<DOC> [108th Congress House Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:94534.wais] EXAMINING INNOVATIVE HEALTH INSURANCE OPTIONS FOR WORKERS AND EMPLOYERS ======================================================================= HEARING before the SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS of the COMMITTEE ON EDUCATION AND THE WORKFORCE U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED EIGHTH CONGRESS SECOND SESSION __________ June 24, 2004 __________ Serial No. 108-66 __________ Printed for the use of the Committee on Education and the Workforce Available via the World Wide Web: http://www.access.gpo.gov/congress/ house or Committee address: http://edworkforce.house.gov ______ U.S. GOVERNMENT PRINTING OFFICE 94-534 WASHINGTON : 2004 ____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON EDUCATION AND THE WORKFORCE JOHN A. BOEHNER, Ohio, Chairman Thomas E. Petri, Wisconsin, Vice George Miller, California Chairman Dale E. Kildee, Michigan Cass Ballenger, North Carolina Major R. Owens, New York Peter Hoekstra, Michigan Donald M. Payne, New Jersey Howard P. ``Buck'' McKeon, Robert E. Andrews, New Jersey California Lynn C. Woolsey, California Michael N. Castle, Delaware Ruben Hinojosa, Texas Sam Johnson, Texas Carolyn McCarthy, New York James C. Greenwood, Pennsylvania John F. Tierney, Massachusetts Charlie Norwood, Georgia Ron Kind, Wisconsin Fred Upton, Michigan Dennis J. Kucinich, Ohio Vernon J. Ehlers, Michigan David Wu, Oregon Jim DeMint, South Carolina Rush D. Holt, New Jersey Johnny Isakson, Georgia Susan A. Davis, California Judy Biggert, Illinois Betty McCollum, Minnesota Todd Russell Platts, Pennsylvania Danny K. Davis, Illinois Patrick J. Tiberi, Ohio Ed Case, Hawaii Ric Keller, Florida Raul M. Grijalva, Arizona Tom Osborne, Nebraska Denise L. Majette, Georgia Joe Wilson, South Carolina Chris Van Hollen, Maryland Tom Cole, Oklahoma Tim Ryan, Ohio Jon C. Porter, Nevada Timothy H. Bishop, New York John Kline, Minnesota John R. Carter, Texas Marilyn N. Musgrave, Colorado Marsha Blackburn, Tennessee Phil Gingrey, Georgia Max Burns, Georgia Paula Nowakowski, Staff Director John Lawrence, Minority Staff Director ------ SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS SAM JOHNSON, Texas, Chairman Jim DeMint, South Carolina, Vice Robert E. Andrews, New Jersey Chairman Donald M. Payne, New Jersey John A. Boehner, Ohio Carolyn McCarthy, New York Cass Ballenger, North Carolina Dale E. Kildee, Michigan Howard P. ``Buck'' McKeon, John F. Tierney, Massachusetts California David Wu, Oregon Todd Russell Platts, Pennsylvania Rush D. Holt, New Jersey Patrick J. Tiberi, Ohio Betty McCollum, Minnesota Joe Wilson, South Carolina Ed Case, Hawaii Tom Cole, Oklahoma Raul M. Grijalva, Arizona John Kline, Minnesota George Miller, California, ex John R. Carter, Texas officio Marilyn N. Musgrave, Colorado Marsha Blackburn, Tennessee ------ C O N T E N T S ---------- Page Hearing held on Month Day 2003................................... 1 Statement of Members: Andrews, Robert E., Ranking Member, Subcommittee on Employer- Employee Relations, Committee on Education and the Workforce.................................................. 3 Johnson, Hon. Sam, Chairman, Subcommittee on Employer- Employee Relations, Committee on Education and the Workforce.................................................. 2 Prepared statement of.................................... 3 Statement of Witnesses: Dennis, William Jr., Senior Research Fellow, National Federation of Independent Business (NFIB), Washington, DC.. 5 Prepared statement of.................................... 8 McArdle, Frank, Ph.D., Manager, Washington, DC Research Office, Hewitt Associates, Washington, DC.................. 13 Prepared statement of.................................... 15 Pollack, Ron, Executive Director, Families USA, Washington, DC......................................................... 19 Prepared statement of.................................... 21 Remmers, Rick, Chief Executive Officer, Humana, Inc. - Kentucky, Louisville, KY................................... 27 Prepared statement of.................................... 31 EXAMINING INNOVATIVE HEALTH INSURANCE OPTIONS FOR WORKERS AND EMPLOYERS ---------- Thursday, June 24, 2004 U.S. House of Representatives Subcommittee on Employer-Employee Relations Committee on Education and the Workforce Washington, DC ---------- The Subcommittee met, pursuant to notice, at 10:04 a.m., in room 2181, Rayburn House Office Building, Hon. Sam Johnson [Chairman of the Subcommittee] presiding. Present: Representatives Johnson, Tiberi, Wilson, Kline, Carter, Andrews, Payne, McCarthy, Kildee, Tierney, and McCollum. Staff present: Kevin Frank, Professional Staff Member; Ed Gilroy, Director of Workforce Policy; Aron Griffin, Professional Staff Member; Richard Hoar, Staff Assistant; Molly Salmi, Deputy Director of Workforce Policy; Deborah L. Samantar, Committee Clerk/Intern Coordinator; Jody Calemine, Minority Counsel Employer-Employee Relations; Margo Hennigan, Minority Legislative Assistant/Labor; Marsha Renwanz, Minority Legislative Associate/Labor; and Michele Varnhagen, Minority Labor Counsel/Coordinator. Chairman Johnson. Good morning. A quorum being present, the Subcommittee on Employer- Employee Relations of the Committee on Education and the Workforce will come to order. We are holding a hearing today to hear testimony on examining innovative health insurance options for workers and employers. Under Committee Rule 12(b), opening statements are limited to the Chairman and Ranking Minority Member of the Subcommittee. Therefore, if other Members have statements, they will be included in the hearing record. With that, I ask unanimous consent for the hearing record to remain open 14 days to allow Member statements and other extraneous material referenced during the hearing to be submitted into the official record. Without objection, so ordered. STATEMENT ON HON. SAM JOHNSON, CHAIRMAN, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE I want to extend a warm welcome to all of you and to the Ranking Member, Mr. Andrews, and my other colleagues who are present today. With annual double-digit health care cost increases over the last few years, employers are faced with the question of how they will continue voluntarily providing the high level of quality benefits that they have in the past. Essentially, they have three options: reduce benefits, ask employees to contribute more, or reexamine your whole workforce. Many employers are redesigning their health plans and implementing new options to help employees become more savvy customers of health care. For example, the Wall Street Journal had an article yesterday which described what the Texas-based Whole Foods Market, Inc., was doing. In 2003, Whole Foods took a chance and implemented their own high-deductible plan combined with an account that the employer subsidized. By putting employees in the driver's seat when it came to their health care decisions, they hoped to lower costs. The results of their decision was impressive. According to the article, overall medical claim costs fell 13 percent from the year before, and despite critics' conjecturing, one woman said that the plan certainly never stopped her from going to the doctor, ``but it made me a more conscious spender.'' At the end of 2003, $14 million carried over in employee accounts, which employees can use toward this year's medical expenses, and the benefits of a plan like this are not just cost-based. The number of Whole Foods employees with health insurance skyrocketed from 65 percent to 95 percent, and the employees are happy with their plans. Last summer, the company gave their workers a choice between consumer-driven plans and one of the more traditional insurance arrangements. The high-deductible plan won out, with an overwhelming 83 percent of the vote. Many Members of Congress would do well to get that kind of confirmation. The Whole Foods model is just one example of the innovative ways employers are continuing to offer benefits. In today's hearing, we will also explore two other options that were made available to employers in last year's Medicare Modernization Act. Employers now have the benefit of new health savings accounts. Individuals and employers may make annual contributions in these HSAs tax-free, and as long as the money is used for medical expenses, it can be withdrawn tax-free. As a way of helping employers to continue offering high quality health benefits to their employees once they have retired, the recent Medicare prescription drug law also made a range of new options available to employers with respect to prescription drug benefits, and the options present a great opportunity to help ensure the viability of voluntarily sponsored health plans. We look forward to hearing your testimony, and I thank all of you for coming. I am going to yield now to the distinguished Ranking Minority Member of the Subcommittee, Mr. Andrews, for whatever statement you wish to make. [The prepared statement of Chairman Johnson follows:] Statement of Hon. Sam Johnson, Chairman, Subcommittee on Employer- Employee Relations, Committee on Education and the Workforce Good morning. Let me extend a warm welcome to all of you, to the Ranking Member, Mr. Andrews, and to my other colleagues. With annual double-digit health care cost increases over the last few years, employers are faced with the question of how they will continue voluntarily providing the high level of quality benefits they have in the past. Essentially, they have three options: reduce benefits, ask employees to contribute more, or reexamine their workforce. Many employers are redesigning their health plans and implementing new options to help employees become more savvy consumers of health care. For example, the Wall Street Journal had an article yesterday which described what the Texas-based Whole Foods Market Inc. was doing. In 2003, Whole Foods took a chance and implemented their own high deductible plan combined with an account that the employer subsidized. By putting employees in the driver's seat, when it came to their health care decisions, they hoped to lower costs. The result of their decision was impressive. According to the article, ``overall medical claim costs fell 13% from the year before.'' And, despite critics conjecturing, one woman said that the plan ``certainly never stopped [her] from going to the doctor, but it made me a more conscious spender.'' At the end of 2003, $14 million carried over in employee accounts, which employees can use towards this year's medical expenses. The benefits of a plan like this are not just cost-based. The number of Whole Foods employees with health insurance skyrocketed--from 65% to 95%! And the employees are happy with their plans. Last summer the company gave their workers a choice between the consumer-driven plan and one of the more traditional insurance arrangements. The high- deductible plan won out with an overwhelming 83% of the vote. Many members of Congress would do well to get that kind of confirmation! The Whole Foods model is just one example of the innovative ways employers are continuing to offer sound benefits. In today's hearing we will also explore two other options that were made