[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
EXAMINING INNOVATIVE APPROACHES TO COVERING THE UNINSURED THROUGH
EMPLOYER-PROVIDED HEALTH BENEFITS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON
EDUCATION AND LABOR
U.S. House of Representatives
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 15, 2007
__________
Serial No. 110-10
__________
Printed for the use of the Committee on Education and Labor
Available on the Internet:
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COMMITTEE ON EDUCATION AND LABOR
GEORGE MILLER, California, Chairman
Dale E. Kildee, Michigan, Vice Howard P. ``Buck'' McKeon,
Chairman California,
Donald M. Payne, New Jersey Ranking Minority Member
Robert E. Andrews, New Jersey Thomas E. Petri, Wisconsin
Robert C. ``Bobby'' Scott, Virginia Peter Hoekstra, Michigan
Lynn C. Woolsey, California Michael N. Castle, Delaware
Ruben Hinojosa, Texas Mark E. Souder, Indiana
Carolyn McCarthy, New York Vernon J. Ehlers, Michigan
John F. Tierney, Massachusetts Judy Biggert, Illinois
Dennis J. Kucinich, Ohio Todd Russell Platts, Pennsylvania
David Wu, Oregon Ric Keller, Florida
Rush D. Holt, New Jersey Joe Wilson, South Carolina
Susan A. Davis, California John Kline, Minnesota
Danny K. Davis, Illinois Bob Inglis, South Carolina
Raul M. Grijalva, Arizona Cathy McMorris Rodgers, Washington
Timothy H. Bishop, New York Kenny Marchant, Texas
Linda T. Sanchez, California Tom Price, Georgia
John P. Sarbanes, Maryland Luis G. Fortuno, Puerto Rico
Joe Sestak, Pennsylvania Charles W. Boustany, Jr.,
David Loebsack, Iowa Louisiana
Mazie Hirono, Hawaii Virginia Foxx, North Carolina
Jason Altmire, Pennsylvania John R. ``Randy'' Kuhl, Jr., New
John A. Yarmuth, Kentucky York
Phil Hare, Illinois Rob Bishop, Utah
Yvette D. Clarke, New York David Davis, Tennessee
Joe Courtney, Connecticut Timothy Walberg, Michigan
Carol Shea-Porter, New Hampshire
Mark Zuckerman, Staff Director
Vic Klatt, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS
ROBERT E. ANDREWS, New Jersey, Chairman
George Miller, California John Kline, Minnesota,
Dale E. Kildee, Michigan Ranking Minority Member
Carolyn McCarthy, New York Howard P. ``Buck'' McKeon,
John F. Tierney, Massachusetts California
David Wu, Oregon Kenny Marchant, Texas
Rush D. Holt, New Jersey Charles W. Boustany, Jr.,
Linda T. Sanchez, California Louisiana
Joe Sestak, Pennsylvania David Davis, Tennessee
David Loebsack, Iowa Peter Hoekstra, Michigan
Phil Hare, Illinois Cathy McMorris Rodgers, Washington
Yvette D. Clarke, New York Tom Price, Georgia
Joe Courtney, Connecticut Virginia Foxx, North Carolina
Timothy Walberg, Michigan
C O N T E N T S
----------
Page
Hearing held on March 15, 2007................................... 1
Statement of Members:
Andrews, Hon. Robert E., Chairman, Subcommittee on Health,
Employment, Labor and Pensions............................. 1
The report, ``Health Care That Works for All Americans,''
Internet address....................................... 7
The President's response to the Citizens' Health Care
Commission report...................................... 7
Boustany, Hon. Charles W., Jr., a Representative in Congress
from the State of Louisiana................................ 5
Kline, Hon. John, Senior Republican Member, Subcommittee on
Health, Employment, Labor and Pensions..................... 3
Prepared statement of.................................... 4
The Employee Benefit Research Institute report,
``Employment-Based Health Benefits: Access and
Coverage, 1988-2005,'' Internet address................ 4
Statement of Witnesses:
Alker, Joan C., M.Phil, deputy executive director, Georgetown
University Center for Children and Families................ 18
Prepared statement of.................................... 20
Blumberg, Linda J., Ph.D., principal research associate, the
Urban Institute............................................ 34
Prepared statement of.................................... 36
England, Brian, owner, British American Auto Repair.......... 25
Prepared statement of.................................... 26
Webber, Andrew, President & Chief Executive Officer, National
Business Coalition on Health............................... 27
Prepared statement of.................................... 29
National Business Coalition on Health policy paper,
``Promoting Consumerism Through Responsible Health Care
Benefit Design''....................................... 92
``Value-Driven Health Care: A Purchaser Guide,'' Internet
address................................................ 115
Additional Statements and Supplemental Materials:
``Charting SCHIP III: An Analysis of the Third Comprehensive
Survey of State Children's Health Insurance Programs,''
Internet address........................................... 56
Congressional Research Service report for Congress: ``State
Children's Health Insurance Program (SCHIP): A Brief
Overview,'' Internet address............................... 57
Congressional Research Service memo prepared for Congress:
``State Health Insurance Reforms''......................... 57
Prepared statement of Devon M. Herrick, Ph.D., senior fellow,
National Center for Policy Analysis........................ 87
Kaiser Commission issue brief: ``Premium Assistant Programs:
How Are They Financed and Do States Save Money?'' Internet
addresses.................................................. 90
New York Times article: ``The President's Risky Health Plan'' 90
EXAMINING INNOVATIVE APPROACHES TO COVERING THE UNINSURED THROUGH
EMPLOYER-PROVIDED HEALTH BENEFITS
----------
Thursday, March 15, 2007
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and Labor
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:30 a.m., in
room 2175, Rayburn House Office Building, Hon. Robert Andrews
[chairman of the subcommittee] presiding.
Present: Representatives Andrews, Kildee, Wu, Sestak,
Loebsack, Hare, Clarke, Courtney, Kline, McKeon, Boustany and
Walberg.
Staff Present: Tylease Alli, Hearing Clerk; Carlos Fenwick,
Policy Advisor for Subcommittee on Health, Employment, Labor
and Pensions; Michael Gaffin, Staff Assistant, Labor; Jeffrey
Hancuff, Staff Assistant, Labor; Brian Kennedy, General
Counsel; Megan O'Reilly, Labor Policy Advisor; Rachel Racusen,
Deputy Communications Director; Michele Varnhagen, Labor Policy
Director; Robert Borden, Minority General Counsel; Steve Forde,
Minority Communications Director; Ed Gilroy, Minority Director
of Workforce Policy; Rob Gregg, Minority Legislative Assistant;
Jessica Gross, Minority Deputy Press Secretary; Victor Klatt;
Minority Staff Director; Jim Paretti, Minority Workforce Policy
Counsel; Molly McLaughlin Salmi, Minority Deputy Director of
Workforce Policy; and Linda Stevens, Minority Chief Clerk/
Assistant to the General Counsel.
Chairman Andrews. Good afternoon. The subcommittee will
come to order. We would like to thank the witnesses for their
participation this morning. We have assembled an excellent
panel of people, and we are very happy that you are here.
There are 47 million Americans without health insurance. I
believe that it is a foregone conclusion, and it is obvious it
is a moral imperative that we do something about that. If you
awoke this morning anxious about the fact that if your son or
daughter had to go to a pediatrician, and you couldn't pay the
bill, that is a serious and urgent and immediate problem that
deserves the attention of the Congress and the entire country.
Beyond the moral imperative, though, it is becoming more
and more clear to me that the economic burden of having 47
million uninsured is an unsustainable burden for the United
States. In global competition, be it in autos, airlines,
pharmaceuticals, software, we will not compete successfully if
our entrepreneurs are saddled with a system where they are
cross-subsidizing the healthcare of people whom they don't
employ, but are paying for either directly or indirectly
through premiums and shifted costs and taxes.
I believe there is a strong economic imperative to get as
many Americans fully insured and fairly insured as rapidly and
as intelligently as we can.
Secondly, I believe there is a growing understanding that
people who are insured are suffering and are burdened by the
fact that they are cross-subsidizing people who are uninsured;
that the problem of uninsurance is not simply an urgent life
problem for those without insurance, it is also a family budget
problem for those fortunate enough to have insurance.
By no means is reducing the number of uninsured the
exclusive remedy for controlling health care costs, and I know
Mr. Webber is going to speak to this later, and I want to tell
him at the outset that I agree with what he said, that
controlling health care costs is a global question, and it
requires attention, I believe, to insurance market reform, to
malpractice reform, to the use of technology and innovation
that would reduce costs in many, many other areas.
It is the purview and jurisdiction of this committee to
look at the employer-based health care system, and we have
chosen to begin our examination by looking at ways that the
employer-based health care system could be utilized to reduce
the number of uninsured. Fifty-nine percent of Americans get
their insurance through their employer. This is not to
denigrate other means of acquiring insurance, but it is to
acknowledge that the employer-based system has been successful
and meaningful in many people's lives. So our mission, the
committee will embark upon a mission to think about ways and
creatively examine ways that, through the existing employer-
based health care system, we can reduce the number of uninsured
people in our country.
In the short run, we are going to examine the possibility
of employer-based participation in the children's health
insurance program called SCHIP. The Committee on Energy and
Commerce is obviously responsible for the reauthorization of
that program, and in consultation with the Committee on Energy
and Commerce, we are discussing ways in which employers could
become involved in extending employer-based health care
coverage, building on the SCHIP system to decrease the number
of uninsured people.
The committee intends beyond that to look at the
interesting experiments that are being done by various State
governments across the country. Massachusetts has already
adopted some very meaningful reforms. California is considering
very meaningful reforms, as is my State, New Jersey. My friend
Mr. Kline's State, Minnesota, has already adopted a number of
meaningful reforms. So we will be considering ways that the
ERISA statute should or could be modified to facilitate those
meaningful reforms in a way that we could reduce the number of
uninsured and in a way that we could control costs.
Let me say one final point. I am acutely aware of the
voluntary nature of the ERISA statute. I am acutely aware of
the fact that the 59 percent of Americans who get their
insurance through employers, almost all of them did so because
the employer decided to, not because the employer was required
to by law. And although I would not, for one, rule out the idea
of an employer mandate, I frankly think there are circumstances
under which it is appropriate.
I come at this question personally from the starting point
that we should be looking at optimizing incentives that would
make an employer choose to insure rather than address the
question of laws which would mandate an employer, require him
or her to do so. This is a vast question and an important
question, and I am certain that the Committee on Ways and Means
and the Committee on Energy and Commerce, the Committee on
Appropriations, many others will consider the consequences of
this. So will we.
I look at today being the first in a series of discussions
about ways that we can exercise our jurisdiction in a way that
will control costs for employers and employees, improve the
quality of the health care system in the country, and, most
especially, reduce the number of uninsured.
At this time I am going to ask my friend and colleague, the
Ranking Member of the committee, Mr. Kline for his opening
statement, and I understand that Dr. Boustany would also like
to make a statement. And at the conclusion of Mr. Kline's
remarks, Dr. Boustany is welcome to do that.
John?
Mr. Kline. Thank you, Mr. Chairman, for that concession and
the opening remarks, and because of that, in the spirit of
listening to our witnesses and not so much to us, I will add in
realtime my opening remarks, which as I just told the
witnesses, is always dangerous.
I am delighted that we are having this hearing, and I am
pleased that the Chairman has decided to have a series of
hearings. I think the discussion and the debate across the
country in so many different venues and forums about trying to
better understand how Americans pay for their health care, how
they are insured for their health care, and how we ought to pay
for or be insured for our health care is probably at the very
pinnacle of important issues that we are going to be
addressing, certainly in this Congress. That we are starting
with employer-provided health insurance, health benefits is an
important place to start, because, as the Chairman said, I
think he used a number over 59 percent. I was looking at a
report that said over 63 percent of workers who get their
insurance through employee-provided insurance and some 15
percent of additional family members. So clearly it is at the
core of our system.
I would just like to ask unanimous consent that we include
the Employee Benefits Research Institute report earlier this
month that discusses in some depth the employer-provided health
insurance.
Chairman Andrews. Without objection.
[The Employee Benefit Research Institute report,
``Employment-Based Health Benefits: Access and Coverage, 1988-
2005,'' dated March 2007, is available at the following
Internet address:]
http://www.ebri.org/pdf/briefspdf/EBRI_IB_03-20071.pdf
______
Mr. Kline. And with that, let me thank the witnesses for
being here and, again, the Chairman for holding this hearing,
and I will yield back so Dr. Boustany may have a chance to
speak.
[The statement of Mr. Kline follows:]
Prepared Statement of Hon. John Kline, Ranking Republican Member,
Subcommittee on Health, Employment, Labor, and Pensions
Good morning. I'd like to thank Chairman Andrews for convening this
hearing this morning. I expect this will be the first of many in our
Subcommittee dedicated to exploring the current successes--and
failures--of our nation's health care system. The delivery of health
care is an issue of great importance to every one of our constituents,
and I expect that as we take up this issue today and in the weeks
beyond, we will find that on both sides of the aisles, we share many of
the same concerns and issues. We may even agree on some solutions,
while I expect we'll disagree on others. That said, this is a matter of
indeed national importance, and I am glad to see that we are
undertaking, as legislators, a thoughtful and complete examination of
the issue.
I think it particularly fitting that we start the process today by
an examination of our employer-based health care system, and the
innovations companies are pursuing within that framework. I think
sometimes as we look at the problems our health care system faces--be
it the fact that there are too many uninsured Americans, or that costs
are rising at rates which threaten the ability of businesses and
individuals to purchase health insurance--it is too easy to overlook
some fundamental successes.
Earlier this month, the nonpartisan and highly respected Employee
Benefits Research Institute released a report examining trends in the
employer-based health care system over the last twenty-five years. I
would ask unanimous consent that a copy of this report be included in
the record.
EBRI's report underscores some very important facts. First, we
should be mindful that employment-based health benefits are the most
common form of health insurance for individuals and workers in the
United States. In 2005, 63.1 percent of workers were covered by an
employment-based health plan from their own employer, and almost 15
percent had coverage through an employer as a dependent. Indeed, only
four percent of workers eligible for health coverage through their
employer are uninsured.
As EBRI's study makes clear, and I quote, ``While claims of the
demise of employment-based health benefits have been made, EBRI
research has found that this is simply not the case. Employment-based
health benefits have historically [been]--and continue to be--the most
common source of insurance in the United States.''
I raise this point today because I think it's important and
appropriate, as we move forward to pay heed to one of the fundamental
tenets of the practice of medicine itself: First, do no harm. As I said
earlier, we absolutely face challenges in our current system, ranging
from cost to access. But as we explore efforts to expand and build on
our employer-based system, we must be certain that we do not take
action that will exacerbate, rather than solve, these problems. I trust
our witnesses will speak to these issues in greater detail.
I would also be remiss in not bringing to the Subcommittee's
attention one bipartisan health care solution on which this Committee
has long taken the lead. Of course I am referring to Association Health
Plans, or AHPs.
Estimates indicate that 60 percent or more of the working uninsured
work for or depend on small employers who simply lack the ability to
provide health benefits for their workers. These employers are denied
the ability to purchase quality health coverage for their workers that
compares with the benefits large, multi-state companies have been
offering to their workers for decades.
AHPs address both the access and cost issues at the heart of the
health care reform debate, giving uninsured working families new hope
for a solution that can give them access to quality health care. By
giving small businesses the opportunity to pool their resources and
increase their bargaining power, AHPs would help employers reduce their
health insurance costs, and equally important, expand access to quality
health care for the people for whom it is currently out of reach:
uninsured working families.
In the last Congress, the House passed bipartisan legislation
authorizing the creation of Association Health Plans with the support
of three dozen Democrats. I would hope that as we take up the health
care debate in this Congress, we can look to common-sense, bipartisan
solutions like AHPs as an issue upon which many of us can agree--or at
least as a starting point as one part of the solution, if not the
solution to every problem that our health care system faces.
With that, I welcome our witnesses. Our panel today is a
distinguished one, and I look forward to their testimony as to how our
current system is working, and how it may be improved.
______
Chairman Andrews. Dr. Boustany, you are recognized for 5
minutes.
Mr. Boustany. Chairman Andrews, thank you so much for
allowing me to make an opening statement, and I appreciate your
comments and willingness to work on health care reform issues
that come under the jurisdiction of this committee. And,
Ranking Member Kline, likewise I appreciate you giving me the
time to speak here as well.
As we look at health care reform on a broad front, I
believe there are three main threadlines that we have to
approach it on. One is information technology and all the
aspects that go along with that that help reduce duplication,
the privacy issues, and also informing the consumer. The second
one would be choice, creating a wide range of choices which
will bring more competition, open competition, into the
marketplace that ultimately will drive down the cost of
premiums regardless of who is paying those premiums. And the
final piece is control, and I do believe that ultimately
decisions should be made by the patient, the patient's family
and the physician who treats the patient. And I think if we
keep those three principles in mind as we go forward, I think
we will follow the right path in health care reform.
As a heart and lung surgeon in a State, Louisiana, that has
a very low insurance coverage level, I can tell you from
personal experience I have seen many uninsured patients delay
treatment, and I believe Congress has a moral and ethical duty
to expand affordable coverage. Millions who lack insurance
forgo needed care, making them sicker, and requiring more
costly and invasive treatments down the road. In fact, a recent
CBS poll found that 60 percent of uninsured adults said a
family member had not sought care due to cost. A 2005 health
affairs study found that half of all bankruptcies were due to
medical debt.
We must expand coverage because it is fiscally responsible,
and it is humane. Our coverage problem threatens every
American's access to excellent medical care. Seven out of ten
Americans want Congress to act this year. The trade-offs of
solutions must be explored, but shame on us if we wait until
2008 to do anything to protect and expand coverage.
