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Mr. Chairman, Mr. Pressler, Members of the Committee.
Thank you for giving Administrator Bowles and me the opportunity to discuss
the Administration's health care reform plan. These hearings demonstrate your
commitment to a thorough exploration of issues which are of profound importance
to the Nation. I know that members of this committee have worked extremely hard
to advance the concept of meaningful and effective health care reform, and I
want to applaud those efforts.
Last Fall, President Clinton and the First Lady each made historic
appearances before Congress. They described for you a comprehensive plan for
providing all Americans with health care coverage. The plan is based on six
principles: security, simplicity, savings, choice, quality, and responsibility.
With the introduction of the Health Security Act, the President has provided us
with something that can be found nowhere else today: a blueprint for the
comprehensive reform of our failing health care system.
Today, I would like to focus on the urgent need for health care reform and
the substantial benefits it will bring to small business owners and their
workers.
If there is one point we can agree upon, it is that we are spending too much
for health care today. As a nation we pay the highest costs for health care in
the world, spending a far higher percentage of our gross domestic product than
any other industrialized country. Health care now consumes nearly 15% of GDP.
Left unchecked, these expenditures will rise to about 18% of GDP by the year
2000 --just six years from now.
For all that money--for that truly staggering sum--what kind of health care
system are we giving ourselves? What kind of value are we getting--now, and in
six years when we will be spending almost 18% of GDP? I won't take your time
now for a full discussion of the serious inadequacies of the current system. I
know many of you are already well-informed on this subject. Let me just share
some recent figures on a couple of points. Last year, the most recent data
showed that 37 million Americans had no health insurance. The data available
this year show that the figure has now risen to almost 39 million. A sobering
study by the Children's Defense Fund reveals that, as bad as the rate of
uninsurance is for the general population, it is substantially higher for
children. In fact, the study indicates that by the year 2000, barely half of
the nation's children will be covered by health insurance through their parents'
employers. This is the health care system that we will be paying $1 trillion
for next year.
Now, I want to make one point as clearly as I can. Today, nine out of ten
of the non-elderly who have private health insurance get that insurance from an
employer. Therefore, when I say that "we" are paying too much for
health care, I am saying that employers are paying too much for health care.
Business currently spends over $200 billion on health care. Real business
spending on health care per employee has risen by 200% since 1970. Remarkably,
business health care expenditures now nearly equal after-tax profits. For a
business, every dollar unnecessarily spent on health care is a dollar that
cannot be invested in plant and equipment, research and development, higher
wages, or workforce development.
A major element in the exorbitant prices that businesses are now paying for
health insurance is the bloated and highly inefficient administrative structure
we have for health insurance today. Over $45 billion of health care
expenditures went for administrative expenses in 1992. And no wonder. Doctors,
nurses, and hospital administrators must contend with 1500 different claims
forms, most of which must be filled out by hand and submitted to more than 1000
different health insurers. And on top of all this, fraud and abuse may account
for up to 10% of U.S. health care costs.
Another reason for the soaring cost of employee health insurance is that the
premiums businesses are paying for this insurance are being inflated by $25
billion each year to cover the health care of those without insurance. In
America, we don't leave the ill and injured to suffer and die just because they
have no health insurance. Acutely ill uninsured people can obtain care, even if
they can't pay, at hospital emergency rooms, which is an exceedingly expensive
form of care. The hospitals recoup these costs by indirectly passing them
through to insurance companies, who in turn raise premiums for those employers
who do provide their workers with insurance.
A Brookings Institution study recently cited research that private payers
pay about 130% of their actual costs.
Who are these uninsured people that are adding so much to the cost of health
insurance? They are not the poor and unemployed, who are generally covered by
Medicaid. The fact is, almost 85% of those without insurance are working people
and their dependents. The businesses that employ these people are gaining a
competitive advantage in a way that is economically unproductive and that we all
surely find unacceptable: by shifting the cost of their employees' health care
onto the backs of responsible businesses.
As we have increasingly come to recognize, the fortunes of businesses and
their workers are closely intertwined. It should be no surprise, therefore,
that the pressures experienced by businesses as a result of skyrocketing health
care costs are felt with full force by their employees.
In an ever more competitive environment, businesses have to a large extent
passed on these rising health care costs by holding down employees'
compensation. One way of doing this has been to redirect money that would
otherwise have gone to wages. The Brookings Institution has estimated that
rising health care costs have consumed 58% of workers' potential wage increases
since 1980, and, if left unchecked, will soon consume 100%.
It is estimated that the average worker today would be earning almost $600
more per year if the cost of health insurance had not outpaced wages over the
past 15 years. At the current pace of cost increases, by the year 2000, workers
could lose another $1000 in annual wages.
