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79–326 2002

ACCESS TO HEALTH CARE IN RURAL AMERICA

HEARING

BEFORE THE

SUBCOMMITTEE ON RURAL 

ENTERPRISES, AGRICULTURE, AND TECHNOLOGY 

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED SEVENTH CONGRESS 

SECOND SESSION 

WASHINGTON, DC

MARCH 19, 2002

Serial No. 107–48

(

Printed for the use of the Committee on Small Business
(II)

COMMITTEE ON SMALL BUSINESS 

DONALD MANZULLO, Illinois, Chairman

LARRY COMBEST, Texas 

JOEL HEFLEY, Colorado 

ROSCOE G. BARTLETT, Maryland 

FRANK A. LOBIONDO, New Jersey 

SUE W. KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

JOHN R. THUNE, South Dakota 

MICHAEL PENCE, Indiana 

MIKE FERGUSON, New Jersey 

DARRELL E. ISSA, California 

SAM GRAVES, Missouri 

EDWARD L. SCHROCK, Virginia 

FELIX J. GRUCCI, JR., New York 

TODD W. AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

NYDIA M. VELAZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

DANNY K. DAVIS, Illinois 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, Virgin Islands 

ROBERT A. BRADY, Pennsylvania 

TOM UDALL, New Mexico 

STEPHANIE TUBBS JONES, Ohio 

CHARLES A. GONZALEZ, Texas 

DAVID D. PHELPS, Illinois 

GRACE F. NAPOLITANO, California 

BRIAN BAIRD, Washington 

MARK UDALL, Colorado 

JAMES R. LANGEVIN, Rhode Island 

MIKE ROSS, Arkansas 

BRAD CARSON, Oklahoma 

ANIBAL ACEVEDO-VILA, Puerto Rico 

DOUG THOMAS, Staff Director

PHIL ESKELAND, Deputy Staff Director

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, AND TECHNOLOGY

JOHN THUNE, South Dakota, Chairman

ROSCOE BARTLETT, Maryland 

FELIX GRUCCI, New York 

MIKE PENCE, Indiana 

BILL SHUSTER, Pennsylvania 

TOM UDALL, New Mexico 

DONNA M. CHRISTENSEN, Virgin Islands 

DAVID D. PHELPS, Illinois 

BRAD CARSON, Oklahoma 

BRAD CLOSE, Professional Staff
(III)

C O N T E N T S

Page 

Hearing held on March 19, 2002 ............................................................................ 1

WITNESSES

Hatch, Ron, Owner, Hatch Furniture .................................................................... 3 

DeVany, Mary, Avera McKennan TeleHealth Network ....................................... 5

Nelson, Wayne, President, Communicating for Agriculture ................................ 7

Hill, Edward, Chair-Elect, Board of Trustees, American Medical Association .. 9

APPENDIX

Opening statements: 

Thune, Hon. John ............................................................................................. 19 

Prepared statements: 

Hatch, Ron ........................................................................................................ 19 

DeVany, Mary ................................................................................................... 21 

Nelson, Wayne .................................................................................................. 26 

Hill, Edward ...................................................................................................... 28

(1)

ACCESS TO HEALTH CARE IN RURAL 

AMERICA

TUESDAY, MARCH 19, 2002 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON RURAL ENTERPRISES, AGRICULTURE, AND TECHNOLOGY, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Subcommittee met, pursuant to call, at 2:20 p.m., in room 

2360, Rayburn House Office Building, Hon. John R. Thune [chairman of the Subcommittee] presiding. 

Present: Representatives Thune and Udall. 

Chairman THUNE. This hearing will come to order. 

Good afternoon. I want to welcome you to the hearing of the Subcommittee on Rural Enterprises, Agriculture and Technology. I 

want to thank particularly all the witnesses who have traveled 

over long distances to be here with us today. 

Today we are going to be examining the issue of health care in 

rural America. Obtaining access to adequate and affordable health 

care is a problem for small business owners throughout the country, but it can be particularly difficult in rural areas. As Congress 

continues to address the health care problems our country faces, 

we must not lose sight of the 43 million uninsured Americans. This 

is a real crisis. Many people don’t realize that over 60 percent of 

our uninsured population consists of small business owners, workers and family members. By addressing the access problems faced 

by millions of workers, Congress can greatly reduce the number of 

uninsured. 

One of the reasons small businesses cannot afford health coverage for their employees is that they are unable to achieve the 

economies of scale and purchasing power of larger corporations and 

unions. For example, on average, a worker in a firm with less than 

150 employees pays 18 percent more for health insurance than a 

worker in a firm with 200 or more employees. In addition, self-employed individuals can only deduct 70 percent of their health insurance premiums from their taxes, while their corporate counterparts 

can deduct 100 percent of the cost of health insurance premiums 

for their employees. Small businesses suffer from unequal treatment. What they want most is a level playing field when it comes 

to health care. 

Large corporations use the purchasing power of thousands of employees to offer affordable health insurance to their workers. Small 

business owners, on the other hand, have to find their insurance 

on an individual basis; and in rural areas insurers have been leaving the small group insurance market, making it difficult to find 

affordable health coverage. 
2

I was very heartened to see President Bush today issue his plan 

for helping small business prosper in our economy. The President 

is aware of the health care access and affordability problems facing 

small businesses, and his plan includes concrete steps to increase 

health security for employees of small businesses. His agenda calls 

for Association Health Plans to be available for associations that 

want to provide them for their members, and it calls for a permanent extension of Medical Savings Accounts, including a significant 

reduction in the required deductible for these health accounts. 

Congress needs to ensure there are many different health insurance options for small business owners to utilize. We need to help 

our businesses attract and keep employees, and nothing helps more 

than the ability to provide health insurance. For rural States, the 

ability of small business owners to obtain and provide affordable 

health insurance for their employees is vital to our efforts to attract new jobs and prevent population loss. 

I look forward to hearing testimony from our witnesses today, 

and I want to thank you all for participating in this hearing. 

I would now yield to the gentleman from New Mexico, Mr. Udall, 

for an opening statement. 

Mr. UDALL. Thank you, Chairman Thune. I appreciate all of you 

being here today on this hearing regarding access to health care in 

rural areas. 

In the past 100 years, medicine has advanced dramatically. We 

have experienced the eradication of life-threatening diseases, treatment of once debilitating ailments and improvement of our quality 

of life. Today we are living longer, healthier and more productive 

lives. 

Just one of our recent technological advancements is telemedicine. Through telemedicine physicians can diagnose and treat patients with hundreds of miles distance between the physician and 

the patient. It is encouraging, it is exciting and exhilarating to live 

in a time of such innovation. However, despite these advancements, 

the rural areas of America have managed to advance incrementally, slow, if at all. 

Rural America faces two major barriers: access to health care 

and access to health insurance. Many of the constituents I represent in New Mexico and the Chairman I know represents in 

South Dakota live in rural areas. They experience firsthand the difficulties of living without health care due to limited rural health 

care centers or lack of health insurance. In most cases, the only 

time they receive medical attention is in emergency situations. The 

lack of and limited services provided in rural areas have resulted 

in an increased incident rate of preventable chronic illnesses. 

The recruitment and retention of high-quality physicians is challenging. Medicare reimbursement rates in rural areas are not sufficient. What types of incentives are available for physicians who 

choose to practice in rural communities? Compared with their 

urban colleagues, rural physicians work longer hours and are paid 

less. 

Rural health care clinics are pivotal. Clinics with a solid public 

health infrastructure provide high-quality, culturally sensitive and 

cost-effective services. Nearly 40,000 Americans are without health 

insurance, with 20 percent of them living in rural areas. Half of 
3

those—that must be 40 million, excuse me—40 million are living 

without health insurance, with 20 percent of them living in rural 

areas. Half of those without health insurance are hard-working individuals with full-time jobs. 

Large businesses and labor unions have the benefit of exercising 

their purchasing power to negotiate with health insurance companies for better rates and terms. The rising cost of health insurance 

premiums has made it difficult for small businesses to purchase 

health insurance for their employees, even though this is the best 

investment an employer can make in their employees. It is disheartening to know that, as premiums increase, employers are left 

with two choices—reduce the number of employees with health insurance or keep all employees and eliminate their health insurance 

benefits. 

Making health insurance available to small business employees 

is a challenge, but it is feasible. Association Health Plans, managed 

care organizations, tax credits and deductions and Medical Savings 

Accounts propose to solve these problems.

Small businesses must pool resources and work collaboratively to 

provide their employees and their families with much-needed and 

much-deserved health insurance benefits. Furthermore, successful 

rural health centers should not be curtailed or punished for providing health services available to hard-working, vulnerable and 

isolated communities. Instead, they should be commended for their 

altruistic efforts. 

Again, thank you, Mr. Chairman; and I look forward to hearing 

the testimony from today’s panel. 

Chairman THUNE. Thank you. 

Before we begin receiving testimony from the witnesses, I want 

to remind each of the witnesses to keep their oral testimony to 5 

minutes. In front of you on the table is a box, and that box will 

light up yellow when have you 1 minute remaining. When 5 minutes expires, the red light will appear. 

There is no trap-door that drops or anything, but once the red 

light is on we would ask that you, if you could, begin wrapping up 

your testimony as soon as you are comfortable. 

We want to begin the Subcommittee hearing with Mr. Ron 

Hatch, owner of Hatch Furniture Stores. Mr. Hatch has stores located in Yankton, South Dakota, and in Sioux City, Iowa. So please 

proceed, Ron. 

STATEMENT OF RON HATCH, OWNER, HATCH FURNITURE, 

YANKTON, SOUTH DAKOTA 

Mr. HATCH. Thank you, Mr. Chairman. 

On behalf of NFIB, which I am a proud member of, and our 

600,000 other members I thank you for the opportunity to come 

and talk to your Committee. 

I am Ron Hatch, fourth generation. My great-grandfather started 

our business in Wakonda, South Dakota, in 1903. My son is presently in the business, and he is fifth generation. 

I entered the business in 1974. At that time, we had a health 

care program which my mother and father had started for our employees. As far as a group rate, the first several years it was not 

a very difficult thing to get a rate, get a portable health care insur-
4

ance, but in the last few years it has gotten really, really tough for 

us, particularly last year. 

We were with a carrier that determined to completely pull out 

of their program in South Dakota. I don’t know if that was because 

of mandates or because of lack of population, but it was something 

that caused them to completely—I have got a lot more than 5 minutes, okay—but they pulled out of the State, and we were forced 

to essentially get new bids for a new carrier, which gave us a relatively short time to rebid the program. 

We received four bids, all of them approximately the same, all of 

them approximately 50 percent higher than the rates we had. For 

example, my rates personally went from $390 a month to $695 a 

month—almost $400 to almost $700—and that included only my 

wife and myself on the new policy, where before we had wife and 

dependents on the old policy. So it would have been—I don’t remember how much more, but even considerably more if we would 

have left our son on the program. We were forced to get separate 

coverage for our 16-year-old son. 

As far as Hatch Furniture’s group, we have 28 employees that 

would be eligible. Presently, we have only nine of them covered 

under our particular program, mainly because our program is too 

expensive. We pay $125 of the premium and the employees pay the 

bulk. Now that is fine for the younger employees. Most of them are 

on it. But the older employees such as myself you know are not 

staying on our group program; and I am afraid that, you know, if 

we get any more increases we are going to have even more and 

more people drop off of it. Some have been able to obtain outside 

coverage if they are healthy, but the ones that aren’t healthy, it 

presents a real problem. 

It also has an adverse effect on Hatch Furniture as far as a viable company. It isn’t just being a good employee and trained to provide health care coverage for our employees. I wish we could do 

more, but our profitability doesn’t allow us. It has been a really, 

unfortunately, tough couple of years bottom-line-wise; and so I 

wish I could do more. It hurts that I can’t. 

Another issue that comes up is we have lost our—have been unable to hire good employees because our health care program is not 

competitive with a lot of our bigger competitors or other industries. 

South Dakota is not a problem for Yankton. We are fortunate we 

have good facilities in Yankton and Sioux City, but it is a problem 

for a lot of other people in our State. 

One of the things that we are running into, though, is the PPO 

provider list that our different carriers have—for example, we have 

Avera in Yankton, Sacred Heart Hospital, Avera, and we just received notification that the carrier that we have our son in is probably not going to renew the PPO list with Avera. So, if that is the 

case, then we are going to be forced to go down the road 60 or 90 

miles to—and I hope they get that worked out. It isn’t a final thing. 

But it is an issue that—kind of an ongoing matter that is going to 

face us. 

One of the things that hurts us is a modification problem that, 

without the HP, we have groups that—we have group insurance 

but we are still rated—if we have two or three unhealthy employ-
5

ees, like diabetic, for example, we are not able to get a good rate, 

where the HP would, I am sure, resolve that for us. 

Thank you. 

Chairman THUNE. Thank you, Ron. 

[Mr. Hatch’s statement may be found in appendix.] 

Chairman THUNE. Our next witness is Ms. Mary DeVany from 

Sioux Falls, South Dakota. Ms. DeVany is the manager at TeleHealth Services at Avera McKennan TeleHealth Network. I have 

seen firsthand some of the remarkable things that are being done 

in my State of South Dakota with telehealth and its application in 

rural areas. It is very exciting. I think Mary is going to share some 

of that with us. So please proceed. 

STATEMENT OF MARY DeVANY, AVERA MCKENNAN 

TELEHEALTH NETWORK, SIOUX FALLS, SOUTH DAKOTA 

Ms. DEVANY. Thank you for this opportunity today; and a special 

thank you to you, Mr. Thune, for your ongoing support of telehealth activities. 

The Avera McKennan TeleHealth Network was established in 

1994. Our network primarily uses two-way interactive 

videoconferencing throughout. We also have a video bridge that allows us to connect multiple sites simultaneously. 