Americans overwhelmingly demand freedom to make health care
choices that meet their individual needs, similar to the range
of choices that Members of Congress enjoy through the Federal
Employee Health Benefit Plan. They also want Congress to find
ways to encourage employers to maintain and improve the health
care insurance coverage they have agreed to provide to workers.
Millions of Americans have worked their entire careers for
health care benefits they now enjoy.
And with that in mind, lawmakers who champion single-payer
proposals should consider that 70 percent of Americans who
would have to drop their existing coverage and trust Washington
not to ration medically necessary care when a family member
needs it most. Consider access problems in Canada's single-
payer system. Two years ago that country's Supreme Court
fittingly noted that, quote, access to a waiting list is not
access to health care. Instead, Congress must customize
coverage solutions for the diverse groups who lack insurance
beginning with the low- to moderate-income American, older
workers who don't qualify for Medicare, and smaller-business
employees. Furthermore, more than half of uninsured have
incomes below 200 percent of the Federal poverty level. In
Louisiana, many families at this income level currently
qualify, but are not enrolled in Medicaid or SCHIP.
Americans overwhelmingly support expanding SCHIP to cover
more kids this year, and I am hopeful this will happen. Many
families that make too much to qualify for government programs
simply cannot afford premiums without some form of assistance,
and I do believe changes to the Tax Code could bear fruit in
expanding insurance coverage for these workers.
More than 6 out of 10 uninsured Americans are small-
business employees, and I was pleased recently to see that
Chairman Baucus in the Senate Finance Committee said he intends
to create purchasing pools for individuals in small businesses
so that they can take advantage of group rates for coverage,
and I am hopeful that this committee won't rule this out. I
believe we have to look at all options.
We also need to do more to make coverage portable between
jobs because there really isn't true portability. Looming
health care labor shortages and a shrinking pool of working
taxpayers will exacerbate the problem. That is another issue I
think this committee should look at.
Arbitrary cuts produce false savings. We need to look past
government accounting gimmicks and address the real long-term
problems that exist. As I mentioned earlier, we must invest in
health IT to discourage waste, encourage wellness and help
patients manage chronic conditions; and we must give timely,
useful and valid information on cost and quality to providers
and consumers. Medical societies must help to develop these
quality measures, and publicly reported data must be risk-
adjusted. I won't get into personal experiences with that.
I look forward to working closely with the members of this
committee to expand access to affordable coverage and excellent
medical care, and I look forward to your testimony.
Chairman Andrews. Thank you, Dr. Boustany. We look forward
to your sharing of your experiences both as a legislator and as
a physician in this process.
Without objection, any Member who wishes to enter an
opening statement on the record will be able to do so.
Also the Medicare prescription drug law required the
President to establish a Citizens' Health Care Commission to
make recommendations about the uninsured. It also required the
committees of jurisdiction to consider these recommendations.
As part of today's hearing record, we will include the
Commission report, a very small document, and the President's
response in the hearing record as well.
[The report, ``Health Care That Works for All Americans,''
dated September 29, 2006, may be viewed at the following
Internet address:]
http://www.citizenshealthcare.gov/recommendations/
finalrecommendations--print.pdf
______
[The President's response follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Andrews. A vote has just been called on the floor.
With the indulgences of the witnesses, the members of the
committee will go cast their votes. The committee stands in
recess.
[Recess.]
Chairman Andrews. Ladies and gentlemen, we will reconvene.
We thank the witnesses for their indulgence.
We are very much looking forward to hearing from the
witnesses this morning. We are going to hear from them in the
following order. Our first witness will be Ms. Joan Alker. She
is the deputy executive director of the Georgetown Center for
Children and Families, and a senior researcher at the Health
Policy Institute of Georgetown University. For the last 12
years her work has focused primarily on public coverage for
low-income families through Medicaid and the SCHIP program. Dr.
Alker holds a master's in philosophy and politics from St.
Anthony's College, Oxford University, and an A.B. With honors
in political science from Bryn Mawr College. Welcome. It is
great to have you with us.
Our second witness will be Mr. Brian England. Mr. England
is a small-business owner in Columbia, Maryland. He has owned
an independent auto repair shop called British-American Auto
Care in Columbia, Maryland, since 1978. His auto shop is made
up of 20 employees, which includes part- and full-time workers.
He will be giving us some advice on repairing our carburetors
as well, I'm sure, if we have a problem. He is a member of the
Howard County Chamber of Commerce, and we welcome him.
Our third witness is Mr. Andrew Webber, who joined the
National Business Coalition on Health, which is NBCH, as
president and CBO in June 2003. NBCH is a national not-for-
profit membership organization of 90 local and regional
business coalitions on health, dedicated to health system
reform through value-based purchasing. Mr. Webber was a vice
president for external relations and public policy at the
National Committee for Quality Assurance. Welcome, Mr. Webber.
And finally, the last witness will be Dr. Linda Blumberg.
She is an economist and principal research associate at the
Urban Institute. Dr. Blumberg has focused her career and
research interests on issues of health care policy and
economics. She has been at the Urban Institute since 1992. From
August 1993 through October of 1994, she served as health
policy advisor to the Clinton administration during its initial
health care reform effort. Some of her works include a variety
of projects related to private health insurance and health care
financing, building a roadmap to universal coverage in the
State of Massachusetts, and effects of the implementation of
the SCHIP program on the insurance coverage of children.
We are delighted to have each of you with us. In front of
you, you will notice a box with three lights. Each witness is
given 5 minutes to summarize his or her written testimony. Your
written testimony will be included in full in the record of the
hearing. We would encourage to you summarize your written
testimony within the 5 minutes that is given. When you are 1
minute away from your time expiring, a yellow light will go on,
and when your time has expired, a red light will go on, and we
would ask you to try to stay within the guidelines to the
extent that that is possible.
Again, to reiterate, the complete statements of the
witnesses will be included in the record of the hearing.
So, Ms. Alker, we would like to start with you. Welcome to
the committee.
STATEMENT OF JOAN ALKER, DEPUTY EXECUTIVE DIRECTOR/SENIOR
RESEARCHER, CENTER FOR CHILDREN AND FAMILIES/HEALTH POLICY
INSTITUTE, GEORGETOWN UNIVERSITY
Ms. Alker. Thank you very much, Chairman Andrews,
Representative Kline. Thank you for the invitation to testify
at today's hearing. As you mentioned, Congress this year will
be reauthorizing the State Children's Health Insurance Program,
we call it SCHIP, and as Members consider SCHIP, they will
naturally start thinking about the issue of integrating public
and private coverage, which is some of what I am going to talk
about here today. And over the years some States have used
their SCHIP and Medicaid programs to explore ways to use
employers' contribution to reduce public costs. This has been
one of the primary motivations to establish what are commonly
known as premium assistance programs. And premium assistance
programs use Medicaid and SCHIP dollars to subsidize the
purchase of private coverage, typically employer-based
coverage.
So let me talk briefly about what we have learned from
these programs so far. With some exceptions, premium assistance
programs have not been terribly successful in terms of
enrollment. In New Jersey, for example, which runs a highly
regarded premium assistance program, and I am not just saying
that because it is your committee, they have only had about 700
to 800 family members enrolled in that program over the years.
There are certain logistical challenges that States face,
but the primary reason for low enrollment is simply that
employer-sponsored coverage is not widely available to low-wage
workers. When private insurance is available to low-wage
workers, it is often very expensive. In 2004, for example, the
average cost of covering a family through Medicaid was $7,418,
whereas the cost of covering that same family through employer-
sponsored coverage was almost $10,000, 34 percent higher, and
this annual cost of almost $10,000, we have to remember, for
private coverage doesn't include significant additional costs
that families themselves will incur, such as copayments,
deductibles and other coinsurance.
As a result, there are two principles that I believe should
be given primary consideration when considering premium
assistance approaches. First, participating families should not
receive fewer benefits or face higher cost sharing than they
would in Medicaid or SCHIP. Some States have received waivers
of the so-called wraparound rules which ensure this. In
particular, as I mentioned, cost sharing for private policies
can be very high, and a lot of studies have shown that this
could inhibit access to needed services for low-income
families.
The second important principle is that public subsidization
of private coverage should occur only when it is a cost-
effective use of public funds. Taxpayer dollars should not be
wasted by spending the same amount or in some cases even more
in buying fewer services or imposing higher costs on families.
So let me turn now to some recommendations, and I know,
Chairman Andrews, you are in the process of developing a
proposal that looks at some of these issues. I believe that
Federal policies should encourage and facilitate the ability of
States to follow the example of New Jersey and Rhode Island,
another State that has run a very good premium assistance
program.
Some States have reported that it can be difficult to
obtain information from employers on their benefits package in
order to assess the so-called wraparound services. A change to
the ERISA statute would help States by allowing them to acquire
this information from employers, and that would make this
easier.
Another needed change is to define the loss of Medicaid and
SCHIP eligibility as a qualifying event for purposes of
eligibility for employer-sponsored coverage. This could help to
prevent periods of uninsurance for children and in some cases
parents, when a parent receives a raise and the child becomes
ineligible for public coverage because they are over income.
For example, a parent could receive a raise in April. The child
becomes ineligible for SCHIP, but the family has to wait for
the employer's annual open enrollment period in October, and
the child is uninsured in the interim.
And finally, creative State approaches should be
encouraged. A few States such as Maine, New Mexico and Oklahoma
have recently started to offer a public product to small
businesses and individuals who are otherwise unable to afford
the growing cost of purchasing private coverage. These programs
are relatively new, so it is hard to assess their success, and
it is often difficult to induce participation without
substantial subsidies, but there is little doubt that public
coverage is less expensive than private coverage. So I think
creating these kinds of opportunities for families and
employers to buy in to public coverage is an intriguing new
direction and one that should be explored.
In conclusion, I just want to say it is important to
remember that covering children and their families is a
critical public policy objective and one that enjoys widespread
public support. We look forward to working with the members of
the committee on this effort.
Chairman Andrews. Ms. Alker, thank you very, very much.
[The statement of Ms. Alker follows:]
Prepared Statement of Joan C. Alker, M.Phil, Deputy Executive Director,
Georgetown University Center for Children and Families
Chairman Andrews, Representative Kline and Members of the
Committee: Thank you for the invitation to testify at this morning's
hearing on integrating employer-sponsored coverage with the State
Children's Health Insurance Program (SCHIP) and Medicaid. My name is
Joan Alker, and I am the Deputy Executive Director of the Center for
Children and Families, a research and policy center at Georgetown
University's Health Policy Institute. I am also a Senior Researcher at
the Health Policy Institute. Much of my recent work has focused on the
intersection of public and private coverage--including two reports on
premium assistance and public coverage that I authored for the Kaiser
Commission on Medicaid and the Uninsured. I would like to share some
lessons learned from states' experience with premium assistance
programs and the best way to integrate public and private coverage for
low-income families.
As you know, this year Congress will be reauthorizing the State
Children's Health Insurance Program--known as SCHIP. Created in 1997,
SCHIP, along with its larger companion program Medicaid, has succeeded
in lowering the rate of uninsurance among low-income children by one-
third between 1997 and 2005. In 2005, more than one in four children
received their health insurance through Medicaid and SCHIP--the vast
majority through the Medicaid program. Because Medicaid is by far the
larger program, it is important in any discussion of improving coverage
for low-income families to consider both Medicaid and SCHIP. In both
programs, the majority of children live in families with at least one
employed parent.
For children in low-income families (defined as those with incomes
below twice the poverty level, or $41,300 for a family of four in 2007)
these public programs are the largest single source of health
coverage--covering half of all children (See Figure 1). Unfortunately
public coverage for parents is typically far less generous--the median
income level at which a working parent is eligible for Medicaid is 65%
FPL ($13,423 for a family of four in 2007), although some states like
New Jersey cover parents at higher income levels. Rates of uninsurance
for adults are higher than for children as a result of this less
generous public coverage.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As the expansion of public programs for children, and in some cases
parents, has occurred, the question of integration with employer-
sponsored coverage has arisen. States, especially during challenging
budget times, have explored ways to capture employers' contributions as
a source of financing for eligible families. This legitimate desire to
reduce public costs has been one of the primary motivations to
establish premium assistance programs. Other arguments for premium
assistance have been offered as well including the need to support the
employer-based system of insurance and prevent the substitution of
public coverage for private coverage (or ``crowd-out ''); the ability
to cover all family members in the same health care plan; and the
possibility of providing families with better access to providers .
Premium assistance programs use Medicaid and SCHIP dollars to
subsidize the purchase of private coverage--typically, but not
exclusively, employer-based coverage. Premium assistance is an idea
that preceded the SCHIP program. Section 1906 of the Medicaid statute
permits states to pay premiums for group health plans on behalf of both
Medicaid eligible beneficiaries and other family members if it is cost-
effective to do so. A few states such as Iowa and Pennsylvania have
pursued this option aggressively. Under the Medicaid statute, the state
must provide a ``benefits wraparound'' to ensure that families do not
lose access to any needed benefits that are otherwise available through
Medicaid or incur higher cost-sharing as a result of enrolling in
private coverage. For example, an employer's coverage may not offer
pediatric dental benefits. Other states, including Florida, Illinois,
New Jersey, Oregon, Rhode Island and Utah have implemented premium
assistance programs for their Medicaid and SCHIP populations through
Section 1115 Medicaid and/or SCHIP waivers--in some cases in
conjunction with managed care initiatives and other changes. Some of
these states have sought and received a waiver of the benefits
wraparound required by Medicaid and SCHIP.
What have we learned from state experience so far? With some
exceptions, premium assistance programs have not been terribly
successful in terms of enrollment. In New Jersey, for example, which
runs an exemplary premium assistance program in many ways, enrollment
has hovered around 700-800 family members. While there are certain
logistical challenges that states face, the primary reason for low
enrollment is simply that employer-sponsored coverage is not widely
available for low-income families. As shown in Figure 2, only 14-15
percent of low-income working families have an offer of employer-
sponsored insurance that they are not picking up.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
When private insurance is available it is often very expensive.
Public coverage tends to be less expensive than private insurance for a
number of reasons including economies of scale, lower administrative
costs and lower reimbursement rates for providers.\1\ In 2004, the
average cost of covering a family of four through Medicaid nationwide
was $7,418 whereas the cost of the average employer-sponsored insurance
package for a family of four was $9,950--34% higher (see Figure 3).\2\
This annual cost of almost $10,000 for private coverage does not
include significant additional costs families will incur--such as
copayments, deductibles and other coinsurance. Similarly, a recent
study conducted by the Urban Institute for the state of Illinois found
that predicted medical spending would be 31% higher if children were
covered by private insurance as opposed to covering them through
Medicaid/SCHIP.\3\
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
As premium assistance programs continue to hold a lot of
attraction, there are two principles that I believe should be given
primary consideration when constructing premium assistance approaches.
First, participating families should not receive fewer benefits or face
higher cost-sharing than they would in the public program for which
they are eligible (i.e. Medicaid or SCHIP). In particular, cost-sharing
for private policies can be very high and may inhibit access to needed
services for low-income families. A recent study found that the average
family premium for employer-sponsored insurance in 2006 was $2,973.\4\
For a family of four at 150% of the poverty level ($30,000 for a family
of four in 2006), this premium constitutes 9.9% of their income. In
addition, these families face coinsurance, deductibles and other fees.
Premium assistance programs generally offer help with premium costs;
but some states do not provide the ``wraparound'' protection mentioned
above, and participants must pay all applicable copays, deductibles and
coinsurance. A recent study found that out-of-pocket costs in employer-
sponsored plans are, on average, almost as high as a family's premium
costs.\5\
The second important principle is that public subsidization of
private coverage should occur only when it is a cost-effective use of
public funds. This is critically important because private insurance is
generally more expensive than public coverage, and costs have been
rising at a faster rate in the private sector. It is not prudent for
state and federal funds to be invested in an expensive product
(considering the benefits provided and the cost-sharing imposed) that
costs the public program more, even with an employer contribution.
Premium assistance programs that take advantage of a robust
employer contribution and operate in states that offer public coverage
to the whole family (including parents) are most likely to save money.
Because few employers offer child-only insurance products, a state is
far more likely to meet the cost-effectiveness test for public dollars
if it is offering coverage to the whole family in its Medicaid or SCHIP
program and can count the cost of covering the parent in the
equation.\6\ Strong participation rates are also essential, as programs
with low enrollment are often not able to overcome the high
administrative start-up costs to recoup any savings. If all of these
factors are not taken into consideration, taxpayer dollars may be
wasted by spending the same amount, or in some cases even more money,
and buying fewer services for families.
Few data are available to assess whether states are saving money
through their premium assistance programs. In an effort to promote the
use of private insurance, the Bush Administration's Section 1115 Health
Insurance and Flexibility and Accountability Waiver Initiative (known
as ``HIFA) actually weakened federal cost-effectiveness requirements
for the use of Medicaid and SCHIP dollars through waivers, and there
has been little federal oversight in this regard. The states with
proven savings are states such as Rhode Island and New Jersey.\7\ These
states design their program in the most optimal way by providing
wraparound coverage to families and doing a case-by-case assessment to
ensure that state and federal governments are saving money.
What should Congress do? As Congress considers SCHIP
reauthorization, federal policy should encourage and facilitate the
ability of states to follow the example of states like New Jersey and
Rhode Island. Some states have reported that it can be difficult to
obtain information from employers on their benefits packages in order
to assess what ``wraparound'' services are needed and whether it is
cost-effective to subsidize that employer's coverage. A change to the
ERISA statute such as the one Rep. Andrews is proposing which allows
states to require this information from ``ERISA'' employers will make
this easier. Another difficulty that states face in implementing
premium assistance programs is that a family that becomes eligible for
a premium subsidy under a Medicaid or SCHIP program may have to wait
for the employer's plan to have its open enrollment period. A policy
change that establishes Medicaid/SCHIP eligibility as a ``qualifying
event'' similar to other events such as births, adoptions, etc. for the
purposes of triggering eligibility for subsidized employer coverage
will facilitate expedited enrollment.
