Advisory as of April 15, 2009 announcing the hearing
 

WITNESSES

Uwe E. Reinhardt, Ph.D., James Madison Professor of Political Economy and Professor of Economics and Public Affairs, Princeton University, Princeton, New Jersey
Bill Vaughan, Senior Policy Analyst, Consumers Union
William D. Hobson, Jr., MS, President and CEO, Watts Healthcare Corporation, Los Angeles, California
David Borris, Owner, Hel’s Kitchen Catering, Northbrook, Illinois
Kenneth L. Sperling, Global Health Management Leader, Hewitt Associates, on behalf of National Coalition on Benefits
Linda Blumberg, Ph.D., Principal Research Associate, The Urban Institute

 

SUBMISSIONS FOR THE RECORD

HEARING ON HEALTH REFORM IN THE 21st CENTURY: INSURANCE MARKET REFORMS

 Wednesday, April 22, 2009
  U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.
 

The Committee met, pursuant to notice, at 10:09 a.m., in Room 1100, Longworth House Office Building, Hon. Charles B. Rangel [Chairman of the Committee] presiding.

[The advisory of the hearing follows:]

Chairman RANGEL.  The Committee will come to order.  And without objection, the chairman of the Trade Subcommittee, the gentleman from Michigan, is recognized.

Mr. LEVIN.  Mr. Chairman, I want to wait till more of our colleagues -- just give us 10 seconds -- sit down.

Mr. Chairman, we have been notified officially by the House historian that as of April 10th of this year, that you and Mr. Stark became the longest-serving members in the history of the Ways and Means Committee; in the history of our Committee.  And we all want to congratulate you.

[Applause.]

Chairman RANGEL.  Well, it is not true that when we came here, that George Washington had black hair.  That is just not so.

[Laughter.]

Chairman RANGEL.  But thank you.  Thank you so much.

The Committee will come to order.  This is the third of a series of Committee hearings on health reform.  There is no question in my mind that this is not a Democratic Party issue or Republican Party issue.

Our constituents are frustrated in getting access to health care, paying too much for health care, not knowing what is covered by health care, the frustration of not knowing what is in the private sector planned, not knowing where their government is -- it has been a very costly experience and a very painful experience.

Peter Stark has worked very hard in making certain that we come up with an overall plan.  I have assured the Ranking Member, David Camp, that on issues of health, that we are going to get together starting with staff, starting with Subcommittee chairmen, and making certain that at the end of the day, we may differ in how we resolve the problem, but we are darned sure going to agree that this is a very, very serious national problem.

I would like to yield to the chairman of the Health Subcommittee and thank him publicly for the work that he has done over the years, and congratulate him that we have a President that is now prepared to move in the direction that you had always hoped and dreamed for.

Chairman Stark?

Mr. STARK.  Well, as your noble twin at today's celebration, I appreciate your yielding, Mr. Chairman.  And I want to restate that this is an important hearing.  This isn't just moving ahead to somehow mess around with the private market, despite some feeling by people that that is our motivation.

Health reform has been a priority of the American public for decades, and precisely because the private marketplace doesn't work in the health insurance field today.  That is why we have Medicare.  The health private market wasn't there, and the government had to step in.  That was not an easy accomplishment.

It isn't an optional consumer product.  It is something that each of us will need at some point in our lives.  And in the current system, those who need it most are the ones who have the most trouble being able to obtain it.

Private health insurance companies make their money by avoiding risk, not managing it.  And we will hear today from a number of witnesses who will talk about the problems of our existing system, and the way to fix those problems in order to assume that every person in America has access to affordable, quality health care.

Professor Uwe Reinhardt needs no introduction.  He is a renowned health economist, Princeton professor.  And he has been trying to help reform the American health system as long as I can remember, which may not be a resounding endorsement.  And as a matter of fact, there are some of us who traveled to Uwe's native state of Germany years ago to have him show us the German system, and found that he has been a great source for this Committee for a long time.

Linda Blumberg is here from the Urban Institute, and she will explain the problems of the existing marketplace and her thoughts on the best avenues toward reform.

We are also going to hear from David Borris, who has a small business in Northbrook, Illinois.  Is it Hel's Kitchen?

Mr. Borris.  Hel's Kitchen.

Mr. STARK.  Hel's Kitchen.  All right.  And so we are going to hear about the problems that Hel's Kitchen has.

We are going to hear from Bill Vaughan, who is well-known to most members of this Committee.  He is with Consumers Union, and he will emphasize the problems consumers face in today's system and what key reforms would help them obtain the coverage they need.

I believe that the -- Mr. Ken Sperling is a Republican witness.  Am I correct?

Mr. CAMP.  Yes.

Mr. STARK.  Yes.  And he is a Global Health Management Leader, and has been published in numerous trade and financial journals and often quoted in the New York Times.  And he will talk to us about services for large employers and the retiree issues.

So we have a good panel.  I look forward to hearing from each of our witnesses.  And with that, I would yield to the distinguished Ranking Member, Mr. CAMP.

Chairman RANGEL.  I want to make it clear again.

Mr. STARK.  Oh, I am sorry.  Well, I missed Mr. Hobson, and I apologize.  He is the president and chief executive of the Watts Healthcare Corporation in Los Angeles, and he directs a staff of 300 people, manages a budget of $26 million, and has had many senior management positions in health services.  We welcome you.  I am sorry, Mr. Hobson.

Chairman RANGEL.  Let me make it clear that although Mr. Camp and I hope that we can achieve a goal of a bipartisan agreement, the fact that that may be unattainable is not going to deter us from listening to each other and getting positions or ideas from the witnesses.

And I would want anyone in the audience that has ideas how we can make certain that we have the broadest universal coverage, good coverage at less expense to our nation, that that is what we both -- that is what both parties would want to achieve.

I yield now to Mr. CAMP.

Mr. CAMP.  Well, thank you, Mr. Chairman, for yielding.  And congratulations to you and to Mr. Stark on your distinguished tenure in the Congress and certainly on this Committee.  That is a milestone, a tremendous achievement.

Last night I had a telephone town hall meeting with my constituents in northern Michigan, and it was about health care reform.  And I just want to begin by sharing the concerns of one of the many people I spoke to last night.  And this one particular woman was very -- they all were compelling, but one in particular.  And I just want to mention what she said to me.

She said, "We are a small business, and of course we pay very high rates for our medical insurance.  I am concerned because I am a 44-year-old woman that is scheduled for surgery on Friday, and it is a bad surgery.  I guess I am worried that the government or socialized health care or anything that Canada does -- I mean, the people that support those types of programs, I have to wonder.

I have to ask:  Have they ever been through months and months of doctors and testing, and wondering whether or not you are going to be chosen for surgery, chosen to live?  I don't want to be one of those choices.

We choose to pay for our health plan.  It is not perfect.  We don't get a lot.  We have a high deductible.  I will be honest, I am terrified.  I don't know how we are going to pay for our medical costs we are racking up right now.  But I choose to live.  We have to do it.  There is no other choice.''

Well, Mr. Chairman, there ought to be a choice, and it is up to you and me and the members of this Committee, our colleagues in the Senate, and the President to come with that choice.  The time for comprehensive reform is overdue, and I am committed, along with the members of this Committee, to help making it a reality this year.

In the press advisory announcing today's hearing, Mr. Chairman issued a quote that reads, and I am quoting, "America's health insurance market is dysfunctional.  This is evident by the 87 million people who went without health insurance during the past two years and the millions more who have insurance that is increasingly unaffordable or inadequate.  I am pleased to hold this hearing to examine the problems in our health insurance market and explore long-term solutions for reform.''

That is well said.  I would like you to know, the Committee members to know, our witnesses and those in the audience to know, that is a statement I would put my name on any day of the week, and yes, twice on Sunday.

The individual health insurance market is dysfunctional, and costs for both families and businesses and taxpayers are far too high.  It says a great deal that Americans such as the woman I spoke to last night are willing to pay these exorbitant costs and are still left with a mountain of bills  It says even more that having the Federal Government dictate their health care decisions scares them even more than, and I quote, "bad surgery.''

I am confident we can work together on this issue, and I hope we can begin to do just that.  Health insurance must be portable.  That is, if you change your job or lose your job, you should not lose your health insurance.  Transparency is critical, both on the pricing side as well as the quality side.

We must address preexisting conditions, and we must make health insurance more accessible and affordable.  On these issues and many others, I think there is bipartisan agreement.  The American people want results with regard to health care reform, but they want the right results.  As we meet, our Senate colleagues are working collaboratively and in bipartisan manner to produce comprehensive health care reform, and I would like this Committee to do the same.

I think it is time, as we discussed just before this hearing, for our staff to start meeting and begin those discussions, and hopefully begin negotiating.  If we do so, I see no reason why we cannot solve this problem in the coming months.

If we do not do so, I fear the debate will disintegrate into the familiar though not necessarily partisan arguments that have prevented comprehensive reform from becoming a reality.

So, Mr. Chairman, I want to take you up on your suggestion.  And I also propose that we begin this hearing and that we start talking, our staffs start taking, and more importantly, we start writing a bill that will give every American access to quality affordable health care.

And with that, I yield back the balance of my time.

Chairman RANGEL.  The outstanding team of experts that Mr. Stark has suggested, we want to thank you individually and collectively for taking your time to help us through this very complex but important problem that we face.

And we will start off with Dr. Reinhardt, who is a professor of political economy and economics and public affairs at Princeton.  We thank you for coming.  As you know, we would like to have as much time for questions by the members as possible, so therefore we have the parliamentary restrictions of five minutes.  And without objection, your full statements will be entered into the record.

Dr. Reinhardt, let us hear from you.

STATEMENT OF UWE E. REINHARDT, Ph.D., JAMES MADISON PROFESSOR OF POLITICAL ECONOMY AND PROFESSOR OF ECONOMICS AND PUBLIC AFFAIRS, PRINCETON UNIVERSITY, PRINCETON, NEW JERSEY

Mr. Reinhardt.  Thank you, Mr. Chairman and members of this panel, for inviting me to this Committee and to participate in this important hearing.  My full remarks are in the statement which, as you said, will be submitted into the record.

I begin that statement by listing the five basic functions a health system must perform -- financing, risk pooling, purchasing, producing health care, and regulating it.  And the question is, who should perform each of these functions, the government or the private sector?

As far as I know, this hearing is really about the first three functions.  Who should organize and control the financing, the pooling, and the purchasing of health care?  Should it be private insurers only?  Should it be government only?  Or could there be a mixture of the two?

I might as well say ahead of time that I favor a mixture of the two.  As Congressman Camp said, there should be choice.  And a choice of a public plan strikes me as one of the choices the American people should be offered, along with the choice of private insurers, which, of course Canadians do not have.  A private insurance for services covered by Canadian Medicare are not allowed in Canada.  But we, of course, would in fact allow it.

To return to the question of who should perform the five functions mentioned above? It depends on the social goals you pose for health care, particularly the social distributive ethic.  If you treat, as many Americans want to, health care like a private good--like food, for example--then there is a strong bias in leaving that all to the private sector.

If, on the other hand, it is the wish of the American people to treat health care like a social good, like elementary education or secondary education, then it is unavoidable that government pretty much has to control or run the financing and the risk pooling functions, although it could delegate the purchasing functions to private insurance, we do with Medicaid Managed Care or with Medicare Advantage.

So those are the options.  But the risk pooling would have to be controlled by the government.

Most OECD countries and Taiwan treat health care as a social good, like elementary education, and they build their systems off that ethic.  They have stated their social goal for health care in writing -- explicitly.  The Romanow report of Canada, for example, puts the social ethic up front. 

In the US we do not have a shared, common ethic for health care.  Some Americans say it is a purely private good that should be rationed by price and ability to pay.  Others say it is a purely social good, like elementary education.  And in between, you have incredible intellectual confusion.

Let me illustrate this confusion. I hear nothing but bad-mouthing of socialized medicine in this country. Yet that is exactly the system we Americans preserve for our veterans.  My son is a veteran, and I always tease him:  We don't like you guys, because we put you into socialized medicine, the VA system.  That to me represents a severe case of cognitive dissonance. It is very unhelpful in formulating health reform.

The same cognitive dissonance is manifest when people say that no one has the right to impose a mandate to buy health insurance on individuals, but people have the right to get very expensive health care even if I can't pay for it, should they fall critically ill. That is very confusing to anyone who didn't grow up in this country.

Now, from President Obama's statements, I infer that he leans towards the social-good ethic for healthcare. He would like health care financed primarily by ability to pay, and see it distributed on roughly equal terms.  If that be the social ethic we want to pursue, then it can be fairly said, and I think industry members would agree, that the private insurance industry does not now own up to that ethic, nor can it.

I don't think of that industry as evil.  Vilifying it, I think, is not the right approach.  You just have to recognize that a private insurer has to be actuarially sound.  From that it follows that private insurers have to charge higher premium to sicker people.  From that it follows that private insurers of the things the industry does that look cruel really are just the business that they are in.  They have to deny coverage to very sick people.  They have to deny claims that they believe are not covered.  That just comes with the turf in which they operate.

So if you want President Obama's social ethic (that many members of this Committee share) then you really have to take a hold of the financing and risk pooling functions of the health system.  You have to very much regulate this industry with community writing, with guaranteed issue, and so on.

But if you put those two mandates on the industry, you must also mandate the individual to be insured or the market will blow up, as it has in New Jersey.  There is famous literature that led to a Nobel laureate that shows these markets will destroy if you do not couple a mandate to be insured with mandated community rating and guaranteed issue.

Now, I don't have time to go into all of the details of my statement.  But I hear there is a problem that if you added a public health plan to provide insurers in a reorganized market, that the public plan would have a comparative advantage because it could pay providers the lower rates Medicaid offers.

If you look at my testimony, you will see the range of prices paid by private insurers varies by a factor of six.  You have one insurer in a state.  Call them up and say, what do you pay for a colonoscopy, and what they pay, depending on which hospital it is, can vary by a factor of six.

So I would flatly assert there is no private payor level.  There isn't one.  There is only a huge, wide range of thousands of private payer levels -- every hospital gets a different fee from different insurers, and every insurer pays different hospitals differently.  And sometimes one insurer will pay the same hospital five different rates depending on what the insurance product is--HMO, PPO, indemnity and so on.

So when you say you want to adapt the payment level of a public plan to that of the private industry, I would ask to which level?  The lowest?  The highest?  The median?  The average?  The weighted average?  What region do you average over?  That is a huge can of worms.  It is not easy to do.

If you took the average, then roughly half the private insurance plans would be advantaged vis a vis the public plan because their prices would be lower than those the public plan must pay.  So this is very difficult to do.  And it requires a lot more thought.

In conclusion, I would say I believe that after having their retirement -- retiree health care blown away, 401(k) savings melt away and seeing once revered companies march towards bankruptcy, along with the debauchment in the financial center that is just nothing short of unspeakable, it could well be that the American people have lost faith in the private sector's ability to provide financial security to individuals and families. Americans might well yearn for a government-run plan that is stable, permanent, and always there for them. That possibility should be considered in debating the fate of the public plan.

After all -- I have said it in another Committee -- in this country, when the going gets tough, the tough do run to the government.  Some jet down here from New York.  Some drive cars from Detroit.  But they do come to Washington for help because, in the end, government is the only institution Americans truly trust. That tendency implicitly makes the case of the public plan.

So, to deprive Americans of the choice of a public plan would seem to me to require a very strong rationale and defense.

[The statement of Mr. Reinhardt follows:]

Chairman RANGEL.  Thank you, Doctor.

We would now like to hear from Bill Vaughan.  I join with Chairman Stark in congratulating you and Consumers Union for the contribution you have made to our Congress over the years.  And we would like to hear you.

STATEMENT OF WILLIAM VAUGHAN, SENIOR POLICY ANALYST, CONSUMERS UNION

Mr. Vaughan.  Well, thank you very much, sir, and thank you for inviting us to testify.  Consumers Union is the independent, nonprofit publisher of Consumer Reports, and we don't just test toasters.  We try to help people with health issues, and we are big, big fans of comparative effectiveness research, which we are using to save people, we think, millions of dollars in getting the most effective, safest, best buy drugs out there.

If Dante were alive writing about the independent health insurance market, it would be in the eighth circle just above where the uninsured are stuck.  And it is exhibit number one for what is wrong with American health care.

I was going to go into that, but I think the opening statements of Mr. Camp, Mr. Stark, that is coals to Newcastle.  Our statement documents why it is all goofed up, and has some very moving, heart-rending horror stories from people around the country stuck in that market.

It is easy to see why it is a dysfunctional market.  First, you have basically for-profit insurance companies, whose fiduciary duty is to make money for their stockholders.  That is just a fact.  And then you have the distribution of health care costs.

Let's pretend that this Ways and Means Committee is the entire American health care system.  The 40 of you are it.  And we are going to spend $2.4 trillion this year taking care of you guys.

And let's say the 50 percent of you who are the healthiest, Mr. Rangel over to Mr. Pomeroy, Mr. Camp over to Ms. Brown-Waite, would be 20 of you, 50 percent healthiest.  We would spend 3 percent, $72 billion, on you 20.

And, God forbid, I hope it never happens, but let me pick on the junior members, Mr. Yarmuth, Mr. Roskam.  Let's say if you were the 5 percent least healthy, we would spent $1,200 billion on you two.  $1.2 trillion on you two, $72 billion on the 20 in the upper row.  It is the privilege of seniority, I guess.

But you can try to regulate that.  You could try to get these for-profit insurers to try to cover you.  It is like leading a horse to water.  They won't always drink.  It will always be a hassle.  It is like, for a consumer point of view, you lose frequently.  It is like a constant game of Whack-a-Mole, and it is just no fun.

And that is why Consumers Union would like to see a public plan option out there, somebody whose fiduciary duty is to you in Congress, to the American public, and who would be delighted to insure you two.

