[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
THE PRESSURES OF RISING COSTS ON
EMPLOYER PROVIDED HEALTH CARE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, MARCH 10, 2011
__________
Serial No. 112-10
__________
Printed for the use of the Committee on Education and the Workforce
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Thomas E. Petri, Wisconsin George Miller, California,
Howard P. ``Buck'' McKeon, Senior Democratic Member
California Dale E. Kildee, Michigan
Judy Biggert, Illinois Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania Robert E. Andrews, New Jersey
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Lynn C. Woolsey, California
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Carolyn McCarthy, New York
Tim Walberg, Michigan John F. Tierney, Massachusetts
Scott DesJarlais, Tennessee Dennis J. Kucinich, Ohio
Richard L. Hanna, New York David Wu, Oregon
Todd Rokita, Indiana Rush D. Holt, New Jersey
Larry Bucshon, Indiana Susan A. Davis, California
Trey Gowdy, South Carolina Raul M. Grijalva, Arizona
Lou Barletta, Pennsylvania Timothy H. Bishop, New York
Kristi L. Noem, South Dakota David Loebsack, Iowa
Martha Roby, Alabama Mazie K. Hirono, Hawaii
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania
[Vacant]
Barrett Karr, Staff Director
Jody Calemine, Minority Staff Director
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS
DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina Robert E. Andrews, New Jersey
Glenn Thompson, Pennsylvania Ranking Minority Member
Tim Walberg, Michigan Dennis J. Kucinich, Ohio
Scott DesJarlais, Tennessee David Loebsack, Iowa
Richard L. Hanna, New York Dale E. Kildee, Michigan
Todd Rokita, Indiana Ruben Hinojosa, Texas
Larry Bucshon, Indiana Carolyn McCarthy, New York
Lou Barletta, Pennsylvania John F. Tierney, Massachusetts
Kristi L. Noem, South Dakota David Wu, Oregon
Martha Roby, Alabama Rush D. Holt, New Jersey
Joseph J. Heck, Nevada Robert C. ``Bobby'' Scott,
Dennis A. Ross, Florida Virginia
C O N T E N T S
----------
Page
Hearing held on March 10, 2011................................... 1
Statement of Members:
Kildee, Hon. Dale E., a Representative in Congress from the
State of Michigan, question for the record................. 36
Kucinich, Hon. Dennis J., a Representative in Congress from
the State of Ohio.......................................... 4
Prepared statement of.................................... 0
Submissions for the record:
``Medical Bankruptcy in the United States, 2007:
Results of a National Study,'' American Journal of
Medicine, 2009..................................... 42
``Seeing Red: The Growing Burden of Medical Bills and
Debt Faced by U.S. Families,'' the Commonwealth
Fund, August 2008.................................. 48
Arensmeyer, John, founder & CEO, Small Business
Majority, prepared statement of.................... 68
Roe, Hon. David P., Chairman, Subcommittee on Health,
Employment, Labor and Pensions............................. 1
Prepared statement of.................................... 3
Additional submission: Letter, dated Mar. 10, 2011, from
Associated Builders and Contractors.................... 67
Statement of Witnesses:
Brewer, J. Michael, president, Lockton benefit group, Lockton
Companies, LLC............................................. 25
Prepared statement of.................................... 27
Houser, Jim, Hawthorne Auto Clinic and Main Street Alliance
of Oregon.................................................. 21
Prepared statement of.................................... 23
Miller, Thomas P., J.D., resident fellow, American Enterprise
Institute..................................................
Prepared statement of.................................... 6
Response to Mr. Kildee's question........................ 36
Parker, Brett, vice chairman and chief financial officer,
Bowlmor Lanes, on behalf of the U.S. Chamber of Commerce... 15
Prepared statement of.................................... 17
THE PRESSURES OF RISING COSTS ON EMPLOYER PROVIDED HEALTH CARE
----------
Thursday, March 10, 2011
U.S. House of Representatives
Subcommittee on Health, Employment, Labor and Pensions
Committee on Education and the Workforce
Washington, DC
----------
The committee met, pursuant to call, at 10:05 a.m., in room
2175, Rayburn House Office Building, Hon. Phil Roe [chairman of
the subcommittee] presiding.
Present: Representatives Roe, Kline, DesJarlais, Hanna,
Bucshon, Barletta, Roby, Heck, Kucinich, Kildee, Hinojosa,
Tierney, and Wu.
Staff present: Katherine Bathgate, Press Assistant; Kirk
Boyle, General Counsel; Casey Buboltz, Coalitions and Member
Services Coordinator; Ed Gilroy, Director of Workforce Policy;
Barrett Karr, Staff Director; Ryan Kearney, Legislative
Assistant; Brian Newell, Press Secretary; Molly McLaughlin
Salmi, Deputy Director of Workforce Policy; Ken Serafin,
Workforce Policy Counsel; Linda Stevens, Chief Clerk/Assistant
to the General Counsel; Alissa Strawcutter, Deputy Clerk; Aaron
Albright, Minority Deputy Communications Director; Daniel
Brown, Minority Staff Assistant; Jerrica Mathis, Minority
Legislative Fellow; Megan O'Reilly, Minority General Counsel;
Meredith Regine, Minority Labor Policy Associate; and Michele
Varnhagen, Minority Chief Policy Advisor and Labor Policy
Director.
Chairman Roe [presiding]. Good morning, everyone. I want to
thank our witnesses for being with us today, and for sharing
their thoughts and experience on this very important subject.
The steady rise in cost is a critical challenge facing our
nation's health care system. For many patients, the price of
health care is the determining factor when deciding whether to
receive the care he or she needs. It also imposes a tremendous
burden on taxpayers, as government health services become more
and more expensive.
As a parent, a physician and elected official, hardly a day
goes by when I am not reminded of this difficult reality.
Yesterday was no exception. Employers, however, understand
better than most the tough choices workers and their families
face as health care costs go up year after year.
In 1974, the Employee Retirement and Income Security Act,
commonly known as ERISA, became law. It provides the rules of
the road for benefit plans offered by employers, including
employer-provided health care. Employer-provided health care is
now as common to employee compensation as wages, paid vacation
and sick leave.
Roughly 170 million individuals receive health insurance
through an employer-provided health care plan. It has become
central to our nation's health care system. While not perfect,
it has served employers and employees well for nearly 40 years.
Any changes to the nation's health care system will affect the
lives of millions of employers, workers and their families.
That is why the challenge of rising costs is a pressing
national concern. An aging workforce, more advanced therapies,
higher utilization, liability and fewer providers are just some
of the factors contributing to the increases.
As policymakers, we have a responsibility to understand the
underlying causes of these factors and to consider common-sense
solutions that ultimately reduce expenses for workers and their
families.
President Obama understood this responsibility when, as a
candidate for the presidency, he outlined a plan he promised
would reduce costs or the families and businesses. Without
providing specific details for businesses, then-Senator Obama
promised his health care plan would lower premiums by as much
as $2,500 per family. As president, Mr. Obama claimed that
under his plan, ``if you like your current health care, you can
keep it.''
Unfortunately, now, we know these assertions to be untrue.
Along the path to health care reform, the president and his
Democratic allies are banning any effort to reduce costs, and
instead focused on expanding access through the creation of a
new government entitlement program; a program that will surely
change how workers receive their health care, regardless of
whether they like it or not.
This has left this issue of rising costs unresolved as the
need for meaningful reform grows more urgent.
There are a number of provisions in the recent health care
law that not only fail to address rising costs, but actually
exacerbate the problems facing employers and their workers. For
the first time in our nation's history, we have a mandate
requiring certain employers provide government-approved
insurance, or pay a fine.
However, providing government-approved health care will
grow more and more expensive, as benefit plans begin to comply
with a number of additional mandates and requirements
controlled by Washington bureaucrats. Existing employer plans
were supposed to be grandfathered from the new law's
requirements. But we have since learned this will not be the
case for up to 69 percent of the plans, including up to 80
percent of smaller plans.
We all want to see individuals with pre-existing conditions
get the care they need and young adults receive extended help
from their parents, if they so desire.
But a sea of government mandates will not lead to lower
costs and better health care. A number of independent health
care researchers have examined the issue and determined costs
will continue to increase at a rapid pace, due in part to
Obamacare.
That is why we are here today. We must examine these and
other driving forces behind rising health care costs, their
effects on employers and workers, and begin to consider
responsible solutions that address the needs of the nation.
I would now recognize my colleague and friend from Ohio,
Mr. Kucinich, the senior Democratic member of the subcommittee
here today, for his opening remarks.
[The statement of Dr. Roe follows:]
Prepared Statement of Hon. David P. Roe, Chairman,
Subcommittee on Health, Employment, Labor and Pensions
Good morning everyone. I want to thank our witnesses for being with
us today and for sharing their thoughts and experience on this
important subject.
The steady rise in cost is a critical challenge facing our nation's
health care system. For many patients, the price of health care is the
determining factor when deciding whether to receive the care he or she
needs. It also imposes a tremendous burden on taxpayers, as government
health services become more and more expensive. As a parent, physician,
and elected official, hardly a day goes by when I am not reminded of
this difficult reality.
Employers, however, understand better than most the tough choices
workers and their families face as health care costs go up year after
year. In 1974, the Employee Retirement and Income Security Act,
commonly referred to as ERISA, became law. It provides the rules of the
road for benefit plans offered by employers, including employer-
provided health care. Employer-provided health care is now as common to
employee compensation as wages, paid vacation, and sick leave.
Roughly 170 million individuals receive health insurance through an
employer-provided health care plan. It has become central to our
nation's health care system. While not perfect, it has served employers
and employees well for nearly forty years. Any changes to the nation's
health care system will affect the lives of millions of employers,
workers, and families.
That is why the challenge of rising costs is a pressing national
concern. An aging workforce, more advanced therapies, higher
utilization of services, and fewer providers are just some of the
factors contributing to the increases. As policy makers, we have a
responsibility to understand the underlying causes of these factors and
to consider commonsense solutions that ultimately reduce expenses for
workers and their families.
President Obama understood this responsibility when, as a candidate
for the presidency, he outlined a plan he promised would ``reduce costs
for families and businesses.'' Without providing specific details for
businesses, then-Senator Obama promised his health care plan would
``lower premiums by as much as $2,500 per family.'' As President, Mr.
Obama claimed that, under his plan, ``if you like your current health
care, you can keep it.''
Unfortunately, we now know these assertions to be untrue. Along the
path to health care reform, the president and his Democrat allies
abandoned any effort to reduce costs and instead focused on expanding
access through the creation of a new government entitlement program; a
program that will surely change how workers receive their health care,
regardless of whether they like it or not. This has left this issue of
rising costs unresolved as the need for meaningful reform grows more
urgent.
There are a number of provisions in the recent health care law that
not only fail to address rising costs, but actually exacerbate the
problems facing employers and their workers. For the first time in our
nation's history, we have a mandate requiring certain employers provide
government-approved insurance or pay a fine.
However, providing government-approved health care will grow more
and more expensive as benefit plans begin to comply with a number of
additional mandates and requirements controlled by Washington
bureaucrats. Existing employer plans were supposed to be
``grandfathered'' from the new law's requirements, but we've since
learned this will not be the case for up to 69 percent of plans,
including up to 80 percent of smaller plans.
We all want to see individuals with pre-existing conditions get the
care they need and young adults receive extended help from their
parents if they so desire. But a sea of government mandates will not
lead to lower costs and better health care. A number of independent
health care researchers have examined the issue and determined costs
will continue to increase at a rapid pace due in part to ObamaCare.
That is why we are here today. We must examine these and other
driving forces behind rising health care costs, their affects on
employers and workers, and begin to consider responsible solutions that
address the needs of the nation.
I would like to now yield to Mr. Andrews, the ranking member, for
his opening remarks.
______
Mr. Kucinich. I want to thank my friend, Chairman Roe, for
calling this hearing. I would also like to thank our
distinguished panel of witnesses for appearing.
It has been nearly 1 year since the Affordable Care Act
became law, and already, millions of Americans are realizing
its benefits. The new health care law comes at a time when both
employers and families are struggling to keep up with
skyrocketing increases in their health care costs.
Over the last decade, family premiums more than doubled in
the employer-based health insurance market. We know that
without reform, the problem of rising health care costs will
just get worse.
The Commonwealth Fund estimates that, absent health reform,
the average family premium will nearly double again by 2020, to
almost $24,000. These increases are unsustainable, and this
country could not afford the status quo any longer. Higher
health care costs means employers have less to reinvest in
their business, and families have a harder time making ends
meet.
While the Affordable Care Act is not a perfect law--and I
know that, because I was involved principally in challenging
it--it dramatically expands access to affordable, quality
health care. It takes critical first steps in reining in the
abuses of an insurance industry that so far has gone unchecked.
It will provide small employers with the same purchasing
power as large employers and will give them tax credits to help
them cover their workers.
It also extends flexibility to the states, should they want
to pursue an alternative to the federal health law, as long as
it provides at least the same protections and access to health
care as is afforded under the ACA.
It is unconscionable that we have allowed the insurance
industry in this country to pad its pockets at the expense of
hard-working Americans by charging more but spending less on
benefits. In 2010, the top five insurance companies--
UnitedHealth, WellPoint, Aetna, Humana and Cigna--saw record
profits, $11.7 billion.
While 43 states already had some kind of premium rate
review process before the ACA, the law gives states the ability
to enhance or create a rate review process to go after
unjustified rate increases. It also ensures that these rate
increases and the justification for them are publicly
available.
The Affordable Care Act further protects against insurance
company abuses by requiring them to spend more on benefits and
less on profits and CEO pay. The law's medical loss ratio
requirements require insurance companies spend 80 to 85 percent
of premium dollars on medical care and health quality. This
provision alone will provide up to $1.2 billion in rebates
starting in 2012.
The law's benefits for employers are already being
realized, even before the law is fully implemented. More than
5,000 employers are taking part in the law's retiree
reinsurance program, which has reimbursed more than $535
million in health care benefits, benefiting more than 4.5
million Americans.
Four million small businesses are eligible for the small
business tax credit, and many are seeing real savings this
year. As a result, more are offering health care. The number of
small employers with three to nine workers offering health
insurance has risen from 46 to 59 percent.
After starting in 2014, small employers will be able to
pull together to provide more health care choices to employees
at lower cost.
Employers will also benefit from the law's Patient's Bill
of Rights. A healthier workplace is a more profitable and more
productive one.
If these new protections were taken away, it is clear that
employers, especially small employers, will be worse off. Helen
Darling, president of the National Business Group on Health,
which includes almost 300 large employers, has said, ``If the
law gets repealed or gutted, we will have to start over, and we
will be worse off.''
The Congressional Budget Office states that repealing the
law will slightly increase employer-sponsored premiums.
Ultimately, we need to remove the source of our health care
problems: the health insurance companies. They are the reason
that one out of every $3 spent on health care goes to something
other than providing care.
I believe the demise of the for-profit health insurance
industry is inevitable. Until then, Mr. Chairman, the American
people who are trying to survive this recession need our help.
And the Affordable Care Act provides Americans relief from the
burden of health insurance companies.
I look forward to today's hearing. I yield back the balance
of my time.
I just want to say, Mr. Chairman, we have votes going on in
Government Oversight right around the corner. I may have to
duck out for a moment here and there. But otherwise, I will be
here with you.
Chairman Roe. I thank the gentleman for yielding.
Pursuant to committee rule 7c, all members will be
permitted to submit written statements to be included in the
permanent hearing record.
And without objection, the hearing record will remain open
for 14 days to allow questions for the record. Statements and
extraneous material referenced during the hearing will be
submitted for the official hearing record.
It is my pleasure to introduce our panel.
I know, Mr. Miller, you are probably a wreck in the
Washington traffic, but thank you for being here.
Mr. Thomas Miller is a resident fellow for the American
Enterprise Institute, where he focuses on health care policy,
with a particular emphasis on such issues as information,
transparency, health insurance regulation and consumer-driven
health care.
He was a member of the National Advisory Council for the
Agency of Health Care Research and Quality from 2007 to 2009.
Prior to his work at AEI, Mr. Miller was a senior health
economist for the Joint Economic Committee, where he organized
a series of hearings on promising reforms in private health
markets. Mr. Miller holds a bachelor's degree in political
science from New York University and a law degree from Duke
University.
Mr. Brett Parker is vice chairman and chief financial
officer for Bowlmor Lanes. Bowlmor Lanes, as it is known today,
was started in 1997, and operates bowling alleys in six
locations in four states including New York, Maryland and
Florida, and California. Bowlmor Lanes has grown from 50 to
more than 500 employees--and congratulations for that--in the
last 10 years, with more than 100 hired within the last year
alone.
Mr. Parker is testifying today on behalf of the U.S.
Chamber of Commerce.
I will now yield to the gentleman from Oregon, Mr. Wu, to
introduce Mr. Jim Houser.
Mr. Wu. Thank you, Mr. Chairman.
Mr. Jim Houser is co-owner of Hawthorne Auto Clinic, a AAA-
approved auto repair facility located in Portland, Oregon.
Hawthorne Auto Clinic has been the recipient of a number of
awards, including the Blue Seal of Excellence Award from the
National Institute for Automotive Service Excellence; the Best
Practices for Sustainability Award from the City of Portland;
and the Small Business of the Year Award in both 1996 and 2007,
from the Better Business Bureau.
Mr. Houser is testifying on behalf of the Main Street
Alliance, a national network of state-based small business
coalitions. I have had the pleasure of meeting with Main Street
Alliance members at home and welcome Mr. Houser to Washington
and this committee.
Thank you, Mr. Chairman.
Chairman Roe. Thank you, Mr. Wu.
And also, thank you, Mr. Houser, for being here.
Our final witness is Mr. Michael Brewer, the president of
Lockton Benefit Group located in Kansas City, Missouri. Lockton
Benefit Group provides national employee benefits consulting
services to about 2,500 companies nationwide in a broad range
of industries.
Lockton Benefit Group is part of Lockton Companies, LLC,
which provides global risk management, insurance and employee
benefit services. Lockton is the world's largest privately
owned, independent insurance brokerage firm, and it has more
than 3,800 associates worldwide.
Before we start the testimony, let me explain the light
system. Basically, you have 5 minutes, the yellow light with
the green light. The yellow light means you have a minute, and
the red light means that probably I will start tapping to end
your testimony.
So with that, Mr. Miller, would you begin?
STATEMENT OF TOM MILLER, RESIDENT FELLOW,
AMERICAN ENTERPRISE INSTITUTE
Mr. Miller. Thank you very much, Chairman Roe,
Representative Kucinich, members of the subcommittee, for this
opportunity to speak on the pressures of rising costs on
employer-provided health care.
