He said it again at the American Medical Association last week. I applaud him for having an open mind. I wish this committee -- I wish this committee had the same type of open mind. You just said you want to work with people who are willing to work with you. Why, then, Mr. Chairman, have we been excluded from the drafting of this bill only to receive it, again, late last week and in a very incomplete form.

Now, I was hopeful and I'm still hopeful that we could write a bipartisan bill. Since no Republican has been consulted thus far on the totality of this bill, I think that's a disservice to our constituents; I think that's a disservice to Americans. Mr. Chairman, we do stand ready to work with you when it's possible. And when it's not, we stand ready to try to educate you where you're wrong. And that's what this process should be about. But it should be done in the arena in the full light of day and not behind closed doors in the dark of night. That's how our constituents are best served; that's how the American people are best served. And certainly, for America's patients and doctors, we should do no less.

I'll yield back the balance of my time.

REP. PALLONE: Thank you. And I'd just mention, Mr. -- Dr. Burgess was sitting in as the ranking member. So he -- I gave him three minutes, or close to it. But because we want to hear from the witnesses today and we have so many, I'm asking members to try to limit their remarks to one minute today. I don't know if you -- hopefully you got notification of that, because, remember, not only are the Health Subcommittee members able to participate today, any member of the Energy and Commerce Committee is able to give an opening statement or participate. So that's why we limit it to one minute.

Next is the gentlewoman from Colorado, Ms. DeGette.

REP. DIANA DEGETTE (D-CO): Thank you, Mr. Chairman. I'll just point out to my friend from Texas, here we are in the light of day. And we're going to have three days of hearings on this draft. I want to thank you, Mr. Chairman, for doing that. This is a monumental undertaking, and it's going to take everybody's wisdom and advice.

I want to talk about a couple of things that we all care about in this bill. I think we're all going to have to do that today, because it is such a comprehensive bill.

First of all, automatic enrollment of newborns into Medicaid will ensure that all children have access to the necessary immunizations and well-child visits during the first and most important year of life. Secondly, primary care workforce incentives and training programs like student loan repayments and higher reimbursements for primary care will help with the workforce we need. And finally, a strengthened infrastructure for health care quality will let us pay -- let us identify and track key health indicators.

I want to agree with you for the need for prevention. And I just want to close by saying we're either going to pay now or we're going to pay later. And I suggest that we focus on Americans' health.

Thank you, Mr. Chairman.

REP. PALLONE: Thank you.

The gentleman from Georgia, Mr. Gingrey.

REP. PHIL GINGREY (R-GA): Thank you, Mr. Chairman.

Mr. Chairman, I want to ensure that every American has quality health care. Unfortunately, this legislation will do nothing but ensure that millions of Americans lose the coverage they currently have. By including a government health plan and a mandate that every American purchase health insurance, this bill guarantees that the only insurance plans available to Americans and businesses are those that are designed and sold by government bureaucrats.

For those that argue that the government plan will merely compete, studies have shown that such a plan will drive out competition and, indeed, become a monopoly. This, the bill before us, argues is the responsible thing to do. By way of government-made products, mandates, taxes and partisan politics, this legislation will take quality market-driven health insurance away from millions of Americans and lead inexorably to a single-payer national health care system.

We can do better, Mr. Chairman. The minority party has some well-studied ideas for improving the affordability, the access and availability of health care. So far, the majority party in the House has turned a deaf ear toward working in a bipartisan manner. For the sake of the American people and those patients I cared for for over 30 years, I urge you to listen carefully to all voices. And I yield back.

REP. PALLONE: Thank you.

Vice chair of the subcommittee, the gentlewoman from California, Ms. Capps.

REP. LOIS CAPPS (D-CA): Thank you, Chairman Pallone. And thank Chairman Waxman and Chairman Emeritus Dingell for your excellent leadership and the hard work that you and your staff have put into this draft legislation.

As a nurse-turned-congresswoman, this debate is one I've waited for for a very long time. We've had many hearings on this topic, bipartisan hearings, and I thank you for that opportunity, that it really, truly is coming from all the people we represent.

Our nation's health care system is in shambles, and with this legislation we'll finally take the most important steps we can to fix it. We will put the emphasis on wellness instead of on illness -- we will -- just illness. We will give patients greater choice and protection in the health insurance market. We will make sure that everyone has access to the care they need and deserve. It's going to take a long time, some difficult choices and perhaps a few pennies to get it under way, but we must act and we must act now. The price of inaction is simply too high.

I look forward to this coming week and the discussions we'll have on how to perfect this legislative proposal. I yield back.

REP. PALLONE: Thank you. The gentlewoman from Tennessee, Ms. Blackburn.

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman.

As I have said so many times in this committee, what is on the table for us to consider is, in essence, the Tennessee TennCare experience all over again. And for those of you who do not know, that was Tennessee's attempt at an executive order program of the governor's office -- this was their attempt at Medicaid managed care. The plan -- that plan is what our Democrat governor in Tennessee recently called, and I'm quoting him, "a disaster," end quote.

Eventually, that program consumed every single penny of new revenue in our state. I was the state senator tasked with funding that program. That program nearly bankrupted the state of Tennessee. It is not a model for future success. It is a model for a looming fiscal disaster. And I have no clue who the majority thinks is going to pay for this thing. I have no idea where they think they're going to get the money for this.

Let me tell you, go look at the TennCare record. We cannot afford this program. There is no money to pay for it. You cannot borrow enough money to pay for this program. In Tennessee we know that this public option always costs more than initial projections. Cost overruns were through the roof. Patients are always going to choose free rather than out-of-pocket care. Employers will force their employees onto the system. That is why you're going to see more than 120 million Americans moving off of private insurance if this goes through.

Sound the alarm that this is not --

REP. PALLONE: Gentlewoman, I just want you to know you're a minute over, so we got to --

REP. BLACKBURN: Well, I -- Mr. Chairman, I thank you for that. And I think this is an incredibly serious situation. I thank you for your patience.

REP. PALLONE: Thank you. I'm trying to keep people to a minute. I'm not going to stop you if you go -- if you go a little over, but -- all right.

The gentleman from Utah, Mr. Matheson.

REP. JIM MATHESON (D-UT): Well, thank you, Mr. Chairman. I'll do my best with a minute.

You know, we use the terms "cost," "access" and "quality" a lot around here, but we really do need to focus on all three. That's what we're trying to do here. I think this is the most complex piece of legislation we're going to work on in our careers. And the status quo -- just maintaining the status quo is not an option. Our health care system is driving up costs in a way where both in the public sector and private sector we can't sustain the path we're on.

I fear this discussion has focused so much on access, we're not also looking at the unproductive system we have now. There's so much money in our health care system today that is spent in irrational ways. There are so many perverse incentives built into our health care system. And if we want to achieve what our president has asked us to do, which is to bend the curve, the cost curve that plots where costs are going -- if we want to achieve that, that's where we can really accomplish something in this group.

So I encourage this committee as we look at this legislation to look for ways to make our health care system more efficient, get rid of perverse incentives. And if we do that, I think we'll secure a better future, regardless of how else we structure the plan.

Thanks, Mr. Chairman. I yield back.

REP. PALLONE: Thank you.

The gentleman from Pennsylvania, Mr. Murphy.

REP. TIM MURPHY (R-PA): Thank you, Mr. Chairman.

And I thank -- I'm thankful we're finally moving forward on this. Certainly, there's not a member in this room on either side of the aisle, no matter what one's political leanings, who is not totally dedicated to reforming our health care system, and I'm -- as many of our witnesses are, too. The question is which direction.

From the time I arrived in Congress in 2003 and in my time before as a state senator, I focused my energies on trying to reform this system. Just in the issue of hospital-borne infections alone since I've been in Congress, 350,000 people have died, hundreds of thousands more from other errors. And we have spent hundreds of billions of dollars in wasted health care. Our current system of $2.4 trillion wastes about 700 billion (dollars) a year. Our Medicare and Medicaid systems are filled with problems. We need to address those first.

But don't take my word for it. Take members of Congress' word for it. In the 110th Congress, 452 bills were brought forward by members of Congress to reform Medicare and Medicaid. Members of Congress signed up to cosponsor those 452 bills 13,970 times. Members of Congress think we have trouble if the federal government's going to run a health care system. We're not there.

A bill that looks at who pays for premiums and copays is not health care reform. A bill that looks for taxes to pay for these things is not health care reform. A bill that reduces costs by reducing payments to physicians and hospitals is not health care reform. We have to reform that system. We have the talent and the ability to do that. And I hope that as we progress in the coming weeks on this health care reform system, we truly can look at focusing on outcomes and not quantity and really make health care more affordable and accessible for millions of Americans who right now can't afford it.

Thank you. And I yield back.

REP. PALLONE: Thank you.

The other gentleman from Georgia, Mr. Barrow. (No audible response.)

Ms. -- gentlewoman from the Virgin Islands, Ms. Christensen.

DEL. DONNA CHRISTENSEN (D-VI): Thank you, Mr. Chairman.

And I want to begin with -- by using this opportunity to recognize the fair and open way in which Chair Emeritus Dingell, Chairman Waxman and you, Chairman Pallone, have conducted the process of getting us to this point today, and to thank you and your staff.

The bill acknowledges that insurance is not enough, and takes steps to promote prevention and wellness, to expand services and to eliminate health disparities. We appreciate and applaud your efforts. But if we're -- to truly transform our system, we will continue to push the committee to go further.

One specific area where more progress is needed is in the treatment of the territories. Just as we're -- we willingly proudly fight and die in every war and conflict in defense of our nation, we believe that we deserve the same access to health care as every other citizen and legal resident of the United States. We understand universal health care to mean universal health care.

And finally, I believe that the health and well-being of every person living in this country is important enough and vital enough to our nation's productivity, competitiveness, strengthen and leadership that passing a meaningful and effective health care reform bill should not require an immediate offset for every provision. Prevention saves. It saves lives, first of all, and it saves money as well.

Thank you, and I yield back.

REP. PALLONE: Thank you.

The gentleman from Ohio, Mr. Space.

REP. ZACK SPACE (D-OH): Thank you, Mr. Chairman, for your time and your tireless work on behalf of American consumers.

We stand before a debate so historic and significant that it arises but once every several generations. And at stake is an issue of no less importance than the health of the American citizen, along with the health of the American economy, for even though we boast of the most sophisticated health care technology and talented health care professionals in the world, their services are often out of reach of the average working American.

Today, I offer three areas of critical importance where improvements must be made. First, we must grow and nurture our rural health care workforce to ensure the same quality of care is offered to all residents of this country, regardless of where they reside. Second, we must make quality affordable health care a reality for every resident of this country by making reforms that capture the power of the free market, harnessing what's best about market forces. And third, we must change how we treat chronic diseases, taking more steps to encourage prevention and managing care of those that they afflict. Investment on the front end will only result in a higher quality of life for those who suffer from chronic diseases and cost savings of billions of dollars to our health care system.

Just as history has judged our efforts to battle for democracy abroad and put men on the moon, we, too, shall be judged for our response to this critical moment in history. We truly cannot afford to fail.

I yield back.

REP. PALLONE: Thank you.

The gentlewoman from Illinois, Ms. Schakowsky.

REP. JAN SCHAKOWSKY (D-IL): Thank you, Mr. Chairman, for moving us closer to getting where we all want to be, and that's the goal of comprehensive reform of our health care system.

I want to thank Chairman Waxman, Chairman Emeritus Dingell, who have provided wonderful leadership.

This is an historic moment. Americans are counting on us for guaranteed access to affordable, quality health care. And we have to act now. People are forgoing care. Families are falling into bankruptcy. Businesses are struggling to make ends meet.

I want to focus on two provisions: First, and most important, the public health insurance option. Consumers need a real choice, and the insurance market needs real competition. A robust public option provides both. It is essential to meaningful reform.

Second is the inclusion of the Nursing Home Quality and Transparency Act, no-cost legislation which, as the title says, will improve quality and transparency, helping nursing home residents and their families.

There are so many important provisions in this bill, and I look forward to moving it and, at long last, creating an American health care solution that meets America's health care needs.

I yield back.

REP. PALLONE: Thank you.

The gentleman from Texas, Mr. Green.

REP. GENE GREEN (D-TX): Thank you, Mr. Chairman. I want to thank you for holding this series of hearings on the health reform discussion draft. I'm pleased we're starting the process on addressing the issues facing the 47 million uninsured individuals in our country. There's a lot of good things in this discussion draft that I know we'll hear about and we'll talk about over the next few days.

One of the issues that I'd like to point out, something I've been working on, and a number of members on our committee, that the discussion draft does include the elimination, over a period of years, of the 24-month disability waiting period for disabled individuals under 65 for Medicare. Unfortunately, once again we leave these individuals out in the cold. Currently 1.8 million individuals are stuck in the 24-month waiting period. Of those individuals, 39 percent are uninsured and 13 percent will die before they endure that two-year wait.

Congress deliberately created the waiting period in 1972 to keep Medicare costs down. And I believe the 24-month waiting period is a shameful example of how we refuse to cover disabled individuals whose medical treatment is deemed too costly. I sponsored the Ending the Medicare Disability Waiting Period (Act) for five years, and each year we were unable to move the bill because it was too expensive. And again, in this draft we refused to address the issue.

