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FULL COMMITTEE HEARING ON HEALTH

INSURER CONSOLIDATION - THE IMPACT

ON SMALL BUSINESS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

OCTOBER 25, 2007

Serial Number 110-55

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES

Plested III, Dr. William G., American Medical Association ................................. 4

Huges, Robert, National Association for the Self-Employed ................................ 5

King, Dr. James D, American Academy of Family Physicians ............................ 7

Office, James R., Victory Wholesale Grocers ......................................................... 9

Scandlen, Greg, Consumers for Health Care Choices .......................................... 11

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 22

Chabot, Hon. Steve .................................................................................................. 24

Altmire, Hon. Jason ................................................................................................. 26

Plested III, Dr. William G., American Medical Association ................................. 27

Huges, Robert, National Association for the Self-Employed ................................ 39

King, Dr. James D., American Academy of Family Physicians ........................... 44

Office, James R., Victory Wholesale Grocers ......................................................... 49

Scandlen, Greg, Consumers for Health Care Choices .......................................... 56

Statements for the Record: 

Consumer Federation of America, Consumers Union and US PIRG .................. 63

(V) 

(1)

FULL COMMITTEE HEARING ON HEALTH 

INSURER CONSOLIDATION - THE IMPACT 

ON SMALL BUSINESS 

Thursday, October 25, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 9:30 a.m., in Room 2360 

Rayburn House Office Building, Hon. Nydia Vela ́zquez [Chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Gonza ́lez, Cuellar, Altmire, 

Clarke, Ellsworth, Sestak, Higgins, Chabot, Bartlett, and Fallin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. Good morning. I call this hearing to 

order to address Health Insurer Consolidation--The Impact on 

Small Business. 

Access to health insurance is an area of concern to small businesses. The rising costs of health care are regularly cited by small 

firms as one of their biggest worries. Small businesses need to have 

choices in the health insurance marketplace. It is imperative that 

the marketplace is diverse and competition flourishes. 

It is also critical that small medical providers are able to continue offering services. Physicians and other providers must be able 

to operate on a level playing field with health insurers and be reimbursed at fair rates. If not, quality of care will decline, and it is 

the patient who ultimately will suffer. 

Consolidation in the health insurance industry is one area of special concern that has a direct impact on these issues. Because these 

mergers affect access to care and influence the quality of medical 

services, they command careful scrutiny by regulators. Unfortunately, the health insurance industry, like a number of other industries, has seen a general lack of enforcement of antitrust laws. 

Earlier this year, The Wall Street Journal reported that the Federal Government has nearly stepped out of the antitrust enforcement business. While some mergers benefit consumers and increase the competitiveness of U.S. companies, others pose substantial risks to competition and innovation. 

The health insurance marketplace has become increasingly concentrated in recent years. Consolidation has left small businesses 

with fewer choices, and physicians with diminished leverage to negotiate. In the majority of metropolitan areas, a single insurer now 

dominates the marketplace. If individuals and small businesses 

2

cannot get health coverage through the dominant insurer, they 

may not be able to find alternatives. 

Recent mergers in the health insurance industry has tended to 

not generate efficiencies that have lower costs for small businesses 

or improved coverage. Premiums for small businesses have continued to increase without a corresponding increase in benefits. Consumers are facing increased deductibles, co-payments, and co-insurance, which have reduced the scope of their coverage. 

When operating in highly concentrated markets, physicians often 

find they are stuck with take it or leave it contracts. The Department of Justice has recognized that physicians face special difficulties in dealing with health insurers--namely, it is very costly for 

them to switch from one insurer to another. 

Replacing lost business for a physician by attracting new patients from other sources is very difficult in our current health care 

system. Physicians face barriers in attracting potential new HMO 

patients, since they are filtered through an HMO plan. Physicians 

struggle to maintain the quality of care in the face of reduced reimbursement--a large administrative burden. 

When physicians are forced to spend less time on each appointment, ultimately it is the patients that suffer. It is essential that 

competition remains vibrant in the health insurance marketplace. 

Not surprisingly, studies have found that when competition declines premium costs generally go up. The rising costs of health 

care are leading to greater numbers of uninsured, and less small 

businesses and individuals can afford to pay premiums. 

Small businesses continue to be burdened by the high cost of 

health care. These rising costs of health insurance is one of the primary reasons the ranks of the 46 million uninsured Americans continue to grow. Tragically, 18,000 Americans lose their lives each 

year because of a lack of health insurance. We need to ensure that 

providers are on a level playing field, and small businesses and individuals have choices when it comes to health care. 

I yield now to Ranking Member Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much, Madam Chairwoman. I want 

to apologize for being a couple of minutes late. It was one of those 

mornings where just too many things scheduled and just couldn’t 

make it to everything on time. So I apologize. 

And I want to thank the Chairwoman for holding this important 

hearing on the impact of mergers and increasing concentration in 

the health insurance market. This hearing continues this Committee’s examination of the cost of health care on small businesses, 

both as purchasers of health care and as providers. 

The Supreme Court has stated that ‘‘The unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the 

greatest material progress.’’ In short, competitive markets represent the cornerstone of American progress and the success of our 

democracy. Antitrust laws were established to protect these precious values. By providing a mechanism to ensure that competition 

3

is not unreasonably hindered, the antitrust laws can be seen as 

further bracing the competition foundation of this country. 

When mergers occur, that may reduce competition. It behooves 

the Justice Department or the Federal Trade Commission to closely 

assess the value of these mergers. That is particularly crucial in 

the context of health care. When the members of this Committee 

travel back to their districts, they are put face to face with constituents and small business owners that struggle every day to 

cope with the rising costs of obtaining or providing health care. 

If the number of companies that supply health insurance continues to decrease, basic economics suggest that costs of obtaining 

health care coverage will increase. It then becomes vital to assess 

the impact of industry consolidation on small business owners who 

already have significant difficulty in obtaining health insurance 

coverage. 

Today, we have witnesses that represent small business purchasers of health care who will inform the Committee of the increasing difficulty that they have in obtaining health care coverage 

at reasonable costs that are not made any easier as concentration 

in the industry increases. In addition to the obvious effects on purchasers of health care coverage, it is important to remember that 

many providers of health care are small businesses. 

If concentration increases in the health insurance industry, then 

the multitude of providers are faced with the market power of a 

very large single purchaser that will be able to dictate prices and 

the service rendered. And if the prices do not cover the physician’s 

costs, physicians will stop seeing patients, thus reducing choice 

even more. Of course, in addition to the bulwark of antitrust laws 

to protect competition, another avenue is to increase competition in 

the provision of health insurers. 