Switching subjects a little bit, I have to say, unfortunately, on behalf of consumers, most of us are lousy insurance shoppers.  We don't get a good deal.  The evidence is everywhere -- in FEHBP, in Part D.  This is not something you go tripping off on a Saturday afternoon:  Let's go insurance shopping.  We don't do a good job.

If you want to have consumers help drive this system towards value and savings and quality, we are going to need some help big time.  Our statement gets into it, but basically, we are looking for an office that can help with what is the quality of insurers; a place where you can go to complain, find out what others are complaining about; a place where you can get cost comparisons; and very, very important, we need a place -- maybe it is NAIC -- but the definitions of these terms.

Our current magazine issue has the story of a couple.  Thought they had hospitalization.  Fine print:  Starts on the second day, after the lab tests, after the surgical room fees.  They get stuck with a big bill.  Hospitalization should be hospitalization.  Drug coverage should mean drug coverage, chemotherapy, anti-emetic, the common sense stuff that consumers need.  And we need to define those carefully so the public knows them.

The most important thing you can do is give us a manageable number of choices, not this 40, 50, 60, even 80 choices of minor little differences that just confuse the marketplace.  We need something like Medigap, which has A through L.  Even that is too much.

Get it down to some meaningful choices -- and yes, Mr. Camp, choices.  But they could be A through G, meaningful choices.  And before a person signs up and becomes eligible in whatever plan you guys put together, the person has to see the cost and the quality ratings of the comparable plans that are out there.  I bet you CBO would give you a ton of scorings savings for that.

Let me conclude but just say I hope this Congress can become one of the great historical Congresses of our nation's history by finally, after an almost 100-year struggle, bringing every American affordable, secure, health care.  Thank you very much.

[The statement of Mr. Vaughan follows:]

Chairman RANGEL.  Mr. Hobson, President and CEO of Watts Healthcare Corporation from Los Angeles.  Thank you so much for making that trip to be with us this morning.

STATEMENT OF WILLIAM D. HOBSON, JR., M.S., PRESIDENT AND CEO, WATTS HEALTHCARE CORPORATION, LOS ANGELES, CALIFORNIA

Mr. Hobson.  Thank you and good morning, Chairman Rangel, Ranking Member Camp, and distinguished members of the Committee, you have received a copy of my written testimony, so I will be brief with my remarks.

My name again is William Hobson, and I am president and CEO of the Watts Healthcare Corporation in South Los Angeles, where we operate the historic Watts Health Center, one of the very first community health centers in the country.

Over the past 40 years, which has been my entire professional career, I have worked with the community health centers across the country, starting in Cincinnati, Ohio, moving to Seattle, and most recently to California.  And I have worked on the development and implementation of high-quality health care services for the uninsured and at-risk populations in those communities.

For two years I oversaw the federal health center program at the Department of Health and Human Services as well.  I had several years of federal service.

On behalf of the 18 million patients served by community health centers nationwide, I would like to take this opportunity to thank you for the Committee's unyielding support for the national health centers program.  In this time of enormous challenges to our health care system and our economy, your faith in us and your support through the Recovery Act will allow us to rise and meet these challenges and continue to excel.

My testimony today will focus on health centers' role in the health care delivery system for the publicly insured, and on the experiences of safety net providers in the insurance market.

Last year the Watts Health Center was a health care home to more than 23,000 patients, and we provided 98,600 medical, dental, mental health, and other specialty medical visits at three sites.  Approximately 55 percent of our patients are African American, and approximately 40 percent are Latino.  A total of 96 percent of our patients have incomes below 200 percent of poverty, which is quite poor when you look at the cost of living in Los Angeles County.

Our public hospital recently closed, so the community has lost access to specialty care providers and an emergency room.  So now we see patients coming to us sicker and with more complex health problems than ever before.

Of the more than 23,000 patients that we saw in 2008, approximately 62 percent had no insurance coverage.  These uninsured patients pay what they can out of their own pocket, and we use federal, state, and local grant funding and private donations to supplement the cost of their primary health care coverage.

Less than 1 percent of our patients had any form of private insurance coverage, and when they did have private insurance coverage, it mostly covered hospitalization and really did not cover primary care at all.  The rest of our patients are covered by public programs such as Medicaid, Medicare, and SCHIP.  These programs reimburse our health centers at very close to the cost of care through a health center-specific payment rate.

From the perspective of the nation's health centers, our current public programs -- Medicare, Medicaid, and SCHIP -- are uniquely qualified to meet the needs of the most vulnerable communities.  Not only are our current public programs the only insurers that cover services necessary to meet the unique health needs of low income and underserved people, they are also quite often the only payors that recognize the unique role of the safety net providers like health centers, and the only insurance that pays them adequately.

By contrast, nationwide the private insurance market pays health centers less than 50 cents on the dollar for the care that they furnish to the 3 million people nationwide that our health center program sees that are privately insured.

For all of these reasons, we believe that there is a real value in including a public health insurance plan as a part of any health care reform effort that this Committee undertakes.  The current third party insurance payment structure disincentivizes many health care providers from offering patients coordinated case management and other enabling services which quite often make the difference as to whether the care that is provided is effective.

By contrast, the prospective payment system under which health centers operate appropriately and predictably reimburses health centers for the comprehensive care that we provide.  The same should be required in any expanded health insurance model, whether public or private.

In Los Angeles County, we have formed an independent practice association to provide Medicaid managed care services.  Through that, we hold contracts with most of the HMOs that provide Medicaid managed care in the county.  Though we are paid reasonable rates for our services by the county-owned plan, almost all of the private plans pay lower rates and are much more difficult business partners, from my perspective.

The private plans often move to exclude both hospitals and specialty networks that are the most geographically accessible for our patients.  We also experience poor customer service and difficult patient care management protocols with most of the private plans.

In conclusion, I would say that in my opinion there is a need for a public health insurance plan to assure that the most vulnerable populations and communities are not marginalized or redlined.

I believe that members of this Committee recognize the health center program as an unprecedented health care delivery success, improving patient outcomes and reducing health disparities in communities nationwide while at the same time providing quality care and estimated cost savings of approximately $18 billion annually to our health care system and to taxpayers.

I hope that as you examine potential reforms, you will look to health centers as a model and consider the unique challenges health centers and other safety net providers face in the health insurance marketplace.

Thank you for your time.  I look forward to taking any questions that you might have.

[The statement of Mr. Hobson follows:]

Chairman RANGEL.  Thank you.  And you might want to share with us what it is with the community health centers that make you so popular so that when you do come to Washington, I am amazed at the bipartisan support that the Congress gives what you do.  And so the quality of care, but most importantly, the consumer sense of credibility of those that service them is absolutely amazing.

David Borris, the owner of Hel's Kitchen Catering from Illinois.  I look forward to seeing the connection.  Thank you for coming.

STATEMENT OF DAVID BORRIS, OWNER, HEL'S KITCHEN CATERING, NORTHBROOK, ILLINOIS

Mr. Borris.  Thank you, Chairman Rangel, Ranking Member Camp, distinguished members of the Committee, for the invitation to testify this morning on my experience with health insurance as a small business owner.  My name is David Borris, and I am the owner of Hel's Kitchen Catering, a 24-year-old off-premise catering company located along suburban Chicago's north shore in Northbrook, Illinois.

Our business was born in a 900-square-foot storefront with one employee, my wife, myself, and a handful of my mother's and my wife's recipes.  My wife and I both left good-paying jobs in the hospitality industry to take our shot at the American dream of owning our own business.

Believe me, there were times -- mopping the floor at the end of a 16-hour day, with one baby and then two in the playpen in the office, when we weren't sure we had made the right decision.  But 24 years and three grown children later, we have a thriving business that now occupies 8,000 square feet.  I would say it has worked out pretty darn well.

I now employ 25 full-time employees, and have been offering health insurance to my staff since 1992.  When we began offering this benefit, we had grown to eight full-time employees, and felt a moral obligation to do right by the people who were making our life's work theirs as well.  Employees contributed 50 percent of the premium in their first year of coverage, and Hel's Kitchen picked up the entire premium after that.

Beginning around 2002, though, we began to experience a series of annual premium increases that, taken together, now have us paying double per employee what we paid then -- 2004, 21 percent; 2005, 10 percent; 2006, 16 percent; and 2007, 17 percent, and a change in carriers to avoid the quoted 26 percent renewal fee.  In 2008, we were finally forced to ask long-time employees to again begin paying a portion of the premiums, as the 17 percent increase was simply too much for us to absorb.

I currently insure only 13 of my 25 full-time employees.  I spent 13 percent of my covered employees' payroll on health insurance premiums last year, and have no idea what the renewal is going to look like when it comes due this November.  Undoubtedly, we will be forced to increase employees' contributions again, an effective pay cut only further reducing their disposable income.  This is no way to run a growing business.

Six weeks ago I was speaking with a number of my fellow business owners at a Chamber of Commerce networking function, and I was in the process of negotiating a renewal of our lease at the same time.  I asked them, when we work on these lease deals, we look at three-year, five-year, 10-year, 20-year terms.

How many of us would sign a lease with a landlord who said, I will tell you what.  I will give you a one-year lease, and after 11 months, I will let you know how much your rent is going to be for next year.  Maybe it will go up 3 percent, maybe 22 percent.  I don't know.  I will let you know then.  How many of us would sign a deal like that?

Well, you can imagine their response.  And yet that is precisely the situation we have with health insurance every year.  I will pay approximately the same amount of money to insure half of my full-time staff as I pay in rent in 2009.  Surely this is deeply broken.  There must be a better way.

The small group insurance market is simply not working for small business.  Let me share with you how the premium renewal shopping game works in the current all-private health insurance market for small business.

About four to six weeks before the year is up, our broker brings us quotes from five or six insurers.  We go over the benefit differences and the quoted premiums, and we choose the plan that we hope will work best for a majority of our employees.

Then we are asked to collect and submit health histories from those employees.  Two to three weeks later we get the real premium.  It could be 10 percent, 20 percent, or 66 percent more.  We are not supposed to know why.

But we are small businesses.  Our employees are like our family.  We know.  We know that our 62-year-old general manager's wife has a kidney problem.  We know that the chef's son is taking human growth hormone for his condition.  We know.

Because of the industry's routine discrimination against employees with health issues, small business owners like myself are faced with a moral dilemma that should not be ours to bear.  Are we to measure retention and hiring now with a yardstick that includes health insurance costs?  Is a valued employee's job to be less secure because they have the misfortune to have a sick child or a wife with cancer?  These sorts of choices in the wealthiest nation in the world, it is unconscionable.

I want to make one thing perfectly clear as I conclude.  As a small business owner, I am willing to contribute to get good health coverage for my employees.  But leaving cost containment and reform in the hands of the private health insurance industry, we have tried that and it has failed.

We need a public plan that will re-energize true competition in the marketplace, set the bar for comprehensive benefits and cost controls, provide a quality alternative if the private market doesn't meet our needs.  The choice of a public health insurance plan can put the focus back on health outcomes and the quality of life, not profits and corporate bonuses.

It can reinforce the best of what America has to offer, the promise that we all have responsibilities toward each other.  We have waited long enough.  The American economic recovery, the prosperity of businesses like mine, and our commitment to the employees that make our businesses what they are, all hang in the balance.

Thank you.

[The statement of Mr. Borris follows:]

Chairman RANGEL.  Thank you so much.

I look forward to the testimony of Kenneth Sperling on behalf of the National Coalition on Benefits.  It may appear as though the witnesses outnumber your view, but I intend to spend a little time I have in giving you an opportunity to express yourself beyond your testimony.

STATEMENT OF KENNETH L. SPERLING, GLOBAL HEALTH MANAGEMENT LEADER, HEWITT ASSOCIATES, ON BEHALF OF NATIONAL COALITION ON BENEFITS

Mr. Sperling.  Thank you, Mr. Chairman, Ranking Member Camp, and members of the Committee.  Thank you for the opportunity to testify at this important hearing on insurance market reform.  My name is Ken Sperling, and I lead Hewitt Associates' global health care consulting practice.  Hewitt Associates is a human resources company serving more than 2,000 U.S. employers from offices in 30 states.

I have been asked to testify on behalf of the National Coalition on Benefits, a group of 180 employers and business trade associations who have joined together to work with Congress to enact reforms that preserves ERISA and maintains uniform health and retirement benefits to employees and retirees across state and local boundaries.

We will discuss some of the issues we encourage you to think about as you consider rules governing the health insurance marketplace.  We thank the Committee for your leadership in preserving the employer-based system, and we appreciate your acknowledgment that many Americans want and should be able to keep the coverage that they have today.

NCB supports the need for health reform, but believes that reform should be careful not to disrupt or destabilize existing employer-sponsored coverage that most Americans rely on.  Nationwide, the majority of Americans -- 177 million -- participate in employer-sponsored health care plans.

This model works well because it allows broad pooling of risk, enables participation by all regardless of health status, and creates efficient large-scale purchasing.  Even more important, employers have a vested interest in the health and productivity of their workforce, and use the employer-based system to consistently produce innovative health care solutions that improve productivity, reduce absence from work, and lower disability costs.

But as good as it is, this system is increasingly at great risk, given the combination of cumulative increases in health care costs and the current economic downturn.  Despite the positive actions of many employers, there are many problems yet to solve.

Federal health care reform must focus on several important priorities.

First, preserve and promote the employer-based health care system.  Reform should seek to both protect and expand the number of employers who provide health care benefits for their employees.

The employer-based system has encouraged companies to be innovators of health care solutions, and recent examples include extensive health coaching programs, incentives for wellness and pharmaceutical compliance, and efforts to improve cost and quality transparency.  There are promising outcomes emerging from programs that encourage people to engage in healthy activities, understand their risks, and manage their illness.

Employees also understand and appreciate the employer's role in offering and financing health care benefits.  And a recent survey showed that three out of every four respondents valued health insurance as their most important employee benefit, and an equal number said they would prefer to have their employer provide this benefit rather than being provided a salary increase to purchase health coverage on their own.

Second, preserve and strengthen federal ERISA preemption of state laws to promote uniformity in coverage and reduce administrative costs.  Approximately 55 percent of employees who participate in employer-sponsored plans are in self-insured arrangements, and 45 percent are in insured programs.

All of these plans are covered by ERISA.  Many of the employers who voluntarily sponsor these plans operate across state lines, and they must be able to continue to offer uniform benefit packages to their employees.  Requiring employers to comply with a multitude of state- and/or local government-imposed administrative requirements and benefit mandates would raise employer costs even further, and result in unequal benefits for employees.

ERISA preemption gives each employer the flexibility to design coverage that meets the changing needs and disease burden of their unique workforce, and apply these programs efficiently to all work locations.

Third, reform the insurance marketplace so that individuals and small employers can have access to affordable insurance products.  Insurance market reform is necessary so that small businesses and individuals can find affordable health insurance coverage.

Many large employers fear that rising health care costs may encourage smaller businesses to drop health coverage, and such a trend would lead to large employers assuming an even greater economic burden through increased cost-shifting.

And fourth, build on the efficiencies that will come from continued investment in health information technology, including the adoption of uniform federal standards to improve efficiency and patient safety.

In closing, on behalf of the National Coalition on Benefits, we support the employment-based system and the preservation of ERISA so that employers have the ability to offer and maintain comprehensive and uniform benefit plans.  We believe that employers should remain an integral part of the U.S. health care system, and that reforms that lead to lower health care costs will go a long way towards keeping American companies competitive.

Congress has the challenge of sorting through the details of how that would be accomplished, with many competing views.  As a member of the National Coalition on Benefits and independently, Hewitt would be pleased to offer its expertise, data, and tools to help the Committee evaluate the impact of detailed reform plans on coverage provided by employers today.

Thank you for your interest, and I would be pleased to respond to your questions.

[The statement of Mr. Sperling follows:]

Chairman RANGEL.  Well, thank you for your invitation of making a contribution to try to unwind some of the complex issues we are faced with dealing with energy and commerce, and also dealing with the Senate.

I do hope that you might submit a paper, as I invite all of the witnesses to, as you see the direction that we are going -- not that we are going to adopt it, but if we see that there is a sharp conflict and we have alternatives, I wish you would submit a paper and not wait to be called.  And that goes for all of you, but especially your organization that has such a wide membership.

Linda Blumberg, Dr. Blumberg, who is a senior fellow at the Urban Institute.  Thank you for being with us.

STATEMENT OF LINDA BLUMBERG, Ph.D., PRINCIPAL RESEARCH ASSOCIATE, THE URBAN INSTITUTE

Ms. Blumberg.  Mr. Chairman and distinguished members of the Committee, thank you for inviting me to share my views on health insurance markets and health care reform.  The views I express are mine alone and should not be attributed to the Urban Institute, its funders, or its trustees.

Current health insurance markets suffer from many shortcomings.  I am going to focus my remarks on three that I believe are central, and what I think we might be able to do under reform to address them.

First, private health insurance markets are not very organized, making it difficult for individuals and employers to effectively compare options based on price, benefits, and quality of service.

Second, individuals and employers voluntarily participate as purchasers.  But too often, those who would like to buy coverage face barriers to doing so, including problems of affordability and discrimination based on health status.

Third, there is little competition between insurers, a consequence of a substantial amount of consolidation among insurers and health care providers in recent years, fueling the growth in insurance premiums.

Insurance market reforms and subsidies to make coverage affordable for the modest income population within the context of a more organized health insurance market are essential strategies to address these problems.

A health insurance exchange can be developed to organize the insurance market and to provide guidance and oversight in achieving reform goals.  Making a public health insurance option available to purchasers can further promote competition in insurance markets, and could be an effective strategy for slowing health care cost growth.

