[Senate Hearing 109-120]
[From the U.S. Government Publishing Office]
S. Hrg. 109-120
SMALL BUSINESSES AND HEALTH INSURANCE: EASING COSTS AND EXPANDING
ACCESS
=======================================================================
HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
ON
EXAMINING EASING COSTS AND EXPANDING ACCESS RELATING TO SMALL
BUSINESSES AND HEALTH INSURANCE, FOCUSING ON S. 406, TO AMEND TITLE I
OF THE EMPLOYEE RETIREMENT SECURITY ACT OF 1974 TO IMPROVE ACCESS AND
CHOICE FOR ENTREPRENEURS WITH SMALL BUSINESSES WITH RESPECT TO MEDICAL
CARE FOR THEIR EMPLOYEES
__________
APRIL 21, 2005
__________
Printed for the use of the Committee on Health, Education, Labor, and
Pensions
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20-954 WASHINGTON : 2005
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
MICHAEL B. ENZI, Wyoming, Chairman
JUDD GREGG, New Hampshire EDWARD M. KENNEDY, Massachusetts
BILL FRIST, Tennessee CHRISTOPHER J. DODD, Connecticut
LAMAR ALEXANDER, Tennessee TOM HARKIN, Iowa
RICHARD BURR, North Carolina BARBARA A. MIKULSKI, Maryland
JOHNNY ISAKSON, Georgia JAMES M. JEFFORDS (I), Vermont
MIKE DeWINE, Ohio JEFF BINGAMAN, New Mexico
JOHN ENSIGN, Nevada PATTY MURRAY, Washington
ORRIN G. HATCH, Utah JACK REED, Rhode Island
JEFF SESSIONS, Alabama HILLARY RODHAM CLINTON, New York
PAT ROBERTS, Kansas
Katherine Brunett McGuire, Staff Director
J. Michael Myers, Minority Staff Director and Chief Counsel
(ii)
C O N T E N T S
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STATEMENTS
THURSDAY, APRIL 21, 2005
Page
Enzi, Hon. Michael B., Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Blake, Mitchell, Ward & Blake Architects, on behalf of the
National Federation of Independent Business; Joseph E.
Rossmann, Vice President of Fringe Benefits, Associated
Builders and Contractors, Inc. on behalf of the Association
Health Plan Coalition; Karen Ignagni, President and CEO,
America's Health Insurance Plans, Sandy Praeger, Commissioner
of Insurance, State of Kansas, on behalf of the National
Association of Insurance Commissioners......................... 3
Prepared statements of:
Mr. Blake................................................ 6
Mr. Rossmann............................................. 9
Ms. Ignagni.............................................. 16
Hon. Sandy Praeger....................................... 27
Kennedy, Hon. Edward M., a U.S. Senator from the State of
Massachusetts, prepared statement.............................. 31
Snowe, Hon. Olympia, a U.S. Senator from the State of Maine,
prepared statement............................................. 32
Talent, Hon. Jim, a U.S. Senator from the State of Missouri,
prepared statement............................................. 34
(iii)
SMALL BUSINESSES AND HEALTH INSURANCE: EASING COSTS AND EXPANDING
ACCESS
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THURSDAY, APRIL 21, 2005
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 10:02 a.m., in
Room 430, Dirksen Senate Office Building, Hon. Mike Enzi,
chairman of the committee, presiding.
Present: Senators Enzi, Burr, Isakson and Ensign.
Opening Statement of Senator Enzi
The Chairman. I officially call this hearing to order. Good
morning and welcome.
As just about every worker and employer knows, there are
few issues that are of greater importance to both groups than
access to healthcare at an affordable price, and for America's
small businesses and their workers, worries about healthcare
are becoming acutely important. That is why we have called
today's hearing.
We are here to examine the ways of addressing the serious
and growing problems facing small businesses in offering
affordable coverage to their employees and their families. As
we meet today we have had almost 5 full years of devastating
double digit growth in health insurance premiums, and we have
seen increases of more than 5 times the rate of inflation.
Since 2000 premiums for family coverage have grown nearly 60
percent compared to an inflation rate of 9\7/10\ percent over
the same period. Employers want very much to keep offering
coverage, and they are struggling to maintain current coverage
levels. The big worry is how much longer can the system sustain
double digit cost growth before it begins to seriously unravel.
As chairman of this committee one of my goals will be to
achieve serious and meaningful reform in the small business
health insurance system. Simply put, we need to develop an
effective yet reasonable strategy to increase the ability of
small and low-wage businesses to offer health insurance.
As a former small business owner I have seen this problem
firsthand. My own State of Wyoming recently ranked 47th in the
percentage of businesses that offer health insurance to their
employees.
I know there is a passionate debate on how to reform the
small group insurance market in States where limited
competition exists. On the one hand, advocates for association
health plans, AHPs, make a strong and persuasive case that
small businesses should be able to pool their purchasing power
and thereby reap some of the advantages currently enjoyed by
large employers. Such advantages, many argue, would include
greater bargaining power, economies of scale and administrative
efficiencies. You have to find a lot of merit in those ideas.
Nevertheless, I am also mindful that critics have raised some
very serious concerns that going this route could trigger
dangerous adverse selection and fracture an already-fragmented
market. Whatever we do we need to ensure that the insurance
market is stable and that consumers are protected.
It is my intention as chairman to work closely with both
opponents and proponents of AHPs toward the goal of easing the
cost and expanding the access to small business health
insurance. As we do, my colleagues and I also will be taking a
careful look at some of the alternative approaches that have
been suggested, such as encouraging greater harmonization of
what is often called a patchwork of State insurance laws and
regulations, or easing costly benefit mandates. The one option
I will not accept is doing nothing.
For those who oppose AHPs now is the time to come forward
with constructive alternatives, and for AHP supporters now is
the time to think seriously about ways to bridge the
differences that remain on the important issues.
We have with us today an impressive group of witnesses,
well-equipped to help us sort out these thorny issues,
including one of my constituents, Mitch Blake, a small business
owner from Jackson, Wyoming. I know that each of you has
strongly-held views, and an airing of those views is very
important. However, I would ask whenever possible, that you
help us to focus on possible alternatives and practical
solutions that may go beyond the particular perspective of the
constituency that you represent.
I look forward to today's discussion, and we welcome your
contribution to it.
When Senator Kennedy shows up we will allow an opportunity
for his opening statement. As the tradition is with the
committee, the chairman and the ranking member are recognized
to deliver opening statements. I do ask unanimous consent that
any opening statements from my colleagues be entered into the
record. Without objection, so ordered.
So we will now hear from our first panel of witnesses. We
will introduce the witnesses all at once, and then I will ask
you while I am doing that to think about summarizing your
statement so it gives more time for questions.
I am especially pleased to introduce Mr. Mitchell Blake as
the first member of our panel. Mr. Blake is joining us from my
home State of Wyoming. He operates Ward & Blake Architects, an
8-person architectural firm in Jackson, Wyoming. Ward & Blake
has been featured in several national publications, and has
received awards from the Wyoming Chapter of the American
Institute of Architects. Mr. Blake is here representing the
millions of small businesses across the country, the vast
majority of which are facing ever-increasing insurance costs
for their employees. As a small business owner he will describe
the impact that dramatic premium increases have had on his
company and the challenges the company has faced in providing
coverage for an employee whose child suffered from an expensive
and serious illness.
Joseph Rossmann is the Vice President of Fringe Benefits
for Associated Builders and Contractors, Inc., ABC, a national
trade association made up of commercial contractors and located
in Arlington, Virginia. He has worked in association health and
welfare insurance programs for the past 27 years. Mr. Rossmann
will discuss the ongoing and frustrating efforts of his
organization to offer health insurance to employees through its
association. He will also represent the views of the
Association Health Care Coalition.
Karen Ignagni is the Chief Executive Officer of America's
Health Insurance Plans, AHIP. She has led the organization
since 2003 and has long been a leader in the healthcare field.
Among other accomplishments, she is the author of more than 90
articles regarding healthcare policy issues. She is here today
to offer the perspective of American insurers on the coverage
problems facing small business. We especially look forward to
her and AHIP's thoughts regarding ways these problems can be
effectively addressed.
Finally, we are joined today by Sandy Praeger, the
Insurance Commissioner of the State of Kansas. She is also here
to speak on behalf of the National Association of Insurance
Commissioners, NAIC. Sandy Praeger currently serves as the
Commissioner of Insurance for the State of Kansas. She is
responsible for overseeing nearly 1,700 insurance companies and
65,000 agents licensed to do business in the State. She also
serves as Secretary Treasurer of the National Association of
Insurance Commissioners. Before being elected as an insurance
commissioner, Commissioner Praeger served more than a decade in
the Kansas Senate, where she assumed a leadership role on
healthcare and insurance issues. We look forward to her
testimony offering the perspective of our State insurance
regulators, all of whom are serving on the front lines in
addressing small business insurance challenges.
I thank all of you for being here today. I look forward to
hearing constructive suggestions about ways to address the
serious challenges facing small business and healthcare. Your
full statement will be a part of the record, so any
summarization that you can do will be greatly appreciated.
Mr. Blake?
STATEMENTS OF MITCHELL BLAKE, WARD & BLAKE ARCHITECTS, ON
BEHALF OF THE NATIONAL FEDERATION OF INDEPENDENT BUSINESS;
JOSEPH E. ROSSMANN, VICE PRESIDENT OF FRINGE BENEFITS,
ASSOCIATED BUILDERS AND CONTRACTORS, INC. ON BEHALF OF THE
ASSOCIATION HEALTH PLAN COALITION; KAREN IGNAGNI, PRESIDENT AND
CEO, AMERICA'S HEALTH INSURANCE PLANS; SANDY PRAEGER,
COMMISSIONER OF INSURANCE, STATE OF KANSAS, ON BEHALF OF THE
NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS
Mr. Blake. Good morning, Mr. Chairman. Thank you for
inviting me here to speak on the subject of affordable health
insurance, especially as it applies to small business. I am
pleased to represent the NFIB here----
The Chairman. You need to move it just a little closer.
Mr. Blake. Excuse me. I am pleased to be here on behalf of
NFIB, representing small businessmen with similar concerns as
myself concerning the health insurance.
You have done a good job of introducing my firm. You may be
familiar with some facilities that we have designed, one being
the Nature Conservancy at Red Canyon Ranch in Lander, Wyoming,
the other being the main facility at Spring Creek Ranch resort
in Jackson, Wyoming.
We have been trying to create a relaxed environment. I feel
that providing healthcare for my employees is one way that I
can do this, to give them some peace of mind and help them feel
confident that their insurance needs will be met. This was not
a troubling task when we started our firm in 1996.
We went for a few years with Blue Cross insurance until the
premiums started to escalate and we could no longer afford to
stay with that company. We then switched to Life Investors
Insurance Company of America, and we were with them for a
couple of years until they decided to pull out of the health
insurance in Wyoming, and so they gave us an 18-month
withdrawal period. We thought we would renew with them but
their premium increased from 2,800 a month to nearly 4,800 a
month, and my company was not able to absorb that.
We switched to John Alden Life Insurance at this point, and
things were okay for a year, but in October of 2002 I had an
employee find out that his 3-year-old daughter had a malignant
brain tumor in the base of her skull. He was devastated. So we
told him to take as much time as he needed to to deal with the
situation. He spent 3 months at Primary Children's Hospital in
Salt Lake City going through tests, and the whole time we
continued to pay him full salary while he was gone. He then
returned to the company for another 3 months on a half-time
basis while he continued with follow-up tests, and we continued
to pay him full salary on the half-time basis.
When it came time for our premium renewal, John Alden
increased our premiums by $1,200, which was a significant
increase over the 2,000 that we were paying. In order to get
the insurance affordable we raised our deductibles from $500 to
1,000, and increased the out-of-pocket maximum slightly. We
agreed to this. We sent in our premium check on December 19th,
and then we sent in the subsequent month premium check on
December 31st. On January 6 of 2004, which was just the
following month, we were notified that we were terminated as a
group. We were upset. When we received the notification we
checked with the bank. Our check had cleared for the December
premium. Then subsequently on January 14th our second check for
the January premium had cleared the bank also. We were upset
about this.
Our insurance agent got with the Wyoming Health Insurance
Commission. They pressured John Alden into reaccepting our
group, however, they would only accept us as a new group, and
they added another 40 percent to the premium that we had just
agreed to accept, which was more than my company was able to
bear. So we declined the offer.
In the interim period I had to find a bridge plan to keep
my employees covered until I could find new insurance. In
addition, I offered them 100 percent coverage for any medical
expenses they had during the months that we were not insured.
We then found out about the WHIP Plan, the Wyoming Health
Insurance Pool or Wyoming Health Insurance Plan, and we found
that my employee's daughter qualified for that plan. So we
moved her onto that plan, and reapplied to Starmark Insurance
as a new group without her as part of our group. We got a more
affordable premium at $2,350 a month for my 8 employees and
with $1,000 deductible.
When it came time to renew our premium again this year we
were hit with another $800 a month increase, nearly $10,000 a
year, which was a big hit to my company. We have experienced a
30 percent decline in our gross annual revenue since 2001, and
we were unsure if we could continue on with this. We again
raised our deductible from 1,000 a month to 2,500--excuse me--
our deductible from $1,000 to $2,500, and we increased our
prescription deductible from $200 to $400. This wasn't great
for our employees but it brought the insurance coverage within
a premium that we could handle. It was actually within $100 of
where we had been. We felt comfortable with this, so we added a
wellness benefit that my employees could go get annual checkups
at no cost.
However, my employees who have dependents, we pay the
insurance for our employees and the employees pay for their
dependents, and those of us with dependents still saw an
increase to our cost or a reduction in our checks.
When we started the firm we had $250 deductible and we had
told the employees that we would keep it at that no matter
where we changed it. But this year we were faced with such an
increase that we could no longer feel comfortable picking up
the slack for the increased deductible.
We changed to an HRA plan and we cover now $1,000 of their
$2,500 deductible. We would really like to continue offering
health insurance to our employees. We feel it is important to
our company. We feel it is a nice benefit that the employees
ought to have, and I do not know what the solution is.
I have talked to various businessmen. I have talked to my
insurance agent. I have looked at health savings accounts. I
have looked at PPOs. I have looked at just providing increased
salary to my employees to see if they could get insurance
coverage on their own cheaper than we can get it at a group
rate. I just recently heard about the AHPs, and I am not very
familiar with them.
What I do know is that in my State I have limited sources
of insurance coverage. My agent tells me that we have three
providers in the State, and I have been with all three of them
now. I am not sure what my alternatives are.
What I need is affordable premiums with deductibles that
are manageable for my employees.
Thanks for inviting me here today, Chairman Enzi, and
thanks for your support of small business.
The Chairman. Thank you for your testimony.
[The prepared statement of Mr. Blake follows:]
Prepared Statement of Mitchell Blake
Good morning Mr. Chairman and members of the committee. Thank you
for inviting me today to talk about the important issue of affordable,
accessible health insurance, especially for those owning or working for
small business. I am pleased to be here on behalf of the National
Federation of Independent Business (NFIB), representing other small
business members who face a similar challenge.
In April 1996, Tom Ward and I formed Ward + Blake Architects in
Jackson, Wyoming. We employ eight people at present, and our firm
designs residential and commercial buildings. We are pleased that our
work has been recognized in notable national building publications, and
our firm has won several local and regional American Institute of
Architect's awards. Chairman Enzi, you may be familiar with Spring
Creek Ranch Resort in Jackson, Wyoming or the Nature Conservancy at Red
Canyon Ranch in Lander, Wyoming. Our firm designed both of these
facilities.
One of our goals is to create a relaxed environment where the
powers of creativity can flourish. We feel strongly that offering our
employees good benefits is an integral part of having this environment.
I'm here today to share with you the growing problem that my firm
is experiencing offering health insurance to our eight employees. We
offer health insurance to all eight, and all of them take advantage of
it. We offer health insurance for a variety of reasons: it's the right
thing to do, and it's a way to attract and retain employees. We feel it
is important to remove stresses that our employees may face in their
life, if at all possible, so that they can focus on our projects and
perform their best work. Offering health insurance is one way that
we're able to help relieve stress and create a positive work
environment for our employees.
But I have to be honest that it's not getting any easier. Our story
is one of increasing deductibles and higher premiums. When our firm
first started insurance costs were not so prohibitive. We started out
with Blue Cross, when their policy cost too much, we shifted to Life
Investors Insurance Company of America. At one point in 2000, with
eight employees our monthly premium costs were $2,821. We ended up
shifting to John Alden Life Insurance Company in December 2001 when
Life Investors pulled out of the group health insurance arena in
Wyoming, and we faced an additional $2,000 a month to stay with them
during their withdrawal period.
We began having trouble at the end of 2002. In October of this
year, one of our employees who had twin daughters found that one was
not developing well, and it turned out that she had a malignant brain
tumor. My employee was devastated with the news. We told him to take as
much time as he needed to deal with the medical tests and specialists
he was involved with in determining her condition. We paid him full
salary for three months while he was in Salt Lake City at Primary
Children's Hospital with his daughter. We then paid him full salary for
three additional months while he came to work on a half-time basis so
that he could be with his daughter and continue with follow-up meetings
with the medical specialists.
When it came time for renewal in December 2003, John Alden
increased their new renewal premium for nine employees from $2,075 a
month to $3,220, or our plan would cost us an additional $13,740 on an
annual basis. We amended the plan to increase the deductible from $500
to $1,000 and increased the out of pocket limit from $5,000 to $6,000
and a 50 percent copay in order to bring the premium down to $2,880 per
month or about a $9,660 annual jump. We agreed on this working with our
agent, Summit Insurance, who was working with John Alden, and sent a
check on December 19, 2003. We would have paid earlier, but we were
still working with our agent on a premium that we could afford and were
told by our agent that if the premium was received before the end of
the month that our policy would remain in effect.
On December 31, 2003 we sent in our January premium not knowing
that we would be cancelled.
On January 6, 2004, we received notice that we had been cancelled
even though our check had been deposited and cleared our bank.
Our insurance agent and the Wyoming Insurance Commission pressured
John Alden into taking us back, but only as a new group. Due to the
cancer issues, this made the amount significantly more than the renewal
premium we had just agreed to accept. We declined this, stating that we
were already an approved group and should not have to pay for a new
group premium. We felt that we were treated unfairly by John Alden and
requested that our premiums be returned. We were especially upset by
the fact that John Alden had cashed our January premium even after they
had sent us the letter of cancellation.
Because we had refused John Alden's new group renewal and requested
our premiums back, we had to provide our employees with an insurance
bridge plan until we could find a new carrier. In addition, we paid 100
percent of all outstanding medical expenses that our employees had for
the two months that they were technically uninsured.
Based on the advice of our insurance agent we removed my employee's
daughter from our group insurance, once we found that she qualified for
the Wyoming Health Insurance Plan (WHIP), being that she qualified as
uninsurable, and we obtained a new carrier. All this time John Alden
retained both of our premium checks.
We switched to Starmark Insurance in April 2004. Our initial
monthly premium was $2,350 for eight employees with a $1,000
deductible, 60 percent copay, $5,000 out of pocket. This year Starmark
wanted to renew our policy at $3,177 or about an $823 increase in
monthly premiums, close to $10,000 annually. So we've now switched to
an HRA account, with a monthly premium of $2,510, a $2,500 deductible
for singles and a $5,000 deductible for families and increased our
prescription deductible from $200 to $400. This adjusted our monthly
premiums to within $100 of our 2004 premiums, so we added a wellness
benefit to the plan so that our employees could get an annual physical
at no cost to them. It is important to know that even though the cost
to my company was within $100 of the previous years premiums, my
employees with dependents saw an increase in their dependents' premiums
for which they are responsible.