available to employers in last year's Medicare Modernization Act. Employers now have the benefit of new health savings accounts (HSAs). Individuals and employers may make annual contributions in these HSAs tax-free. And, as long as the money is used for medical expenses, it may be withdrawn tax-free. As a way of helping employers to continue offering high quality health benefits to their employees once they have retired, the recent Medicare prescription drug law also made a range of new options available to employers with respect to prescription drug benefits. The options present a great opportunity to help ensure the viability of employer-sponsored health care. We look forward to hearing your testimony. ______ STATEMENT OF ROBERT E. ANDREWS, RANKING MEMBER, SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS, COMMITTEE ON EDUCATION AND THE WORKFORCE Mr. Andrews. Good morning. Thank you, Mr. Chairman, for your courtesy, and I appreciate the chance to hear from the witnesses this morning. Thank you for your time and your preparation. In the last three-and-a-half years, over 4 million people have lost their health insurance. The number of people who are without health insurance has gone up from about 40 million to 44 million. One of the driving factors in that is the wildly escalating cost of health insurance. There is not an employer with whom I have met in the last 5 years, frankly, that has not listed the skyrocketing costs of health insurance at or near the top of his or her list of concerns. Without a doubt, the rising cost is a major contributor to the growing ranks of the uninsured. So, the focus on ways to reduce the cost of health insurance is a welcome focus. It is a highly debatable area. I, frankly, am greatly skeptical that so-called consumer-driven models will reduce health care costs. Buying health care is not the same thing as buying an article of clothing or a piece of furniture. It is a very complex transaction, and I think that the presumption is that these choice models may deteriorate quality before they reduce cost, but that is why we have these hearings, so we can debate and hear the arguments for and against such models. I would caution people, however, not to put too much credence in the theory that a modest cost reduction would radically reduce the number of uninsured people in the country, because it will not. A modest cost reduction is welcome and it is necessary, but it is wholly insufficient to deal with the vast majority of the 44 million uninsured Americans. If you look at American families that made less than $37,000 a year, half of them have been without health insurance in the last year. Typically, the family that is without health insurance has a very low family income. The person who is working in that household is working for a thin margin industry at low wages with little or no health benefits. A significant drop in the price of health insurance is not going to reach most of those uninsured people. It is not. The employer who is working on a very thin margin to begin with is not going to be motivated to provide health insurance to an employee if the price drops from $8,200 to $7,800 per family. He or she still cannot afford it. The harsh reality here is, without significant public subsidies, there will not be a significant reduction in the number of uninsured people in the country. So I think that leads us to the discussions we are going to have on the floor today about the larger and global economic questions for the country. Are tax cuts the right policy or not? Is spending restraint the right policy or not? In what areas are these the right policies or not? Without a significant investment in subsidy to help uninsured people gain access to health care, it is not going to happen. Now, that does not mean that we should not explore various tools at our disposal to reduce the price of health care, and I look at this morning's panel as an excellent opportunity for us to learn that. There are many different approaches to this. Some I think will work and some will not, but I think it is very important that we approach this problem with a clear understanding that a family that is making 24 or $25,000 a year, that makes too much for Medicaid but not enough to pay for private health insurance, is not going to be helped very much by a stabilizing or modest reduction in prices of health care for employers. Some of those families will, in fact, get covered, but anyone who assumes that it is more than 15 or 20 percent of those families just is wrong. It is not. So I think that not only do we need to focus on the issues of reducing cost, but we also need to focus on the budget priorities and policies of the country as to whether we are putting the money in the right place, and I will just conclude by saying I think we did the right thing in 1997 with the creation of the State Children's Health Insurance Program, the SCHIP program. There was more progress made in those few years when the funds were available for that program than any other time in the recent history of the country, because we put a significant amount of Federal resources into purchasing high-quality health insurance for children across the country. That is what is going to make a dent. These other strategies are welcome and necessary, but they are not sufficient to address and solve the problem. So I look forward to the testimony of the witnesses, and I look forward to the questions from the members of the Committee. Thank you. Chairman Johnson. Thank you, Mr. Andrews. Let me introduce our witnesses now, and I want to thank you all for coming now, and I will again later. The first witness is Mr. William Dennis, Jr. Mr. Dennis is a Senior Research Fellow at the National Federation of Independent Business. He has also served as President of the International Council for Small Business. Second, Mr. Frank McArdle. Mr. McArdle is the manager of the Hewitt Associates Washington, DC Research Office. Prior to joining Hewitt, Mr. McArdle was Director of Education and Communications at the Employee Benefit Research Institute. Prior to assuming his position, he was a Professional Staff Member at the U.S. Senate. You did not talk them into doing anything right over there, did you? Mr. Ron Pollack is our third witness. Mr. Pollack is Executive Director of Families USA, a national organization for health care consumers. Mr. Pollack is also the founder and chair of the Health Assistance Partnership. Finally, Mr. Rick Remmers. Mr. Remmers is the chief executive officer of Humana, Incorporated, Kentucky, Indiana, and Tennessee health plans. In this capacity, he is responsible for overall strategic direction and operational performance of a combined 500,000-member, $1 billion premium revenue commercial health plan operation. Before the witnesses begin, I would like to remind the members that we will be asking questions after the entire panel has testified. In addition, Committee rule 2 imposes a 5-minute limit on all questions, and the lights that you saw working down there are also 5-minute timer lights, and we would ask you if you could try to keep your comments within that limit. When you see the yellow light, you know you have got a minute left, and if you could shut it down pretty quick after the red one comes on, we would appreciate it. You may begin your testimony, sir. STATEMENT OF WILLIAM DENNIS, JR., SENIOR RESEARCH FELLOW, NATIONAL FEDERATION OF INDEPENDENT BUSINESS (NFIB), WASHINGTON, DC Mr. Dennis. Thank you, Mr. Chairman. I would ask that my full statement be included in the record at this point. What happens when small employers receive substantial increases in employee health insurance premiums? Well, the flip answer is they struggle a lot. Unfortunately, the real answer is they struggle a lot. The easiest way to explain is to walk you through the process. Once they receive a substantial increase, their first reaction is to shop for a better deal. Indeed, we now find 60 percent of small firms are shopping for a better deal every year. About half that number actually switch. Small firms are the most frequent shoppers, although they are the least frequent switchers. There are limits to what they can get in the market. Some move to non-traditional forms of insurance. For example, 13 months ago, we found that about 5 percent of all small firms had an MSA. These firms employ 3.9 million employees, although obviously they all did not participate. Once they finish shopping and even if they get some price break, they still need to offset the rest. They have various options before them. I will mention three of the most important. The first is to raise prices, in other words forward shift. The second is to back shift to employees. The third is to lower their own earnings. Most would like to raise prices, but most also operate in highly competitive markets. I would draw your attention to Exhibit 2. Exhibit 2 shows how unsuccessful small firms have been in passing on cost increases over the last decade. If you will note, the thin line represents those who would like to raise prices in the next 3 months; the heavy line indicates the number who were able to. You can see that the heavy line is around zero. Therefore, when they get--when small firms get premiums increases, substantial premium increases, they have a very difficult time forward shifting it. The alternatives to back shift to employees in the form of fewer jobs, lower wages, fewer benefits, etcetera--economists argue that both theory and evidence show that most health insurance cost increases are back shifted over some period of time but not everything is back shifted and not everything is back shifted immediately. For example, we can see 25 to 30 percent of all small firms raising cost shares, raising co-payments, raising deductibles. That is back shifting. Actually, we are finding that relatively few drop insurance, per se. Now, that seemed kind of strange, because why would we have declining coverage? Well, we believe that an important reason for this is that new firms, of which there are 800,000 new employers every year, are reluctant to begin providing insurance. The third thing that could be done is lower earnings. That is not viable over the longer term. No earnings, no business, no need for health insurance. Yet all costs cannot be back shifted, and we cannot forward shift, as you have seen. So what is left? That is earnings, that is income, and most small firm owners are middle, upper middle-class folks. So what is the stopgap? Their income is stopgap until a transition can be made, and those transitions are exacerbated by short notice of premium increases, unexpectedly large hikes, proportionally large hikes, payroll as a large portion of expenses, and a tough earnings environment, and that is what we have had, a tough earnings environment. So what choices do they have? Well, there is no fixed strategy. It depends upon individual circumstances, but there is no reason to believe that back shifting will stop or decrease. We may be able to do a little more forward shifting. There has been some pricing power in the last couple of months, but I do not see Mr. Greenspan letting that go on for long, and they will continue to shop and look for better deals. In conclusion, whatever one