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PPACA’S EFFECTS ON MAINTAINING HEALTH COVERAGE AND JOBS: A REVIEW OF THE HEALTH 

CARE LAW’S REGULATORY BURDEN 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

JUNE 2 & 15, 2011 

Serial No. 112–56 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chairman 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDOLPHUS TOWNS, New York 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

ANTHONY D. WEINER, New York 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

C O N T E N T S 

JUNE 3, 2011 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 4 

Hon. Frank Pallone Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 7 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 9 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 10 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 154 

Hon. Edolphus Towns, a Representative in Congress from the State of New 

York, prepared statement .................................................................................... 156 

WITNESSES

Randi Reichel, Counsel, Mitchell, Williams, Selig, Gates and Woodyard, 

PLCC, on behalf of America’s Health Insurance Plans .................................... 12 

Prepared statement .......................................................................................... 15 

Scott E. Harrington, Professor, Health Care Management and Insurance and 

Risk Management, Wharton School, University of Pennsylvania .................... 35 

Prepared statement .......................................................................................... 37 

Janet Trautwein, CEO, National Association of Health Underwriters ............... 52 

Prepared statement .......................................................................................... 54 

Katherine Hayes, Associate Research Professor, Department of Health Policy, 

George Washington University ........................................................................... 62 

Prepared statement .......................................................................................... 64 

Ethan Rome, Executive Director, Health Care for America Now ........................ 71 

Prepared statement .......................................................................................... 73 

Edward C. Fensholt, Senior Vice President, Lockton Benefit Group .................. 85 

Prepared statement .......................................................................................... 87 

Terry Gardiner, Vice President, Policy and Strategy, Small Business Majority 96 

Prepared statement .......................................................................................... 98 

JUNE 15, 2011 

WITNESSES

Steve Larsen, Director, Center for Consumer Information and Insurance 

Oversight, Centers for Medicare and Medicaid Services .................................. 121 

Prepared statement .......................................................................................... 124 

Answers to submitted questions ...................................................................... 158 

SUBMITTED MATERIAL

Statement, dated June 15, 2011, of Randel K. Johnson, Senior Vice President, 

Labor, Immigration, and Employee Benefits, U.S. Chamber of Commerce, 

submitted by Mr. Burgess ................................................................................... 147 

(1) 

PPACA’S EFFECTS ON MAINTAINING HEALTH 

COVERAGE AND JOBS: A REVIEW OF THE 

HEALTH CARE LAW’S REGULATORY BURDEN—DAY 1 

THURSDAY, JUNE 2, 2011 

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON HEALTH, 

COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 12:05 p.m., in room 

2322 of the Rayburn House Office Building, Hon. Joe Pitts (chairman of the subcommittee) presiding. 

Members present: Representatives Pitts, Burgess, Gingrey, 

Lance, Cassidy, Pallone, Schakowsky, and Waxman (ex officio). 

Staff present: Clay Alspach, Counsel, Health; Jim Barnette, General Counsel; Paul Edattel, Professional Staff Member, Health; 

Debbee Keller, Press Secretary; Ryan Long, Chief Counsel, Health; 

Katie Novaria, Legislative Clerk; Heidi Stirrup, Health Policy Coordinator; Phil Barnett, Minority Staff Director; Alli Corr, Minority 

Policy Analyst; Tim Gronniger, Minority Senior Professional Staff 

Member; Purvee Kempf, Minority Senior Counsel; Karen Lightfoot, 

Minority Communications Director and Senior Policy Advisor; and 

Karen Nelson, Minority Deputy Committee Staff Director for 

Health. 

Mr. PITTS. The committee will now come to order. The Chair will 

recognize himself for 5 minutes with an opening statement. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

I have here on the desk this giant stack of every regulation, notice and correction that the Obama administration has issued so 

far related to the recent health care law. By count of subcommittee 

staff, 370 Obamacare-related items have been issued. Over 3,500 of 

pages of rules, notices, and corrections have been published, many 

of which were released as interim final rules, bypassing the traditional public comment period and giving them the force of law. 

I would like to focus on just two: grandfathering of existing 

health plans and the medical loss ratio, MLR. 

‘‘If you like what you have, you can keep it,’’ was the promise 

that President Obama repeatedly made on the campaign trail and 

in the months leading up to the passage of PPACA in March 2010. 

‘‘If you like your current plan, you will be able to keep it. Let me 

2 

repeat that: If you like your plan, you will be able to keep it.’’ That 

is President Obama with remarks at White House on July 21, 

2009. ‘‘If you like your insurance plan, you will keep it. No one will 

be able to take that away from you. It hasn’t happened yet. It won’t 

happen in the future.’’ President Obama remarks in April 2010. 

During the 2008 presidential campaign and the months leading 

up to passage of the health care reform law, President Obama, his 

administration, and Congressional Democrats made a series of 

promises to the American people. Whether you supported PPACA 

when it became law or not, it has become abundantly clear that 

those promises have been broken. 

According to the administration’s own estimates of June 17, 

2010, its regulations will force half of all employers, and as many 

as 80 percent of small businesses, to give up their coverage in the 

next 2 years. 

The regulations state, ‘‘After some period of time, most plans will 

relinquish their grandfathered status,’’ meaning American workers 

will lose the coverage they have now and become subject to 

PPACA’s more costly requirements. 

A May 2011 Price Waterhouse Coopers survey of employers reveals companies’ responses to the new health care law and how 

many are contemplating eliminating coverage as a result. It also 

echoes the administration’s warnings. Of note, 51 percent of employers surveyed did not expect to maintain grandfathered health 

status, meaning their employees would forfeit their current coverage and pay higher premiums due to the health care law’s mandates on their new coverage. The report also found that ‘‘84 percent 

of companies indicated they would make other changes to their 

plans, that is, raising premiums and copayments, to offset costs associated with PPACA.’’ 

The regulations associated with grandfathering health plans are 

just one reason Americans will lose the coverage they have, even 

if they like it. The medical loss ratio is another. Despite the fact 

that the MLR has been billed as a tool to protect consumers from 

insurance companies, many States are clamoring for waivers to exempt their citizens from these ‘‘protections.’’ 

Recently, the administration granted waivers to New Hampshire 

and Nevada regarding the medical loss ratio requirements in the 

health care law, on top of the waiver already granted to Maine. 

Nine other States still have their own waiver applications pending 

before HHS, Kentucky, Florida, Georgia, North Dakota, Iowa, Louisiana, Kansas, Delaware, and Indiana. 

In an October 27, 2010, letter to Secretary Sebelius, the National 

Association of Insurance Commissioners warned: ‘‘We continue to 

have concerns about the potential for unintended consequences 

arising from the medical loss ratio. As we noted in our letter of October 13, consumers will not benefit from higher medical loss ratios 

if the outcome is destabilized insurance markets where consumer 

choice is limited and the solvency of insurers is undermined.’’ 

Many companies have also applied for MLR waivers. Perhaps the 

most publicized was McDonald’s, whose 30,000 employees were 

granted a waiver from the annual limit requirement on their minimed plans and yet were still in danger of losing their coverage because they could not meet the MLR requirements. 

3 

The December 1, 2010, MLR regulation exempted mini-med 

plans from the requirement for 1 year, after which HHS will determine whether or not to extend the waivers for 2012 and 2013, 

meaning employees could still be in danger of losing their current 

coverage. 

The fact that so many Americans have had to be exempted from 

the law’s protections under waivers, or risk losing their current 

coverage, should be alarming to every Member of Congress. 

And this stack, this giant stack, is just the beginning. More regulations are due out in the near future, including the establishment 

of the essential minimum benefits package, which will increase premiums and put people’s coverage at risk. 

[The prepared statement of Mr. Pitts follows:] 

4 

5 

6 

7 

Mr. PITTS. First of all, thank you to our witnesses today. I would 

especially like to welcome a fellow Pennsylvanian, Dr. Scott Harrington, of the Wharton School at the University of Pennsylvania, 

and I will yield back my time. 

The Chair recognizes the ranking member of the subcommittee, 

Mr. Pallone, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. FRANK PALLONE JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Mr. Chairman, I really have to object today on 

many levels. You know, this hearing has essentially become a 

farce. There is nobody here, other than yourself, myself and Dr. 

Burgess, and as much as I love to go back and forth with you and 

Dr. Burgess, I think that it is important that other members on 

both sides of the aisle be able to attend. 

Now, I mentioned to you that because of the fact that we had the 

full committee hearing this morning and then we are going to have 

votes I understand as early as 12:30, and then were the Democrats 

and the Republicans yesterday, but the Democrats today are leaving at 1:00 to go over to meet the President at the President’s request, that it would be virtually impossible to have a hearing today 

that members would be able to attend. The fact that only the three 

of us are here just lends credence to that. 

You know, I was only asking you to postpone the hearing, not because I didn’t want to have it, although frankly, I wouldn’t want 

to have it because I think that the subject is a little absurd, too. 

I will get into that. But just the fact that I was concerned that no 

one would be able to attend, and there isn’t anybody here. We are 

all going to get out of here at 1:00, and I guess then we are going 

to go back, reconvene after the President, but then there is going 

to be more votes. So I just think it is terribly disruptive to the witnesses and to the process, and I wanted to postpone it because I 

wanted to have everybody to be here and hopefully some come, but 

it doesn’t look like they are here. 

Now, the second thing is, you know, again, we are talking about 

repeal or either not the whole of the Affordable Care Act in this 

case, but provisions of the Affordable Care Act. I don’t know how 

many times, it is now what, June 2, 5 or 6 months of just the same 

thing over and over again, repeal the Act, the Act is bad, defund 

the Act, turn it from mandatory to discretionary. I don’t know how 

many times we are going to hear over and over about the same 

thing. I don’t hear really much in the way of any kind of replacement or Republican alternatives that would provide coverage or 

provide affordable coverage. Again, today our focus is on repealing 

the provisions that limit what the insurance companies can do, 

abundantly clear that the Republicans are in the pockets of the insurance companies and will do whatever the insurance companies 

want them to do, even if it means at the expense of the public. 

So anyway, I have 21⁄2 minutes left. Let me get to some of my 

prepared remarks, but I really am very disappointed in the way 

this was set up today and the fact that we keep dealing with the 

same thing to no avail. 

8 

The Affordable Care Act was the transformational law that 

brought protection to patients across the United States’ healthcare 

system. We finally were able to put a stop to the incendiary insurance industry abuses and reform the insurance system. We expanded coverage, reduced healthcare costs and reduced the federal 

deficit while building on the private insurance system. We sought 

after and I believe accomplished bringing better value to consumers 

and insurance plans and promoting more affordable comprehensive 

healthcare to Americans. 

Some of the most important reforms made in the Affordable Care 

Act that are meant to curb the insurance industry bad practices 

are the same ones my Republican colleagues will attack today. 

They include the medical loss ratio requirements and rate reviews. 

Medical loss ratio requirements foster transparency and accountable in how insurance companies spend patients’ premiums. They 

also force insurers to be more efficient in delivering quality 

healthcare. I believe that American patients deserve a guarantee 

they are getting good value for their dollar. When that value is not 

met, insurance companies should be required to refund consumers. 

In fact, HHS estimates that up to nine million Americans could be 

eligible for rebates starting in 2012 worth up to $1.4 billion, a clear 

indication there is a real need to hold insurers accountable. 

Today I expect to hear from some of our witnesses that this requirement will disrupt the marketplace and limit choices for consumers. They will say we need a transitional period in which insurers can bring their products in line with these requirements slowly 

and methodically. However, contrary to the naysayers, the loss 

waivers were put in place for potential disruptions, but it is the 

States who are in the best position to examine their own markets 

and make these determinations. The waivers are much better suited to be in response to a specific State condition rather than a onesize-fits-all transition policy. 

Another important critical reform was the process of rate reviews. Let me be clear. This is not a provision that prohibits or restricts an insurance company from raising their rates, but what it 

does is ensure that any large proposed increases are based on reasonable cost assumptions and solid-based evidence. And this step 

is meant to hold insurance companies accountable and provide unprecedented transparency to the healthcare market. 

Now, while Congress was drafting and debating the Affordable 

Care Act, the insurance industry was recording record profits. In 

fact, this year the Nation’s largest insurers are entering their third 

straight year of huge profits. According to the New York Times, insurance companies have reported first quarter earnings that beat 

analysts’ expectations by an average of 30 percent. And I have got 

to be honest across the aisle, you simply can’t argue that the insurance industry has been hurt by the Federal healthcare law. 

Thank you, Mr. Chairman. 

Mr. PITTS. Thank you to the ranking member, and I yield to the 

vice chairman of the subcommittee, Dr. Burgess, for 5 minutes for 

an opening statement. 

9 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. I thank the chairman for yielding. I thank you for 

having this hearing today. Goodness knows we could have had this 

hearing in the last Congress, and we should have had this hearing 

in the last Congress. It is well into a year since the signing into 

law of the Affordable Care Act, so it is high time we look at some 

of these things. Both sides of the dais will talk about jobs and the 

economy. We talk about it, we demagogue about it, but the big 

question is, are we going to do anything about it. Unemployment 

is at 9 percent, and it begs the question: Why are American employers hesitant to hire new employees. Part of the reason might 

be, just might be, that in the first year since the passage of the Affordable Care Act, this is what a small business owner confronts 

when they want to hire a new employee. Is it any wonder that they 

would stop and look and say I don’t think I can do that at this 

time? We will make do with what we have. 

Now, the burdensome regulations delivered by the United States 

Congress stack up as you can see here to be almost insurmountable 

by anyone who has ever run a small business that looks at a stack 

like this, would say I don’t think that is for me. But here is the 

simple truth. You just cannot be anti-employer and claim to be pro 

jobs. It doesn’t equate. 

Now, the Affordable Care Act, in my opinion, levies unreasonable 

demands on employers, manufacturers, doctors, and not only discourages hiring but encourages employers to drop their employee 

health insurance. We certainly punish physicians, and we tax industry off-shore and out of America. 

Shortly after the signing of this Act a year ago, large employers 

reported that the law would increase costs. In fact, several large 

employers restated their earnings for the year. That inflamed 

members of the then-majority, and a hearing was called in the Energy and Commerce Committee, in the Oversight Committee, to 

call these folks in and make them explain why they were restating 

their earnings. 

Document demands were made of these employers, and they produced the documents. The documents were examined, and it turned 

out that the employers were simply complying with the Securities 

and Exchange Commission, but some of the information contained 

within those documents made the then-majority, the Democrats, to 

side not to hold the hearing after all because what they found was 

large employers were looking at the data and wondering how in the 

world it was going to be cost-effective to continue to provide health 

insurance. No employer wanted to be the first to drop this benefit, 

but there were many who would likely be second, third or fourth. 

The strict medical loss ratio regulations are another provision 

that have proved to be overly burdensome, not only on businesses 

but on the States. Currently three States have been given waivers, 

another 10 are asking and are pending approval. 

Now, a State realizes that their market can’t comply with the 

law. How in the world is the person who runs a lawnmower shot 

going to be able to comply with these regulations? 

The Affordable Care Act really ought to come with a boxed FDA 

warning that says, Warning: The Affordable Care Act, when used 

10 

as directed, may be harmful to your health. It may reduce your 

healthcare and increase your cost. 

The overregulation incites a sense of uncertainty which discourages hiring and hampers economic development. Every day we get 

another announcement about another rule going into effect. Far too 

many are coming out, and quite frankly, several are coming out 

with the notice of final interim rules, completely bypassing public 

comment. That is, they become, the regulations have the force of 

law, without the period of public comment. 

Now, if my friends on the other side of the dais are serious about 

getting Americans back to work, one of the first steps should be to 

loosen the regulatory nightmares that had been imposed by this 

law. 

Again, I thank the chairman for calling the hearing, and I will 

yield back the balance of my time. 

Mr. PITTS. The Chair thanks to the gentleman and now recognizes the ranking member of the full committee, Mr. Waxman, for 

5 minutes for an opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. I want to thank all the 

witnesses for joining us to discuss the important insurance reforms 

in the Affordable Care Act and their implementation. I want to say 

a special thanks to Steve Larsen who has become a regular fixture 

at the Energy and Commerce Committee, and we may even have 

to get him a permanent name plate. 