When we started this business, we only asked our employees to pay
$250 toward the cost of their health insurance because that was the
amount of the deductible from our first health insurance plan. We kept
it at $250 even when the deductibles increased and as the monthly
premiums increased, but we have had our gross annual profits reduced by
30 percent since 2001 and just cannot afford to do that anymore and
still offer health insurance. With our new HRA plan, we now cover
$1,000 of the deductible and ask our employees to pay $1,500.
As I said at the beginning, we want the best for our employees
because it's the right thing to do and creates a positive, healthy work
environment. But increasing health costs call into question how long
we'll be able to offer this benefit without eliminating other benefits
and still stay in business.
I'm not sure what the solution is: I have discussed the issue with
several other business owners and looked at alternative ways to provide
health insurance for my company including Health Savings Accounts,
PPO's, and even increasing salaries so that employees can get their own
individual policies. I realize that the hearing today is looking at
association health plans. I am not totally familiar with AHP
advantages, but I do know that I am limited to three health insurance
providers in Wyoming and therefore have limited options for my
employees. I also know that something must be done to stop this ever-
increasing cost to small business. I want what's going to lower my
premiums and enable me to continue offering health insurance. I want
health insurance that makes my employees feel secure and at deductibles
that are manageable.
Thanks for inviting me here today, and Chairman Enzi, thanks for
your support of small business.
The Chairman. Mr. Rossmann?
Mr. Rossman. Mr. Chairman, members of the Senate Health,
Education, Labor, and Pensions Committee, thank you for holding
this hearing to address the problems that small business face
in providing quality health insurance for themselves and their
employees.
I am testifying here before you today on behalf of the
Association Health Plan Coalition, which consists of over 150
regional and national organizations. The AHP Coalition
represents over 12 million employers and 80 million small
business workers throughout the United States.
I am excited about this AHP legislation in S. 406 because I
know that it is a model that works for small employers.
Association Health Plans are an important option that brings
more competition back into the marketplace. It goes without
saying that small employers have their backs against the wall,
struggling to maintain a business and at the same time being
able to provide quality health insurance coverage to their
employees and families.
The problem is exacerbated because they must mitigate the
effects of the annual double-digit health insurance rate
increases that have hit them over the past 4 to 5 years.
At the same time we have seen major insurance companies
consolidating for what they call increased efficiencies and
economies of scale, telling us that bigger insurance companies
would have more clout to negotiate lower prices from hospitals,
doctors and drug companies. According to an article written in
the Washington Post in January 2005 this just has not happened.
Instead our reward seems to be the creation of local and
national oligopolies characterized by less competition, less
choice, higher prices and higher returns to insurance company
stockholders.
The Post went on to report that James Robinson, a Professor
of Health Economics calculates that the top three health
insurance companies control two-thirds or more of the business
in all but 14 States, with numbers reaching as high as 92
percent in Maryland and 98 percent in DC and Northern Virginia.
Robinson juxtaposes those numbers with the 2000 to 2003
financial results of the top five national firms, and he shows
a decline in the percent of each premium dollar that goes to
pay medical costs, along with a stronger trend toward higher
premiums, higher profits and stock prices.
This appears to have been accomplished on the backs of
small employers who have borne the brunt of double-digit rate
increases over the past 5 years.
The bottom line to me seems to be that we need to create
more competition in the health insurance marketplace and
provide more options for small employers, not fewer.
I have been involved with Associated Builders and
Contractors Association Health Plan for over 17 years. During
that time I have been the Vice President of Fringe Benefits for
ABC. I have worked for trade associations exclusively in their
health insurance programs for almost 28 years. I can tell you
from experience that association health plans work for small
employers.
Associated Builders and Contractors started its health
insurance trust back in 1957 by five contractors who were just
too small and could not buy health insurance coverage on their
own. Since 1957 we have enjoyed a 48-year history of providing
health and other welfare benefits to contractor members and
their employees throughout the United States. During the first
43 years ABC's insurance trust had only two different insurance
carriers for the plan. This speaks very highly of the stability
of the program and also the confidence that the insurance
companies placed in ABC and in our plan.
ABC is also a perfect example of the savings that are
available to small employers through an AHP. The total cost for
the ABC health program varied from 13\1/2\ cents on the dollar
to 16 percent, and that included all insurance company
expenses. The administration, sales expense and profits of
insurance carriers selling in the small group market by some of
the largest providers is targeted at 35 percent. The difference
between their number and ABC's number is 19 to 22\1/2\ percent
in savings, which goes directly to the small employer this year
and in future years.
In 1999 ABC's insurance carrier came to us and told us that
they no longer wanted to stay in the business of providing
association group insurance plans under the master insurance
trust concept. They did not want to because of the complexity
and inconsistency of State laws. That statement was very
understandable to me because in the 5 to 6 years before that we
saw our association program being carved to pieces as our
insurance carrier pulled out of one State after another because
of the State small group insurance legislation activity. It
became almost impossible for them to comply with the new State
laws and to provide the master trust policy approach for ABC's
trust.
ABC had a strong viable program which was gradually
dismantled piece by piece by well-intentioned State insurance
reform. We talked to over 50 different insurance carriers to
take over ABC's insurance trust, which at that point was about
$44 million in business, and there were no takers. No insurance
company wanted to be involved with the association master trust
program with the State healthcare reform requirements as they
exist today. They are just too inconsistent and piecemeal.
In 1999 ABC even looked at the idea of going self-insured,
but we determined that the expense involved in complying with
each and every State's separate filing requirements would have
cost more in the long run than we could have saved for our
members.
The AHP story is like a poster child for AHPs. We provided
an affordable comprehensive set of health insurance plans, but
were eventually eliminated because of the changes at the State
level. We succeeded as an AHP but were legislated out of
serving our members. We want to pass the AHP legislation in S.
406 to bring this option back to our members because it fosters
competition and it is a model that works, and it is also a
model that does not have its hand out for Government subsidy.
I am very excited about association health plans and I
appreciate this opportunity to testify before the committee on
an issue of vital importance to our membership and all small
business owners across the country. We look forward to
continuing with a constructive dialogue on how to increase
access to affordable health insurance for small employers.
I will be happy to answer any questions the committee may
have. Thank you.
The Chairman. Thank you.
[The prepared statement of Mr. Rossmann follows:]
Prepared Statement of Joseph E. Rossmann
Introduction
Mr. Chairman, Ranking Member Kennedy and members of the Senate
Health, Education, Labor, and Pensions Committee, thank you for holding
this hearing which will address the problems that small businesses face
in providing quality health insurance for themselves and their
employees.
My name is Joseph E. Rossmann, and I am Vice President of Fringe
Benefits for Associated Builders and Contractors (ABC). ABC is a
national trade association representing over 23,000 general
contractors, subcontractors, material suppliers, and related firms from
across the country and from all specialties in the construction
industry in a network of 79 chapters. Our diverse membership is bound
by a shared commitment to the merit shop philosophy of awarding
construction contracts to the lowest responsible bidder, regardless of
labor affiliation, through open and competitive bidding. With more than
80 percent of construction today performed by merit shop contractors,
ABC is proud to be their voice.
I am testifying before you today on behalf of the Association
Health Plan (AHP) Coalition (membership list attached), which consists
of over 150 national and regional organizations that support S. 406,
the Small Business Health Fairness Act of 2005 sponsored by Senator
Olympia Snowe (R-ME). The AHP Coalition represents over 12 million
employers and over 80 million small business workers throughout
America. I also am secretary and past president of The Association
Healthcare Coalition, which consists of bona fide trade and
professional associations that currently operate association-sponsored
health plans, or have done so in the past. I will be summarizing my
comments, but I would request that my full statement be submitted for
the official record.
Mr. Chairman, today's hearing is extremely timely. The problem of
small business workers not having access to affordable health benefits
is reaching epidemic proportions across the Nation. Since over 60
percent of all uninsured Americans are employed by a small business, or
are dependents thereof, the current trend of skyrocketing premium
increases threatens to greatly expand the number of uninsured
Americans, which now stands at approximately 45 million.
Indeed, massive premium increases of 30 percent, 40 percent and
higher, and/or benefit reductions, are typical of what small businesses
throughout the Nation are experiencing today. Clearly, current
initiatives aimed at expanding access to affordable healthcare are not
working. As such, Congress must take action to address this critical
issue this year to prevent thousands of small business workers from
losing their health benefits, and to expand coverage to millions of
uninsured Americans.
Our coalition strongly urges Congress to enact the Small Business
Health Fairness Act of 2005 (S. 406), bipartisan legislation which
would bring much needed competition to the small group health insurance
market. Congress should approve the AHP bill this year to expand access
to health benefits for small businesses and the self-employed.
The Need for Association Health Plans
The Small Business Health Fairness Act of 2005 would help achieve
the goal of providing Fortune 500-style health benefits to working
families employed by small businesses. Through this legislation, AHPs
will empower our Nation's entrepreneurs with the same tools that large
employers and unions currently enjoy under the Employee Retirement
Income Security Act (ERISA) making health coverage affordable for
working families. These tools are:
Economies of scale and increased bargaining power for
small employers;
Administrative savings from having one uniform set of
rules;
The option of self-funding health benefits;
Health benefit design flexibility;
Increased competition in health insurance markets.
AHPs can reduce health insurance costs by 15-20 percent by allowing
small businesses to join together nationwide to obtain the same
economies of scale, bargaining clout, and administrative efficiencies
now available to employees in large employer and union health plans.
New coverage options will promote greater competition and more choices
in health insurance markets. In order to make sure benefits for small
business workers are secure, the legislation also contains tough
solvency standards.
The Small Business Health Fairness Act is the only proposal before
Congress which will put small business workers on a level playing field
with employees in large corporations or union health plans. Right now,
small business workers are second-class citizens when it comes to
health benefits. On average, workers in firms with less than 10
employees pay 17 percent more for a given health benefit than workers
employed in a large company. This is because small businesses don't
have access to the type of economies of scale, bargaining power and
administrative savings that corporate and union plans now have. The AHP
legislation will help rectify this inequity by leveling the playing
field between workers in small and large businesses.
We estimate that AHPs, through the enactment of S. 406, can reduce
the cost of health benefits by 15-20 percent for small business
workers. We know this because association plans have already proven
they can deliver savings compared with the cost of small employers
purchasing directly from an insurance company. For example, the AHP
sponsored by ABC for nearly 45 years, which operated nationally, had
total administrative expenses of 13\1/2\ cents (13.5 percent) for every
dollar of premium. These costs included all marketing, administration,
insurance company risk, claim payment expenses and State premium taxes.
Alternatively, small employers who purchase coverage directly from an
insurance company can experience total expenses of 25 to 35 cents (25-
35 percent) for every dollar of premium. Moreover, any profit generated
by an AHP in a given year does not go to the stockholders of the
insurance company, but rather stays in the plan and inures to the
benefit of participants by keeping costs lower in the future.
ABC successfully operated an Association Health Plan through the
ABC Insurance Trust. Because of the overwhelming costs in trying to
comply with overlapping, inconsistent and often incompatible State
laws, our health insurance carrier was forced to drop their AHP
coverage. Today, ABC continues to provide a full array of insurance
benefits, but has been forced to work with multiple health insurance
providers. ABC now serves as a broker, providing our membership with
the most competitive carriers and rates in their area. ABC is a perfect
example of how a trade or professional association, serving as a
purchasing pool for employers, can have a significant impact upon the
small employer health insurance market in both price and design.
The ABC Insurance Trust was founded in 1957 by five contractors who
could not afford group health insurance for their employees in the open
market due to their size. Until 1999, the ABC Insurance Trust served as
a voluntary purchasing pool for members of the association. An
important component of the plan's long-term success was that it was
guided by contractor members who serve as trustees and fiduciaries
under the plan. As participants in the program, they acted in the best
interest of their fellow members and their employees. Participation by
the board of trustees is a key ingredient in aggregating the voice of
employers to negotiate price and coverage with insurance carriers and
other providers.
ABC's Association Health Plan program offered HMOs, PPOs, and
traditional health insurance plans. All of ABC's plans provided
wellness benefits with coverage for physicals and annual check ups. ABC
continues to offer dental coverage, group life insurance, and
disability programs to serve members of the association. A majority of
those covered work for small construction firms with 10-20 employees.
ABC's Insurance Trust operates in full compliance with ERISA
reporting requirements, with the Consolidated Omnibus Reconciliation
Act (COBRA) of 1985 and with the Health Insurance Portability and
Accountability Act (HIPAA) of 1996. Complying with the Federal HIPAA
legislation requires ABC and other associations to provide open access
to all members and provide credit for prior coverage. In fact,
Association Health Plans are specifically referenced and defined in the
HIPAA legislation and are required to take all members under HIPAA
guidelines.
The inability of States to provide a regulatory environment in
which associations can serve as a source of affordable health benefits
for small business workers is a real tragedy. Bona fide trade
associations have an established infrastructure that allows them to
communicate with members more effectively because of their pre-
established relationships. This unique structure allows associations to
add value to their members and workers that other organizations or
purchasing pools cannot duplicate. AHPs are capable of offering
valuable options by providing additional benefits over and above what
many insurance companies provide today. Associations can successfully
tailor the products and services specifically for the needs of their
members.
Workers in small businesses desperately need a viable mechanism to
band together to increase their bargaining clout and create more
competition in health insurance markets. This is true more so today
than ever before due to the huge wave of consolidation among health
insurance companies and hospitals. Recent mergers of health insurance
companies have reduced competition and alternatives for small employers
who seek access to quality and affordable health insurance. In fact, a
survey of State insurance commissioners conducted by the General
Accounting Office (GAO) at the request of Senator Kit Bond (R-MO) found
disturbing levels of concentration on the small group health insurance
markets, with market shares of nearly 90 percent among the five largest
companies in 7 States.
Dr. James Robinson, Professor of Health Economics at the University
of California, Berkeley, calculates that the top three health insurance
companies control two-thirds or more of the healthcare business in all
but 14 States. (Robinson, James C., Consolidation and the
Transformation of Competition in Health Insurance, Health Affairs, Vol.
23, No. 6 (Nov. /Dec. 2004)). Robinson compares those numbers with
2000-2003 financial results of the top five national insurance firms.
His research shows a decline in the percent of each premium dollar that
goes to pay medical claims, while insurance companies have enjoyed
double digit growth in premiums, earnings and equity share prices.
Ultimately, Robinson contends that the health insurance industry will
only be revitalized through product innovation and further competition.
Today, there is a great need to bring more competition back into
the system rather than continually reducing it. By providing more
options and choices for small employers, the AHP legislation will
inject greater competition in health insurance markets, thus bringing
down premiums and expanding health plan benefits and plan options to
more small business workers and their families.
Rebuttal of Criticism of AHP Legislation
I would like to address some of the criticisms of S. 406 that have
been raised by large insurance companies and State insurance
commissioners, who have a vested interested in maintaining the status
quo. First, opponents claim that AHPs will ``cherry pick'' the market
and only benefit healthier groups of people. But the assumptions under
which this argument is made do not hold up to scrutiny.
AHP legislation will not result in cherry picking for the following
reasons:
The Small Business Health Fairness Act of 2005 explicitly
prohibits association health plans from AHPs from denying coverage to
any eligible participants based on the health status of an individual
employer or employee. Thus, it will not be possible for AHPs to
``cherry pick'' because sick or high risk groups or individuals cannot
be denied coverage;
The bill contains strict requirements under which only
bona fide professional and trade associations can sponsor an AHP. These
organizations must be established for purposes other than providing
health insurance for at least 3 years. Thus, an AHP cannot ``select a
population that is healthier than those in other regulated pools.'' The
bill strictly prohibits ``sham association plans'' set up by insurance
companies in the past as a front group aimed at cherry picking the
market;
Opponents' allegations about adverse selection rest on the
mistaken assumption that small businesses will offer only ``bare
bones'' benefit packages through AHPs. There is broad agreement that
``bare bones'' plans, wherever they have been tried, have failed due to
lack of demand. This is because small business workers want Fortune-500
style benefits like those enjoyed by workers in large companies. Also,
small businesses must offer benefit options comparable to those offered
by large companies if they are going to attract and retain quality
employees;
Adverse selection that currently exists in State markets
will be greatly reduced when younger, healthier workers employed in
small businesses who are now uninsured are able to obtain coverage that
is affordable;
The bill gives small businesses the ability to offer the
same type of benefit packages now available to health plans established
by large corporations and labor unions;
Non-profit associations exist to serve their members. If
they attempt to exclude members to avoid higher risks, or do not offer
attractive benefit options, their mission is fundamentally compromised
and they will not be able to compete in the marketplace;
The other major criticism of AHP made by opponents of this
legislation is that benefits offered by AHPs will not be secure. This
ignores two facts: First that AHPs under this legislation are
fundamentally different from MEWA health plans which operate under
Federal and State laws; and second, it ignores the strong solvency
standards required for AHPs under the bill, which will increase
consumer protections for many small business workers. The bill requires
the following solvency provisions for self-funded AHPs:
Claims reserves certified by a qualified actuary;
Minimum surplus requirements;
Both specific and aggregate stop-loss insurance;
Indemnification insurance to ensure that all claims are
paid;
AHPs must register with the State in which they are
domiciled;
AHPs must abide by strict disclosure and actuarial
reporting procedures; and
The bill provides severe criminal and civil penalties to
combat fraud.
Indeed, a former Inspector General at the Department of Labor has
testified before Congress that the new enforcement tools for regulators
contained in this legislation will help reduce health insurance fraud.
Thus, allegations that health coverage obtained through AHPs will not
be secure ignore these strong protections contained in the bill.
Conclusion
In conclusion, the 12 million employers and more than 80 million
employees represented by the AHP Coalition strongly urge Congress to
pass, and the President to sign the Small Business Health Fairness Act
of 2005 into law. Association Health Plans provide affordable health
coverage to small businesses, and extend coverage to uninsured people.
While AHPs are not the only solution to America's healthcare crisis,
AHPs are an essential component of the solution. AHPs are important for
many working families employed in small businesses who otherwise could
not afford coverage. Passage of the Small Business Health Fairness Act
of 2005 will ensure that employees of small businesses receive the
affordable, high quality healthcare coverage they both need and
deserve.
I appreciate this opportunity to testify before this committee on
an issue of vital importance to our membership and small business
owners across the country. We look forward to continuing a constructive
dialogue on how to increase access to affordable and competitive health
insurance for small businesses. I would be happy to answer any of the
questions the committee may have.
organizations supporting association health plans
The following organizations, representing over 12 million employers
and 80 million workers, strongly support S. 406 and H.R. 525, the Small
Business Health Fairness Act of 2005, bipartisan legislation to
strengthen and expand Association Health Plans (AHPs). This legislation
will provide workers employed in small businesses and the self-employed
gain access to Fortune 500-style health benefits now enjoyed by workers
in corporate and labor union health plans.
