Hearing on the Health Care Law’s Impact on Jobs, Employers, and the Economy
HEARING ON THE HEALTH CARE LAW’S
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
January 26, 2011
Printed for the use of the Committee on Ways and Means
COMMITTEE ON WAYS AND MEANS
WALLY HERGER, California
|SANDER M. LEVIN, Michigan
CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
JIM MCDERMOTT, Washington
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
MIKE THOMPSON, California
JOHN B. LARSON, Connecticut
EARL BLUMENAUER, Oregon
RON KIND, Wisconsin
BILL PASCRELL, JR., New Jersey
SHELLEY BERKLEY, Nevada
JOSEPH CROWLEY, New York
JON TRAUB, Staff Director
C O N T E N T S
Advisory of January 19, 2011 announcing the hearing
Douglas Holtz-Eakin, Ph.D.,President, American Action Forum
Scott Womack, President, Womack Restaurants
Joe Olivo, Owner/CEO, Perfect Printing
HEARING ON THE HEALTH CARE LAW’S
IMPACT ON JOBS, EMPLOYERS, AND THE ECONOMY
Wednesday, January 26, 2011
U.S. House of Representatives,
Committee on Ways and Means,
The committee met, pursuant to notice, at 9:04 a.m., in Room 1100, Longworth House Office Building, Hon. Dave Camp [chairman of the committee] presiding.
[The advisory of the hearing follows:]
*Chairman Camp. The Committee will come to order. Good morning. Today’s hearing is on the health care law’s impact on jobs, employers, and the economy. We will have two panels today.
Our first panel will feature Austan Goolsbee, who is chairman of the Council of Economic Advisors.
I will begin by making an opening statement, and then I will yield to my friend and ranking member, Mr. Levin.
I want to start by reading the following quote. “I know one of the things that’s come up is that the 1099 provision in the health care bill appears to be too burdensome for small businesses. It just involves too much paperwork, too much filing. It’s probably counter‑productive. It was designed to make sure that revenue was raised to help pay for some of the other provisions. But if it ends up just being so much trouble that small businesses find it difficult to manage, that’s something we should take a look at. So there are going to be examples where I think we can tweak, and make improvements.”
That was President Obama on the day after the November elections. The President was saying the health care law appears to be too burdensome for small businesses, that it involves too much paperwork, too much filing. And last night, in his State of the Union Address, the President again referred to the 1099 provision, as we have come to call it, as a flaw.
But more importantly, the President asked us to identify and bring to him items that need to be fixed. And clearly, in a bill that’s over 2,000 pages long, there is more than just the 1099 provision we need to address.
With unemployment rates stuck above 9 percent for the last 20 months, and with my home state’s unemployment at nearly 12 percent, I have one simple question today. How is it that Congress passed a health care bill that is “counterproductive” to American employers? Especially at a time we need to be looking at solutions that encourage, not impede, job creation.
That’s the focus of our hearing today, the health care law, and its impact on the economy, on employers, and their workers. If signed into law, the Democrat’s health care law imposes more than a one‑half‑trillion dollars of tax increases and thousands of pages of mandates and onerous regulations on employers.
My friends on the other side of the dais have argued that we shouldn’t be debating health care anymore, that we need to move on, and focus on jobs and the economy. What they need to recognize is that employers of all sizes are expressing concern that the new mandates and regulations will deter them from hiring new employees, threaten their ability to retain existing workers, and harm their ability to increase wages for existing employees.
The new health care law compounds the uncertainty employers and entrepreneurs are facing under the most challenging economic climate since the Great Depression. Making matters worse, many insurance companies and employers have already increased their health care premiums to comply with the new health care law, exacerbating the drag on the U.S. economy from rising health care costs.
That’s the problem with the health care law that puts Washington, D.C., the federal government, at the center, instead of patients and doctors. And when you take a Washington‑knows‑best approach to legislation, you usually end up with a bill that only works for Washington, instead of working for the American people.
At the end of the day, the health care law fails to control costs, it fails to let Americans keep the insurance they have and like, despite the President’s promise, it fails to protect jobs, it fails to ensure seniors have access to their doctors and hospitals, and fails to prevent tax increases from hitting middle‑class families and the small businesses we need to move our anemic economy forward.
The hearing today is just the first of many with regard to the health care law. It’s my intention to give the American people and employers, both large and small, the opportunity they did not have when this law was being written, to testify in an open hearing about the impact this law will have on them.
We know what the experts have said. We all know that the non‑partisan Congressional Budget Office has estimated the health care law will increase premiums for millions of families by up to $2,100 on average by 2016. That’s $3,200 more expensive than the Republican alternative I offered last congress.
We all know that the Obama Administration’s own officials have predicted that as many as 7 out of 10 employers will have to change the coverage they offer to their employees because of the law.
We all know, from the joint committee on taxation, that there are well over $500 billion in new taxes, many of which will hit middle‑class families and small businesses. That’s what the experts have told us.
Today we will hear something different. We will also hear from real employers, and what they think about this law, and what they think the impact will be on their businesses and their employees. I look forward to hearing this testimony and getting more of this sort of insight in the future. After all, these are the very people who have to live with the decisions that are made here in Washington.
But before we do, I ask unanimous consent that all Members be allowed to submit an opening statement for the record.
*Chairman Camp. Hearing no objection, I now yield to the ranking member, Ranking Member Levin, for the purposes of an opening statement.
*Mr. Levin. Thank you, Mr. Chairman. Dr. Goolsbee, I understand, will be here until 10:30. He will have a chance, Mr. Chairman, to respond to some of your criticisms that I don’t think are valid.
But we want to hear from you, Dr. Goolsbee, so I will be brief.
Last night, the President said some very clear things about the health care issue. He said, “Instead of re‑fighting the battles of the last two years, let’s fix what needs fixing, and move forward.” My concern about the hearing is that, indeed, we will be re‑fighting the battles of the last two years.
For example, as to 1099, we introduced legislation in the last session. It passed here. It was opposed by the then minority because of the pay for. Ironically, much of what is in the bill was in the pay for is now the law of the land. We should have acted on 1099 last session.
In his speech, the President also said, “What I’m not willing to do is to go back to the days when insurance companies could deny someone coverage because of a pre‑existing condition.” He went on to point out that the law is now making prescription drugs cheaper for seniors, and giving uninsured students a chance to stay on their parents’ coverage. So, I repeat, he then went on to say, “Instead of re‑fighting the battles of the last two years, let’s fix what needs fixing, and move forward.”
I think that’s exactly what we should do, and I would hope that would be the tone of the hearing today. I yield back.
*Chairman Camp. Well, thank you. Welcome to the Ways and Means Committee, Mr. Goolsbee. Under our rules you will have five minutes. Your written statement will become part of the record. And so, welcome, and you may begin.
STATEMENT OF AUSTAN GOOLSBEE, PH.D., CHAIRMAN, COUNCIL OF ECONOMIC ADVISERS, WASHINGTON, D.C.
*Mr. Goolsbee. Thank you, Mr. Chairman. And I would like to say good morning to Chairman Camp, Ranking Member Levin, and all the members of the Committee. Thank you for inviting me to testify here today. And I know we were up late, and I saw several of you last night, and I appreciate your time.
The Affordable Care Act was designed to make sure that health insurance coverage is affordable for individuals, families, and businesses. And while millions of people are benefitting now, much of the impact of that act will begin when the major coverage provisions take effect in 2014.
The best evidence that we have gathered from outside experts suggests that, in addition to slowing the growth of Medicare spending and significantly reducing the deficit over the next 10 years and the 10 years after that, that the Affordable Care Act can be a significant benefit to the job market by easing the burden of health care costs on small businesses, and by reducing the growth rate of health care costs for all businesses.
Now, the impact of the Affordable Care Act on the labor market is an important topic. I applaud you for having this hearing. I believe there has been a significant amount of confusion on this issue, and I am happy to have this opportunity to try to clarify that.
I think the President laid out last night in a way that is most helpful, and you iterated in your opening statement, Mr. Chairman, that we should try to work together to improve ‑‑ whatever is broken or problematic we should fix together. Anything that reduces costs is going to help jobs in this country.
Health care has, for years, been one of the most pressing cost issues facing the business world. Those costs have been rising dramatically, long before there ever was an Affordable Care Act, and the Affordable Care Act’s intention is to try to address that.
I would highlight two basic mechanisms that I think the Affordable Care Act can have a ‑‑ has had and will have a significant positive impact on the job market. The first mechanism is in the area of small business. Now, the role of entrepreneurs and small businesses in job creation and in the economy is well known. Equally well known is the fact that small businesses have, for years, consistently said that the cost of health care is one of their most significant problems.
Small businesses that want to provide insurance for their workers face much higher costs than large firms do for exactly the same plans. And in many states they also face the risk that a single sick employee, or even an employee’s ill family member, will send their premiums through the roof for all of their employees.
The Affordable Care Act has begun to help make small business more competitive by making health insurance more accessible and more affordable. One of the first provisions to take effect is the small business health care tax credit that helps offset the costs of coverage. That applies to as many as four million small businesses that may be eligible right now for that small business tax credit.
In addition, the Affordable Care act can level the playing field for small businesses by giving these businesses and their workers access to the same kinds of stable premiums that larger businesses enjoy. The exchanges pool risk and reduce administrative costs for small businesses. New insurers will not be able to raise rates when some individual in the group becomes sick. And this will allow small firms to offer competitive health benefits. People can start their own company, or go work for a fast‑growing small business without worrying to that they would have to give up access to secure affordable coverage. And that impact on job mobility is critically important.
The other mechanism that I would highlight are the many things that the act does to try to reduce costs overall, and reduce the health care cost inflation rate.
These include the immediate reduction in the implicit tax from the uninsured. Right now, the uninsured get health care in emergency departments or in other very high‑cost ways. The estimates suggest that that is a hidden tax passed on to everyone else of up to $1,000 per worker. And by covering the uninsured, the Affordable Care Act will reduce that hidden tax directly.
Second, it makes innovations in the delivery systems in Medicare and Medicaid that, if we have successful innovations there that are adopted in the private sector, can reduce costs.
*Chairman Camp. If you could, just sum up very quickly.
*Mr. Goolsbee. Sum up. Commitment to prevention and wellness, to patient‑oriented outcomes, and to modernizing the health IT system. Those cost reductions and the small business credits can have a quite beneficial effect on the job market.
[The statement of Austan Goolsbee, Ph.D.:]
*Chairman Camp. All right. Thank you. And as I said, your full statement will be part of the record. And thank you for that.
Last night the President did say of the ongoing health care reform debate that, instead of re‑fighting the battles of the last two years, let’s fix what needs fixing and move forward. And he mentioned specifically the 1099 provision. What else does the President believe needs to be fixed in this new law?
*Mr. Goolsbee. Well, I would say the 1099 provision, which was designed to reduce tax evasion, what put this burden on small business, was identified early as an important one.
You saw the President last night also say he was open to look at things. I know that there have been people that said we should have done more on medical malpractice reform, and the President said he was open to looking at that.
Now, I would highlight that the Affordable Care Act does create pilots that it funds in states to figure out ‑‑ different states have experimented with ways to address medical malpractice reform, and it authorized examining and creating pilots to help us figure out what works in that area. But I would say that’s an area that the President is open to ideas, and we would want to work with you on.
*Chairman Camp. So there is 1099 and medical liability reform. Those are two items. Are there any other items?
*Mr. Goolsbee. I would say that the President is open to working with you if you identify other items. But the basic thrust of the Act, of trying to get costs down and trying to help small business to afford care, is fundamentally the right approach. And so I think that we want to stick with it.
*Chairman Camp. Well, in regard to holding costs down, which ‑‑ I appreciate that sentiment and goal ‑‑ both the CMS actuary and the Congressional Budget Office say the legislation that was enacted will likely increase, not decrease national health expenditures. And if they’re right, isn’t the health care law an economic failure that will increase health care spending and cost jobs? And I’m not asking if you agree with CMS or CBO, but I’m asking, if they’re right, isn’t this reform a failure?
*Mr. Goolsbee. I don’t view it as a failure. I think the key thing of the Affordable Care Act is trying to get the health care cost inflation rate down.
If more people are being covered and having their health improved and have the security to know that they cannot be denied coverage because of a pre‑existing condition, the amount of total health spending is different than looking at what the prices are, and trying to control health care cost inflation. So, in my view, that wouldn’t be the right way to evaluate it.
*Chairman Camp. But the expert non‑partisan agencies that we rely on, like the Congressional Budget Office, like the actuaries at CMS, tell us that overall health spending is likely to go up under this legislation.
And if the stated claim that holding down health care costs is really a justification for this bill, and will help the economy and help businesses, particularly small businesses, and that isn’t going to happen, how is this committee expected to evaluate this legislation, other than that it doesn’t meet the stated goals, and that the reform that was purported was a failure?
*Mr. Goolsbee. Well, I was trying to make the distinction ‑‑ and I apologize if I didn’t ‑‑ between the amount of total spending and the, essentially, spending per person, or the cost of the same procedure.
So, the Congressional Budget Office and many health economists out in the country believe that the things that I have described in my testimony are ways that we can, for any given business, reduce the health care cost inflation rate, and make them more competitive for small businesses, giving health care credits that they can use to help offer health care to their workers, where they do not now.
That is important. That will facilitate job creation. That is a different question than the one I think you’re asking, Mr. Chairman, which is what will be the total spending on health care, overall, not on the prices, but on total spending. And total spending has been rising quite dramatically for many years. And I would observe that CMS’s data suggested that health care spending overall rose at the slowest rate this past year that it has since they have been keeping records.
*Chairman Camp. Well, the Congressional Budget Office also indicated, as I said in my opening statement ‑‑ I don’t want to repeat that, though ‑‑ but that health care premiums for millions of families will also go up by over $2,000 per family. And, obviously, in contrast to a reduction in premium, which occurred with the bill that I offered.
So, whether you ‑‑ however you slice it, whether you look at the macro sense or you look at individual families, costs are going up. And as you said in your opening statement, getting costs under control in health care is a very important goal, and absolutely one we should look at.
Well, thank you very much. At this time I will yield to the ranking member. He has five minutes.
*Mr. Levin. Thank you, Dr. Goolsbee. You are very polite. And I think proceeding that way is important.
But I think there needs to be driven home very clearly the distinction you make. Driving down costs does not mean necessarily that expenditures will not go up. We have now over 50 million people who have no insurance, whatsoever. And bringing most of the 50 million people so they have health care insurance and have health care may increase overall expenditures while we drive down the cost per patient. And there is nothing inconsistent.
And John Boehner’s proposal has been analyzed. It would add only three million people to the insured. We are the only country, industrial country, on this globe that has anything like 50 million people who have no insurance whatsoever, the only nation like that.
So, you said it very discreetly, but I think it was clear. And I think we need to make those distinctions very clear, indeed.
Now, let me ask you about another argument that’s made about the health care reform. And now that language has been somewhat moderated, I will use what’s been said here, that it’s a job‑killing bill ‑‑ reform. I don’t think we should use that language, whatever language we use. Would you comment on that?
*Mr. Goolsbee. Well, I would say, as a strictly factual matter, I think it’s an inaccurate statement to say it’s job‑killing. I think the evidence suggests that the role of small business in job creation, and the role of reducing the health care cost inflation rate in job creation suggests that the two primary tenets of the Affordable Care Act may have even a significant positive impact on the job market.
You may have seen a health economist at Harvard, David Cutler, look at the best evidence we have of the projected impacts of these various inflation‑reducing measures, and ask, “What would that mean for job creation or destruction,” and found it would be job creating, in the nature of hundreds of thousands of jobs per year.
If you look at the evidence on employers, health care costs have been rising dramatically every year for many years. And that has been a tremendous burden on them, and has limited employment growth.
So, anything that we can do to reduce that inflation rate will have a positive impact. and I did not mean in any way to say to the chairman or to anyone else that we should close our minds and not be open to important ideas of how to improve this, or how to find other ways to get costs down. We should. The President has made that clear, and I would like to reiterate that, that we are open to sensible ways to improve care, to improve coverage, and to get costs down. I think to describe it as job‑killing is not accurate, based on the evidence that we have.
*Mr. Levin. Okay, just briefly in your testimony you refer to Patient‑Centered Outcomes Research Institute as something that can help make treatments work better. And that means, I think, it will affect costs and try to get a hold of costs. Do you want to comment briefly on that? You have about 30 seconds.
*Mr. Goolsbee. Well, I would say ‑‑
*Mr. Levin. Some have said that Washington is going to dictate the care patients receive.
*Mr. Goolsbee. It’s not ‑‑ that institute is not a dictation machine, it’s not meant to do that. It is meant so that we can share information across the country of what do we find, what kind of treatments work.
The best analogy is my own. When I was a kid, it was routine to take everybody’s tonsils out. I got my tonsils out, I was in the hospital three days. And of our own kids ‑‑ I have three children ‑‑ the studies indicated that that was not effective, except in certain circumstances. Now, our middle son had ‑‑ I’m not a doctor, but ‑‑ some kind of inflamed tonsils, had his tonsils removed. But our other two kids did not.
And that is a case where looking across the country, studies showed that it was more effective ‑‑ that it was, in some sense, more dangerous to routinely just take all kids’ tonsils out, and it’s quite a significant expense to both families and to the health system that we were routinely doing that.
I would use that as kind of a personal example of what the intention of this would be, would be to share that information so doctors ‑‑
*Chairman Camp. All right, thank ‑‑
*Mr. Levin. Thank you.
*Chairman Camp. Thank you very much. Mr. Herger is recognized.
*Mr. Herger. Thank you very much, Mr. Chairman. And, Mr. Goolsbee, I thank you for appearing before us, and your testimony.
But as I listen to you, there seems to be, in the Administration, a night and day difference between what I hear you saying on lowering of health care costs and what this Obamacare is doing for our small business and creating jobs, and what I hear small businesses in my district telling me. And later this morning we will be hearing from some small business owners who do know firsthand what it takes to create jobs.
It’s one thing to come up with academic arguments for why a particular policy will be good for job creation. It’s another thing to have those results actually demonstrated in the real world. What we are going to hear from business owners in my district, and what I have heard from small businesses, is a very different story than the one you have presented. Their near‑unanimous opinion is that this health care law is going to absolutely be devastating to their small businesses, and to creating jobs.
