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Hearing on Implementation of Health Insurance Exchanges and Related Provisions

September 12, 2012


Hearing on Implementation of Health Insurance Exchanges and Related Provisions










  September 12, 2012


Printed for the use of the Committee on Ways and Means


DAVE CAMP, Michigan, Chairman

WALLY HERGER, California
PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

RICHARD E. NEAL, Massachusetts
JOHN B. LARSON, Connecticut
RON KIND, Wisconsin

JENNIFER SAFAVIAN, Staff Director and General Counsel
JANICE MAYS, Minority Chief Counsel

WALLY HERGER, California, Chairman

PAUL RYAN, Wisconsin
DEVIN NUNES, California
JIM GERLACH, Pennsylvania
TOM PRICE, Georgia

RON KIND, Wisconsin





The Honorable Michael Consedine, Commissioner, Office of the Commissioner, Department of Insurance

E. Neil Trautwein, Vice President, Employee Benefits Policy Counsel, National Retail Federation

Daniel T. Durham, Executive Vice President, Policy and Regulatory Affairs, America’s Health Insurance Plans

James F. Blumstein, University Professor of Constitutional Law and Health Law & Policy, Vanderbilt Law School

Heather Howard, Director, State Health Reform Assistance Network, Lecturer In Public Affairs, Woodrow Wilson School of Public and International Affairs, Princeton University


Hearing on Implementation of Health Insurance Exchanges
and Related Provisions

Wednesday, September 12, 2012
U.S. House of Representatives,
Committee on Ways and Means,
Washington, D.C.


The subcommittee met, pursuant to call, at 3:20 p.m., in Room 1100, Longworth House Office Building, Hon. Sam Johnson presiding.

[The  advisory of the hearing follows:]


Mr. Johnson.  We are going to bring the subcommittee to order.  We have got two guys in here, the two most important ones in the whole Congress. 

Let me say our thoughts are with the Health Subcommittee chairman Wally Herger as he continues to recover in California from a hip replacement surgery and a recent bout with the flu, and I speak for all of us when I say we wish him well and hope for a speedy recovery. 

We are here today to discuss implementation of Obamacare insurance exchanges and related provisions, and I want to thank our witnesses for your flexibility so we will be able to hold the hearing today, and thank you for sticking around.  I appreciate it. 

In the interests of time and to accommodate our witnesses, I ask unanimous consent that my opening statement be made part of the record.  Do you agree to that? 

Mr. Thompson.  Absolutely.

Mr. Johnson.  And Mr. Stark isn’t here yet, so, without objection, I would ask that you make his opening remarks part of the record as well. 

Mr. Thompson.  Absolutely.

Mr. Johnson.  Thank you, appreciate that. 

Today we are joined by five witnesses, and given the home State ties, I will yield to the gentleman from Pennsylvania to introduce our first witness.  Go ahead. 

Mr. Gerlach.  Thank you, Chairman Johnson, for giving me the opportunity to introduce my fellow Pennsylvanian, Insurance Commissioner Michael Consedine.  Last year Michael was appointed by Governor Tom Corbett to serve as our insurance commissioner for the Pennsylvania Insurance Department and was confirmed by the Pennsylvania Senate back in April of last year. 

The Insurance Department of Pennsylvania administers the laws of the Commonwealth as they pertain to the regulation of the insurance industry in order to protect insurance consumers.  Given that Pennsylvania is the fifth largest insurance market in the United States and the 14th largest insurance market in the world, Michael certainly has his work cut out for him when you add it to the implementation of the State exchanges under the Affordable Care Act. 

Throughout his legal career he has concentrated his practice on regulatory and corporate matters involving insurance entities and consumers.  From 1995 to 1999, he served as department counsel for the Pennsylvania Insurance Department where he represented the department in an array of litigation proceedings and on transactional filings, including major corporate restructurings.  He has also practiced law with the firm of Saul Ewing in Philadelphia, where he was a partner and vice chair of its insurance practice group. 

He is a graduate of James Madison University as well as the Widener University School of Law, and given his vast experience and knowledge in the industry, he is an important asset to our Commonwealth.  So we want to welcome him to the panel today and thank him for testifying on this important matter. 

Yield back.  Thank you, Mr. Chairman. 

Mr. Johnson.  Thank you. 

Also testifying today are Neil Trautwein, vice president and employee benefits policy counsel at the National Retail Federation.  Thank you for being here.  Dan Durham, executive vice president of policy and regulatory affairs at America’s Health Insurance Plans; Jim Blumstein, professor of constitutional law and health law and policy at Vanderbilt Law School, director of Vanderbilt’s Health Policy Center; and Heather Howard, director of State Health Reform Assistance Network and lecturer in public affairs at Princeton University’s Woodrow Wilson School of Public and International Affairs. 

Thank you all for being here.  You will each have 5 minutes to present your oral testimony, and your entire written statement will be made a part of the record. 

[The Opening statement of follows: The Honorable Pete Stark]

Without further ado, Commissioner Consedine, you are welcome to begin. 


Mr. Consedine.  Thank you very much, Mr. Chairman. 

Thank you for that introduction, Representative Gerlach. 

Good afternoon, distinguished members of this committee.  My name is Michael Consedine, and I am Pennsylvania’s insurance commissioner.  As some of you may know, I had the privilege of presenting testimony in front of your colleagues on the Committee on Energy and Commerce in March of last year about our experiences in Pennsylvania with the first year of the implementation of the Affordable Care Act.  In that testimony I described Pennsylvania’s early experiences with the ACA as traversing a path that was marked by a lack of clear direction and troubling indications of the terrain ahead. 

Unfortunately, in the 18 months that have followed, very little has changed.  We still lack clear direction, and the flexibility promised us has not materialized, something that at this point poses a significant barrier to our ability to make informed decisions on issues that could impact the lives of millions of Pennsylvanians. 

To date, the Department of Health and Human Services has failed to issue numerous regulations regarding how States are to implement the ACA.  Most of these outstanding regulations address critical issues on the operation and requirements of key components of the ACA, like health insurance exchanges.  The lack of detailed information from HHS has put Pennsylvania and many other States in a very difficult position.  We are traveling down a road directionless while knowing the road will soon end.  Pennsylvania, like many States, needs final rules and guidance on exchanges in order for us to determine what course is in the best interest for our State. 

These concerns and the absence of clear guidance prompted me to write a letter to Secretary Sebelius 2 weeks ago outlining 26 specific questions that we in Pennsylvania felt needed to be answered in order for us to make an informed decision on exchanges.  I have submitted a copy of that letter to the committee for inclusion in the record.  As of the date of this testimony, HHS has not responded to our letter. 

Pennsylvania is not an outlier in feeling directionless on this road.  Recently I was asked to chair a National Association of Insurance Commissioners working group charged in part with collectively identifying the universe of unanswered questions and issues with exchanges in order to help other States begin to better understand the impact the operation of a Federal exchange may have on the insurance markets.  We have yet to hold our first meeting, but already 22 States have signed up to participate in this working group. 

A poorly executed Federal exchange launch and transition from current market rules to the new ACA rules could result in severe market disruptions and a weakening of States’ control over their insurance markets.  Continuing without answers to these crucial issues is like driving down a winding road at night without headlights.  Nothing good will come of it. 

As chair of this working group, my hope is that we may provide the needed direction, guidance, and support for all States that are traveling on this road together so that we as regulators can help our States make informed decisions and minimize disruptions to insurance consumers and our markets.  We sincerely appreciate the efforts of Congress in aiding us at this critical juncture. 

The road to exchange implementation is also a toll road.  No matter what exit a State takes, it will cost something.  However, without answers to our questions, the total costs are unknown, but seemingly grow every day. 

States are also being asked to make a selection of essential health benefits benchmark plan by the end of this month, but no rule, proposed or final, has been released outlining the details of this process.  Will a State’s selection really be the selection, or can HHS modify a State’s choice or, worse yet, override the selection and replace it with another benchmark?  At this point no State can answer those questions because there is no regulation.  All we know is that the ACA clearly intended for the decision on essential health benefits to be made by the Secretary of Health and Human Services, so at this point any inference that States have binding decisionmaking authority on issues appears to be an illusion. 

HHS has been similarly silent on how it intends to pay for a State exchange or what costs States should expect to incur whether entering into a partnership or merely interfacing with a Federal exchange.  States are required to live within their fiscal means, which requires thoughtful budget planning.  Without answers to these questions, it is impossible for States like Pennsylvania to adequately prepare.  These questions are just a few of the many outstanding issues to which States like Pennsylvania need answers if we are to make informed decisions. 

In the end, the unfortunate but consistent delay of information from HHS will hurt Pennsylvania individuals and businesses the most.  They are the passengers on this journey that is supposed to bring them to a destination of affordable and accessible health care.  A poorly implemented Federal exchange, however, will put those passengers at risk.  Two years after the ACA’s implementation, we see health care premiums in Pennsylvania continue to rise, with no promise of reductions in sight, and we see an increase in the bureaucracy surrounding health insurance regulation.  As I told Secretary Sebelius in my letter, Pennsylvania’s focus remains on getting health care reform done right, not just done quickly, and certainly not done in a manner that puts Pennsylvanians at risk. 