This hearing is intended to cover all of the regulations issued 

under the Affordable Care Act and those yet to come. It is an ambitious hearing that gives us the chance to review important new 

consumer protections being implemented by the department, including rate review, the grandfathering rules and the medical loss 

ratio provision. 

Provisions such as rate review and medical loss ratio provide 

consumers with protections from insurance company rate hikes and 

help them receive a good value for their premium dollars. Rate review requires transparency so that insurers are required to justify 

why premiums continue to increase. Premium increases are a hardship for consumers facing a tough job market and a struggling 

economy, and they are hard to understand given that insurer profits have risen by staggering amounts. 

Over the last 10 years, the premium cost of family health insurance has increased 131 percent. This has led to soaring profits. In 

just the last 3 years, the profits of the Nation’s largest insurers 

have risen over 50 percent. Rate reviews gives consumers protections against this kind of abuse. Contrary to the claims of critics, 

the law works to review rates based on existing State authorities. 

Some States have more authorities, including the right to review 

rates and deny unjustified increases while others merely have 

transparency requirements. 

The Federal Minimum Rate Review provision provides some consistency across the country and offers an easy-to-understand explanation of premium increases and their justification for consumers. 

11 

The healthcare reform law’s new minimum medical loss ratio requirement is aimed at protecting consumers and ensuring that 

their hard-earned dollars are spent on benefits and quality improvements and less on insurer profits and CEO salaries. 

A number of States have medical loss ratio rules, and the new 

federal law standardizes the calculations and sets a minimum of 

value for consumers wherever they live. The calculation allows for 

quality improvements, innovation and fraud detection to be counted as medical expenses. 

Today we will hear from the association that represents brokers 

and agents, that the medical loss ratio calculations exclude their 

commissions. Many brokers and agents provide a valuable benefit 

for their consumers, but exempting their commissions for the medical loss ratio in effect means increasing premiums and overhead 

expenses for the consumer. It is time to hold insurance companies 

accountable, particularly in markets such as the individual and 

small group markets where they—for years, weakening rules that 

require them to provide better value to the consumers moves us in 

a closer direction. 

The Affordable Care Act provides a series of popular insurers’ reforms that have already gone into effect, such as allowing adult 

children up to the age of 26 to stay on their parents’ insurance, 

eliminating lifetime limits and prohibiting rescissions of insurers 

when someone gets sick. These apply to all plans 6 months after 

enactment, overriding the grandfathering rules because of their importance to families. The dependents up to 26 policies have been 

immensely helpful in responding to the downturn in the economy. 

The prohibition of rescissions is responsive to the insurance company abuses and has received bipartisan support, and the prohibition on lifetime limits of benefits is necessary protection for a person with cancer or hemophilia who has nowhere left to turn when 

he or she has exhausted lifetime maximums. In 2014, these benefits will be greatly expanded, truly reforming the insurance marketplace in the United States. The market will no longer reward 

companies that avoid risk and leave some of our sickest with no options. It will be inclusive, accessible, affordable, built on the notion 

of individual responsibility. 

It is important that we understand the implementation of these 

rules, but we need to do so in a constructive manner that serves 

our constituents’ needs. We all want a future where the insurance 

marketplace is healthy, competitive and providing quality care. 

I yield back my time. 

Mr. PITTS. The Chair thanks the gentleman. That concludes 

opening statements. We will go to the first panel. 

At this time, I would like to thank the witnesses for agreeing to 

appear before the committee, and we will introduce them. 

Randi Reichel is a counsel at Mitchell, Williams, Selig, Gates & 

Woodyard, PLLC, and is testifying on behalf of America’s Health 

Insurance Plans. 

Scott Harrington is the Professor of Health Care Management 

and Insurance and Risk Management at the Wharton School at the 

University of Pennsylvania. 

Janet Trautwein is the CEO of the National Association of 

Health Underwriters. 

12 

Katherine Hayes is an Associate Research Professor at the 

George Washington University School of Public Health and Health 

Services. 

Ethan Rome is the Executive Director of Health Care for America Now. 

Edward Fensholt is the Senior Vice President for the Lockton 

Benefit Group. 

And Terry Gardiner is Vice President for Policy and Strategy at 

the Small Business Majority. 

Your written testimony will be made a part of the official record. 

We ask that you please summarize your testimony in 5-minute 

opening statements, and we will go in the order that our witnesses 

were introduced. 

Ms. Reichel, you are recognized for 5 minutes’ opening statement. 

STATEMENTS OF RANDI REICHEL, ESQUIRE, COUNSEL, 

MITCHELL, WILLIAMS, SELIG, GATES AND WOODYARD, PLLC, 

ON BEHALF OF AMERICA’S HEALTH INSURANCE PLANS; 

SCOTT E. HARRINGTON, PH.D., PROFESSOR OF HEALTH 

CARE MANAGEMENT AND INSURANCE AND RISK MANAGEMENT, WHARTON SCHOOL, UNIVERSITY OF PENNSYLVANIA; 

JANET TRAUTWEIN, CEO, NATIONAL ASSOCIATION OF 

HEALTH UNDERWRITERS; KATHERINE HAYES, ASSOCIATE 

RESEARCH PROFESSOR, DEPARTMENT OF HEALTH POLICY, 

GEORGE WASHINGTON UNIVERSITY SCHOOL OF PUBLIC 

HEALTH AND HEALTH SERVICES; ETHAN ROME, EXECUTIVE 

DIRECTOR, HEALTH CARE FOR AMERICA NOW; EDWARD 

FENSHOLT, SENIOR VICE PRESIDENT, LOCKTON BENEFIT 

GROUP; AND TERRY GARDINER, VICE PRESIDENT, POLICY 

AND STRATEGY, SMALL BUSINESS MAJORITY 

STATEMENT OF RANDI REICHEL 

Ms. REICHEL. Thank you, Chairman Pitts, Ranking Member 

Pallone, and members of the subcommittee. My name is Randi 

Reichel, and I am an attorney with the law firm of Mitchell, Williams, Selig, Gates & Woodyard. I am here today as outside counsel 

to America’s Health Insurance Plans, and I thank you for the opportunity to testify today about the unintended consequences and 

the regulatory burdens of the medical loss ratio requirement under 

the ACA. 

I think it is really critically important to examine this provision 

and the Department of Health and Human Services’ regulation 

that implements the MLR provisions. The requirements, the way 

they have been implemented, impose an unprecedented new federal 

cap on administrative costs of health plans and strictly micromanages the plans’ abilities to invest in initiatives and innovations to 

benefit their members and enrollees. 

There likely will be a number of unintended consequences for individuals, families and employers, and there are a number of reasons for this. The first is a lack of a uniform transition period. Most 

States today either don’t have medical loss ratio requirements in 

the large group, small group or individual markets or the ones that 

do have medical loss ratio requirements that are crafted to incorVerDate Nov 24 2008 11:28 Feb 07, 2012 Jkt 037690 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 F:\112-056 PPACA’S BURDEN-SUBMIT FOR OK 12-19\112-56 PPACA’S BURDEN, DAYS 1
13 

porate existing actuarial practices in order specifically to avoid any 

type of market disruption. 

Without the time to make the adjustments and the changes that 

are needed to comply with the MLR provisions, some of the health 

plans in the marketplace today have no choice but to exit the market. And you know, we know that we are not crying wolf about 

this, and the reason that we know that is HHS has already acknowledged in its letters to Nevada, in its letters to New Hampshire, when those two States asked for a waiver of the MLR requirements, they conceded that the MLR standard could, in fact, 

lead to a destabilization of the individual market in those States. 

While the MLR is problematic across the board for all types of 

health insurance coverage, I think it is important to look specifically at the impact that this may have on access to high-deductible 

health plans. There is a reason for this. On a per-enrollee kind of 

basis, fees options are intended to have a much higher deductible 

and they are lower cost to the individual. So as result, the—ratios 

are higher because the administration of these plans doesn’t cost 

us any less. 

So the premium is lower, the administrative costs are higher, 

and the MLR, by not taking the kind of differences or special circumstances of these plans into account really provides a significant 

challenge to the companies that write this business and make it 

really questionable whether or not the individuals who have this 

very popular, very affordable option are going to be able to continue to either obtain it or maintain the policies that they have 

going forward. 

Even more than that, one of the things that we are really concerned about right now is that the MLR requirements do in fact 

turn back the clock on any kind of efforts to prove quality and prevent fraud and abuse, and they do this for two reasons. One is they 

only permit dollar recoveries from fraud programs to be counted toward the MLR, but they penalize companies for actually preventing 

fraud in the first place. And they don’t recognize as quality the expenses of transitioning into the ICD–10 coding system that is intended for disease eradication and quality. 

By having only four categories that qualify as quality categories, 

the MLR requirements inhibit any kind of—by capping expenses 

for real quality programs that may fall outside the very guardrails 

of those four quality categories. The way the regulation is structured, I think it is going to be very problematic moving forward. 

And the most telling thing is that while the MLR is intended to 

put a cap on administrative costs, indeed the MLR itself is going 

to increase administrative costs. There are a host of new reporting 

requirements that companies have to undergo in order to comply 

with the new regulations. The companies are going to have to have 

new data collection, new accounting, new auditing and the staff 

and the ramp-up for all of these things. 

We have talked to AHIP members, and preliminary estimates 

from at least some of the larger multi-State plans have put some 

of their preliminary compliance costs at more than $20 million. 

Mr. PITTS. Would you wrap up, please? 

Ms. REICHEL. I don’t want to repeat what else is in our testimony. We do have some recommendations to mitigate the harmful 

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impact of the medical loss ratio. With that I will thank you for the 

opportunity to testify and present our perspective. 

[The prepared statement of Ms. Reichel follows:] 

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Mr. PITTS. Thank you. Dr. Harrington? 

STATEMENT OF SCOTT E. HARRINGTON 

Mr. HARRINGTON. Chairman Pitts, Ranking Member Pallone, Mr. 

Burgess, I am pleased to testify on rate review and minimum medical loss ratio regulation under PPACA. 

These regulatory schemes entail costly, complex bureaucratic interference with insurers’ legitimate business decisions and with 

State regulatory prerogatives. They are not going to increase competition or improve the availability and affordability of health insurance. The rate review scheme will not enhance consumer choice 

or significantly lower premiums. It will increase insurers’ costs and 

risk, reducing their willingness to expand coverage or offer new 

products and ultimately undermine their financial soundness. 

The minimum medical loss ratio scheme is going to distort insurers’ legitimate operating decisions, including some actions that 

would help reduce costs. Without significant waivers, it will destabilize some States’ markets. It represents a significant move toward government micromanagement of health insurers. 

It is desirable to replace the rate review and medical loss ratio 

regulations with pro-competitive forms including State option of 

policies that promote thoroughly informed competition and consumer choice. 

In my remaining few minutes, I want to focus on rate review. 

The Act does not authorize HHS to explicitly approve or deny proposed rate changes but it requires individual and small group 

health insurers to justify ‘‘unreasonable’’ rate increases, either to 

State regulators if the States pass muster with HHS for having 

reasonable effective review, or otherwise to HHS. The complex 

HHS regulations initially specify a 10 percent threshold for determining whether or not a rate increase is potentially unreasonable 

and requiring additional justification. State-specific thresholds will 

likely begin in 2012. Any insurer that goes ahead and tries to implement a rate increase that is held to be unreasonable will be publicized and most likely publically condemned. It also can be excluded from participation in the exchanges. 

The law grants monies to States to enhance their rate review. It 

grants monies in the future to States that have prior approval rate 

regulation or adopts such regulation, further promoting direct price 

controls on health insurance. 

These provisions reflect the views that competition and prior 

State regulation did not adequately discipline health insurers’ expenses and profits, but health insurers’ expenses and profits are 

not significant drivers of high and rapidly growing health insurance costs. According to the National Health Expenditure Data, for 

example, the estimated annual private heath insurance medical 

loss ratio, the ratio of medical cost to premiums, including selffunded plans, has averaged about 88 percent since 1965, ranging 

from 85 to 90 percent with little or no trend over time. Now, there 

is a lot of variation across companies. Health insurers’ profit margins typically average 3 to 5 percent of revenues, lower for not-forprofit insurers. Administrative expenses average 11 to 12 percent 

of premiums. 

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Market concentration is often relatively high at State and metropolitan levels, but it varies widely across regions, and that does not 

imply adverse effects on consumers. 

State oversight for individual and small group health insurance 

of rate changes is very diverse and in many respects similar to 

automobile and homeowners’ insurance regulation. The Act’s rate 

review provisions establish significant federal authority over rate 

increases, and those State review process, these provisions and 

their implementation will further publicize insurance pricing without enhancing consumer choice, increase in quality or lowering 

cost. 

Research has not provided detailed evidence on health insurance 

rate regulation, but the adverse consequences of binding rate controls, politicization of insurance pricing, have been aptly documented for automobile insurance, workers’ compensation insurance 

and more recently, homeowners’ insurance in catastrophe prone regions. There is no reason to believe that requiring prior regulatory 

approval or tighter review of health insurance rates will be any different. 

A large body of research indicates that rate regulation cannot 

and does not lower insurance rates without reducing coverage 

availability or causing exit by insurers. Analyses of automobile insurance, for example, found no consistent difference over time in 

premiums relative to loss costs in States with and without prior approval, but prior approval rate regulation has been associated with 

less coverage availability, short run rate suppression, increased 

market volatility and increased insurer exits. 

In short, the rate review and MLR provisions are unnecessary 

and counterproductive. It would be better to repeal these provisions 

and replace them with pro-competitive regulation and disclosure at 

the State level. 

Thank you. 

[The prepared statement of Mr. Harrington follows:] 

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Mr. PITTS. The Chair thanks the gentleman and recognizes Ms. 

Trautwein for 5 minutes for her opening statement. 

STATEMENT OF JANET TRAUTWEIN 

Ms. TRAUTWEIN. Thank you. My name is Janet Trautwein, and 

I am the CEO of the National Association of Health Underwriters. 

NAHU is the leading professional trade association for health insurance agents, brokers, and consultants representing more than 

100,000 benefit specialists nationally. 

I am here today to tell you about a desperate economic situation 

that has developed over the past 18 months. It has caused real people to suffer real harm. This dire situation was triggered by the 

issuance of the Interim Final Rule on Medical Loss Ratios. Since 

the rule was issued by the Department of Health and Human Services on December 1, 2010, health insurance carriers across the 

country have been forced to cut administrative costs to comply. 

One of the first places that was hit was agent commissions. Now, 

in reality, agent commissions being considered an insurer expense 

is really not even accurate. The consumers who purchase health insurance coverage are the ones who hire and can fire their brokers, 

not insurers. Independent agents pay 100 percent of their own 

business expenses. Whether accurate or not, the Interim Rule categorizes commissions as an insurance expense largely because 

these commissions were not specifically listed as an item that could 

be carved out of the MLR calculation as were taxes, and as a result, our members report that most health insurance carriers 

changed commission rates as of January 1, 2011, the date the MLR 

rule became effective. 

These commission changes have already decreased many of our 

members’ incomes by 20 to 50 percent. About 3/4 of the members 

of my associations are principals of their own small businesses and 

employ multiple individuals from their communities, operate in 

every State and in every community, large and small. As a direct 

result of the new law provisions, these individuals are reporting 

that they are being forced to reduce services to their clients, to cut 

benefits to their employees and eliminate jobs just to stay in business. In some instances they are reporting they are just closing 

their doors. This means that in the future, unless something is 

done, there will be far fewer health insurance agents to provide for 

consumers’ needs. 

Now, some of you have probably have never had the good fortune 

to work with a broker, and you may not understand what this really means or consumers. So I would like to tell you a story that illustrates what I am talking about. This is a story that I know well, 

and I know it because I personally experienced it. I am here today 

not just as the head of an association but as someone who knows 

the people who have been affected. And before I came to NAHU, 

I was an insurance broker myself for almost 20 years in Texas. And 

I had a large number of clients that I built up over many years, 

and I did that by providing them great service and benefits at the 

lowest possible cost. I promised them that I would help them with 

any issue that came up relative to their plan, and I am proud to 

say that during the 20 years that I was in business, not a single 

one of my clients or a single one of their employees or dependents 

53 

ever had to go to appeal on a claim and that is because we took 

care of issues before it required that type of action. 