Our network averages about 400 clinical telemedicine consults 

annually in various specialty areas. However, telehealth is more 

than just telemedicine. The system is also used for distance education activities, whether it is for clinical education such as tumor 

conferences and various grand rounds topics, or staff and community education, as well as for various meetings. 

As you are aware, obviously, South Dakota is very rural, with 

only 10 communities with a population over 10,000. From a health 

care standpoint, specialist physicians are concentrated on the eastern and western edges of our State, with about 350 miles between 

them. The number of miles for our own network sites runs anywhere from 45 to 170 miles one way. 

The availability of telehealth helps to reduce the health care penalty for choosing life in a small town. Citizens should not be held 

at a disadvantage simply because they live in a rural area, especially if technology can help resolve that issue. Access to health 

care leads to improved quality of life for individuals in rural communities and allows them, and encourages them, to remain. 

However, many communities are simply trying to keep their hospital open and to continue to provide those services that are currently available. The closing of a local hospital or health care facility signals a major crisis for a rural community, and every effort 

should be made to maintain its viability. A facility can be strengthened by making additional or enhanced services available. This 

technology makes specialty services more accessible to our rural 

residents. 

I have included a specific example in my written testimony of 

how one facility was able to expand their service offerings via telehealth. 

Physician isolation is an issue with which all rural communities 

are faced. However, physicians are not the only ones affected. All 

levels of health care providers experience this difficulty. The avail-
6

ability of telehealth technology and distance learning opportunities 

allow for greater peer-to-peer interactions. It also helps to improve 

the quality of services being provided at the rural facility by making current information available to staff. 

As we all know, health care dollars are very tight. But staff still 

needs this training and educational opportunities. Video technology 

allows for a degree of cost savings over the year by allowing employees to attend an educational event from their home facility and 

reducing the need for travel. 

Again, I have included an example of cost savings in my written 

testimony. 

Probably the most far-reaching contribution made by telehealth 

technology is increased support for ‘‘main street.’’ Allowing patients 

to receive specialty health care from their home facility helps keep 

additional dollars at home. The additional services like lab work, 

x-rays, or prescriptions are also done by local providers. Additionally, the peripheral stops that can go along with trips to Sioux 

Falls, like gas, groceries, a stop at Wal-Mart, are reduced and more 

of these dollars remain in the community as well, not to mention 

the additional hotel and restaurants expenses. Also, time away 

from one’s job is greatly reduced, an hour or so, as opposed to a 

day or more. 

Not only does this technology help to provide increased opportunities for health care services but also improves the perception of 

quality care available from a hometown provider and a health care 

facility. While it may not directly affect or be directly affected by 

the proposed Association Health Plans or the Medical Savings Accounts, telemedicine can help to keep the overall cost of Medicare 

down by providing care at a lower cost facility, helping with early 

diagnosis and care, and keeping more of those health care dollars 

at home. 

There are a couple specific areas where your support is needed. 

First is the area of reimbursement. Over the years, telemedicine 

has developed a successful track record and is a proven tool. In 

many respects it has been proven to be as good as a face-to-face 

consult. However, you wouldn’t know that by looking at who and 

what is being paid. Your support is needed to expand the current 

level of reimbursement and to encourage Medicare and insurance 

companies to provide full coverage. The current Medicare reimbursement structure needs to expand the eligible facilities and providers as well as the allowable CPT codes. 

Second, over the past months there appears to have been a somewhat arbitrary decision to move the Office for the Advancement of 

Telehealth, known as OAT, to be housed within the HIV/AIDS Bureau. The Nation’s telehealth community is greatly concerned that 

this change signals a shift in the level of support for this program 

and that the awareness of telehealth will diminish from the lack 

of visibility. OAT has been a valuable resource for new and seasoned programs alike, and this shift is a great concern. We would 

rather that this—we would like to see the program reinstated into 

its former location within HRSA and rather than cutting funding 

for this program these activities should be expanded. 

In closing, thank you for the opportunity again to share this information. In my written comments you will see several success 
7

stories that can help bring the understanding of the benefits of 

telehealth to a level we can all appreciate. Thank you. 

Chairman THUNE. Thank you, Mary. 

I would also note, too, that all of your testimony will be submitted in its entirety for the record. I appreciate the additional information that you are furnishing regarding some of the success 

stories in that area. 

[Ms. DeVany’s statement may be found in appendix.] 

Chairman THUNE. Next, the Subcommittee will hear from Wayne 

Nelson from Winner, South Dakota. Mr. Nelson is president of the 

group Communicating for Agriculture and is self-employed and I 

believe represents a number of folks who would have a very keen 

interest in making health care certainly more accessible and also 

more affordable in rural areas. So please proceed. 

STATEMENT OF WAYNE NELSON, PRESIDENT, COMMUNICATING FOR AGRICULTURE, WINNER, SOUTH DAKOTA 

Mr. NELSON. Thank you, Mr. Chairman, Congressman Udall. It 

is a pleasure to testify today before your Committee. 

We feel that there are several areas that are key in trying to 

make sure that health care remains available in rural areas and 

also remains affordable. 

One key point would be that Congress must maintain adequate 

funding for key infrastructure programs that help maintain the 

quality of rural health care services, particularly the National 

Health Services Corps and other programs that help bring and 

keep doctors and nurses and health care providers to rural areas 

to practice medicine and for telemedicine programs that support 

our rural providers and keep them linked to the latest and best 

knowledge available for quality care. 

Another area that we are very concerned about is cuts and 

underfunding for reimbursement of Medicaid and Medicare for 

rural health care providers and their residual impact. We see a cost 

shifting that is happening from the underfunding of these government programs that—cost shifting by providers, and it results in 

higher costs for private insurance and higher premiums for consumers. 

One of the most positive developments we have seen in recent 

months is passage by the House of Representatives of the President’s proposal for refundable tax credits to help reduce the number of uninsured in this country. We feel that this is one of the 

most important issues that affects people in rural America, and 

that is the cost. A lot of the 40 million uninsured are uninsured 

because of the cost. We feel that tax credits are a good way to address that. 

Getting more people adequately insured is the fundamental foundation that we have to pursue if we are to have adequate access 

to health care in rural America. The rising cost of health insurance 

is putting a strain on small businesses and particularly for individuals like our farmers and small business members.

Proposals for the refundable tax credit for health insurance premiums we feel tackles this issue head on. By making the tax credits refundable and advanceable, low-income people who don’t normally pay much or any taxes would still benefit from the program. 
8

By some estimates, as many as 6 million more people would become insured, reducing that 40 million uninsured if $1,000 per individual or up to $3,000 per family refundable tax credit would be 

offered. We clearly think this will make a big difference and help 

more people in rural America to become insured. 

As you know, several bipartisan bills have been introduced in 

both the House and Senate that call for refundable tax credits. We 

do commend the House for passing health care tax credit bipartisan legislation in one of their stimulus packages. We were unable 

to get the Senate to approve the same proposal. So we think that 

could go a long way towards helping the 40 million uninsured. 

Another problem the Chairman mentioned is tax equity for 

health insurance premiums. It seems patently unfair that large 

corporations can deduct 100 percent in the year of 2002 while selfemployed can only deduct 70 percent. 

Finally we will reach 100 percent in the year 2003, but the poor 

individual like the single mom that might be working two jobs, 

maybe part time in a McDonalds, part time at a store downtown, 

neither offers a program for health insurance, her deduction today 

is zero because she is not self-employed, but she is an individual 

that is paying for her own insurance. So we have expanded that 

to all individuals, not just to the self-employed. 

Another part that we think would be very, very helpful would be 

to encourage more States to offer high-risk pools or health safety 

nets. CA has long believed in the right for everyone to have access 

to health insurance protection, regardless of their health, as long 

as they are willing to pay for it. The most effective way of providing this access guarantee is through high-risk health insurance 

pools. Twenty-nine States now have those pools, and we would like 

to see some Federal legislation that would help the other 21 States 

to develop pools and also to help with the assessment process to 

help pay for the pools for these other 21 States as well as the existing States. 

We believe that the risk pool for the medical uninsurable is part 

of the health safety net that really supports the idea of having the 

availability of health insurance to everyone, no matter what their 

medical condition might be. 

Another program that we have long supported and we are very 

happy to see it at least extended for 1 year are Medical Savings 

Accounts that were just signed into law this weekend by President 

Bush in the stimulus package. But that doesn’t go far enough. They 

need to be permanent, and there need to be changes made in MSAs 

that would help to encourage more people to participate in the 

MSA programs. 

Thank you very much for the opportunity to address you today, 

and I would be happy to try to answer any questions at the proper 

time. 

Chairman THUNE. Thanks, Wayne. 

[Mr. Nelson’s statement may be found in appendix.] 

Chairman THUNE. Our last witness this afternoon is Dr. Edward 

Hill from Tupelo, Mississippi. Dr. Hill is the Chair-Elect to the 

Board of Trustees for the American Medical Association. Dr. Hill, 

it is nice to have you today and I look forward to hearing from you. 
9

STATEMENT OF J. EDWARD HILL, M.D., CHAIR-ELECT, BOARD 

OF TRUSTEES, AMERICAN MEDICAL ASSOCIATION, TUPELO, 

MISSISSIPPI 

Dr. HILL. Good afternoon, I am Edward Hill. I am Chair-Elect of 

the American Medical Association Board of Trustees and a family 

doctor in Mississippi. 

After a Navy medical career I settled in a town of 3,000 people 

in central Mississippi, what is called the Mississippi Delta, in 1968, 

which was the early years of Medicare and Medicaid. This was a 

very high-need environment, with no physicians, no hospitals, no 

health care to speak of. In fact, the health care condition was—I 

could only describe as Third Worldish. I remained in that environment for 27 years before moving to my present position, which is 

director of the family medicine residency teaching program in the 

largest nonurban hospital in America in Tupelo, Mississippi. 

So my knowledge of rural health access issues stems not from an 

interest in health policy but actually from long-time experience in 

underserved rural America. 

Today I would like to touch on three components to improve access to health care in rural America: retention, recruitment and reform. 

First, retention. On January 1, Medicare payments to physicians 

and nonphysician practitioners were cut by 5.4 percent; and CMS 

predicts that these cuts will continue to roughly 20 percent over 

the next 4 years and 30 percent if you count inflation. These cuts 

are the result of a flawed payment update formula, and we are extremely concerned about the impact of these cuts on patient access 

and the retention of physicians, especially in rural areas. 

Two-thirds of all physicians offices are small businesses. If a 

business continues to lose revenue and operates at a loss, the business cannot be sustained. This means that physicians will be forced 

to make very difficult choices such as discontinuing seeing new 

Medicare patients, laying off staff, relocating to an area with a 

smaller Medicare patient population, or leaving the practice of 

medicine. These are not choices that doctors want to make. 

In each case, the Nation’s patients lose. For example, if one or 

more physicians in a rural area retires early because of the Medicare cuts, this could seriously hurt access to all patients. 

The Medicare Payment Advisory Commission, or MedPAC, has 

recommended a new framework for Medicare physician updates. 

We support the MedPAC general framework, and we urge this Subcommittee to support legislation that would immediately halt the 

5.4 percent Medicare payment cut, repeal the sustainable growth 

rate system, and replace the fraud Medicare payment update formula with a new system that appropriately reflects increases in 

practiced costs. So we ask this Subcommittee to support H.R. 3351 

and H.R. 3882. 

Second, I would like to address how we can recruit more physicians and encourage them to establish their practices in rural 

America. As you have heard, one program that has worked very 

well is the National Health Service Corps. In 1970, Congress created the Corps to encourage physicians and other health care providers to practice in underserved communities. Through scholarships and loan programs, the Corps provides incentives for physi-
10

cians to establish their practices in underserved areas, including 

rural areas. 

Critical for the Corps to accomplish this goal is its adequate 

funding. The Corps’ authorization, though, has expired. The AMA 

thinks that it is imperative that Congress reauthorize this program. 

The third component of access in rural America is reforming our 

insurance system. Rural America suffers disproportionately from a 

lack of health insurance coverage. In fact, 21 percent of rural residents are uninsured. Nationwide, more than 39 million last year 

had no health insurance coverage.

The AMA has a proposal to reform the health care system in 

America to address this problem, which is summarized in this 

booklet which you all have a copy of. We propose that the country’s 

health system be transposed from an employer-centered system to 

an employee-centered system. To accomplish that, a few changes in 

the current system would be needed. 

First, we need refundable travel credits for the purchase of 

health insurance. The current tax exclusion system benefits only 

those taxpayers who obtain their health insurance through their 

employer. That leaves out those who are unemployed, those that 

are self-employed and those who do not receive coverage through 

their employer. 

We propose a tax credit system. Under our proposal, employer 

contributions to health insurance would be reported as taxable income and individuals would take a tax credit on the portion which 

they spend on health insurance. These tax credits would have to 

be large enough to ensure that health insurance is affordable. They 

should also be advanceable, refundable, and inversely related to income. 

The second part of our proposal would require creating new opportunities for alternative health insurance markets. This could be 

accomplished in the rural areas through the formation of purchasing cooperatives. 

The AMA proposal would be fiscally responsible, promote greater 

fairness in the Tax Code, increase employee choice and expand 

health coverage throughout the country. 

So, thank you, Mr. Chairman and the entire Committee, for asking us to testify this afternoon. 

Chairman THUNE. Thank you, Dr. Hill. 

[Dr. Hill’s statement may be found in appendix.] 

Chairman THUNE. I appreciate all your testimony. 

I would add, as a matter of experience in having been out traveling across my State of South Dakota, I have had some meetings 

in the last few days in small communities that currently have hospitals and as well as nursing homes and assisted-living centers; 

and the issues, in my opinion, that impact rural areas are particularly acute in the area of health care. We are seeing, I think, in 

terms of an ability to maintain a population base to attract new 

jobs through economic development, that health care is a critical 

component when it comes to quality of life. 