Adhesive and Sealant Council, Air Conditioning Contractors of
America, American Alliance of Service Providers, American Apparel &
Footwear Association, American Association of Advertising Agencies,
American Association of Engineering Societies, American Association of
Franchisees and Dealers, American Association of Small Property Owners,
ABL--America's Wine, Beer, and Spirit Retailers, American Bakers
Association, American Concrete Pumping Association, American Council of
Engineering Companies, American Disc Jockey Association, American
Electronics Association, American Foundry Society, American Furniture
Manufactures Association, American Institute of Chemical Engineers,
American International Automobile Dealers Association, American Hotel
and Lodging Association, American Lighting Association, American
Nursery and Landscape Association, American Rental Association,
American Road and Transportation Builders Association, American Small
Businesses Association, American Society of Association Executives,
American Society of Civil Engineers, American Society of Home
Inspectors, American Society of Mechanical Engineers, Board on Member
Interests & Development, American Staffing Association, American
Textile Machinery Association, American Veterinary Medical Association,
American Wholesale Marketers Association, Americans for Tax Reform,
AOMALLIANCE, Archery Trade Association, Associated Builders and
Contractors, Associated General Contractors of America, Associated
Prevailing Wage Contractors, Inc., Association for Manufacturing
Technology, Association of California Water Agencies, Association of
Equipment Manufacturers, Association of Independent Maryland Schools,
Association of Ship Brokers and Agents, Association of Suppliers to the
Paper Industry, Automotive Aftermarket Industry Association, Automotive
Aftermarket Association Southeast, Automotive Service Association,
Automotive Undercar Trade Organization, Automotive Wholesalers
Association of New England, Automotive Parts & Services Association,
Bowling Proprietors' Association of America, California Motor Car
Dealers Association, California Society of CPAs, California/Nevada
Automotive Wholesalers Association, Center for New Black Leadership,
Central Service Association, Chesapeake Automotive Business
Association, Cleveland Automobile Dealers Association, Club Managers
Association of America, Christian Schools International, Coca Cola
Bottlers Association, Communicating for Agriculture, Construction
Management Association of America, Consumer Specialty Products
Association, Deep South Equipment Dealers Association, Electronics
Representatives Association, Insurance Trust, Far West Equipment
Dealers Association, Farm Equipment Manufacturers Association,
Financial Executives International, Financial Planning Association,
Food Marketing Institute, GrassRoots Impact, Hearth, Patio and Barbecue
Association, Hispanic Business Roundtable, Independent Electrical
Contractors, Independent Office Products & Furniture Dealers
Association, Independent Stationers, Inc., Institute of Electrical and
Electronics Engineers--United States of America, International
Association of Professional Event Photographers, International
Foodservice Distributors Association, International Franchise
Association, International Housewares Association, Iowa Automobile
Dealers Association, Iowa-Nebraska Equipment Dealers Association, The
Latino Coalition, Mason Contractors Association, Material Handling
Equipment Distributors Association (MHEDA), Metal Manufacturers'
Education and Training Alliance, Midwest Automotive Industry
Association Midwest Equipment Dealers Association, Motor & Equipment
Manufacturers Association, NAMM, the International Music Products
Association, National Association for the Self-Employed, National
Association of Chemical Distributors, National Association of Community
Health Centers, National Association of Computer Consultant Businesses,
National Association of Convenience Stores, National Association of
Home Builders, National Association of Manufacturers, National
Association of Plumbing-Heating-Cooling Contractors, National
Association of Realtors, National Association of Theatre Owners,
National Association of Wholesaler-Distributors, National Association
of Women Business Owners, National Automobile Dealers Association,
National Black Chamber of Commerce, National Burglar and Fire Alarm
Association, National Cattlemen's Beef Association, National Club
Association, National Concrete Masonry Association, National Council of
Agricultural Employers, National Federation of Independent Business,
National Franchise Association, National Funeral Directors Association,
National Lumber and Building Material Dealers Association, National
Newspaper Association, National Office Products Alliance, National
Paint and Coatings Association, National Portable Storage Association,
National Precast Concrete Association, National Rental Association,
National Retail Federation, National Restaurant Association, National
Roofing Contractors Association, National Spa and Pool Institute,
National Society of Accountants, National Society of Professional
Engineers, National Sporting Goods Association, National Systems
Contractors Association, National Tile Contractors Association,
National Tooling & Machining Association, National Utility Contractors
Association, Nebraska New Car and Truck Dealers Association, New Mexico
Automotive Parts and Service Association, New York State Automotive
Aftermarket Association, North American Die Casting Association, North
American Equipment Dealers Association, North American Retail Dealers
Association, North Dakota Automobile and Implement Dealers Association,
Northeastern Retail Lumber Association, Office Furniture Dealers
Alliance, Ohio Valley Automotive Aftermarket Association, Outdoor
Industry Association, Piano Technicians Guild, Precision Machine
Products Association, Precision Metalforming Association, Printing
Industries of America, Printing Industries of Maryland, Process
Equipment Manufacturers' Association, Professional Detailing
Technicians Association, Professional Golfers' Association of America,
Professional Photographers of America, Retailers Bakery Association,
Service Station Dealers of America and Allied Trades, Self Insurance
Institute of America, Small Business Survival Committee, Society of
American Florists, Society of the Plastics Industry, Society of
Professional Benefit Administrators, Southern Equipment Dealers
Association, Southeastern Equipment Dealers Association, Southeastern
Farm Equipment Dealers Association, Southwestern Association, Specialty
Equipment Market Association (SEMA), Snack Food Association, Student
Photographic Society, Textile Rental Services Association of America,
The Association Healthcare Coalition, Timber Operators Council
Management Services, Timber Products Manufacturers Association, Tire
Industry Association, United States Federation of Small Businesses,
Inc., U.S. Chamber of Commerce, U.S. Hispanic Chamber of Commerce, U.S.
Pan Asian America Chamber of Commerce, Vermont Automobile Dealers
Association, Virginia Bankers Association, Washington Area New
Automobile Dealers Association, Western Growers Association, Women
Impacting Public Policy, Wisconsin Automobile & Truck Dealers
Association, World Wide Insurance Services, Inc.
The Chairman. Ms. Ignagni?
Ms. Ignagni. Thank you, Mr. Chairman, members of the
committee. It is a pleasure to be here this morning and a
pleasure to be part of this distinguished panel.
The subject of this hearing is to improve access to
healthcare, affordable access for small business. We understand
the committee is trying to assemble a menu of strategies that
will expand access, reduce costs, and what we have tried to do
in our testimony today is first discuss the many dimensions of
the cost problem. The best way to make this point is to use the
balloon analogy. As you press down on one side the other gets
larger. What we have tried to do is give you a menu of
strategies that will shrink the balloon.
Essentially there are six problems. They are distinct, but
they are all interrelated. First we have price increases in
healthcare. We provided very strong data that suggests that we
did a very good job in the 1990s bringing down healthcare
costs, bringing 5 million employees into the system that
heretofore did not have it. We had a discussion about those
tools and techniques under the heading of Patient Protection.
We were asked by the Members of the Congress, individuals in
the State legislature, to pull back on some of those tools. We
did pull back, and not surprisingly, costs grew, making it more
difficult for small business to come back into the system or to
maintain access in the system.
We have now, over the last several years, reinvented tools
and techniques which I am going to be talking about and which
our testimony highlights, and we are seeing some tangible
results which we are positive about, which we think begins to
shrink that balloon and to deal with those acute problems
talked about by my colleagues.
In addition to the price side, Mr. Chairman and members of
the committee, there is also a quality issue. 50 percent
approximately, only 50 percent of what is done today, according
to the Rand Corporation, is classified as best practice, which
means there is confusion and differences of opinion and lack of
information about how best to meet patients' needs. We have
high cost treatments. It used to be we were talking about
hundreds of dollars. Now we are talking about thousands and
potentially hundreds of thousands of dollars with respect to
new devices, biologics, etc.
We have cost shifting when we have a problem at the State
level, particularly with Medicaid, when Government pays less.
That means private employers pay more.
We have a malpractice problem. $100 billion associated with
defensive medicine, that could be reoriented toward helping
small business.
Transparency, consumers have information about health plans
but almost no information about the care that is delivered by
doctors and hospitals.
In our testimony we have tried to give summary of where we
are getting results in terms of pharmaceutical expenditures
decreasing, care coordination, disease management, aligning
payment with quality performance to improve the efficiency and
effectiveness of the system.
We have also provided information on SHAs. The Congress, 16
months ago as part of the Medicare Modernization Act,
authorized HSAs. We reported that 1 month after the regulations
had been implemented 438,000 people were in HSAs. We are about
to report new numbers. They will be reported in the next 2
weeks. We are going to be showing a number of over a million,
so we are seeing a growth in that arena.
I would also like the committee to know that in the
previous study in September we saw roughly a third of
individuals purchasing HSAs had not had health insurance. That
number is now up a little more. It is a little less than 40
percent, and we will be reporting those data in about 2 weeks.
We think also there are things that Government can do. We
have talked about tax credits, particularly for low-wage
workers and small business. We have talked about State high-
risk pools. This committee has passed important legislation,
and we hope the Senate passes it and the Congress enacts it at
the State level. We have talked about the importance of
regulatory harmonization and uniformity. That the single
fastest increase in premium cost is in the area of compliance
cost. We have a confusing patchwork quilt all around the
country.
We have been working with Commissioner Praeger and her
colleagues at the NAIC and your colleagues here in the Senate
and the House to try to get movement going toward regulatory
harmonization. We have talked about medical liability reform.
We have talked about tech assistance and effectiveness
analysis. We need to begin to think about strategies, public/
private strategies to move on that, and we have talked about
encouraging transparency.
Finally, we have also commented on AHPs. In our view it is
an invitation for adverse selection. We are concerned about the
potential, the strong evidence to suggest that--with all due
respect to the goals of the individuals that have proposed this
strategy and to my colleagues' observations, we understand that
folks are desperately trying to solve the problems of small
business and we are very sympathetic, but in our view it will
exacerbate the problems in the name of potentially helping only
a few. The Congressional Budget Office has indicated that we
would see that 80 percent of individuals and small business
would have an increase. The Academy of Actuaries has raised
concerns about the effectiveness and the stability of those
funds, and we are hoping that those will be issues and data
that the committee takes into consideration.
So, Mr. Chairman, we want to work in partnership with the
committee. We want to provide solutions. We want to provide
answers and we want to help you sort through these very
difficult problems so we can shrink that balloon.
Thank you.
The Chairman. Thank you very much.
[The prepared statement of Ms. Ignagni follows:]
Prepared Statement of Karen Ignagni
Good morning, Mr. Chairman and members of the committee. I am Karen
Ignagni, President and CEO of America's Health Insurance Plans (AHIP),
which is the national trade association representing nearly 1,300
private sector companies providing health insurance coverage to more
than 200 million Americans. Our members offer a broad range of health
insurance products in the commercial marketplace and also have
demonstrated a strong commitment to participation in public programs.
We would like to commend the committee for looking broadly at a
wide range of options for meeting the healthcare needs of small
employers and their employees. By widening the scope of this debate,
you are opening the door to considering a comprehensive set of
solutions that could improve choices for small businesses and help
bring costs under control for all Americans. Our members are committed
to working closely with you to identify workable strategies and to
support your efforts.
My testimony today will focus on four issues:
The challenge of confronting rising healthcare costs;
A description of what health insurance plans are doing to
control health costs, enhance choices, and improve quality;
Recommendations for increasing the availability of
affordable healthcare options; and
An analysis of the potential unintended consequences
associated with one of the options, association health plans (AHPs),
that has been proposed to make health coverage more affordable for
small businesses.
THE CHALLENGE OF CONFRONTING RISING HEALTH CARE COSTS
The committee is starting its work in the right place--by focusing
on rising costs and the affordability of coverage--because when
healthcare costs outpace growth in the overall economy, businesses
large and small find it more difficult to provide or maintain coverage.
While we are encouraged about what we can do in the private sector to
continue to reduce growth in healthcare spending, we believe that all
stakeholders--including the government--have a role to play in working
together to accomplish this objective. Evidence also strongly suggests
that attention needs to be drawn to the efficiency and effectiveness of
healthcare services if purchasers are to be assured that they are
receiving maximum value for their healthcare investment.
From 1994 through 1999, national health expenditures were in line
with overall economic growth, because health insurance plans
implemented a variety of tools to keep costs under control. This had a
direct impact on the ability of employers to purchase affordable
coverage for their employees. Indeed, the Lewin Group estimated that up
to 5 million people \1\ who otherwise would have been uninsured were
able to receive coverage as a result of these costs being restrained.
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\1\ The Lewin Group LLC, Managed Care Savings for Employers and
Households: 1990 through 2000; 1997.
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As the policy debate shifted away from containing costs,
legislative proposals at both the Federal and State levels focused on
rolling back the mechanisms that were keeping healthcare affordable.
This led to a new cycle of accelerating healthcare costs that has had
an impact on all purchasers, particularly small businesses. Recognizing
this challenge, our members have developed a new generation of cost
containment tools that already are having a positive impact and showing
promise for the future. For example, the rates of increase in
pharmaceutical expenditures have significantly declined as a result of
our members' implementation of programs to encourage greater use of
generic drugs and other measures that encourage case management of
chronic conditions. This progress is reflected in the most recent data
from the Department of Health and Human Services (HHS), which projects
that national healthcare spending increased by an estimated 7.5 percent
in 2004--the lowest rate of increase since 2000. At the same time,
healthcare costs still are growing faster than the overall economy.
The Center for Studying Health System Change has noted that
hospital prices continue to be a major factor behind increased
spending, accounting for almost half of the annual rate of increase in
healthcare expenditures. At the same time, innovative drugs, devices
and other therapies--while they can provide undeniable benefits in life
expectancy and improved quality of life--are significant cost drivers.
Without any organized way to assess the impact of this technology or
compare the effectiveness of various therapies, employers and their
employees are absorbing these higher costs without information about
what works and the conditions under which certain therapies are
effective. As the committee begins its work on the best methods to
ensure post-marketing surveillance, we look forward to providing
recommendations for your consideration. In addition, we support the
efforts of Dr. Mark McClellan, administrator of the Centers for
Medicare & Medicaid Services (CMS), who is working with the Institute
of Medicine (IOM) to develop the information necessary to establish
evidence-based coverage policies for Medicare. This effort will mark an
important and needed transition.
As purchasers assess the impact of rising costs, they also are
questioning whether they are getting the best value for their
healthcare investment. Considering the Rand Corporation's finding that
patients receive care in accordance with best practices only 55 percent
of the time, more information about clinical effectiveness studies
needs to be made available to physicians and other healthcare
practitioners. As the committee reviews the work of the National
Institutes of Health (NIH), we are prepared to offer recommendations
for ensuring that information generated by this country's robust system
of clinical trials is more quickly translated into everyday medical
practice.
Cost shifting is another issue with significant implications for
healthcare purchasers. The costs associated with uncompensated care--
along with funding shortfalls in government health programs--are major
causes of cost shifting. This translates into higher costs for private
sector payers, including small employers, and underscores the
importance of ensuring adequate funding for Medicaid and other
government health programs.
On the regulatory side, the existing patchwork quilt of regulations
frequently prevents employers from designing benefit packages that they
can afford and, as a result, sometimes forces them to make the decision
not to provide healthcare benefits. We have been working with the
National Association of Insurance Commissioners (NAIC), your colleagues
in the Senate Banking, Housing and Urban Affairs Committee, and the
House Financial Services Committee to assess the impact of the lack of
uniformity in regulation, the administrative burdens associated with
exploding compliance costs, and recommendations for improvement.
Similarly, the country is not well served by the current medical
liability system. This system creates incentives for excessive
litigation--thereby delaying the resolution of disputes, fostering a
culture of blame, and forcing doctors to practice ``defensive
medicine'' that diverts up to $100 billion annually and fails to reduce
medical mistakes. Patients deserve an improved system that promotes
quality; resolves disputes in a fair, fast and effective manner; and
lifts the burden of defensive medicine from healthcare providers.
PRIVATE SECTOR COST CONTAINMENT AND QUALITY IMPROVEMENT INITIATIVES
In response to the latest cycle of rising healthcare spending,
health insurance plans have been working aggressively to improve
quality and control costs, while also meeting consumer demands for
choice, through a variety of innovative strategies and initiatives.
Pharmacy Benefit Management
Health insurance plans use a wide range of pharmacy benefit
management tools and techniques to reduce out-of-pocket costs for
members and improve quality by reducing medication errors. These tools
and techniques include:
programs that encourage the use of generic drugs;
step therapy programs that promote proven drug therapies
before moving to newer, different treatments that are not necessarily
better;
negotiated discounts with pharmacies that participate in a
plan's network;
disease management techniques that include practice
guidelines to encourage the use of the most appropriate medications;
and
appropriate use of mail-service pharmacies.
The success of these strategies is clearly evidenced by new data,
released in December 2004 by the Center for Studying Health System
Change, showing that growth in prescription drug spending has dropped
from almost 20 percent in the second half of 1999 to 8.8 percent in the
first half of 2004. A number of studies have reinforced that these
tools and techniques are controlling costs in public programs:
A 2003 study, conducted by Associates and Wilson on behalf
of AHIP, found that the PACE program in Pennsylvania--the largest State
pharmacy assistance program in the Nation--could save up to 40 percent
by adopting the full range of private sector pharmacy benefit
management techniques.
Another 2003 study, conducted by the Lewin Group for the
Center for Health Care Strategies, found that Medicaid managed care
plans reduced prescription drug costs by 15 percent below the level
States would otherwise have experienced under Medicaid fee-for-service
programs. Plans achieved these savings by performing drug utilization
review, establishing pharmacy networks, and encouraging patients to
take the most appropriate medications.
The Government Accountability Office (GAO) reported in
January 2003 that pharmacy benefit management techniques used by health
plans in the Federal Employees Health Benefits Program (FEHBP) resulted
in savings of 18 percent for brand-name drugs and 47 percent for
generic drugs, compared to the average price customers would pay at
retail pharmacies.
Our members also are taking steps to improve patient safety and
reduce the risk of medication errors. Health insurance plans have
created pharmacy information systems which, as a matter of standard
practice, alert pharmacists when the combination of two or more of a
patient's medications could lead to an adverse drug reaction. Software
that plans use in their pharmacy networks is programmed to identify
hundreds of potentially harmful drug interactions, including those that
could occur due to the patient's age or gender. When the system
recognizes a dangerous combination of drugs or contraindications, an
on-screen alert is sent to the pharmacist who can then call the
patient's doctor to find a safer alternative.
Transitioning to Evidence-Based Medicine
Health insurance plans are working aggressively to promote
evidence-based medicine. This term refers to the widespread adoption in
everyday clinical practice of treatments and therapies that are
consistent with the latest scientific evidence on what works best and
reduces the number of inappropriate services that have little or no
value to patient outcomes.
As part of this effort, our members are working with physician
groups to increase the use of quality technology assessment and
clinical practice guidelines that help clinicians make decisions about
the most appropriate course of treatment for patients with a specific
disease or symptoms. Furthermore, AHIP has collaborated with the Agency
for Healthcare Research and Quality (AHRQ) and the American Medical
Association to establish a National Guideline Clearinghouse--
www.guideline.gov--which is a web-based resource that gives patients
and providers access to the latest medical evidence on effective
treatments and technologies. The National Guideline Clearinghouse
provides access to both summaries and the full text of clinical
practice guidelines, an electronic forum for exchanging information on
best practices, and a tool that allows users to generate side-by-side
comparisons for any combination of two or more guidelines.
Disease Management
Virtually all health insurance plans have implemented disease
management programs to improve the coordination and quality of care for
patients with diabetes, asthma, congestive heart failure, and other
chronic diseases. These programs improve patient outcomes and
satisfaction--and help control costs--by ensuring that these patients
receive effective care on an ongoing basis so that they can avoid
emergencies and unnecessary hospitalizations. A number of research
studies have demonstrated that these programs are effective.
A study published in Medical Care \2\ evaluated the impact of a
heart disease management program on hospital service utilization, as
well as the potential costs savings over and above the cost of
delivering the program. This randomized controlled study included 443
women aged 60 or older with diagnosed cardiac disease who were seen by
a physician approximately every 6 months. The results demonstrated that
hospital cost savings exceeded program costs by a ratio of nearly 5 to
1. Moreover, program participants experienced 46 percent fewer
inpatient days and 49 percent lower inpatient costs than the control
group, while no significant differences between the two groups were
reported in emergency room utilization.