Let me share with you some of the feedback that I have received from business owners in my northern California rural district. Robert Boisey of Burney, California, writes, “I am a small businessman who is retired and collecting Social Security. I started my business in January of 2008, and it immediately took off. In 2009, I made more money than I ever have in my life, and I was ready to add 1 or 2 employees when they started talking about Obamacare. I have now decided not to expand, and to contain my business at a smaller size.”
And then, from a Charles Watts of Chico, California, writes, “I have been a business owner builder/contractor for 35‑plus years, and have survived 3 other recessions, this being the worst. What I don’t understand is how our government figures that business owners can maintain work in an economy with a collapsed housing market, with no future in sight of recovery for years. Our company is hanging on by a thread. And if I have to provide health care for employees, I will have to close it down, no questions asked. I would have no other option.”
And then a Mike Mullin in Cottonwood, California, writes, “As it stands right now, I can’t afford to grow or hire new employees. Currently, the paperwork alone is a nightmare in labor costs. If Obamacare is not repealed, it will definitely increase labor costs, which is the most expensive part of running a business. Also, the 1099 deal definitely needs to go. If I have to cut a 1099 to every vendor I use, I won’t have time to do my work.”
Mr. Goolsbee, this is just a sample of what I and other members of this Committee are hearing from small business owners in the real world. I have double-digit unemployment in every one of the 10 counties in my district. We cannot afford this ‑‑ to get this wrong. Can you explain why the Administration’s claims are so out of touch with what we’re hearing from people who are actually creating jobs?
*Mr. Goolsbee. Well, Congressman, I respect that question, and I appreciate you bringing that evidence. I think the one thing I have noticed when I have talked to many small business people and large business people is some misunderstanding on the part of some business people of what’s in the law, or what provisions would apply to them.
So, small businesses are ‑‑ if you have 50 employees or fewer, you are not required to provide coverage to your employees. Second, small businesses, up to four million of them right now, would qualify for a very substantial tax credit to help cover their costs that ‑‑ they have never had such a credit before. And third, as we move to the exchanges, for the first time, small businesses will be able to get insurance coverage at a price that is comparable to the price that large businesses currently offer.
So, among very small businesses in the country, the majority do not offer any health care coverage now. And the surveys of the NFIB and other small business organizations have shown again and again ‑‑ before there ever was an Affordable Coverage Act ‑‑ that health care costs are one of the most pressing problems facing small business, that they had very hard times hiring employees to come work at their businesses, because the employees that were at large companies would say, “I would love to work at that start‑up, but I can’t get coverage if I move there, it will be too expensive.”
*Chairman Camp. Thank you.
*Mr. Goolsbee. So, I think ‑‑
*Chairman Camp. Your time has expired.
*Mr. Goolsbee. I apologize, Mr. Chairman.
*Chairman Camp. Mr. Johnson is recognized.
*Mr. Johnson. Thank you, Mr. Chairman. You know, you have said a lot of things that don’t seem to be true in the real world. Maybe you better get out there and talk to people.
But, you know, that health care tax credit, for instance, very few small businesses that I talk to and their employees will benefit from the credit. In fact, CBO estimated that 88 percent of those who get health insurance from a small business work for a business that will not receive the credit. There are different credit amounts and eligibility requirements prior to 2014 than exist after the exchanges are operational. And after 2013, an employer can only claim the credit for 2 years. That’s not giving them much.
One of the purposes of this hearing is to look at the impact of health reform law on jobs. I think we can all agree it is critical to pursue policies that create jobs, not eliminate them. And the health reform law places significant restrictions on physician ownership of hospitals. You’ve almost put it to a complete halt. And yet, my experience with physician‑owned hospitals, they are far above in benefits to the patients of a regular hospital. They are precise, they know what they’re doing.
Many projects, in planning, had to stop. And expansions were curtailed. Every one of those decisions had a negative impact on jobs in states like Texas. Industry experts tell me at least 30,000 jobs would have been created if this provision had not been enacted. Can you explain to me how the Administration could have supported a provision they knew would negatively impact well‑paying health care jobs in many communities?
*Mr. Goolsbee. Well, Congressman, I will need to look into this exact provision, and I will get back to you. I know that the primary goal of the various provisions in the act are how do we provide the best possible care at the lowest possible price, or with the lowest rate of inflation. If there are things about physician ownership of hospitals or any other subject that we can get together and work on, and find evidence that it could improve care and reduce costs, the President is open to look at any such ideas.
So, I will have to get back to you on this. I am not familiar with the details.
*Mr. Johnson. Okay. Well, that’s just one area of that bill that doesn’t appear to be beneficial to the industry.
You know, we talked about 1099 reporting requirements, and I presume now you are in agreement that we need to get rid of that provision. Is that true?
*Mr. Goolsbee. That is true.
*Mr. Johnson. Okay. I’m hearing it from you and the President, I think.
*Mr. Goolsbee. Yes.
*Mr. Johnson. All right. Then let’s do it. The health care, overhaul, provides health plans in existence on the date of the law’s enactment, that they would not be required to meet all the requirements of the new law. And you all argued that it would allow individuals to keep the health insurance they have, and like. The statute did not define grandfathered plans, other than to ensure that all plans resulting for the length of the agreement ‑‑ it’s clear that many employer plans will not enjoy the grandfathered plan protections from the new law. Can you discuss that a little bit?
*Mr. Goolsbee. Yes. What I would say is the ‑‑ clearly, the intention and the overall impact of the Affordable Care Act is to ‑‑ the President believes in the private system, and it is designed to try to preserve the option that if the employer is happy with the plan that they have, they can stick with the plan.
The intention of the grandfathering clause is to make it so that if there are things in the Act that would have some impact that the employer or patient doesn’t want, they could just stick with what they have.
Now, you always have to choose the lines of what to draw ‑‑ what counts as the same plan. Now, there is flexibility. You can ‑‑ if you are getting the same insurance, but you want to change providers, that’s still permissible, and you still keep the grandfathering. If you fundamentally change the nature of what health care you’re getting, then the point of the grandfathering would not apply. And so that’s why we put ‑‑
*Mr. Johnson. Yes, but isn’t that only for two years after you do that?
*Mr. Goolsbee. It depends which, but on some of these there are phase‑outs.
*Mr. Johnson. All right. Thank you, Mr. Chairman.
*Chairman Camp. Thank you. Mr. McDermott is recognized.
*Mr. McDermott. Dr. Goolsbee, I fly across the country 35 times a year for 20 years, and I have been flying with United Airline attendants who have now gotten a little older. And I doubt there is a single flight I fly on where there isn’t one flight attendant who is working simply to keep her benefits because her husband has a job that doesn’t have benefits.
And when I read the attack on the job‑killing aspects of this bill, I ‑‑ they read the report from CBO and it sounds like they’re saying we’re going to kill jobs. But, in fact, that flight attendant would gladly give up her job at age 60 if she had health care for her family in some other mechanism.
Now, is that killing the job, or is that her choosing to leave the work force?
*Mr. Goolsbee. To me, that sounds like a retirement. And the CBO report that you’re citing, they did make clear that there would be a reduction of total jobs, but that most of those would be on what they call the labor supply side, of people not having to work as many years just to keep their medical benefits. So, to me, that would not be a job killing, that would be a retirement.
*Mr. McDermott. So it really is political theater, hyperbole, to make it seem like this bill kills jobs.
*Mr. Goolsbee. I’m just an economist ‑‑
*Mr. McDermott. You’re not going to ‑‑
*Mr. Goolsbee. I’m not ‑‑
*Mr. McDermott. Okay. Let me ask another question. You know, I ‑‑ we’re going to have another panel, and they’ve rounded up some people who say this doesn’t help small business. And I’m sure that if you go through this country of 300 million people, you can find some small businessman or woman for whom it doesn’t work.
But my ‑‑ from reading your testimony, it sounds like more small businesses are buying insurance today. If I read the figures you had for United Health and for Kansas City’s Blue Cross Blue Shield program, it sounds like people are actually getting in because of the small business tax credits.
*Mr. Goolsbee. I think that’s true. I would make three points. The first is if you don’t have insurance, which, the smaller the employer you get, the greater the share that do not offer insurance now, because they would have to pay substantially more for exactly the same policy as large employers do, this ‑‑ the small business health care credit gives them the opportunity to offer insurance for the first time, and you have seen substantial take‑up.
Second, even if you already offer it, the small business tax credit reduces the cost to you in a way that has never existed before.
And third, we should not underestimate the importance of the exchanges that will be coming online, which will allow small businesses to get insurance at the kinds of prices and steady levels that large employers have had.
Those three things are critically important to small business. And for years, before there was an Affordable Care Act, they have been wanting to have, for some time, these types of credits and access to this type of insurance.
*Mr. McDermott. And they have also talked about wanting to pool and ‑‑ so that small businesses could join a pool ‑‑
*Mr. Goolsbee. Yes.
*Mr. McDermott. ‑‑ and they could then buy, like Boeing or Weyerhaeuser, or one of the large company buys. So this really gives them the ability to get that kind of benefit, is what you’re saying?
*Mr. Goolsbee. Yes, that’s a better way to say what I was saying, is it allows them to pool. That’s what the exchanges are for, it allows them to pool and get prices as if they were a large employer.
*Mr. McDermott. You may not have read the testimony of the people who are following after you, but I ‑‑ can you think of any reason why a small business man or woman could not find a way for health care, if they’re making money? Is there any reason why, beyond they don’t want to do it? I mean is there some economic reason?
I don’t understand, if you’re making money in a business, how you can’t put some of that money toward the health care of your workers. You would certainly care about your workers, I would guess.
*Mr. Goolsbee. Well, look. It would be presumptuous of me to tell other folks. I don’t know what the circumstances of different businesses are. I do know this, that if you take employers that are employing people without giving them health care coverage, the reason that there would be a mandate is to try to get away from the system we have now, which is people don’t have coverage, still get sick, and they go down and they get medical care at the highest possible expense, and it doesn’t become free just because it was in the emergency department. That’s a cost that gets passed directly on to the employers who do cover their employees. And that cost is as high as $1,000 a worker.
So, I don’t put any moral judgement of any kind. I know we’ve been through a very tough spot in the last few years, and everybody has been trying to get by, and we’re trying to turn the corner to grow our way out of these problems. I think small business credits to help them afford to give coverage, as well as giving them the opportunity to buy at the kind of prices that larger businesses do, and doing everything we can to slow the growth rate of health care cost is important.
*Chairman Camp. All right, thank you. The time has expired.
*Mr. McDermott. Thank you.
*Chairman Camp. Mr. Tiberi is recognized.
*Mr. Tiberi. Thank you, Mr. Chairman. Dr. Goolsbee, the President repeatedly mentioned throughout the debate and afterwards that Americans making less than $200,000 or families earning less than $250,000 would not see their taxes increased, with respect to the Democrats’ health care bill.
I would like you to tell me whether each of the following ‑‑ in a yes or no answer ‑‑ would suffice that were included in the health care law constitutes an increase in taxes for individuals or families making less than $200,000 or $250,000: a new tax on individuals who did not purchase government‑approved health insurance.
*Mr. Goolsbee. I don’t think that’s an accurate way to describe it, no.
*Mr. Tiberi. Not a new tax?
*Mr. Goolsbee. I don’t think that’s an accurate way.
*Mr. Tiberi. A new ban on the use of flexible savings accounts, HSAs, HRAs on using pre‑tax income to purchase over‑the‑counter drugs?
*Mr. Goolsbee. I don’t ‑‑ that’s not a tax increase of a normal form, and that’s part of a broader reform effort, obviously.
*Mr. Tiberi. An increase from 7.5 percent to 10 percent of income, the threshold after which individuals can deduct out‑of‑pocket medical expenses?
*Mr. Goolsbee. [No response.]
*Mr. Tiberi. Not a tax increase?
*Mr. Goolsbee. I ‑‑ as I’m saying, if you ‑‑ I do not consider the Affordable Care Act, as a whole, to be a tax increase in people making less than $200,000.
*Mr. Tiberi. I’ve got two more. Impose a new $2,500 cap on families’ ability to use pre‑tax dollars to fund an FSA.
*Mr. Goolsbee. Could you ‑‑
*Mr. Tiberi. A $2,500 cap ‑‑
*Mr. Goolsbee. $2,500 cap ‑‑
*Mr. Tiberi. ‑‑ on ‑‑
*Mr. Goolsbee. I don’t consider that a tax increase.
*Mr. Tiberi. A new 10 percent tax on indoor tanning services.
*Mr. Goolsbee. [No response.]
*Mr. Tiberi. Not a tax increase?
*Mr. Goolsbee. Well, that seems like a strictly voluntary thing that one could choose.
*Mr. Tiberi. But not a tax increase?
*Mr. Goolsbee. [No response.]
*Mr. Tiberi. Here is the point, Dr. Goolsbee. We have, in this bill ‑‑ and I’m quoting from the bill ‑‑ a number of things that are going to ‑‑ that’s going to impact people, individuals, who make far less than $200,000.
I had a lady contact me in December who said she had just found out from her employer and her doctor that she could no longer manage her kids’ health care costs with respect to prescription drugs, over‑the‑counter drugs, and now she was going to have to contact the doctor every time she wanted to deduct something from her flexible savings account, and had just found out in December, months after the health care bill was signed into law, that actually, her tax was going to increase, her income tax was going to increase, because her FSA was going to go from $5,000 to $2,500. And thus, her income was going to go up, with respect to her taxes, which means she was going to be paying more taxes.
So, two things were occurring in her mind that she had no idea with respect to the health care debate, that she was going to be paying more taxes, and her ability to mention her health care was going to be taken away from her, that she was not going to have to call her physician’s office, which is going to make, ironically, the physician’s office more involved, not less involved, and there is a cost to that, as well.
So, I know you chuckle about this, but the President was very, very firm in that nobody making less than $200,000, or families less than $250,000, would see income taxes go up, any taxes go up. And now we see a Department of Justice defense that this bill is constitutional because it’s a tax, the individual mandate is a tax.
So, on one side, we say it’s not a tax ‑‑ or you say it’s not a tax, the Administration. On the other side, you say it is a tax. So, which is it?
*Mr. Goolsbee. Well, Congressman, first, let me apologize. I was only chuckling about the tanning salons. I wasn’t meaning to make light of it.
As I say, we are open to work ‑‑ if we look at the FSA rules, all I would say on FSA’s is this was part of a broader package, that it’s not picking out one thing in isolation and not taking into account other benefits. If you are paying for something with a pay for, but it’s going to reduce health care cost inflation, or we’re going to get additional coverage that you didn’t have before, you do have to take it in totality before ‑‑
*Mr. Tiberi. Here is my point, sir. I am just saying if you are telling the American people, and the President is telling the American people ‑‑ if I am advising you, and you repeatedly say it’s not a tax increase, and Mrs. Smith, who sees her FSA go from $5,000 to $2,500, and now she can’t buy baby aspirin at the store and deduct it from her FSA, she looks at that as a tax increase.
So, there is a credibility issue. And again, we can chuckle about it, but this is a tax increase ‑‑
*Mr. Goolsbee. I didn’t chuckle about it, and I don’t mean to ‑‑
*Chairman Camp. Just respond briefly, and then we will move on.
*Mr. Goolsbee. Okay. My only brief response is if it changes the FSA rule, but simultaneously gives her a significant reduction in the cost of her health care, that should not be viewed as a tax increase on her, even though just looking at one component, you would say, “I had a disallowed expense on an FSA.” But the point is taken in totality, it’s not a tax increase.
*Chairman Camp. All right. Thank you. Mr. Davis is recognized.
*Mr. Davis. Thank you, Mr. Chairman. I guess it all depends on what the meaning of “is” is. This is a big of a Back to the Future moment, when taking it in totality it’s a huge tax increase.
I deal with constituents at all places in the economic spectrum, and they talk about a lack of purchasing power, they’re seeing their dollars go down. And small business owners, in particular, contrary to the gentlemen that say this is not job‑killing, I have met with hundreds of business owners over the last two years, and, really, since this bill implemented this year, business after business, our Chambers of Commerce members are telling us, and telling our office and me, they’re not hiring people because they cannot afford to provide coverage, which leads me to a question.
Since we referred to the tanning tax as a strictly voluntary thing ‑‑ I don’t think the IRS agents would feel that way ‑‑ but I want to ask you about the burdens of the Democratic health care law on small business.
For example, suppose you own a small business with 50 or more employees, and that business is not eligible for the small business tax credit, and can’t afford to purchase health care for your employees. Contrary to the propaganda, rates have gone up significantly; they’re going to continue to go up, because we didn’t go after the cost drivers. The health care law requires you to provide health insurance or pay a fine.
Now, how would having to afford the cost of health insurance or paying the fine help your company grow and create jobs? Because when we get into this pricing issue here, there is, I think, a faulty assumption that businesses have unlimited supplies of money. The vast majority deal with vendors that have fixed costs on materials, as part of a supply chain.
And hence, on the outside, they often ‑‑ and particularly if they’re dealing with larger, established businesses, price ceilings that they cannot exceed. So that margin skinnies down. The average manufacturing company that’s considered successful in this company (sic) might make an eight percent profit margin at the end of the year. And we’re watching health care just go up at an astronomical rate.
Here is my question. How would having to absorb the cost of health insurance or paying the fine help you grow jobs? Tell me that.
*Mr. Goolsbee. Well ‑‑
*Mr. Davis. That is a tax in your bill.
*Mr. Goolsbee. Well, here is what I would say, Congressman, and I appreciate the evidence, and we are open to working and looking at the evidence.
If you take large employers, more than 95 percent of them offer health care. If you go to the five percent that do not and say, “Isn’t it going to hurt those five percent, that they will be required to provide health care,” I do think it is appropriate that we consider what is the cost that they are applying on to other employers when they aren’t offering health care, and that’s the hidden tax that already exists. The growth of health care costs has been astronomical year after year, before there ever was an Affordable Care Act. And the Affordable Care Act is trying to bring that more under control.
