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SUBCOMMITTEE HEARING ON HOW SMALL

BUSINESSES CAN BEST ADDRESS THE

HEALTHCARE NEEDS OF THEIR EMPLOYEES

SUBCOMMITTEE ON RURAL & URBAN 

ENTREPRENEURSHIP 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

AUGUST 30, 2007

Serial Number 110-42

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 

WILLIAM JEFFERSON, Louisiana 

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 

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

SUBCOMMITTEE ON RURAL & URBAN 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

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Shuler, Hon. Heath .................................................................................................. 1

Davis, Hon. David .................................................................................................... 3

WITNESSES 

PANEL I 

Johnson, Jerry, The Laurel of Asheville Magazine ............................................... 4

Kendrick, Bob, Kendrick & Associates .................................................................. 5

Masterton, Laurey, Laurey’s Catering ................................................................... 7

Coward, Caroline, Asheville Chamber of Commerce Healthcare Roundtable .... 9

PANEL II 

Schwarz, Miriam, Buncombe County Medical Society ......................................... 20

Leonard, Mark, WestCare ....................................................................................... 22

Baumgarten, Dr. Alan, Asheville Family Healthcare ........................................... 23

Groome, George, Colton Groome Insurance .......................................................... 26

APPENDIX 

Prepared Statements: 

Shuler, Hon. Heath .................................................................................................. 36

Davis, Hon. David .................................................................................................... 38

Johnson, Jerry, The Laurel of Asheville Magazine ............................................... 40

Kendrick, Bob, Kendrick & Associates .................................................................. 42

Masterton, Laurey, Laurey’s Catering ................................................................... 45

Coward, Caroline, Asheville Chamber of Commerce Healthcare Roundtable .... 47

Schwarz, Miriam, Buncombe County Medical Society ......................................... 49

Leonard, Mark, WestCare ....................................................................................... 53

Baumgarten, Dr. Alan, Asheville Family Healthcare ........................................... 59

Groome, George, Colton Groome Insurance .......................................................... 64

(III) 

(1)

SUBCOMMITTEE HEARING ON HOW 

SMALL BUSINESSES CAN BEST 

ADDRESS THE HEALTHCARE NEEDS 

OF THEIR EMPLOYEES 

Thursday, August 30, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON RURAL & URBAN ENTREPRENEURSHIP

Asheville, North Carolina. 

The Subcommittee met, pursuant to call, at 2:05 p.m., in the Auditorium, Asheville Chamber of Commerce, 36 Montford Avenue, 

Asheville, North Carolina, Hon. Heath Shuler [Chairman of the 

Subcommittee], presiding. 

Present: Representatives Shuler and Davis. 

OPENING STATEMENT OF MR. SHULER 

Chairman SHULER. The hearing is called to order. 

I would first like to welcome everyone to this hearing. What an 

important issue that we are facing. Our small businesses continue 

to be faced with an outstanding climb in our healthcare industry, 

being able to provide adequate health insurance at an affordable 

rate to the employees or the employer providing that service for 

them. 

I would like to welcome everyone to Asheville and I would certainly like to welcome my colleague and one of my very good 

friends in the House, Congressman David Davis from the First District of Tennessee, which encompasses Johnson City, Kingsport, all 

the way down to Sevierville. 

Mr. DAVIS. That is correct. 

Chairman SHULER. To give you a little bit of history on our Committee that we feel very proud about. There are not a lot of committees in the House that you can say is actually ran as well as 

the Small Business Committee is, truly bipartisan support on both 

sides. Chairwoman Vela ́zquez has done an outstanding job of actually getting bills to the House. And it could not have happened if 

it was not for the support of ranking member Chabot and what he 

has been able to put together on the minority side in a working relationship. So we want to extend that welcome relationship that 

both Congressman Davis and I have to the mountains of western 

North Carolina. 

Today’s hearing will focus on the rising cost of healthcare and 

how it affects small businesses. The increased cost and the lack of 

availability of healthcare insurance is a problem that continues to 

2

plague the nation’s small businesses. Over the last seven years, entrepreneurs have seen premiums rise at nearly 80 percent. 

This is an issue that affects small firms across the country, but 

particularly important here in western North Carolina. Employersponsored insurance is a primary source of healthcare coverage for 

68 percent of North Carolina’s working families. However, due to 

the rising costs, that number has steadily declined over the past 

few years as businesses find it more difficult to find affordable insurance coverage. Today, over half of all uninsured workers in this 

state are employed by businesses with fewer than 25 employees. 

North Carolina’s small business has consistently identified high 

premium costs as the primary reason many are unable to offer 

health coverages. 

It is clear that there is a need to do something and it has to be 

addressed immediately when we talk about our economy in Washington and addressing the rising healthcare costs must be at the 

top of the list. 

One of my goals as Chairman of this Subcommittee is to ensure 

that healthcare reform considers the impact of small businesses. 

Already this Congress has passed several important legislation to 

assist small businesses to provide healthcare as well as to provide 

access to that care. 

Recently, the Committee passed the Affordable Healthcare Initiative. This grant program would allow small business development 

centers to assist owners in identifying affordable health insurance 

options for their employees. 

Our Committee also reported legislation that will help small 

healthcare providers service the small business owners and their 

families. We passed a Small Business Administration lending bill 

that makes low-cost loans available for healthcare providers who 

service low income and under-served areas. This will provide much 

needed financing to the providers serving many of the employees 

of small businesses. 

But this is only a start. The Committee has held numerous hearings to identify new ideas and programs for the coverage of the uninsured and the increase of access to all Americans. 

A number of committees will be looking at the problems of 

healthcare coverage in the 110th Congress. This Committee’s focus 

is to make sure that small businesses are part of the debate. 

Today’s panel offers a diverse perspective on challenges facing 

healthcare systems. I look forward to hearing your testimony of 

small business owners, healthcare providers and insurance brokers. 

Small business would not be in our district if we look around at 

what has happened to the diversity of specifically western North 

Carolina where we have seen so many plants have gone, so many 

of our jobs have truly moved abroad, and it is our small businesses, 

our small business owners that is really the backbone behind our 

country. I think we all believe in Congress that our small businesses are going to be the key to our future. And it will be these 

10, 5, 20, 25 employee businesses that really change the dynamics 

of what our country is all about. 

At this time, I would like to introduce one of my very good 

friends in the House, Congressman David Davis from the First District of Tennessee. Congressman Davis. 

3

OPENING STATEMENT OF MR. DAVIS 

Mr. DAVIS. Thank you, Heath. Good afternoon and thank you all 

for being here as we examine healthcare choices for America’s 

small businesses, their employees and working families. 

Before we begin, I would like to sincerely thank my good friend, 

Congressman Heath Shuler, for inviting me to come over the 

mountains into your beautiful district. We may come from different 

states, be members of different parties, but only one of us can 

throw a 12 yard out pattern on the road. 

[Laughter.] 

Mr. DAVIS. And you can guess which one it is. As long as the sun 

rises over the Blue Ridge mountains in my home in Tennessee and 

sets over them in Mr. Shuler’s district here in North Carolina, I 

know that we have at least one thing in common—the desire to 

help small business owners find reliable, high-quality and reasonably-priced healthcare that will be available when they need it. 

I have been involved with healthcare for almost 30 years, I am 

a respiratory therapist by training myself and have owned several 

healthcare businesses. I have been a small business owner now for 

about 15 years. I really see myself as an entrepreneur. So I have 

seen this issue from both sides. 

At the center of our examination are the issues of cost and access. As we all know, purchasing health insurance is one of small 

businesses’ most costly expenses. According to the National Federation of Small Business, NFIB, healthcare is the most severe problem for small business owners, greater than taxes, cash flow or 

government regulations—which is hard to believe. Small groups, 

including small businesses usually pay more for similar or less coverage than large businesses. As a result, small businesses are less 

likely to offer health insurance than large firms. Not surprisingly, 

the principal reason given is that small businesses could not afford 

the coverage. 

One of the most distressing statistics that we see each year is the 

rising number of Americans who live without health insurance, 

currently estimated at roughly 46 million people. Of those without 

health insurance, about 60 percent are small business owners or 

employees of small businesses and their families. 

As healthcare costs continue to rise, fewer employers and working families will be able to afford the coverage. Clearly, we in Congress must look at this pressing problem and find solutions that 

will create an environment so those in need for healthcare insurance can not only find the coverage they need, but also afford the 

coverage that they need. We need to be working towards a 

healthcare delivery system that works best, not just what we have 

always done in the past. A simply look at the current healthcare 

landscape shows the system is not working. 

Over the past several years, Congress has debated numerous proposals designed to bring the cost of healthcare down, including the 

establishment of associated health plans, also known as AHPs; increasing the availability, use and ease of health savings accounts, 

also known as HSAs; and reforming the medical liability system. 

And as you may recall, in President Bush’s most recent State of the 

Union, he talked about allowing employers and those that are employed, to actually take some of their pre-tax dollars and purchase 

4

health insurance, to have a system so that thereby they can afford 

the health insurance that they need. Unfortunately, some of the 

things I just mentioned in these proposals, which I believe could 

provide significant relief for the problems that we face, were never 

signed into law, they are still on the books. 

As we all know, there is not one solution to a problem as complicated and complex as 46 million Americans living and working 

without health insurance. Small business employers and employees 

are in critical need of new ways to increase health insurance coverage. 

I look forward to hearing from our witnesses and to working with 

you, Mr. Shuler, on finding ways to make healthcare more affordable for small businesses and their employees. 

Again, thank you for inviting me to be here with you and your 

constituents, and I yield back the balance of my time. 

Chairman SHULER. I thank the gentleman from Tennessee. 

I ask unanimous consent that the record be open for five days 

for members to submit their statements. Hearing no objection, so 

ordered. 

I would like to now call the first panel which consists of small 

business owners as well as a member of the Chamber of Commerce 

healthcare roundtable. 

Our first witness is Jerry Johnson, the owner of The Laurel of 

Asheville Magazine, a local monthly lifestyle publication. 

Mr. Johnson, you have five minutes for your testimony. 

STATEMENT OF JERRY JOHNSON, OWNER, THE LAUREL OF 

ASHEVILLE 

Mr. JOHNSON. Thank you, Mr. Chairman. Like you said, my 

name is Jerry Johnson, and with my partner Bob Brown, we own 

The Laurel of Asheville Magazine. I have been an owner of various 

small businesses for nearly 25 years and all of those businesses 

have had less than 10 employees. 

There has always been a constant need to search for or shop for 

health insurance. That is because prices have always been going up 

and the amount of coverage has always been going down. My overall view is that there has been a dramatic change in the health insurance marketplace over the last 25 years. In the early 1980s, 

there were numerous companies offering a wide variety of coverage 

from major medical to hospitalization. In those early years, I 

learned to shop for a better price about every two years because 

the rates were increased. There were numerous agents available 

then that provided policies and educated you as to the new choices 

and different coverages. In the past decade, the choices in the once 

abundant health insurance marketplace has gone away. Ten years 

ago, there were probably 40 or 50 companies offering some variety 

of health insurance in North Carolina. Today, I believe there are 

less than 10 and even those choices are limited because some of 

these companies are really offering indemnity policies, which 

means they pay cash per incident and are not true hospitalization 

or major medical coverage. 