Competition in private health insurance markets today focuses largely on obtaining the lowest-risk enrollees.  Insurance market regulations are required to prevent risk-selecting behavior by insurers.  States allow insurers to risk-select to varying degrees today so that they can protect themselves from the inherent nature of a voluntary insurance market, where individuals who expect to use significant health care services are those that are most likely to seek coverage.

However, the consequences of allowing insurers to use such strategies are that many who need coverage cannot obtain it, and many who have some type of insurance may not have adequate coverage to meet their health care needs.

In the context of a health care system that is universal, where everyone is insured all of the time, there would no longer be any reason to allow discrimination by health status, and coverage denials, benefit riders, preexisting condition exclusions, and medical underwriting can be prohibited, with the costs of those with high medical needs spread broadly across the population.

In such a context, an exchange can penalize or exclude from participation companies that violate insurance market regulations, establishing market conduct rules to prevent evasion of regulations.  An exchange can also provide for risk adjustment to account for any uneven distribution of risk across insurers.

Exchanges can also be designed to efficiently deliver health insurance subsidies, an essential element of reform intended to make coverage affordable for all incomes.  Centralizing into a single agency, such as an exchange, the subsidy determination and the payments of subsidies to insurers would be a much more efficient approach to administration that under the HCTC experience we are having today.  The exchange could exclude plans not meeting minimum coverage standards, ensuring that all have access to meaningful coverage.

Exchanges can also play an important role in cost containment.  The lack of competitive pressures in the current insurance market leads to higher prices and less cost-efficient practice patterns.  An exchange can be given the authority to negotiate with health insurers over premiums.

Other cost-containment strategies would include requiring similar benefit packages be offered within an exchange to make it easier for consumers to compare prices for like policies, providing improved information materials, and incentives to choose lower-cost plan options.  An exchange could also reduce administrative costs due to lower churning across insurance plans.

Adding a public plan option to those offered within an exchange would significantly increase the cost containment potential of reform.  A public plan could be modeled after the traditional Medicare program, paying providers based upon the payment systems Medicare uses, but with different cost-sharing rules and possibly some differences in covered benefits.  Payment rates could be set between Medicare and private rates.

Medicare payment policies have been shown to reduce cost growth relative to private insurers.  A public plan could create competitive pressures necessary to induce private insurers to be tougher negotiators with the providers and their plans.

The public plan could also be an innovator in the development of other cost-containment mechanisms.  It would also create a lower-administrative-cost option for purchasers, putting pressure on private insurers to hold down their own costs.

I do not believe that a public plan option would destroy the private insurance market or lead to a government takeover of insurance, as some fear.  Those plans that offer high-quality services and good access to providers would survive.  Those that innovate and offer limited networks may even be able to offer lower-cost plans than the public option.

I consider the public plan a very promising catalyst for cost containment, and one that I think would be considerably less of a dramatic change than other effective options, such as having the exchange negotiate rates on behalf of all participating plans, or moving to an all-payor rate-setting system.

Thank you very much, and I am happy to answer any questions that you might have.

[The statement of Ms. Blumberg follows:]

Chairman RANGEL.  Thank you.

Mr. Sperling, does your general testimony support a public plan option?

Mr. Sperling.  First, let me clarify, Mr. Chairman, that the National Coalition on Benefits does, to my knowledge, not have a position on a public plan.

I can speak from our experience at Hewitt working with large employers, and employers are generally wary of a public plan option because of the potential there is for cost-shifting from public to private if such a public plan option's reimbursements were set at current public plan rates.  And the details --

Chairman RANGEL.  Well, I would have thought that your group, with all of the complexities and conflicts we have with an honest attempt to give the broadest possible, best service at the least amount of expense, that your group would have -- not you, but -- not just employers, but that you would have given us the benefit of your group's feeling so that if you could persuade us to not have a public plan, that we would have solidarity or whatever.

But let me ask you, then, if you are speaking for the employers, that if we have a transportation problem, say, that we have in the city and state of New York, and we are fighting desperately hard to have a set rate so that everybody would be able to go from one location to the other with quality service at the least consumer cost; and then we had a private limousine service that said, we can kick up the quality of service, but you have to pay more -- is that a poor analogy as relates to health care, that someone really wants to get the quality care at a community health center because it has a great reputation, but others may not want to be seen at a public place, and so they want to pay higher but to get a different quality or feel more comfortable with it, and they would go to an unregulated limousine service, that its whole design is to make a profit.  I mean, that is their job.

What it wrong with that analogy in saying that you stick with what you feel comfortable with; if you want your own services that you feel you are entitled to, pay for it?

Mr. Sperling.  Mr. Chairman, I am probably the wrong person to ask because when I am in New York, I take the subway.  And I really enjoy it.

Chairman RANGEL.  But you enjoy knowing that if you want to take a cab or a limo, it is there for you.

Mr. Sperling.  Yes, Mr. Chairman.  I think the difference is that if the fact that I might want to take a limousine service and others want to take a subway, if the cost of my limousine service goes up because the subsidy towards the subway is not enough to cover its cost, then I might have a problem with that.

And that is the issue that employers have, is whether or not their costs are going to go up by the existence of a public plan that might not --

Chairman RANGEL.  What bothers me, though, and I did want to give you all of my time, is that you don't represent employers.  That is what bothers me, really.  So I don't really think you are the best person to ask the question as:  Does an alternative plan adversely affect the private sector in what they do, and for some, do very well as opposed to one size fits all with a public plan that they just may resent the whole idea.

In any event, what group of employers would you suggest we go to to allay their fears that the price would go up by the private sector if there was a responsible, competitive public alternative?  Who would I go to that talks to you so that you feel comfortable in expressing their view?

Mr. Sperling.  Here, Mr. Chairman, we have relationships with mainly large employers.  And those large employers would be an important constituency to speak to about potential objections to a public plan.

Chairman RANGEL.  But how would I invite the larger players without knowing who they are?  That is okay.  That is all right.

Mr. Sperling.  I am sorry.  I am not sure I can answer that question, Mr. Chairman.

Chairman RANGEL.  But it is kind of hard to say that that is your view about employers.  But we all have different views, and I just want to make certain that our Republican friends who have real serious problems with a public plan would be able to bring those who have talked with employers or those who really believe that it threatens the health delivery system so that there could be not just debate with politician lawmakers, but so that the public would have a better understanding of the difference in views or combination of those things.

So I appreciate your testimony.  I yield to Mr. CAMP.

Mr. CAMP.  Well, thank you.

Chairman RANGEL.  And I would like to ask Mr. Stark to provide the direction for the witnesses.  Mr. CAMP.

Mr. CAMP.  Well, thank you, Mr. Chairman.  And just for the record, Mr. Sperling is here on behalf of the National Coalition of Benefits.  They represent 180 employers.

But I want to go to another point.  We are beginning these hearings on health care reform.  We had one before the recess.  The majority chose six of the seven witnesses.  We got one.  The majority again is choosing at this hearing five of the six witnesses.  We have one.

And I would say on this issue -- and that may have been the tradition of this Committee.  But I would say on this issue, at this time, on health care only, why don't we try to have a more balanced panel.  I mean, actually, there are things that Mr. Vaughan and Mr. Hobson said that I agree with, particularly with regard to transparency, Mr. Vaughan; community health centers, Mr. Hobson.

But for the chairman to then say we don't have the employers here to talk to when we are only given one witness -- so I guess I would propose let's do things differently.  I know that the chairman has been on the Committee a long time.  I know we have done it, when we were in the majority, a certain way.  But we have had this historic opportunity on this important of an issue.

And perhaps some more balance.  We could have more debate.  I mean, clearly whether there is a government-run plan or private option, it is a very contentious issue.  Even the White House has signaled that they are not wedded to a public plan in the health care reform issue.  So there are a lot of concerns.

I would like to vet that in a more thorough way, simply than us only being able to have one witness who had to cover many other issues.  But let me just say --

Chairman RANGEL.  Would you yield on that point?

Mr. CAMP.  I would be happy to yield.

Chairman RANGEL.  Let me say that you are right.  I have been stuck by the tradition of the Committee, whether it is Republican or Democrat.  But I want you to get your people that are opposed to a so-called public plan, and we would arrange to meet in the library, to invite Republican and Democratic members to listen.

Mr. CAMP.  Yes.  The public record would be nice as well.  But I would be happy to join the chairman in the library.

Chairman RANGEL.  But you selected -- this is not -- I don't want to use your time at all.  But the major issue has been not that we all don't want quality health care, but there has been opposition to the public plan.  And I really mistakenly thought that since the witness you selected represented employers, that he would cover it.

So whether it is public record or not, I will do all I can to make certain that we get broader representation on those people who oppose the public plan because I want to make certain I feel comfortable and include them.

Mr. CAMP.  Yes.

Chairman RANGEL.  Whatever time I have taken --

Mr. LEWIS..  Would the ranking member --

Mr. CAMP.  Well, and your comment was -- I am reclaiming my time, thank you.

Mr. LEWIS..  Will you?

Mr. CAMP.  Just in a moment.

Mr. LEWIS..  Will you yield?

Mr. CAMP.  I will in a minute.  But let me just say, Mr. Chairman, you said, the witnesses outnumber your view, to Mr. Sperling.  Well, clearly they do because you were able to get the five witnesses.

But look.  We have a number of hearings on this.  I think we should also focus on some of those areas where we can maybe work together -- transparency in pricing and quality.  I think Dr. Blumberg mentioned that.  That is something that I think we can come together on.

Obviously, preexisting condition.  Prevention.  Wellness.  Care coordination.  What does that look like?  How is that defined?  I think those are areas I think some -- if we could have some more diverse testimony, I think it would be helpful.  Clearly, information technology is something all of us on both sides have talked about.

But let me just say there is a lot of concern with regard to this because look at Medicare's high readmission rates.  The government doesn't always do it perfectly.  Most seniors have Medigap because the "public option'' isn't quite adequate -- 65 percent, for example.

Most insurers -- many insurers in many states require that their insurance companies be nonprofit.  We still have high costs.  We still have all of the problems that have been mentioned.

So I guess I would say, as we move forward, I hope that we can have a greater approach.  And then, Mr. Lewis, I would be happy to yield to my friend from Georgia.

Mr. LEWIS..  Mr. Camp, thank you for yielding.  Just sitting here thinking.  In the past, did you ever raise the question with -- when we were in the minority with Mr. --

Mr. CAMP.  Yes.

Mr. LEWIS..  And maybe you -- wouldn't this be a little bit --

Mr. CAMP.  Let me finish.  No.  Mr. Lewis, what I said was it has been the tradition of this Committee -- I wasn't in charge of it, frankly -- to have the minority have only one or two witnesses.  But this, I think, is a different issue.  And I am suggesting for health care only.

So on tax issues, on human services issues, still do the five to one or the six to one or the seven to one.  But how about on health care --

Mr. LEWIS..  We had a --

Mr. CAMP.  How about on this issue only?  Let's do something only --

Mr. LEWIS..  I think Mr. Stark will correct me here, and maybe Mr. Rangel.  How about Medicare?  How did you go about doing Medicare?  How many witnesses did we have?

Mr. CAMP.  I am suggesting on health care reform, let's try something -- look, you are in change.  You can do what you want.  But let me just ask -- I have a couple questions I would like to ask.

Mr. Borris, I appreciate your efforts in trying to provide health insurance to your employees and how difficult that must be.  And I thought your testimony was very good.  I have heard from a number of small business owners just like you who are finding it very difficult to pay for their health insurance because it is more unaffordable.

I know in your testimony you suggested a choice between private and public plans.  So you still would like to have a private plan available to your employees, if they so choose.  Is that correct?

Mr. Borris.  A choice.

Mr. CAMP.  A choice.  But that private choice that they have, would those costs come down if maybe you were able to team up with other catering companies in Chicago to offer health insurance options to your employees?  Do you think that would help you reduce costs for those who chose the private plan?

Mr. Borris.  Well, we have -- I actually had a guy in my office who was talking to me about, you know, could we get some sort of an association together.  Would we be interested?  I shared with him that I would certainly be interested in looking at it.

But I don't know that getting that together necessarily gives us any benefit in how we really control the costs either in the provider costs or in the costs of our premiums coming down.  Nothing has been put in front of me yet that has shown me clearly where that would be a benefit.

Mr. CAMP.  But if small businesses were able to join together and pool their risk, is that something -- is that a type of reform -- I am not saying the only reform, but is that the type of reform you might support?

Mr. Borris.  My concern is that we have been sufficient under this for about the last -- well, for a couple of decades, but particularly in the last six or eight years.

Mr. CAMP.  Yes.  Not to the exclusion of other reforms that may be out there, but is this one of many reforms that could occur?

Mr. Borris.  I would have to look at it and see.  But leaving this solely in the hands of the private insurance industry hasn't worked yet, and I am quite skeptical that it will work.

Mr. CAMP.  Thank you very much.

I would like to ask Mr. Sperling, you know, we have studies that show that a government-run plan could force as many as 120 million Americans out of their current held employer-sponsored insurance.  And obviously, if we have choices, you obviously need to have a private plan as well.

How would the creation of a plan impact the costs of providing employer-provided insurance?  And would it exacerbate the so-called cost shift that we have heard about, and how would employer risk pools be affected?

Mr. Sperling.  Yes, Mr. CAMP.  The studies I think you are referring to, there were several.  There was one that was done by the Lewin Group.  There was another one that was done by Milliman.  They have tried to quantify the cost shift that exists in the current system from uncompensated care in public plans to private payors.

Some estimates quantify that uncompensated care burden as 2 to 3 percent, and the cost shift currently from public to private cost shift as much larger.  And those studies assume that a public plan would use Medicare as a basis for reimbursement.

So a new public plan that might draw as much as 120 million Americans into kind of a Medicare-based reimbursement would certainly exacerbate the degree of cost-shifting that goes on today.  Lewin estimated that that cost shift might be as much as 30 percent, and put the private plans at a significant cost disadvantage to a public plan.

Now, I can't speak to the accuracy of those numbers.  But if this kind of gap were to exist, it would significantly impact the viability of the employer-based system and call into question some employers' ability to be able to continue to offer those kind of benefits to their employees.

Mr. CAMP.  Thank you very much.  I see my time is expired.  Thank you, Mr. Chairman.

Mr. STARK. [Presiding] I am going to pass for now.  Mr. McDermott, would you like to inquire?

Mr. McDERMOTT.  Thank you, Mr. Chairman.

It seems to me that we have assumed for today's hearing that there will be a public option.  That may not be true, but let's talk about it as though there is going to be a public option.

My problem with a public option is how to design it so that it does not become a dumping ground for the problem cases of the insurance industry that they want to get rid of.  And I would like to ask whomever -- maybe Dr. Reinhardt or Bill can start -- if Medicare was made the public option, what would be necessary in national insurance regulation to prevent the private companies who want to dump their people who are problematic into -- either the private insurance companies or the private manufacturers -- into the government plan?  What would you have to do to make that so it would actually work?

Mr. Reinhardt.  Well, most other nations that have only private insurance options use a risk adjustment mechanism.  Germany quite explicitly does that.  So after the enrollment period is over, they assess the risks that each plan ended up with, and then have compensation payments.  That is, plans that end up with younger people, healthier people, make a payment to this risk equalization fund, and plans with sicker people get a payment from that fund.

So if you had an insurance market with a public plan and private plans, you would use that same mechanism.  The Dutch do it.  The Germans do it.  I think the Swiss do it as well.  And the risk adjusters you needed for that are pretty well understood now by health services researchers.

That is the most practical way to do it.  So if the public plan actually ended up with a sicker risk pool, private plans with a healthier pool would have to make a payment so that the risk would be equalized.  Among plans, I actually refer to that in my statement.

The level playing-field issue is not just about payment of providers.  It is also about the risk pool health plans end up with.  Those are the two things.  And the risk pool gets equalized in these other countries by having this compensation mechanism.

Mr. McDERMOTT.  Is it your view that the creation of a public option like Medicare for all would be a -- would force people out of the private industry?  We heard this number, 30 percent, would be forced out of their private plan and into the public plan.  Is that your understanding of such a plan?

Mr. Reinhardt.  Well, that is the language that gets used.  The Lewin Group doesn't use it but imply it.  What that would mean is that many, many employers simply say, we will no longer offer employer-based insurance.  Of course, those employees then would still have a choice of the public plan and private plans that sell individually-based insurance.

So I find that argument specious.  I don't think the word "forced'' is the correct English here because yes, you wouldn't get it from the employer any more.  But you would still be able to buy private insurance in the individual market, restructured market.

I have never understood this scenario.  I don't simply buy the scenario that a public plan would ultimately squish the private plans out of existence. I have heard that argument made by Galen Institute-- that the public plan will then deteriorate and give very low quality care, and we end up with the Canadian system.

But if there is the option of a private plan, even if they had shrunk initially, they would grow again.  These critics of a public plan don't seem to understand how markets work.  And I am an economist.  I cannot believe that if a public plan really didn't play well by the American people, that you wouldn't have immediately a private insurance industry growing out of the ground, offering Americans a better deal.  Isn't that how markets work?

So somehow, there seems to be a lack of faith in the market.

Mr. McDERMOTT.  Mr. Vaughan?

Mr. Vaughan.  Well, just -- the thought is it does become a bit self-correcting, and that Medicare can't get too out of line with the private sector or you get access problems.  And I think you guys have done a great job trying to protect Medicare.

The doctor fix that goes on year after year -- you are not going to let doctor pay get too far below where it is -- and sure, it is below.  But it doesn't get too far out.  And if it started to, you guys would come in and protect the Medicare beneficiaries.

So in a sense, there is a limit to how much Medicare can become cheaper and so attractive to people that they will all leave the employer system.

Mr. McDERMOTT.  Thank you, Mr. Chairman.

Mr. STARK.  Thank you.

Mr. Herger, would you like to inquire?