And I want to tell you quickly about one situation that I remember in particular, and it is hard to forget a situation like this. This 

particular employee had AIDS, and his health plan had already 

paid out hundreds of thousands of dollars for traditional types of 

treatments, and none of these had really been effective in preventing the progression of his disease. 

He came to me in desperation because his doctors had given him 

6 months to live, and he said, look, I have done some research, and 

I found this one treatment that I really want to try, but he wasn’t 

able to go through with the treatment because it was considered 

experimental by his plan. 

After a lot of work negotiating with his health plan as well as 

the providers for his treatment, we got that treatment covered because we knew how to do it, and he never would have been able 

to do that on his own. It was difficult to do, but we managed to 

make it work. 

You might think that this kind of service would be very expensive. The fact is that most agents and brokers just really don’t 

make a lot of money. The Bureau of Labor Statistics says that the 

average for agents and brokers is $45,000 to $62,000 a year. Entrylevel agents only make about $25,000 a year, and this is before the 

cuts that occurred on January 1. 

So you can understand the desperation of the situation that we 

are in, and none of us would find it very easy to take those types 

of cuts. 

There is a simple solution. As many of you are aware, Representatives Mike Rogers of Michigan and John Barrow of Georgia, both 

of whom serve on this committee, have introduced H.R. 1206, the 

Access to Professional Health Insurance Advisors of 2011. Currently it has 85 bipartisan co-sponsors, 21 on this committee. 

And I realize that I am out of time, but I would like to ask for 

your immediate consideration of this legislation. It is a reporting 

change, but it something that would provide immediate relief to 

many, many people across this country. 

Thank you very much. 

[The prepared statement of Ms. Trautwein follows:] 

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Mr. PITTS. The Chair thanks the gentlelady and recognizes Ms. 

Hayes for 5 minutes. 

STATEMENT OF KATHERINE HAYES 

Ms. HAYES. Thank you, Mr. Chairman, for giving me the opportunity to be here today and also members of the subcommittee. 

The last time I was in this room was 20 years ago as a 20-something health staffer for a member of the Health Subcommittee, 

Mickey Leland, from Texas. And knowing that Mickey was first a 

Texan and second, a Democrat, it is nice to see that Texas is still 

well-represented on the subcommittee. 

Today I am here to talk to you about insurance market reforms, 

generally the impact on individuals and small businesses. I am a 

Professor at George Washington University, and my research focuses on implementation of the health reform bill. 

This committee and subcommittee has a really long history of 

working to protect not only low-income individuals but individuals 

in the small group and individual non-group health insurance market. Chairman Bilirakis, former subcommittee chairman, and 

Chairman Tom Bliley put together the Health Insurance Portability and Accountability Act which laid the foundation for the Accountable Care Act. What it did was preserve McCarran-Ferguson 

and allowed health insurers or allowed States to regulate health insurance with certain minimum standards. And the reason Congress 

stepped in and did that, it was after health reform failed back in 

1993 and 1994, was they saw the burden and the dysfunctional 

markets in the non-group or individual and small group health insurance markets and wanted to step in to do something. And the 

Affordable Care Act insurance markets reforms really build on 

that. 

And it is important to recognize, too, that both parties, when the 

debate began in health care reform, were supportive of these insurance market reforms, although their views of it were different. 

Both were very concerned about individuals and small groups. 

The problems in the small group market are well-documented. 

Although health insurance plans are prohibited from denying coverage for small groups, for small businesses, they can charge whatever they want; and quite frankly, although some States have implemented rate bans to limit that, generally, in some States small 

businesses can pay a 100 percent surcharge because of the risk, the 

high-risk individuals that they employ. 

The Affordable Care Act was really laid out in two phases if you 

look at the statute itself. One, there was envisioned a transition period that began with date of enactment, ending in 2014 when most 

of the insurance market reforms went into place. There were a 

number of experts, insurance experts and regulations, came before 

Congress and told Members of Congress that yes, it is very important to reform these markets, but you need to be careful. You need 

to phase in things slowly. You need to build in protections, and the 

Affordable Care Act does include that. Some examples of the protections and the transition rules that were put in to the Affordable 

Care Act include grandfathering of health insurance plans. They 

include high-risk pools, small business tax credits and the insurance market reforms which include the immediate reforms, annual 

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limits on coverage and coverage of dependent children, as well as 

medical loss ratios. 

In a review of the—it is easy to see the administration is following the pattern that was set out in the Affordable Care Act, 

which is namely to get through the transition period to full implementation in 2014. 

Ultimately, small businesses have quite a lot to gain under the 

Affordable Care Act. They will be able to purchase health insurance coverage through exchanges. They will have options. And they 

will be able to pool both risk and some of their administrative 

costs. And finally, even though small businesses that choose not to 

provide health insurance coverage for their employees, because for 

the smallest businesses, it isn’t a requirement to provide coverage 

at all, their employees will benefit from the tax credits and in the 

Affordable Care Act and can purchase through the exchanges. At 

the end of the day, this will benefit small businesses because their 

employees will be ensured, they will have less absenteeism, and ultimately, those with health insurance coverage have better health 

outcomes and better health status. 

In conclusion, Mr. Chairman, and members of the subcommittee, 

the Affordable Care Act has tremendous potential to lower costs for 

small business and to make their health benefits competitive with 

large businesses, an important factor in recruiting and retaining a 

workforce. 

Thank you very much. 

[The prepared statement of Ms. Hayes follows:] 

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Mr. PITTS. The Chair thanks the gentlelady and recognizes Mr. 

Rome for 5 minutes for his opening statement. 

STATEMENT OF ETHAN ROME 

Mr. ROME. Mr. Chairman and members of the committee, thank 

you for giving me the opportunity to testify today. 

Healthcare for America Now is the Nation’s leading grassroots 

advocacy organization on healthcare and a strong supporter of the 

Affordable Care Act. 

The ACA includes many sorely needed market reforms, consumer 

protections, extended coverage provisions, and cost savings already 

benefitting millions of Americans. 

While much of the country is still struggling in this tough economy, health insurance companies have posted record profits with 

premiums that are crushing America’s families, seniors and businesses. That is why the provisions of the law that hold the insurance industry accountable and the worst abuses incurred by unreasonable rates are so critical. 

Thanks to the law, we have a new MLR rule that has been discussed that requires that insurers must spend on actual medical 

care a specific amount instead of on wasteful overhead, excessive 

profits and bloated executive compensation. The MLR combats the 

long-term downward trend and ensures insurers’ spending on medical care as a percentage of premiums. While the MLR was about 

95 percent back in 1993, it is 80 percent or less among large insurers today. That is thankfully changing already. The new rule is already cutting rates for some consumers like Aetna subscribers in 

Kansas, an intended consequence of the MLR and it promises up 

to 2 billion in rebates nationwide if insurers fail to meet the standard. 

We also have the rate review regulations that have been discussed which will substantially reduce rates as well. We have seen 

over the last year several examples where the intervention of insurance commissioners have already reduced rates. 

Aggressive rate review is imperative given the sharp rise in premiums, as has been discussed, 114 percent of the last 10 years for 

families with unemployment-based insurance, three times greater 

than wage growth. And while insurers blame these increases on 

the rising cost of medical care, premiums have been going up at 

double the rate of medical inflation. 

The big driver is profits. The Wall Street-run health insurance 

companies, their profits jumped 51 percent from 2008 to 2010. In 

2010 alone, their combined profits were 11.7 billion, up from 9.9 in 

2009, despite a 4 percent decline in enrollment. New data indicate 

they are on their way to record profits in this as well. 

But reported profits tell only a fraction of the story. Insurers 

have also amassed a capital surplus that vastly exceeds the Nation’s major for-profit and non-profit, what they are required. According to CitiGroup analysis, the Nation’s major for-profit and 

non-profit health insurance companies held an astonishing 90.3 billion in total risk-based capital to cover unexpected medical claims 

as of December 31, six times more than necessary. And virtually 

unnoticed by many, the for-profit insurers have steadily moved billions of dollars of cash off their balance sheets to buy back their 

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own shares on the New York Stock Exchange. This increases profits and share prices. It does nothing to improve patient care or the 

quality of their programs. 

The profits are astonishing. Their CEO pay is breathtaking. But 

what is galling and unacceptable is that the insurance companies 

impose double-digit premium hikes on America’s families and businesses year after year to pay for these—and they do so at a time 

when our families and businesses simply can’t afford to pay more. 

And it is clear these rate hikes are not justified. They could reduce 

rates by dipping into their capital surpluses. They could reduce 

rates given that utilization is going down. 

Two final quick things. We should not be spending our time talking about how to undermine the Affordable Care Act. For example, 

taking broker commissions out of the MLR equation. What that 

will do is jeopardize 1.4 billion in rebates for consumers, and as 

rates have gone up 100 percent over the last 10 years, so, too, have 

the commissions of brokers. 

We can also increase rate regulation by expanding rate review by 

enhancing the Health Insurance Rate Review Act sponsored by 

Representative Schakowsky and Feinstein which will give HHS 

greater power to review rates. 

America’s families and small businesses desperately need relief. 

With aggressive implementation of the ACA, the days of health insurance price gouging will come to an end. Thank you very much. 

[The prepared statement of Mr. Rome follows:] 

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Mr. PITTS. The Chair thanks the gentleman and recognizes Mr. 

Fensholt for 5 minutes’ opening statement. 

STATEMENT OF EDWARD C. FENSHOLT 

Mr. FENSHOLT. Chairman Pitts, Ranking Member Pallone and 

members of the committee, my name is Edward Fensholt and I am 

a Senior Vice President with Lockton Benefit Group headquartered 

in Kansas City, Missouri. Lockton Benefit Group provides employee 

benefits consulting services primarily middle-market employers, 

about 2,500 of them from coast to coast. Most of them self-insure 

their healthcare coverage, that is, they pay claims out of their general assets. Fewer than half buy group insurance from insurance 

companies. 

Mr. Chairman, that stack of papers to your right has been my 

life for the past year. My day-to-day job is to run Lockton Benefit 

Group’s Health Reform Advisory Practice where we steer our clients through the maze of regulations and rules. And I might add, 

Mr. Chairman, that that stack of regulations and rules is not only 

a burden on small business, it is a challenge to our clients in the 

middle market and to large employers as well. 

If I could sum up the views of our clients in a couple of words, 

those words would be frustration and bewilderment. The men and 

women who run these companies and supply jobs in their communities provide valuable health insurance benefits to their employees, but they struggle to do that. They struggle with the financial 

aspects of that coverage and with the dazzling array of federal 

rules and regulations they must navigate in order to provide that 

coverage. 

For example, today, as we speak today, there are more than 50 

separate notices, disclosures and reports to the Federal Government that a health plan sponsor must make just for the privilege 

of sponsoring a group health insurance plan, never mind their notices on their 401(k) plans, their OSHA notices, their EEOC notices, EPA notices, whatever, a simple healthcare plan has north 

of 50 notices, disclosures and reports it might be required to supply 

under federal law alone. Nineteen of those have been added by the 

health reform law so far. 

These obligations impose additional hassles, headaches and costs 

to our clients and subject them to all these penalties for failure. 

The health reform law adds a variety of new benefit and coverage mandates that add additional costs and complexities the 

sponsorship of a group health insurance plan. Our clients understand why Congress would act to supply access to health insurance 

for those who do not have that access or cannot afford it, but they 

simply do not understand why, in a time when everyone agrees 

that health insurance and healthcare is too expensive, why Congress would act to make the provision of employer-sponsored insurance, to which about 150 million of us obtain, more costly and particularly more hassle prone. 

We recently finished a 12-question survey of our clients on the 

impact of healthcare reform on them and the plans they sponsor. 

Over and over we received the same responses we have been hearing literally from them for the last year, comments such as these, 

taken verbatim from our survey results. We currently provide 

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healthcare coverage to our employees. The reform Act will do nothing but add cost and add administrative requirements. The law is 

burdensome with little benefit to employer or employee. In the long 

run, the law will reduce access to healthcare services and dramatically increase the cost to both the employer and the employee. 

What they, meaning the Congress, are planning is only going to penalize the employers and employees who actually are hard workers 

and are trying to make a living for themselves and not relying on 

the government to take care of them. 

The law includes a grandfather clause ostensibly intended to 

shield existing group plans from the law’s costly mandates and 

other provisions. But it is a poor shield indeed. It supplies no protection from several requirements such as the obligation to eliminate lifetime and annual dollar maximums the plans have used for 

years as—cost containment measures or the obligation to supply 

coverage to adult children, even if married, even if non-dependent 

upon the employer or living apart from the employee and spouse 

or even if the child is gainfully employed himself or herself. 

The grandfather shield does protect plans from other mandates, 

but the grandfather protection is so easy to lose as a result of routine plan design changes that the vast majority of our—grandfather status immediately. 

In our survey, 18 percent of our respondents said they would consider eliminating group coverage in 2014. To be fair, few have said 

they will do it for sure. Few have said they will definitely maintain 

coverage. Mostly they say we will wait and see. We may not be the 

first to cancel our group plan, but we will not wait to be third, either. 

In closing, let me say it simply seems to us and our clients that 

if Congress were inclined to attempt to address health insurance 

access issues, it should not punish employers in the process. Our 

clients are not the bad guys. They don’t understand why this law 

makes the provision of group health insurance more burdensome 

and more costly, rather than less so. 

Thank you, sir. 

[The prepared statement of Mr. Fensholt follows:] 

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Mr. PITTS. The Chair thanks the gentleman and recognizes Mr. 

Gardiner for 5 minutes for an opening statement. 

STATEMENT OF TERRY GARDINER 

Mr. GARDINER. Thank you, Mr. Chairman. Good afternoon, 

Chairman Pitts, and Ranking Member Pallone and members of the 

subcommittee. My name is Terry Gardiner. I am working with the 

Small Business Majority, and we are a non-profit national group 

advocating for small business owners out there. We represent the 

28 million small businesses which many of those are self-employed 

and businesses from 1 to 100 employees. We do scientific opinion 

polls and economic research to try to understand what the problems and the solutions that small businesses need. 

I myself started as a self-employed commercial fisherman for 

many years in Alaska until I got one of those entrepreneurial ideas 

to—a bigger company called Silver Lining Seafoods in 1981 and 

spent the next couple decades as an owner and CEO of that company growing it from start-up to $100 million with a thousand employees selling globally in 22 countries. So I have been through this 

as many of the other people in Small Business Majority have been 

of being out there and dealing with healthcare and access to capital 

and all these issues that all small business owners have to navigate to survive and be successful and create jobs. 

So we are well aware that many times there are regulatory burdens, lots of reports to fill out there. I think with healthcare, we 

have also watched for decades and endured while it only got worse. 

And so we felt that something has to be done, and there is a legitimate role for government to step in when things are only getting 

worse, as we have seen over the decades with costs going up and 

less availability, and over half our small businesses don’t even offer 

anymore. 

So when we survey small business owners, what we find is that 

cost is really the biggest concern. Our research showed an average 

of 86 percent of small business owners cite cost as their biggest 

barrier. A major economic study we did found that small employers 

would pay $2.4 trillion in increased healthcare costs through the 

next decade if nothing changes. And in fact, we would lose 178,000 

jobs and $52 billion in profits with no reform. This is why we have 

the Affordable Care Act, because that was the status quo. We needed to do something. 

One aspect that we are here to talk about today is the medical 

loss provision, and certainly insurance companies and brokers have 

a stake in this. You have heard about that, but I think you need 

remember that employers are paying the bill. Small employers are 

paying the bill in the small group market. Self-employed people are 

generally purchasing in the individual market, and all of these dollars and costs we are talking about passed through. And so whether the MLR is effective or not is really going to come out of the bottom line of small businesses, and whatever small businesses pay 

and more and more cost is really going to reduce their ability to 

expand their company and create jobs, and if we want small business to continue to create 70 percent of the jobs, then we need to 

be thinking about this. 