Even though the lack of information from Washington is producing roadblocks to effective exchange implementation in many States, it will not stop Pennsylvania from continuing its own work towards achieving meaningful and sustainable health care solutions in our State. 

Thank you very much for the opportunity to testify before you today. 

Mr. Johnson.  Thank you.

[The statement of Mr. Consedine follows:]

Mr. Johnson.  Did you get an answer from the Secretary? 

Mr. Consedine.  We did not. 

Mr. Johnson.  Thank you. 

Mr. Trautwein, you are now recognized for 5 minutes, sir. 


Mr. Trautwein.  Thank you, Mr. Chairman, Ranking Member Stark, and members of the committee.  I appreciate the opportunity to appear before you today. 

My name is Neil Trautwein, and I am a vice president and employee benefits policy counsel with the National Retail Federation.  I am pleased to appear here today on behalf of the NRF, which is the worldwide voice of retail in all channels and all forms of distribution. 

Retail supports one out of every four jobs in the economy today and contributes $2.5 trillion to the gross national product.  We support effective implementation of the Affordable Care Act, even though we don’t support the underlying law.  We are concerned, as people who have to live with the law, by the delays in issuing regulations and agency reliance on temporary guidance rather than formal regulations, but we do recognize that the agencies are balancing a lot of different concerns, and probably we wouldn’t have been happy had they issued interim final regulations in the first place. 

Still, we cannot afford to have the ACA stumble out of the starting gate, because it is our employees and individuals out there who will bear the brunt of the problems, particularly as regards health insurance exchanges, which is very important to employers and employees alike. 

The fate of exchanges will be a significant indicator for the ultimate success or failure of the Affordable Care Act.  Unanswered questions abound on exchanges despite a final exchange rule.  The lack of additional guidance on questions we and others have asked has not only slowed exchange planning in many of the States, but also employer planning for benefits in years 2014 and beyond.  NRF and other members of the Coalition on Choice and Competition have worked hard to encourage both the States and implementing agencies to move forward, but the clock is ticking, and fall 2013 is very short away.  We particularly fear that as the regulations are released late in the ballgame, a cascade of regulations will telescope onto employers and really frustrate them as they are trying to manage new responsibilities. 

To employers, genuine reform would lower the cost of coverage and make it easier to provide coverage.  The ACA is nothing if not complicated, something that advocates and opponents both agree.  We do credit the regulatory agencies for working hard and fairly cooperatively to implement the ACA, which has not been the easiest task in the world. 

The administration has been appropriately solicitous of the retail industry, partly because of our place in the economy, also because of the difficulty of covering the retail and restaurant workforce.  Much of the regulatory guidance released to date will help accommodate our workforce concerns, but we really would prefer not to have to revisit these issues on a year‑by‑year‑by‑year basis. 

Much of the administration’s guidance lacks the notice‑and‑comment finality employers must rely upon to plan for the future.  The consistent attention and cooperation of the administration, though it has been both welcome and helpful, doesn’t make up for that finality. 

Timing is becoming critical for benefits that are to be available in January 2014.  My members tell us that they commonly need 6 to 9 months to prepare for each year for coverage in an ordinary benefit year.  2014 will be anything but normal.  It will be a lot of new issues and responsibilities to take on.  Without final regulations in the first quarter of 2013, I fear that we will have a lot of attrition in the level of employer‑sponsored plans. 

Again, I appreciate the opportunity to appear before you today.  Fair and final regulations will help individuals, employers, health plans, and exchanges prepare for the difficult transition ahead in January 2014.  The best chance health insurance exchanges have to succeed is to launch smoothly and as glitch‑free as possible.  NRF stands ready to work with the administration and Congress to help make the ACA more workable so long as it remains the law of the land. 

Thank you, and I look forward to your questions. 

Mr. Johnson.  Thank you, sir. 

[The statement of Mr. Trautwein follows:]

Mr. Johnson.  Mr. Blumstein, you are now recognized.  Well, wait a minute.  Durham, let me get you first.

Mr. Durham.  Thank you, Mr. Chairman. 

Good afternoon.  I am Dan Durham, executive vice president for policy and regulatory affairs at America’s Health Insurance Plans.  I appreciate this opportunity to testify on health insurance exchanges. 

AHIP members are strongly committed to competing in the new marketplace and offering high‑quality, affordable coverage to consumers who shop in exchanges.  Since the day the Affordable Care Act was enacted, our members have been working around the clock to implement the law, while continuing to meet the needs of their 200 million customers.  Health plans are complying with the thousands of pages of regulations, data requests, and other requirements that Federal agencies have issued.  In short, health plans are focused like a laser on implementation, while continuing to offer high‑quality, affordable coverage within the parameters of the law. 

My written testimony focuses on key implementation issues and recommends five things:  minimizing disruptions as we transition to exchanges, ensuring workable exchange operations and State flexibility, minimizing coordination to prevent redundant regulations in data collection, maximizing choice and competition, and addressing specific ACA provisions to make healthcare coverage more affordable. 

I will begin by emphasizing the urgent need for regulatory clarity with respect to exchanges.  Health plans, States, and others need clear regulatory guidance on the following:  First, the comprehensive insurance market reforms, including guaranteed issue, adjusted community rating, and geographic rating areas.  Health plans need clear guidance on how these new market rules will be applied both inside and outside the exchange to appropriately develop and price their products. 

Second, essential health benefits.  While we appreciate the flexibility provided in the bulletin released last December, health plans need final guidance on essential health benefit requirements to develop products that qualify for individual and small‑group coverage.  The process for developing new products is data intensive and time consuming and typically takes between 12 and 18 months. 

Third, cost‑sharing reductions.  While the bulletin released last February was very helpful, health plans still need clear guidance on how to develop additional products on the silver tier that will meet the cost‑sharing reduction requirements. 

Fourth, actuarial value.  While the bulletin was released last February, and we know a great deal of work has been proceeding, we look forward to the release of the actual calculator that will provide a simplified means for health plans to compute and report actuarial value for the plans they intend to offer. 

Fifth, risk‑mitigation programs.  While the final rule was released earlier this year, and significant work is ongoing, the specific parameters for reinsurance and the methodology for risk adjustment have yet to be released.  Health plans will need to know the details. 

And, sixth, the certification standards for qualified health plans, including quality reporting requirements on the activities that improve health outcomes and patient safety.  Health plans need to know all the requirements necessary to be certified as a qualified health plan in order to develop their products appropriately. 

Clear regulatory guidance in each of these areas is needed in the very near future.  Unless such guidance is forthcoming, it will be difficult for health plans to complete product development, fulfill network adequacy requirements, obtain necessary State approvals, and ensure that their operations, materials, training, and customer service teams are fully prepared for the initial enrollment period that begins on October 1, 2013. 

Our testimony also outlines specific recommendations for ensuring that exchanges work efficiently and effectively by minimizing duplication of regulations, data collections, and exchange functions and adopting common standards for the flow of data between exchanges and health plans. 

And, finally, while the ACA expands coverage to millions of Americans and provides subsidies, several provisions of the law will have the unintended consequence of making coverage less affordable.  Our written testimony examines three such provisions:  first, the health insurance premium tax; second, the minimum coverage requirements; and, third, the age‑rating bands.  We strongly urge Congress to revisit these issues to avoid higher costs and potential coverage disruptions for the American people. 

Thank you again for this opportunity to testify.  I look forward to your questions. 

Mr. Johnson.  Thank you, sir.

[The statement of Mr. Durham follows:]

Mr. Johnson.  Professor Blumstein, now you can talk.

Mr. Blumstein.  Thank you, Mr. Chairman, Mr. Stark.  My name is James Blumstein.  I am a professor at Vanderbilt Law School and Vanderbilt Medical School.  I am pleased to be invited to appear before the committee.  I speak as an individual, however, not as a representative of Vanderbilt or any other institution. 

Briefly, I have been asked to address a very focused and very specific question:  What is the scope of subsidy that is available on these new exchanges that are going to be created under the Affordable Care Act?  Clearly there are subsidies available under the statute for State‑run exchanges.  The question I want to focus on is whether those same subsidies exist or can exist under the law for federally run exchanges. 

Secondly, the IRS has issued a rule that extends coverage of the subsidy to federally run exchanges.  Is this rule sustainable? 

The subsidies have two roles.  They support those who have incomes at 100 to 400 percent of the Federal poverty level, but they also serve to trigger an employer tax, a penalty, if an employer is obligated to provide ‑‑ a large employer is obligated to provide coverage that is affordable and meets the Federal standards.  And the question is whether or not the IRS, through the rule, can impose the subsidy requirement which, in turn, triggers this tax or penalty upon employers.  My brief conclusion is the following:  The Affordable Care Act, or the ACA, does not provide for a subsidy on the Federal exchanges, and the IRS exceeds its authority in promulgating this rule. 