And finally another related ERISA change which Congress should
consider to enhance the coordination of public and private coverage,
would be to define the loss of Medicaid/SCHIP eligibility as a
qualifying event for purposes of eligibility for employer-sponsored
coverage. This could help to prevent periods of uninsurance for
children (and in some cases parents) when a parent receives a raise and
the child becomes ineligible for public coverage, for example, in
April, but the family has to wait for the annual open enrollment period
in October and the child is uninsured in the interim.
Even with improvements, premium assistance is not a panacea. Even
if these changes are made, state and federal policymakers should have
realistic expectations for premium assistance programs, particularly as
the cost of private insurance continues to increase. Because employer-
sponsored insurance is simply not widely available to low-wage workers,
traditional premium assistance programs will not address the causes of
uninsurance for these workers. Premium assistance can be a useful tool
in some but not all circumstances; it is not a substitute for direct
coverage through Medicaid and SCHIP.
In the absence of a broader public program expansion (or in the
case of Maine as part of a broader effort), a few states such as Maine,
New Mexico and Oklahoma have tried a different approach--offering a
public product to small businesses and individuals who are unable to
otherwise afford the growing cost of purchasing insurance in the
private market. These programs are relatively new so it is hard to
assess their ultimate success. It is often difficult to induce
employers to participate. In addition, a number of other states offer
the opportunity to ``buy-in'' to SCHIP for children whose family income
exceeds eligibility thresholds. These programs have had mixed success
with enrollment, but this coverage is a welcome resource for some
families who are unable to afford coverage in the private market.
Participation rates for both approaches will improve to the degree that
government subsidies are available to reduce the costs of participation
to employers and families. There is little doubt that public coverage
is less expensive than private coverage, so creating these kinds of
opportunities for families and employers to purchase public coverage is
an intriguing new direction and one that should certainly be explored.
In conclusion, it is important to remember that covering children
and their families is an important public policy objective, and one
that enjoys widespread public support. We look forward to working with
members of the committee on this effort.
endnotes
\1\ If provider reimbursement rates are too low, this may create
access problems for beneficiaries.
\2\ Georgetown Center for Children and Families analysis based on
Kaiser/HRET 2004 survey and Medicaid MSIS data for 2004.
\3\ Hadley, J. and Cravens, M. The Cost of Using Private Insurance
to Cover Uninsured Children in Illinois. Urban Institute, October 20,
2005.
\4\ Kaiser/HRET, Survey of Employer Health Benefits 2006 (September
26, 2006).
\5\ Survey of employer health benefits by Hewitt Associates, LLC
(October 9, 2006).
\6\ This is one reason that it has been very difficult for states
to meet SCHIP's cost-effectiveness test, because it only includes the
cost of covering children.
\7\ Rhode Island has been more successful than New Jersey with
enrollment.
______
Chairman Andrews. Mr. England, welcome to the committee. We
are happy to have you here.
STATEMENT OF BRIAN ENGLAND, OWNER, BRITISH AMERICAN AUTO REPAIR
Mr. England. Thank you, Mr. Chairman. Thank you very much
for this opportunity.
One of the things that we have really had a problem with,
especially with insuring our employees, is just the rising cost
of health care, and we have had to look at different ways to
try and cut that down.
Chairman Andrews. Sir, if I could ask you to pull the
microphone a little bit closer so you can be heard clearly.
Mr. England. One of the things we have done is to look at
deductibles first, and we have changed the deductibles, and
this has made it somewhat more affordable to provide it. But
one of the things that has really made a big difference for us
was from the apprenticeship plan we have in place in our repair
shop.
About 5 or 6 years ago, I reactivated the apprenticeship
plan, and what this did, it brought in more young blood, and
what this did, it brought down the cost of the health care,
because in Maryland what they have is an age-weighted plan. So
when--every year when you go to renew your insurance, you look
at the average age of your employees, and, of course, when you
have 18- and 19-year-olds employed, then that brings down the
cost. So I have benefited from having an apprenticeship
program.
But this is also an area that brings to light young people
are not insured as much, and these people are young, and they
are healthy, and if they are brought into the plan, this is
going to help a lot in keeping the cost of insurance down. So
that is what I have for the apprenticeship plan.
The other challenge we had was employing people like a
single mother who we had employed. Cheryl. She came to work for
us for a number of years. So when somebody works for a real
long time, you give them raises. And one of the things that
happened was that as we gave her raises, we asked her to do
more hours, and what this led to was every time she got a
raise, then the amount of time she could work went down. And I
think she was allowed up to about $200 a week of income, which
is not very much. Then she would lose her health care benefits.
And at that time we weren't providing health care benefits for
part-time employees. So when it got to the point where we
wanted to employ her for 25 hours a week, then that led to the
fact where she said, well, I can't do a 25-hour week; I can't
risk losing my health care. So in the end, she did leave.
I did call her up on Tuesday and said, well, if we could
have provided you coverage for your children and for your
family, would you have carried on working for us? And she said,
yes, that would have been great to do that.
I am also on the Chamber of Commerce, and the Chamber of
Commerce traditionally had two legislative committees, one for
State and one for local. And last year I helped develop the
white paper which establishes exactly what we feel on different
topics. And in the area of health care, I could see when we
came to do this document, there was a really heavy lead-in
towards association plans, and that seemed to be the only thing
that the Chamber seemed to be really concentrating on. But at
the time we got input from everybody, we then realized that if
we were going to move forward, we needed to be a bit more
imaginative, and we felt the result of this was that if we were
going to have association plans, they should not be implemented
if it was going to affect our small group market.
Most people that--well, everybody with 50 or less employees
in Maryland buys into the small group market, and that allows
for standard coverage that we know we have got. Without going
out and trying to research lots of different policies, we know
what we are going to get for the money.
So that movement towards having a different approach to
health care changed this year because we added more, and now we
have got a separate part to the health legislation. And what
that does for us is to enable us to really look in depth into
health care issues and who should be involved with that.
I really think that it is very important that we provide
coverage for children. You know, having 9 million children not
covered with health insurance, it seems to me it is a disgrace,
it is just terrible. So I am really pleased you are doing
something to come away from this problem.
And the other week--I expect everybody knew that last week
they came out with this plan from UNICEF which put us at the
bottom of the list with the United Kingdom in providing
coverage for health care and for education. We were right at
the bottom of the list, and I think that is disgraceful for one
of the richest countries in the world.
Chairman Andrews. Mr. England, thank you very much for your
perspective.
[The statement of Mr. England follows:]
Prepared Statement of Brian England, Owner, British American Auto
Repair
I would like to thank Chairman Andrews, Ranking Member Kline, and
members of the Subcommittee for the opportunity to present testimony on
covering the uninsured and how the federal government can help small
businesses obtain affordable coverage. My name is Brian England and I
am a small business owner. I immigrated to the United States in 1972
and became a citizen in 1984. In my remarks I will address the
following points:
How the rising cost of health care has affected my
business
The role of the Howard County Chamber of Commerce
Opportunities for the federal government
In 1978, My wife and I opened an independent auto repair shop
called British American Auto Care in Columbia, Maryland. Our auto shop
is fairly small; we employ 20 people. Our staff includes both part- and
full-time workers.
At British American Auto Care one of the greatest challenges we
face is affordable health care. Like many other small business owners,
we want to be able to provide comprehensive, affordable health care
plans for all of our employees and their family members, but it is
difficult to afford to do so. At the moment health care cost represents
5% of our labor rate.
British American Auto Care currently employs three apprentices and
one trainee, who will continue on to be an apprentice. The program is
open to high school or trade school students; the students are
generally 18-20 years old. Each apprentice receives supervised,
structured, on-the-job training combined with technical instruction in
a specific occupation. They apprentice for three years and attend
college and graduate with an associate's degree. My company provides
health insurance to these student apprentices, except in cases where
the student is still covered by parental coverage. In Maryland,
insurance rates are calculated by the average age of employees. Having
a young pool of workers helps us keep our overall premiums low. We have
also tried to keep premiums low by making increasing deductibles and
co-payments, which results in employees paying a greater share for
their health care.
The rising cost of health care has become an obstacle for both
employers and employees. As an employer I believe providing adequate
health care support to my employees and their families is an important
piece in helping families transition from government support into the
workforce. For example, for a number of years I employed a single
mother with two children as a part-time office employee. I was pleased
with her work wanted her to work more hours. She received her health
benefits through Medicaid and when I offered her this opportunity she
told me that she was unable to work more hours without losing health
care benefits for herself and her children. Unfortunately, she chose to
leave our employment last year. In preparing for this hearing I called
her Tuesday and asked her if she would have continued working with us
if we had been able to provide the necessary health coverage for her
family and she said yes.
While I am able to speak as an individual small business owner, I
have also had the opportunity to see how the rising cost of health
insurance has affected other businesses. I am on the legislative
committee of the Howard County Chamber of Commerce and in this role
have had a chance to discuss this issue with other business owners.
Business owners are increasingly concerned about the rising costs of
health care. Every year the Chamber goes to Annapolis and discusses
policy issues with the State Legislature. We had two subcommittees that
reflect our policy priorities: one on local legislation and the other
on state legislation. This year, we added a third subcommittee on
health care, which underscores the importance of this issue. I was
asked to review the health care section of the Chamber's white paper.
The business community as a whole has been moving towards accepting
solutions that include everyone, specifically individuals, government
and business. It is important that both Maryland's state legislature
and the federal government come up with progressive proposals to
address cover all uninsured Americans.
The E-SCHIP proposal is coming at just the right time. There are
many companies considering dropping family health care coverage and
only providing coverage for their employee. This could lead to more
uninsured children and there are already too many. Currently more than
9 million children lack health insurance in the United States. Four out
of five of these children have parents who work but cannot afford
health insurance coverage. Proposals that would offer employers the
option of buying into the SCHIP program in order to provide coverage
for an employee's family would greatly ease the burden on working
parents. The E-SCHIP proposal would also help apprentices that have
families.
It is critically important that we invest not only in the health of
our employees but also in the health of our children because children
are our future. In a recent UNICEF report on child poverty the United
States was at the bottom of the list of rich countries with regard to
providing health care. It is unacceptable that a country as prosperous
as the United States would fail to care for the health of its citizens.
I am glad that Congress is working on improving this situation.
______
Chairman Andrews. Mr. Webber, welcome to the subcommittee.
STATEMENT OF ANDREW WEBBER, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, NATIONAL BUSINESS COALITION ON HEALTH
Mr. Webber. Good morning, Chairman Andrews, Representative
Kline and other members of the subcommittee. And let me first
acknowledge your excellent opening statement, Chairman Andrews.
The bipartisan spirit in which you are approaching this coming
health care reform debate is exactly what we need, and building
on the employer-based system is a very important part of the
reforms that come.
I am Andy Webber, president and CEO of the National
Business Coalition on Health. NBCH is a national nonprofit
membership association of employer-led health coalitions spread
throughout the country, and we are dedicated to advancing
value-based purchasing, a strategy to measure, report and
reward performance in health care. I would like to summarize my
statement with the following five points.
As we enter a new national debate on health care reform
leading up to the 2008 Presidential elections, I urge that our
vision of health care reform stretch beyond the issue of access
to care and the uninsured, and I appreciate, Chairman Andrews,
you acknowledging that in the opening comments.
Two other pressing issues must be recognized and honestly
addressed in the coming national debate: health care quality
and, as Mr. England has already identified, the issue of
affordability. To quote the Institute of Medicine, between the
health care we have and the care we could have lies not a gap,
it is a quality chasm. In addition, rising health care costs
put American industry, as you recognized, Chairman Andrews, at
a competitive disadvantage in a global economy, while adding to
the economic insecurity of the American public that must
increasingly contribute its own hard-earned dollars to an ever-
growing health care industry. Simply stated, if we solve the
problem of the uninsured tomorrow, the issues of health care
quality and affordability would still leave us with a health
care crisis.
Mr. Chairman, having said that, I am an eternal optimist
and there are signs of hope, and business leaders are probably
in the best position to understand from experience in their own
industries that product redesign, process reengineering,
advanced technology, a commitment to continuous quality
improvement, improved worker productivity can vastly improve
product quality while reducing operating costs.
Emerging data on quality and cost in health care
dramatically demonstrate this point. For example, from the
Medicare program, the States with the highest quality of care
have the lowest per capita health care expenditures for the
elderly population. Put in more striking terms, if the entire
Medicare program practiced health care as it is provided in
your State, Representative Kline, we could save one-third of
total Medicare expenditures while enjoying higher quality. And
imagine for a moment how those savings could be redirected to
address the uninsured problem.
My third point is now turning to the interest of this
committee, and that is the employer-based health care system.
While critics from both ends of the political spectrum are
quick to attack the employer-based system, NBCH urges, as you
are doing, Mr. Andrews, to pause, step back and reflect on its
many strengths and accomplishments. As we have talked about, it
provides medical coverage to 71 percent of Americans working in
the private sector. For over half a century it has spread risk,
pooled covered lives through group insurance, creating far
greater leverage in the marketplace than individual consumers
could ever generate on its own. It has established the employer
community as purchasers and change agents for health care, and
for real advocates for their workforce. The employer-based
system has been innovators and leaders of value-based
purchasing, introducing innovations like pay-for-performance,
value-based benefit design, health plan and provider report
cards.
And just to demonstrate that, the California pay-for-
performance program, the Leapfrog Hospital Survey, the Bridges
to Excellence pay-for-performance program are all examples of
employer-run programs. Through the work of business and health
coalitions, it has established group purchasing arrangements
among employers, while giving employers a collective voice in
health care reform initiatives at the community level.
Having said all that, NBCH recognizes, and we all
recognize, that the employer-based system is not without its
weaknesses. In particular, as Mr. England has pointed out, the
struggle of small employers to access affordable health
insurance, without market leverage or the ability to spread
risk across a large population of covered lives, is severe and
growing more difficult. And I urge that I think the environment
appears ripe for experimentation and identifying and testing a
mix of strategies to address the problem, including legislation
and market strategies that would allow small business to
collectively purchase health insurance to spread risk and
leverage economies of scale; small employer tax incentives to
provide health care benefits; reasonable exemptions from State
coverage mandates; premium assistance, as Joan as talked about;
and greater flexibility to allow families to use SCHIP dollars
to enroll in employer-sponsored programs; and State
initiatives, as we will hear from Dr. Blumberg, like
Massachusetts, which mixes strategies like an individual
mandate and employer pay or play with aggregated purchasing
arrangements.
In closing, Mr. Chairman, let me reiterate that genuine
health care reform must address the health care triad of
access, quality and affordability issues. We will also need the
active engagement, participation and leadership of all
stakeholders of the health care system if we are to be
successful in advancing this reform agenda.
NBCH urges that a principle of shared responsibility guide
our policies moving forward, understanding that businesses,
government, health plans, health professionals and consumers
must come together in dialogue, action and equal sacrifice for
us to realize a new vision of improved health and health care
for all Americans.
Thank you, and I appreciate the opportunity to participate.
Chairman Andrews. Mr. Webber, thank you very much.
[The statement of Mr. Webber follows:]
Prepared Statement of Andrew Webber, President & Chief Executive
Officer, National Business Coalition on Health
Executive Summary
Good morning Chairman Andrews and members of the Subcommittee. I am
Andy Webber, President and CEO of the National Business Coalition on
Health (NBCH). NBCH is a national, non-profit, membership organization
of employer led health coalitions spread throughout the country. Over
10,000 employers, representing 34 million employees and their
dependents, have come together through coalitions to advance value
based purchasing--a strategy to measure, report and reward performance
in health care. I have prepared a written statement that I ask be part
of the official record. I would like to summarize my statement with the
following 5 points:
1. As we enter a new national debate on health care reform leading
up to the 2008 Presidential elections, I urge that our vision of health
care reform stretch beyond the issue of access to care and the
uninsured. Two other pressing issues must be recognized and honestly
addressed in the coming national debate: health care quality and
affordability. To quote the Institute of Medicine, ``Between the health
care we have and the care we could have lies not just a gap, but a
chasm.'' In addition, rising health care costs put American industry at
a competitive disadvantage in a global economy while adding to the
economic insecurity of the American public that must increasingly
contribute its own hard earned dollars to an ever growing health care
industry. Simply stated, if we solved the problem of the uninsured
tomorrow, the issues of health care quality and affordability would
still leave us with a health care crisis.
2. Mr. Chairman, I'm an eternal optimist and there are signs of
hope. Business leaders are probably in the best position to understand
from experience in their own industries that product redesign, process
reengineering, advanced technology and improved worker productivity can
vastly improve product quality while reducing operating costs. Emerging
data on quality and costs in health care dramatically demonstrate this
point. For example, we know from the Medicare program, that states with
the highest quality of care have the lowest per capita health care
expenditures for the elderly population. Put in more striking terms, if
the entire Medicare program practiced health care as it is provided in
Minnesota, we could save one third of total Medicare expenditures while
enjoying higher quality. And imagine, for a moment, how those savings
could be redirected to address the uninsured problem. Adding to my
reason for optimism is the Department of Health and Human Services
Secretary Michael Leavitt's effort to integrate value-driven purchasing
practices into both the public and private sector through the ``Value
Driven Health Care Initiative.'' This strategy of only paying for the
true value of a product or service works in all aspects of American
business markets, and so it also should be the foundation of health
care.