In drawing on my own experience, I grew up in a little town of 

about 650 people. I think it was back in the 1960s that we got a 

Federal grant to build a brand new hospital. At the time, I think 
11

it was $300,000, which at that time built a pretty nice hospital. 

But it was open for 1 year. We had a doctor for 1 year, and the 

doctor left, and we couldn’t get another doctor to that hospital. So 

for the next 35 years that place went unused, a beautiful facility 

which at the time had very modern equipment and technology and 

everything else. So it is sort of typical I think of the plight of America in rural areas. 

As you look now—and my folks still live in that community. They 

are 82 and 80, and the closest hospital is Pierre, which is 60 miles 

away. So you find increasingly that distances and geography works 

against us in rural areas. I know the gentleman from New Mexico 

faces a set of similar circumstances. Trying to figure out how to 

make health care accessible and affordable to more people in country is the challenge. 

What I would like to do is focus a little bit, too, on some of the 

suggestions that have been made. I would ask the question of Mr. 

Hatch, because you raised the question about the increase in insurance premiums. Did you get any explanation as to why those premiums increased by that amount? 

Mr. HATCH. It was mostly our experience modifier. The quotes 

that we would get from the individual carriers were an estimate, 

and then we would spend a lot of time—— First of all, when we change policies it is always a very time-consuming process because we go through the underwriting—you 

know, all 28 of the employees have to fill out the application, might 

take an hour, hour-and-a-half, and—you know, if we are getting 

four bids. But then what happens is we had an employee that had 

migraines that was on a continuing prescription, an employee that 

has diabetes, an ex-employee that was still on COBRA that had a 

heart problem. So, basically, that was why we had and continue to 

have the problem, is because just a few people in our small group 

underwrite us basically out of business. And I can’t just fire those 

people. I mean, it isn’t ethical. 

Chairman THUNE. Do you think if you had 2,800 employees as 

opposed to 28 that would you have the same trouble? 

Mr. HATCH. I would sure think so, yes. 

Chairman THUNE. Okay. Have you lost employees—I mean, have 

you had people, because there is the loss of health care, who have 

just said, I have got to find a different job? 

Mr. HATCH. That was—a few years ago, we had an individual 

that left. And most of it now has been a few employees that we 

have made offers of employment, but—we felt they were qualified 

people, but when they looked—when someone interviews, they say, 

do you have a health plan? We say, yeah, we have a health plan. 

But then they look into it and find out what it really costs as far 

as their participation. It presents a problem for us as far as recruiting. 

So it has been more of a problem of inability to hire someone, 

particularly if they already have a dependent, for example, that 

needs extensive health care. 

Chairman THUNE. You mentioned, as a member of NFIB, if Association Health Plans were made available and an organization like 

NFIB chose to create one, do you see that as a solution that would 

be helpful? 
12

Mr. HATCH. I certainly do. We presently have—like with the 

South Dakota Retailer Association, we have supposedly a group 

there, but it still goes through the individual underwriting. So it 

really isn’t—even though we may have a lower base rate through 

an association, it still doesn’t help you if you have a few people 

with health problems. So I think this would really rectify that 

problem. 

Chairman THUNE. Does the—Mr. Nelson, you suggested that one 

of the things you talked about, and I think Mr. Hill as well, is tax 

credits. That is something that we kicked around here. In terms of 

a health care model, the one that we have today is a third-partypay, employer-based system. If you went to some sort of a tax credit, that would be particularly helpful to those who don’t currently 

have insurance and also might begin creating some competition in 

the existing health care market. 

I guess I would throw this question out to whomever would like 

to answer it, but the increasing costs that we are seeing, particularly among small businesses, to whom do you attribute that? Is 

that a provider issue? Is that an insurer issue? Is it a customer 

issue? 

I talked with doctors who say that the expectation levels are so 

high now that when someone comes in they are demanding the 

treatments, the modern technologies, the breakthroughs that we 

have seen in health that exist out there; and it tends to kind of 

build on itself. But it seems to me that there isn’t a lot of incentive 

to control costs. Because those costs are always passed on. Ultimately, the consumer is the one who pays the cost. 

But if the consumer, the individual, had more control and you 

moved away from the employer base, it would seem to me that that 

there would be someone in that equation somewhere who would 

have an incentive to control costs. 

Mr. NELSON. No question, I think that would help. I think it is 

a combination of several things. It is not just one single thing that 

make health insurance costs go up so much or health care costs in 

general. 

But certainly empowering consumers to become better educated 

to understand their own health care and understand what it 

costs—you know, simply going to an employer group and showing 

people that have their insurance—not so much in small business 

but in large businesses like the 2,800 you mentioned, their insurance is likely 100 percent paid for by their employer. They don’t 

even know what it costs. They don’t know what it costs, and they have a $10 co-pay. They go to the pharmacist. They have a $5 or 

$10 co-pay at the pharmacy. They have no idea what this is costing 

them. 

We feel, as I am sure others do, too, that to empower them personally to understand and take charge of their own health care 

would go a long way towards helping lower costs. 

Dr. HILL. First dollar coverage demands no accountability of any 

kind. We have evidence in another program in the Medicare program if we reform Medicare the way we would like to then we 

wouldn’t have Medigap coverage. So patients wouldn’t have this 

first dollar coverage, and then they would have to think twice 

about spending for the routine health care. It would cut services 
13

utilized by Medicare patients by 28 percent, which would amount 

to $52 billion over 3 years. 

I know the other side of the argument, that people might neglect 

themselves. I have heard both arguments. But we have to hold people responsible and accountable. If they were individually-owned 

purchasers and chose their health benefit plan, then they would be 

much more responsible. 

Chairman THUNE. Mr. Udall. 

Mr. UDALL. Thank you, Mr. Chairman. 

You know, Mr. Chairman, one of the things that I think is interrelated here, we had previous hearings on getting infrastructure 

into these rural areas. And your testimony about telemedicine, 

what I am wondering, these previous hearings we don’t see the 

kind of broadband and Internet services in rural areas that we see 

in the urban areas. How much is that holding us back in terms of 

capitalizing on things like telemedicine and getting it into all of the 

rural areas across America? 

It doesn’t just have to be to Mary. Any of the other panelists can 

comment on that. 

Ms. DEVANY. Sure. The issue of conductivity has been one that 

we have dealt with since the beginning of our program. A lot of our 

sites where we really need to get the technology out to we have not 

been able to simply because of exactly what you mentioned. They 

don’t have the infrastructure available for the type of lines that we 

had need of to make those connections and the telemedicine connection. We need a larger bandwidth for the clinical side of things 

to make sure that the diagnosis is accurate. 

What we have been seeing, though, is a shift in technology itself, 

being able to utilize some other types of networks out there. We 

have been able to utilize and piggyback off some of those networks 

already in place for the purposes of telemedicine, but we still have 

not been able to reach every facility within our network. We have 

several that flat-out can’t afford to have a network connection with 

our facility, whether it be for data or for telemedicine. 

Mr. UDALL. In order to do telemedicine, what types of lines are 

required? 

Ms. DEVANY. Anywhere from—we utilize ISDN lines. We use

T–1 lines. I think we also have a facility that has been fortunate 

enough to have an OC–3. These are the type of lines that our network has utilized. 

Mr. UDALL. Any other of the panelists on this issue? 

Mr. NELSON. Preventative medicine was brought up as one of the 

problems that is seen when you have individuals paying for their 

own health insurance and understanding what it is really costing. 

Certainly telemedicine and the telehealth program could go a long 

way toward helping consumers to have a more reasonable cost for 

preventative medicine. 

Dr. HILL. The AMA is very supportive of piloting telemedicine. 

Telemedicine is in its infancy. It has got a tremendous amount of 

evolving and developing to do before we learn how to use it practically. I think we will. I think we will learn how to use it efficiently. I think eventually it may even reduce the cost of health 

care and certainly will keep people out of the hospital. 
14

In order to fund that kind of technology, however, there are very 

few health systems that are capable of doing that around the country, particularly in the rural areas. 

Mississippi happens to be a very wired State. I don’t know 

whether you knew that or not, but we are close to topping a few 

things, and one of them is being wired for those fancy lines that 

I don’t know anything about except I know what they do. We have 

demonstration projects now at our medical center. But we are taking care of congestive heart failure patients at home and keeping 

them out of the hospitals, which is saving hundreds of thousands 

of dollars a year. 

I am running a program with schools right now, doing routine 

check of children who come to the school nurse using interactive 

telemedicine. We think that is going to be very practical because 

the parents don’t have to get off work to come and get them and 

take them to the doctor’s office. The teachers that can be treated 

by telemedicine don’t have to get off work. 

But we are a long way from this being developed into the stage 

that we can start talking about it becoming commonly used. I hope 

that it will. I think that it will. But it is going to require some 

funding and some support in order to see what works and what 

doesn’t work over time. But I am very supportive of us persisting 

with that funding of telemedicine. 

Mr. UDALL. I wish we were as wired as you are in Mississippi. 

We have real—we really lack it in New Mexico. 

One of the other issues, you have touched on it, each of you have 

touched on it a little bit, is the whole issue of getting doctors to 

go out and live in rural communities. I guess one of the biggest success factors has been if a doctor—if an individual is raised in a 

rural area and is familiar with it and that is part of their background, generally if they become a physician and they come back 

to the rural area, they stay there. Other than that as a drawing 

card, I think we have a real problem. 

I mean, I have been told by many executives and health clinic 

people just how many problems they have in terms of getting people out there. It has been said over and over again we have to 

think outside the box in terms of getting physicians into rural 

areas. Do any of you have any thoughts on what you think is working in terms of getting physicians into rural areas, and are there 

programs that are there that help that we are not funding or putting the resources behind? 

Dr. HILL. There are two things that will change behavior. One 

thing is the incentive, and the other is money, and they are the 

same thing. I mean that sort of facetiously, but also there is some 

truth in that. 

You are right. The two things that we know are directly related 

to getting physicians to practice in rural or underserved areas is, 

number one, being reared in that area and, number two, their career choice as a freshman medical year student being underserved 

care. 

Now that is not true with other primary care specialties. For instance, in internal medicine, it is universally related, which I think 

is fascinating. Pediatrics, it is neutral. So family medicine seems to 

be the way to go.
15

Of course, I am extremely biased. I will admit that up front. But 

I think the salvation of our health care system in this country has 

got to be the opportunity for every citizen to have access to a welltrained primary care physician to manage their health care. We are 

not doing that. And that is where we need to emphasize, I think, 

showing my bias, where we need to be. The National Health Service Corps certainly has had some successes. 

Some of us—and this is a personal opinion, not AMA’s opinion— think that if we reengineered that program a little bit we could 

make it 100 percent better and make more people stay longer. We 

have statistics that shows if somebody stays in an area for 5 years 

they are much more likely to stay there the rest of their life. My 

wife says it is because they bought a house there or married a girl 

or have a loan at the bank. Whatever the reason, it appears to be 

true. 

This program requires 2 to 4 years. Loan repayment, no question about it. The average medical student now is $97,500 in debt when 

they graduate from medical school. Loan repayment programs absolutely have an impact, and we need to work much more innovatively on those types of programs. 

Mr. NELSON. One thing we did in my social community in south 

central South Dakota—it could be done all over—but we went to— this is about 20 years ago, wanted a surgeon in our community to 

serve our hospital. We had a family physician, but we thought we 

needed a surgeon. We went around and collected money from the 

surrounding area business people and farmers and went to the 

University of South Dakota Medical School and said if someone 

would come and stay 5 years as a surgeon we would offer some 

funding for their medical education. We were able to do that, and 

that surgeon—that was 20 years ago, and the surgeon is still there. 

So I agree with you that the 5 years is key. We feel we have a 

lot to offer all over rural areas, New Mexico and South Dakota and 

Mississippi. Five years would enable someone to see what there is 

to offer. There is kind of a bias against getting to go out there in 

the first place. But once they are there I think they find that it 

might be worthwhile to stay. 

Ms. DEVANY. I think the technology can also help facilitate some 

of that that has been shared. Just the ability to continue your education is vitally important. Often a physician would have to pick 

up, leave for a week or whatever, for educational opportunities. 

Telehealth technology allows them to go down to a conference room 

for an hour get a credit unit and go back to their practice, allowing 

them to increase their ability to have that ongoing education opportunity. 

Mr. UDALL. Thank you very much for your testimony. 

Chairman THUNE. I will just explore a couple other issues. 

Mary, you had mentioned, and I think that if you look at some 

of the smaller communities across South Dakota, bandwidth—obviously, in order to get the transmission quality and the resolution 

necessary—I mean, Dr. Hill noted, too, and I think it is true—in 

order to be able to do consultations, you have got to have a level 

of transmission quality that enables you to see with great clarity 

what is happening off site. Right now, it seems to me at least, that 

there are—in some of the areas in our State we are doing pretty 
16

well with that, but is that primarily the barrier right now? Is it a 

connectivity issue? Or are there other things that we need to do 

that will encourage new communities to accept and utilize telehealth services? 

Ms. DEVANY. The wiring issue is one—is just one issue. Culture 

is another. Often, a physician is not comfortable using the equipment, and that doesn’t encourage them to pursue it very often. Insurance coverage is another reason for not using telemedicine. It is 

not covered as it would be the same as a face-to-face consult. 

Now, there are obviously some situations where telemedicine 

cannot provide the same type of service. But there are many situations where telemedicine can, and those are the areas that really 

need to be looked at and opened up for insurance coverage. Whether it be Medicare or whether it be third-party payers, they need to 

be encouraged to expand their offerings of coverage. 

Chairman THUNE. One of the things that—the whole reimbursement issue is something that I worked on a couple of years ago, 

but we have got a lot of room to improve there I think. But clearly 

that is one of the issues that, if we are going to really make this 

program work, we are going to have to, as the doc said, provide incentives/dollars, to put those incentives in place. 