This Committee, under the former Chairman, Mr. Talent, took 

the lead in promoting competition in the health insurance market 

by creating association health plans. The House, on a number of occasions--I believe six times in a five-year period--passed association 

health plan legislation that unfortunately died in the Senate. 

The Chairwoman, Chairwoman Vela ́zquez, should be commended 

for her courageous votes in support of association health plans. 

Given their potential to reduce costs and increase competition, I 

think the Committee seriously needs to investigate the resuscitation of that concept. 

I look forward to a thoughtful discussion from the panel of witnesses, a very distinguished panel I might add that we have here 

today, and their ideas on how to protect and improve competition 

in the health insurance markets. And, again, I want to thank the 

Chairwoman for holding this important hearing, and I yield back 

my time. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. 

And we are going to start with our first witnesses, and let me 

just take this opportunity to thank all of you for being here today. 

We are going to have a timer in front of you. Green means you go, 

and then the red one means five minutes are up. Each one of you 

will have five minutes to make your presentation. 

Dr. Plested, Dr. William Plested, is our first witness. He served 

as the President of the American Medical Association from June 

4

2006 to June 2007. Dr. Plested is a cardiovascular surgeon and has 

been in private practice in Santa Monica, California, for more than 

35 years. The American Medical Association is the nation’s largest 

physician group and advocates on issues vital to the nation’s 

health. 

Thank you, and welcome. 

STATEMENT OF DR. WILLIAM G. PLESTED, III, IMMEDIATE 

PAST PRESIDENT, AMERICAN MEDICAL ASSOCIATION, 

BRENTWOOD, CALIFORNIA 

Dr.PLESTED. Thank you, Madam Chair. My name is Bill Plested. 

I am a past president of the American Medical Association and a 

cardiac surgeon from Santa Monica, California. I want to thank 

you very kindly for inviting me to testify today and for holding a 

hearing on this exceedingly important issue--health insurance consolidation. 

Consolidation in the health insurance market is critical to the 

AMA, because physicians are both patient advocates and small 

business owners. Physicians have primary responsibility for advocating for their patients, and they also are small business that 

want to provide health care insurance for their employees. 

Physicians’ ability to perform either of these vital functions, however, has been severely compromised by growing consolidation in 

the for-profit health insurance market. This consolidation has left 

physicians with little leverage against unfair contract terms that 

deal with patient care and little control over their own employees’ 

rising health insurance premiums. 

As you all know, our market performs optimally when consumers 

have a choice of competing products and services. Increasingly, 

however, choice in the health insurance market has been severely 

restricted as health plans have pursued aggressive acquisition 

strategies to assume dominant positions. 

In the past decade, there have been over 400 mergers. Contrary 

to claims of greater efficiency and lower cost, these mergers in fact 

have led to higher premiums and decreased patient access to care. 

If the current trend continues, we fear it will lead to a health care 

system dominated by a few companies that, unlike physicians, have 

an obligation to shareholders, not to patients. 

Our worst fears may be realized in Nevada where we have urged 

the Department of Justice to block the merger of the United Health 

Group and Sierra Health Systems. This merger would have a devastating impact on Nevada’s patients and physicians and would reverberate throughout the health care system as a harbinger of unrestricted consolidation, would drastically reduce competition, and 

severely limit health insurance choice for employers and individuals in Nevada. 

The United-Sierra merger would give United a 94 percent HMO 

market--share of the HMO market in Clark County and an 80 percent share of the HMO market in the entire State of Nevada. Nevada is in need of more competition, not less. The State currently 

ranks 47th in the country for access to care and 45th in access to 

physicians. This merger would push Nevada even further down 

these lists by exacerbating physician shortages. 

5

Competition is essential to the delivery of high quality health 

care services, and this merger would serve only to further disadvantage an already challenged Nevada health care system. Consolidation is not benefiting patients. Health insurers are recording 

record high profits while patient health insurance premiums continue to rise. In fact, United and Wellpoint have had seven--seven 

years of consecutive double-digit profit growth that has ranged to 

20 to 70 percent year after year. 

In addition to compelling results of the AMA’s annual competition study, many areas across the country exhibit characteristics 

typical of uncompetitive markets and growing monopolistic behavior. These include significant barriers to entry for new health insurers, the ability of large entrenched insurers to raise premiums 

without losing market share, and the power of dominant insurers 

to coerce physicians into accepting unreasonable and unjust contracts. 

The AMA believes that the Federal Government must take steps 

to address the serious public policy issues raised by unfettered 

health insurer consolidation. The current situation in Nevada is 

emblematic of the total absence of boundaries and enforcement currently applied to health plan mergers. 

Therefore, we respectfully encourage this Committee to urge the 

DOJ to enjoin the merger of United and Sierra. By so doing, the 

Committee would be taking a meaningful step on behalf of America’s patients towards correcting the existing inequities in the 

health care market. 

Thank you. 

[The prepared statement of Dr. Plested may be found in the Appendix on page 27.]

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. Plested. 

Our next witness is Mr. Robert Hughes. He is the President of 

the National Association for the Self-Employed. Mr. Hughes has 

managed his own accounting practice, Hall & Hughes, in Dallas/

Fort Worth, for the past 20 years. NASE represents hundreds of 

thousands of entrepreneurs and microbusinesses and is the largest 

non-profit, non-partisan association of its kind in the United 

States. 

Welcome. 

STATEMENT OF ROBERT HUGHES, PRESIDENT, NATIONAL 

ASSOCIATION FOR THE SELF-EMPLOYED 

Mr.HUGHES. Thank you very much. It is our pleasure to be here 

this morning, and thank you, Ms. Chairwoman, for the invitation. 

As a representative of over 250,000 microbusinesses across the 

country, the NASE is committed to addressing the issue of affordable health coverage. I am here to tell you that health care costs 

and coverage premiums are adversely affecting microbusiness and 

impairing their ability to grow, compete, and succeed. 

In addition to the high cost of health coverage, it has a serious 

personal impact on business owners and their employees. Oftentimes, the small business will sacrifice saving for retirement, putting money aside for their children’s education, and addressing 

other personal needs to redirect funds to health coverage in order 

6

to stay insured. Of course, the worst result of mounting premiums 

is dropping coverage all together, which puts their business, their 

employees, their family, and themselves at risk when they face 

even a minor medical event. 