3. Let me now turn to a subject of great interest to this
Subcommittee--the employer based health care system. While critics from
both ends of the political spectrum are quick to attack the employer
based system, NBCH urges the Subcommittee to pause, step back and
reflect on its many strengths and accomplishments. It provides medical
benefit coverage to 71 percent of Americans working the private sector,
according to the latest U.S. Department of Labor data. For over half a
century, it has spread risk and pooled covered lives through group
insurance, creating far greater leverage in the marketplace than
individual consumers could ever generate on their own. It has
established the employer community as purchasers and change agents for
health care and advocates for their workforce. The employer based
system has been the innovator and leader of value-based purchasing,
introducing innovations like pay-for-performance, value-based benefit
design, and health plan and provider report cards. It has been a leader
in health promotion, prevention and disease management. Through the
work of business and health coalitions, it has established group
purchasing arrangements among employers while giving employers a
collective voice in health care reform initiatives at the community
level. Finally, competition for talented labor in many industries
ensures that health insurance and other worksite health benefits remain
comprehensive.
4. The employer based system, NBCH recognizes, is not without its
weaknesses. In particular, the struggle of small employers to access
affordable health insurance, without market leverage or the ability to
spread risks across a large population of covered lives, is severe and
growing more difficult by the minute. The environment appears ripe for
experimentation and identifying and testing a mix of strategies to
address the problem, including: legislation and market strategies that
would allow small businesses to collectively purchase health insurance
to spread risk and leverage economies of scale; small employer tax
incentives to provide health care benefits; reasonable exemptions from
state coverage mandates for small employers; greater flexibility to
allow families to use SCHIP dollars to enroll in employer sponsored
benefit programs; and state reform initiatives, like Massachusetts,
that combine a mix of approaches such as an individual mandate with an
employer ``pay or play'' policy to find a comprehensive solution to the
uninsured.
5. In closing, Mr. Chairman, let me reiterate that genuine health
care reform must address the health care triad of access, quality, and
affordability. We will also need the active engagement, participation
and leadership of all stakeholders of the health care system if we are
to be successful in advancing this reform agenda. NBCH urges that a
principle of shared responsibility guide our policies moving forward
understanding that businesses, government, health plans, health
professionals, provider organizations, and consumers must come together
in dialogue, action and equal sacrifice for us to realize a new vision
of improved health and health care for all Americans. Let the health
care reform debate begin!
Once again, NBCH appreciates the opportunity to participate in this
important hearing and I would be pleased to answer any questions
regarding my comments and written statement.
Written Statement
Chairman Andrews, Ranking Member Kline, and Members of the
Subcommittee, I am pleased and honored to have this opportunity to
participate in this hearing today. Thank you for your kind invitation.
The National Business Coalition on Health ( NBCH) is a national,
non-profit, membership organization of 64 employer led health
coalitions, representing over 10,000 employers and approximately 34
million employees and their dependents. These business coalitions are
composed of mostly mid- and large-sized employers in both the private
and public sectors in a particular city, county, or region.
NBCH and its members are dedicated to value-based purchasing of
health care services through the collective action of public and
private purchasers in communities and markets of varying sizes and
demographics. In developing, identifying and disseminating best
practices in value-based purchasing strategies, NBCH is working to
accelerate the nation's progress towards safe, efficient, high quality
health care and the improved general health status of our nation's
entire population.
NBCH's vision is health system reform, through value-based
purchasing, community by community, and our mission is to provide
superior membership service and to build the capacity of the NBCH
membership to advance value-based purchasing of health care services.
There are nearly 50 million uninsured U.S. citizens and millions
more that are inadequately insured, many of which are employed by small
businesses. The solution to providing some or better coverage to all
these people is not simple. It will require that all stakeholders,
federal, state and local lawmakers, consumers, providers, and
employers, think broadly and creatively to ensure that there are
effective options available. As our nation's health care system
continues increasing in cost and complexity, people link into the
system in a variety of different ways depending on their employment,
insurance eligibility, health status and financial situation.
There is not just one ``transformational solution'' to fix this
situation, but we can put policies in place to help the system fix
itself. The foundation for a long-term, sustainable health care system
that provides accessible, affordable, quality health care to all
Americans requires a strong commitment, including a major financial
commitment from all stakeholders. Though a long-term investment is
needed, the long-term return is even greater. We all benefit from a
strong economy and a healthy, vigorous workforce.
Employers are deploying many strategies to improve long-term health
and health care. In fact, NBCH member business and health coalitions
are working with a national network of 10,000 employers to test and
implement successful strategies. Enlightened employers are instituting
worksite health and productivity programs to keep employees well and
value-based purchasing programs that demand high quality and
continuously improving health care for employees and dependents.
However, corporate America continuously is faced with intense
competition in an increasingly global marketplace, and often forgets
that it has a critical role to play in influencing both health and
health care. Employers need to be reminded that their success (or
failure) in promoting better health and higher quality health care has
a direct bearing on bottom line profitability directly and American
taxpayers, indirectly. While not immediately connected in the minds of
most employers or policy-makers, the link between an employer's
viability as a commercial or non-profit enterprise and good health and
health care is irrefutable. First, for most employers, the health and
productivity of their workforce is a key competitive asset and market
differentiator. Second, corporate America provides health insurance to
over 70 percent of American workers in the private sector, and thus it
is imperative that the rapidly rising costs of health benefits be
efficiently managed while still yielding important health status and
productivity gains for workers. From this perspective, there is no
escaping the fact that employers have a vested interest in improving
employee health and the health care that employees and their dependents
receive.
The seemingly uncontrollable escalation of health care costs has
led many employers to focus on short term fixes, such as employee cost-
shifting or even discontinuation of benefits all together. However,
according to recent, studies such cost-containment activities by
employers, though understandable given current economic conditions,
typically compound problems for both the employer and employee over the
long-term by costing more in direct and indirect medical costs, as well
as in decreased productivity. Every day employers are confronted with
difficult decisions about how to most effectively invest their scarce
resources to reap better returns for the company. In that same vein, we
need to work together to encourage employers to apply this same
discipline to a vitally important long-term investment--employee health
care benefits.
Value-based health benefit design, which refers to programs that
encompass the total cost of providing health benefits to an employee
over the course of their entire career with an employer, is a perfect
example of employer innovation. This benefit model has demonstrated
that employers who have lowered the total cost of managing notoriously
expensive employee chronic illnesses, such as diabetes and asthma, are
making it more affordable for employees to access the most effective
prescription drugs to manage their chronic conditions. While companies
pay more up front to subsidize the prescriptions, they can quickly
recoup these costs through fewer emergency room visits and inpatient
hospital stays, as well as enhanced productivity from their employees.
Through value-based health benefit design, employers can achieve a
return on their investment through an improved bottom line, through
enhanced worker productivity and through lower long-term employee
health care costs and improved health status. Employees benefit too
with improved health and typically lower out of pocket costs. With this
model there are also positive ramifications globally in that we all
benefit when employers, both public and private sector, provide
affordable, comprehensive coverage thereby minimizing the strain on the
current system, particularly safety net programs such as Medicaid and
SCHIP, ultimately lowering the total health care bill to which we all
pay, directly and indirectly.
Value-based health benefit design, particularly at the outpatient
drug benefit level, has become widespread among private sector
employers, but the cause needs the leadership and extensive
implementation that only the federal government can provide. Rising
health care costs, as well as the lack of transparent quality and cost
expenditure data is an increasing challenge for both public and private
payers. Our entire health care system needs to be organized to focus on
how health benefit design can increase the probability that individual
consumers receive evidence-based care leading to improved health
outcomes. NBCH believes that a good starting point for value-based
benefit design should be a set of core principles, recently developed
by an experienced group of NBCH members and applicable to both public
and private payers, to help guide responsible health benefit design
that can serve as a guidepost for employer decisions moving forward.
These NBCH principles are a part of a broader white paper ``Promoting
Consumerism Through Responsible Health Care Benefit Design'' which will
be provided to the Subcommittee as an attachment with my written
statement.*
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*The National Business Coalition on Health white paper, ``Promoting
Consumerism Through Responsible Health Care Benefit Design,'' dated
November 2006, can be viewed at the following Internet address: http://
www.nbch.org/resources/policypapers/health_benefit_design.pdf.
---------------------------------------------------------------------------
The lack of accessible health insurance is having a detrimental
impact on generations of Americans as well as significant drain on our
economy. Current estimates predict that by 2009, combined national
health care spending will absorb nearly $3 trillion dollars of the
gross national product annually, while millions of families remain
uninsured. We all gain from accessible, efficient, thoughtful,
evidence-based health care, but we all lose from perpetuating an opaque
system of inefficiency and inaccessibility.
In August of 2006, President Bush released an Executive Order to
promote quality, transparency and efficiency in federal government-
administered or sponsored health care programs. This Executive Order
was heralded in the health care coalition world as a validation of our
long-standing efforts to make the system's infrastructure work better
for consumers to contain costs and to improve accessibility and quality
for everyone. The premise of the Executive Order describes four
``cornerstones,'' all of which are in harmony with NBCH's mission and
goals:
1. Identify and implement standards to support information systems
that quickly and securely communicate and exchange data.
2. Measure and publicly report health care quality at doctor and
hospital levels.
3. Provide consumers with episode of care-based cost information so
that they can compare treatment, service, and provider options.
4. Align incentives for both consumers and providers so that high
quality, competitively-priced health care will be rewarded at all
levels of the system.
Understanding that the key to a sustainable solution is partnership
and collaboration, in November 2006, Department of Health and Human
Services Secretary Michael Leavitt took the President's Executive Order
to a more ``aggressive'' level by asking private sector purchasers, as
well as state and local governments to integrate the four cornerstones
within their purchasing practices to move the nation's health care
toward a value-based system via the ``Value Driven Health Care
Initiative.'' Value-based health care means that physicians, plans,
hospitals and other types of providers in the health care delivery
system are rewarded based on the real value they bring to consumers and
purchasers, namely by using proven procedures and products that reduce
costs and improve quality and patient safety. This strategy works in
all aspects of American business markets, and so it also should be the
foundation of health care.
NBCH has worked closely with the Secretary and his staff in the
development and launch of the Initiative. We have also joined an
alliance of leading national employer based associations, called the
Partnership for Value Driven Health Care, to advance the Initiative
among our collective employer members. The Partnership has recently
produced a ``Purchaser Guide'' to help identify steps employers can
take to advance the value driven health care agenda. The Purchaser
Guide will be provided to the Subcommittee as an attachment to my
testimony.* Not only have we endorsed the initiative, NBCH is committed
to the cornerstones and encourages all NBCH coalition members and their
employer members to do so as well. In fact, starting in 2007, NBCH
included in its eValue8 program--our national standardized web-based
health plan evaluation tool capturing performance indicators--twelve
key questions related to implementation of the Value-Driven Health Care
Initiative and the four cornerstones. NBCH will be reporting initial
eValue8 performance results in May 2007. eValue8 is used by NBCH
coalitions and their purchaser members to evaluate approximately 200
national and regional Managed Care Organizations (MCOs) and Preferred
Provider Organizations (PPOs) annually.
---------------------------------------------------------------------------
*The Partnership for Value Driven Health Care document, ``Value-
Driven Health Care: A Purchaser Guide,'' dated February 2007, can be
viewed at the following Internet address: http://www.leapfroggroup.org/
media/file/Employer_Purchaser_Guide_05_11_07.pdf
---------------------------------------------------------------------------
Though we believe health care reform through value-based purchasing
to control costs, expand accessibility and improve quality is
paramount, NBCH also believes government, business, provider and
consumer partnerships that utilize a combination of the following
policy incentives could be an effective way to help perpetuate value-
based purchasing, as well as meet the diverse health care coverage
needs of a diverse population:
Improve accessibility to tools that help consumers obtain
better information about providers' quality of care and prices.
Transparency results in better choices, improved care and ultimately
lower costs.
Enhance employer tax incentives to provide employee health
care benefits.
Improve state and federal tax incentives for U.S.
residents who purchase individual health insurance.
Provide reasonable exemptions from state mandates,
particularly for small employer coverage.
Broaden accessibility, application and flexibility of all
types of health care spending accounts (HSAs) and high-deductible
health plans.
Support small business-friendly legislation and reforms
that will allow small businesses to collectively purchase health
insurance to spread risk and leverage economies of scale.
Extend eligibility and enrollment opportunities, to the
extent possible by the states and federal government, for public
insurance programs--State Children's Health Insurance Program (SCHIP),
Medicaid and Medicare.
Support ``locally grown'' public-private partnerships
(i.e. three-share model or multi-share program) which distribute the
health care benefit premium cost equally between employer, employee and
local/state or federal government resources, enabling small and mid-
sized businesses to provide a comprehensive mainstream benefit plan.
Simultaneously, with all of these efforts to reform and fix the
system, the employer based health care system must be preserved and
allowed to thrive. This system has worked well for over half a century,
namely through the ability to pool covered lives through group
insurance while creating needed leverage in the marketplace. Individual
purchasers could never generate this leverage on their own purchasing
insurance in the marketplace. The employer system also has been the
hotbed for innovation in employee benefit design, wellness, and
prevention. As mentioned above, Secretary Leavitt is looking to large
private employers to help advance value driven health care. But at the
same time we need to recognize that the small employer market is
fundamentally broken and needs the government to help with creating
both tax breaks and a mechanism (i.e. an insurance pooling mechanism/
purchasing alliance that the government would establish) that permits
both small employers and individuals ( self-employed or working
uninsured) to participate.
Leveling the federal tax playing field in terms of a standard
deduction for everyone could be an effective strategy to help
individuals that purchase coverage on their own. The special tax status
for the employer based system has been unfair to individual purchasers,
especially self-employed consumers. However, NBCH is skeptical of
efforts to contain escalating costs and to bring equality to the system
by making the purchase of health insurance over a certain amount of
taxable income. Essentially, such a strategy could weaken the
foundation of the employer based system, particularly since the current
system already is shifting significant costs onto employees through
copayments, deductibles and various geographic-based inequities.
Nonetheless, the overall issue of a standardized tax deduction for the
purchase of health care is worthy of open debate in Congress.
Again, NBCH believes that a combined approach, one with value-
driven health care as a central strategy along with an array federal,
state and local options is the right direction to help ensure
affordable, quality health care for all Americans.
This concludes my written testimony. I look forward to discussing
my comments in more detail during the question and answer portion of
the testimony. I also again want to thank the Subcommittee for inviting
me here today and for its attention to finding viable solutions to
improve the accessibility, affordability, and quality of our nation's
health care system through the employer based system.
______
Chairman Andrews. And, Dr. Blumberg, welcome. We are
delighted you are with us today.
STATEMENT OF LINDA BLUMBERG, Ph.D., ECONOMIST AND PRINCIPAL
RESEARCH ASSOCIATE, THE URBAN INSTITUTE
Ms. Blumberg. Mr. Chairman, Mr. Kline and distinguished
members of the subcommittee, thank you for the opportunity to
talk with you today about the problems faced by those without
health insurance, and to share my thoughts on strategies for
expanding coverage to them. I appreciate the fact that this
committee is considering these very important issues.
The problems associated with being uninsured are now widely
known. A substantial body of literature shows that the
uninsured have reduced access to medical care, and many
researchers have concluded that the uninsured often have
inferior medical outcomes when an injury or illness occurs.
Urban Institute researcher Jack Hadley recently reviewed 25
years of research and found strong evidence that the uninsured
receive fewer preventive and diagnosis services, tend to be
more severely ill when diagnosed, and received less therapeutic
care. Studies found that mortality rates for the uninsured were
from 4 to 25 percent higher than would have been the case had
the individuals been insured.
But while the negative ramifications of being without
health insurance are clear, the number of uninsured continues
to grow. According to an analysis by John Holahan and Allison
Cook, the number of nonelderly people without health insurance
climbed by 1.3 million people between 2004 and 2005, bringing
the rate of uninsurance in that population to almost 18
percent. The vast majority of this increase was amongst those
with low incomes and among adults. In recent years, the share
of the population with employer-sponsored insurance has fallen,
while the share of those with public insurance coverage has
risen, but by smaller amounts.
Why is the rate of employer-sponsored insurance falling?
First and foremost, increasing premiums have outstripped wage
and income growth. Second, employment has shifted away from the
types of firms that have traditionally had high rates of
offering employer-based insurance, such as large firms and
firms in the manufacturing, government and finance industries.
The good news is a number of proposals at the State and
Federal levels are taking shape. Research is providing
significant support, and the components of successful reforms
are becoming clearer. I present what I believe are the four key
components of an effective approach to achieving universal or
near universal health insurance coverage while maintaining a
private insurance-based system.
The first component is a comprehensive subsidized set of
insurance benefits for the low- and moderate-income population.
Subsidies should be directed to individuals as opposed to
employers, should increase with increasing need, and should be
sufficient to ensure that adequate affordable benefits are made
available to meet health care needs. While a high deductible
plan may be perfectly adequate coverage for a high-income
person, it is not going to be adequate to meet the needs of
someone of more modest means, and meaningful reform must take
that into account.
The second component is a guaranteed source of insurance
coverage for all potential purchasers. The existing private
nongroup insurance market is simply not adequate. A guaranteed
source of coverage will most likely need to take the form of an
organized purchasing entity, such as newly established health
insurance purchasing pools. Or coverage can be guaranteed by
using existing organized purchasers, such as government
employee benefit plans, State high-risk pools or State
children's health insurance programs.
The third component is a mechanism for spreading broadly
the costs associated with those who have the greatest need for
health care services. The premiums charged to individuals and a
guaranteed accessible insurance option should not be determined
by the specific health care risks of those that actually enroll
in that plan. Instead, the premium should be based on what the
premiums would be if a broader population enrolled.
The fourth component is either an individual mandate or an
individual mandate combined with a light employer mandate.
Absent automatic enrollment in a fully government-funded
insurance system, an individual mandate is necessary to achieve
universal coverage. Many advocate combining an employer mandate
of some type with an individual mandate to ensure continued
employer responsibility in health care. Such employer mandates
raise a number of difficult political, distributional and legal
issues. But Massachusetts, for example, is able to enact a
nonburdensome employer mandate that is an impressive model of
political compromise.