Today, there are more people needing and looking for coverage. 

The high cost of medical care can ruin a family’s future or prevent 

someone from truly becoming well. Yet today, far fewer agents are 

5

offering health insurance policies and fewer companies are supplying policies. As a small business person, this does not make 

sense. When I know there are more people wanting to buy something, it usually means that more businesses will enter the marketplace to meet the demand. This is definitely not true with health 

insurance. 

As a small business person, I believe that more competition is 

needed in the marketplace. Competition in any industry I can 

think of has brought about creativity and innovation, whether that 

means in the delivery of the service, the coverage or the pricing. 

I also believe that the government can aid in this expanding of the 

marketplace. For one, the government could become more of a reinsurer of catastrophic coverage, making it available on a sliding income scale to those insurance companies willing to innovate and 

offer policies to children and families that are most at risk, companies that are also willing to help with wellness and non-traditional 

forms of healthcare. Keeping people healthy and not just paying for 

their sickness is what insurance companies could be doing differently. Secondly, and what would save small business people a lot 

of time and effort and money would be to make easier access to the 

types and varieties of insurance coverage available. With fewer 

agents in the field and fewer companies, it would be really helpful 

to aggregate their services to a web site or a clearinghouse and 

then use standard terms that could be used and explained. Comparison and maybe some costing, so we could project ahead what 

it would cost for various size groups to have heath insurance. 

In conclusion, I know that we as a country can do a much better 

job of keeping our workforce, our families and our children healthy. 

We need to shakeup the insurance industry and have them start 

thinking of better ways to market and deliver their product and 

less thinking about their shares on the stock market. 

I thank you for your time, Mr. Chairman, Mr. Davis. 

Chairman SHULER. Thank you, Mr. Johnson, for your testimony. 

Our next witness is Bob Kendrick, the owner of Kendrick & Associates, an independent business consultant in Weaverville. 

[The prepared statement of Mr. Johnson may be found on page 

40 of the Appendix.]

STATEMENT OF BOB KENDRICK, OWNER OF KENDRICK & 

ASSOCIATES 

Mr. KENDRICK. Thank you, Mr. Chairman.. Mr. Davis, glad to be 

here. I do appreciate the opportunity to give testimony, even 

though I am certainly not a healthcare professional or particularly 

a strong student of the healthcare issues. 

But I do have an opportunity to work with a number of small 

businesses throughout our region who are either trying to establish 

themselves or are in the position where they are trying to expand 

and grow. I have a second relationship with these folks because I 

run a local certified development corporation, SBA 504, which you 

are keenly aware of on the Small Business Committee, and fortunately we were selected by the Administrator Preston as one of the 

top two in the country this year. We do appreciate the recognition. 

6

What I have discovered in 25 years of working with a variety of 

small businesses is that we really have two sectors of small business that serve all our communities. We have what used to be 

known as the mom and pop business and now are more appropriately considered lifestyle business, where you have the individuals, be it family or non-related, who are trying to establish and 

run a business to support the cost of their lifestyle. They are not 

particularly high growth oriented, they tend to serve local markets—it is the neighborhood store or it is a particular niche where 

they have found a market where they can fulfill. And one of the 

growth factors that is going on in western North Carolina is these 

lifestyle businesses are attracted to our market because of lifestyle 

issues. And whether it be Tennessee, North Carolina, et cetera. 

These small businesses—and it is really the tiny business administration who serves those needs, as you said, tend to be fewer than 

ten employees, most often fewer than five. 

The second businesses we have are what are considered gazelles, 

to where maybe a core group of professionals with various talents 

come together and establish a business. They are more clearly focused on more of a growth opportunity. They are anticipating to expand and grow their business over a reasonable time frame. I think 

Laurey fits that category very well. 

Both of these businesses, regardless of their orientation, have the 

same problems when it comes to healthcare as a component of the 

management of running your business. I recognize what Mr. Davis 

said, that healthcare is a significant issue for small business. But 

it is only one of many—sales, market penetration, cost containment 

as business owners where the cost of health insurance and whether 

you can provide it to your employees or not just becomes one component of the management decision. 

I think we also need to recognize, as do you, Mr. Davis, that 

most of our medical practitioners are small business owners in a 

medical specialty, and they have the same needs and demands as 

the rest of us. They are trying to manage cash flow issues, they are 

trying to find time to take a vacation, they are trying to find time 

to spend with their family and friends. 

All of the activities that were mentioned by Jerry, as far as what 

is happening to the healthcare industry, all run down through 

these same business opportunities. My dentist is on cash, he cannot 

afford the cash flow to get into filing insurance. Many of the doctors that I talk to—and we have a wide variety of medical practitioners in western North Carolina who are attracted here for lifestyle as well as market opportunity—are facing these exact same 

issues. Whether it is regulation as it relates to reimbursement 

plans, the adversarial relationship between the small practitioner 

and the healthcare insurance industry, it is all the same. We are 

just not solving the problems. 

I think our other small businesses, where healthcare is a component are seeing a continual degradation of what they are allowed 

to do for their employees. They have to compete in the marketplace. If they are offering health insurance at a fairly high premium to their employees and their competitors in the marketplace 

are not, then that business is perhaps at a distinct disadvantage 

to capture new sales and profitability to the bottom line. 

7

I know in my circumstance—and my business does not offer 

health insurance—I leave it to people that affiliate with me. I try 

and give them sufficient revenues to where they can go out and 

purchase their own independent. That is what I do. 

Your comment—when I agreed to serve, I went back and looked 

at my own Quickbooks and between health insurance expense and 

out-of-pockets, I have spent $16,000 since January 1 on healthcare. 

I have been healthy, I have not been in the hospital. And that is 

the reality of what we are facing and that is the dilemma. 

I recognize there are about 122,000 working people in Buncombe 

County. These are the folks of which 22,000 have no health insurance, we need to serve. 

I look forward to addressing your questions. I appreciate the opportunity to be with you and I think there are some other aspects 

of small business that need to be addressed, as it relates to 

healthcare. Thank you, very much. 

Chairman SHULER. Mr. Kendrick, thank you for your testimony. 

At this time, I would like to introduce our next witness, Laurey 

Masterton, the owner of Laurey’s Catering and Gourmet to Go of 

Asheville. Laurey, thank you for your time and your commitment 

to your business. And you will have five minutes to present your 

testimony. 

[The prepared statement of Mr. Kendrick may be found in page 

42 of the Appendix.]

STATEMENT OF LAUREY MASTERTON, OWNER OF LAUREY’S 

CATERING 

Ms. MASTERTON. Thank you, Mr. Chairman, Mr. Davis. Thanks 

for asking me to speak about my business and health insurance. 

I have been living and working in Asheville, running my catering 

company since 1987. I started catering out of a second floor walkup apartment, working alone, doing all the planning, shopping, 

cooking, serving and cleaning up. All by myself. 

After three years, I was caught—fortunately—by the Health Department and made the decision to get a real kitchen that was approved and fully legal. And at that point, I started to have employees too, first one and then more and more as needed, of course. And 

my business grew as did my overhead. 

But let me back up just a little bit. When I was 25, I found out 

that I had uterine cancer. I did not have any insurance. At that 

time, I was an hourly employee working in the theatrical lighting 

business in New York City. But I needed and had major surgery. 

Fortunately, I had a mentor whose partner was an OB-GYN and 

she did not charge me for doing the surgery. I did, however, have 

a stint in the emergency room and a few days in the hospital, two 

different hospitals. In New York, at that time, maybe still, there 

was a fund called the Hill-Burton Fund, that covered people who 

did not have any money to pay for these sorts of things. I did not 

have full time employment and so I was covered by that fund. I did 

have to pay the emergency room though, and it took me a long 

time, paying $100 a month, to pay off the thousands of dollars of 

debt that I racked up in those few days. 

8

When I was 34, I had cancer again, ovarian this time, and fortunately at that point, I did have coverage. All of those bills were 

paid, as were the necessary follow-up treatments that were needed. 

Realizing that health insurance is essential, I have offered it to 

full time staff since the very beginning of my business, as soon as 

I had full time staff. This has made me have much more overhead 

than my competitors, as Bob referred to, and has also meant that 

I am more expensive than my competitors. This is a problem, but 

it is also something that I am committed to doing, and hopefully 

my clients will understand that being a good, responsible employer 

means that it can translate into higher costs but that taking care 

of one’s staff is an admirable thing to do. 

Unfortunately, this understanding is not always present. I do not 

really feel comfortable saying ‘‘Well, yes, but they pay under the 

table and they do not offer any benefits and they do not have any 

insurance and....’’—that gets whiney and I try to take the higher 

road, trying to know that I am doing the right thing. 

I do pay all my taxes, I do follow all the rules, which can often 

mean higher costs to me. And I do still offer all my full time employees full health insurance. 

I used to pay 100 percent. A few years ago, however, when the 

costs just kept rising and rising, I had to call a stop to that. We 

have capped our payment per month, per employee now, and deduct the remainder from our employees’ checks. I really wish I did 

not have to do this, but it was really getting completely out of control. 

Let me give you a sense of the costs. 

I have about 20 to 40 employees, about ten of these are full time, 

qualifying for full health insurance. I pay about four or more thousand dollars a month, about four or more percent of my sales, each 

month to Blue Cross and another smaller amount to the dental insurer. This is a significant amount of money for me. Imagine what 

I could do with an extra $48,000 a year. Imagine what some of my 

competitors do. Imagine how they can afford to charge less. 

As I was writing this, a some-time employee of mine came in to 

pick up a paycheck. He has just started a catering company in another neighboring town. He is working out of somebody else’s kitchen and at this point, he does not have any staff except for himself 

and his wife. He was smiling and spoke excitedly about how well 

he is doing. ‘‘The profit is amazing,’’ he said. Right, I thought, having just finished looking at my current list of accounts payable. No 

overhead—he has no overhead, lots of profit. Oh, well. I run a profitable business but it is much harder to do with the huge amount 

of money I pay to health insurance and the other pieces of overhead that I have. 

At the same time, I feel safe, knowing that I have insurance and 

that some of my staff have it too. It makes a huge difference to 

them. We have had employees with injuries—not from working, 

just on their own, playing soccer and horsing around, and they 

have been covered. We have had folks who now get regular medical 

and dental checkups and I know that they were not able to do that 

before working for me. I know I am doing the right thing. And it 

is expensive. 

9

It seems tragic to me that we cannot find a cheaper way to take 

care of things. I am glad to know that you are asking for opinions 

and experiences and I really do hope that you can find a way to 

get more people insured and for people like me to be able to run 

a responsible, profitable and truly competitive business. Everyone 

should be able to have insurance and an employer should be able 

to offer it without breaking the bank. 

Thank you very much. 

Chairman SHULER. Thank you. 

At this time, I would like to introduce Caroline Coward, an attorney at Van Winkle law firm here in Asheville. Caroline also sits 

on the Asheville Area Chamber of Commerce Healthcare Roundtable. 

[The prepared statement of Ms. Masterton may be found on page 

45 of the Appendix.]