So let me focus first on the provisions of the Affordable Care Act.  The Affordable Care Act provides two types of exchanges, a State‑run exchange under section 1311 and a federally run exchange under section 1321.  Under Federal constitutional principles, the Federal Government can induce States to establish exchanges, but they cannot force them or commandeer them to do that.  So inducement is okay, but coercion is not. 

The ACA provides different treatment for these two exchanges.  There is a subsidy expressly provided for State‑run exchanges, and to make clear there is no ambiguity, under section 1311, that is the section that provides for State‑run exchanges, there is an important canon of construction in written documents, contract statutes called, excuse my Latin here, but expressio unius est exclusio alterius, which means the expression of one thing is the exclusion of another of the same kind. 

So there are two ‑‑ very straightforwardly, there are two types of exchanges under the ACA, State run and federally run.  The subsidy provided for in the ACA provides only a subsidy for the State‑run exchange.  So under the exclusio unius principle, granting subsidy on one exchange and omitting that subsidy on the Federal exchange means that there is no grant of comparable subsidy on the Federal exchange, and so if the issue were only under the statute, it would be pretty straightforward, and it would be relatively easy to interpret. 

What about the IRS rule?  The IRS expands the scope of coverage so that subsidies exist on both the State‑run and the federally run exchange.  There is no question that the IRS has rulemaking power to establish the rules of the road on how these exchanges will be implemented.  The question is whether they have, narrowly speaking, power to extend the subsidy to these Federal exchanges and thereby impose a tax on large employers. 

Federal agencies have gap‑filling authority when an issue is either expressly delegated to it, or when, because of ambiguity, the issue is implicitly delegated that power to fill a gap.  But the agency gap‑filling power, because of ambiguity, must relate to the specific issue the agency addresses in its rulemaking not globally, but specifically.  Here that question is the scope of the subsidy. 

In determining whether ambiguity exists, the courts have said that you look at traditional tools of statutory construction, for example, the expressio unius rule, and under the expressio unius rule, there is no ambiguity on the question of the scope of subsidy.  Only State‑run exchanges are qualified for that subsidy.  The ACA provides for subsidy on only one of the exchanges, the State‑run exchanges.  It makes reference to the statutory section 1311 to make sure that there is no ambiguity, so it mentions State‑run exchanges, and it mentions section 1311.  Absent ambiguity, the IRS’s power to expand the subsidy vanishes, there is no gap to fill, and thus no power for the IRS to act as it did. 

Thank you, Mr. Chairman. 

Mr. Johnson.  Thank you, sir. 

[The statement of Mr. Blumstein follows:]

Mr. Johnson.  Ms. Howard, you are recognized.

Ms. Howard.  Thank you, Chairman Johnson, Ranking Member Stark, members of the committee.  My name is Heather Howard, I direct the State Health Reform Assistance Network, or State Network.  It is a program of the Robert Wood Johnson Foundation that is helping States implement the coverage provisions of the Affordable Care Act.  The program is housed at Princeton University’s Woodrow Wilson School, where I am a lecturer in public affairs teaching about health policy, and before coming to Princeton, I was New Jersey’s commissioner of health and senior services. 

My testimony today calls on my experience working with States on exchange implementation and my previous service as a State health official.  My comments are my own and not on behalf of Princeton University or the Robert Wood Johnson Foundation. 

From my experience I can tell you that while hurdles remain to be overcome, many States are actively implementing and are on schedule to stand up health insurance exchanges that will provide a competitive marketplace for individuals and small businesses to shop for affordable coverage just over a year from now. 

Today I want to talk about a couple of the themes that we are seeing in State implementation of health reform.  First, we are seeing that States that want to move ahead with reform are effectively implementing exchanges.  Second, those States that have not yet made significant progress have a path forward through the partnership or federally facilitated exchange.  Third, we are seeing that the Federal‑State relationship has been marked by flexibility and collaboration.  And, finally, we are seeing that States are using that flexibility to innovate and tailor their solutions to meet their State’s needs. 

Let me start first with what we are seeing in the States that are successfully getting ready to implement the Affordable Care Act.  We know that 49 States and D.C. have received Federal planning grants, 35 States received establishment grants to facilitate additional planning and implementation, 13 States plus D.C. have already submitted letters to HHS affirming their intent to establish a State‑based exchange, and 15 States already have exchange structures in place. 

Now, that is 13 States and the District of Columbia that have already signaled their intent to establish a State‑based exchange.  We know that other States, though, are working diligently, but may need to use the partnership model to bridge the gap to when they can actually stand up a State‑based exchange.  This partnership model allows States to retain plan management and consumer assistance functions.  Those are two areas where States have traditional expertise and regulatory authority.  And we know that still other States have done little beyond basic research in preparing for an exchange, but many of them are studying the issues and preserving their options.  And we know that the ACA clearly envisioned that not all States would stand up a State‑based exchange, so the federally facilitated exchange will provide consumers access to affordable health insurance products in those States. 

Now, we have heard today that the reason for State inactivity is a lack of guidance from HHS, but if a lack of guidance were a real barrier to progress, one would expect that the leading States would be confronting the most barriers and complaining the most loudly about the need for additional rules and regulations.  In reality, the opposite is true.  Those States, those leading States, are seizing the flexibility afforded them to pursue innovative approaches, and I believe, indeed, that the primary factor contributing to this variation in State activity is the political climate in the States. 

Now, we are also seeing that Federal officials are taking a flexible and collaborative approach to ACA implementation.  In my experience they have provided enough guidance, responsiveness, and flexibility to enable the States to be successful.  Indeed, we are seeing time and again that they have come down on the side of State flexibility, and something that as a former State official I know and appreciate.  The best example of this is the guidance establishing the exchange blueprint which CCIIO has offered to the States.  It is a step‑by‑step outline of what States will need to accomplish in order to comply with the ACA.  HHS has set up a series of collaborative meetings, what they call establishment reviews, to go over State progress and address State concerns. 

Another example that is in my testimony that I can refer you to of this State flexibility is the essential health benefit process, where CCIIO has indicated that States can choose their own benchmark based on plans in their own States. 

Now, are more formal rules on EHB and other difficult topics still needed?  Absolutely.  But do implementation efforts need to come to a halt in the absence of formal rules on every open issue?  State Network States and other States across the country are proving that is not the case. 

Now, finally, we are seeing that States are using the ACA resources to address long‑standing problems and persistent needs.  While ACA implementation has presented an enormous challenge to States, we know they are dealing with, of course, budget constraints, staffing constraints, but at the same time, I have talked to many State officials who are seizing the historic opportunity to expand health insurance coverage and are tailoring their implementation efforts to meet their State’s unique needs, and I offer many examples of this in my written testimony. 

So in conclusion, the range of tasks that lie before States and the Federal Government are both daunting and exciting in scope.  Nevertheless, States that haven’t made substantial progress have a path forward under the partnership or federally facilitated exchange models, and States that want to implement reform have and will continue to make great strides in developing and implementing exchanges. 

Thank you. 

Mr. Johnson.  Thank you, ma’am. 

[The statement of Ms. Howard follows:]

Mr. Johnson.  Commissioner Consedine, you know, you said you had never gotten a response out of the Secretary.

Mr. Consedine.  That is correct, Mr. Chairman. 

Mr. Johnson.  And our concern is that HHS has been slow to provide States with the necessary information on a number of key issues.  In reviewing your letter, your requests seem very reasonable, like asking for a detailed timeline on when the hundred future or forthcoming exchange‑related regulations cited by HHS will be released, and if HHS will be issuing final regulations to their numerous interim final rules, when HHS will release its rule governing federally facilitated exchanges, and when will they release a mandated benefit package rule, and you have never received an answer; is that true? 

Mr. Consedine.  Not today, Mr. Chairman, no.

Mr. Johnson.  And you asked all those questions? 

Mr. Consedine.  We did, indeed. 

Mr. Johnson.  Well, let me get this straight.  States are supposed to make decisions on benefit packages in the exchange by the end of the month; is that true? 

Mr. Consedine.  That is generally true at this point.

Mr. Johnson.  Yet HHS hasn’t released so much as a proposed regulation outlining the details of this process.

Mr. Consedine.  We have guidance at this point. 

Mr. Johnson.  What kind of guidance?  Detailed? 

Mr. Consedine.  It is detailed in some ways, lacking in others. 

Mr. Johnson.  And States are supposed to let HHS know by November 16th ‑‑ that is not that far off ‑‑ whether or not they intend to create their own exchange despite the fact that there are nearly 100 forthcoming exchange‑related regulations, and HHS has yet to propose regulations on what a federally facilitated exchange might look like; is that correct? 

Mr. Consedine.  That is correct. 

Mr. Johnson.  It is baffling that the Obama administration can expect State governments to make informed decisions, ones that could require tens of millions of dollars in additional cost in the face of such regulatory uncertainty.  Perhaps I shouldn’t be surprised, however.  By withholding information critical from stakeholders, stakeholders are paralyzed, and the Obama administration holds all the power.  By keeping information from States, employers and health plans, the Federal Government’s takeover of our health care system will be complete.  As a defender of states’ rights, that frightens me. 