I mean, one of the things that I have been doing is I have traveled around and listened to health care providers in some of the 

smaller settings—smaller community, smaller hospitals. This week, 

I am cosponsoring legislation that would expand the critical access 

hospital program to hospitals with 50 or fewer beds and also expand it to include some post-acute areas like home health skilled 

nursing, ambulance service, those types of things, investment in infrastructure and technology. Those are all things that we feel are 

particularly needed. 

There are a lot of hospitals who can’t meet the eligibility criteria 

right now to get cost basis reimbursement under the critical access 

hospital program. But if we expand that model a little bit it would 

be able to draw more of those facilities in and hopefully prolong 

their livelihoods, make them—at least right now a lot of those 

small health care facilities, hospitals, clinics are losing money. It 

is the old axiom that we lose a little bit on each sale, but we make 

up for it in volume. You can only do that for so long. This is what 

we are seeing out there. 

The one thing that I also noted in your testimony was the impact 

on the local economy. If you are not having to send somebody—if 

somebody can be treated there instead of having to send them to 

Sioux Falls, it does keep people in town. You know, when people 

go to a bigger community they obviously do their shopping and everything else there. I think it does have a very direct impact on the 

local economy. The jobs issue very much comes into play. 

So you see I am very excited about the prospects of that. I am 

a big believer. I think there is a lot of potential. I understand what 

Dr. Hill is indicating in terms of this is in the very embryonic 

stages of its development, but I see some dramatic improvements 

all the time as I travel, just in the last year. 

What we are doing I think down in Winner, Wayne, your hospital now down there has hooked up, and they have some pretty 
17

remarkable things going on down there. So it is very encouraging 

to see that, but we have a lot of work ahead of us. 

Tom sort of touched on this, but it is one thing I heard over and 

over, too, and that is not only are reimbursements an issue but also 

recruitment of health care professionals, that we are just having a 

really hard time getting people to go into rural areas. 

Again, as I said, in the community that I grew up in, it has been 

a real challenge. You get out farther away from a population center 

and the distances become greater and there just isn’t a whole lot 

of incentive for people to go live in those communities. I think it 

is a great place to live, but not everybody seems to share that opinion. 

I think we have to be thinking of ways from an educational 

standpoint how we can put those types of incentives in place, too. 

Nurses, lab techs, all those type of things, we are really struggling 

to meet that need. 

I guess I would just—Tom maybe has some more questions, too, 

but the whole question of the uninsured is, the higher level of 

uninsureds—when you have got small employers—I think the number was with 18 or fewer or it is 18 percent higher premiums, if 

you have got a small business, as opposed to a business with 200 

or more employees. That is something that I think that we need 

to be looking at very seriously. Because the number of uninsured 

goes up every year. 

If you see these premiums increase, that is—you are all talking 

about it continuing to go up, more and more businesses continue 

to drop coverage, and you will see more and more in the ranks of 

uninsured. 

I think this whole idea of coming up with a model that is sort 

of different than what we have used in the past, the employerbased, third-party-based system where you have an individual having more control over their health care choices, gives them more 

choices and I think creates more competition and, hopefully, will 

help control costs. 

Mr. HATCH. That is another problem we have. When we are 

forced to select a program I have got, you know, various employees, 

and a different program would suit each one of them different. We 

are forced to pick one program, whether it be a PPO or some—you 

know, a major medical would be more appropriate. As a purchaser 

of a small group, I don’t know if—I would like to see some way that 

the HP plans would allow us some selectivity on an individual 

basis. 

Chairman THUNE. Yes. 

Other questions, Tom? 

Mr. UDALL. Just one additional question here. 

Over 23 percent of the Medicare population is located in rural 

areas, while rural areas account for only 20 percent of the total 

population. Yet Medicare spends less money on rural beneficiaries 

than on urban beneficiaries. Do any of you have any thoughts on 

that and why that is happening? Are there any corrections we need 

to make there? 

Dr. HILL. Urban patients require more services or ask for more 

services is the reason the cost per capita is higher. That is the 
18

issue, the same issue of the gypsies that I do not want to talk 

about today. 

Mr. UDALL. Very well put, Dr. Hill. 

Dr. HILL. But I will, if you want me to. 

Mr. UDALL. Go ahead. 

Dr. HILL. I am teasing. I do not want to talk about it. 

Mr. UDALL. I think both of us appreciate very much your coming 

and your testimony today. Thank you very much. 

Chairman THUNE. Thanks, Tom. If anybody has any concluding 

remarks, or if there is anything that we have prompted in our 

questions that did not get adequately addressed, feel free to comment. We are getting ready to wrap this up. But the testimony is 

very useful. This is an issue that is not going away. It is one that 

populations in rural areas tend to be more elderly, and so the 

Medicare/Medicaid caseload in most of the hospitals in rural areas 

is a very high percentage of total revenues, and total caseload, 

treatments, everything else. And I think that is something that, as 

we talk about how to make Medicare strengthened and improved 

and so forth, too, those are all issues. And the issue of prescription 

drugs seems to come up frequently in visiting some of those rural 

settings. 

Does anybody have any closing remarks or comments with respect to this issue, things that we perhaps have not touched on? 

Mr. NELSON. Just overall I would like to add that it is not—every 

rural area is different. It is not one size fits all. Certainly we want 

to think outside the box and come up with new things, but it has 

to be able to adjust to different areas of the country and different 

parts of rural hospitals and providers and whatever. So it is not 

just all try to fit in all into one size. I think that is important. 

Dr. HILL. We did not talk about the soaring medical liability insurance premiums. They certainly have an impact, I think, on physicians’ choices of careers for that matter. And I think that is a big 

issue that needs to be addressed, probably from a Federal level, because it is not being very well addressed at the State level. 

Chairman THUNE. Okay. The one thing in addition to that too, 

yesterday I was in Kent, South Dakota, and the administrator 

there was a new administrator in the last year or so, and he 

showed me the amount of paperwork that it took to change the 

name of the administrator of the hospital from the previous administrator to this administrator, and it was like an inch thick. And 

that was another thing I heard a lot about was just the paperwork 

compliance and the regulations and so forth. That is something. 

Mr. HATCH. The Patients’ Bill of Rights is also an issue somewhat related as far as lawsuits. If I am a small businessman, and 

I have the fear of being sued by my employees, it is going to make 

me less conducive to even carrying a plan. And a lot of that may 

be just a fear factor as far as a lot of our NFIB members, but it 

is still an issue. The more people that drop their program, the bigger the problem becomes nationwide. 

Ms. DEVANY. The only other issue that relates to the total situation is the cross-State licensure of physicians. That is an issue that 

we continue to work with. Fortunately, most of our physicians that 

use the system are licensed in our three-State area. We are kind 

of in that vicinity. So most of them that use the equipment are li-
19

censed, but to try to encourage additional specialists to look at this 

as an opportunity, that remains an issue for us. 

Chairman THUNE. Great. 

Well, again, I appreciate all of your testimony and your response 

to the questions. This has been very helpful. And if you have anything to add, the record will be open. We would be happy to get 

that included as part of the permanent hearing record. 

With that, we are adjourned. 

[Whereupon, at 3:20 p.m., the Subcommittee was adjourned.]

OPENING STATEMENT OF CHAIRMAN JOHN THUNE, SUBCOMMITTEE ON RURAL

ENTERPRISES, AGRICULTURE AND TECHNOLOGY

Good afternoon and welcome to this hearing of the Subcommittee on Rural Enterprises, Agriculture and Technology. I want to thank all the witnesses who have 

traveled over long distances to be here with us. 

Today we will be examining the issue of health care in rural America. Obtaining 

access to adequate and affordable health care is a problem for small business owners throughout the country, but it can be particularly difficult in rural areas. As 

Congress continues to address the health care problems our country faces, we must 

not lose sight of the 43 million uninsured Americans—this is a real crisis. Many 

people do not realize that over 60% of our uninsured population consists of small 

business owners, workers, and family members. By addressing the access problems 

faced by millions of workers, Congress can greatly reduce the number of uninsured. 

One of the reasons small businesses cannot afford health coverage for their employees is that they are unable to achieve the economies of scale and purchasing 

power of larger corporations and unions. For example, on average, a worker in a 

firm with less than 10 employees pays 18% more for health insurance than a worker 

in a firm with 200 or more employees. In addition, self-employed individuals can 

only deduct 70% of their health insurance premiums from their taxes, while their 

corporate counterparts can deduct 100% of the cost of health insurance premiums 

for their employees. Small businesses suffer from unequal treatment—what they 

want most is a level playing field when it comes to health care. 

Large corporations use the purchasing power of thousands of employees to offer 

affordable health insurance to their workers. Small business owners, on the other 

hand, have to find their insurance on an individual basis, and in rural states, insurers have been leaving the small group insurance market, making it difficult to find 

affordable health coverage. 

I was very heartened to see President Bush today issue his plan for helping small 

businesses prosper in our economy. The President is aware of the health care access 

and affordability problems facing small business, and his plan includes concrete 

steps to increase health security for employees of small businesses. His agenda calls 

for Association Health Plans to be available for associations that want to provide 

them for their members, and it calls for a permanent extension of Medical Savings 

Accounts, including a significant reduction in the required deductible for these 

health accounts. 

Congress needs to ensure that there are many different health insurance options 

for small business owners to utilize. We need to help our businesses attract and 

keep employees, and nothing helps more than the ability to provide health insurance. For rural states, the ability of small business owners to obtain and provide 

affordable health insurance for their employees is vital to our efforts to attract new 

jobs and prevent population loss. 

I look forward to hearing testimony from our witnesses, and I thank you all for 

participating in this hearing.

TESTIMONY OF RONALD HATCH, PRESIDENT, HATCH FURNITURE

Good afternoon Mr. Chairman and Members of the Subcommittee. Thank you for 

inviting me from South Dakota today to talk about the important issue of affordable, accessible health insurance, especially for those owning or working for small 

businesses in rural areas. I am pleased to be here on behalf of the National Federation of Independent Business (NFIB), representing 600,000 members who face a 

similar challenge. 

My name is Ron Hatch, owner of Hatch Furniture, a fifth generation retail furniture store that was founded in 1903. We have two stores, one in Yankton, SD, 

a community of about 15,000, and one 60 miles away in Sioux City, Iowa, with 
20

about 130,000 residents. In 1974, I entered the business after serving as a pilot in 

the United States Navy. My son, Jon Hatch became the 5th generation to enter the 

business. Most businesses survive an average of twenty years so we are fortunate 

but it is always a challenge. 

At Hatch Furniture, we sell all types of home furnishings, floor coverings, and 

custom window treatments. I employ about twenty-eight full time workers and a few 

who work part time. Many of them have been with the company for ten or more 

years. My employees range in skill level, from high school to college graduates, in 

age, from twenties to mid-fifties, and earn salaries ranging from $18,000 to the high 

$50,000. My salary is $24,000. Their roles include managerial, administrative, sales, 

and warehouse and delivery. 

We value our employees, which is why Hatch Furniture has offered employeesponsored health insurance since the early 70s. When I became president, I simply 

continued offering health benefits without much concern—until last year when the 

cost of our premiums skyrocketed approximately 50 percent. Since then, I’ve learned 

first-hand the struggle many small business owners face in trying to secure affordable health coverage. 

Our trouble began last year when American Medical Security pulled out of the 

South Dakota market, leaving me to search for a new insurer. I was shocked to 

learn how difficult it was to find an affordable plan, and how burdensome it is to 

change carriers. My employees spent time away from their work completing lengthy 

health statement applications for four different insurers. After reviewing all four 

bids and seeing no great competition in costs, I decided to go with CBSA, a carrier 

that offers a Preferred Provider Organization (PPO). We are sometimes limited on 

choice because we need a PPO list that covers our employees in both Yankton and 

Sioux City. 

This switch has been tough, as both the employer and employee shares for monthly premiums, co-payments, and deductibles have doubled. For example, I am fiftyfive years old and I include only my wife on my plan. Our monthly premiums 

jumped from $390 to $695 for just the two of us. The prior $390 rate included our 

sixteen-year-old son who is now under separate coverage. 

It isn’t just the monthly premiums that have shot up either. Last year my employ- ees pain $15 for a doctor visit and for prescription co-pays. This year, they pay $30 

for each visit or drug. In addition, our deductible went from $250 to $1,000 annually! 

Because the cost increases have been extreme I’ve tried to help my employees in 

the best way that I can by absorbing more of the cost. For the past four years, I 

paid $100 toward my employees’ monthly premiums, but now, I pay $125. Addition- ally, my company is paying $500 of the $1,000 annual deductible for each employee. 

However, the ramifications go beyond cost. Because several employees could not 

afford the new coverage, only nine of my twenty-eight employees opt to have our 

group health care coverage at this time. Most employees who have chosen our coverage are in their twenties and thirties because the premiums are more affordable 

than for those who are in their forties and fifties, like myself. Our older employees 

have been forced to joint he ranks of the working uninsured or obtain limited coverage outside our group. 

Access to care is another issue. In an attempt to control cost, my wife and I purchased an individual policy with a separate provider for our sixteen-year-old son. 

This poses its own set of challenges, as his insurer is considering not renewing the 

contract at our local hospital. Therefore, if my son needs to go to the hospital and 

we want his insurance to cover it, we may have to travel 60 to 90 miles to the closest one, which is in Iowa.

To some in my state, a 60 to 90 mile trek might be considered a short trip. In 

Yankton, we are fortunate to have a good regional hospital but others in South Dakota aren’t so lucky. 

Unfortunately, rising health insurance costs go beyond insurance carriers. I feel 

federal and state mandates have a great deal to do with rising costs. As a board 

member of the Benedictine Foundation in Yankton, we approve expenditures for 

health care in the community. These expenditures include health related education, 

medical student tuition and equipment purchases. I am appalled at the cost of some 

medical equipment as we recently purchased a $2,000 chair for people to use while 

they donate blood because it had to meet certain specifications. A $300 chair from 

Hatch Furniture could have done the same job. 