We should be more concerned about what is likely to unfold
as we approach 2014 and the immediate years afterward than the
most recent ups and downs of the limited dosage effects of the
Affordable Care Act's initial year of implementation.
It has not provided much short-term help, but it still
threatens to do more harm later. Partly because the ACA
actually has provided very little in tangible first-year
benefits, it also has imposed only modest immediate costs and
complications on most employers.
Although the health sector appears to exhibit a
longstanding ability to grow faster than the rest of the
economy, the substantial effects of a deep recession within the
last 3 years certainly slowed the absolute dollar growth of
health spending and some health care utilization, if not its
relative share of a troubled economy.
We often forget that national health spending has grown at
a slower rate in every year from 2000 to 2009. However, we can
neither afford, nor should we expect, to rely on a prolonged
recession or sluggish economy to keep slowing down that rate.
There remains a substantial list of theories and
explanations for this persistent excess growth of health
spending and health insurance costs, but the most predictable
common element behind many of the more politically effective
ones is that it is always someone else's fault.
The unpredictability of what will be enforced under the
regulatory domain authorized under the ACA, and how its complex
and often inconsistent provisions will be interpreted, leaves
many employers frozen in uncertainty in their health benefits
planning. Leading examples include the narrowed range of
grandfathering protection for previous employer health plans
and future definitions of details to be unveiled later for
central benefits and state health benefits exchanges.
In isolation, a few of the initial burdens for employers
are likely to determine decisively whether most of them
continue to offer health insurance. But over time, they amount
to a steady drip-by-drip, political form of water torture that
can eventually reach critical mass and push a much larger share
of employers to reconsider their continued involvement in
offering health coverage.
The structure of future penalties for noncompliance with
employer coverage mandates will send out additional economic
disincentive signals that tell different categories of business
owners to grow slower, hire fewer, pay less and restructure
their firms.
More ominously, the tilted playing field beginning in 2014
for future tax subsidies for workers at the same income level,
depending on whether they are inside employer health plans or
purchasing outside coverage in any benefits exchanges that
actually come into existence by then, appears far from
politically sustainable.
If and when the highly flammable legislative firewalls
constructed to separate these two health insurance domains
begin to break down, the federal budgetary implications of an
employer coverage meltdown alone would be explosively
unaffordable. And the future of market-based forms of private
insurance would be in even greater jeopardy.
We still have time to pull back before testing the
temperature of the water for the lead group of health policy
lemmings nearing the edge of this cliff.
A short list of changes in direction would include a much
stronger focus on responsible choice in competition in health
care markets; more neutral, limited and transparent taxpayer
subsidies for health spending by most Americans, but more
targeted special protection for the most vulnerable and
highest-risk portions of the populations; real steps toward
meaningful information transparency; and realignment of
incentives to reward better health care choices and higher-
value health care delivery.
The last round of purported health care reform overloaded
the operational circuits of our political system, overfed its
appetite for more private resources and offended longstanding
cultural norms. Rebalancing the mix necessarily must begin with
repeal of many core components of the ACA, but it cannot end
short of equally difficult but necessary and more sustainable
reforms enacted to replace them.
Thank you.
[The statement of Mr. Miller follows:]
Prepared Statement of Thomas P. Miller, J.D., Resident Fellow,
American Enterprise Institute
Thank you Chairman Roe, Ranking member Andrews, and members of the
Subcommittee for the opportunity to speak this morning on the pressures
of rising costs on employer-provided health care.
I am speaking today as a health policy researcher, a resident
fellow at the American Enterprise Institute and co-author of the
forthcoming book, ``Why ObamaCare Is Wrong for America (to be published
later this month). I also will draw upon previous experience as a
senior health economist at the Joint Economic Committee, member of the
National Advisory Council for the Agency for Healthcare Research and
Quality, and health policy researcher at several other Washington-based
think tanks.
The subject of this hearing is not a new one, although the economic
and policy context in which we examine it has changed and will continue
to do so in the years and decades ahead. The two most significant
factors are the recent deep recession--from which both the overall
economy and its health sector are slowly recovering--and the passage
and early implementation of the Patient Protection and Affordable Care
Act (referred to hereafter as ``ACA'')--from which they may not,
without a substantial change in direction.
Roughly 170 million Americans received private health insurance
through the workplace in 2009,\1\ and the vast majority of those
workers and their families, despite periodic complaints, value it very
much. However, our largely employer-based system of private health
coverage does not work well for everyone--most notably those workers
who lose their jobs. Or who cannot find either new or initial work. Or
who cannot afford their share of expensive and rising premiums. Or who
need a better balance between lagging wages and rising health benefits
costs. Or whose employer simply cannot afford to offer insurance.
Millions of people need better options to get more stable and
affordable health insurance.
---------------------------------------------------------------------------
\1\ As calculated under Current Population Survey methods by the
Census Bureau last year. Carmen DeNavas-Walt, Bernadette D. Proctor,
and Jessica C. Smith, U.S. Census Bureau, Income, Poverty, and Health
Insurance Coverage in the United States: 3009, Current Population
Reports, P60-238 (Washington, D.C.: U.S. Government Printing Office,
2010), table C-1.
---------------------------------------------------------------------------
As director of AEI's ``Beyond `Repeal and Replace:' Ideas for Real
Health Reform'' project, I would be happy to discuss in greater depth a
number of better solutions to the continuing chronic conditions of high
costs, inconsistent quality, gaps in access, and misaligned incentives
throughout our health care economy. However, the primary focus of my
testimony today is, first, to place employer health care cost
challenges and assertions about them in perspective. I then will
examine the likely effects of the ACA on the future ``health'' of
employer-sponsored health insurance, and very briefly conclude with
some suggested policy alternatives.
In brief, we should be more concerned about what is likely to
unfold as we approach 2014 and the immediate years afterward than the
most recent headlines of the limited-dosage effects of the ACA's
initial year of implementation. It has not provided much short-term
help, but still threatens to do more harm later. A number of blame-
shifting assertions, statistical mirages, overstatements, and
simplistic pet theories should not distract us from the more complex
and daunting task of both rethinking the path that the previous
Congress took in the ACA and pursuing more robust and realistic routes
to sustainable, higher-value health care.
Putting Health Spending Trends in Perspective
Let's start with a reminder of the health spending context when the
ACA was first proposed, debated, and enacted. From calendar year 2007
to 2008, overall national health spending (as measured by the
``National Health Expenditure'' accounts compiled annually by the
Centers for Medicare and Medicaid Services) increased only 4.7 percent.
That was the smallest percentage annual increase in the nearly 50 year
history of that measure. And then national health spending rose only 4
percent more, in 2009.
As for the more narrow measure of the employer cost per employee of
employer-sponsored health benefits, the most consistently accurate one
over time--Mercer's National Survey of Employer-Sponsored Plans--
indicates that those costs remained in a steady pattern of roughly 6
percent annual increases in the five years from 2005 through 2009, even
though the underlying health care cost trend was running about 9
percent a year. However, those employer health benefits costs increased
6.9 percent in 2010. Even though the employers surveyed last year
expected the health care costs they would face in 2011 to rise another
10 percent, they also planned to make changes in their health plan
benefit designs and vendors in order to bring their actual employer
benefits cost increases down to 6.4 percent (see Figure 1).
The Mercer survey includes public and private employers with 10 or
more employees. Another longstanding national employer health benefits
survey by the Kaiser Family Foundation and the Health Research &
Educational Trust (KFF/HRET) examines trends among nonfederal private
and public employers with three or more employees. Its most recent
annual survey found that average total premiums (both the employer and
employee shares) for employer-sponsored coverage increased only 3
percent for single coverage and 5 percent for family coverage in 2010.
This reflected a continuation of relatively modest premium growth in
recent years.
For 2011, several other national employer health costs surveys have
forecasted somewhat higher rates of increase. Last fall, Hewitt
Associates predicted that large employers could expect 2011 health care
cost increases of 8.8 percent, compared to annual growth rates of 6.9
percent in 2010 and 6.0 percent in 2009 and 2008. Also generally
consistent with other forecasts of underlying health cost growth (as
opposed to actual health premium cost increases),
PricewaterhouseCoopers estimated last June that employers could expect
medical costs to increase by 9 percent in 2011.
The above numbers and estimates tell several overlapping stories,
with more than a few cautions and limitations. First, employers
generally end up paying somewhat less for their health plan premiums
than initial health care cost projections would suggest. Particularly
in the case of larger employers, they do not accept passively the first
set of premium prices quoted to them. They adjust their plan designs
(e.g., greater cost sharing), insurance partners, and incentives to
employees so that they can afford better the health benefits they
ultimately finance either directly (in self-insured plans) or through
purchases of fully insured coverage.
Second, it's more informative to focus on percentage increases and
relative shares of both the employee compensation dollar and overall
economic resources, rather than on nominal dollar amounts, in order to
spot any changes in past trends. The persistence of real rates of
increase in health spending relative to spending on other goods and
services can be less obvious during periods of varying inflation rates.
Third, different employer benefits surveys often reflect somewhat
different types of respondents (e.g., large versus small employers),
time periods, and methodologies. No single survey tells the complete
story, but the better ones all tell us important parts of it despite
lesser inconsistencies. Aggregate national average numbers also can
obscure substantial variation among different regions, types of
purchasers, and insurance product markets. For example, large employers
(500 or more employees) experienced a sharper cost increase in 2010
than smaller employers in the Mercer survey, even though they generally
have greater advantages in bargaining leverage, risk pooling, benefits
administration capacity, and regulatory flexibility. Much smaller
employers--particularly in the below-50-employee ``small group''
market--consistently face higher insurance premium costs for any given
level of benefits, but they purchase ``less'' and thereby bring down
their actual premium expenses. Consumer-driven health plans with
greater cost sharing continued to provide health benefits at lower
costs, and increased their overall market share (but most notably among
the largest employers).
Fourth, although the health sector of the economy appears to
exhibit a longstanding ability to grow faster than annual GDP, wages,
and non-health areas of government spending, the experience of recent
years reveals the substantial effects of a deep recession in slowing
the absolute dollar growth of health spending (and health care
utilization), if not its relative share of a troubled economy. As a CMS
team of health spending actuaries explained in a Health Affairs
article, ``Although health care spending has grown at a slower rate
every year since 2002, the deceleration, or slowdown in the rate of
growth, was more pronounced in 2008 and 2009 because of the severe
economic recession. In contrast to prior recessions, when there was
usually a lag before health care spending growth slowed, the recession
that lasted from December 2007 to June 2009 had a more immediate impact
on the health care sector.'' \2\
---------------------------------------------------------------------------
\2\ Anne Martin, David Lassman, Lekha Whittle, Aaron Catlin and the
National Health Expenditure Accounts Team, ``Recession Contributes to
Slowest Annual Rate of Increase in Health Spending in Five Decades,''
Health Affairs 30:1 (2011):14.
---------------------------------------------------------------------------
So the illusory ``good news'' of the last few years might be that
the Obama administration can claim at least superficially that it
already helped slow down somewhat the growth rate for health care
spending, and related health insurance premiums. The ``bad news'' is we
neither can afford, nor should we expect, to rely on a prolonged
recession or sluggish economy to keep doing so.
Other Statistical Mirages, Mis-Steps, and Pet Theories versus Longer-
Term Trends
There remains a substantial over-supply of theories and
explanations for the persistent ``excess'' growth of health spending
and health insurance costs above the rate of annual growth in the rest
of the U.S. economy. A number have some limited degree of plausibility,
but either their overall impact, duration, or independent effects (or
all of the above) tend to be over-stated at best. Recently on the hit
list have been such explanations as:
Excessive profits by * * * (chose a sector of the health
economy you do not represent)
Failure to receive more and better-reimbursed health
services from * * * (choose a sector of the health economy you do
represent)
Cost shifting (by everyone else)
Changes in the insured risk pool (too many healthy people
either losing coverage or dropping out of the insurance market, too
many sick people staying on employer coverage with enhanced COBRA tax
subsidies)
Insufficient health coverage and excessive out-of-pocket
costs
Almost everyone seemingly either has, or is about to
suffer from, a chronic and costly health condition
The full list, on both sides of the ideological as well as interest
group divides, is of course much longer. It includes a wide assortment
of ``silver bullets'' of health policy reform advocacy that never quite
hit their elusive target. But the most predictable common element
behind many of the more politically effective ones is that it's always
``someone else's'' fault! A broad consensus has existed for many
decades that the small share of health care costs that we individually
have to pay most directly are too high. But we appear to be nearing a
newer frontier where the limits of what all those ``someone else's''
(particularly employers and taxpayers, and even U.S. Treasury
creditors) are willing and able to pay are getting much closer in
sight, as well.
One of the more pernicious misstatements of health care financing
reality is the assertion that our mixed public/private system fails to
pay enough of everyone else's health care bills; hence the need both
for more insurance coverage and more comprehensive benefits. However,
when one compares out-of-pocket (OOP) health spending to total national
health expenditures, one finds that the OOP share in the U.S. continues
to decline as part of a long-term trend--12.0 percent actual in 2009,
9.7 percent project for 2014, the first fully-installed year of the
ACA's coverage mandates and enhanced taxpayer subsidies. Moreover, the
U.S. OOP share of health spending, as of the last comparative figures
available from the OECD in 2008 (12.1 percent) was below that of
Germany, Canada, and the weighted average of all reporting members,
respectively. Despite some apparent growth in the nominal dollar amount
of potential cost sharing in certain segments of the private health
insurance market, this first-party exposure to some of the costs of
care has not yet translated into increases in the share of U.S. health
spending that is paid out of pocket.\3\
---------------------------------------------------------------------------
\3\ For an earlier examination of this issue, see Thomas Miller and
Rohit Parulkar, ``Out of Pocket Theory for Health Spending Cutbacks Is
`Clueless,' '' Health Affairs Blog, September 24, 2010, available at
http://healthaffairs.org/blog/2010/09/24/out-of-pocket-theory-for-
health-spending-cutbacks-is-clueless
---------------------------------------------------------------------------
Aside from occasional throwaway comments that aggregate health
spending is too high and/or unaffordable, the default presumption in
many elite health policy circles remains that the actual consumption of
care should remain unburdened by the economics of paying more of its
full price out of pocket--even at the margin. Early dollar deductibles
are resisted as discouraging essential preventive care (as in * * *
dropping by the doctor's office whenever the first unclear symptom
appears, to see if one might be discovered, along with a billing code
for it * * *). Partial cost sharing for larger medical expenses is seen
as too punitive and overtaxing the limited abilities of patients to
assess more complex tradeoffs. And leaving all the other mid-range
types of health care cost decisions subject to cost sharing apparently
either would single out the chronically ill too harshly and leave them
prone to even greater health problems in the future, or it would
jeopardize the underlying financial health of a health delivery system
based on opaque cross-subsidies that detach prices from values. Before
you know it, not a single dollar of health spending can be left at risk
to the dangers of cost sharing.
The above represents only a slight exaggeration of the ambitions
and presumptions of the ACA's coverage mandates, cost sharing limits,
and expanded health spending subsidies through future health benefits
exchanges, which are either imposed on employer-sponsored coverage or
will directly affect its future. If left unchanged and fully
implemented, they would push most Americans to believe they can and
should spend even higher relative shares of other people's money. This
in turn will aggravate the longstanding economic effects of distorted
spending incentives and substantial dead-weight losses when re-routing
greater shares of the economy through public financing mechanisms.\4\
---------------------------------------------------------------------------
\4\ See, for example, Martin Feldstein, `` How Big Should
Government Be?'' National Tax Journal 50:2 (1997): 197-213; and
Christopher J. Conover, ``Congress Should Account for the Excess Burden
of Taxation,'' Cato Policy Analysis no. 669, October 13, 2010.
---------------------------------------------------------------------------
Before examining both the likely short-term and long-term effects
of the ACA on employer health care costs, overall health spending
trends, and the larger economy, let's first remember some broader
points about what really matters in improving the value of the health
care we receive (i.e., delivering better health outcomes at lower
costs).
Although the ACA emphasizes expanded insurance coverage,
redistribution and expansion of public subsidy payment streams, and
scapegoating private insurers for a host of partly real but broadly
exaggerated misdeeds, the overwhelming component of current health
premium costs and their future rates of growth is comprised of * * *
the underlying cost of health care as currently delivered in far from
optimally effective or efficient ways. And it has failed to provide a
clear, consistent, feasible, and sustainable route to address that
problem.
Producing better health outcomes and improved population
health is driven much more by factors well beyond the supply and cost
of medical care. Our longstanding political biases in health policy
continue to neglect this crucial point. Despite a handful of fledging
initiatives in less-noticed sections of the overall legislation, the
ACA's overwhelming focus remained on politically controlling private
health insurance more tightly, rearranging public subsidies for health
care financing predominantly for political and re-distributional
reasons, and then jerry-rigging the complex contraption to meet
daunting political and budgetary scoring needs by whatever means
necessary to ensure narrow passage last March.
Although our health care system still manages to perform
admirably in many respects despite the many public policy handicaps
under which it continues to operate, its costs continue to exceed its
value and this increasingly crowds other important private and public
needs. We cannot afford to continue to neglect necessary spending and
investment in a number of NON-healthcare sectors of our society.
The employer-sponsored portion of private insurance will
continue to provide a vital role in our health care arrangements. It
remains much more creative, accountable, sensitive to workers'
preferences, and value-conscious than the growing share of the health
care marketplace dominated by politically-administered care and
coverage. But the small employer portion of the health coverage market
needs better tools and options. In an increasing number of cases,
traditional small-group coverage is less and less financially viable.
Nor is it a consistently satisfactory option for small business
employees and their employers. The ACA failed to solve those problems,
largely because it was pursuing a broader political agenda. Rethinking
and restructuring a much different version of health benefits
``exchange'' options for some, but not all, of those people currently
in the small employer, as well as individual, portion of the health
insurance market, remains essential.
Improved choice, competition, and value in health care
arrangements still will have to be driven by more transparent,
accountable, and decentralized private markets, rather than top-down
political edicts. Real health care reform is not a public versus
private either-or proposition, but we have overloaded the operational
circuits of our political system and overfed its appetite for private
resources. Rebalancing the mix necessarily must begin with repeal of
many core components of the ACA, but it cannot end short of equally
difficult but necessary reforms to replace them.