Instead of reform drafts that would allow some of the individuals to obtain a government subsidy to purchase insurance through the exchange, and if they live through the 24-month waiting period, once they receive their disability determination, they can then switch to Medicare.

Why would we want disabled and chronically ill switching insurance coverage, possibly switching physicians? And I'm not sure the exchange will provide these disabled individuals with the complex medical treatment and coverage for equipment that they need.

I strongly urge the committee not to push aside those who endure that 24-month waiting period, even after you wait to get a disability determination from Social Security, just for monetary concerns. We can eliminate that waiting period over a period of years and show that we do recognize the problems the disabled have.

And I yield back my time.

REP. PALLONE: The gentlewoman from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

And thank you to our witnesses for being here today.

We have before us what is an amazing accomplishment: The work of many years of research and analysis and the collaborative effort of this diverse committee. It is difficult to overstate the importance of our task. We have been in this position before, but this time we simply must succeed.

As President Obama said earlier this year at our joint session, health care reform must not wait, it cannot wait, and it will not wait another year.

As we debate the details and the intricacies of this draft, I want to be sure that we remember the people, the children and the families that are waiting with great hopefulness for us to act. Our country is suffering under this growing burden, and it is our responsibility to answer their call.

I am very pleased to see that this draft includes a public health insurance option. I have been unwavering in my support for this aspect of reform. And I believe that this plan will lead the way for reforming our delivery system, emphasizing prevention and paying for quality.

I have a few suggestions for improvement to the bill. I look forward to working with my colleagues on moving this forward.

Thank you again, Mr. Chairman. I yield back the remainder of my time.

REP. PALLONE: Thank you.

The gentlewoman from California, Ms. Matsui.

REP. DORIS MATSUI (D-CA): Thank you, Mr. Chairman. I want to thank you, Chairman Waxman, Chairman Emeritus Dingell, on the excellent work to get this crucial legislation to where it is today.

I'm particularly pleased with Section 2231 and Section 2301 of the draft bill. These sections build off legislation I wrote to create a public health workforce corps and to centralize prevention spending in a wellness trust fund.

Public health and prevention are critical aspects of a strong health care system. They must be part of our national strategy to control health care costs, create better health outcomes for people, ensure that the health care system works for all Americans.

Without public health and prevention, we'll never drive down health costs, nor will we move our society to one focused on treating sickness to one that promotes wellness and healthy living.

I urge my colleagues to support these critical components of the draft bill before us today.

And I yield back the balance of my time.

REP. PALLONE: Thank you.

The committee will now receive testimony from the witnesses. And I'll call up our first panel. Let me introduce each of them at this time, if I could. Starting on my left is Ralph G. -- is it Neas? (Asks for clarification on pronunciation.)

MR. NEAS: (Off mike.)

REP. PALLONE: Neas -- who is chief executive officer of the National Coalition on Health Care. Next to him is Richard Kirsch, who is national campaign manager for Health Care for America Now. Good to see you. And then we have Dr. Stephen T. Parente, who is director of the Medical Industry Leadership Institute. And this panel is on health reform coalition views.

I'm going to ask each of you to give a five-minute statement. Of course, your full statement becomes a part of the record. And then when you're done, we'll start having questions from the panel. And we'll start with Mr. Neas.

Thank you for being here.

MR. NEAS: Chairman Pallone and Ranking Member Burgess and members of the full committee and subcommittee, thank you so much for the opportunity to appear before you on this momentous occasion, day one of hearings to discuss the House tricommittee health care reform discussion draft.

I'm pleased and proud to be joined by the founder, the visionary founder and president of the National Coalition on Health Care, Dr. Henry Simmons. He's sitting right behind me. Among many other things, Dr. Simmons was the deputy assistant secretary to President Richard Nixon for health in the early 1970s.

The National Coalition on Health Care is honored to be here and heartened by the progress made by the three committees. We hope that this draft bill can serve as the springboard for comprehensive and sustainable health care reform.

Like you, we believe that the time for action is now, this year. Reform of our health care system is a vital condition present for fixing the nation's faltering economy. The fiscal crisis facing us cannot be addressed successfully without the simultaneous overhaul of our health care system.

America is on a dangerous path, with sharp increases in the cost of health care and the numbers of uninsured and underinsured Americans -- just unsustainable burdens on our economy and on federal and state budgets, and through indefensible, avoidable harm to millions of patients and massive waste from substandard and uncoordinated health care.

The rigorously nonpartisan National Coalition on Health Care is the nation's oldest, broadest and most diverse alliance of organizations working for comprehensive health care reform. The coalition's 78-member organization stands for more than 150 million Americans.

The coalition's five basic principles for health care reform -- coverage for all, cost containment, improved quality and safety, simplified administration and equitable financing -- are interdependent. We believe reform, to be effective, must address all of these issues in a systemic way that recognizes their interconnectedness.

After more than 18 months of deliberations, the coalition developed a set of principles and specific recommendations. I would ask that they be included for the record along with my written statement.

As the coalition operates on the basis of consensus, we have begun an expedited process of discussing the provisions of the draft bill with our members. Only as these internal consultations progress will we be able to provide more detailed views and consensus recommendations regarding optimal formulation of the final bill.

However, let there be no doubt that the coalition strongly commends the cross-jurisdictional, collaborative tricommittee effort to address the central challenges facing our nation in health care, specifically how to slow the growth of health care costs, how to extend coverage to Americans without health insurance, and how to improve the quality of care and the efficiency with which it is delivered.

The draft is appropriately ambitious in its scope and its recommendations. We believe that reducing costs, while expanding coverage, not only can be done but must be done. Now is the time to be pragmatic and bold, to keep what is good and to fix what is broken in our nation's health care system. We must come together to pass systemic reform that sets our nation on a better path toward affordable, high-quality care for all Americans and solid fiscal responsibility.

The coalition members have long believed that securing coverage for all Americans should incorporate a range of mechanisms, including responsibilities for individuals and employers, the expansion of existing public programs such as Medicare and Medicaid, information and framework to improve competition among private insurance plans, and the creation of an additional and carefully designed public option.

The coalition would encourage consideration be given to adding detail to the definition of the services to be covered in an essential benefits package. Many of our members would want us to emphasize the importance of calibrating the provisions regarding the public option to make sure that it will function as the drafters clearly intend, on a level playing field with other plans.

We applaud the inclusion of a wide range of measures to improve the efficiency of health care delivery while enhancing the quality and safety of care and also providing support for evidence-based prevention.

Escalating health care costs put health care coverage out of the financial reach of tens of millions of Americans ad their employers. Thus we suggest consideration of the use of short-term regulatory constraints to slow the pace of increasing costs of essential coverage.

The coalition applauds the chairmen for their leadership. The enormous added momentum your joint efforts have given to the reform process cannot be overstated. Indeed, this is truly an extraordinary moment in history. Too much is at stake for us to risk failure due to partisanship.

It is only through a commitment to shared responsibility and shared sacrifice that we can rise to meet this once-in-a-generation opportunity to develop an achievable and uniquely American solution. To protect the generations to come, let us work together to enact health care reform that is at once moral and fiscally sound.

Thank you, Mr. Chairman.

REP. PALLONE: Thank you, Mr. Neas. As I mentioned, all of your written testimony or documents that you gave me will be included in the record, so you don't have to make a special request for that.

Mr. Kirsch.

MR. KIRSCH: (Off mike.)

REP. PALLONE: Yeah, but bring it closer to you. That's a problem. Is it on? Is the green light --

MR. KIRSCH: Working or not?

REP. PALLONE: That's good.

MR. KIRSCH: There we go. Okay. Yeah, the light just came on. Great. Thank you.

Again, good morning, Chairman Pallone and members of the committee. My name is Richard Kirsch. I'm the national campaign manager of Health Care for America Now, a coalition of more than 1,000 organizations in 46 states that are committed to a guarantee of quality, affordable health care for all.

According to specific principles, those principles have been endorsed in writing by the president of the United States and 196 members of Congress, including 176 members of this House in both parties. And I'm so glad to be with you this morning, as the legislation you have drafted meets those principles. It would deliver on the promise of quality, affordable health care for all, a system that is -- (inaudible) -- to deliver better quality at lower cost. You've done so in this unique tricommittee process that recognizes the urgency and historic imperative of this issue.

Our current health care system is a huge stumbling block to the American dream. No matter how hard we work or make responsible choices for ourselves and our families, our health care system too often gets in the way. For too many families, one serious illness can mean financial disaster, as medical costs have contributed to more than three out of five personal bankruptcies, and a great majority of those for people who have insurance.

But even if you have good insurance, you find your choices limited and dreams deferred. If you want to look for a new job, start that new business, retire at age 59, you're trapped, because you won't be able to get affordable coverage, if you can get coverage at all. And, of course, there are too many families that can't get coverage at all.

Neither can many small businesses, that other great engine of the American dream, who want to do the right thing for their employees but can't, as health care premiums skyrocket every year.

The good news is that we can fix what is wrong with the system with a uniquely American solution. For those who say, "We can't do this, this is too complicated, this is too much to take on, it's too much at once," your legislation is proof positive that yes, we can.

As Americans begin to pay attention to the health care debate, they will increasingly ask, "What does this mean to me?" Here's how I would explain how this works to the average American, why it will make their lives better. If you have good health coverage at work, you can keep it. But there will be two important changes. Under your legislation, you no longer have to worry about your coverage at work getting skimpier every year, with your employer taking a bigger chunk each year out of your paycheck. Your employer coverage will not be bare bones. It will cover most of your health care. It won't stop paying if you get seriously ill. Your job will pay a good share of coverage for you and your family.

One more thing, whatever job you take, you'll have good health care. That's because all employers either provide coverage or help pay for it. If you don't get health coverage at work, or you work several part-time jobs, you're self-employed, an early retiree, or simply out of work, you'll now be able to get good, affordable coverage. You won't be turned down because of a preexisting condition, or charged more because you've been sick, or you're a woman of child-bearing age. You can still be charged more if you're older, but only so much.

And how much will it cost you? The amount you pay will be based on your earnings and the size of your family, with assistance for low, moderate and middle income families.

To get insurance you'll go to a new marketplace, called an exchange -- one-stop shopping for health coverage. All plans will have a decent level of benefits and play by the same rules. No matter which plan you choose, your out-of-pocket costs will be limited. No more catastrophic medical bills.

You'll have a choice of a new public health insurance plan too, so you won't be limited to the same private insurance companies that have a record of denying and delaying care while they raise premiums three or four or five times more than wages.

As the President says, there are two reasons for offering the choice of a public health insurance plan:

The first is to lower costs -- a plan that doesn't pay the average CEO $12 million a year or have sky-high administrative costs. The mission of the public health insurance plan will be to drive the kind of delivery system changes we need to innovate; provide better value and invest in our communities' health; a plan that will inject competition into the 94 percent of markets that are anti-competitive under DOJ standards.

The second reason the president says we need a public option is to keep insurance companies honest. The 93 percent of Americans who don't trust private insurance companies know that no matter how much we regulate them their first order of business -- actually their legal, fiduciary responsibility to their share holders, is to make a buck, and when they pay for someone's costly care, their profits go down.

An additional reason for the public health insurance plan is to ensure that we make real progress in eliminating the barriers and disparities in access to needed services that are too often experienced today. Poll after poll shows strong support for the choice of a public health insurance plan, with strong support on bipartisan lines.

This legislation also answers the crying needs of small business for affordable coverage, offering tax credits and allowing small businesses to enter the exchange. It gives them the advantage of large pools and lower costs. The legislation does a great deal more -- for the poor, through Medicaid; for seniors on Medicare; to address the lack of primary care providers; and the disparities in access to health care. I'm almost done.

Are there ways we would improve on this draft? Although there are, there are not a great number, and we detail them in our written testimony.

Let me conclude by asking you to keep one question in mind over the coming weeks as you hear from the myriad of interest groups complaining about this and that, it's the question that your constituents will ask at the end of the day: Will I have a guarantee of good coverage that I can afford?

The draft legislation presented answers with a resounding "Yes." And if the answer remains yes, next fall when you send a bill to the president for signature you'll have done your jobs, and in doing so, made history. Thank you.

REP. PALONE: Thank you.

Dr. Parente.

MR. PARENTE: Thank you, Chairman Palone and members of the committee for this opportunity.

We are in the midst of the seventh major attempt of national health reform, beginning with the Wilson Administration. Since that first attempt, there has been President Roosevelt's second attempt in 1936; President Truman's third attempt in 1948; President Johnson's fourth attempt, leading to a compromise which created Medicare and Medicaid; President Nixon's limited fifth attempt; President Clinton's sixth attempt. With President Obama's call for reform, will seven be the lucky number?

My name is Steve Parente. I'm a health economist from the University of Minnesota and I'm principal of the health care consultancy, HSI Network. My areas of expertise are health insurance, health information technology and medical technology evaluation. At the University, I'm the Director of an MBA specialization in the medical industry, and a professor in the finance department with an adjunct appointment at the Johns Hopkins School of Public Health.

Most recently, I and my colleague Lisa Tomai from HSI have scored health reform proposals as they have emerged in the last four weeks. We are using ARCOLA, a micro-simulation methodology initially funded by the Department of Health and Human Services and published in the Journal Health Affairs.

There are two things people most want to know from these proposals: One, how many uninsured will be covered? Two, what will it cost the nation in one year and in ten years?