Another response to escalating costs has been to require workers to pay an
increasing share of their health care costs. Employer efforts to increase their
employees' share of health care costs were a key issue in almost half of the
major strikes in 1990. Labor agreements have increasingly shifted health
benefit costs to the workers.
The alternative to reductions in compensation is to reduce or eliminate
entirely the health care coverage itself. And in fact, the percentage of
employers providing coverage has been eroding steadily in recent years.
Employer coverage of the non-elderly population fell from 66.8% in 1988 to 62.5%
in 1992.
Skyrocketing health care costs are only part of the problem for American
workers. Surveys show that up to 30% of workers are "locked" into
their current jobs because they fear their new employer may not offer insurance,
or because someone in their family has a preexisting condition that would not be
covered if they switched jobs. Job lock is a serious impediment to workforce
mobility at a time when the economy needs a more flexible, agile workforce.
Among part-time workers, only 28% of those who work in large firms, and 5%
of those who work in small firms, participate in health care plans at least
partially supported by employers. Temporary workers have an even harder time
qualifying for medical benefits.
Concerns about health insurance also contribute to "welfare lock."
Studies show that a substantial number of non-working welfare recipients would
be more likely to work if they could be assured of continuous health care
coverage.
While the explosion in health care costs has been felt by every American
business, its impact on small businesses has been especially damaging. Soaring
insurance premiums are putting affordable health insurance beyond the reach of
more of these businesses every day, while those that can still pay are fighting
to remain competitive.
The President understands that small business is the nation's engine of
economic growth. He also recognizes that the current health care system is a
nightmare for these firms. Small businesses pay premiums up to 35% higher than
large corporations for the same coverage. Administrative costs eat up as much
as 40 cents of every dollar small businesses spend on health insurance premiums,
eight times as much as large companies. Small businesses are increasingly
facing the choice of paying unaffordably high rates for health insurance or
providing no insurance and, as a result, losing good workers who leave for a job
with insurance. In addition, small businesses suffer from the worst aspects of
the current insurance system, such as individual underwriting, occupational
red-lining and age-rating.
Despite these disincentives, most small businesses still offer health
insurance for their workers. As costs continue to rise, however, fewer and
fewer are able to continue doing so. Higher health insurance prices not only
reduce net income, but increase the competitive advantage the business can gain
over others by terminating its employee health insurance. It is pushing
businesses to shift health care costs onto their employees or other businesses.
A number of reform proposals have been made which claim to achieve the same
goals as the President's proposal, including the key issues of universal
coverage and meaningful cost control. The President's approach, however, is the
only one that provides all the specifics on exactly how these goals will be
achieved. And no other proposal will so dramatically improve the terms on which
health care will be available to small businesses.
Let me list for you the benefits of the reform proposal detailed in the
Health Security Act, and then I will explain them in turn.
- Cost-Savings -- A truly competitive health insurance market
and major administrative efficiencies will be achieved through the regional
alliance system, which will give smaller businesses access to insurance on terms
now available only to the very largest employers.
- A Level Playing Field -- "Community-rated" health
insurance premiums and regional purchasing alliances will lower costs for small
businesses, increasing their competitiveness with large firms and increasing
profits, wages and jobs.
- New Business Formation and Investment -- Reducing health care
costs will free more funds for investment, and guaranteeing universal coverage,
regardless of employment status, will spur entrepreneurship and new business
formation.
- Small Business and Low Wage Workers -- The premium discounts
provided by the Health Security Act are designed to minimize any potential
adverse employment effects on small businesses and low-wage workers.
- Worker Mobility-Worker Choice -- Enabling people to keep their
health insurance when they find a better job or leave welfare for employment
will end job lock and welfare lock. Guaranteed coverage will also free
individuals to join or start new businesses. Workers in small firms will be
able to choose from a number of insurance plans.
The establishment of regional alliances is an essential element for
achieving the President's goal of controlling costs. By routing health
insurance for all small and mid-sized employers through regional alliances, we
can eliminate much of the administrative waste that burdens the current system.
Regional alliances will provide a mechanism for large numbers of people to
pool their purchasing power. For the first time, small businesses and their
workers will have the bargaining clout to purchase health insurance on terms
previously available only to the largest employers. For example, administrative
expenses in the alliances will be limited to 2.5% and in health plans they will
be about 10.9% of claims, compared to the 35% or more that is typical for
insurance policies sold to small businesses today. Community rating
requirements will also eliminate many of the discriminatory insurance practices,
such as individual underwriting and age-rating, that can so dramatically
increase the cost of health insurance for small businesses today.
The regional alliances will provide two additional improvements over the
current system. First, alliances will provide essential information about the
covered population so that health plans can effectively set prices. For
consumers, alliances will provide information on plan costs and service quality
based on information collected from consumer surveys and the development of
health outcome measures.