Designing such a reform, complex as it may sound at first,
is actually the easy part. The most difficult truth is that
financial resources are necessary for ensuring accessible,
affordable and adequate insurance for all Americans. If the
political will strengthens sufficiently in that regard, many
options for identifying the necessary funding are available. If
asked my personal favorite, I would suggest we turn to a
redistribution of the current tax exemption for employer-
sponsored insurance, providing those with the greatest needs
the greatest assistance as opposed to the opposite, which is
true today. The amount being spent on that exemption is
sufficient to accomplish meaningful universal coverage, and the
President himself has already opened the door politically to
putting that spending to more efficient and effective use.
Thank you very much for the opportunity to share my
thoughts on these important issues, and I would be happy to
answer any questions that you might have.
[The statement of Ms. Blumberg follows:]
Prepared Statement of Linda J. Blumberg, Ph.D., Principal Research
Associate, the Urban Institute
Mr. Chairman, Mr. Kline, and distinguished Members of the
Subcommittee, thank you for the opportunity to talk with you today
about the problems faced by those without health insurance, and to
share my thoughts on strategies for expanding coverage to them. I
appreciate the fact that this Committee is considering this important
issue. While I am an employee of the Urban Institute, this testimony
reflects my views alone, and does not necessarily reflect those of the
Urban Institute, its funders, or its Board of Trustees.
The problems associated with being uninsured are now widely known.
There is a substantial body of literature showing that the uninsured
have reduced access to medical care, with many researchers concluding
that the uninsured often have inferior medical outcomes when an injury
or illness occurs. Urban Institute researcher Jack Hadley reviewed 25
years of research and found strong evidence that the uninsured receive
fewer preventive and diagnostic services, tend to be more severely ill
when diagnosed, and receive less therapeutic care.\1\ Studies found
that mortality rates for the uninsured within given time periods were
from 4 to 25 percent higher than would have been the case had the
individuals been insured. Other research also indicated that improving
health status from ``fair'' or ``poor'' to ``very good'' or
``excellent'' would increase an individual's work effort and annual
earnings by as much as 20 percent.
But while the negative ramifications of being without health
insurance are clear, the number of uninsured continues to grow.
According to an analysis by my colleagues John Holahan and Allison
Cook, the number of nonelderly people without health insurance climbed
by 1.3 million between 2004 and 2005, bringing the rate of uninsurance
to just under 18 percent of this population.\2\ The vast majority of
this increase, 85 percent, was among those with incomes below 200
percent of the federal poverty level. About 77 percent of the increase
in the uninsured was attributable to adults. In recent years, the share
of the population with employer-sponsored insurance has fallen, while
the share of those with public insurance coverage has risen, but by
smaller amounts. This pattern has persisted since 2000.
Why is the rate of employer-sponsored insurance falling, causing
the number of uninsured to climb in recent years? First and foremost is
increasing premium costs that have outstripped wage and income
growth.\3\ But additionally, overall employment has been shifting away
from firms with traditionally high rates of employer-based insurance
coverage, moving workers into the types of firms that are significantly
less likely to offer coverage to their workers.\4\ For example,
employment in medium size and large firms has fallen, and growth has
occurred among the self-employed and small firms. Employment has
shifted from manufacturing, finance, and government to services,
construction, and agriculture. There also has been a population shift
toward the South and the West, regions with lower rates of employer-
based coverage and higher uninsurance.
The good news is that policymakers at both the federal and state
levels are talking about the need to expand health insurance coverage
again, and some states are already taking action. While proposals are
being developed in a number of states and at the federal level as well,
I will focus my attention here on two of the most notable state
designs, that of Massachusetts and California. I chose both states as
they delineate potential avenues for bipartisan compromise on this
issue. In addition, Massachusetts is the only state that has already
passed legislation, enacting far-reaching health care reform, and
California is, of course, the largest state, and hence what it can
accomplish has significant implications for the country as a whole. I
treat these two approaches as case studies in policy design and use
them to highlight the types of features required to achieve significant
coverage expansions as well as the policy challenges faced by such an
undertaking.
Massachusetts
There are four main components to the landmark health care reform
legislation enacted in Massachusetts in April 2006: \5\
A mandate that all adults in the state have health
insurance if affordable coverage is available (an individual mandate);
A small assessment on employers that do not provide
coverage to their workers;
A purchasing arrangement--the Commonwealth Health
Insurance Connector (the Connector)--designed to make affordable
insurance available to individuals and small businesses and to provide
subsidized insurance coverage to qualifying individuals/families; and
Premium subsidies to make coverage affordable.
Theoretically, these components of reform could move the state to
near-universal coverage; however, many practical issues remain to be
resolved.
For example, the individual mandate to purchase health insurance
will not be enforced unless affordable products are available. The
definition of ``affordability'' and how it will vary with family
economic circumstance was not provided in the legislation, and is left
up to the board of the Connector. This definitional issue is clearly
critical to the success of the Massachusetts reform and any other
policy approach to expanding health insurance coverage. Ideally, each
family would be subsidized to an extent that would allow them to
purchase coverage within the standard set. Setting the affordability
standard at a high level (for example, individuals being expected to
spend up to 15 percent of income on medical care) would mean that the
individual mandate would have a broad reach and thus increase coverage
a great deal. This would be true because individuals and families would
be expected to pay a considerable amount toward their insurance
coverage, more insurance policies would be considered ``affordable'' by
this standard, and thus the individual mandate would apply to more
people. But setting the standard at such a level would also place a
heavy financial burden on some families and might be considered
unreasonable. Setting a low affordability standard (for example,
expecting individuals to spend only up to 6 percent of their income on
health care) would ease the financial burden of the mandate on
families, but would increase the per capita government subsidy required
to ensure that individuals could meet such a standard. To the extent
the revenues dedicated to the program were not sufficient as a
consequence, either further revenue sources would be required or
enrollment in the subsidized plans would have to be capped, and some
would have to be excluded from the requirement to purchase coverage.
Under the Massachusetts plan compromise, each employer of more than
10 workers that does not make a ``fair and reasonable'' contribution to
their workers' insurance coverage (with ``fair and reasonable'' yet to
be defined) will be required to pay a per worker, per year assessment
not to exceed $295 (this amount would be prorated for part-time and
seasonal workers). This very modest employer payment requirement was
the product of a compromise between those concerned about a potential
decline in employer involvement in the financing of health care and
strong resistance from the business community (especially small
businesses) to potentially burdensome employer payroll tax assessments.
The assessment decided upon had widespread support in the business
community and was acceptable to consumer advocates as well. This broad-
based support was critical for passage of the legislation and continues
to prove pivotal in garnering continued support through various
implementation challenges.
All employers are also required to set up Section 125 plans for
their workers, so that workers can pay their health insurance premiums
with pretax dollars, even if their employers do not contribute toward
their coverage. Those employers who do not establish Section 125 plans
may be required to pay a portion of the care their employees receive
through the state's Uncompensated Care Pool, which provides hospital
care to low-income uninsured persons.
Ideally, the reform would not cause significant disruption to
existing insurance arrangements between employers and their workers. As
currently designed, most employers, particularly large employers
already offering group coverage, likely will continue to offer
coverage. The benefits of risk pooling, control over benefit design,
and lower administrative costs associated with purchasing through a
large employer will not change under this reform. The situation for
small employers is likely to be somewhat different, however.
By allowing workers to purchase coverage on a pre-tax basis through
Section 125 plans, the Massachusetts reform reduces the incentive for
small employers to offer coverage to their workers independently. The
current law tax exemption for employer-sponsored insurance is an
important motivator for small employers to offer insurance coverage
today, and the Connector combined with Section 125 plans would level
the tax playing field between employer provision and individual
purchase. This is a more important issue for small firms than for large
firms because small firms face significantly higher administrative
costs, do not receive the risk pooling benefits of large firms, and are
more frequently on the cusp between offering and not offering coverage.
Decisions small firms make under the reform will, however, be quite
dependent upon the particular plan offerings in the Connector, how
attractive they are, and whether negotiating power in the Connector
will be sufficient to generate true premium savings.
The attractiveness of the benefits offered in the Connector, and
its size as a consequence, will have important implications for its
negotiating power--the higher the enrollment, the greater the
Connector's ability to be a tough price negotiator and to create
savings in the system. This economic reality of purchasing pools may be
somewhat at odds with those who would like to see organized public
purchasers playing a small role in relation to private insurance
providers. Thus, there is a tension for those that would like to have
plans that are offered in such a purchasing pool be low cost/high cost
sharing/limited provider network plans, as such plans have not proved
popular with most purchasers. Therefore, if a purchasing pool limits
its offerings to such plans, it may be unable to reach a critical mass
for negotiating purposes.
At this time, the Connector will require each insurer to offer four
different benefit packages of defined levels of actuarial value. In
another context, offering such variety in benefit generosity could lead
to adverse selection, with the healthy attracted to the high cost
sharing/limited benefit plans and premiums in the comprehensive plans
spiraling upwards. However, in order to protect the viability of more
comprehensive plans and thus to better meet the needs of those with
serious medical care needs, the Connector board has instituted a policy
designed to counteract such a harmful dynamic. Premiums for each
benefit plan will be set as if the enrollees in all of the insurer's
plan options were enrolled in that plan. In this way, the premium for a
particular plan is not a function of the actual health care risks of
those people who voluntarily enroll in it. This is clearly an important
first step to ensuring broader sharing of high health care risks. It
may also be necessary for further risk adjustment across insurers, but
that remains to be seen, and modifications within the Connector can be
made if appropriate.
In addition to selling unsubsidized health insurance to individual
and small employer purchasers, the Connector will also operate the
Commonwealth Care Health Insurance Plan (CCHIP), which will provide
subsidized coverage for those with household incomes up to 300 percent
of the federal poverty level (FPL). CCHIP has no deductibles, has cost-
sharing requirements that increase with income, and does not charge
premiums for those individuals with incomes below 100 percent of FPL.
Premiums on a sliding scale are charged for those between 100 and 300
percent of FPL.
It is widely accepted that those with incomes below 100 percent of
FPL have virtually no ability to finance their own health care needs,
and that those of modest incomes require significant assistance as
well. Deductibles and substantial cost-sharing responsibilities are
likely to prevent the low-income population from accessing medical care
when necessary; hence, the benefit package offered through CCHIP is
considerably more comprehensive than that typically offered in the
private insurance market. These policies are available only to those
who have not had access to employer-based insurance in the past six
months, with the hope of reducing the displacement of private employer
spending by public spending.
California
The health care reform proposal Governor Schwarzenegger developed
is an ambitious one. Many of its general components are similar to
those implemented in Massachusetts, but the details are quite different
and illustrate the types of choices that policymakers can make, and the
very significant implications that these details can have. The
components of the California proposal are the following:
an individual mandate that all Californians have at least
a minimum level of health insurance coverage;
a ``pay or play'' employer mandate requiring that all
firms with 10 or more workers pay a 4 percent payroll tax, a liability
which can be offset by employers' contributions to health insurance for
their workers and their dependents;
a purchasing arrangement that would provide a guaranteed
source of insurance coverage for individuals to purchase the minimum
level of benefits required to satisfy the mandate and that also would
provide subsidized insurance to eligible individuals;
income-related subsidies to make premiums affordable for
those with incomes up to 250 percent of FPL.
The minimum health insurance coverage required to satisfy the
individual mandate under the California proposal is a $5,000 deductible
plan with a maximum out-of-pocket limit of $7,500 per person and
$10,000 per family. This is a package that would require substantially
more cost sharing than is typical of private insurance today, and thus
can be expected to be made available at premium levels significantly
below typical employer-sponsored insurance premiums.
This minimum plan would be made available on a guaranteed issue
basis through a new purchasing pool that the Managed Risk Medical
Insurance Board (MRMIB) would run. MRMIB is a government agency and
currently runs the Healthy Family's Program (California's SCHIP
program) and the state's high-risk pool. In the past, the agency also
ran a small employer health insurance purchasing pool. It is an agency
experienced in health insurance purchasing, contracting, enrollment,
and eligibility determination and has a structure for all the
administrative tasks necessary for these roles; thus, it is an
excellent choice for basing a new purchasing pool under a broad reform.
However, the policy that would be offered is likely to be
unattractive to workers with modest incomes, in particular to those
over 250 percent of FPL who would be ineligible for subsidized coverage
and often could not afford to pay such a high deductible. Such a family
would still be severely limited in their financial access to medical
services, even with the guaranteed issue policy. Those that do not buy
policies in the new pool, do not have employer insurance offers, and
are not eligible for subsidized coverage would be required to purchase
a policy in the existing private non-group market, and would face all
the shortcomings inherent in that market. This would be a particularly
difficult option for older workers and workers with significant health
care needs, many of whom may not be able to obtain a policy at all in
that market. Even those lucky enough to be offered a policy would
likely be unable to obtain an affordable policy with more comprehensive
benefits and effective access to needed medical care.
The ``pay or play'' mechanism is a tool for financing the new low-
income subsidies proposed under the plan. This 4 percent payroll tax
liability creates a significantly higher employer financial
responsibility than does Massachusetts's employer assessment. Employers
with fewer than 10 workers are exempt from the tax. Consequently, the
reform should not impact the smallest employers at all but will provide
new subsidies and a source for buying coverage for their low-income
workers.\6\ And because the vast majority of large firms already
provide health insurance coverage to their workers (98 percent of firms
with 100 or more workers offered health insurance nationally, as of
2004 \7\ ), the biggest impact of this reform would be on the employers
and workers in firms of 10 to 100 workers.
The proposal provides some competing incentives that make it
uncertain whether workers in currently non-offering small firms (of 10
or more workers) would prefer to have their employers begin to offer
coverage or would prefer to purchase coverage on their own and have
their employers pay the payroll tax. First, small firms do not tend to
be efficient purchasers of health insurance. The administrative loads
associated with small group insurance can be quite high and might be
significantly higher than those in the new purchasing pool. This
imbalance, combined with the inability of small groups to spread their
health care risks broadly, implies a significant incentive for workers
to prefer enrolling in pool-based coverage. This incentive would be
particularly strong for lower-wage workers in small firms, who could
enroll in a subsidized comprehensive health insurance product through
the purchasing pool.
However, the payroll tax assessment works in the reverse direction
of these incentives. Economists believe that the burden of employer-
paid payroll taxes made on behalf of workers are effectively passed
back to workers through lower wages paid over time. In the case of the
California proposal, this would mean that workers whose employers opt
to pay the tax would experience declines in their incomes relative to
what their incomes would have been without the reform, and would then
be required to purchase health insurance directly. In essence, they
would be paying twice--once for the payroll tax and once for the
insurance policy; they would get no credit toward the purchase of
health insurance to account for the fact that their employers (and
indirectly the employees themselves) were paying the payroll tax.
While workers eligible for generous subsidies on a comprehensive
health insurance package might still be better off this way than having
their employer offer insurance, the same is unlikely to be true for
unsubsidized workers. The only unsubsidized product available in the
new purchasing pool would be the very high deductible policies. As
noted, these policies may be very unattractive to modest-income workers
with incomes over 250 percent of FPL, who would be ineligible for
subsidized coverage. Given also the substantial shortcomings of the
current nongroup market, these issues taken together might create
significant incentives for workers to ask their employers to begin
offering health insurance in exchange for wage reductions commensurate
with their employers' contributions.
The proposal also would make all children (including undocumented
residents) in families with incomes up to 300 percent of FPL eligible
for state subsidized health insurance, all legal adult residents with
incomes up to 100 percent of FPL eligible for Medicaid at no cost, and
those between 100 and 250 percent of FPL eligible for subsidized
coverage through the new state purchasing pool. These expansions would
cover quite comprehensive health insurance plans and would, on their
own, lead to significant expansions of coverage in the state. These
policies also would have important implications for employees of small
firms in California, since over half of California's uninsured workers
are employed by firms with fewer than 25 workers, and approximately
two-thirds of the uninsured workers employed in these small firms have
incomes that would make them eligible for subsidized insurance.\8\ The
lower-income workers in these small firms therefore account for over a
third of all uninsured workers in California.
Conclusions
A number of states are already developing comprehensive health
insurance reform plans. However, many more states will not be able to
accomplish significant reforms on their own due to financial and
political constraints. Indeed, it is not feasible for any state to
finance any of the plans and proposals currently on the table without
accessing at least some federal matching funds. As a consequence,
federal legislators are now engaged in discussions and policy
development of their own. Federal involvement will be necessary to
spread further the early successes some states are seeing.
Therefore, I would like to take this opportunity to delineate what
I consider to be the most critical components for the effective
development of universal or near universal health insurance coverage
within a private insurance-based system.
The first component is a comprehensive, subsidized set of insurance
benefits for the low- and modest-income population. Subsidies should be
directed to individuals (as opposed to employers), should increase with
increasing need, and should be sufficient to ensure that adequate
benefits are made available to meet health care needs at an affordable
price. While a high deductible plan may be perfectly adequate coverage
for a high-income person, it will not be adequate to meet the needs of
someone with more modest means, and meaningful reform must take that
into account.
The second component is a guaranteed source of insurance coverage
for all potential purchasers. The current nongroup insurance markets
are simply inadequate to do the job. The guaranteed source of coverage
will most likely need to take the form of an organized purchasing
entity, such as newly established health insurance purchasing pools, or
it may also be developed using existing organized purchasers, such as
government employee benefits plans, state high risk pools, or State
Children's Health Insurance Programs.
The third component is a mechanism for broadly spreading the costs
associated with those who have the greatest need for health care
services. Importantly, the health care risks of those that enroll in a
guaranteed accessible insurance plan should not determine the premiums
charged to individuals in that plan. Instead, the premiums should be
based on what the premiums would be if a broader population enrolled.