Mr. Herger.  I would.  Thank you, Mr. Chairman.  And before I get in my questioning, I just have to say that I share the incredible concern by Congressman Camp, the fact that an issue that is so incredibly important to our nation, health care, that we have a panel that is basically totally biased in one area.

And just saying, that is the way we have always done it, I don't think is the adequate excuse for what we are hearing here this morning.  And I just can't state that strongly enough, particularly on an issue when we talk about a public plan, i.e. a government-run plan, and we see what takes place in Canada and every place they have a government plan, how you -- how can a private plan complete with that?

But to not hear virtually any testimony on the other side, Mr. Chairman, I think is completely unacceptable on an issue that is this important.  And then to come back and say that we are going to meet in the library, in a private area, is there something that the majority party would like to keep from the American public that you want to keep it private?  That is my question.  But --

Mr. STARK.  Would the gentleman yield?

Mr. Herger.  Not at this point.  Later I will.

Mr. Hobson, I want you to know that I appreciate all the work that you are doing to provide care to the uninsured and underserved in Los Angeles.  And I have been a proud supporter of community health centers for many years, and like you, I believe health centers play a critical role in our health care system and serve as a point of care of those who need it the most.

You state in your testimony that Medicare and Medicaid pay community health centers adequately, while private insurers reimburse you below cost.  That runs counter to everything we have heard from hospitals and physicians.  So I think it is important for the Committee to understand that the payment system for health centers is really quite unusual.

Specifically, I believe Medicaid is required by law to pay community health centers on a cost basis, which is far better treatment than most providers receive.  In fact, in our own state of California, which has the lowest Medicaid rate in the nation, many health care providers get about 50 cents on the dollar.  I have critical access hospitals in my district who actually get paid based on cost on Medicare, yet are barely able to stay open because their Medicaid payments are so low.

Mr. Hobson, if Medicaid payments to your center were cut by 50 percent -- and again, I think members should understand that is exactly the situation in which many California health care providers find themselves -- how would that affect your budget and your ability to deliver these critically needed medical services to our underserved communities?

Mr. Hobson.  Well, first of all, thank you for your support of our program, Congressman.  Congress established a prospective system that allows us to receive what is called a reasonable cost that is developed on a formula basis for reimbursement, for patient visits, for people that are on the MediCal program in our case in California.

What this does is that it leaves the federal grant dollars that are made available to us for the uninsured to actually go to care for the uninsured.  And this program is really designed to serve as a bulwark against a cost shift in the other direction, so to speak.

So if we weren't able to receive a full reasonable-cost reimbursement for our Medicaid patients, then what would happen is that our ability to see a lot of the underinsured and uninsured patients would be diminished.  And so that would really be the net effect of, essentially, a change in the reimbursement methodology that we have.

I hope that answers your question.

Mr. Herger.  That does.  In other words, you wouldn't be able to continue functioning if you were paid the same way our hospitals are in California.  You wouldn't be able to continue the services you have if you had that same type of reimbursement?

Mr. Hobson.  Yes.  Right, particularly to the uninsured.  Basically, this allows us -- when we are able to capture a reasonable cost for the patients who are covered, then we essentially can -- our grant dollars then are focused, if you will, on our uninsured patients.

And that is really what Congress intended -- at least, that is my understanding -- with the grant program that we have for Community Health Centers nationwide.  It is really to help provide resources for care of the uninsured.  So this is just one methodology that essentially Congress adopted that tried to make sure that the federal grant dollars are really maximized for care for the uninsured.

Mr. Herger.  Thank you, Mr. Chairman.

Mr. Stark?

Mr. STARK.  Thank you, Mr. Herger.

You have an unanimous consent request?

Mr. McDERMOTT.  Yes.  Mr. Chairman, I ask unanimous consent to enter into the record a letter from the Business Coalition for Benefit Tax Equity.  It has to do with the benefits for marital partners, and it represents a number of organizations that are already providing and want some changes in the tax law.

Mr. STARK.  Without objection.

[The information follows:]

Mr. STARK.  Before I recognize Mr. Lewis, I just want the record -- because I am afraid Mr. Lewis is going to be upset that we don't have more witnesses representing his issues.

I have not heard from Mr. Camp or Mr. Herger about requesting an additional witness or more witnesses, nor has our staff heard from the minority staff requesting an additional witness.  And I find it somewhat disingenuous to raise that issue at this point.

Mr. Lewis?

Mr. CAMP.  Will the gentleman yield?

Mr. STARK.  Pardon?

Mr. CAMP.  Will the gentleman yield?

Mr. STARK.  Yes.

Mr. CAMP.  We did, through staff, request more witnesses.

Mr. STARK.  The hell you did.

Mr. CAMP.  Yes, we did.  And we would be glad to get everybody together --

Mr. STARK.  That is a lie.  You did not.

Mr. CAMP.  We did.  And if not for this hearing, we will for the future.  Let's move forward, then --

Mr. STARK.  It would be better if you did it as we have always done it instead of raising the issue here as a political issue in what otherwise was designed to be an informative hearing.

Mr. CAMP.  Mr. Chairman?  Mr. Chairman, the chairman said, the witnesses outnumber your view, in the opening statement.  He is the one who brought this issue up.

Mr. Becerra.  Mr. Chairman, may I just --

Mr. CAMP.  And my point really is that this is --

Mr. Becerra.  Mr. Chairman, there are many of us who would like to ask questions.

Mr. STARK.  I just wanted to let the record show --

Mr. CAMP.  Let the record show that we did request additional witnesses.

Mr. STARK.  Tell me requested, of whom.

Mr. CAMP.  Both our health staff and also through the staff directly.

Mr. STARK.  I deny that.

Mr. Lewis.  Thank you, Mr. Chairman.

Let me thank each of the witnesses for being here today.

[Pause.]

Mr. LEWIS..  Mr. Chairman, I want to thank each of the witnesses for being here today.

Dr. Reinhardt, I want to thank you for your brilliant, well-stated statement of your views, this idea of the social good, the common good, that we are all in this thing together.  I just think the time has come for us to do more than talk the talk.  It is time for us to walk the walk.  It is time for us to act.

So I want to ask you:  What if we don't pass universal health care coverage?  What are the costs if we fail to achieve universal coverage?

Mr. Reinhardt.  What are the costs?

Mr. LEWIS..  Yes.

Mr. Reinhardt.  Well, there are two costs.  The first one is that individual families bear incredible financial agony and possibly physical pain as well.  There was a front-page story in the New York Times yesterday about a couple that both lost their jobs and have a child with cancer and can't get care.  My wife read me the language, and I found it revolting.  So there are -- and there are too many of these cases.  I travel a lot abroad.  I speak in Berlin and Beijing, et cetera.  And if one relates to them those sad American stories, they cannot believe this happens in America.  But it does. I am ashamed of those stories.

And then there is of course the cost that people postpone early, timely, intervention and get to the emergency room only when they are very sick.  And that also is, of course, a major cost.

Finally, the third cost is the "job lock" inherent in employment-based insurance. I am not generally known as an enthusiast of the employer-based system, because a system where you lose your health insurance when you lose your job is really not a very reliable insurance system. In Canada, there is much greater job mobility because you can switch jobs and you don't lose your insurance.  Here you don't have that.

So there are these three costs.

Mr. LEWIS..  Furthermore, do you accept the idea, the concept, that health care is a right, is a right that should be guaranteed by our government?

Mr. Reinhardt.  I certainly believe that certain kinds of health care are a right -- obviously, not everything; is cosmetic plastic surgery.  But there is a presumption in this country that certain critically needed care is in fact a right or Congress wouldn't have passed EMTALA.  But Congress did.

So yes, the bulk of health care that, for example, the kind Members of Congress and their families have, is viewed as a moral right, although a constitutional right. Mind you, I am biased.  I grew up in postwar Germany and in Canada. So my soul was programmed substantially there as afar as the social ethic for health care is concerned.

Mr. LEWIS..  Would other members of the panel care to comment?  Mr. Vaughan?

Mr. Vaughan.  We certainly agree it is a right.  And it is time that it got fixed.  I thought you might enjoy, for just one second, we wrote our subscribers that, "There is now no doubt of the growing wave of popular sentiment in favor of an efficient public health program.  It has become obvious that the people of the country intend to see to it that the whole population shall benefit from the discoveries of modern medical science.  The only question before the country now is how soon.''

I am afraid, sir, that is from our 1939 auto issue.  I think we analyze cars better than we do the political situation.  We supported the Wagner and Dingle bill, and we are still waiting after 70 years.  And the sadness is that the Institute of Medicine is half right on the number of deaths that you have because some people are uninsured.  They said about 18,000 a year.  If they are half right, more Americans have died since we wrote this than were killed in World War II.  And that is kind of sad.

Mr. LEWIS..  Dr. Blumberg?

Ms. Blumberg.  From my personal perspective, I do believe that access to affordable, adequate medical care for necessary services should be an ethical right in this country.  I think we get caught not so much on the ethics; we get caught on the financing.

And that is really where the rubber meets the road because whenever we are going to make change of the type that we are discussing, it is going to involve a tremendous amount of redistribution.  And who is going to pay and how much they are going to pay is really what catches us, not so much the notion that we want people to get the kind of care that they need.  Because I think we could all agree to that.

Mr. LEWIS..  Thank you.  Thank you, Mr. Chairman.

Mr. STARK.  Thank you.

Mr. Johnson, would you like to inquire?

Mr. Johnson.  Thank you, Mr. Chairman.

You know, I have said before it is our goal to get every American in this country access to affordable health care.  That is universal coverage.  Health care coverage of their choice.  In order to accomplish that goal, Congress needs to look at the insurance market to see what is keeping everyday Americans from being able to afford health care coverage.

When looking at the demographics of those currently uninsured in this country, we see they are all uninsured for different reasons.  Therefore, our solution needs to address each of these problems.  It can't be one size fits all.

Mr. Vaughan, as part of your testimony, you recommend a health care reform plan to include a core package of health benefits that must be offered to every single American, a national standard, if you will, for health insurance.

Since I am assuming this national standard would be decided by government bureaucrats sitting around a table in D.C., do you have any advice about what services and providers should be included in this standard?  And since you were in the staff earlier, you may have tried to push some of those plans earlier.  I don't know.

Mr. Vaughan.  Yes, sir.  Thank you.  There are bills out there that say -- and this resonates pretty well, that everybody should have access to a health plan kind of like what your Member of Congress gets. I think in the Americare bill, one of the bills put in, it is Blue Cross Blue Shield standard, which is a pretty good package.  It is not as good actuarially as the Fortune top 50/Fortune 100.  But it is your most popular FEHBP plan.

The other thing to do is turn it over to NAIC.  Give them six months to -- the National Association of Insurance Commissioners.  Give it to them for six months to come up with a package.  But no, I wouldn't expect --

Mr. Johnson.  They got a lot of money to do that with now.

Mr. Vaughan.  Oh, they would want a contract to do some bowling and get people in.  But yes, sir, it has to be flexible.  It has to evolve as technology evolves.  But --

Mr. Johnson.  Yes.  But there are things that are covered in some plans that aren't covered in others.  I mean, how about mandating every insurance policy cover the cost of orthotic or prosthetic devices, for example?  This is already mandated in New Jersey and California.

Mr. Vaughan.  And it is covered in Medicare.  The thing is, the thought -- and in my testimony -- there would be this core package that everybody would have as a sense of security, that they wouldn't lose their house, they wouldn't go bankrupt, with this core package.

Mr. Johnson.  Well, I understand that.  But what kind of deals are we going to cover?  I mean, would we mandate every policy to cover acupuncture, for example?

Mr. Vaughan.  No.  No.  But you could buy.  In this market I was talking about where we would have some number, A through L or hopefully fewer, A through G, perhaps, you would have packages of extra.  In Massachusetts, I think -- was it a bronze, silver, and gold package.  And one is not too much value, and one is middle, and one is a Cadillac.

Mr. Johnson.  Well, how can you have a public plan that has various prices?

Mr. Vaughan.  Oh, that is the core, sir.  Everybody --

Mr. Johnson.  For example, I think a 25-year-old male can purchase an insurance policy for under $1,000 in Kentucky, and that same policy would cost $6,000 in New Jersey.

Mr. Vaughan.  Yes, sir.  Be careful of that Kentucky one.  We have done some articles that it doesn't cover too much, perhaps.

But again, sir, the core security.  And then, yes, go into the marketplace and buy extra packages and compete on those extras.  But everybody at least has a foundation.  I hope that makes sense.

Mr. Johnson.  Thank you.

Mr. Vaughan.  Thank you, sir.

Mr. Johnson.  Mr. Hobson, you stated in your testimony that 60 million Americans lack access to primary care because of physician shortage.  I have heard from my constituents, doctors -- I had a doctors meeting just this week, or last week -- it is true in Texas for Medicare.

Recently, I think, the doctors, the seniors in my district, have told me stories where it has taken almost a year to find a doctor that would take them, and then under certain conditions.  You know, the Medicare program is getting to the program where doctors just don't want to take part in it because they don't get reimbursed.  Can you talk to that for me?

Mr. Hobson.  Yes, sir.  One of the things that we have to do as a community health center in the modern world is provide managed care services.  And one of our obligations is to put together a network of specialists that we have to refer our clients to.  We do that both for about 600 seniors that we have in a Medicare Advantage plan, and we have about 14,000 individuals in Medicaid managed care plans.

We have a very difficult time trying to find various specialists who will accept Medicaid rates for the services that are really offered.  We have to address, in my opinion, as a part of any managed care plan, any kind of health care reform plan is a way of making sure that we can provide a reasonable level of reimbursement for a lot of the providers that we really need to make sure that we have got an integrated system of care operating -- with primary care connected to specialty care, to subspecialty care -- in treating at least the most difficult-to-treat patients.

And I feel we are spending a lot of money in the system we have today.  I think that there are a lot of efficiencies that really can be had in our system that would allow us to pay a lot of the providers better.

Yes, I saw the article in the Wall Street Journal about the fact that there are a number of providers that are dropping out of Medicare today.  What that really tells me, though, is that Medicare is in drastic need of a tuneup and modernization --

Mr. Johnson.  Medicaid is worse.

Mr. Hobson.  Medicaid is even worse -- that program as well in order to make it in today's health care marketplace.  Some low-income individuals on Medicaid essentially just can't get specialists available to them.

Mr. Johnson.  Well, Medicaid being worse, that is a public plan, you know.

Mr. Hobson.  Yes, it is.

Mr. Johnson.  Thank you, Mr. Chairman.  I appreciate the time.

Mr. STARK.  Thank you.

Mr. Becerra, would you like to inquire?

Mr. Becerra.  Thank you, Mr. Chairman.  And thank you to all the panelists for your testimony.  As usual, it is enlightening.  Many of you have been saying much of what we heard today for quite some time, but we are pleased to have you come here and once again see if we can get it right.

Let me begin with a question to Mr. Hobson.  First, by the way, congratulations on the work that you have done over the years.  In Los Angeles, we recognize that without some of the work that has been done by your clinic, the foundation, there would be a lot more Americans who would be in far worse condition healthwise.  And so we thank you and all those who, at the nonprofit level with very little money, figure out a way to serve people who otherwise have no alternative.

Mr. Hobson, cost-shifting.  We hear that there is a big concern about cost-shifting going on in Medicare.  You have very little Medicare that you deal with because most of the folks you see don't have insurance or have very little insurance.

Mr. Hobson.  That's correct.

Mr. Becerra.  And I would like to ask you:  Do you have any sense about whether you see cost-shifting as a community clinic?

Mr. Hobson.  Well, as I mentioned during my testimony, the rates that we are paid by private insurance really requires us to cost-shift in the other direction, to other sources of revenue, because we can't get paid what it really takes to take care of them.  And most of our patients that we have through that are in the managed care area.  But essentially, we have -- we have very, very few privately insured patients.

But my concern is, really, that we come up with a way of reimbursement for health care services that really recognizes what it really takes to get people well.  And if an individual really requires more health care navigation, health care coaching, some of the kinds of things that have been shown through studies that are most successful in preventing the kind of readmission rate that we wind up having in other programs, then we can really address that problem.

Certainly some cost-shifting really occurs.  But as I mentioned a little bit earlier, I think that is because some of our systems really need a serious tuneup, to sort of level the playing field.  And I agree with Dr. Reinhardt that basically we have got a situation where we have got the tools and skills in the risk adjustment area that I think could be a major avenue or approach for dealing with this.

Mr. Becerra.  And in essence, we have a system which almost encourages a provider, whether a public insurer, a private insurer, a for-profit insurer, a nonprofit insurer, to figure out how to shift very heavy costs away from them.  Otherwise, they won't hang around.

Mr. Hobson.  That's correct.

Mr. Becerra.  And so I think that's where most of us agree with what most of you have said, that we need figure out a system that, one, includes everyone so you can't figure out ways to game the system if you are insurer, and two, which does it in a way that controls the costs that are involved.

Let me ask you all a quick question.  Choice.  Should someone who has a decent health insurance policy have to be at risk of losing that through some kind of reform done by the Congress, working with the President?  Most of us believe that no, if you have got something you really like, we are here to try to improve it, not take it away.  So you should have the choice of keeping what you have got.

Is there any reason why we should limit choice -- and as Dr. Reinhardt said, meaningful choice, not just a maze of choices but meaningful choice -- so that the consumers decide, based on good information which hopefully will get them to become more educated about health care and its costs, but that the consumers make the choice about which plan to use.

And so does anyone disagree with the notion that if we are going to have choice or limit choice, it is the consumer who should limit the choice by the decision he or she makes on what provider to work with?  Does anyone disagree with that?

[No response.]

Mr. Becerra.  Okay.  Disagree?  I don't want to -- with my time really short, I don't need you to agree with me.  I just want to hear any disagreement.  You need your microphone.

Ms. Blumberg.  I am sorry.  I would say that you have to be careful about how much choice you provide.