All of these factors—cost increases, lack of competition between plans, access to 

care, and mandates—make me very worried about Hatch Furniture’s ability to offer 

health benefits in the future. In our July renewal brings another double-digit increase, I’m no sure how we will absorb it, or for that matter, how many employees 

will be able to keep their coverage. I fear that more might go without insurance. 
21

If more employees decide to drop coverage, I may not even be able to qualify for 

group coverage, at which point everybody loses. The lack of competitive benefits also 

severely limits my ability to hire and retain employees. 

It’s for these reasons that I support legislation endorsed by NFIB that would create Association Health Plans (AHPs). AHPs would allow small business owners to 

band together across state lines to purchase health insurance as part of a large 

group, thus ensuring greater bargaining power, lower administrative costs and freedom from costly state insurance mandates. Fortune 500 companies and labor unions 

already have this right. AFPs will simply level the playing field and give small employers the same privileges as their counterparts in labor and big business. In addition, AFPs will introduce into the market place much needed competition and diversity. Without the ability to shop for more affordable options, we are left with shifting cost or dropping coverage. Association health plans would be a health care purchasing dream come true and would ensure more choice for rural areas. 

Eliminating the regulatory burden on medical savings accounts (MSAs) would also 

benefit small business. MSAs, without the current restrictions, would provide positive benefits to employees by giving them control over their own health care dollars. 

Making MSAs more workable by easing the regulatory burden on them will provide 

yet another affordable health care option to small business. Tax credits for individuals would also be a welcomed option. 

Now, I’m not a health policy expert, but to me, AHPs, MSAs, and tax credits seem 

like good, common sense solutions to controlling the cost of quality health care. 

Mr. Chairman, thank you for allowing me to share my experience with you and 

the Members of the Subcommittee. I look forward to following the good work that 

Congress will hopefully do in relation to employer-based health care, and I am 

happy to answer any questions that the Committee may have.

STATEMENT OF MARY DEVANY, MANAGERS, AVERA MCKENNAN TELEHEALTH

NETWORK

Good afternoon, my name is Mary DeVany. I am the manager of the Avera 

McKennan TeleHealth Network in Sioux Falls, South Dakota. Thank you to the 

committee for the opportunity to visit with you today, and a very sincere thank you 

to Mr. Thune for his ongoing support of telehealth activities. 

History/Experience 

The Avera McKennan TeleHealth Network was established in December 1994 and 

currently uses interactive videoconferencing at various hospitals within the region 

to provide telehealth services. The Avera McKennan TeleHealth Network primarily 

uses two-way interactive videoconferencing throughout its network. We also have a 

video bridge which allows us to connect multiple sites simultaneously for various 

events. 

Over the years, our network has provided clinical telemedicine services in 

pulmonology, dermatology, neurology, orthopedics, surgical care follow-up, pediatrics, mental health, fetal ultrasound, internal medicine, and trauma. On average, 

we are providing about 400 clinical consults (physician to patient) annually. However, telehealth is more inclusive that just ‘‘telemedicine’’, or the clinical applications. The system is more inclusive that just ‘‘telemedicine’’, or the clinical applications. The system is also used for distance education activities whether it is for clinical purposes (tumor conferences and various grand rounds topics), or staff and community education, as well as for various meetings (administrative, association, community). 

Issues 

As you are aware, South Dakota is VERY rural. There are only ten (10) communities within the state with a population over 10,000. From a healthcare standpoint, 

specialist physicians are concentrated on the eastern (Sioux Falls) and western 

(Rapid City) edges of our state, with about 350 miles separating these two communities. The number of miles from our network’s rural facilities to Avera McKennan 

runs from 45–170 miles (1–3 hour drive, one-way). 

The availability of telehealth technology helps to reduce the ‘‘healthcare penalty’’

for choosing life in a small town. Citizens should not be held at a disadvantage simply because they live in a rural area, especially if technology can health resolve that 

issue. Access to healthcare leads to improve quality of life for individuals in rural 

communities and allows them (and encourages them) to remain in those rural communities. 

Many communities are simply trying to keep their hospital open and to continue 

to provide those services that are currently available. Often facilities are having to 

choose, and limit, what services they are able to continue to provide. The closing 
22

of a local hospital, or healthcare facility, signals a major crisis for a rural community and every effort should be made to maintain a facility’s viability. A facility can 

be strengthened by making additional or enhanced services available. This technology helps make quality specialty healthcare services more easily available to our 

rural residents. 

Example.—The availability of the OB Ultrasound via telemedicine at the 

Flandreau Municipal Hospital has allowed them to offer a service they previously 

had to eliminate from their facility. This has encouraged families to consider this 

rural facility to handle their healthcare needs instead of looking to facilities in other 

regional communities. By providing a wider range of healthcare services, patients 

are encouraged to stay in their own community to access their healthcare and also 

keep more of their overall dollars within their hometown economy. 

Physician isolation is an issue with which all rural communities are faced. However, physicians are not the only ones affected. All levels of healthcare providers experience this difficulty. The availability of telehealth technology and distance learning opportunities allows for greater peer-to-peer interactions. It also helps to improve the quality of healthcare services at the rural facility by providing current 

medical information to healthcare and administrative staff on a regular basis. Increased educational opportunities for healthcare providers can improve their ability 

to provide quality healthcare. 

Rural hospitals and other healthcare facilities have learned to be very frugal with 

their budget. Dollars are always tight. Staff still need appropriate training and educational opportunities, and the availability of video technology allows for a degree 

of cost savings over the year by allowing employees to attend an educational event 

from their home facility and reducing the need to travel in order to obtain the necessary information. 

Example of the dollars saved.—In both cases, the amount of money the participants would have spent to attend the event on site was calculated (driving/meals/

hotel) as was the number of non-productive hours and added together to reach the 

total savings amount. 

• One 2-hour event (HIPAA/EMTALA regulations) had a total savings of 

$5,077. This relates directly to the rural facilities and their ability to address 

federal regulations. 

• 6 month estimation of dollars saved for January–June, 2001 was $33,311. 

This Includes non-productive hours (drive-time for just one person) and mileage 

for 4 sites. 

Probably the most far-reaching contribution made by telehealth technology is increased support for ‘‘main street.’’ Allowing patients to receive speciality healthcare 

from their home facility, helps to keep additional dollars ‘‘at home’’. By receiving 

services ‘‘at home’’, the additional lab work, x-rays, or pharmacy needs are also met 

by local providers. Additionally, the peripheral stops that can go along with a ‘‘trip 

to Sioux Falls’’, like groceries, gas, a stop at Target or Walmart, are reduced and 

more of these dollars remain in the community as well, not to mention any additional hotel and restaurant expenses that might occur. 

Not only does this technology help to provide increased opportunities for improved 

healthcare services, but it also improves the perception of the level of quality care 

available from their hometown provider and healthcare facility. Telehealth has become an important tool in the provision of quality healthcare, especially rural 

healthcare. While it may not directly affect, or be directly affected by the proposed 

Association Health Plans or the Medical Savings Accounts, telemedicine can help to 

keep the overall cost of medical care down by providing care at a lower cost facility, 

helping with early diagnosis and care, and keeping more healthcare dollars ‘‘at 

home.’’

Next Steps 

Awareness is key to the success of telehealth networks. Improving awareness, 

whether it is at the federal level or at rural community level, will only serve to 

strengthen the programs, the rural facilities and the communities in general. 

There are a couple of specific areas where your assistance and support is needed. 

One is in the area of reimbursement. Over the past years telemedicine has developed a successful track record and is a proven tool. In many respects it has been 

proven to be as good as an actual face-to-face clinical consult. However, you wouldn’t 

know that by looking at who and what is being paid. Your support is needed to expand the current level of reimbursement and to encourage Medicare and insurance 

companies to provide full coverage. There has been a good start, but more progress 

is needed. Specifically, your assistance is needed in expanding the current Medicare 

reimbursement structure. There needs to be expansion in the eligible facilities (long 

term care facilities, i.e. nursing homes and in-patient/out-patient mental health fa-
23

cilities) and the eligible providers (occupational therapists, speech therapists and 

physical therapists), as well as the allowable CPT codes. 

Also, over the past few months there appears to have been a somewhat arbitrary 

decision to move the Office for the Advancement of Telehealth (OAT) to be housed 

within the HIV/AIDS Bureau. There is a great concern that this change signals a 

shift in the level of support for this program and a greater concern that the awareness of telehealth will diminish from a lack of visibility. The telehealth community 

around the nation has a great deal of appreciation for OAT and their support of our 

projects over the years. They have service as a valuable resource for new and seasoned programs alike. We would like to see this program reinstated in its former 

location within HRSA and rather than cut funding for this program, these activities 

should be expanded. 

While there are other federal funding sources for technology, the OAT is really 

the only one that has developed an understanding of how telehealth really works 

within a rural setting and regularly encourages information sharing between 

projects. It is of great concern that HRSA appears to have a reduced interest in this 

program and the benefits brought to small communities through the availability of 

telehealth services. 

Additional Information 

Also included with this testimony, are several ‘‘success stories’’ from various facilities within the Avera McKennan TeleHealth Network. These help bring the understanding or the benefits of telehealth to a level we can all appreciate. 

TELEHEALTH/TELEMEDICINE SUCCESS STORIES

Avera McKennan: Family relations Strengthened 

When possible we try to link patients required to stay in the hospital for long period of time with their family at a distance. We were contacted by our Leukemia 

and Bone marrow Transplant program to see if we could connect a daughter and 

family in Fairbanks, Alaska with her father hospitalized at Avera McKennan. We 

were fortunate to coordinate with the University of Alaska who allowed the patient’s 

family to use one of their rooms, free of charge. 

The visit started with the patient, wife and transplant team present at our location and the daughter, husband and 2 children present in Alaska. A team conference was held first, updating the daughter on her father’s progress. After the conference was completed, the team left and family was allowed to visit. During the 

conference the 5 year-old showed everyone her new school shoes and talked about 

her excitement of entering school. The nicest moment, when you know that telemedicine really brings families closer together, was when the 18 month-old reached 

out to the TV screen and wanted grandpa to pick him up (and cried when he 

couldn’t . . .). Not quite the same as being there, but very close! 

Avera McKennan: A Little Help From Friends 

In an effort to fight a case of home-sickness/depression, a young patient suffering 

from head-trauma visited with her schoolmates via interactive-video. Even though 

this was not an official ‘‘consultation’’ involving a physician, it was beneficial to the 

overall care of the patient. Not only did it improve her overall mental health status, 

it also gave the speech therapist, who attended the event with the patient, a better 

understanding that this patient could be pushed harder during her therapy sessions 

and possibly could be progressing at a faster pace. The patient’s parents and her 

hometown school principal requested this session. Her twin sister and her brother 

were also involved in the event from the school, strengthening their relationship 

during her absence. It also gave her classmates a sense of her progress. 

Gregory Healthcare Center: CME Credits & Psychiatry 

Prior to the availability of telemedicine, the physician group traveled at least 2.5 

hours to get CME’s. Now through Grand Rounds there are active participants every 

week and it is something that the doctors have utilize to its fullest. Geriatric psychiatric service is also something now provided because of telemedicine. This has 

been a very positive service as many of the people being treated are nursing home 

residents and it would be difficult for them to travel to Sioux Falls, or elsewhere, 

for evaluations.

Madison Community Hospital: OB Ultrasound 

A patient presented to this facility for an OB ultrasound, with cramping in the 

second trimester of pregnancy. The ultrasound was obtained and the specialty physician recommended the patient come to Sioux Falls to have a cerclage procedure 
24

done. This was done in Sioux Falls that same day, but this patient has since returned to MCH for her follow-up ultrasounds. Prior to telemedicine capabilities, this 

patient would have been sent to Sioux Falls and her care would have been followed 

up there. But because of telemedicine, this patient has been able to return to Madison for her care, and as far as I know plans on delivering here at Madison. 

Avera Sacred Heart Hospital, Yankton: Burn 

A young man received electrical burns last summer while working on power lines 

for the REA in a rural South Dakota community. He was transferred to Minneapolis 

for burn therapy. Following his discharge, the doctor treating him had asked to use 

the telemedicine system for monitoring his progress. This would allow the contact 

visually without this person having to travel to Minneapolis for the follow-up. We 

were able to arrange and the visits were held here at ASHH and the person now 

is discharged and no longer has need for the system. The savings to that individual 

were both in time and travel. 

St. Bernard’s Providence Hospital, Milbank: OB Ultrasound 

One specific example, we had an emergency consult via telemedicine with the 

perinatologist on a patient. His recommendation was to do a C-Section immediately. 

The C-Section was done, and a healthy, normal baby was born. The outcome could 

have been detrimental to the baby, which could have resulted in high medical bills 

for the patient over the years. It could have resulted in a legal situation, costing 

the facility and the facility’s insurance company money. However, it didn’t happen 

because the consult changed the outcome. How do you attach a dollar value when 

you don’t know what the outcome would have been? Is it worth the risk, when you 

have the capabilities? We feel that the patient’s welfare should come first. If it is 

financially possible for the facility to handle the cost of telemedicine, whether it 

makes money or not, we would be willing to handle the cost. 

Flandreau Community Hospital: Pulmonology 

A gentleman presented himself to the Flandreau Medical practice with advanced 

COPD. His condition placed many limitations on him as any activity exhausted all 

oxygen reserves. Therefore, travel was not considered a positive option. This patient 

was scheduled with pulmonologist via telemedicine, who changed his treatment regimen, making medication adjustments and incorporating pulmonary rehab into his 

schedule. The improvement was impressive. Telemedicine allowed the patient to remain in his home community while accessing specialize health care. The outcome 

. . . the patient regained a substantial quality to his lifestyle.
25
26

TESTIMONY OF WAYNE NELSON, PRESIDENT, COMMUNICATING FOR AGRICULTURE & 

THE SELF-EMPLOYED

Chairman Thune, members of the subcommittee, I want to thank you for the invitation to share our thoughts about critical issues facing access to health care communities of our country. 