In this way, choice of varied benefit packages can be maintained, and
the needs of the most vulnerable Americans can be met.
The fourth component is either an individual mandate or an
individual mandate combined with a ``light'' employer mandate. Absent
automatic enrollment in a fully government-funded insurance system, an
individual mandate is necessary to achieve universal coverage. Many
advocate combining an employer mandate of some type with an individual
mandate to ensure continued employer responsibility in health care.
Such employer mandates raise a number of difficult political,
distributional, and legal issues. But Massachusetts, for example, was
able to enact a non-burdensome employer mandate that should be
considered a model of political compromise.
Designing such a reform, complex as it may sound at first, is
actually the easy part. The most difficult truth is that financial
resources are necessary for ensuring accessible, affordable, and
adequate insurance for all Americans. If the political and public will
strengthens sufficiently in this regard, there are many options for
identifying the necessary funding. If asked for my personal favorite, I
would suggest we turn to a redistribution of the existing tax exemption
for employer-sponsored insurance, providing those with the greatest
needs the greatest assistance, as opposed to the opposite, which is
true today. The current level of this tax expenditure is sufficient to
finance comprehensive health care reform and is already dedicated to
subsidizing health care insurance. The current spending is not
particularly effective in expanding coverage, however, since it
subsidizes most those who are most likely to purchase coverage even in
the absence of any subsidy. And while the notion of restructure the
current tax subsidy has been somewhat politically taboo in the past,
the president himself has recently opened the political conversation
regarding how best to spend that that money.
Thank you very much for the opportunity to share my thoughts on
these important issues.
endnotes
\1\ J. Hadley. 2003. ``Sicker and Poorer--The Consequences of Being
Uninsured: A Review of the Research on the Relationship between Health
Insurance, Medical Care Use, Health, Work, and Income,'' Medical Care
Research and Review 60(2): 3S--75S.
\2\ J. Holahan and A. Cook. 2006. ``Why Did the Number of Uninsured
Continue to Increase in 2005?'' Kaiser Commission on Medicaid and the
Uninsured Issue Paper. http://www.kff.org.
\3\ M. Chernew, D. Cutler, and P. Kennan. 2005. ``Increasing Health
Insurance Costs and the Decline in Insurance Coverage,'' Health
Services Research 40(4): 1021--39; T. Gilmer and R. Kronick. 2005.
``It's the Premiums, Stupid: Projections of the Uninsured through
2013,'' Health Affairs Web Exclusive (April 5): w5-143--w5-151; J.
Hadley. 2006. ``The Effects of Recent Employment Changes and Premium
Increases on Adults' Insurance Coverage,'' Medical Care Research and
Review 63(4): 447--76.
\4\ J. Holahan and A. Cook. 2006. ``Why Did the Number of Uninsured
Continue to Increase in 2005?'' Kaiser Commission on Medicaid and the
Uninsured Issue Paper. http://www.kff.org.
\5\ J. Holahan and L. Blumberg. 2006. ``Massachusetts Health Care
Reform: A Look at the Issues,'' Health Affairs Web Exclusive, September
14: w432--43.
\6\ It should be noted that this ``carve-out'' of employers with
fewer than 10 workers may provide incentives for the smallest employers
to stay small and may also create incentives for somewhat larger
employers to break up into smaller pieces.
\7\ Agency for Healthcare Research and Quality, Medical Expenditure
Panel Survey--Insurance Component 2004, calculations based on published
tables, tables available at http://www.meps.ahcpr.gov/.
\8\ Author's estimates from the 2004/2005 March Current Population
Survey.
______
Chairman Andrews. I would like to thank each of the four
witnesses for very provocative and thoughtful testimony. Thank
you. And I hope that today is the beginning of the end of a
very partisan divide over this issue.
I was fortunate enough to come to Washington in 1990, and
people identified the problem in 1990 the way they do now, lots
of uninsured, problems of access and quality. And we have been
through several iterations of political warfare over that
question. We haven't gotten it done. So I am really very
appreciative of the spirit of the comments from the four
witnesses as well as the substance of the comments.
Ms. Alker, I would like to start with you and thank you for
your participation developing our thoughts. You have been an
invaluable asset, and we are very grateful to you. You talked
about the idea of a possibility of buy-in by employers,
voluntary buy-in by employers, to the SCHIP program. In my
State of New Jersey, the estimate is that the SCHIP program for
family care, because we at one time had a family care program,
would be about $8,760 a year. And the market cost of a family
coverage in my State is over $13,000 a year.
Describe to me how a voluntary buy-in for SCHIP might work
from the point of view of Mr. England, who is an actual
employer. What kind of options would he be given, and what
would the cost be?
Ms. Alker. Well, I think the idea is to offer employers
another choice, and the choice would be the public product, and
the benefits of offering the public product is that you have
certain economies, and that is why it is cheaper.
I will say some of those reasons are good reasons. For
example, there is usually lower administrative cost in public
products. Obviously there is no return profit needed to be
returned to shareholders that you are looking at with the
public product, and there is the advantages of a large pool
that would help a small employer, I think, like Mr. England.
One of the disadvantages as to why public coverage is
cheaper is because providers are paid less, so that is
sometimes a concern if that rate gets too low.
But overall, I think studies have consistently shown that
public coverage is about a third cheaper than private coverage,
and in the State of New Jersey, your private insurance rates
are quite high.
Chairman Andrews. Just wanted to walk through what some of
the numbers would like look like. Hypothetically let's say a
State did a pilot where the SCHIP payment--let's take a family
with two adults and two children, two SCHIP-eligible children.
My understanding is the SCHIP allocation for those two children
would be around $1,200 a year roughly, maybe a little bit more.
So it would be $2,400, $2,500, $2,600. And presently SCHIP
permits an employee contribution of up to 5 percent of gross
contribution, although it need not be that high. If it was a
maximum contribution for a $30,000 family, it would be about
$1,500. So you would have about $2,600 in SCHIP contribution,
$1,500 in employee contribution, which would be $4,100. There
would be a $4,600 difference then between the cost of the SCHIP
family coverage of $8,700 and the amount of money that would be
available.
Would it be your understanding under these proposals States
would be given the option of subsidizing, of kicking in toward
that cost?
Ms. Alker. Yes. I think that is right.
Chairman Andrews. Do you think States would be likely to do
that if given that option?
Ms. Alker. I think that if they really wanted to make it
work, yes.
Chairman Andrews. What is interesting, if States, say, were
to pick up half of that difference, it would drop the
employer's contribution maybe $2,400, $2,500 a year. What is
interesting about that is that many employers are able to
insure an employee, and I think Mr. England spoke of this--they
can insure an employee, but not the employee's family, and I
know not because they are harsh people, but that is all they
can afford. In my State, the cost of the insuring the employee
only would be about $3,600 a year. So at least in theory, if
the employer were given this option at a cost that would be
less than what the employer is paying to insure just the
employee, the employer could insure the entire family.
Now, one concern, if I may, I am sure Mr. Webber would have
about this is I am troubled about the idea of a publicly
subsidized program competing against the private sector on an
unequal playing field. I anticipate that question. I would
think, though, Mr. Webber, that one way we might address this
is who is competing in what market? There is something like
three-quarters of the uninsured children in the country are
eligible for either SCHIP or for Medicaid. So they are families
with incomes way below $40,000 a year. Again, in my State where
we have a situation where family coverage costs $13,000 a year,
it appears to me that most of the people who would take
advantage of the example we just gave you aren't really in the
private insurance market anyway because they can't afford to be
in it.
Do you agree that there is--and you don't have to adopt my
way. Do you agree that there is a surgical way that we could do
this in a way that would not crowd out the private insurance
market?
Mr. Webber. I agree with you. And I think in this
environment that we have got to experiment, as I said, in my
State. And I think the notion of public-private partnerships so
we can recognize that, you know, it is going to take a joint
solution and some equal sacrifice, it is not something that we
would be opposed to in theory.
The devil is in the details, as always, Chairman Andrews,
and I am not an expert, let me tell you, on the SCHIP program,
and the premium-sharing notion, but I think in this
environment, given the issues that Brian England has described
here today, that creative solutions need to be found. And we
certainly find business people around the country increasingly
willing to recognize that public-private partnerships to
address this problem is at the core of the solution.
Chairman Andrews. Thank you. My time has expired. We want
to exorcise those devils if we can and work out details
mutually agreeable.
I will turn to my friend Mr. Kline.
Mr. Kline. Thank you, Mr. Chairman, and let me thank the
witnesses. We had a chance to chat for a minute or two before
the hearing, and I had expressed my opinion that this was going
to be one of those informative rather than controversial and
partisan sorts of hearings, and it is certainly proving to be
true.
I want to thank all the witnesses for your real insight and
your testimony. And again, thank you, Mr. Chairman. Rob, I
think it is a good approach. These are excellent witnesses, and
I am writing notes as fast as I can. And then, of course, he
confuses me by doing all this math, mental arithmetic. So now I
am confused again.
You know, Mr. Webber, we in Minnesota, we are sort of a
destination health care, medical care State. People fly in from
all over the world, and we tend to brag a little bit that we
can't have anything but the finest medical care, health care
quality with the Mayo Clinic just south of my district.
Nevertheless, there are enormous concerns about the value, and
how we know what the value is, and how we are going to rate
that value as we make decisions on what sort of medical
services to purchase, and the advent of the health savings
accounts have increased that pressure to know what you are
buying if you are going to spend your own money.
Let me ask you this one question if time allows. I have got
several for Dr. Blumberg about the Massachusetts initiative. So
if you want to sort of read ahead.
What can you tell us about Secretary Leavitt's Value-Driven
Health Care Initiative? I don't want an explanation of it, but
do you see areas where they are showing promise or areas where
it is not?
Mr. Webber. Oh, absolutely. And as I further described in
the written statement, having someone at a Cabinet-level
position put squarely on the table that in addition to this
issue of the uninsured, the issue of value-based purchasing,
the need for consumers and employers and government to assure
that their investments in health care are yielding the highest
quality, is, again, an instrumental part of the solution moving
forward. And to make that happen, the four cornerstones, since
Secretary Leavitt has talked about, is, number one,
transparency, the need for business people and consumers to
understand the health care that they are buying both in terms
of quality and in terms of price; the issue that the good
doctor talked about in terms of HIT adoption, the need--why not
in health care, like we have in every other industry, do we not
have information technology to drive some of the solutions to
help us track patients over time, for example; and finally, the
need to change the incentives in the system. We pay for bad
quality. We have a reimbursement system that does not recognize
performance.
And so Secretary Leavitt has brought together public and
private-sector leaders. He has gotten State Governors to sign
onto those four cornerstones, and we are working quite closely
with him through our business and health coalitions to create a
dialogue around this issue of Value-Driven Health care. It is
part of the solution to the health care reform issue.
Mr. Kline. Let me follow up. I hadn't intended to do this,
but the health IT, information technology, we are seeing some
tremendous examples in Minnesota as different hospital systems
are moving to that. And the potential for reducing, if not
eliminating, some pretty egregious errors seems to be pretty
high.
I am just interested, are you watching that across the
board? And can you give me some sense of how it is coming?
Mr. Webber. Right. We are watching that throughout the
country, and I think increasingly hospitals in particular are
investing in health information technology. The real lack is at
the physician level. You know, only 15 percent of physicians
have electronic health records that allow them to track their
patients over time. I mean, I hate to say it, but my vet caring
for my little cat gives me more reminders about, you know,
annual checkups than I get from my physician.
So health information technology is coming, but, again,
requires some joint sacrifice and contribution to get the
health care system wired.
Mr. Kline. Right. We are seeing, of course, the same thing.
It is the hospital and the systems of hospitals that are moving
out and the individual physicians.
My time is about to expire, and rather than get into the
Massachusetts example with Dr. Blumberg, perhaps we will get a
chance later. I yield back.
Chairman Andrews. Thank you very much, Mr. Kline.
Mr. Kildee is recognized for 5 minutes.
Mr. Kildee. Thank you very much, Mr. Chairman. I also want
to commend you for summonsing such a panel. The quality of the
panel both collectively and individually is very, very good,
and I appreciate it.
Last fall I was instrumental in bringing the CEOs of the
Big Three automakers to Washington to meet with both Democratic
and Republican leaders because I think we have to recognize
this has to be done in a bipartisan way to get it right. They
indicated that the single most effective thing that we could do
for them, because they have enormous health care costs, would
be some type of catastrophic reinsurance. And there are various
ways you can craft that; both Senator Frist and Senator Kerry
have indicated some inclination that way with various ways of
forming it.
Is there any role that some type of catastrophic
reinsurance could be helpful to small business?
Mr. England. Well, you know, I don't think a small business
can take on the in-between risk. So you could have a policy
that really covered for, you know, major problems like a heart
attack or something like this, but I think it should be around
the other way. We should be really encouraging preventive care.
You know, we just talked about--you just said about the
reminders from the vet. When we repair cars, we send service
reminders out, and I talk to my doctor the other day, and she
had not--she didn't have a facility to remind me when to go for
checkups, which I think is terrible. Here we are, we care more
about cars than we do about ourselves.
Mr. Kildee. Well, I have in mind a small business in Flint,
Michigan, a small chain of pretty well locally established
restaurants where we had a very socially responsible owner, a
good friend of mine, who offered health care, and he was able
to do that until just one of his workers came down with a very
long, debilitating disease, and he finally had to drop out of
providing health care. Mr. Webber, could you comment?
Mr. Webber. Yeah. Representative Kildee, I would certainly
share that. I ran a small association. We had one bad medical
risk. We could not find an insurance carrier to provide us care
except for the local Blue Cross plan that had to do so by State
charter.
To your issue of reinsurance, there is no question that
that would dramatically bring down the premium cost for
employers and get more employers in the game. And so I think--
again, in the spirit of a fresh look at these issues, I think
all these proposals need to be put on the table. Obviously that
issue gets to, okay, who is going to finance that reinsurance
system that is established? And obviously there are
constraints, particularly in this environment, with the Federal
Government or even State government to provide a level of
contributions to make that happen. But there is no question in
my mind that that would relieve some of the pressure that
employers are feeling about contributing to this voluntary
employer-based system.
Mr. Kildee. They could run a big company such as General
Motors down to----
Mr. Webber. Right. Well, I am glad you are working with the
large autos. So are we at the National Business Coalition on
Health. The Greater Detroit Health Area Council, which is a
multistakeholder organization with the large autos in a
leadership role, bringing together all the stakeholders in
health care, have put together some exciting initiatives; the
one that we have been working on as a whole community
initiative on save lives and save dollars, this notion that if
we really were to drive higher quality in health care, there is
gold at the end of the rainbow. And the autos have been taking
a leadership role in that effort, and we are thankful to be
working with them.
Mr. Kildee. And I am not advocating the Canadian system,
but I know I live near the Canadian border. And if one of the
Big Three, everything else being equal, decides to build a new
plant, and they can build it in Michigan or in Ontario,
everything else being equal, they are going to build it in
Ontario because their health care costs are virtually zero in
Ontario. So that does have a profound effect not only upon the
people who are ill and the employer, but our whole economy.
Mr. Webber. Again, I couldn't agree more. Rising health
care costs, as I said in my statement, puts American industry
at a competitive disadvantage in a global economy. And
increasingly it is hard to compete. So, you know, we are losing
jobs overseas; outsourcing is a major dilemma. Of course we
want to keep these jobs here in America and create a vital
economy, but we have to address the health care issue. And
again, as I said in my statement, it is not just the issue of
the uninsured, it is the issue of affordability and driving
better and higher quality.
Mr. Kildee. Thank you very much. Thank you, Mr. Chairman.
Chairman Andrews. Thank you very much.
Ranking Member McKeon.
Mr. McKeon. Thank you, Mr. Chairman.
I am sorry that I wasn't here to hear your testimony, but
Mr. Kline was, and I would like to yield my time to him, and he
may ask the question that I would have thought of if I had been
smart enough.
Mr. Kline. This is all pretty scary. Thank you, Mr. McKeon.
I would like to take advantage of your yielding the time to
go back to where I was going to go earlier with Dr. Blumberg
and the Massachusetts law as sort of a model out there that a
lot of people are looking at. And you mention the President has
an initiative out there that he has put forward. We have got
Massachusetts, we have got California, Minnesota, New Jersey.
We have a lot of things going, and I quite frankly think that
is probably a good idea because it is letting us look at a lot
of possibilities.
But let's--I don't understand the Massachusetts law as well
as I should, and you apparently do. So I would like to explore
it just a little bit. Under the Massachusetts law, there is an
individual mandate, you have to have the coverage. What is the
enforcement mechanism for that? What if you don't have it?
Ms. Blumberg. The enforcement mechanism would be through
the income tax system. Right now the mandate is not in place.
Theoretically it should be in place and effective as of the end
of the calendar year. So what happens is when it is time to do
State income taxes, they will--every individual will have to
have some way of verifying on their income taxes with something
from their insurer presumably, or from a public program if they
are enrolled in a public program, that they--as of December 31,
2007, they were covered by health insurance.
There will be penalties assessed that right now their focus
is really on voluntary compliance and trying to make it as easy
as possible to comply with the mandate. There will be some
financial penalties that will be imposed for those who do not
comply through the income tax systems and that presumably, over
time, as the system has been in place and people are more
familiar with what their options are and what their
requirements are, those penalties may increase over time, but
they will start out relatively modest.
I think it is important to note, too, the individual
mandate in Massachusetts applies only to adults, not to
children. We have expanded their Medicaid program, Mass Health,
eligibility for children, so people should be enrolled. The
children are not covered by the individual mandate.
And, in addition, the mandate will only be in effect if
there is what is considered an affordable health insurance
policy available to that individual and that those details
are--those details are still being determined right now.
Mr. Kline. So there are still a lot of unanswered
questions.