So, that there are ‑‑ that the majority of small businesses in the country, some four million, would qualify for the credit is good for those businesses. To try to find an individual business who did not provide health care before, has over 50 employees, is not planning to use the great benefit of the exchange to get ‑‑ so that they would have the opportunity to get significantly lower prices for their health care, to me feels a little bit of a selected example, when taken in totality ‑‑
*Mr. Davis. Well, let’s take this to a simple ‑‑ the small companies, why couldn’t they just pool together? Wouldn’t that make sense? And ‑‑ to be able to handle this issue, and to have the government stay out of it? Let the private market work.
*Mr. Goolsbee. Well, they haven’t ‑‑
*Mr. Davis. I mean I ran a business for 12 years, and we ran into this time after time, where costs did go up. And the costs under this bill are going up dramatically. I know people who won’t hire employees because they’re going to go over the 50 threshold. Why should I hire somebody, if I’m going to be taxed? And you called just a minute ago, that ‑‑
*Mr. Goolsbee. Well, as I say ‑‑
*Mr. Davis. ‑‑ didn’t tax ‑‑
*Mr. Goolsbee. ‑‑ you’re selecting a group of employers that’s at some specific sliver, and I am highlighting that there are millions of businesses just below that, which are the majority of small businesses in the country, who are getting a very significant tax credit ‑‑
*Mr. Davis. Well, let me just point something out. You’ve asked us to take it in totality. And, just between Mr. Tiberi and I, we’ve probably pointed out 20 individual examples that, taken in totality, all point to significant increases in costs on business under this bill.
And I think we come back to the details. We’re going to have to address the cost drivers. And we don’t address the cost drivers, beginning here in Washington, with creating a huge new bureaucracy that places more overhead ‑‑ if you ask any business owner about this bill, they will ask the question, “How can you create over 100 new agencies, commissions, and boards, massively increase the regulatory side of this, and somehow reduce costs, while raising taxes on businesses and cutting the direct access to benefits?”
Every doctor that I know calls this a denial of care bill, when they look at the economic aspects of this. And we are dealing with very different sets of definitions of terms, and we can’t be fluid about that. I yield back ‑‑
*Chairman Camp. All right. His time has expired. Mr. Neal is recognized.
*Mr. Neal. Thank you, Mr. Chairman. Mr. Chairman, I would like permission to insert the CBO’s preliminary analysis of the repeal of this health care legislation into the official record.
*Chairman Camp. Without objection.
[Information as follows: Mr. Neal]
*Mr. Neal. Thank you. And, Mr. Goolsbee, if we were to repeal the health care bill, as some are proposing, that means eliminating $40 billion worth of tax credits. Doesn’t that represent a tax increase?
*Mr. Goolsbee. It would be very problematic, and it would be particularly problematic on small business. But it would be a major tax increase.
*Mr. Neal. All right. Let me take you to some of the facts here. One of the difficulties in the discussion of this legislation is that if our friends on the other side are asked by the local news media in their respective constituencies whether or not they favor banning pre‑existing condition, they will say yes. If they are asked, “Is it not a good idea to keep your children on your health care plan up until they’re 26,” they will say, “Yes.” If they are asked if it’s a good idea to cap out‑of‑pocket expenses, they will say, “Yes.” Carrying insurance from one job to the other? They will say, “Yes.”
The problem with that argument is, from an actuarial reality, or from risk analysis, how do you accomplish those outcomes if you don’t require those who can afford insurance to buy it, and to help those who can afford it to get into the risk pool through the mandate?
I mean that ‑‑ by the way, I wanted to say something for the record. This is very important. The mandate was the compromise in Massachusetts that was proposed by Governor Romney. That’s how we got there. Senator Kennedy advocated for years, spent a career talking about health care. The difficulty is that, in attempting to do it, the compromise became the mandate.
Would you speak to that issue about actuarial reality, risk analysis, and what insurance companies might do to suggest that they could accomplish the former, as I’ve outlined it, to get us to the latter?
*Mr. Goolsbee. Well, look. I do think the basic point of the matter is to get away from the economic problem of cream skimming and figuring out who is more likely to get sick and dropping them. And when you have circumstances like that, a lot of times markets can ‑‑ the free market can fail when you have big differences of information like that.
That has plagued the health care system all along, and that is the point of the Affordable Care Act, is to try to get everybody into the system, so you can’t either free‑ride off your neighbor and, so on the other side, they can have some assurance that the probability of whatever illness is approximately the probability in the overall population, as opposed to everybody that knows they have the ‑‑ some disease signing up only once they get sick. I think that’s the basis.
*Mr. Neal. I would encourage all the members of this committee, and others, to visit an emergency room on a Friday or Saturday night. And if you can’t do that, or you live in a rural area and it’s more difficult, then I would encourage Members to be in touch with their local hospitals to find out what health care delivery is in the emergency room.
And for that man or woman who walks out of that emergency room thumbing their nose by suggesting that they beat the system, they didn’t really beat the system. In fact, those costs are passed on to all of us. That’s the whole idea of spreading risk, which I would have thought the other side would have paid a great deal of attention to, given their proclivity for the suggestion that we ought to allow the market to work.
*Mr. Goolsbee. Look, I think that’s the uncompensated care ‑‑
*Mr. Neal. Precisely.
*Mr. Goolsbee. ‑‑ is a hidden tax on everybody, and it’s a big one, $1,000 a worker by some estimates. And we cannot forget that that tax exists. It’s very important. And we can get that cost down. And that is a big cost driver.
*Mr. Neal. Thank you, Mr. Chairman.
*Chairman Camp. Thank you. Mr. Nunes is recognized.
*Mr. Nunes. Thank you, Mr. Chairman. Mr. Goolsbee, were you involved at all in the President’s State of the Union address, in designing it or writing it or reviewing it, previewing it?
*Mr. Goolsbee. Yes, a little bit.
*Mr. Nunes. Okay, so you’re familiar with the health care portions of the speech last night?
*Mr. Goolsbee. Yes.
*Mr. Nunes. Okay. So the new 1099 reporting requirements. Last night, to paraphrase, the President called it a “flaw,” I think. At what point did he have the epiphany that it was a flaw?
*Mr. Goolsbee. I don’t know the answer to that, specifically, but the chairman quoted the President from a significant time ago. It wasn’t at the State of the Union that he had it.
*Mr. Nunes. Did the President or White House or anyone affiliated with the executive branch ever hear from any Members of Congress that this was a problem, 1099 problem, during the year‑long health care debate?
*Mr. Goolsbee. I wasn’t involved in the legislative discussion, but I think it’s probably fair to say yes.
*Mr. Nunes. Okay, thank you. What ‑‑ so the President has now admitted that the policy he supported was flawed. He asked for other creative ideas. Where should this committee start? What creative ideas should we look at to identify possible additional flaws, other areas that we could reduce costs, improve the quality of health care, where should we start?
*Mr. Goolsbee. Well, I do think that the previous congress people have identified, hearing from constituents and from business leaders themselves, if there are ways that we can reduce administrative costs, reduce regulatory or compliance burdens of the form.
*Mr. Nunes. Any specific ideas? Is there anything like 1099 that we should strip out of the current health care law, or anything that we should put in?
*Mr. Goolsbee. Well, I think 1099 is a good one, and the President outlined that we should look together at the medical malpractice issues that can lead to defensive medicine and those things. That strikes me as also a productive place to look.
*Mr. Nunes. So medical malpractice we should look at. Any other areas ‑‑
*Mr. Goolsbee. I mean ‑‑
*Mr. Nunes. ‑‑ you can think of?
*Mr. Goolsbee. Those two, plus the general approach of talking to the small business community strike me as three important ones to begin with.
*Mr. Nunes. I want to focus on the uninsured now, move to the uninsured. We have heard members of this Committee already this morning say that there is 50 million uninsured, I think was the number, and maybe there is more than that. Or possibly ‑‑ at least people think there is more than that.
I was under the understanding when we passed this, two new entitlements adding to the two old entitlements of Medicare and Medicaid in the health care law, that this would be the Utopia for health care, and that everyone would now be covered. Is that happening?
*Mr. Goolsbee. I would say we are dramatically increasing the number by tens of millions in who is covered. There obviously was the issue of undocumented immigrants who are not ‑‑ were never intended to be getting covered under the ‑‑
*Mr. Nunes. So how many new people have we covered since the law has been implemented that wouldn’t have been covered under the old laws?
*Mr. Goolsbee. Well, the full coverage provisions don’t go into complete effect until 2014. But the estimates are in excess of $35 million.
*Mr. Nunes. Why did it take so long to ‑‑ why did we wait until 2014 to implement this, when we have this health care crisis and all these folks uninsured?
*Mr. Goolsbee. I ‑‑
*Mr. Nunes. I know you didn’t write the law, but you look at the numbers.
*Mr. Goolsbee. Yes, I look at the numbers. On any significant change of this nature, usually there is some transition period. Historically ‑‑
*Mr. Nunes. Was it possible to hide the budget consequences of the health care provision?
*Mr. Goolsbee. No.
*Mr. Nunes. So we don’t have a debt problem?
*Mr. Goolsbee. We have a long‑run fiscal problem facing the problem, for sure. But ‑‑
*Mr. Nunes. Does health care have a part in that?
*Mr. Goolsbee. In reducing it, yes.
*Mr. Nunes. So this health care bill is going to reduce the ‑‑
*Mr. Goolsbee. The deficit.
*Mr. Nunes. The deficit?
*Mr. Goolsbee. Yes. According to the non‑partisan Congressional Budget Office, to repeal the health care act would increase the deficit by a quarter trillion dollars over the next 10 years.
*Mr. Nunes. Wow. Thank you, Mr. Chairman.
*Chairman Camp. All right. Mr. Reichert is recognized.
*Mr. Reichert. Thank you, Mr. Chairman. Mr. Goolsbee, I’ve been taking some notes while you have been answering questions.
So, this Affordable Health Care Act, you say, was designed to reduce costs, yes?
*Mr. Goolsbee. Yes.
*Mr. Reichert. Improve access, increased access for people?
*Mr. Goolsbee. Yes.
*Mr. Reichert. Slow the growth rate of health care costs?
*Mr. Goolsbee. That is its intention.
*Mr. Reichert. And reduce the deficit?
*Mr. Goolsbee. Yes.
*Mr. Reichert. All of those things. I’m just an old retired cop, so I think ‑‑ you know, I’m not a doctor. I’ve not been in the medical profession. So I’m just trying to understand this, like every other American across this country.
So, these were the goals. But I really ‑‑ I want to go back to what Mr. Nunes and some others have pointed out. I’m really having a tough time understanding how a provision like the 1099 form gets included in a bill that’s supposed to accomplish all these things, reducing costs, et cetera. Because, if I’m not mistaken ‑‑ do you know how the 1099 provision was inserted in the bill?
*Mr. Goolsbee. I do not.
*Mr. Reichert. You don’t know what Member of Congress, or who came up with the language? Or was it the Administration that suggested the ‑‑
*Mr. Goolsbee. It wasn’t an Administration proposal, but I wasn’t involved in the ‑‑
*Mr. Reichert. So you have no idea? This is your project, right?
*Mr. Goolsbee. I’m just ‑‑ well, it’s not my ‑‑ I’m just an economist.
*Mr. Reichert. You’re just a spokesperson?
*Mr. Goolsbee. I’m not a spokesperson, I’m an economist.
*Mr. Reichert. So why are you here today?
*Mr. Goolsbee. I am here to help evaluate the economics of the Act.
*Mr. Reichert. Well, let me just ask you. The 1099 form ‑‑
*Mr. Goolsbee. Yes.
*Mr. Reichert. ‑‑ we don’t know how it got in there. But somehow it increases the cost of the bill by $19.2 billion. You have to hire 16,000 IRS agents. How can that just be overlooked? I think the American people have a credibility issue when you say that you’re here to reduce costs, then all the sudden, miraculously, you discover that there is a $19.2 billion cost in there that shouldn’t be there. How does that happen?
*Mr. Goolsbee. Well, as I say, I wasn’t involved when Congress ‑‑
*Mr. Reichert. But how does that happen?
*Mr. Goolsbee. ‑‑ passed the legislation. But what I will say is, the people that supported it were trying ‑‑ the goal, which has been a bipartisan goal, of reducing the amount of tax evasion, people who do not pay taxes on income that they should pay.
*Mr. Reichert. I know what ‑‑
*Mr. Goolsbee. This was designed in a way ‑‑
*Mr. Reichert. Excuse me, excuse me ‑‑
*Mr. Goolsbee. ‑‑ that was excessively burdensome ‑‑
*Mr. Reichert. Excuse me. Okay. I know what the goal was. My question was, how did it get into the bill. And your whole premise is that this was to reduce costs. And $19.2 billion gets somehow inserted into the bill, and no one knows how.
*Mr. Goolsbee. My understanding ‑‑
*Mr. Reichert. Did I hear you say just a little bit earlier, too, that you can keep your health care plan if you like it, or something like that, in one of your answers?
*Mr. Goolsbee. That is the intention, yes. That’s why the grandfathering clause exists.
*Mr. Reichert. Okay. I remember President Obama visited our retreat last year, and he was asked that question. And we have heard that time after time after time. “You can keep your health care plan, if you like it.”
However, in his comments to us ‑‑ and I will paraphrase his quote ‑‑ he said, “Well, there may have been some language snuck into the bill that runs contrary to that premise.” How do you explain that? I mean you’re telling me today that you can keep your health care plan if you like it, but the President says there is language in the bill that runs contrary to that premise.
*Mr. Goolsbee. I apologize, Congressman. I’m not trying to be coy. I haven’t heard the President say that. But I would like to look at that before I made any comment on it.
*Mr. Reichert. Yes. Well, it’s in print.
*Mr. Goolsbee. Okay. I will ‑‑
*Mr. Reichert. Can you see why the American people are confused about this bill, and whether or not it provides any benefits at all to them? Whether or not it does all those things that you laid out earlier, decreases cost, increases access, and is good for business and reduces the deficit?
I mean I just pointed out two things here that have quite a bit of controversy around it, and seems to be rather serious conflicts with the premises that you have laid out in this bill. Mr. Chairman, I yield back.
*Chairman Camp. Thank you. Mr. Thompson is recognized.
*Mr. Thompson. Thank you, Mr. Chairman. Dr. Goolsbee, thank you for being here. My colleague, Mr. Neal, asked that the independent CBO analysis be read into the record. And I would like to just ask you on that issue ‑‑ I’m glad he did that, it’s an important fact that I believe we need to take into consideration ‑‑ but that analysis says ‑‑ and I think you pointed this out, that this ‑‑ repeal of this bill would actually drive the deficit up by about $250 billion over the first 10 years, over a trillion in change over 20 years.
So, if that were to happen, and it had this upward push on the deficit, how would that impact business and investment in this country?
*Mr. Goolsbee. Well, I believe that the ‑‑ certainly addressing our longer‑run debt issues is an area of bipartisan agreement, that we do need to do that, and that to not do it contributes uncertainty. And so I think repealing this and making that problem worse would likely add more uncertainty on that score.
*Mr. Thompson. And a hit on the businesses that we’re trying to ‑‑ or hopeful will get going ‑‑
*Mr. Goolsbee. Could be.
*Mr. Thompson. ‑‑ get the economy up. Thank you. On the uncompensated care issue, I just want to point out I think everybody can find this out. I know that I did the run, and in my rural district in northern California last year the uncompensated care cost was $70 million. And the uncompensated care fairy doesn’t deliver a check to the hospital when that happens. That’s spread out, and the rest of us pay for that through higher taxes, higher insurance premiums, et cetera.
On the 1099 issue, I think it’s important to point out that we took up the repeal of that bill last year in congress. And I think everybody on this side of the dais voted to repeal that. So this is not a newfound issue. This is something that we tried to fix in the last congress.
And I also want to point out that when this came up in the debate, I went out to every one of my counties and asked business people, chambers of commerce, as to the impact of that. And there was concern that it was going to be problematic. A lot of folks said, however, that it’s just a matter of time before the software catches up to it, and the problems resolve. But everybody, irrespective of their position on it, noted that it was trying to solve an almost $20 billion tax evasion problem.
So, as we repeal this, which we will do, we’re going to need to figure out how to solve that problem.
And, Mr. Chairman, on the issue of the cost going up, I just want to read from a statement by Blue Cross ‑‑ or by Blue Shield of California. And I think everybody knows that premiums have been going up in my home state. But the head of Blue Shield writes, “These rates reflect trends that were building long before health reform. Our individual market medical costs are rising rapidly, due to higher provider prices, increased utilization, and the fact that healthier people are dropping coverage during a bad economy. Health reform will help slow down this trend by expanding coverage, which will keep healthier people in the system, and, through quality and cost containment initiatives, such as the independent payment advisory board, Center for Medicare and Medicaid Innovation, Patient Centered Outcomes Research Institute, and other initiatives for prevention and coordinated health care.”
And I would like to ask that the head of Blue Shield’s statement specifically stating that health care reform has nothing to do with their increased price be read into the record.
*Chairman Camp. The statement will be ‑‑
*Mr. Thompson. And I yield back the balance of my time.
*Chairman Camp. ‑‑ in the record, without objection.
[The information follows: Mr. Thompson]
*Chairman Camp. Dr. Boustany is recognized.
*Mr. Boustany. Thank you, Mr. Chairman. To my friend from Massachusetts, I have spent countless hours in emergency rooms, and there is a hidden tax, as you suggest. But also, your solution in expanding Medicaid coverage is also a hidden tax. And it’s basically an unsustainable situation. We can do better.
Mr. Goolsbee, my medical career spanned 1978 through 2003. And to put it in perspective for you, in medical school I saw the first drug to treat peptic ulcer disease, which radically changed not only the quality of care for folks, but the cost of care. And since then, of course, we have seen all kinds of developments in pharmaceuticals and medical devices that have given patients more than just a hope and a prayer. I remember dealing with heart attack patients, giving them an aspirin and a first‑generation beta block. And now ‑‑ you know, in my career we did complex open heart surgery using all kinds of assist devices and things that have saved lives, improved the quality of life.
I can go on and on about all the problems of cost, coverage, quality, and so forth, but I’m going to focus on one particular issue. Last night the President talked about innovation, research and development, American competitiveness. And one area where we have stood out, as a country, is in our development of medical devices and pharmaceuticals. We are first and foremost in the world on this. And we stand to lose that competitiveness, partly as a result of what’s being proposed here: the innovation tax, a 2.3 percent tax on medical devices.