This is an important change from the current system that will increase
competition in the health care market, holding costs down. As every economist
will tell you, reliable information is essential for an effective market.
Today, however, many poor decisions are made about health insurance because
businesses and their employees cannot get good information about the quality of
different plans.
Second, the alliances will serve as the negotiating representative of its
members, and, to a great extent, will relieve businesses of much of the
administrative burden that exists today -- enrollment, for example, will be
handled largely by the alliances, and the alliances will provide procedures to
resolve benefit claims disputes. Regional alliances can realize the economies
of scale that only large businesses enjoy today.
The savings generated by these changes will be significant. A study
released this week by the Department of Health and Human Services shows that
employers who now pay for employee health insurance will save an average of $605
per worker in the year 2000. This totals nearly $60 billion in that year alone.
Net of new expenditures by businesses that are not now contributing to employee
health care, American businesses overall would achieve savings of about $30
billion by the year 2000. In addition to the savings achieved by businesses,
employees that currently contribute toward the cost of their employer-sponsored
health plan will collectively save an additional $29 billion in that year.
The partial integration of workers' compensation medical costs into the new
system will also help lessen the burden that these costs impose on American
industry. Under the Health Security Act, workers who are injured on the job
will receive care through their regular health plan and the doctor they have
chosen. Employers will continue to buy separate insurance through workers'
compensation insurance carriers on an experienced-rated basis. Regional
alliances will set fee schedules for workers' compensation cases.
This policy will ensure that the cost savings of health care reform are
passed on to the workers' compensation system, while preserving the employer's
incentive to maintain a safe and healthful workplace. It also will eliminate
contentious disputes over which provider will treat a work-related injury. And
the fee schedule will prevent providers from charging higher fees for workers'
compensation cases.
Large and small businesses alike will benefit from the plan's increased
emphasis on preventive care. This will result in fewer lost work days and a
healthier, more productive workforce.
Small businesses that are currently providing health insurance have a
special stake in reform. Today, significant cost disparities sometimes exist
among firms and industries because of widely divergent health care costs or the
lack of coverage. This difference, in turn, may result in a competitive
advantage for some firms. Health care coverage, however, should not be the
basis for an advantage in the marketplace, and indeed, one of the major benefits
of the Health Security Act would be a fairer and more competitive economic
environment. These gains will be achieved under the Health Security Act without
adverse affect on employment rates.
Health care reform will, of course, affect different firms differently.
Firms that are not now providing insurance will face increased costs after
reform. Firms that are currently offering coverage, however, will on average
enjoy cost reductions. These gains come from universal coverage, thereby
virtually eliminating cost-shifting, from federal discounts, and from slower
growth in costs over time. Economy-wide, the average firm will experience cost
reductions of about $230 per worker in 2000. There will also be changes in the
distribution of costs among industries. For example, manufacturing, which has a
relatively high rate of covered workers, will see expenditure reductions
compared with industries in which relatively few firms provide coverage. These
effects will help to level the playing field so that businesses will be
competing on market factors aside from whether they provide health care.
Guaranteed universal health care coverage will act as a major encouragement
to the formation of new small businesses. Past experience shows that employees
of large, established firms often develop an interest in leaving their company
to start their own independent business and pursue their own creative ideas.
Such a transition today, however, usually means giving up the security of
assured health care coverage, putting themselves and their families at risk.
The difficulties faced by self-employed workers and small businesses today in
purchasing health insurance creates large disincentives for individuals to leave
covered jobs to start new businesses. The Health Security Act, by providing
universal coverage and generous discounts to small, low wage businesses,
effectively eliminates the "job lock" that has been a major obstacle
to new business formation. The result will be a valuable infusion of
entrepreneurial activity in the small business sector of our economy.
Health care reform will also facilitate greater productivity growth. As
administrative expenses and unnecessary care decrease and the health care
industry becomes more efficient, the economy will be able to produce more output
than it would have without reform. This productivity increase will raise living
standards, which is the principal objective of this Administration's economic
policies.
Lower paid workers are heavily concentrated in smaller, low-wage firms. The
provisions in the President's plan relating to small businesses are therefore
especially meaningful for this part of our workforce.
For the majority of small businesses, which still provide health insurance
for their workers, the President's plan would achieve a substantial reduction in
their labor costs, a critical point that the CBO analysis confirms. For small
businesses that do not presently provide employee health care coverage, the
President's plan would raise labor costs, but only moderately, based upon a
system of discounts that places substantial limits on these costs. Firms with
75 or fewer employees and low wages will receive discounts, with firms of less
than 25 employees paying no more than 3.5% of total payroll on health insurance.
This amounts to just 15 cents per hour for a minimum wage worker. No firm
would be required to pay more than 7.9% of payroll for health insurance under
the President's plan.