thinks of insurance companies, rates do reflect the price of health care. Curbing health care costs is an important target. How do we get there? Well, we get there best with individuals making choices about the health care rather than employers, through their insurers, or government making it for them. Thank you, Mr. Chairman. [The prepared statement of Mr. Dennis follows:] Statement of William Dennis, Jr., Senior Research Fellow, National Federation of Independent Business (NFIB), Washington, DC [GRAPHIC] [TIFF OMITTED] T4534.001 [GRAPHIC] [TIFF OMITTED] T4534.002 [GRAPHIC] [TIFF OMITTED] T4534.003 [GRAPHIC] [TIFF OMITTED] T4534.004 [GRAPHIC] [TIFF OMITTED] T4534.005 [GRAPHIC] [TIFF OMITTED] T4534.006 ------ Chairman Johnson. Thank you, sir, and let me advise all of you, your full remarks will be entered into the record if you desire. So if you cannot get through them all, we will get them in the record for you and perhaps discuss them more in detail when the question period begins. You may begin your testimony, sir. STATEMENT OF FRANK McARDLE, MANAGER, WASHINGTON, DC RESEARCH OFFICE, HEWITT ASSOCIATES, WASHINGTON, DC Mr. McArdle. Good morning, Mr. Chairman and Members of the Subcommittee. Thank you for the invitation to appear before you this morning, and Mr. Chairman, I appreciate your condolences on my prior Senate staff experience. My name is Frank McArdle, and I manage the Washington, DC, Research Office of Hewitt Associates. Hewitt is a global human resources outsourcing and consulting firm headquartered in Lincolnshire, Illinois. We have been in business since 1940, and we work with employers, employees, and retirees, literally millions of employees and retirees throughout the country. In addition to that experience, I will also draw this morning from some surveys that we have conducted at Hewitt in conjunction with the Henry J. Kaiser Family Foundation, which are all available on the web-site, www.kff.org. Today's hearing is focusing on new insurance options, and I would like to discuss some new options available to employers under the Medicare Prescription Drug Improvement and Modernization Act, which I will abbreviate as the MMA. What I would like to do before I get into that, though, is describe four key pre-existing trends that were in force just prior to the enactment of the MMA, and one is employer plans were voluntarily providing very generous benefits to retirees, both pre-65 retirees and Medicare-eligible retirees, and these are highly valued. Observation No. 2: Retiree health benefits were continuing to erode, as they had begun to do in the 1990's, early 1990's, and you have charts in my testimony that illustrate that. Three, double-digit cost increases in the range of 13 to 14 percent were playing a major role in driving that erosion, and fourth, retiree health plans varied widely both within large, multi-state firms and across the country nationwide. So, in light of these trends, the MMA seeks to encourage employers to continue providing retiree health coverage by offering incentives for employers to do so and, equally importantly, the flexibility for employers to choose among multiple options, because no single option would likely fit the situation of these complex entities. There are basically three broad categories of options and then some additional ones. The three big ones are, option one, the plan sponsor provides retirees not enrolled in Part D--and that is important--qualified retiree prescription drug benefits that are at least equivalent actuarially to what Medicare will provide in 2006. If the plan meets those requirements, then the plan is eligible for a payment from Medicare equal to 28 percent of the allowable costs for a drug for a retiree, between $250 and $5,000. So it is done on a per-retiree basis. It is not done on an aggregate basis. This option is probably the least disruptive for all retirees, and it actually costs Medicare less to provide this 28-percent subsidy than it would cost Medicare to provide coverage to a similar retiree without employer coverage. Option two, the plan sponsor can supplement or wrap around Medicare, generally using ways that are similar to what employers did in the past in terms of aligning with Medicare, but also, there is a new twist, and there are differences, because drug coverage is obviously very different than hospital care and physician services. Then option three is an employer can become an employer- sponsored PDP or Medicare Advantage plan using a waiver authority that is provided for under the new law. Beyond these three broad options, other possibilities exist for companies who may have the financial ability to do something but would choose a route that is better suited to their circumstances. At this stage, most large employers have yet to make the firm decisions as to which approach they will take, because it's still very early in the process and employers still lack certain piece of key information. For example, there are unanswered questions that will be decided in forthcoming regulations at which CMS is busily and diligently at work, and in addition, employers will be looking to the marketplace to see how plans will respond to the prospect of becoming a stand-alone PDP or Medicare Advantage plan. I can tell you that I think, at this point, that sponsors of large collectively bargained plans may be more inclined to choose a 28-percent subsidy while other sponsors may, instead, prefer to wrap around the new Medicare coverage. Based upon CBO and Joint Tax estimates, these financial incentives for the 28-percent subsidy are very substantial, at $71 billion between 2006 and 2013 and nearly another $18 billion in related tax benefits. In explaining these incentives, the Conference Report noted--and I quote--``Absent this assistance, many more retirees will lose their employer-sponsored coverage.'' We agree with that conclusion, Mr. Chairman, and I thank you. [The prepared statement of Mr. McArdle follows:] Statement of Frank McArdle, Ph.D., Manager, Washington, DC Research Office, Hewitt Associates, Washington, DC [GRAPHIC] [TIFF OMITTED] T4534.007 [GRAPHIC] [TIFF OMITTED] T4534.008 [GRAPHIC] [TIFF OMITTED] T4534.009 [GRAPHIC] [TIFF OMITTED] T4534.010 ------ Chairman Johnson. Thank you, sir. You may begin, sir. STATEMENT OF RONALD F. POLLACK, EXECUTIVE DIRECTOR, FAMILIES USA, WASHINGTON, DC Mr. Pollack. Mr. Chairman, thank you so much for inviting me. I am delighted to join you. For three reasons, this is a very timely hearing. We issued--we at Families USA issued a report about 2 weeks ago that looks at the uninsured in a somewhat different way than we are normally used to doing. The current population survey of the Census Bureau tells us there are 43.6 million people who are uninsured. Depending on your interpretation, that is either the number of people uninsured throughout the course of the year or a point-in-time estimate, but it does not tell you how many people are directly affected with being uninsured. Our report, also based on Census Bureau data, shows that, over the course of the last 2 years, 81.8 million people, almost 82 million people were uninsured at some point over the last 2 years, 2002-2003. That constitutes approximately one out of every three people under 65 years of age, and most of these people were uninsured for substantial periods of time. Over half were uninsured for more than 9 months, and the vast majority of these people are in working families. Four out of five are in working families. Mr. Chairman, as you probably know, Texas ranks at the very top of the list that has a very high uninsured rate. In Texas, 43.4 percent of people under 65 years of age were uninsured at some point over the last 2 years. Now, there are other reasons why this hearing is very timely. Obviously, there was a very important Supreme Court decision that was rendered which means that, for many people who have health coverage through their employer, even though they are covered, they may not get the care that they thought that they were supposed to get when they got coverage, and now it appears that there is not meaningful recourse to make sure that people actually get the care they thought they were supposed to get when they obtained insurance from an employer. My hope is that we will work in a bipartisan fashion to enact a patient's bill of rights so that people who do have insurance actually get the care that they need. Lastly, this is a very important and timely day for a hearing because later day, you may be voting on budget legislation that will establish entitlement caps that would cause severe harm to those people who are dependent on Medicaid. If the legislation is adopted that establishes an entitlement cap, by the end of the 10-year period, 17 percent of those on Medicaid are projected to lose their coverage. As many as 8 million people whose lifeline is the Medicaid program would lose coverage. So this is a very timely day for us to be having this hearing. In my written testimony, I focus on three different aspects of proposal--I am not going to go into them in great detail-- health savings accounts, tax credits to buy individual coverage, and association health plans. We think, actually, that those approaches will do very little to provide health coverage for those people who do not have it today and, in some instances, may actually do harm. Let me just mention that, with respect to health savings accounts, we think they are poorly targeted. They provide the greatest relief for people in the highest income brackets. We do not believe it is going to achieve meaningful cost containment. It is more likely, ultimately, to cause adverse risk selection, and we believe that it will facilitate more cost shifting to workers who can ill afford it. I think there are alternatives, and in the remaining time, I just want to suggest that one alternative that we should look at is reinsurance coverage, especially for small businesses, so that those small businesses who are having difficulties paying for the care of their workers have two things. One is they get some relief, because by the provision of reinsurance, it would reduce the premiums, because for example, reinsurance that would provide protection for people with claims above $50,000--only one half of 1 percent actually encounter those kinds of costs, but they account for 20 percent of health care costs. If we provided such reinsurance protection for employers, it would not only reduce their premiums, but it would provide greater predictability in terms of what those premiums would be in the future, and it could be a great help to small businesses. Lastly, I would say, rather than establishing an arbitrary cap on public programs like Medicaid, I think we should be using those programs to expand coverage so that the arbitrariness that results in people getting coverage based on state of residence or their family's status is brought to an end and we can expand coverage substantially to working families in the process. Thank you, Mr. Chairman. [The prepared statement of Mr. Pollack follows:] Statement of Ron Pollack, Executive Director, Families USA, Washington, DC [GRAPHIC] [TIFF OMITTED] T4534.011 [GRAPHIC] [TIFF OMITTED] T4534.012 [GRAPHIC] [TIFF OMITTED] T4534.013 [GRAPHIC] [TIFF OMITTED] T4534.014 [GRAPHIC] [TIFF OMITTED] T4534.015 [GRAPHIC] [TIFF OMITTED] T4534.016 [GRAPHIC] [TIFF OMITTED] T4534.017 ------ Chairman Johnson. Thank you. Mr. Remmers, you may begin. STATEMENT OF RICK REMMERS, CHIEF EXECUTIVE OFFICER, HUMANA, INC.