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\2\ Wheeler, J. (2003). Can a disease self-management program
reduce healthcare costs? The case of older women with heart disease.
Medical Care. 41(6): 706-715.
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Another study, published in the journal Disease Management,\3\
examined the cost savings associated with a disease management program
for three conditions (asthma, diabetes, and coronary artery disease).
The preliminary results of this study show that the program produced a
return on investment of $2.84 for each $1.00 invested.
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\3\ Cousins, M. & Liu, Y. (2003). Cost savings for a preferred
provider organization population with multi-condition disease
management: Evaluating program impact using predictive modeling with a
control group. Disease Management. 6(4): 207-217.
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Yet another study, published in Managed Care,\4\ examined a large
health management program for 120,000 individuals having, or being at
high risk for, one or more of 17 chronic conditions or diseases.
Findings for the first year indicate:
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\4\ Gold, W. & Kongstvedt, P. (2003). How broadening DM's focus
helped shrink one plan's costs. Managed Care Magazine. (accessed on
November 2, 2004) www.managedcaremag.com.
a return of at least $2.90 for every dollar invested in
the program;
average overall savings of $41 per program member per
month;
14 percent fewer hospital admissions;
18 percent fewer emergency room visits;
significant improvement in diabetics' HbA1c levels; and
absenteeism from work or school was reduced significantly
(7-11 percent) among members participating in the program.
Health Information Technology
By implementing health information technology, our members are
helping consumers make well-informed decisions about their healthcare,
while also achieving greater efficiencies and cost savings throughout
the healthcare system.
Health insurance plans have developed a wide range of health
information technology initiatives, including secure Web sites that
allow their members to quickly locate information about their benefits,
check the status of claims, contact member services, or learn about
preventive care, drug interactions, disease management, and other
health issues. Other plans have created on-line pharmacies that allow
enrollees to refill their prescriptions and access information about
their medications. Another strategy implemented by a number of
companies provides opportunities for members to receive health
information from doctors and nurses through Web sites and e-mail.
Our members also are implementing information technology to improve
claims processing, offer better customer service, decrease
administrative costs, and enhance their overall efficiency. An October
2003 report by the GAO noted that health information technology allowed
health insurance plans to reduce claims processing costs, improve the
quality of claims data, improve staff productivity, and increase
provider and customer satisfaction.\5\
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\5\ Information Technology Benefits Realized for Selected Health
Care Functions.'' GAO October 2003.
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The GAO study also noted that plans' implementation of health
information technology has resulted in improved clinical care for
members. For example, one plan reported that diabetic retinal exams
increased from 71 percent to 93 percent and the rate of adolescents
receiving a flu vaccination increased from 29 percent to 43 percent due
to information technology that generated reminders for health
screenings.
AHIP and its members are committed to developing an interconnected
healthcare system that improves personal health and the delivery of
care, enhances healthcare quality, and increases productivity. We are
committed to working with all stakeholders and the Office of the
National Coordinator for Health Information Technology to develop
uniform interoperability standards and business rules.
Redesigning Payment Models
Many health insurance plans are redesigning their payment models to
reward healthcare providers for delivering high quality care. Paying
for quality is a promising strategy for improving overall wellness and
advancing evidence-based medicine, thereby reducing unnecessary follow
up care and improving efficiency--which in turn will lead to better
health outcomes and greater value. This is a significant change in a
system that historically has paid providers the same amount, regardless
of the quality of care they deliver.
Under these new payment models, many health insurance plans are
offering financial awards to physicians in the form of increased per-
member-per-month payments or non-financial rewards in the form of
public recognition, preferential marketing or a reduction in
administrative requirements. Additionally, some plans are beginning to
tier provider networks and offer consumers reduced co-payments,
deductibles, and/or premiums for using providers deemed to be of higher
quality (based on select performance measures).
Let me briefly highlight two examples of the innovative programs
our members are implementing:
One health insurance plan has developed a program that
includes: (1) an online PPO physician report card that allows
physicians to benchmark their performance compared to their peers; (2)
a physician recognition program that provides rewards for superior
performance on clinical, administrative and pharmacy indicators, and
(3) information resources provided to the PPO physician network to
support quality improvement.
Another of our members has developed an initiative to
improve enrollee health through improved access/timeliness of care,
preventive screening, and adherence to evidence-based guidelines for
the treatment of chronic conditions. Under this initiative, a physician
advisory group helps to develop ``performance targets'' in key areas,
such as patient satisfaction, emergency room utilization/access,
access/office visits, breast and colorectal screening, immunizations,
and treatment for diabetes and asthma. Physicians then earn an award
based on their level of performance: high, average and below average.
New Products: Bringing HSAs to Employers and Individuals
Besides using tools to promote quality and cost savings on an
ongoing basis, health insurance plans are responding to the strong
interest both employers and consumers have expressed in Health Savings
Accounts (HSAs) as a new option for affordable health coverage.
This option allows beneficiaries to cover their healthcare expenses
using a tax-free account in combination with a high-deductible health
plan. Although this is a relatively new option that was authorized only
16 months ago by the Medicare Modernization Act of 2003 (MMA), more
than 90 companies already offer high-deductible health plans that can
be purchased in combination with HSAs. A wide variety of HSA products
are available to consumers--including open access plans, preferred
provider organizations (PPOs), and point-of-service (POS) plans. Health
insurance plans that have contracts with providers can maximize the
savings they deliver for employers and consumers.
Significantly, today's HSA products are more widely available and
more popular than previous high-deductible options that Congress
enacted in 1996. This is true for several reasons. First, the MMA
allows any employer or individual to establish an HSA and make
contributions to the account. Also, the product design for HSAs is much
more flexible, particularly with respect to deductibles and out-of-
pocket costs, and expenditures for preventive care and certain disease
management services do not count toward an individual's deductible.
Although HSAs were authorized by Congress at the Federal level, a
number of States also have taken action to remove barriers to these new
products.
Last year, an AHIP survey found that approximately 438,000 persons
had established HSAs as of September 2004. This survey also indicated
that among individuals who set up HSAs, 30 percent were previously
uninsured and nearly half were over the age of 40. A more recent
survey, which we will release soon, indicates that more than 1 million
HSAs had been established as of March 2005. This reflects a more than
two-fold increase in just 6 months. Additional findings from our survey
will shed light on this dramatic growth in HSA products and their
potential for extending affordable coverage to more Americans.
AHIP and the Small Business Administration (SBA) have jointly
developed a Web site--HSADecisions.org--to serve as a clearinghouse and
educational resource for consumer information on HSAs. This site hosts
an online Learning Center that features a library and glossary to help
consumers and small businesses better understand available HSA options.
HSADecisions.org also provides a list of insurers that offer high
deductible health plans that can be purchased in combination with HSAs.
The site is updated on a regular basis to ensure that consumers have
access to the most recent and most accurate information.
RECOMMENDATIONS FOR EXPANDING THE AVAILABILITY OF AFFORDABLE HEALTH
CARE OPTIONS
As the committee looks at cost drivers, assesses what can be done
to improve the effectiveness of the healthcare system, and reviews
private sector strategies that are being developed to reduce costs and
improve quality, our members would like to offer eight principles for
your consideration.
1. Modernize and Maximize the Effectiveness of the Regulatory System
Encourage choice with uniform rules in the small group
market: A common set of rules would encourage competition, enhance
consumer choice, and provide greater predictability for employers. The
solution is not to waive all requirements for particular groups, but to
establish an appropriate and consistent framework for all participants
to ensure that small employers have maximum options to meet their
needs. This means that the Federal and State Governments need to work
together to encourage ``best practice'' regulation. This process has
begun with the development of draft legislation--known as the State
Modernization and Regulatory Transparency (SMART) Act--that would
promote uniformity in plan processes, particularly internal and
external review of coverage disputes, speed-to-market and market
conduct standards.
Encourage prompt product approval and consistency in
regulatory processes. Steps should be taken to ensure that States adopt
a mechanism by which health insurance plans can bring innovative
products to the market in a timely manner. Ideally, the Federal
Government should encourage States to be forthcoming regarding their
standards for policy rate and form filing requirements and to abandon
unwritten ``desk-drawer rules.'' This ultimately will create oversight
mechanisms that allow companies to provide consumers with the products
they need in a timely manner.
Establish an independent advisory commission to evaluate
the impact of mandates on healthcare costs and quality. Such a
commission could advise policymakers on the safety and effectiveness of
proposed and existing mandated health benefits, and assess whether
proposed mandates result in improved care and value. The commission's
findings also could inform public program coverage and decision-making
to ensure that evidence-based standards are applied consistently in
Medicare, Medicaid, and other public programs.
2. Pass S. 288, the ``State High Risk Pool Funding Extension Act.''
AHIPs Board of Directors approved a statement in June 2004 indicating
support for Federal funding for State high-risk pools to cover
individuals who have unusually high healthcare costs. This legislation
fits within the parameters of what Congress is able to accomplish from
a budgetary standpoint at this time. We applaud the committee for
taking action earlier this year to approve S. 288. This proposal is one
of the next steps Congress should take as part of a long-term strategy
for strengthening our Nation's healthcare safety net.
3. Expand Tax Credits to Encourage the Purchase of Health Care
Coverage. To address the needs of working Americans who are uninsured
and ineligible for public programs, Congress can help make health
coverage more affordable by expanding tax credits for low-income
persons. This approach will be particularly helpful to Americans who do
not have access to employer-sponsored coverage and to those who decline
such coverage because of the high cost. Moreover, tax credits could
prompt more small businesses to offer employee health benefits. The
Employee Benefits Research Institute (EBRI) \6\ has reported that among
small employers that do not offer employee health benefits, 71 percent
would be more likely to seriously consider offering health benefits if
the government provided assistance with premiums.
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\6\ Employee Benefit Research Institute, Small Employers and Health
Benefits: Findings from the 2002 Small Employer Health Benefits Survey,
January 2003.
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4. Develop a Framework for Evaluating Technologies for
Effectiveness and Efficiency. To address the rapid development of new
procedures, devices and other technologies, a public-private framework
should be established to evaluate and compare the effectiveness and
efficiency of these technologies. Moreover, new post-marketing
surveillance models should be developed to assess the appropriate use
and long-term value of certain breakthrough drugs, devices and
biologicals.
5. Invest in Cost Effectiveness Research. While the Federal
Government invests heavily in clinical research, it makes only modest
investments in research that compares the relative effectiveness of
existing versus new therapies that are designed to treat the same
condition. The Federal Government should assign a high priority to this
kind of research and, furthermore, create a National Center for
Effective Practices to ensure that the results are translated into
usable information for providers and consumers.
6. Overhaul the Medical Liability System to Ensure Effective
Dispute Resolution and Promote Safety and Value. The flaws in the
current medical liability system should be addressed with reforms that
place reasonable limits on healthcare litigation. Additionally, patient
safety legislation is needed to establish legal protections for medical
error information reported by healthcare providers, and to permit the
aggregation of data that can be used to determine the causes of medical
errors and develop strategies for improving patient safety. Also needed
is a uniform, national administrative process to resolve malpractice
disputes between patients and healthcare providers in a fair and
efficient manner, thus avoiding the need for litigation as often as
possible.
7. Encourage a Uniform Approach for Quality Measurement and
Reporting. The Institute of Medicine (IOM) has made a strong case that
patients need more information to make decisions about their healthcare
treatment; physicians, hospitals and other healthcare professionals
need more information to improve the quality of care they provide; and
purchasers need more information to ensure that they are receiving
value for their investment in healthcare benefits. Unfortunately, the
existence of multiple and sometimes conflicting efforts to measure
performance and report data on quality and efficiency is causing
unintended consequences, including confusion among consumers, burdens
on providers faced with uncoordinated data requests, and a diversion
away from key priorities to improve quality. Leaders of the key
healthcare stakeholder communities need to reach consensus about what
should be measured, and how to make data aggregation and reporting
effective and efficient. One uniform approach would be far more cost
effective and would minimize the growing confusion associated with
numerous measurement and data collection efforts. Critically, it also
will help address the key issue that underlies the IOM's Crossing the
Quality Chasm report--closing the gap between what the science
indicates is best practice and what practitioners actually do.
8. Encourage the Development of an Interconnected Health Care
System and Uniform Standards. The delivery of healthcare in America is
complex with individuals seeking care from a variety of physicians,
hospitals, and specialists. The ultimate goal of modernizing the
healthcare system is to improve personal health and the delivery of
care by providing meaningful personalized information to consumers and
providers in a usable form and in a timely manner. To achieve this aim,
we need uniform, national standards that enable the exchange of health
information by and between clinical electronic health record (EHR)
systems and consumer-centric individual health records.
UNINTENDED CONSEQUENCES OF ASSOCIATION HEALTH PLANS
AHIP and our member companies have grave concerns about
legislation, S. 406, that would establish special rules and exemptions
for national and regional association health plans (AHPs). We strongly
support the goal of developing affordable healthcare options for small
businesses. This legislation, however, would not achieve this goal and,
in fact, would further drive up healthcare costs and leave more
Americans uninsured.
I would like to preface my comments on this issue by highlighting a
number of ``myths'' about AHP legislation and then outlining the
``reality'' of how this legislation would harm small employers. I also
will discuss a specific example of how the proposed AHP legislation
would likely result in higher premiums for a typical employer.
Myth: AHPs would reduce health premium costs for most small
businesses.
Reality: In fact, the Congressional Budget Office (CBO) \7\ has
reported that AHPs would make health insurance less affordable for the
vast majority of small businesses. According to CBO's analysis, 82
percent of small business employees would pay higher premiums under
AHPs. This expected outcome is closely related to the fact that the
proposed AHPs could set up headquarters in a State without laws that
limit how much premiums can vary for small businesses based on
differences in employee health status. AHPs also could choose to
operate under Federal rules that do not have these rate limits.
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\7\ U.S. Congressional Budget Office, Increasing Small-Firm Health
Insurance Coverage Through Association Health Plans and HealthMarts,
Jan. 2000.
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______
Myth: AHPs would cover all populations equally.
Reality: Because AHPs could operate in the choice of environment
most favorable to their bottom line, ``cherry picking'' of only the
healthiest individuals would result. Although AHPs could not legally
discriminate based upon health status, the absence of limitations on
premium variations would ensure that quotes for small employers with a
workforce in less than perfect health would be many times higher than
for healthy groups. As a result, employers whose employees had incurred
significant healthcare costs would be forced outside of the AHP. As
soon as one or more employees of a small business experienced a serious
illness, AHPs could drive up the group's rates and thus drive them out
of the AHP. Ultimately, most small employers would be forced out of
AHPs.
______
Myth: AHPs would reduce the cost of administering health benefits.
Reality: Each AHP would administer claims for its members. However,
AHPs would need to recoup their administrative expenses by charging
membership dues or by building administrative costs into the premiums.
While some nominal savings potentially could be achieved on
administration, in fact, small businesses most likely would end up
paying the same or even more for administration of health benefits
through AHPs.
______
Myth: AHPs will operate under strong oversight.
Reality: The legislation substitutes actuarial oversight with a
self-policing actuarial certification and State solvency standard with
a limited $2 million reserve. According to the GAO and the Department
of Labor, staffing resources are completely inadequate to meet the
challenge of the added regulatory responsibility. In addition, the
American Academy of Actuaries concluded that the capital standards are
inadequate for any AHP larger than 5,000 insured.
______
Myth: AHPs would be better positioned to negotiate discounts with
doctors and hospitals.
Reality: Health insurance plans operating in the small group
insurance market negotiate discounts from doctors and hospitals based
not only on the small employer groups they cover, but rather, based on
their entire block of business, including large employers as well as
small groups. Because AHPs would represent small businesses only, it is
unlikely that they could negotiate physician and hospital discounts
that match or exceed those provided by health insurance plans covering
both large and small employers.
Example of Premium Spike for Less Healthy Employer Groups
In order to fully understand the implications of the pending AHP
legislation, it is important to focus on the fact that most States have
adopted some variation of the National Association of Insurance
Commissioners' (NAIC) model regulating rates in the small group market.
The NAIC model limits rate variations--to no more than 25 percent above
or below the average rate--for similar employer groups based on claims
experience or health status. Moreover, this model limits annual rate
increases for any one group to 15 percent on top of the rate increase
applied to all groups.
The pending AHP legislation lacks this protection against wide rate
fluctuations. That is, there is no limitation on what a group could be
charged relative to similar groups based on health status or claims
experience. The resulting rate swings would make small groups more
vulnerable to catastrophic costs and make business planning less
predictable.
Here is a rating example based on modeling done by the Hay Group:
Peterson's Hardware Store applies for insurance under a State law that
has adopted the NAIC's approach of limiting rate variations based on
health status. Peterson's is quoted an annual premium of between
$10,000 and $16,667 (based on the maximum variation based on health
status allowed under current law in most States). If the AHP rules were
put in place, it would be quoted a rate between $6,000 and $28,226
(based on no limit to the variation allowed). Only the healthiest
groups would be quoted the lowest level of rates. The graph below shows
this variation.
If we assume Peterson's Hardware were eligible for the lowest rate,
but someone became extremely ill during the year, the rates for the
next year could change as follows. Under current law in most States,
the rate could go from $10,000 to $11,500 (but no more), plus the
overall trend increase--because the NAIC model limits rate increases
based on changes in health status. Under the AHP model, the rate could
go from $6,000 to the very top tier rate of $28,226 (plus trend),
because there is no protection against annual increases based on health
status.
This example illustrates that while low rates initially may seem
attractive to small businesses with a healthy workforce, if one of
their workers developed a significant illness, they would face a rate
hike from the AHP the following year. Ultimately, the result would be a
market in which a shrinking portion of healthy businesses would be
covered by the AHP while businesses whose workers have significant
health needs would be driven out of the AHP. This should be a major
concern for all committee members.
We also urge the committee to consider the implications of allowing
only certain entities--AHPs--to be exempted from State regulations.
Congress should not create an unlevel playing field by granting special
regulatory rules to specific entities that have little or no experience
in the group and individual insurance markets. Federal legislative
efforts should instead focus on creating consistent rules that address
the affordability of health insurance coverage for all workers and
their families.
Yet another serious concern is that preemption of State law for
AHPs could repeat the problems of the late 1980s and early 1990s when
Multiple Employer Welfare Arrangements (MEWAs) were exempted from State
laws. The MEWA experience exposed thousands of individuals to unpaid
medical bills and left them with no health insurance protection. Rather
than repeat this history, we urge Congress to consider alternatives to
AHP legislation.
Before closing, I want to briefly note that AHIP has launched a Web
site--www.avoidfraud.org--which offers basic tips to help consumers
avoid getting scammed by fraudulent, MEWA-like companies that claim to
be health insurance plans. This site also provides consumers access to
other relevant sources of information including the Web sites of their
local State regulatory authorities.
Experience demonstrates that our industry can play a significant
role in providing purchasers with coverage alternatives that are
affordable and effective. To the extent that State legislation
continues to be a barrier to fulfilling that goal, we urge you to
consider a legislative approach that solves this problem broadly,
rather than giving preference to an untested product based on a model
that has had such unfortunate unintended consequences in the past.
CONCLUSION
AHIP and our member companies look forward to working with the
committee to develop legislative solutions for meeting the healthcare
needs of small employers and their workers. Our members have been
working on creative strategies to make health coverage more affordable
in the small-group market in a way that would avoid the many problems
associated with AHPs. We are eager to share our ideas and contribute to
a constructive debate on this issue.
Thank you again for providing AHIP the opportunity to testify on
this important legislative priority.
The Chairman. Commissioner Praeger?