My name is Wayne Nelson. I serve as president of Communicating for Agriculture 

& the Self-Employed (CA), and I also am a grain farmer from Winner, South Dakota. CA works on a variety of priority issues on behalf of our farmers, ranchers 

and rural small business members. However, throughout CA’s 30 year history, we 

have worked to maintain and improve the quality of health care services available 

in rural areas, and we’ve worked to try to keep health insurance affordable for rural 

people so that they can, in fact, have access to health care services. Health care access and affordability has been a priority for us from the beginning. 

There are five key recommendations we would like to make to the committee 

today: 

1. Congress must maintain adequate funding for key infrastructure programs 

that help maintain the quality of rural health care services; particularly the National Health Services Corp and other programs that help bring and keep doctors, nurses and health care providers to rural areas to practice medicine; and 

for telemedicine programs that support our rural providers and keep them 

linked to the latest, best knowledge available for quality care. 

2. We’re very concerned about cuts and under-funding for reimbursement of 

Medicaid and Medicare for rural health care providers and their residual impact. For years, reduce funding of the government programs has led to cost 

shifting by providers, resulting in higher costs for private insurance and higher 

premiums for consumers. There are significant problems in some rural states 

where Medicaid and Medicare makes up the majority of health care. There is 

a growing shortage of specialists and technology available in some rural areas 

because these providers fear they will lose money. 

3. The most positive development we’ve seen is the recent passage by the 

House of Representatives of the President’s proposal for refundable tax credits 

to help reduce the number of uninsured in the country. The most important 

issue for the rural health care system and for rural Americans when it comes 

to health care is the affordability of health insurance. For two many small businesses, and too many individuals, health care costs and health insurance premiums are rising above their ability to pay. The increasing lack of affordability 

of health insurance is causing more people to go uninsured, and that harms the 

economic viability of the rural health care infrastructure. Refundable tax credits 

for health insurance addresses the issue head on. 

4. CA has long fought for tax equity when it comes to the deductibility of 

health insurance premiums. Rural America’s economy is made up of more selfemployed people, and more small businesses, which find it difficult to offer 

health insurance. Self-employed people now only receive a partial tax deduction 

for health insurance, and people who work for businesses that don’t offer it received zero deduction. This is truly unfair discrimination in tax policy that 

makes the net cost of health insurance for these people far more expensive than 

for people given the employer tax deduction subsidy. 

5. To improve access to health care for rural Americans, one of the most important aspects will be to make sure there is access in the individual health insurance market, and the best way to do so is via a state high-risk health insurance pool. These programs now exist in 29 states and have been shown to provide an access guarantee in a way that helps keep the individual market more 

competitive and viable for carriers. Funding is a key issue for states with risk 

pools and the federal government could lend a helpful hand. 

Funding of Rural Health Care Programs 

We are disappointed to learn that the President’s budget proposed cutting funding 

for federal share of the State Offices of Rural Health. While we were pleased to see 

that the administration proposed increased funding for the National Health Services 

Corp and Community Health Centers, there were cuts proposed for other programs 

that assist and develop health care professionals to serve in rural areas. We need 

to maintain these assistance programs and they do work. 

In the south central South Dakota community of Winner, where I live, we wanted 

to get a surgeon for our local hospital. A committee went around the town and collected contributions from individuals and businesses to help pay for a medical school 

for a surgical student if they would remain in Winner for at least five years. A surgical student was found that agreed to the terms, and several thousand dollars were 
27

paid toward his medical school expenses. He has now practiced in Winner for more 

than 15 years. Every small town in rural America is not able to do this, but this 

example shows how local communities and government assistance can work together 

to achieve a common goal. Programs like the National Health Services Corp provide 

for this kind of assistance to benefit rural communities. 

Medicaid and Medicare Reimbursement 

Under funding of Medicare and Medicaid rural reimbursement rates continues to 

be a serious problem for rural states, and the repercussions of it should give pause 

to considerations of proposals to address the uninsured problem simply by expanding Medicaid. 

In New Mexico, for example, we’ve been told that, as a result of lower reimbursement rates for Medicare and Medicaid, there are fears of a crisis for the state’s 

health care infrastructure. Medicare and Medicaid account for almost one-half of the 

health care delivery in the state. (source—chair of the New Mexico Comprehensive 

Health Insurance Pool). 

Medicare is reimbursed at approximately 38 cents on the dollar compared to bill 

charges, while Medicaid is 95 percent of that. When a small portion of a state’s 

health care comes from government programs, it is a little easier for the rest of the 

system to absorb the losses. However, when a higher portion of health care services 

is paid for by underfunded government programs, it can get impossible for the rest 

of the system to absorb. This is causing problems in a number of areas in New Mexico. All of the uninsured and the Medicaid population now must go to the University 

of New Mexico Hospital in Albuquerque, which itself is facing major budget problems. There is an exodus of physicians willing to practice in rural New Mexico, and 

supplies and facilities there are becoming more inadequate. 

It’s a similar story in many other rural states, including South Dakota, Montana, 

Oklahoma and elsewhere. The Seattle Times last week reported that many Washington state doctors and clinics, including those in eastern Washington, are ending 

their participation in Medicare and Medicaid programs because of low reimbursements.

And let’s not forget that the way the rest of the system absorbs underfunding of 

government programs, is by cost shifting into bills charged for private insurance. 

In New Mexico, that overwhelmingly means a cost shift to small business and individuals, which make up the vast majority of the state’s insured. 

According to Time magazine this month, as a result of higher costs and the recession, states—which collectively face a deficit of $40 billion—cannot afford the extra 

Medicaid benefits they started to offer in the late 1990’s. 

Tax Credits—A Good Way to Address the Rural Uninsured Problem 

Getting more people adequately insured is the fundamental foundation we have 

to pursue if we are to have adequate access to health care in rural America. Rising 

costs of health insurance is putting a strain on small businesses and particularly 

for individuals, like our members, who mostly pay for their own insurance themselves. Private insurance premiums rose 8.4 percent in 2000, the highest since 1993, 

according to a just released study by the federal Centers for Medicare and Medicaid 

Services (CMS). The report projected premiums rose another 9.6 percent in 2001, 

will reach 10.4 percent this year. 

Proposals for a refundable tax credit for health insurance premiums tackle the 

issue head on. By making the tax credits refundable and advanceable, low income 

people who don’t normally pay much or any taxes would still benefit from the program. By some estimates, as many as 6 million more people would become insured. 

An extra $500 or $1,000 per individual, and up to $3,000 per family will clearly 

make a big difference. And it clearly would help many more rural people to get coverage. 

As you know, several bipartisan bills have been introduced in both the House and 

Senate that call for refundable tax credits. We commend the House for passing 

health care tax credit bipartisan legislation that was included in a previous economic stimulus proposal. 

CA has long supported refundable tax credits to assist those nearly 40 million 

Americans who are now uninsured. A large portion of this 40 million, including a 

great many rural workers and self-employed people, do not have access to employerbased insurance and must look for coverage in the individual insurance marketplace. That is why CA firmly believes the tax credits must go to the individual. It 

is appropriate that the tax credits could be used by eligible individuals for employerbased coverage. However, the credits themselves should be provided to the individuals for them to use so that the self-employed and people who work for employers 

that don’t provide coverage can make full use of the incentive. 
28

CA will continue to work for eventual passage of legislation in both Houses and 

signing by the President that will provide these important tax incentives and assistance to expand coverage by making it more affordable. 

Tax Equity for Health Insurance Premiums 

The current, welcome interest in tax credits to reduce the number of uninsured 

should not deter anyone in Congress from the need to fix the unfair discrimination 

that has long existed regarding the tax deduction allowed for health insurance premiums that is allowed for employer-based plans, but not for individuals that pay 

their own insurance. 

Tax equity has to be brought to the table, especially concerning individuals purchasing their own insurance. Do you realize that a single mother working two part 

time jobs to feed her family, who does not get health insurance from either job, gets 

ZERO tax deduction for the health premiums she pays. Yet corporate employees 

where insurance is provided through their job receive a 100 percent deduction. The 

difference in the net cost of insurance to the individual because of this unfair, unequal federal subsidy is a major contributor to the high rate of uninsured. CA and 

many other groups have worked for years to get 100 percent deduction for the selfemployed paying their own health premiums. That goal will be achieved next year 

when the phase-in of the 100 percent deduction for the self-employed becomes law. 

But this policy should be law for everyone who pays for their own insurance. 

Support State Risk Pools for Access for the ‘‘Uninsurable’’

CA has long believed, and long worked for, the right for everyone to have access 

to health insurance protection, regardless of their health, as long as they were willing to pay for it. And the most effective way of providing this access guarantee when 

it comes to the individual market is through state high-risk health insurance pools. 

State risk pools serve as part of the health care safety net that have played an important role in offering insurance to the so-called medically ‘‘uninsurable’’ for as long 

as 25 years in some states. Today, they are operating in 29 states, all with caps 

on the level of premiums that can be charged people in the risk pool and each subsidized by the industry and/or with state funding. More studies are recognizing that 

risk pools provide a means of providing insurance access that causes far less disruption to the private individual insurance market compared to other alternatives, in 

particular guarantee issue regulations. 

The enrollment in risk pools is now steadily growing, as an outgrowth of declining 

coverage in the small group employer market forcing more people into the individual 

market, which these risk pools serve. 

Currently, federal regulations complicate the ability of states to fund their state 

risk pools equitably across the entire health insurance industry. Even though it 

would be a comparably small cost compared to other health care initiatives, federal 

financial support for risk pools to help them pay for increasing subsidies levels, and 

to help low income people in the state programs would be helpful. 

CA believes every state should have a risk pool for the medically uninsurable in 

place as part of their health safety net, and supports federal help to establish and 

fund these state-operated pools. For the first time, the financial support for state 

risk pools was included in the earlier economic stimulus legislation that passed the 

House, but failed to gain movement in the Senate. This was an important step, and 

we encourage Congress, as is considers broader ways to address the uninsured problem to include support for state risk pools so that we can expand them to more 

states and assist the 29 states that now have them. 

These recommendations aren’t the answer to all of the problems of the uninsured. 

However, together they make up critical parts of the comprehensive approach that 

will be required to solve this problem. 

STATEMENT OF THE AMERICAN MEDICAL ASSOCIATION

Mr. Chairman and members of the Committee, my name is J. Edward Hill, MD. 

I am the Chair-Elect of the American Medical Association’s (AMA) Board of Trustees. I am also a board-certified family physician from Tupelo, Mississippi. I began 

my professional career in the rural Mississippi Delta, where I practiced for 27 years. 

On behalf of the medical student and physician members of the American Medical 

Association (AMA), we are honored to have been invited to discuss with this Committee the critical issue of access to health care in rural America. 

Introduction 

The Secretary of the Department of Health and Human Services, Tommy Thompson, recently stated that ‘‘[w]e want all Americans, regardless of where they live, 
29

to have an equal chance for a healthy life.’’ The AMA strongly agrees with Secretary 

Thompson, and adds that improving health care access in underserved areas remains an ongoing concern and top priority for the entire AMA. 

Approximately 61.7 million United States residents (24.8% of the population) live 

in rural settings, according to the 1990 Census. In 1999, 14.3% of rural Americans 

lived in poverty. The Centers for Disease Control and Prevention (CDC) recently reported that most rural counties have a statistically higher percentage of uninsured 

than nonrural counties, and their remains a ‘‘relative scarcity of health care resources in nonmetro areas’’ which is a ‘‘continuing problem that is likely to have 

an enduring negative impact on health outcomes.’’ The CDC has also reported that nationally residents of the most rural counties 

have the highest death rates for children and young adults, the highest death rate 

for unintentional and motor vehicle traffic-related injuries, and among men, the 

highest mortality for ischemic heart disease and suicide. Moreover, rural county 

residents also experience the highest levels of adolescent smoking, are least likely 

to have adequate oral health care, have the fewest specialist physicians and dentists 

per capita, and adult rural county residents experience a higher incidence of activity 

limitations caused by chronic health conditions. 

Numerous factors have contributed to these significant disparities in health conditions for rural residents. As mentioned above, among the top causes is the relative 

scarcity of health care resources, or access to health care resources, including physicians. Despite more than 20% of the American population living in rural area, fewer 

than 11 percent of the nation’s physicians are practicing in nonmetropolitan areas. 

Physician recruitment and retention in rural areas therefore remains a significant 

problem for rural residents. The high incidence of uninsurance also creates a major 

barrier for rural residents to access health care. 

In this Statement, we would like to highlight a few significant factors contributing 

to the problem of inadequate access to health care in rural America, and offer some 

proposed solutions. 

Medicare Physician Payment Cuts Seriously Threaten Patient Access 

Effective January 1 of this year, Medicare payments for physicians’ services were 

cut by 5.4 percent, and we are extremely concerned about the impact of these cuts 

on patient access. Rural areas, in particular, will be especially ‘‘hard-hit’’ by these 

cuts since these areas tend to have a much higher population of Medicare beneficiaries than in non-rural areas. Two federal bills that would halt the cut (H.R. 

3351 and S. 1707) have achieved super-majorities in the House and Senate. 

The 5.4 percent cut is the largest payment cut since the Medicare physician fee 

schedule was developed more than a decade ago, and is the fourth cut over the last 

eleven years. As recently as Sunday, March 17, the New York Times reported that 

‘‘significant numbers of doctors are refusing to take new Medicare patients, saying 

the government now pays them too little to cover the costs of caring for the elderly.’’

Since 1991, Medicare payments to physicians have averaged only a 1.1 percent annual increase, or 13 percent less than the annual increase in practice costs, as measured by the Medicare Economic Index (MEI). (See attached Chart 1, Medicare Payments vs. MEI, which compares Medicare physician payment updates to increases 

in inflation.) 