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So we need to, you know, work out some of these problems. We 

need to make sure that the MLR is protecting the small businesses 

because what we hear in meeting after meeting is small business 

owners standing up saying I got a double-digit increase this year 

on top of one last year. That should really be our focus. What are 

we doing about that? You know, in general, these small business 

owners are paying 18 percent more than the larger business owners. So I think the other thing we are here to talk about today is 

the rate review, and really what we are talking about here is transparency. As has been pointed out, there is no real hammer of the 

Federal Government to do anything about it, but again, this is 

something that, as a small business owner, you never get an explanation of why the premiums have gone up double-digit. You are 

just told this is the way it is by your broker, and we certainly support brokers. I always used the broker. Everybody I know used brokers. They are an integral part, and we believe they will be a very 

important part in the exchanges going forward. 

But again, somebody has to pay the bill, and if we just continue 

to shrink and shrink the number of small business owners because 

of double-digit inflation, that will be a reason, you know, that insurance companies’ business shrinks and brokers’ business shrinks. 

So I would just like to conclude by saying I think these are important parts of overall health reform. We need to get on with the 

show and implement the exchanges and the tax credits, and if anything expands those tax credits along with these regulatory reforms 

so we can bring the cost down of health insurance for small businesses. 

[The prepared statement of Mr. Gardiner follows:] 

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Mr. PITTS. The Chair thanks the gentleman. That concludes the 

openings statements. We are presently in a vote on the floor. There 

are seven votes scheduled, so with the appointment at the White 

House at 2:00 for the Democratic members, we will recess for questions of this panel until 4:00. If you can stay, we would like to ask 

that you can do that, and we will recognize the ranking member, 

who wants to express himself. 

Mr. PALLONE. Well, Mr. Chairman, I mean, you know, this is the 

same thing that I said at the beginning. I told you so, I think the 

way we are proceeding is just not good. I mean, there is almost nobody here other than, you know, the three of us and I see that we 

were joined by one colleague on either side of the aisle, but I just 

think that most of the members have been discouraged from being 

here because the panel has now spoken, the questions are going to 

come later, we are going to have a second panel after that. I don’t 

know what time. And I don’t know what you are supposed to do 

now. I guess you have no choice. 

But I just want to again object to the fact that we are proceeding 

this way. I think it is not good for the witnesses because they have 

to wait around for us to come back 4 hours later, and the result 

is that the members are not here to participate. So I don’t know 

what to say. I mean, I keep saying the same thing over and over 

again. I just hope this is the last time that we proceed in this way 

because it is just not conducive to a good debate, frankly. 

Mr. PITTS. I regret it is unfortunate we have to postpone the 

hearing. We will make a call to all the members to be back in 3 

hours at 4:00 and ask the indulgence of the witnesses if they can 

return at that time. 

Mr. PALLONE. Mr. Chairman, can I ask what we are going to do 

about the second panel? 

Mr. PITTS. I think perhaps on the second panel we are going to 

have to delay the second panel for another day. 

Mr. PALLONE. Well, again, I don’t see why if he— 

Mr. PITTS. He is limited on his time constraints at the end of the 

day. 

Mr. PALLONE. I understand that, but we knew that from the beginning and now we are going to end up having the hearing when 

we come back after recess. My original request was that we postpone it until then anyway. So now we are going to have to postpone 

it. It just seems like the whole thing could have been handled better. We could have just had it when we came back, and everything 

would have been straight through and members would have been 

here. Now we are going to have a second hearing when we come 

back. I just, you know—it just seems like—let us just hope that 

this doesn’t happen again. 

Mr. PITTS. Unfortunately, we have got to work around the President’s schedule, and I regret that. But we will reconvene. We will 

recess until 4:00. 

[Recess.] 

Mr. PITTS. The subcommittee will come to order, and I will now 

begin questioning and recognize myself for 5 minutes for that purpose. 

Let me start with Ms. Trautwein. You talked about the dire situation facing brokers across the country. Do you believe the reducVerDate Nov 24 2008 11:28 Feb 07, 2012 Jkt 037690 PO 00000 Frm 00113 Fmt 6633 Sfmt 6633 F:\112-056 PPACA’S BURDEN-SUBMIT FOR OK 12-19\112-56 PPACA’S BURDEN, DAYS 1
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tion in income and employment for agents and brokers as a result 

of the MLR rule will make more Americans dependent on Medicaid 

and the health coverage subsidies from PPACA? If so, would you 

elaborate? 

Ms. TRAUTWEIN. Yes, thank you. Well, certainly as I testified earlier, if you look at what the average income of agents and brokers 

are today already, it is easy to see that many of them would be in 

the category where they would, if they were not insured through 

an employer-sponsored plan, already be eligible for subsidies and 

certainly with a reduction of 20 to 50 percent, that absolutely 

would put many of them down into the Medicaid levels, particularly when you consider the expansion of Medicaid that is associated with the law. 

So yes, I would say that many of them probably, no doubt would 

definitely qualify for subsidies, and many of them would also qualify for Medicaid if this is not turned around. 

Mr. PITTS. Now, some argue that insurance agents add no value 

to the system and are simply overhead in the system that can be 

eliminated at the stroke of a pen or regulation. Elaborate a little 

bit on the role agents play in the healthcare system please. 

Ms. TRAUTWEIN. Well, the first thing I would like to say there 

is that, you know, agents and brokers have been used for 100 years 

to help people purchase health insurance coverage, and they have 

been used by insurance carriers for a reason, and it is because it 

is efficient. And from time to time, and I have been in the industry 

30 years, I have seen carriers say look, we are going to try to get 

lean and mean here, and we are going to use our own people. And 

invariably it doesn’t last very long. Usually it is a year or less, and 

they are back to using agents and brokers because it is more efficient, because they get a larger number of people enrolled, and 

they are able to do it at a lower cost. 

Then you have the service aspect which I talked about earlier, 

and I gave you one example. But those types of things happen all 

the time, every sort of claims situation that you can imagine. And 

this is all at a time when it is taking much more time for them 

to do their jobs because they have so many questions about the 

new law, particularly from their employer clients, and for their 

small employers, they often serve as their HR department. You 

would be surprised all the things that they actually do. 

Mr. PITTS. Thank you. On the issue of fraud, Ms. Reichel, a ‘‘60 

Minutes’’ episode last year pegged the amount of fraud and abuse 

in the Medicare program at more than $60 billion a year. Some 

have estimated that it might be closer to 100 billion. Do you agree? 

Does anyone disagree that the amount of fraud and abuse in the 

Medicare program could be as high as $60 billion as ‘‘60 Minutes’’ 

reported? 

Ms. REICHEL. I have seen that number on the ‘‘60 Minutes’’ report, yes, and I know that that is accurately what they have reported. 

Mr. PITTS. Now using that small number of 60 billion that is 

about 12 percent of Medicare spending per year. Using the higher 

number of 100 billion, the percentage is about 21 percent. Would 

a private plan be able to stand—12 percent or 21 percent of its 

claims were a result of fraud and abuse? 

111 

Ms. REICHEL. I think it would be quite difficult for them. 

Mr. PITTS. Will the MLR rule hinder Plans’ ability to stop fraud 

before it happens and if Plans are forced to pay more fraudulent 

payments, will premiums increase? 

Ms. REICHEL. You know, that is really an excellent question. The 

way the MLR is structured, Plans are not going to be able to get 

credit for preventing fraud. Fraud prevention activities are categorically excluded from the medical loss ratio, and the only thing 

that Plans can get credit for is the dollar amount that they have 

actually recovered after the payments have already been made and 

services that are potentially fraudulent have already been rendered. 

Mr. PITTS. I only have 30 seconds left, but Dr. Harrington, I 

watched your reaction when someone else was testifying about the 

excess profits. Would you care to comment on your reaction to the 

testimony of the excess profits insurance companies make? 

Mr. HARRINGTON. Two quick things, I think. Whenever I look at 

profits, I tend to look at profit margins because this is a big country with a big industry, and if you look at dollar amounts, they can 

be big dollars on a small percentage of total premiums. 

I apologize for my reaction. My reaction was really to the issue 

of insurance companies’ allegedly holding all this capital in excess 

of what is required by regulation. I have done a lot of work on insurance company capital requirements, regulatory requirements 

are the very bare minimum to keep regulators from taking over the 

company, and to me it really makes no sense to start comparing 

the amount of capital the company holds compared to that regulatory requirement as some measure of how much money it could 

disperse to—the leadings health insurers typically have financial 

strength ratings from rating agencies in the neighborhood of A to 

A-minus. They are not A-plus, they are not A-plus-plus. So certainly the rating agencies that are evaluating their solvency do not 

regard the amount of capital they are holding as excessive relative 

to their responsibility to meet unforeseen contingencies to their policyholders. 

Mr. PITTS. Thank you. My time is expired. The Chair recognizes 

the ranking member, Mr. Pallone, for 5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. I want to ask Mr. 

Rome, your testimony notes that from 1999 to 2009 health insurance companies raised premiums 131 percent, three times the 

growth of wages and four times the rate of overall inflation. One 

of the regulations that Republicans are attacking here today is the 

so-called rate review regulation, which I think requires very little 

of health insurers. It only asks that they provide a justification to 

HHS for any premium increase of 10 percent more. Insurance companies with that amount of rate increase will be identified on a 

public Web site. It seems to me that this is the least we can do to 

try to stop excessive premium increases. So I just wanted to ask 

you, what more can you tell us about the state of profitability of 

the insurance industry today? Is rate review going to be an impossibly onerous burden for the insurance companies to meet? Have 

you seen an impact from rate review on premiums in any States 

in which it has been implemented so far? 

112 

Mr. ROME. Rate review does a couple of very important things. 

One is it brings transparency to this process, and if insurance companies are selling a good product with good rates—there ought to 

be no problem taking a close look at. Rate review, which just today 

the California Assembly passed and it—Senate, the good example 

there is auto insurance. They have had rate reviews since—prior 

rate approval, there is a robust and competitive market. But it has 

brought down rates. In just the last year-and-a-half, aggressive 

intervention by regulators has reduced rates in multiple places 

with health insurance. And so anytime you see rates getting reduced in Massachusetts from 18 to 10 percent, et cetera, you know 

that those rates have some room, and regulation helps find it. 

Mr. PALLONE. The second question was mentioned I think or 

someone said that Aetna recently announced in Connecticut they 

will reduce premiums in the individual market there by 5 to 20 

percent or 10 percent on average beginning in September. That is 

certain a welcome change to hear premiums go down instead of up. 

But are you aware of why Aetna of Connecticut reduced its premium? And I know your testimony talks about large insurers having a significant amount of built-up reserves, so they should be 

able to afford some premium reductions. Is that what is happening 

with Aetna of Connecticut or is there some similar actions in the 

near future that we might see form other insurers? 

Mr. ROME. Aetna is an example of the MLR in action. In order 

to avoid paying the rebate that they would have been required to 

pay as a consequence of not meeting their MLR target, they lowered rates. And they wouldn’t have lowered rates if they weren’t in 

a position to do so. 

Mr. PALLONE. OK, and are we likely to see that with other insurers? 

Mr. ROME. I think so, and I think what is important is that while we along with others point out the importance, $2 billion in rebates 

could come to consumers. The fact is that the MLR is not designed 

to produce rebates. It is designed to more—industry and lower premiums. 

Mr. PALLONE. All right. Mr. Gardiner, I think I have time to ask 

you a question. As you know, the experience of small business with 

unrelenting health insurance rate increases is not surprising nor 

uncommon. Since 2000, premiums from employer-sponsored insurance have grown three times as fast as wages. These increases are 

crippling America’s small businesses in my opinion, not health reform. 

Over half of the small businesses in the country can’t afford to 

offer health benefits to their employees which means the majority 

of uninsured Americans are small business owners, their employees 

or their families. In your testimony you talk about a small business 

owner who was quoted 160 percent premium increase from his carrier last year forcing him to change plans. So my question is can 

you talk about how different insurance reforms and the exchanges, 

you know, in the Affordable Care Act, will help lower premium increases over time, with regard to small businesses? 

Mr. GARDINER. I think that one of the special problems that 

small businesses have faced, while everybody sees medical costs, 

premium costs, going up in the country and it is very well docuVerDate Nov 24 2008 11:28 Feb 07, 2012 Jkt 037690 PO 00000 Frm 00116 Fmt 6633 Sfmt 6633 F:\112-056 PPACA’S BURDEN-SUBMIT FOR OK 12-19\112-56 PPACA’S BURDEN, DAYS 1
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mented—small businesses are much more subject to a very much 

annual volatility. You know, every time we have a meeting, there 

is always somebody standing up talking about what their premium 

went up and other people chiming in. And a lot of times they can’t 

even find out why their premium went up. And you know, we talk 

about people in the small group market. It is even more volatile if 

you are self-employed. If you are one of 22 million self-employed, 

you experience even more premium volatility. And I think we are 

not really going to see that premium volatility come down until the 

exchanges are up—and combined with the insurance reforms. At 

that point we are going to see an ability to level them out. 

So I think the main thing we hear from small business owners, 

can we get these exchanges going sooner because, you know, we are 

going to have to bring those elements together of the exchanges 

and the insurance reforms before we will decrease that volatility on 

a year-to-year basis. 

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

Mr. PITTS. The Chair thanks the gentleman and recognizes the 

gentleman from Louisiana, Dr. Cassidy, for 5 minutes for questions. 

Mr. CASSIDY. By the way, I enjoyed all the time we had together. 

Now I am intrigued that you brought up Massachusetts, because 

frankly, Massachusetts concerns me. If you will, that appears to be 

the prequel, as someone described it, the beta version of 

Obamacare. Massachusetts appears to be the prequel or beta 

version of Obamacare. And their small group market has the highest premiums in the Nation. Now, they started off with an uninsured rate of about 10 percent. Now it is about 4 percent. And the 

economic drag or something has been incredible. Maybe it is not 

this, but they have actually had a negative—I did see that they 

had a crackdown on their MLR, but those are non-profit insurance 

companies. If you talk to the providers and the insurance companies, they say effectively, this is like the Soviet Union, that they 

are being ignored in terms of their true expenses. It is just arbitrarily being decreased. Clearly you disagree with that, so I just 

would like your response to those kind of ascertations. 

Mr. ROME. I mean, I don’t want to spend a lot of time on Massachusetts itself because I was citing it as an example of rate reductions that have come about because of prior rate approval or because of insurance regulators stepping in. 

And so you see that in multiple cases. Certainly California had 

very large rate increases, 39 percent that went to 14 percent in 

2009, looking at North Dakota recently, 27—— 

Mr. CASSIDY. Can I ask you then, knowing that those exist but 

obviously we may differ in terms of it, I am also concerned, I am 

still a practicing physician in a public hospital, and it has always 

been my observation that politicians overpromise and underfund. 

And there is this populace pressure to do something about climbing 

premiums. Do you see any risk that in the future some DHH secretary, whatever she is secretary, will say no, thou shalt not increase your premium. We are going to disregard this cost structure 

because frankly, it is a political pressure. It is the year before presidential reelection, for example, and there is—increase. Do you see 

no risk in that? 

114 

Mr. ROME. I don’t see any risk in that because there isn’t any 

demonstrate that that has occurred to date. There is 22 States that 

have prior rate approval. I mentioned the California example of 

auto—— 

Mr. CASSIDY. Now, wait a second. I think we can look at property 

and casualty rates in Florida and see that there was a political response to something which, you know, people objected. You are 

raising our premiums. The actuaries for the P&C companies said 

no, this is reasonable. We have huge exposure here. 

Now, you may argue whether Citizens in Florida was a good 

thing or a bad thing, but clearly, that was a political response to 

an outcry which actuaries say is fiscally unsound. So there does 

seem to be precedent for this. 

Mr. ROME. Again, I don’t think that there is any significant 

precedent. What there is is a substantial history of regulators taking, whether it is on both sides of the aisle, taking a cool look at 

rate hike requests and making judgments based on the merits. 

Mr. CASSIDY. Let me ask you—— 

Mr. ROME. It is an important—— 

Mr. CASSIDY. I have limited time, so I am sorry to be rude. Dr. 

Harrington, you see where I am going with my line of questioning. 

What are your observations? 

Mr. HARRINGTON. We haven’t had detailed statistical analyses of 

the relationship between regulation and health insurance and performance metrics like—and the like. 