Ms. Praeger. Thank you, Mr. Chairman. It is a pleasure to
be here with you this morning to represent my views and the
views of the National Association of Insurance Commissioners,
and it is a pleasure to be here with the other committee
members as well.
The NAIC represents the chief insurance regulators from the
50 States and the District of Columbia and 5 U.S. territories.
The primary objective of insurance regulators is to protect
consumers, and it is with this goal in mind that I comment
today generally on the small business healthcare crisis, and in
particular the proposal to create association health plans.
Commissioners recognize how important it is to ensure that
businesses have affordable and available healthcare coverage.
Insurance is about spreading and sharing risk and not
segmenting it. This is why the States have acted aggressively
over the past 15 years to stabilize and to improve the small
group market. States have required insurers to pool all of
their small group risk by imposing rating bands to further
spread the risk of smaller and unhealthier businesses across
the larger population. States have created purchasing pools and
allowed associations to provide licensed, State-regulated
insurance products to their members.
States continue to experiment with such initiatives as
reinsurance, tax credits, subsidies, basic health plans for
small businesses, and programs to promote healthier lifestyles
and to manage diseases. As always the States are and continue
to be laboratories for innovative ideas.
I believe it is time to start looking at additional
alternatives and in fact the States have been. For example, in
Kansas this year our Governor announced a $50 million Healthy
Kansas Initiative to expand coverage for 40,000 children and
30,000 working parents to find ways to control cost through
more risk sharing among small businesses and to improve the
availability of generic drugs for low-income individuals, and
increase the awareness of obesity and other preventable chronic
conditions.
As part of this initiative we in our department are working
on a model, modeling reinsurance as part of a small group
reinsurance feasibility study. Four alternative reinsurance
mechanisms will be modeled with varying assumptions to quantify
the impact of each on premium cost and small employer take-up
rates in the Kansas market, and we actually are using actual
claims data to do this modeling, and I think it is the first
time something like this has been undertaken.
One of the most recent efforts along this line is the
Healthy New York, which utilizes a retrospective reinsurance
mechanism, subsidized by State tax dollars, and this has
resulted in 70,000 new insureds in the State, all low-wage
workers and small businesses who were formerly uninsured.
Let me just go over now some of the principles that at the
NAIC we have agreed on when we are looking at Federal reform.
At the Federal level the Nation's insurance regulators have
identified 7 basic principles by which Federal health insurance
reform legislation can be analyzed. These principles are
intended to keep the focus on the needs of consumers and the
true causes of the current crisis.
1. The rights of consumers must be protected. So whatever
we do, we have to remember that we need to make sure we are
protecting consumers.
2. Existing State reforms and assistance programs must be
supported and not degraded. So reforms need to recognize the
good things that have happened in the States and not supplant
those.
3. Adequate consumer education must be provided.
4. The overarching issue of rising healthcare costs has to
be addressed.
5. Current cost shifting must not be exacerbated. And it is
prevalent, it is part of the problem. We know it is existing,
and whatever we do, we cannot create more opportunities for
cost shifting as we try to find solutions.
6. The position of less healthy individuals must be
protected. We cannot price them out of the marketplace as we
try to find solutions.
7. Public policymakers should be aware of allowing the
creation of insurance companies without appropriate oversight.
There are over 10,000 insurance regulators in the States, and I
can tell you as one of them, we have many phone calls on a
daily basis, and over 50 percent of our phone calls daily are
relating to insurance and availability and affordability of
insurance. We do interact with our consumers on a very active
and very daily basis.
The Nation's insurance regulators oppose association health
plan legislation because it would violate these principles that
we have set forth. It would undermine State reform and return a
time when companies with sick workers were rated out of the
market. It would eliminate critical State solvency and
licensing rules for self-insured plans, resulting in increased
plan failures and more fraud. It would replace sound State
oversight with unfunded and inexperienced Federal oversight
while trusting mostly in the plans to self report any problems.
And it would preempt important consumer protections and cut
funding for State high-risk pools and guaranty funds.
Studies have shown that this legislation will actually
increase premiums for a majority of small businesses, and I
have seen the report, the CBO report that Ms. Ignagni just
referred to. This bill does nothing to address the rising cost
of healthcare and it shifts the costs onto those with higher
risks. So I do not believe, and the NAIC does not believe that
this is a step forward.
So in conclusion just let me say all of us recognize it is
very important to make health insurance available to small
employers. That is the segment that we all know in our States
is suffering the most. However, the problem is complex, and it
does not lend itself to easy solutions.
The Federal Government and the States need to work with
providers, insurers and consumers to implement true reforms
that will curb spending and make insurance more affordable. We
stand ready to work with our colleagues and the Members of
Congress to draft effective reforms that will address both
affordability and the availability issues facing small
businesses. Together we are convinced that real solutions to
this critical issue can be found.
Thank you, Mr. Chairman.
The Chairman. Thank you very much.
[The prepared statement of Ms. Praeger follows:]
Prepared Statement of the Honorable Sandy Praeger
INTRODUCTION
Good morning Mr. Chairman. My name is Sandy Praeger and I am
testifying today on behalf of the National Association of Insurance
Commissioners (NAIC). The NAIC represents the chief insurance
regulators from the 50 States, the District of Columbia, and five U.S.
territories. The primary objective of insurance regulators is to
protect consumers and it is with this goal in mind that I comment today
generally on the small business healthcare crisis, and in particular
the proposal to create Association Health Plans (AHPs).
To begin I will emphasize the commissioners' recognition of how
important it is to ensure affordable, available health coverage for
small businesses and offer the full support of the NAIC in developing
legislation that will reach these goals. States have acted aggressively
over the past 15 years to stabilize and improve the small group market.
States have required insurers to pool all of their small group risk by
imposing rating bands or limitations, to further spread the risk of
smaller, unhealthier businesses across a larger population. Many States
have created purchasing pools and allowed associations to provide
licensed, state-regulated insurance products to their members.
States continue to experiment with reinsurance, tax credits,
subsidies, basic health plans for small businesses, and programs to
promote healthier lifestyles and manage diseases. As always, States are
the laboratories for innovative ideas. It is critical that the Federal
Government and the States work closely with healthcare providers,
insurers and consumers to implement true reforms that will curb
spending and make insurance more affordable to small businesses.
Rehashing strategies that have failed, such as Association Health
Plans, is not a step forward. It's time to move on to find effective
solutions.
NAIC's Principles for Federal Reform
In their search for effective solutions, the Nation's insurance
regulators have identified seven basic principles by which Federal
health insurance reform legislation can be analyzed. These principles
are intended to keep the focus on the needs of consumers and the true
causes of the current crisis. These principles are:
Principle 1: The rights of all consumers must be protected. States
already have patient protections, solvency standards, fraud prevention
programs, and oversight mechanisms in place to protect consumers;
unless new Federal standards equal or exceed existing State standards
and enforcement they should not be preempted. Any new insurance
arrangement purporting to increase the number of people with health
insurance will be a failure if the insurance arrangement is not solvent
and cannot pay the claims of those who have placed their trust in it.
Further, all new proposals must preserve access to sufficient grievance
and appeals procedures, and also assure that benefits and provider
networks are adequate. Consumers must always be protected from fraud
and misinformation.
Principle 2: Existing State reforms and assistance programs must be
supported, not degraded. As you know, States have already enacted small
group purchasing pools, high-risk pools, and other reforms to increase
the availability and affordability of health insurance. Federal reforms
must not erode these successful efforts by permitting good risk to be
siphoned off through manipulation of benefit design or eligibility for
benefit provisions.
Principle 3: Adequate consumer education must be provided. Federal
reform will be complicated, creating new insurance choices for many
Americans. The Federal Government must coordinate with existing State
consumer education programs to ensure consumers are able to make
informed choices.
Principle 4: The overarching issue of rising healthcare costs must
be addressed. Federal efforts to increase access to insurance will not
be successful over time unless the overriding issue of rapidly rising
healthcare costs is also addressed. Insurance is a mechanism for paying
for healthcare and has had only limited success in controlling costs,
but insurance is not the cause of those skyrocketing costs. There are
multiple drivers of healthcare costs, and they in turn are driving up
the cost of health insurance. To bring long-term stability to the
healthcare system efforts must include provisions to address cost
drivers and control rising healthcare costs.
Principle 5. Current cost shifting must not be exacerbated.
Inadequate reimbursement payments have led to cost shifting to the
private sector. Unfunded Federal mandates to States have shifted costs
onto State Governments. The cost of providing care to the uninsured is
also shifted, driving up rates for insurance consumers. These actions
have resulted in higher overall costs and decreased access for many
consumers. Federal health insurance reform legislation must address
cost shifting.
Principle 6: The position of less healthy individuals must be
protected. Both State and the Federal Governments have begun the
process of reforming tax structure and other financial policies to
encourage individuals to be more responsible consumers of healthcare.
Emerging industry trends reflect developments in benefit and plan
designs that create incentives for responsible consumer behavior in
healthcare purchasing decisions. Public policy decisions must assure
that new designs do not shift costs to such an extent that insurance no
longer offers meaningful protection to the sick or discourage
appropriate care. Federal legislation should encourage appropriate
usage of the healthcare system without inappropriately withholding
needed healthcare services to the sicker patient.
Principle 7: Public policymakers should be wary of allowing the
creation of insurance companies without appropriate oversight.
Remember, legislation that allows alternative risk-bearing arrangements
must acknowledge that it is allowing the creation of new insurance
companies. A mere change in the name of the arrangement does not
transform its essential insurance nature and function--the acceptance
and spreading of risk. To allow such new insurance companies to be
formed outside the existing regulatory structure will create an unlevel
playing field that is unfair to existing insurers and potentially
harmful to consumers. To do so without providing adequate additional
Federal resources to ensure sufficient oversight of new entities will
be disastrous.
AHP Legislation Violates NAIC Principles
The AHP legislation that has been once again introduced in the
House and the Senate violates almost all of the principles outlined
above and, therefore, the NAIC must remain steadfast in its objections
to the AHP bills. Specifically, the legislation would:
1. Undermine State Reforms
Before State small group market reforms were implemented, the small
group market was fragmented into various pools based on risk. If a
small employer had healthy employees in a relatively safe working
environment the employer could easily find coverage at a good rate.
However, if one of the employees became sick, the employer would be
shifted to a higher risk pool and often priced out of coverage. Those
who started with sicker or higher risk employees were often priced out
of the market from the beginning.
State small group market reforms forced insurers to treat all small
employers as part of a single pool and allow only modest, and in some
States no, variations in premiums based on risk. This spreading of risk
has brought some fairness to the market. Although the proponents claim
AHPs are a vehicle for allowing small businesses to pool together, they
would actually reduce the amount of pooling in the small group market.
In fact, it is not pooling but ``cherry picking'' that would enable
AHPs to offer lower-cost coverage in some cases. Such savings would
come at the expense of all others in the small group market who are not
part of AHPs. The AHP legislation in Congress would undermine State
reforms and once again fragment the market.
While the AHP bill does make some effort to reduce ``cherry
picking'' the NAIC believes the provisions will be ineffective in
stopping risk selection. Under the current bill, AHPs can still
``cherry-pick'' using four very basic methods:
(a) Membership--S. 545 permits associations to offer coverage only
to their members, allowing plans to seek memberships with better risk;
(b) Rating--S. 545 eliminates State rating limits for most plans,
allowing them to charge far more for higher risk persons, forcing them
out of the pool;
(c) Service area--S. 545 eliminates State service area and network
requirements, allowing plans to ``redline'' and avoid more costly
areas;
(d) Benefit design--S. 545 eliminates all State benefit mandates,
allowing plans to cut prices by denying consumers costlier treatments,
driving employers whose workers need these treatments into the
regulated market while siphoning off employers with healthier
workforces.
If no cherry picking were possible, AHPs would attract a risk pool
that, on average, was the same as the current small group market--which
would take away a major advantage of forming AHPs. Assertions by
proponents of this measure that this issue has been addressed are
incorrect.
2. Lead to Increased Plan Failures and Fraud Due to Inadequate
Oversight
Proponents of the AHP legislation claim that the Department of
Labor has sufficient resources to oversee the new plans and
insolvencies and fraud will be prevented. This simply is not the case.
The Department of Labor has neither the resources nor the expertise to
regulate insurance products. The States have invested more than 125
years in regulating the insurance industry. State insurance departments
nationwide employ over 10,000 highly skilled people. The combined
budgets of State insurance departments total more than $700 million.
The AHP bill provides no new resources for regulating these plans.
While the NAIC acknowledges State regulation may cost slightly more
initially, those costs are offset by the protections provided to our
consumers. Insurance is a complicated business, involving billions of
dollars, with ample opportunity for unscrupulous or financially
unsophisticated entities to harm millions of consumers. Unless
oversight is diligent, consumers will be harmed.
This is not just speculation, but fact borne of years of experience
with Multiple Employer Welfare Arrangements (MEWAs), multi-state
association plans, out-of-state trusts, and other schemes to avoid or
limit State regulation. Within the last year, 16 States have shut down
48 AHP-like plans that had been operating illegally in those States,
many through bona fide associations. Association plans in several
States have gone bankrupt because they did not have the same regulatory
oversight as state-regulated plans, leaving millions of dollars in
provider bills unpaid and consumers liable for their payment.
Each time oversight has been limited the result has been the same--
increased fraud, increased plan failures, decreased coverage for
consumers, and piles of unpaid claims. Specifically, the NAIC believes
the following issues must be addressed:
a. Solvency Standards Must Be Increased--While the solvency
standards in the AHP legislation have been increased over the years,
they are still woefully inadequate. The capital reserve requirement for
any and all AHPs is capped at $2 million--no matter the size of the
plan. States require the capital surpluses to grow as the plan grows,
with no cap or a far higher cap than that in the Federal legislation.
If a nationwide AHP were offered to a large association, a capital
surplus of merely $2 million would result in disaster.
b. AHP Finances Must Receive Greater Oversight--Even if the
solvency standards are increased, oversight is almost nonexistent in
the bill. Under the bill the AHP would work with an actuary chosen by
the association to set the reserve levels with little or no government
oversight to ensure the levels are sufficient or maintained. Also, the
AHP is required to ``self-report'' any financial problems. As we have
seen over the past few years, relying on a company-picked accountant or
actuary to alert the government to any problems can have dire
consequences for consumers who expect to have protection under their
health plan.
State regulators comb over financial reports and continually check
investment ratings to ensure that any potential problems are identified
and rectified quickly. AHP plans must be held to the same standard.
Simply limiting participation in AHPs to ``bona fide trade and
professional associations'' and providing limited Department of Labor
oversight of self-reported problems will not prevent fraud and
mismanagement. Strict oversight is required and this will only occur if
all health plans delivered through associations are licensed and
regulated at the State level.
3. Eliminate Important Consumer Protections
Included in the current AHP legislative proposals is the broad
preemption of consumer protection laws. AHP proponents argue that State
mandated benefit laws must be preempted so that AHPs do not have to
provide coverage for expensive benefits. However, States have a multi-
faceted regulatory structure in place for insurers. Not only are
mandated benefit laws preempted, but other laws protecting patient
rights and ensuring the integrity of the insurers are preempted as
well. Here is a small sample of preempted consumer protections:
Internal and external appeals processes.
Investment regulations to ensure that carriers only make
solid investments instead of taking on risky investments such as junk
bonds.
Unfair claims settlement practices laws.
Advertising regulation to prevent misleading or fraudulent
claims.
Policy form reviews to prevent unfair or misleading
language.
Rate reviews. Insurance departments may review rates to
make sure the premiums charged are fair and reasonable in relation to
the benefits received.
Background review of officers.
Network requirements including provider credentialing and
network adequacy, to ensure that plans offer a provider network that is
capable of delivering covered services.
Utilization review requirements to ensure that plans have
acceptable processes and standards in place to determine medical
necessity and to make coverage determinations.
While some of these protections may be offered by AHPs as a service
to their association members, there would be no requirement that they
do so, and no entity to complain to if a patient's rights are violated
by the plan. State insurance regulators act on hundreds of thousands of
consumer complaints every year and work hard to protect the rights of
patients. AHP participants deserve access to the same protections and
complaint process.
4. Cut Funds to State High-Risk Pools and Guaranty Funds
While the latest version of the AHP legislation allows States to
impose premium taxes on AHP plans--to the extent they are imposed on
other insurance plans--it preempts other State assessments. States use
health insurance assessments to fund such important entities as high-
risk pools (which provide coverage to the uninsurable) and guaranty
funds (which help cover claims if a plan is insolvent.) Such programs
are vital to the stability of the small group and individual markets
and to the protection of consumers--they must not be undercut by
Federal preemption.
Alternatives for Real Reform
If this hearing is truly about alternatives to our healthcare
needs, then it is time to look at alternatives. As you know, States
have been the laboratories for innovative ideas in this arena for some
time. In Kansas, the Governor announced a $50 million HealthyKansas
initiative to expand coverage for 40,000 children and 30,000 working
parents; find ways to control costs through more risk sharing among
small businesses; improve availability of generic drugs for low-income
individuals; and increase awareness of obesity and other preventable
chronic conditions. As part of this initiative, we are modeling
reinsurance as part of a small group reinsurance feasibility study
under a HRSA State Planning Grant. Four alternative reinsurance
mechanisms will be modeled with varying assumptions to quantify the
impact of each on premium cost and small employer take-up rates in the
Kansas market. There are four reinsurance approaches that we will
model, two prospective and two retrospective. The prospective
approaches will follow NAIC small group reinsurance model and
Connecticut designs and the retrospective will follow Healthy New York
and a diagnosis-based design considered by Colorado. We then intend to
select the most effective reinsurance approach that will control claim
fluctuations and risk acceptance by carriers. Since we will be using
our reinsurance system to process 5 years of actual Kansas claim data
we will be able to project the amount of subsidy that actually could be
provided in future years given different levels of subsidy.
Other States have experimented with reinsurance, tax credits,
subsidies, basic health plans for small businesses, public program
expansion, and programs to promote healthier lifestyles and manage
diseases. Many States utilize reinsurance mechanisms in the small group
market, with various degrees of success. The most recent effort by the
State of New York in its Healthy New York program has utilized a
retrospective reinsurance mechanism, subsidized by State tax dollars,
that has resulted in about 70,000 new insureds, all low wage workers in
small businesses who were formerly uninsured.
As another example, in Maine, the State enacted the Dirigo Health
Plan, intended to provide coverage for 180,000 State residents. The
plan has two components: (1) expansion of Medicaid and SCHIP to parents
with incomes up to 200 percent of the Federal poverty line and to
everyone earning less than 125 percent of the Federal poverty line; and
(2) establishment of a public/private plan to cover businesses with 2-
50 employees, the self-employed, and unemployed and part-time workers.
The plan is in its early stages of implementation, and State
policymakers have high hopes for its success.
CONCLUSION
All of us recognize that it is very important to make health
insurance available to small employers. The States have begun to
address this problem, and will continue to do so. However, the problem
is complex and does not lend itself to easy solutions.
The Federal Government and the States need to work with healthcare
providers, insures and consumers to implement true reforms that will
curb spending and make insurance more affordable to small businesses.
We stand ready to work with Members of Congress to draft effective
reforms that will address both the affordability and availability
issues facing small businesses. Together, we are convinced, real
solutions to this critical issue can be found.
The Chairman. Thank you to the entire panel. I appreciate
the condensation that you did on your remarks. I will assure
you again that your remarks in their entirety will be a part of
the record, and also we will keep the record open for 10 days
after this hearing is over so that members of the panel can add
additional questions in writing, which I hope you will respond
to so that we can complete the record, and that will be done by
both ones that are here and ones that may not be here.