Now, let me ‑‑ why is this not only a danger for innovation? It’s also a danger to job growth, and could potentially lead to significant job loss. Let me just point out a couple of statistics.
Sixty‑two percent of the companies that develop these devices, that do the research and development, are very small businesses. Sixty‑two percent have less than twenty employees. Only 2 percent have greater than 500 employees. These are small and mid‑sized firms that really take on the responsibility of creating that innovation in research and development.
So, my question is, will this tax on innovation run contrary to the President’s plan to expand research and development? Secondly, will it hurt job growth, along with innovation? And, thirdly, how do you reconcile this with, on one hand, the President wants to extend the R&D tax credit, and, on the other hand, wants to impose a new innovation tax? This is just very inconsistent.
So ‑‑ and then, finally, as we look at tax reform and the big picture ‑‑ and the President has talked about fundamental tax reform, cleaning it up, simplifying it ‑‑ if you look at this bill, this law, it has added significant complexity to the tax code, way beyond where we were, just a year ago. And so, I would like you to address those three points.
*Mr. Goolsbee. Okay, Congressman. Well, first, let me thank you for your service to the country, as a medical professional, as well as a doctor (sic). We need more people in the medical profession with a commitment like that.
I would say on the issue of medical devices the area of innovation, medical innovations particularly, are critically important, both for our health and for our industrial base. In this case, the medical devices fee is being offset to some considerable degree by the fact that there will be an expansion in the demand for those devices by the fact that we are having 35 million‑plus new customers ‑‑
*Mr. Boustany. But, sir, that’s debatable, because a lot of these patients are getting that care. It’s just not being compensated for.
*Mr. Goolsbee. In ‑‑
*Mr. Boustany. I can tell you I have operated on patients ‑‑
*Mr. Goolsbee. I would like to see ‑‑
*Mr. Boustany. ‑‑ complex open heart surgery, and you never saw ‑‑
*Mr. Goolsbee. ‑‑ including advanced devices?
*Mr. Boustany. Advanced devices, as well, yes.
*Mr. Goolsbee. Look, this is an area ‑‑ if there are areas that have a negative impact on innovation, we should examine those.
Now, it had been our data that we first came to the table with, the suggestion was that the increased demand for the medical devices would be, in some sense, far in excess of what impact the charge on the medical devices would be. But we are open to looking at ‑‑
*Mr. Boustany. You really need to look back at that assumption.
*Mr. Goolsbee. On R&D tax credit and medical innovation, that’s an area the President has put as much or more ‑‑ dedicated as much or more resources to medical research as anyone ever has before.
*Chairman Camp. All right, thank you. Mr. Heller is recognized.
*Mr. Heller. Thank you, Mr. Chairman. I appreciate holding this hearing. I know it’s a little backwards, to actually hold hearings after a bill passed, but at least we will have a hearing on the bill. So, thank you.
Last night ‑‑ and thank you for being here, Dr. Goolsbee. Last night the President said, “If you have ideas about how to improve this law by making care better or more affordable, I’m eager to work with you.” Do you believe he meant that, when he said it?
*Mr. Goolsbee. Yes, I do.
*Mr. Heller. Well, he said the same thing in 2010, during his State of the Union. Do you believe he meant it when he said it then?
*Mr. Goolsbee. Yes, I do.
*Mr. Heller. He said it in 2009. Do you believe he meant it when he said it then?
*Mr. Goolsbee. Yes. And I hope that we will commence working together.
*Mr. Heller. Well, I’ve got a letter here July 23, 2009. I wrote the President, asking him specific questions about the health care bill because he wanted input. July 23, 2009. He didn’t reply to the letter. Why didn’t he reply to the letter?
*Mr. Goolsbee. I don’t know the answer to that. I apologize, Congressman.
*Mr. Heller. In September 8, 2009, because I’d received no reply from the first letter, I wrote him another letter. And I think it was pretty reasonable. And I’d like to quote some parts from it. It says, “I introduced the Step Towards Access and Reform, the STAR Act, in late July. While this legislation will not be a silver bullet solution to all the problems facing our health care system, my bill addresses medical liability reform, improves access to breast and lung cancer screenings, takes other important steps towards reform that I think most Americans would support.”
I never received a response from this letter. Why didn’t I receive a response from this letter?
*Mr. Goolsbee. Congressman, I don’t know the answer to that. But I will offer to read and respond to the letter, or find anyone that would. I mean the ‑‑ if your ideas address medical liability reform, other forms of screening or preventative care, that sounds like exactly the kind of thing that we want to always be on the lookout for, good ideas.
*Mr. Heller. I guess my point is, would a reasonable person believe that the President had no interest in what the minority party at the time had to say on this piece of legislation?
*Mr. Goolsbee. I don’t think a reasonable person would believe that. But I can see that it would be frustrating if he did not reply to the letter you sent him.
*Mr. Heller. Would a reasonable person believe what he said last night, again?
*Mr. Goolsbee. Yes, I think they would, and I think they did. And I am here to say that we are open to the ideas. And I would be both open and appreciate to see that or other letters.
*Mr. Heller. Do you think the President ‑‑ he mentioned TORT reform. Do you think he is serious about TORT reform?
*Mr. Goolsbee. Yes, he mentioned the medical malpractice reform in general. There is some significant pilot projects, and working through the states in the bill now, and the President is open to looking beyond that.
*Mr. Heller. Let me ask you a couple of other questions. Do you agree with the President and CBO’s assessment that the health care bill signed into law last year will reduce unemployment?
*Mr. Goolsbee. Yes. I believe that it has the potential to be a job creator because of these cost‑saving measures that I outlined in my testimony.
*Mr. Heller. When?
*Mr. Goolsbee. Over the next 10 years and over the next 20 years ‑‑
*Mr. Heller. Well, maybe in 2014 ‑‑
*Mr. Goolsbee. ‑‑ the small business part would be ‑‑
*Mr. Heller. You keep throwing out 2014. Maybe in 2014 we will reduce unemployment through this bill?
*Mr. Goolsbee. No, I think it’s ‑‑ the small business credits can have, and have had, an important impact right away, and there are other parts that come in in 2014.
*Mr. Heller. Okay. So you’re saying that we should at least have seen some impact on unemployment with the passage of this bill last year?
*Mr. Goolsbee. Over what it would otherwise be. That’s the ‑‑ that’s not just my conclusion, that’s the conclusion of many outside experts.
*Mr. Heller. Why is Nevada’s unemployment level at 15 percent? And what impact does that have on the unemployment in Nevada?
*Mr. Goolsbee. Well, I believe that the reason Nevada’s unemployment rate is high, like the unemployment rate in the rest of the nation, is because we have gone through the worst financial crisis since the Great Depression that has had a devastating impact on the economy, and we are trying to work our way out of that.
*Mr. Heller. So you don’t think ‑‑
*Mr. Goolsbee. I think the Affordable Care Act is not the ‑‑
*Mr. Heller. Okay.
*Mr. Goolsbee. ‑‑ cause of ‑‑
*Mr. Heller. So you don’t think higher taxes, bigger government, and unreasonable regulations would have anything to do with the unemployment rate in Nevada?
*Mr. Goolsbee. The taxes have actually been lower. The President cut taxes for 95 percent of workers, and has not raised taxes in that sense.
*Mr. Heller. Thank you, Mr. Chairman.
*Chairman Camp. All right, thank you. And because of our time limitations, the next questioner will be the last questioner for this panel. And Mr. Blumenauer is recognized for five minutes.
*Mr. Blumenauer. Thank you very much, Mr. Chairman. Dr. Goolsbee, I would like to go back just where you left off a moment ago, because this litany of somehow higher taxes and more regulation ‑‑ if I understand it correctly in your testimony, you pointed out that we have had a million private‑sector jobs added in the course of the last year. Is that correct?
*Mr. Goolsbee. Yes, 1.3 million, actually.
*Mr. Blumenauer. And, if memory serves, that’s more than the net job creation of the entire Bush White House years in eight years.
*Mr. Goolsbee. I believe that is true.
*Mr. Blumenauer. And in terms of taxation for the ‑‑ over the course of the last year‑and‑a‑half, isn’t it true that taxes were actually lower than they were prior to the President taking office, because of the 40‑some percent of the Recovery Act that was tax reduction?
*Mr. Goolsbee. Yes, that’s certainly true, and it’s certainly true in the aggregate, as well, that the tax collections as a share of income are down.
*Mr. Blumenauer. So, to somehow have the speculative bubble that burst in Nevada, which is probably worse than any state, perhaps with the exception of what happened in Florida and parts of Arizona, to try and blame that on the Administration’s high taxes and health care, isn’t that kind of turning the facts on their head?
*Mr. Goolsbee. Well, I’m not ‑‑
*Mr. Blumenauer. Don’t mean to put words in your mouth, but ‑‑
*Mr. Goolsbee. I’ve been to Nevada many times and enjoy it there. I’m not trying to get anybody mad at anybody else. I will say the President did not raise taxes; cut taxes, did everything he could to prevent a depression. And we avoided a depression.
And now we are to a phase, as the President outlined last night, that we need to grow and innovate and compete, and he is open to ideas from both sides of the aisle of how to improve the health care act, as well as other ways to innovate.
*Mr. Blumenauer. Terrific. Could you comment for a moment on the trend line we were on, in terms of affordability of employer‑provided health care, in terms ‑‑ before we gave the tax credits that people ‑‑ actually made it easier, and the health care plan actually gives an alternative to people if employers jettison them ‑‑ under the reform act we have here, people have an alternative.
But what was the trend line we are on, if the health care act is repealed?
*Mr. Goolsbee. I would say before the health care act, I would summarize the trend line as bad. And so, if we repeal it and go back to that, I think it would return to bad.
So, I guess what I would say is that the act is attempting to address a series of cost drivers. It’s trying to help small business. There are things like the 1099 aspect of the bill. There are other things that may need improvement.
But I fail to see how the correct answer to some flaw is to get rid of tax credits for four million small businesses, to allow discrimination against pre‑existing conditions, to reinstate the uncompensated care hidden tax on employers, a number of things in the bill that are really good, I don’t see why we should get rid of those, rather than just fix the things that need to be fixed.
*Mr. Blumenauer. And, of course, for the record, our committee passed, and the House approved, legislation to fix the 1099. So that’s something that, last congress, we were on.
I want to just conclude on the notion of what impacts there are for small business. Currently, small business pays more ‑‑ our committee has heard ‑‑ pays more than large business. They are doing it without the ‑‑ up until the Affordable Care Act ‑‑ without the tax credits. How is small business going to be affected if some of my friends have their way, and somehow this bill is repealed?
*Mr. Goolsbee. If you repeal the bill, I believe it would have a significantly detrimental impact on small business, that while you can try to find an individual small business that fits in some place and say, “That person would be harmed,” we know, overall, four million small businesses qualify for a health care credit that they never had before and that they have wanted for decades.
And we know that to set up exchanges that allow the pooling of risk will allow small businesses to get health care coverage and insurance at prices that are significantly lower than they are now, because right now they have to pay significantly more than large businesses do, and it’s a major competitive disadvantage.
*Mr. Blumenauer. And you said this last year health care costs went up at a lower rate than ever before recorded.
*Mr. Goolsbee. It was overall spending.
*Chairman Camp. All right, thank you.
*Mr. Blumenauer. I’m sorry.
*Chairman Camp. All time has expired. I want to thank you, Mr. Goolsbee, for appearing before the Ways and Means Committee. I appreciate your testimony. And since all Members have not had a chance to question, I would ask you to allow Members to submit questions in writing, which will then become part of the written record of this hearing. Again, thank you for being here.
*Mr. Goolsbee. Thank you, Mr. Chairman, for giving me that opportunity, and I would be happy to accept any questions, letters, or anything else from members of the committee.
*Chairman Camp. Thank you. Thank you very much. Panel one is concluded, and we will now move to panel two.
While our panel gets seated, I did want to introduce our panel to the Committee. We have three witnesses on panel two.
Mr. Douglas Holtz‑Eakin is currently president of the American Action Forum, and is a commissioner on the congressionally‑chartered financial crisis inquiry commission. During 2001 and 2002 he was the chief economist of President’s Council of Economic AdvisErs. He previously served as the sixth director of the non‑partisan Congressional Budget Office.
Mr. Olivo is the president and co‑owner of Perfect Printing, located in Moorestown, New Jersey. It was established in 1979. He has been president of the second‑generation firm since 1988. It was originally established as a traditional retail copy center, and he has grown the business from 10 employees to 45 employees. He co‑owns the company along with his wife, mother, and two brothers.
Mr. Scott Womack is a franchisee. And during his time as an IHOP franchisee has received numerous sales growth and performance awards, and was named Midwest franchisee of the year in 1993 and 2005, and regional franchisee of the year in 2008 of the northern region.
I want to welcome our witnesses to the Ways and Means Committee. I thank you very much for taking time out of what I know are busy schedules to be here, and help enlighten the committee on the health care law’s impact on jobs, employers, and the economy.
Each of you will have five minutes to give your testimony. There is a green light, and then there will be a yellow light, which gives you one minute to sum up, and then the red light is to conclude your testimony. And obviously, with all the people who want to have a chance to ask you questions, we’re going to try to stick pretty closely to that schedule.
So, why don’t I begin with Mr. Douglas Holtz‑Eakin? Welcome to the Committee, and you have five minutes.
STATEMENT OF DOUGLAS HOLTZ‑EAKIN, PH.D., PRESIDENT, AMERICAN ACTION FORUM, WASHINGTON, D.C.
*Mr. Holtz‑Eakin. Well, thank you, Mr. Chairman, Ranking Member Levin, and members of the Committee. It’s a great pleasure to be here today. I appreciate the opportunity to appear.
In my written testimony I sought to make four points that I will briefly summarize here. The first is that the mandates and assorted taxes in the Affordable Care Act are an impediment to jobs and growth in the United States, particularly at this moment, that on balance, the Affordable Care Act will raise the cost of insurance ‑‑ this will crowd out scarce resources for hiring and for increasing pay, and directly hurt consumers ‑‑ that the Affordable Care Act has strong incentives for employers to drop their employer‑sponsored insurance. To the extent that they do so more than the CBO anticipates, we will not only have strong disruption in labor market contractual relationships, we will also have much large budgetary costs associated with the act than were anticipated.
And then, finally, even if that doesn’t come to pass, the Affordable Care Act is, indeed, a budgetary danger at a very, very important moment in the U.S. fiscal history, and is a strong step in the wrong direction.
Let me begin by elaborating on the latter only briefly. I think my views on the Affordable Care Act’s budgetary implications are, by now, well known. We are in a situation where the fiscal outlook is a direct threat to the U.S. prosperity and freedom, that to undertake this act, which has a wide array of budgetary gimmicks, relies on unsustainable assumptions for cuts in Medicare that double‑counts particular receipts, whether they be the class act premiums, receipts into the Medicare Health Insurance Fund under various taxes, or Social Security premiums, and to otherwise omit costs from the legislation itself, gives a very misleading picture of the budgetary impact, and that any fair reading of it is that it increases the deficit dramatically by as much as $500 billion over the first 10 years.
More generally, at the common sense level, we cannot set up too open‑end entitlement programs that grow at eight percent a year as far as the eye can see, faster than the economy will grow, faster than revenues will grow, and not fix Medicare and Medicaid, and expect to improve the budget outlook. And this act did not.
Turning to the labor market implications, there are many mandates and taxes, and these will compete for resources for hiring, and they produce a bias against labor. If you look at the employer mandate, the best outcome for employers who have more than 50 employees is that it’s a non‑event. The best thing that could happen is nothing; the worst thing that could happen is they will be subject to penalties and fines, and lead to drops in coverage.
For those with fewer than 50 employees, this is a barrier to growth. Adding the 50th employee is a severe tax, and any small business is going to recognize this. There is in the act, as has been widely advertised this morning, a small business tax credit. It’s important to recognize that it is temporary, so there is no permanent fix to this problem. It is very complicated. And even if someone winds their way into it, it has negative economic incentives for growth. If you add employees or pay better, you lose credits. It’s a tax on your success, and should be perceived as such.
There are 700 billion other dollars worth of taxes in the act. There are taxes, for example, a surtax on payrolls labeled a Medicare payroll surtax of 9/10ths percent. There is a 3.8 percent investment ‑‑ net investment tax. These have nothing to do with health care reform. These are pure taxes. They’re exactly on the same group of small businesses and entrepreneurs that were at the focus of the recent discussion about the desirability of raising taxes in a recession. This bill replicates exactly the mistake that the previous congress avoided, and they will hurt jobs and growth in the United States.
There are hundreds of billions of dollars of fees, whether they be on pharmaceutical companies, medical device manufacturers, or the health insurers themselves. As I lay out in my testimony, these can only be perceived as taxes. They will only show up as higher premiums in insurance. And they have a dramatic impact, because they are not deductible. So they are, almost two‑for‑one, more expensive than they appear.
The upshot is that these $700 billion of taxes and fees will hurt the economy at a time when it can’t afford it. The impact as well is to raise insurance premiums at a time when the economy can’t afford it, and we have seen that on top of the additional benefits that the act mandates. If you have to cover more benefits, you have to raise premiums. There is no way around it. This is a bill that is going to raise premiums.
And since it doesn’t control health care costs, there is no offset on the basic underlying problem. We have seen that from CBO and the CMS actuary.
The upshot is we are going to see continued pressure upward on health care cost, on insurance premiums. The taxes will contribute to that. And employers may drop coverage. And if you’re a worker who has their coverage dropped, you’ve disrupted your labor market bargain. That’s a bad thing for the labor market at a weak time. So, on top of the growth in jobs incentives, we have the disruption for those lucky enough to have a job.
So, I would be happy to answer your questions. I am pleased to be here today. But I think, on balance, it is a fair reading of this law that it is bad for jobs and growth at a time when we need both.
[The statement of Douglas Holtz-Eakin, Ph.D follows:]
*Chairman Camp. Thank you very much.
Mr. Womack, you are recognized for five minutes. And your written statement will be made a permanent part of the record.