STATEMENT OF CAROLINE COWARD, ATTORNEY, VAN WINKLE 

LAW FIRM 

Ms. COWARD. First, I would like to take this opportunity to get 

on the record that I am originally from Robbinsville and until Mr. 

Chairman came along, that we were able to beat Bryson City occasionally. 

[Laughter.] 

Ms. COWARD. Having said that—

Chairman SHULER. Can we strike that from the record? 

[Laughter.] 

Ms. COWARD. —I am an attorney and a partner with Van Winkle 

law firm with offices in Hendersonville and Asheville. We have 104 

employees, 38 attorneys and 66 support staff. Our firm has reacted 

specifically to the rising cost of healthcare in two ways that I will 

address. 

First, we have reacted by implementing a new healthcare plan. 

In 2005, we were consistently seeing annual double-digit percentage increases in our healthcare costs. By implementing the new 

plan, our goal was, and is, to cause the participant to be a better 

consumer and understand the true cost of healthcare. We still have 

a traditional plan that has a lower deductible and co-pays. We have 

steadily decreased the benefits of that plan and will phase it out 

completely by 2009. 

Our new options are high deductible plans and healthcare savings accounts. The firm makes contributions to HSAs for employees 

participating and reduces or eliminates the payroll premium contribution. The plan pays $500 per person for wellness visits, except 

for vision and dental. By basically shifting more risk to the employee, the plans will theoretically attract employees who tend to 

be healthier. The risk that we are taking is whether we will get 

enough employees who are also willing to take the risk of these 

plans. 

Secondly, we have reacted—our firm—by making an effort to understand why the cost of healthcare is rising and if there are issues 

particular to our region. We have participated for the past four 

years on the Buncombe Chamber of Commerce Healthcare Roundtable, which consists of employers and providers. The roundtable 

10

has focused on issues related to the rising cost of healthcare for our 

region and strategies to address the underlying causes. 

One factor identified by the roundtable is the fact that our region 

has a high percentage of Medicare patients, but because of the 

methodology for determining the rates Medicare will pay, our providers are paid less than providers in a town close, Greenville, 

South Carolina, which is about an hour and a half from us. For instance, statistics from the roundtable indicate that Mission Hospital was paid 87 percent of its cost for Medicare and Medicaid patients in 2006, resulting in over $42 million in costs shifted to other 

payers. This cost differential is not due to inefficient use of resources. The total per Medicare enrollee for hospitalization in western North Carolina is at the 24th percentile nationally, 50 percentile is the average. Ultimately, these costs are shifted to insurers and businesses which result in increased healthcare premiums. 

The roundtable has found that employers and employees are increasingly dropping coverage, resulting in a growing amount of bad 

debt and charity care expenses for physicians and hospitals. This 

cycle impacts us as an employer by causing our costs to rise in 

order to subsidize the under or uninsured. It is estimated that 

nearly 22 percent of Buncombe County residents between the ages 

of 19 and 64 do not have health insurance. Over half of the uninsured are employed. 

The roundtable has focused on four strategies to address this 

issue: 

One is to advocate the appropriate payment for Medicare and 

Medicaid. Basically, Medicare reimbursement is based in part on a 

wage index of certain established regions throughout the country. 

Asheville is located in a region that has a lower wage index than 

Greenville, South Carolina. However, Asheville must compete with 

Greenville for resources such as nurses and other healthcare providers. As stated above, Greenville has a higher Medicare reimbursement than Asheville, although the cost to provide services is 

as much or more in Asheville than it is in Greenville. 

Second, the Chamber is promoting community-wide initiatives in 

the area of prevention, cessation of smoking, increased physical activity and reduction of obesity by promoting community resources. 

The objectives are to conduct a widespread community-based 

health promotion publicity campaign to inform and reinforce our 

identity as a Health Community as defined by the CDC. 

It is also to support a single point of entry for information and 

access to existing resources, making health promotion available to 

residents of Buncombe County. 

Third is to encourage the development of alternative insurance 

products for small businesses. The roundtable is presently reviewing whether employers in the area would be interested in developing a model established in Missouri where laws were amended 

to allow small and large employers to combine and create a large 

risk pool. 

The fourth is to advocate for medical liability reform. Defensive 

medicine, over-utilization of technology, continues to cause the rise 

in healthcare. 

In closing, as an employer, a member of the roundtable and a citizen of western North Carolina, I ask for active support from our 

11

federal legislators. These issues are hindering economic development and the achievement of improved health status of our community. 

Thank you. 

[The prepared statement of Ms. Coward may be found on page 

47 of the Appendix.]

Chairman SHULER. Thank you. And thank all of the panel for 

your testimony. 

Ms. Coward, I think your point is exactly well taken, especially 

when we are talking about the cooperatives pooling different businesses and groups together. What do you think the biggest obstacle 

has been in some of these districts of retaining small businesses 

and actually getting them involved in the pool groups, the cooperative groups, to be able to sustain—what are some of the obstacles 

we can overcome from our side that we can set forth the initiatives 

that employers are able to be actively involved in these pool groups 

to be able to lessen the cost? 

Ms. COWARD. I mean, I would think the concern would be whether or not the larger employers are going to even want to set up 

these groups, because if a larger employer is able to attract a wider 

range of patients—of patients, I am sorry—of employees and that 

range includes healthier employees, whether or not they are going 

to be accepting of smaller employers who maybe do not have as 

healthy a work force. I see that as maybe the first obstacle, is basically convincing the large employers to be willing to bring on the 

smaller employers. I am not sure that it is going to flip the other 

way. And Laurey may have an opinion. 

Chairman SHULER. If you look at being able to pool—Ms. 

Masterton, have you been able to put some of your resources together to see if you could pool some of your different colleagues together under a specific pool to be able to lower your healthcare 

costs? 

Ms. MASTERTON. I am a member of Asheville Independent Restaurant Association and I know that is something that they are 

looking at. Frankly, I am trying to run my business and I have not 

really had time to look into it. You know, I know that in other 

places, at the chambers of commerce, you can be a part of the 

chamber health insurance plan, and I guess we are not allowed to 

do that in North Carolina. 

Chairman SHULER. That is right, North Carolina is excluded. 

Ms. MASTERTON. I would love to be in a group, a big group or 

a little group or a group of my colleagues, you know. I like groups. 

[Laughter.] 

Chairman SHULER. You would like to be in any group. 

Ms. MASTERTON. I would just like to have the security of insurance and there is safety in numbers, yeah. 

Chairman SHULER. Mr. Kendrick, how do you feel about being 

able to pool, if we could pool in this state, to be able to pool some 

of our resources together to be able to lower the cost? 

Mr. KENDRICK. I think it is a worthy goal. And I think that a 

reasonable segment of the small business community would look to 

that. I think business owners want to serve the needs of their employees because that is retention, that controls turnover and people 

12

care about the people they work with. But it will not be universal. 

Again, my point being, if nobody in my industry insures anybody, 

then I do not have a motivator to get me to that table. 

Chairman SHULER. Absolutely. How have you seen retention, not 

being able to provide health insurance for your employees? How 

have you looked at that retention? 

Mr. KENDRICK. If you look at the family circumstance, there are 

many, many, many people in our community that one spouse works 

at a job with benefits and retains that job because they can get 

benefits, which frees up the second significant other to perhaps 

look at other opportunities where health insurance or other benefits are not available. I think it is key for retention, and I think 

Laurey would probably find that the case with her business. 

Ms. MASTERTON. It is true and probably every single week somebody on my staff comes and says this is the greatest place to work 

and thank you so much for providing insurance. It is hugely important to them. 

Chairman SHULER. So often I think now in small businesses we 

are seeing, maybe not so much the salaries, but the benefits that 

they ask about first, because of the healthcare costs, it is such an 

important part. Mr. Kendrick, I mean, you just spent what, $16,000 already personally? 

Mr. KENDRICK. Two thousand a month, it is two lives, you know, 

we are talking about. 

Chairman SHULER. Absolutely. I have had some folks that have 

worked for me and it has been amazing to actually see the actual 

cost. I actually got my health insurance license, a life and health 

license, once upon a time. And to really be able, from a small business owner, be able to see how it actually impacts us, and I found 

out pretty quickly that—my in-laws are in the insurance business, 

independent insurance company and it is not like you can make 

money off just a couple of people. I mean you have to have lots and 

lots. And I am sure we will hear from our panel, our second panel, 

but you have to have a lot because there is not a lot of money actually being made on the brokerage side of it. It is a very, very small 

percentage that is actually making money. 

Mr. Johnson, how often would you say that you—at the end of 

each year, you revisit your health insurance? 

Mr. JOHNSON. It is an annual—I mean you cannot step away 

from it. What I do, because group policies for less than ten employees are not available, you know, we do an allowance for our employees and, you know, we spend a thousand a month in insurance, 

you know, just to give them money that they can use to purchase 

their own health insurance. 

Chairman SHULER. So you have really gotten to the point that 

because you know that the cost is so high, that you do not even 

bother the broker of insurance. 

Mr. JOHNSON. Well, I ask the broker and the broker says, you 

know, you are better off with an individual policy because a group 

policy is going to cost you 20 percent more. 

Chairman SHULER. Do they look at that money that they are receiving, extra money to be able to provide their own coverage, do 

they look at that as salary or do they look at that as benefits? 

13

Mr. JOHNSON. I really do not get the compliments that Laurey 

does. 

[Laughter.] 

Mr. JOHNSON. Because it is not really—I am not really telling 

them what it is for, it just gets attached once a month and says 

here is the allotment for, you know, each one of you. 

Chairman SHULER. How many of them would you say actually 

gets coverage? 

Mr. JOHNSON. All of them. 

Chairman SHULER. All of them. 

Mr. JOHNSON. Yeah, and we discussed it. They actually do get 

some kind of coverage. Sometimes they will come back and say 

what do you think is the best buy, something like that. They want 

some consultation. And that is hard to get for individual policies 

because there are, like I said, fewer agents out there offering it you 

know, and so people want to share information to find out what 

other people are buying, what is good coverage. 

Chairman SHULER. Ms. Masterton, how do you feel—how often 

do you research your health insurance costs? 

Ms. MASTERTON. There is little choice and I have that from a 

person who comes in and says well, we can switch to United 

Healthcare this year or we can switch to Blue Cross this year, so 

we sort of switch back and forth and it drives me crazy. 

You know, I have looked into giving people money and asking 

them to get their own insurance, but I have two women who are 

in their forties and then there is me who throws the whole thing 

off because I have such a checkered medical past. And then I have 

young men who are $80 a month, and then I am, who knows how 

much I am. You know, it would be ridiculously expensive. And so 

we balance each other out, the old gals and the young guys and—

[Laughter.] 

Ms. MASTERTON. It is true, so yeah, it is just my cost of doing 

business. 

Chairman SHULER. It is amazing now, as you look at so many 

people, if you are switching coverage, how many times they say 

that you are not covered or we are not going to cover that particular case. 

Ms. MASTERTON. That is right. I am totally a pre-existing condition, I am a walking, living, breathing—you know, it is hard. 