I would mention that Senator Kennedy had fully intended to
be at this hearing this morning. Unfortunately, he is at the
ongoing Executive Session in the Judiciary Committee, and those
are taking quite a bit of time sometimes these days. He has
asked me to thank the witnesses for their testimony, and I ask
unanimous consent that his statement be a part of the record.
Without objection.
[The prepared statement of Senator Kennedy follows:]
Prepared Statement of Senator Kennedy
I commend Senator Enzi for holding today's hearing on
healthcare for employees of small businesses.
In this century of the life sciences, it's unconscionable
that the miracles of modern medicine are too often beyond the
reach of all but the wealthy.
Healthcare costs are out of control and more and more
Americans are losing their insurance. Forty-five million
Americans today have no health insurance. We know that persons
without coverage receive less care, suffer more, and are more
likely to die than those who are insured.
The vast majority of the uninsured--more than 80 percent--
are members of working families. More than half are employees
of small businesses or their family members. All businesses--
especially small firms--find it harder and harder to provide
coverage for their workers. Health insurance premiums have
risen 59 percent over the past 4 years, and the average cost of
coverage for a family today has climbed to almost almost
$10,000.
Some favor association health plans, but they have many
problems. States across the country have enacted significant
protections for consumers in health insurance plans--but
association health plans would sweep those protections aside.
Gone would be requirements to cover needed benefits like
maternity care, child immunizations and cancer screenings.
Study after study shows that the way such plans save money is
by avoiding State consumer laws and State rating rules, putting
patients at risk.
A basic principle for every responsible health insurance
plan is adequate financial resources to meet its obligations.
But association health plans have much weaker solvency
requirements and are clearly inadequate to protect consumers.
We have extensive experience with health insurance sold through
associations and other types of ``multiple employer welfare
arrangements,'' and they've had many problems over the years.
Thousands of Americans have been left in financial ruin when
their association plan has failed. In recent years, four large
groups--two in New Jersey, one in Indiana, and one in
California--have failed, leaving $45 million in claims unpaid
for the 65,000 persons covered by the plans.
The bottom line is that such proposals will do virtually
nothing to reduce the number of the uninsured, and will
actually cause premiums to rise for over 20 million employees
and their families, according to the Congressional Budget
Office. Small businesses with young and healthy workers may be
attractive customers for such plans, but those with older
employees or employees with serious health conditions will be
left behind. A ``solution'' that offers no help to those most
in need is no solution at all.
That's why such plans are opposed by the the National
Governors Association, the National Association of Insurance
Commissioners, the National Conference of State Legislatures,
the American Cancer Society, the American Diabetes Association,
the American Academy of Pediatrics, the NAACP and more than
1,300 other organizations that represent patients, healthcare
professionals, consumers and workers.
We need to make affordable healthcare a top priority for
all families, including those working in small businesses.
That's why I support an approach that would provide access to
good health coverage for all Americans, regardless of where
they work. I call it ``Medicare for All.''
To promote competition and choice, enrollees could join
Medicare, or have the option of choosing any of the plans
offered to Members of Congress, the President, and Federal
employees.
Healthcare for all is our goal, and an important step
toward reaching it is to help small businesses provide quality
healthcare coverage--but association health plans have too many
flaws to justify our support.
I look forward to the recommendations of our witnesses and
to working with the Chairman and our colleagues to find a
realistic bipartisan solution to this major problem.
The Chairman. I would mention too that he does a great deal
of work on being informed on what goes on in these meetings and
a great deal of preparation that he now will not be able to
take advantage of, but I do appreciate his cooperation and
participation on these issues.
I also have a statement from Senator Snowe and from Senator
Talent, and would ask unanimous consent to add them to the
record. Without objection.
[The prepared statement of Senator Snowe follows:]
Prepared Statement of Senator Snowe
Thank you Chairman Enzi, for holding this hearing today on the
health care crisis that faces small businesses. As you know, just
yesterday the committee on Small Business and Entrepreneurship hosted a
hearing on association health plans (AHPs) and other solutions for the
health care crisis. We had a positive dialogue about AHPs, and I am
pleased that the HELP Committee, which has jurisdiction over AHP
legislation, has also decided to take up this issue. I believe that
there is incredible momentum surrounding AHPs!
I originally examined this issue 2 years ago during the very first
hearing I conducted as chair of the Committee on Small Business and
Entrepreneurship, and regrettably, since then the problem has only
grown worse. Today, I hope that the HELP Committee will probe deeper
into solving this crisis, and hopefully jump start real action by
Congress to enact solutions this year.
This hearing will focus on association health plans--``AHPs''--
which I strongly believe can play a major role in addressing this
country's health care crisis. Touted by President Bush and supported by
over 80 million Americans, AHPs will bring necessary reform to
insurance markets that have long trapped small businesses and their
employees in a vicious cycle of escalating premium costs and fewer
coverage options. AHPs are crucial to solving the small business health
care crisis because they represent a fair, fiscally sound, and already
tested approach to reducing the ranks of the uninsured in this country
at nominal cost to the Federal Government.
Of the nearly 45 million uninsured Americans, 62 percent of the
uninsured are either employed by a small business or dependent on
someone who is. If we want to get serious about helping the uninsured,
which I think is long overdue, we should start by focusing on small
business.
The USA Today recently identified health insurance costs as the
number one issue facing small business employers across the country, a
fact confirmed in the National Federation of Independent Business's
Small Business Economic Trends monthly report from March. Almost 30
percent of the small business owners surveyed responded that cost and
availability of insurance was the single most important problem facing
small businesses today. This was far and away their most pressing
concern and it's one I've heard time and time again.
Indeed, these surveys and studies mirror what we hear everyday from
small business owners across the country. At our hearing yesterday, we
heard from Doug Newman, a concrete company owner from Hallowell, Maine,
who has described premium increases of close to 65 percent since 2000.
The time has come for action, not words, to deliver small business
owners relief from this crisis. AHPs do this, with a common sense
approach that allows small employers to join together through bona fide
associations to buy health coverage. AHPs will level the playing field
of employer health coverage by giving participating small employers the
advantages of Federal law currently enjoyed by larger employers and
unions.
AHP's have the strong support of President Bush, as he has said in
his last two State of the Union addresses, and the Majority Leader,
Senator Frist, has indicated he would like to see floor action on AHPs
this year and I appreciate his support. AHPs are supported by a
coalition representing over 12 million employers and 80 million
individuals.
Moreover, a recent snapshot poll in the USA Today asked 2,076 CEOs,
``What changes to health care policies could be made that would have
the greatest impact on your business?'' The number one response, at 56
percent, was consolidated group rates--pooling, just as is recommended
in my AHP legislation--for small businesses.
Today, I hope the HELP Committee will examine the truths and
realities involved with AHPs, and to finally--once and for all--drive a
stake into the myths that opponents have put forth about AHPs over the
years.
AHPs allow small businesses to pool their employees together to
receive the same bulk purchasing and administrative efficiencies
already enjoyed by large employers and unions. It builds on the success
of the ERISA self insurance plans used by large employers and the Taft-
Hartley plans available to union employers, which currently provide
health benefits for 78 million people, more than half of the people who
receive health insurance from their employer.
Our aim is to inject competition in the marketplace and offer
alternatives to small businesses trapped in the current system.
Associations will be able to administer one national plan, with lower
administrative costs.
And reducing costs for small businesses is why we are here today.
Studies by both the GAO and the Small Business Administration's Office
of Advocacy concluded that small businesses currently absorb a greater
portion of their plans' administrative costs, paying as much as 20 to
30 percent more in total premiums than larger health plans. As a
result, small business receive less generous benefits than larger
employers while paying the same level of premiums. On both counts,
small businesses and their employees lose.
The Kaiser Family Foundation recently reported that between the
spring of 2003 and spring of 2004, health insurance premiums increased
11.2 percent. This marked the 4th consecutive year of double digit
increases! Health insurance premiums saw annual increases since 2000 of
10.9 percent, 12.9 percent, and 13.9 percent, respectively--a growth
that far outpaced inflation and erased wage gains.
AHP legislation will also provide a full range of benefits similar
to what many States currently require. In many cases, large employers
and unions, which are exempt from State benefit mandates, offer the
most generous plans. Not surprisingly, many employees actually choose
to stay in their jobs only to maintain that higher level of coverage.
Like these larger plans, this bill's extensive new safeguards will
ensure that the health care coverage is available when employees need
it, as well as prevent fraud.
Contrary to opponents of this bill who claim it would lead to
``cherry picking'' of only the young and healthy, this AHP bill
specifically require that associations plans must be open to all
members. And each employer who participates in the plan must offer the
plan to every eligible employee--at the risk of fines and even
imprisonment of up to 5 years.
Finally, critics claim that the Department of Labor could not
handle its responsibilities under this bill. Frankly, I cannot imagine
an agency better prepared than the Labor Department which currently
oversees 300,000 similarly structured plans. We rarely hear complaints
about these plans failing and leaving subscribers without coverage.
AHPs would not add an unmanageable burden to DOL, and as the Secretary
of Labor will testify, sufficient resources would be available to
ensure that the Department fulfilled its obligations.
AHP legislation is one excellent reform among myriad solutions to
the healthcare crisis but it is one that should be available to start
making a difference immediately--this is not radical new policy we're
talking about here! We should also examine ways to use the tax code as
a mechanism for increasing access to health care, and that is why I
recently introduced a bill with Senators Bond and Bingaman to enable
more small business owners to offer a choice of a ``cafeteria plan'' to
allow employees to purchase health insurance with tax-free dollars.
Currently, many small employers' hands are tied by arbitrary rules that
restrict cafeteria plans based on the size of a business. Our bill
would simplify those rules and give more small businesses greater
flexibility to meet the healthcare needs of their employees--and that,
after all, is our goal.
I look forward to hearing from the witnesses today and working with
the President and my colleagues to reduce the ranks of uninsured
Americans. Let me emphasize that while I believe that passage of AHP
legislation is an indispensable step toward resolving the small
business health care crisis and indeed the broader crisis of the
insured, I am eager and willing to work with colleagues to address
concerns about this legislation and craft the best possible solution.
Again, Chairman Enzi, thank you for holding this hearing, and for
giving me the opportunity to submit testimony into the hearing record
on association health plans and the health care crisis facing small
business.
[The prepared statement of Senator Talent follows:]
Prepared Statement of Senator Talent
I would like to thank Chairman Enzi for holding this important
hearing, and for inviting me to make a statement for the record.
I think we can all agree that a major concern facing small business
owners is access to quality, affordable health care. Of the 45 million
Americans who lack health insurance, more than 80 percent are workers
and their families and 60 percent are small business people and their
families. I've talked personally with hundreds of people in small
businesses, and they tell me how they are desperate for affordable,
high-quality health insurance.
I spoke with Janet Poppen, a small business owner from St. Louis,
who, like many small business owners, wants to do right by her five
employees and provide them with health insurance. Over the past 2
years, the insurance costs for Janet's company have increased by $431
per month, or a total increase over the 2 years of 35 percent (from
$1,237 in 2001 to $1,668 per month in 2003). Instead of Janet denying
her employees health insurance or making business upgrades, she has
reduced her own salary.
Like most small business owners, any health insurance cost
increases affect Janet's take home pay, but she is willing to pay the
price because she wants to do right by her employees and provide them
with health care. Small business owners like Janet believe AHPs would
reduce their administrative and other costs so they will no longer have
to pay the marketing costs or profit margins of insurance companies
and, instead, invest in their own companies.
Perhaps it comes as no surprise that insurance companies like the
national Blue Cross and Blue Shield Association do not like AHPs. One
would guess that these insurers would welcome AHPs as an opportunity to
make a lot of money by selling tens of thousands more policies. But
that does not seem to be the case. Why not? Because insurers have a
monopoly on health insurance through their ironclad grasp of market
share.
The General Accounting Office has found that the five largest
carriers combined represent 75 percent or more of the market in 19 of
the 34 States GAO reviewed. In Missouri the five largest carriers have
a 51.8 percent market share. AHPs will make health insurance more
affordable for small business through reduced premiums, to create more
competition in the small group market--and that will bring costs down
for the consumer.
The Congressional Budget Office has estimated that small businesses
obtaining insurance through AHPs should experience premium reductions
of 13 percent on average and up to 25 percent. That's just over $1,000
to more than $1,900 for the average family health plan offered by a
small business. Clearly, these reductions are going to hurt the bottom
line of insurance companies and reduce their stranglehold on small
business purchasing options.
On the flipside, AHPs will provide affordable, quality health
insurance to small business owners, their employees and dependents
across our Nation. The smallest firms stand to save the most from AHPs
because their administrative costs, which account for a significant
percentage of their expenses, will decrease.
A January 2003 Small Business Administration actuarial report shows
that administrative expenses for insurers of small health plans make up
33 to 37 percent of claims. This compares with about 5 to 11 percent of
claims for large companies' self-insured plans.
Because insurance would be more affordable, more small firms could
provide it to their employees and families. According to the CONSAD
Research Corporation, as many as 8.5 million previously uninsured
workers would receive coverage if this legislation were enacted into
law. And, importantly, Association Health Plans will unburden small
business owners from worrying about how to provide health care to their
employees owners to doing what they do best--running their businesses.
Now, I have heard several myths to dispute how much good
Association Health Plans will provide small businesses. I would like to
set the record straight right now:
Myth: Association Health Plans will allow organizations to ``cherry
pick'' only the healthiest individuals, leaving the States' small group
markets to care for the sickest individuals.
FACT: AHPs are prohibited by law and the language of this bill from
being able to ``cherry pick.''
The legislation clearly states that the bona fide association must
provide all interested employers (regardless of age, health status,
etc.) with information regarding all coverage options available under
the plan. AHPs would be subject to all the preexisting condition,
portability, nondiscrimination, special enrollment and renewability
provisions under the Health Insurance Portability and Accountability
Act.
Also, the bill clearly prohibits discrimination based on health
status by stipulating any member of an association who is eligible for
membership benefits must be furnished with information regarding all
coverage options available under the plan and may not be excluded from
enrolling in the plan because of health status. Thus, it will not be
possible for AHPs to ``cherry pick'' because sick or high risk groups
or individuals cannot be denied coverage.
Myth: AHPs lack adequate solvency protections.
FACT: The legislation contains extensive requirements for solvency.
Health insurance issuers that offer fully insured coverage to AHPs
will continue to be subject to State laws regarding solvency. In
addition, the U.S. Department of Labor would condition its class
certification of fully insured AHPs on the issuer's satisfaction of
State solvency and other insurance regulations.
With respect to self-insured AHPs, the legislation sets forth
explicit solvency requirements that are much stronger than current law
for employers or unions who self-insure, as ERISA contains no solvency
standards for these entities.
Myth: AHPs will destroy consumer protections by preempting all State
benefit mandates and regulations.
FACT: The preemption of State mandates is an integral aspect of ERISA.
The solvency standards, plan requirements, oversight, and patient
protections included in the AHP legislation are more stringent than
those now required by some States. AHPs would be subject to Federal
health insurance requirements that provide consumer protections, such
as COBRA continuation coverage; ERISA's claims procedures for benefit
denials and appeals; HIPAA's guaranteed portability and renewability of
health coverage for those with preexisting conditions; the Mental
Health Parity Act; the Women's Health and Cancer Rights Act; and the
Newborns' and Mothers' Health Protection Act. Because it operates in
the interest of its members, AHPs will readily cover benefits
demonstrated to be cost-effective, such as childhood immunization,
prenatal care, and cancer screenings.
These are just some of the pro-patient, pro-consumer protections
contained in S. 406. For these and other reasons, AHPs are strongly
supported by more than 170 organizations representing over 12 million
employers and 80 million American workers.
We need to work together now to pass a package of ideas that will
make a real difference for people without health insurance and help
lower the cost of health care for everybody. Again, I thank HELP
Committee Chairman Enzi for his leadership and for his receptivity to
common sense solutions like Association Health Plans.
The Chairman. I want to thank all of you for the ideas that
you put forward, and we do have a few questions, and I would
say that this is not just a small business problem either. I
noticed yesterday that General Motors was saying that they are
now putting more into their insurance than they are into steel
in the cars that they build. So it goes all the way up the
chain, but of course, as with everything, it affects the small
businesses considerably more than it affects the big
businesses.
Mr. Blake, I really appreciate your setting the stage for
that discussion. We are very fortunate in Wyoming to have a
special high-risk insurance pool and to have the ability to
move some people into it. I do not know where your rates would
have gone otherwise. We will try to come up with, through these
discussions and others, some kind of a mechanism that will help
companies like yours. I know that yours is not an isolated
case, and it does create a lot of turmoil. So as you have any
ideas, we will appreciate you sharing them with us.
I am going to concentrate a little bit on some of the
statements that were made here. Many of my colleagues and I
have been asking the opponents of the AHP legislation to step
forward with some real alternatives for addressing the small
business insurance problem, and I am encouraged by the serious
testimony that we have had here today. However, I would like to
ask Ms. Ignagni and Commissioner Praeger the following.
Of the alternatives or modifications to AHPs that you have
looked at, what are the top two or three strategies that you
would urge this committee to consider as we work on easing
costs and improving access for small business? Ms. Ignagni?
Ms. Ignagni. Thank you, Senator. I am delighted to answer
that question. The first thing I think that is important to
look at is the issue--I also heard the leader of GM make that
statement, and I think that that requires all of us to look
very closely at--are we getting value for the considerable
healthcare investment?
When the national data suggests that only 55 percent of
what is done is best practice, in any other area of the economy
if we had that situation it would be a catastrophe. And it is
because we do not have data or transparency in the healthcare
system to really get our hands around what is being done at the
beside in specific care. And frankly, physicians who are very
busy every day cannot spend every night looking through medical
journals to determine best practices. So I think a very
tangible set of solutions is as follows.
No. 1: As you look at the budgets of the National
Institutes of Health, we look at the fact that we have the best
research capacity in the world, but we are doing next to
nothing to diffuse that in an organized way into practice. So
physicians simply do not have access to what is being done in
clinical trials, to be kept abreast of the latest information,
so when we see these data it is not surprising. But I think
that here should be a requirement, either through the National
Institutes of Health or the Agency for Health Care Quality and
Research, to act as a diffusion mechanism to get that
information, set up a center for effective best practices.
I think that is something that all stakeholders can get
behind, and I think you could see tangible results, just as we
would look at a productivity or production function issue or
deficit in a manufacturing sense. It is a similar kind of
analogy. So that is No. 1.
No. 2: I think it is very important--and I understand the
passionate feelings around the issue of medical malpractice
reform, but when we are looking at $100 billion on defensive
medicine, that is something that even if you take 50 percent of
that, and we had 50 billion to reorient to tax credits to help
companies like Mr. Blake's afford affordable healthcare
coverage, particularly oriented to small business, low-wage
workers, etc. We know that approximately 12 million workers are
offered coverage and cannot afford to take it. So that is a
second strategy.
The third is that I think that it is very important now to
have a discussion both with the National Insurance
Commissioners and their association and leaders on Capitol Hill
about modernizing the regulatory structure. Looking at what
stands in the way of offering affordable products, how we can
begin to have more harmonization and uniformity of regulation,
work through the challenges and come up with a strategy.
So we would like to be part of that. We have already begun
that process with the NAIC. We have begun it with your
colleagues both here as well as in the House, and we want to be
solution providers to sorting through that.
And then there are other issues which I am pleased to tell
you we are having an effect on. We have taken pharmaceutical
rates of increase that just 2\1/2\ years ago were above 20
percent. We have taken them well under 10. We have done that
through a series of strategies, pharmaceutical care management,
encouraging generic drug substitution when physicians say it is
appropriate, step therapy, disease management. I have provided
a series of things that we are doing that we are seeing results
on, some hard, tangible data, not ours, but peer-reviewed data
about disease management, etc. I think all of these strategies
work together.