In a 2005 survey, the NASE found that the majority of microbusiness owners, those businesses with 10 or less employees, do not 

have for themselves, nor do they offer, health insurance to their 

employees. Most alarming is the rate at which premiums for microbusinesses have been increasing. In a similar health study conducted in 2002, microbusinesses indicated the median premium increase for the year before was a little over 11 percent. 

In 2005, microbusiness owners were experiencing a median premium increase of over 17 percent. Premium costs are the single 

most important factor that determines whether a business owner 

will insure himself and provide coverage for employees. Thus, the 

key question here today is if the increasing number of mergers 

among health insurers is playing a role in premium increases. 

The self-employed and microbusinesses purchase health insurance in either the small group market or the individual market. 

The small group market is much more restrictive and regulated, 

which reduces, in our opinion, competition and availability. The 

NASE believes that minimization of insurance carriers due to consolidation, compounded with a concern of high risk in the small 

group segment, and excessive state regulation leave small business 

with minimal options to set up small group health plan, and is a 

factor contributing to high premiums in insurance markets. 

A 2005 GAO report highlighted that the median market share of 

the largest carrier in the small group market was 43 percent, up 

10 percent from just three years earlier. The five largest carriers 

in the small group market, when combined, represented threequarters or more of the market in 26 of the 34 states that participated in the GAO study. The dominance of a few carriers in the 

small group market was also supported by studies from the AMA 

and leading health insurance experts. 

How, then, is this lack of competition affecting insurance premiums? Well, let me give you a quote from one of our members, 

a freelance writer from Geneva, Illinois. ‘‘The lack of competition 

among health insurers absolutely affects my insurance cost, as well 

as the quality and scope of coverage I can barely afford. Our state’s 

non-competitive health care insurance environment, due to the monopoly of one or two carriers, places all of the leverage in the hands 

of the insurers. I can’t vote with my feet and dollars if I have no 

alternatives from which to select.’’

David, along with other microbusiness owners, will tell you that 

competition plays a central role in improving quality, spurring innovation, and keeping prices down. Research has indicated that 

health plans have increased premiums consistently above the rate 

of growth in costs. Cumulative, the premium increases for the last 

six years have exceeded 87 percent, which is more than three times 

the overall increase and medical inflation of 28 percent. 

Why have insurance companies increased rates at these paces? 

I guess the simple answer is: they can. I believe that the current 

state regulatory climate plays an even more critical role in keeping 

costs high and impairing competition. State mandates are an issue. 

7

Some believe that state mandates increase insurance premiums by 

as much as 20 percent or even more. 

Microbusiness owners have long been a proponent of marketbased solutions for dealing with our health care system. However, 

competition without competitors will not deliver the desired incentive for health care improvement. The NASE urges Congress to address the disparities in individual and group markets. There are 

over 20 million non-employer firms in America. Certainly, they 

have access to, and choice of, health care coverage at a very limited 

basis, and that issue should be addressed. 

Increasing insurer competition for the strong economic market 

segment, addressing state insurance regulation and mandates, and 

creating equitable federal tax treatment for these non-employer 

firms, are key to increasing access to affordable health coverage. 

[The prepared statement of Mr. Hughes may be found in the Appendix on page 39.]

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Hughes. 

Our next witness is Dr. James D. King. He is the President of 

the American Academy of Family Physicians. Dr. King is in private 

practice in the rural community of Selmer, Tennessee. He serves 

as the Medical Director of Chester County Health Care Services. 

The American Academy of Family Physicians is one of the largest 

national medical organizations with more than 94,000 members in 

50 states, the District of Columbia, Puerto Rico, the Virgin Islands, 

and Guam. 

Welcome. 

STATEMENT OF DR. JAMES D. KING, PRESIDENT, AMERICAN 

ACADEMY OF FAMILY PHYSICIANS, SELMER, TENNESSEE 

Dr.KING. Thank you. On behalf of the Academy, I appreciate the 

concern about the effect of consolidated health plans on family physicians. We are members of the small business community, and 

also are professionals concerned about the effective delivery of 

health care to our patients. 

Consolidation of health insurance plans have created a profound 

imbalance that hurts the ability of family physicians to negotiate 

contracts. This is harmful to our practices, but also means that 

many of our patients cannot find the primary care physicians who 

accept their insurance. 

According to the industry analysis, between 1992 and 2006 the 

number of health insurance companies dropped from 95 to 7. The 

American Medical Association reports that 280 U.S. markets, at 

least one-third of the covered lives, are members of a single largest 

insurer in that market. In the U.S., only two insurance companies 

cover one-third of all insured Americans. 

This market concentration gives health plans huge power to determine the coverage and payment terms. Let me give you a snapshot of how this affects the individual member. Nearly two-thirds 

of the patients of a solo family physician in Colorado are insured 

by one commercial payer. This situation occurred because of a 

merger. When this doctor made the case for a payment increase to 

keep pace with inflation, he was told by the insurance company, 

8

‘‘As a solo physician, you are the weakest economic unit and must 

take what we decide to give.’’

That single statement bluntly and accurately describes our problem. As the economic heavyweights, health plans have no incentive 

to agree to physician requests. When a doctor doesn’t agree to the 

terms of the contract, the plan just removes the practice from the 

network. This means that patients essentially are denied access to 

their physicians. 

In most cases, family doctors stick to their patients and sign untenable contracts. These contracts can affect many aspects of the 

practice. They dictate treatment decisions, require the use of special labs, require peer-to-peer requests for prior authorizations, demand completion of multiple-page forms, and delay payment while 

requiring responses to endless questions. 

Many insurance contracts even allow the health plan to change 

the terms at any time without notifying the physician simply by 

posting new information on their web site. These business practices 

may increase the profit--may increase the profits of the insurance 

company, but they create enormous burdens for our small and solo 

practices and may hurt patient care. 

As a result, more primary care physicians are driven to work in 

other settings, such as emergency rooms, in cash only practices. 

Some leave medical practice all together. Worst of all, payment 

rates and other contract terms are unrelated to quality of care. 

Let me give you another quick story. A family physician who had 

been honored several times as the best physician in Arizona, who 

had more than 100 physicians as his patients, and who received 

the highest possible rating from his health plans for quality and efficiency, is taking more than $100,000 out of his savings each year 

just to keep his practice afloat. Despite his good work, he has been 

unable to negotiate higher payment rates with insurers. 

Speaking more broadly, insurance plans consolidate threaten--

consolidation threatens the potential for quality improvement in 

U.S. health care. For example, family medicine and other primary 

care specialties are advocating for the patient-centered medical 

home for all Americans. This medical home would be a practice 

that has been transformed to offer comprehensive, continuous, and 

coordinated care to our patients. 