There have been dozens of studies of the impact of rate regulation and workers’ compensation insurance and automobile insurance. You can have environments where an insurance company is 

in an environment of rapid claim cost growth will ask for 10 or 15 

percent in a politicized environment. Maybe they can negotiate a 

rate increase of 8 or 9 percent. That can go on for a period of time. 

It reduces the company’s incentive to write new business. It reduces their incentive to provide good quality. It reduces their financial strength. But it cannot persist. 

The studies that have looked at long periods of time show that 

basically there is no difference by type of regulation in these markets, automobile and homeowners’ insurance. Now, I can’t attest to 

that in health insurance because people haven’t looked at the data, 

but I don’t think you can look at anecdotes for what happened in 

Massachusetts, for example, because in the short run, companies 

will take a rate increase less than the actuarial projection if the alternative is enormous legal fees—or having to leave a marketplace. 

I would also just like to say we need to keep our facts straight. 

The California situation was highly publicized. Thirty-nine percent 

was touted all over. The weighted average increase was 25 percent. 

It eventually was only 14 percent, and there was—dispute about 

the numbers and so on. But it is not right to compare 39 percent 

to 14 percent, and it is also not right to assume as I said in a particular year if you get a lower rate increase because of some regulatory action, that that is really consistent with the underlying cost 

of the business in the long run viability of the company. 

Mr. CASSIDY. Thank you very much. I am out of time almost. I 

yield back. 

115 

Mr. PITTS. The Chair thanks the gentleman and recognizes the 

gentleman from California, Mr. Waxman, for 5 minutes for questions. 

Mr. WAXMAN. Thank you, Mr. Chairman. Ms. Hayes, Republicans have repeatedly claimed that the administration’s rule on 

grandfathering plans will lead to people losing their plans. Is that 

true? 

Ms. HAYES. Is it true that Republicans have claimed that? Is that 

the question? I am sorry. 

Mr. WAXMAN. No. 

Ms. HAYES. Is it true that they will actually lose their plans? No, 

Mr. Chairman. I am sorry, Mr. Chairman. That was a slip. 

Mr. WAXMAN. I won’t hold it against you. 

Ms. HAYES. OK. And I apologize, Mr. Pitts, for that slip. No, the 

grandfather rules were established to provide a transition for 

health insurance, and first of all, you know, starting with the 

premise that an individual can keep their health insurance, with 

all due respect to the administration, is a false premise to begin 

with because any day an insurance plan could decide that they are 

no longer going to offer it in that market. And it is not so much 

that an individual I believe is so much attached to an insurance 

policy to begin with or an insurance carrier in particular, they are 

worried about whether or not they can continue to see their 

healthcare providers, they are worried about whether or not it is 

affordable, they are worried about what benefits are covered. 

And under the grandfather rules, plans are required to meet— 

but frankly, if the plans change their policy so that they no longer 

meet the grandfather provisions, that is not the same policy anymore, either, because if they are losing grandfather status, they 

have made a significant change in their benefits. There has been 

a significant increase in cost sharing for beneficiaries, there has 

been a reduction in benefit coverage generally. 

So the grandfather rule protects individuals and they can continue to keep the plans they have so long as the carriers keep the 

same—— 

Mr. WAXMAN. Right. Would you say employers won’t drop coverage just because they may not qualify as for the grandfather? 

Ms. HAYES. Oh, absolutely not. I think clearly every employer 

group that I have heard has said that they want to continue to 

offer healthcare benefits because it is an important tool for recruiting and retaining personnel. At the same time, there are provisions 

in the Affordable Care Act. 

Mr. WAXMAN. Let me move on to some others in the limited time 

I have—— 

Ms. HAYES. Sure. 

Mr. WAXMAN [continuing]. Because I wanted to ask Mr. Gardiner, Republicans continue to say, and this isn’t a question of 

whether they continue to say it, I am asserting that they have said 

over and over again that the Affordable Care Act will cost small 

employers too much. However, we know this is not the case. The 

ACA contains multiple provisions in directly at reducing healthcare 

costs for small businesses and ensuring the small businesses, their 

employees will have access to affordable and quality health insurance. In your testimony you discuss some very important provisions 

116 

that are already helping millions of small businesses. For example, 

you talked about the small business tax credit that offers a credit 

of up to 35 percent of their health insurance costs. Four million 

small businesses—with the small business tax credit, and early evidence suggests that many are already benefitting from it. According to a survey by the Kaiser Family Foundation, the percentage 

of small employers offering health coverage has risen from 46 percent in 2009 to 59 percent in 2010, in part due to the reform’s new 

tax credit. Can you please elaborate on how the healthcare tax 

credit for small business is helping create jobs and health security? 

Mr. GARDINER. The direct linkage between the healthcare tax 

credit and any tax credit is that the more money is flung into the 

treasury of a small business, then they have more money to invest—for jobs is the fact that over the last decade 70 percent of the 

net new jobs have come from small business, and you know, there 

is a lot of other industries out there, and they invest in a lot of 

mergers and acquisitions and increased dividends and go offshore 

and everything. But really, you know, small businesses are there 

because somebody was an entrepreneur—that, and they pour their 

lives and their money back into growing their business. 

So when we say that they can get a 35 percent tax credit that 

is going to reduce their cost, that is going to stay, you know, in the 

treasury of their company, and they are going to be looking at how 

to expand their business. And very much like this is last year Congress provided the tax equity for self-employed, the 22 million selfemployed, which reduced their cost when they purchase healthcare 

by 15.3 percent. And we should keep that in mind as one of the 

benefits of the overall health reform that needs to be retained also. 

Mr. WAXMAN. I see my time is expired. 

Mr. PITTS. The Chair thanks the gentleman and recognizes the 

gentleman from New Jersey, Mr. Lance, for 5 minutes for questions. 

Mr. LANCE. Thank you, Mr. Chairman, and good afternoon to the 

panel. A similar vein of questioning as suggested by Mr. Waxman, 

Mr. Fensholt, in your testimony you state that many of your clients 

may lose their grandfathered status, due even to modest or routine 

changes, and I would like to suggest several examples and if you 

would comment on them please, sir. 

Mr. FENSHOLT. Sure. 

Mr. LANCE. A plan increases co-insurance from 5 percent to 6 

percent, and a family believes the plan still provides good value for 

the family. In your judgment, would the plan remain grandfathered 

and could the family keep that type of plan? 

Mr. FENSHOLT. Well, the plan loses grandfathered status, and 

the issue in my space, in the middle market, large market, is that 

when a plan loses that grandfathered protection, additional benefit 

mandates and requirements drop down on top of that plan, and 

those carry costs. And so the problem as we see it with the grandfathered rule, it is—grandfathered rule, very modest changes. I 

think here is where Ms. Hayes and I part company. It does not 

take a significant change in plan design. 

Mr. LANCE. So for example, another situation, a co-pay is in- creased for prescription drugs from $5 to $10 or perhaps an owner 

asks her employees to increase their share of health premiums 

117 

from 2 percent to 8 percent. In your judgment, what would happen 

in those situations? 

Mr. FENSHOLT. In those situations, the plan loses grandfathered 

protection. The additional mandate dropped down the plan. The 

plan incurs the additional cost. 

Mr. LANCE. Thank you very much. Ms. Reichel, in your testimony you mentioned that the administrative and regulatory burdens of the medical loss ratio requirements will put significant 

challenges to employers and health plans. 

In New Jersey where I live, there is a history of administering 

MLRs and overseeing administrative rebates, although one— 

PPACA, we have the situation but not as strict as PPACA. I would 

be interested in your thoughts on what effects the stricter MLR 

and would a State like New Jersey’s insurance market be challenged in this regard, recognizing that what we have in New Jersey 

is not as strict as what is in PPACA. 

Ms. REICHEL. What is in the ACA now I think is going to be a 

real burden on small businesses, and here is why we think that. 

Assume if you will that there is going to be a rebate owed to a 

small business. The insurance company has to do much more than 

simply determine that a rebate is owed to the employer and provide that back to the employer. What the small employer now, and 

large employer, too, needs to do in order to get that is to provide 

data to the insurance company that all the premiums that the employer has paid, he needs to determine what the premiums are that 

the individuals he employs pays. He also has to determine what 

the percentage of the rebate is coming back to the employee, and 

he has to provide documentation to the insurance company that he 

actually gave—so the reporting requirements on small employers is 

much greater than it ever was before. 

Mr. LANCE. And as a follow-up to that, what if a State has never 

had to deal with the MLR? It seems to me it might face an even 

more significant effect on this market? 

Ms. REICHEL. I would think that that would be absolutely true, 

not only from the small employer but also from the carrier point 

of view where a State that has no MLR currently in effect, effectively what the companies are doing, he is going from zero to 60 

immediately, or I guess zero to 80 or 85 overnight. 

If the State has no medical loss ratio now, then it, in effect at 

the federal level for policies that were in effect before the statute 

was effectively signed. So there is a retroactive application of the 

medical loss ratio. In a State where there hasn’t been an MLR, I 

think that that climb is really steep for the carriers. 

Mr. LANCE. Thank you. I conclude from the questioning and from 

the testimony that it is unlikely that the President’s promise that 

Americans can keep their health plan if they like it is not accurate, 

and I think we have to move in the direction to making that possible in the greatest number of situations. 

Thank you, Mr. Chairman. 

Mr. PITTS. The Chair thanks the gentleman. We will begin a second round of questioning here. Mr. Fensholt, in your testimony you 

state that employers’ biggest concern about PPACA is the massive 

administrative burden imposed by the law. Do you believe that the 

healthcare law’s administrative burden is merely a short-term 

118 

issue for employers as the law’s implementation has begun or will 

the law present additional administrative headaches for job creators down the road? 

Mr. FENSHOLT. Oh, it will definitely be the latter, Mr. Chairman. 

This is an ongoing trend at the federal level with regard to health 

insurance and the administrative burdens. There are federal rules 

put on plan sponsors, and I might add, by 2014, for example, employers are not only going to have to comply with the panoply of 

existing obligations but they will begin reporting to the insurance 

exchanges the various levels of coverage they are offering their employees, what they are charging for it, who is eligible for it, who 

is enrolled in it and do this on a regular basis, along with a variety 

of other reports and obligations. 

The irony about these reporting and disclosure obligations is that 

if you look at any one of them individually, they may not appear 

all that onerous. But in the aggregate, none of these obligations is 

a sword thrust to the heart. But in the aggregate, you are asking 

an employer to supply more than 50 disclosures, notices and reports to the Federal Government. I mean, over time this is death 

by 1,000 cuts to employers. And I will tell you, sir, that we have 

clients who are at the end of their rope. Their view is this is just 

becoming too hard, too complicated. The—of the axe hanging over 

our head is too severe. We are not going to want to do this much 

longer. And rather than making that burden easier, health reform 

makes it harder, more complicated and more cumbersome. 

Mr. PITTS. Thank you. Ms. Hayes, in a December 14 editorial, 

Secretary Sebelius and Attorney General Holder wrote, ‘‘It is essential that everyone have coverage. Imagine what would happen if 

everyone waited to buy car insurance until after they got in an accident. Premiums would skyrocket, coverage would be unaffordable 

and responsible drivers would be priced out the market.’’ Yes or no, 

do you agree with Secretary Sebelius and the Attorney General 

that if the individual mandate is unconstitutional, would premiums 

skyrocket? 

Ms. HAYES. If it is struck down, would premiums skyrocket? I believe that if the individual mandate were not a part of this law, it 

would be more difficult for insurers to continue to operate, yes. 

Mr. PITTS. So it is fair to say that you believe that if the individual mandate were not in the bill, that would impact other parts 

of the law? 

Ms. HAYES. Yes. 

Mr. PITTS. Anyone. Medicare’s plan to prevent fraud and abuse 

has often been described as a pay-and-chase model. Can anyone describe how pay-and-chase anti-fraud efforts work? Ms. Reichel? 

Ms. REICHEL. I have seen people looking down at my end of the 

table. What pay-and-chase means is that once a service has been 

provided, the bill has been sent to the insurance company, the insurance company has paid it, there is a retroactive application if 

you would or an attempt to get the money back that somebody 

finds out after the fact has been provided fraudulently for a service 

that didn’t occur, for a service that shouldn’t have occurred, so 

somebody who wasn’t there. That is pretty much what a pay-andchase is as opposed to preventing the fraud from occurring in the 

first instance. 

119 

Mr. PITTS. All right. I am going to at this time yield 5 minutes 

to the ranking member for his questions because we are voting. 

Mr. PALLONE. Thank you. Have we started the vote? 

Mr. PITTS. Yes. 

Mr. PALLONE. OK. I will try to be quick. I wanted to ask Ms. 

Hayes about the waivers. You know, Republicans, they spend a lot 

of time complaining about the inequities in the waiver process for 

annual limit requirements. They have made allegations that favored political allies of the democratic party, particularly unions 

who were being exempted from all the health reform bills, consumer protections and insurance regulations. And I think these 

claims have been wildly—they need a lot of consideration here, but 

for instance, union plans were more than five times more likely to 

be rejected for annual limit waivers than were other kinds of applicants—for annual limits of policies affect only a small number of 

people and are just one consumer protection of the law. 

Your testimony describes the waivers as a kind of transitional 

policy from today’s world to a much more rational insurance regime 

in 2014. Would you just elaborate on that a little bit? 

Ms. HAYES. Yes, sir. I have seen no evidence to suggest that the 

administration is granting favors to anyone when it comes to waivers. Clearly, Congress anticipated and were warned during debate 

that there were going to be transitional issues, and that is built 

into the law itself. So I don’t find it particularly surprising that 

waivers have had to be granted and particularly in the area of 

some of the mini-med plans that you have seen out there which I 

don’t think anyone would argue are allies of the current administration. 

Mr. PALLONE. All right. Thank you. I want to ask Mr. Gardiner 

and Mr. Rome, this is about the Affordable Care Act creating jobs 

because I obviously believe that it creates hundreds of thousands 

of jobs. But the opponents make strong claims that the law will kill 

jobs. They argue that requiring employers to offer health insurance 

and to improve their benefits will increase cost of labor. I don’t 

think that is true because I think the ACA is in fact helping to create thousands of jobs in the public and private healthcare sectors. 

In June 2010 funds were allocated to train more than 16,000 new 

primary care providers including physicians, nurses. It seems logical that the newly insured 30 million people will need doctors, 

nurses and other healthcare personnel to meet their medical needs. 

I know that the Republicans have said that the country may not 

have enough doctors and hospitals to serve these people, but the 

answer to that is to grow the workforce to create more jobs. 

So I just wanted you to comment, one or both of you. Can you 

describe for us how the ACA is a job creator, not a job killer, and 

talk about some of the other factors, just to comment on that. I will 

start with Mr. Rome, I guess. 

Mr. ROME. OK. I would just say two things before Mr. Gardiner. 

I mean, one is that one of the best things that we can do to help 

create jobs is reduce the expenses that employers face, and reducing healthcare costs is an important and significant part of that. 

And that is why the MLR, for example, which makes insurance 

more efficient and more affordable is an incredibly important part 

of job creation. 

120 

The second thing is when we do talk about medical personnel, 

simple example. Over the next 10 years, community health centers 

are going to go from treating 20 to 40 million people, and that is 

a substantial change in treatment, and that will obviously create 

jobs in the health sector, as just one example. 

Mr. PALLONE. Mr. Gardiner? 

Mr. GARDINER. Where we start from is what if we don’t have 

healthcare reform? That is what we see as the job killer, and that 

was the study that we had done by MIT to start with. So we start 

from the premise if we don’t do something about the ever-escalating, we are going to lose jobs. And we documented that as 

178,000 jobs, but I think that is a very conservative number. But 

if we go forward with health reform and reduce costs, then firms 

can invest that money. And in fact, the other part that we have to 

look at is job loss. You have got 42 million employees at small 

firms under 100 employees, and it has been well-documented in the 

literature out there that people can’t leave because they are worried about getting the benefit. Of course, this would be any size 

firm because they don’t know if they are going to have healthcare 

where they go, especially when we have half of the small employers 

not providing it, and that is a shrinking base. 