I thank you for your testimony, all of you, and, Mr. Stark, I recognize you for 5 minutes. 

Mr. Stark.  Thank you, Mr. Chairman. 

Thank the witnesses for enlightening us today. 

I am concerned, Mr. Consedine, that you are having trouble getting in touch.  You wrote to Secretary Sebelius in August, the end of August, with a bunch of questions regarding exchanges, and have you had any meetings with them? 

Mr. Consedine.  Not since we sent the letter, Representative. 

Mr. Stark.  Have you asked for any meetings? 

Mr. Consedine.  We have fairly regular discussions with the ‑‑ with HHS, but not in response to our questions, no.  We have not asked for a meeting at this point. 

Mr. Stark.  I see.  Well, if you contact Mr. Dioguardi, the Health and Human Services External Affairs, he will set up a meeting.  If you didn’t have to catch a 4 o’clock train, I would set up the meeting for you this afternoon, and I am sure that they could help you far better than any of us could, and, you know, they would welcome the chance.  So I hope that you will take advantage of that and sometimes not wait for a letter.  I mean, wait for a call back we learn in this business is to wait a long time.  Make the second call, will you, and see if they can’t help you.  I think they would cooperate with you and get you all the information you need.  It may not make it any easier, don’t misunderstand me, but I think that they could probably answer a lot of questions for you. 

I am concerned.  All of you, I can recall some time ago, had to implement supplemental insurance rules, right?  Your State has?  Mr. Trautwein?  Mr. Durham?  Ms. Howard?  I mean, and there was some grumping and complaining by the insurance companies and others, but now it seems to work pretty well.  Seniors like it.  They can all look at the same policies, different in each State, but they get a selection of, what, 10 or 11 policies varying from very limited benefits to generous benefits, and the prices are all there, and it is wonderful for the consumers.  And I shouldn’t think that the insurance companies, then, it would seem to me, and their brokers or salespeople are selling the same benefits at different prices, and they have to pitch the fact that they can provide good service.  And that is ‑‑ you know, it is hard to spell out what is good service, but people can check with references, or if it is a company, people dealing with group policies can find out from their other companies how well Aetna does against Blue Cross. 

And I think that it serves us so well and serves your constituents or States so well to have some kind of a determined outline so that people ‑‑ so that we make it easier ‑‑ not easy, but easier ‑‑ to compare.  Most of us are not experts in insurance, as you all are, and you are dealing with people who get the broad idea, but if they can see a list, and that is really what I think we are talking about, I think you do a real service to your constituents. 

I would say that it is too bad we don’t have anybody from California.  But we are going to be ready on time, the Governor, our great Republican Governor, is ready to roll up his sleeves.  He signed the implementing legislation in September, and I would hope that other States’ Governors would move ahead. 

Sometimes we just have to dig in and say, this is a pain in the butt, like a new tax regulation or a new whatever.  You have got to go ahead and do it, and I don’t mean to say that we just put those things in law to make trouble for you, but we try and put them in law, so that we have to write laws here for every State in the Union.  We can’t write one law for California and one ‑‑ and so thank you for putting up with us, and please call on our staff.  I know the Republican staff is willing to help and see if we can’t cooperate and get this done for all of our constituents, because in the end to bring in millions of additional people is going to save us all money.  It is going to save the taxpayers money.  It is going to lower in time the cost of medical care. 

The worst thing we could have is somebody without medical insurance or a way to pay for medical care ending up in the emergency room.  That costs all of us; you, it raises our insurance premiums, it raises our taxes.  And that is one thing I think we can all agree, we have to see that everybody gets covered one way or another.  You may not like my universal health care plan, but let us work toward it. 

Thank you very much, Mr. Chairman.  Thank the witnesses again. 

Mr. Johnson.  Did the Governor of California change parties?

Mr. Stark.  No, he hasn’t.  Now, we have talked to him about that. 

Mr. Johnson.  Well, you called him a Republican Governor. 

Mr. Stark.  But then his wife would become a Republican, and then we would have real trouble. 

Mr. Johnson.  Well, you called him a Republican. 

Mr. Stark.  Well, he is. 

Mr. Johnson.  Really? 

Mr. Stark.  Arnold? 

Mr. Johnson.  Arnold?  Arnold’s not Governor anymore, I don’t think. 

Mr. Stark.  Well, no, but he signed it.  It was Governor Schwarzenegger, I am sorry, not Governor Brown. 

Mr. Johnson.  Okay.  Mr. Nunes, you are recognized. 

Mr. Nunes.  Thank you, Mr. Chairman. 

I just want to state for the record that in my district from California, with Medicaid and Medicare going broke and the State of California in dire need of financial and budget reform, they actually can’t even pay the bills now.  Governor Brown, who is a Democrat, is going to the people to raise taxes, and they are not even sure if those taxes will pay for the current requirements under Medicaid, what is known as MediCal in California. 

Ms. Howard, in your testimony that Federal officials have been responsive, I think you used the words “flexible” and “collaborative,” I am troubled to understand how it is collaborative or responsive when bulletins and guidelines are being substituted for the normal procedures which involve drafting clear rules allowing for public comment and then setting formal policy. 

Ms. Howard.  Well, actually it is more collaborative the way they have been doing it because it allows them to meet with stakeholders.  And I think we heard from some of the stakeholders here that they had been involved in that process, and that they are able to inform the formal policymaking role; that in the first year of ACA implementation, they issued a number of interim final rules, and there was an outcry from the regulated community that, you know, we want to be more collaborative. 

And so now they have taken the less formal approach, and they have been meeting with stakeholders, and I have certainly seen that.  I saw the commissioner at the National Association of Insurance Commissioners meeting in August, and there were a number of Federal officials there holding office hours, meeting with State officials. 

So I think this process and EHB, the central health benefits, is another example of where the Federal Government has been flexible.  They received input from an expert panel at IOM, they met with stakeholders, they developed initial guidance.  Then they met with stakeholders again, they issued frequently asked questions, and in the end they came down on giving States flexibility and said to States, you can choose a plan that operates in your State; we are not going to come up with a one‑size‑fits‑all Federal approach. 

So I think we really are seeing the Federal Government be as flexible as they can.  And as a former State official, I know you want clarity from the Federal Government, but that is not always the best thing, because what we are seeing is States are seizing that flexibility to come up with solutions that work for themselves. 

Mr. Nunes.  Well, that sounds nice, but in reality here we passed legislation.  I didn’t vote for it; many of us up here didn’t vote for it.  But at the end of the day, there has to be clarity for folks like the insurance commissioner to implement law in his or her own State. 

So, Commissioner, how are you finding the flexibility?

Mr. Consedine.  Representative, we hear the words “flexibility,” “collaboration” a lot.  You know, what we often get, however, is we will be collaborative and flexible within a fixed sort of parameter of a mindset within HHS, but outside of that you quickly run into resistance. 

You know, we have a very good working relationship with HHS, a number of those folks are former insurance regulators, and I have nothing but admiration for the job they are trying to do, but what we often get ‑‑ well, you know, what we are really after at this point is the guidance and the clarity that you talk about.  And they are not, you know, in‑the‑weeds questions at this point.  We are asking very general, broad questions like how much is this going to cost us?  What level of autonomy are we really going to have?  How is this going to work?  And it is, we will get back to you soon. 

Mr. Nunes.  Well, it sounds like the flexibility you are going to need is you are going to have to have friends on the Ways and Means Committee to get you appointments with the folks over at HHS who you can’t get a response from. 

I just want to be kind of general here just to get a general flavor for all of you on the panel, just on a scale of 1 to 10, just to kind of give the general public your view of whether or not how successful this is going to be by 2014 in terms of its implementation.  So 1 being it is going to be great, not going to be any problems, to 10 being it is going to be a complete train wreck, and we have got a lot of problems before 2014.  Why don’t we start with you, Mr. Commissioner. 

Mr. Consedine.  Thank you for putting me on the spot.

Mr. Nunes.  We can start on the other end if you like. 

Mr. Consedine.  I would give it an 8.  I mean, we have very grave concerns at this point that people, if they don’t have good information, they are going to make bad choices, and when you are making bad choices when it comes to health insurance, that has very significant repercussions. 

Mr. Nunes.  Mr. Trautwein? 

Mr. Trautwein.  I worry that we are in that 7 to 8 range myself.  I represent employers who are going to have to deal with the compliance issues and understand how to navigate through their responsibilities.  I spent a lot of time trying to educate my members about how the law will come into effect and what their responsibilities will be.  There is a lot of confusion out there.

Mr. Nunes.  Thank you. 

Mr. Durham.  I am out of time here.  The chairman’s being very gracious. 

Mr. Durham.  It depends.  The sooner we get clear regulatory guidance, the closer we can get to 10 on the scale. 

Mr. Nunes.  You mean to 1 or 10? 