Chairman SHULER. Have any of you—and this is open to the entire panel—have you looked at maybe some just catastrophic coverages? I mean, Mr. Kendrick—

Mr. KENDRICK. That is what I carry. 

Chairman SHULER. That is basically what you carry. 

Mr. KENDRICK. There is no dental, there is no vision, it is major 

medical with a high deductible. And in December when I turn 59, 

it will go up. I mean, that is the way it works. 

I would like to make one comment while it is open. There is a 

hidden cost in this. Your opening remarks were about the future 

of our economy as small business. And as someone who is a lender, 

do you realize how many credit reports I see on entrepreneurs who 

cannot get financing because under an otherwise unblemished credit history, they have medical collections because a child was ill five 

years ago and it decimates them on trying to get business loans or 

14

even personal credit costs. And that is a whole hidden cost. They 

are not smart enough to do what Laurey did and get on a $100 a 

month payment plan as to not destroy their credit. 

Chairman SHULER. Ms. Coward, how do you feel—the medical 

savings plan, how has it been adopted in our area and how many 

people are participating, would you feel, in a health savings plan? 

Ms. COWARD. Well, again, I think that—I do not know in the 

whole area, I just know with our firm, we are working into it and 

it was not an easy sell because the employees are taking a lot more 

risk with the high deductible, but it does—so ultimately, again, I 

believe we will end up perhaps with a healthier workforce, but we 

also may end up with no workforce, depending on whether or not 

we are going to have employees that are willing to take the risk 

of a higher deductible. 

Chairman SHULER. Absolutely. At this time, I would like to recognize the gentleman from Tennessee, Mr. Davis. 

Mr. DAVIS. Thank you, panel, you have done a wonderful job explaining the situations you deal with every day. As a small business owner, I still deal with them, even now, I still own a small 

business and still see those rates go up in the teens every year. 

I can tell you, Ms. Masterton, coming from my background, I 

know that I could not go out and have a workforce that is willing 

to come to work without health insurance. And it sounds like you 

understand, you pay $48,000 more than your competitor does, but 

do you feel like you are probably getting a better type of employee, 

hopefully giving you a competitive advantage, because you are willing to do a little more than some of your competitors? 

Ms. MASTERTON. Yes, I do. And I think—I have people who have 

been with me for ten years and the two older women who I referred 

to, one has been with me ten years, one has been with me for nine 

years. And you do not see that—restaurants are heavily—there is 

a lot of turnover. And relative to the industry, I do not have turnover, and I think that it is because of that. And I think there are 

a substantial number of my clients who do recognize that and appreciate it and hopefully understand that I am running a responsible business. So yeah. 

Mr. DAVIS. Thank you. 

Ms. Coward, coming from a legal profession, it is interesting for 

me to hear you talk about medical liability reform. Can you expand 

on that a little bit and tell me where you see, as an attorney, where 

some of the problems were at and how you have some of those hidden costs in healthcare? 

Ms. COWARD. Well, I mean, I think that where I sit, we are a 

defense firm, so we represent the provider side, we are not the 

plaintiff side. With that said, what we do see is more and more 

physicians are using defensive medicine, where they will prescribe 

a lot more procedures, a lot more tests, to cover their rear end—

[Laughter.] 

Ms. COWARD. —whenever they are looking at a patient, particularly emergency room situations. And that ultimately leads to, not 

only the cost is high whenever there is a lawsuit with large damages found, without a cap to that, but then on the other side, you 

are seeing daily over-use of diagnostic testing because of physiVerDate 0ct 09 2002 09:26 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38200.TXT LEANN
15

cians’ concern about the possibility of a medical malpractice lawsuit against them. 

Mr. DAVIS. Thank you. 

Mr. Johnson, you talked about the need for additional competition. Can you talk to us a little bit about where you see that competition being built in? Do you feel like that needs to be mandated 

by the federal or state government or do you feel like that something needs to be done in the private sector? And how do you see 

that working? 

Mr. JOHNSON. Well, I mean, if I go back to where it was 25 years 

ago, there were a lot of small insurance companies. Now, there has 

been a lot of consolidation in the insurance industry and less of 

them taking risks, you know. But if we do not have competition, 

you are not going to have innovation. I mean, they are only going 

to provide what they have to provide. You can go now and some 

of the insurance companies do not tell you that they provide health 

wellness, you know, physicals every year, certain tests every year 

to an age group, et cetera. But, you know, that should be something that everybody does and yet some of them do not want you 

to really know that. It is couched in the terms and everything. 

So I think that more wellness-oriented companies are out there, 

I think, if the catastrophic were somehow handled. It is the catastrophic I see—that is what people are worried about, employees, 

everything else. It is not about—they can figure out how to pay for 

the office visits, they can figure out how to pay for the small tests. 

You know, yeah, they have gotten used to some of that, but they 

know in the overall picture, that is not what is going to hurt them, 

it is the catastrophic. And a lot of people cannot buy catastrophic 

insurance. 

So if they are going to have more competition in the marketplace, 

somebody has got to be the reinsurer or the backbone that will provide the catastrophic. And then I think you would see more small 

insurance companies or people starting insurance companies that 

might want to get in there and provide a wider variety of services, 

knowing that the catastrophic is kind of covered. 

Mr. DAVIS. How do we go about encouraging that, as a Congress? 

Mr. JOHNSON. Well, looking at how catastrophic affects the bankruptcy rate, looking at how catastrophic affects small families, how 

it hesitates people from risking going into small business at all. 

You know, now that we do not have a decent bankruptcy law and 

now that we do not have—I mean if somebody gets sick and they 

have a multi-hundred thousand dollar bill at the hospital, they 

know they cannot go out and start a small business. They are totally limited, there is no backdoor, you know. I think that Congress 

has got to figure out a way to work with insurers to provide catastrophic insurance for a segment of the market, whether it is—you 

know, the one I hear about all the time is—I hire a lot of older employees and they are worried about, you know, retiring at age 60 

and not getting to Medicaid. You know, that group there has got 

health problems just because of their age. The actuarial tables will 

tell you that you are going to get problems when you get above the 

age of 59. 

Mr. KENDRICK. Not all of us. 

16

Mr. JOHNSON. But I mean that is something that is there, but 

there is no one coming forward and saying well, we will make sure 

that you are not going to be without a home, without a future, 

without the ability to, you know, buy groceries, because you have 

had a catastrophic illness. And that is not fair. 

So I think Congress has to look at how they can somehow supply 

or help reinsurers or insurance companies in general be there for 

the catastrophic so it does not fall down on the little guy, who is 

a small business owner or has the potential to be a small business 

owner. 

Mr. DAVIS. I mentioned three different things in my opening 

statement. I mentioned associated health plans, Mr. Shuler is calling them pools. The four of you, are you supportive of associated 

health plans? 

Mr. KENDRICK. I think associated health plans add to that sense 

of competition. If the association could be formed and you could get 

sufficient lives in it to where we are not just making application 

to an insurer, but now we are out there and seeing if they want 

to bid to buy that association’s group plan. I mean that is one way 

you address competition. If there are 10,000 people in an association group and you say who wants to insure this group, you are setting an opportunity for competition. So yes, I agree that it is a solution. 

Ms. MASTERTON. I agree also, yes. I think whatever we can do 

to get more people insured, able to insure their employees, then the 

better off we will be. And yes, it has to be affordable. 

Ms. COWARD. And I guess I look at some possible incentive for 

the large employers to want to participate, because I think they 

may be key, and it would be good to have a champion to take this 

on, and there may be some out there. 

Mr. DAVIS. I know you are supportive of HSAs, health savings 

accounts. 

Ms. COWARD. Yes. 

Mr. DAVIS. Are the rest of you? 

Mr. KENDRICK. I have looked at it, but it is a lack of knowledge 

and it is just one management job that the owner of the business 

has to perform. There are many other management jobs. We cannot 

learn to be our own healthcare professional. I mean the question, 

when do you look at your health insurance—well, when I get the 

notice of increase, I call and I say what are my options. And I want 

a professional who understands the plan to give me an opinion, 

well, you could do self-insurance, you can go to a pool, you can do 

this or this or this. And then you make the management call. 

Okay, raise deductible, drop dental, whatever it is you need to do. 

Mr. DAVIS. And another thing that I mentioned was President 

Bush mentioned in his last State of the Union, being able to use 

tax dollars. Instead of sending it to the federal government, actually allowing the business owner or the employee that is self-employed or an employee that works for a small business and does not 

have insurance, use your tax dollars to actually go out and purchase heath insurance, rather than sending that money to Washington. Does that sound like a solution? 

Ms. MASTERTON. That involves a lot of responsibility on the part 

of the employee and I think that for the folks that work for me, 

17

I think that—you know, I worry that they would not take the time 

to do the exploring. You know, for the man, it would be fine, and 

the women, it would not be fine. And it is just not equal and it 

would be difficult. The women would not do it, I think, I fear. 

Mr. DAVIS. And back to something Mr. Johnson said somewhat. 

You give a lump sum of money and you hope and probably intend 

for that money to be used to buy health insurance. 

Mr. JOHNSON. Uh-huh. 

Mr. DAVIS. I will tell you, the vision I get of healthcare in America. We understand when we go to a supermarket that the odds are 

when you go through and you fill up your grocery cart and you go 

through the checkout line and you have $150 worth of groceries, 

most people intend that when you get there, you are going to have 

to pay for it. Or you stop at a gas pump and you put gas in your 

car, you probably are going to have to pay for it. Or if you have 

someone come in and do some electrical work, when they finish, 

you assume that you are probably going to have to pay for it. 

Healthcare is one of those things in America where over the last 

40 years, we have come to a situation where you go receive your 

healthcare and then somebody else is responsible for writing the 

check. And as long as we have Americans and employees not willing to take an active role in their healthcare because somebody 

else, in their mind, is paying for it—we are all paying for it. He 

is paying for it, I am paying for it, the panel is paying for it, business owners are paying for it. Ultimately, your employees and customers are paying for it, because that cost gets spread. 

Until we can have Americans, in my opinion, understand that 

they need to take an active role in their healthcare, in wellness 

issues, the purchase of the right type of insurance and understand 

that defensive medicine drives up cost—all those things go in to the 

pricing of healthcare. Until we have Americans willing to take a 

stand and say look, I am going to start looking at my invoice that 

I get from a provider, I am going to start looking at my Medicare 

EOMB, my explanation of Medicare benefits, and determine did I 

really get what they told me that I was charged for. 

Does the panel sort of see that Americans have gotten away from 

believing that they have a responsibility for healthcare? Anybody? 

Mr. KENDRICK. I think there is an element very true in what you 

are saying, but it is the interpretation. My wife worked in 

healthcare for a number of years and, you know, if we have a world 

where the medical professional is calling on a high school graduate 

to interpret benefits and reimbursement to the doctor, then by the 

time it gets to the individual who received the care and they get 

the form, they are not qualified to do their own interpretation. I 

mean, they do not know. 

Mr. DAVIS. A lot of layers of bureaucracy. 

Mr. KENDRICK. They do not know. 

Chairman SHULER. Will the gentleman yield? 

Mr. DAVIS. Yes. 

Chairman SHULER. One question—two questions. How long 

would it take all of you to run a P&L statement for your business? 