Some have argued that even these minimal additional costs could cause job
losses. The evidence simply does not support this view. These levels of cost
increases would not even bring the current cost of minimum wage labor up to the
real levels of the mid-1980's. The CBO analysis quite clearly finds that the
President's plan would not significantly reduce low-wage employment. In fact,
to the contrary, the CBO confirms the Administration's point that its health
care reform plan will tend to increase employment by putting an end to the
welfare lock that has discouraged the unemployed from accepting work that would
leave them without health care coverage.
Neither do empirical studies of past increases in the minimum wage support
the contentions of job losses that the critics have put forth. These studies
show that moderate wage increases of the size that would be imposed by the
Health Security Act would have minimal effect on employment of low wage workers.
During the health care reform transition period, workers would be eligible for
enhanced retraining and employment services through a comprehensive dislocated
workers program. Workers would be eligible for services under this program
regardless of the cause of their displacement.
Worker mobility has traditionally been one of the great strengths of our
Nation's economy, and the the President's approach, by virtually eliminating
health coverage as a barrier to worker mobility, will help us maintain that
strength.
Under the Health Security Act, health insurance will be completely portable.
As a consequence, people will no longer feel they cannot seek a better job
because of fear of losing health insurance coverage. People on welfare will no
longer feel that they cannot join the workforce, because of fear of losing
health insurance coverage. Individuals who would like to start or join a small
business would not be prevented by fear of losing their own health insurance or
by the prohibitive costs and burdens of providing their employees with health
insurance.
The President's plan will also guarantee workers a choice of plans. Today,
among firms that offer health insurance, 94% of employees in firms with 1-24
workers, and 84% of employees in firms of 25-49 workers have only one choice of
health plan. Under the new system, workers, not employers, will choose the plan
that suits them best. Through their regional alliance, small business employees
will be able to select from among every qualified health plan that is marketed
in the region.
Universal, community-rated coverage also reduces the incentives to hire
people based on their age, family status or other health insurance factors,
rather than their skills and qualifications. In addition, firms will no longer
have an incentive to hire part-time and temporary workers simply to avoid paying
health care benefits.
We cannot afford not to reform our current health care system. The rising
cost of the system to businesses, to government, and to individuals demands it.
The eroding quality and coverage of the system cries out for it.
Even when change is in the best interest of all Americans, there is a
natural fear of stepping beyond the status quo. I am convinced that many
concerns about the President's plan have little to do with health care reform
per se, and much to do with the pervasive anxieties arising from
economic and social changes that are already affecting Americans. We cannot let
these anxieties paralyze us and prevent necessary reforms. Our health and the
health of our economy depends on our ability to provide health care security at
an affordable price for all Americans.
These fears are especially real among small business owners and workers
because they are among the most vulnerable in our economy. But it is essential
to recognize that it is the current system that is most harmful to them. The
high cost of coverage has made health care an important factor in the
competitive equation of business, and it shouldn't be. As this committee well
knows, small business entrepreneurship is a dynamic element of job creation in
our economy. Unfortunately, the high cost of health insurance has become a
serious obstacle to new business formation. Taking risks in the marketplace
should be encouraged and rewarded, but the ability to protect one's health and
that of one's family should not be a risk that one has to take. The Health
Security Act will eliminate that concern.
A close and thoughtful consideration of the President's plan for health care
reform will surely lead this committee to one conclusion: that it will
strengthen the small business sector of our economy. By unleashing the powers
of vigorous free enterprise competition, it will drive down the cost of employee
health insurance throughout the economy. Through a measured system of employer
discounts, it will limit the impact of health reform on those small businesses
that could be most vulnerable to change. It will level the playing field
between small and large employers by giving small businesses access to employee
health insurance at prices as low as--indeed, lower than--those available to
large businesses today. Small businesses will no longer be at a disadvantage in
competing with large firms to hire the best workers. By establishing a system
in which employers take responsibility for their own--and only their
own--employees, the plan will also level the playing field among smaller
businesses, creating an economy in which businesses compete based on their
productivity and quality, not on their ability to avoid providing employee
health care.
The CBO's analysis corroborates these benefits of the President's plan
explicitly. The CBO confirms that smaller firms typically pay much higher
premiums than larger firms, and that the Health Security Act would benefit small
business. Let me quote them: "This leveling of costs could benefit all
small businesses--not just those that provide insurance today. With access to
more affordable insurance, small businesses would be better able to attract
workers who now demand health insurance as a condition of employment."
The President's plan will extend quality health care coverage to almost 39
million Americans who now are without coverage. And the CBO's analysis confirms
what this Administration has consistently maintained: that we can do this while
reducing total health expenditures, while achieving long term deficit reduction,
and with a negligible or positive effect on employment.
I look forward to working closely with the members of this Committee in our
efforts to improve the lives of American workers and their families.
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