Assessing the ACA's Effects on Employers and Employees
In the very near term, the ACA has only done modest damage to
employer-sponsored health coverage. Its main provisions were delayed
for a number of years in a staggered ``time-release'' schedule of
implementation due to political, economic, and administrative
considerations. Employer coverage mandate penalties, crowd-out
competition from highly-subsidized state health benefits exchanges and
expanded Medicaid coverage, and more binding requirements for (plus
actual definition of) essential health benefits, remain a number of
years away (``apres 2013, le deluge''). So, because the ACA actually
has provided very little in tangible first-year ``benefits,'' it also
has imposed only modest immediate costs and complications on most
employers. Early projected estimates of the increased employer premium
costs of initial mandates for offering group health insurance coverage
to dependent ``children'' (up to age 26) of covered adults range in the
one- to two-percent range. Premium cost increase estimates for the
early prohibition on lifetime coverage limits, as well as the gradual
phasing out of annual coverage limits, were equally modest. The less-
noticed fact was that most employer group policies already had rather
generous coverage limits, and hence they were largely unaffected by
this ``mandate.'' Of course, every two- to three-percent ``average''
increase in premium costs can be more problematic for profit-squeezed
small employers already operating on the margin, let alone those who
are at the high-cost end of those broad cost-estimate averages.
Several other claims of early deliverable benefits from the ACA
remain overstated, if not even more questionable. The initial
implementation of minimum medical loss ratio (MLR) mandates for fully-
insured coverage that began this year will have a more disruptive
coverage impact in the individual than in the small group market (80
percent of premiums must be paid out in medical benefits by insurers in
both markets, under rather complex rules for calculating compliance
with that threshold). However, the initial enforcement of the MLR rules
threatens to squeeze out or reduce the valuable services of many
insurance agents and brokers, and discourage private insurers'
investments in useful ancillary services that do not meet more narrow
ACA-enabled regulatory definitions of payments for ``medical
benefits''--rather than leave it up to small employers and their
covered employees to determine whether they are worthwhile as part of
an overall package of insurance benefits. Moreover, the exaggerated
effort to paint insurers' ``excessive'' administrative costs as a key
component of high and rising insurance premiums flies in the face of
the formers' relative share of those premium dollars as well as recent
trends in their rate of growth. In general, administrative costs
(including profits) for private insurers have been growing less rapidly
than overall private premiums since 2003, as calculated by CMS in its
annual National Health Expenditure account estimates (decreasing from
13.67 percent in 2003 to 11.15 percent in 2009).
Another ``feel good'' exercise of short-term political posturing
under the ACA involves initial provisions for enhanced federal and
state review of private insurers' premium rate filings. Although HHS
does not have full power to deny proposed rate hikes, it has issued
regulations enabling it to ask for more information to ``justify''
them, slow down requests for their approval by state regulators, and
enhance the ability of the latter to block, reduce, or delay them
further under state law. However, the long history of prior approval
mechanisms for proposed insurance rate filings at the state level
indicates that regulators may temporarily suppress rates but cannot
keep them below the levels needed for insurers to pay claims and earn a
reasonable economic rate of return on their capital.\5\
---------------------------------------------------------------------------
\5\ See Scott E. Harrington, ``Regime Change for Health Insurance
Regulation: Rethinking Rate Review, Medical Loss Ratios, and Informed
Competition,'' American Enterprise Institute, December 2010, available
at http://www.aei.org/paper/100163.
---------------------------------------------------------------------------
In a similar vein, the ACA claims to ensure that insurers in the
employer group market eventually will be prohibited from denying
coverage for employees with more costly pre-existing conditions (but
not before 2014). Actually, earlier provisions of federal law under
HIPAA (enacted in 1996) already provided similar protection in the
group market for current and new employees with evidence of qualified
continuous insurance coverage, apart from longstanding guaranteed
renewability practices in most of the private insurance market in any
event.
Early interpretation and enforcement of ACA's prohibition on
lifetime insurance coverage limits for so-called ``mini-med'' health
benefits plans reveals a different short-term ``duck and cover''
strategy by the current administration, when faced with bad publicity
and substantial political pressure to reverse course in regulatory
policy. Initially, a handful of high-profile or politically savvy
companies offering such lower-cost, limited-benefits health plans to
their lower-wage and/or shorter-tenured workers were granted short-term
``waivers'' from the new rules implementing the ACA's ban on lifetime
benefits caps. But as public criticism of both the selective waivers
and the jeopardy remaining for other providers of mini-med coverage
increased, the trickle of waivers turned into a gusher of subsequent
exemptions until almost all of that sub-market had received short-term
relief by the end of last month (HHS recently reached the magic
``1040'' mark in the number of waivers granted).
The above rounds of early ACA implementation reveal the overly
broad regulatory discretion granted to the HHS secretary in many
hastily- and poorly-drafted sections of the law, as well as a short-
term political strategy to push for tighter regulation unless and until
it meets substantial resistance, at which point the administration's
regulators may pull back temporarily. (One-year waivers and creative
re-interpretations of ambiguous legislative language provide little
assurance regarding later years). The more important objective is to
avoid substantial political controversies on less essential ACA
provisions that might threaten to undermine the implementation of much
more important and far-reaching ones after the 2012 election cycle
completes its course.
However, the unpredictability of what will be enforced and how it
will be interpreted leaves many employers frozen in uncertainty in
their health benefits planning, when not fearing the worst and finding
their expectations met. The best illustration of the latter involves
last year's expansive interpretation of the ACA's seemingly
straightforward rules for grandfather protection from several of its
new rules for employer health plans that were already in existence on
the date of the law's enactment. By the time HHS had re-interpreted the
conditions for such grandfathering far more narrowly, most employer
plans concluded they were likely to lose it once they made even modest
adjustments in their ``grandfathered'' plans. Even federal regulators
acknowledged that by 2013, only about one in five small employers and
one-third of large employers will remain grandfathered. The impact of
the new grandfathering rules was less in terms of the additional
obligations and costs to which employer plans would become subject
(most of them have decided to live with those burdens as the price for
making other necessary cost-reducing changes in the health plans).
Rather it was the latest unforeseen construction of a new set of hoops
(mostly restrictions on any significant changes in cost sharing and
benefits structure) through which they would have to jump if they still
wanted to ``retain'' the protection from a lesser set of regulatory
hassles and burdens (primarily involving no cost sharing for coverage
of ``preventive'' health benefits) that the law had previously promised
them on its face. Large employers generally shrug and make the economic
and political tradeoffs as the price of doing business in a highly
political and sometimes arbitrary regulatory environment. Smaller
employers are more likely to be on the receiving end of new regulatory
costs that they are proportionately less able to foresee, finesse, and
finance.
Still ahead for the employer community are uncertainties in how the
ACA's rules for such largely-uncharted definitions and details of
``essential benefits'' and ``state benefits exchanges'' will be written
and then interpreted in practice. The reasonable fears in the employer
community are that those benefits will be biased toward more generous
and less affordable levels, and that the exchanges ultimately will be
designed to capture a much greater share of current employer coverage,
penalize them for it, and then trap those new ``beneficiaries'' in much
more highly regulated and restrictive insurance plans that only look
``private'' initially but eventually gravitate toward more of an
expansion of Medicaid-like public coverage over time.
Added on to this menu of bitter-tasting items are various new taxes
that nibble away further at the affordability of employer coverage and
the profitability of the enterprises that must finance it. Higher
Medicare payroll taxes, including those imposed on a new category of
``unearned'' income, will hit not just the ``rich'' but a significant
number of successful small business owners operating either as sole
proprietors or in subchapter S corporate structures. New taxes on
insurance premiums, medical devices, and on prescription drugs will add
up as they are passed through to the end -ser consumers of health care
in the form of higher insurance premiums and out-of-pocket care costs.
A particularly obnoxious Form 1099 tax reporting requirement that would
devastate many small businesses with new paperwork burdens remains
widely unpopular but not yet fully repealed by the current Congress.
In isolation, few of the initial burdens under the ACA for
employers are likely to determine decisively whether most employers
continue to offer health insurance. But over time they amount to a
steady drip-by-drip political form of water torture that can eventually
reach critical mass and push a much larger share of employers to
reconsider their involvement in offering health insurance coverage.
Former football coach Bill Parcells once said, ``They want you to
cook the dinner, at least they should let you shop for the groceries.''
The ACA sets in motion the temptations to impose stronger doses of a
highly politicized and tightly regulated regime of health insurance in
which employers are increasingly going to be asked first to pay for
health insurance groceries selected by Washington regulators and then
to cook and serve them according to recipes concocted by the previous
Congress and at HHS.
The potential economic damage ahead posed by the ACA to employers
is not limited just to the future cost of health benefits they will
face or their decisions whether to offer or drop coverage. The
structure of future penalties for failure to comply with the employer
mandate to provide coverage, which begins in 2014, will send out
additional economic disincentive signals that tell different categories
of business owners that they may need in some cases either to grow
slower, hire fewer workers (particularly lower-wage earners), pay them
less, pay them more, restructure firms to be smaller or have a
different payroll structure, outsource more operations, rely on more
capital and less labor, or mix and match all of the above as the latest
rules, ambiguous enforcement guidance, and the surrounding health
policy terrain requires them to pay more attention to volatile health
care politics and less to business operations. Some of the key economic
disincentives include the need to stay below the 50-employee threshold
for the upcoming employer coverage mandate penalties, to juggle the
tradeoffs between higher average wages versus lower cost health
benefits versus a larger employer share of health benefits premium
payments--to limit penalties for employees declining ``unaffordable''
coverage, or to keep payrolls lower and smaller in pursuit of temporary
and narrowly- defined small business tax credits for health coverage
costs, Far too many employers will feel like they have left the
difficult challenges of recent private health insurance markets, only
to be trapped in a more complex maze where almost all the choices could
go wrong but must be weighed again and again to determine which is the
``least bad'' one at the moment.
It is in this larger context that the ``lure to leave'' the many
political and regulatory landmines of ACA-style employer coverage could
reach a tipping point if and when we reach the years shortly after new
subsidized health benefits exchanges have become established without
crashing (no small feat!). Despite a host of uncertainties ahead, such
exchange-based insurance coverage (as envisioned quite optimistically
in the ACA) might seem like a great deal to many workers, particularly
lower-wage employees whose premiums would be more heavily subsidized by
taxpayers than under the current tax exclusion for employer-sponsored
insurance.
As written in the law, however, these generous subsidies are
officially limited to families earning between 100 percent and 400
percent of the federal poverty level, who do not receive qualified
health insurance from their employers or from public programs such as
Medicaid and Medicare. But many employers will face substantial
economic incentives to reconsider continued offers of health coverage
to their workers. A complex set of employer mandate penalties would
loom large, with their amounts varying depending on the size of a firm
and traded off against the net gains from eliminating direct health
benefits costs, paying higher wages, and competing differently in labor
markets.
The tilted playing field for tax subsidies for workers at the same
income level inside employer health plans versus purchasing coverage in
the exchanges appears far from politically sustainable, despite the
temporary legislative ``firewalls'' constructed in the ACA to minimize
such crossovers. If and when they begin to break down, two related
effects would topple the superstructure of ACA's tenuous combination of
more, but not unlimited, taxpayer financing of health care financing
and reasonably predictable access to various types of (largely
mandatory) ``private'' insurance coverage. As sketched out most notably
by former CBO director Douglas Holtz-Eakin, the federal budgetary
implications of this employer coverage meltdown alone would be
explosively unaffordable. Whether market-based forms of private
insurance would be sustainable under this vastly rearranged landscape
also seems questionable, at best.
The massive uncertainties and confusion ahead under the ACA for
employers and their workers are already mounting, after less than one
year. Much grimmer reality could bite even before its full mandatory
coverage and expanded subsidies roll out in full force in 2014. The
sheer difficulty of understanding, anticipating, and maneuvering
through the complex and shifting regulatory terrain of the ACA and
ObamaCare will be difficult for any business firm. It will be
particularly challenging for smaller firms still struggling to survive
during challenging economic conditions. Many of the misguided economic
signals sent by the ACA to the business community encourage slower,
rather than faster, economic growth; economic paralysis amidst the
search for clear and consistent regulatory analysis; and fewer
opportunities for better-paying jobs.
We still have time to pull back before testing the temperature of
the water for the lead group of health policy lemmings nearing the edge
of the cliff. A short list of changes in direction would include a
stronger focus on responsible choice and competition in health care
markets; more neutral, limited, and transparent taxpayer subsidies for
health care spending by most Americans (augmented to provide special
enhanced protection for the most vulnerable low-income and high-risk
portions of the population); real steps toward meaningful information
transparency; and realignment of incentives to reward better health
care choices and higher-value health care delivery.\6\
---------------------------------------------------------------------------
\6\ See, for example, James C. Capretta and Thomas P. Miller, ``The
Defined Contribution Route to Health Care Choice and Competition,''
American Enterprise Institute, December 2010, available at http://
www.aei.org/paper/100164.
---------------------------------------------------------------------------
Thank you again for the opportunity to present this testimony. I
look forward to your questions.
______
Chairman Roe. Thank you.
Mr. Parker?
STATEMENT OF BRETT PARKER, VICE CHAIRMAN AND CHIEF FINANACIAL
OFFICER, BOWLMOR LANES, SPEAKING ON BEHALF OF THE U.S. CHAMBER
OF COMMERCE
Mr. Parker. Chairman Roe, Congressman Kucinich and
distinguished members of the subcommittee, thank you for the
opportunity to testify before you today, on the pressures
businesses face from the rising costs of providing employees
with health care benefits.
I am Brett Parker, vice chairman and chief financial
officer of Bowlmor Lanes, which is headquartered in New York
City. I am here to speak with you today on behalf of the U.S.
Chamber of Commerce.
Bowlmor Lanes as we know it today was formed in 1997, in
Greenwich Village. We purchased the original Bowlmor location
and completely remodeled the internal operations by infusing a
vision of upscale design elements and dramatic architecture
into what had become a tired and dilapidated space.
The overhaul of Bowlmor Lanes saw the installation of video
screens and lane-side food and drink service. We strove to make
bowling a relevant activity to the city's residents and
businesses again.
By 1999, Bowlmor Lanes became the highest grossing bowling
alley in the United States. Today, it stands as one of the
longest continuously running bowling alleys in the country.
Following the phenomenal success of Bowlmor in New York
City, we knew that the Bowlmor concept could be introduced in
other locations across the country. Today, we have a total of
six locations in four states. And last year, we opened our new
flagship location in Times Square that we are quite excited
about.
Bowlmor has grown from 50 to over 500 employees in the last
10 years. We are creating jobs.
With the economic downturn, Bowlmor took a hit like most
businesses in the United States. We did not cower from this
challenge or simply hope that things would somehow play out
favorably. We tightened our belts and continued to work hard
and smart.
We are entrepreneurs. We believe in ourselves and our
business, and we are willing to take risks and put our
reputation and our money on the line.
I have found that many of the roadblocks that we face to
doing those very things, expanding our business and generating
new jobs, are erected by the government. Whether it is a threat
posed by card check, the absurdity of the new 1099 reporting
mandate, or the anxiety and complexity of the new health care
law and its array of mandates, we feel like the federal
government, time and time again, creates obstacles to success,
and by doing so increases the likelihood of failure.
These forces combine to make future investments in growing
our business less and less attractive.
Bowlmor Lanes currently employs 532 members of our team,
with a workforce comprised of 258 full-time employees and 274
part-time employees. Under the new health care law, it seems
probable that we will sustain a per capita cost increase on
existing full-time employees of at least $2,000 per person.
This poses a significant cash drain on the business.
For Bowlmor to develop a new location, we need to have $2
million in cash equity on hand. By depriving us of the cash we
need to grow, through dollars paid to penalties and lost
profits from facilities not developed, over the first 5 years
the health care law will preclude us from opening five
locations, creating over 500 jobs or investing $26 million in
new infrastructure. The damage gets worse every year the
employer mandate and the health care law are in effect.
When it comes to health insurance, we have been continually
forced to weigh the difficult choice between increasing cost to
the company and our employees with reducing coverage. Every
year we pay more and get less.
To minimize the losses sustained due to this mandate, we
will have to keep employees part-time and not allow them to
work 30 hours a week. We are very unhappy about the effects
this will have on our employees.
Unfortunately, even if Bowlmor found a way to offer
coverage that meets the new law's standards, we would still be
subject to $3,000 fines whenever a low-income employee gets a
subsidy. This is a big incentive for us to stop offering any
coverage at all.
If Bowlmor attempts to continue offering benefits, we can
look forward to more expensive insurance thanks to the health
care law.
Next, we have a host of new taxes to look forward to. Taxes
that would make Bowlmor's health insurance more expensive,
taxes on prescriptions, medical devices and insurance plans
will be passed on to consumers, meaning Bowlmor and its
employees.
First and foremost, Congress should repeal the job-
destroying employer mandate. Senator Hatch introduced a bill to
do that in the Senate that has 26 co-sponsors. But nobody in
the House has introduced the companion legislation.
In conclusion, from the perspective of Bowlmor Lanes, the
costs incurred with the new health care law will greatly hinder
our ability to expand and develop new venues and create new
jobs. I am hopeful that this body will make it a priority to
repeal the most objectionable provisions, like the employer
mandate.
Also, I hope you will look to real reforms that lower
costs, such as tort reform. And throughout this process, I
would ask that you continually be mindful of how your decisions
directly, and oftentimes inadvertently, impact businesses in
this nation.
We are the job creators. Please rebuild an environment that
encourages, not suppresses, business growth, entrepreneurism,
investment and job creation.
Thank you for this opportunity to testify, and I look
forward to your questions.
[The statement of Mr. Parker follows:]
Prepared Statement of Brett Parker, Vice Chairman and Chief Financial
Officer, Bowlmor Lanes, on Behalf of the U.S. Chamber of Commerce
Chairman Roe, Ranking Member Andrews and distinguished members of
the Subcommittee, thank you for the opportunity to testify before you
today on the pressures businesses face from the rising costs of
providing employees with health care benefits. I commend your efforts
to further understand the impact the new health care law will have on
the ability of businesses, including small ones like mine, to compete,
grow and create jobs as well as our capacity to offer our employees
health care benefits.
I am Brett Parker, Vice Chairman and Chief Financial Officer of
Bowlmor Lanes, which is headquartered in New York City. I am here to
speak with you today on behalf of the U.S. Chamber of Commerce. The
U.S. Chamber of Commerce is the world's largest business federation,
representing the interests of more than three million businesses and
organizations of every size, sector, and region. More than 96 percent
of the Chamber's members are small businesses with 100 or fewer
employees, 70 percent of which have 10 or fewer employees. Yet,
virtually all of the nation's largest companies are also active
members. We are particularly cognizant of the problems of smaller
businesses, as well as issues facing the business community at large.