STATEMENT OF SCOTT WOMACK, PRESIDENT, WOMACK RESTAURANTS, TERRE HAUTE, INDIANA
*Mr. Womack. Thank you, Chairman Camp, Ranking Member Levin, members of the Ways and Means Committee. Thank you for this invitation to testify today. My name is Scott Womack, owner and president of Womack Restaurants, a 12‑unit IHOP franchisee in Indiana and Ohio. I am pleased to be here today to testify on behalf of the U.S. Chamber of Commerce. I also come before you today on behalf of my company, my industry, and small businesses and entrepreneurs.
My first jobs were as a busboy and a cook. After college I joined the grocery industry. After five years I got fired, and found myself starting over. I was lucky to land a job at IHOP, as a manager. And soon, with a $15,000 loan from my parents, I bought my first IHOP franchise. After 10 years I began building IHOP restaurants. In 2006 I purchased a development agreement to expand into Ohio. Now, this would mean jobs in Ohio, not just in my restaurants, but also in construction, real estate, and also manufacturing. But thanks to this new law, those are not going to happen.
The restaurant industry serves an important role in our economy, employing 12.7 million people. I like to say it’s an industry of first opportunities and second chances. First jobs, first careers, the first shot at small business ownership, and also second chances for people starting over, maybe from a forced career change or re‑entering society from incarceration, or a second job for those people digging out of a financial hole. Stories like mine are born every day in the restaurant industry.
The restaurant business is built on a small business model, with profit margins of five to seven percent. We’re the most labor‑intensive of any industry, ranking dead last in revenue per employee, at $58,000 per employee. This compares to retail at $170,000, banks at over $400,000, and other industries that actually bring in millions of dollars per employee in revenue.
Now, for restaurants, this new requirement to provide health coverage is not just a marginal cost increase. This is a huge new expense. And at $7,000 annually per employee, it is beyond our ability to pay. So, let me just be real clear about that.
Now, I estimate this to be 50 percent greater than my earnings. So please understand me. That is more than I can actually pay for the coverage. Our only alternative is to pay the penalties. Those penalties are not tax deductible. So that puts my company at risk, and many companies simply will not be able to pay those penalties, and will not survive.
Restaurants are already facing many challenges, including rising commodity, fuel and energy prices, rising state and local taxes, and higher unemployment taxes. Restaurants are unable to raise prices in this economy. We don’t have a way to replace the lost income. Our only alternative is to cut costs. Cutting costs means cutting staff. It means reducing hours. It means pushing people into part‑time status.
It also means that we will have to cut outside services, further hurting small businesses that serve my company. We will be forced to stop building restaurants and forfeit our investment. This future development would have amounted to about $22 million in construction and development spending, and 260 full‑time jobs.
Another casualty of this is the restaurant equipment industry, which is a uniquely American industry. That industry has already been devastated by this recession.
Furthermore, our lenders require us to maintain certain levels of profitability. Our mortgages, leases, and franchise agreements are commonly 15 to 20 years long. They do not go away in 2014. Those are obligations we cannot walk away from.
Other parts of the law are also causing harm. I may not be able to continue to offer the coverage that I currently offer to my management staff, due to the compensation non‑discrimination rules in the law.
Obviously, there are other examples of issues that have been raised today, issues with the HSA plans, taxes on investments, tax on the health insurance, and of course, the Cadillac tax, which will eventually hit everyone.
To that end, we are asking that Congress repeal this health care law. If that cannot be achieved, we urge you to address some of the major problems with the law. This bill is a ticking time bomb that will devastate our industry. A change of course now could end this uncertainty. Therefore, I am asking you to introduce and pass legislation that would repeal the employer mandate. The members of the U.S. Chamber of Commerce will work tirelessly to help you pass it.
I thank the members of this committee for the opportunity to testify today, and I look forward to working with you in the future to fix the problems created by this law, and implement real market‑driven solutions. Thank you.
[The statement of Scott Womack, follows:]
*Chairman Camp. Thank you very much, Mr. Womack.
Mr. Olivo, you are also recognized for five minutes. And, likewise, your written statement will be part of the permanent record.
STATEMENT OF JOE OLIVO, OWNER/CEO, PERFECT PRINTING, MOORESTOWN, NEW JERSEY
*Mr. Olivo. Thank you, Chairman Camp, and thank you to the Committee for not just the opportunity, but the honor to provide my testimony today. My name is Joe Olivo, I am a small business owner. And I appreciate being able to relate to you the concerns that I have with the health care legislation, how it has already begun affecting my company, and some of the problems I see as the plan becomes fully implemented.
I am the president and co‑owner of Perfect Printing in Moorestown, New Jersey. I own the company, along with my wife, my two brothers, and my mother. It was started in 1979, as a literal Mom and Pop copy center. I have run the business for the past 23 years. We have been very fortunate we have been able to grow it to a high of 54 employees prior to the economic downturn, and we currently have 45 employees.
An area which is of great concern to me that’s been spoken about today is the 1099 compliance requirements. Simply put, I do not have the resources in place to implement this law, to ‑‑ the resources that I will have to put in place, as far as software programs and calculating and managing receipts are just much more than I have the resources to do.
And I think it’s important, when you think of the burdens that these ‑‑ the legislation places on a small business, is thinking in the context of businesses like mine. In a good year, our profit is $.03 on every dollar we earn. Every time there is a new regulation that’s put in place such as this, it typically comes out of that profit margin. It leaves me less resources in which I can grow my business, give my employee wage increases, and contribute to their benefits.
A key issue for any employer is how and when to grow the business. My company is currently on the cusp of the 50‑employee mark, which ‑‑ we were just there 2 years ago. And at that point I would be legally bound to offer my employees insurance, or face a penalty for not doing so. Besides being ridiculously complex, it’s my understanding that even at the ‑‑ once I go over the 50‑employee mark, I can face penalties if one of my employees is eligible for the government‑subsidized plan, even if I am providing insurance.
I’m still in the process of trying to compute the exact ramifications of this part of the law, but based on my current premium rates, the penalty is actually less expensive than the premium rates. So I find it ironic that the part of the law that is ‑‑ mandates me to provide insurance to my employees is really an incentive not to provide insurance to them at all.
And this takes me to the issue of what we currently offer our employees. I am able to pay 100 percent of the premium cost for my individual employees. I pay 56 percent of the family portion. I am able to do this because we’re able to use a high‑deductible health savings account that we instituted six years ago. Now, this is important, because during the debate prior to the passage of this legislation we heard time and time again that my employees would be able to keep their existing coverage. Within 30 days of the law’s passage, I received a notification from my insurer that my plan would no longer be offered.
So, my understanding is, because of the preventative care requirements and how it was treated under a high deductible plan, it was no longer in compliance with the law. So, after 20‑plus years of myself voluntarily providing insurance for my employees, and paying most of it at my own cost, I am now told that this is no longer acceptable to the government.
Another area of concern to me is the tax credits that have been mentioned today that were promised to small business owners to help us pay for insurance. This point was made over and over, and even persuaded some in the small business community to support this plan, because they felt it would be a net positive for them.
I can say now that I have checked the tax credits for my company of 45 employees, and we are not eligible for a single dollar in tax credits. I have learned from fellow small business owners. I spoke to a woman that owns a bridal salon with three employees, and she had spoke to her accountant. She, too, is not eligible for a single dollar in tax credits. So, these are the issues that I know have already begun affecting my business.
But it’s the unknown that causes me as much or greater concern. You have to understand. When I grow my business, when I take financing to buy a new press or increase the investment in my business, I put my personal assets on the line. I put my home on the line as collateral, my family’s home on the line as collateral. When you have this much unknown, and unknown cost certainty in a law ‑‑ and I challenge anyone on this committee to tell me what my health care cost will be two years from now ‑‑ it creates much less of an incentive for me to take the necessary risk.
So, I will leave you with this, as I hand over the microphone. My story is personal, but it is by no means unique. There are hundreds of thousands, if not millions, of small business owners across this country facing the same issues. And how can we ask those businesses to help the economy prosper, yet put a drag on one of the main engines of economic growth?
*Chairman Camp. All right.
*Mr. Olivo. Thank you.
[The statement of Joe Olivo follows:]
*Chairman Camp. Thank you all for your testimony. We will now go to the questioning period. And as I indicated, we will pick up where we left off. And so, Mr. Roskam is recognized for five minutes.
*Mr. Roskam. Thank you, Mr. Chairman. I just want the record to reflect that I respond promptly to emails and letters from Dean Heller, and even shoves in the elbow.
Mr. Holtz‑Eakin, I’m sure you watched the speech last night that the President gave. And one of the things that struck me was his presentation of, really, a straw man argument, and that is the assertion ‑‑ we even heard that asserted today from Mr. Goolsbee ‑ that we don’t want to go back to the days of, you know, folks being pressed out and not included on pre‑existing conditions.
There is really nobody that’s proposing that. House Republicans, Chairman Camp authored, I think, a very thoughtful piece of legislation that dealt with that through high‑risk pools. Could you comment sort of generally on this whole notion of two different visions?
Dr. Boustany mentioned this in responding to Mr. Neal when he said, “Look, the underlying premise of this new law is to expand coverage by putting people on Medicaid.” You alluded to this in your brief opening statement about entitlements outpacing the economy in general. Could you just give us a couple more thoughts on that?
*Mr. Holtz‑Eakin. Well, certainly, thank you. And with all due respect to the President, I think it is a straw man argument. If you roll the clock back to the beginning of the debate over health care reform, there was a bipartisan agreement that it would be desirable to control the growth of health care spending in the United States, and to cover more Americans with affordable options. That’s a bipartisan objective.
The difficulty is that this law doesn’t control costs. And unless that is done, you will never be able to control insurance costs. And thus, even someone who has insurance will find it unaffordable.
The second thing I would say is that there are severe problems in using Medicaid as a source of coverage expansions. Having a piece of paper that says, “I’m a Medicare beneficiary” does you no good if you can’t see a provider. And Medicaid beneficiaries are denied providers, you know, at much higher rates than Medicare or private insurers. About half of them can’t find primary care physicians. So they end up in emergency rooms at twice the rate of even the uninsured. That’s not a solution to a coverage problem.
The third thing I would say is there is a competing vision. The other vision is genuinely controlled health care costs. Give people control of their money, use those resources wisely, allow them to choose insurance that fits their family circumstances, their lifestyle, and make insurers compete, whether it be across state lines, or more vigorously within states, so that you get decent insurance options and underlying control of the costs. That’s another route to the same two goals. But it’s a shared goal, and it always has been.
*Mr. Roskam. Thank you. Mr. Olivo, the previous witness, Mr. Goolsbee, said that there is a great deal of confusion about the health care law. And I was kind of thinking about that, and I was listening as he asserted that.
And, in one element, I would agree with that. There is confusion. There is a great deal of ambiguity, for example, about who gets exemptions from the Administration. There is about 200 businesses or unions or other groups that have been exempted. Apparently it’s an exemption program that’s only based on their initiative. In other words, you have to ask for it, it’s not a blanket exemption. And it’s not a permanent exemption, it’s a one‑time exemption. So there is a great deal of ambiguity and uncertainty, and you alluded to that.
But at another level, there is a real sense of clarity about the health care law. For example, you figured out that the cost pressures on you are making a dynamic such that it might make more economic sense to your bottom line not to offer coverage, and to have folks go into the pool. You figured out that you’re knocking on the door with 45 employees. Once you hit a 50‑employee trigger, then your world changes on a whole host of things.
Could you reflect on how it is that the health care law, and that sense of clarity that I have articulated, how is that driving the business decisions for you and your family, as you’re trying to move this company forward?
*Mr. Olivo. Thank you for your question. Yes. I mean the health care ‑‑ the problem with the health care, the expenses have increased so much, especially against any other expense within my business. And you have to understand, like I had pointed out, is when we invested and put our personal assets up for collateral, I don’t have the luxury of being wrong in my assumptions.
So, when there are these costs, and I feel that there is costs that are unknown in addition to that, I have no choice but to be reflexively ‑‑ take much less risk ‑‑ maybe not buy another press or hire that extra employee until it’s absolutely ‑‑ I absolutely have to have them. So it really forces me to be much more conservative in how I invest in the business.
*Chairman Camp. Thank you. Mr. Buchanan is recognized.
*Mr. Buchanan. Thank you, Mr. Chairman. Mr. Eakin, I wanted to ask you a question, because I get asked this a lot back home. And I think the ranking member had mentioned it.
How in the world can you add 32 to 52 million people, where you give either free or highly subsidized health care, and think, even though there is a third party out there that says that the deficit ‑‑ we’ll reduce the deficit, where are they coming up with this information, other than in Washington?
*Mr. Holtz‑Eakin. Well, on the substance, I believe I’ve been very clear. I do not believe that this reduces health care costs. And if you add that many uninsured people to the pool, they will use more health care services. And all the evidence is health care costs will go up.
With regard to the CBO’s estimate of the budgetary impacts of the bill, my gripe is not with the CBO, which does its job under the rules that the Budget Act imposed. My gripe is with the drafters of the law, who used the Budget Act rules to make sure that CBO came up with exactly the answer they wanted, even though it was in defiance of economic common sense.
*Mr. Buchanan. Yes, and I just want to say I was chairman of the Florida Chamber, and chairman of our little Chamber, and we had about 2,500 businesses, locally. This has been, by far, the biggest issue in the last 10, 20 years. This isn’t something that’s happened the last couple of years. Everybody is challenged. I get hundreds of stories, but everybody is challenged.
And that’s why I don’t understand, if people really get out and talk to businesses in their community or not. Being in business 30 years myself, and not a career politician, I can tell you this is drowning a lot of businesses.
I was in a business this week, one of the largest private employers in our region. His health care cost, he told me, went up a million‑and‑a‑half dollars. Now, maybe he has 400 employees or 300 employees. If that’s not job killing ‑‑ that’s his point to me; I know they don’t like that term ‑‑ but when your premiums are going up, the CBO, I think ‑‑ no, the CEO roundtable mentioned that health care costs for a family of 4 are about $10,000 in corporate America. They say in the next 10 years, with this health care bill being considered, it’s going to go from $10,000 to $30,000.
I was at another small business ‑‑ I wasn’t there to talk to them about ‑‑ they wanted to talk to me about private pharmacy. And he said, “By the way, Mr. Congressman,” on the way going out, he said, “I want to show you this,” and he brought out his bill. Just got his increase a couple of weeks ago. Another 23 percent increase. So, everybody is going up 23, 30 percent a year.
My experience is you get a bill and it’s 28 percent, and you say, “Oh, my God, and you start working towards trying to get it down to 18. You cut some benefits, you have the employees pay a portion of it.
So, again, I don’t see ‑‑ and I think the ranking member mentioned our expenses are going to go up there ‑‑ I don’t see the offsets anywhere. I think this is a $1 trillion large entitlement going forward, and it does little or nothing for small businesses in the country.
And I think it is ‑‑ however you want to look at it, personnel expense used to be 20 percent of the payroll, or whatever, benefits 20 percent of what you paid someone. Today there is a general feeling out there, “Do you want the salary, or do you want the benefits, but you can’t have both.” And that’s what is driving, I think, a lot of things up here.
Let me mention ‑‑ you had mentioned about being in the printing business, and I was in the printing business for a lot of years. How much has your cost gone up, say, in the last five years and then the last year, this year and then next year? Do you see a general trend, or a percentage increase over, let’s say, 6, 10 years? Pick a number.
*Mr. Olivo. I would say the last 10 years the renewal for our existing policy has never been less than 12 percent, and has been as high as 49 percent. So every year we are faced with, as you described, the task of re‑evaluating what type of new policy are we going to have to implement in order to provide coverage, to the point that we’re still able to provide a plan that we pay 100 percent of the premium cost for our employees.
*Mr. Buchanan. And then let me ‑‑ Mr. Eakin, one other thing I touched on earlier today ‑‑ I had to step out. But we have people that have talked to us about this medical tax. And I think one of our surgeons mentioned something about that. Many of them are telling me that they’re going to pay more in tax than they will even make in profit, this 2.3 percent tax.
The fact of the matter is there is ‑‑ the medical device industry has about 400,000 employees in the country, and another ‑‑ indirectly, about 2.5 million people ‑‑ 2 million jobs that’s being created. And they said if this tax goes into effect, it’s going to really impede their ability to grow their companies. Do you have a thought on that?
*Mr. Holtz‑Eakin. Well, as I laid out in the testimony, there is only a couple of possible outcomes. Number one, they eat the tax, but they don’t have the financial resources to do it, so they will probably go out of business. Number two, they take it out of employee costs. That means lower wages, fewer jobs, bad for struggling labor market. Or, number three, you pass it on to consumers in the form of higher prices. If medical devices are more expensive, insurance is going to be more expensive, and the problems of employers get multiplied.
And, as I mentioned, there is a perverse aspect of these taxes in the bill, which is that they’re not deductible. So, to just break even, if you have $1 of tax, you have to have $1.54 in additional revenues. So you have to raise prices a lot, and that’s a big pressure upward on premiums in this law.
*Chairman Camp. Thank you. The gentleman’s time has expired. Mr. Pascrell is recognized.
*Mr. Pascrell. Thank you, Mr. Chairman. I want to just respond first to Mr. Buchanan’s remarks. What you have described is unsustainable, the exact situations which you have described.
Between 2007 and the passage of health reform, I had many small businesses ‑‑ I have a small business advisory committee. And the increase in their health cost was between, on average, 28 to 40 percent a year. Health care reform, or as some on the other side would like to refer to it, Obamacare ‑ and they say it with such love and charity ‑‑ you can’t sustain those numbers. I don’t mean you, personally. We can’t.
And those businesses, 60 percent of them, are no longer doing any business. They’re done. The primary cause of those businesses closing their doors ‑‑ the primary cause; there are other causes ‑‑ is what they have paid in their premiums.
And I want to talk to you, Mr. Olivo, fellow Jersey guy. What’s interesting, I read a little bit about what you said, because I came in a few minutes late. But I want you to think about this. Ninety‑five percent of businesses are exempt from employer responsibility requirements. I just wanted to start with that.