Mr. Becerra.  I agree, and I said that earlier.  You have got to have -- as Dr. Reinhardt said, meaningful choice.  But otherwise, agree that consumers should have a choice?  We should not limit them from the get-go on what choices they have?

Ms. Blumberg.  I think we need to be careful about choice in insurance markets because when you have a great deal of choice, while there should be some options available to individuals, risk selection becomes a huge problem.

Mr. Becerra.  Okay.  Dr. Blumberg, we are not disagreeing.  I agree.  If you give them a choice, as we have seen so often with Medicare Part D, the prescription drug plan, where there were so many choices people didn't understand what the differences were; and by the time they got into them, some of the plans decided to kill the program.  And all of a sudden people had applied to a program because they thought it was the best, it now doesn't exist, and now they have to go through the whole maze of figuring out what's best.  That I understand.

But just the notion of choice, but notion of choice belonging to the consumer, not to the government, not to the insurance companies, but to the consumer -- does anyone agree with residing the choice in the hands of the consumer?

[No response.]

Mr. Becerra.  No?  Good.  And so Mr. Chairman, I know my time is expired, so I'll just ask one quick question of Dr. Reinhardt.

So then if we should have this choice reside with consumers, is there any reason why we would think that the consumers would not be able to make an informed decision on whether to have a plan that is based on a private nonprofit insurer, a private for-profit insurer, or a public health insurance option?

Mr. Reinhardt.  No.  That is exactly my point.  I think that choice should be made available.  The analog by not making it available would be to tell the American people, you can't have your elementary and secondary school public any more.  You must choose among only private schools.  I would consider that limiting choice and wonder what the American people would think of it.

I would have the faith in the consumer to regulate that.  If the public plan does not behave well, it would lose customers in this country, particularly if we had the transparency on prices and everything we crave for.  It seems to me almost daunting to tell the American people, we don't really care what you want, but you are not going to get this choice of a public plan.  So I agree with you.

Mr. Becerra.  Thank you.  Thank you, Mr. Chairman.

Mr. STARK.  Thank you.

Ms. Brown-Waite, would you like to inquire?

Ms. Brown-Waite.  Yes, I would, sir.  Thank you.

First of all, I want you to know I love community health centers.  They are -- Mr. Hobson, you know, your model is duplicated in so many of our congressional districts, and you do such a great job.  Community health centers are a great resource, and my hat is off to you.

Mr. Vaughan, as I read through your testimony and I saw the six pages of stories from people having health insurance policies where they had problems with them -- and I don't know how much of this you include in the article in Consumer Reports -- but as I read through them, so many of them can and should be resolved through a plan's appeals process.

Mr. Vaughan.  You would think so, yes.

Ms. Brown-Waite.  But it is almost like the rest of the story isn't told, like you told part of the story, and the question is, was the appeals process used.  One of your statements, it said that a state legislator had to intervene.  And I am sure every member of this panel has occasionally had to do that, including which I had to do this past week with the VA.

Mr. Vaughan.  Sure.

Ms. Brown-Waite.  Which I know the first panelist mentioned.  I mean, I had to do that with the VA in a health care issue relating to a veteran.

So I don't think that any of the plans out there right now are perfect, and I believe that Americans want and deserve better health care and better access to health care.  But I just -- I question whether or not -- and believe me, as a state legislator, I fought for appeals panels and having the absolute right of consumers to be able to have that right.

I am not sure how many other states have laws as pro-consumer as Florida does when it comes to health insurance appeals.  But I just have a concern that a lot of these could have and should have been resolved.

So I think my question to you is:  Is this the end of the story, or is this the middle of the story?  And could you document your comments?

Mr. Vaughan.  I will certainly get you and your staff the complete story.  We went around the country and we collected these, and we asked people to send in stories in their own writing. The only thing I changed was a few grammatical mistakes and typing mistakes.

So those are what I got from our field staff.  And I will get you the full story. Yes, that poor guy got in an auto accident, and the air ambulance took him to a hospital.  And then he was told it wasn't a preferred air ambulance.  He said, wait a minute, you know.  That had to be -- there had to be a way to fight that through.

Ms. Brown-Waite.  And sir, I want to point out to you that in clearly the majority of states, that is there because it is up to the ambulance driver, the EMTs, to say, this is a critical situation.  We need the nearest available transportation.  Insurance companies have to follow through if that medical determination is made.

Mr. Vaughan.  But that is part of, I think, the lesson in these stories, that the pretty well educated people who responded felt so hassled, felt unable to do it themselves or didn't find a way to get it resolved.  The system is so hassle-prone and so I use the term Whack-a-Mole.

We need help by Congress, really, in setting some standards for what grievance and appeals systems should be.  And 30 percent -- also in the statement -- 30 percent of the American public is considered health-illiterate.  You have got to do things at the sixth grade level, and when an insurance company starts hassling them, a whole lot of people just throw up their hands and give up.

Ms. Brown-Waite.  Sir, I have to -- reclaiming my time, I have to personally agree that we need more education on health insurance, the same way we need on auto insurance or any other kind of insurance.  And I come from Florida.  We have very high homeowners' insurance rates.

Which brings me to my next question.  Mr. Borris, you mentioned the fact that in seeking health coverage for your employees -- I'm sorry, Mr. Heller's head is in the way; I don't want to not look directly at you --

Mr. Borris.  I can see you.

Ms. Brown-Waite.  In seeking health insurance coverage for your employees, they would only give you a one-year rate.  I assume you, like most Americans, have homeowners or renters insurance and/or auto insurance?

Mr. Borris.  Sure.

Ms. Brown-Waite.  And, you know, I don't know about where you live in Illinois.  But I can't -- and Illinois is certainly the home of lots of insurance companies.  Most insurance doesn't give you a two-year rate on auto or home or anything, or a five-year rate you mentioned, or a 10-year rate.  That is not going to happen because it is risk-adjusted.

Mr. Borris.  Except that our experience, at least my experience, hasn't been -- with the auto policies that we have for the fleet of five vehicles that we run, with our general liability coverage that we have for our business that contains content coverage as well as our liability coverage for the food that we bring out to people, we have not seen the kinds of premium increases over the past several years that we have seen in health insurance.

So if there is a conversation about reforming auto insurance and general liability and homeowners insurance, maybe I am not the guy to be here.

Ms. Brown-Waite.  I think that we fundamentally agree that you can't get a two- or a five-year insurance policy anyplace for any kind of coverage.  Would that be an accurate statement?

Mr. Borris.  When I --

Ms. Brown-Waite.  Disregarding cost.

Mr. Borris.  I understand.  But when I am making hiring decisions, right, health care insurance is part of that hiring decision.  When I hire people, I know I am going to pay 7.65 percent to my FICA and Medicare.  It is a cost that I can count on.  It is a cost that I know is there.

If I had a public option that I could count on and understand that there is percentage of my payroll that perhaps -- and this would be my choice; I mean, I could leave myself in the private health insurance market -- but if I had this choice where I could pay a percentage of my payroll, cover all my employees, not just half my employees, but understand that up front -- this was my point -- I know -- would know what my costs are.

Ms. Brown-Waite.  But sir, you need to also realize people thought that with Medicare.  And their yearly rates go up.  So that is a "government plan'' and those rates go up.  That is not fixed.  That is not locked in for three or five years, believe me.  And somebody with a very high percentage of constituents on Medicare, I hear about it all the time.

Mr. Borris.  Is their contribution like double what it was in 2002?

Ms. Brown-Waite.  Health care costs are going up substantially.  And I have owned a small business, sir, and I know exactly where you are.  You want to help your employees.  And every -- the majority of small business owners want to be exactly there.

Mr. Borris.  So you are saying that we can solve this problem strictly in the private -- I mean, is that --

Ms. Brown-Waite.  No.  I think that we can come to a reasonable solution to this without totally freezing out and having taxes go through the roof to subsidize health insurance in the private plan.  That is what my constituents say they don't want because what it will do is put small business owners like you and like I previously was out of business.  That is what my constituents are concerned about.

Mr. Borris.  Well, I would agree that --

Ms. Brown-Waite.  Thank you, and I yield back the balance of my time.

Mr. STARK.  Thank you.

Mr. Pomeroy, would you like to inquire?

Mr. Pomeroy.  Yes, Mr. Chairman.  Thank you.  I want to begin by complimenting the panel.  And Mr. Borris, if your catering is anything like your testimony, you have got a wonderful business.  I hope to be able to sample your wares some time.  You have done a tremendous job this morning.

Mr. Borris.  Thank you.

Mr. Pomeroy.  Appreciate it.

Mr. Borris.  Thank you.

Mr. Pomeroy.  And Dr. Reinhardt, I used to be an insurance commissioner in the 1980s.  I have enjoyed you and your opining on health care for 20 years.  And you haven't lost a step.

Mr. Reinhardt.  Thank you.

Mr. Pomeroy.  So thank you for guiding us.

Bill, good to see you in the Ways and Means Committee again.  Okay.  Better get to the question.

You know, you try and find -- I guess I am going to go off the topic of public plan.  I am fascinated about community health centers.  I think there has just been so much good accomplished with community health centers, I am surprised health reform debate has not looked at that platform as a way of expanding cost-effective care options to people that are uncovered or to people that are paying premiums that might be able to insure on a community health center and get, therefore, a lower-cost premium because it is a lower-cost provider.

But we really haven't been talking about it.  I am not sure why.  Mr. Hobson, do you think that there is something there in the framework of community health centers as a care delivery format that could be more broadly applied in this health reform debate?

Mr. Hobson.  Well, thank you very much for those observations.  I am here, really, today to essentially -- make the point that any kind of health reform option that you consider should make sure that there is a clear place for community health centers in that option because I think that all of the studies that have been done show that we are both cost-effective successful in terms of managing the clinical care of patients --

Mr. Pomeroy.  I believe that -- just because my time is going to run -- I would love to have heard a longer part of that answer.  But to follow, I agree with you in terms of what you have achieved.  I mean, basically if there is a medical home in operation, it is in community health centers.

Mr. Hobson.  Yes.

Mr. Pomeroy.  If there is chronic care being provided in a coordinated way, it is in community health centers.  Many of the innovations we hope to advance through payment reform into health care delivery in this country for the purpose of elevating health care delivery and improving outcomes are already being done in community health centers.

Mr. Hobson.  Absolutely.

Mr. Pomeroy.  But I have heard at least the thought that maybe mandated insurance, you get everybody coverage, they don't go to community health centers any more.  They go to the places that are doing all the elaborate marketing.

Have you seen a dropoff at all in Massachusetts, for example, in utilization of community health centers as people have coverage and are going elsewhere?

Mr. Hobson.  Well, I know in Massachusetts there has been a major increase in the number of patients at community health centers since they adopted their health care reform plan.  But I can speak best to Los Angeles County.

Basically, people on Medicaid have an option of a Kaiser plan, a Blue Cross plan, a Molina plan, several different plan options through which they can get care.  And so they basically can access any providers that will take a Medicaid patient.

But we have got a very large number of patients in that system voting with their feet, continuing to go to community health centers because, essentially, that is where they feel that they are really best served.

Mr. Pomeroy.  Professor Reinhardt, do you view -- are we missing something here?  Why aren't we looking at community health centers more robustly as part of the health reform and coverage answer?

Mr. Reinhardt.  I think for a lot of people, that is actually a very good option, particularly if they are endowed with modern health information systems so we can monitor them on cost and quality.  In fact, my wife and I help consult with China on health reform. We advised them that for their urban population, those centers are actually a highly efficient way to treat people.  You just have to make sure they get adequate funding.

Mr. Pomeroy.  Right.

Mr. Reinhardt.  That is the important thing.

Mr. Pomeroy.  That is the key.

Mr. Reinhardt.  The other thing, in New Jersey, I know, our centers are also very excellent.  But they have the same problem of access to specialist care.  They are usually very, very good in primary care, but at least in our state, but there isn't the backup with specialist care, which you could either put into the centers or you have to have a referral system.

Mr. Pomeroy.  In Medicare, we are seeing, for example -- we are getting killed with uncoordinated specialty care that proliferates in some places in this country and adds a cost factor almost double to where you don't have such a specialist-prone environment.

But in community health centers, another place where we are federally paying dollars, there is no access to specialists.  That is very interesting.

Mr. Reinhardt.  Well, there is this "nouvelle vague'', the medical home. The community health centers are natural medical homes that could coordinate this care better than the fee-for-service, any fee-for-service plan normally would.  So yes, I am very supportive of these centers, too.

Mr. Pomeroy.  I thank the gentleman.  Well, as long as the chairman is preoccupied, I am going to keep going here.

[Laughter.]

Mr. Pomeroy.  Dr. Blumberg, your observations?

Ms. Blumberg.  I agree with what Dr. Reinhardt said.  I mean, one of the big issues for many of the community health centers is making sure that they get integrated with specialty care and inpatient care, and that when health care reform is done and there is greater financing for those in low-income populations, that could be an infusion into these health centers to help them to do even better work and more work.  And we are certainly seeing that in Massachusetts.

Mr. Pomeroy.  You know, if it was to be structured in a way, Mr. Borris could get a very substantial premium reduction if he is directing, as a preferred provider, the community health center at their lower reimbursement rates.

I see my time is elapsed, Mr. Chairman.  I yield back.

Mr. STARK.  Thank you.

Mr. Brady, would you like to inquire?

Mr. Brady.  Yes, I would, Mr. Chairman.  If you would like to go on and read that book while I do my questioning, I would like a few extra minutes as well.

I think it is important to have this discussion.  I do think -- I wish it were more balanced.  The truth is, we do need serious efforts on reform in health care.  And I do believe, though, that the public has serious concerns about a government-run shadow plan that would go with whatever reforms we are trying to make here.

And I am not convinced that Medicare is necessarily the model we should be following.  I mean, just take a look at it as it is today.  It has serious quality issues to go with its care.

It is rampant with fraud; some believe 20 to 30 percent of the funding is waste within it.  It is bankrupt, actuarially unsound, bankrupt here in the next 10 years, making promises it can't possibly hope to keep.  Making underpayments to not just providers, not just to doctors, but to hospitals as well that results in cost-shifting to private plans that we all acknowledge.

The cost is not being held down; it is expected to triple over the years.  So there is no cost containment as far as price.  And no transparency whatsoever.  Ask any senior about their Medicare bill, they will tell you about it.  And we have had a number of people testifying, sitting in those very same seats, who say that the procedures-based health care package under Medicare is the problem, not the solution, to health care reform in America.

So I have real concerns about a government-run shadow program.  And I also, just from a free enterprise system, you know, you wonder, you know, why don't we have government-run options for catering companies?  Not all businesses can afford those catering costs, and if we had a government-run option, you wouldn't have to make a profit.  They wouldn't have to pay pesky taxes.  They wouldn't have to even be actuarially sound; the taxpayers could pick it up.  And there would be no overhead because that is just part of the government.

Truth is, I think there are very serious concerns about a government-run plan.  Rationing, perhaps, maybe the fear that most people have, that the government will be making decisions on their behalf, especially end-of-life decisions.

Mr. Reinhardt, I know you have testified today that what we need is a more logical form of rationing.  Given that other countries' initiatives and government rationing hasn't slowed cost growth, you know, why do you think rationing health care rather than providing medically necessary care is the best option for Americans?

Mr. Reinhardt.  Well, there are two forms of rationing.  One is by price and ability to pay.  As every economics textbook will tell you, the role of prices in a market economy is to ration.  And that is one approach which we are using in this country to ration health care.

And the other approach to rationing is to do is through some non-price mechanism, as the Canadians do it. Canada spends only half as much per capita on health care as we do. For that half, you have to admit, you give them high marks for what they do deliver, in spite of the fact that they ration. But yes, they do ration healthcare.

Mr. Brady.  Mr. Reinhardt, Doctor, can I ask you this:  Do you see some semblance of rationing already in our current Medicare system?  In the sense that if you look at MedPAC's recommendations each year on physician reimbursements, they don't really measure what the cost of those equipment, medicines, and staff would be.

They determine what they think the overall usage should be and utilization of physician services, and then they ration back the price by cutting it 3, 5, 10, 21 percent in order to fit the model that they want to have.  The result of that price reimbursement rationing is fewer and fewer physicians willing to see our Medicare patients.  So don't we already have a model on rationing occurring in the government-run program we have today?

Mr. Reinhardt.  Well, the number I look at is not the price.  I look at how much money does the taxpayer give physicians collectively per Medicare beneficiary year after year?  And I looked at 1995 to 2005.  That amount rose, per year, at 5.8 percent compound over the period--faster than GDP per capita.  So that is not a bad growth rate.  It is just simply the volume expands so much that the prices have to be kept lower to keep a growth of 5.8 percent per Medicare beneficiary.

Mr. Brady.  But that is my point.  In effect, through MedPAC we are rationing reimbursements based on what we believe that dollar amount should be.  And I think there is fear that we will do the exact same thing with patient care under a government-run plan that we do today.

And perhaps that can be resolved, but I think it is one of the issues -- as we move forward, there is so much in health care we need to improve that we can make better.  That is one of those areas I think we have to be especially cautious on.

Mr. Reinhardt.  But as Mr. Vaughan said, there is a limit to which fees can be held down. If I could refer you to page 14, 13 and 14, of my testimony.  You look at the huge variation here as a California insurer and look at what they pay different hospitals for an appendectomy.  Hospital A gets $1800.  Hospital E gets $13,000.  Now, is that insurer rationing?

Mr. Brady.  Yes.

Mr. Reinhardt.  Is that insurer rationing?

Mr. Brady.  So are you thinking that within the Medicare system, where we have vastly different payments from county to county, that that is really a model we ought to be pursuing?

Mr. Reinhardt.  Well, you have exactly the same in the private sector.  They just don't publish their numbers because they are proprietary.  No, I --

Mr. Brady.  So it is not a good model if it occurs in the private system, but it is acceptable if it is in --

Mr. Reinhardt.  No.  It is neither.