How long would it take you to run a P&L statement for your business? 

It could be back in ten minutes probably. 

18

How long would it take each one of you to get your personal medical history compiled together? 

[Laughter.] 

Ms. MASTERTON. A long time. 

Chairman SHULER. I think that is what Congressman Davis is 

saying. We personally have to take care. We can put a lot of blame 

and we can hope that the federal government would do a tremendous amount, but when it really comes down to it, I mean as individuals, we have to be responsible for our healthcare. And part of 

that would be a wellness program, preventative care, disease management, the technology that is available—and that is one of the 

things that the hospitals—I know that our hospitals locally are 

doing a data link system that really truly is trying to inter-link our 

hospitals and our doctors’ offices so they do not have duplicate 

services when they get there. 

Now not everyone can eat healthier and exercise more. We understand that. But if we all make a little small part of the big pie, 

we are going to lower some of the healthcare costs and we are 

going to ultimately get into, you know, whether people are for or 

against or whatever your idea of universal healthcare is, if we do 

not take control of our own personal health, we will be taking that 

P&L statement, I am telling you, and all we are going to do is take 

it from one industry to another. And ultimately, I am afraid that 

that industry will be the American tax dollars and we will be paying taxes back into it. 

And I apologize and I yield back. 

Mr. DAVIS. Very good point. 

Ms. MASTERTON. I think that it is very important for people to 

take responsibility for their health and I know that the hospitals 

have a big plan with their employees to do that and I know the 

City of Asheville does that and I know it is a very important part 

of what the Chamber is doing, supporting healthy lifestyle. It 

makes a huge difference. And I think that, you know, from my perspective, again, if I were to just say here is $400-$500, go decide 

what you are going to do yourselves, it’s just that there is—if you 

are young, it is cheaper and if you’re old, it is cheaper. So do I pay 

the 50 year old women $900 and I can give the young guys $90? 

That is not fair. So then I get caught up in how do I take care of 

my staff. I mean I provide a parking spot for them and I provide 

healthcare for them and I provide a uniform for them. And, you 

know, that is part of mom Masterton takes care of her kids in this 

way. And I make less money because of it, but it is part of what 

I do. 

Mr. DAVIS. You are a good corporate citizen, thank you for what 

you do. I yield back. 

Ms. COWARD. I do think—let me say one thing—that in western 

North Carolina, because we do have a really large percentage of 

Medicare and we are getting paid less, I agree that people should 

take more responsibility but I do think with this cost shifting, that 

employers are ultimately having to pay a lot of costs that are being 

shifted to them that other parts of the country are not having to 

pay, other like kind areas. 

Chairman SHULER. I agree with you. And I commend this panel 

for the work that they have done with your own business. As you 

19

can probably tell, I mean, we could spend hours upon hours discussing the things that we can do to better this healthcare problem 

and this crisis that we are truly in. Congressman Davis and I have 

our work cut out for us, and as do our colleagues, to really try to 

find this comprehensive plan that can actually work. I think some 

of the most important things that we can do is provide healthcare 

coverage for our seniors, healthcare coverage for our children. We 

have got some work to do and having this testimony certainly helps 

because we know now—we do not just assume and we cannot do 

our job effectively in Washington if we do not hear from you and 

we do not understand what your needs are in the small business 

arena. It is real easy when the big corporations show up with their 

folks, but it is sometimes the small businesses that we never hear 

from and that is why it is so important that we continue to work 

together, work with our chambers, work for our small business 

groups and collectively work together to see how we can better benefit our small businesses and our communities. 

Just as we said, if we can lower those costs one small company 

at a time, then over a few weeks, months and years, we are going 

to lower our healthcare costs. But we have to be actively involved 

and I think it is going to take different layers, as we have discussed here and we have heard, our witnesses have given us great 

testimony, the obstacles that you are in in your business. 

Ms. Masterton, it is incredible that you continue to provide 

healthcare coverage for your employees, and I commend you for 

that. That is an outstanding job and I know they respect you and 

retaining your employees I know is—when someone works for you 

for nine or ten years, it is a compliment to you as an employer. And 

I know that they are not there just because of healthcare, but 

knowing that you provide that, that really comes from the heart. 

And I commend you, and I commend all of you for the hard work 

that you are doing in our community. 

And at this time, we will have the second panel come forward 

and I thank you for your testimony. 

[Pause.] 

Chairman SHULER. I would like to thank the second panel. As 

you can tell from our first panel, we have got a lot of obstacles to 

overcome in our healthcare. Obviously, from the provider side, from 

having quality care. I know that this panel obviously—we all listened very well in knowing that our healthcare costs and needs 

and how we collectively in the long can pull the rope in the same 

direction, to truly know that we need the quality of care first, access to care and that we can better be a healthier community. And 

there are so many ways that we can get there, let us just see—we 

know what the ultimate goal is, to have insurance and provide insurance in some capacity for all Americans. But some of the most 

important things we have to do is have their access to it. And some 

of the access requires that their health insurance is not the emergency room and that is not their primary care physicians, the 

emergency room. But actually provide access through our providers 

and hopefully through employers more, but we have to get ahold 

of our healthcare system. 

I would like to welcome the second panel. I look forward to your 

testimony. I would like to call our first witness of the second panel, 

20

Miriam Schwarz is the CEO and Executive Director of Buncombe 

County Medical Society. Ms. Schwarz also oversees Project Access, 

a charitable organization that provides free healthcare for uninsured through physician volunteer basis. 

I thank you and you have five minutes for your opening remarks. 

STATEMENT OF MIRIAM SCHWARZ, CEO AND EXECUTIVE 

DIRECTOR, BUNCOMBE COUNTY MEDICAL SOCIETY 

Ms. SCHWARZ. Thank you, Mr. Chairman, Mr. Davis. I am very 

honored to be here today. My name is Miriam Schwarz and I am 

the CEO of the Buncombe County Medical Society. I have been on 

the job for two months. But during that time, I have heard from 

a lot of physician practices and have also gotten to know the 

Project Access program very well. 

So today, what I would like to do is to focus on two key points: 

One, physician practices as small businesses; and the second I 

would like to talk about the Buncombe County Medical Society 

physicians as providers of free care to the working uninsured. 

Beginning with physician practices as small businesses, there are 

approximately 500 physician practices in the 16 counties of western 

North Carolina. Most of them are small businesses. Like all small 

businesses, these physician practices have a hard time affording insurance because they have so few people to spread the risk. One 

sick employee and the small business’s premiums go through the 

roof. Thus, small businesses pay higher premiums per person than 

do large corporations. 

And it is a fact, as we have heard already, that many small businesses have to offer reduced benefits in order to survive. Most of 

our doctors’ offices have reached a point where they can no longer 

afford to pay the entire premium for their own staff’s health insurance, so they are increasingly asking employees to accept higher 

deductibles and pay a higher share of premiums and they are dropping family members from the plan. 

Here is one story from a practice I talked to, this is quote: 

‘‘From the employer point of view we are, like everyone else, 

stuck with reviewing options and deciding whether to renew current coverage, reduce current coverage or seek coverage with a different insurer. This is time consuming and expensive, just to get 

the information. Then comes decision time. At present, it is a trade 

off between increasing deductibles and requiring employees to pay 

more of their premiums. Insurance coverage—health, businessowners and malpractice—is the single largest expense we face each 

year.’’

In addition to dealing with their own employees’ healthcare 

plans, physician practices must also deal with the ever-changing 

landscape of healthcare coverage for their patients, as small businesses shift to less expensive coverage and deductibles. The impact 

of the shifting sand is summarized by this one practice, quote: 

‘‘It is very likely that during the next few months, we will have 

to add a staff position to do nothing but handle precertifications 

and authorizations for managed care entities, not to mention the 

Medicare Advantage plans. It is difficult to keep up with the everchanging coverage as employers shift to different, less-expensive 

coverage, and employees are not usually up to date on their current 

21

coverage. This requires additional time on the part of the front 

desk personnel to get new information, then on the part of billing 

staff to verify coverage and make changes in the computer. Collecting balances then becomes more difficult because patients are 

now having to meet higher deductibles than in previous years. 

It is a constant challenge to keep this ever-changing landscape 

in view, and it has a ripple effect that touches just about everyone 

in the practice.’’

Now I am going to talk a little bit about the physicians as providers of care to the working uninsured. I am going to start with 

a story of one of our patients. 

This patient was diagnosed with adult-onset asthma, with severe 

breathing difficulties requiring unaffordable medications and doctor 

visits. Her part time work did not provide her with health insurance. Project Access came to her rescue, as it has with so many 

other thousands of patients in Buncombe County. After receiving 

proper treatment, her breathing improved and she was able to get 

a full time job that provided her with health insurance. She says 

of her doctors, they saved my life. 

Eleven years ago, the physicians came together to organize the 

charity care they provided, making it more efficient, more comprehensive and more accessible to patients. Project Access is an integral component of our local safety net healthcare system and that 

includes primary care, specialty care, hospital services, labs and 

other services for low-income, uninsured patients. 

It is a strategic partnership between the government, non-profits and for-profit organizations. The doctors have donated over $10 

million in free care for 3300 patients this year alone. In the past 

11 years, 18,000 patients have been served with a total value of 

services of $72.8 million. 

Forty six percent of our current Project Access patients have no 

insurance but they work full time, part time or are self-employed. 

Over 85 percent of the county’s private practice physicians are participating in Project Access and, remember, these practices are 

small businesses themselves, struggling to insure their own employees. But they give away free care. 

This program, Project Access, is a great program being replicated 

all over the country, but I am here to tell you that our physicians 

are growing weary. The physicians of Buncombe County are giving 

away free care to the working uninsured, but those numbers keep 

rising and they cannot keep up with the pace. Their own health insurance premiums are up, physician reimbursement is down, medical liability insurance premiums are up. The healthcare system 

does practice some defensive medicine for fear of litigation and 

healthcare coverage for patients is becoming scarce because employers can no longer afford to provide coverage for their employees, let along their family. 

I want to emphasize that Project Access is not a cure for the uninsured. Project Access is not the answer to this incredibly complex 

problem of national healthcare reform, it is just a stop gap measure, an example of a community of physicians locally trying to address a problem in the absence of policy reform at the state and 

national level. Project Access is ethical and philanthropic doctors 

working for free, and there is only a certain amount of free care 

22

that doctors can afford to give away. Relying on charity care is not 

the solution. 

Thank you. 

Chairman SHULER. Thank you for your testimony. 

Our next witness is Mark Leonard, CEO of WestCare, a nonprofit healthcare provider that delivers healthcare to over 80,000 

people living in western North Carolina. 

I welcome you and you have five minutes to give your testimony. 

[The prepared statement of Ms. Schwarz may be found on page 

49 of the Appendix.]

STATEMENT OF MARK LEONARD, CEO, WESTCARE 

Mr. LEONARD. Thank you, Mr. Chairman and Mr. Davis for allowing me to present the hospital perspective of providing care to 

our uninsured patients. 

Increasingly large numbers of Americans and North Carolinians 

without health insurance is a growing problem and I applaud your 

efforts in bringing us together today to discuss it. 