Now, I think there is a possibility ‑‑ I’m not saying this is guaranteed or for sure ‑‑ that it sounds like your carrier might have pulled a fast one on you, and I will tell you why. When they raised your rates and lowered your benefits last year ‑‑ by the way, that’s not unfamiliar to any of us ‑‑ and we were a good scapegoat. Obamacare was the perfect scapegoat before it even went into effect. “We’ll blame this bill, which will become an act, on whatever we do this year.” You saw what happened in California. It’s a scapegoat. And we expect that. We’re all big people, we understand what happens in a political debate.
You stated that your insurance carrier informed you that they would be ‑‑ not be renewing your high‑deductible coverage due to the preventative health benefits in the new law. Are you aware of the fact that the new preventative benefits don’t apply to plans such as yours that are grandfathered? I would ask you ‑‑ I ask that rhetorically. I just want you to think about that.
And are you aware that the new ‑‑ the IRS rules, not the new IRS rules ‑‑ permitted high‑deductible plans to waive the deductible for preventative services, even before reform was enacted?
You know, I get a charge ‑‑ I get a big charge ‑‑ out of listening to folks tear this thing apart. Someone on the panel made this statement in a magazine that, “The elimination of denial of coverage for pre‑existing conditions, and the elimination of the lifetime limit, those things drive up costs. Premiums are going to go up in the short run if we don’t take into consideration pre‑conditions.”
This is a battle. There is no question about it. We battle civilly here between what the insurance companies want out of this and what the patient really needs, so we can really drive down the cost.
We agree over the last 10 years premiums have skyrocketed. You and I both agree with that, two Jersey guys here. Families face bankruptcy due to medical bills. We agree.
*Mr. Olivo. Certainly.
*Mr. Pascrell. Okay. And competition decreased ‑‑ I go through each state ‑‑ in the insurance industry. In fact, you know, the average state, there is two or three people, companies, writing insurance. That’s a good situation. Not for us, but for somebody else.
I haven’t heard any response about those kinds of things. And why should you? You’ve got a script. Let’s follow the script. The number of uninsured individuals grew that now, 1 in 5 young Americans under the age of 65 are uninsured. Those are the numbers from the Kaiser Foundation. These conditions are not ideal.
Nine months after health care reform, I am proud to say that change is already underway. And I would conclude my remarks that if health care reform is bad for business, why have over 120 businesses in my state, New Jersey, received grants to support groundbreaking biomedical research on pancreatic cancer, brain injury, Alzheimer’s, and more? This money supports jobs.
Well, I have 150 employers in my state enrolled in the early retiree reinsurance program. Cities like Newark, Paterson, Clifton, all enrolled. And even big businesses, such as Johnson & Johnson, Mercedes Benz are enrolled in the program.
*Chairman Camp. The gentleman’s time has expired.
*Mr. Pascrell. They see the benefits.
*Chairman Camp. Thank you for concluding.
*Mr. Pascrell. And I thank you, the panel, for telling us ‑‑
*Chairman Camp. Mr. Smith is recognized for five minutes.
*Mr. Pascrell. ‑‑ what you did.
*Mr. Smith. Thank you, Mr. Chairman, and thank you to the panel for sharing your expertise and insight. Mr. Holtz‑Eakin, if you could reflect a little bit on uncompensated care, is it conceivable that even Medicaid would fall into a category that a hospital would perceive to be uncompensated care?
*Mr. Holtz‑Eakin. Yes, there are two large forms of cost‑shifting in the insurance industry. One is from uncompensated care, the traditional someone walks into an emergency room uninsured, gets care, and has to be covered somewhere, and the second is the shifting from government programs, where Medicare pays about $.70 on the dollar, relative to private insurers, and Medicaid pays even less, roughly $.50 to $.55 on the dollar, depending on where you are. And those gaps have to be made up elsewhere, as well. So, those are shifted under private health care costs.
*Mr. Smith. And, I mean, is it your assertion as well that the health care bill does immensely grow the Medicaid rolls?
*Mr. Holtz‑Eakin. Half of the coverage expansions come through Medicaid expansions. Sixteen million Americans will be put into a system that involves considerable cost shifting on to private insurance, and which, at present, they are twice as likely to go to E/R’s, instead of having that care on a regular setting, and where they can’t find a ‑‑ particularly a primary care provider at anywhere near the rates other people can.
*Mr. Smith. Would it be conceivable that any federally‑initiated medical liability reforms, that they might pre‑empt some state medical liability laws?
*Mr. Holtz‑Eakin. There is the option always for federal preemption. And so it would depend on how the law was written. But we do know that state‑level experience has shown that a variety of different malpractice reforms have been effective at controlling some of the costs, and that if you had a strong federal preemption that applied universally, you would have a much bigger impact.
*Mr. Smith. I say that because I am a little bit nervous that Nebraska might lose its rather optimal scenario, given its medical liability ‑‑
*Mr. Holtz‑Eakin. Draft carefully, sir.
*Mr. Smith. Duly noted. And I appreciate the business perspective shared here this morning, as well, certainly reflective of many of my constituents, some of whom have said they have held off hiring new employees, simply because of the unknowns contained in the health care bill.
So, with that, in the interest of time, I will yield back. Thank you.
*Chairman Camp. Thank you very much. Mr. Schock is recognized.
*Mr. Schock. Thank you, Mr. Chairman. I too will be brief. I have questions for the business owners.
You know, last year the President said his major focus in 2010 would be jobs. In 2011, last night in the State of the Union, he said his major focus will be jobs. So, as two employers, I’m kind of curious, specifically with regards to how the health care bill is going to affect jobs, particularly those opportunities for the young people in America who rely on part‑time employment through their high school and college years to supplement their income to pay for education, which the President talked about last night being so important to America’s competitiveness in getting long‑term gainful employment for their futures.
Scott Womack, you mentioned that you have 800 employees. And I’m wondering if you have studied this bill ‑‑ which it sounds like you have ‑‑ the effect on what this will mean for your ability to hire part‑time employees, considering the bill really, from what I’m hearing from my employers in my district, almost incentivizes doing away with part‑time employment, and really consolidation of the number of employees you have.
Is that what you’ve found? Or how do you see, if this bill is implemented as it stands now, will affect the employment opportunities you can provide?
*Mr. Womack. Well, thanks for the question. Actually, it incentivizes moving people from full‑time status to part‑time status. That part‑time and hourly job market right now is absolutely saturated with people, people who are not working.
So, the reality is that we will be looking to get people under that 30‑hour threshold, wherever we can. So I don’t see it helping at all.
*Mr. Schock. And of the 45 employees who are full time that you offer health insurance to, how many of those 45 take your health insurance?
*Mr. Olivo. That would be my company. Currently, out of those 45, I believe it’s approximately 30 take the coverage.
*Mr. Schock. And do you know the other 15, do they not take it because their spouse or someone else offers ‑‑
*Mr. Olivo. That is correct. No one in my company is uninsured.
*Mr. Schock. So it’s not too bad that 30 out of your 45 seem to think your health are is a preference, and using the term in the bill, is “adequate” coverage.
*Mr. Olivo. Yes. Their biggest complaint would be ‑‑ is the cost of the premiums on the family side. But, yes, the coverage is great. They feel it’s very fair.
*Mr. Schock. Do you know if your health care coverage that you offer now is going to meet the minimum standard in the new law for adequate health care coverage?
*Mr. Olivo. The coverage that we offered in 2010 will not. We have already been notified of that, because of how preventative care is treated.
*Mr. Schock. And how much do your agents or your third‑party administrators suggest ‑‑ how much will your insurance premiums increase to meet the new standard?
*Mr. Olivo. We just got our premium increases in the other day. It’s a 12 percent increase in premium, but also a significant increase in how emergency room visits are treated. It’s much more costly to go to the emergency room, significantly more.
*Mr. Schock. And so, what will the cost per premium, on the average, be for you?
*Mr. Olivo. For an individual, the cost per premium in the coming year will be approximately $280 per month per individual.
*Mr. Schock. Have they looked at what the ‑‑ when the bill is fully implemented in four years, what it will cost for you to be able to provide that minimum adequate health care coverage, as specified by the law?
*Mr. Olivo. I have no way of computing that at this point.
*Mr. Schock. Oh. I would ask your third‑party administrator to do that, because I’m sure they’re doing that.
So, thank you very much for your comments here today.
*Chairman Camp. Thank you. Mr. Kind is recognized.
*Mr. Kind. Thank you, Mr. Chairman. I want to thank our panelists for their testimony here today.
Mr. Chairman, from my perspective, I think today’s discussion is very healthy, and I would encourage you to hold more hearings in regards to the Affordable Care Act, because there is some belief out there that with the passage of the Affordable Care Act, that somehow the discussion ends, and it doesn’t, that somehow the work ends, and it shouldn’t. I think we will be judged, ultimately, in this congress and future congresses, by working hard to find out what’s working in the health care system and what isn’t, and making adjustments along the way.
So, getting testimony like this, and feedback in regards to the shortfalls which all of us are trying to accomplish, I think it’s going to be helpful.
But there has been a lot of discussion in regards to job creation, and what the Affordable Care Act means in that regard. Now, let’s just recall. We’ve had 11 consecutive months of private sector job growth in this economy, since the passage of the Accountable Care Act. We have had 1.1 million new private sector jobs that have been created. Over 207,000 of that is in the health care industry, alone.
And I don’t know how many of you saw a recent Forbes article that was printed in the Forbes magazine, but a recent article in Forbes highlights how small business tax credits in the reform law are already helping small employers deliver health care coverage to their employees. According to Forbes ‑‑ we’ll just look at the facts, here ‑‑ insurance companies are reporting a significant increase in small businesses offering health care benefits to their employees.
For example, United Health Group, the nation’s largest health insurer, added 75,000 new customers working in businesses with fewer than 50 employees within the last year. Coventry Healthcare, a large provider of health insurance to small businesses, added 115,000 new workers in 2010, representing an 8 percent increase. Blue Cross Blue Shield of Kansas City, the largest health insurer in the Kansas City area, reports an astounding 58 percent increase in the number of small businesses purchasing coverage in their area since April of 2010.
Repeal of the Affordable Care Act, as my colleagues last week voted for, would entail the largest tax increase on small businesses in our nation’s history ‑‑ 16,000 small businesses in western Wisconsin alone will see their taxes go up, who are today benefitting from these tax credits under the Affordable Care Act. Over four million small businesses nationwide are taking advantage of the tax credits, so they can better afford health care coverage for their employees.
And what’s ironic ‑‑ and, Mr. Olivo, I appreciate your testimony here today ‑‑ but the health insurance exchange that we’re setting up for small businesses and for family and individuals was based on the “shop act” that I, in a bipartisan fashion, had introduced in previous years that NFIB endorsed. The creation of an exchange, so small businesses finally have a chance to go and shop with complete transparency, so you know what the costs are and what the benefits would be, coupled with tax credits, which we did in the Affordable Care Act, is something that small businesses have been calling for for years. And it’s part of this bill right now.
But I think, ultimately, we are going to be judged on whether this works or not, depending on whether we have the ability to bring costs down.
And here is another bipartisan idea that’s in the bill. We have to change the way we pay for health care in this country. It’s as simple as that. The current fee for service system under Medicare is all based on volume payments, regardless of results. This is crazy.
And right now we have an Institute of Medicine study, two‑year study as part of the reform bill, that calls on them to change the fee‑for‑service system to a fee‑for‑value reimbursement system. They will present an actionable plan to the Administration, the IPAB Commission, to implement. And this is something that Newt Gingrich has been talking about for years, that Dr. Frist is still talking about today. Tommy Thompson at HHS told me that if we do one thing with health care reform, change the way we pay for it, starting with Medicare. Because whatever we do in Medicare is going to drive the private health insurance market.
But it goes even beyond that. Health insurance companies from East Coast to West Coast have been calling for payment reform for years. Large providers, which are models of health care delivery systems, highly integrated, coordinated, patient‑focused, from Innermountain to Mayo to Geisinger to Cleveland Clinic to Gundersen to Marshfield have been calling for this very thing that we finally have the tools in health care reform to accomplish. We start with accountable care organizations in the innovation center, telling providers, “We want you to be creative, we want you to innovate, we want you to deliver high‑quality care at a better cost.” This is where we need to drive the health care system.
But ultimately, if we stick with the fee‑for‑service system under Medicare, we will bankrupt our nation, because we will never be able to keep up with the cost, all based on volume payments, regardless of quality, regardless of outcome. And this is crazy. We finally have the ability now to do something about it, if we play it through. You don’t change the way you pay for one‑fifth of the U.S. economy overnight. It’s not going to happen. It’s going to have to be transitioned. And we instituted that in the reform bill, as well.
So, I would hope that we will have a chance to come together in a bipartisan fashion again, talk about the payment reform, which can really lead to cost reduction for everyone, so that health care is something that will be affordable to businesses large and small, and to individuals throughout this country.
*Chairman Camp. Thank you.
*Mr. Kind. Thank you, Mr. ‑‑
*Chairman Camp. Thank you. Mr. Lee is recognized.
*Mr. Levin. We have to vote, don’t we?
*Chairman Camp. Yes.
*Mr. Lee. Thank you, Mr. Chairman, and I want to thank our panelists for being here. I can’t help but be a little skeptical, after hearing the President’s State of the Union Address, as well as the first panelist, Mr. Goolsbee’s testimony, when it comes to the reality of this health care bill that we’re dealing with.
If you remember last night, the President talked about in his speech with the dysfunctionality of our government when he used the example of the Interior Department is in charge of salmon when it’s in fresh water, but when it’s in salt water it’s the Commerce Department, and if it’s smoked, God knows where.
Ironically ‑‑ and I would ask this to Mr. Holtz‑Eakin ‑‑ isn’t it true that this new health care bill will, in fact, create upwards of 160 new agencies, bureaus, and commissions? So, in effect, he is actually adding to the problem, rather than fixing it?
*Mr. Holtz‑Eakin. The exact number has always been hard to figure out, but that’s a safe guess.
*Mr. Lee. I agree completely. The other point, too, as you brought up now, the issue of the 1099. It is very apparent, in my eyes, that this was more or less a cash grab. This was put into the bill ‑‑ if you’re a small business owner and you do not have an accurate tax ID number, you’re on the hook, and have to withhold 28 percent, as the small business owner.
Again, these are huge costs on someone who is trying to get by day in and day out. And I am learning from both Mr. Womack and Olivo, that, in your mind, this health care bill, is it more likely or less likely for you to go out and hire people at this point?
*Mr. Womack. Well, without a doubt, it’s created a tremendous amount of uncertainty. And it’s frozen credit markets, as far as restaurants go. Those are just now starting to loosen up. But as we get closer to this, and the implications become more clear, credit markets are going to freeze up, it’s going to be harder to borrow money to build new restaurants.
The other thing is that, as I stated earlier, the only way to pay for this in our business is to cut costs. And we are a lean, mean industry now. We don’t have a lot of fat. And the things that we can control are payroll, and to minimize the impact of these penalties. So that means cutting jobs. It doesn’t mean adding jobs.
*Mr. Lee. We’re getting to the tipping point where risk reward no longer makes sense for someone to go out, as a small business owner, and take his dream and go out and start a business.
The other ‑‑ maybe I can bring this back to Mr. Holtz‑Eakin, with regards to Medicaid, I have the luxury of living in New York State, which has, far and away, the highest Medicaid expenses. I think if you compare it next to equivalent states like Florida and Texas, where their economies are doing relatively better, the same number of citizens living in that state, but literally twice the Medicaid expenses.
With the passage of this bill, ultimately, is it going to increase or decrease the Medicaid costs that we’re seeing in New York State?
*Mr. Holtz‑Eakin. I think the states are at great risk. They are obligated to honor the expansions under the Affordable Care Act. They may get additional payments from the federal government for that, but they have to pay full freight on any current eligibles who now show up and take up benefits. And I think the real risk is that, in advertising the Affordable Care Act, we’re going to draw out of the woodwork a lot of existing eligibles, and New York State will have to pick up their full share of their cost.
*Mr. Lee. At a time where to start a small business in New York State, it is a huge obstacle. And, again, I ‑‑ as someone who has run a small business, I just see this as a further death knell for the creative side of what made this country great.
And I would say the same thing deals with the medical device tax. When we are trying to ‑‑ I come from manufacturing. When we’re ‑‑ the President spoke again, the contradiction of talking about in helping businesses thrive, we’re going to go now and add a tax onto a business.
Again, Mr. Holtz‑Eakin, in your view, is this going to help our manufacturers in the health‑related device industry compete? Is it going to help or hurt them?
*Mr. Holtz‑Eakin. This is an additional cost for our device manufacturers on the international market. It’s going to hurt their competitiveness.
It’s also one of many taxes that, if you just look at pure macro economics, the evidence is that discretionary tax increases ‑‑ of exactly this type, things that have nothing to do with the business cycle, you just do it for other purposes ‑‑ the evidence of Christie Romer, the former chairman of the Council of Economic Advisors, is that they are three times more detrimental to the economy than equivalent spending changes.
So, if you look at this act as a whole from that perspective, the tax increases’ negative impacts far outweigh any possible benefits of the spending.
*Mr. Lee. Thank you.
*Mr. Herger. [Presiding] The gentleman’s time has expired. The gentlelady from Tennessee, Ms. Black, will inquire for five minutes.
*Ms. Black. Thank you. Thank you again, panel, for being here. It looks like I’m the last one here, but the audience will still hear this question. And all of you can answer this question, but I think, Mr. Womack, you particularly talked about health care savings accounts.
And continuously, the Administration has claimed that the health care law is giving Americans more freedom in their health care choices. And, in reality, this law is really going to force many Americans to buy a product which is a government defined health care product. In addition to that, he, President Obama, also promised that the American people, if they liked their current health care insurance, they would be able to keep it.
But as we see in the law, it will limit the use of health care savings accounts. And being in the medical field for a number of years ‑‑ 40 years now ‑‑ I think that one of the things that we have seen that has driven the cost of health care up is that we have taken the consumer out of the driver’s seat, and they are not making choices.
And I was very excited about maybe expanding this product, because it would give an opportunity to put somebody back in the seat that wants to be in the seat, and it would also give more opportunities for different vehicles, rather than a set type of insurance that most employees do have and offer to their employees.