The Chamber did not support the status quo before passage of the
health care law--in fact, we were parties to a number of collaborations
aimed at building bipartisan reforms that would lower health care
costs. We opposed the misnamed Patient Protection and Affordable Care
Act (PPACA) because it failed to rein in costs, and instead increased
them, while loading job creators with mandates, regulations, new taxes
and burdens. Rather than solve the problems in the health care system,
PPACA ignores costs and instead redistributes money from producers in
order to fund vast new entitlements and expand old ones--this was not
an improvement over the status quo, it was a step backwards. Instead,
the Chamber believes that we should replace PPACA, advance market-based
reforms, and focus on lowering costs, increasing competition, and
improving the health care delivery system.
Company Background
In 1938, the original Bowlmor Lanes opened its doors in the heart
of Greenwich Village. During the golden age of bowling from the 1940s
to 1960s, Bowlmor Lanes was at the forefront of the bowling revolution,
hosting the prestigious Landgraf Tournament in 1942 and one of the
first televised bowling tournaments in 1955. Through the 1970's and
1980's, Bowlmor Lanes was home to the top bowlers in the sport and
became a regular hangout for village hipsters. But in the 1990's, as
the popularity of bowling as a sport declined, so did the condition of
the bowling alley.
Bowlmor Lanes, as we know it today, was formed in 1997 under the
leadership of our CEO, Tom Shannon, who secured financing, purchased
the original Bowlmor location and completely remodeled the internal
operations by infusing his vision of upscale design elements and
dramatic architecture into what had become a tired and depilated space.
The overhaul of Bowlmor Lanes saw the installation of video screens,
glow in the dark lanes and lane side food and drink service. Simply
put, we strove to make bowling a relevant activity to the city's
residents and businesses again. And Bowlmor has achieved this goal and
continues to grow and prosper. By 1999, Bowlmor Lanes became the
highest-grossing bowling alley in the United States. Today, it stands
as one of the longest contiguously running bowling alleys in the
country.
Following the phenomenal success of Bowlmor Lanes in New York City,
we knew that the Bowlmor concept could be introduced in other locations
across the country. Today, we have a total of six locations in four
states: two in New York, two in California, one in Florida and one in
suburban Washington, DC, specifically Bethesda, Maryland. At each
location, our objective is to blend a great American pastime with an
upscale entertainment experience. And nowhere is this more exemplified
than our newest venture--Bowlmor Lanes Times Square--where we invested
$25 million, creating construction jobs in New York City and positions
for the 179 individuals we directly employ there. With the doors to our
new flagship location opened on November 23, 2010, Bowlmor Lanes has
taken bowling to new heights--dividing 45 lanes of luxury bowling into
6 intimate themed lounges. Each lounge is themed to represent iconic
places and time periods in New York City--Times Square, Chinatown,
Central Park, Art Deco, Prohibition and Pop. Bowlmor Lanes Times Square
also features The Stadium Grill, an upscale sports bar and restaurant
that fuses innovative American cuisine with premier sports and
entertainment viewing. We are proud of our new flagship, as well as our
growing business--Bowlmor has grown from 50 to over 500 employees in
the last ten years; we are creating jobs.
We are quite excited about our new venue in Times Square and proud
of what it says not just about our company but the entrepreneurial
resilience of visionary, hard-working, risk-taking men and women
throughout our great nation. With the economic downturn, Bowlmor Lanes
took a hit like most businesses in the United States. While I am
guardedly optimistic that the worst is behind us, I will point out that
we did not cower from this challenge or simply hope things would
somehow play out favorably. We tightened our belts and continued to
work hard and smart. We took concrete action, and perhaps most
importantly, we moved proactively to fight our way out of this economic
mess without looking for the government to guide the way. We are
entrepreneurs--we believe in ourselves and our business and we are
willing to take risks and put our reputation on the line. And we are
confident that we can succeed, as we have in the past, in growing our
business and creating jobs. I have unfortunately found that many of the
roadblocks we face to doing those very things--expanding our business
and generating new jobs--are erected by the government. Whether it is
the threat posed by card check, the absurdity of the new 1099 reporting
mandate or the anxiety, complexity, disorder, uncertainty and overall
peril the new health care law and its array of mandates imposes, we
feel like the Federal government time and again creates obstacles to
success and, by doing so, increasing the likelihood of failure. These
forces combine to make future investments in growing our business less
and less attractive.
Health Care
Bowlmor Lanes currently employs 532 members on our team, with our
workforce comprised of 258 full-time employees and 274 part-time
employees. We have a healthy, profitable, viable business that grows by
developing and opening new units which, of course, means more jobs. In
considering whether to expand and open a new Bowlmor Lanes operation,
we have to very critically evaluate the costs of doing so, with
particular scrutiny given to factors that increase our cost of doing
business. For Bowlmor Lanes to develop a new location, we need to have
$2-3 million in equity. Therefore, when the costs of implementing a new
law or regulation threaten to reduce the cash flow from our existing
locations, it stunts our growth. Having reviewed the new health care
law, it seems probable that we will sustain a per capita cost increase
on existing full time employees of at least $2,000 per employee. These
fines quickly increase over time and confound Bowlmor's ability to
invest, develop more locations, and create more jobs. As demonstrated
by the chart below, the health care law may well incinerate more than
$26 million that Bowlmor would have invested, as well as more than 500
jobs we could have created. The damage gets worse every year the
employer mandate, and the health care law, are in effect. The bottom
line is that our ability to expand, to open a new operation and create
new jobs is very sensitive to costs increases that will make existing
venues less profitable and future increases that will make all venues
more expensive to operate.
BOWLMOR JOB LOSS RATE EXPECTED FROM PPACA
----------------------------------------------------------------------------------------------------------------
Year
------------------------------------------------------------- Aggregate
1 2 3 4 5 impact
----------------------------------------------------------------------------------------------------------------
Lost Cash From Operations of New Units .......... $348,000 $991,800 $2,156,730 $4,237,466 $7,733,996
Lost Cash From Healthcare Penalties... $464,000 $510,400 $561,440 $617,584 $679,342 $2,832,766
Lost Units............................ 0.2 0.4 0.8 1.4 2.5 5.3
Lost Jobs............................. 23 43 78 139 246 528
Lost Investment....................... $1,160,000 $2,146,000 $3,883,100 $6,935,785 $12,292,020 $26,416,905
----------------------------------------------------------------------------------------------------------------
Currently, Bowlmor offers health insurance to exempt employees;
Bowlmor pays one third of the premium and employees pay the remainder,
with an option for an employee to buy more comprehensive coverage if
he/she so chooses. When it comes to health insurance, we have been
continually forced to weigh the difficult choice between increasing
costs to the company and our employees, with reducing coverage. We have
been forced to continually reduce coverage over time to ensure that our
employees can afford the costs of insurance. Unfortunately, this was
the only way that we could continue to offer coverage without running
ourselves out of business or inducing our staff to opt out of coverage.
Every year we pay more and get less, and under the new law it appears
that this process could get even worse. And there has been so much
market consolidation already, we have very few insurance companies to
choose from.
Under the new health care law, the coverage Bowlmor offers will
likely not be considered sufficient to avoid the employer mandate,
which will penalize us to the tune of about $2,000 per full time
employee. To minimize losses sustained due to this mandate, we will
have to do whatever it takes to keep employees part-time, not allowing
them to work 30 hours a week. We are very unhappy about the effects
this will have on our employees--for example, an employee who currently
works full-time in our kitchen will be shifted to part-time status with
Bowlmor and he/she will likely have to find another part-time position
at another restaurant or similar business. While Bowlmor would
definitely rather not disrupt our full-time employees like this, we
must do so to protect existing jobs. Unfortunately, even if Bowlmor
found a way to offer coverage that meets the new law's standards, we
would still be subject to fines--whenever our coverage fails to meet
the affordability threshold for a low income employee and that employee
gets a subsidy to purchase coverage in the new exchanges, Bowlmor would
be fined $3,000 per head. This is a big incentive for us to stop
offering any coverage at all. The structure of the penalties and
mandates in the health care law seems to suggest that proponents want
businesses to drop coverage and pay a fine, perhaps to funnel all
Americans into government-run structures and eventually toward a
nationalized health care system.
As the costs of the health care law and other burdensome mandates
continue to pile up, Bowlmor will be forced to look for other ways to
control costs and this may mean reducing our workforce. For example,
Bowlmor Lanes currently provides in-person service at the lanes, but we
are exploring the possibility of deploying touch screen kiosks that
customers could use instead. We prefer to not have to go this route
because the in-person service provides our clients with a personal
experience and we would prefer to keep our staff employed; however, our
hand is being forced by costly mandates and regulations. We must take
action to protect the greatest number of existing jobs possible.
Another provision in the new law requires that companies with 200
full time employees automatically enroll workers in their health
insurance plan. This would be a disaster for a company like Bowlmor,
with a somewhat transient workforce, high turnover, and a large number
of low wage employees. These employees do not want to purchase
benefits, and automatically enrolling them would be contrary to both
their financial interests and their wishes--not to mention an
administrative nightmare. Even worse would be a requirement that
employers automatically enroll employees in a plan with no value to
them: if Bowlmor is pressured into participating in the CLASS Act Ponzi
scheme, workers will be automatically enrolled in a program they not
only have no interest in, but one that they will likely never realize
any benefit from. Provisions like this make it blindingly obvious that
people with any real-world business experience had very little input
into the health care law.
If Bowlmor attempts to continue offering benefits, we can look
forward to more expensive insurance thanks to the health care law.
First the law will require a host of new benefits that we will have to
pay for, including adding ``adult children'' up to age 26 as
dependents, no cost-sharing allowed for some services, no annual or
lifetime limits, etc. These might be nice to have, but when businesses
are struggling to afford health insurance, these changes make insurance
more expensive.
The law also makes affordable, high-deductible plans worse--a new
cap on Flexible Spending Arrangements will reduce employee flexibility,
and a new requirement prohibits employees from spending their own money
in health accounts unless they have a prescription for things like
aspirin, Allegra, and other over-the-counter drugs.
Next we have a host of new taxes to look forward to, taxes that
would make Bowlmor's health insurance more expensive. Taxes on
prescription drugs and medical devices will be passed on to consumers--
meaning Bowlmor and our employees. Even more egregious, a new small
business health insurance tax will hit companies like Bowlmor who
purchase fully-insured health plans, while big businesses that self-
insure will not pay the tax. I will not even discuss the looming so
called ``Cadillac'' tax, which will be imposed in 2018. And let us not
forget that the 1099 paperwork mandate is still out there, and unless
the House and Senate can come to an agreement on how to offset the
costs of repealing it, businesses like Bowlmor will be buried in
useless tax filings.
While repealing the 1099 provision would be a good start, Bowlmor
and businesses like ours will suffer if all Congress does in the next
two years is repeal 1099s and talk about repealing the whole health
care bill. If Congress really wants to help us grow the economy and
create jobs, we ask that you do two things--take the health care bill
apart piece-by-piece, and pass real health reforms that will actually
lower our costs. First and foremost repeal the job-destroying employer
mandate; Senator Hatch introduced a bill to do that in the Senate that
has 26 co-sponsors, but nobody in the House has introduced companion
legislation. Also, please go after the more than $500 billion in new
taxes the health care bill created.
To actually help lower health insurance costs, Congress could
consider a broad array of reforms, including medical liability reform,
opening up health insurance markets to more competition, and allowing
businesses to create new pooling mechanisms. Bowlmor's costs are
directly increased because of cost-shifting from Medicare and Medicaid
as well; so business has a big stake in helping you reform those
entitlement programs. More transparency in the medical world would help
drive greater efficiency and quality, so Congress should release the
massive CMS claims database and allow that information to be used to
report on the quality and efficiency of providers.
Conclusion
Congress knows that the national debt is now more than $14
trillion. You know the annual deficit will be $1.5 trillion if the
President's budget proposal is enacted into law. And you know that our
unfunded liabilities, promises that we have made under current law, for
Medicare, Medicaid, and Social Security are more than $100 trillion.
Congress knows that somehow our children and grandchildren are going to
be forced to pay those costs, and still they created an entirely new
health care entitlement that will add untold amounts to our promises
going forward. Worse, it seems that small businesses are being forced
to pay for this new spending through higher taxes, benefit mandates,
and increased regulation. This is bound to reduce our value to society
as investors and job creators, to shackle innovation, stifle economic
growth, and create more fear and uncertainty about the future. If we
did business the way the Congress that passed the health care bill did,
we would already be out of business.
This hearing is aptly entitled ``The Pressures of Rising Costs on
Employer Provided Health Care.'' From the perspective of Bowlmor Lanes,
the costs incurred with the new health care law will greatly hinder our
ability to expand and develop new venues and create new jobs. While the
existing political reality makes a total repeal of the law impossible
during this Congress, I am hopeful that this body will make it a
priority to repeal the most objectionable provisions like the employer
mandate, which impose burdens on businesses and hinder job creation and
growth. Also, I hope you will look to real reforms to lower cost, like
tort reform. And throughout this process I would ask that you be
continually mindful of how your decisions directly and oftentimes
inadvertently impact businesses in this nation. It is companies like
Bowlmor Lanes and millions of others like us that serve as the engines
of economic growth in the United States. We are the job creators;
please, rebuild an environment that encourages, not suppresses,
business growth, entrepreneurism, investment, and job creation.
Thank you for this opportunity to testify, and I look forward to
your questions.
______
Chairman Roe. Thank you, Mr. Parker.
Mr. Houser?
STATEMENT OF JIM HOUSER, OWNER, HAWTHORNE AUTO, TESTIFYING ON
BEHALF OF THE MAIN STREET ALLIANCE
Mr. Houser. Chairman Roe, Congressman Kucinich and members
of the committee, thank you for the invitation to testify
regarding trends in health insurance costs and their impact on
small businesses.
My name is Jim Houser. I am an ASE certified master
automotive technician and co-owner of Hawthorne Auto Clinic in
Portland, Oregon.
I am also co-chair of the Main Street Alliance of Oregon, a
small business group in my state. And I serve on the national
steering committee of the Main Street Alliance, a network that
creates opportunities for business owners to speak for
ourselves on issues that impact our businesses.
When my wife, Liz Dally, and I opened Hawthorne Auto Clinic
28 years ago, we made the commitment to offer health insurance.
It seemed like the right thing to do, and it made good business
sense in a high-skill field where offering benefits to keep
experienced technicians is important. But it has not been easy.
Small businesses are recognized as the engines of job
growth. But a health care marketplace that stacks the deck
against small businesses has put us at a consistent
disadvantage.
Small business health care costs have grown a whopping 129
percent since 2000. We pay an average 18 percent more than
large firms for the same coverage.
At my business, we pay 100 percent of the insurance costs
for our nine full-time employees and their dependents. Our
premiums have doubled over the last 8 years, reaching $100,000
last year, more than 20 percent of payroll.
This year, we witnessed a minor miracle. Our premiums went
down 3 percent. It is the first time in my memory they have
declined.
A provision of the Affordable Care Act has allowed my 22-
year-old daughter, a recent college graduate, to return to our
insurance plan. I am glad our family business can actually
cover our family again.
We are also eligible for the new tax credits in the health
law. My accountant says we should get back between $5,000 and
$10,000 on our 2010 taxes. Combine that with the decrease in
our premiums, and we will save 8 to 10 percent of our insurance
this year, due to the Affordable Care Act.
Now, I am well aware that health insurers are pursuing
steep rate increases. I am also aware that insurance lobbyists
are trying to pin these increases on the new law.
This claim just does not pass inspection. If insurers are
jacking up their rates, again, it is in spite of the new health
law, not because of it. If anything, insurers are seizing the
moment to hit customers with one more off-the-charts increase
while they still can get away with it before measures to rein
in those increases take effect.
Even insurance executives admit the rate increases are not
because of the new law. A senior vice president at Harvard
Pilgrim in Massachusetts said, only one percentage point of
this year's increases was attributable to the federal law. And
that was mainly due to the requirement for free preventative
services.
As my mechanics will tell you, customers who have us
perform regular preventative maintenance rarely get towed in
for unanticipated, expensive repairs. Similarly, it is much
more cost-effective to spend $200 to get a patient's blood
pressure under control than to spend $50,000 for the E.R.
response to a stroke.
Preventative measures are an investment that pays off big
in the long run.
Whatever the lobbyists say, the fact is the health law is
giving small businesses tools to put the brakes on rising
insurance rates; for example, the new premium tax credits. Four
million small businesses like ours can qualify for a credit of
up to 35 percent.
New customer protections allow young adults up to 26 to
enroll on their parents' plan. Rate review resources give
states new tools to protect small businesses from unreasonable
rate increases. New medical loss ratio standards ensure small
businesses get value for their premiums.
And the state insurance exchanges being designed offer
greater transparency, more choices and, with as many as 970,000
people predicted to enroll in the exchange in Oregon, much more
bargaining power.
Small businesses are moving forward on health care. Kaiser
Family Foundation reports the percentage of employers with
three to nine employees offering health coverage rose from 46
percent in 2009, to 59 percent in 2010.
Efforts to repeal or defund the health law will only hurt
us. Even the possibility of repeal creates paralyzing
uncertainties.
If the law is repealed, will I have to return my tax
credit? What about next year? Will I be able to bank on the
credit and use that money to invest in my business or not?
We cannot afford to go back to a system that stacks the
deck against small business. We have got to move forward.
With proper implementation we can level the playing field,
get control of insurance costs and allow small businesses to
focus on what we do best--things like fixing cars, creating
jobs and building local economies across America.
Thank you very much.
[The statement of Mr. Houser follows:]
Prepared Statement of Jim Houser, Hawthorne Auto Clinic and
Main Street Alliance of Oregon
Chairman Roe, Ranking Member Andrews, and members of the committee,
thank you for the invitation to testify regarding trends in health
insurance costs and their impact on small businesses.
My name is Jim Houser. I am an ASE Certified Master Automotive
Technician and co-owner of Hawthorne Auto Clinic in Portland, Oregon, a
family business I founded with my wife, Liz Dally, 28 years ago. I am
also co-chair of the Main Street Alliance of Oregon, a small business
group in my state, and serve on the national steering committee of the
Main Street Alliance, a national network that creates opportunities for
business owners to speak for ourselves on issues that impact our
businesses and our local economies.
When Liz and I opened Hawthorne Auto Clinic in 1983, we made the
commitment to offer health insurance to our workers. It seemed like the
right thing to do, and it made good business sense. Auto repair is a
high-skill field where offering good benefits to keep experienced
technicians is very important. We're also an aging profession. The
makeup of our small group shows it, and with the current system of age
rating where you're penalized for having older workers in your group,
we have suffered relentless increases in our insurance costs year after
year.