So employees can’t move. They are unhappy. Everybody who has 

been an employer knows that that is not a good thing, that when 

an employee wants to move, they ought to be able to move. But it 

also applies to people starting companies, entrepreneurs. Why is 

somebody going to take the risk to leave a good job with good benefits and go out there and be a self-employed person, a start-up company, and then find out how expensive and how unattainable 

healthcare might be for them. So there are several ways that having healthcare available and having it more affordable and less 

volatile is going to help small businesses grow and make it easier 

for people to start companies. 

Mr. PALLONE. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. The Chair thanks the gentleman. That concludes our 

first panel. The Chair thanks the witnesses for their testimony, for 

their patience. Despite the interruption, it was an excellent panel, 

excellent testimony. 

The subcommittee will take testimony from the second panel at 

a date to be determined. The subcommittee is now in recess. 

[Whereupon, at 5:17 p.m., the subcommittee was recessed.] 

121 

PPACA’S EFFECTS ON MAINTAINING HEALTH 

COVERAGE AND JOBS: A REVIEW OF THE 

HEALTH CARE LAW’S REGULATORY BURDEN—DAY 2 

WEDNESDAY, JUNE 15, 2011 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, 

Washington, DC. 

The subcommittee met, pursuant to call, at 3:00 p.m., in Room 

2322, Rayburn House Office Building, Hon. Michael C. Burgess 

presiding. 

Present: Representatives Burgess, Rogers, Gingrey, Latta, 

Cassidy, Guthrie, Pallone, Towns, Capps, and Waxman (ex officio). 

Staff present: Brenda Destro, Professional Staff Member, Health; 

Paul Edattel, Professional Staff Member, Health; Julie Goon, 

Health Policy Advisor; Jeff Mortier, Professional Staff Member; 

Katie Novaria, Legislative Clerk; Debbee Keller, Press Secretary; 

Alli Corr, Minority Policy Analyst; Tim Gronniger, Minority Senior 

Professional Staff Member; Purvee Kempf, Minority Senior Counsel; Karen Lightfoot, Minority Communications Director and Senior 

Policy Advisor; Karen Nelson, Minority Deputy Committee Staff 

Director for Health; and Mitch Smiley, Minority Assistant Clerk. 

Mr. BURGESS. The committee will come to order. This is a continuation of a hearing that actually began 2 weeks ago. The opening statements have already been given by the members on the 

committee, and so today we will conduct our hearing on the regulatory burden of the Patient Protection and Affordable Care Act. 

We do welcome our only witness today, Steve Larsen, certainly 

no stranger to the committee. We welcome you back, sir. We are 

always glad to have you. 

He is the Director of Consumer Information and Insurance Oversight for the Centers for Medicare and Medicaid Services. 

Once again, we want to thank Mr. Larsen for agreeing to appear 

before our committee and the willingness to accommodate changes 

in schedule. We understand you, sir, have some other considerations today. There is likely to be a set of votes on the House floor 

sooner rather than later. 

So with that, why don’t we proceed directly to your opening 

statement in the interest of time. 

STATEMENT OF STEVE LARSEN, DIRECTOR, CENTER FOR 

CONSUMER INFORMATION AND INSURANCE OVERSIGHT, 

CENTERS FOR MEDICARE AND MEDICAID SERVICES 

Mr. LARSEN. Thank you, Mr. Chairman, Ranking Member 

Pallone, members of the subcommittee. Thank you for the opportunity to discuss CCIIO’s progress in implementing the Affordable 

Care Act, and I have submitted my full written statement for the 

record. 

122 

I am pleased to have the opportunity to describe the new programs that CCIIO has implemented under the ACA, programs that 

have been implemented in an open, transparent and balanced manner. 

When fully implemented in 2014, the ACA will expand access to 

affordable quality coverage to over 30 million Americans. By increasing competition among private health insurers and reducing 

barriers to coverage, individuals will have coverage when they need 

it most. In the meantime, the reforms in the Affordable Care Act 

we have already implemented provide a critical foundation of patients’ rights in the private health insurance market. Now, for example, consumers can get better information about available health 

care options in their State on healthcare.gov, and based on provisions which allow dependents under age 26 to have coverage under 

their parents’ policies, over 600,000 young adults now have access 

to care. 

CMS has worked to manage different statutory implementation 

schedules for these and other provisions, while still seeking, considering and accommodating public input and comment. CCIIO received and considered input from consumers, industry, States and 

other stakeholders through formal requests for comment and, in 

some cases, public forums, as we prepared our regulations implementing these programs. 

Importantly, in each regulation issued, we seek to secure the protections intended by Congress in the most economically efficient 

manner possible, and we undertake a careful balancing of costs and 

benefits and examine regulatory alternatives. 

As a result of these processes and the feedback received by CMS, 

the regulations that we have issued to implement the Affordable 

Care Act have been strengthened by the views and opinions expressed by stakeholders and, again, reflect a balanced approach to 

implementation. 

For example, CMS issued the final rate review regulation in May 

after reviewing and considering more than 60 comments received 

on the proposed rule issued in December. The final rule includes 

several changes to the proposed rule that reflect the comments that 

we received. For example, based on public input, the final rule 

clarifies that CMS will work actively with States to develop Statespecific thresholds beginning in September 2012 for the rate-review 

process, and this ensures that the rate-review process is based on 

the insurance and health care cost trends in each particular State. 

We also extended the startup date for the new rate-review process until September. We also modified the requirements for what 

constitutes an effective rate-review process in the States based on 

comments that we received from the industry and State regulators. 

Another program that reflects our balanced approach to implementation is the medical loss ratio regulation. In order to ensure 

consumers receive value for their premium dollars, the ACA establishes minimum standards for spending by insurance companies on 

clinical services and quality-improvement activities for their members. In December of 2010, we published an interim final regulation with the 60-day comment period implementing the MLR provisions of the ACA. 

123 

The interim final regulations certified and adopted the recommendations submitted to the Secretary by NAIC. And, importantly, the NAIC process included significant input from the public, 

from States and other key stakeholders, and was widely praised for 

its openness and transparency. 

The MLR regulation we issued struck a balance among the interests of many affected groups and took into account the potential 

costs and benefits of the regulation on affected parties. Some of the 

provisions that may have been burdensome on small plans or new 

health plans were modified, and pursuant to specific provisions in 

the ACA, we established a process to allow States to seek a modification to the MLR standard in the individual market in order to 

allow an orderly transition for health plans to the new MLR standards. And this process provides flexibility to the States in how they 

implement the ACA. 

In implementing the provisions of the Affordable Care Act in the 

future, CCIIO will continue to work closely with all interested 

stakeholders and to use the transparency of the regulatory process 

to ensure the new law serves the American people in an economically efficient manner. 

We are proud of all that we have accomplished over the last year 

and look forward to 2014 when Americans will have access to more 

affordable comprehensive health insurance plans. And thank you 

for the opportunity to discuss the work that CCIIO has been doing 

to implement the Affordable Care Act. 

Mr. BURGESS. Thank you, Mr. Larsen, for your testimony. 

[The prepared statement of Mr. Larsen follows:] 

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Mr. BURGESS. We will now, as is customary, take questions from 

the dais. We will alternate between Republicans and Democrats. 

Without objection, I will begin. 

Now, you have been here in our subcommittee before, and the 

last time you were here, I asked and you agreed to provide a detailed budget. To date, I have only received some net totals for your 

obligations, such as the amount spent on the early retiree reprogram. 

What we have discussed was a detailed budget that included all 

of your sources of funding and how those dollars were spent, and 

I have had both your word and Secretary Sebelius’ word that this 

would be forthcoming, and I think I have been more than patient. 

When could the committee look forward to seeing action on this request? 

Mr. LARSEN. Well, thank you for your question. I think we have 

submitted, I think, two responses, and I apologize if you don’t feel 

they are fully responsive. I think we submitted kind of our spending to date, I think, as of March, and then our 2011 and 2012 budget. 

But we would be happy to provide you with more detail. I don’t 

know if you have provided—your staff has provided us with the 

specific level of detail that you would like, but if they have, I will 

certainly, after this hearing, talk to them to make sure we get you 

what you have asked for. 

Mr. BURGESS. Well, just to refresh your memory a little bit, during that first hearing that we had, there was some concern—and 

I believe Mr. Engoff appeared with you at that hearing—and the 

questions were surrounding how did you know—in February of 

2010, a month and a half before the bill was signed into law, how 

did you know what your startup expenses were going to be? 

In other words, there was money written into the bill—when the 

legislative product was still a bill, there was money written in. And 

it almost seems like people were hired prior to the bill becoming 

law. So we were interested in how those funds were allocated, what 

they have been used for, what amount of money that was allowed 

for that initial allocation for startup costs remains unspent, just 

trying to get some finer detail on where the dollars came from and 

where they have ended up. 

So, again, I apologize if we have not provided you that. 

Mr. LARSEN. I apologize if we have not been responsive, and after 

this hearing we will convene and determine how quickly we can get 

that information to you. 

Mr. BURGESS. Very well. 

On the issue of the high-deductible health plans, I noticed in one 

of the publications that comes out here on the Hill every morning, 

yesterday’s Politico Pro talked about how the number of people 

signing up for high-deductible health plans, HSAs, if you will, has 

increased. And I don’t remember whether the number was 14 or 18 

percent, but it was a significant increase. 

Now, many of us are concerned, as the rollout of the Patient Protection and Affordable Care Act becomes established—these programs, high-deductible health plans, are extremely popular. In fact, 

President Obama himself, when the Republicans were down at the 

White House a few weeks ago, told us a little vignette about some 

134 

dermatologic preparation he had been prescribed during the campaign. It worked a little bit, not all that great, so he got it refilled. 

He had a little prescription card. It cost him 5 bucks for every prescription. But when he was out on the road, he ran out, went to 

the pharmacist, explained his difficulty. The pharmacist called the 

doctor; they got everything straightened out as to what prescription 

he needed. The pharmacist bagged it up and handed it to him and 

said, ‘‘That will be $400.’’ And the President said, ‘‘You know, this 

rash is not that bad.’’ And at that point, the President became an 

informed consumer and responded to a very clear market signal 

that the rash wasn’t that bad, and $400 was not a necessary expenditure. 

That is why so many of us really like the concept of people being 

able to control their own money for health care expenditures. Mitch 

Daniels, in Indiana, allowed that. Something magic happens when 

people spend their own money for health care, even if it wasn’t 

their own money in the first place. That is, his State employees, 

where he funded a high-deductible health plan and funded the 

health savings account part of that, people tended to be very costconscious consumers. And as a consequence, he held down costs for 

his State employees by 11 percent over 2 years at the same time 

regular PPO, Medicare, Medicaid were increasing at 9 percent to 

double-digit increases every year. So it is something worthy of our 

consideration. 

So what kinds of assurances can you give me, to those millions 

of people who have high-deductible health plans, that they will still 

have access to this as a health coverage option? 

Mr. LARSEN. Well, I guess I would respond this way. I suspect 

there are a number of different reasons why people elect those 

plans. One is that I think it demonstrates the manner in which the 

current market is broken and, for many people, unaffordable, so 

that the only way they can get, you know, catastrophic-type coverage is to pay out of pocket up to particular limits. 

I think many people end up purchasing these types of policies because, frankly, that is maybe what they can afford. It may not be 

what they want. I am not sure many people want to have to pay 

out of pocket the thousands of dollars that they may have to for 

a high-deductible plan. But in the current health care environment, 

prereform pre-2014, that may be your option. But we find that 

most people actually want comprehensive coverage for their cost. 

Mr. BURGESS. Actually, the reason to have a high-deductible 

health plan and spend your own money and control your own 

money through a health savings account is to be in control of 

health care. When I spend money off of Visa debit cards that I have 

for my health savings account, no one in the government, no one 

at Aetna, no one at CIGNA tells me what to buy and where to buy 

it. I make those decisions myself. So I would also argue that there 

is an issue of control. 

Can you just briefly tell me under the medical loss ratio rules 

that you are doing, are those contributions to the health savings 

account, are those counted as actual clinical expenses? 

Mr. LARSEN. I would have to confirm that back with you, because 

that is a level of detail for the reg that is escaping me for the moment. 

135 

Mr. BURGESS. I would appreciate you getting back to me. 

I will yield now 5 minutes to the ranking member of the subcommittee, Mr. Pallone of New Jersey. 

Mr. PALLONE. Thank you, Mr. Chairman. I was listening to you, 

though I am not sure that I agree that it makes sense for people 

to forego treatment because it costs them more. But whatever, I am 

not going to get into that today. 

I want to ask Mr. Larsen, one of the witnesses, I guess, at the 

previous hearing characterized the medical loss ratio regulation as 

‘‘costly bureaucratic interference with insurers’ legitimate business 

decisions.’’ 

And yet Consumer Reports calls the rate review rules a big win 

for consumers because insurers are going to have to start spending 

more on health care due to this new medical loss ratio that requires every insurance company to have a medical loss ratio of no 

less than 80 percent for individual and small group plans and 85 

percent for large group plans. I don’t understand how anyone could 

accept a situation in which insurers spend one-half or one-third of 

their health insurance premiums on CEO salaries, profits and administrative costs, and yet we have seen that situation in the private market. 

So my question is can you tell us what benefit you see from setting some restrictions on what portion of the premium insurance 

companies are able to spend on overhead and administrative costs? 

Have you seen any benefits to date as insurers implement these 

new rules? And what about the process through which the MLR 

rules were adopted; what was the role of the National Association 

of Insurance Commissioners? 

Mr. Larsen, I have to tell you, and, you know, we are continuing 

the previous hearing, I don’t really understand how anyone could 

argue that these medical loss ratios are not a good thing. But in 

any case, if you could answer those questions. 

Mr. LARSEN. Sure, I would be happy to. And I think that is a 

good example of a regulation and a program where the benefits so 

far outweigh the costs. I mean, first of all, when we looked at the 

economic impact of this as a percent of the premiums that health 

insurers issue, it is a very, very small percentage. They are already 

preparing this type of information for the NAIC filing. So it was 

a very small incremental portion. 

Compare that with, for example, the estimates that both the 

NAIC and, I think, many Wall Street analysts have issued regarding the potential for rebates to consumers if this law had been in 

effect in 2010, which, depending on the estimate, is either 1.5- or 

$2 billion. And that dollar amount reflects the value that will go 

back to consumers when this law is in effect in terms of a rebate 

for 2011. So when you weigh the costs and benefits of that, I think 

it is so clearly to the advantage of the consumers and not burdensome to the industry. 

And in terms of the process that was followed, you know, we 

adopted the recommendations of the NAIC. And I think, as we 

have testified to before, the NAIC followed a very open, transparent, thoughtful, thorough, considerate process, which is why we 

were comfortable adopting their recommendations. 

Mr. PALLONE. All right, thank you. 

136 

Now, the other regulation the Republicans are attacking in this 

hearing is the rate-review regulation that requires that insurance 

companies explain and disclose publicly any premium increase over 

10 percent for a given year. Last year, before the new rate-review 

process went into place, several State regulators had success in 

challenging insurance on rate increases and actually reversing 

them. I won’t give you the examples, although we have several. 

Again, Consumer Reports’ Health News calls the rate-review 

rules a big win for consumers because insurers who want to raise 

rates by more than 10 percent have to say so to the public. Even 

in States where regulators can’t deny insurance premium increases, this transparency gives consumers the ability to make better decisions. 

So can you tell me about how Federal rules will relate to these 

ongoing State review efforts? I am sure you have heard the Republicans’ charges the new Federal rules are duplicative of State efforts. Do you agree with that? 

Mr. LARSEN. I don’t. We think, and I think the NAIC agrees, that 

the rate-review regulation is really a supplement to existing State 

laws. And, as you know, I am a former commissioner, the Secretary 

is a former insurance commissioner. We are particularly sensitive 

to the role that States play and historically have played in regulating rates. So the rate-review regulation is really a supplement 

to existing processes to ensure that really in States where there 

isn’t a robust rate-review process, the consumers can get that process where they might not get it today. But we are not taking the 

place of what States are doing today. 

Mr. PALLONE. The last thing, I don’t have much time here, but— 

you know, but we heard charges again from the Republicans on the 

committee about the waivers to the—you know, bias in granting 

waivers to the annual limits on essential benefits coverage, particularly with regard to unions, you know, favoritism and all of that. 