HSI estimates, like CBO's recent results, find there is no free lunch to expand health insurance coverage. Our early assessment of the Senate Finance committee proposal shows a 74 percent reduction in the uninsured with a 10 year cost of $2.7 trillion using public option plan modeled after the Massachusetts Connector. We also modeled an FEHBP version of the public plan and got a cost of over $1.3 trillion, but with a 30 percent -- only a 30 percent reduction in the uninsured because the plan is generally more expensive. Not enough incentives are given.

CBO scored the Kennedy Bill last week at approximately a 30 percent reduction for $1 trillion over ten years. Using the ARCOLA model, we found nearly everyone would be covered if all elements of the Kennedy bill were enacted at a ten-year cost of $4 trillion. That $4 trillion estimate, over 10 years, assumes a public option plan with Bronze, Silver and Gold levels in the proposed insurance exchange with a subsidy for premium support that is income-adjusted and calibrated at the Silver level.

The Silver level is what most Americans would like in health insurance today. It is the equivalent to a PPO plan with medium levels of generosity, something with 15percent coinsurance rate, manageable copays and good access to physicians and hospitals. We accounted for the public plan being reimbursed at 10 percent above Medicare reimbursement, which is also 10 percent below commercial insurance plans.

In the individual market, we assumed the public option plans would be community rated and the rest of the individual market would be as it is today. For those offered insurance, we assumed the public plan would be -- (my teleprompter is broken ?)

Because the public plan can compete with the individual and group market offerings, we saw a crowd-out of the public plan of 79 million covered lives, with the majority of people leaving employer-sponsored medium-sized PPOs and HMOs.

At this time, we are the only group yet to score the full Kennedy proposal. We released it last Sunday, June 14, on our home page, two days before CBO's preliminary estimate. This work was completed as public service without a funder from industry or a political sponsor.

Some proposals we examined have specific 'pays-fors' already scored by CBO that can substantially reduce their costs, such as the Coburn/Ryan bill with a 72 percent reduction and 10-year cost of $200 billion with the 'pay-fors' accounted for, or $1.7 trillion without.

One conclusion emerges every time we score a plan: None are revenue neutral. Even with Medicare and Medicaid 'pay-fors', the savings in those programs needs to deal with cost pressures of those programs. In all likelihood, these proposals, if enacted, would escalate the rate of growth of our national debt, particularly the Kennedy plan.

As a nation, we are on the verge of making a multi-million dollar gamble that more per capita health care deficit spending will make us better off as a society. We are wagering with starting bids in trillions that have excessive spending in the healthcare system, hoping that these billions, and trillions, will lead to a breakthrough medical technology that can eliminate whole diseases, such as diabetes and Alzheimer's. This is actually not a bad path -- it happened before with tuberculosis, but not quite at this level.

It is not an unreasonable wager, since federal funding for heart disease and cancer, either directly through research or indirectly through Medicare, has yielded state-of-art medical care. But it is a wager nonetheless, and we may find our reckoning is not only with the future debt of our children, but their security when the economic crisis has brought international scrutiny upon the US from the principal purchasers of our treasuries. Furthermore, saving businesses from paying health care costs or a state government with federal intervention is simply an accounting cost shift that only saps our long term economic growth.

President Obama spoke recently in Wisconsin of need to expand health coverage to "bend the cost curve down." I watched him say it three times in five minutes. May I respectfully suggest that bending the cost curve down starts with active management of Medicare. For five months we have been without a CMS administrator while there have been over $400 billion in medical --

REP. PALONE: Dr. Parente, I don't mean to interrupt, but you're a minute over, so if you could, kind of, wrap it up.

MR. PARENTE: I'll wrap up -- (inaudible) --

In summary, there is greater consensus today that health care reform must be undertaken. It will not be free. It will (be), as it always was, a political decision that was more so political than economic. So much could be done now with great expansion, but it will come at great cost. Thank you.

REP. PALONE: Thank you.

We'll now have questions from the members of the subcommittee. I should mention that everyone -- again, that members of the full committee are going to participate in the same way, and have five minutes each. And if you forego -- if you were here and passed on the opening, you'll get an extra minute. But, if you weren't here, then you don't get the extra minute -- just to make the rules clear.

And I'm going to start with myself. I'm trying to get two questions in here -- one about the need for comprehensive reform and one about the public option. So, I'll start with the comprehensive reform, but if we go too long I may stop because I want to get to the public option too.

Mr. Neas, the National Coalition on Health Care -- (inaudible) -- the need to address health reform in a comprehensive manner, as your testimony sets out this morning. And in our discussion draft, we addressed issues ranging from the workforce, to prevention and wellness, to coverage costs and quality improvement.

Is it possible to address this in a piecemeal fashion, or do we need the comprehensive approach to tackle this issue?

MR. NEAS: Mr. Chairman, it's absolutely essential that this be done in a comprehensive way. As we point out in our testimony and all of our published materials, it is essential that we have systemic, system-wide change in this country in our health care system.

To do it piecemeal, we could end up with a system much worse. You could cover everybody, but you don't have cost containment, or you don't have it paid for in the right way, or you don't have quality.

All of these principles are interdependent. They rely on one another. You have to do it all at once. You can't do it incrementally. You can't do it piece by piece.

REP. PALLONE: Okay. Let me go to Mr. Kirsch then about the public option. You know, we have a public option in the discussion draft in a manner that assures, in my opinion, the levelest (sp) possible playing field where the multiple private insurers will also be competing with the public option. So I have four questions and I'm just going to read them and ask you to try to get through them in the next few minutes here.

First, why do we need a public health insurance option? Won't the exchange function better with just the competing private insurers? Second, what do you think of the alternatives to the public option set out in our draft? People have mentioned co-ops or state-by-state options or a public option triggered only if certain criteria are met. And then third, you know, outside the Beltway -- because I guess we don't really care much about the Beltway anymore -- is the public option a partisan issue, and fourth, would a public option help or hurt small businesses? If you could try to address those in three minutes or less. (Laughter.)

MR. KIRSCH: I'll try to talk not too fast. Okay. Why a public option? You know, if we don't we're just rearranging the deck chairs on the Titanic and, you know, I guess the regulation is maybe giving those chairs a shiny coat of paint. The fact is that we've had a private insurance industry that has been running our health care system for quite a while now.

We've had wages go up -- premiums go up several times as much as wages-- in some states, multiple, multiple times as much as wages at the same time peoples have poor quality of care and they're used to denials, delays, all declines from health insurance companies. We need a public option to do the two things the president says -- to lower costs, to have an actor in the system that's mandated, to have the kind of lower-cost operations that you have and also to keep insurance companies honest because their bottom line will always be hurt every time they pay a significant claim.

REP. PALLONE: What about the alternatives, the co-ops that trigger --

MR. KIRSCH: The alternatives are basically ways to kill the public insurance option. The trigger is basically saying we're not going to have it unless things get worse. You know, there's this old expression, you know, fool me once, shame on you; fool me twice, shame on me. The insurance industry basically said in '93, '94 leave it to us to fix the system. We see what we've gotten.

We can't wait any longer. We've waited a long time for the insurance industry to fix the system. They failed. The co-op -- interesting -- a comment from Oppenheimer and Company analysts says the co-op proposal is a great gift to publicly traded insurance companies that's doomed to fail. It was basically a political invention to try to placate Republicans who didn't want a government role in providing an option and it has no policy -- policy benefits. We have lots of nonprofit insurers in this country that haven't done the market changing factors we need to provide the kind of care.

REP. PALLONE: Third would be is, you know -- outside the Beltway is the public option a partisan issue?

MR. KIRSCH: No. It's extraordinarily popular. I mean, we did a -- the first polling question we asked was public -- would you prefer a public plan -- just a choice of just public insurance, private insurance, or public or private insurance. Not only did 73 percent of Americans say they wanted choice, that included 63 percent of Republicans.

In the case of The New York Times' poll just released over the weekend 72 percent of Americans said they wanted the choice of a language is a government-administered plan like Medicare -- (inaudible) -- private insurance. So using the government word, and still 73 percent of Americans wanted --including 49 percent of Republicans, which means it's more than -- many fewer that opposed it.

REP. PALLONE: What about the impact on small businesses?

MR. KIRSCH: And small businesses -- small businesses, like everyone else, need lower-priced coverage. And again, there's lots of things in your legislation that make huge advantages to small business. We should talk about it. One of those is the public option piece to the extent the public option is offering good quality at a lower cost so small businesses could benefit.

REP. PALLONE: Thank you. Mr. Burgess?

REP. MICHAEL BURGESS (R-TX): Thank you, Mr. Chairman. Dr. Parente, first off, you were -- the buzzer or someone interrupted you. You were about to make a point about not having a CMS director. Would you care to finish that point?

MR. PARENTE: Simply to say that there should be a CMS administrator given that there's $400 billion that has already been spent by that program. If you want to bend the cost curve down one of the places where the costs are going out the door right now is Medicare and Medicaid. That needs active management. If even people were to put in modernization for some of the fraud things that they put on the table, there's a little bit actually in the bill that would be useful. But right now because it's essentially a caretaker administration over at CMS, none of that can occur.

REP. BURGESS: Let me -- let me ask you a question and certainly, you know, hats off to your group for doing that exhaustive work on the Kennedy bill under such a short period of time. Have you -- are you going to do similar -- a similar scoring for the draft discussion that we have in front of us this morning?


REP. BURGESS: And when might we expect to look for that information to be publicly available?

MR. PARENTE: I'm hoping that it would be on the HSI website by tomorrow morning at 8:00 a.m.

REP. BURGESS: Tremendous. Thank you for doing that as well. Now, when you were here last fall -- I think it was the day after Lehman Brothers failed, if I recall correctly, and the whole world changed -- you talked -- this $4 trillion figure that you talked about for the three tiers of the -- of the public option under an FEHBP type structure, you also referenced a low end that would be essentially Medicaid for all that would be much less expensive. And if I recall correctly, that was about $60 billion a year or $600 billion over 10 years. Do I recall that correctly?

MR. PARENTE: That is correct.

REP. BURGESS: Now, assuming that reality lies somewhere in between those two -- well, let me just ask you this. Have you looked at -- under the proposal before us today Medicaid is offered -- a full federal component of Medicaid is offered for everyone at 133 percent of poverty and below -- not just the existing population but for all populations. Do you have an idea what the cost for that is?

MR. PARENTE: Not as specifically. Actually, the public option plan with the subsidies that are proposed, at least in the Kennedy bill, addresses a fair bit of the population. A round guess would -- on that cost would probably be somewhere in the vicinity of about no more than about 30 (billion dollars) or 40 billion (dollars) per year.

REP. BURGESS: Very well. Let me ask you a question. We hear the president all the time -- in fact, he said it at White House last March -- that the only thing that was not acceptable is the status quo and if you like what you have you can keep it. Well, it's kind of tough to reconcile those two positions.

Do you think under the bill that's under consideration today -- the draft bill that -- the tri-caucus bill that's out there -- do you think it's reasonable to assume that if you like what you have you can keep it with the -- under the parameters of the bill that are before us today?

MR. PARENTE: I think it's -- it really determines how the public plan is ultimately deployed. I mean, as you all know, it is a very long road from whatever this legislation is to enactment, which could be three to four years from now. The concern really is crowd out. It's hard to say what the public plan model would look like in terms of logistical operational terms. If it operates like TRICARE that could be a crowd-out potential. If it operates like FEHBP that would definitely be a crowd-out potential because it's more generous than the standard market today.

REP. BURGESS: Mr. Kirsch, let me ask you a question. In yesterday's Politico you have an opinion piece and you talk about the three things that are likely to make this legislation happen, and the third thing the organization where it counts most -- outside the Beltway.

Now, I don't know how far outside the Beltway you've gotten. In north Texas I will tell you that 65 (percent), 68 percent of the people in my district -- and it's not a -- it's not a wealthy district. It's a working district, a rural district, an inner city district as well as a suburban district. But 65 (percent) to 68 percent of the people in my district are satisfied or very satisfied with the insurance coverage that they have today. In spite of the fact that so many people are demanding change that seems like a pretty high number that is -- that is accepting of where they are right now.

MR. KIRSCH: Well, you know, it always depends in all these things how the questions are asked, and I -- basically, as we look at the views nationally, according to The New York Times 85 percent of people believe that the health insurance system needs fundamental change or it needs to be completely rebuilt.

Eighty-six percent believe this is somewhat, 61 percent think it could be a serious threat to the economy. What people are dealing with is they may be happy with their insurance at the moment but what they're totally terrified of is what happens if they lose their job and. So they want a system --

REP. BURGESS: Correct, and I -- let me just interrupt you there because I think we can address those problems and correct those problems without turning the entire system on its head. Now, the last New York Times-CBS poll that I guess is the one you're referring to, just a curious figure down toward the end of it. Of the people polled, 48 percent voted for President Obama, 25 percent voted for Senator McCain, and 19 percent didn't vote. That's a curious sampling and I wonder if that may not have skewed the results that were reported so widely on the Sunday shows yesterday. Thank you, Mr. Chairman. You've been generous. I'll yield back my time.

REP. PALLONE: Thank you. The gentle woman from Colorado, Ms. DeGette.