- KENTUCKY, LOUISVILLE, KY Mr. Remmers. Chairman Johnson, Ranking Member Andrews, and distinguished Members of the Subcommittee, my name is Rick Remmers. I am Chief Executive Officer of Humana's operations in Kentucky, Indiana, and Tennessee. Humana is one of the nation's largest health benefit companies. We provide health benefits to approximately 7 million Americans. I am also testifying today on behalf of America's Health Insurance Plans, AHIP. AHIP is a national trade association representing approximately 1,300 private sector companies providing health insurance coverage to more than 200 million Americans. Its members offer a broad range of health insurance products in the commercial marketplace and also have demonstrated a strong commitment to participation in public programs. I appreciate having this opportunity to testify about health insurance options for American workers and their employers. I will begin by reviewing the innovative strategies health insurers are developing to help employers and workers receive the greatest possible value for their health care dollars. Next, I will highlight initiatives AHIP's board of directors have endorsed in an effort to make health coverage more affordable for small employers and their employees. I will conclude by identifying steps Congress and the Administration can take to make health savings accounts and flexible spending accounts more workable and attractive options for patients. To reduce health care costs, Humana and other health insurance plans are developing innovative solutions in two broad areas. First, we are offering consumer choice products to give workers new options for exercising greater control over their health care decisions. Second, we are advancing disease management, wellness, and pay for performance initiatives to improve patient care and help workers stay healthy. Patient choice products are available in the marketplace today in at least three basic designs: low-premium health plans offered in combination with a health savings account, health reimbursement arrangement, or flexible spending accounts; two, products that allow employees to build their own plans after employers have chosen a core level of benefits; and three, products designed around tiered networks of providers. At Humana, we have designed product offerings known as Smart Suite and Smart Select that combine some of these features. Our Smart Select product is available to self-funded employers of 300 or more workers. Employers are allowed to choose from a variety of plans, some of which include a health reimbursement arrangement and flexible spending account. Smart Suite and Smart Select also include web-based tools that are both sophisticated and user friendly. Employees can use these tools to compare cost and benefits, estimate their total health care spending, and customize their health plan by selecting varying levels of co-payments, co-insurance, and premium costs, and prescription drug options. This approach allows employers to maintain a single insurance pool with a single insurance carrier and, at the same time, give employees the ability to choose health plans based on their own evaluation of their health care needs, preferences, and values. Smart Suite and Smart Select have demonstrated that consumer choice offerings reduce medical costs in total. Humana has seen single-digit annual medical cost increases in Smart Suite compared to medical cost increases approaching 17 percent on traditional offerings. Humana has offered Smart Select to our own associates over the last 2 years and has experienced an average medical cost trend under 5 percent without shifting a larger portion of the cost to the associates. In fact, Humana's workers' overall contribution rate actually, on average, decreased from 21 percent of the total premium to 19 percent in the first year. Medical cost savings are the result of utilization reductions in hospital in-patient and out-patient services. Preventative services and routine physician services actually increased by 14 percent, indicating that associates and their dependents are not avoiding care but are more cost-conscious about the choices of benefits, services, and providers. Our experience with these products has recently led us to offer a new enhancement, Smart Assurance. Many Americans are worried about future increases in the cost of health care. Smart Assurance is the nation's first enhancement to a consumer choice product that gives workers the ability to ensure that their costs rise at a predictable single-digit rate of no more than 9.9 percent. Quality improvement is another important area where health plans and insurers are working to provide greater value to employers and their workers. My written testimony explains the steps the private sector is taking to promote evidence-based medicine, disease management programs, predictive modeling programs, wellness and prevention programs and incentives to reward quality. Humana uses a technique known as predictive modeling to help employers understand the dynamics of their work forces and identify at-risk and chronically ill persons. We then work with employers to tailor the types of disease management programs that should be implemented for their employees. These disease management programs improve health care quality by focusing on the comprehensive care of patients over time rather than their individual episode of care. I also want to briefly focus on small employers and the challenges they face in offering affordable coverage to their employees. We know that small employers are much less likely than large firms to provide health care coverage for their employees. Almost all employers offer health insurance coverage. However, among employers with fewer than 50 employees, only 80 percent offer coverage; among employers with fewer than 10, only 55 percent offer health insurance coverage. Affordability is the most important reason that many small employers do not offer coverage. To address this concern, I urge the Subcommittee to consider policy proposals endorsed in March of this year by the board of directors of America's Health Insurance Plans, AHIP. These proposals would directly address the problem of affordability through a program of tax credits for small employers and individuals. My written testimony outlines additional details on these proposals. Implementation of these tax credits would make health coverage more affordable for workers and increase the number of small employers who offer coverage. Lastly, I want to discuss ways Congress and the Administration can make health savings accounts and flexible spending accounts more workable and attractive in the marketplace. First, on behalf of both Humana and AHIP, I want to thank Chairman Johnson and many other Subcommittee Members who helped to win Congressional approval of health savings accounts. I also want to emphasize our enthusiastic support for bipartisan legislation recently approved by the House which would allow up to $500 in unused FSA funds to roll over from 1 year to the next. These are valuable options for health care consumers. I have a number of other ideas that we can address during the questioning. Thank you. [The prepared statement of Mr. Remmers follows:] Statement of Rick Remmers, Chief Executive Officer, Humana, Inc. - Kentucky, Louisville, KY [GRAPHIC] [TIFF OMITTED] T4534.018 [GRAPHIC] [TIFF OMITTED] T4534.019 [GRAPHIC] [TIFF OMITTED] T4534.020 [GRAPHIC] [TIFF OMITTED] T4534.021 [GRAPHIC] [TIFF OMITTED] T4534.022 [GRAPHIC] [TIFF OMITTED] T4534.023 [GRAPHIC] [TIFF OMITTED] T4534.024 [GRAPHIC] [TIFF OMITTED] T4534.025 ------ Chairman Johnson. Thank you, sir. We appreciate the testimony of all of you, and your remarks will be entered into the record. You know, Mr. Dennis, it sounded to me like you think small business guys are having a hard time, and I know they are. Do you anticipate employers not having the competitive competition between each other in order to provide health care to obtain good employees? Is that fading from our system, or are the prices just running them out of business? Mr. Dennis. Well, there is a certain element--there is a proportion of businesses that are vigorously competing for employees and for very high quality employees, and they need to provide health care, there's no ifs, ands, or buts about it, and they frequently provide very, very good benefits. There is another side, though, where that is not the case at all, and they are struggling to meet payroll. They are in highly competitive markets, very frequently. They are not taking much out. In fact, there is a direct relationship, quite frankly, between the amount of money a business owner takes out of the business, whether or not they provide health care, whether or not they provide pensions, and the wages they provide. I mean there is a direct relationship there. So, there are--you have almost a situation where you have some that are vigorously competing, using health care and using all types of benefits, and you have others that are not. Chairman Johnson. Thank you. Well, I know, when I was running a business, it was tough finding health care, and you have really got to search around for it, and sometimes you don't get the best stuff. Mr. McArdle, on page 5 of your testimony, you mention one option employers may take advantage of when providing retiree prescription drugs, supplementing or wrapping around a stand- alone prescription drug plan. Could you tell me how that option might work for an employer? Mr. McArdle. That is an excellent question, Mr. Chairman. There are various ways of doing that. One way might be--and that is why I said in my opening remarks that the employers are looking to see what happens in the marketplace, who is standing up to do PDP plans or Medicare Advantage plans, but one option would be to contract--for the employer to contract with a Medicare Advantage plan or a PDP plan for their retirees to get coverage through that plan and the employer would pay an additional premium to provide more generous benefits than what's in the standard plan. For that purpose, it would really be an advantage. Most of the employers offering retiree health are large multi-state employers, and so, they have retirees all over, and if they had to coordinate with 50 or--who knows?