Mr. Durham.  It depends on ‑‑

Mr. Nunes.  It depends on the guidance. 

Mr. Durham.  The sooner the better. 

Mr. Nunes.  Mr. Blumstein? 

Mr. Blumstein.  Yeah.  I don’t know that I can give you a number.  Of course, I am from Tennessee where we implemented our TennCare program in about 60 days, so our folks are pretty good in navigating that process. 

I would have to say that it would be nice to get more clarity and have a rule of law.  When you talk about negotiation, it is really not a rule of law, and that is the problem that I have with that process. 

Mr. Nunes.  Great words. 

Ms. Howard? 

Ms. Howard.  And like the professor here, I am a lawyer, not a math person, so I will just say that I think the building blocks are in place.  The Federal Government has experience with Part D, with HIPAA, with the early implementation of the under 26 and the preexisting exclusion for kids, a lot of experience under its belt, and I am hopeful it will be close to that end of the spectrum.

Mr. Nunes.  So 3 heading to 1? 

Ms. Howard.  You know, I am hopeful it will get there.  Millions of people are hoping for it. 

Mr. Nunes.  Thank you. 

Thank you, Mr. Chairman.  

Mr. Johnson.  The gentleman’s time has expired. 

Mr. Kind, you are recognized. 

Mr. Kind.  Thank you very much, Mr. Chairman. 

I want to thank the panelists for your testimony here today. 

Ms. Howard, let me start with you.  Perhaps I missed the memo that went out somewhere that said this was going to be easy, that this was going to be seamless, that this was going to be perfect right out of the block.  I think we all know, those of us who have been dealing with healthcare reform, how complicated and how difficult this is going to be to try to increase the access of healthcare coverage in our country, improve the quality of care, and bend that cost curve. 

This is probably the paramount issue that we are facing with as a Nation today.  We are not going to get our fiscal house in order unless a lot of these reforms succeed, and being able to bring healthcare costs while expanding coverage and improving quality.  I mean, it is as simple as that.  And yet I hear a lot of people complaining that things aren’t happening immediately and perfectly right out of the block. 

Mr. Consedine, I appreciate your testimony, but I think you are here and you are a little more sophisticated than you are leading us to believe in the political world.  You don’t send a letter to a Department like HHS and expect an immediate response within 2 weeks and then rush down to Washington complaining about lack of responsiveness.  I will guarantee you, you pick up the phone, you call and you set up a meeting down there, they will be more than happy to sit down with you and go through this chapter and verse.  And you are not going to need any leverage on this committee or any other Member of Congress to help grease the skids to get an appointment with HHS.

Ms. Howard, I am hearing from you that with the collaboration that you are working with the States, willing to go forward on the exchange, that there has been some open communication, and yet we heard testimony today there is a lack of communication, there is a lack of direction, there is need for clear guidance.  Is this what you have been experiencing in working with the 10 States that are trying to implement the exchanges right now? 

Ms. Howard.  I will start by saying I think you are right; if it were easy, we would have done it already, and it would have been done generations ago.  And we have some good early news today with the census numbers.  I am seeing a drop in the uninsured rates.  There is a lot of work to be done. 

What we are seeing in our States is that the States that want to move are able to move.  And, in fact, they are seeing this flexibility as an opportunity.  So I will take, for example ‑‑ I am sorry that Congressman Blumenauer is not here right now, but Oregon is seizing the flexibility under the EHB rules.  They have recommended the third most popular small‑group plan in their State to be their central health benefits benchmark.  So if there had been something from on high from the Federal Government saying, this is what the benefits package will look like, Oregon wouldn’t be able to do the analysis and see what works for Oregon. 

So certainly time and again we are seeing States are seizing this opportunity and are really able to do it in a way that works for them, and that is that Federalism that I think we want to see, that collaboration between the Federal Government and the States. 

Mr. Kind.  Well, we just heard previously from Mr. Trautwein, and I appreciate his testimony, that by the first quarter of next year, we are going to need some clear direction, we are going to need clear rules at that point.  Do you agree with that assessment? 

Ms. Howard.  I agree.  I agree, absolutely.  I think the Federal Government has been prioritizing what they have done.  They have done a number of final rules this year, they did the exchange final rules.  They actually did the final rules on risk adjustment, which was really important, very complicated, and that is something they tackled early knowing that it was so complicated.  So I think you are seeing a sequencing, and I think we will see more as soon as they are able. 

Mr. Kind.  I thank you, and with all due respect to the chairman of this committee, this hearing may be a little premature in that regard, but as far as I am concerned, I am of the attitude the more oversight, the more hearings, the more feedback we can get, the better off I think everyone is going to be.  So I don’t have a complaint having a hearing like this today, but let us also be realistic in regards to the timetable involved. 

I guess what is frustrating for me is, you know, the whole creation of the exchanges in the Affordable Care Act was based on legislation that I and others had introduced for years around here, called the SHOP Act, and every time I introduced that bill, I had an equal number of Republicans and Democrats supporting it, because, I mean, what is conceptually not to like?  It is giving consumers choice to be able to go to a health insurance exchange and be able to choose their own plan amongst competing private health insurance plans through the power of the competition in the marketplace that is going to help drive prices down and hopefully improve the quality of care, and then we couple it with tax credits to make it affordable for those who can’t do it on their own, for low‑income families.  That is really the whole concept behind the exchanges. 

By the way, I mean, if States want to join together and form a larger exchange across borders, they are allowed to do that, too, under the Affordable Care Act.  There is no restriction for States to be able to partner and create even larger exchanges.  If all 50 States want to eventually create 1 national exchange, there is nothing stopping them or prohibiting them from doing it. 

But I sense from your testimony, Ms. Howard, that your opinion is that there is a difference in attitude and therefore approach from those States willing to make their best effort and go forward in the implementation of the exchange and those that for whatever political reason are choosing not to.  Is that a reasonable assumption? 

Ms. Howard.  I think that is correct.  I think that variation in State approaches is due in large part to the political climate in the States, and the States that do want to move and are trying to seek or trying to implement are finding ways to do so. 

Mr. Kind.  Well, I think this is a response to the 54 million uninsured and the fact that the small‑group market has failed miserably for so many individuals, small businesses and family farmers, and if anyone has a better idea of how we can extend healthcare coverage on an affordable basis to more Americans, we are all ears.  I mean, this is not all set in stone, and we are willing to make adjustments as we go along, too. 

Thank you for your testimony.  I yield back. 

Mr. Johnson.  Drink more milk. 

Mr. Reichert, you are recognized. 

Mr. Reichert.  Thank you, Mr. Chairman. 

I want to quickly follow up, Mr. Blumstein, with some questioning as far as how you communicate with the government.  I was a sheriff for a long time and had the opportunity to work closely with some of the Federal law enforcement agencies and know that sometimes communication by phone is an expedient way of getting things done, but sometimes you need things in writing. 

And I was just listening to your earlier testimony and your description of the two exchanges that exist, the Federal and the State, but we have information here, too, that lists some other ‑‑ maybe these are subexchanges under the two main exchanges ‑‑ American Health Benefit Exchange, the sub ‑‑ the Small Business Health Options Program, the regional, or other interstate exchanges, the subsidiary exchanges, exchanges operated by HHS Secretary.  And then there is a partnership exchange listed, and under that title it says, via rulemaking HHS has created and modified federally controlled partnerships ‑‑ in quotes, “exchanges” ‑‑ which are not defined or contemplated anywhere in the law. 

So when we go to the question of how we communicate with the government, what would you rather see, something in writing, you send a letter, you get something back in writing so you would know that the government has answered the question in a way that you can respond to; or does a phone call, personal meeting ‑‑ what is your opinion on that? 

Mr. Blumstein.  Well, I think that the relationships between citizens and their government should, when possible, be based upon rules.  And we live in a rule‑of‑law society, and I think it is important to specify those rules; otherwise one lives in a world of governmental discretion.  And governmental discretion can be exercised in ways that are appropriate, and it can be exercised in ways that are questionable, and it can be exercised in ways that are questionable and inappropriate.  And so I tend to err on the side of having clearly delineated structures and rules and guidelines and to develop a process with some degree of transparency so that the accountability concern that citizens have is really adhered to. 

I have been in many negotiations, and, you know, what is negotiated can work for one situation and not for another.  That sounds flexible.  But it also runs the risk of bias, cronyism, using leverage in an inappropriate way.  So I think that the way, the better way, to communicate is through formality.  Now, that doesn’t mean that there is not a role.  I think that Mr. Stark’s proposal to get together is not a bad proposal.  I think that is a reasonable proposal.  But at some point at the end of the day, the proposal has to be written down, and it has to be neutrally administered so that the particular government official is going to be ‑‑ is going to say what the deal is, what the structure is, and you don’t always have to go to the government, please, Daddy or Mommy, can I do something at a certain time?  There have to be claims of right, and that is what the rule of law is about.