REP. DEGETTE: Thank you very much, Mr. Chairman. Dr. Parente, I read your testimony and I wanted to talk with you a little bit about some of your analysis around the public plan and cost savings and so on. I certainly agree with you that we need to try to get cost savings and Medicare and another program. But what we've seen, for example, in Massachusetts since they've put together their Connector system without a public plan, the good news is they got almost everybody enrolled in health care.

The bad news is they got absolutely no cost savings and their -- and their costs are going up as much as everybody's. So I'm just wondering if you can -- if you can tell me -- and I apologize, I didn't read your piece in Politico. But I wonder if you can tell me do you think all potential public plans are a poor idea or just ones that would cause this crowd-out?

MR. PARENTE: I don't think all public plans are a bad idea. I think -- understand what -- as I understand as an economist what you're trying to do --

REP. DEGETTE: Or at least -- what you've done is you've analyzed the Senate bill.


REP. DEGETTE: I understand that was the bill that was out there. But we -- as you know, we're a little sensitive over here about having our own bill and having it be a work in progress. So you can give your opinion on the Senate bill, recognizing that's not our bill.

MR. PARENTE: I understand. There are similarities. So there will be -- a lot of the structure is very similar. Like I said, I applaud some of the things that are put in for Medicare that are related to cost savings and such.

A public plan is designed to inject competition into the system. What concerns me is that there already is quite a lot of competition in the private insurance marketplace.

I think --


MR. PARENTE: Just one clarifying comment: If you look at what Massachusetts did very well, it simplified the benefits so that most people could get a sense of what was available.

But if you look at what actually did the deed to get everybody covered, it was mostly through high deductible health insurance plans.

REP. DEGETTE: Well, you know, I'm sorry. I have a limited amount of time and we have two other witnesses.

But there was a study that was just release by Health Care for America that found that 94 percent of the communities in the country do not have a competitive health insurance market.

For example, in Pueblo, Colorado, they have one provider, WellPoint, that has 76 percent of the market share. And so in fact, we don't have robust competition in 94 percent of the committee -- of the country.

So I'm wondering -- don't you think that a public plan might be able to help with competition in communities like that?

MR. PARENTE: Not if it doesn't have active price competition. So my concern is what if --

REP. DEGETTE: Well, let's say it does have active price competition. Then your objection is that everybody leaves the private plans, because it's cheaper. But isn't that a double goal?

MR. PARENTE: To have everybody leave the private plan?

REP. DEGETTE: No. That people be able to buy cheaper health insurance.

MR. PARENTE: Yes. That is a double goal, but if you're going to regulate the public plans to basically go into price competition with the private insurance industry, you have to ask your question: How are you going to be able to price fix those public plans to be able to do that?

REP. DEGETTE: Oh, you know -- just so you know, at least from the view of -- at least from my view -- I don't think that we should price fix the public plan and give them an artificially low price. I think most of us on this committee would think if we have a public plan, that it should be able to compete with the private insurance companies.

Mr. Kirsch, I'm wondering if you can comment on that study by Health Care for America and why that necessitates the need for a public plan.

MR. KIRSCH: Yes, Congresswoman.

As you said, 94 percent of the market -- this is actually AMA data that we use in our study -- are highly concentrated by Department of Justice standards, which means people really don't have choices in state after state, like in Pueblo, Colorado and municipalities and areas around the country.

It's also the question of the right kind of competition. Having competition is also having competition for an insurance that cares about people's health care more than a healthy bottom line. So it's both factors we're looking at.

REP. DEGETTE: It would seem to me -- for all the panelists, Mr. Neas and everybody -- that one way we could improve our health care system is to get the competition, but also to try to get cost savings through Medicare. I don't think those things are mutually exclusive. Do you, Mr. Neas?

MR. NEAS: Absolutely not. And I think we can applaud the work of some of the states like Massachusetts or Tennessee. However, they were not systemic system-wide reform that addressed cost containment; that addressed simplified administration and other issues. You have to do it as a comprehensive package.

This could be done and I think the committee's done a good job -- a good start -- on the public plan trying to make sure that it will be on an equal playing field, not taking advantage to be fair and competitive.

REP. DEGETTE: And I won't vote -- I won't vote for a private plan that has an unfair -- or a public plan that has an unfair advantage over the private plans. But I do think we need to find some place for competition to keep everybody trying to find their best price point.

Thank you very much, Mr. Chairman.

REP. PALLONE: Thank you.

The gentleman from Georgia, Mr. Gingrey.

REP. GINGREY: Mr. Chairman, thank you.

I address my first question to you, Mr. Kirsch.

You made a statement in response to one of my colleagues. I think the question of why the public option plan. And you said, well, the insurance companies -- the health insurance companies are so egregious in what they've failed to do. I think you said, "Fool me once, shame on me; fool me twice" -- or just the opposite -- "Fool me once, shame on you; fool me twice, shame on me."

Why do you feel, based on that, that we should give -- and I think this will do, this bill -- the death penalty, essentially, to the private market? Why not give them 30 years in prison rather than the death penalty? Why is it you want to come down so hard? Why not let an exchange function -- at least for a period of time -- to see how that competition works to bring down prices, as it has indeed done by the prescription drugs in Part D of Medicare?

MR. KIRSCH: So let me just say that single—payer would be the death sentence. This option is in effect saying you get a chance, but you don't get to have the field to yourself.

I want to address the question --

REP. GINGREY: Let me interrupt you just a second: You understand I feel like that a public option is a step -- a giant step toward a single-payer.

MR. KIRSCH: This is going to address -- if I could -- and this is this level playing field that's been driving me crazy.

Private insurance companies have 150 to 170 million customers. They have -- (inaudible) -- in place. They have years of brand loyalty. They have contracts with businesses. They have a well- established place in American society.

They going to continue, as they've done in Medicare, to try to everything possible to cherry pick and avoid people who need -- have high health care risk, even in a regulatory scheme.

The choice of a level playing field, the public insurance option's going to start an enormous disadvantage that it doesn't have all those things in place. And when the private insurance companies whine that they can't compete with the government, I have to begin to wonder do they really believe the polls that say that 93 percent of Americans don't trust them and that's why they can't compete.

REP. GINGREY: Well, let me ask you this question: You say on page two of your testimony, and I quote, "The good news is that we can fix what is wrong with the system with a uniquely American solution -- a uniquely American solution similar to what we did with AIG; similarly uniquely American solution similar to what we did with General Motors."

What is uniquely American about interfering with the free market system in this country?

MR. KIRSCH: First of all, we're not talking about bailing out the insurance industry like we bailed out General Motors and AIG. We're talking about giving the insurance industry some competition.

What's uniquely American about this is saying we're not going to have a system that's just private; we're not going to have a system that's just public. We're going to build on what works in America -- what works in some ways private insurance; it's got problems. What works for our parents and grandparents -- Medicare. We're going to use the two systems we're familiar with and combine them and that's the uniquely American part of the solution.

REP. GINGREY: Let me switch to Mr. Parente.

Mr. Parente, as an economist, I'd like to get your opinion on what impact will the employer responsibility policies in this draft have on an employer's ability to create jobs and put more people back to work? I want you to answer that.

And I also want to know if you have seen anything in this draft legislation in regard to the reserve funds that the public plan would have to come up with. And where would they come up with that money to be on a level playing field with the private health insurance plans that also would be competing in the exchange?

MR. PARENTE: The employer question, first of all, really depends upon the size of the employer.

There is -- I'd have to look at this more carefully. It will be before 8:00 A.M. tomorrow morning. But there is a provision that there has to be some pay-or-play option that's in this. That will always impact employers in a way -- depending upon the size of those particular employers that are in place.

Your second question?

REP. GINGREY: Well, let me switch it over to Mr. Neas on the second question.

Mr. Neas, do you see anything in this draft that calls for a public plan providing a reserve fund before they can do business -- just like any other health insurance company doing business in any state in this country would have to have a certain amount of money available, before they can start offering a product so that they could cover these claims that occur. They have to have that reserve.

Where would it come from in the federal government plan and how much money are we talking about?

MR. NEAS: Mr. Gingrey, I must confess not to knowing every single phrase or sentence in the bill. My recollection from going over the materials over the weekend was that the committee's plan to have this public insurance option compete on an equal level, be competitive -- and as I understand it, also that there would be an initial investment with respect to the reserve at the beginning -- and then the public insurance option would be self-sufficient after the second and third year.

I defer to counsel and others up there -- and the members -- but I think that's my recollection.

REP. GINGREY: Mr. Neas, thank you.

Mr. Chairman, thanks for your indulgence. I assume that money would come from the general fund and from John Q. Taxpayer.

Thank you. And I yield back.

REP. PALLONE: Vice Chairman Capps.

REP. CAPPS: Thank you, Mr. Chairman.

And thank you for your testimony -- to each of you.

Mr. Kirsch, I have your organization -- Health Care for America Now -- has good representation in my district, so I'll be addressing my conversation with you, because it comes right from some of the people who've been talking with me.

But I did want to mention in the discussion of competition, which I'm happy we can get into, agriculture is the basis of my congressional district in California. And large parts of it are rural, therefore, and in those areas there's only one private option.

I don't call that competition. Maybe that's why there's such enthusiasm among many of my constituents for change, because they see a monopoly in healthcare delivery. If you make too much money to afford, so that you can't be on Medicaid, then you have to buy this plan that they can -- they keep raising and they do -- plus we have a provider issue because it's a locality problem with our low reimbursement rates.

So that combination is really -- in so much of America we don't bring those points together. It's a part of our reform legislation as well. So I'm pleased that we have this opportunity to really get into what competition means and -- and I want to get to that in a minute, but would you just expand maybe for a minute or so on why we cannot wait any longer. There are a lot of people here in Washington, D.C. and some who are overwhelmed with our financial burdens, our economic situation plus our debt makes -- they are saying why would you want to bring this up now to our president.

And some of us maybe are wondering too because our agenda is really full. Now, as I said in my opening, as a public health nurse, this is why I came to Congress, in large part because we have a system that isn't working, that is already so costly -- and we're talking about the huge costs of healthcare -- we're already paying more than any other country in the world for healthcare. So we do we -- must we seize on this very crowded moment in our agenda to do this?

MR. KIRSCH: Well, I think you've answered the question yourself. I mean, the fundamental point that to fix the economy in the long run we have to fix healthcare is just true. It's the point that the president's made, that Peter Orszag made. Our failure to do that, our failure to have a system which provides good coverage to everyone and systemic ways of controlling costs is why we continue to have a system where health care inflation is larger than the rate of inflation where we continue to outpace the rest of the world on how much we spend and yet get poor results.

What's true with the rest of the world is they understand that healthcare is not a private good; it's a public good. And there's two things you do with a public good, you regulate it or you provide it directly --

REP. CAPPS: Can I interrupt you? Do you think this feeling is shared in this country that that's what it ought to be?

MR. KIRSCH: Absolutely. And, again, in The New York Times poll, great data -- (off mike) -- public's feeling -- I'll pull it out -- that the government can do a better job of controlling healthcare costs than private insurance. But what the public actually understands is really interesting in this. They understand that nobody other than the government is strong enough to stand up to private insurance and the rule -- (inaudible) -- haven't allowed the kind of thing your constituent see all the time.

They want a strong government role for regulating the private insurance industry and providing a choice where the only choice is private insurance. And if you look at why so many of larger employers now are saying they want to be informed, they understand the kind of assistance is unattainable. Small businesses are unsustainable.

REP. CAPPS: Let me ask you to use -- and I wish I had time to ask all three of you -- I think there's a huge lack of understanding and I hope that these hearings and our president's press conference today and all the other things are going to really help explain to the American people what a public option is, that it is a level playing field, that the public option isn't a government subsidized program any more than any of the other options will be. If we have health reform we're going to give an opportunity for everyone to be participating. And most people of -- so many people up to 400 percent of poverty are going to need help.

MR. KIRSCH: And I think -- what I'm finding as I talk to constituents, and you may find the same thing, is there's a huge confusion between the exchange and the public insurance option. And people -- this is a new concept for people. So people are asking me questions, like we were on the phone yesterday, and they said, well, would the public option cover the following things? This is a long question. We're going to have a -- and what your bill does is just great, it says that every plan in the exchange will have -- (inaudible) -- benefits, and actually after five years every employer will have -- (inaudible) -- benefits. So we're establishing a standard across the country.

And so much of what your legislation does which is important in terms of the level playing field is it says we're going to create a basic standard of health care in the employer system, which is one -- so we -- where we won't have to kind of crowd out as well as in the exchange, and the public option will be one more option in that. But that gives everybody the question of, again, can I have -- will it be guaranteed good affordable health coverage? Well, you know it will be good if it meets those standards.

REP. CAPPS: And I think you're absolutely right that what the public is asking for is certainly. The great fear that people have with the health plan that they may even like is that there's no guarantee that next year the premiums will go up. We did this Managed Care Modernization Act and seniors welcomed the opportunity for a chance at lower costs. But then they found out that at any moment those companies -- the insurance companies have had nobody overseeing the way they were able to manipulate the market.

I'll yield back for now, but thank you very much, all of you, for helping us have this conversation.

REP. PALLONE: Thank you.

The gentlewoman from Tennessee, Ms. Blackburn.

REP. MARSHA BLACKBURN (R-TN): Thank you, Mr. Chairman, and I want to thank all of you for being here. And I have a list of questions that I would love to go through with you all.