Experience with health systems based on primary care in other 

industrialized nations have demonstrated the exceptional value of 

a medical home in terms of quality and cost effectiveness. However, 

the success of the medical home depends on a long-term relationship between the physician and the patient. This relationship can 

be threatened, even destroyed, if insurance companies dictate the 

terms of the medical practice and limit our patients’ freedom of 

choice. 

The AAFP recommends changing antitrust laws so that physicians can be true market participants. The current statutes were 

established years ago during a very different competitive environment. Under these outmoded laws, physicians are barred from discussing the financial aspects of their practice with any entity unrelated to their practice. In contrast, insurance companies use market share and shared economic strength to carry out near monopolistic behavior. 

9

AAFP commends the Committee for highlighting the significant 

problems resulting from health insurance consolidation. Family 

physicians, many of whom provide health care in small and solo 

practices in rural and other under served areas, feel the effect of 

the insurance consolidation as they attempt to negotiate in an environment that is stacked against them. 

Again, I want to thank you for this opportunity to provide this 

testimony, and I look forward to answering your questions. 

[The prepared statement of Dr. King may be found in the Appendix on page 44.]

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. King. 

And now the Chair recognizes Dr. Chabot for the purpose of introducing our next witness. 

Mr.CHABOT. Thank you very much, Madam Chair. I would like 

to introduce Mr. Office. He is the Vice President and General 

Counsel for Victory Wholesale Group, which is headquartered in 

Springfield, Ohio. Mr. Office is currently sponsorship chair and a 

board member of the Southwest Ohio Chapter of Association of 

Corporate Counsel. 

Victory is a national wholesale distributor of grocery, health and 

beauty, and pharmaceutical products, and we are very pleased to 

have a fellow buckeye here this morning. And we welcome you and 

are looking forward to hearing from you, Mr. Office. 

Thank you. 

STATEMENT OF JAMES R. OFFICE, GENERAL COUNSEL, 

VICTORY WHOLESALE GROCERS, SPRINGBORO, OHIO 

Mr.OFFICE. Thank you, Madam Chairwoman, Representative 

Chabot, and members of this Committee, for inviting us to discuss 

this important issue. 

Victory Wholesale Group appreciates the opportunity to submit 

these comments to the Committee. The rising and out-of-control increases in health costs is a very important subject to us and every 

other small business across America. Health insurance consolidations are a large contributor to the increased health costs. One of 

Victory’s largest expenses is for the health care coverage that it 

provides its employees. 

Let me first tell you a little something about Victory. Some of 

you may know something about Victory through our involvement 

in and grants over the many years to the Congressional Hunger 

Foundation. Victory is a group of family-owned separate companies. 

The first was established in 1979. Our businesses include a wholesale grocery distributor, a food marketing company, a public warehouse business, a contract packaging business, a pharmaceutical 

wholesale distributor, a promotional items distributor. 

Victory has a small number of employees and businesses in over 

22 states, including Ohio, New York, Florida, California, Nevada, 

and the Commonwealth of Puerto Rico. Health insurance is the cornerstone of benefits that Victory provides its employees. Victory 

has tried different health care plan models, including fully insured, 

self-insured, PPOs, and HMOs, with the objective to reduce our 

health insurance care costs, or to control their increases. 

10

Victory, having employees around the country, has not been able 

to find a single affordable health care plan that covers our separate 

businesses and employees on a national basis with health care provider networks that can compete with the regional health care providers. 

In Victory’s experience, insurance consolidation has led to the decreased competition and higher prices in the market. Let me elaborate. First, we have found that controlling health care costs is nearly impossible. The health care industry is both fragmented and concentrated. It is loaded with administrative costs, it is inefficient, it 

is not measured. Accounting for quality and for value just simply 

doesn’t exist. 

Next, we have found that the deepest discounts and best coverage networks are offered on a regional basis. We have found that 

the markets where we have employees are dominated by a few 

large insurance carriers. Carriers with a smaller market share in 

these regions generally have weak hospital and doctor networks, or 

smaller discounts. Plans with fewer hospitals and doctors to choose 

from are simply not very popular with employees, and, therefore, 

employers. 

We have found that many of the markets where we have employees have several dominant affiliate health care provider networks 

or groups. These are groups of one or more hospitals and physicians that have combined into an affiliation or network, and they 

rent these networks to insurance companies and employers. 

A few dominant health care provider networks in a region can 

and do use their enhanced market clout to resist negotiating discounts with insurance carriers and employers. We have found that 

the dominant insurance carriers in the region generally price 

health care plans for small businesses through what I would describe as experience rating, i.e. healthy groups get fairly high 

prices, and unhealthy groups get very high prices. 

Insurance carriers have an uncanny way of learning the health 

of a group, even if they don’t insure your group. We have found 

that a single serious or major health event within a group will virtually eliminate competitive bids and result in much higher than 

average cost increases as well as dictated structural changes in 

your benefits to the group’s plan at renewal. 

We have found that faced with the increasing health care costs, 

employers and employees are faced with very few choices. I would 

call it a menu of the lesser of evils. These options include: 1) increasing the amount of premium that each employee pays each 

month; 2) increasing the co-payments or deductibles; 3) imposing 

changes on unhealthy lifestyles, like charging smokers or obese 

people more premiums; 4) incorporating higher deductibles and 

lower benefits into the plan design, and sometimes using like a 

health savings account or health reimbursement accounts, which in 

the end is just a cut in benefits, reducing or modifying or eliminating benefits, and providing financial incentives or disincentives 

to use the modified benefits. 

And lastly, an option that I find is becoming a lot more common 

today, which is small businesses are just eliminating offering employer-provided health insurance. Historically, small businesses 

make up the backbone of our nation’s employers. Collectively, small 

11

businesses employ the largest number of people in the United 

States. Yet because each company is small, we have almost no market clout to help bring changes to our health care system. 

Health insurance consolidation has in part created a take it or 

leave it market for small businesses. Reduced competition through 

consolidations both of insurance carriers and health insurance carrier provider networks has led to increased pricing, fewer choices 

for small businesses and their employees. 

[The prepared statement of Mr. Office may be found in the Appendix on page 49.]

ChairwomanVELA ́ ZQUEZ. Mr. Office, your time is up, and they 

just called for a vote. So I would like to move to the next witness. 