Mr. Reichert.  If you have a piece of paper to look at, we all know what the rules are.  So it bothers me that this last partnership exchange is not mentioned anywhere in the law or in any rules, but it is still a part of the plan that maybe some of you may or may not know about as yet. 

I want to focus on the cost real quick in referencing our State of Washington in particular with the commissioner and Mr. Trautwein.  The healthcare law requires exchanges to be self‑sustaining by 2015, as you well know, and this means that the Federal Government cannot support ongoing exchange operations and administrative costs.  Washington State’s own exchange consultants have estimated that in 2015 the cost of operating the exchange will range from 40‑ to $60 million per year.  So this runs between 11 and $22 per member per month, runs about 500 to $1,000‑plus for a family of four per year.  And this is on top of the premium for health insurance and just to pay for the administrative costs of operating the exchange.  That is the cost.  So many of the functions of the healthcare exchange are already provided in the private sector; for example, verifying eligibility, billing, those examples. 

Why is it costing taxpayers in the State of Washington from 500 to over $1,000 per family per year to receive subsidies through this structure?

Mr. Consedine.  Congressman, I really don’t have much in the way of insight as to Washington State’s costs.  In our experience looking at various exchange options in Pennsylvania, cost is really dependent on the design of the exchange you go with.  Some States are looking ‑‑ were looking and are looking at designs where the State’s involvement is minimal, and, therefore, costs are less.  Some are looking at a very engaged State exchange with additional levels of bureaucracy, employees, and of course that adds to the tab. 

Certainly from our perspective, coming from a State that does have its fiscal challenges, being cognizant of the cost is a significant part of the analysis process we are going through, because at the end of the day, those costs will be borne by the taxpayer directly or indirectly.  And again, this is coming at a time when healthcare costs, even with the passage of the Affordable Care Act, continue to go up.  So to add to that further by adding additional costs caused by potentially moving forward with the State exchange is, again, part of the dynamic that we are all looking at in weighing our options at this point.

Mr. Reichert.  I see my time has expired, Mr. Chairman.  Thank you. 

Mr. Johnson.  Thank you.

Mr. Pascrell, you are recognized.

Mr. Pascrell.  Mr. Chairman, the exchange grants program has awarded over $1.6 billion to States and territories in pursuit of this effort to implement the legislation.  My home State of New Jersey ‑‑ and I am glad we have a Jersey girl on the panel ‑‑ my State of New Jersey has already received 8.6 million in grants for research, planning, information technology development to get the exchange off the ground; yet there is some political involvement there, which continues to get in the way.  And it seems that certain Governors and certain legislatures would rather reject input into something critically important for their own constituents just to make a point.  

Now, I am convinced after listening to the distinguished panel, each and every one of you did a really fantastic job, that, number one, we are here discussing the bill and the act right now and the particular exchanges that are going to come about in 2014 because the past system or the system that we have now didn’t work.  There is a lack of competition, and you have said it in different ways.  There are some States where you had only three or four companies writing policies, and that is controlled by the individual insurance director or commissioner of that particular State. 

So it wasn’t easy just to talk about; there is no easy answer to why don’t we just have people out to cross the State lines and go into Nova Scotia, which is not a State, and buy insurance?  It wasn’t that easy. 

How much competition do we have in most States?  Very little.  Is this what capitalism advocates?  No.  Don’t we essentially desire to increase competition?  Yes.  Is the objective of the exchange system to increase options in competition; is that what its purpose is?  And do we have really an enlargement of a Federal system, whatever that is?  The answer to the first question is yes, yes and yes.  And the answer to the last question is no. 

How this is an enlargement of the Federal system ‑‑ and remember, in the beginning it was called socialism; now we have gotten off that term, and we are using other terms now.  How, when we want to increase competition, when people are going into the private market into these exchanges regardless of how they are established in each State, does that reduce private entrepreneurship?  That is a good question, I think.  I have never heard a good answer to it. 

Now, Mr. Blumstein said that ‑‑ rightfully so ‑‑ that there are only subsidies for those State‑run exchanges.  I think that is what you said, Mr. Blumstein, correct?  If you read the legislation, I think it is pretty clear.  So you omit subsidies, subsidies are omitted for Federal exchanges; in other words, for Federal Government exchanges.  I would like to know Ms. Howard, Director Howard, what do you think about that?

Ms. Howard.  So we have ‑‑ what is also clear is we have very clear guidance from the IRS on this issue.  And the IRS actually testified yesterday before another subcommittee of this committee on this issue, and we have career attorneys at the Department of Treasury that have been looking at this and have come down, in all due respect to my colleague here, on the other side.  And certainly what I am seeing across the country ‑‑

Mr. Pascrell.  What is “the other side”? 

Ms. Howard.  The other side is that the exchanges ‑‑ that regardless of the type of exchange, consumers should have access to subsidies. 

Mr. Pascrell.  That isn’t what he said. 

Ms. Howard.  Right. 

Mr. Pascrell.  Oh, okay.

Let me ask you this question:  In your testimony you identified several different forms, State exchanges.  The forms they have taken are very different.  It seems that a rigid approach would not be the most effective.  I think we all agree with that. 

Can you discuss some of those different approaches that States are taking and address some of the unique State‑level insurance market issues that might be beneficial to one State and not another? 

Ms. Howard.  Thank you.  That is a great question, and I will tie it back to your earlier point, which is that we do see variation across the country.  In some States they have one insurer may have 85 percent of the market, so you have incredible competition ‑‑ you have incredible concentration.

Mr. Pascrell.  You wouldn’t call that competition, would you?  Would anybody on the panel call that competition.  When one firm ‑‑ when one company is writing 75 percent of the policies in that State, is that competition?

Mr. Durham.  I would just like to add here that you can go to in any State, in any ZIP code, and you can see all the plans that are available now in the individual and small‑group market.  The plans have made an awful lot of effort to load those systems with what they have to offer in those States.  So there is a lot of choice. 

Mr. Pascrell.  Well, things have changed in the last few years.  It is interesting that when we debated the bill, it precipitated many changes in many plans and many offerings.  So already I think before we get to the exchanges we have healthcare reform to some degree.  But I interrupted you. 

Mr. Johnson.  One more. 

Ms. Howard.  Congressman, you are right.  There are different exchanges options available to the States.  There is the State‑based exchange in which the State runs all the functions of the exchange.  At the other end of spectrum is the federally facilitated exchange with the Federal fallback.  But there is this new model called the partnership model, which would allow the State to take on some of the functions of the exchange, and that model is attractive to some States that might not yet be ready to run their own exchange, might want to do only parts of it, and it really allows a State to maximize the areas in which they have expertise. 

A State like New Jersey that has a robust regulatory scheme, the Department of Banking and Insurance has a lot of expertise there, they might want to maintain plan management, or they might choose to maintain control over their insurance market rather than having the Federal Government come in and do it.  So that is that partnership model, which is really a flexibility for the States. 

Mr. Pascrell.  Mr. Chairman, in conclusion, if I may, if ‑‑ we heard complaints about certain States having a problem getting to the goal line.  One‑third of the population of this country right now is living ‑‑ are living in States that have a darn good exchange plan moving, one‑third of the population already.

Mr. Johnson.  Okay. 

Mr. Pascrell.  Thank you.

Mr. Johnson.  The gentleman’s time has expired. 

Mr. Gerlach, you are recognized.

Mr. Gerlach.  Thanks, Mr. Chairman. 

Commissioner Consedine, you have had a couple of questions from some of our members of the committee today about your August 23rd letter to Secretary Sebelius and whether realistically you have given her enough time to respond to your questions.  But I understand also you might have had prior meeting with HHS on a number of issues that you still continue to question.  Is that accurate?  And if so, what was the outcome of that meeting or meetings? 

Mr. Consedine.  I appreciate the question, Representative, and the opportunity to clarify. 

The questions that we have in the letter are questions that we have been asking for months now as part of our meetings with CCIIO and HHS that we do have.  And they are very accommodating in meeting with us and sitting down with us, but what we haven’t gotten to date are answers, and guidance and the clarity that we need on these questions.  So really the letter is the formalization of the process that we have been going through for months now. 

And, you know, we are nearing the end of sort of the timeline we have been given.  We have until November 16th really to make a decision as to when ‑‑ what the States are willing to do.  So we need these answers.

Mr. Gerlach.  Okay.  Also understand there is a July 23rd letter to Kathleen Sebelius from the Republican Governors Policy Committee asking a whole slew of questions very similar to the questions you have raised in your August 23rd letter.  And since Governor Corbett of Pennsylvania is a member of the Governors association, do you know whether or not he has received any responses to that letter or to the questions raised in that letter? 

Mr. Consedine.  To my knowledge, there was a response to the letter, but not answers to the questions that were raised. 

Mr. Gerlach.  Ms. Howard, you indicate, I think, on two occasions that really the lack of progress in moving forward with State exchanges is really connected to the political climate in a State and not maybe other things.  Are you suggesting that the questions posed by Commissioner Consedine or the Republican Governors Policy Committee, those questions really aren’t valid or fundamental as to whether a State ought to move forward in establishing a commission ‑‑ excuse me, an exchange? 