--75 different PDPs, the coordination problem could be quite severe. So, for that purpose, having an opportunity for a national PDP plan or a national Medicare Advantage plan would be a big boon, because then the employers could be able to service all their retirees and do it in a way that is administratively feasible. Chairman Johnson. Thank you. You know, Mr. Pollack made the statement that--it is all doom and gloom according to him, and you know, some of the statistics that we have seen indicate that HSA applicants, for example, did not have any prior coverage, which means some of them are getting insurance that did not have it, and some of them are older than those purchasing traditional insurance, and quite a few of them are buying policies who make less than $50,000 or even down to less than $25,000 a year. So I am not sure that your statement that we are only helping the wealthy is a true statement, and I would be interested in your response to that remark and where you got your statistics from. You know, since I have been up here in the Congress--when I first got here, we started with 15 million people uninsured. Then it went to 18. Then it went to 21. Then 35. Now 40 and now 41 and now 45, maybe 48, and gosh, you are talking about 85 million. Come on. Where are you getting those statistics from? Mr. Pollack. Well, if--so, you want me to focus on the 82 million number? I am happy to do that. Chairman Johnson. Sure. Mr. Pollack. The 82 million figure also is derived through Census Bureau data, and there is no actual contradiction between the 43.6 million figure that is most commonly cited and the 81.1 million that we cite in our report. They actually depict two different things. The 43.6 million figure, which comes from the current population survey, comes from a question that essentially asks were you uninsured throughout the course of the year? Most policy analysts actually interpret that question differently. Most policy analysts interpret the 43.6 million as being a point-in-time figure, how many people were uninsured at the time the survey was taken. The 82 million figure comes from trying to look at how many people over a period of time--in this instance, 2 years--were uninsured at some point in that 2-year period. As you know, some people are uninsured and then they regain insurance. Others, at the time a survey may be taken, have insurance, but later on, they lose that insurance, and so this depicts how many people over the course of the last 2 years, 2002-2003, were uninsured at some point, and of course, that number is considerably larger. The two numbers do not contradict one another, they depict something very different; and I would suggest that the 82 million figure is a very useful way of analyzing how many people are directly impacted by the lack or loss of health coverage. Chairman Johnson. Well, our CBO estimates 20 million uninsured in any given time. Mr. Pollack. That is a different--again, we are depicting different numbers. Chairman Johnson. Well, that is why you cannot use numbers like that. I do not think they are realistic. Mr. Pollack. Well, I think it is very useful to have a base of information about how many people are truly affected. The Census Bureau data that I cited, both in terms of the 43.6 million and the 82 million, are not contradictory with one another. They give you different pictures of this problem. Chairman Johnson. Maybe they tell you how many babies are born a day. Mr. Pollack. I am sorry? Chairman Johnson. Maybe they tell you how many babies are born a day, because they are not insured. Our time is up. We will get back to that issue. Mr. Andrews, you are recognized for questions. Mr. Andrews. Thank you, Mr. Chairman. I would suggest that we could easily settle this dispute about numbers if we adopted a national policy and made the number zero, which is what it ought to be. If we had a policy that invested the right number of resources into health care for people, it would be zero. We would not have to worry about this. I wanted to ask Mr. Remmers and Mr. Dennis a question about reducing costs by more competition. In the market that I represent, two insurers have 82 percent of the covered lives, there is very little competition, and I think that is common in markets throughout the country. What would you think about a proposal that would create a Federal charter for health insurance underwriters that would say that if you met a fixed standard of fiduciary responsibility and a fixed level of consumer protection, benefit protection, if you met these standards, that you would be able to write insurance in any of the 50 states and compete on a national basis? Do you think that would induce competition that would lower costs for health insurance buyers, Mr. Remmers? Mr. Remmers. Congressman Andrews, if you could clarify one more time--you gave several criteria before you finished the question. What were the criteria again? Mr. Andrews. The criteria are that there would be fiduciary standards that would ensure that the company would be solvent, and there would be consumer protection standards so that certain benefits would be mandated and covered, similar to state mandate benefits. There would be one set of mandates for the whole country. Do you think that would lower costs or not? Mr. Remmers. Probably have to get back for the record on that; I do not have the information at my fingertips. But my first reflection on this is that it probably would not, that competition is driven through normal competitive alignment of are you committed to a marketplace, do you have the network- based contracts, do you have the things that are, frankly, very important in order to provide a competitive offering in a given state. Mr. Andrews. Isn't it, in part, driven now by the fact that, in fact, as a practical matter, you have to be licensed by each state that you operate in, so the regulatory barriers to market entry are very significant? If you knock down those regulatory barriers, wouldn't you have more competitors in the marketplace? Mr. Remmers. I think that would be helpful. I think there are regulatory barriers, and they do vary by state. In Kentucky, where I reside, I think our state legislature has recognized that and had worked to try to soften some of the barriers to entry and encourage competition to come back in. Having said that, we have very actively six or seven offerings in most areas of the state for competitive offerings rather than just a presence. Mr. Andrews. Does any one insurer have more than 40 percent of the market share where you live? Mr. Remmers. No, not where I live, in Louisville, Kentucky, no. Mr. Andrews. That is unusual. Mr. Dennis, what do you think? Mr. Dennis. Yes, I would agree, and in fact, associated health plans are kind of a parallel to what you are talking about. There are some differences, but clearly the idea of this relatively uniform regulatory set is to cut entry barriers and to eliminate overlap, duplication, so on and so forth. So, yes. Mr. Andrews. Well, of course, a lot of us think associated health plans create an un-level playing field, because they create one set of rules for one competitor and another set for another, but that is an argument for a different day. Mr. Dennis. Yes. Mr. Andrews. Mr. Pollack, I wanted to ask you a question. Your idea about providing tax credits to small businesses to help them purchase insurance for their employees, I think, is the only viable strategy out there. As I said earlier, I think subsidies for people who cannot afford insurance are necessary, and I think an employer-based system works. I do not think it is a wheel that needs to be reinvented. What do you do about the problem of increasing the number of uninsured because you are subsidizing those who do not provide coverage? What do you do in a situation where one service station owner goes the extra mile and insures his or her employees, but the guy down the street does not? Do you offer the tax credit to both service station employers, or do you only do the one who does not offer coverage, and how do we reconcile that problem? Mr. Pollack. I think that is a very tough issue, because on the one hand, you want to use your tax dollars as prudently as possible and achieve policy results. On the other hand, you do not want to penalize somebody who's done the right thing in the first place. Mr. Andrews. Right. Mr. Pollack. So I think there has got to be a very careful balance. I think we send the wrong signal when those people who have done something voluntarily then get disadvantaged in terms of the tax benefits that are offered. Mr. Andrews. It is a hard problem. Mr. Pollack. I do not think you can simply provide that tax benefit to those people who had not provided it in the past and now provide it and do not provide assistance to those who---- Mr. Andrews. I think Mr. Dennis had a--one comment he made earlier suggests where you might break that gradation. There is a cleft in the marketplace, there is a cleavage in the marketplace between employers who are competing for employees who demand health insurance and cannot get them without it and employers that are not in that marketplace, and I think that is probably the way you have to do this, and you have to extend the tax credit to some of the employers in that marketplace where employers--employees do not have the market power to demand health care. You have got to extend it to them, which means that these all cost more than you and I would think they would originally, because it has to cover not only employers who are employing uninsured people but employers who are employing insured people but competing with people who do not insure, if you follow me. It is a very tough problem. Mr. Pollack. I think it is. I mean, it creates a cost inefficiency, but you have to balance it with equity and fairness. Mr. Andrews. Thank you very much. Chairman Johnson. Thank you, Mr. Andrews. Mr. Carter, do you care to question? Mr. Carter. Thank you, Mr. Chairman. First, let me apologize for being late. We had a markup down the hall I had to be at. A question was asked just a minute ago--and I took it as a two-part question--and one of the things was mandated coverage. Mr. Remmers, I think my colleague down here mentioned two parts, and one part you addressed. The other was mandated coverage, like many of the states have mandated coverage that they require of anyone who offers policies. I have heard testimony that mandated coverage actually drives the cost up, rather than down, and having policies that offer marketplace- driven coverage is a more economical method. Do you have a comment on that? Mr. Remmers. I would agree with you. From Humana's perspective, our experience is you get into various forms of mandates, whether it is at the benefit level or at the coverage level, as you mentioned, I think it is going to be difficult for employers to assume. That is why we favor strongly the marketplace approach of offering innovation, which I referenced some and go into further detail on or off the record, offering innovation in the marketplace to allow the voluntary system to continue but provide some of the gaps, solutions, which I think is what Congressman Andrews was referencing with various types of public--both financing support and program support, which are badly needed in certain areas of the market. Mr. Carter. I understood the other part he was addressing. Mr. Dennis, in your opinion, proposals to make it easier for patients to sue employers--would that have any help to small business, the way you look at it? Mr. Dennis. I am sorry. I did not hear the question. Mr. Carter. There are proposals to make it easier for patients to sue their employers in state courts. Do you see that as any help at all to these small businesses that are trying to offer health insurance coverage? Mr. Dennis. No, sir. No, sir. I would like to go back to the prior question, too, about mandates. I mean I think the empirical evidence suggests that they add considerable