And I know the GAO report that came out said that that simply 

wasn’t true. So I just—I have a few minutes. If you could just comment on these allegations that have been made of cronyism with 

regard to the waivers. 

Mr. LARSEN. Well, I am happy to do that. As you know, I have 

testified here and other forums previously, including under oath, 

that we have applied the regulatory criteria to the waivers in a 

manner without regard to politics or favoritism in any way, shape 

or form. 

As you indicated, I think the GAO report confirmed in the sampling that they took and the data that they looked at that when 

we reviewed these applications, we applied the criteria that we 

have published on our Website and that are available to applicants. 

So, you know, again, I don’t know how else to say it. There are 

no facts that support that, they have no merit, and I think that I 

have said it, and I think the GAO came to the same conclusion. 

Mr. PALLONE. Thank you. 

Thank you, Mr. Chairman. 

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

We will recognize now Mr. Guthrie from Kentucky. Five minutes 

for questions, please. 

137 

Mr. GUTHRIE. Thanks for coming. I would just ask you a question 

based on you just said you were an insurance commissioner. I forget which State. 

Mr. LARSEN. It was Maryland. 

Mr. GUTHRIE. Maryland, oK. And then also the Secretary. And 

waivers, sort of the kind of theme that I was going to ask you. On 

the loss ratios, I know that Kentucky is a State that has asked for 

a waiver. 

Mr. LARSEN. That is right. 

Mr. GUTHRIE. And I know that it is what, 80 percent for small 

plans—— 

Mr. LARSEN. And individuals. 

Mr. GUTHRIE. And individuals; 85 percent for large companies. 

Mr. LARSEN. That is right. 

Mr. GUTHRIE. Some States are lower. I think Maine has a waiver, or Nevada—— 

Mr. LARSEN. That is right. 

Mr. GUTHRIE [continuing]. Has a waiver with changes. And one 

other. Delaware. Not Delaware, they are asking—— 

Mr. LARSEN. New Hampshire. 

Mr. GUTHRIE. New Hampshire. 

In, I guess, the deference to State insurance commissioners, because I know our insurance commissioner is asking for the waiver 

believing that it would be disruptive of the market if we have to 

go to 80, 85 percent, and so as a former insurance commissioner, 

why is there more deference given to that instead of the Federal 

85 percent, 80 percent? 

Mr. LARSEN. Well, you know, the Affordable Care Act set up kind 

of a baseline of the 80, and the 85 for the large group. I think that 

the statute specifically recognizes the possibility that an immediate 

transition in some States to the 80 could be disruptive. And so the 

statute provides for this modification process. I have to say it is not 

really a waiver because we can set a new number, but you are 

not—companies aren’t waived from the general MLR requirements. 

But I guess my point is that the Affordable Care Act specifically 

recognizes that there may be individual cases where flexibility is 

needed. And so, you know, I think we set up a process that was 

fairly straightforward for the commissioners to apply. You know, 

every State is different, and we have got, you know, 10 or so pending applications, and I think we are pretty close to moving on Kentucky. 

Mr. GUTHRIE. Yes. I think in the final rule, or the interim final 

rule, I can’t think—the individual market can be—if a State has to 

say I have a reasonable likelihood to disrupt the market, they 

can—not a waiver but—— 

Mr. LARSEN. Right. A modification adjustment, just for an individual market. 

Mr. GUTHRIE. And would that not—you don’t think that supplies 

the small—we have a lot of problems in Kentucky with individual 

markets and even small markets where people purchase. The 

ERISA plans and larger, of course, are separate. 

Mr. LARSEN. Yes. I know that—I mean, I am aware that there 

has been concern expressed about the impact on the small group 

138 

market. I mean, we haven’t read the ACA to kind of permit the 

same type of adjustment in the small group market. 

Mr. GUTHRIE. But the same negative effects could happen to the 

small group that would happen—— 

Mr. LARSEN. Personally I think it is much less likely, and I am 

presuming that is why the ACA didn’t provide for the same type 

of accommodation to the small group market. The individual market is typically very fragile. A number of States have gone through 

disruption in their individual market. And so I am assuming that 

is why that provision was put in. 

Mr. GUTHRIE. I have got a couple minutes, and why don’t I get 

to one more. The loss ratio, the agent’s fee is part of the loss ratio? 

Mr. LARSEN. Yes. 

Mr. GUTHRIE. And we have had the National Association of 

Health Underwriters survey. Agents are seeing income losses from 

20 to 50 percent, and 20 percent of agents have said they have 

downsized their business in response. 

And my question is the decision of including the agent’s fee into 

the—I think that was an administrative decision, not in the ACA. 

Mr. LARSEN. It was not. 

Mr. GUTHRIE. The negative impact on jobs. 

Mr. LARSEN. Yes. I mean, the manner in which the MLR is calculated, we took almost 100 percent our guidance from the very deliberative process that the NAIC conducted. 

And although they expressed some concern about the potential 

impact on agents and brokers, they did not—in their recommendations to us did not recommend that the commissions be pulled out. 

Now—and so we adopted their recommendations, and that is in the 

interim final rule. 

We certainly, as part of the administration—and we recognize 

the important role that agents and brokers play in the community, 

we acknowledge that. As we sit here today, my understanding is 

that the NAIC has taken up this issue, and they have done some 

preliminary work on that. So we are monitoring the type of work 

that we are doing, and we look forward to seeing whether they ultimately make recommendations to pull or make changes. 

Mr. GUTHRIE. So I understand you are actually engaging agents 

and brokers now to try to—— 

Mr. LARSEN. We have met with them. 

Mr. GUTHRIE. I am into the high-risk pool, so—— 

Mr. LARSEN. Yes. 

Mr. GUTHRIE. You see the value of what they do. 

Mr. LARSEN. Yes. We are moving towards paying commissions to 

agents and brokers for the high-risk pool, and I do want to point 

out, not to belabor it, but the modification process that we were 

talking about early, one of the criteria for whether a market is destabilized that we took at the suggestion of the NAIC was whether 

there was going to be diminished access to agents and brokers. And 

some States have asserted that that might be the case if we were 

to apply the 80 percent, it is part of their application. So we are 

looking at that issue. 

Mr. GUTHRIE. I appreciate that. I appreciate that answer. 

Thanks. 

I yield back my 5 seconds. 

139 

Mr. BURGESS. Thank you. 

The chair recognizes the ranking member of the full committee 

Mr. Waxman. Five minutes for questions, please. 

Mr. WAXMAN. Thank you very much. 

Mr. Larsen, good to see you again. I think you have attended this 

subcommittee—I think you have a better attendance record than I 

do, so good to see you again. 

Republicans, some Republicans, have repeatedly claimed that the 

grandfathering rule issued by HHS will result in tens of millions 

of people losing their health care. That is, of course, contrary to the 

spirit of the Affordable Care Act, that if you like what you have, 

you can keep it. 

Is it accurate to say, as some are saying, that the grandfathering 

rule will result in people with employer-sponsored coverage being 

denied or losing their health insurance coverage because of HHS or 

by their employer? 

Mr. LARSEN. No. We don’t see that happening. 

Mr. WAXMAN. So where would Republicans get the idea that tens 

of millions of people are losing their health care? 

Mr. LARSEN. I don’t know. I think the only point is that there 

are, you know, estimates that we have made about the transition 

from some health plans that may decide to make changes to the 

provisions, and they may not continue to be grandfathered health 

plans. But that doesn’t mean that people won’t be able to continue 

their coverage under those plans. 

Mr. WAXMAN. Well, it appears to be another case where Republicans are inventing problems allegedly caused by the Affordable 

Care Act. And even if plans do lose grandfathered status, that 

doesn’t mean a person loses his or her health insurance. In fact, 

they gain some consumer protections like rights to external appeals 

and coverage of preventive services. 

In any case, these requirements will not be prohibitive for employer plans because they usually already meet the rules. In fact, 

one employer benefits consultant noted that, quote, ‘‘Large companies realize they already comply with many of the requirements of 

nongrandfathered plans, so the changes they will need to make 

aren’t likely to add a significant cost or administrative burden,’’ 

end quote. 

Opponents of the Affordable Care Act, there was a recent study, 

Mr. Larsen, from McKinsey & Company that claims that a significant number of employers will stop offering insurance to their 

workers in 2014. However, other well-respected organizations have 

examined whether employers will continue to offer coverage, and 

they have come to different conclusions. The RAND Corporation, 

the Urban Institute, and Mercer all conducted studies and found 

that the percentage of employees offered insurance will not change 

significantly. In addition, nonpartisan experts, including CBO, 

have predicted that employer coverage will not be affected significantly by the Affordable Care Act. 

What is your take? Are employers likely to drop coverage once 

exchanges and tax credits are available? 

Mr. LARSEN. Well, we certainly don’t think they will and expect—we don’t expect that they will. As you have pointed out, I 

think it was the RAND study that, in fact, predicted that the numVerDate Nov 24 2008 11:28 Feb 07, 2012 Jkt 037690 PO 00000 Frm 00143 Fmt 6633 Sfmt 6633 F:\112-056 PPACA’S BURDEN-SUBMIT FOR OK 12-19\112-56 PPACA’S BURDEN, DAYS 1
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ber of small businesses and employees of small businesses that 

would have coverage would increase significantly thanks to the efficiencies of the Affordable Care Act, and I think Mercer, you know, 

concluded in many respects it was a little early to tell, but ultimately also said that they did not expect plans to stop offering employer-based coverage. 

Mr. WAXMAN. On June 2, 2011, Ms. Reichel testified on behalf 

of the America’s Health Insurance Plans, or AHIP, during the first 

part of the hearing and suggested that HHS adopt a one-size-fitsall for the 3-year transition to the 80 and 85 percent standards for 

medical loss ratios for all health plans. Currently HHS has in place 

a State-by-State waiver process set forth in law to respond to situations in specific States where an individual market is highly concentrated and the MLR could destabilize the market. HHS has approved waiver requests from three States for modifications of the 

MLR standards and is considering several more. 

Can you tell us what goes into the decision as to whether to 

grant a waiver for a State’s individual health insurance market 

from the MLR requirements? 

Mr. LARSEN. Sure. And I, you know, will say to start out that, 

you know, every State is different. And I think that is why this system works well, because some States don’t need a waiver. It is obvious that some States haven’t requested a waiver. 

So the idea of having a national waiver would deprive a lot of 

consumers of the value of the law when a modification, excuse me, 

wasn’t necessarily needed. 

But to answer your question, the basic test is whether a market 

is likely to be destabilized if the 80 percent were to be applied to 

the individual market, and really we look at whether it is likely 

that a small insurance company that might be running substantially below 80 would decide to leave the market. And then we look 

at whether there are other coverage opportunities if that insurance 

company were to leave the market. And as you mentioned, we 

agreed with the application from Maine and made, I think, minor 

modifications to the other two applications. 

Mr. WAXMAN. So these decisions are more nuanced from place to 

place. 

Mr. LARSEN. Yes. 

Mr. WAXMAN. Some States will need a transition; some States 

won’t. We shouldn’t prejudge the waiver application by instituting 

a national transition policy. 

Mr. LARSEN. That is right. 

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

I now recognize the gentleman from Michigan. Five minutes for 

questions, please. 

Mr. ROGERS. Thank you, Mr. Chairman. 

Although I am not surprised that the gentleman from California 

makes the argument that people who are grandfathered won’t lose 

their insurance, and, in his words, all this is a little nuanced, but 

what you will have is you will have millions of Americans who 

don’t get to keep the health plan that they like, as was promised; 

will get a health plan that is far more expensive and they don’t 

want, courtesy of the Federal Government. 

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To say that that is nuanced is ridiculous. And to say that we are 

not going to have companies make the choice not to provide insurance is not based on any reality, and certainly isn’t by anybody 

who actually owns and works and operates a business anywhere in 

America. 

I am just shocked that the conclusion is, oh, they are just going 

to do it. I just talked to a restaurateur today, a woman who has 

been in the business for 15 years, who hits the 30-employee threshold not with full-time employees, but because she has so many 

part-time employees in a restaurant, who said, if this were put into 

place, my business is gone. I have no choice but to stop health care 

for the five people that I provide it for today. And you will see that 

again and again and again. I mean, she was literally in tears talking about what this bill does to her and the people she cares about 

that she considers her family. 

So what you, sir, would call nuanced, I call a disaster, and it is 

happening today. 

And I want to talk about the MLR. It gets my blood pressure up 

because I know these people, and they are absolutely in a state of 

panic about how they are going to do this. And their only other real 

option is to drop health care coverage; say, good luck, go buy it at 

the Federal exchange. I hope it works out for you. Man, just an incredible outcome that we would be so callous toward these—in this 

case she is a single woman, business entrepreneur, trying to make 

it happen. Apparently those people don’t count anymore. 

Before I get to my questions, I did want to say a couple of things 

on the MLR and why it has created such a desperate economic situation for health care agents and brokers. And, by the way, these 

small businesses who count on these brokers to navigate what is 

already a complicated system now are losing this option on something that will even be more complicated with hundreds of thousands of pages of rules and regulation and law that they don’t understand, and that is why they hire brokers and agents to try to 

get them the best deal that they can. 

But what should raise some red flags with every member of this 

committee, a regulation from President Obama’s health care law is 

single-handedly crippling an entire segment of our economy. And 

this isn’t myth, this isn’t speculation, it is happening today. 

Let me tell about these people. Most health care agents are small 

business owners, and their average income is $50,000 a year. I 

don’t know about you, sir, but I don’t consider that wealthy. They 

help other employers navigate complex health insurance markets 

and essentially serve as the HR department for small business 

owners. They provide incredible value to our health care system 

and the employer community, especially the small business community. 

These agents are brokers. They are very real people. They are 

business owners. They are small. They tend to be independently 

owned. They are in our communities, and they are losing jobs 

today, today, because of this rule, and HHS knows it, I know it, 

and thousands of agents and brokers who have had to close their 

doors certainly know it. 

Yet HHS has refused to address this issue. They have ignored 

the job loss, turned a blind eye to real families who are suffering 

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under the weight of this regulation. This is unacceptable, and this 

committee should take action to protect these jobs and protect an 

industry that provides a service. The fix is simple, and HHS could 

do it today, and I am baffled they have ignored this problem for 

so long. 

I have a bipartisan bill which would force change in the MLR 

rule that would protect these agents and brokers from this job-killing regulation. It has 90 cosponsors, including 15 Democrats and 

23 members of this committee. I hope we can take action on this 

legislation soon. It is an immediate jobs crisis in our communities 

for thousands of hard-working small business owners who are already being crushed by the weight of this new health care law. 

I want to thank you, Mr. Chairman, for having this hearing. 

I just want to ask you, sir, there was a letter; you mentioned the 

NAIC and their effort here. One of the provisions—and I have a 

letter here that was directed to Secretary Sebelius, and I just want 

to quote from this letter: The role of insurance producers, agents 

and brokers will be especially important—as we move forward. We 

encourage HHS to recognize the essential role served by the producers and accommodate producer compensation arrangements in 

any MLR regulation promulgated. 

We have heard again and again that you are going to do something for these people who are getting crushed right now. We see 

nothing. Can you help me understand where we are at and what 

you are going to do to protect these jobs and these people who are 

providing these services? 

Mr. LARSEN. Sure, and I appreciate your concern. And as I indicated earlier, we also believe that agents and brokers play an important role in the health care market today, and they will in the 

future when we have exchanges in 2014. 

The NAIC originally did not make any recommendations to pull 

the commissions out of the MLR calculation, and we adopted their 

recommendations, but also adopted recommendations to permit the 

State modification application for the MLR to flag this issue of diminished access to agents and brokers. 

As we sit here today again, the NAIC, I think, is doing what they 

do best and what they did for the MLR, which is conduct an analysis and a study of the data that is available on agent and broker 

commissions and look at possible solutions. And we are monitoring 

that, and we look forward to recommendations that they make— 

they may make based on the data that they collect. 

Mr. ROGERS. Just, lastly, let me just get this last point in, if I 

may. Seventy percent of health insurance agents and brokers have 

lost income today. Twenty percent have been forced to lay off workers today. Fifteen percent have closed their doors today. 