Let me briefly describe our health system and the impact of a 

growing uninsured population. WestCare Health System consists of 

Harris Regional Hospital in Sylva, Swain County Hospital in 

Bryson City, Mountain Trace Nursing Center in Webster, 

WestCare Medical Parks of Franklin, Sylva and Bryson City, along 

with a variety of ancillary programs and services. WestCare employs over 1020 staff members. Each year, we will see over 6000 

hospital admissions and another 95,000 outpatient encounters. Our 

medical staff performs almost 6500 surgeries each year and deliver 

over 750 babies each year. We see over 27,000 patients in our two 

emergency departments annually. 

Our primary service area consists of Jackson, Macon, Swain and 

Graham Counties. Almost 90,000 citizens live in this service area. 

Approximately 18 percent of western North Carolina’s population is 

65 or older, as compared to the state average of 11.7 and the national average of 12.1 percent. Additionally, our region experiences 

greater incidence of poverty than the state average. 

Being uninsured can create grave negative health consequences. 

Uninsured patients often put off seeking care until a condition is 

serious and includes multiple complications. These patients will 

seek care through our emergency departments as well as ERs 

throughout the country. Uninsured patients make up over 24 percent of all patients treated in the emergency departments at 

WestCare Health System. An emergency room is the most costly 

setting to provide care. Unfortunately, the ER oftentimes becomes 

the family physician for people without health insurance. 

Gentlemen, I am embarrassed to tell you that the Institute of 

Medicine estimates that approximately 18,000 people die each year 

nationally from diseases and conditions that are treatable and preventable, simply because they do not have health insurance. 

At WestCare, we, like many other hospitals, define uncompensated care as consisting of shortfalls from the Medicare program, 

the Medicaid program and from the uninsured. At WestCare, the 

total annual cost of uncompensated care we provide exceeds 

$8,200,000. Five million dollars of that amount is the cost of care 

23

provided to our uninsured patients. And at WestCare, we have 

seen this trend line accelerate at an alarming rate. In 2003, we 

provided $2,500,000 in cost of care to the uninsured. Remember, we 

project that amount to double to over $5 million this year. And at 

WestCare, over 25 percent of our uninsured patients are employed. 

That is to say, $1,250,000 of cost of care is provided to patients who 

are employed but for which we receive little or no reimbursement. 

And of course, when the uninsured receive care, their care is paid 

by others. We, like other health systems, make the difficult decision to pass along the cost of their care to privately insured patients. This reality is necessary in order to come close to recovering 

our daily operating costs. This creates a vicious cycle. As the uninsured increase or when Medicare or Medicaid cut reimbursement 

rates, we are forced to shift our costs and ask the privately insured 

patients to pay more. This puts a greater burden on employers who 

often decide then that they can no longer provide health insurance. 

In turn, more people are uninsured and the problem only gets 

worse. To continue to break even, WestCare and other hospitals 

must shift these losses to the privately insured, which will only result in more uninsured patients. 

Yesterday, the Census Bureau announced that the number of 

people without health insurance rose from 44.8 million in 2005 to 

47 million in 2006. The Census Bureau figures, however, looks at 

the total population. However, just about everyone over 65 is insured through the Medicare program. By including the over 65 population, the Census Bureau’s figures are somewhat misleading and 

understate the problem. If you look at just the 18 to 64 age group, 

the uninsured rate for the U.S. is 20.3 percent, the rate for North 

Carolina is 19.5 percent and the rate for western North Carolina 

is 20.1 percent. 

Mr. Chairman, Mr. Davis, thank you again for your leadership 

in highlighting this significant issue. 

Chairman SHULER. Thank you, Mr. Leonard, I appreciate that. 

Our next witness is Dr. Baumgarten, a physician in private practice at Asheville Family Health Center. Mr. Baumgarten is Vice 

Chief of Staff at Mission Hospital. 

You will be recognized for five minutes. 

[The prepared statement of Mr. Leonard may be found on page 

53 of the Appendix.]

STATEMENT OF ALAN BAUMGARTEN, M.D., PHYSICIAN, ASHEVILLE FAMILY HEALTHCARE AND VICE CEO OF MISSION 

HOSPITAL 

Dr. BAUMGARTEN. Thank you, Chairman Shuler, Mr. Davis. As 

you know, my name is Dr. Alan Baumgarten, I am a family physician, 20 years in practice with Asheville Family Health Center, 

Vice Chief of Staff for Mission Hospital and also the Buncombe 

County Medical Society representative to the Healthcare Roundtable, Business Healthcare Roundtable. 

I will speak about doctor-patient relationship and how this affects on a personal level our patients; also how it affects our community and the level of providing these services. 

24

The opening line of a very recent New York Times editorial reads 

something like ‘‘Many Americans are under the delusion that we 

have the best healthcare system in the world.’’ A recent study conducted by the respected Commonwealth Fund, comparing the 

United States and other advanced nations, found that in fact, we 

were at the bottom of healthcare measures when compared to other 

countries like our own, such as Austria, Canada, Germany, New 

Zealand and the United Kingdom. I will not go into the details of 

it, but it is astounding that we can think we are the best when we 

actually look at real measures of infant mortality and adult mortality rates. 

Healthcare is also facing a major financial crisis. The U.S. is 

spending more than 16 percent of our GNP on healthcare and the 

figure is rising. We spend more than twice per person than any 

other country in the world, and that includes uninsured people and 

that is more than twice any other country in our comparison group. 

In spite of this huge expense that we are paying, more than 47 million Americans, as cited earlier, are out of the healthcare insurance 

system. U.S. Census Bureau data has also indicated that that portion is greatest in the uninsured working population and that is involving an employment-based insurance system. Working Americans make up the fastest growing segment of the uninsured and 

that is a system failing us. 

You asked me to address these issues relative to small business, 

and I will do so. But I will say that it has to be identified in the 

context of our broader system, which is failing us. 

I have several examples of patients that I work with that have 

been caught in the web of this system. The first one is Susan, a 

56 year old female with a history of breast cancer, now ten years 

in remission. She works at a local day care center, child care center, not a high paying job. And her employer actually covers her 

with health insurance. It is a great benefit that covers catastrophic 

care with a $5000 deductible taken off from her $18,000 income. 

She has a nagging fear of a recurrence of her breast cancer and so 

she keeps up with her annual preventive maintenance care, which 

probably costs her out of pocket somewhere around $800. She gets 

routine mammograms, routine chest x-rays, routine chemistries 

each year as well as physical examinations. 

About three months ago, she came to me with a new problem, 

headache and dizziness. She could not shake the concern about her 

recurrence of her cancer and we went through a number of measures to try to mitigate the simple explanations of her problem. Of 

course, none of those really resolves her concern, although some of 

them helped make her symptoms less significant. And she came 

back about a month later saying ‘‘I need a CAT scan, I cannot go 

on like this I cannot do my work, I think I have cancer.’’ Of course, 

she paid out-of-pocket the $1200 which was not covered by her deductible, so her total bill went up to about now $2300 for the year 

and her CAT scan was normal. 

Don is a 59 year old male who is working as a repair technician 

for a major business office equipment company, diagnosed with a 

rare abdominal sarcoma. He had good healthcare benefits when 

this all started and fortunately it covered most of his medical expenses that included diagnostic, surgical, chemotherapy and recovVerDate 0ct 09 2002 09:26 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38200.TXT LEANN
25

ery. However, he was not able to work during that period of time. 

When he came back to his job, there was no job. He is a very capable person, started his own business as a repair technician, covered 

himself under his COBRA health plan until it expired. Don then 

went into the open market for insurance and of course found that 

he could not afford any, could not get covered on his wife’s policy 

because of his previous conditions. He did well for approximately 

another year when his abdominal pain returned. A CT scan confirmed the recurrence of his cancer. After another surgery and 

more chemotherapy, Don has been unable to work. He has no 

health insurance, they are nearly broke and about to lose their 

home. 

My third case is Carmen, a 22 year old female, which is incredibly sad. After high school, she moved to Charlotte to take care of 

her father, who was dying of liver cancer. At 19, she returned to 

Asheville, got a job as a receptionist in a small business in town, 

got health insurance because her employer thought that was good, 

became engaged, pregnant and on Christmas Day a year ago, her 

husband was killed in an automobile accident, two months later 

she gave birth to a baby boy that died one month later with SIDS. 

One would ask how much can someone like this take. She could 

not work, she went onto Medicaid. She received some excellent 

counseling and was back to work about nine months later. Six 

months after that, she came in for her own personal routine examination where I discovered a thyroid nodule. It was diagnosed as 

thyroid cancer, she required I-131 therapy. She was working for a 

new employer now who did not provide health insurance, so she 

was left with deciding does she quit her job, which was providing 

her her sanity and go back onto Medicaid so she could get her coverage, or otherwise. I consulted with the therapist, with her family 

and with this young woman, we all decided she needed to stay in 

the workforce. I was able to get the pharmaceutical company to donate I-131, I was able to get the hospital to donate free coverage 

for the few days of her hospital stay and I was able to encourage 

a specialist to administer the therapy at no cost. That only took me 

several hours to accomplish, and also my own charity care. 

So what we see today is a system that is well identified by Ms. 

Schwarz that is relying very heavily on the charity care of physicians to cover what should be an employment health based system 

that does that job. 

Absence of insurance coverage for employees of small businesses 

has other far-reaching consequences. The lack of preventive 

healthcare benefits means that most illnesses are diagnosed later 

than their natural history resulting in higher medical costs. Acute 

care is delayed until a simple problem becomes more serious resulting in complicated and costly care, requiring often hospitalization 

at a higher rate. And the lack of insurance is associated with limitations to primary care access, resulting in patients who obtain 

their primary medical care at more expensive facilities; namely, the 

emergency department. 

Uninsured patients with more severe and catastrophic illnesses, 

complicated illnesses, generally end up receiving charity care from 

the community hospitals and from their physicians. As we know, 

these rates are high, they have already been outlined. And we have 

26

also understood that a higher percentage of Medicare and Medicaid 

patients in our region relative to the other regions of the state and 

the country. These are government payers, for which both hospitals 

and physicians are reimbursed at rates below their costs, so we are 

resorting to the cost shifting. You have heard now at least three 

times a mention of the cost shifting initiatives. We know that that 

is not a sustainable task, we cannot continue to pass on the costs 

of uncompensated care to private payers. We heard it being mentioned as a vicious cycle, it is actually a vicious cycle for our community in a much greater way because when these insurance companies are tasked with paying for the uncompensated care, they 

raise their rates. They raise their rates to our small businesses 

who then have to deal with higher rates as we heard from the first 

panel. So this is not a sustainable system. 

I will not address the issues of primary care physicians since Ms. 

Schwarz did that so well. But I will say that these are small businesses as well and they are incapable of shouldering the rising operating expenses of our small businesses as well as providing the 

unending charity care. 

To address local healthcare financing concerns, the leaders of 

Asheville and our communities nearby have formed a Business 

Healthcare Roundtable and we have come together in four areas 

that have already been addressed. We are trying to keep our hand 

on the pulse of these issues nationally as well as statewide. And 

can only do so to a certain degree. The issues are far greater than 

what our local community can deal with. 