Ms. Blumberg. But they really had what I considered to be a
pretty short implementation plan. And so a lot of things are
getting done at the same time right now.
Mr. Kline. I have heard Governor Romney say this was going
to save--at the end of the day, this was going to save public
resources at one point. Do you have any update on what the
projections are now in terms of State dollars?
Ms. Blumberg. I am not sure what the estimates are at the
moment in terms of comparing what their projected spending is
on the program compared to what spending would have been in the
absence of the program. My personal sense of health care reform
and coverage expansion is that one shouldn't expect, at least
in the near term, to be spending less in a system-wide way
under a universal coverage system than you would with having
individuals uninsured. But I don't know what the State's own
projections are.
Mr. Kline. And this is like Mr. Andrews doing math in his
head. I have got a piece of paper here, and I am not sure I am
getting it exactly right. What happens, under the Massachusetts
law, if the employer contribution levels prove insufficient?
What happens?
Ms. Blumberg. Well, under the law, employers in
Massachusetts that have workers, at least 10 workers or more,
are required to make a fair and reasonable contribution to
health insurance for their workers. Now fair and reasonable is
another one of those details that is being determined at the
moment. However, if an employer does not comply with the fair
and reasonable requirement once it is determined, then the--if
they are an employer of over 10 workers, they can be assessed
an assessment for every worker per year that they are not
making that contribution for. And that contribution, the
assessment, can be up to $295 per worker per year. So it is
considerably less than providing health insurance.
So that is why I referred to it as a light employer
mandate, unlike California, where the requirement on the
employers who do not provide health insurance is that they pay
a 4 percent payroll tax on every worker.
So they do have an employer requirement if they don't
participate. But it is not a tremendously onerous one.
Chairman Andrews. Thank you, Mr. Kline.
I will mention, again, that the subcommittee would like to
explore these State plans in the forthcoming weeks and work
with the minority to bring in some of the proponents of the
plan from around the country so we can learn more about it, and
we appreciate you helping us out that way.
Mr. Loebsack is recognized.
Mr. Loebsack. Thanks for having this hearing today. And
thank you to all of the witnesses. Unfortunately, I have been
here sort of sporadically not only because of votes but for
other reasons.
I am going to say a couple of things, and I am not going to
have any questions at this point.
I am a new Member, and I am learning about how to deal with
the media the hard way. The Sunday after the election, my photo
was above the fold on the front page of the New York Times, and
under my photo was my position on health care during the
campaign and the position that I have now, which is that I
favor a single-payer system, whether it is Canadian or whatever
the case may be. But at the same time, I am pragmatic enough to
realize that is unlikely to happen at any time soon, if at all,
in America. So I am open to options, and I am happy to be here
today.
With that, I am going to pass because I have been here, as
I said, only sporadically this morning, and like my colleague
from California, who just left, I don't feel as though I have a
particularly intelligent question to ask at this point. But I
promise I will in the future.
Thank you, Mr. Chair.
Chairman Andrews. I thank my friends. I actually think it
is a huge improvement in the level of quality work around here
when Members say that. We have had a lot of questions over the
years asked that--we also do more listening than talking,
myself included, and we appreciate that.
Mr. Loebsack. I forgot to yield back, but your comments are
okay.
Now I yield the rest of my time.
Chairman Andrews. Mr. Courtney, who has had extensive
experience with Connecticut legislature in health care, is
recognized.
Mr. Courtney. Thank you, Mr. Chairman.
As someone who has chaired the public health committee at
the State level, this is sort of dj vu all over again,
listening to the ways you squeeze the balloon on the system,
and actually up until about a hundred days ago, I was also a
small employer, had been for over 20 years, and the dilemmas
you described in trying to balance the need to retain quality
workers with their own family needs and in terms of wages and
benefits, I could probably get over on the other side of the
table here and share some of the stories there because that
really is a reality that you described that small businesses
experience over and over again out there.
And listening to Mr. Webber talk about the value-based
consumer-driven path as sort of a way out of the situation they
are in right now, I have to tell you, again, as somebody who
was a small employer, I am a skeptic because, at some point,
small employers want to basically repair cars or practice law
or practice medicine. I mean, they really don't want to be in a
position of having to sort through data as far as making
choices on health care plans. It is too much. We are already
dealing with that with our retirement plans, the 401(k) options
that people have to--it is drudgery for staff to go through
those meetings with their financial planners. And at the end of
the day, we are really looking for--I say ``we.'' I mean, they
are looking, my former compatriots, for better choices to buy
into plans like the ones that Ms. Alker described. And I want
you to one more time, because I, like Mr. Kline, wasn't able to
retain those numbers quite as quickly.
If we were to sort of adopt the approach that Mr. Andrews
suggested, which is to give employers that opportunity to buy
into SCHIP, again, if--we will use New Jersey as an example.
You said the cost of a family in SCHIP would be about $8,000
today, $8,000.
Ms. Alker. That is what you said. I had a cost of--a
national cost which was about $7,400 as the national average.
And the private was a little bit under $10,000.
Mr. Courtney. And the very attractive scenario that you
went on to describe indicated that there was a way to sort of
reducing that to bring it down in half. But you described it as
it would be an optional choice for States in terms of whether
or not to subsidize a portion of that premium.
Ms. Alker. I think the attractive feature of the proposal
that the chairman is considering is that we have--we are
talking about low-income families, low-wage workers earning
twice below the poverty line, and the children are, by and
large, eligible for coverage, Medicaid and CHIP. And as
Congressman Andrews indicated, we have a long way to go on
getting to the finish line with covering all uninsured kids.
But it looks very positive that Congress will make a lot of
steps forward in the CHIP program. But where we have a real
chasm is the growing number of uninsured low-income adults, the
parents and also childless adults because typically, they are
not eligible for public coverage. Parent coverage is very low.
Nationwide, it is about 65 percent of poverty, about $13,000.
Your state of Connecticut is high or low. As you remember,
there were some issues about rolling that back as well as New
Jersey. But that is where this proposal, which combines the
commitment we have already to cover those kids through Medicaid
and CHIP with some kind of contribution from the family, and
then we can use the employer contribution and any additional
subsidies State and Federal Government can kick in to address
the needs of the parents.
And I would say childless adults should be included as
well, but that is a detail that is still remaining. But that is
what is attractive about this. Looking at that group, and I am
sure Dr. Blumberg will speak to this more where we really have
problems of low-wage workers not having access to coverage. And
this would offer an opportunity for those employers who would
like to help out those workers, and the kids may be CHIP or
Medicaid eligible.
Mr. Courtney. So, again, for the auto repair shop who has a
worker who qualifies or whose family income is within SCHIP, if
this system existed and they wanted to cover or buy into the
SCHIP program, the reduction in costs would be somewhat
contingent on whether or not the State sort of opted to
subsidize a portion of the premium.
Ms. Alker. I think the idea is that for his family--and he
indicated he had an employee who was working part time and she
had been eligible, I believe, for Medicaid, but then when she
earned more money, she was no longer eligible
for Medicaid even though her kids were. So the idea would
be the States would still be paying the cost of the kids and
whereas now he would have to buy a whole family policy in the
private market, he could purchase coverage through the CHIP
pool for his worker who is not eligible for public coverage.
But the State would be paying the costs for the kids. So that
would be a lot less expensive than if he had to buy for the
whole family policy on the private market.
Mr. Courtney. That is where you would arrive at that point
where the total cost of the employer would be about $3,000 or
$4,000.
Ms. Alker. Yeah. We would have to figure out the numbers in
different places.
Chairman Andrews. If the gentleman will yield. What we find
intriguing about this idea is that, if there were no State
match and you could get down to that kind of number, this is
using Federal dollars we are spending anyway, you understand.
The real reduction here for the employers, as Ms. Alker just
said, being able to participate in that SCHIP pool, giving him
or her the economies of scale and the purchasing power.
Next, Mr. Hare is recognized for 5 minutes.
Mr. Hare. Thank you, Mr. Chairman. Thanks very much for
chairing a hearing on a subject that I think is probably one of
the most important issues that we have facing us today.
I toured several hospitals in my district. I am from west
central Illinois, and I spoke to hospital administrators and
asked them in your emergency room, what percent of uninsured
people come through the emergency room, which, you know, is the
most expensive? We are averaging now at four hospitals about 30
to 35 percent of people that are going through the ER are
people who are uninsured. So, clearly, we have a significant
problem here, people using that, using health care--using the
emergency rooms for health care and we have to do better. We
have to do a lot better than we are doing.
I just want to ask a couple of questions if I could.
First of all, Ms. Alker, you said that New Jersey's premium
assistant program, you called it exemplary. What lessons can
other States learn that New Jersey has been doing as a model?
Ms. Alker. The reason I like the New Jersey program, and I
should mention that Illinois has one as well, which I think
they have--it is an alternative model. Their heart is really in
the right place. I have some concerns about it, but what I like
about New Jersey's program is, they have made sure that
families still retain the same benefits package as they would
in Medicaid and CHIP so they provide a wrap-around. And these
families face very high private costs. So the State will come
in and pay those so the family is not exposed to higher costs
because, for low-income families, that is challenging and
causes them to lose services.
And the other thing they do, and this has been a troubling
feature of the Bush administration's waiver policy in the past
6 years, the Bush administration has actually weakened Federal
standards regarding cost-effectiveness for premium assistance
programs in an effort to really encourage the use of private
insurance. And they haven't really required States to be very
aggressive about assessing whether they are saving money under
these programs, and because, as I indicated, private coverage
is much more expensive than public coverage. And when
enrollment is low, you have high start-up costs. Some of these
programs haven't been cost-effective.
New Jersey's also does a good job--they do an actual
assessment looking at the cost of the employer plan and the
cost for the wrap-around services, and they make sure that they
are saving money or they don't enroll the family. They enroll
them in the direct coverage. That has been the strong feature.
Those two aspects of it.
Mr. Hare. Dr. Blumberg, most people that I talk to,
including my friend Mr. Loebsack, is a supporter of a national
health care system where everyone has a right to go to the
hospital. This debate always seems to be of the question of,
how are we going to pay for a system like that? In your
experience as an economist and researcher, can you speak to the
question about national health care?
Ms. Blumberg. I think of it as a redistributional issue. If
there is--when you go to a government--fully government funded
system as opposed to doing something that more closely
approximates what we have today with extra subsidies for people
who are in greater need, when you are going to that fully
government system, there is a lot more redistribution of
spending. And when I say redistribution, I am talking about
moving dollars that are currently paid by the private system
and moving those dollars through new revenue-raising mechanisms
into the public sector. And so it really can be set up to not
cost tremendously a lot different, but a lot of it is what your
taste for redistribution is.
So you can set up a system on what is more closely based on
what we have now, as I mentioned, with other assistance for
people who are at a higher need, but without redistributing
quite as many dollars from private payers into the government
system. So some people are going to politically feel that they
either can't or don't want to shift those private dollars into
the government system and then redistribute them out that way.
And some people are going to be very happy to redistribute
those dollars to the government system because they feel like
they can make those payments then more closely based on
people's ability to pay.
So in terms of what we have seen and with States trying to
do reform and from previous efforts at the Federal level, I
think that the country has a way to go in terms of getting to
the mindset of feeling comfortable with the really substantial
degree of redistribution that would be required under a single-
payer system. So we already see they have difficulty even
talking about new revenue-raising mechanisms to pay for a
system that wouldn't be quite as huge a shift in terms of where
the dollars are coming from.
So that is my assessment. Obviously, you all have a better
sense of politics than I do.
Mr. Hare. I doubt that.
Ms. Blumberg. There really is a redistributional issue, and
what your taste is for redistribution is going to drive you to
one corner or the other on this.
Mr. Hare. Thank you.
Chairman Andrews. Thank you, Mr. Hare.
The gentlelady from New York, Ms. Clarke, is recognized for
5 minutes.
Mr. Clarke. Thank you very much.
It is one of those days where I have so many meetings and
hearings that I am at simultaneously, but this is an important
issue, and I want to thank you for your leadership in this
regard. And just to say that, you know, this issue has
resonance throughout this body. This week, I was in a hearing
in small business where this issue is being vetted as we speak.
Mr. Chairman, approximately 47 million Americans are
currently uninsured, and I believe that health care is a right
for every woman, man and child in America. Traditionally,
health care coverage has been a component of the social
contract between employers and employees. However, that social
contract is dissolving more and more each day, particularly for
small businesses and, in many instances, for good reason.
As a result, the Federal Government must create innovative
solutions to bridge the gap between the uninsured and the
insured and make sure quality health care is affordable and
available to all. It is not a luxury. Specifically, I believe
that every American should have a guaranteed adequate level of
health care, and health care should be managing the cost of
premiums, co-payments and deductibles. Moreover, every American
should have the ability to pick his or her own doctor, and it
should be the patient and doctor, not the insurance company
bureaucrats, who make the critical medical decisions. And,
finally, preventative care and access to preventative
medication must be an integral component of any health care
plan. So having that as a backdrop of my philosophy, let me say
and ask a couple of questions with regard to SCHIP.
Does the SCHIP program give assistance to everyone
regardless of residency and immigration status? And I put that
out there--I want to ask a couple of questions in a row.
With respect to uninsured children, and this is something I
am really concerned about, if a child is no longer financially
eligible for Medicaid and SCHIP, could there be a period of
time where the child is uninsured because the parent is waiting
for the employer's annual open enrollment period? And has there
been any study as to this and to determine what, on average, is
the waiting period before a parent gets that coverage?
I just want to open up those questions to all of you.
Ms. Alker. I think I can respond to those.
On your question regarding immigrant children, SCHIP,
Federal SCHIP money currently does not pay for most immigrant
children. There is an effort this year to restore some Federal
funding for children of illegal immigrants. Right now, there is
a 5-year bar when they enter the country. And that is something
that Congress will be considering this year. There are a few
States that do, through their own funds, pay for all children,
including undocumented immigrant children, not very many, and
then there are some that pay for those 5-year-bar kids, which
the Federal Government used to pay for but did not allow States
to use SCHIP to fund for that.
And your second question, can you restate it, Ms. Clarke?
Mr. Clarke. I wanted to get a sense of that period of time
where a child is uninsured because they may be waiting for the
employer's annual enrollment period. And whether we have done
any studies to determine what the average waiting period could
be. And if that child is no longer financially eligible for
SCHIP, you know, what is the impact of that?
Ms. Alker. I haven't seen any studies of that. I don't know
if you have, Linda. I think the issue you are raising is
children who would be over-income for SCHIP eligibility but
waiting for the open enrollment period. I haven't seen any
numbers for that. I think that would be a problem, and that
would be something that would be relatively easy to address.
Chairman Andrews. I think the committee would have some
interest in asking HHS or the States the answers to that very
profound question. If Ms. Alker and Dr. Blumberg don't know the
answer, I don't think anybody does. But we, perhaps, could look
at the appropriate government agency and do a joint letter, and
we could ask them. It is a very good question.
Mr. Clarke. Just in closing, you know, we think about
oftentimes health care sort of in a very sterile way. I hope
that we begin to address the issue of visitors, folks who may
be immigrants here out of status. Because oftentimes, the
issues that we are talking about are public health issues as
well. And so, to the extent that we leave anyone out of a
health care infrastructure to address either preventative
health care or containment, we are all at risk for the
dimunition of our health.
And I yield back, and I thank you all for your testimony
here today.
Chairman Andrews. Thank you for your contribution.
Mr. Sestak is recognized for 5 minutes.
Mr. Sestak. Dr. Blumberg, I would like to ask a couple of
questions, and they may have already been asked--and I regret
that I just showed up--about the Massachusetts plan. I am
intrigued by it because it was a Republican governor and a
Democratic legislator that came together, and I honestly think
if you are ever going to affect something that is eventually
going to cover everyone, it is going to take a bipartisan
approach.
The outlines of it I found--and it was an education for
me--I found this of some interest. It is, if you do think that
transparency of standards and competition might ultimately
discipline costs and that it is a shared responsibility between
society and individual, that here you have a mandate. And if I
am not wrong, about a fifth of the uninsured and the top one-
fifth of the wage earners of America, those young youth that
think they don't need to be insured, and they are in motorcycle
accidents or some other problem, it is my limited understanding
that a benefit may be that premiums could go down if there are
more healthy individuals in the pool. Premiums might go down if
you do this pooling because, again, my stats might be wrong,
but like small businesses, depending on how you define ``small
business,'' may cover upwards of 60 percent of workers in
America presently. And that if you are able to pool them
together through a quasi-government connector to negotiate
among plans that may not be dissimilar to what the Federal
Government has, premiums may ultimately go down.
I understand Massachusetts is a unique State in terms of
how many are uninsured and all of that. But if it is mandated
and most of them go to the emergency room for care, ultimately,
potentially, taxes aren't needed as much to subsidize that, but
they can then cover those who truly are insured because they
are not employed but meanwhile they need coverage until they
do. That simplifies the Massachusetts plan a lot, I understand.
But I thought those were the principles that made it
somewhat attractive for the broad support that it did have as a
step towards a bipartisan approach on affordable and accessible
andadequate coverage.
I am intrigued by it. What is it I should be looking at to
really say whether this is some model that we should think
seriously about?
Ms. Blumberg. You covered a lot of ground in your comments.
I will try to talk about what I think the most important points
are in the plan and how they fit into the issues that you are
raising.
It is true that some of the uninsured are young and
healthy. Many of them are not. And when you bring in, just for
purposes of the discussion, hypothetically, when you bring in
the whole population into a system, you are going to bring in
both people who are low-cost and high-cost. When you have more
low-cost people in there in a particular health insurance risk
pool, a particular pool in which premiums are determined, that
is going to bring the average health care costs in that pool
down. But it is important to remember that that doesn't mean we
are bringing total health spending down. It means we are
bringing the average for that pool down.