We don’t have time for nuance. We don’t have time for looking 

at it and studying it and being calm about it. We need you to get 

as upset as the rest of us for real Americans are losing their jobs 

today. 

I would hope that you would take a little urgency here, sir. You 

are going to have your job tomorrow and at least for the next 18 

months. I would encourage you to worry about the rest of Americans who have to get up and innovate their way to their livelihood 

for their families. 

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And I would yield back. 

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

The gentleman from New York is recognized for 5 minutes. 

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

Let me begin by saying, first of all, you have talked to the stakeholders, and they have been involved in terms of this process, and 

I raise that question because of, you know, the comment was made 

by the gentleman from Michigan. You talked to stakeholders and 

referenced it as you moved forward; am I correct? 

Mr. LARSEN. Yes, absolutely. 

Mr. TOWNS. Right. What has HHS done to assist States in the 

establishment of health insurance exchanges? 

Mr. LARSEN. We provided assistance in any number of areas, 

first of all with different types of implementation grants, for them 

to do the types of studies they need, whether it is IT, you know, 

plan qualification. So planning and implementation grants, innovator grants to a small number of States that are particularly progressive on the exchanges. 

And then I can’t tell you how much technical assistance and dialogue we have back and forth with the States, both individually 

and collectively, at events like the NAIC and NGA meetings and 

other forums that we have pulled together. So it is a continual dialogue with the States to help them as they make the decisions that 

they need to make to implement exchanges by 2014. 

Mr. TOWNS. You know, I am still thinking about the comments 

that were made on the other side. Did you incorporate any of the 

feedback coming from the stakeholders? 

Mr. LARSEN. We did. We do that on a continual basis. We put 

out, I think, either an RFI or RFC initially to get feedback from 

the States, and we have incorporated many of the comments that 

we got from the States in our subsequent guidance, both general 

guidance and technical guidance. We put out some IT, information 

technology, guidance as well. So I think it has been a very collaborative and iterative process with the States. 

Mr. TOWNS. Mr. Chairman, I am going to yield to the gentlewoman from California because I understand we have a vote, and 

I just want to share my time with her. I saw the expression on her 

face. 

Mrs. CAPPS. Well, thank you very much. I thank my colleague for 

yielding me time, and I will try to repay the courtesy one day. 

I am going to switch gears just for a minute because there are 

so many criticisms that we have been hearing which ignored the 

state of the health insurance market before the Affordable Care Act 

was passed. I think we need sometimes to remember what it was 

like. 

As you remember, as most of us remember, consumers would 

think that they were covered for things like emergency room care, 

prescription drugs or lab tests. But then when they tried to use it, 

they found they weren’t covered. The phenomenon was ‘‘I like my 

health insurance until I have to use it.’’ But what were we paying 

high premiums and out-of-pocket costs for? 

One area that I found particularly appalling is the lack of maternity care coverage to women who need it. Unfortunately maternity 

coverage was largely unavailable in the individual market. In fact, 

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in 2009, according to a study conducted by the National Women’s 

Law Center, barely 1 in 10 individual market plans available to 30- 

year-old women across the country provided maternity coverage. 

Most people didn’t know that until they got pregnant, despite the 

obvious fact that more than 1 in 10 women are likely to want or 

need maternity coverage. This is all while women were charged 

more for their health plans for no reason except for her gender, and 

most Americans didn’t realize that either. They just paid their premiums and didn’t realize that women were getting charged more 

than men because they were women. 

To me, this is a perfect example of why we need an essential benefit package, and I am happy to report that thanks to the ACA, 

starting in 2014, women will be able to get the coverage they need. 

So would you use 1–1/2 minutes to explain more about the importance of the essential benefits package, and how will this provision protect consumers? 

Mr. LARSEN. It is a very important provision that, as you point 

out, many people believe that they have coverage. Insurance policies are complicated, they are complex. Many people don’t understand them. Transparency is also one of the goals of the ACA. But 

by providing a basic core set of important protections, including 

maternity coverage, people, when they are paying money for their 

coverage, they can know that they are actually going to have coverage for, you know, a range of conditions that they might have to 

deal with. And it is a very important provision in the Affordable 

Care Act. 

Mrs. CAPPS. I thank my colleague for yielding, and I yield back 

the balance of my time. 

Mr. BURGESS. The gentlelady yields back. 

The gentleman from Georgia, Dr. Gingrey, for 5 minutes. 

Mr. GINGREY. Mr. Chairman, thank you. 

Mr. Larsen, are you aware that Secretary Sebelius told the 

American people on February 8, 2010, that, quote, ‘‘with health reform, premiums will go down between 14 percent and 20 percent 

just by passing the bills’’? 

Mr. LARSEN. I am not. I can say I am not familiar with that particular statement. 

Mr. GINGREY. Well, let me ask you this: Do you agree with her, 

Secretary Sebelius, that Obamacare, which, I guess, will passed the 

next month, March 23, 2010—do you agree with her that 

Obamacare has, in fact, decreased insurance premiums for Americans between 14 and 20 percent? 

Mr. LARSEN. When fully implemented, I believe that it will lower 

premiums for Americans. 

Mr. GINGREY. Well, we are talking about right now, you know, 

since this became law. You say when fully implemented. Are you 

talking 2014, 2016, 2018? 

Mr. LARSEN. Well, I think as we gradually get to health insurance exchanges, which I think CBO and many others have said will 

lower administrative costs, create a number of efficiencies for small 

groups and individuals—— 

Mr. GINGREY. I understand what your hopes are. I absolutely do. 

But the reality is something quite different, at least at this point 

in time. Can you name one instance where an insurance premium 

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went down between 14 and 20 percent since Obamacare became 

law? 

Mr. LARSEN. Well, I do know that as a result of, for example, I 

think the rate review law, as well as the medical loss ratio law, 

that insurers have already said and have reported publicly, some 

of them publicly traded companies, in their earnings calls that they 

are moderating their rates based on the MLR standard and the potential for rebates. And I think we know that the rate-review process in a number of instances has resulted in lower premiums for 

consumers. 

Mr. GINGREY. Mr. Larsen, are you aware that President Obama 

promised the American people on the campaign trail that his 

health care reform bill would bring down premiums about $2,500 

for the typical family when he was campaigning? 

Mr. LARSEN. I assume that if you are telling me that, he said it. 

Mr. GINGREY. Yes. 

Mr. LARSEN. That he said it. 

Mr. GINGREY. He did. You assume correctly. 

Let me just hold up this poster for you, ‘‘Rhetoric Versus Reality 

on Premiums.’’ Looking at the far right of the chart, 2008, going 

forward to our current time here in the middle of 2011, the rhetoric 

in showing these premiums going down from the baseline by $2,500 

a year for the average family, just the opposite, in fact, has occurred. The reality is it has increased by $2,500 a family. 

So, you know, when we asked you these questions—and I know 

you have been before the committee a number of times, and we do 

appreciate that, and I appreciate your responding. But Mr. Rogers 

from Michigan, in talking about this MLR issue, you know, that 

would be a pretty easy fix, I think, in regard to the brokers and 

agents, you know. We want to create jobs, we are about to destroy 

a segment of the economy and put many of these hard-working 

men and women out of business. They provide a great service. 

Why isn’t there an easy fix to that? I don’t want to—I am not 

going to ask you to answer the question. I ask it rhetorically because I did want to yield the balance of my time to the gentleman 

from Louisiana, and I will do so at this point. 

I yield to Mr. Cassidy for the balance of my time. 

Mr. CASSIDY. Thank you. 

Mr. Larsen, consumer-driven health plans are really cost savings, and people use them. Now, I am concerned that the MLR requirement will be very difficult to achieve if you have a high-deductible health plan with a $5,000 deductible, maybe an HSA beneath, but your MLR is going to be on that amount which is 5K 

and above. That is really going to be very difficult for these plans 

to comply with. 

Are we just trying—do you have a prejudice against them, or 

what is the idea about that? 

Mr. LARSEN. No, we are not prejudiced against them. I think 

that, as I indicated before, I will have to go back and kind of check 

the exact applicability. I think we have gotten comments on the 

interplay between the MLR standard and the kind of high-deductible policies, and next time I am before the committee, I would be 

happy to address that. 

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Mr. CASSIDY. Now, is there a potential for a perverse incentive, 

because it is my understanding that if these are qualified on the 

exchange, it will be at the bronze level. But don’t I know that the 

subsidies don’t kick in on the bronze level, they only kick in for silver and above? 

Mr. LARSEN. I am not sure if that is the case. I would have to 

double-check. 

Mr. CASSIDY. Yes, we are both a little rusty on the details of a 

complicated bill. 

Now, then, let me ask you, would there be interest in giving a 

different MLR for a book of business which is predominantly consumer-driven health plans? 

Mr. LARSEN. I would be happy to look at that. I mean, I know 

certainly the dynamics are somewhat different for higher-deductible policies, because obviously you are not paying for first-dollar 

coverage for the types of health care benefits that, you know, the 

recipient of one of these policies might be getting. 

Mr. CASSIDY. So will the rule—do you have latitude within the 

rule to make this, or will it require a statute? 

Mr. LARSEN. I have to look at that. 

Mr. CASSIDY. OK. So are we going to have another hearing because there are a lot of kind of unanswered questions about something which is really benefiting people’s pocketbooks and their 

health, but it seems as if we need to have a second hearing on that. 

Mr. BURGESS. Well, Mr. Larsen, if I understood you, you are 

going to get back to me with some detail on the tax implications 

or the medical loss ratio implications as to the health savings account portion of a high-deductible health plan. And I think the 

questions, Mr. Cassidy, if we will put those in writing, can we ask 

you to respond to those questions in writing as well? 

Mr. LARSEN. Yes, I will. 

Mr. BURGESS. We may very well have another opportunity, but 

I don’t know how long that will be. 

Mr. LARSEN. OK. We will do that. 

Mr. BURGESS. Bill, if you don’t mind getting those in detail for 

him, there have already been some things that we have asked to 

have addressed. 

Mr. CASSIDY. OK. I yield back. 

Mr. BURGESS. Does that conclude your time, or do you want additional minutes? 

Mr. CASSIDY. No. I think we have to vote. 

Mr. BURGESS. Just a housekeeping detail. I am going to ask 

unanimous consent that we insert the statement of the United 

States Chamber of Commerce into the record. Without objection, so 

ordered. 

[The information follows:] 

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Mr. BURGESS. Let me just ask you one quick follow-up while we 

are getting ready to go vote. 

On the issue of fraud—and everyone talks about being able to 

pay for more health care because we are going to eliminate fraud, 

waste and abuse. But on the issue of fraud—and this committee 

has had hearings about antifraud efforts in both Medicare and 

Medicaid, and you stated fighting fraud in Medicare was a key goal 

in the Obama administration—but the medical loss ratio regulation 

excludes health plan investments and initiatives to prevent fraud 

from those activities that improve health care. So is there a—do 

you dissect that out to that degree? 

Mr. LARSEN. The MLR regulation, I think, strikes a middle 

ground that we adopted from the NAIC, which permits the inclusion of fraud recovery expenses up to the amount of fraudulent 

claims that are recovered, and that was the middle ground that, 

again, that the NAIC struck. And they spent a lot of time looking 

at this, I think, struggling with the fact that the statute allows for 

claims expenses and then quality-improving expenses to be included in the formula, but I don’t think anyone wanted to provide 

disincentives for investment in detecting fraud. 

Mr. BURGESS. So with all due respect, then a company is going 

to have to make a decision that, hey, if we go after this money and 

recover it, that it comes off of our medical loss ratio calculation. 

But if we are not successful in recovering the money, then it is 

money that is calculated outside so that it actually works against 

us. 

And we do know that—I mean, I know from my time in the practice of medicine, Medicare and Medicaid, SCHIP functioned under 

a different system than private insurance in this country. Medicare, Medicaid and SCHIP predominantly pay the bills as they 

come in, as they are required to do. And then they go—if they find 

something that looks questionable, then they go after it, so-called 

pay-and-chase formula; whereas the private companies do run on 

preauthorization and precertification, which also has its set of 

problems. 

But are you now instructing the private sector that these expenses that are related to precertification will be calculated outside 

the medical loss ratio, so we really need the private sector to develop a pay-and-chase scenario or a pay-and-chase template? That 

doesn’t seem like the correct direction to go, because we all hear 

these terrible stories about people getting things they shouldn’t 

have gotten in the health care system, but they are always on the 

public sector side. They are always on the Medicare and Medicaid 

side. You rarely hear a news story about one of the private insurance companies bemoaning the fact that they sent a wheelchair to 

someone who didn’t need it. 

Mr. LARSEN. Well, I don’t think we are creating incentives for 

pay and chase. I know I was the CEO of a Medicaid HMO in Maryland, and I think we had a pretty good sense of what investment 

we could make in fraud detection and what the kind of return on 

investment was going to be. So we had a pretty good sense of that, 

and it didn’t incentivize us to do pay and chase. 

Again, I think we have struck a middle ground, as did the NAIC, 

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panies from doing the right thing, which is investing beyond—investing in fraud-prevention activities beyond where they can actually include in the MLR formula. They still have headroom within 

the other 20 percent to make that investment, and we would hope 

they would continue to do that. 

Mr. BURGESS. Well, this is something I hope you will continue to 

look at, because I do believe it needs to be part of the discussion, 

and we need to keep a focus on it. 

Let me ask you one final question on the issues of taxes in the 

MLR calculation. Section 1001 of the Affordable Care Act states 

that Federal and State taxes should be excluded from the calculation. Your interim final rule seems to exclude some forms of taxation. Can you give us a little bit of insider direction on that? 

Mr. LARSEN. Sure. There was a lot of time and energy spent in 

the NAIC public process trying to interpret what was meant in the 

ACA by the reference to—— 

Mr. BURGESS. With all due respect, it is fairly clear. Congressional intent was abundantly clear State and Federal taxes would 

be exempt. 

Mr. LARSEN. Well, the only thing I can say is I am not sure everyone felt that it had the clarity that you believe is there. And, 

again, there was a lot of discussion around what that language 

meant. 

Mr. BURGESS. Well, I mean, that is what it says in the—a health 

insurance insurer offering group/individual health insurance coverage shall, with respect to each plan year, submit to the Secretary 

a report concerning the ratio of the incurred loss, plus the loss adjustment expense to earned premiums. Such report shall include 

the percentage of total premium revenue after accounting for collections of receipts, adjustment—paragraph 3—on all known claims 

costs, including an explanation of the nature of such costs, and excluding Federal and State taxes and licensing or regulatory fees. 

I mean, that is pretty clear, isn’t it? 

Mr. LARSEN. Well, I think the issue for us was when we were 

read that in combination with a couple of the other sections, not 

necessarily—I am not sure the one that you cited. So, yes I realize 

it said Federal. 

Mr. BURGESS. Would further legislation help clarify that for you? 

Do you need—I mean, congressional intent—and I didn’t even vote 

for this thing. This is a Senate bill. I didn’t write it. The Senate 

Finance Committee staff wrote this bill, as you are well aware. But 

I think even their intent was pretty clear. Do you need additional 

legislation to give you direction on this? 

Mr. LARSEN. Well, again, I think we tried to make a reasonable 

interpretation of what we saw. So if Congress doesn’t believe that 

we have interpreted this appropriately, then I guess it would be up 

to you to make changes if you felt that we had not done what was 

intended. 

Mr. BURGESS. Well, we are up against a hard deadline with 

votes, and I know you are up against a hard deadline with your 

time here. I appreciate, again, your coming back. You heard from 

Dr. Cassidy that there may be the need for further opportunity to 

discuss, because a lot of this is complicated stuff, and people are 

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plaints notwithstanding, the overall popularity of this law is sort 

of stuck in neutral. It is about the same place where it was a year 

and 2 months ago. So it seems like this committee could do the 

country a favor by at least talking about this stuff that is included 

in the bill. 

But this will conclude today’s hearing, and I will remind Members on both sides that they have 10 business days for questions 

for the record, and I will ask all witnesses appearing over the 

course of this hearing to respond promptly to those questions. 

This committee now stands in adjournment. 

[Whereupon, at 3:55 p.m., the subcommittee was adjourned.] 

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