A Stacked Deck: Small Businesses at a Disadvantage in the Insurance
Marketplace
Small businesses are recognized as the engines of the American
economy. The country looks to the innovation and entrepreneurship of
small businesses to create jobs and drive the economic recovery. But
for decades, a health care marketplace that stacks the deck against
small businesses has put us at a disadvantage.
The conditions small businesses have faced in the insurance
marketplace of the last decade include:
Small businesses' health care costs have grown 129 percent
since 2000.
We pay on average 18 percent more than large firms for the
same level of coverage.
Administrative costs can be two and a half times higher
(sometimes even more) for small businesses compared to larger firms.
High levels of market concentration, combined with a
version of ``competition'' between insurers that is based on cherry-
picking healthy enrollees rather than competing to offer the best
services at the best rates, leave small businesses with few real
options and nowhere to turn when double digit rate hikes strike again.
Tens of millions of small business owners, our employees,
and dependents forego health coverage altogether because the costs have
been out of reach: of the 49 million Americans living without health
care (up from 40 million in 2000), an outsized majority--about 60
percent--work for small businesses, according to the Employee Benefit
Research Institute.
Cost Trends at Hawthorne Auto and Impact of the New Health Law
I know from my own experience that the pressure of rising insurance
rates over the last decade, without health reform, has been severe and
unrelenting. At my business, insurance costs for our nine full-time
employees and covered dependents doubled from 2002 to 2010, reaching
over $100,000 last year. That figure represented more than 20 percent
of our payroll, adding greatly to our cost of doing business.
This year, we witnessed a minor miracle: our premiums went down 3
percent. It's the first time in my memory they've declined.
A provision of the Affordable Care Act has allowed my 22-year-old
daughter, a recent college graduate, to rejoin our insurance plan. I'm
not sure if that's why our premiums went down (because we're now
sharing our health care risk over a larger, younger, and healthier pool
of enrollees), but either way I'm glad our family business can actually
cover our family again.
We're also eligible for the new small employer premium tax credits
in the law, and my accountant says we should get back between $5,000
and $10,000 this year. Combine that with the premium decrease and we're
going to save 8 to 10 percent on our health insurance this year due to
the Affordable Care Act.
Broader Trends in Insurance Rates and Claims of Connection to the ACA
I'm aware that many health insurers are continuing to pursue steep
rate increases--from Blue Shield of California's push for increases of
up to 59 percent to Anthem in Maine's legal battle with the state. I'm
also aware that some insurance lobbyists are trying to pin these
increases on the new law.
This claim just doesn't pass inspection. If insurers are jacking up
their rates--yet again--it's in spite of the new health law, not
because of it. If anything, insurers are seizing the moment to hit
customers with one more off-the-charts increase while they can still
get away with it, before measures to rein in those increases take
effect.
Even insurance executives admit the rate increases aren't because
of the new law. New York Times correspondent Robert Pear reported in an
article on rising insurance rates that a senior vice president at
Harvard Pilgrim in Massachusetts said only one percentage point of this
year's increases was attributable to the federal law. And, according to
this insurance company executive, that was mainly due to the
requirement for free preventive services--a requirement that makes a
lot of sense to me in the auto repair business.
As my mechanics will tell you, customers who have us perform
regular preventive maintenance rarely get towed in for unanticipated,
expensive repairs. Similarly, it's much more cost effective to spend
$200 to get a patient's blood pressure under control than to spend
$50,000 for the ER response to a stroke. Preventive measures--whether
in auto repair or health care--are an investment that pays off big in
the long run.
Health Law Gives Small Businesses New Tools to Put Brakes on Rising
Insurance Costs
Whatever the lobbyists say, the fact is the health law is giving
small businesses tools to put the brakes on rising insurance rates in a
number of ways. The following are some examples:
Small Employer Health Premium Tax Credits
Business owners across our network from my Portland, Oregon to
Portland, Maine are already benefiting from the new tax credits
effective for tax year 2010. My accountant tells us we should expect to
receive a credit of between $5,000 and $10,000 on our 2010 taxes. Other
businesses that offer health coverage and pay half the cost can qualify
for a credit of up to 35 percent now through 2013 and 50 percent in
2014. That's serious savings for a small business. It's like a time
machine, turning the clock back on insurance rates. It's hard to think
of a single other step that could cut a small business's insurance bill
by 35 percent in one go.
Consumer Protections that Benefit Small Businesses
The Affordable Care Act puts in place important consumer
protections in the small group and individual insurance markets where
small business owners, our families, and our employees get health
coverage. These protections include a ban on pre-existing condition
exclusions, new limits on insurance caps, and the ability to keep adult
children covered up to age 26 (this is the provision that has allowed
us to re-enroll my daughter in our business's plan). These provisions
will increase the quality of the coverage for small businesses and our
employees. The under-26 provision will also help us spread risk across
a broader age range to reduce our rates, as illustrated by the story of
my business and my daughter.
Strengthening Premium Rate Review
After years of enduring double-digit rate increases with no
recourse, I'm encouraged that Oregon and other states have new tools
and new resources to review insurance rates and require insurers to
provide justification for unreasonable rate increases. This is one of
the most direct ways to protect small businesses and help us do our
part to create jobs and grow the economy. Given the high level of
market concentration in the health insurance industry and the absence
of true competition (competition based on consumer value rather than
competition based on cherry-picking risk pools), we need stronger rate
review to protect small businesses from unreasonable rate increases.
Medical Loss Ratio Requirements and Value for Premiums
Running a small business, remembering the importance of providing
real value to our customers becomes second nature. Somehow, it seems
health insurance companies have lost sight of that basic tenet of good
business. Minimum medical loss ratio requirements will restore a focus
on ensuring value for our premium dollars. If insurers fail to meet
this standard, insurance customers like us will receive cash rebates to
make up the difference. It's high time we had a value guarantee like
this in health insurance.
State Insurance Exchanges: Transparency, Choice, and Bargaining Power
The state insurance exchanges currently being designed will level
the playing field for small businesses. By creating a mechanism whereby
we can band together and shop for coverage in one large pool, the
exchanges will give us greater transparency, more choices, expanded
risk pooling, and more bargaining power. In Oregon, as many as 970,000
people are predicted to enroll in the exchange. I can't wait to join a
group of almost a million people. For small businesses that currently
have groups of 20 people, 10 people, or less, banding together in the
exchange will represent an exponential leap in our bargaining power.
Cutting the ``Hidden Tax''
Small businesses that have insurance now currently pay a ``hidden
tax'' (estimated at over $1,000 per insured family and over $350 per
insured individual in 2008) resulting from the cost-shifting of
uncompensated care costs. By getting tens of millions more people
insured and paying into the system up front, the new law should
significantly reduce this cost-shifting and cut this hidden tax.
Conclusion: Small Businesses Moving Forward on Health Care
Small businesses are moving forward on health care:
Nationally, the Kaiser Family Foundation reports the
percentage of employers with 3 to 9 employees offering health coverage
rose from 46 percent in 2009 to 59 percent in 2010--in part due to the
ACA's tax credits.
Information from states also indicates that small
businesses are taking advantage of the opportunity to start (and
continue) offering health coverage. For example:
Blue Cross Blue Shield of Kansas City recently reported
that after letting local businesses know about the new tax credit, they
enrolled more than 9,000 new members covered by 400 new employers. The
company reported a 58 percent increase in small businesses purchasing
insurance since April 2010, the first month after the passage of the
ACA.
Blue Cross and Blue Shield of Nebraska reported a 34
percent increase in health insurance sales to small businesses for the
new year.
A spokeswoman for Blue Cross of Idaho reported a ``huge
increase'' in the number of small employers requesting quotes, and a
shift in employers keeping coverage for their workers.
Efforts to repeal or defund the health law will only hurt small
businesses that are already benefiting or looking forward to the
benefits of the new law. Even the possibility of repeal creates
uncertainties that are harmful to business planning and job growth. For
example, if the law is repealed, will I have to return my tax credit?
What about next year--will I be able to bank on the credit and use that
money to invest in my business, or not? And, will my family business be
able to continue providing coverage to our family, including my 22-
year-old college graduate daughter--or will she be bounced off our plan
and left vulnerable to medical debt just as she's working to get on her
feet and launch a career?
We can't afford to go back to a system that stacks the deck against
small businesses. We've got to keep moving forward. With proper
implementation of the health care law, we can level the playing field
for small businesses, get meaningful control of insurance costs, and
allow small businesses to focus on what we do best: things like fixing
cars, creating jobs, and building local economies, in Oregon and across
America.
Thank you.
______
Chairman Roe. Thank you, Mr. Houser.
Mr. Brewer?
STATEMENT OF J. MICHAEL BREWER, PRESIDENT,
LOCKTON BENEFIT GROUP, LOCKTON COMPANIES, LLC
Mr. Brewer. Mr. Chairman, Ranking Member Kucinich and
honored members of the committee, my name is Mike Brewer. I am
the president of Lockton Benefit Group, the employee benefits
consulting arm of Lockton Companies, LLC.
Lockton Benefit Group provides employee benefits consulting
services to 2,500 middle market clients nationwide. The vast
majority of our clients employ between 500 and 2,000 employees.
Our clients include private and governmental employers, and
employers in a wide variety of trades and industries.
Our clients agree that improvements in the health insurance
system are necessary and important. However, they are
frustrated that the health reform law imposes additional cost
and other burdens upon them.
Our clients wish that Congress would work to make an
employer's provision of health insurance easier and less
costly, rather than more expensive and more burdensome.
Our actuaries have modeled for several hundred clients the
impact of the health reform law on their group health insurance
programs. To-date, we have aggregated the results from 136 of
these modeling reports and broken out the results by industry
segment. I would like to share some of those results with you
today.
On average, the reform law's immediate benefit mandates add
2.5 percent to our clients' health insurance cost. The
automatic enrollment requirement in 2014 adds 3.8 percent to
our clients' health insurance spend, on average, even assuming
that 75 percent of the automatically enrolled employees, who
would not have otherwise enrolled in coverage, would opt back
out of the coverage with the opportunity.
These increases may appear modest, but they are not. Many
clients have health insurance expense trends of 10 percent or
more annually. A 10 percent trend line becomes 12.5 percent in
2011, and 16.3 percent in 2014, just on account of the mandates
that I have mentioned.
I would like to speak for a moment to the impact of
employers' ``play or pay'' mandate, which also takes effect in
2014.
Across most industry segments, our clients will have
significant financial incentive to terminate the group coverage
once the insurance exchanges present employers with another
subsidized health insurance option. That is because the vast
majority of our clients currently spend far more on health
insurance per employee than the penalty under the ``play or
pay'' mandate. By 2014, this gap will become even wider.
On average, our analysis shows that by terminating group
coverage our clients would save an amount equal to 44 percent
of the projected health insurance cost in 2014.
In fairness, few clients have told us today, here in 2011,
that they definitely intend to terminate group coverage in
2014. Similarly, few have said they intend to maintain their
health insurance coverage. The vast majority tell us they are
going to wait and see.
They tell us that what they do in 2014 depends upon their
health insurance costs then and their perceived need to use the
health plan to gain a competitive advantage for labor.
With regard to this latter point, many employers have told
us, ``We won't be the first to drop coverage, but we also won't
be third.''
The modeling results for our clients in the restaurant,
retail and hospitality industry is a ``damned if we do, and
damned if we don't'' scenario.
On average, to comply with the ``play or pay'' mandate and
offer qualifying and affordable coverage to all full-time
employees, the employer's health insurance costs increase 150
percent. Ironically, if the employer simply terminates its
group plan, it still pays 56.6 percent more than it would to
maintain the current plan offered today, because it then has to
pay the $2,000 per year, non-deductible penalty for each of its
full-time employees, even those employees to whom the employer
has never offered coverage.
These clients and clients like them tell us they have but
one option: to eliminate large numbers of full-time positions.
By making full-time employees part-time, the employees are
removed from the penalty equation.
Let me also note that health reform adds up to 19
additional disclosures and reports to the already daunting 27
disclosures and reports a mere health plan may already be
required by federal law to make to its enrollees or to the
federal government.
Our employer clients are not the bad guys. Our clients
simply do not understand why, for making the effort to supply a
valuable employee benefit to their employees, the federal
government imposes so extensive an administrative and
regulatory burden.
These obligations, because of their complexity and steep
penalties for violation, give employers yet one more reason to
simply surrender and exit the group insurance marketplace. This
is, of course, a huge concern to us.
Again, Lockton greatly appreciates the opportunity before
you today. We simply urge Congress that, in assessing the
impact of this health reform legislation, you place yourselves
not only in the shoes of those Americans who deserve and need
access to affordable insurance, but also into the shoes of the
American employers who supply valued health insurance coverage
to 160 million of us.
[The statement of Mr. Brewer follows:]
Prepared Statement of J. Michael Brewer, President,
Lockton Benefit Group, Lockton Companies, LLC
Mr. Chairman, Ranking Member Miller and honored members of the
Committee, my name is Michael Brewer and I am the president of Lockton
Benefit Group, the employee benefits consulting division of Lockton
Companies, LLC. On behalf of Lockton I thank you for the opportunity to
appear here today to share our views regarding the impact of the new
health reform law on the group health plans sponsored by our clients.
Lockton is the largest privately held insurance brokerage and
consulting firm in the world. Domestically, Lockton employs 2,300
employees in 24 offices nationwide who serve the insurance risk needs
of approximately 9,000 employer clients from coast to coast. Lockton
Benefit Group (``LBG '') provides employee benefits brokerage and
consulting services to approximately 2,500 of those clients. Nearly all
of those clients employ us to assist in the design and administration
of their group health insurance programs.
The vast majority of LBG clients are ``middle market'' employers,
employing between 500 and 2,000 employees, although we also have some
small-group and ``jumbo'' clients. Our clients include private and
governmental employers, and employers across many industry segments,
including construction, health care, manufacturing, transportation,
retail, professional services firms, and the hospitality/entertainment
industry.
More than half of LBG's clients maintain self-insured group health
plans. The others purchase group health insurance from licensed
insurance companies.
Make Employer Based Coverage Less Expensive and Burdensome
Approximately 160 million Americans receive health insurance today
through an employersponsored group health plan. Employees of our
clients enjoy and appreciate this coverage.
Our clients tell us they have no quarrel with the notion that
improvements in the health insurance system are necessary, to improve
access to insurance and reduce the cost of health care and,
concomitantly, the cost of health insurance. However, they are
frustrated that in the effort to achieve these aims the health reform
law adds additional expense to their health insurance costs and imposes
additional administrative burdens upon them.
In short, our clients find that the health reform law makes what is
already a costly and administratively burdensome endeavor--the
sponsorship of a simple group health insurance plan--even more
expensive and more hassle-prone. Our clients wish that Congress would
work to make an employer's provision of health insurance easier and
less costly, rather than more expensive and more burdensome.
Modeling Results
We have modeled for several hundred clients the impact of the
health reform law on their group health insurance programs, now and in
2014. As of the date we prepared these comments, our actuaries had
aggregated the results from 136 of these modeling reports, and broke
out the aggregated results by industry segment. I would like to share
some of those results with you today. We will be pleased to supplement
these remarks in the coming weeks and months as we continue to add
additional modeling results to this aggregated analysis.
Effect of Immediate Benefit Mandates
On average, the health reform law's immediate benefit mandates (for
example, the obligation to cover adult children to age 26, the
elimination of lifetime dollar maximums, restrictions and ultimate
elimination of annual dollar limits, etcetera) add 2.5% to our clients'
health insurance costs.
Industries that currently supply more generous health insurance
packages--that is, they already cover adult children to age 25, for
example, and/or already apply high lifetime maximums, such as $5
million per lifetime--see the smallest increase (.5%).
Firms that supply more modest packages--such as coverage of
children to age 22 and/or $1 million lifetime maximums--see the largest
percentage increases (3.7%).
Standing alone, expressed as a percentage of total plan costs,
these increases may not appear compelling. But the increases--
particularly the larger increases--concern our clients, many of whom
are already struggling with health insurance inflation well in excess
of the rate of inflation generally. For example, an employer whose
health insurance costs are trending at 10% without regard to the reform
law finds its trend increased to 12.5% (an additional 2.5% increase, on
average) on account of the reform law's mandates. If the employer has
2,000 employees and spends $16 million per year on health insurance,
the additional cost of the mandates alone is $400,000.
Effect of Limited Waiting Periods (2014)
The health reform law prohibits waiting periods of more than 90
days, beginning in 2014. This mandate has little cost implication for
most of our clients, because most do not currently maintain waiting
periods in excess of 90 days.
For our clients that have waiting periods in excess of 90 days, the
consequences can be more dramatic. For example, a construction firm
client with a 6month waiting period for health coverage experiences a
3.9% cost increase, while another construction firm with a 12month
waiting period experiences a 39.3% cost increase. Our transportation
firm clients with 4month waiting periods experience a 6.4% increase.
Effect of Automatic Enrollment Requirement (2014)
The reform law also requires employers with more than 200 fulltime
employees to automatically enroll in a health plan those employees who
become eligible for coverage but who do not affirmatively enroll. These
employees may, however, choose to affirmatively disenroll. The
automatic enrollment feature adds 3.8% to our clients' health insurance
costs on average, with our governmental clients seeing the smallest
increase (1.4%) and our transportation industry clients seeing the
largest increase (10%). For one client, a large hospital, our actuaries
expect the automatic enrollment feature to add more than $1 million
annually to the client's health insurance cost.\1\
---------------------------------------------------------------------------
\1\ In modeling the effect of the automatic enrollment provision,
we assumed that 75% of employees who are eligible for coverage but have
not affirmatively enrolled, and who are automatically enrolled by the
employer, will opt out of coverage. These modeling results do not
reflect the impact of the automatic enrollment feature on our retail,
restaurant, hotel and entertainment industry clients. The modeling
results for these clients are described separately, later in this
document.
---------------------------------------------------------------------------
Employer ``Play or Pay'' Mandate (2014)--Impact on Employers
Beginning in 2014, employers with at least 50 fulltime equivalent
employees must offer their fulltime (30+ hours per week) employees
``minimum essential coverage.'' That coverage must be ``affordable'' to
the employee, that is, not cost him or her more than 9.5% of household
income.
Where an employer fails to offer this coverage at an affordable
cost and the employee instead obtains subsidized coverage in an
Insurance Exchange, the employer is subject to a penalty. If the
employer continues to offer coverage to some employees, the penalty is
a nondeductible assessment of $3,000 per year ($250 per month) for
every fulltime employee who does not receive an offer of qualifying and
affordable coverage, and who instead obtains subsidized coverage in an
Insurance Exchange.