cost, and it ought to be taken in that light. Mr. Carter. Well, it seems to me--for instance, there was a time in my life when my wife and I needed to have maternity benefits in our family, and in fact, I had four children and never had a policy that had them, on four children, just bad luck, but now I really do not care anything about that, and so, to me, policies that--the more you can offer a marketplace solution where you could tailor the policy to fit your individual needs, the better you are served by the coverage that you receive, and so, I agree with that. What significant steps can Congress take that will make it easier for small employers to offer health insurance benefits that you see? Mr. Dennis. There are really a series of them. We think, certainly, the HSA program that's now on the books is definitely a step in the right direction; association health plans, definitely a step in the right direction. We ought to be looking at some medical malpractice sorts of reforms, steps in the right direction. One of the things that I think is quite clear is that there is no magic bullet. I do not see one magic bullet either holding down health care costs or making sure that we cover a lot more people than are currently covered. It is important, though--and a major target is that we curb the rising cost of health care, because that does have impacts on all kinds of coverage issues. We know that there is an elasticity in health care, that when it gets higher, fewer people get it. So, we need to really look at those things. Mr. Carter. Thank you. Thank you, Mr. Chairman. Chairman Johnson. Thank you, Mr. Carter. Mr. Tierney, do you care to question? Mr. Tierney. I do. Chairman Johnson. You are recognized. Mr. Tierney. Thank you, Mr. Chairman. Mr. Pollack, I would like to cover some ground that I think you mentioned in your testimony, and that is the prospect of reinsurance, and I would like to--my understanding is you're talking about reinsurance through a premium rebate pool and that you would reimburse the employee health plans for 75 percent of the cost for catastrophic cases over $50,000. Would you expand on that a little bit, how that would work, and what the benefits of that would be? Mr. Pollack. Well, I think this is a very practical step that would be of real help to small businesses. For small businesses, they not only have to worry about the general cost increases, but they also have to worry about the unpredictability of those costs, and for a small business, if they have just one employee who has a major catastrophic illness, this could devastate a small business and certainly would significantly increase their premiums in future years. So the idea is to provide help to small businesses to improve the predictability of their costs and to help reduce premiums somewhat, and the way this would work is that, for the very, very small number of individuals who have really catastrophic expenses, say expenses in excess of $50,000--and that only constitutes about one-half of 1 percent of all people who have health coverage, but yet, it accounts for about 20 percent of total cost. This would mean that a small business would understand that there would, in a sense, be some significant cap in their liability, and it would mean that they would much better predictability in the future, so that I think this is a very practical step that is worth looking into. There are some difficult issues, I think, that need to be worked out in terms of how this gets implemented, but I think the concept makes abundant sense and hopefully will be welcomed by the small business community. Mr. Tierney. Thank you. Mr. Dennis, let me ask you--some people have proposed allowing small businesses to join insurance pools, like the Federal Employee Health Benefit plan. In fact, I know Stu Butler, over at the Heritage Foundation, seemed to have sort of endorsed this concept lately. What do you think? Would you think that the government- sponsored insurance pools would allow small businesses to benefit from this? Would that be a helpful prospect? Mr. Dennis. I am not sure. Clearly, there are some conceptual pros to it. I notice that Stuart has just changed his mind, for what that's worth, has come up with a separate proposal, but the idea of having a very large pool operating in which these individual employers can operate in and around, or whatever you want to call it, is very, very attractive. That is one of the reasons we have supported HSAs, for example--not HSAs--AHPs, is the whole idea that, you know, we are going to have a larger pool, we are going to have better bargaining power, and so on and so forth, and so, in that sense, it is very positive. I do not think that we have, as an organization, have taken any position on the Federal plan itself, though. Mr. Tierney. Mr. Pollack, do you have an opinion on the benefit of that type of a process, allowing employers to buy into the Federal employee health benefit plan, helping them with the affordability, hopefully, and the administration of their plans? Mr. Pollack. Yes, I do. I think it would make a great deal of sense, and I am not sure whether it would be the precise same plan as the Federal employees, but it could be some kind of a parallel plan, and my hope is that through economies of scale, that employers would be able to achieve some significant savings in the process. Mr. Tierney. Thank you. I yield back, Mr. Chairman. Chairman Johnson. Thank you, sir. Mr. Kline, do you care to question? Mr. Kline. Yes. Thank you, Mr. Chairman. Chairman Johnson. You are recognized. Mr. Kline. I want to thank the panel for being here. This is a subject that has been driving us all crazy for years now, but the last two or 3 years, it has just been remarkable how I travel around my district in Minnesota and talk to employees and employers, and both sides always, invariably, talk about the cost of health insurance. It is frequently the No. 1 issue to the businesses that I am visiting. Sometimes it is the No. 1 expense, but it is always very, very high. So I very much appreciate your being here today, and I certainly want to thank the Chairman for holding this hearing. Mr. Dennis, a couple of minutes ago, you said HSAs and corrected yourself to say AHPs, but both are possibilities. HSAs are, in fact, now in law, and I have been surprised, as I have traveled around to talk to these same business owners, that they do not know what HSAs are, and so, my first question to you is, since you are representing a very large organization, what is the discussion to educate employers about the potential for HSAs? Mr. Dennis. Well, that's a major thrust that we are going to be undertaking, in fact have begun to undertake, but more than that, I think one of the major issues involved is that is how do we get the word out through the normal market process, through the insurance industry, if you will? We have had a very small MSA program before AHAs came along, and it was reasonably well--well, the renewal rate was very high--94, 95 percent--savings were quite substantial, but the problem was we had an issue of marketing, and that is what the issue is right now, because the incentives for those to market it, for the agents, if you will, are not there, and what we have to do is find a way to make sure that the agents involved in this have incentives, and we have got some plans on the drawing board right now, hopefully, to do that, because if you have got active sales forces out there doing it, that is the best publicity, in effect, there is. Mr. Kline. Well, exactly, and we had a meeting here a month or so ago--we had a number of representatives from the insurers and were talking about how well received they were and talking about, frankly, their efforts to inform the public about HSAs, and yet, I have yet to go to one of these companies--and I visit two or three a week every week when I am back in the district--who knew about them and anymore than the most rudimentary notion of how they might work. So, I would encourage you and your organization to talk about it as much as you can, and then, as you say, the industry is going to have to do that, as well. Mr. Remmers, on page 3 of your testimony, if I have got the right note here, you talk about information transparency and other quality tools. How will the average consumer be able to access these tools, and what benefits will they gain? Mr. Remmers. There's a variety of work taking place in the transparency area today, and it is all predicated on, if you believe in the patient as an active consumer and having the right to know information regarding cost and quality, which we do stand for at Humana, you have to put information in a way that they can, one, get to it, and two, understand it. Sometimes it is easier to give an example, and I can give one in my own life that is personal. When I was asked to be put on a cholesterol-lowering medication about 2 years ago, for the most part it was a bunch of Latin to me, the various options, as they are to most people. My internist suggested--and I will refrain from using the drug name here for a moment--drug A, which in my benefit plan would have cost me $50 a month. It was, in fact, a benefit plan that I chose. No one chose it for me. So for $50 a month or $600 a year, I could have this drug that I needed to have, that in fact would benefit me in out- years, not near term. I went to the drug store, got it, and was shocked at the $50. Having said that, Humana contacted me in about 24 hours, in my case through the web, because that is how I asked to be contacted, through e-mail, but we can do it through phone, which most people have access to, or regular mail. In my case, it came through an e-mail that gave me an alert. I signed on a private web-site, secured just to me, not to my spouse or anyone else, for privacy reasons, and I saw, as I clicked onto my e-mail, an alert message, a little red flag flicking, which all 3 million of our commercially insured people have access to this, it said if you would like some helpful information regarding the opportunity to lower your prescription costs, click here. I did so and found a row of alternative drugs, in this case one that would cost me 25 a month or, in effect, save me $300 a year. I, in turn, took the initiative--Humana did not require me to do it, I did not have to ask permission to do it, so there was choice in play here--I chose to call the internist back and discuss it with her, which, frankly, was a little bit startling to her office, if I have to be candid. They were not used to this kind of engagement---- Mr. Kline. I can imagine. Mr. Remmers.