And for that purpose, I recognize Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. Mr. Scandlen wasn’t in his 

chair when the Committee began, I suspect for the same reason I 

wasn’t in my chair. I think we both probably came down 270 this 

morning. I left two hours and 15 minutes before the Committee, because I really wanted to be here on time. But, unfortunately, this 

was my second longest commute in 15 years of commuting that 50 

miles from Frederick, Maryland, down to the Hill. So thank you 

very much for braving the traffic and being here this morning. 

Greg Scandlen is from Hagerstown, Maryland. He is the founder 

of Consumers for Health Care Choices, a non-partisan, non-profit 

membership organization aimed at empowering consumers in the 

health care system. He is considered one of the nation’s experts on 

health care financing, insurance regulation, and employee benefits. 

He testifies frequently before Congress and appears on such television shows as The O’Reilly Factor, NBC Nightly News, and CNN. 

He has published many papers on topics such as health care costs, 

insurance reform, employee benefits, individual insurance programs, HSAs, HRAs, and every aspect of consumer-driven health 

care. Mr. Scandlen was the president of the Health Benefits Group 

and the founder and executive director of the Council for Affordable 

Health Insurance. He also spent 12 years in the Blue Cross/Blue 

Shield system, most recently as the director of state research at the 

national association. 

Thank you very much for joining us today. 

STATEMENT OF GREG SCANDLEN, PRESIDENT, CONSUMERS 

FOR HEALTH CARE CHOICES 

Mr.SCANDLEN. Thank you, Mr. Congressman. Thank you, Madam 

Chairman, and members of the Committee. I was going to ask you, 

Mr. Bartlett, for a note excusing my tardiness, but you have made 

that unnecessary. Thank you very much. I do apologize for being 

late, though. 

I know you have a vote pending, so I will be very quick. I just 

want to share a couple of thoughts with you. One is that concentration of--in this market is not an accident, and it is not an inherent 

part of the small group market. When I was with the Blue Cross/

Blue Shield Association, I was--one of my responsibilities was 

working with the National Association of Insurance Commissioners 

on their small group reform proposals back in the late 1980s. 

12

And I can tell you, at the time the Commissioners and their staff 

made it very clear that these reforms would do nothing to lower 

cost, nothing to increase access. Their purpose was to stabilize the 

market, and that was their language. 

And what they meant by that was they thought there was too 

much competition in the small group market. It was confusing for 

employers, and they would prefer it if there were only three or four 

competitors in every market. That would be easier to understand, 

and, frankly, probably easier for the regulators to regulate, with a 

smaller number of companies. 

So I think the situation we have today is the direct consequence 

of regulatory interference with the market. Many of those regulations were well intentioned, but I think they all add to cost and 

complexity in this market, and many, many smaller companies decided they simply could not afford to comply with the various state 

and changing from year to year regulations that they had to follow. 

So they simply got out of the business. 

Many of them were life insurance companies, and they sold off 

their health books to larger carriers that were--that are better able 

to afford the compliance costs associated with all of these regulations. And what we have today, and as the other witnesses have 

mentioned, we have coverage that is overpriced, inefficient, unaccountable, inconvenient, and incomprehensible to the consumer. 

We need--these are, I believe, the characteristics of a non-competitive market. There is insufficient competition. If you don’t like 

what--if you don’t like what one company offers, it really doesn’t 

matter because everybody else is offering the exact same thing at 

the exact same price. 

This market is sorely needing innovation and efficiency. The insurance industry is notoriously inefficient. And back in the 19th 

century when it comes to technology and computer support, larger 

is not better, larger results in monopolization and a lack of innovation. And there have been some proposals that have come before 

the Congress that I think would help here. 

One is the interstate purchase of coverage. So if I am living in 

Maryland, and there is a better product available in Pennsylvania, 

I would like to be able to purchase that product, and I don’t see 

why I can’t. Another possibility would be an alternative federal 

charter, so insurance companies could become like banks. They 

could decide whether they would like to be regulated by the states 

or by the Federal Government. 

And if they choose the states, they are confined to doing business 

in the state that is regulating them. If they choose a federal charter, they can operate nationally, and Mr. Office and other multistate’s smaller employers would be able to purchase the same product for all of their employees. 

So I think solutions are there, but I think decisive action is needed, because this market is collapsing. 

Thank you very much. 

[The prepared statement of Mr. Scandlen may be found in the 

Appendix on page 56.]

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

13

The Committee stands in recess and will resume right after the 

vote. 

[Recess.] 

ChairwomanVELA ́ ZQUEZ. Gentlemen, the Committee is called 

back to order. I know the Ranking Member is on his way here. 

I would like to address my first question to Dr. Plested. We all 

agree that it is critical that physicians are in a position to be advocates for their patients. I understand that some physicians are concerned that important decisions relating to care of patients has 

been taken away from them by burdensome rules imposed by insurers. 

My question is, Dr. Plested, have these rules gotten more onerous as the insurance industry has consolidated? And how do these 

policies affect the doctor-patient relationship? Is the quality of care 

impacted? 

Dr.PLESTED. Thank you, Madam Chair, and the answer to the 

question is unequivocally yes, quality of care is affected. The basis 

for patient care throughout history has been based on what we call 

the patient-physician relationship. And both of those partners in 

that relationship have the same interest, and that is the health of 

the patient. Regardless of how you change that, if you put anyone 

in between that, whether that be an insurer or an employer, if anyone else gets in between those two parties in that relationship, 

their interest is different. 

With an insurer, the CEO of every insurance company’s primary 

interest is his shareholders, not the patient. So that it can just--

it just follows by reason that any time we dilute that basic fundamental relationship it is not in the interest of patients. And when 

the insurer can bludgeon the physician with paperwork, with unnecessary rules and regulations and unilateral--contracts that can 

be unilaterally amended, all these things that you have heard in 

the testimony today, that directly affects the care that those patients can get. 

ChairwomanVELA ́ ZQUEZ. Have you conducted any survey among 

doctors regarding that doctor-patient relationship as a result of 

consolidation? 

Dr.PLESTED. Specifically related to consolidation, I don’t know 

that we have, but we have all kinds of data about what has happened to the relationship, and consolidation is an integral part of 

that. And it has all been detrimental. 

ChairwomanVELA ́ ZQUEZ. Thank you, Dr. Plested. 

Dr. King, the difficulty physicians have faced with the insurance 

industry is in large part based upon the size of the companies and 

the market share they command. Some insurance companies have 

grown so large that physicians have found it difficult to negotiate 

a contract with favorable terms. What has been the experience of 

your members? Are they being forced to accept take it or leave it 

contracts? 

Dr.KING. The short answer is yes. I practice in a small town in 

Selmer, Tennessee, west Tennessee in a rural area. And so we only 

have one or two major industries to begin with, and when we only 

have one insurance product they have as much as 30, 40, 50 percent of the patient base for us to take care of. 