However, if the employer terminates its group plan and offers
coverage to no employees, and at least one fulltime employee obtains
subsidized coverage in an Insurance Exchange, the penalty is $2,000 per
year times all the employer's fulltime employees.\2\
---------------------------------------------------------------------------
\2\ The first 30 such employees are not taken into account in an
employer's penalty calculation.
---------------------------------------------------------------------------
Across all industry segments in our book of business,\3\ clients
will have a significant financial incentive to terminate their group
coverage once the Insurance Exchanges present employees with another
subsidized health insurance option. The vast majority of our clients
currently spend far more on health insurance, per employee, than the
nondeductible penalty under the ``play or pay'' mandate. By 2014 this
gap will be much larger still.
---------------------------------------------------------------------------
\3\ Except retail, hospitality and entertainment employers, whose
modeling results are addressed separately.
---------------------------------------------------------------------------
As a result, were they to terminate their group coverage they
would, on average, save an amount equal to 44% of their projected 2014
health insurance costs. For clients whose health plans tend to be more
expensive, savings are larger (84% for our governmental clients, 60%
for our hospital clients).
Employer ``Play or Pay'' Mandate (2014)--Impact on Employees
We also modeled the impact of plan termination on clients'
employees, were they forced to seek coverage in an Insurance Exchange.
On average, to purchase Exchange-based coverage equivalent to the
employer's health reform-qualifying coverage, our clients' employees
would pay significantly more than they pay for the employer's coverage.
This is because our clients typically subsidize a larger portion of
employees' health insurance costs than the Exchanges will subsidize,
and employees pay their portion of employer-based coverage with pretax
dollars. Their portion of the cost of Exchange-based coverage will be
paid with after-tax dollars.
On average, our clients' employees would pay between 101% and 155%
more for Exchangebased coverage (101% assuming the employee is the sole
wage earner in the household, 155% assuming there is household income
in addition to the employee's salary, thus reducing the size of the
subsidy the employee receives in the Exchange).
The more highly paid the employer's workforce, the more significant
the expense borne by the employee in the Insurance Exchange (again,
because higher household income means smaller subsidies, if any, in the
Exchange). For example, employees of our professional service firm
clients can expect to pay, for equivalent coverage in an Exchange, 113-
148% more than they would pay for employer-based coverage.
This dichotomy has triggered within some employers a conflict
between the financial officers, working to hold the line on expenses
and increase profitability, and the human resource officers who, as
necessary, work to fashion appropriate compensation and benefit
structures for employees. Next to wages, health insurance costs are the
most onerous component of labor expenses for the vast majority of our
clients. By 2014, when the Insurance Exchanges open and present
employees with another, largely subsidized option for health insurance
coverage, the burden of group health insurance costs on an employer's
balance sheet will create tremendous tension within many clients. What
clients do then depends on several factors.
Thus far, few clients have told us they definitely intend to
terminate group coverage in 2014, when Exchange-based coverage becomes
available. Similarly, few clients have told us they definitely intend
to maintain their group coverage. The majority of our clients tell us
they will wait and see. What they will do in 2014 depends on their
health insurance costs and budget in 2014, and their perceived need to
use a health plan to gain a competitive advantage for labor.
With regard to this latter point, many clients have told us, ``We
won't be the first to drop coverage, but we won't wait to be third,
either.''
Our smaller clients will be the first to abandon group coverage. At
a recent seminar presentation we made to approximately 200 employers
ranging in size from 50 to 150 employees, half told us they intend to
exit the group insurance marketplace in 2014.
To the extent the labor market continues to favor the employer in
2014, we expect some of our larger clients--particularly those
employing relatively low paid, modestly-skilled hourly workers--to
terminate their group health plans.
Retail, Hospitality and Similar Clients Will Eliminate Full-Time Jobs
The modeling results for our clients in the restaurant, retail,
hotel and entertainment (e.g., amusement park) industries are more
sobering. Most of these clients do not offer group health coverage to
all their fulltime employees because they cannot afford to do so. A
restaurant chain, for example, will typically offer coverage to its
corporate staff and restaurant managers. An amusement park will
typically offer coverage to its year-round staff, but not to its
extended seasonal workforce.
These employers are caught in a ``damned if we do, damned if we
don't'' bind. On average, to comply with the ``play or pay'' mandate
and offer qualifying and affordable coverage to all fulltime employees,
the employer's health insurance costs increase 150%.
Maintaining the status quo--offering coverage to some employees,
such as corporate staff, but not rank-and-file employees--can trigger
excise tax penalties under the health reform law's nondiscrimination
rule, and in any event would trigger $250 per month penalties for every
fulltime employee not offered coverage and who instead obtains
subsidies in an Exchange.
Ironically, if the employer simply terminates its group plan it
still pays 56.6% more than it would pay to continue its plan. Although
the employer saves a portion of its health insurance spend (it loses
the tax deduction on those dollars, and the FICA/FUTA savings on
employee pretax contributions), it pays a $2,000 per year,
nondeductible penalty on each of its fulltime employees, even those
employees on whose behalf the employer is not otherwise incurring a
health plan expense.
These clients, and clients like them who employ a large number of
fulltime, relatively low paid hourly workers who are not receiving an
offer of robust health coverage today, tell us they have but one
option: eliminate large numbers of fulltime positions. By making
fulltime employees part-time, the employees are removed from the
penalty equation.
Other Burdens
Federal law imposes other burdens and counterproductive barriers on
group health plan sponsors, burdens that ratchet up the angst, anxiety
and frustration of our clients, increase costs to their health plans,
and give additional reasons for employers to escape the challenges of
group health plan sponsorship the moment they think they can.
For example, under federal law alone, a simple group health plan
must make up to 46 separate disclosures (to enrollees) and reports (to
federal agencies). Nineteen of these disclosures and reports are
required under the health reform law.
The disclosures often go to different individuals, at different
times, via different means. Some are required annually. Some might be
required even more frequently. There are requirements that some be
provided in separate documents, or in specific fonts, or be
``prominent,'' or provided in a ``culturally and linguistically
appropriate manner.''
The myriad disclosure and reporting obligations add angst, cost and
anxiety to the lives of our clients well in excess of the value that
the vast majority of employees place in the bulk of the disclosures.\4\
---------------------------------------------------------------------------
\4\ Lockton employees have attended thousands of employee
enrollment meetings, and it is not uncommon to find many of these
disclosures simply littering the floor afterwards. Most employees are
simply not interested. The burden on the employer, in terms of cost and
effort, thus outstrips the value most employees place on many of these
myriad disclosures.
---------------------------------------------------------------------------
We supply our clients with detailed ``notice calendars,'' but
employers are often compelled to pay third-party vendors to satisfy at
least some of the obligations.
As they propose additional disclosure and reporting requirements,
federal agencies estimate the relatively modest burden any single
disclosure or report imposes on the employer. But there appears to be
no effort to consider the cumulative burden--in time, money and
effort--on the employer for supplying the currently required
disclosures and reports.
Congress should endeavor to minimize the administrative burdens
employers bear in order to supply group health coverage. Congress
should: (1) legislatively streamline the disclosure and reporting
obligations on employers, allowing them greater leeway to consolidate
disclosures in single documents without existing special rules that
require some notices to be more ``prominent'' than others; (2)
synchronize due dates for various disclosures and reports, unless
impracticable; (3) allow employers to consolidate multiple government
reports in single filings to the extent practicable; and
(4) permit employers to post many of the required disclosures in
the workplace or on their intranet pages rather than deliver by hand or
by mail to employees, most of whom have demonstrated little or no
interest in many of the disclosures.
Conclusion
Lockton greatly appreciates the opportunity to appear before you
today. In assessing the impact of the health reform legislation, we
urge you to place yourselves not only in the shoes of those Americans
who need access to affordable insurance, but in the shoes of the
employers who supply valued coverage to 160 million of us.
Employers are burdened and frustrated by aspects of the health
reform law that add costs to their health plans, and will cause some of
them to eliminate group coverage and fulltime jobs. They are perplexed
by a federally-imposed reporting and disclosure scheme that has
increased substantially under health reform and become far too
cumbersome.
We welcome the opportunity to work with you to mitigate these
burdens on the employer community.
______
Chairman Roe. Thank you, Mr. Brewer.
Since Mr. Kucinich may have to leave, I am going to allow--
go ahead and start with your questioning, if you would.
Mr. Kucinich. That is very generous of you, Mr. Chairman. I
really appreciate it.
I would like to start with Mr. Houser. And I appreciate Mr.
Brewer's remarks that we need to be sensitive to all of those
businesses that are providing health insurance.
Now, Mr. Houser is here. And can you tell us how many
employees you have?
Mr. Houser. We have nine full-time employees. We have two
student interns, who work half-time and go to school half-time.
And we have two part-time employees: a shop maintenance helper
and a part-time office assistant.
Mr. Kucinich. Do you offer family and individual coverage?
Mr. Houser. We provide complete, 100 percent coverage for
full-time employees and their families. For the part-timers we
offer proportional, and no one has taken us up on it.
Mr. Kucinich. How much of the premium do you pay for your
employees?
Mr. Houser. It was $100,000 last year, for the total.
Mr. Kucinich. Now, so you are paying basically 100 percent.
Mr. Houser. Yes.
Mr. Kucinich. Mr. Parker, in terms of your employees at
your bowling company, do you pay 100 percent?
Mr. Parker. No. We pay one-third.
Mr. Kucinich. Okay.
Can you, Mr. Houser, respond to the statement that Mr.
Miller makes in his testimony where he states that the
Affordable Care Act provides very little in tangible first-year
benefits and imposes modest immediate costs and complications
on most employers?
Could you tell us about your experience with that?
Mr. Houser. Congressman, our experience has been several.
One is, of course, the tax credit that we will be getting. But
more than that, the new health insurance exchange is what
appears to be going to provide the greatest benefit to our
business.
The State of Oregon is currently very actively moving
forward to not only cover about 970,000 more Oregonians, but
also to change the--with that level of buying power--to change
how health care is paid for to actually lower the cost of
health care by changing from a fee-for-service, fee-for-
procedure to a fee-for-outcome mode of how to pay for--to
actually also bring down the cost of health care.
Mr. Kucinich. Well, could you tell us any benefits that you
have already realized from the--have there been any benefits
that you realized----
Mr. Houser. The largest benefit is that our daughter, who
is 22 years old and unemployed and out of college, is now back
on our health care plan. And so, that is the biggest advantage
that we have experienced so far.
I cannot say whether our decrease in premiums was a result
of the Affordable Care Act or not. I do not know that.
Mr. Kucinich. And do you think this law will raise your
costs and complicate your ability to offer health care?
Mr. Houser. If the costs were to keep going up like they
were before the Affordable Care Act was passed, then we would
definitely have to re-evaluate our health care costs. I would
have to----
Mr. Kucinich. What about the role of the tax credits?
Mr. Houser. Well, the tax credits are going to have a huge
advantage. Although our employees are toward the higher end;
$50,000 is the limit. And so, we are not quite there on
average, but we are pushing that.
But the tax credit does go up in, I believe it is 2014. So,
that will certainly carry us quite a ways, and especially if we
can get control of the health insurance rate increases.
Mr. Kucinich. I have heard witnesses, the other witnesses
say that they think that employers will increasingly stop
offering health care to employees as a result of this law.
Do you think that is true? Do you think that more small
employers are offering health insurance now? Do you have any
experience in that outside your own? Have you talked to
anybody? Can you----
Mr. Houser. I know that from reading the Kaiser Family
Foundation report that actually, the number of small employers
who are covering have increased from 2009, from 46 percent to
59 percent. So, actually, more small businesses are actually
increasing their coverage.
Mr. Kucinich. One final question. What power did you have
to negotiate with your insurance company when you increasingly
saw your health care costs increase during the last years?
Mr. Houser. I am sorry. I did not hear.
Mr. Kucinich. What kind of negotiating power did you have
with your insurance company prior to this?
Mr. Houser. None. All we can do is wait for our broker to
bring us various--you know, what we are going to be paying.
Mr. Kucinich. I thank you, thank the gentleman.
Thank you, Mr. Chairman.
Chairman Roe. I thank the gentleman for yielding.
Next is Dr. DesJarlais.
Mr. DesJarlais. Thank you all for being here. And I am also
going to have to slip away.
So, Mr. Houser, you mentioned that your business will
receive a credit of between $5,000 and $10,000 on your 2010
taxes, because of the small employer health premium tax credit.
Do you know who is paying for that credit?
Mr. Houser. My taxes, I assume.
Mr. DesJarlais. Any idea? Do you think your taxes are
paying for that, for your employees?
Mr. Houser. If my taxes--I am sorry.
Mr. DesJarlais. Do you feel that your taxes are paying for
that $5,000 to $10,000 tax credit? Yours personally?
Mr. Houser. My taxes and your taxes. And my health care
premiums are also paying for people who work for companies who
do not cover their employees.
Mr. DesJarlais. Okay. Do you have a plan in 2016 when that
credit is no longer available?
Mr. Houser. I do not envision us ever dropping health care
coverage for our employees.
Mr. DesJarlais. Okay. Thank you.
One thing, if I could yield just a few seconds to our
chairman to explain the impact of Medicare's expense estimates
and what they actually turned out to be over time?
Chairman Roe. What Dr. DesJarlais, I think, is talking
about, when you look at the government estimates of how much a
health care plan--the CBO estimated this would be budget-
neutral.
Medicare was a plan they started in 1965 to cover our
seniors. There was no CBO then, but the estimate in 25 years
was this would be a $15 billion plan. In 1990, it was over $100
billion. So, they missed it seven times.
In Tennessee we saw where our Medicaid--we went through a
managed care plan very similar to this in Tennessee in 1993, to
try to control health care costs, because we had the things
that you mentioned, rising costs, access and liability. And
what happened was, in 10 years, in 10 budget years, our costs
tripled in the state of Tennessee.
So, it is about, how do you hold the costs down?
I have sympathy. I have been a provider for all these years
of health insurance. That is the major problem in America is
the cost of the care. If it was all affordable, we could all
have it.
I yield back.
Mr. DesJarlais. Okay, thank you for the history lesson. I
know that you have those numbers well in mind.
Mr. Miller, we have heard supporters of the new law claim
that Republicans have not provided concrete ideas or
suggestions to change financial incentives in health care and
expand access to affordable, quality coverage. However, your
testimony suggests there are alternatives to Obamacare.
Can you elaborate on some of the alternative proposals to
reform the health care system and design the lower costs of
coverage and increase access?
Mr. Miller. Let me put that in two tiers. I mean, I think
that the actual, official congressional responses are still
evolving. We have an earlier history of proposals in the House,
and individual members in the Senate.
If you are asking for what I would advise the people I have
spoken to along those lines, we need to do several things. We
need to first, unfortunately, undo the damage. We lost 2 years
on the clock, and we have gone in the wrong direction. So, we
cannot over-extend our resources and, basically, overload the
entire system with what has happened.
Some positive proposals, though. They have all limited
effects in isolation. You have to combine them. The old toolkit
includes ways to reduce regulatory costs.
Cross-state purchasing is one proposal in that regard. We
certainly hear a lot about medical malpractice reform. It will
make some contribution in that regard.
We ultimately need to step up to the plate in terms of
rearranging the overall subsidy structure in health care
financing. While putting more money into a different, more
extensive version of high-risk pools, what is in the current
law has failed in that regard. That would deal with what are
the serious problems of people who have substantial spikes and
continued problems in health care costs.
We then need to think about how we are going to rearrange
our tax subsidies, not only for our private health insurance,
but climb up to the plate on Medicare. We do need to make some
cost changes in Medicare.
Unfortunately, most of the low-hanging fruit that was
raided for Medicare spending reduction was then plowed right
back into the system for the other type of entitlement in the
private side.
Medicaid has been overloaded. We need to restructure that.
So, essentially, to be simple, we need more transparent
measures of the value of health care being provided.
We talk a lot about insurance and financing. But until we
change the cost of care, we have not changed that basic
problem.
There are a lot of hypotheticals in the law, which someday,
somehow might eventually happen. We need to get the private
sector involved in actually making them come about.
You can change, realign the incentives, but we are going to
have to solve this problem by having care delivered at a lower
cost with better outcomes. We need to measure it, make that
more transparent to consumers, and then empower everybody else
in the marketplace as opposed to Washington to make those
decisions.
Mr. DesJarlais. Thank you, Mr. Miller.
Mr. Chairman, I yield back.
Chairman Roe. I would thank the gentleman for yielding.
Mr. Kildee?
Mr. Kildee. Thank you, Mr. Chairman.
Mr. Miller, a witness before the Senate Budget Committee
stated that employees who have employer-sponsored health care
do not have, as he put it, enough skin in the game--a round-
about way of saying that workers need to pay more for health
care, so they do not use it as much.
In 2009, though, 60 percent of bankruptcies were caused by
medical bills. Seventy-five percent of these bankruptcies were
filed by workers who actually had health insurance.
Mr. Miller, you are on record supporting a road map offered
by Congressman Paul Ryan. In that road map, Congressman Ryan
proposes raising taxes on working families by eliminating the
individual income tax exclusion for employer-sponsored health
care.
Can you say that workers do not pay enough for health care
when the bankruptcy figures indicate that even those who have
assistance file for bankruptcy more than any other reason?
Mr. Miller. What I can say is that 60 percent figure, and
the conclusions that run from it, are erroneous. We have done
work on that, primarily my colleague, Aparna Mathur, which, if
you examine what that is based upon, there are a lot of reasons
for bankruptcies.
They are not due to people paying too much for health care.
Often these are done in a way that it says, as long as you had
a medical bill along the way, it is then imputed that that
somehow was what caused the bankruptcy.
We have serious economic problems in the country. I just
think that is a miscalculation as to what is the cause and the
effect in that regard.
On the larger issue as to whether workers are paying too
much or too little, that is not the issue. The issue is whether
or not they can see a way to find a better combination of
health care that delivers improved health outcomes for them at
a lower cost.
We have a structure which hides those price tags, hides the
results, does not give the information that they need in that
regard.
If you look at the measures as to how much workers are
actually paying out-of-pocket for their health care, as opposed
to what is rerouted through a very expensive, costly and
inefficient insurance system, the vast proportion of that still
flows through third party insurance.
There has been an increase in the amount of cost-sharing in
some sectors of the marketplace through what are called
consumer-driven health plans. They are probably about 20
percent of the market without necessarily having accounts. That
has tended to slow down the overall increase in health care
spending and in health insurance costs, and has been a
positive.