--which we are going to see more and more as people get more and more in tune with having access to information and having the ability to control their own decisions. She was thrilled. She said, ``I am in the habit of prescribing drug A, but for $300 a year less, I would absolutely suggest drug B.'' That has been 2 years, and I am fine. So that is maybe a specific example of the way that we are--and by the way, I could see the actual retail cost of the drug, I could see our Humana cost for the drug, and what my cost share piece of it was, or any other drug that you want to see on our web-site. Mr. Andrews. Will the gentleman yield for a second? Mr. Kline. Certainly, glad to yield. Mr. Andrews. Who was it that made the judgment that the other drugs on that list were the equivalent of drug A that you bought? Who made that decision? Mr. Remmers. We have a group of people that are physicians and pharmacists that stratify the whole PDR. So this is not that 50 percent of the drugs are available across the list. In my case, in my benefit plan, there are four tiers that this group decides, for both cost and clinical efficaciousness reasons, reside in one of these four tiers, and this is not administrators; it's pharmacists and physicians. Mr. Andrews. Thank you. Thank you for yielding. Mr. Kline. I see my time has expired, so I yield back. Chairman Johnson. Thank you, Mr. Kline. Is that a generic drug? Mr. Remmers. Neither of these are. Chairman Johnson. OK. Thank you very much. Ms. McCarthy, you are recognized. Mrs. McCarthy. Thank you, Mr. Chairman, and I probably know what the first choice of the drug was. Most likely, it was Lipitor, because I started off with it--oh, gosh--too long ago, but I have slowly seen it go from $20 a month up to the $50 a month, and people should have more choices, or at least the information. What I will say--and I am going to probably come in a different way--I happen to believe, because you went on your medication, I went on mine, that some of the best practices that are agreed upon are disease management or wellness programs. That is not what we do enough in this country. Unfortunately, we still look at medicine during the crisis center instead of the prevention that we're looking at. So I do not know why we do not have a standard part in almost every health insurance plan. Some do, and I know they do, and those are the ones I look for. I am lucky. I work here. I have the doctors here that have me on a computer and say, hey, you have to go for your test, you have to have this done next month, so they keep track to keep me healthy, which hopefully, in the end, when I am in my 80's, is going to pay off, but I guess my question is--and I also--when we were talking earlier--and I am sorry if I am talking funny, I had a little teeth work done this morning. Many of us are also onto a bill, legislation that is here on the House, which we cannot seem to get a hearing on, to give small businesses a tax credit for the health care costs on top of the already existing full tax deductibility, and I guess my question would be how big would a tax credit have to be in order to make a difference for the small businesses to be able to cover, certainly, their low-wage workers? I mean, how do you figure that out? Mr. Dennis. There are elasticities that economists have developed over the years. They are very crude at this time. This goes all the way back to some of the early Rand studies in the 1980's or late '70's, where they know that certain--you know, you add a certain price, lower a certain price, you get more, you get less people that will be covered. I do not know if anything has been done specifically dealing with smaller firms, however, on that score. I have no idea what those numbers would be, and clearly, the higher, the more you would include, and the lower, the less you would include, if that is what you determine would be good policy, but I do not know of any number and I do not know of anybody who does have a number for you. Mrs. McCarthy. On the cost-effectiveness, just going back, because we had--it came through this Committee going back where we had the AHPs passed for small businesses. I fought against that, and basically, it goes back to my original part on the wellness. My state of New York and many other states throughout this country, through the attorney generals, through legislation, realized that wellness, yearly physicals, mammograms were important so we could prevent or, if we found a disease, get it early, and yet, the bill that was passed through here on the House side would have done away with all of that. You know, when I try to talk to my small business people, I want you to have insurance, I want you to be able to cover your employees, but we have to somehow find a way--forget about the politics--on what is good health care practice, because in the end, in the end, we will end up saving so much more money. Diabetes--perfect example--people that do not take care of themselves end up in a dialysis center, which is costing us so much money, or lose a leg or their eyesight, come off the workforce. It is complicated. I think everybody here cares very much that people have insurance, but we seem to--cannot find an answer. Mr. Dennis. One of the situations is that, with the constant--with constant price increases, smaller firms are constantly shopping, and when they are constantly shopping, it is very difficult to develop relationships with insurers and insurance products and that sort of thing where you might institute a wellness program for three or 4 years or something like that, if you are constantly going back and forth, and that is one of the really difficult problems created by this environment of rapidly rising prices, and that is small business owners have to look for new things, they just cannot take those, and as long as we do it, it is going to--as long as we have to keep shopping, it is going to work against precisely those relationships which will give you what you are looking for. Mrs. McCarthy. Mr. Pollack? Mr. Pollack. I think the issue of AHPs that I find even more troubling relates to the potential for market segmentation and dividing those who are healthier, younger, from those who are sicker and older. I do not worry so much about this with a group like NFIB or the Chamber of Commerce, which has members--they are not--these members have joined those organizations for other reasons other than becoming a member of an association health plan, but for others who really would be encouraged to create these association health plans and for whom market segmentation could potentially be very easy and whom I try to encourage those businesses that have a healthier, younger workforce to join and to discourage the older, sicker ones from joining, I think for those who are left in the traditional pools, it means the costs for them are going to increase, and CBO tells us it would increase, I think, for approximately 20 million people who would be left in these traditional pools. Mrs. McCarthy. Thank you. I see my time is up. Thank you, Mr. Chairman. Chairman Johnson. Thank you. I appreciate your questions. You know, AHPs are part of large organizations like the Chamber, for example, which you say would be OK, and I think there is a requirement for any organization to be in effect for at least 3 years before they can start an AHP program, under the law, if it's ever passed, and so, I think that maybe we are talking about something that will not ever happen, but can I just ask--your large companies who have health insurance do provide wellness programs, do they not? Mr. Remmers. Yes, sir. Mr. Chairman, in part, it is the definition of a wellness program, and I would say not just large but small and medium- size employers--the vast majority of our health plans that we at Humana sell to customers and administer for them do include preventative services, mammograms, physicals, things such as that; other kinds of wellness and lifestyle programs along the lines of fitness and that sort of thing, no. Most of that, as Denny mentioned down the row, generally aren't offered by a vast majority of employers, and the reason is their health benefits costs are costing them too much and they cannot invest the additional amount, which is one of the reasons that giving more options and more choice and more innovation in the marketplace is extremely important, because as people decide to possibly consider a lower-premium plan, if that's right for them--if it's right for them in accordance with their needs, their values, their ability to do that, that is an attractive offer, and in turn, there may be more money freed up to invest in other fairly more traditional wellness programs, but preventative services, yes, including in the lower-premium plans like HRAs and HSAs. Chairman Johnson. Disease management, if you will. Mr. Remmers. Disease management applies to all of our 3 million people that we administer or insure unless a large self-funded employer specifically requests not to, but beyond that, all of our insured business, it does. Chairman Johnson. Thank you, sir. Mr. Wilson, do you care to question? Mr. Wilson. Yes, Mr. Chairman. Thank you, and I would like to thank all of you for coming this morning, and Mr. Dennis, thank you very much for your past presidency of the International Council for Small Business. I also very much appreciate your service with NFIB. I served for a number of years in the State Senate and worked very closely with the executive director, Michael Fields, in South Carolina, and NFIB is a real world advocate for small business, and in our state, which is not unusual, 99 percent of the businesses are small businesses, 85 percent of the employment are small businesses, and so, we really appreciate your input, and today, in your testimony, you noted that small employers have a limited number of options from which to choose when facing the cost increases. They can pass on the cost increases to consumers, reduce employee compensation, or limit business investment or owner earnings. How feasible are any of these options for the small employer? Mr. Dennis. None of them are very attractive. I mentioned that it is very difficult to pass on cost increases right now, particularly in this low inflation environment. Most of it ends up getting passed back to employees, but small employers do not like to do that. I mean somehow it is the idea that, you know, we are having a good time when we do that sort of thing. Employees do not like it, we do not like to do it to employees, and so, that is not--that is what happens, eventually, but that is not a very positive thing, and if you take it out of your investments, business investments, you are eating your seed corn, in effect, you cannot operate that way, and if you take it out of your own earnings, well, a middle- class person cannot take a lot of money out of their earnings as a stop gap, even as a temporary measure. The alternatives are not very attractive, let me put it that way, none of them. Mr. Wilson. I do appreciate NFIB trying to get the word out to businesses as to what is the best approach. Mr. Dennis. Thank you. Mr. Wilson. Also in terms of your opinion, what regulatory burdens do you foresee in creating and offering consumer-driven health plans, and how can Congress best address them? Mr. Dennis. Regulatory burdens. Well, there is a potential range of mischief, but I think one has to look at it not so much about where the problems are but where you want to go, and is something necessary? I mean if you want to offer certain options, is there--is it necessary that you put a certain requirement on the--on that option? Within reason, I would generally say stay as flexible as possible, but there are clearly some things, in terms of various types of discrimination and things like that, that you want to, you know, fence off. So I'm not sure that I can answer your question very well