Mr. Womack, I think you’re the one that mentioned about health care savings accounts, and all of you certainly can respond about where you feel that this might help companies, if they were given that choice, to use those as compared to being forced into a certain product or a certain type of care.
*Mr. Womack. Thank you. And I am a Knoxvillian, believe it or not.
*Ms. Black. Oh, great.
*Mr. Womack. Yes, nice to see you. We were faced with huge premium increases last year. And I can’t remember the number, because we were bidding and we saw so many different numbers, but it was in the neighborhood of 30 percent. And so, we decided to go ahead and look at an HSA, and we did begin to offer an HSA as an option to our managers.
And I have my own HSA story. My wife had an MRI ordered recently by the hospital, at a cost of $1,100. And someone said, “You need to shop that around.” And so we went out and into a diagnostic facility, literally just down the road, and got the same procedure for $350. Truthfully, I don’t know that we would have even thought about that, had we not been using an HSA, where we were spending the money out of our account, ourselves.
So, it’s that type of story that gets told over and over and over in HSA’s. They’re just a huge benefit. When you put the individual more in touch with their own spending, they will find ways to control it. And they get to keep that money in the account and roll it forward. And it’s just ‑‑ it’s a beautiful plan that should not be impeded. We shouldn’t do anything to hamper HSA’s. Thanks for the question.
*Mr. Olivo. I would say, very quickly, I have a similar story. We put the health savings accounts in six years ago, and the first year the employees resisted it, did not like it. But, over time, they have grown to appreciate. Those that take care of themselves have seen their savings accounts grow.
And I, too, have seen instances where employees had exams or scanning type of tests to be done, and were able to go online and literally save a couple thousand dollars because they were able to research it themselves, and there was an incentive there to do so.
*Ms. Black. Yes, Mr. Holtz‑Eakin.
*Mr. Holtz‑Eakin. Yes?
*Ms. Black. Do you have a comment?
*Mr. Holtz‑Eakin. Oh. Well I don’t have the business experience of these gentlemen. But certainly in the alternative reforms that were envisioned in the debate leading up to the Affordable Care Act, one version is to put consumers at the centerpiece of this one‑fifth of the economy, in the same way that they have driven the other four‑fifths, to be the largest, strongest, economy on the planet. And then, you know, require insurers and providers to compete in price and quality. And that’s a very different vision than what we see in this law.
*Ms. Black. Thank you. I yield back my time.
*Mr. Herger. The gentlelady yields back. The gentleman from New York, Mr. Rangel, is recognized for five minutes.
*Mr. Rangel. Thank you, Mr. Chairman. And let me thank this panel for sharing with us the problems that you’re having with this legislation, especially those of you who work every day in dealing with employees.
Tell me. Both of you, and certainly the Chamber, advocating repeal of the law that the President signed. Is that correct?
*Mr. Womack. Yes, it is.
*Mr. Rangel. And you don’t have a plan that you’re recommending. Do you ‑‑ strike that.
You think that we’re better off without any changes in the law, than to enforce or to amend the existing law?
*Mr. Olivo. I could say from my vantage point, as a small business owner, that for ‑‑ I look at it as action/reaction. For Congress ‑‑ what Congress has passed, I’m seeing far more significant reactions to any positive that this will bring to my employees.
*Mr. Rangel. I can understand that. But my question ‑‑ and I don’t have any experience at all in hiring employees ‑‑ is that, as a business man ‑‑ and I know you can’t speak really on this issue, Mr. Womack, for the Chamber ‑‑ but for yourself, with your businesses, you would rather see the government just stay out of it, rather than to amend or try to correct the existing law. Is that your position?
*Mr. Womack. Oh, I guess I’ve gotten used to the government being in the middle of things, and I don’t say that sarcastically. We anticipate some sort of change ‑‑
*Mr. Rangel. Do you have ‑‑ I’m concerned what happens if we just stop this, and ‑‑ are all of your employees, one way or the other, covered by some type of health insurance?
*Mr. Womack. I don’t believe so. And ‑‑
*Mr. Rangel. So you do have employees that are uninsured that you would want to see insured, as anybody would, just ‑‑ right?
*Mr. Womack. Absolutely. But the problem is ‑‑
*Mr. Rangel. Do you have any idea as to how you would want to insure these people that are uninsured, other than what has been recommended and passed by the Congress?
*Mr. Womack. No. And the reason is very simple. We’re talking about more money than is available. We don’t have the money.
*Mr. Rangel. And so ‑‑ listen. The problem we’re facing ‑‑ there is sharp differences of opinion here. The National Business Group on Health indicates that they don’t think they can get a better solution to the problem I mentioned during their lifetime, during our lifetime. If they get repeal, or gut it, we will have to start all over again, and we’ll be worse off.
And so, I think, generally speaking, every nation truly believes that access to health care is important for the strength and security of the country, and that our workforces should be better educated and be exposed to preventative care and health care. You want that. You’re just saying that you can’t afford it.
*Mr. Womack. Absolutely.
*Mr. Rangel. Well, our job is to say that, one way or the other, the government is going to make certain that it is affordable. We consider that as a national obligation and goal. All industrialized countries do it, not because of compassion, but even in the question of competition we do believe that an educated workforce and a healthy workforce is more productive.
I can understand how you cannot afford to do what basically you would like to do. But you just can’t leave those people out there hanging that have no insurance at all. When we find out that personal lives and families are shattered, bankruptcies, not because of you, and not because of the employee that faces serious illness. So, if you wanted to help them ‑‑ and I truly believe you do ‑‑ it doesn’t help the family to say, “Hey, my boss is great, he just can’t afford to help me out in this crisis.” No.
I believe, and a lot of people disagree, but I truly believe we have an obligation to at least give access to health care, one way or the other. And if you don’t like this way, I really believe you have some type of an obligation as business people that have the experience that we don’t have, generally speaking, not just to leave these people out there, hanging.
And to say that no insurance is better than what we have, I don’t really think that’s a legitimate ‑‑ I don’t think it’s fair to us to say all the things we’ve done wrong, and not have any positive suggestions that we can take care of those employees that you want to take care of.
*Mr. Womack. Well, Mr. Rangel ‑‑ and this is a dilemma that’s been discussed for years. And so, you know, I don’t take any offense to your comments. The problem ‑‑
*Mr. Herger. The gentleman’s time has expired. If we could sum up very quickly.
*Mr. Womack. Okay. The problem is that, in a nutshell, the only solution ‑‑ if you ask the employers in our industry ‑‑ and I will just speak for my industry ‑‑ if you ask for employers from my industry to pick up that burden now, it’s a crushing, complete disruption of our industry, and we can’t turn on a dime.
*Mr. Herger. The gentleman’s time has expired.
*Mr. Womack. Thank you.
*Mr. Herger. I want to thank Mr. Holtz‑Eakin for testifying. I understand you have a previous engagement you need to leave for.
*Mr. Holtz‑Eakin. That’s correct, Mr. Chairman.
*Mr. Herger. And if any of our members have any further questions for him, they could submit that in writing, and ‑‑
*Mr. Holtz‑Eakin. I would be delighted, and apologize for having to excuse myself.
*Mr. Levin. Mr. Chairman?
*Mr. Herger. Yes? The gentleman is recognized.
*Mr. Levin. Before you go, Dr. Holtz‑Eakin, I am going to send to you some inquiries about the forum. And I would like very much if you could respond.
*Mr. Holtz‑Eakin. I would be happy.
*Mr. Levin. You’re a sister organization, as I understand it, of the American Action Network.
*Mr. Holtz‑Eakin. That is correct.
*Mr. Levin. Let me just finish. I want to tell him what I’m sending him. I was told he was going to be here until noon.
And so, as I said, I think your website and that of the network says you’re sister organizations.
*Mr. Holtz‑Eakin. Yes.
*Mr. Levin. And we know the action of the network.
*Mr. Herger. If the gentleman could conclude ‑‑
*Mr. Levin. I will conclude very quickly.
*Mr. Herger. ‑‑ Dr. Holtz‑Eakin has indicated that he will respond by letter, so ‑‑
*Mr. Levin. I want to let him know in advance.
*Mr. Herger. ‑‑ the gentleman from Michigan will have his inquiry answered. So ‑‑
*Mr. Levin. Okay. So I just want you to know, so it doesn’t take you by surprise. I am going to ask you if you will reveal the sources of the income of the forum. Will you do that?
*Mr. Holtz‑Eakin. I will comply with the bylaws with the forum and with the U.S. tax laws. And I ‑‑
*Mr. Levin. I
*Mr. Holtz‑Eakin. ‑‑ and I will get your questions, look at them, and do ‑‑
*Mr. Herger. The gentleman will respond ‑‑
*Mr. Levin. Will you disclose
*Mr. Herger. The gentleman’s time has expired. The gentleman from Georgia ‑‑
*Mr. Levin. Why don’t you let him finish?
*Mr. Herger. ‑‑ Mr. Price, will inquire for five minutes.
*Mr. Price. Thank you, Mr. Chairman.
*Mr. Rangel. Wow.
*Mr. Price. And I apologize for not being here earlier. And I am sorry that Mr. Holtz‑Eakin has to leave, but I wanted to just make a comment about some of the taxes in the provision that are stifling the innovation.
The medical device tax, as we all know, when you tax something you get less of it. And the medical device tax, I believe, and many believe, that that increase in taxation there will significantly decrease innovation and affect remarkably high‑paying jobs that have wonderful benefits to our society. And I think that that’s a direction that we ought to look at. The estimates are that a 2.3 percent increase will be passed on to the consumers, either directly or indirectly, also.
So ‑‑ but I appreciate Mr. Olivo, Mr. Womack being here, and I want to talk a little bit about the consequences. Maybe, Mr. Olivo, if you want to just talk about your business itself, this bill has all sorts of requirements and stipulations and mandates that every single business in this country, employer in this country, has to look at.
What have you ‑‑ how much time have you spent in trying to make certain that you are going to be able to comply? What kind of costs have you expended to try to make certain that you will be able to comply? And what incentives are ‑‑ is the bill providing you that might not be necessarily beneficial to your business, itself?
*Mr. Olivo. I have personally spent hours of time that I could better spend managing my business reading the health care bill. I haven’t read it in its entirety, but interpreting it and using the resources I have with the business organizations like NFIB, in trying to interpret how it’s going to affect me.
Your question was as far as exactly what the ‑‑
*Mr. Price. And what have you determined? How is it going to affect you?
*Mr. Olivo. Just at every level. Just my concern about hiring a new employee, the cost that goes into hiring a new employee is not just his wage. The health care costs are such an integral component of what it costs me. And when that’s unknown, and when there is all this legislation hanging out there, it really makes me more conservative and say, “Maybe I don’t need that employee at this point in time.”
*Mr. Price. So the continued uncertainty, and the potential rules and regulations that will be passed on, leave you less able to expand your business or to hire new employees. Is that an accurate statement?
*Mr. Olivo. Without a doubt.
*Mr. Price. Great. Mr. Womack, I know that my sense has always been that there are some perverse incentives within the bill itself that make it so that employers look at the situation and they say, “It’s going to cost me more to provide health coverage for my employees. Why should I do that? Shouldn’t I just let them fall into the exchange?”
Are you hearing that from your members? And I wonder if you might expand on whether or not that is an accurate ‑‑
*Mr. Womack. Oh, absolutely. And, of course, again, we can’t afford the coverage. So we are absolutely going to have to look at the penalties. We have a real concern that our insurance companies that we’ve talked to are not going to allow us to continue to offer the coverage to our salaried staff, based on rules very similar to 401(k) rules regarding highly‑compensated employees.
So, that means that, really, through a whole other avenue, we either offer insurance to everyone, or drop it. We have 50 families on health insurance now in our company, and it’s an important part of what we offer as a benefit package.
*Mr. Price. So the statement that we heard throughout this whole discussion, “If you like what you have you can keep it,” may not necessarily be true in your business. Is that accurate?
*Mr. Womack. Sure, absolutely.
*Mr. Price. Would you expand, or do you have any thoughts on the incentives for other businesses, small businesses, to move individuals, their employees from the coverage that they currently have to the exchange?
*Mr. Womack. Well, I measure that penalty, really, at $2,800, because $2,000 is not tax deductible. You have to account for the taxes you pay on the income to pay the penalty. So it’s really more like $2,800. I cannot imagine that in the board rooms across the U.S., that people are looking at, you know, a $15,000 premium for an employee, or $2,800.
You know, very quickly you do the math, and you’re going to opt to drop that coverage. And it may not be just that simple math, it may be some sort of an event where, you have an issue with an insurance company, or you have a 40 percent rate increase, and finally ‑‑ enough is enough.
*Mr. Price. In fact, aren’t you almost, in the real world, obliged to drop that coverage, because your competitors will do so and then you’re at a competitive disadvantage? Is that an accurate statement?
*Mr. Womack. I would say that offering insurance is a significant benefit that helps make us more competitive. So we always want to offer the insurance, and we just can’t afford it.
*Mr. Price. Thank you.
*Mr. Herger. The gentleman’s time has expired. The gentlelady from Kansas, Ms. Jenkins, is recognized for five minutes.
*Ms. Jenkins. Thank you, Mr. Chairman. Thank you both for being here.
On a panel before you we had the chairman of the Council of Economic Advisors, Dr. Goolsbee, testify. And during his testimony, I noted that he said this. “The Affordable Care Act has already begun to help small business become more competitive by making health insurance more accessible and more affordable.”
Mr. Olivo, you’re a small‑business man. Could you give me an example of how the act has helped you ‑‑ has already begun to help you become more competitive?
*Mr. Olivo. Unfortunately, I could not give you an example. All I can tell you is that our existing insurance, which the employees liked the coverage, is no longer available. And our insurance premiums have continued to rise in a double‑digit percentage for the coming year.
*Ms. Jenkins. Okay. If they haven’t, in fact, already begun to, can you give me an example of how you will see them ‑‑ how you expect them, in the future, to cause you to have a more competitive health insurance and an accessible and affordable plan?
*Mr. Olivo. I don’t see how it’s going to be ‑‑ help us offer a plan that’s more competitive. My concern with the exchange is that they’re not true exchanges in the form of competition. They’re still heavily mandated types of policies. So there is not real, true competition.
Living and residing and working in New Jersey, we have the ‑‑ I believe it’s the third highest insurance rates in the nation. We have had guaranteed access, a community‑rated plan since 1993. And I can tell you from that point, when that law was instituted ‑‑ I’ve been running the company since 1988 ‑‑ I have seen a direct correlation with our health care cost beginning to rise from when that guaranteed access was put into place.
So, I just don’t see anything that’s going to make the premiums less expensive.
*Ms. Jenkins. Okay. Also in Dr. Goolsbee’s testimony he said this. “The Affordable Care Act can be a significant benefit to the job market, by easing the burden of health care costs on small businesses.”
So, once again, as a small‑business man, I was hoping you could tell us approximately how many jobs that you will be able to create, thanks to the savings that you will incur.
*Mr. Olivo. And I can say, for my company specifically, at 45 employees, we are not eligible for any sort of tax credit which I believe he was referring to.
*Ms. Jenkins. Okay, thank you. Mr. Womack, I was home in my district last week, and visited several major employers who have over 50 employees. And there was a consistent message that I was receiving this day, that they were frustrated with the regulations coming about, due to this bill.
And one in particular that they mentioned was that they were being required to provide lactation rooms if they employed more than 50 employees. And several of them were concerned, they had multiple locations, one location only had three men working at it ‑‑ if they were required to provide a lactation room for those three men, because, overall, their employees had totaled more than 50.
I just wondered if you had any concerns about this particular regulation, or others within this bill.
*Mr. Womack. Well, I do now. Thank you for informing me of that regulation. I wasn’t aware of that. And, of course, no surprise. There are so many things buried in the law that, you know, we don’t seem to be aware of. I don’t know how to react to that one in particular.
But, this layering on of all these little things, I mean, they just go on and on. It creates a tremendous amount of uncertainty and, you know, quite frankly, depression amongst the business community, just wondering how we’re going to keep up with it all.
*Ms. Jenkins. Is there any estimated cost for your business to meet all of these? I guess you probably can’t ‑‑ if you didn’t even know about this one, you probably don’t know about others to really adequately estimate ‑‑
*Mr. Womack. You know, we’re looking at that big bill, and we’re not counting the small ones right now. The big bill is frightening enough.
*Ms. Jenkins. Okay. If the Affordable Act isn’t getting it done for you, the Republicans had an alternative bill, and we had TORT reform, expanded FSAs, HSAs, purchasing across state lines, access pools. What other ideas do you have for us?
*Mr. Herger. The gentlelady’s time has expired.
*Ms. Jenkins. Thank you, Mr. Chairman. I yield back.
*Mr. Herger. I recognize the ranking member, Mr. Levin, for five minutes.
*Mr. Levin. Thank you very much. And we really appreciate your coming. I regret that Dr. Holtz‑Eakin had to leave, and I am sending him a letter today. And since this was a public hearing, I will make that letter public. And I expect him to give us an expeditious response.
But again, I very much respect your different views. Everybody brings different experiences, and we need to tap into them. So, let me ask you, Mr. Womack, how many employees do you have?
*Mr. Womack. Approximately 900.
*Mr. Levin. And how many of them have insurance?
*Mr. Womack. About 50.
*Mr. Levin. And all of the 50, are they in a certain category or two of work?
*Mr. Womack. They are either salaried management people or office staff.
*Mr. Levin. So, none of your employees who aren’t in management or in office staff have health insurance through their work?
*Mr. Womack. That’s correct.
*Mr. Levin. You would be required to provide health insurance under this new law?
*Mr. Womack. Correct, or pay the penalty.
*Mr. Levin. Or pay the penalty. So your 800 or so are part of the 50 million who have no health insurance in this country?
*Mr. Womack. That’s correct.
*Mr. Levin. Have you inquired into what the cost would be to insure them?
*Mr. Womack. Yes, I have run those numbers many times.
*Mr. Levin. And you find it too expensive?
*Mr. Womack. It’s much more than we earn.
*Mr. Levin. And so, therefore, trying to get control of health care costs would be potentially helpful to you, in terms of having your employees covered?
*Mr. Womack. Absolutely. The problem is the number has grown to a size where, even if you cut it in half, which is not going to happen, but even if you cut that number in half, it’s beyond our ability to pay.