The law is fundamentally aimed against it. It will not
succeed in stopping that, because when we are about 5 years
from now, we are not going to be able to pay for all this stuff
we say is going to be covered by insurance, and we will end up
resorting to that type of cost-sharing implicitly anyway.
Mr. Kildee. Do you think we should repeal the exemption for
the worker who gets part of his----
Mr. Miller. We need to change it. It is somewhat of a
distraction. We need to think about what assistance you provide
to people through the tax system to help them buy health
insurance.
But when we actually add it up, everyone is going to have
to pay some money themselves. We cannot subsidize everyone's
bill and think they all come out ahead.
It has tended to drive up the cost of care, the cost of
insurance. And we pretend that it actually brings us ahead, and
it sets us further back.
If you are not going to eliminate public assistance through
the tax code, you are going to move it in a different
direction.
The Ryan proposal that you partly described does not
eliminate tax relief. It puts it in a different form in more of
a defined contribution approach, which flows directly to
individuals to decide how they are going to spend it on their
health care and their health insurance, as opposed to routing
it through third parties. If they want to stay in an employer
plan, they will do that.
Mr. Kildee. I thank you. And if you can get some of the
figures that you said differ from these to us, I would
appreciate that.
Mr. Miller. Yes. We will be happy to provide you with a
different analysis of--there are bankruptcy problems and
economic problems.
But I know the studies. They have been around for a while.
They get recycled. They take the wrong database. They do it in
a different way.
But I would be happy to provide you with some information
on that.
Mr. Kildee. Thank you very much, Mr. Miller.
[The information follows:]
Question for the Record Submitted by Mr. Kildee
Mr. Miller, at the hearing I cited a figure that stated 60 percent
of bankruptcies were caused by medical bills. You responded that the 60
percent figure is erroneous and that you have a different analysis to
prove your claim. Can you provide this analysis to the Committee?
______
Response From Mr. Miller to Mr. Kildee's Question for the Record
At the March 10 hearing of the House Education and the Workforce
subcommittee on Health, Employment, Labor, and Pensions regarding the
overall topic of ``Employer Health Costs,'' Rep. Kildee asked me a
question following my oral testimony. It related partly to cost sharing
by employees in employer-sponsored health insurance plans and also to a
recent study claiming that 60 percent of bankruptcies were caused by
medical bills, and that seventy-five percent of these bankruptcies were
filed by workers who actually had health insurance. As I recall, I
referenced some of the related research on that topic by my AEI
colleague, Resident Scholar Aparna Mathur, which challenges the
methodologies and findings in that study and other related ones.
Essentially, she concludes that there are a number of significant
causes of bankruptcies besides medical bills, and the ``Himmelstein et
al.'' line of studies fails to connect causes with effects. .
Now the Rep. Kildee has submitted a shorter, subsequent version of
this question to Chairman Roe as a formal part of the hearing record
and requested a written analysis of the 60-percent bankruptcy claim, I
have attached one immediately below by Ms. Mathur, along with links to
some of our other work in this field.
Problems with the Himmelstein et al. (2005 and 2009) Studies, and
the Massachusetts Study
(1) Sample Selection Issues
A major shortcoming with both the Himmelstein et al. (2005 and
2009) studies is what economists dub the ``sample selection issue''.
Himmelstein et al. (2005, 2009) conducted a survey of bankruptcy filers
from public court records for the year 2001 and 2007. Based on a sample
of 1000 debtors, they concluded that more than 50 percent of these had
filed for bankruptcy due to a medical reason. By limiting the sample to
those who had already filed for bankruptcy, the study overstated the
incidence of medical debt. To account for causation, the study sample
should have, at the very least, included a ``control'' group of medical
debtors who did not file for bankruptcy. In other words, if the authors
were trying to establish whether medical debts cause bankruptcy
filings, the appropriate sample should have included households with
and without medical debt, and households who filed or did not file for
bankruptcy. In short, what the authors have established is some
correlation, but not causation.
The sample also seems skewed towards debtors with high medical
debt. The USTP report of bankruptcy filers, which included a much
larger sample of 5203 filers, found that 90 percent of filers had
medical debts less than $5000. The Himmelstein et al.(2009) study
reports nearly 35 percent of filers with more than $5000 in medical
debt. The authors make no attempt to reconcile or explain their
findings or reveal the distribution of medical debts across filers in
their sample.
(2) Regression Analysis
The study also should have allowed for the possibility that other
household characteristics, such as the filer's work status, marital
status, income, and other kinds of debts could have influenced the
filing. As explained earlier, this could be done through the use of
appropriate regression techniques applied on a suitably large, random
sample of filers and non-filers. Mainstream economics literature
discussing the relationship between debts and bankruptcy amply outlines
these standard considerations. The study does claim to have done
multivariate analysis, but the analysis is done on an even more
restricted sample than the original 1032 in 2007. The sample only
includes people who reported having any medical bills. Therefore, it
simply assumes that medical debts are important for bankruptcy filing,
rather than testing for that hypothesis in the entire sample of
bankruptcy filers.
(3) Definition of Medical Bankruptcy
The 2005 study used an overly broad definition of ``medical
filers,'' which included people with any sort of addiction or
uncontrolled gambling problems.
The 2009 study removed these clauses but still came up with a 62
percent number; i.e., nearly 62 percent of bankruptcy filings are due
to medical reasons. The reason for the high number is puzzling, though
as mentioned earlier, it is partly driven by the fact that the authors
ascribe any remotely medical factor as causing the bankruptcy filing,
not just medical debts. The survey results shown in Table 2 (Page 3) of
the study clearly state that only 29 percent of the respondents
believed that their bankruptcy was actually caused by medical bills.
However, the authors chose to add to this number the percent of people
who lost weeks of work due to illness, the percent of people with more
than $5000 in medical bills, and the percent of people reporting any
medical problems. This is clearly an overstatement of the problem.
Since the respondents themselves do not believe that these other
factors caused the bankruptcy filing, it is wrong to ascribe the
additional bankruptcy filings to their medical costs. A related point
is that the survey fails to provide information on other causes of the
bankruptcy filing or how the respondents would rank different factors,
as in the PSID. Therefore, it is unclear whether medical bills were the
most important cause or just another cause.
This criticism was also raised by Dranove and Millenson in
reference to the 2005 paper. Exhibit 2 of that paper identified people
who stated that illness or injury was a cause of bankruptcy (although
not necessarily the most important cause). According to Himmelstein and
colleagues, 28.3 percent of respondents stated that illness or injury
was a cause of bankruptcy. They also reported that medical bills
contributed to the bankruptcy of 60 percent of this group. Multiplying
the two figures together, Dranove and Millenson conclude that 17
percent of their sample had medical expenditure bankruptcies. Even for
that 17 percent, it cannot be stated with any degree of certainty
whether medical spending was the most important cause of bankruptcy.
The latest study by Himmelstein et al. suffers from the same kinds
of issues as the earlier studies. The new study focuses on the impact
of the Massachusetts Health Reform on medical bankruptcies. The study
relies on the change in the percentage of people reporting medical
bankruptcies between 2007 and 2009. Unfortunately, the 2007 survey did
not especially focus on Massachusetts, so the authors are forced to
rely on simply the 44 respondents who were from that state in the
earlier survey. It compares that to the new 2009 survey relying on 199
people. The paper finds that the percentage of medical bankruptcies
actually declined by a significant 6.4 percentage points. However, in
absolute terms, the number of medical bankruptcies increased from 7,504
to 10,093. The fact that the percentage of medical bankruptcies in the
population declined suggests that the growth rate of medical
bankruptcies was lower than the growth rate of bankruptcies in the
total population. Therefore, it is not clear from this statistic alone,
whether the health reform had a positive, negative or any impact on
medical bankruptcies. A proper analysis would include a sufficiently
large-scale survey both before and after the Reform, which would also
account for other contemporaneous changes in economic conditions in
Massachusetts. Moreover, as mentioned earlier, more rigorous regression
techniques would be required to establish causality. Factors that may
be important at the household level as well as at the state level need
to be controlled for. Further, the definition of a medical bankruptcy
used in the 2009 study is subject to the same criticism as in the
earlier study. To summarize, the new study provides no conclusive proof
one way or the other of the effect of the Massachusetts reform on
medical bankruptcies.
In addition, please see the following related testimony and
research:
``The Medical Bankruptcy Fairness Act'' Aparna Mathur, Testimony
before House Committee on the Judiciary, July 15, 2010.
http://www.aei.org/speech/100157
``Can Bankruptcy Reform Facilitate a Fresh Start?'' Aparna Mathur,
Testimony before Senate Subcommittee on Administrative Oversight and
the Courts, October 20, 2009
http://www.aei.org/speech/100089
``Medical Debt: Is Our Healthcare System Bankrupting Americans?''
Aparna Mathur. Testimony before House Committee on the Judiciary, July
28, 2009.
http://www.aei.org/speech/100071
``Maxing out on Debt Hysteria,'' Aparna Mathur and Tom Miller, The
American, June 20, 2007
http://www.american.com/archive/2007/june-0607/maxing-out-on-debt-
hysteria
``Medical Bills and Bankruptcy Filings,'' Aparna Mathur, AEI
Working Paper 24680, July 19, 2006
http://www.aei.org/docLib/20060719--MedicalBillsAndBankruptcy.pdf
``The Healthcare Bankruptcy Myth,'' Diana Furchtgott-Roth,
RealClearMarkets.com, July 30. 2009
http://www.realclearmarkets.com/articles/2009/07/30/the--medical--
bankruptcy--myth--97335.html
``Medical Bankruptcy: Myth vs. Fact,'' David Dranove and Michael
Millenson, Health Affairs 74 (2006).
______
Chairman Roe. Mrs. Roby?
Mrs. Roby. Thank you, Mr. Chairman.
Thank you so much to the witnesses for taking the time to
be here this morning.
So, in a very timely fashion, just yesterday, the
Montgomery Chamber of Commerce from Montgomery, Alabama, was
here in Washington, and I met with them. And the mayor of
Montgomery was present.
And during this meeting I learned that the City of
Montgomery--and I served on the city council there from 2003
until just recently--they are going to see an increase in their
health care premiums by $4.6 million this year, due to
Obamacare.
And I guess I can direct this to Mr. Brewer, because I saw
in your testimony where you also work with governmental
employers.
And then, Mr. Miller, if you will address it, as well.
But the president promised in 2008 that his health care
reform efforts would lower health insurance premiums for
families by as much as $2,500.
So, I am having a hard time understanding why, then, the
City of Montgomery is not seeing a decrease in their premiums
for the cost of their employees.
Mr. Brewer. I cannot speak to where that came from.
What I can speak to is the reality of what has happened
with the benefit mandates that have been imposed upon employers
like the City of Montgomery, Alabama, larger, self-funded
groups. I am presuming they are self-funded, would be my guess.
But the immediate benefit mandates, as I indicated in my
testimony, increase cost to employers like the City of
Montgomery by about 2.5 percent this year. The auto-enrollment
feature down the road will add incrementally more cost to it.
It certainly would have been great, had the Congress been
able to deliver a bill that actually reduced the cost of health
insurance coverage for the vast majority of employers in the
United States. It would have been a message that probably would
have resonated better and been better received.
Regrettably, I think the bill falls short in a number of
areas of addressing the actual root causes of the cost,
increasing cost of health care. With all due respect to Mr.
Kucinich, I do not believe that the insurance companies, in and
of themselves, are the problem. I think there are plenty of
other areas where there are opportunities for savings.
So, Mr. Miller?
Mr. Miller. Yes, I would agree with that last comment by
Mr. Brewer. Certainly, we all can do better, and it is also
distributed in that regard.
The $2,500, let us be straightforward about it, was a
campaign document. I know the scholars who put it together, and
you put this on the back of the envelope, and you make pretend
it will happen.
They have been backpedaling from that and rearranging what
it is supposed to eventually do. A lot of it now is basically,
well, you are going to get all this tax money from other
people. And that is how you are saving your $2,500.
It has not brought down the essential cost of care. There
are important things that need to be done in restructuring our
health care delivery system, making everybody participating in
it more accountable.
Hypothetically, there are a lot of grand plans, you know,
national strategies, but we do not have anything deliverable in
the first couple of years.
What this legislation essentially was about was about
redistribution of money without fixing the problem, so the
costs just move one place to another. Some people win, some
people lose. If you happen to be one of the tiny handful of
people who might qualify for a small business tax break, you
are a winner.
It does not deal with the larger organic system, which is
that all of the care costs too much compared to what is given.
We have got to make some decisions in that regard and get that
more transparent.
So, when you move past the politics of getting a law passed
by any means, the question is: How do we drive forward and
think about what is actually going to get to the causes of
these costs?
Until care is delivered earlier, cheaper and better, and
people are healthier and do other things outside of the health
care system, which means they are presenting fewer things to
the table, no matter how much we do to tweak the tiny amount of
insurance that is administrative costs, which have been going
down for the last 5 years as a percentage of the premium; until
we actually change that underlying cost growth, which is what
gets reflected in the premium--we can fight about whether
insurers are evil or slightly bad--it does not make a
difference.
And if we think we can route all this money through our tax
system, there is no money left. We can just borrow some more
and have it go back and forth.
We cannot continue subsidizing. We actually have to
confront the fact that we have got to get better care at a
lower price. When we get to that stage, then we will have real
reform. That is not what this bill was about.
Mrs. Roby. And I appreciate your comments, both of you, on
this issue.
But to go to the point that you just made, municipalities
and local governments all over this country are required by law
to balance their budgets.
Mr. Miller. That is correct.
Mrs. Roby. And so, when you see this kind of impact in a
local municipality on their smaller budget, it can be quite
devastating. They do not print money.
Mr. Miller. And they have other problems with their
employee health care----
Mrs. Roby. That is right.
Mr. Miller [continuing]. Their retirees, their pensions. We
are seeing all this kind of collapse on it, because we could
afford our way around all these mistakes for a long period of
time.
And now, we have hit the margins where suddenly there is
not someone else to pick up the tab. We are going to have to
rework it.
Mrs. Roby. Thank you. My time is up.
Thank you, Mr. Chairman.
Chairman Roe. Thank you for yielding.
Mr. Hinojosa?
Mr. Hinojosa. Thank you, Mr. Chairman.
My question is directed to Mr. Houser.
Mr. Houser, I want to thank you for your participation. You
say in your written testimony that your insurance costs for
your nine full-time employees and covered dependents doubled
from 2002 through 2010, eating into more than 20 percent of
your payroll. That is long before we started this health
reform.
As a small business owner, I know the difficulty of
providing quality and affordable coverage to employees, because
I was president of a family business for 20 years and
understand the choices you have to make. I experienced first-
hand how, year after year, every dollar I spent on health
insurance for my employees bought less and less.
Given that, number one, the Affordable Care Act places no
requirement on small businesses with fewer than 50 full-time
employees, and being that the Affordable Care Act provides
incentives and tax breaks, as you pointed out in your remarks,
for those small businesses that do offer coverage, it is
important that the record show that President Obama did not
promise that the premiums were going to drop $2,500 in 2011,
when it starts and begins to ramp up.
He did say that the real bulk of the law will be
implemented by 2014, and that at that time, we will have
insured an additional 30 million people, thus being able to
reduce the cost. And some of our other witnesses are trying to
make this appear as though the president did not keep his word,
or that he misled people.
But there is no question that, as people in my district
find out the benefits of this health reform, that they are very
happy. And they are hoping that we will tweak it, but certainly
not repeal it.
I would like to ask you this question. Do you expect that
tough choice I mentioned earlier to get tougher, or easier,
going forward for your business and small businesses like yours
that you talk to?
Mr. Houser. I am sorry. I did not understand.
Mr. Hinojosa. Do you expect that, between now and 2014,
that things are just going to be so tough that you would not be
able to offer health insurance to your employees?
Mr. Houser. No, Congressman, not at all. I believe,
especially based on the most recent trend with our premiums
actually going down, and with the State of Oregon being very
actively pursuing the exchange, which will, if the legislation
goes through at the state level that is currently being
proposed, will change the formula for how health care is paid
for from the fee-for-procedure, fee-for-service to fee-for-
outcomes.
Mr. Hinojosa. So, you are optimistic that this is going to
be----
Mr. Houser. It will go down.
Mr. Hinojosa [continuing]. For small businesses.
Mr. Houser. And we will continue to have health care.
Mr. Hinojosa. I would like to yield time to Congressman
Dennis Kucinich.
Mr. Kucinich. I want to thank my friend, Mr. Chairman.
I ask unanimous consent to enter into the record the
American Journal of Medicine report on medical bankruptcies in
the United States, 2007. It is a result of a national study.
[The information follows:]
------
Chairman Roe. So ordered. Without objection.
Mr. Kucinich. Thank you, Mr. Chairman.
This study, by the way, is done by a group of physicians
from Harvard, and Ph.D.s from Harvard and Ohio University, who
found that using a conservative definition, 62.1 percent of all
bankruptcies in 2007 were medical.
Now, they have updated this report. I am also going to be
submitting for the hearing record the 2010 copy of this report.
And also, I ask unanimous consent to submit for the record
a report from the Commonwealth Fund entitled, ``Seeing Red: The
Growing Burden of Medical Bills and Debt Faced by U.S.
Families,'' where it points out that an estimated 72 million
American families have bill problems or medical debts relating
to medical bill problems or medical debt. And 49.5 are
uninsured.
So, there is a problem with, if you have insurance, you are
still stuck. So, I would like to submit this for the record.
[The information follows:]
------
Chairman Roe. Without objection, so ordered.
Mr. Barletta?
Mr. Barletta. Thank you, Mr. Chairman.
Mr. Parker, I am proud to say, Pennsylvania's 11th
Congressional District is home to a number of initiatives
designed to help spur small business growth and development;
specifically, Wilkes University's Small Business Development
Center.
As a former small business owner, I am well aware of the
hurdles and challenges of both the start-up--which I did, I
started a new business from scratch--and the growth challenges
of small businesses.
I want to talk particularly about the employer mandate
provision.
Would you say there is less of an incentive now? If you
were a business that might have 47, 48 employees, would you
believe that that is less of an incentive to expand and grow
your business to over 50 employees?
Mr. Parker. Absolutely. And more than that, even if you are
already well above that number, the incentive now is to sort of
batten down the hatches versus growing.
And I think, you know, people have been talking throughout
this hearing about how, well, when we get to 2014, the impacts
will be this, that or the other. I can tell you, it is not
hypothetical. This is impacting our business right now.
You know, I run development for our business. Our growth is
very much in fits and starts.