14

And I have been taking care of these patients for 20 years, and 

all of a sudden I am dealing with an insurance company that has 

offered a contract that I know is inappropriate, that is going to 

interfere with the quality of care that I need to provide. And it is 

tough for me even to consider making a living and supply jobs for 

my employees. I am a small business, too. I have got--we have 

seven physicians, we have 39 employees that we need to supply 

their health care, we need to provide them with pay. 

So I am a small business, but I am also providing the health 

care. And if I choose to eliminate 20 percent of the patients I have 

been taking care of, I don’t think too many businesses can do that. 

And we are seeing that every day, that they are having to either 

accept a contract that is not acceptable, that we know we can’t 

make it work, or give up 30 percent of the patients we have been 

caring for over years. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Hughes, the cost of the same health benefits are likely to be 

higher for a small firm than for a large firm. How does this make 

for an unleveled playing field for your members when it comes to 

negotiating health insurance plans? And with increased concentration in the industry, do you expect this disparity to grow? 

Mr.HUGHES. The micro-employer is in a very difficult position, 

because they are facing regulation that places them into the small 

group market. So even though we may have a very small employer 

group of only one or two people, they are thrown into the group 

market that is accordingly rated based on that group experience. 

What we are seeing is a significant premium rate increases as 

a result of that. The small group simply doesn’t have a chance to 

compete the way the larger group does in the marketplace. 

ChairwomanVELA ́ ZQUEZ. What can be done to remedy this disparity? 

Mr.HUGHES. Well, one of the factors involves federal taxation. It 

is clear that taxes affect social behavior, and it is also clear that 

in the Tax Code today all businesses receive an exemption for the 

payment of income taxes and payroll taxes on premiums that they 

provide for their employees for health insurance coverage. 

The exception to that rule is for the sole proprietor, the self-employed individual. That particular individual does not receive a 

payroll tax deduction for these health insurance premiums, and accordingly must pay then 15 percent of payroll taxes on those premiums. The effect is that if the tax law were amended to be equitable to all business owners, self-employed proprietors could then 

reduce their premium costs by 15 percent across the board. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Hughes. 

Mr. Office, you mentioned that insurance companies may entice 

employers by offering low coverage rates to new groups, and then 

dramatically increase premiums or change benefits on renewals. 

You mentioned that this behavior often chases competition out of 

the market, thus allowing the insurer to later increase prices. 

What have your experiences been with such enticement rates, and 

what can your business do to respond to dramatically increased renewal premiums when you only have one or two other insurers to 

choose from? 

Mr.OFFICE. If you have any suggestions, I am open. 

15

[Laughter.] 

That is the thousand-pound gorilla that we face. You will get an 

insurance carrier that will come into the market. And to buy market share they will offer discounts, and most small businesses look 

at price. That is a critical factor. And once they have done that, you 

are moving--your numbers stay the same. 

In any community, you have a certain number of people that are 

insured, and you are just moving them from this bucket to this 

bucket, and so this area over here loses those people and they push 

out of the marketplace. Once that is done, then they do increase 

the premiums. Or if, structurally, they say, ‘‘Well, we will keep 

your premium the same, but here is the policy you are going to 

have next year,’’ it is going to have fourth-tier pharmaceutical or 

it is going to have higher co-pays and deductibles, or ‘‘we are not 

going to cover, you know, these procedures,’’ or whatever. 

But as a small business, you react to what they present to you. 

You don’t really--and you don’t have a market to go look for to say, 

‘‘Well, what about an alternative?’’ So any questions are welcome. 

ChairwomanVELA ́ ZQUEZ. Sure. Mr. Scandlen--and I will recognize 

Mr. Bartlett--I heard when you spoke about the direct consequences of state regulations that it really encourages concentration. And I know how frustrating it is. You said that one of the avenues could be interstate purchase of health insurance or federal 

charter. 

But even without going into that, what role or how do you assess 

the Department of Justice role, or lack of oversight, regarding antitrust laws when it comes to consolidation? 

Mr.SCANDLEN. I think there is an important role for antitrust enforcement here. Clearly, when there are only two or three players, 

when they actually merge together, that is a concern. But I, quite 

frankly, think that is--that is something for the--it is not a universal solution, because if there is a company that would like to 

sell its business to another company, because the first company 

simply is not profitable, then antitrust enforcement there strikes 

me as inappropriate. 

So I guess I am reluctantly embracing antitrust in selected cases. 

And, for instance, in the United-Sierra merger in Nevada, my organization was quite concerned about that and communicated with 

the Department of Justice encouraging them to reject that merger, 

because here were two very strong viable companies that consumers we couldn’t see would derive any benefit from--from the 

merger. And if consumers are not benefiting from it, then I think 

it--and could actually be disadvantaged by it, then I think it is a 

problem. But I don’t see it as the number one solution to this issue. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Chabot. 

Mr.CHABOT. Thank you, Madam Chair. 

Dr. Plested, I will start with you if I can. You noted that investigating consolidation regulators have tended to focus on physicians 

rather than on health insurers. Could you expand upon that a little 

bit? Why do you think that is so, and what should be done about 

that? 

Dr.PLESTED. Well, I certainly can’t testify to the motivation of 

the DOJ, but I can testify to what has happened, and it would apVerDate 0ct 09 2002 11:16 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\39376.TXT LEANN
16

pear that the doctor--an individual doctor is much less able to withstand an assault from the DOJ. And it makes their rate of caring 

actions that they succeed on exceedingly high, because it--an individual physician just can’t withstand this. 

A huge insurer certainly can, and I think the point that the 

Chairman just raised is exceedingly important. What can we do, or 

what can this Committee do? And the answer to that is it is time 

to draw a line in the sand and say, ‘‘This is going to stop.’’ The answers are complex, as everybody has said, and they aren’t going to 

be solved in this testimony or this action. But to put down a marker and say this Committee from--to the DOJ, we have got to make 

it crystal clear that this is going to stop, and get this merger enjoined, would be the necessary first step that could be made. 

Mr.CHABOT. Thank you, Doctor. 

MR. Hughes, if I could turn to you next. In your written testimony, you urged Congress to address the inequitable tax treatment 

of health insurance for individuals purchasing coverage on their 

own. I really couldn’t agree more with you on that, and, in fact, 

today I am reintroducing a bill that I have introduced in previous 

Congresses. Unfortunately, we haven’t gotten it passed into law 

yet, but we are going to continue working. 