Mr. Neas, I think I'll start with you. You know, you make a pretty bold statement on page one of your testimony. "The economic crisis facing us cannot," which you underline, "be addressed successfully without the simultaneous adoption of a comprehensive, sustainable overhaul of American healthcare." Do you have specific research that you are citing in that and would you like to submit that for the record?

MR. NEAS: Yes, I do, Congresswoman. I --

REP. BLACKBURN: I would love to have a copy --

MR. NEAS: It would depend on the chairman of the Federal Reserve.

REP. BLACKBURN: Okay, and let me ask you also --

MR. NEAS: Can I finish that question?

REP. BLACKBURN: -- do you have any program that was a public/private option competition that you can point to that has been successful or successfully implemented?

MR. NEAS: I think there are many examples where there has been public --

REP. BLACKBURN: Can you cite one for me for the record.

MR. NEAS: I would certainly say that the Medicare, Medicaid, Veteran's, all the so-called public programs --

REP. BLACKBURN: Can you look at some dates and give us one because we know in Tennessee and Massachusetts they've both been shown as being examples that do not work and, you know, there was a question -- in our question period someone mentioned price fixing with the public plan. What we found in Tennessee is that you cap what is going to be paid through that public plan and everything gets cost-shifted over to the provide plan, and then you limit your access and your private insurance becomes unaffordable and rural areas like mine lose out.

So it just really -- it doesn't have a great track record, so I appreciate your willing -- second question for you. Do you think this can only be addressed by the federal government? Can the states not help address this? Can the private sector not address this?

MR. NEAS: The states have to be part of this; the private sector have to be part of this. But we also need a national plan that is systemic and system-wide.

REP. BLACKBURN: I think everybody has to be in the plan.

MR. NEAS: Absolutely.

REP. BLACKBURN: Okay, then, do you agree with the premise over in the Senate for their wanting to exempt the unions and the union workers would not have to pay. Let's see, they've -- those that are covered under collective bargaining agreements would not be subjected to the tax. The tax is on the healthcare benefits.

Mr. Kirsch, I see you weighing in on this. Do you want to speak on that one?

MR. KIRSCH: Sure. I mean, first of all you're talking about a question of whether or not we should be taxing people on the healthcare benefits, and I think that's the wrong direction.

REP. BLACKBURN: But tax everybody but not the union.

MR. KIRSCH: No, no, no. We don't think you should tax --

REP. BLACKBURN: Okay. Do you, Mr. Neas, think the unions ought to be exempted or should union workers have to pay on this also?

MR. NEAS: I don't think there's any provision in the Senate that's trying to treat the union members differently than any member of society. May I answer a couple of your questions just for 20 seconds or so? I do want to go back to the private/public lending partnerships, but most importantly you just can't, as in Tennessee or Massachusetts, address coverage for all or one of these principles. You have to look at the costs; you have to look at the financing and the administration. $2.5 trillion a year in health care spending, approximately a trillion of that, according to dozens of studies get wasted --

REP. BLACKBURN: Let me interrupt you --

MR. NEAS: -- the money there --

REP. BLACKBURN: -- my time. I appreciate that and I would like -- I'm so limited on time and I've got so many things but Mr. Kirsch has just said he is opposed to a single payer system and then your group sponsored a rally last year and here is a comment that was made by a member of Congress that I know many people here today are single payer advocates and so am I. Those of us that are pushing for a public insurance option don't disagree with the goal. It's not a principle fight; this is a fight about strategy, about getting there and I believe we will.

So, you know, we have to look at this. If we have those -- I'm not in favor of a single payer system. We really don't want to go there, and then others that say well this is a step along that way as other members in their questioning have asked you today. I think that that causes us tremendous, tremendous concern.

And Mr. Kirsch, I think it's fair to say that maybe you don't like the insurance companies, but nevertheless, would you -- your wanting to get to good, affordable coverage for all. That is a goal that I have. Going through what we have done, access to affordable health care for all of my constituents I think is an imperative. And everyone should be able to have access to that. Now, are you completely opposed to a private-sector solution? Are you open to that, or do you feel like it has to be done through government control?

MR. KIRSCH: Let me just quickly -- if you're saying we're going to continue to have this fall through the private market that got us into this mess, yes, I'm opposed to that.

REP. PALLONE: Fifteen seconds. Congresswoman, we did not have a rally last year. No one said anything like that at one of our rallies. I think your facts are incorrect.

REP. BLACKBURN: Okay. I appreciate the clarification.

Mr. Chairman, I will yield back, and I have some questions that I didn't get to that I would love to get for the record.

REP. PALLONE: Every member can submit questions for the record. I'll mention at the end, but I can mention now. Within 10 days, we usually ask members to submit their written questions, and then we ask you to get back.

The gentleman from Georgia, Mr. Barrow.

REP. JOHN BARROW (D-GA): I thank the chair.

We've heard a lot about how beneficiaries are going to benefit on the various proposals in the tri county -- (inaudible). I want to hear a little bit more about how providers can benefit.

Where I come from, people are mighty concerned about being able to keep their choice of doctor and their choice of hospital. And it would probably be more accurate where I come from to talk about getting that choice back, because a lot of folks don't have a choice in the current system as to where they can go to get the treatment. You talk to doctors, and they've got this problem writ large. The consolidation of business in the health insurance sector has allowed fewer and fewer insurers to exert and abuse what is essentially a monopoly power, is that what folks are going to get reimbursed.

So when I hear folks talking about how, you know, participating in a public plan is going to get you at least what you get from Medicare (plus 5 ?) or something on that order. You're talking about a system that's already so badly broke that we're ignoring what's going on in the private sector, where the private insurer's are saying, you're not in our network, you don't get to treat anybody, because we're the only insurer in town.

So what I want to know is, how are the rights of doctors and hospitals going to be strengthened here? I read a lot in the summaries about how the interests are going to be served pie-in-the- sky wise, you know, down the road, we're going to grow the universal providers and provide incentives to get more folks into the game. Well, that stuff sounds good. But what about the rights, what can folks expect as a matter of law if this draft were to be enacted in terms of what doctors get to participate in what plans, how insurers can discriminate against doctors of good standing in their community? How is this going to change in terms of how the world looks to doctors?

Who can go first on that? Mr. Kirsch, you want to take a stab at that?

MR. KIRSCH: Well, I think the first thing to note is that while there are some access problems in Medicare, 97 percent of doctors accept Medicare. And you know, seniors find that they get coverage with a large variety of doctors in the community through Medicare, and you don't have the kind of network problems you have in private insurance where there's restricted networks and, you know, you may change insurance plans, and you lose freedom of choice of --

REP. BARROW: (Inaudible) -- the benefits package is good, at least the standardized -- (inaudible) -- what to expect in terms of what is covered. But doctors don't like, though, the way we have abused the system with the constant, you know -- (inaudible) -- issues have sort of abused that system so much, it's just no longer, you know, the gold standard in terms of what doctors look for and what they expect to get -- (inaudible) -- reimbursed for the reasonable cost of what they're doing.

MR. KIRSCH: Right. And I know that, you know, one of the things about the SCR fix will hopefully mean that we're in a long-term path to make that more comfortable for physicians at the same time, from a point of view of physicians participating and participating in Medicare. And one of the things about a public option and having stability and we would expect physicians to participate in the same way they do if the Medicare, particularly the new legislation paying 5 percent more than Medicare, you would then solve a lot of this problem of choice and stability for individuals. And then doctors would have a system they can enter in at an enhanced rate for Medicare, particularly that SCR fix.

REP. BARROW: So basically, what you're saying is if the doctor is being pushed around by the one or two dwindling payers in the market, they have a place to go they don't have right now guaranteed -- (inaudible).


REP. BARROW: How about hospitals? How are hospitals going to come out of this, especially rural hospitals? How are their interests going to be strengthened or served by the -- (inaudible)?

MR. KIRSCH: You know, a huge burden for hospitals is uncompensated care. It's an enormous, enormous burden, you know. And hospitals are always faced with, what do you do when someone comes to the emergency room and needs medical care and isn't covered? Let's provide coverage for those folks, and that's a revenue source for the hospitals as opposed to have to collect, you know, not have the revenues, hurt their bottom line, cost shift to other payers.

So you know, estimates are that actually insurance policies, the average family insurance policy is $1,100 for uncompensated care. And most of that's in hospital settings. And one way that over time is to get everybody in the system, we can reduce other premiums and also have a revenue source for hospitals they don't have now.

REP. BARROW: Mr. Neas, you want to chime in?

MR. NEAS: I just wanted to add regarding the doctors, and this is a very important point. I said in my testimony that we have 78 organizations, this stands for 150 million Americans. One of the best things, we have about 10 medical societies in the National Coalition on Health Care. That was not the case in 1993 and 1994.

And I know sitting down with the doctors and the nurses and others, with Henry Simmons and others on the staff, I said, why are you doing it this time? And they said, this time it's different. We see an attempt to have comprehensive systemwide systemic reform. We don't mind making some sacrifice as long as it's a shared sacrifice, a shared responsibility. We can give up something if everyone is going to be giving up something. They want predictability. They want to make sure they're getting reimbursed. But they want a system that works, that's sustainable. And I think sustainability might be the most important word that I'm going to say today before this committee.

But I think that's why you're getting so much participation from all the stakeholders. This is such a different environment than 15 years ago. And I think that's the reason why.

REP. BARROW: Well, we're addressing the interests and the rights of the existing universe of health care providers. Let's go back to the subject I passed over for a second, and that's long-term problem of supply and demand. We don't have enough primary health care providers, for example. Do you think incentives and the proposals that are in this bill are adequate enough or robust enough or muscular enough in order to be able to provide us with growth in the sector of the health care community that's being underserved right now, not by area but by area of practice?

MR. NEAS: We have been meeting with the medical societies. And one of our newest members, the American Association of Medical Colleges and Teaching Hospitals, and they've been pointing out to us this extraordinary workforce issue.

And as you know all too well, primary doctors now only account for about one-third of all the doctors in the country, sort of the reverse of what it was just 20, 25 years ago. We need more nurses. We need more doctors. We need more training. We need more money. We've got to invest in providers and our doctors and our nurses.

And there are several measures in this legislation that do that. There's increases to the National Health Service Board --

REP. BARROW: My question was, though, are they adequate enough? Do you think they're strong enough to actually make a difference, to bend the curve in the areas that they serve -- (inaudible)?

MR. NEAS: There's significant investments in doing this, which is really needed, and a whole variety of measures that the bill includes.

REP. BARROW: Thank you, Mr. Chairman.

REP. PALLONE: Thank you.

Ms. Christensen.

DEL. CHRISTENSEN: Thank you, Mr. Chairman.

I think it was Mr. Neas -- and I thank all of you for being here this morning.

Mr. Neas, I agree with your statement and your testimony that this is not the time for halfway measures. But I also take the position that coverage alone doesn't, you know, reform the system. None of the principles in the National Coalition address the huge gap -- (inaudible) -- the health of people of color, rural areas or the poor. Where and how does the elimination of these disparities, that drains the system and our community, fit in your agenda? Or is it included inherently in those five principles?

MR. NEAS: You have raised such an important issue. I was just meeting last week with many of the groups who are working on disparity issues. The question has been asked about how urgent this issue of enacting this bill is and what's the crisis. It's an extraordinary crisis. We cannot afford to wait.

And I'm addressing your issues. It's not just the federal government's fiscal crisis and economic crisis or the state and local government, but it's the people who are being affected. Four hundred thousand Americans die every year because of preventable medical errors and infections that they get in the hospitals. Just by mistakes, millions more are harmed.

Those who are uninsured or those who are underinsured, many disproportionately minority people without wealth, are the most affected by this. But it affects all of society. It affects our productivity. It affects the bottom line of businesses and state and local governments.

This is a crisis with enormous proportion that cannot wait. The costs of inaction are --

DEL. CHRISTENSEN: I'm not suggesting that we should wait. I'm suggesting that all of it ought to be included.

MR. NEAS: That is our position. That is why we say systemic, systemwide, which would address the issues that you're raising, which are very important. And without systemic systemwide reform, we can't get to that. We're going to have to make special efforts to make sure every American, including those who do not now have access or do not now have the affordability issue or the quality issues -- (inaudible) -- get those addressed.


Mr. Kirsch, I know that eliminating disparities is one of your principles. But to be able to answer the question, as you say, at the end of the day, will I have a guarantee of good coverage I can afford? To be able to answer that affirmatively, we have to fund this bill without a complete offset. Should we come back on being able to answer that question fully just to meet the $1 trillion limit? Or do you see us maybe budgeting for prevention, knowing that it will save money down in the long run?

MR. KIRSCH: Let me say that there are eight -- by our count, there are eight specific measures that deal with inequities in health care -- (inaudible) -- in your draft legislation. So that's really encouraging. We're glad to see that.

But to this question of, should an artificial or $1 trillion figure be used for this? Absolutely not. You know, I understand that the Bush tax cut was $1.9 trillion over 10 years, and 1.3 trillion (dollars) of that was for the 20 percent of people in the upper-income brackets.

You'll make the decision, I think the right decision to spend about $800 billion just for two years in economic -- we're going to be spending around $42 trillion in health care the next 10 years. That's a sum of 5 percent inflation rate for health care which is actually probably about the -- (inaudible).