I think, finally, the important legislation you passed out
of this committee to give States a helping hand with high-risk
pools of the sort that you have in Wyoming. Thirty-three States
have high-risk pools. It is a very, very important piece of
legislation.
So I think taken together, Senator, I think that series of
strategies could help shrink that balloon.
The Chairman. Commissioner?
Ms. Praeger. Thank you, Mr. Chairman. I think Karen makes a
good point about this move toward best practices. I am often
amused by the term ``evidence-based medicine'' because, you
know, that we are moving toward that evidence-based medicine,
and you have to ask, gee, what were we doing before? And the
truth is these were practices that have just developed over
time, and they are very regionalized. A best practice in one
part of the country may not be considered that in another part
of the country, so there really does need to be a
standardization and some way of getting that information out to
providers to assist them in adopting these best practices.
Insurance is the messenger and the message is healthcare
costs are going up. So we struggle to find ways to spread that
cost over the individuals in the insured marketplace, but we
have to address the cost of healthcare if we are going to
decrease the cost or bring the cost of health insurance
premiums under control.
One of the programs that we are testing in Kansas--and I
mentioned it in my statement--is to look at the risk bands.
That is the way we have traditionally spread the risk in a
small group market. We are looking at a different way of
spreading risk, and saying, let us seat out of each individual
group the high-risk individuals, rate the group based on its
healthy individuals, and then look at that entire pool of high-
risk individuals and spread those costs back over each of those
individual small groups.
It does a couple of things. It helps spread that cost in a
different way, and I think perhaps a fairer way, because you do
not have, as we just heard, one group with one high-risk
individual and their premiums really become unaffordable for
everybody. This would create I think a broader risk-sharing
mechanism, and it also would bring some stability because your
healthy individuals, that risk is not going to change much from
year to year, but if you are rating a group based on just that
group, you can have a healthy group 1 year and a very unhealthy
and costly group the next. And so bringing some stability to
the way we spread risk I think is important.
And I look forward to getting the data back. We are
currently assessing the claims data on the top 20 carriers in
our State to look at where the costs are and see if we can come
up with a model that can work and be more cost effective.
I think there is another thing, a reason--now I do not know
how we create a solution out of this--but certainly the reason
that we see costs going up is all of the technology and the new
technology that is available and is out there. We have a third-
party payment system that has no discipline. If the consumer
understands that there are certain tests or certain procedures
or certain medications that they would like to have access to
and they have insurance, there is no concern. I do not have to
ask what that costs because my insurance will pay for it. Over
time that drives the cost up for everybody. So bringing some
discipline back into the system,
And I think health savings accounts, one of the reasons
Congress passed health savings accounts was to bring a little
bit more individual responsibility into making those purchasing
decisions. We as consumers cannot make good decisions if we do
not have good data, and I think a very good point that Karen
also made, the transparency of information that is really going
to be needed if we as consumers are going to be making good
choices.
The Chairman. Thank you. Of course, one of my reasons for
concern is, as the least populated State in the Nation, Wyoming
may not even make a single pool.
[Laughter.]
Senator Ensign?
Senator Ensign. Thank you, Mr. Chairman. This is a very
important hearing that you have called for today. Healthcare
costs are one of the most significant problems facing our
country, individuals and our Government. Medicaid and Medicare
together dwarf the problems that we have for Social Security as
far as unfunded liabilities for the future. If we do not start
getting control of this spending now, our children and
grandchildren will be in serious, serious trouble.
I want to talk a little bit about some of the things that
Ms. Ignagni discussed and some issues that no one else has
raised. Everybody talks about the problems associated with
smoking and obesity. These are the two biggest health
concerns--and the most preventable health problems that we have
in the country. These two issues drive up healthcare costs more
than anything else in the country. Nobody wants to see a little
girl diagnosed with a brain tumor. There is nothing the girl
did to cause the tumor. But with smoking and with obesity,
well, for some people, obesity is not anything they can help,
but for most of us, obesity occurs because the one exercise we
do not do enough is this one--pushing away from the table.
[Laughter.]
It seems to me that we have to get a handle on preventative
health in this country. We need to encourage people to adopt
healthy behaviors. I do not know what role that plays in the
ability of health insurance pools. With auto insurance, if I am
a safe driver I should be able to have lower insurance rates.
Similarly, if I engage in healthy activities, exercise
regularly, and do not smoke, it seems to me that an incentive
shoud be offered. It also seems to me that those incentives
should be fairly large if we really want people to change their
behaviors to pursue and maintain a healthy lifestyle.
If you could address healthy lifestyles and incentives for
healthy plan design as well as best practices, I would
appreciare it. Unfortunately, I do not have a lot of time
because I have to preside at 11 o'clock on the Senate floor. I
have an interest in the practice of evidence-based medicine. I
believe we need to develop and encourage the use of best
practices so that doctors and other healthcare professionals
have the information they need to make appropriate clinical
decisions. What can we do to better incorporate best practices
into private health insurance programs and large government
programs such as Medicare and Medicaid? And, can you please
provide me with an estimate in terms of savings that could be
achieved as a result of the incorporation of best practices? I
do not know if any of you have any estimates on what the
potential savings could be from the use of best practices, but
best practices are clearly not being done in nearly enough
areas.
I would also appreciate your comments concerning health
information technology. Healthcare is one of the few areas
where technology does not always bring the price of services
down, it actually brings the price up. However, it seems to me
that, if properly implemented, health information technology
will reduce duplication, and cut down administrative costs,
such as transcription and billing. In addition, this technology
will reduce medical errors and potentially reduce medical
liability insurance premiums for physicians and other
healthcare professionals. I know the focus of the hearing today
is on association health plans, but that proposal is a
controversial measure. I do not know if we are going to ever
get something like that passed. However, some of these other
ideas may warrant consideration and actually lower the cost of
healthcare, not only for small businesses but for the General
Motors of the world and obviously for Medicare and Medicaid
into the future.
Ms. Ignagni. Thank you, Senator. You have asked a series of
provocative questions, and I am going to give you--and in the
interest of time try to be as quick as I can.
First, you are right about obesity. It is a very important
factor in virtually every major chronic illness. What our
health insurance plans are doing now is giving individuals
incentives for healthy lifestyles, and I would be delighted to
provide a laundry list of things that are going on. I think you
will be excited. It is very much in line with what you have
suggested.
Second, with respect to the issue of evidence-base in
Medicare and Medicaid, Dr. McClellan has opened up an important
new frontier in our view. He has started to begin to marry the
concept of the clinical trials and what works evidence, and the
scientific research with coverage policies. And he is launching
a new effort in conjunction with the Institute of Medicine to
collect data on the efficacy of certain devices, for example,
so we can go back and look and adjust coverage policies. It is
a very important new frontier, number one, and I think that
that will reverberate throughout the whole system in a
productive way.
No. 2, the incentives for best practice that you questioned
about. We are working with a group of providers to try to
create consensus around what should be measured for quality.
The Institute of Medicine has been very clear about quality
guidelines. What should be measured? Dr. McClellan is also
looking at aligning incentives with the best practices so that
he can reward physicians, hospitals for achieving productivity
goals. There is a lot of enthusiasm within the physician and
hospital community about this. Individual practitioners want to
be recognized for excellence, so I am very encouraged about
that. Our health plans are doing that as well. Again, I would
love to provide some information for the record.
Finally, electronic records. We have under way a full court
press within our industry because we have claims data, we have
more data that can be useful to individuals in terms of
assembling and giving people their own personal records, making
it Internet capable, where they can bring that from physician
to physician, hospital to hospital. We are also working with
Dr. David Brailer while he tries to connect the entire system.
So you are going to hear much from us on that issue, and I
would be glad to provide more for the record.
Senator Ensign. Thank you.
Mr. Chairman, I apologize. Unfortunately, I do not have
time to listen to your response. If you would like to explain
it for the record, my staff is here and will relay the
information to me. I appreciate your response, but I am
required on the Senate floor. Thank you.
The Chairman. Thank you.
Ms. Praeger. Let me just expand on one area. In talking
about the technology and the electronic medical records, there
is a real opportunity there by making those medical records
more easily transferred from treatment site to treatment site,
avoiding unnecessary and duplicative tests. I mean how often
has someone gone in for a sprain and an x-ray is done, and they
go to the next place, the doctor says, ``Well, I need to do
another x-ray.'' Time after time after time those kinds of
duplications of the service that does not add anything to the
quality of the care that is going to be delivered. We can go a
long way toward eliminating some of that if we can get those
electronic medical records standardized, because unfortunately,
what we have now are medical records being developed
electronically and the ability for them to work in a facility,
but then to be able to transfer that with any reliability and
consistency to another location, another treatment location
site, we are not there yet.
The Chairman. Thank you.
Senator Isakson?
Senator Isakson. Thank you, Mr. Chairman. I want to thank
Mitchell Blake. I am not going to ask him a question, but I ran
a small business that--Mr. Rossmann, I had 800 independent
contractors, so I know exactly where you are coming from, and I
appreciate your testimony as well.
But these two ladies have been provocative on some of the
negative side toward AHPs, so I want to ask them a few
questions if I could.
First of all, Ms. Ignagni, your testimony was magnificent,
and if I listened well, I got out of it that the two largest
contributors to the cost of healthcare or some of our problems
today, not necessarily in this order, are this whole issue of
best practices and information sharing first, and second
defensive medicine by virtue of the tort issue or medical
malpractice. Am I correct there?
Ms. Ignagni. Yes, sir.
Senator Isakson. I happen to recently have had a situation
where they were trying to figure out if anything was wrong with
me other than mental illness.
[Laughter.]
Kept wondering, that so many tests seem to be run, that I
wondered--I mean they were checking so many things out that did
not hurt, bother me or anything else, it occurred to me there
is a lot of defensive practice going on by virtue of the
medical malpractice. Do you have a--and I know this is off the
subject of AHPs and I apologize, Mr. Chairman, but does your
organization have a recommendation with regard to medical
malpractice and tort reform?
Ms. Ignagni. Yes, we do, sir.
Senator Isakson. What is it?
Ms. Ignagni. Three issues we think need to be priorities.
First, we need to have caps because that has a salutary effect
on how the whole system works. The doctors are facing just the
Sword of Damocles every time they see a patient, and they are
worried about being able to practice medicine, and they do not
feel they can practice medicine today. So if we remove that
incentive and they have some certainty in the system, that will
go a long way, number one.
No. 2, the safety legislation that has been working its way
through the Senate and the House is very important as well. You
want to give practitioners, hospitals and physicians, an
incentive to report when things go wrong, so we can understand
it, we can digest it, and they will not be facing the fear of
lawsuit.
Third, we need to do a better job in developing alternative
dispute resolution systems. The chairman has had legislation
from last year that lays out a number of different
alternatives. We very much are excited about contributing to
that. We have learned a lot in the health insurance plan
industry with respect to the value of external review. We think
that external review, we can learn from that and we can
transfer that and develop administrative procedures to take
things out of the courtroom that do not need to be there in the
case of malpractice. So it is a three-legged stool in our view.
It is not one, it is not two, but it is three taken together
that could really go a long way toward addressing this and
freeing up some very important resources.
Senator Isakson. Second question with regard to the
transparency issue, the information issue and best practices.
Is HIPAA the biggest inhibitor to actually sharing information?
And are the privacy laws we passed an inhibitor to actually
getting best practice information out?
Ms. Ignagni. I wish I could say because that would be an
easy fix. It is not. HIPAA actually gives us the ability to
share data for healthcare operations, to actually be able to
treat patients, so physicians can do that. The biggest barrier
is not being able to diffuse all the things that are being
developed in the research into practice quickly, and that is
something that individuals--I will just give you one statistic
that I think makes the point. We are spending roughly $30
billion in the National Institutes of Health. We are spending
$300 million in the Agency for Health Care Quality and
Research, $30 billion, $300. All the effectiveness analysis is
being done in that $300 million. I think anyone could look at
that in an objective way and say we need to do more in the area
of effectiveness analysis so we can get that into the delivery
system so we really deal with that variation that is going
around in practice.
You know, you raised another issue, if I could just add,
Senator, with respect to the incentive to do too much. We have
seen now a real trend in the area of entities that have sprung
up to encourage consumers to come in for full body CAT scans,
etc., and we know that there is some real concern on the part
of physicians, radiologist, about the implications long-term of
that. We in our health insurance industry, as I talk about new
strategies that we are reintroducing, we are looking at
radiology and we are beginning to reassess the effectiveness of
certain radiological procedures. We are seeing a very, very
significant trend up in MRIs, CT, that really do not match with
what we know patients need.
Physicians are concerned about it. We are working with the
College of Radiology, and we are going to have some
recommendations on that, both for the private insurance system
as well as for the public systems.
Senator Isakson. That is a subject I would like to have a
discussion with you about. I know my time is up.
Could I ask one more question, Mr. Chairman? Would you be
offended, Senator Burr?
Senator Burr. No.
The Chairman. You have always been my most cognizant one of
the time, so have another question.
Senator Isakson. Thank you, Mr. Chairman.
I did not want to leave Ms. Praeger out. Ms. Praeger, you
made a very declaratory statement, which if I wrote it down
correctly was, AHPs will probably increase premiums. Would you
elaborate on that statement?
Ms. Praeger. You all have focused on the real problem here,
and you keep saying you are not talking about AHPs, but you
really are talking about the real underlying problem, and that
is the cost of healthcare services. I do not think an AHP can
successfully provide over the long haul affordable premium
coverage any more than any other group can, unless they just
have a healthy population. So the concern with AHPs is that
there will be a cherry picking in the marketplace and there
will be a tendency to--for associations to form around groups
that have a fairly low risk and leave those other entities in
that group market to fend for themselves, and I think the CBO
budget report that was I think in 2002, demonstrated that in
their analysis that 20 percent may pay lower premiums, but 80
percent in the marketplace would probably be paying higher
premiums. So that is the concern.
The whole concept of insurance is trying to keep as many
people in the system without segmenting and isolating the
healthy and thereby driving up costs for the unhealthy.
Senator Isakson. Thank you.
Mr. Rossman. Senator, could I respond or follow up to that
point that Ms. Praeger made?
Senator Isakson. Yes, sir.
Mr. Rossman. I would just like to say I think that Ms.
Praeger commented earlier about the creativity and the ideas
that they are doing at the State level as far as forming
purchasing pools and trying new and different ideas. One
example of that is the State of Colorado, who formed a test
association health insurance plan, which they said they were
going to do I think 18 plans back in 2003. The concept behind
it was you could have a fully-insured AHP program or
association health plan at the State level, or you could have a
self-insured program.
Well, our Colorado chapters, of which we have two, actually
looked into the possibility of forming a self-insured
association health plan under the Colorado State law. We came
to find out it was about a quarter of million dollars in start-
up capital to set up the self-insured program, and quite
frankly, they just were not able to generate the activity, if
you will, at the State level or the amount of revenue at the
State level to start a self-insured pool.
Coincident with that, they started looking at all the
different insurance carriers under this legislation to form an
association health plan in Colorado that was fully insured. The
bottom line of that was that no insurance company wanted to get
involved with an association plan because they were happy doing
business the way that we are doing it today.
I bring this point up because--and I have checked with the
insurance commissioner in the State of Colorado to verify these
facts, that there are no self-insured AHPs under this test
program which started January of 2004, and there are no fully-
insured programs in existence today.
I bring this up because the whole purpose of the
association health plan legislation is to take it to a little
higher scope, to make associations, bona fide associations,
purchasing pools on a broader level, to cross State lines and
give the associations and the small employers the same
economies of scale that large employers have. We feel that we
have got the safeguards in the bill as it stands right now, we
have got the protections to make sure that these types of plans
when they start will be for the benefit of all small employers
and will stay in business and make sure that the end result of
providing health insurance for small employers is achieved.
But we welcome talking with the opposition or those that
are opposed to the bill to see what things we can do
constructively to make this a success for all small employers,
because quite frankly, we realize it is not the end-all, be-all
of solving the healthcare crisis. The points these ladies
brought up today are probably very, very important, but we know
from a functional standpoint and a practical standpoint that
small employers are having a very difficult time now, and that
the AHP legislation is an opportunity to provide them some
relief as we use the programs and services and the technology
that is being developed by the NIAC and also the health
insurance companies.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Burr?
Senator Burr. May I inquire of the chairman, will we be
doing one round of questions, or will we be doing multiple
today?
The Chairman. We will go more than one round. I have quite
a few questions left.
Senator Burr. That helps me. Let me thank all of our
witnesses. It is good to see you, some of you whom I have had
the opportunity to work on healthcare issues with before.
And Mr. Rossmann, thank you, you just stole exactly what I
was going to say right from the start. This is a difficult
thing because we are not here talking about how to solve the
healthcare crisis. We are here trying to decide whether the
right thing to do is to expand products that companies are
screaming for across the country that may have affiliations
that are desperately trying to continue to provide or to
provide for the first time insurance for their employees.
I take to heart, Ms. Praeger, what you said about cherry
picking, and I truly believe that if I was an employer and I
cut back and cut back and cut back, those employees would look
for another place to work where the insurance product covered
what they wanted. I think we tend to leave the employee out of
this, they are actively involved--and Karen, I agree with you
about the escalating cost of healthcare. I believe that we are
the driver, the Federal Government, Medicare. The States
replicate us. So does every insurer in the world.
The problem is that as we ratchet down reimbursements, so
do the insurers, and consequently, so do the big employers turn
to the insurers and they minimize the rate that their insurance
goes up. There is cost shift, and an unfair portion of the cost
shift today is going to the small group market. What they are
experiencing as a percentage of increase on an annual basis is
not being experienced by a General Motors. There is the ability
to get a better price based upon the size of your company, and
unfortunately, if we can do it right--and I believe we can and
I am supportive of our efforts to do it--then we ought to allow
small business to become a big business and to negotiate in the
same volume, though we have to address some of the State
concerns. We have to address some of the issues that are raised
about the mandates, some of the issues that are raised about
cherry picking.
Can we do it? Yes. We are smart enough to do it. I hope we
can get past this and we can get back on the cost of healthcare
and how we turn it around.
I commend your plans for bringing down the cost of
prescription drugs. It is amazing what you do when you raise
the copayment for a name brand and you lower the copayment for
a generic drug. You save money because you have empowered the
people who are participants in the plan to make a decision. We
are talking about a section that does not have the choice. I
think when we talk about transparency, if we are going to go
there, then we have to seek full transparency. It means that
every insurer out there has to be transparent. We have to know
the rates they are negotiating. It cannot be a secret. That
does not exist today. We all know it does not.
I think to some degree we are asked, Mr. Chairman, to be an
arbitrator between people who naturally have to represent the
constituency they have. I would ask all of you to forget that
for a minute. Let us think about this group of individuals that
are out there, the pool is growing every day of individuals who
are employed and do not have healthcare, employed and cannot
afford healthcare, employers that want to provide it and just
cannot make the commitment financially that they always have.
Understand, we have to find a solution to this.
I personally believe that AHPs are not a silver bullet. If
they are a bridge that allows us to keep more people insured so
we can get to the point that we solve the crisis in healthcare,
then I look at that as a benefit, regardless of the amount of
risk that goes along.
I want to ask some specific questions if I can. The first
one would be, Karen, in your testimony you mentioned AHIP
supports Federal seed money for State high-risk pools, though
it is my understanding that some of the member companies were
actually opposed to the creation of high-risk pools and were so
vocal that States abandoned their efforts. Can you shed any
light on that?
Ms. Ignagni. Right now 33 States have high-risk pools. They
desperately need help in terms of a Federal helping hand and
more funding. And we would like to see these kinds of
strategies adopted in all of the States as a backstop to what
is going on in the market to provide opportunity----
Senator Burr. Is that a feeling shared by all of your
members?