It is called the Health Insurance Affordability Act, and it is legislation that would provide a tax deduction for gross income--or, excuse me, from gross income for the health insurance costs of an individual taxpayer, the taxpayer’s spouse, and dependents as well. 

In other words, you know, large corporations obviously can fully deduct the health care costs for their employees, but an individual 

basically pays for their premiums and doesn’t get to claim those for 

the most part. And a lot of small businesses also aren’t able to do 

so, at least to 100 percent. 

Could you explain how a deduction like that would help individuals in small firms? 

Mr.HUGHES. Well, again, going out in the individual market, as 

you indicate, those health insurance premiums are paid with aftertax dollars, meaning that their purchasing power has been eroded 

significantly. And if there is a way, a mechanism that would allow 

for the deduction of health insurance premiums across the board, 

whether employee or business or small business owner, then my 

sense is that it is going to have the impact of bringing more people 

into the marketplace, creating a marketplace that has in effect 

lower ultimate cost of premiums, and theoretically that should increase competition, because more insurers should go after that 

market niche. So we wholeheartedly support that type of legislation. 

Mr.CHABOT. Thank you very much. 

Dr. King, in your written testimony you state that ‘‘As a result 

of concentration of insurers, many family practice physicians in 

small or solo practices have little leverage in negotiations with 

health plans.’’ Could you discuss that briefly, and what effect that 

ultimately has? 

Dr.KING. I will be glad to. In fact, I can give you an example of 

my own practice. As I stated earlier, I practice in a small town in 

west Tennessee. We have a large employer there, and they changed 

insurances for cost, as mentioned earlier. There was no physician 

17

in my county in the network that insurance product provided. And 

they not only didn’t come at us with a contract we wouldn’t accept, 

they didn’t offer us one at all. 

Under their arrangement, all they had to do was have a doctor 

within 45 miles of the plant that signed up. Then, they met all the 

requirements they felt like they needed to do. And they wouldn’t 

even sit down and talk to us. 

And my patients had a choice to make that year. They came and 

saw me and we tried to work out a way that they could pay me 

for their services and we didn’t bill their insurance, or they drove 

45 miles. So they were doing back and forth for an entire year until 

they finally changed that plan. They chose not to make any 

changes at all. 

So not only do they come at us and we can’t negotiate, and this 

was every physician in the county, that, you know, they have 

enough, but for--with our family physicians, most of us are solo 

practitioners or small groups, anywhere from one doctor to maybe 

four or five. We have absolutely no leverage. 

Mr.CHABOT. Thank you very much, Doctor. 

Mr. Office, you mentioned that your companies maintain multiple health insurance plans to foster competition, and to help reduce costs. How much of an impact does this make on your overall 

health insurance costs? 

Mr.OFFICE. I would be happy to share some numbers with you, 

which I came prepared to. But we range--for example, single only 

coverage in one geographic location where I understand there is 

some competition, and I am not involved in the buying there, but 

they are paying $177 a month per employee. And in the area that 

I work in, we are paying $570 a month. So there is a $400 difference. For family coverage, the difference is $450 versus $1,400. 

So you can see that there could be significant differences. 

Now, because of the regionalization I can’t go to, say, New York 

or Puerto Rico where I might get a lower rate and buy a plan for, 

you know, south--you know, southern Ohio where we have most--

you know, a large group of people, or Florida. We just can’t get 

that, because we end up with networks. We are not going to buy 

a plan and pay a premium and then get a network where there is 

no doctors in that area. Our employees will--there will be a mutiny. 

[Laughter.] 

Mr.CHABOT. Okay. Thank you. 

Mr.OFFICE. So, you know, if you are going to pay the premium, 

you have to have hospitals and doctors in that network. And you 

don’t want to make people have to change those choices. So there 

can be a big difference. 

Mr.CHABOT. One of our colleagues, John Shadegg from Arizona, 

has introduced a plan over the years relative to health insurance 

that would allow people to go across state lines and would undo 

some of the difficulties there are with various states having different requirements and regulations and keeping companies out 

that aren’t necessarily in a particular state. So it is something that 

we probably ought to look at. 

Finally, Mr. Scandlen, in your written testimony you discuss the 

need for innovation in the types of health insurance coverage that 

are offered, such as health savings accounts, for example. How 

18

would small businesses benefit from greater innovation? And is 

there anything that you would suggest this Committee or Congress 

do in that area to be of assistance? 

Mr.SCANDLEN. I am not sure how you could encourage innovation 

other than just encouraging competition. I mean, I think it is the 

same thing. And there are some very, very interesting things out 

there. One of the things I mentioned in the testimony was the special needs plans under Medicare, and that is sort of an experiment 

that--that I think so far is having very good results, very interesting results. 

These are insurance companies that focus on the needs of the 

chronically ill, and one of the reasons they are able to do that is 

because they receive--Medicare pays out risk-based premiums, so 

they are receiving premiums that enable them to service that special population. 

Mr. Chabot, if I could very quickly also, in terms of the--your tax 

deduction for individuals, I think that is a marvelous idea, and I 

think it is worth remembering that up until 1983 individuals could 

deduct their health insurance premiums as part of the medical expense deduction, as long as, in 1983, it didn’t exceed three percent 

of their AGI. 

That was raised to 5.5 percent, and then in ’87 raised to 7.5 percent. and we have seen, as that has eroded, the individual market 

has just gone in the tank, because that tax advantage has been 

withheld from people that buy individual coverage. 

Mr.CHABOT. Thank you very much. 

I yield back, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Gonza ́lez. 

Mr.GONZA ́LEZ. Thank you very much, Madam Chairwoman. The 

issue of availability and affordability--and it transcends big business, small business, every American situated one way or another. 

The interesting thing, I think the government has a tremendous 

stake in making sure there is robust competition, because the future does hold more government involvement in assisting individuals, small business, families, in acquiring health insurance. 

So availability and affordability looms large, whether it is the 

President’s tax proposal, whether it is what Mr. Chabot was talking about, associated health plans, subsidizing premiums and such. 

All that is for naught if we don’t have a healthy insurance industry 

that will provide choice, which will drive down cost, obviously. At 

least that is what I have used as the big picture. 

Some of the things that we have covered here, though, I am wondering if it really does in any way assist in achieving that final 

goal of availability and affordability. I will say that I think our first 

witness alluded to--I guess it is the United acquisition of Sierra. Is 

that right? And maybe that should be a marker. Maybe we ought 

to pay a lot of attention to that, and put everybody on notice. And 

I think that point is well taken. 