The American healthcare system, as you know, is not sustainable 

as it is going on today. We need leadership from Washington on 

these issues so that all citizens can at least get a basic level of 

care. If our health insurance, employment based insurance system, 

is not the answer, we need answers from beyond that. We need to 

be thinking about it on a national basis. 

I thank you for your time. 

Chairman SHULER. Thank you, sir. 

Our next witness is George Groome, the owner of Colton Groome 

& Company, providing health insurance for small businesses here 

in western North Carolina. 

Mr. Groome, you are recognized for five minutes. 

[The prepared statement of Dr. Baumgarten may be found on 

page 59 of the Appendix.]

STATEMENT OF GEORGE GROOME, OWNER OF COLTON 

GROOME INSURANCE 

Mr. GROOME. Thank you and good afternoon, Mr. Davis, Chairman Shuler, thank you for your efforts on our behalf in Washington. 

Had I known what a task it was to solve the healthcare crisis 

in 300 seconds, I might not have accepted this challenge. It is going 

to take me 324 seconds. 

I am George Groome, President of Colton Groome & Company. 

We are a 56 year old financial and benefit consulting company here 

in Asheville. I have been with the firm 33 years. We work with apVerDate 0ct 09 2002 09:26 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38200.TXT LEANN
27

proximately 120 businesses in this area and cover over 10,000 covered participants in some form of employee benefit program. 

One of our areas of concentration is employer sponsored medical 

insurance programs, and as you can imagine, in western North 

Carolina, we work with companies that would have ten to 250 employees, as that is the backbone of this economy. 

According to our local Chamber’s survey, the number one concern 

of our membership, which is about 2000 folks—actually over 2000 

folks, as primarily small businesses—the number one concern is 

healthcare and affordable health insurance. The community assessment that was done in 2005, you have already heard, there are 

40,000 uninsured residents in Buncombe County and 22,000 of 

those folks are actively at work and still uninsured. 

Our experience is that more folks are going uninsured because 

small businesses are canceling their plans or employees cannot afford their fair share of the premium. And we—and I will define we, 

we are the government, we are the providers, we are the employers—we are the full time insureds, we are paying for the 

uninsureds to receive medical care that they deserve and that they 

need. We are paying in one of the most inefficient ways possible, 

called the transfer system, transfer taxes and cost shifting. 

The answer does not lie in a national healthcare or government 

administered payment plan. The best way for small business to address the healthcare needs of their employees is through quality, 

competitively priced private financed insurance, commonly known 

as the free enterprise system. 

The healthcare system is not perfect at the insurance carrier 

level. It is not perfect at the provider level and it is not perfect at 

the legal system level. Each of those areas is flawed and those 

flaws need to be addressed. However, the free enterprise system, 

even with its flaws, holds incredible promise as part of the fix. 

I have four thoughts on how to mobilize the free enterprise system in this endeavor. 

My first premise is that we can insure the most folks the 

quickest and the fastest through quality employer programs. We 

need to evaluate requiring employers to provide coverage for all 

employees working 20 hours a week. Simple incentives and subsidies can be designed to make the employer whole. This approach 

should relieve the pressure on our social systems, resulting in savings to at least partially finance a more effective system. Larger 

employers, especially larger employers, will use part time status as 

a cost reduction technique to not cover part time employees. And 

of course, thereby driving down cost. 

Insured employees, as pointed out, end up paying for the uninsured through the transfer payments in their increased premiums. 

It is irrelevant to me and I think hopefully to this audience, it is 

irrelevant whether we pay $8.99 for a CD at Wal-Mart or whether 

we pay $9.99 for a CD at Wal-Mart. What is relevant is that our 

citizens and our certified workers that are capable and that are 

willing to work 20 hours a week are insured and receive medical 

care. 

Secondly, with more folks covered for medical services, I believe 

that we would have better and more appropriate access to medical 

care. If you have better and more appropriate access, you should 

28

have better outcomes. With better outcomes, you should have reduced costs. I agree with other statements regarding consumer responsibility in directing and purchasing medical care. 

Thirdly, with a significantly larger insured population, we should 

be able to compete—create more competitive insurance rates, especially for the small business. Small businesses have little to no leverage with carriers and there are few alternatives. In western 

North Carolina, we have two alternatives for small businesses, 

United Healthcare and Blue Cross-Blue Shield. 

Where there is a deemed lack of competition in the medical insurance marketplace, as here in western North Carolina, government can stimulate that competition through incentives and rate 

subsidies to insurance carriers that are willing to participate in the 

under-served markets. we are already subsidizing those rates 

through transfer payments and cost shifting. 

Access to quality services need to be incented through the provider community as well, as my fourth point. That is continued in 

my written comments and elaborated on there. 

In summary, government incentives and subsidies, in my opinion, are superior to government intervention in insuring, financing 

and controlling the costs of quality medical services. I believe government can effectively direct funding to impact the healthcare crisis through incentives to employers, through incentives for the providers and incentives to the insurance carriers to create more competition. We can retain what is great about out healthcare system 

while making sure access and payment for services are delivered 

efficiently through employer-sponsored plans, where the lives and 

the needs of the families, as you have witnessed from these panels, 

where those lives are experienced on a daily basis up close and personal. 

Considering the alternatives, my hope is that these thoughts may 

merit further consideration and we thank you for your interest to 

make sure all Americans have access to affordable and quality 

healthcare. 

[The prepared statement of Mr. Groome may be found on page 

64 of the Appendix.]

Chairman SHULER. Mr. Groome, thank you so much. 

Mr. Groome, in terms of an incentive, do you think that receiving 

a tax credit is enough tO incentivize small business companies to 

provide healthcare to their employees. 

Mr. GROOME. It may have to be a subsidy instead of a tax credit. 

Some small businesses don’t pay tax and as a result, a credit would 

not help those organizations, but if there is a subsidy, then that 

might encourage and give small businesses the money to pay those 

premiums. 

Chairman SHULER. When you talk about a subsidy, are you talking about to the large provider that just received the largest profits 

in insurance history? 

Mr. GROOME. No. Let me use primary care as an example. My 

understanding is we have a shortage of primary care, access to primary care. 

Chairman SHULER. Absolutely. 

29

Mr. GROOME. Well, if I am twenty some odd years old and I am 

looking at going into primary care medicine versus going into dentistry, I know that I can work half the time in dentistry and make 

twice the money. Now I might probably go into dentistry, assuming 

I have the intellectual and manual skills to make that choice. And 

I think that we need to have the incentives to direct folks into the 

areas where we are under-served, and that’s one example. 

Chairman SHULER. You are not suggesting give subsidies to the 

big insurance companies? 

Mr. GROOME. Oh, when you said providers, I’m sorry—

Chairman SHULER. I am talking the insurance company providers. 

Mr. GROOME. Well, I am suggesting you give subsidies to anybody in Asheville, North Carolina who will come in and increase 

the competition and offer Bob Kendrick more options and Laurey 

Masterton. They have two options right now. 

Chairman SHULER. And I think that is what this bill did that we 

passed in the House. 

Mr. GROOME. Good, good. And that would be tax credits. 

Chairman SHULER. It would enable, through these tax credits 

and incentive for actually a pool of financing to be able to help fund 

smaller insurance companies to be able to get back in the market. 

And I think we were able to realize that. I just want to make sure 

we are on the record that we did not go to the large insurance companies and that is where we gave subsidies. We have seen how 

that happened in the oil industry. 

Mr. GROOME. I was encouraged when you pointed that out. 

Chairman SHULER. Mr. Leonard, how are you dealing with—obviously we are talking about providers and we are talking about access to healthcare—how are you—the recruiting process must be 

very, very difficult to recruit a student out of med school to come 

to Jackson County versus going to Mecklenburg County, especially 

when we are looking at maybe in the more specialty areas. How 

has it been and how are you dealing with being able to incentivize 

students or doctors, other than the quality of life that we have here 

in the mountains? 

Mr. LEONARD. Certainly it is becoming more and more competitive and it is more competitive certainly for primary care physicians around the country. And to try and find those physicians, 

those residents that are interested in a rural environment, a rural 

community is a smaller pool of folks. And then if you tell them that 

20 or 30, 40 percent or greater of their patient pool may not be able 

to pay for their care, again, that becomes even a greater concern 

and we are now experiencing residents coming to us in the last 12 

to 18 months here in western North Carolina that are now saying 

I am not interested in a private practice model. I will come on and 

be your employee and you, hospital, employ me; i.e., shift that risk 

to the hospital because they do not want and are not able to be successful business men and women as the earlier generations of physicians have been able to, and still practice good medicine. And so 

that shift, that risk is now being shifted not only nationally but 

here in the mountains as well to the hospitals. 

Chairman SHULER. Dr. Baumgarten, are you looking at the same 

problems here—

30

Dr. BAUMGARTEN. Absolutely. 

Chairman SHULER. —Mission Hospital, because it is a larger hospital provider than it is in a rural area. 

Dr. BAUMGARTEN. Recently North Carolina—the Institute of 

Medicine came out with a study that identified how great the significance shortage in western North Carolina will be. There is some 

early discussion on the state level of expanding medical education 

from all the medical schools. We are, therefore, looking at ways of 

ensuring that there will be more physicians for western North 

Carolina. Mission Hospital is thinking of becoming involved in that 

process of becoming an alternate training site for third and fourth 

year medical students. So there are some interests in expanding 

the available pool for physicians, but when you talk about primary 

care, that is going to be a hard sell, that is the population of physicians that is shrinking the fastest. As Mr. Groome was saying, 

when you look at the specialty areas of physicians, you know, there 

is the top and there is the bottom, and the bottom is losing its population because it is also the lowest income generator. So we have 

to look at reimbursement systems that incentivize primary care 

physicians to stay in business and to go into that business of primary care if we are going to keep lip syncing that primary care is 

the backbone of the American medical system. 

Chairman SHULER. There is a little statistics that I have seen 

that said that actually a vet, a veterinarian, will actually make 

more money than a primary care physician will in the first ten 

years. 

Dr. BAUMGARTEN. I think that is absolutely true. 

Chairman SHULER. Are you seeing—how much, if you take a single practice, how much of the paperwork would you—I mean how 

important it is, administrative, when it comes to the paperwork, 

dealing with—

Dr. BAUMGARTEN. Primary care is the highest overhead of the 

medical professions. We basically run between 60 and 65 percent 

in overhead. We average between four and five employees per provider in primary care. A lot of that is billing, paperwork. We are 

the front line that gets all the disability forms, all the insurance 

forms, all the out-of-work forms, as well as the filing for primary 

healthcare. We are the offices that set up the referrals to the specialists, we are the offices that receive all the paperwork and consultations. When you asked about that medical record, we are the 

location where it all comes back to, our computer systems are 

bursting. 

Chairman SHULER. I was in the medical profession as is Congressman Davis. The area which I was in was the IT sector and 

as I traveled throughout the United States, I would go to different 

hospitals and meet with the chiefs of staff and all the IT sector and 

the marketing sector. I realized pretty quickly that there was not 

a single hospital in the United States that could communicate with 

one another. I mean it was very, very difficult and I think what 

the hospitals are doing, obviously with WestCare and with Mission 

being able to do the data link together is going to save a tremendous amount of overhead. 