Mr. Brady.  Let me just --

Mr. Reinhardt.  What we actually as researchers now are looking at is bundled payments, like the DRG, for example, which is half bundled, at least for the hospital.  Very innovative.  Copied around the world.  And ideally, we would like to have bundled payments for everything.

And once you had bundled payments, you could then compare how much the different regions charge.  And I think those bundled payments would sort of converge on a more uniform level.

Mr. Brady.  Mr. Chairman, we ran out of time.  One of the points you made, until we move away from this procedures-based reimbursement and align toward the patient, I don't think we will ever get exactly where we want to.   So thank you.

Mr. STARK.  Thank you, Mr. Brady.

Mr. Thompson, would you like to inquire?

Mr. Thompson.  I would.  Thank you, Mr. Chairman, and thanks to all the witnesses for being here today.

Dr. Blumberg, you mentioned, in your testimony, the issue of meaningful coverage, and Mr. Hobson talked about preventive health care and how important that is, and that's something that I care a great deal about, and so I'd like to direct my questions to the two of you, to begin with.

I believe that preventive health care needs to be a critical component of any health care reform that we do.

I think it's extremely important, and very soon I'm going to be introducing a bill that would require preventive health care for kids from birth through 18 years of age, absent any co-payments or any deductibles that would make that prohibitive for families to provide that type of coverage.

As I say, I think it's the right thing to do, and I think the data clearly shows that it saves a lot of money, for a whole bunch of reasons, everything from catching a problem before it becomes acute, saves money no matter how old you are, and with kids, it saves even more money.

We've seen that preventive health care can provide smoking cessation, successful smoking cessation, intervention, and detect drug use.

I mean, there's just all kinds of reasons why it makes good sense to do that.

I'd like to know from the two of you if you believe it's important to set minimum benefit standards to ensure quality coverage, and whether or not preventive care should be part of that, and then, maybe Dr. Blumberg, from you, how you would suggest we best establish preventive health care standards for kids.

Ms. Blumberg.  Well, I'll start by saying that preventive care can provide a great deal of value, and increase quality of life, so no doubt it's important to be considering that.

We do need to remember that not all preventive care is cost-reducing.  Some of it's cost-increasing.  It doesn't necessarily mean it's a bad thing to do.  It may be the very right thing to do.  But there's a lot of variation in terms of the cost savings.  Certain types of preventive care will be cost savings and others will not.

So I just didn't want to lead you astray.  The literature is quite variable on that, depending upon the type of preventive care we're talking about.

I do believe that reforms should have minimum standards to make sure that individuals have adequate benefits.  Those standards should include necessary care.

To the extent that we leave particular components of medical care out, we leave that to be financed individually by those who need it the most.  Once we include it in a package, we spread the risk of that care very broadly, and we allow individuals to get the care that they need for a low marginal cost instead of the cost being left on those who need the care the most.

I do believe we should have particular components of preventive care in that package. I'm not an expert on prevention, and so I wouldn't want to be the one to be telling you which pieces ought to be in and which pieces ought to be out --

Mr. Thompson.  Is there someplace that we should look to establish what those standards should be?

Ms. Blumberg.  I definitely think that this ought to be a discussion that's done in conjunction with the organizations -- I can provide you with some names afterwards, if you like -- that focus on preventive care, and also, particularly since you're concerned with children, the American  Academy of Pediatrics.

Mr. Thompson.  Thank you.  Mr. Hobson?

Mr. Hobson.  Yes.  I concur with many of the comments that have been made.

I think that it's really essential that we make sure that the basic preventive services are part of any benefit package that's really adopted under health care reform.

I feel that, to make sure that we have pediatricians that are really involved in establishing the preventive services for kids, that we have specialists in adult medicine that basically can look at the various age groups and establish essential preventive services, so that the list that would come out of that kind of analysis really wouldn't include everything, but really would include those kinds of things that, based on evidence-based medicine, that you really would not want to leave out.

And it's just been our experience that, all the time, that these items are not necessarily covered, but in addition to that, the kind of information that we can make available by health education classes, like we have every single day of every week at our program, I think are of immense benefit, particularly to patients who are at risk of diabetes and patients who don't basically have the resources for, say for instance, exercise classes.  We basically have exercise classes available for our patients free of charge every Thursday at our health center.

Mr. Thompson.  I don't want to minimize the importance of preventive care for adults.  That's important, too, and I'm a proponent of that, but I did want to focus primarily on the kids' stuff.

So thank you both very much.  Thank you, Mr. Chairman.

Mr. STARK.  Mr. Davis, would you like to inquire?

Mr. Davis of Kentucky.  Thank you, Mr. Chairman.

I appreciate the time that all of you have taken to prepare and come in today.

I think in particular, when Mr. Vaughan made his comment on Kentucky, I owned a small business, provided a Cadillac plan, 100 percent paid for by me, and when Kentucky House Bill 250 was enacted in 1996, it had the nickname "Hillary Light'' in the business community.

It actually drove people off of health insurance, because of the increased state mandates, and in fact, 44 of 47 carriers left the state.  I watched my rates nearly triple by the time I came to Congress.

And that was one of the things that made me a political activist, frankly, was the inefficiency of the government plans that actually drove costs up and many people found themselves uninsured as a result of that.

But just shifting over, I appreciate Mr. Borris's comments, as well.  Being a business owner, I think we've shared some of the same things.  You tend to get active on the issues you care about.  It certainly influenced me.

But just for the record, I just would like to confirm one thing.  Are you a Democratic Committeeman back in Illinois?

Mr. Borris.  Yeah, back in Illinois we have, in our little lake county, in my marine township precinct, yeah, I am a Democratic precinct Committeeman.

Mr. Davis of Kentucky.  Okay, thank you.  I just wanted to confirm for the record that you were in fact an activist, as I was, before I ran for Congress.

Mr. Borris.  However, I also want to share with you that my customers are both Republicans and Democrats.

Mr. Davis of Kentucky.  It's always good to maintain bipartisanship in business.  I agree with that.

Mr. Borris.  Right.

Mr. Davis of Kentucky.  Actually, just shifting over, coming back to the business side for a moment, my question actually is to Mr. Sperling, with the Coalition on Business Benefits.

The Consumer Union supports restricting employers' ability to tailor health care coverage to best meet the needs of employees.

This concerned me, certainly, as a business owner.  I faced many challenges to tailor a plan that we wanted, that didn't necessarily fit with the state mandates, actually different types of coverage.

What do you think about such a proposal, on restricting that flexibility for employers?  Do you think maintaining flexibility is important?

Mr. Sperling.  Thank you, Congressman.  The coalition that I represent feels very strongly that maintaining the flexibility that ERISA provides is probably their number one issue, and that having state mandates and having to deal with the costs of those state mandates, and the cost of administering and complying with those mandates would cause problems for employers.

It would cause a multitude of issues, moving employees from location to location, because there would be winners and losers.  They would want to see equal treatment for all employees.

At the very worst, it would drive employers to make decisions on where they wanted to do business, to states that might have the least burdensome mandates.  And at some point, employers would start to rethink whether to continue offering health care benefits at all.

I think your question also gets to kind of standard benefits, if I'm correct, or minimum benefits.

Speaking from a Hewitt standpoint, working with many large employers, employers really value the flexibility that they have in designing their plans tailored specifically to their workforce needs and health concerns, and I think a lot of employers would want to preserve that flexibility and that choice, and prescribing a standard benefit plan would be concerning to many employers, because they don't think of their health care benefits as one size fits all.

In some cases, they have identified health risks in their populations, like cardiovascular risk or diabetes risk, and improved benefits for those types of conditions, to make sure that there is no financial barrier to access care, and employers like having that flexibility.

Mr. Davis of Kentucky.  Would anybody else on the panel like to comment on that issue of restricting flexibility?

Mr. Vaughan.  And, sir, our hope would be that there is a minimum level of health care for everybody in this country, and most ERISA plans, I think, I wouldn't -- we wouldn't affect, or you wouldn't be in this marketplace I was talking about.

We're talking about for the people who don't have adequate coverage, or are in and out of the market, or whatever.  They would have a chance to select among a range of plans, but enough that, or not so many as to be confusing, enough to have choice, enough choice where there could be competition between these plans and people would get a better price.

But for the good ERISA plans, I don't see anything we're saying that would change that, but we do hope there's a minimum.

Mr. Davis of Kentucky.  I do know my concern with the inefficiencies in the process, the way funding for health care works.

If I look at Center for Medicare Services, for example, Part B premiums have doubled since 2001, and we're going to be dealing with spiraling cost increases there, as well.

Would you agree that the Center for Medicare Services doesn't simply need more money, but it needs to be significantly re-engineered to be more efficient in service delivery?

Mr. Vaughan.  Sir, I think it's the whole American health care system.  Medicare just sort of fluctuates around what the private sectors do.  We're all in trouble.

Mr. Davis of Kentucky.  I would disagree with you.  I would suggest that every medical provider that I know in my district, which are many, many doctors, hospitals, secondary care, other forms of professional care, are all constrained by the structure that's imposed upon them by the Center for Medicare Services.

Their billing, their overhead, the regulatory framework that produces costs -- you know, we could go on and on.  And so those costs are going to be carried.

Mr. Borris's business had that, had to deal with that indirectly.  My business had to, Ms. Brown-Waite's business.

Wouldn't you agree, though, that if we're going to move into a dialogue about improving it overall, that very substantive changes would need to be made to the actual process by which CMS functions to make it more entrepreneurial, that a person in the private sector could actually understand.

Mr. Vaughan.  I would urge everyone go back and read the MEDPAC testimony, that an eighth of the nation's hospitals, those that are the best hospitals in terms of not killing us and of giving us the best care, they make money on Medicare.  It's the other seven eighths whose costs have been unrestrained, and the insurers are not holding costs.

The question is not so much, is Medicare underpaying as that, why aren't these big insurance companies in this country doing a better job of restraining costs?

Mr. Davis of Kentucky.  Having seen it firsthand with my own mother's death, as she was processed through the Medicare system, I would suggest to you that it's not simply an academic matter, that the reality, what I observed personally, and hundreds of other folks my age, and middle-aged, watching their parents go through the end of life decisions that you mentioned -- I think was maybe two of us up here, would consume the majority of costs -- the thing that I witnessed, which comes back to this issue of driving costs, were procedures that were driven, that drove costs, and this was entirely within the framework of Medicare.  It wasn't in private insurance.

I know I've exceeded my time, and I'll yield back to the chairman.  Thank you for your gracious indulgence.

Mr. Vaughan.  Thank you.

Mr. STARK.  Thank you.

Mr. Larson, would you like to inquire?

Mr. Larson.  Yes, I would, Mr. Chairman.

And congratulations on your longevity, and quite a remarkable achievement, Mr. Chairman, and I have a couple of questions for Dr. Blumberg and for Mr. Sperling, and they're in this context.

Of course, the whole notion, as you suggest in your testimony, Dr. Blumberg, about innovation, is something that is very promising for the whole field of health care, and one of the things that has been highlighted is, the creation of a public auction within an insurance exchange will, as you indicate, force insurers to innovate.

Could you elaborate on that, or could you give me any kind of specific illustrative example of what innovations we might see?

Ms. Blumberg.  Sure.  In most markets, what we're finding is that there is very little competitive pressure on private insurers.

There's been a great deal of consolidation, both at the insurer level and at the provider level in recent years, and that has helped to push further the growth in health insurance premiums.

And when we don't have a real competitive market, putting in a public plan actually could be a catalyst for competition, because suddenly then there's a competitor in the marketplace that has the potential, through a number of avenues, through payment rules, through lower administrative costs, to provide a potentially lower cost option in the marketplace.

This should then get those entrepreneurial, creative juices going in the private sector, that have been allowed to atrophy for lack of need, because the growing costs have been able to have been pushed back on purchasers. It allows us to say, "In order to maintain your market share, you're going to have to think about what's going into your administrative costs, what can you do to hold them down, it's time to get really serious about your negotiations with providers; it's time to look at management techniques that are going to help to lower costs, it's time to be serious about managing high-cost medical cases."

So I think there really are a number of avenues that we value private insurers on, but that we really haven't been able to take advantage of in the marketplace of late --

Mr. Larson.  Mr. Sperling, would you have a different take or would you agree with Dr. Blumberg's assessment?

Mr. Sperling.  I would add, from a Hewitt perspective, working with large employers, where 55 percent of employees are covered by self-insured plans, we're not talking about insurance company money here, we're talking about the money of the corporation, and these companies push their insurance companies extremely hard, and they take it upon themselves to innovate, and we've seen a tremendous amount of innovation coming out of the private sector in terms of health care with, as I mentioned in my testimony, with coaching programs, consumer-oriented designs, value-based benefits.

These innovations have been coming through the private sector to try to improve the health and productivity of the workforce and to try to control costs, and the -- I'd say that the employer marketplace supports the concepts that are evident in the large marketplace that work well, like large pooling, to spread risk and purchase efficiently, and if that will end up increasing access to small companies and individuals, those concepts should be considered very seriously, because that works in the private sector.

Mr. Larson.  Well, in Mr. Borris's testimony, he talks, and what I hear most frequently when I'm back in Connecticut, is how small businesses -- you mentioned large corporations, but when you talk about a small business, how will this innovation, in essence, help out the small businessman?

Will the competition work, or do we, as Mr. Borris suggests in his testimony, does he need to be part of a pooling mechanism that allows him to join with, let's say, municipalities or states, or be able to pool resources in a way that you can lower rates?

Would you agree, disagree?  How do we help Mr. Borris out?

Mr. Sperling.  Certainly, mechanisms that would allow small businesses and individuals to come together and purchase like large businesses would be valuable, because it ends up creating more efficiencies in the system.

But the innovations that the private sector has driven, by largely large corporations, find themselves into the small business marketplace, because they're adopted by insurance companies as standard practice.

Mr. Larson.  Dr. Blumberg?

Ms. Blumberg.  I think that what we need to remember with the small businesses is that they are at a number of disadvantages.

Number one, they have higher administrative costs than the larger businesses, and that affects their premiums.

They also have a much lower ability to pool health care risk than the large businesses who are self-insuring do.

And we also know that they have, by and large, a lower-wage workforce.

And so, really, you need a multi-pronged approach to help the small businesses.

What an exchange can do for you, which an association health care plan cannot, is to bring together a significant portion of the population, the small businesses, the individuals, to pool risk very broadly, not to select based on risk as we see now, not to have prices varying, as Mr. Borris had experienced, as a function of the health status of his particular employees.

And then we also need the support of low-income subsidies, because a lot of these workers are low-wage --

Mr. Larson.  In the final analysis, doesn't the government have to take stock or at least be aggressive in pursuing, if we want to make sure that all pre-existing conditions are covered --

Ms. Blumberg.  I completely agree.

Mr. Larson.  -- and if we want to make sure that catastrophic care, which of course accounts for the great actuarial swings that people experience, is taken care of, if government takes care of those pieces, can't we allow the entrepreneurial and innovation to take over in the private sector and join collectively with an option plan?

Ms. Blumberg.  I think what we've seen, by the dominance of a very small number of insurers in most markets, and the consolidation of providers and their strengthening power in the marketplace to avoid having to negotiate rates with the insurance plans, is that we're not really seeing true competition in these private insurance markets that's why I think something more aggressive, such as the introduction of a public plan, could catalyze that.

I think that the public plan option is less aggressive than other options that we might have to pursue down the line if we don't go there, such as all-payer rate-setting.

Mr. Larson.  Thank you.  I'm sorry, Mr. Chairman, for --

Mr. STARK.  Thank you.

Mr. Reinhardt, would you like to inquire?

Mr. Reichert.  Yes.  Thank you, Mr. Chairman.

I thank all of you for your time today.

We all come from, obviously, different backgrounds.  My experience in the health care world is from my previous law enforcement experience as the sheriff in the Seattle area.

And with 1,100 employees, and watching my insurance costs go up, trying to provide service to King County, insurance costs were increasing by about 17 percent a year.

So you have to try and balance the budget that's allowed to you by the county council, and of course, all those employees wanting to be covered by health care, and all sorts of questions, and it's now, you know, great to have the opportunity to be here to ask some experts about what their thoughts are on behalf of those people that are back in King County, and Pearce County in Washington State.

Dr. Blumberg, you mentioned cost management.  Can you kind of expand on that just a little bit for me?

Ms. Blumberg.  Sure.  For example, we saw that when there were greater financial pressures on the health care system, about 10, 15 years ago, when we saw a greater presence of managed care in the markets, that the insurers took great attention at innovating to finding ways to reduce cost growth in order to gain market share.

So we know that insurers can innovate, they can create management systems that are both going to address the way that care is delivered and the extent to which it's delivered efficiently. They can look at high-cost cases--in particular the largest share of health care dollars are going to a very small segment of the population.  How can we better manage those cases efficiently?  But right now, there really isn't a lot of incentive for them to do so.  But I do --

Mr. Reichert.  Now, we do know that some hospitals are engaged in cost management.

Are you aware of some hospitals and insurance companies, in working with -- I just visited last week Children's Hospital in Seattle, who have been frequent visitors over the last year to Japan, to the Toyota production line there, and looking at how they efficiently run -- it sounds a little bit bizarre, but they apply the cost-effective ways of examining their business and how they manage their production line, and they've applied some of those things to Children's Hospital in Seattle.

Are you aware of any insurance companies or other hospitals that might be engaged in that same sort of process, in looking at sort of a process mapping adventure?

Ms. Blumberg.  There certainly are hospitals and insurance companies that are thinking about costs, but what I'm suggesting is that the way the market is structured right now, there really isn't a strong incentive for them to do that in a lot of markets.

Some markets are very different.  We see certain markets where there is a lot more competition, but the majority of them, there isn't.  And so that's why I think we need to do something in order to give them a bit of a stronger incentive to do just what you're discussing.