We have to develop a new location, so we have to make a big
bet. We have to pick an area that we think can support it. We
have to go in, invest several million dollars. And then, we
create a big chunk of jobs, and we have a new business.
And each one of those is a big decision, and we have a lot
of skin in the game, personally. And we are putting the well-
being of everyone in the company on the line every time we do
it.
And more deals that I have looked at over the last, you
know, 6 months, I tend to say, it is marginal. We are going to
pass. Just because, not only this bill and the impacts it has
today, and knowing that it is only going to get worse, but, you
know, what is next? And it is a huge disincentive to growth
overall.
Mr. Barletta. And would you say that a business that might
have 52 employees may actually--a business that might be
struggling to stay in business and pay its bills--would you
believe that they may lay a few employees off to get under the
50 employee mandate?
Mr. Parker. Absolutely.
Mr. Barletta. Do you have any idea where they picked the
number 50 from, and how we established 50 as a magic number?
Mr. Parker. I have no idea.
Mr. Barletta. Mr. Brewer, same question. Would you believe
that a business that might have 48 employees would be reluctant
to hire a few more?
Mr. Brewer. Sure. We do not do business in that space. Our
cases are typically significantly larger. But I cannot imagine
the same logic would not apply.
We have got employers that we serve every day who are
reluctant to add employees, because of the additional burden of
sort of unforeseen health care mandates.
So, yes, I think it would be perfectly logical that
somebody would be willing to do that.
Mr. Barletta. And would you believe, because of the
Affordable Care Act, that in America there will be businesses
who will lay off a few employees, if they are around 51, 52, 53
employees?
Mr. Brewer. I cannot tell you that I professionally believe
that. On a personal level, that certainly makes sense.
Mr. Barletta. Especially if it is a business that is
struggling?
Mr. Brewer. Yes.
Mr. Barletta. Mr. Houser, if your business had 48
employees, would you be reluctant to hire a few more, if it was
going to put you over the 50 employee mandate, especially if
you were a business that might be struggling today?
Mr. Houser. Congressman, I make decisions like that based
on my workload. I would not turn down work because I did not
have sufficient employees. I would make a decision about hiring
more employees based on how much work I had to perform.
So, if I had 49 employees, and I had enough work for 52
employees, and that was going to make me more profitable, I
would hire 52 employees. That would not make----
Mr. Barletta. But would you also maybe think about making
the 49 work longer, so that you did not have to go over the 50
employee mandate?
Mr. Houser. I am talking about having enough work for 52
employees. That would be the driving factor in my decision, not
whether or not I have to provide some--because I am already
providing the health care. That is factored in.
Mr. Barletta. If you were a business----
Mr. Houser. So, I do not see it----
Mr. Barletta. I am talking about a business that might have
48, 49 employees that was not. And hiring one or two more
employees would now throw you into a mandate, where you would
be fined $2,000 per employee.
Mr. Houser. I do not----
Mr. Barletta. Why wouldn't you think of just making those
employees work a little longer, rather than hiring another few
more employees?
Mr. Houser. People make those kinds of decisions all the
time, and I am not familiar with them.
Mr. Barletta. Mr. Miller, many small businesses have
employees who work full-time hours. My business that I had was
a line painting business. We painted lines on highways. In
Pennsylvania, obviously, you cannot paint lines in January. It
does not work that well.
Now, so, we would be considered seasonal. They might start
working in April, and get laid off in October or November.
Now, would they be considered, under this act, would they
be considered full-time employees, or part-time employees?
Mr. Miller. Well, there is a calculation--and again, these,
you know, the angels dancing on the head of a pin--where they
can get, in effect, calculations of full-time equivalents by
aggregating part-time, workers, so they can add up to full-time
employees and get you above or below that 50 threshold.
And your description of this is exactly right. There is no
one single factor that says we are going to shut down the
business, or we are----
Chairman Roe. Mr. Miller?
Mr. Miller. But these are all calculations. If you try to
trap employers in a maze, and it looks like all the other doors
are closed, they are going to find one to go through.
Chairman Roe. Mr. Miller?
Mr. Miller. You will do calculations and say, does it pay
for me to do something different? Do I restructure my firm? Do
I suddenly have two businesses, and you ship people out
somewhere else? Do I pay you differently, because it turns out,
when I pay you more, I lose money under other calculations?
Is it going to hit me when I grow too much? Can I do it in
a different manner?
All these are not what businessmen should be doing, but
they have to take into account the entire structure of costs
imposed on them, and they will act the best they can. We are,
though, overloading them, so that they are trying to do so many
things that have nothing to do with running their own
businesses, that it gets very complicated, just to run an
effective business.
Chairman Roe. Mr. Miller, the time has expired.
Dr. Bucshon?
Mr. Bucshon. Thank you, Mr. Chairman.
Just some background, I am a cardiovascular surgeon, so I
have been in the health care industry for quite a long time.
Mr. Houser, a couple of questions for you. Have you
testified before Congress before, or is the first time?
Mr. Houser. This is my first time, Congressman.
Mr. Bucshon. Great.
Mr. Houser. Thank you very much for inviting me.
Mr. Bucshon. Welcome.
Is it--under what you talked about--is it true or not true
that your, the company that you run is currently exempt from
the employer mandates in the new health care law?
Mr. Houser. That is correct. Under my understanding, that
is correct.
Mr. Bucshon. So do you know if your current health care
plans that you are offering to your employees comply with the
requirements of the Affordable Care Act? Do you have any idea
whether they comply or not?
Mr. Houser. I have no idea. I could find out, but I do not
know.
Mr. Bucshon. Because under the Affordable Care Act, you
really do not have to have your health plans comply at all,
right, because your company is exempt.
Mr. Houser. As far as I know, that is correct.
Mr. Bucshon. Okay. I mean, the basic premise of the
discussion has been the cost of health care. And as you are
probably aware, under congressional testimony January 26, chief
actuary, Mr. Foster, from the Medicare services, stated that,
promises the new health law would hold down costs were ``false
more than true.''
And I applaud you for being a small business owner. It is
tough. But in fairness, from your testimony, you are really
exempt from the law and really do not have any risk under the
law, other than the fact that you are hopeful the law will hold
down health care cost. But we know the data shows that that is
not true.
So, I just wanted to get your view on that, that--and
again, with what Mr. Barletta said--if you were an employer
that had 60 employees, 70 employees, and you were not exempt
from the health care law, do you feel that you would try to put
yourself in a position that you would not have to comply with
not only providing health insurance, but the specific type that
is required under the law, or else suffer penalties?
Mr. Houser. Congressman, there are over 4 million small
businesses that fall in the category I am in, that will be able
to, for example, get the tax credits for providing health care
coverage for their employees.
Mr. Bucshon. Excuse me. I do not want to interrupt, but
those are going away in fairly short order. Those will be a
temporary thing.
And then, again, I think you were asked the question
earlier. Do you have a plan for your business, when the tax
credits, not only do they go away, but who is paying for the
tax credits? I mean, where does the money come from? It comes
from the American taxpayer.
And as we know, with the testimony of Mr. Foster, as health
care costs continue to rise under this health care bill,
everyone is going to continue to struggle. Your premiums are
going to continue to go up.
And if you do not have a plan for when you lose your short-
term, small business credits, what are the other 4,000
businesses like yourself around the United States going to do
when those go away?
Mr. Houser. Congressman, in part, my premium has gone down.
And I do not see any reason why that might not continue,
especially as more people join and are paying premiums,
especially younger, healthier.
I have every reason to believe that health care premiums
can go down, or stabilize. And especially as the State of
Oregon makes improvements in health care delivery, I also
believe premiums can go down.
So, I plan for the worst, I plan for the best. And you just
sort of proceed on that basis.
Mr. Bucshon. That opinion is in contrast to, again, the
chief actuary, Mr. Foster, and most economists around the
country that have looked at this health care bill, that your
premiums will go down and the health care costs will go down.
Because, being in medicine, I think that it is very clear
that the number one problem we have in America is the
skyrocketing cost of health care. And I am concerned for
businesses like yours, that when these tax credits go away, you
are going to have trouble.
And also, you know, I do think, when you are discussing
something which you are completely exempt from, that gives you
a little bit different perspective on your testimony.
So, I am hopeful that we can get some real cost containment
in place for businesses like yours going forward, because I am
fearful that when these very small credits go away, you are
going to be struggling.
And my time is up. Thank you.
Chairman Roe. I thank the gentleman for yielding.
I will finish the questioning by saying that not anybody on
either side of the aisle did not think we needed to have a
meaningful health care reform. This doctor sitting right here
knew it better than anybody. And that is one of the reasons I
ran and came to Congress.
So, the number one issue in America was: How do we control
the cost of care? Because once we get the costs under control
and it is more affordable, more people can buy it.
Number two, and the second problem we had in the American
health care delivery system was, we had a group of people who
did not have access to affordable insurance coverage in this
country.
We had the working poor that did not apply for, did not
qualify for Medicaid, that did not have a job that provided the
insurance. That is the group we are talking about.
And thirdly, which did not even come up in this bill, which
is a huge problem for Dr. Bucshon and myself, was liability
reform. There is a huge cost for defensive medicine in this
nation.
So, those were the three problems.
This bill did increase access to a program that has already
failed, which is the Medicaid system, and it needs to be
revamped. It did nothing to hold the costs down and did nothing
for liability reform.
The other equation--I see some young, probably physicians,
in the crowd out here, I am glad they came--is we have
forgotten about that part of the program.
Let me explain to you what happens in these government
programs. In TennCare, it paid the providers less than 60 cents
on the dollar for providing the care. Medicare in our state
pays about 90 percent of the cost of the care, leaving that
cost shifted to the private sector.
That is one of the reasons that the cost of private health
insurance has gone up so rapidly in this country, is the cost
shifting.
Let me give you an example. When the implantable
defibrillators first came out, a patient on TennCare--that is
our Medicaid program in the state--had to have one. So, it was
provided for him.
The hospital got paid $800 for the defibrillator. And at
that time, the defibrillator cost $40,000. So, the hospital ate
$39,200 of that.
And you, Mr. Houser, and Mr. Miller and myself, that
provided health insurance coverage, that cost got shifted to
you.
Let me just say a very simple thing. A 2,500-page bill got
written. And you could do two-thirds of it with two paragraphs.
One is simply, sign up the people who are currently eligible
for Medicaid and SCHIP.
And number two, which I like, is leave your 26-year-old--
you only had one child, I had three that did that--allow them
to stay on. That covers over 20 million people.
And, then, lastly what you do, let people shop across state
lines. It is the only insurance you cannot do that. Let them
form association health plans and get bigger, like you are
talking about. And have liability reform.
You do those simple things--not complicated--you can help
force the costs down.
Here is a card. That is a health savings account card I
have right here. I had to have some biopsies done. I had to
have some anesthesia for it. I would recommend you get
anesthesia, if you have the biopsies I had, too.
[Laughter.]
Anyway, I walk into the hospital and I have this card. It
is called a health savings account. I do not ask the insurance
company; I do not bother with them. I make a deal with the
hospital. I said, how much will you give me this, if I pay you
in a millisecond?
And guess what. I saved 35 percent. I was happy. The
hospital was happy.
And that is what Mr. Miller was talking about, I think, is
changing the way we pay for health insurance in this country.
So, Mr. Brewer, I have dealt with this issue as a former
mayor and these costs that are being passed along. Let me ask
you why I would not do this.
I had 350 employees in my practice. Right now, we put about
$5,000 per person away. If I pay the fine and the penalty--we
have 300 people who get health insurance through our practice--
if I pay the $2,000, that is $600,000 I pay. If I pay the
$5,000, that is $1.5 million.
If I dump my employees in the exchange, which I certainly
do not want to do--we provided health insurance in our practice
for over 42 years. And I won't be the first, but I won't be the
third, either.
Why wouldn't I do that, to put that to my bottom line, and
put that cost onto the government? Why wouldn't I do that?
Mr. Brewer. Do you want the CBO logic?
Chairman Roe. Yes.
Mr. Brewer. Because it is illogical. I do not see any
reason why you would not do that.
You know, I think the way we have characterized this, there
is going to be a conundrum as we present to our employer
clients, the clients that we serve, there is going to be a
dynamic tension between the CFO and H.R.
The CFO is going to look at that potential savings, and his
eyes are going to get real wide. And he is going to say, why in
the world wouldn't I do that?
H.R. is going to be fighting about, well, we need it for a
competitive advantage. You know, the CBO refers to a tight
labor market that does not exist, so I am not sure that one
holds any water.
But over some period of time, if you have been in
business--and you have--you know how this works. Over a period
of time, the CFO is going to win that argument. The logic of
survival will trump the logic of warm and cuddly H.R.
So, the answer to your question is, there isn't any reason
why you would not do that, if you had any reasonable assurance
that your employees were going to be adequately covered, or
adequately managed, within the framework of the exchange.
Chairman Roe. And my time has expired.
Mr. Kucinich, any closing comments?
Mr. Kucinich. Yes. You know, in listening to the testimony,
it is very interesting. And in hearing your questions from my
colleagues, I came up with this conundrum, and you have--and
the challenges that small businesses face here.
You have Mr. Houser, who has being asked who pays for the
small business tax cut he is receiving. But we know that he is
paying 100 percent of his employees' health care, and he has
been for 28 years.
And you have Mr. Parker's company. According to staff and
documents that they are covering less than 100 of their 530
employees, and the rest will have little health care.
And who is paying for those other 400? Well, it is going to
be the taxpayers, because what is happening is, you know,
people go--they will get medical care somehow.
They will go to hospitals, they will go on Medicaid. As
people who do not have any insurance, the hospitals end up
being their emergency rooms. Taxpayers end up footing that bill
in some way, shape or form.
After the exchanges are set up, Mr. Parker's employees will
go to the exchanges, and which are government subsidized.
So, you know, we have to be sensitive to the sometimes
conflicting and contradictory situations which businesses find
themselves in, notwithstanding their position on the bill.
Thank you.
Chairman Roe. I thank the gentleman.
I thank all of the panelists for being here. It was an
excellent discussion.
I will finish by this, by saying that I believe that
businesses--and all of you all have been involved in business--
are much better suited to decide what health insurance that
they need to purchase for their business than the federal
government.
What has happened is that the federal government will now
decide which is adequate health insurance coverage. And let me
give you just an example. They have a minimum benefit package
that is going to be--and everyone will have to do it.
And Mr. Houser, what you may have purchased may not be the
minimum. Your cost may go up, because you may not meet the
standard that the government says you have to make. I think you
should be able to make that decision.
There is a company in Tennessee--and I won't mention the
name of it--that right now has a plan that they can afford--it
is a large company--that they can afford and that they are
happy with, their employees are happy with. But it will not
meet this minimum standard that the government has laid out in
this affordable health care plan.
It will cost them $40 million to comply with this. If they
drop their employees into the exchange, it will save them $40
million. And Mr. Brewer clearly pointed out, that argument will
go on, but eventually, the CFO will win out.
I believe that individuals should make those decisions, and
businesses should make those decisions, not the government.
The other thing that I have a little problem with--matter
of fact, a major problem--is with the cost estimates. It was a
year ago the CBO--these are good people, they are honest, they
plug in numbers that they get--told us that the budget deficit
was going to be $1.2 trillion. It turns out it is going to be
$1.65 trillion. So, in 1 year, they missed it by $400 billion.
And I am supposed to believe, looking at all the past
history that I have with Medicare and with TennCare, and with
Massachusetts, quite frankly, what their--the Massachusetts
plan, which has the mandate, have the highest insurance
premiums, rising faster than anybody else in the country.
So, when the government makes those decisions, and you do
not make them as an individual or your family--and I have said
this from day one. Health care decisions should be made by
patients, their families and doctors. And it should not be
decided by the federal government.
I have enjoyed this discussion immensely today. I thank
each one of you for preparing. You did a great job.
And with this, without any further discussion, this meeting
is adjourned.
[An additional submission of Dr. Roe follows:]
Associated Builders and Contractors,
Arlington, VA, March 10, 2011.
Hon. Phil Roe, Chairman; Hon. Robert Andrews, Ranking Member,
Subcommittee on Health, Employment, Labor Pensions, House Committee on
Education and the Workforce, 2181 Rayburn House Office
Building, Washington, DC.
Dear Chairman Roe and Ranking Member Andrews: On behalf of
Associated Builders and Contractors (ABC), a national association with
75 chapters representing more than 23,000 merit shop construction and
construction-related firms with nearly two million employees, I am
writing in regard to the subcommittee hearing on, ``The Pressures of
Rising Costs on Employer Provided Health Care.''
Throughout the health care reform debate, ABC advocated for
policies that would reduce the cost of health care for employers and
their employees. ABC called on Congress to advance common-sense
proposals that would address the skyrocketing costs of health
insurance, especially for employer-sponsored plans, and the rapidly
rising number of uninsured Americans.
Unfortunately, the massive and complex health care law, known as
the ``Patient Protection and Affordable Care Act'' or PPACA, fails to
address the core problem facing small businesses: the rising costs of
health care. It is unfathomable that our elected leaders imposed new
costly mandates and taxes on employers at a time of record high
unemployment. Such actions demonstrate a fundamental failure of the
federal government to understand the needs of small businesses. As a
result, numerous provisions in the health care law will have a direct
negative impact on ABC members, including:
Higher insurance costs due to new mandated benefits
New taxes on small business health insurance policies
Prohibitions on HSAs, FSAs and HRAs that limit employer
and employee flexibility
An employer mandate that encourages job cuts
New taxes, fees and mandates specifically targeted at the
small business community
Additionally, ABC has expressed concerns about the regulatory
burdens imposed by the massive health care law. The outcomes of many of
the health care related federal rulemakings are currently unclear. This
has created an environment of uncertainty in our industry that makes it
difficult for firms to adequately plan for the future.
Providing quality health care benefits is a top priority for ABC
and its member companies. ABC urges Congress to move forward with
legislative proposals that will provide employers and their employees
with health care solutions that are both practical and affordable.
ABC believes medical malpractice reform should be included in any
true health care reform package. By enacting medical malpractice reform
we will see a dramatic decrease in the cost of health insurance for the
American public. ABC also strongly supports the inclusion of Small
Business Health Plans (SBHPs) and expanding access to Health Savings
Accounts (HSAs). Further, the unique nature of construction work
demands that benefits be portable in order to reflect the reality of
the industry workforce.
We appreciate your attention to this important matter and look
forward to working with you on commonsense health care initiatives.
Sincerely,
Corinne M. Stevens, Senior Director,
Legislative Affairs.
______
[An additional submission of Mr. Kucinich follows:]
------
[Whereupon, at 11:25 a.m., the subcommittee was adjourned.]