So if we're talking about out of $42 trillion, adding 1 trillion (dollars) or $2 trillion, it's really important to realize that if we believe what we do believe, which is we have to create the kind of systemic reforms that in the long term lower costs, we need to make the investments and realize its goals. And these figures that sound so large that we've been talking about over 10 years, then the size of the health care system are really not that large. So we should be driven on doing it right and having the resources to do it.

DEL. CHRISTENSON: Thank you. Thank you. Dr. Parente, much of the savings and reduction in health care costs, although they may be realized outside of the 10-year window, will come from community public health measures and broader policies implemented across all agencies as well as from a more efficient system and the elimination of fraud and abuse. Did any of the models -- did you have any models that took into account community public health measures that would be implemented or addressing the social determinants of health and did that effect the cost?

MR. PARENTE: The models just aren't precise enough to do that. I mean, I personally recognize those are very good things. I actually brought along a book from 1932 that states that all the same objectives that we want to achieve here today with this bill pretty much were there -- this is a long standing goal of what we're trying to do, the cost of medical care from the University of Chicago.

But they can't be accounted for. And actually a lot of things cannot be accounted for. Health IT savings cannot be accounted for easily. Prevention can't be accounted for quite easily as well. And things that -- you know, a 1 percentage point difference in terms of the cost increases in health care vastly change what these projections will look like as well.

REP. PALLONE: Gentlewoman, thank you. The gentlewoman from Illinois, Ms. Schakowsky.

REP. SCHAKOWSKY: I want to talk about cost for a minute because the cost numbers. And let me ask you Mr. Neas as Dr. Parente's study looks at the funding for the federal government, is that the only factor that we ought to consider? And I don't know 4 trillion (dollars) or whatever, I have some disagreements over the -- or at least my staff suggests that, having looked at that, some problems with the methodology.

But that's not the central question. When do we consider total costs spent by Americans - businesses, individuals, out-of-pocket, premiums, co-payments, all those things. When we talk about costs, don't we have to think about the aggregate and not just the federal spending? Can you answer that Mr. Neas?

MR. NEAS: Absolutely. Some people were upset last week by CBO, by Congressional Budget Office. And I'm not saying I agree with how they scored everything, but we're going to look back and thank the Congressional Budget Office because they've put on the table the cost issue. And I think for this to be sustainable, we have to as the president has said make this budget neutral.

But you asked the right question. It's not just an issue of pay- fors or the issue of the federal government, it's looking at the entire system. The best phrase I've heard so far in the last six months, again out of the president, is shared responsibility, shared sacrifice. Let's take the pharmaceuticals, let's take the insurance industry. They are obviously very happy about where this is going in terms of 10 (million), 20 (million), 30 (million), 40 million new customers.

They are going to the table, they are participating and I applaud them, I know they want predictability, I know they're scared like we all are by the economic conditions. But they have to come to the table and give up something too. There's a lot of money that has to be saved by the pharmaceuticals, by the providers, by all of us, by the insurance companies.

I said before about that 2.5 trillion (dollars), the money is in the system, we just have to spend it well. We have to look at the --

REP. SCHAKOWSKY: Okay. Let me see if anyone else wants to comment. Dr. Parente.

MR. PARENTE: Well, the cost issue is I think the dominant concern that you really need to address here. Because of the situation we were in actually the day that I testified last --

REP. SCHAKOWSKY: See, I don't even agree with that. I mean, I don't even agree with that. I mean, I think that the pollings show too that the American people, a majority, said they'd even be willing to pay somewhat more to have universal health care. So you're --

MR. PARENTE: Let me --

REP. SCHAKOWSKY: -- go ahead.

MR. PARENTE: -- put it back to you as a question.

REP. SHCAKOWSKY: Yeah, go ahead.

MR. PARENTE: Are the American people willing to take hyper inflation that could come if this thing basically capsizes Treasury? Because if that happens, it will come because of this bill.


MR. KIRSCH: Well, you know, I say what Mr. Orzak says which is that the current biggest threat to the Federal Treasury right now is the current health care system. If we don't get our hands on that, we're really in a huge economic problem in the long run.

MR. PARENTE: And the only way you can bring those costs down is a status solution that would control costs, which let's be honest, that is what you are advocating. Status solution, I'm sorry, I was out of order.

MR. KIRSCH: We're actually advocating a system that has system wide cost containments in a way that focuses on better delivery. And you know, there's been a lot of discussion of this -- and now as this trip that Dr. Parente to a -- (inaudible) -- Texas and listen to perverse incentives there that -- (inaudible) -- high Medicare spending versus the kind of right systems that you have in a place like -- (inaudible) -- or others.

But we've got to focus on good delivery, on prevention, all those things. And what I do think is important about your first question is that we have to look at this as a whole system. If we don't provide coverage for someone in a benefit package, it doesn't mean like their health need disappears.


MR. KIRSCH: If you don't for instance -- I mean I think certainly a good benefits package, I criticize one too Delta Dental. Now, you get that as part of your basic package in Congress. And --


MR. KIRSCH: Pardon?

REP. SCHAKOWSKY: Very poorly.

MR. KIRSCH: Very poorly but there's none in this and it means that you know, how many members of the committee may have been to a periodontist and wondered -- and what would happen if you didn't have it.

So understanding, beating it out may save the federal government money, but the cost -- it shifts tremendous cost into that family, it makes their health more expensive, it makes them harder to be in the workforce. It's the whole system we need to look at.

REP. SCHAKOWSKY: I wanted to just make a comment. I may have time for that. This issue of competition I think it also bogus because right now, the insurance industry and Major League Baseball are the only businesses exempt from anti-trust laws, from McCarran- Ferguson. And so 94 percent of markets are non-competitive right now. So this argument that somehow you know we ought to leave it to the private sector and competition is just absolutely false. The insurance industry is trying, has tried all its time to avoid competition. And it seems to me that the injection of a private health insurance option -- and frankly I cannot think of a public interest reason why that is not an advantageous thing to do to have a choice of -- would actually inject competition. And I yield back.

REP. PALLONE: Thank you. The gentleman from Texas, Mr. Green.

REP. GREEN: Thank you Mr. Chairman. And for our first full hearing on the draft and I appreciate our first panel, the witnesses for being here. I have a district in Houston, Texas, and Texas has the highest percentage of uninsured in the country and also highest number of uninsured.

And I'll give you an example of why we need I think a public plan to compete. If the private sector could've dealt with the 45 million estimated number of people, they would've already done it because they would be making money on them.

I have a huge refinery in my district -- chemical facilities. About three years ago the CEO of Shell Western Hemisphere sat in our office and said he was transferring some production jobs from their chemical facility in our district in Deer Park, Texas to the Netherlands. Two reasons, the natural gas at that time from the North Sea was cheaper, and natural gas feed stock for chemical production, but the cost for health care in the Netherlands was cheaper than the cost in Deer Park, Texas.

Now it's a union organized plant and so -- but that was the business decision they made. And for a number of years, sitting on this committee, I've been wanting to hear from the business community saying look, this is a cost issue that we have. We can't compete in Deer Park, Texas or in parts because of our high cost of health care in our nation.

So I know there are a lot of businesses who are part of the coalitions -- various coalitions on this, and I wish if you could just address that. And I know it came up in the last question. You know, we have polls all over the board, but I think the one that I saw over the weekend and I talked about, 70 percent of the American people want some type of government run insurance. Now, a public plan is not government-run insurance by any means. But a public plan that'll give the insurer hopefully not last resort because otherwise it'll be so costly.

But insurance product, if people can have -- go to have a medical home instead of showing up in emergency rooms and I appreciate -- I'll start with you Dr. Parente.

MR. PARENTE: I appreciate the concern about jobs. I mean there's been research to show that that, it's ambiguous just how much job loss is associated with essentially the provision of health insurance and that cost is associated there.

That said, let me tell you what I think could work. It starts with understanding what is insurance. Insurance technically is a provision of a policy therefore fairly high cost with low probability event. That is not health insurance, nor is it health care. We throw those terms around quite a bit. If we were to offer insurance for all and call it really health insurance, that is a catastrophic plan probably with a 5 (thousand dollar) or 6 (thousand dollar) or $7,000 deductible. And to answer the previous question about we could do better with $2.5 trillion (dollars) a year, if you distributed that an individual mandate of the entire country, you'd have money left over.

But that's not what we do. And because of that, we have over a period of time basically thrown in prevention, other services. You think about what the medical home originated from, it originated from the HMO Act of 1974 more or less saying let's move to a capitation model, it seems like it's back to the future. What was missing was health IT and actually some sort of cost accounting to make performance measures come in.

Maybe now with the stimulus bill that will happen. That's still a long time coming.

The concern is that that's designed to try to emphasize prevention financially by having extremely low copays. The unintended consequences of that was that when pharmaceuticals went from basically non trivial expenses to suddenly being covered by generous health insurance plans, those $5 or $10 copays got translated beyond just an office business practice with a gatekeeper that was mandatory for everyone. That's what's driven up our costs.

We;e the enemy of ourselves here. So the way to fix it, if you want to fix it and have it be budget neutral, individual mandate, catastrophic plan, let the rest buy up by state preference, however you want to do it. That's budget neutral, and it would actually preserve the most important thing that I think Americans want, and I think it was in your survey.

REP. GREENE: Let me respond to that, because I only have actually 25 seconds left. Again, coming from the state of Texas where we have individual state options, we have 900,000 children in Texas right now who are qualified for SCHIP or Medicaid who are not on it because the state won't pay it past the match. The one thing that I asked the chair to have a national plan, and don't come up with something that will say the states will make this option because we know what will happen in certain states.

And again I was a legislator for 20 years in Texas, and so I bring that as an experience to you. I know I'm out of time, Mr. Chairman. Thank you.

REP. PALLONE: Thank you. The gentlewoman from Wisconsin, Ms. Baldwin.

REP. TAMMY BALDWIN (D-WI): Thank you, Mr. Chairman.

I wanted to just comment, I'm going to sound a little bit like a broken record on this, because my fellow committee members have heard me talk about the public option that we have available in Wisconsin in our Medicare Part D program, and I don't know if any of the witnesses today have had a chance to study that, but to me it's ample evidence that a public option could be available and can compete favorably.

Let me just quickly comment on it. For -- perhaps a series of coincidences, we had a pharmacy waiver before the Medicare Part D program was implemented. We had a program that was available to seniors in Wisconsin called Senior Care.

Our congressional delegation sought on a bipartisan basis to keep that program when Medicare Part D was implemented, and make it a choice available to seniors and other eligible folks in Wisconsin. And it has operated at about a third of the cost per enrollee compared with the private sector option. But for those who think that having such an option would drive away the private sector competition, I can also tell you that Wisconsin has among the most vibrant array of private options for its citizens, I think I've heard more than any other state in the union.

So I just want to draw that to people's attention and perhaps when grilled about is there an example that you can point to anywhere in the country of a exchange that's been set up with a public option competing with a private option, you can study this, and I think it's a great example.

I want to move from that to a related issue of state innovation as we move forward with this. Mr. Kirsch, you are committed to a strong and robust public health insurance option, and I'm interested in your perspective on the role of states. You think that the ability of states to play a role in running these exchanges will enhance a national exchange? And do you think that disability will empower them to build upon the reforms that we've passed at the national level?

MR. KIRSCH: Well, the legislation as I read it says states or groups of states can set up exchanges. And you know, we think that that's an important option; it doesn't have to be just an individual state. Where you want these exchanges, every time you create an exchange you have to set up another entity. And so you know if groups of states can do it it may be more efficient than having individual states do it.

And you know, if you have a national public health insurance option such as proposed, then it's going to deal with this exchange, and so it becomes one more way of less administrative hassle if it's getting fewer exchanges.

So it's fine to say states can do this, but we think groups of states doing it, looking at more efficient ways to set up exchanges, manage then makes sense too. There's no reason just because we have 50 states in the country that we have to have 50 separate exchanges.

REP. BALDWIN: I don't know if Dr. Parente or Tom, Mr. Neas, have any comments on the state role in this.

MR. PARENTE: I think states are a tremendous place for innovation. Actually what I would welcome to see is how an exchange would go forward -- actually it would be something that would repeal McCarran-Ferguson, and allow states to compete across -- plans to comete across state lines because that would allow the innovations of those private players in Wisconsin that have demonstrated such innovation to actually compete in Santa Fe. I think that would be a nice conclusion.


MR. NEAS: Congresswoman, I think this is an excellent question to ask. It reminds me of a conversation I just had with my boss, Dr. Anderson (ph) a few days ago. We're talking obviously about having a comprehensive systemwide national health care plan. However this is only the first half of what we have to do. Once this is enacted this year, then we're going to have to implement it, oversee it, and enforce it. And I think the states are going to play an incredibly important role in that and be partnering with the federal government.

I think it does reinforce what this committee's role is going to be in overseeing whatever does get done at that level, as well as organizations like ourselves. The implementation and enforcement of this law, which will hopefully be done in conjunction with the states, is a question that should be addressed now and forever more.

REP. BALDWIN: Thank you.

REP. PALLONE: Thank you. The gentleman from Kentucky, Mr. Whitfield.

REP. ED WHITFIELD (R-KY): Thank you, Mr. Chairman.