Ms. Howard.  No, not at all.  I think there are important questions to be raised, and this is a deliberative process.  And I think they are in constant dialogue, as we have heard actually, with CCIIO, and I think it is constructive to be asking these questions. 

I just make the larger point that while some States may be in a holding pattern now because of external forces, external factors, the ‑‑ you know, some States, the States that really do want to move, are able to move absent the guidance that they are asking for. 

Mr. Gerlach.  As somebody that has been in the State legislature in Pennsylvania, before I would be asked to put up a vote on whether or not to move forward with something that commits taxpayer dollars at the State level, I would want to have answers to the questions of how much it is going to cost the taxpayers of Pennsylvania to have this exchange.  Based on your work with the foundation, do you know how much it is going to cost taxpayers in Pennsylvania to have an exchange in the Commonwealth? 

Ms. Howard.  No, I don’t think we know that yet, because it is an evolving ‑‑ we don’t even know what policy decisions and what type of exchange Pennsylvania would choose to have.

Mr. Gerlach.  Here is a question from one of those posed to the Secretary:  What financial costs will the State face if it elects to default on a federally facilitated exchange?  Do you have an answer to that question? 

Ms. Howard.  No.  That is the issue that is pending, the final federally facilitated exchange rules. 

Mr. Gerlach.  Another question:  If HHS operates an FFE in the State, will the multiple State insurance plans be required to adhere to all applicable Pennsylvania insurance laws?  Do you know the answer to that? 

Ms. Howard.  I do not. 

Mr. Gerlach.  So how can you expect any State to really put forward a public position on whether to move forward with an exchange if it doesn’t know the impact on costs to the taxpayers of that State or to the insurance laws of that State?  Isn’t it prudent for the State decisionmakers to have those answers before they make that decision? 

Ms. Howard.  Well, I think they are all proceeding prudently in the sense that they are all investigating their options and making policy decisions.  And I do think it is admirable that they put so much effort in.  And I know there are a lot of people working hard in Harrisburg, and in Trenton and in all these State capitals. 

I do go back, and while every “I” may not be dotted, there has been substantial guidance.  In fact, we heard, I think, one Member testify about thousands of pages of guidance.  So I think there is substantial guidance out there. 

Mr. Gerlach.  But if the right questions aren’t being answered, you still don’t have the information as a decisionmaker in a State to move forward.  So just as you acknowledged that the August 23rd letter from Commissioner Consedine and the July 23rd letter from the Republican Governors Policy Committee were appropriate to raise with the Secretary of HHS, wouldn’t it be prudent for her to respond as soon as possible? 

Ms. Howard.  I think so.  I do know, having been a government official, that sometimes getting letters out is not always easy.  And I do agree that often the phone may be the best way, and I think that hopefully will be one outcome of today. 

Mr. Gerlach.  But answers need to be in writing because there could be litigation down the road, could there not?  And so having formal answers in writing from both sides would be a very important part of building the record in making sure the proper decisions are made; would you agree? 

Ms. Howard.  Not always, because, again, sometimes on the spectrum of Federal options, the Federal Government could be very prescriptive, and they could handcuff the States.  And we are seeing the States that want to implement are seizing that flexibility and moving ahead.

Mr. Gerlach.  If I were in the State, I think I would want something in writing before I could rely on it from some Federal agency.  Thank you, I yield back.

Mr. Johnson.  Good point. 

Commissioner, I understand you have got to catch a train, so I just want to thank you for being here and for answering our questions so intimately.  Thank you again, and you are excused, if you desire.  Thank you. 

Mr. Consedine.  Thank you, Mr. Chairman. 

Mr. Johnson.  Mr. McDermott.  Doctor, you are recognized.

Mr. McDermott.  Thank you, Mr. Chairman. 

Mr. Chairman, I disagree with the main point of this hearing.  If the point is that the administration won’t be ready for implementation of the Affordable Care Act, then I am here to tell you that is wrong. 

I come from the State of Washington, which is leading the way in moving forward with the Affordable Care Act.  My office is in regular contact with all the principal players in Washington State, and they say that all systems are go.  The legislature has enacted the authorizing legislation necessary to implement the act.  In March of this year, the Governor signed into law the second and final piece of exchange legislation. 

Washington State is one of the first States to receive a Level 2 establishment grant funding to build its exchange.  Washington is also one of the first States to select a benchmark healthcare plan.  It is a Blue Shield plan that is currently the most popular small‑group plan in the State of Washington. 

The exchange now has an 11‑member board of directors, including various operating committees.  The exchange also has in place an advisory committee and working groups that focus on consumer protection and plan management, among other things.  The exchange has a CAO and staff in place.  They have hired the contractors to build the necessary user infrastructure.  They are on track to get conditional certification from the administration in January and to start using testing in the spring. 

The exchange CEO tells me they are projecting to have 300,000 Washingtonians in the exchange, in the pool, by 2015 in a State with 1 million people without insurance, which spends $1 billion annually on uncompensated care.  Getting those people into plans is what I am most focused on, not on picking fights over perceived faults with the new system.  I think if you are looking for excuses for not implementing, you can find them.  If you want to implement, you can do it, because the State of Washington is perfect proof that that is going on. 

And what I hear from the State about the administration is really nothing but praise.  They have said that HHS is working with them at every step of the way and giving them all the guidance and support they need.  So if my colleagues on the other side of the aisle are here to argue that stakeholders don’t have the tools they need to get health reform off the ground, I am here to tell you I am not buying it. 

Mr. Kind is correct, this is a premature hearing, because you could have had States out here that are actually up and running.  You brought one person who says, I couldn’t get them to write down exactly how I should do it.  Well, you can always find that kind of stuff, but there are other places where it is in place, working, and Washington State is ready to go. 

And I think that I just want to say one last thing before I stop here, and that is the chairman said in his opening statement that the administration is implementing the Affordable Care Act, quote, “behind closed doors with little or no public input.”  Now, I would like to submit for the record, and I ask unanimous consent for that, for a record ‑‑ a list of 34 just exchange‑related conferences, meetings, listening sessions and consultations HHS has held since December 2010.  Thirty‑four meetings is hardly without public input. 

[The information follows: The Honorable Jim McDermott]

Mr. McDermott.  This is a process that is working in some States because the political leadership wants it to work, and is not working in certain places because the political leadership thinks that this is how they will use it to defeat President Obama in the election.  And there is a very clear break point.  It is possible to implement, it is being done. 

And will there be problems?  I am certain we are going have problems in the 2013 session that we are going to be in here trying to tinker with this and tinker with that and make things, because you can never design a human system without making mistakes.  You cannot anticipate all the problems that you face. 

But we are on our way in Washington State, and it can be done, and anybody who says it can’t simply is unwilling to look at the facts on the ground in some States.  You heard about Oregon from Ms. Howard, and I can give you Washington.  These are the States with the lowest healthcare costs in the country.  Medicare costs in the State of Oregon and Washington are the lowest.  And we also are implementing our exchanges because we are getting ready to make this thing work. 

I yield back the balance of my time.

Mr. Johnson.  Thank you.  The gentleman’s time has expired. 

We don’t like the program in Texas either, and there is no taxes in Texas.

Dr. Price, you are recognized.

Mr. Price.  Thank you, Mr. Chairman.  And I want to thank the witnesses as well.  I am sorry Mr. Consedine had to leave. 

I was pleased to hear, though, from Mr. Kind that nothing is set in stone.  Whew, thank goodness that nothing is set in stone.  I thought this was a law that was moving forward. 

And Mr. Kind also said, look, if anybody has got a better idea, just bring it to us, we are happy to listen to it.  Well, the fact of the matter is that during this whole process, there were many of us who felt like we had a better idea, and we appealed to the administration week after week after week to just sit down with us, just talk with us about these ideas, because we believe that you can solve all these challenges without putting Washington in charge.  And the administration ignored us at every single turn week after week after week.  So there is great skepticism on our side when we hear someone say, oh, if you have a better idea, we are happy to listen to it. 

The question I wanted to ask Mr. Consedine was who is subject to the penalties if you don’t comply with the law?  Ms. Howard, who is subject to the penalties if the law is not complied with; is it the Federal Government that is subject to the penalties? 

Ms. Howard.  I think it is ‑‑ which ‑‑

Mr. Price.  Is it the Federal Government? 

Ms. Howard.  I don’t believe so.

Mr. Price.  Heck no.  It is these folks, the folks in the States, the folks trying to comply with this law.  And all that we are hearing is that the rules haven’t been promulgated in enough time to be able to put things in place, and they are working as hard as they can. 

Mr. Durham, you have a paragraph in your testimony:  Clear regulatory guidance in each of these areas is needed in the very near future.  Unless the guidance is forthcoming, it will be difficult for health plans to complete product development, et cetera. 

How long does it take usually to ‑‑ when the Federal Government or when it ‑‑ there are major changes to rules and regulations that come out, how long does it take the plans to come up with the programs and products to be able to market to the public? 