Mr. Reichert.  In your testimony, you suggested a new government-run plan should implement price controls to keep provider reimbursements under control.  Is that correct?

Ms. Blumberg.  I do believe that we could hold down provider payments below the levels at which they are, and still provide high-quality care, yes.

Mr. Reichert.  But studies, some studies have shown that 120 million Americans could lose their employer-based health coverage if a government plan was created.  Are you concerned about that?

Ms. Blumberg.  I think that what you're referring to is the cost shift argument; is that correct?

Mr. Reichert.  Yes.

Ms. Blumberg.  Okay.  Well, the literature, the economic research literature really does not empirically support the existence of a significant cost-shift.

The Medicare Payment Advisory Commission has just recently come out with a study in March, which looked precisely at this, and also confirmed results of other researchers, colleagues of mine at the Urban Institute, that had done research in this area a number of years ago, and what they found is really that those hospitals that have high costs are those hospitals that are not in areas in which the financial pressure --

Mr. Reichert.  But that's only for hospitals, right?  What about physicians?

Ms. Blumberg.  Whether there's a specific literature on cost-shift on physicians, I'm not aware, but the big dollars are in the hospital sector.  We really --

Mr. Reichert.  The price controls in Medicare, don't they --

Ms. Blumberg.  -- find any evidence of price shift in the hospitals.

Mr. Reichert.  Excuse me.  In price in Medicare, aren't they expected to result in a 21 percent cut in physician reimbursements for next year?

Ms. Blumberg.  Well, I think the issue of the sustainable growth rate is an important one, where we think politically about --

Mr. Reichert.  Let me ask you one more question.

Do you believe that a key principle for health reform is that people shouldn't lose what they already have?

Ms. Blumberg.  I think people should have access to high-quality medical care --

Mr. Reichert.  What about the people that have an insurance program that they already have, that they want to stay with; do you believe that that's a reform -- that that should be included in any reform?

Ms. Blumberg.  I believe that there should be broader-based risk pooling than we have today, and by allowing some people --

Mr. Reichert.  Do you believe that people should be able to keep their current insurance policy that they have, if they choose to keep that insurance policy as a part of a reform, yes or no?

Ms. Blumberg.  I don't believe that every person needs to have the precise insurance policy that they have today, no.

Mr. Reichert.  So that's a no.  Thank you.

Mr. STARK.  Thank you.

Mr. Blumenauer, would you like to inquire?

Mr. Blumenauer.  Thank you, Mr. Chairman.

I was intrigued, Dr. Reinhardt.  Your line that you casually offered early in the hearing, where you talked about the health care that we provide our veterans is socialized, by any definition of the term, yet it doesn't appear to be attacked by people.  They're either quiet, or in some cases, they are actually out there boosting, helping, protecting.

You talked about a cognitive dissidence here, and I'm curious if you have some sense of why that is.  Why do people who get so worked up about Canada or Great Britain and socialized medicine somehow don't -- are not concerned about our veterans' health, and its cost control, and its high quality?

Mr. Reinhardt.  I really can't answer it.  I've asked that many, many times, in a letter in the Wall Street Journal, and people just sidestep it.  And it does puzzle me, for sure.

Mr. Blumenauer.  It is.  It's fascinating.  I wonder, after having sat through gazillions of hearings, having an earlier life being involved with employee benefits for organizations that I was responsible for, I wonder if some of this complexity that we have layered on our system is just a result of trying to protect some of the aberrant results, that if we really cut to the chase, that it really doesn't have to be this complex, dealing with things like giving people information for end-of-life decisions, for not getting caught up in some of this.

The point of rationing, I mean, we are already rationing right now, by price, by availability, by information.  There's a very uneven flow, isn't there, of who gets medical attention in this country, based on factors?

Mr. Reinhardt.  There's no question.  The Urban Institute scholars that were just mentioned, in their most recent paper, it showed that the uninsured people get roughly about half the health care that equivalently insured Americans get, and then, as an economics teacher, I say that clearly is the effect of rationing by price.

Mr. Blumenauer.  Well, it's interesting to me that we have people who -- there's rationing because of how health insurance policies operate, pricing, as you -- another version of pricing; in terms of availability and shifts in the market.

Mr. Vaughan, I was intrigued with some of the data that is provided in your testimony about how hard it is for people to be informed consumers of insurance.

Meaningful choice, we're familiar with you don't sell as much jam with 26 varieties as you do with six.  People are confused.  In some cases, they go into a shut-down mode.  In others, they make poor decisions.

Mr. Vaughan.  Deer in the headlights kind of effect, yeah.

Mr. Blumenauer.  Or just, people are overloaded.  They've got lots of choices on an ongoing basis, and for some reason, this appears one that people sidestep.

I appreciate your talking about having some specific elements that would be included in all insurance policies, and something that struck me in your testimony that I don't know if it was written or whether you articulated it, but the notion of requiring that people get examples of how the health insurance policy would apply for specific real-life examples, so people know what in the dickens they're getting.

Can you elaborate on that for me?

Mr. Vaughan.  Yes, sir.

Washington Consumers' Checkbook Guide to Health Plans includes questions like: are you fairly healthy, what this plan will cost, covering your premiums, if you have sort of moderate level of illness, what it will cost, and if you have something horrific, cancer or so forth.  And you'll see how the plan actually works.

But even in this feed plan, for educated workers, the editor has to say, unfortunately, the reimbursement structure for many plans is so complicated there is no simple way to present or compare these payments.

So, as you work on legislation, you need to make it -- you need to make it simpler.  And in the May issue that we just came out with, we compared two plans:  one in Massachusetts, monthly premium of $399, and an annual deductible of $2,200; and then in California, a $1,000 deductible and $246 a month premium.

So you'd say, geez, California is going to be better, right?  Lower deductible, lower premiums.

If you had breast cancer, if you had a serious cancer, the Massachusetts plan that didn't seem very good, you'd only be out of pocket $7,668.  That California plan, you'd be out of pocket $37,767.

So the poor consumer looks at a plan, and it seems like a no-brainer, "Oh, let's go with this California one.''  But if you get sick, a whole different story.

We've got to get that information to consumers.

Mr. Blumenauer.  I really appreciate the thrust of the panels, from small business to the academic, in terms of providing the context for the types of decisions that this Committee may be helping to drive with our decisions, and I think you've helped demystify it a little bit.

I hope we can translate that into our legislative product.

Mr. STARK.  Thank you.

Mr. Boustany, would you like to inquire?

Mr. Boustany.  Thank you.

Mr. Borris, congratulations on your entrepreneurial spirit, and working to feed the American dream, and certainly you've benefitted from a market-based economy.

And my question, to start with, is, suppose right across the street, a government-run catering program that could undercut you on cost, prices, wages, and so forth.  Can you compete?

Mr. Borris.  It's an interesting question.  Mr. Brady mentioned that in his comments, but didn't have too many comments on it.

I would say that one fundamental difference is that with catering companies, catering a party is not a fundamental human right, so I don't know that we can apply the same market conversation to people --

Mr. Boustany.  Reclaiming my time, I think you're dodging the question.  We're not talking about whether this is right or not, because there are some disputes.

I'm a medical practitioner, and I do understand the personal responsibility side of health care as well.  We can talk about that in the limited time we have.  But put that aside for a moment.

Could you -- it's a simple question.

Mr. Borris.  It's a false question.  I mean, yeah, I would work toward competing at that, to answer the question for you, until that thing opened, until we really saw what the parameters of it were, and I could make decisions about --

Mr. Boustany.  I think you're dodging --

Mr. Borris.  -- where my supplies -- I'm not dodging the question.

Mr. Boustany.  Sir, you're dodging the question.

Mr. Borris.  Are they going to pay the same amount for chicken and lettuce as I'm going to pay for?  If they are, then I could probably compete --

Mr. Boustany.  But if they could undercut you on the cost --

Mr. Borris.  Pardon?

Mr. Boustany.  If they could undercut you on those costs, could you compete?

Mr. Borris.  The question is, how would they undercut me?

Mr. Boustany.  Because they control the price.

Mr. Borris.  If somebody opens up a business that has access to things that I don't have access to, would it be more difficult?

Mr. Boustany.  What I'm trying to -- reclaiming my time, what I'm trying to highlight is that there are a number of concerns and questions that we have about a government-run option, that being one, whether it is fair competition, and secondly, whether there are mechanisms in that type of approach that would actually bring down costs and maintain quality.

Certainly given what we've seen with Medicare and Medicaid, where we do have uncontrollable costs, we do have quality issues, we have access problems, and then a whole host of problems.

So I guess the point I'm trying to make here is that we're looking at one particular path that we will look at, that we're going down on health reform without looking at a whole number of other options.

Mr. Borris.  Could I --

Mr. Boustany.  For instance, Dr. Blumberg, I think we were talking -- you were mentioning earlier about the need for a connector as being a better source for small businesses.  But why not combine a connector with associated health plans?

Ms. Blumberg.  The problem with the association health plans, sir, is that they tend to create lower prices by risk-selecting, by taking in certain groups that are going to be lower-cost.  What that does is take the lower-cost groups out of the mainstream commercial insurance, increasing the cost there.

Now, if you want to spread risk more broadly, that's not the way to do it.

Mr. Boustany.  Reclaiming my time, I think the point again is, we're not looking at all the options.

We're not putting all the options on the table, and we're using unfair standards of judgment as we go forward in looking at the positive sides, solely, of the government-run option, and not looking at the positives on some of these other options.

There are many other options that would create an actual real, functioning market in health care, which I will tell you from personal experience, we do not have.

Dr. Reinhardt, do you want to comment?

Mr. Reinhardt.  Well, actually, in my statement, I looked at an option of having private insurers only, but then I say the regulation you would need would amaze you.

In fact, I think Bill Thomas, Congressman Thomas, at one point had a plan like that, and he told me privately, there's a lot of regulation of the insurance industry, and to describe what it is -- community rates, guaranteed issue, you have to mandate people to be insured.

Look to Germany, look to the Netherlands and Switzerland.  Those are functioning markets that work without a public plan.

But unless you're willing to impose that strict regulation on the insurance industry, you would still have the uninsured, you would still have policies, you find out what they cover only when you're sick, and so on.

Plus, it is true that Medicare has very low administrative costs itself, but imposes costs on providers, but everyone who serves on the board of a hospital will tell you that the managed care bureaucracy that that causes is much, much higher, because Medicare pays pretty punctually, and the other plans don't.

So one would have to seriously think about reducing the administrative costs of the private system, which are simply disproportionately high.

I think the president of Johns Hopkins mentioned in a speech that this academic health center deals 700 distinct private health insurance (managed care) contracts. I serve on the board of the Duke Health Systems, and we also have that problem, and huge administrative claims processing, which with Medicare is simple, it's automatic, it comes in --

Mr. Boustany.  That claims processing --

Mr. Reinhardt.  Yes, that's --

Mr. Boustany.  -- and that would work, I've seen that in my own practice, where I had to deal with many, many different types of claims processing, but that could be simplified.

Mr. Reinhardt.  It should.  I tell my friends in the private insurance industry that is their challenge, to reduce the administrative burden they have and they impose on the providers of health care.

McKenzie had a report out showing how much more we pay in administration relative to other countries, and McKenzie attributed the bulk of it to private insurers.  And they should have common claims forms, electronic billing, and all of these things.  I hope they will, in this decade, go that way.

Mr. Boustany.  Thank you.

Mr. Chairman, I know my time is up, but I wanted to ask Dr. Reinhardt if he could offer a clarification on his tables on Page 14.

Mr. STARK.  Certainly.

Mr. Boustany.  If that's okay.

In looking at the coronary artery bypass grafting column, and you have different payout rates for hospitals, are those averages or actual individual episodes?

Mr. Reinhardt.  No, no.  Those are what this large insurer pays, the average for a whole bunch --

Mr. Boustany.  I see.  Okay.

Mr. Reinhardt.  -- of these, and these are not charges, they're actual payments.

Mr. Boustany.  Okay.  And I guess the other question that follows on that is, did you consider the different cost structure for those hospitals?

In other words, some hospitals employ the surgeons and the anesthesiologists and other services.  Others have those separately, where the charges would go separately to those providers.

Mr. Reinhardt.  That is a good question.  I don't know if it's in here.

Mr. Boustany.  That might account for the discrepancy in numbers.

Mr. Reinhardt.  Well, I doubt it, because not that many hospitals employ surgeons.  They're mainly affiliated.

Mr. Boustany.  That's not necessarily true in cardiac surgery.  Anyway, thank you, sir.

Mr. STARK.  Thank you.

Mr. Reinhardt.  Good question, though.

Mr. STARK.  Let's see.  Mr. Pascrell, would you like to inquire?

Mr. Pascrell.  Thank you, Mr. Chairman.

Mr. Sperling, I read your -- listened to your testimony and read your testimony, and I agree with a lot of what your testimony is, and even though you're supposed to be one of many, but you made a lot of sense in what you're talking about.

One thing you made sense, I believe, in is you said on Page 5 that, "Our health care system rewards physicians when they provide more services for sick care, rather than rewarding them equally for spending time to help patients avoid the 80 percent of illnesses that are lifestyle related.''

I think that's a mouthful.  I would agree with you.  Much of the debate on health care over the past 15 years has gone to finding money to cover people, rather than getting folks to understand what they're paying for and how we could prevent these kinds of situations.  And if that's at the basis of our health care system in the future, we will not be on this one-path that my good friend, Congressman Boustany, talked about very briefly.

I don't agree with you at all on your ERISA comments.  I believe they need not only renovation and review, but revamping.  A tremendous amount of changes need to happen in those ERISA laws, for us to get on equal footing.

Dr. Reinhardt, there's no debate that the current market for health insurance is failing folks looking to buy health insurance on their own, and small businesses.

Back in 1992, in New Jersey -- you're very familiar with New Jersey -- New Jersey adopted sweeping health insurance market reforms.  We standardized the standardization plan options for small businesses and individuals.  We ended discrimination against sick people.  And we provided subsidies to people who could not afford to purchase individual coverage.  We did a lot of other things, but I think they were the main things that happened in that so-called reform.

These are some of the most progressive policies, supposedly, in the nation.  However, healthier individuals disproportionately enrolled in the cheaper, more bare bones options, or dropped coverage altogether.  That's a fact.  I'm not making this up.  It's not conjecture.  The numbers indicate that that's exactly what happened.  You tell me if I'm missing something.

The premiums quickly began to increase.  The subsidies disappeared.  And overall enrollment declined.

So I think there's an important lesson here, and if you could define that New Jersey thing very quickly, because that's not my question.  Two questions, besides the questions of affordability.

With the experiences of Jersey in mind, and I think it's a good basis here to get off on our discussion about how we're going to change health policy in the country, what are the key pieces of health reform that ensures that healthy and sick people are optimally pooled together and that long-term affordability is sustained; and could you explain to us clearly and concisely the economic need for more standardization and a minimum benefit in terms of risk spreading and adverse selection?  But give us a very brief point about why the plan in New Jersey, I think, failed.

Mr. Reinhardt.  It failed because it wasn't accompanied by a mandate to be insured for a defined package.  It doesn't have to be Cadillac.  It should, however, cover what is necessary.

There was an initial study of it by Cathy Schwartz of Harvard, who reported that the New Jersey system worked well, but we, her colleagues argued, "This cannot be true, this will unravel.''  And sure enough, it did unravel, and I quote a paper here by Monheit et al and others that showed what happened to the New Jersey scheme. It imploded.

Mr. Pascrell.  I'm very proud of the fact that I'm the only legislator that voted against it in New Jersey at the time, and my worst analysis came true, unfortunately.

Mr. Reinhardt.  You must be an economist, thought like one, because if those three things don't go together, markets will unravel.  It's simply predictable.  Young people will not insure, and wait until they can throw themselves on the mercy of a community-rated product.

That's why I favor a mandate, and there are various ways to rig this.  One could tell people, "Look, if you postpone insurance and then want to join, you have to have a long waiting period, or your premiums will be higher.''

In this country, we invite people to play games with adverse risk selection, because we allow people to change every year or even more frequently.  If I had my druthers, I would not allow Medicare beneficiaries to join the private plan and come back within a year.  I would say, "You have to do this for five-year periods,'' somehow to eliminate these games.

But that is what happened in New Jersey, so this is why, in my testimony, I stress those three things do have to go together:  guaranteed issue, community rating, and a mandate to be insured, which of course, means you're forcing healthy young people to subsidize older, sicker people.

Mr. Pascrell.  Can I just continue, just for a second?

Mr. Sperling, what would your reaction be to Dr. Reinhardt on the three basic points that this reform of health care must have within it as ingredients, in order to -- in Italian we say [Italian word] -- in order for this stew to work?

Mr. Sperling.  Congressman, I've been in this business for 30 years.  One of the first things I learned is never to argue with Dr. Reinhardt.

[Laughter.]

Mr. Sperling.  The concept of having everybody in, in order to have risk pooling, is something that is unassailable.  He's absolutely right.

Mr. Pascrell.  So you agree with that?

Mr. Sperling.  He's absolutely right.

Mr. Pascrell.  You agree with that point?

Mr. Sperling.  Yes.

Mr. Pascrell.  Go ahead.  What else?

Mr. Sperling.  Well, I think there's several aspects of the self-insured marketplace that work and can be applied as we try to expand access to --

Mr. Pascrell.  My point is this, that we can come to an agreement.  This does not have to be us against them, whoever us is and whoever them is.

We can come to some real, basic common ground here, if we listen to one another, because I think you've said many good things in your presentation, and you were not just a corporate head here.  You are listening to our needs, our concerns.

And Dr. Reinhardt does not want to provide a doorway into socialized medicine, but we do have to understand what the imperatives are today.