Dr. Parente, you mentioned the staggering national debt, and we are on the verge of making a multi-trillion dollar decision relating to health care. In your mind are there more cost effective alternatives to expanding health insurance coverage than the Kennedy's bill or the bill before us today?

MR. PARENTE: As I said in the testimony it's hard to sort of have a silver bullet for this at all. I think if you have a mandate on some very basic coverage with some provisions for prevention, that will lower the price tag considerably, perhaps by half. It still may not make it free. You are going to need to find someway to have this be paid for. But what it does is, it actually says to the American people you have a right so that if something happens and you face a catastrophic illness, you will be covered, and you will have choice of physicians. And that's what we will guarantee.

But to actually go beyond that and to put it into, you have a right to a public option plan that is based on a sort of an FEHBP model of a Blue Cross-Blue Shield plan that's been morphing for the last 60 years adds a little too much extra cost, approximately probably 70 percent extra cost than you need to have, and probably reinforces the same behaviors you have in the inefficient system we have today.

REP. WHITFIELD: Well, you know, of course all of us are concerned about costs, and that is particularly important today with the economy being what it is, and the amount of money that we are spending. But in addition to that, of course, the American people want a quality health care system that they all have access to. They want health insurance that they can afford. And we want models that can be adopted that we do not have this spiraling cost of health care.

And I've been reading recently, and I know he's testified over on the Senate side quite a bit, the CEO of Safeway. And I know this when the Medicare program started in 1965, CBO estimated that by 1990 the cost would be somewhere around $9 billion. As it turned out in 1990 the cost was around $100 billion or so.

The thing that I like about the Safeway model, it appears from the evidence that the CEO is providing that they have actually been able to control health care, the cost. But more important they've given their employees the right to make decisions on who they want to see, and they also have developed a system of transparency, so that employees can shop around and determine the costs that various providers charge, and there is a real disparity in that.

So I would like to get your comments, those of you who are familiar with the Safeway program. Mr. Neas, I know you're -- would like to make a comment on it, so go ahead.

MR. NEAS: I do want to salute Steve Burd who I believe is the CEO of Safeway, and all those who make voluntary efforts with respect to well-being and prevention. I don't think there are any independent studies corroborating what Mr. Burd has put forth in committees of the House and Senate. And you're talking about cost, I do think that much of what's in the bill, whether it's the Kennedy bill or this bill or things that the president have brought up, they're good, long-range cost-saving measures. I don't think everyone -- anyone, really, has yet addressed the short term, and I think we are going to need some short term regulatory constraints on the increase in the expenses, systemwide.

As Congresswoman Schakowsky was saying, it's everyone's responsibility, but we need some short term cost control in the bills that come out of the House and Senate, not just the long term cost saving measures. And I would hope that would be something that this committee and others would address.

MR. KIRSCH: I think it's good what Steve Burd has done at Safeway and what was done at Pitney-Bowes. A lot of other companies in the country, they've actually looked at ways to control costs. As you said, the key has been to not have financial behaviors to preventive care to get people in the system early.

And one of the reasons we want a hybrid system is to encourage that kind of innovation, and have -- encourage it more Medicare. If we look at Senator Baucus' options, pay per -- it's all these things that Medicare is gone and made available. Let's let the private sector innovate, let's let the public sector innovate, let's look for better delivery systems. That's what we've got to do if we're going to move towards a solution that makes this affordable for everybody.

MR. PARENTE: Just a quick comment. I studied consumer-driven health plans, and actually there's a report I have that was done -- published by HHS last year, that looks at a design very similar to Safeway, and found that it actually saved costs; we've spent down the curve, and prevention wasn't touched. That's why I'm advocating that as the model, because I think that could be a very cost-effective solution if the financial incentives were structured in that way.

REP. WHITFIELD: Thank you. I guess my time has expired.

REP. PALLONE: Thanks. The gentlewoman from Florida, Ms. Castor.

REP. KATHY CASTOR (D-FL): Thank you, Mr. Chairman, and thank you all for your outstanding efforts.

Briefly, could you all in 20 seconds take a turn and characterize CEO profits of HMOs, and HMO -- or CEO salaries, HMO CEO salaries and HMO software over the past 10 years.

MR. NEAS: I would have to give you my personal, anecdotal response to that, that it seems excessively highly over the last 10 years. There seems to have been numerous press stories that underscore the extravagancy of some of those salaries and some of those profits.

MR. KIRSCH: I think we're looking at average CEO salaries of $12 million, the top 10; insurance companies in 2007, average profits of about 12 billion (dollars), $13 billion.

REP. CASTOR: Did you say billion?

MR. KIRSCH: Billion in terms of profits, top 10 CEO salaries of $12 million (dollars). And I believe there was a 400 percent increase in profitability from around 2007 -- I'm doing this from sort of my visual memory, but it gives you a scale of the kind of increase in profits we've seen in the industry over the last -- and I quote to conclude with a quote from Angela Braly, the CEO of WellPoint. We're talking to financial analysts about what kind of decisions they're making, because we will not -- the whole sentence. We will not sacrifice membership for profitability. In other words we're not insuring more people if we're going to lose money on them because the cost -- (off mike).

MR. PARENTE: They've been going up; we all know that. The question is whether or not they're returning value. I spent two or three years working at a nonprofit Blue Cross-Blue Shield plan. I liked the people. I liked the management. I was sort of disturbed by how inefficient everything could be. That's what drove me to become an academic, I suppose. And -- no commenta there.

But what I found in terms of some of the good plans that are publicly traded is they introduced innovations that I was dying to see done in those nonprofits, Blue Cross-Blue Shields. And if there was anything I think that is a virtue to this public option plan is it puts competition into those plans, for better business practices. But keep in mind those better business practices I see being -- coming mostly out of the for-profit plans are being demonized. So I'm of mixed mind when talking about what the return on investments of those salaries tend to be.

REP. CASTOR: Let's just -- I think we can all agree, the American people are concerned, to put it mildly. I would say that they are angry. In my home state of Florida there is a recent example of the largest managed care provider, private, HMO, that has just -- that the offices were raided sometime ago by the FBI, charged by the Justice Department, and just settled a case because Florida had embarked on a pilot project to privatize Medicaid.

So this private HMO came in and won the bid, and it turned out that they were paid money to provide health care services for children under Medicaid and under the State Children's Health Insurance Company (sic), and rather than provide the medical services they pocketed the money and have just settled the case for $80 million they're going to pay back to the state of Florida.

Meanwhile the CEO was receiving multimillion dollar salaries. They were posting the highest profit margins in the history of managed care in our state. So when we talk about costs, isn't there enough cost -- isn't there enough money in the health care system now? In fact, the CEO of a Florida HMO paid a visit last week, and that's exactly what he said to me. There is enough money in the system if you adopt a public option, and a comprehensive health care reform bill, we can get this done.

In contrast to all that, what's happening to the average American family. Health care costs are driving Americans into financial ruin. A recent Harvard University study said that 62 percent of bankruptcy cases now are caused or influenced by medical bills -- 62 percent. In 2001, it was 50 percent, and in 1981 it was 8 percent. And now with the rising numbers of uninsured, they're often completely hammered because they have to pay the entire bill, whereas if you actually are in -- have health insurance, you benefit from the negotiated lower prices.

Many people in this day and age really have nothing left because they took out a mortgage on their home. Now their home is worth thousands and thousands of dollars less. Isn't the real crowd-out issue the fact that Americans do not have access to affordable health care? Health care costs have skyrocketed, and their paychecks haven't kept up. Isn't that the real crowd-out issue we're going to tackle in this health care -- (inaudible)?

MR. NEAS: Absolutely.

MR. PARENTE: Just very -- I know I only have a second here -- but the reason why costs go up is that we like medical care and it works really well. And societally, that is a decision we are taking. Individually everyone has their hardship concerns, and I do not belittle at all what you're saying. But understand why this is occurring. Health care is a good, and we all want it. And we're not willing necessarily, collectively, or found the right mechanism to distribute that desire to meet our economic challenges.

MR. KIRSCH: I would just say if you look around the world you see there's higher utilization in a lot of countries, and they spend a lot less and get good quality. So I would disagree with Dr. Parente.

MR. PARENTE: Let me make one personal comment back to that. I worked for the British National Health Service as my first job, because I believed in single payer when I was 21 years old. When I worked for the British National Health Service I was in southwest London in a teaching hospital. Here's how they saved money, because they still do it the same way.

Would you like to guess here -- anyone -- how many long-term beds, skilled nursing beds, they had available for a quarter million people in that space? Anyone? How about 31. That's how you save money. How they did it. That's why UK has the most advanced hospice program in the world, because in order to save those resources, with a soft velvet touch, you basically were to say to someone who was 80, you have CHF, I'm sorry, this is the end of the road, let's make you comfortable. Here we don't do that as much.

MR. NEAS: Congresswoman you're really getting to the heart of the matter here as to why we have the kind of polling that we have. People are starting to find out about these outrages. And we do have some of the finest if not the finest health care in the world, but as Mrs. Christiansen said, if you can afford it. But there are tremendous disparities.

And I said a little while ago, 400,000 preventable deaths per year in our system; 400,000, costing 700 (billion dollars) $800 billion a year. These are all costs that could be addressed by systemic, systemwide care. This is a scandal that this is happening, absolutely a scandal. And you were talking about the costs for individuals and the bankruptcies, four times as much for health care cost as an increase in wages. When people find out about this, as good as the polls are now, they're going to be even better -- there's going to be a popular uprising on behalf of this kind of bill, and for comprehensive health care reform this year. It's absolutely necessary.

REP. PALLONE: I let them go because I didn't want them not to have the opportunity to answer your question, but we've got to move on. Thank you.

The gentlewoman from Ohio, Ms. Sutton.

REP. BETTY SUTTON (D-OH): Thank you, Mr. Chairman.

Mr. Kirsch, I want to thank you for being here. I want to thank you all for being here. And Mr. Neas, thank you for the leadership of your very diverse coalition; we appreciate it.

But Mr. Kirsch, the coalition's five basic principles for health care reform: coverage for all, cost containment, improved quality and safety, simplified administration and equitable financing. That is how you -- or is it Mr. Neas, I'm sorry, Mr. Neas first; I apologize -- I get you agree with this. Mr. Neas, those are the broad principles that your coalition is fighting for in the health care reform; is that correct?

MR. NEAS: Those five principles buttressed by many many specifications that are part of our pamphlet. I bring this everywhere -- just like Senator Robert Byrd brings his copy of the Constitution, I bring this blueprint for reform, which has specifications that 80 organizations spent 18 months putting together to implement those five principles.

REP. SUTTON: And I appreciate that, and I appreciate that commitment much the way I appreciate the commitment to the Constitution.

Dr. Parente, do you agree with those five basic principles for health care reform?


REP. SUTTON: And I just have a question, Dr. Parente, about -- I apologize that I didn't get to hear your testimony, but I did get to read it. And so based on that, you just got to, at some length, the parts of health care that can create costs without any regard to the many cost savers that will be included. So in particular I'm interested in your score of the public health plan option. You don't seem to consider that with a public health plan comes increased competition. You sort of almost scoff at that in your -- in your testimony, that will increase access and drive down premiums for beneficiaries. Why do you choose to disregard that?

MR. PARENTE: Because there is not a study that shows it would work.

REP. SUTTON: Okay. So you're just -- until somebody shows you a study -- and I heard Ms. Baldwin talking about what is true in her state -- are you saying that there's no demonstrable evidence based on what is happening there to support this kind of conclusion?

MR. PARENTE: Not on a national scale. I am from the Upper Midwest as well. We in the Upper Midwest, as was in the New Yorker article, just do things differently; a little more cooperative, maybe because it's cold. But to generalize it out to the nation is not easy to do.

Just take the examples from Florida. I guarantee you, Wisconsin, Iowa and Minnesota are really low on fraud. Florida, on the other hand, is the capital for the world. To find a one-size-fits-all solution is going to be difficult. That's why I propose, if you are going to be doing something like an exchange, let insurance companies buy in each others' markets, compete in each others' markets, and not be constricted to the same state-specific things that McCarran- Ferguson does today.

REP. SUTTON: You know, a couple of things. You will concede, then, though, that there is some, on a statewide basis, evidence to support that it could drive -- that a public plan can drive down costs and increase competition.

MR. PARENTE: Not at a national scale.

REP. SUTTON: I know. I said at a state level.

MR. PARENTE: There's evidence that state innovation is successful.

REP. SUTTON: Mr. Kirsch, would you like to comment?

MR. KIRSCH: Medicare has less than 5 percent annual inflation. Private insurance has about seven and a half percent inflation; commonwealth funds, thanks to the premiums. If we do Medicare rates, you guys are talking about Medicare plus 5 percent; you'd have 20, 30 percent savings. There are studies. The Urban Institute says it'll save money. Jacob Packer (sp) at Cal-Berkeley think it'll save money. So there are a bunch of studies that say it'll actually save significant money. And we've seen that Medicare has lower inflation than private insurance. So I would beg to differ.

REP. SUTTON: Okay, thank you.

Dr. Parente, can you tell me, do you think that the majority of the millions of uninsured Americans -- do you think that they're just simply waiting for the right plan to come along?

MR. PARENTE: No, I think that there is a real problem. You know, most people would refer to this as a market failure to have this level of folks be uninsured. I think the question people have to ask is, when people hear that 45 (million), or probably now 50 million number by the time this year shakes out, you know, the question I think people think about is, is that the number of people that started the year uninsured and ended the year uninsured and found nothing in between? Because that number is quite different. That number is a fraction of 50 million.