Ms. Ignagni. You know, Senator, to be honest, you can never
say categorically that every member of a particular association
supports that, but our board has taken an affirmative position
last June, and we are reflecting that position. We have been
working this at the State level to try to figure out how to
comprehensively fund this. It exacerbates the problem if the
answer to funding State risk pools just ends up on the backs of
the private health insurance market, which means on the backs
of working families.
So we have been pushing more broad funding, and that is
probably where there have been some differences of opinions. No
difference of opinion on the broadness of the funding, concerns
about funding strategies that target the insurance industry
particularly because that means employers, small employers,
that means employees, that means working families. So that is
probably where the different messages have come from. We are
very much for broad funding.
I might say with respect to HSAs that there is some
precedent here for the community to take advantage of in terms
of learning and thinking about what you might do. Congress
passed HSAs, as you know, as part of Medicare Modernization.
There are still 10 States that have barriers actually to the
sale of HSAs, so we have to address that. That comes down to
the issue of regulatory harmonization and trying to figure out
how to modernize our regulatory structure.
I deal with the mandate situation where small employers
would like to do something. Sometimes the perfect is the enemy
of the good. How do we get our hands around that? We have been
working with the NAIC, and as I said, we are working with your
colleagues on the other committees, addressing this regulatory
issue. But it is a very real one.
Senator Burr. Well, representing a State where we never had
the option to have MSAs because we never licensed a carrier
that offered them, I understand exactly what you mean.
When we brought up the issue of Medicare Advantage Regions,
what was AHIP's position on that proposal?
Ms. Ignagni. We are for the regions. We are for the local
markets. We are for the frail elderly incentives, we are for
the----
Senator Burr. But the effort was for less regions versus
more regions.
Ms. Ignagni. Our efforts?
Senator Burr. Yes, marked for identification.
Ms. Ignagni. Our efforts were to try to get a political
strategy and ultimately a regulatory strategy that would
provide the most competition. And so we have been working with
the Department to do that. We worked with you and your
colleagues and the colleagues on the other side of the aisle to
try to advance that as well.
Senator Burr. Having less regions would be a more
nationwide approach than you talked about though, would it not?
Ms. Ignagni. Not necessarily. First of all, in terms of
Medicare, what I am pleased to see is the number of contracts
have now doubled in private sector participation since the
enactment of the law. That is 16 months. That is an excellent
track record. So we are seeing a very fast growth.
Senator Burr. But fewer regions would mean more regional
harmonization versus 50 different entities.
Ms. Ignagni. Not necessarily. You could harmonize with 50
States and indeed that is what, as we talk about regulatory
reform, that a number of entities are talking about, both the
NAIC as well as folks who are looking at insurance regulation
broadly. The absolute number really does not drive the
harmonization. It is the will to harmonize and modernize.
We are being challenged in the healthcare industry to
operate on the principle of best practice. We think regulators
ought to be challenged to do that as well. And so if you have
40 States can you harmonize regulation? Yes. If you have fewer
States, regions, can you harmonize regulation? Yes. The
question is having the political will to do it and getting it
done and sorting through that and trying to figure out how to
get it done as quickly as possible so we can be out there
selling product.
One of the issues that we have found with the AHPs, we are
prevented in many States from selling the kinds of products
that small business would like to buy. That is a barrier. Do we
fix that at the State level? Do we fix it at the national
level? We are open to talking about whatever venue, as long as
we can fix it so we can offer product for small players.
Senator Burr. Do you agree with my statement that more of
the cost shift goes to small group plans today than to the
larger companies?
Ms. Ignagni. I think that that is probably correct, but
probably not to the extent you think it is. All companies now
are bearing a significant burden as States clamp down on----
Senator Burr. But the fact is I do not know, do I, because
there is nothing that tells me.
Ms. Ignagni. There is nothing that really tells you
affirmatively.
Senator Burr. Mr. Chairman, you have been very kind. I will
wait for the second round.
The Chairman. That means I get two turns now, right?
[Laughter.]
That is fine. Those were excellent questions. I appreciate
the interest.
I am going to back up to a much more basic question that I
need to have answered I guess. Do bigger companies get lower
rates than small business? It seems pretty basic to the whole
discussion. Do they?
Ms. Praeger. Mr. Chairman, let me just comment. Our State
health plan in Kansas insures about 80,000 to 90,000 lives and
we have an older State employee population, and we have the
same health costs that would go with having an older
population. When health insurance premiums were increasing in
the double digits, we were seeing those same increases in our
State plan. So even though we were large, the larger
purchaser----
The Chairman. But that is talking percentages. I am talking
actual dollars per employee. What I am hearing from small
business is that they are paying more per employee than the big
businesses are. Percentage of increase? Yes, everybody has got
percentage of increase. But if you start from a smaller base
you still wind up with a smaller base. So is there a disparity
in the dollars per employee with the smaller one? I mean
intuitively it would seem that there would be because you are
not talking about as many--you have more service you have to
provide to fewer people, but is that true?
Ms. Ignagni. Senator, what I am particularly please--Ms.
Praeger, were you finished? I am sorry.
Ms. Praeger. Yes.
Ms. Ignagni. Mr. Chairman, what I am very pleased about, we
have just completed a study of the individual market which goes
directly to your question, and I was very pleased to see the
range of products now--and we can provide this for the
committee's consideration--in terms of trying to hit this mark
of affordability, both to the range of products in the
individual market but then also what we see now being offered
to small business. Now, with due regard to the fact that there
are barriers in certain States toward offering lower option
products, which a number of small businesses suggests that is
the only thing that they can afford. But we are seeing products
with premiums less than $100. We are seeing reasonable
deductible, stop loss, catastrophic, beginning to be offered
all over the country. And that has definitely increased from
the last time we did this survey, which was about 4 or 5 years
ago. So I would be delighted to provide that to the committee.
One of the things that I think with the AHP legislation
that has not been understood, and admittedly, you could direct
strategies toward fixing this problem, the AHP discussion
always proceeds as if there would be this large pool that would
be community rated. The AHP legislation does not propose that
there be one rate established for every member of an NFIB
chapter or an ABC chapter or something of that sort. Each of
the businesses would be rated themselves. So with no rating
bands, no guidance, you could have very, very significant
swings in rates, which is why the CBO has indicated that 80
percent of individuals working in small business would probably
have an increase in cost and why the actuaries--the other issue
is the S&L problem. Basically you charter entities that have
little experience in providing insurance, are not as
capitalized as they need to be, according to the American
Society of Actuaries, and then you have a real problem, which
we have seen in the country.
The Chairman. But my question is: do bigger companies get a
lower rate per employee than smaller companies do? I mean we
are going from the assumption that they do, and I think it is
true, but I want to ask the question.
Mr. Rossmann, did you want to comment on that?
Mr. Rossman. Yes. Senator, I would say from my personal
experience that they do. Larger companies get a better rate
than smaller companies for two reasons. One is in the
administration cost and marketing and sales cost that a
insurance carrier will charge to a larger company versus the
expenses factors in cost in selling to a smaller company. That
is a savings right there.
The other tool I guess you would say to get a lower rate
for larger companies is the fact that they have experience
rating. In other words, the premium dollar they pay into the
insurance company is counted for against the administration
charges that the insurance company makes, plus the claims
charges of what they pay out. And generally any difference, if
there is a margin in a given year, where they pay in more
premium than they have paid out in claims and expenses, that
dividend goes back to the benefit of that large employer to
reduce their rates in the future. That is called experience
rating. It is a standard industry item. So they get a dividend
back from the insurance company.
So by virtue of that, large employers also have lower cost
or lower rates if you will for their insurance coverage. That
is one of the big things of an association health plan. Under
an association health plan the trust that is set up with
trustees or fiduciaries under the program would be able to have
an experience rated program, where any margins that are
generated in a given year, if there are margins--and granted
those are getting fewer and fewer because health costs keep
going up and up--but if there are any margins those margins
stay in the plan for the benefit of those little employers this
year and next year.
The Chairman. I think when people are advocating a larger
pooling solution for the small businesses, they are looking for
a short-term solution, and what we are talking about on some of
the other solutions are long-term solutions. But the long-term
solutions affect the big companies just like they do the small
ones. The med mal is a problem for everybody in the country, it
is not just the small companies. The risk spreading, the
mandates, those are all problems that the big companies have as
well. But the people advocating the AHPs are talking about a
short-term solution, hopefully that will turn into a long-term
solution.
I want to talk a little bit about the mandates. States have
mandates. One of the things that shows up in some of the
legislation that I have looked at that I will get to referee on
is elimination of some of the State mandates which would bring
down some of the prices. Would there be savings if there were
greater flexibility in designing the benefits if there was
nationwide some kind of a change in the mandates? Mr. Rossmann?
Mr. Rossman. I think if you have some consistency across
State lines--and that is what you would basically achieve
through the association health plan legislation--and it is a
modification of--it is giving small employers the same
advantages that large employers have today.
One of the interesting issues is the fact that if you
formed an AHP and you set up this plan and it was a very rich
plan or a very bare bones plan, it would still have to go out
to the open market and it would have to be sold, I guess you
would say, to the small employers who were members of that
association. And those employers have a chance to buy that
benefit if they wanted to or not buy that benefit.
We have seen over the years that bare bones plans with low
or no mandates basically have not sold. I can tell you from
personal experience and ABC members, they want quality benefits
to offer their employees just like the large employers have for
their employees in order to attract and retain employees. So we
do not provide programs that have low benefits, I guess you
would say. They have quality benefits and good comprehensive
coverage.
I guess the other thing I would mention on mandates and
rating under the AHP provisions, the AHP bill, the bill is
designed to have the experience rating of that association come
up with one set of rates, if you will, for the association in
general, in other words will base the rates on the experience
of the association, take into consideration age rating,
geographic rating, sex, family composition, all the types of
things that States and insurance companies do today nationwide.
And then deviate those rates upward or downward only to the
extent allowed by State law, and that is written right into the
bill for both insured and self-insured programs.
So the AHP would be operating within the rating bands of
the various States. In other words they would use their age
rating to come up with a set of rates for the firms in this
State, but then either raise them or lower them if allowed by
the State, and if the State did not allow it, a State required
community rating, then they would use those rates to develop a
general community rate for that State and those employers.
Ms. Ignagni. Mr. Chairman, that--and I appreciate what Mr.
Rossmann said, and I may have a wrong understanding of the
legislation, and I apologize if I do. One of the problems that
Mr. Rossmann has correctly talked about is this issue of what
does an individual employer pay, and that is Senator Burr's
question too. And unfortunately, I think, a number of
individuals that have sought to support AHP legislation have
talked about it as one rate, federally-chartered AHPs, very few
standards, preemption of mandates, etc. Unfortunately, what
that would mean is an experience-rated premium would be asked
of Mr. Blake. So his situation could be exacerbated under this
particular legislation, which is why CBO gets to where it is
with respect to its analysis of who would be the winners and
who would be the losers.
So with all due respect, our community wants to be a
solution provider. We want to help you sort through this.
Although we also at the same time wanted to be honest about
issues that we say with respect to unintended consequences with
legislation that could be pushed for meritorious reasons, but
could have a serious negative consequence on small business
such as Mr. Blake's.
The Chairman. I understand that. What we are trying to do
is drive toward some solutions that will solve Mr. Blake's
problem in the short term.
Ms. Ignagni. Well, I think you really then have to get to
the situation of how do we sort through this patchwork quilt at
the State level with respect to different rating requirements,
different solvency issues, different mandates, the inability to
bring products to market quickly. There are a whole range of
issues that need to be honestly and legitimately sorted
through. We would like to help the committee do that and
provide some answers. But it is not--we believe the wrong
strategy is to carve out a particular group with no experience
in the insurance market with little capitalization to say let
us develop a Federal corridor for them, because the unintended
consequences we think are going to be quite severe, and we have
had precedent for those unintended consequences.
The Chairman. We will appreciate the cooperation and the
help on that.
Senator Burr?
Senator Burr. Mr. Chairman, I sat here at the beginning of
your process with the thought that if we were sitting in a
Banking Committee meeting we would be talking about an inverted
curve. In fact, in North Carolina today, for an employee of a
small business it is actually cheaper to buy an individual
health insurance policy, than it is to be a member of a small
group. That tells you in a pretty good sense that the small
group market is pretty messed up, and I think that experience
cannot be limited just to North Carolina, and that to some
degree shares with you the frustration.
When employers cannot offer, cannot negotiate, cannot find
an insurance product that they can provide for their employees
that is cheaper than what the employee could go out in the open
marketplace and get a policy for--and by the way, that
individual who goes out in the marketplace can assemble that
policy in all likelihood custom to them. They can decide what
the deductibles are, they can decide what the copayments are
going to be. They can decide so that they can match the premium
where they personally need to be. The likelihood is that a
small group plan does not have near the flexibility because
they are trying to address a larger population.
Again, I think it is a sign that something is broken. I
think the chairman has committed to take up legislation. I am
committed to make sure these employees have additional options.
Where there are places that we can fix a bill, we have to do
it, but my concern is that right now the small group market is
the first one to feel the excesses of the cost of healthcare as
it rises, and they are the last ones, if at all, to feel the
benefits when we get it under control.
The only way to let them feel the effects that big business
does today is to in fact give them additional tools that give
them a way to compete in a marketplace through leverage.
Whatever that is, I think that is where we are trying to get
to, so I encourage all of you to continue to help us as we go
along through this process to try to put together legislation
that I think makes sense, but also heads in the direction that
I think all of us here today are concerned about.
Mr. Rossmann, I wanted to give you one more opportunity, if
you choose to, to address the cherry-picking issue and the
rating pool issue. You did just follow up on the rating pool,
but I think that consistently, regardless of what conversation
you are in, when AHPs are mentioned and if there is somebody
who is not in favor of them, the first word out of their mouth
is, ``Well, they are just going to cherry-pick.'' The second
phrase out is that ``This is going to have an effect on rating
pools.'' Will you address both of them?
Mr. Rossman. Thank you, Senator. I appreciate it. I would
be glad to.
As far as the cherry-picking issue, I think at this point
that is a moot point, basically because the bill provides that
it must be established, the AHP must be established by a bona
fide association, it has to have trustees who are all
fiduciaries, like you have fiduciaries under union and
corporate plans, and they have to set up a separate trust which
is acting in the best interest of the participants.
Also the bill specifically requires that membership in the
association cannot be conditioned on health issues or health
concerns. In other words, you have to let members into your
association like you normally would. You cannot say, ``I am
only going to let the healthy members in the association and
forget about the people that are unhealthy.'' So membership is
not linked to health status.
It also says that under the association health plan the
trust or the program must offer the benefits to all eligible
members. The only difference I can see in a place where you
would not have an eligible member is quite possibly if you got
an HMO option in some part of the country and the HMO service
area does not expand to the entire Nation, you may not be able
to offer an HMO to somebody in Wyoming when you only have it
available here in the DC area. But other than that, if you have
got PPO programs, preferred provider type organizations, that
you have nationwide, you should be able to offer the same
programs to all employers and all employees across the country,
and that is the concept.
So there will not be cherry picking because all employers
have to get in. There will not be cherry picking because you
cannot deny coverage for an employee. Quite frankly, I feel
personally, and what we experience day-to-day at ABC, is the
people that are looking for an association health plan tend to
be the people that have medical problems, the people that are
having a hard time with their insurance. Those are the folks we
get a call from every day at the office, asking if we have an
association health plan that they can get into.
So I think the cherry picking could be almost reverse
cherry picking and the people that are going to want this
program when it is passed would be the folks that need it the
most. We have to make sure that we get all of the members into
that.
So I hope that answers the issue on cherry picking. It does
not exist because you cannot coincident health status on
membership, you cannot deny coverage to the employers, and you
cannot deny any specific employee. So those three factors
eliminate cherry picking.
As far as rating goes, I did not mean to--and I apologize
if I did--I did not mean to say that there would be one rate
nationwide as far as the rating goes. What we would do is we
would have one large pool of plans and rates in which Mr. Blake
would participate, for example, and those rates would vary
according to the plan design. It would use age rating. It would
use family composition, sex, all the things that insurance
companies use today. And we have a set of rates for each
medical plan, and those rates would vary according to the area
of the country you lived in.
And then we would say those are the rates for all the
employers of ABC, but oh by the way, if you have some employers
that are not quite healthy, the plan can rate you up only to
the extent that is allowed by State law in which the employer
is located, which is saying we are trying to put the AHP on an
equal footing with insurance companies. We do not want the AHP
to be in a position where the insurance companies can rate up
and the AHP could not rate up to that level in the State, and
then all of the business that has high medical rates would come
to the association health plan. So we are looking for parity
there, and that is specifically stated in the bill.
The advantage in this experience rating of this pool is you
bring all these claims and expenses back together and you say
at the end of the year, our costs were X number of dollars for
the entire group in the AHP. We need a rate increase of X
percent for the next year, and then everybody in the country
gets that same rate increase. We pooled them all together for
experience. We pooled them all together for plan designs and
the benefits of margin if it is good experience, and for rate
increases if it is poor experience.
So in this situation under this concept Mr. Blake would
have the same kind of increase that everybody else in that AHP
had in a given year. He would not be--I should not say lasered
out--but he would not be focused on with huge rate increases
because you are pooling them all together, and that is the
concept behind the association health plan.
Senator Burr. Thank you, Mr. Chairman.
The Chairman. Thank you.
This has been helpful. Like I say, it has raised a lot of
questions. The purpose of the hearing is not to go any
particular direction, but to find some series of ideas which a
task force that I served on last year came up with, that would
perhaps provide some relief to small business as quickly as
possible. Then there is a whole series of issues that we have
been working on that would provide help to all businesses.
Those are a bit more difficult to achieve, but we have had some
success already. Health savings accounts is one of the things
that we had on the list. Those are in existence.
I have to tell you though when those first came out, my
son's business was in the process of looking for some insurance
and I had told him what this could do. So as he interviewed
insurance people he asked them about health savings accounts,
and all of them said, oh, that is a terrible idea, should never
have been done. And he called me up the night after he did
those, and he said, ``Dad, you must have done something
wrong.'' I said, ``Why?'' He said, ``Well, the companies all
tell me it is a bad idea.'' I said, ``Well, here is the key
question to ask them. Ask them if they have a health savings
account.'' He did. Not one of them did have. I said, ``Well, if
they do not have the product, of course it is a bad idea.'' Six
months later when I talked to him about his insurance, he said,
``Yes, we have health insurance plans by almost every company
now and they are pushing them.''
There are some solutions out there and they have to be
worked on very carefully and put into place, and I am hoping
that everybody will participate in those. One of the things I
am doing on all of health is trying to sit down with the
different groups--health insurance companies would be one of
them--and ask them what they can do to help.
Of course, the first thing that always comes out is if the
doctors did better practices, if the lawyers did not sue, and I
say, ``No, no, no. My question is what can you do to bring down
the cost of health?'' I have got all the finger-pointing ideas
already and we are working on things in those areas to
eliminate that, but even the consumer can do things that will
help bring down the cost of health while we increase quality
and access. That is what we are trying to do, so we will try
and be careful with all of it, but hope that all of you will
continue to come up with ideas, and maybe out of this whole
thing there will be a hybrid that will work, and it will work
with the State insurance commissioners still in the position
where they can do the good work that they do, and I am pretty
sure that under any scenario that we do, the insurance
companies that are in place now will be a part of whatever
happens. They may be administering associated health plans, but
they will still be there.
We will try and be careful on the whole thing.
Again, I appreciate all of the testimony, and the record
will remain open.
This hearing is adjourned.
[Whereupon, at 11:38 a.m., the committee was adjourned.]