And so I commend and kind of brag on the hospitals, although 

we compete against one another, truly the most important thing we 

31

have seen is the care of the patient. And we have got to find a better way to get to electronic medical records at a much better rate 

than we are presently doing. Technology in medicine has continued 

to—it has been incredible what we can do and the longevity in 

medicine, modern medicine, but the IT sector of it, we are still running around with paper all the time. I know there is complying 

with HIPPA compliance and even a much better way to apply it 

through HIPPA regulations is through the medical records. 

Mr. Leonard, just very quick—and I think this is something that 

obviously Congressman Davis and I can really take back—explain 

to me, give me the Readers Digest version, if you will, of how you 

are self-insuring. And I know a lot of our small businesses cannot 

do this, but how you are incentivizing your employees to eat 

healthy and exercise and maybe some of the benefits of being able 

to pay some of their healthcare costs and what that healthcare cost 

would be if they meet certain goals and requirements through the 

company. 

Mr. LEONARD. The other panelists have recognized and they are 

correct, that there are only two choices here in western North 

Carolina. We cannot afford and have chosen not to use either 

choice—Blue Cross or United. When I go out to chambers of commerce, folks will say, now wait a minute, you are part of the problem. And I say well wait a minute, we are a provider but I am also 

an employer, 1020 staff members. We self-insure those staff members for their health insurance and we provide health insurance to 

our full time as well as our part time employees. 

We cover 80/20, 80 percent of the healthcare bill is paid for out 

of WestCare dollars and 20 percent of that bill is in the form of the 

premium to the employee for their coverage or family coverage. In 

2002, we spent 2.5 million of WestCare dollars for that health plan 

benefit. This year, we expect that to almost double, up to 4.8 million of WestCare dollars, not including the family, the premium increases. We are at about a break-even. The margin on healthcare, 

the operating margin, is very thin. If that rate continues, we cannot continue to keep the lights on and the doors open. We have 

been, for the last several years, yes, going out and encouraging our 

employees locally as well as regionally. Joe DeMore at Mission 

Hospital has been a leader in a ‘‘know your numbers’’campaign, 

making sure that employees—we take personal responsibility for 

knowing what your cholesterol counts are, knowing what your PSA 

counts are, knowing what your blood pressure is, knowing what 

your exercise needs are and your weight and body mass index is. 

So we are trying to target some of the high costs and high risk 

patients, those patients with asthma, those patients with diabetes; 

i.e., employees of ours that have diabetes, that have uncontrollable 

diabetes or asthma, in giving them incentives as part of a health 

plan so that they come in and get their blood sugars checked on 

a regular basis. And we have seen significant reductions and good 

results. Very much baby steps but we are trying to get our employees pointed in the right direction, encouraging again, tobacco-free 

utilization throughout our workforce, healthy lifestyle. 

Chairman SHULER. So through this disease management program that you are basically creating, the wellness program, are you 

seeing that numbers of days in the hospital have decreased, numVerDate 0ct 09 2002 09:26 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38200.TXT LEANN
32

bers of days at work have increased? Have you seen any of those 

statistics, been able to truly see a difference? 

Mr. LEONARD. Not yet, because again, we are still very early into 

the program, but what we are seeing is if we are investing the 

time, energy and the encouragement now, that three years, four 

years, five years down the road, we will have a healthier, longer 

retained workforce with us. It is a long-term commitment. 

Chairman SHULER. Ms. Schwarz, obviously we have our 

healthcare providers here, we are talking about our docs. As we are 

seeing, basically their profits go down, how are you able to 

incentivize and has it been more difficult to get physicians to participate in the program? 

Ms. SCHWARZ. In the Project Access? 

Chairman SHULER. In your program, yes. 

Ms. SCHWARZ. The physicians participate in Project Access, I 

think mostly from a sense of altruism and wanting to do right by 

their community. So that has actually carried the program for 

quite some time. We are in our 11th year, that is a long time for 

a charity care program to be operating. Most of the other Project 

Access sites that are springing up around the country are either in 

their infancy or only a couple of years old. 

And as we continue, what we are finding is that physicians are 

growing increasingly frustrated at the never-ending cycle of the uninsured coming through their doors. I think what is happening is 

it is beginning to feel like an onslaught that just will not stop. 

They are the terminus, I mean, you know, they are the ones that 

end up with this human being—and you have heard, you know, 

some very eloquently stated stories about human beings ending up 

in front of that physician and by the time that person gets there, 

you know, the physician is ready to do what he or she needs to do 

to take care of that person. 

So for us, it is a matter of continuing to ensure that we are helping to channel the appropriate patients into the system, we have 

to have mechanisms in place to do that, to do good screening, eligibility requirements. And to keep the burden, red tape and so forth, 

out of the physician offices as much as possible. It is a challenge 

though, continues to be a challenge. 

Chairman SHULER. At this time, I would recognize Congressman 

Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. Thank you, panel, you 

have done a wonderful job. 

Mr. Groome, you talked a little bit about subsidies and trying to 

go from a two provider insurance group to choose from, to have 

other options. The one problem that I see, in the federal government, once you start a program, it starts to grow and it is hard to 

get the genie back in the bottle. We have seen that over in Tennessee with TennCare, if you followed what happened over there. 

I can see Mr. Leonard has followed that. 

Mr. LEONARD. Very well. 

Mr. DAVIS. It just about bankrupted the State of Tennessee and 

they finally had to stop it. And that is one of the problems. 

One of things I wanted to talk about is you mentioned, Mr. 

Chairman, in your statement that veterinarians can probably make 

more than M.D.’s can. Can you help me understand maybe the difVerDate 0ct 09 2002 09:26 Dec 20, 2007 Jkt 033615 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\38200.TXT LEANN
33

ference? Some of the difference that I see between M.D.’s and veterinary medicine over that first 10 years is probably there is not 

as much insurance, there is not as much regulation, not as much 

liability. Help expand on that. Is there a difference between the 

two and why can the veterinary doc, for the first 10 years of a practice, make more money than someone taking care of humans? Is 

there a difference? 

Dr. BAUMGARTEN. Yes, they get paid for what they do. I mean 

you go to your vet and you take your dog in for his examination 

and you get a bill for $98 and you go to the window and you pay 

$98. 

Mr. DAVIS. You just hit on my point that I was making to the 

other panel. We understand when we go to the veterinarian that, 

you know, if it costs $300 for the procedure, we are going to have 

to be responsible for that. And I do not think we need to get to the 

point in America where Americans go back to the days before 1965 

where there was a Medicare program where you had to take care 

of all your healthcare. But as we continue, in my mind, to add 

more and more government, more and more layers of bureaucracy 

and have less and less choice. And we have someone else taking 

responsibility, we are to the point, in my opinion, that when my father who is now 80 years old, receives a Medicare explanation of 

benefits, I am not saying he needs to pay for the care, but he at 

least ought to take the time to read it and see if the services that 

he’s being charged for was actually provided. 

Do you see that if Americans would at least get more involved 

in their healthcare to understanding the healthcare system, that it 

would be a help for us? Anyone on the panel. 

Dr. BAUMGARTEN. I absolutely believe that we all need to be 

much more involved in our health and wellness. There is no question about issues related to rising obesity, and if you think we are 

in a healthcare crisis now, when we start dealing with the downstream medical consequences of 30 percent of the adults being 

obese, you have not seen anything yet. 

So yes, there is a great need to be responsible medically for that. 

I think that that is why we need to re-address the system that we 

are involved in right now, because we—there is no level on which 

we address accountability at this point, whether that be medical, 

personal or financial. So there are some tremendous needs here 

that we are facing. 

But I will say that unless we look at the system as a whole and 

have the strength and fortitude to look at it as a whole, we will 

be continuing to apply the bandaids that we started with after 

World War II, and right now we have a system that is patchworked 

together. Very few buildings are successful when you construct 

them a room at a time. 

Mr. GROOME. I think that the healthcare savings accounts will 

help people read their statements, if they are being debited for the 

$110 and I think that the healthcare—from our experience, 

healthcare savings accounts are a little simpler than what people 

think they are and what employers think they are. It is going to 

take awhile for them to catch hold. I admire the Van Winkle firm 

for phasing it in over a three-year period. If people are actually 

paying the bill when they check out and it is coming out of their 

34

health savings account, I believe they will read the bill and make 

sure that they received the services. 

Dr. BAUMGARTEN. The concern I have about healthcare saving 

accounts is that basically people often will see that as being an expense out of their pocket and choose not to go seek the appropriate 

primary care that they need in order to prevent a problem from 

being a downstream consequence or catastrophe. 

And though I think it is great to incentivize people to be responsible for their care, you know, some people are choosing between 

that and some other need that they have. And you know, we actually are a self-insured business as well, the Asheville Family 

Health Center, and recognize that it would be very difficult in our 

organization to start an HSA where there is no pool for the single 

mother who has two children to initially start drawing off of, unless we as a small business, put in the couple thousand dollars that 

they need in order to get started. So suddenly we are left with having to come up with $200,000 to get the system rolling. 

Mr. DAVIS. I would like to thank the panel again. You have been 

excellent presenters. 

The one thing that I take away from this meeting, we all agree 

that there are some problems in healthcare, there are some problems with access to healthcare. I think we need to continue this debate on finding solutions for those problems. I do not think we are 

going to be able to do that in a two hour hearing, but hopefully we 

can continue as we move forward, because I think we all do understand that we need that. 

And Mr. Shuler, thank you for your leadership today. Thank you 

for allowing me to come across the mountain. And I yield back. 

Chairman SHULER. Well, thank you. I think we all can reiterate 

that having adequate access to healthcare is so important. 

And one last thing, when we are coding in our hospitals and physicians, is it not amazing when those bills are being produced at 

what small percentage of that you are being paid for one-on-one 

consultation? I just find that so—that we are actually doing the opposite of truly impacting. And coding, for most of you, is how the 

docs get paid and how the hospitals get paid. You know, you can 

get paid more for a procedure when most the time that one-on-one 

time is the most valuable time that a physician can ever spend 

with a patient. And it is unfortunate that the way it is being paid 

today, that it does not incentivize our docs to actually do that. And 

it is very, very difficult for them, because on the average I think 

a primary care physician needs to see a patient in and out every 

12 minutes to be somewhat balanced, if you will, on a P&L sheet 

at the end of the month. And we need to encourage and incentivize 

that one-on-one consultation. 

And hopefully we can take and draw a tremendous amount from 

what you have given us today in your testimonies and your time 

that you have provided. And so many of you, the bottom line is, as 

America, we care. We care about the people who cannot afford, who 

do not have the opportunities and we care about our small businesses and we care about our docs and our hospitals. In Buncombe 

County, they are the largest employer and all of our small towns, 

I mean Jackson County, our largest employer is our hospitals. We 

35

have to find a solution to this. It is going to be lots and lots of baby 

steps and this is a first step. 

So I thank all of you for your time commitment and what you 

mean to our community. And the hearing is adjourned. 

[Whereupon, at 4:00 p.m., the Subcommittee was adjourned.]

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