REP. SUTTON: With all due respect, I think people, when they hear that number, think that is totally unacceptable in a country as great as this, that we would have millions of people uninsured with access to care when they need to.

MR. PARENTE: I would --

REP. SUTTON: I'm going to move on. I just have a --

MR. PARENTE: I would agree. What I'm saying is, focus on the folks that start and finish the year uninsured. That's a priority.

REP. SUTTON: Okay. Do you think that the American people who have insurance through the private insurance industry are very pleased with their care?

MR. PARENTE: I've seen surveys that suggest that they're not. But it's a heterogeneous mix, and they are upset for different reasons.

REP. SUTTON: Do you think that it's appropriate that the pre- existing condition exclusions that exist in the private market should continue?

MR. PARENTE: It all depends upon whether those pre-existing conditions actually really get premiums to a point where insurance is unaffordable, which actually, in several states, it has not.

REP. SUTTON: Okay, I know that my time is up. Thank you.

REP. PALLONE: Thank you.

The gentlewoman from California, Ms. Matsui.

REP. MATSUI: Thank you, Mr. Chairman.

I'd like to focus in on one area, although I'd like to ask a lot of questions, but this is one area I'm really focusing on, and that's prevention as overall part of the health care reform. And we can't forget it, because we understand that we need to prevent people from getting chronic diseases like heart disease, diabetes and asthma. And unless we do, the costs of our health care system will just go up, no matter how well an insurance exchange is structured.

More than 75 percent of the health spending in this country today is attributable to chronic illness, but only about 3 percent of our health care spending is for preventative services and disease promotion.

Mr. Kirsch, your organization platform states that health care reform will emphasize quality care, including coverage for prevention and primary care and good management of chronic conditions. And as you know, our draft bill requires insurance companies to cover preventive services and waives all co-payments for these services.

Is your organization's vision for preventive care fulfilled in this legislative draft before us today?

MR. KIRSCH: Yes, in terms of the benefit package, absolutely, because what you've done is just what you've said. You've made prevention a standard part of the benefit package, and eventually employer-based coverage, as well as the exchange, and you've done it without financial barriers to care. And you've also made a significant investment in the legislation into increasing the number of primary care providers, because we're going to need that to be sure this dimension of preventive care is delivered.

REP. MATSUI: But do you think the bill could be strengthened and place an even greater emphasis on preventive care?

MR. KIRSCH: Well, the benefit package, in terms of prevention, is good. Now, some of the details of the benefit package are going to be left under the bill to an advisory board to set that. It's a question of how much is put in law now versus not. But the point is, you've set prevention, you've set financial barriers, and you've made the investment in primary care infrastructure. So I think these are really, really good.

REP. MATSUI: Okay. Given that the draft bill requires a certain level of coverage for preventive care services already, do you see any role for the public option in driving private insurance toward a model that focuses more on services that will help people avoid getting sick in the first place?

MR. KIRSCH: Well, I hope so. I mean, you know, I had an interesting conversation years ago with the CEO of an insurance company. He said, "It doesn't pay for us to invest in prevention, because we're only going to have these folks for a year or two, so any savings won't accrue to our benefit." That's the kind of calculation you make if you run an insurance company, or you just do your marketing to people who don't need a lot of health care in the first place.

A public option, whose mandate is the public good, who's looking at the long term, will have a different set of incentives, to look at how do we promote the public health, how do we keep people in, how do we avoid them getting sick, how do have good chronic care management, innovate in that?

And it's very important that one of the goals you specifically laid out in this legislation for the public option is innovating delivery system options that do that. And so not being simply -- you know, Medicare has done some of that. Medicare needs to do better. But the fact that people made that specific mandate for public option is incredibly important.

REP. MATSUI: So you see this as a real opportunity here in the public option aspect of it.

MR. KIRSCH: The public option specifically is charged through your legislation for doing that kind of innovation of delivery systems to focus on better chronic care management, to do the kind of things you're asking about.

REP. MATSUI: Mr. Neas, did you --

MR. NEAS: I just want to add to that. There are some excellent provisions in the bill. And I think there's more and more discussion with respect to best practices in looking at (Intermount ?) in Cleveland and Mayo and other places. But I think it's very important to make sure that your deliberations and your eventual decision and how it's implemented is evidence-based. And I think that is so essential for making this all work.

REP. MATSUI: I believe that too. And I think that there is evidence available. It's trying to get the evidence in a manner which we can actually compare. And prevention and wellness -- many people seem to be more something that is a wealthier side. But for me, I would rather not get sick. And I think if you don't get sick, you'll probably lower the health care costs anyway.

But I was also considering, too, what -- Mr. Neas, you did a lot of work on health care costs and how they hurt small businesses. And if you -- can we use the same model here that Safeway has used as far as what they've done as far as prevention and wellness, as far as applying -- having small businesses do the same things too?

MR. NEAS: I had an opportunity to respond to another member regarding Steven Burd in Safeway and saluted him for his innovations in his well-being and prevention efforts. I also did hasten to add that there hadn't been any independent study to corroborate some of the claims that have been made.

But certainly we want to welcome efforts by the private sector, by everyone, to try to keep people well, to prevent things from happening. That's an important part of the equation.

REP. MATSUI: I think I've run out of time, but --

MR. KIRSCH: Just quickly, though, I think what the key -- and one of the reasons to have a strong public option is how are we going to take -- it's great that Safeway or Pitney Bowes or -- (inaudible) -- can do it. How are we going to translate that to small businesses? If we have public option that drives those things and then small businesses -- (inaudible) -- benefit for their employees, we can make it more than just innovators in the private sector.

REP. MATSUI: Thank you.

REP. PALLONE: Thank you.

The gentleman from Utah, Mr. Matheson.

The gentleman from Massachusetts, Mr. Markey.

REP. ED MARKEY (D-MA): Thank you, Mr. Chairman, very much.

This is an historic time. And we're very proud in Massachusetts that we adopted a new law that puts us in the same role as revolutionaries that our state has historically played in many other areas, except we're not any longer talking about Minutemen but minute clinics up in Massachusetts, and not Redcoats but the white coats of doctors in terms of this revolution that we're trying to create.

What I would ask is if we could get your opinion as to this Massachusetts plan and lessons you draw from it and what you would try to emulate or avoid in moving forward. We have moved now to 97.4 percent of our citizens with coverage, which is something that obviously we had as our goal. It's only been in place for a couple of years, but it obviously has been successful to that extent.

But Mr. Neas, could we begin with you? And welcome back to this committee; the many times you've been here. And whatever observations you have, I would very much appreciate.

MR. NEAS: Mr. Chairman, it's an honor and a pleasure to be back here. And as you know as a product of Massachusetts as a former chief counsel to Republican Senator Edward W. Brooke, I am very proud of what Massachusetts has done. Senator Kennedy, yourself, the legislature, Mitt Romney and others, especially with respect to I believe including about 95 percent so far of the population of Massachusetts.

Having said that, I know Massachusetts made a political decision several years ago that it was not going to address the cost of management issues at that time. So we have my very good friend Governor Devall Patrick going to the legislature right now and going around the state to make sure there's additional legislation that would address the skyrocketing costs and increasing costs affecting Massachusetts and every other state in the union, and it's such a national emergency.

So there are wonderful lessons to be learned from Massachusetts. There are also lessons that you expected that it was not a sustainable plan unless the money was going to be raised and/or the cost containment issues were going to be addressed. I think Massachusetts is starting to do that and I believe with a national plan that addresses health care form in a systemic systemwide way and works in partnership with Massachusetts the Paul Revere work that's been done will be completed over the next few years -- next number of years.

REP. MARKEY: Thank you Mr. Neas. Mr. Kirsch.

MR. KIRSCH: Sir I have a daughter who's a nurse at Children's Hospital in Boston. But probably in terms of your question more importantly I have a daughter who just moved to Boston, Somerville, has taken not a very well paying job between college and graduate school but has good health insurance because of what you've done. And when she was between jobs, we had to pay more than $300 for a medication she's on for a chronic condition. It was a lot of money for us to pay. Fortunately, we were able to do that, but what would have happened if she weren't able to have that -- now be able to get that coverage with a plan. The plan has been successful by expanding coverage to low income and moderate income people in Massachusetts, which is extraordinarily fortunate.

Where are the things that we think can be improved? One is unfortunately the -- and this is a fiscal problem because the state's just doing it -- the subsidies don't go more than 300 percent of poverty level, which means there are a set of people who have been exempt from the program that it's not affordable. What's good about your legislation is it goes up to 400 percent of poverty level, it also allows you to look at regional differences in cost -- (inaudible) -- to do this because it's very important.

Second of all, it doesn't have a public option in Massachusetts, and by injecting that kind of way of controlling costs, that's an important factor.

Third, you don't really have a clear responsibility because the -- (inaudible) -- challenges and also because Governor Romney wasn't crazy about it. Employer responsibility is very important in terms of writing a lot more revenue, you can only get away with it in Massachusetts because it's one of the highest employee-sponsored insurance penetrations in the country, you can't do that at other places.

So a lot of good things the Massachusetts modeling has shown, but some things that we think can strengthen it. And as Mr. Neas said, you're all starting to deal with the cost control issues which are being built into the federal reforms.

REP. MARKEY: Okay. Thank you sir. Dr. Parente.

MR. PARENTE: I think you should be applauded for doing it. I think this was a landmark initiative. Costs are the big issue, as are being discussed and previously mentioned. I think also there are some -- could be longer-term issues in terms of competition. One thing that was learned that actually was part of our workload previously was that some of the higher deductible plans or the low option PPOs would be the magic price point, again many people to get the right incentives to come in and we just have to be sure that if this happens, we'll discuss it here, that those options are on the table as well.

One thing that, I'll make this very brief comment was that you really need to have as many private insurers come in to compete as you can and I remember that that wasn't the initial concern but it looks like it's being addressed.

REP. MARKEY: Thank you Dr. Parente, but there are a lot of things in common Mr. Chairman. It's -- you know, it includes expanding Medicaid, creating a connector to help patients select a plan, and helping to subsidize the low income citizens so that they can have access to health care.

So I think the general principles are very similar. And we can learn actually from what went well and what needs to be reformed in the future. And I thank you for your leadership.

MR. PARENTE: Absolutely.

REP. PALLONE: Thank you. And I think we're done with Mr. Dingell, Chairman Dingell. Mr. Dingell? There we go.

REP. DINGELL: Thank you Mr. Chairman. The study of the costs was just limited to the Kennedy bill, is that correct?

MR. PARENTE: There was also done -- one of Coburn Ryan and also one on the Senate Finance Committee as well.

REP. DINGELL: I see. You've not done one on the bill that's -- or rather on the draft that's --

MR. PARENTE: I mentioned earlier I hope to have estimates on that done by tomorrow morning at 8:00 a.m.

REP. DINGELL: Okay. Now I'm curious, you mentioned the English health system. Is there any significance, similarity between the English health system, of which you appear to be critical and the discussion draft that's before the committee?

MR. PARENTE: Actually I'm not critical of the English system. I'm just bringing it up as a comment. I think both systems grew out of the, if you will, the socio-economic history of each country.

REP. DINGELL: But there's no similarity between the two?

MR. PARENTE: Well there will be increasing similarities if we have to ration care.

REP. DINGELL: Why do you make that statement?

MR. PARENTE: Because the only way you can actually hold the cost curve down effectively with Medicare is effectively --

(Cross talk.)

REP. DINGELL: This is your assumption, is that correct?

MR. PARENTE: It is an assumption --

REP. DINGELL: And as in all other studies, the study is only as good as the assumption, isn't that right? Garbage in, garbage out.

MR. PARENTE: Not necessarily. I mean, if it's garbage in, garbage out, then all of the commonwealth and stuff has to be thrown out too.

REP. DINGELL: Now you have -- this is not a single payer system that we're talking about here, the European system is a single payer system, to which you're referring isn't that right?

MR. PARENTE: The European system is made up of many countries that constitute --

REP. DINGELL: Let's talk about the British because --

MR. PARENTE: They're not all single payer systems. The UK actually is --

REP. DINGELL: The British system is a single payer system, is it not?

MR. PARENTE: It's a single employer system, yes.

REP. DINGELL: Now your assumption that there will be rationing. There's rationing right now, isn't there?

MR. PARENTE: Yes, there is.

REP. DINGELL: We have 47 million Americans who don't have any health care, and during the course of a year we have as many as 86 million who have no health care. Obviously, those people without health care are being rationed, are they not?

MR. PARENTE: Yes, they are.

REP. DINGELL: Okay. I guess that's all the questions I wanted to ask. Thank you Mr. Chairman. Thank you.

REP. PALLONE: Thank you Chairman Dingell. And I think we're done with questions so I want to thank you all. It was very helpful. Appreciate it. And you know as we move along we're going to certainly keep your ideas in mind. Thank you.

MR. PARENTE: Thanks Mr. Chairman.

REP. PALLONE: And I'd ask the next panel to come forward. And let me remind members that we are not taking a lunch break. And the reason for that is because I think as the day goes on, we'll get more members of the full committee who as I mentioned can participate. So if you want to take lunch, maybe go while another member questions.

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