This cut applies to all Medicare services provided by nearly one million physicians 

and other health professionals, including, but not limited to, physical therapists, 

speech pathologists, optometrists, advanced practice nurses and podiatrists. In addition, many private health insurance plans base their rates and updates on Medicare 

payment rates, which mean an additional loss of revenue from non-Medicare 

sources. 

Most significantly, the payment cut jeopardizes access for elderly and disabled patients. Two-thirds of all physician offices are small businesses. If a business, especially a small business, continues to lose revenue and operates at a loss, the business cannot be sustained. Thus, when medical practices experience a Medicare cut 

of the magnitude being incurred in 2002, as small businesses, they may not survive. 

This means that physicians and non-physician practitioners and their staff are left 

with very few alternatives for maintaining a financially sound medical practice. 

These alternatives include: 

Discontinue seeing new Medicare patients; 

Opt out of the Medicare program;

Move from being a participating to a non-participating Medicare provider; 

Balance bill patients (subject to Medicare charge limits); 

Lay off administrative staff; 

Relocate to an area with a smaller Medicare patient population; 

Discontinue certain low-payment/high-cost Medicare services; 
30

Shift services into the hospital outpatient setting, which increases costs to 

Medicare and to patients; 

Limit or discontinue charity care; 

Retire early; 

Reduce hours of practice 

Change career; 

Shift into a position which involves reduced or no patient care responsibilities; and 

Postpone or discontinue necessary investments in new technology. 

These are not choices that physicians want to make. In each case our patients 

lose. As discussed above, these choices particularly impact patients in rural areas. 

For example, if a physician in a rural area discontinues seeing new Medicare patients, there may not be another physician in that area to see Medicare patients. 

In addition, if one or more physicians relocate from a rural area to another area 

with a smaller Medicare population, this could seriously diminish patient access. Finally, if physicians in rural areas leave the practice of medicine, patients in those 

areas, where physicians may already be in short supply, obviously would be greatly 

impacted. 

There are may reports that access is indeed being impacted by the 5.4 percent 

cut. For example, the National Committee to Preserve Social Security and Medicare 

has stated that their members are having difficulty finding a physician who accepts 

Medicare because physicians cannot afford to keep their offices open. A cardiology 

group in Colorado is being forced to lay off employees and, in Texas, spine surgeons 

at Baylor University plan to stop taking Medicare patients. 

The American College of Nurse Practitioners warns that the pay cut is also forcing physicians and nurse practitioners to restrict their Medicare patient loads and 

cut back on the services they provide. Finally, recent press reports in many states 

also have documented the access problems resulting from the Medicare payment 

cut. Excerpts from these reports are as follows: 

‘‘As as result (of the 5.4% cut), doctors around the country are finding themselves pinched. ‘If you continue to lose and lose, there may be a time when we 

will have to limit services or close one of our sites,’ says Susan Turney, medical 

director of reimbursement at Marshfield Clinic, of Marshfield, Wis., which operates about 40 sites with 600 physicians. ‘In some areas of Wisconsin, we’re the 

only provider,’ she adds.’’ The Wall Street Journal, Jan. 20, 2002 (Some Doctors 

Say They Stop Seeing Medicare Patients After Cuts); 

‘‘Washington’s health-care system is in serious decline, and the prognosis is 

guarded. ‘Tests show the severity of the problem,’ said Tom Curry, executive director of the Washington State Medical Association, which released a gloomy report in Olympia. Responding to an informal poll of members in November, 57 

percent of physicians said they are limiting the number or dropping all Medicare patients from their practices. . . . The report says that for many years the 

state’s health-care delivery system has been in decline, characterized by a slow 

erosion of funding for public health, growing administrative expenses for practitioners and mounting frustrations of physicians trying to cope with myriad regulations. A growing number of patients, even those with private insurance, are 

having trouble finding a physician because increasing numbers of doctors have 

been leaving the state or retiring early since the late 1990s, the report says.’’

Seattle Times, Jan. 30, 2002; 

‘‘Medicare reimbursement to doctors was cut 5.4 percent the first of the 

month, worsening an already tight financial situation for rural hospitals. . . . 

One result likely will be a harder time recruiting doctors to rural areas. . . Medical equipment purchases can suffer, staff cuts are more likely and doctors 

sometimes will leave for better conditions elsewhere, Bruning said (Dr. Gary 

Bruning of the Flandreau, South Dakota Medical Clinic),’’ Associated Press, 

Jan. 22, 2002 (Medicare Cuts Strain Rural Health); 

‘‘Other West Virginia doctors fear their peers will stop treating patients who 

have Medicare. . . .And some wonder how they will recruit doctors to a medical 

environment marred by the recent struggles over malpractice insurance. . . .At 

Madison Medical PLLC in Boone County, three doctors treat at least 80 patients a day. About 65 percent of them have Medicare, said office management 

Phyllis Huffman. The cut in Medicare reimbursement does not come at a good 

time, she said. In the last two years, for example, the physician group’s malpractice insurance doubled. Huffman said she fears that in the long run, the 

practice will not be able to afford to replace a departing employee. Or they may 

have to stop offering services for which they get little or no reimbursement from 

Medicare.’’ The Charleston Gazette, Jan. 23, 2002. 
31

Immediate action is needed to remedy these growing access problems, and we 

urge the Committee to support enactment of legislation that would— Immediately halt the 5.4 percent Medicare payment cut; 

Repeal the sustainable growth rate (SGR) system; and 

Replace the flawed Medicare payment update formula with a new system that 

appropriately reflects increases in practice costs, including changes in patient 

need for medical services, changes in technology, and other relevant information 

and factors. (H.R. 3882, introduced by Rep. Nancy Johnson (R–CT), would accomplish this goal.) 

Medicare Payment Advisory Commission Recommendations 

The Chair of the Medicare Payment Advisory Commission (MedPAC) told the 

House Ways and Means Committee of February 28th that ‘‘maintaining access for 

Medicare beneficiaries and keeping physicians participating in the program and accepting new patients, will require that action be taken.’’ Further, MedPAC warned 

in June 2001 that if the 2002 update was lower than the CMS estimate, which at 

that time was ¥0.1 percent, it ‘‘could raise concerns about the adequacy of payments and beneficiary access to care.’’ Clearly, this year’s 5.4 percent cut is significant, and it comes on top of sharp increases in professional liability premiums, as well as a host of costly regulatory burdens. And, the situation could become even more dire. CMS predicts that under the 

current system, the updates over the next three years will be, respectively,¥5.7%.¥5.7.% and ¥2.8%. This is roughly a 20 percent cut in Medicare payments over 4 years (2002 through 2005), and this number increases to almost 30 

percent when you account for medical inflation. Moreover, the 2005 conversion factor predicted by CMS would be lower than the conversion factor in 1993. Physicians 

will be paid less in 2005 than they were in 1993. A 20 percent pay cut over four 

years would add to the already significant pressures on physicians to discontinue 

or limit the provision of services to Medicare patients. 

MedPAC has adopted a recommendation that Congress replace the current Medicare payment formula with one that more fully accounts for increases in practice 

costs. Specifically MedPAC advised Congress to repeal the SGR system because an 

expenditure target system, like the SGR, does not appropriately reflect increases in 

practice costs. MedPAC further recommended that furture updates be based on inflation in physician’s practice costs, less an adjustment for multi-factor productivity. 

H.R. 3882, the ‘’Preserving Patient Access to Physicians Act of 2002’’ introduced by 

Rep. Nancy Johnson (R–CT), would implement the MedPAC recommendations. 

We strongly agree with MedPAC’s assessment and support the general framework 

of MedPAC’s recommendations. 

Medicare Physician Payment Update Formula 

Medicare payments to physicians are annually adjusted through the use of a legislated ‘‘payment update formula’’ this is based on the SGR and the MEI, which measures increases in practice costs. These costs include, among others, such factors as 

payroll, physician time, office equipment, supplies and expenses. 

This update formula originally was intended to cap increases in practice costs. It 

has several flaws that create inequitable and inappropriate payment updates that 

do not reflect the actual costs of providing medical services to Medicare patients. 

The Sustainable Growth Rate System 

Under the SGR system, CMS annually establishes an expenditure target for physicians’ services based on a number of factors set forth in law. CMS then compares 

actual expenditures to the target. If actual expenditures exceed the target, the 

Medicare payment update may be as much as 7 percent below the MEI. Conversely, 

if allowed expenditures are less than actual expenditures, the update may be up to 

3 percent above the MEI. 

The target is based on changes in expenditures for physicians’ services due to 

changes in (i) inflation, (ii) fee-for-service enrollment, (iii) gross domestic product 

(GPD), and (iv) laws and regulations. It is a highly unpredictable and unstable system that has as number of critical flaws: 

GDP Does Not Measure Health Care Needs: The SGR system permits beneficiary 

Medicare spending for physicians’ services to increase by only as much as real per 

capita GDP growth—a measure of the economy that bears little relationship to the 

health needs of Medicare beneficiaries. Incidence of disease did not lessen with recent downturns in the economy. 

Specifically, GDP does not take into account health status, the aging of the Medicare population or the costs of technological innovations. Thus, the artificial link between medical care spending and GDP growth under the SGR system creates a system that is seriously deficient. Unlike any other segment of the health care indus-
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try, physicians are being penalized with a steep Medicare cut this year largely because the economy has slowed. Yet the health needs of patients continue, the number of beneficiaries continues to grow and the use of new medical services approved 

by Medicare increases. 

SGR Requires Unreliable Economic Forecasts: To calculate the SGR, CMS must 

make projections of GDP, enrollment and other factors. It is nearly impossible to 

make accurate predictions about these factors and thus it is equally impossible to 

accurately predict future payment updates. When the resource-based physician payment system was first enacted in 1989, it was intended to provide predictability 

over time. Yet, the current update formula has created payment updates that are 

unpredictable and subject to sharp swings as economic circumstances, beyond physicians’ control, change. 

Futher, because the update system is unpredictable, servere payment cuts may 

be imposed without any warning or opportunity for action by Congress. In March 

2001, for example, CMS predicted that the Medicare payment update for 2002 would 

be a 1.8 percent increase. Ten days later, CMS reversed itself and stated that the 

2002 update would likely be a 0.1 percent decrease. Finally, not until November, 

only eight weeks before the effective date of the 2002 update and with only a few 

weeks left in the Congressional session, CMS announced that the 2002 physician 

payment update would be a 5.4 percent cut. Like any small businesses, medical 

practices need to plan their expenses in order to remain financially sound. Small 

business are the engine of the U.S. economy. 

For these reasons, as MedPAC has recognized, the current physician payment update system should be replaced. 

Problems with SGR Projections: In annually calculating the SGR, CMS estimates 

of GDP growth and enrollment changes in 1998 and 1999 have shortchanged funding for physicians’ services by $20 billion to date. (See attached Chart 2, CMS Errors in SGR: Impact on Funding for Physician Services). CMS projected that 

Medicare+Choice enrollment would rise by 29 percent in 1999, even though many 

HMOs were abandoning Medicare. In fact, as accurate data later showed, managed 

care enrollment increased only 11 percent in 1999, a difference of about 1 million 

beneficiaries. This means that when CMS determined the fee-for-service spending 

target for 1999, it did not included in the costs of treating about 1 million beneficiaries. Nevertheless, these patients were and will continue to be treated, and 

since the SGR is a cumulative system, each year since 1999, the costs of treating 

these 1 million patients have been and will continue to be included in actual Medicare program expenditures, but not in the SGR target. Clearly, this disparity should 

be remedied. 

CMS acknowledged its mistakes in calculating the 1998 and 1999 SGR estimates 

at that time, but concluded it did not have the authority under the law to correct 

its mistakes. We disagreed then, and were further shocked by CMS’ announcement 

in the 2002 final physician fee schedule rule that not only do they have the legal 

authority, but the legal imperative, to change 1998 and 1999 SGR projections relating to spending for certain CPT codes overlooked by the agency. CMS’ interpretation 

of the law is perplexing and seems to allow the agency to make SGR changes only 

when they result in Medicare payment cuts, but not when the same changes would 

increase payments. 

The full magnitude of this problem has only recently become apparent. Information supplied by CMS suggests that the total amount of this latest ‘‘missing code’’

error was nearly $5 billion. Recent predictions by CMS of continued payment cuts 

for several more years show that its decision to continue using bad data in the target while correcting the errors in actual spending will ultimately have a devastating 

impact on payments for physician services. 

Flawed Productivity Adjustment Under the Medicare Economic Index. 

In the early 1970s, pursuant to congressional directive, CMS developed the MEI 

to measure increases in physician practice costs. A key component of the MEI has 

been a ‘‘productivity adjustment,’’ which offsets practice cost increases. Over the last 

eleven years, CMS estimates of productivity gains have reduced annual increases 

in the MEI by 27 percent. Such estimates contrast with MedPAC estimates of the 

degree to which productivity gains offset hospitals’ cost increases. In fact, in 2001, 

MedPAC’s estimate for hospitals was—0.5 percent, while CMS’ estimate for physicians was—1.4 percent. It is highly improbable that physician practices could 

achieve such substantial productivity gains in comparison to hospitals, which arguably have a much greater opportunity to utilize economies of scale. 

In recommending a framework for future payment updates, MedPAC is advising 

that the MEI should simply measure inflation in practice costs and that productivity 

should be separately reported. MedPAC further recommends that the productivity 
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adjustment be based on multi-factor productivity instead of labor productivity, and 

estimates that this would significantly reduce the productivity adjustment that CMS 

currently uses in updating the Medicare fee schedule. 