And on a simple thing like this, Mr. Chairman, we've lost out.  When this country moves away from manufacturing, in those jobs, in those particular jobs, there was coverage.  The more we moved into the service industries, there was less coverage, and therefore, affected everybody.

There are a lot of particulars here that make it complex, but I think we can come together.  That's my opinion.  Maybe I'm --

Mr. STARK.  Thank you.

Mr. Pascrell.  -- that's what I think.

Mr. STARK.  Ms. Schwartz, would you like to inquire?

Ms. Schwartz.  Thank you.

And I appreciate the prior dialogue, because I do think that there is some agreement.  There are lots of specifics that we have yet to really hammer out, and I think that's where some of the different agreements may come.

But I was interested in following up on several of the points that were just made, and ask a few more specifics.  I've been sitting here a long time, so I appreciate that, and your willingness to work with us.

But I am interested in the market reforms that we have some agreement on and some that are a little more uncertain.

Many of you talked about everyone being in.  I appreciate that.  We certainly talked about pre-existing condition exclusions being fairly unacceptable.  I think even David Camp put that on his list of what he agrees on, which is huge, for many of my constituents.  They can't find insurance.

Or obviously it's a huge issue for small businesses.  Somebody gets sick, and it changes it dramatically.

Community rating, talked about that would change things for small businesses, as well.  You wouldn't be just the 20 employees you have and the illnesses they may have.  It's really very important.

And the ability to have some transparency, that you can really compare apples to apples, if you're looking at different plans, so that, as a recent report showed, someone who got catastrophic coverage, got cancer, thought that was catastrophic, but what catastrophic coverage meant was hospitalization, and most of her care was out-patient, and therefore, not covered.  That's pretty unacceptable in this environment, going forward.

My question was a couple that didn't come up, and it has to do very much with people who are employed, who don't take their coverage, and I want to know what you thought about this.

There are people who have waiting periods.  Their employer says you have to be employed for six months before you can get coverage.  I can understand some of that, because people come in and out of jobs, and they're not covered then for six months.

There are others who say you have to sign up in 30 or 60 days, otherwise you can't sign up in the future, ever again.

There are some who say you can sign up if you have a life change -- unless you have a life-changing incident, you get married, divorced, someone dies.

So that even those who are employed and want to take coverage can't now get it if they make one little error, sort of.  You know, they don't sign up in time.  They have a pre-existing condition.  Or they move jobs too often.  They could have huge gaps in coverage.

So my question for you is, what do you think of requiring those who are employed to sign up?  Now, they can opt out if they have coverage elsewhere, or if they want to -- but actually making it automatic that when you're employed, you sign up; that's one question.

We did that with 401Ks, by the way, and it changed participation rates by double.  It doubled the number of participation rates for 401K plans.

Just say, "You don't have to sign up, we're not going to make it complicated, you're in.  You're employed.  You know, you get a lunch break and you get health insurance if we provide it.''  Not saying that employers have to provide it.  That's a different question.

So one is, you opt in.  What do you think about ending waiting periods?  You know, what do you think about, you know the -- and of course, we already talked about pre-existing conditions.

And if you do think that we should do all of these changes in the market, are you talking about just making these changes and requirements for those who are in the exchange, or is it for everyone?

So even if you are an employer who decides to continue to provide coverage, and we expect most will, will these market changes, will these consumer protections, however you want to look at it, be true for them, as well?

Because with our constituents, I think that they feel very strongly that they want this insurance to be meaningful and they want -- this is a huge struggle for them, coming in and out of their employer situations, and -- as we know, more and more employees are going to change jobs over time.

Many of us who got the same job, stayed in the same business for 35 years, and then retired with a pension, it's kind of not the way of the world for the future.  People are going to move around in jobs, certainly young people do.

So maybe just really quickly, I would like to start with Dr. Blumberg.  Mr. Vaughan, I'd like you to talk about this, and Dr. Reinhardt, if we have time.  It would be great to just have a sort of quick response on what do you think about these additional consumer protections, market reforms, and should they apply to everyone, every insurance company, every employer?

Ms. Blumberg.  I think that we're talking ideally about a context where we have an individual mandate, that everyone is required to have insurance of at least a minimum acceptable amount, and in that context, if everyone is required to be covered, there should be no reason to have situations where you have waiting periods.  Everybody is covered.  They should be covered all of the time.

So, along with pre-existing conditions, we should be able to get rid of that.

In terms of open enrollment periods, which is the signing up within the 30 to 60 days, I think what we need to do is to make sure that we're making it as easy as possible for people to comply with the mandate.

So doing that would require that we use employers, because we know that people have very high rates of participation in the employment setting, with health insurance.

So to the extent that even if the employer is not contributing, we can use the employer to help facilitate that enrollment, I think we should do that.

If somebody does not enroll in coverage within a determined period of time, and then we look back and say, "Well, you should have signed up at the beginning of the year, but you haven't been covered for the last two months,'' we need to think about at how to create incentives to make sure people are complying at least in the longer term, if not right away after the reform is in place.  We --

Ms. Schwartz.  Well, you're still saying that if someone did forget to sign up for 30 days -- in those 30 days, how do they get in?

Ms. Blumberg.  We have to let them in, but I think we need to have incentives for them to do it in a timely way so we don't have risk selection problems.

So maybe if I signed up three months late and I went without coverage for three months, I have to pay those back three months in premiums.  Depending upon my income, I might be subsidized, I wouldn't have to pay the whole thing, but I'd have to pay that back premium --

Ms. Schwartz.  So you don't think just having people sign up and then you can opt out if you want to, wouldn't it just be easier to have people signed up?

Ms. Blumberg.  We need to make it easy for people to sign up, but then we also have to enforce the requirements, and -- that is going to require some kind of penalties, but I think we never exclude people under this type of reform.

Ms. Schwartz.  Any other quick comments?

Mr. Vaughan.  I just want to thank you very much for your sponsorship of that bill to eliminate pre-existing conditions on children, which to have children denied care is crazy.  So thank you.  And agree with what was just said.

Other than a lot of people, the co-pays and their share of premiums in some companies can be high enough that a very low-paid worker just says, "Wow, I can't afford my car.''

And so in whatever reform plan is adopted, hopefully everybody has at least a minimum, and it's affordable.  And whether that's 5 percent of adjusted gross income, or 10, or something, that's between you and CBO and what you can work out, but it has to be affordable, as well as signing up.

Ms. Schwartz.  I think that we hear stories all the time -- young people, and I think Dr. Reinhardt referred to the young people thinking that they are not at risk, you know, and they don't sign up, because they also don't think that they can afford the $20 a week, or $40 a week.  If they never saw it, maybe they could afford it.

So some of it is helping people to know that they actually can participate in a way that is affordable, and just suddenly getting it, than getting sick and having a bill for $10,000, $20,000, $40,000, that they can never repay is a huge risk to them.  I think a lot of people don't understand the risk-benefit to them personally, economically, as well as in terms of getting the right kind of health care.

So I just encourage you to think about this.  I want to pursue this a bit more, just so we make sure that when we say everyone is in, they really are, and we make it easier, is the best way, but I think sometimes a lot is on your plate, and people don't sign up, and we ought to make it a whole lot easier for people to sign up by assuming they want health insurance, they get it through their employer, and we don't create obstacles three months, six months down the road.

Mr. STARK.  Thank you.

Mr. Etheridge, would you like to inquire?

Mr. Etheridge.  Thank you, Mr. Chairman.

Let me thank each of you.  I know you've been seated there a long time, and you've noticed we've been moving around and you've been in the seats, so I thank you for that.

Mr. Vaughan, let me ask you a question very quickly.

You know, we talk about access and others, but it seems to me that, in this country, if you want to drive an automobile, we require you to have car insurance.  You know, it varies, depending on what you feel like you can afford and what your exposure might be.

And yet, for our own health care, maintaining our own bodies, we don't require that.  It's sort of interesting.

But my question to you is, and probably one of the most complex problems with the health care insurance market is that insurers don't generally -- really aren't in the business, I guess, of dealing with people who have the most costly and complex conditions.

By and large, as a result, people who tend to have the worst health care needs, people don't really want to insure them if you're already in, and if you're in, we're going to find a way to get out at some point.

Mr. Vaughan.  That's the way you compete, if you're --

Mr. Etheridge.  I understand that.  Rules are written that way, and I'm not blaming the insurance companies, but that's sort of the way the rules are written.

Mr. Vaughan.  That's capitalism, yeah.

Mr. Etheridge.  And you got to be actuarially sound, or you can't make it, and if at some point you have diabetes or breast cancer or heart disease, the companies really don't have a great incentive to share their excellence in management or the cost of the way they help work it in, because there are some excellent things that happen, but it's not in their best interest to go out and share that data, because if they do, they're going to attract more people who have the same condition and --

Mr. Vaughan.  Amen.

Mr. Etheridge.  -- just sort of, we're sort of working against ourselves.

So my question is this.  What can be done to encourage best practices?  Because I mean, that's really what we're arguing about, and we aren't doing it.  We don't do it just because our system is set up differently?

And number one, it would benefit the consumer if we had access to this information.  And the private market has shown sort of an unwillingness to do it, simply because the rules are stacked against them, and it's not in their best interest to do it.

So how do we do that in terms of making it a better deal for the private sector so they can be in, and benefit all of us who are the consumers?

Mr. Vaughan.  To the extent that you do get a mandate that everybody has to have a basic package, that gets rid of any need for pre-existing conditions.  You'd get rid of that.  And you'd risk adjust.

Now, risk adjustment isn't perfect, so they're still going to try to avoid the very sick example.

Mr. Etheridge.  Sure.

Mr. Vaughan.  And this is a long-range solution, but in the comparative effectiveness research, the 1.1 billion you did this winter, and hopefully some more, some of the research requests that are coming in, we understand, might be on systems of how do you best treat complex cases.

And we've got, there must be 1,000 flowers blooming out there of different ways to treat the chronically ill, and we don't have a real good answer in the best one.

And I know research -- mañana, mañana -- you know, you want a quick answer, but I think we need some more data.

Mr. Etheridge.  I agree.  I was in a rural health clinic the other day, where they're moving along with IT tied to one of our major hospitals, Wake Med, and there are some very promising stuff there, as we start to gather that data.  It's very early, but they've already seen this driving some of their costs down in that regard, and I think that's the whole problem.

Mr. Hobson, in the limited time I have, let me move to another one, because in the past two years, my home state of North Carolina, the uninsured numbers have climbed to 22.5 percent, which is one of the biggest jumps in the nation.

And according to the analysis done by the North Carolina Institute of Medicine, nationwide, about 22 percent of adults do not have health insurance.  In my home state, it's about 25 percent.  As a result of the unemployment numbers climbing, we're the fourth highest in the nation now being unemployed.  That means that all these numbers are getting even worse.  There's about 10.7 percent.

So my question is, we're using rural health clinics in our state, and they're now seeing their numbers climb markedly, simply because people who are uninsured are finding this is an avenue to go, and we are, at the federal level, putting some money in to help offset some of that, and at the same time, it doesn't totally offset.

So my question is, as we look at CHCs as a possible ingredient in all this, we don't -- someone mentioned it earlier -- we don't talk about it a lot, but whatever we do, we have a lot of rural, isolated areas, who invariably are going to be uninsured or under-insured, no matter what we do, because we don't have enough primary care physicians, and more and more people want to move to rural areas.

Is this an avenue for the CHCs to at least have a role in this process?

Mr. Hobson.  Absolutely.  I think that rural health centers play a role of a key access point as medical homes, in some of the areas where fewer options are available to all of our citizens.

And when I talk to my colleagues, both from rural and urban parts of California, we're starting to see a greater percentage of people coming in who had some insurance coverage through their employment, but basically lost it during the past year, either because they lost their jobs, or because the economy has driven their employer to drop the health insurance option.

So I really feel that we may look at down the road is essentially that the resources that we have on the table for health centers might get stretched with this increasing new population of patients who seem to be finding their way to our doors, given the state of the economy that we're seeing today.

Mr. Etheridge.  Thank you.

Thank you, Mr. Chairman.  I yield.

Mr. STARK.  Mr. Yarmuth, would you like to inquire?

Mr. Yarmuth.  Thank you, Mr. Chairman.

I may be in bad shape, but I hung around long enough to ask questions.

There's a point that's been made here a couple of times, and it's been used to make -- or in fact, a prediction that has been used to support two arguments that I don't quite get.

One, and this is the idea that if we have a public plan, that 120 million or so people are going to move from the private insurance arena into the public plan.

Mr. Boustany used it to support saying that private insurers can't compete with the government, which I think is kind of ironic, because many times, my colleagues on that side are making the argument that the private sector is the ultimate competitor.  They're saying they can't compete with the government.

But Mr. Sperling also used it to talk about how it would increase costs on the private employer-based plans.

But I also wonder whether, if it's true that a huge proportion of people who are now insured in the private arena moved to the public plan, doesn't that undermine your point that the private employer-based system is so popular?

And doesn't it underscore the need for a public plan, if so many people would move to a public plan?  Doesn't that kind of, prima facie, support the case for a public plan?

Mr. Sperling.  Well, speaking on behalf of Hewitt and our experience with employers, sir, I think the study that Lewin and others have done, looking at a public plan, modeled those enrollment shifts based on the fact that the public plan and the private plan are not competing on an equal footing.

So it's comparable coverage, but people would move to a public plan because the cost is so much lower, not because it's more efficient --

Mr. Yarmuth.  And that's a bad thing?

Mr. Sperling.  -- but because it's paying the providers less.

Mr. Yarmuth.  Isn't that one of the objectives that we're trying, presumably all of us are interested in achieving, is lower cost?

Mr. Sperling.  Well, I think we're trying for greater efficiency, but I think the study that was done looks at the fact that the reimbursements under the public plan would be so much lower that those two programs would not compete on a level playing field and would undermine the employer system --

Mr. Yarmuth.  Okay.  I don't actually argue with that.

Second question.  You talked about the polls that show that people prefer their coverage coming through their employer.

And I've talked to pollsters about the first question, are they satisfied with their insurance; and basically, they're satisfied that they have insurance, not necessarily that it comes through their employer.

And isn't one reason they prefer to have it through their employer is because they doubt if they're not getting it through their employer, that they can get good insurance?  Isn't that a possibility, anyway?

Mr. Sperling.  What we hear from employees is that employees look to their employers to do some of the decision making for them, because the insurance marketplace is fairly complex.

Mr. Yarmuth.  Right.

Mr. Sperling.  So having that --

Mr. Yarmuth.  I don't argue that --

Mr. Sperling.  -- ability of the experts to make those choices is something that employees value.

Mr. Yarmuth.  I don't argue that, either.

One other question about a point you made, and that was that, and I agree, many private insurance plans, employer-based plans, do promote wellness and exercise and smoking cessation programs, and so forth.

You wouldn't argue that those things are impossible to do outside of an employer-based system, are they?

Mr. Sperling.  No.

Mr. Yarmuth.  You don't make that argument.

I had a young woman who worked for me several years ago, and she was -- had just gotten out of college, and just become -- she's aged out of her family policy.

She had a lifelong allergy situation which required her to take medication that was $500 or more a month, and when she went into the private system, the only insurance she could get anywhere in Kentucky was something that excluded her medications.

Would you say that she would be in better shape with the existence of a public plan, in a competitive situation involving a public plan, or under a system that resembles the current system that we have now?

Dr. Reinhardt, Dr. Vaughan -- I mean, Mr. Vaughan, would you specifically respond to that?

Mr. Vaughan.  I think she would, and again, though, if the core benefit package is pharmaceuticals and hospitalization, the private sector may have to provide it, too.

Again, if she's real expensive, there will be an effort to hassle her to go somewhere else, and that's where it would be nice to have the public plan that would welcome her with open arms.

Mr. Yarmuth.  Dr. Reinhardt?

Mr. Reinhardt.  Yes, of course, in its present shape, the private market for individual policies really doesn't serve the needs of the American people, so there would have to be very stringent reforms, including a defined benefit package, in this case.  This probably would be in there.

I just want to comment on this idea, that the Lewin study, which I actually have here, that people somehow would lose their private insurance. When I married my wife, I didn't lose all these other women.  I chose my wife.

[Laughter.]

Mr. Reichert.  So I'm an immigrant, and I don't speak English too good, but I don't understand the word "lose'' in this case.

The idea is that people would favor the public plan, because not only the money, they might because it's permanent, that if they lose their job, they lose.  I'm a unique American, because I'm a tenured Ivy League professor.  I'm not really part of the American experience.  And therefore, this has never faced me.

But I look at all kinds of people.  When they lose their employment, the minute you lose your employment coverage, the employer no longer cares about you, whether you're well or not.  That's it.

And that kind of insurance, I think, cannot forever be preferred by people.  They would want to have an insurance that, even if they lost a job in X Corporation, they would still have insurance.  But now they don't.

And I think that's the big challenge of the employer, how could you provide some sense of permanence here, so that when you're down, the worst time in your life -- I met two journalists the other day.  Both lost their jobs, and they don't have insurance, and they just had a baby.

Now, I think that's a terrible situation for them, in this fix where they don't have income, also not to have insurance.

And this is why, in general, I think there has to be a stable plan, and if the private insurance industry could guarantee it, good for them, but if they can't, you have to ultimately own up to this public plan.

Mr. Yarmuth.  I agree totally with you.  Thank you for your testimony.  I thank all of you.

Thank you, Mr. Chairman.

Mr. STARK.  Thank you, and I want to thank all witnesses for your patience, your endurance, as we ground through this all today.  It was very helpful.

And I hope you'll continue to give us your input as  you hear from time to time which direction we're going over the next couple of months, as we attempt to come up with some kind of a plan that will provide affordable, quality health care to every American.

Thank you all very much.  The hearing is adjourned.

[Whereupon, at 1:22 p.m., the Committee was adjourned.]

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