*Mr. Levin. How many of them, do you know, are covered by some kind of a public program?
*Mr. Womack. I have no idea.
*Mr. Levin. You know what percentage are women?
*Mr. Womack. Not off the top of my head, no, sir.
*Mr. Levin. Just roughly?
*Mr. Womack. I’m going to guess roughly half.
*Mr. Levin. Do you know what happens when they get ill?
*Mr. Womack. They go seek treatment, and you know, at a local provider, and they get treatment.
*Mr. Levin. How do you know they get treatment?
*Mr. Womack. Well, we hear the stories.
*Mr. Levin. You don’t have any systematic way of knowing?
*Mr. Womack. No.
*Mr. Levin. They go to emergency rooms?
*Mr. Womack. Probably, or their local doctor.
*Mr. Levin. And they go to a local doctor who doesn’t charge them anything?
*Mr. Womack. No, they go to a local doctor that does charge them something.
*Mr. Levin. What’s the average wage of your non‑salaried, non‑office employees?
*Mr. Womack. It’s approximately $9 an hour.
*Mr. Levin. Okay. Mr. Olivo, you have a high‑deductible plan?
*Mr. Olivo. That is correct.
*Mr. Levin. What’s the deductible?
*Mr. Olivo. Well, it varies. I mean ‑‑ well, I ‑‑ roughly, within $100 I would say. The current deductible for an individual is $1,500, and for a family it’s $3,000.
*Mr. Levin. So they pay the first $1,500 ‑‑
*Mr. Olivo. The first ‑‑
*Mr. Levin. ‑‑ or the first ‑‑
*Mr. Olivo. That’s ‑‑
*Mr. Levin. $3,000?
*Mr. Olivo. Correct.
*Mr. Levin. I have no further questions.
*Mr. Herger. The gentleman yields back. I now recognize for five minutes the gentleman from Minnesota, Mr. Paulsen.
*Mr. Paulsen. Thank you, Mr. Chairman. And, first of all, let me just thank both of you for taking the time to come in here and share your small business background and experiences, and go through a pretty lengthy hearing.
I just want to touch on something, because I know Mr. Holtz‑Eakin had to leave, but you know, last night the President said that we do need to be a nation of innovators and a nation of leaders. And during this speech he reminded us of what it takes to compete for jobs and for industries. And, as entrepreneurs, I’m sure you can appreciate that especially.
But he did say, and I agree, we need to out‑innovate, out‑educate, and out‑build the rest of the world. We have to make America the best place on earth to do business. And there is one American industry I have to mention, because it’s a Minnesota success story as well, and that’s the engine of innovation and growth in the health care field. It’s medical devices.
And we heard from some other Members earlier about that, and the medical technology industry. And that’s an industry that employees about half‑a‑million individuals, and routinely revolutionizes patient care. And, unfortunately, the health care law does include a new $20 billion tax on this innovative industry.
I am going to call out one company in particular, because it’s a larger company. Boston Scientific, which employs more than 5,000 individuals in my home state of Minnesota, has estimated that that tax is going to cost the company an additional $100 million a year, and up to 2,000 jobs. It’s also going to cause a substantial cut‑back in Boston Scientific’s research and development budget, which is the origin of where all this innovation comes from that the President talked about in his speech last night.
And, you know, knowing that 62 percent of the medical technology industry is small businesses, small businesses like yourselves, for instance, you took an idea, you took the risk, you started it out, I’m just really worried that we’re killing an industry that it’s going to be very difficult to jump‑start and bring back here. And we can’t afford to lose it.
And so, just knowing we have to keep that innovation here, I had to make that comment, because Mr. Goolsbee had mentioned earlier that one of the benefits of that tax, as a part of the legislation, was going to basically allow about millions of patients now to access these device procedures that would not normally have had that market before. And I think the reality is that we look at it now in Massachusetts, which was the model upon which the legislation was built ‑‑ there was no increase in device utilization at all, as was, I think, suggested.
But I want to follow up real quick with both of you, since you’re small business people, and the health care savings account and the flexible savings account portion, and that’s because, you know, we know the health care law instituted new caps on popular flexible spending accounts, FSAs, that individuals use for their health care expenses, and they also prohibited the use of FSAs and health care savings accounts for purchases of over‑the‑counter medications without a doctor’s prescription.
And you mentioned a little earlier about, as an employer, what some of those results would be, or some of the detriments of the changes in the law would mean. And knowing that there are 10 million Americans that use FSAs, and 35 million Americans using FSAs ‑‑ HSAs and FSAs ‑‑ would you explain just ‑‑ I mean, give the patient perspective. I mean your employees. As a small business that wants to have an additional option, I mean from a patient perspective, what does that ‑‑ offer some ideas for your employees, rather than just the employer.
*Mr. Olivo. Well, as I had said before, we have had the health savings account, the high deductible plan, for six years. And I have witnessed how it has improved my employees’ incentive to better manage not only their health, but how they choose to go about obtaining health care.
And as I had said before also, the first year was very rough, in the sense that it was an HMO ‑‑ these people were raised on HMOs, and they did not like having to pay $150 initially to go to a doctor, when before it was $15 at the time. But over time, as they see their health savings accounts start to build up, and they see, “If I take better care of myself, I could get off this medication and now I save money,” it has certainly improved how they go about purchasing the health care.
*Mr. Paulsen. Mr. Womack, you want to comment, as well?
*Mr. Womack. Well, I think that any time that you allow people to accumulate money in an account like an HSA for the purpose of spending on their expenses, it becomes a huge incentive for them to really manage all those little costs. And sometimes those little hidden costs can be significant. You know that when you have the money in your account and you get to keep it, you have a very big incentive to manage your costs.
*Mr. Paulsen. Well, and Mr. Chairman ‑‑ and thank you for the testimony ‑‑ I just want to comment. I have talked to numerous small businesses and their employees that feel like they have had the rug pulled out from under them now, as they have gone through this adjustment, to take care of their own health care. And they are going to have to make a huge adjustment now, as the law has been changed.
And I would rather see us move into the expansion of FSAs and HSAs, to allow more flexibility and control costs. So I yield back, Mr. Chairman.
*Mr. Herger. I thank the gentleman. At this point, everyone has ‑‑ at least in the Committee ‑‑ has gone through inquiring once. As long as we have other Members who would like to inquire who haven’t inquired of this panel, we will leave that open. Mr. ‑‑
*Mr. Thompson. I have not inquired of this panel. Neither has Mr. ‑‑
*Mr. Herger. Yes, I am aware. And the gentleman from California will be recognized after I inquire.
Mr. Olivo, you currently indicated you had 45 employees. And prior to the recession you had 54 employees. And I assume, like most businesses, that you would like to grow your business. But under the Democrats’ health care law, if you have less than 50 employees, you are not subject to the employer mandate tax.
Will that have an impact on your decision to hire more workers?
*Mr. Olivo. Without a doubt, it will. And it will put me in the position that ‑‑ not only questioning whether I should expand or slow down the rate at which I expand, and make me seriously consider, but it also puts me in the position that once I reach that 50 employee mark, and I either need to provide health care or pay a penalty, as I had mentioned previously, the penalty currently is less than my premiums. And, unfortunately, that is a scenario that I will have to look at.
*Mr. Herger. And I might mention I was talking to an employer in my own district, in Redding, California, who is in the same situation, that he had about 45 employees, and just knowing that made a difference of whether he was going to grow or not.
But you also mentioned in your testimony that you currently provide health benefits to your employees, and that you pay 100 percent of the premium for employees who choose high deductible plans. You also contribute to these employees’ health savings accounts. Could you elaborate further on the benefits of pairing a high deductible plan with a health savings account?
And what would be the impact on you and your employees if this kind of coverage is no longer available under Obamacare?
*Mr. Olivo. Well, yes. That is something ‑‑ with the savings that we have been able to gain with the reduced premiums from the health savings account, we have been able to contribute in certain years to our employees’ accounts, which really helps them going towards paying that deductible. So there are some years, in effect, that not only are we picking up the cost of the premium, but we are picking up approximately two‑thirds of the cost towards their deductible.
So, for all intents and purposes, their first $1,000 is covered under the plan. I would just say the health savings account has just been a huge benefit to us towards managing the escalating premium cost. I wouldn’t sit here and say that it’s the sole answer. But, without a doubt, if we did not have the ability to offer a health savings account for the past six years, I would not be able to pay anywhere close to 100 percent of my employees’ premiums.
*Mr. Herger. I thank the gentleman. I now recognize the gentleman from California, Mr. Thompson, for five minutes to inquire.
*Mr. Thompson. Thank you, Mr. Chairman. I just want to point out a $9 employee, under best case scenario, is making around $15,000 a year. And I don’t care where you go for your health care on $15,000 a year, chances are you fall into that category of uncompensated care. So it’s not being paid for out of pocket, it’s not being provided for free. It’s factored in to what’s driving up the cost for your salaried employees, for everyone else who buys a policy, or everyone else who pays out of pocket.
Mr. Chairman, I would like to submit for the record a letter that I have that’s ‑‑ I just got a copy of it. It’s from 275 economists from all over the country, including 3 Nobel Laureates, 4 Council of Economic Advisors, a former CBO chief, and 2 John Bates Clark prize winners. And the letter states that ‑‑
*Mr. Herger. Without objection, the letter will be admitted.
*Mr. Thompson. Thank you.
[The information follows:Mr. Thompson, Economists Letter:]
*Mr. Thompson. The letter states ‑‑ I just want it for the folks to know ‑‑ it says that, “We write to convey our strong conclusion that leaving in place the Patient Protection and Affordable Care Act of 2010 will significantly strengthen our nation’s economy over the long haul, and promote more rapid economic recovery in the immediate years ahead.
Also, Mr. Chairman, I would like to point out a letter that the Secretary of Health received from an entity that you’re very familiar with, and I believe actually get some benefits from this, the CalPERS organization in our home state of California, which is the nation’s largest non‑federal government purchaser of health care. And in the letter they say that they believe that “key elements of the national health care reform represent a fundamental and positive shift in the way health care will be purchased and delivered in the United States. Together, they will dramatically shape the future of health care in our country, and ultimately benefit everyone.”
They say that, more specifically, that the provisions regarding retired folks ‑‑ in 2011, that they will save approximately $200 million, based on the reimbursement rate to more than 115,000 early retirees, their spouses, and their surviving spouses and their dependents.
They have also submitted written testimony, as well, in which they discuss that this year they will spend $6.7 billion on health care benefits for 1.3 million active and retired state and local government employees and their families.
They further testify that the overall structure of the law, which focuses on constraining the skyrocketing cost of health care in our country, while providing quality and ensuring health coverage for tens of millions of uninsured, some of those, those $9‑an‑hour employees who can’t buy health care, who fall into the uncompensated health care cost that the rest of us all pay for, is the right policy prescriptions for this group, the largest non‑federal government purchaser of health care in the country, its members, and our country at large.
I would also ask unanimous consent to submit a copy of this letter for the record, Mr. Chairman.
*Mr. Herger. Without objection.
*Mr. Thompson. Thank you. And I yield back the balance of my time.
*Mr. Herger. The gentleman yields back. The gentleman from Ohio, Mr. Tiberi, is recognized for five minutes.
*Mr. Tiberi. Thank you, Mr. Chairman. And thank you both for taking time away from your families and your businesses to come here and provide us with perspective from where you sit.
And your testimony, your verbal testimony earlier, reminded me of some discussions I had with local constituents, both small businesses and restaurant owners and retailers. In fact, a restaurant owner operator said to me, perplexed, “Where did 30 hours come from? In federal law, full‑time is always 40 hours, and suddenly it’s 30 hours.”
Mr. Womack, you have 900 employees. I hope that you will reconsider and come to Ohio, if we can change this piece of legislation. I’m from central Ohio. My first job was at McDonald’s, so I understand a perspective of the restaurant business. When I was working at McDonald’s, a number of the people that I worked with were under the age of 21, were on their parents’ policy. I was, as a 16‑year‑old. And a number of the adults were women who had coverage through their spouse.
So, my question to you is ‑‑ and I have two ‑‑ is how many employees now do you have that will be impacted by this new regulatory framework of 30 hours as full‑time? If you could, answer that.
And how many ‑‑ and I’m sure it’s a guess at this point, since you don’t have the figures in front of you ‑‑ employees do you have are teenagers at your restaurant, or college‑aged students, who have coverage through their parents, or maybe a spouse who has coverage through another spouse?
*Mr. Womack. I think my best guess ‑‑ and this is purely a guess, as we’ve not run the numbers ‑‑ but my best guess is about 20, 25 percent of our staff are under the age of 20 or 21, and a substantial number of our employees are people who are second earners, bringing a second income into the family. And we know, just anecdotally, especially a lot of our service staff, they’re the second earner, and their spouse has coverage elsewhere.
*Mr. Tiberi. So ‑‑ and correct me if I’m wrong ‑‑ so you have a number of people who are already covered, whether they be teenagers working their first job, or a spouse with insurance, and there is a second earner. These costs, additional cost onto your business, will create a situation where at some point in time you’re going to have to choose whether or not a person gets a raise, whether or not they get other benefits, or whether or not you hire somebody?
*Mr. Womack. Sure, absolutely.
*Mr. Tiberi. How many people could you hire in Ohio if this law hadn’t been passed? What was the projection that you had before this law became ‑‑ this bill became a law?
*Mr. Womack. Well, our plan from here is to open 12, 13 more restaurants in Ohio, in central Ohio.
*Mr. Tiberi. In central Ohio.
*Mr. Womack. And ‑‑
*Mr. Tiberi. Thanks for the good news.
*Mr. Womack. Yes. And we think that, if we have to cease development, if there are no changes and we have to stop development, you’re looking at 260 to 300 full‑time jobs, and hundreds of part‑time jobs. And then there is also, construction and all the other things outside of our company.
*Mr. Tiberi. Mr. Olivo, your testimony brought home a call I got right after the election from a constituent. He was on his cell phone screaming at me regarding a meeting that he just came out of with his tax lawyer and his tax accountant. He had 51 employees, and they were giving him a briefing on the new health care law and some other regulations.
And the gist of the meeting was, “If you can, figure out over the next year how to get under 50 to not have to comply with this new regulation, or our recommendation is to put all your employees, if you are still over 50, into the government exchange, rather than continue to provide the health care you provide today,” which, obviously, goes against the premise of the debate, which, if you like what you have, you can keep it. Or, that this isn’t a bill that disincentivizes entrepreneurs from creating more jobs.
And why he was yelling at me was, with Ohio’s unemployment above 10 percent, he is getting advice from his legal professional that he should not hire more people, but figure out how to hire less people. Or, the alternative is to put people into the government exchange, which he didn’t want to do.
But from a competitiveness perspective, and cost of doing business, and trying to survive his business ‑‑ I know you’ve talked about it already, but can you share with us, as an entrepreneur, how frustrating it is for you, whether it’s a state regulation or a federal regulation, inhibits your ability to project long‑term growth, and how to grow your business, rather than figuring out how to abide by all these new rules, what that does to your spirit, as an entrepreneur?
*Mr. Olivo. Well, not just spirit. I mean, just to give you an idea, we purchase a new piece of equipment, they are fixed payments. I don’t have the luxury of going back to my bank and saying, “Well, geez, my expenses are a little more, my health care costs were more than expected.” I have to make those payments. So I have to leave myself a margin in which that ‑‑ my calculations may not be exact.
When there is this much unknown regarding the health care law, it really causes me to be much more conservative. And it’s affecting how much I am willing to invest into the company and grow it ‑‑
*Mr. Tiberi. All right.
*Mr. Olivo. ‑‑ until I get a better understanding of what’s happening.
*Mr. Tiberi. Thank you ‑‑
*Chairman Camp. Thank you very much ‑‑
*Mr. Tiberi. Mr. Chairman, I would like to submit for the record, if I may ‑‑
*Chairman Camp. Yes.
*Mr. Tiberi. ‑‑ a letter dated January 18, 2011 from 239 economists. And they write, just one sentence, “We believe the Patient Protection and Affordable Care Act is a threat to U.S. businesses, and will place a crushing debt burden on future generations of Americans.”
*Chairman Camp. All right. Without objection.
[The information follows: Mr. Tiberi, Economist Letter ]
*Chairman Camp. I just want to ask a simple question of both of you. We have heard a lot of testimony today. There has been, some of it, very technical.
Just on balance, does this health care legislation help you create jobs and help you grow your businesses, or does it make it harder for you to grow jobs and expand your businesses?
*Mr. Olivo. From my point of view, what my concern is, is that I know many on this committee want to provide health care coverage for everybody, and would say, “How would I explain to somebody that I would not provide health care coverage for them?”
My fear, as an employer, is going to an employee saying, “I have to eliminate your position, because not only can I not afford your health care, I can’t afford your position any more.” And that’s what my concern is.
*Chairman Camp. All right. Mr. Womack?
*Mr. Womack. Well, the reality is that this just scares business people to death. And any time you have this level of fear and uncertainty, we quit growing, we tighten up. We have to have a reserve. We can’t go out to the edge financially, and then suddenly have $5 gasoline or commodity prices go through the roof and have no margin, no cushion to survive. So it just makes us more and more conservative, and that means trimming, pure and simple.
*Chairman Camp. All right. Thank you. Thank you both. I think at this time all Members present have had a chance to inquire of this panel. And I want to thank you both very much for your thoughtful testimony, and for the efforts you put in to providing livelihoods and prosperity of the employees that you have. And I know the difficult responsibility that is that you carry around every day.
So, I want to thank you for taking the time away from those endeavors to be here, and help enlighten this committee. And with that, this hearing is adjourned.
[Whereupon, at 12:10 p.m., the committee was adjourned.]
QUESTIONS FOR THE RECORD
MEMBER SUBMISSIONS FOR THE RECORD:
Mr Neal, Repeal Facts
Mr. Rangel, NFIB
Mr. Thompson, CalPERS Letter
Mr. Thompson, Economists Letter
Mr. Tiberi, Economist Letter
SUBMISSIONS FOR THE RECORD:
Campaign to End Obesity Action Fund
James T. Lette
Main Street Alliance
National Business Group on Health
National Partnership for Women & Families
National Private Duty Association