Cost of New Technology Not Taken Into Account 

Unlike most other Medicare payment methodologies, the Medicare physician update system does not make appropriate adjustments to accommodate new technology, and thus physicians essentially are required to absorb much of the cost of 

technological innovations. Technological change in medicine shows no sign of abating, and the physician payment update system should take technology into account 

to assure Medicare beneficiaries continued access to mainstream, quality medical 

care. 

All of the foregoing factors contribute to a payment update system that does not 

adequately reflect increases in the costs of caring for Medicare patients and is already undermining Medicare patients’ access to necessary medical services provided 

by physicians and other health professionals. 

In addition to remedying problems associated with the payment update system, 

to improve physician retention and recruitment in rural areas the AMA has, among 

other proposals, supported changes in the scholarship and educational loan repayment provisions of the National Health Service Corps (NHSC). 

NATIONAL HEALTH SERVICE CORPS

Practicing in medically underserved communities is an altruistic goal of many 

medical school students. However, the typical medical student departs from medical 

school with an average of $97,750 in student loan debt. This is a tremendous hardship for any recent graduate, but it is an especially difficult predicament for those 

wishing to provide quality, primary medical care to the 61.7 million individuals living in rural American where reimbursement levels are below the national norms. 

The AMA has been a long time supporter of the NHSC, program that recruits and 

retains primary care physicians and other healthcare providers into underserved 

rural areas within our great nation. The AMA is committed to the continuation of 

the NHSC and its objectives. Intrinsic within the NHSC’s ability to provide access 

to primary health care to our Nation’s underserved population is permanent and increased funding by the federal government. 

An Opportunity for Physicians and Health Care Providers to Pursue a Calling to 

Provide Medical Care to the Rural Underserved Population 

In 1970, Congress created the NHSC to encourage physicians and other health 

care professionals to serve communities that are designated as too poor, sparsely 

populated, or remote to attract such professionals. Currently there are over 3,000 

federally designated health professional shortage areas (HPSA). Initially, the NHSC 

was comprised of Public Health Service Commissioned corps officers or federal employees. To increase the number of physicians and health care providers, the corps 

established incentive programs. Such programs include the NHSC Scholarship program and the repayment of school loans. In exchange for these benefits, the student 

or health care provider agrees to practice in isolated areas for a period of two to 

four years. 

The NHSC recruits, prepares, and supports dedicated students and clinicians 

through a variety of programs and services. The goal is not only to recruit physicians and health care professionals to remote areas, but to retain them in these 

areas. To date, more than 50% of physicians and health care providers remain in 

underserved areas. 

Committed to Providing Health Care to the Rural Underserved 

A HPSA is a geographic area, population group, or medical facility that has been 

designated by the secretary of the Department of Health and Human Services (HSS) 

as having a shortage of health professionals. There are HPSAs for primary health 

care, dental health and mental health. HPSAs are assigned a numerical score based 

on the level of need. 

Individuals living in HPSAs are spread across our Nation and its territories and 

have little or no access to primary health care services. The NHSC works with communities and health care facilities with the greatest need and serves these individuals regardless of their ability to pay for services. 

Funding Must Continue 

The results of NHSC have been proven. More than 2,300 NHSC clinicians provide 

primary and preventive health care to some 3.6 million people in rural and urban 

American communities.
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However, the need for health care providers in rural America remains great in 

order to reach the myriad individuals that are not yet served by NHSC physicians 

and health care professionals. 

The NHSC’s authorization has expired. It is vital that this program be reauthorized so that it can continue to offer access to essential health care services to the 

nation’s most underserved people. 

HHS Secretary, Tommy G. Thompson recently announced that in 2002 the NHSC 

will offer $89.4 million in scholarship and loan repayments to physicians and other 

health care providers who serve in areas that lack adequate access to care. This increase of almost $19 million over last year’s finding will support 900 new and continuing loan repayment awards and 400 new and continuing scholarship awards. 

Additionally, President Bush has proposed a 32% increase in the NHSC’s budget 

for 2003. This would increase 2002’s total funding of $145.5 million to $192 million 

in 2003. The President’s proposed funding is extremely important to the millions of 

individuals who will be well served through the NHSC’s preservation and growth. 

ADDRESSING THE PROBLEM OF THE UNINSURED IN RURAL AMERICA

As your Subcommittee has indicated, ‘‘small business owners, employees, and 

their dependents account for over 60% of the uninsured population, and this problem greatly impacts rural small businesses. Of added importance for rural states, 

the ability of small business owners to obtain and provide affordable health insurance for their employees is a crucial component to rural states’ efforts to attract new 

jobs and prevent population loss.’’ The AMA completely agrees with your Subcommittee’s assessment of the impact of the ‘‘uninsured’’ on rural communities. We 

believe that the AMA proposal for addressing the problem of the uninsured would 

greatly benefit rural America. 

According to the most recent Census Bureau figures released in September 2001, 

a staggering 39 million Americans lacked health insurance in 2000. New data show 

that 2 million Americans became uninsured in 2001, due primarily to job loss. 

Twenty-one percent of rural residents are uninsured. As these numbers remain 

high, health care costs continue to rise. The Center for Studying Health System 

Change just reported that health care costs rose 7.2 percent in 2000, representing 

the largest increase in a decade. In 2001, premiums for employer-sponsored coverage rose 11 percent. 

Studies have also demonstrated that individuals who lack health insurance forego 

needed medical care and are sicker when they do seek care. They visit emergency 

rooms and are admitted to hospitals in disproportionate amounts, raising the medical care costs which are then passed on to an already overburdened system. As a 

result, the already overburdened health care system is forced to bear even higher 

costs to care for these Americans. 

Lacking health insurance, moreover, has a direct effect on the health of those uninsured. Consider, for instance, that uninsured women with breast cancer are twice 

as likely to die of cancer as women who have health insurance. Uninsured men are 

nearly twice as likely to be diagnosed at a later—and potentially more deadly—

stage for colon cancer as men with health insurance. 

Most of the uninsured are employed—61% are full time workers and 84% are in 

families headed by a worker. With only two-thirds of non-elderly Americans (those 

aged 64 and younger) covered for medical expenses by an employer benefit plan, it 

is time to rethink health insurance. 

A Proposed Solution 

President Bush recently submitted to Congress his fiscal year 2003 budget which 

included a proposal for refundable, advanceable tax credits for the purpose of health 

insurance. The proposal would provide a $1,000 tax credit for individuals, and up 

to a $3,000 tax credit for families. These tax credits would be offered to low- and 

middle-income American families who do not have employer-subsidized insurance. 

The AMA applauds President Bush for his innovative proposal and believes it is an 

excellent step toward expanding coverage as well as encouraging individual choice 

and ownership of health coverage. 

The AMA has long advocated for a health care system in which every American 

has health insurance. We propose health care finance reform which would dramatically increase the number of Americans with health insurance coverage while putting patients first in choosing an insurance package that best meets their needs. We 

suggest the offering of refundable health care tax credits for individuals, the promotion of individual selection and ownership of coverage, the use of health insurance marts, and the development of defend contributions from employers. 
35

The ultimate solution is to encourage individual ownership and selection of health 

insurance as well as expand coverage to low-income workers who currently cannot 

afford coverage. 

Summary of the AMA Proposal—Benefiting the Employee 

Currently, the Federal government subsidizes the purchase of private health insurance by excluding from taxable income the portion of an employee’s total compensation that the employer gives in the form of health benefits. The tax exclusion 

is sometimes loosely referred to as a tax exemption or deduction. In contrast with 

the tax exclusion for employment-based health insurance, health insurance tax credits—available only to those who obtain health insurance—would be subtracted from 

the individual’s tax bill. 

The cornerstone of our proposed plan is a system of individual tax credits for the 

purchase of health insurance that are refundable and income-related. The AMA 

would replace the current tax exclusion for health insurance with a tax credit for 

the purchase of health insurance. Among the core elements to the AMA plan are 

the following: 

Converting to a Refundable Tax Credit System 

The current tax exclusion must first be converted to a tax credit for those who 

purchase health coverage, whether or not they receive health benefits from their 

employer. The tax credits should be inversely related to income; that is, larger credits should be available to families and individuals in the lower tax brackets. The 

size of the tax credits should also be large enough to ensure that health insurance 

is affordable for most people. The credits must at least be sufficient to cover a substantial portion to the premium costs for individuals in the low-income categories. 

In addition, the tax credits should be ‘‘refundable’’ so those who do not earn enough 

to owe taxes can still claim a credit. 

The current tax exclusion is inequitable because it provides a higher subsidy for 

those with higher incomes. Moreover, a large portion of the 39 million uninsured 

Americans are low-income wage earners who are not eligible for Medicaid. Under 

the AMA plan, the tax subsidy would be redirected toward those who need it most. 

Furthermore, compared to a tax credit that does not vary with income, a sliding 

scale tax credit reduces the federal spending necessary to expand coverage. 

Reforming the Individual Health Insurance Market 

The individual health insurance market must be reformed to create new opportunities for individuals to pool risks, obtain ‘‘group’’ insurance at lower rates and 

choose among a variety of plans to suit their individual insurance needs. To achieve 

this goal, the AMA supports federal legislation enabling the formation of ‘‘Health 

Insurance Marts’’ by various groups that could include coalitions of small employers, 

unions, trade associations, voluntary health insurance cooperatives, chambers of 

commerce and other community organizations. 

Protecting Vulnerable Populations 

Vulnerable populations must also be protected. One way to protect some of those 

populations would be by intensifying outreach efforts to ensure that the five million 

children and adults who are currently eligible are enrolled in Medicaid and the Children’s Health Insurance Program (CHIP). 

The AMA Proposal Would Also Benefit Rural Employers 

The AMA’s proposal for reforming the American system of health care financing 

would provide many significant benefits to employers, as well as employees. Under 

the current system, most employers provide a significant part of their workers’ compensation in the form of health care benefits which are tax subsidized. Payments 

for such benefits are made through periodic withholding of money from paychecks 

rather than in a lump sum, and the costs of those benefits to employers are deductible as a legitimate business expense—a cost of doing business. 

Under our proposal, all of these features would remain, except that the employee—not the employer—would choose the health plan, and the tax benefit for the 

employee, as explained above, would be in the form of an (inversely) income-related, 

refundable tax credit rather than a tax exclusion. The tax status for the employer 

costs of those benefits would not change; those costs would remain a deductible business expense. The employer’s business operations also would not change—withholding for taxes and the employee shares of benefits would continue. 

Rural employers who currently offer health benefits do so voluntarily in order to 

attract and retain workers, and this would continue to be the case. Some employers 

would likely decide to change their health benefits to defined contributions. In those 

cases, instead of continuing to arrange and offer specific health plans, the employer 
36

would contribute a certain dollar amount (defined contribution) toward the employee’s choice of plan. Under a defined contribution program, employers’ health benefits 

costs would become more predictable. Employees would be able to combine defined 

contributions from their employer with tax credits to obtain group coverage through 

health insurance marts. 

Because employees would have both choice and ownership of their own health expense coverage for no increase in cost, employers could offer their employees better 

health benefit products. Employees could choose the health plan that would best 

suit their needs, and they would not have to switch every year or so (as they do 

under the present system) simply because their employer may switch to a different 

carrier. As a result, for the same deductible business cost, firms could improve 

worker retention. 

Under this proposal, employers would not need to pay for human resources staff 

to solicit and examine health insurance offerings and negotiate contracts, because 

employees would make their health plan choices through a health insurance mart. 

Those resources could be retooled into providing additional counseling for employees 

on their health plan choices or they could be turned into additional profits. Either 

way, the employer would benefit. 

Employers and employees would also benefit if employees had a wider range of 

choices when selecting plans and physicians and could remain with the plans and 

physicians they selected as they moved from one job to another. Employees would 

receive continuous, and more consistent medical treatment, at a lower expense than 

they would receive by repeatedly switching plans and physicians. As a result, employees would likely remain healthier, and would overall be more productive workers. 

Further, because employees would become more price sensitive, those employees 

would switch away from plans with high cost increases. In turn, health plans would 

be more cautious about demanding increases in premiums—potentially saving more 

money for employers and employees. Health care inflation may well continue, but 

at a lower level. 

To ensure that these proposed changes in the health care finance system would 

in fact benefit the uninsured, the AMA has created several tax simulation models 

incorporating these changes. These models have consistently demonstrated that the 

AMA’s proposal would significantly expand health insurance coverage. 

We have previously shared with the Congress an AMA publication further detailing our proposal to increase the number of Americans with health insurance entitled, ‘‘Expanding Health Insurance: The AMA Proposal for Reform.’’ We would like 

to make that publication again available to the members of this Subcommittee, with 

the hope it will prove helpful to you as you consider this subject. 

TITLE VII—TRAINING FAMILY PHYSICIANS

As a last point, we would like to bring to this Subcommittee’s attention a concern 

of ours which if left unheeded will likely further reduce health care access for rural 

residents. Title VII of the Public Health Service Act, Section 747, authorizes appropriations for family medicine, general internal medicine and general pediatrics, physician assistants and general and pediatric dentistry. The Section 747 program is 

the only federal program that supports family medicine training programs at the 

undergraduate and graduate levels. The program’s goal is to increase the number 

of primary care physicians and increase the number of health care providers—including physicians—to provide health care to the underserved. 

We raise this issue at this time because the President’s FY 2003 budget would 

zero out funding for the Primary Care Medicine and Dentistry cluster. In addition, 

the budget proposal would cut the current funding level for all of the Health Professions programs by 75 percent to only $94 million. Despite language in the proposal 

claiming that ‘‘most of the health professions grants have not proven effective because they do not accurately address current health professions problems,’’ we can 

attest that Title VII funds are effective in addressing major health profession problems and improving access to health care in underserved, including rural, areas. We 

urge Congress to reauthorize full funding for Section 747 of Title VII. 

CONCLUSION

Thank you again for the opportunity to submit our thoughts and suggestions regarding access to health care in rural America. The AMA offers this Committee and 

the Administration our assistance and resources in finding solutions to this critical 

issue.
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