One thing that Dr. King pointed out--and I am thinking all short 

of that--is, how do we get all of the different participants fully empowered? 

ChairwomanVELA ́ ZQUEZ. Will the gentleman suspend? 

Mr.GONZA ́LEZ. Yes. 

19

ChairwomanVELA ́ ZQUEZ. I just would like to ask unanimous consent, and the Ranking Member agreed with me, for every member 

to have the opportunity to ask one question. This is going to be 

quite--a very disruptive session today. Right now on the floor they 

are going to be calling procedural votes. 

So in light of that, I will give the opportunity for everyone to ask 

one question, since I know that some of the members of the panel 

have flights to catch. 

Mr.GONZA ́LEZ. I will be real brief, then. I will just ask Dr. King, 

you pointed out that maybe empowering physicians to negotiate, 

where presently they are prohibited by law--that was my understanding of your testimony--if you could just kind of elaborate a little bit on that, and how you see that would be beneficial to the big 

question of availability and affordability. 

Dr.KING. Well, in allowing us to be able to negotiate, or at least 

talk to each other, you know, about the different insurance products, about the contracts that we are being offered to make sure 

that we can compare, we talk doctor talk, we don’t talk lawyer talk. 

And we need to have the ability to share information and share 

problems and concerns as we look at the contracts, so that we can 

make decisions that is the best interest for our patients. 

And then, if we can negotiate that, I can see how, you know--you 

know, I don’t know about the--you know, the consolidation of all of 

the insurance companies and all, but I see how the health care of 

my patients can improve, and we can arrive at a better plan that 

we take away the barriers that I try to help take care of my patients with that, so that physicians won’t desert. We don’t have 

enough primary care physicians out there. They are going into different arrangements. They are going into ERs, they are going into 

urgent cars, which is not where we want our patients, and they are 

going into markets that don’t include insurance. 

So we have--just to get the physicians out in the rural areas and 

taking care of patients like we need to, they have got to be able 

to negotiate and make it work. 

Mr.GONZA ́LEZ. Thank you. I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Bartlett. 

Mr.BARTLETT. Thank you very much. You know, we don’t really 

have much of a health care system in our country. We have a really good sick care system. It is the best in the world, and I would 

hope that we might move a little more toward a health care system, so maybe we wouldn’t need such a big sick care system. 

One of the problems in rising health care costs is the fact that 

health care--I am using that word euphemistically--health care is 

about the only thing that most people shop for in our country and 

never ask the price. So they are not a careful shopper. 

And one of the things that I wanted to personally do, so that I 

could become a careful shopper--and these were in the days before 

health savings accounts, which really makes a person a careful 

shopper, and I am a big fan of those. But absent that, when I retired 20-couple years ago, I wanted to find a catastrophic policy 

with a $5,000 deductible. See, I think that these little nickel and 

dime things just wear you out and enormously increase the cost of 

health care. 

20

I can pay the first $5,000. That might be a little painful, but 

what I can’t pay is that second half million. And I think that many 

of the policies drop. You have a cap at about a half million. I 

couldn’t find a catastrophic policy with a $5,000 deductible. That 

ought to be a pretty cheap policy, shouldn’t it? And wouldn’t it 

make people a really careful shopper? And why don’t you--why 

doesn’t the industry offer that kind of a policy? 

Mr.SCANDLEN. I think they are available now. And if I am not mistaken, the AMA has offered a $10,000 deductible policy to its 

members for a long time. So I think if you were shopping today, 

Mr. Bartlett, you would be able to find that. 

Mr.BARTLETT. Madam Chair, I would like you to encourage our 

people here who provide our options for health care to include that 

as one of the options. 

ChairwomanVELA ́ ZQUEZ. Definitely. 

Mr.BARTLETT. Thank you very much. 

ChairwomanVELA ́ ZQUEZ. Ms. Clarke. 

Ms.CLARKE. I want to thank our Chairwoman and our Ranking 

Member. This is probably one of the most critical issues facing 

Americans today. As small businesses, as health care providers, as 

consumers, we are all in a quandary and involved in the same 

meltdown together. 

There are so many questions that I would like to ask, but I want 

to get an understanding of some of what is happening out there to 

physicians’ claims. I want to ask for anyone on the panel--I have 

heard that health insurers have employed coercive tactics, such as 

re-pricing of physician claims, which results in non-contracted physicians receiving less than contracted physicians for the same service. What is re-pricing exactly, and what other manipulative practices have health insurers used to undermine a physician’s bargaining power? Dr. Plested? 

Dr.PLESTED. Re-pricing is a very interesting phenomenon. It is 

complex, but there have been contracts let by entities that do not 

provide any care. They just round up a large number of contracted 

doctors who will accept a price, and there are literally hundreds of 

these contracted groups. There are now entities called re-pricers 

that take every physician and match that physician by computers 

with every contract that they have signed for every service that 

they provide. 

And so that when you get a bill from your insurance company 

that has six things on it, that may be a sign by a re-pricer to six 

or seven different contracts, so that he gets the lowest one. It is 

complex, but it is a very Machiavellian type of system. 

There are also the things that the insurers can do that have been 

mentioned that they can unilaterally amend a contract. They can 

change the amount that they agreed to pay you. They can unilaterally put in screens. They have computerized screens that will reduce the amount that they pay for things that it doesn’t pay the 

physician to charge--to try to challenge each of these. There are a 

multitude of monopolistic behaviors that are allowed by this. 

ChairwomanVELA ́ ZQUEZ. Thank you. And I want to take this opportunity to thank all the witnesses. And I am sorry we do not 

have more time to spend with you, but I am very, very happy that 

we really had an opportunity to have this dialogue on an issue that 

21

is so important, not only for small businesses and small practitioners, but also for consumers in America. 

The Small Business Committee will call on federal antitrust regulators to play a more active role in ensuring that health insurance 

markets remain competitive, and, to that effect, I will ask the 

Ranking Member to join with me in sending a letter to the Department of Justice. I will also--I already discussed with Chairman 

Conyers on the House floor, when we went to vote, asking him to 

do a joint hearing between Judiciary and Small Business to examine specific mergers that may be pending. 

I know, Mr. Scandlen, that you said that this is just one aspect 

of a bigger picture, but we have to make sure that there is proper 

oversight and examination before these mergers can proceed. 

With that, I thank all the witnesses for your participation. I ask 

unanimous consent that members have five legislative days to 

enter statements and supporting materials into the record, and this 

Committee is adjourned. 

[Whereupon, at 11:45 a.m., the Committee was adjourned.]

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Æ


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