without a little bit more--in a more specific context, unless I have a more specific context, but generally, flexible is the watch word. Mr. Wilson. Excellent. Mr. Remmers, I really appreciated--I, 2 years ago, too, started on the cholesterol-lowering pharmaceutical, and I am really grateful for the effect and very pleased about the advance, and I appreciated your recounting how you looked into lowering the cost, and in fact, you mentioned in your testimony that many insurers and employers are providing education to consumers. Can you relate efforts to, again, educate consumers as well as you did on the internet? Mr. Remmers. I will be glad to. I will give you another specific example. Maybe it is a bit more tangible. I would love a shot at your previous question for 30 seconds, as well. Mr. Wilson. You can come back and get that one, too. Mr. Remmers. OK. A large health system in Louisville, just as an example--I will not reference their name, but they are a large employer, multiple hospitals, health system--went into a patient choice, consumer-driven, however you choose to reference it, which really meant they gave a choice, a range of choices of health options for people to consider--in their case, six. They have about 8,500 people enrolled in their plan, meaning employees, workers, and in turn, about roughly 14,000 people when you include family members and such. One of the things they were concerned about was how do you--how do we communicate with and educate a workforce while in health care, for the most part, although you have a wide diversity of workers in that sort of environment, not just nurses and doctors and such. So we have tools that we deployed. We happen to call them Plan Professor. We did it, in their case, on both paper and through the web. We also asked them to come on and consider how they would choose one of the six plans that would most meet their needs, again, from a leaner benefit offering to a very rich benefit. What might meet my needs may not meet your needs. We had a tool--we have a tool called the Plan Wizard that helped them select the plan that would best meet their needs, again, or preferences, and that was both on-line and on paper. In fact, the irony of this is that the leadership of that organization was doubtful that, of their 8,500 people, many would have access to the web or know how to use it. So we gave them a voluntary option of enrolling in these plans, which meant, when you enrolled in these plans, you both got the benefit of the education--you had to read through things to learn how to become a more active health care consumer in both choosing your plan and using your plan, so is this plan best for me, and how do I make certain decisions like a drug choice, as I use the health system. They could either go through the phone to do that, through a voice-activated type of technology, which again, most people have the phone, or they could voluntarily go on-line, through the web, and go through the enrollment, where they got introduced to all these guidance tools, if you will. In fact, they felt that less than 30 percent of their people would go on-line to do this, because they would not have access or would not know how to use it. Now, through multiple support systems that we offered them, 84 percent of their people went on-line to both enroll and use these other tools. To me, that is a terrific success story. It is one story, but I think it gets at some of your question. Mr. Wilson. Yes. Mr. Remmers. Your previous question on what regulatory hurdles are there---- Mr. Wilson. Right. Mr. Remmers.--here are several, but there are many more we could talk about for the record. One, in regard to the HSAs, health savings accounts, the health care reimbursement arrangements, and FSAs, flexible spending accounts, there are rules--the Treasury Department gave some relief this week, but--that limit the coordination of these three things, and these are how people can begin to think about how they plan for their health care financing out in the future in a tax advantaged way. Secondly, the President's final legislation to allow unspent funds in these flexible spending accounts, which now you cannot roll over from year to year, so very few employers, small or large, take advantage of that, or their workers, frankly--they ought to be able to carry those over from year to year. There is a proposal working its way through now to allow $500 of unused money--allow HSA funds to be used to pay the health insurance premiums of individuals who retire before they are age 65, speaking to the retirement dilemma, allow those monies to be used for that. Again, it is a way to plan for your retirement in a tax advantaged way. Fourth, allow HSA funds to be used to pay Medi-gap premiums, again, so if you are over 65 and retired, you would have these funds available to help you do that. And last, allow consumers to continue to contribute to an HSA after age 65, again for tax purposes and planning. The HSAs are good news for consumers, but the lack of uniformity in state insurance regulations are a barrier to us getting them out in the market and having understanding and acceptance in the marketplace. I will not bore you with what all of those are, but they have to do with other kinds of mandated benefits and such that counteract with the HSAs in a negative way regarding deductibles and such, and that needs to be worked through. Mr. Wilson. Well, thank you, and in particular, I appreciate you bringing up about the HSAs, because I believe they can be very helpful, but we do need, certainly, to fine tune, and I know that I was hopeful that they would be very flexible, and--but thank you all for your participation, and Mr. Chairman, thank you for your leadership in trying to assist small businesses address the problem of health care cost. Chairman Johnson. Thank you. The gentleman's time has expired. Actually, HSAs are in 49 states, as we speak. Mr. Holt, you are recognized for 5 minutes. Mr. Holt. Thank you, Mr. Chairman, and I thank the witnesses for your good presentations. Let me understand better the effects of risk pooling. Obviously, in some general sense, it makes sense. Is there a well-understood industry-wide formula for the function for decreasing rates with increasing pool, and does it vary greatly from company to company? In other words, if--what we are trying to get at is, if we are trying to find mechanisms to increase pools, association health plans or whatever, do we really know what we will get, and you know, maybe Mr. McArdle, maybe you have thoughts on that? Mr. McArdle. Yes, sir. I think it would--pooling, conceptually, I think would be very helpful. I mean you have issues about what is the experience of the pool and, you know, the companies and the employees that are in the pool, but I think the pool is also maybe helpful in making larger group sort of possibilities available. Mr. Holt. Apart from questions of skimming and segmentation and so forth, is the function well understood, you know, the lower rates? I mean can we say it will be 10-percent lower if you have 50 percent more members in the pool? Mr. McArdle. I think you can say generally yes, that the larger the pool, the larger the risk is. Mr. Holt. In general, I understand. Is the function well understood, and is there a great deal of variation? Mr. McArdle. Well, I think it would depend a lot on how you design it. There can be variation, absolutely, but you know, I think, again, the advantage is--I mean you have to look at what the experience has been of individuals and whether they have been subject to underwriting before and whether they would no longer be subject to underwriting, whether they would have guaranteed access, for example, under the pool, which they might not have outside the pool. So it can be beneficial in a number of ways, and you know, let's say, because there is no underwriting, that it jumps up a percentage point or two, on average, just hypothetically. Then it would still be a great advantage for the employees who would be in that pool. Mr. Holt. Mr. Dennis, both on that question and another question--really, why are businesses not pooling more? I mean, there is nothing under law that prevents them from doing it. Why do we need to provide them more incentives to do it? Why do we need to excuse them from various state law to prompt them to do it? Mr. Dennis. Let me start with the first question first, if I might, and that is yes, as a general rule, this is understood, the whole idea, because the difference between pooling costs and the price of the insurance that comes out of it--and I think that that may be an issue that is causing some confusion or something of that nature. In other words, we basically know and understand what the costs are given the larger pools, as you increase the pool. We do not necessarily know what the price is, because price is based on other things besides the actual loss. Why are we not already doing it? Well, I can give you one example, and that is, several years ago, we tried as an organization to do it, and we just ran into state law after state law after state law being contradictory, and it was just--it became impossible for us to do anything like that, and this goes back several years, and we just had to give up the whole effort. Mr. Holt. Why is it not happening more, say, within a state's, say, chamber of commerce or some intra-state organization? Mr. Dennis. Frequently what has happened is that the pool has not been large enough. They have not been able to sell and get enough people. Mr. Holt. We have millions of workers in New Jersey. Mr. Dennis. Yes, but a lot of them already have something, you know, already have health insurance somewhere, they are happy with it for some reason or another, and there has not been able to get a critical mass together to do it. Why more effort has not been put into it, I do not know. Mr. Holt. I am sure that small businesses would like to be relieved somewhat of the burden. They want to provide good insurance for their employees. I guess a question is do they care whether that burden is shifted to the government or shifted to the employee? Do they care for any reasons other than kind of ideological reasons? Let us consider, say, catastrophic insurance. Mr. Dennis. Well, as a general rule, without a specific type, they do not want it shifted to the government, partially for ideological, partially because it is going to be higher taxes for them, assuming that is where the money is going to come from and we do not borrow it all, but you know, it is higher taxes. So I would assume that probably the cost shift would be the preferred strategy, but you know, that would be pure speculation on my part. Mr. Holt. Well, I see my time has expired and the Chairman is eager to move on. Thank you. Chairman Johnson. Thank you, Mr. Holt. I appreciate the testimony that you all have provided today, and obviously we still have some problems in the health care business and need to address them, and we appreciate your input, and I hope you all will stay in touch with both Mr. Andrews and myself. I think this was a good hearing, and if there is no further business, the Committee stands adjourned. Thank you. [Whereupon, at 11:32 a.m., the Subcommittee was adjourned.] <all>