Mr. Durham.  I believe it typically takes 12 to 18 months to fully develop a product, get it through the State review and get it to market. 

Mr. Price.  Twelve to eighteen months, Mr. Chairman. 

And, Mr. Durham, am I correct in saying that the time that the enrollment period begins that you are required to have something available is October 1st, 2013; is that right? 

Mr. Durham.  That is correct in the statute. 

Mr. Price.  We are bumping up against that right now. 

Mr. Durham.  Yes.

Mr. Price.  So, Mr. Chairman, it is clear that HHS has been delinquent in their responsibilities and what they have been able to do.  And these folks are trying just as hard as they can to comply with the law. 

Mr. Durham, I also want to touch on the whole issue of choices for patients, because as a physician, having cared for patients, what they want are choices.  They want to be able to know who is going to take care of them.  They want to be able to know that they are going to be able to pick a plan that has the doctors that they want in that plan to care for themselves and for their family. 

Do you know if your members are planning on offering State‑ and Federal‑facilitated exchanges in all the States where they have networks? 

Mr. Durham.  I don’t know that because it really depends upon getting clear regulatory guidance here before plans can really decide which markets they want to compete in, and so I think that is a critical step in the process here.  We have some guidance as has been discussed today, but there is still guidance missing, and to be able to develop products, get them through the various State review processes, and if they have to be a qualified health plan, there are additional requirements, that will take time.  And I think it depends in terms of plans being able to compete in those markets when they get the final guidance to be able put together the product and comply.  So it is very important, but they want to serve their customers, absolutely.

Mr. Price.  But it is possible that the guidelines will come out and make it such that it will be impossible for them to provide products or ‑‑ to individuals out there in certain markets; is that accurate? 

Mr. Durham.  I guess that is possible.  We would hope that would not be the case, because the plans really do want to complete in these marketplaces. 

Mr. Price.  Mr. Durham, I also want to talk about some of the plans ‑‑ one requirement for the plan sold for small‑group markets in the exchange is they have got to meet annual deductible limits; is that correct?  Isn’t that right? 

Mr. Durham.  Yes.  In the statute the deductible limits are $2,000 for a single individual and $4,000 for a couple. 

Mr. Price.  Now, my sense, my understanding about that is that that will make it extremely difficult or problematic for small business employees to enroll in, for example, a high‑deductible health savings account or catastrophic plan. 

Mr. Durham.  That could be the case.  We haven’t received the clear guidance there yet.  We expressed in terms of a bulletin on this issue that in ‑‑ reach the actuarial value requirements, they ought to allow and count the employer’s share to health savings account and the high‑deductible health plan.  But clearly I think the deductible limits in the small‑group market will be a problem since they are lower than what is offered in today’s market, and that will reduce choice for small businesses.

Mr. Price.  Reducing choices, that is right. 

Thank you, Mr. Chairman.

Mr. Johnson.  Thank you. 

Mrs. Black, you are recognized. 

Mrs. Black.  Thank you, Mr. Chairman, and I want to thank you for allowing me to sit on this committee although I am not a member, and I appreciate the opportunity to be able to ask questions as well. 

Very informative panel, and thank you so much for being here today on this very, very important topic as we move forward. 

Mr. Blumstein, I have a question for you.  I thought you brought up a very interesting question that I have been reading about now on more and more in publications, and that is the issue, the matter that was raised by Alder and Cannon, and in particular does the ACA clearly provide for subsidies if the Federal Government runs a program. 

I can hear what was said by Ms. Howard or others who are experts disagreeing with your analysis and their analysis.  Who will eventually make this decision; will this be another court struggle here? 

Mr. Blumstein.  Well, nice to see you, Representative Black.  I guess we should say we are in neighboring congressional districts in Tennessee, and thank you for your service. 

I would have to say that, you know, the statements that the IRS ‑‑ some official at IRS has said that the agency has authority is, you know ‑‑ that is not a surprise.  They issued the regulation.  But they are supposed to speak in a regulatory process in a formal way.  They are supposed to explain their reasons.  The reasons are lacking; they are virtually nonexistent, in my opinion.  And for someone to say, oh, well, an IRS person said X without saying what the argument is is not very satisfying, I must say. 

In terms of how arguments occur, usually lawyers reason with each other.  And I have certainly have changed my mind on issues, but I only change my mind in response to arguments, not in response to these, you know, five different people said something to disagree with you.  I am sure there are millions of people disagree with me on many things.  Until you know what the arguments are, it is hard to confront them. 

I think the IRS has overreached here.  They have not explained their rationale.  The rationales that are out there are unsatisfying, they are not satisfactory.  The IRS has to establish that there is ambiguity, implicit authority to rule not just in gross, but on this specific question.  They have not established that because the courts have said that these normal ways of construing statutes, the exclusio unius rule is part of the interpretive process.  And so once you say that that is part of the interpretive process of determining whether there is ambiguity, then, to me, the IRS really has a problem. 

And so it is conceded; everyone concedes that there are two exchanges.  The statute provides subsidies in one exchange; it does not provide subsidies in the other exchange.  And when that happens, basically there can be no subsidies in the other exchange.  So then you have to look for exceptions to those kinds of rules, and I have not seen exceptions that really hold ‑‑ in my opinion are persuasive. 

So then the question you asked is who ‑‑ how will this be determined, and I see two different scenarios.  If there is a change in the administration in this election, my guess is that Governor Romney as President will very likely have a new set of interpretations in the Internal Revenue Service, and that this very well ‑‑ this rule may be modified or changed in some way, because I think the argument in favor of it is very thin, it is very results oriented. 

If President Obama is reelected, then I think the rule will stand, and then there will be a legal challenge here.  I think we will be in court.  And at first I thought that it would be hard to imagine who would bring this case, because it adds benefits to certain people, and that is the good part.  But it also adds a tax to some people and companies, these large companies, and they are paying $2,000 or $3,000 per employee in taxes if their provisions don’t meet the affordability criteria and the benefits and coverage criteria of the Federal Government. 

And so I think States may have the ability to bring this action.  They will claim that they would have a competitive advantage if they choose not to set up an exchange.  So I think you are going to find some kind of injury in the recruiting of companies.  And certainly the companies themselves will have standing ability to challenge it.  So I think you are going to see a coalition, and coalitions are actually in the process of being formed, I am told, where States and arguably private employers of 50 or more employees would bring this action and challenge the IRS ruling. 

Mrs. Black.  I think you certainly laid this all out very well.  I am not an attorney, I am a nurse, so reading your statement, it flowed very well so that I did understand it.  But what it did make me think of is just one more complexity, one more complexity in what is already a very complicated program, one that we don’t have a lot of definition.  Frankly, I am just hearing it from my employers and hearing it from folks back in my State, where they are employers or they are government officials or whatever, that there is so much uncertainty and confusion, and it is very, very hard to make a decision when there is not clarity. 

And just to end here, we come from a State where we tried to have a single‑payer system, where we tried to have universal care, and it was very difficult and didn’t work in our State of Tennessee.  I know were involved with our good Governor in trying to fix a program which ultimately just really unraveled, and we no longer have the program. 

Mr. Blumstein.  Yes, Governor Breseden is a hero for trying, and I must say he is ‑‑ in Tennessee, as you know, the Tennessee Democrats, and he is a Tennessee Democrat, and I have worked and am proud to work for him and support him. 

Mrs. Black.  Well, I served under the good Governor, and I know what difficulty we had there with the program, and, now that it is gone, on looking at what may be a mirror of what we tried and didn’t work.  So thank you so much for your testimony and coming here today.

Mr. Johnson.  Thank you. 

The lady’s time has expired. 

I want to thank the witnesses for their thoughtful testimony and insights into the status of health insurance exchanges.  The Obama administration repeated avoidance of a transparent regulatory process and ongoing delays may be politically expedient, but it has not without substantial cost.  How do we account for the cost of unemployed Americans losing job opportunities because businesses are not hiring workers while the full compensation costs are unknown?  Can you put a price on the family forced to forego healthcare coverage because they have been priced out of the market by costly regulations? 

The more Americans learn about the law, the less they like it.  Despite years of assertions to the contrary, information is the most significant threat to Obamacare.  Holding back necessary regulation to avoid public scrutiny is irresponsible.  Americans deserve better from their government. 

As a reminder, any Member wishing to submit a question for the record will have 14 days to do so.  If any questions are submitted, I ask the witnesses respond in a timely manner.

Mr. Johnson.  With that, the committee stands adjourned.  I thank you all for being here today.

[Whereupon, at 4:48 p.m., the subcommittee was adjourned.]

Public Submissions For The Record

American Society of Association Executives
Association of American Physicians and Surgeons
Citizens Council for Health Freedom 
David J. Pasek MD
Medical Research Technology Information Consortium
Metro Pain Associates
National Association for the Self-Employed
Robert L. True
Stephen Welk MD
The Leukemia and Lymphoma Society
The National Small Business Association 
Timothy Stoltzfus Jost 
Walter H. Wood MD