So there are also a number of people who are uninsured
today who, as a consequence of being uninsured, are not
receiving as much medical care as they would had they been
covered. And so when those people are brought in and given a
comprehensive health insurance policy, then those individuals
are going to end up spending more in the system than they would
have spent without insurance. And many for good reason because
they need more medical care for particular types of conditions,
and they weren't receiving sufficient care.
But I want to be clear that some people are going to
increase their use once they have insurance, and some people
are going to come in and not cost too much.
Mr. Sestak. But the whole system, they may decrease their
use in terms of cost because now they are not waiting until it
is an acute illness and going into the emergency room; correct?
There will be that initial--theoretically, the cost will
ultimately be less if they are getting the coverage, correct?
Ms. Blumberg. There will be some efficiencies that are
created by people having the usual sources of care outside of
settings such as emergency rooms. Some people will get more
preventative care. But there is not a great deal of research
evidence to support that the preventative care is going to end
up decreasing costs over time. It may increase quality to have
preventative care that is more accessible for individuals, but
we don't necessarily know that that is going to end up leading
to system-wide savings, the more preventative care that people
get. It may be that people end up getting conditions identified
and have better quality of care and better health outcomes and
get better services as a consequence of that. But the research
isn't there----
Mr. Sestak. I thought Medicaid had done two pilot programs
that did show the savings that could accrue from preventive
care and managed care. That would show you do save--of course,
these are more chronically ill individuals--that you do have
some ultimate savings, but that is wrong then?
Ms. Blumberg. I am saying there is not a great deal of
research evidence to show that you are going to get significant
system-wide savings as a consequence of the preventive care,
but you may increase quality, and that is also obviously a
value to society.
In terms of the savings from the connector, there are
clearly some efficiencies from bringing individual purchasers
and small group purchasers into an entity that will be
negotiating for premiums as a larger group. There are also some
administration costs that go into administering that pool so it
is not costless. But it is certainly better than what
individuals in the smallest groups experience today.
We should be very mindful when we are thinking about these
purchasing pools, in terms of how much negotiating power we are
going to allow them to have. Sometimes politically it is very
difficult to get all of the stakeholders together to support
legislation where the insurers are concerned because the
purchasing entity is going to have too much negotiating power.
And so that is a real difficult balance because, on the one
hand, for system-wide efficiencies in savings, we would like to
have a very strong purchasing entity. And politically,
sometimes that is difficult to achieve. So I think that is an
important point to keep in mind that these purchasing entities
won't necessarily have a great deal of cost-saving potential
unless we give them the power to really be a serious
negotiator.
Chairman Andrews. Mr. Webber, if you would like to respond.
Mr. Webber. Thank you for raising those very good issues.
On the issue of investments and prevention and chronic care
management yielding savings over time, sort of my response to
Dr. Blumberg is, if the research isn't there, let us do the
research because I think there is intuitive logic there, and I
think if we go outside of the big academic studies and we look
at some observational studies, that we can actually begin to
prove the point. And one example of that: Pitney Bowes, a large
company, put together a very interesting what we call value-
based benefit design where they looked at their population and
saw that their diabetic patients were not getting the services
that they needed. And they had actually set up a pharmacy
benefit mechanism where individuals, again, could not get
access because of high out-of-pocket expenditures. So they
said, we have got to rethink this. We need to make sure that
the people that are chronically ill are getting appropriate
access to medications that they need, and we are convinced that
it is going to pay off over time. So they put all branded and
generic drugs into a preferred tier. They reduced barriers to
access. They actually drove up the front-end cost for pharmacy
benefits, but then they looked at emergency rooms, they looked
at hospitalizations over time, and total costs were saved.
Chairman Andrews. Last year, the full committee had a
hearing which talked about this topic, and there was a witness
who talked about an effort on diabetes where, in addition to
what you are talking about pharmaceutical products, they
actually increased the physician reimbursement for physicians
who had gone through the Good Housekeeping Seal of Approval in
the endocrinological field. And they did have some results
which, at least in the short-term, showed much better outcomes
for diabetic patients.
And I concur with you and Dr. Blumberg, we would like a
more robust body of knowledge on this topic.
Mr. Webber. And, Chairman Andrews, thank you for raising
that. That is the Bridges To Excellence Program that I referred
to in my oral statement where, again, physicians who are
designated as driving better quality in the field of diabetes,
driving better outcomes, controlling their patients with
greater blood-sugar control, they get paid more. But if you
look at, again, total health expenditures over time, the entire
picture, we are actually improving quality and reducing costs
at the same time.
Chairman Andrews. Certainly.
Mr. Kline, did you have any closing comments?
Mr. Kline. Only this. Again, thank you to the witnesses.
This has been a fabulous panel. As I guessed in the very
beginning, this was going to be very, very informative. It
turned out to be just that. Your testimony has been excellent.
Chairman Andrews. Let me join in thanking each of the four
of you for provocative, very well-thought-out comments. We are
delighted you were able to give us your time today.
Here is where we intend to go from here. In subsequent
weeks, the committee is attempting to put together a hearing.
We can have witnesses from the more innovative State programs
like Massachusetts, like California, so we can learn more about
their approaches.
With respect to the SCHIP idea, which Ms. Alker has been
instrumental in educating us about, we invite the comments of
all of the Members of the committee, Republicans and Democrats,
as to their views in helping to put together legislation. And
in the longer term, I would acknowledge that many of the more
creative State experiment ideas do run into issues about the
ERISA Statute, and we are interested in exploring the idea of
appropriate modifications to the ERISA Statute that would
facilitate intelligent and wise State experiments that could
reduce the number of uninsured and increase quality and reduce
costs.
All members will have 14 days to supplement the record with
any other comments they would like to make. We, again, thank
the witnesses for an extraordinary performance.
The committee stands adjourned.
[Additional submissions for the record follow:]
[``Charting SCHIP III: An Analysis of the Third
Comprehensive Survey of State Children's Health Insurance
Programs,'' dated September 2006, Internet address follows:]
http://www.chipcentral.org/Files/Charting--CHIP--III--9-21-6.pdf
______
[Congressional Research Service report for Congress:
``State Children's Health Insurance Program (SCHIP): A Brief
Overview,'' updated January 30, 2007, Internet address
follows:]
http://www.congress.gov/erp/rl/pdf/RL30473.pdf
______
[Congressional Research Service memo prepared for Congress:
``State Health Insurance Reforms,'' dated February 2, 2007,
follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
[Prepared statement of Dr. Herrick follows:]
Prepared Statement of Devon M. Herrick, Ph.D., Senior Fellow, National
Center for Policy Analysis
Mr. Chairman and members of the Subcommittee, please accept my
comments for the record regarding the March 15, 2007, hearing about
providing health insurance for the uninsured. My comments focus
specifically on the issue of health care prices. As was pointed out by
many of the witnesses during the hearing, the price of health care is a
significant issue to consider as the Subcommittee discusses health care
reform.
Prices for medical services have been rising faster than prices of
other goods and services for as long as anyone can remember. But the
Subcommittee should consider that not all health care prices are
rising. Although health care inflation is robust for those services
paid by third-party insurance, prices are rising only moderately for
services patients buy directly. For example, the real (inflation-
adjusted) price of cosmetic surgery fell over the past decade--despite
a huge increase in demand and considerable innovation.
Health Care Costs Rise When Others Pay. A primary reason why health
care costs are soaring is that most of the time when people enter the
medical marketplace, they are spending someone else's money. When
patients pay their own medical bills, they are conservative consumers.
Economic studies and common sense confirm that people are less likely
to be prudent, careful shoppers if someone else is picking up the tab.
Thus, the increase in spending has occurred because third parties--
employers, insurance companies or government--pay almost all the bills.
The Extent of Third-Party Payment of Medical Bills. Although polls
show that many people fear they will not be able to pay their medical
bills from their own resources, the reality is that most people pay for
only a small portion of their medical care:
For every $1 worth of hospital care consumed, the patient
pays only about three cents out of pocket, on the average; 97 cents is
paid by a third party.
For every $1 worth of physician services consumed, the
patient pays less than 10 cents out of pocket, on the average.
For the health care system as a whole, every time patients
consume $1 in services, they pay only 14 cents out of pocket.
Thus, from an economic point of view, the incentive for patients is
to consume hospital services until they are worth only three cents on
the dollar, on the average. The incentive is to consume physicians'
services until they are worth only 10 cents on the dollar. And for the
health care system as a whole, patients have an incentive to utilize
everything modern medicine offers until the value to them is only 14
cents out of the last dollar spent.
Medical Inflation. Health care costs over the past 40 years have
risen as the proportion of health care paid for by third parties has
increased. Prior to the advent of Medicare and Medicaid in 1965, health
care spending never exceeded 6 percent of gross domestic product. Today
it is 16 percent. These two government programs unleashed a torrent of
new spending and led to rising health care prices. For instance, a
recent study by Amy Finkelstein of the Massachusetts Institute of
Technology found that half the growth in health care expenditures was
due to Medicare. There has also been an increase in tax-subsidized
employer spending on health care. These two factors, rather than the
cost of new technology and drugs, explain why health care costs outpace
inflation.
Cosmetic Surgery Prices. Cosmetic surgery is one of the few types
of medical care for which consumers pay almost exclusively out of
pocket. Even so, the demand for cosmetic surgery exploded in recent
years. Of the 10.2 million cosmetic procedures performed in 2005 that
were tracked by the American Society of Plastic Surgeons, 1.8 million
were surgical procedures. By comparison, in 1992 the American Society
of Plastic Surgeons only tracked 413,208 cosmetic procedures--a
fraction of those performed in 2005.
Despite this huge increase, cosmetic surgeons' fees remained
relatively stable. The average increase in prices for medical services
from 1992 through 2005 was 77 percent. [See the figure.] The increase
in the price of all goods, as measured by the consumer price index
(CPI), was 39 percent. Cosmetic surgery prices only went up about 22
percent. Thus, while the price of medical services generally rose
almost twice as fast as the CPI, the price of cosmetic surgery went up
slightly more than half as much. Put another way, while the real price
of health care paid for by third parties rose, the real price of self-
pay medicine fell.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Another example of price competition is the market for corrective
eye surgery. In 1999, only a few years after LASIK was approved, the
price was about $2,100 per eye, according to the ophthalmic market
research firm MarketScope. Within a short time, competition drove the
price down to a slightly more than $1,600. The cost per eye of the
standard LASIK is now about 20 percent lower than six years earlier.
Competition held prices in check until a new innovation arrived for
which patients were willing to pay more. By 2003 surgeons began to
perform a newer, more-advanced custom wavefront-guided LASIK procedure.
Keeping Costs Down. What explains this price stability? One reason
is patient behavior. When patients pay with their own money, they have
an incentive to be savvy consumers. A second reason is supply. For
instance, as more people demanded cosmetic surgery procedures, more
surgeons began to provide them. A third reason is efficiency. Many
providers are increasing their efficiency by locating operating rooms
in their clinics, a less-expensive alternative to outpatient hospital
surgery. And providers often adjust their fees to stay competitive and
usually quote patients a package price. Absent are the gatekeepers,
prior authorization and large medical office billing staffs needed when
third-party insurance pays the fees. A fourth reason is innovation and
the emergence of substitute products.
Fostering Competition. When providers compete for business, the
market fosters competition. In competitive markets, producers seek to
reduce costs and to offer products that meet customer demands. However,
instead of a competitive national market for health insurance, we
operate under a patchwork of 50 different sets of state regulations.
Since each state insurance market is protected from interstate
competition, legislators often require insurers to cover services that
drive up premiums. For example, about one-fourth of states mandate
benefit packages that cover acupuncture and marriage counseling. More
than half require coverage for social workers and 60 percent for
contraceptives. Seven states require coverage for hairpieces and nine,
hearing aids. Needless to say, these mandates drive up the cost of
providing health insurance, often making it prohibitively expensive for
an insurer licensed in one state to do business in another state. As a
result, consumers have little choice among plans. In many localities,
only one insurance product is available, so the consumer is forced to
buy an overpriced product, or forgo insurance altogether.
Fostering Innovation. When patients directly control their health
care dollars, not only do prices go down, medical providers begin to
offer innovative services to meet the demand of empowered patients.
Telephone consultations, walk-in retail clinics, electronic medical
records, and personalized care are among the innovative services
provided by doctors. These new physician services tend to have two
characteristics: (a) they offer patients greater convenience and (b)
they step outside normal reimbursement channels. Furthermore, many of
these innovations (such as electronic medical records) dramatically
improve the delivery of quality health care.
Conclusion. As the Subcommittee deliberates health care issues, I
hope you will consider the relationship between the competitive
healthcare marketplace and stable prices. Thank you for the opportunity
to comment.
______
[Kaiser Commission issue brief: ``Premium Assistant
Programs: How Are They Financed and Do States Save Money?,''
dated October 2005, Internet addresses to executive summary and
issue brief follow:
http://www.kff.org/medicaid/upload/Premium-Assistance-Programs-How-are-
they-Financed-and-do-States-Save-Money-Executive-Summary.pdf
http://www.kff.org/medicaid/upload/Premium-Assistance-Programs-How-are-
they-Financed-and-do-States-Save-Money-Issue-Brief.pdf
______
[New York Times article: ``The President's Risky Health
Plan,'' follows:]
[The New York Times, January 26, 2007]
The President's Risky Health Plan
The new health care proposals announced by President Bush this week
purport to tackle the two toughest problems confronting the American
health care system: the rising number of uninsured Americans and the
escalating costs of medical care.
But on both counts, they fall miles short of what is needed to fix
a system where--scandalously--47 million Americans go without health
insurance.
The financial sinkhole in Iraq and huge tax cuts for wealthy
Americans have left the administration with no money to really address
the problem. To keep the program ``revenue neutral,'' Mr. Bush would
instead use tax subsidies to encourage more people to buy their own
health insurance, while imposing additional taxes on people who have
what Mr. Bush deems ``gold plated'' insurance.
It is a formula that would do little to reduce the number of
uninsured Americans and would have a high risk of producing pernicious
results. Even White House officials acknowledged earlier this week that
they expected the number of uninsured to drop by only three million to
five million people as a result of Mr. Bush's proposals. They expect
the states to take on most of the burden.
One enlightened element is that the plan would provide equal tax
treatment to those who bought their insurance policies on the
individual market and those who got coverage through group policies at
work, thus ending a longstanding inequity that favors employer-based
policies. To level the playing field, the administration proposes to
grant everyone who gets qualifying health insurance a standard
deduction--$15,000 for family coverage or $7,500 for single coverage--
off their income subject to taxation. Those with family policies
exceeding $15,000 in value would have to pay taxes on the excess
amount.
After the proposed starting date in 2009, the administration
estimates, about 80 percent of workers with employer-provided policies
would pay lower taxes and 20 percent would pay higher taxes, unless
they reduced the value of their health coverage to fit within the
standard deduction.
The new standard deduction would almost certainly entice some
people to buy health insurance who had previously elected not to. But a
tax deduction is of little value to people so poor that they pay little
or no income tax. And unfortunately, it is those people who account for
the vast majority of the nation's uninsured.
Instead of trying to fix that fundamental flaw, the administration
has decided instead to buck it to the states. The White House has
offered few details. But its idea is to allow states to redirect
federal money that now helps to finance hospitals that provide charity
care and use it instead to subsidize health insurance for the poor.
In an ideal world, it would make good sense to insure people in
advance rather than wait for them to show up in a high-cost emergency
room. But this plan could quickly cripple the safety-net hospitals.
Fortunately, no governor would have to accept the offer to redirect
funds. The scheme is mostly a reflection of how the administration is
unwilling to accept true responsibility for the uninsured.
If the administration really wanted to help low-income people, it
would have proposed a refundable tax credit that would have the same
dollar value for everyone--instead of a tax deduction, which primarily
helps people in high tax brackets. Even those who do not pay taxes
would get a check for the dollar value of the credit, providing them at
least some money to help pay for health insurance. Congress ought to
recognize that credits are the better approach for even such a limited
plan.
As for the tax increases on those ``gold plated'' health policies,
the White House is hoping to discourage people from using high-priced
comprehensive health policies that cover everything from routine office
visits to costly diagnostic procedures that are not always necessary.
The administration's goal is to instead encourage people to take
out policies that might reduce the use of medical services, like
policies with high deductibles or co-payments, or managed care plans.
But even ``copper plated'' policies can exceed $15,000 in cost if they
are issued in areas where medical prices are high or to groups with
high numbers of older or chronically ill workers.
The whole approach rests on the premise that comprehensive prepaid
health policies are a major factor in driving up costs; the theory is
that people will tend to use services if they are covered. There is
probably some truth in that.
But the main drivers in rising health costs are the costly
services, high-priced drugs and hospitalizations for people who are
seriously ill with catastrophic diseases or multiple chronic illnesses.
Making their health coverage less generous would simply make it harder
for them to get the care they need.
The greatest risk in the president's proposal is that it would seem
likely to lead many small- and medium-size employers to stop offering
health benefits altogether on the theory that their workers could buy
affordable insurance on their own. That would leave many more Americans
at the mercy of the dysfunctional individual policy market, where
administrative costs are high and insurers strive to avoid covering
people who are apt to become sick and need costly care.
For all its fanfare, Mr. Bush's plan would be unlikely to reduce
the ranks of the uninsured very much. And if things went badly, it
could actually increase their numbers. That's not the answer Americans
are waiting for and not what they deserve.
______
[Additional materials submitted by Mr. Webber follow:]
[National Business Coalition on Health policy paper,
``Promoting Consumerism Through Responsible Health Care Benefit
Design,'' dated November 2006, follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
------
[``Value-Driven Health Care: A Purchaser Guide,'' dated
February 2007, Internet address follows:]
http://www.leapfroggroup.org/media/file/Employer--Purchaser--Guide--
05--11--07.pdf
______
[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]