```

[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]

 
  EXAMINING THE IMPACT OF STATE MANDATES ON EMPLOYER PROVIDED HEALTH 
                               INSURANCE

=======================================================================

                                HEARING

                               before the

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                                 of the

                         COMMITTEE ON EDUCATION
                           AND THE WORKFORCE
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                              May 4, 2006

                               __________

                           Serial No. 109-40

                               __________

  Printed for the use of the Committee on Education and the Workforce

 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house
                                   or
            Committee address: http://edworkforce.house.gov

                                 ______

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                COMMITTEE ON EDUCATION AND THE WORKFORCE

            HOWARD P. ``BUCK'' McKEON, California, Chairman

Thomas E. Petri, Wisconsin, Vice     George Miller, California,
    Chairman                           Ranking Minority Member
Michael N. Castle, Delaware          Dale E. Kildee, Michigan
Sam Johnson, Texas                   Major R. Owens, New York
Mark E. Souder, Indiana              Donald M. Payne, New Jersey
Charlie Norwood, Georgia             Robert E. Andrews, New Jersey
Vernon J. Ehlers, Michigan           Robert C. Scott, Virginia
Judy Biggert, Illinois               Lynn C. Woolsey, California
Todd Russell Platts, Pennsylvania    Ruben Hinojosa, Texas
Patrick J. Tiberi, Ohio              Carolyn McCarthy, New York
Ric Keller, Florida                  John F. Tierney, Massachusetts
Tom Osborne, Nebraska                Ron Kind, Wisconsin
Joe Wilson, South Carolina           Dennis J. Kucinich, Ohio
Jon C. Porter, Nevada                David Wu, Oregon
John Kline, Minnesota                Rush D. Holt, New Jersey
Marilyn N. Musgrave, Colorado        Susan A. Davis, California
Bob Inglis, South Carolina           Betty McCollum, Minnesota
Cathy McMorris, Washington           Danny K. Davis, Illinois
Kenny Marchant, Texas                Raul M. Grijalva, Arizona
Tom Price, Georgia                   Chris Van Hollen, Maryland
Luis G. Fortuno, Puerto Rico         Tim Ryan, Ohio
Bobby Jindal, Louisiana              Timothy H. Bishop, New York
Charles W. Boustany, Jr., Louisiana  [Vacancy]
Virginia Foxx, North Carolina
Thelma D. Drake, Virginia
John R. ``Randy'' Kuhl, Jr., New 
    York
[Vacancy]

                       Vic Klatt, Staff Director
        Mark Zuckerman, Minority Staff Director, General Counsel
                                 ------                                

              SUBCOMMITTEE ON EMPLOYER-EMPLOYEE RELATIONS

                      SAM JOHNSON, Texas, Chairman

John Kline, Minnesota, Vice          Robert E. Andrews, New Jersey
    Chairman                           Ranking Minority Member
Howard P. ``Buck'' McKeon,           Dale E. Kildee, Michigan
    California                       Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania    Carolyn McCarthy, New York
Patrick J. Tiberi, Ohio              John F. Tierney, Massachusetts
Joe Wilson, South Carolina           David Wu, Oregon
Marilyn N. Musgrave, Colorado        Rush D. Holt, New Jersey
Kenny Marchant, Texas                Betty McCollum, Minnesota
Bobby Jindal, Louisiana              Raul M. Grijalva, Arizona
Charles W. Boustany, Jr., Loiusiana  George Miller, California, ex 
Virginia Foxx, North Carolina            officio
[Vacancy]

                            C O N T E N T S

                              ----------                              
                                                                   Page

Hearing held on May 4, 2006......................................     1

Statement of Members:
    Johnson, Hon. Sam, Chairman, Subcommittee on Employer-
      Employee Relations, Committee on Education and the 
      Workforce..................................................     1
        Prepared statement of....................................     3
        Wal-Mart fact sheets.....................................    58
    McCarthy, Hon. Carolyn, a Representative in Congress from the 
      State of New York, Chicago Tribune article.................    50
    McCollum, Betty, a Representative in Congress from the State 
      of Minnesota:
        Minnesota Public Radio article...........................    52
        Atlantic Monthly article.................................    53

Statement of Witnesses:
    Drombetta, Larry, president and CEO, H.R. Stores, Inc., on 
      behalf of the National Retail Federation...................    17
        Pending State Health Care Mandate Matrix.................    18
        Prepared statement of....................................    24
    Garthwaite, Craig, research fellow in economics, Employment 
      Policies Institute.........................................     6
        Prepared statement of....................................     7
    Kelly, Paul T., senior vice president, Federal & State 
      Government Affairs, Retail Industry Leaders Association....    26
        Prepared statement of....................................    27
    Kofman, Mila, J.D., associate research professor, Georgetown 
      University.................................................    10
        Prepared statement of....................................    11

Additional Submissions:
    Prepared statement of the United Food and Commercial Workers 
      International Union........................................    60

                        EXAMINING THE IMPACT OF
                       STATE MANDATES ON EMPLOYER
                       PROVIDED HEALTH INSURANCE

                              ----------                              

                         Thursday, May 4, 2006

                     U.S. House of Representatives

               Subcommittee on Employer-Employee Relations

                Committee on Education and the Workforce

                             Washington, DC

                              ----------                              

    The subcommittee met, pursuant to call, at 10:34 a.m., in 
room 2175, Rayburn House Office Building, Hon. Sam Johnson 
[chairman of the subcommittee] presiding.
    Present: Representatives Johnson, Kline, McKeon, Platts, 
Tiberi, Wilson, Musgrave, Foxx, Kildee, Payne, McCarthy, 
Tierney, McCollum and Grijalva.
    Staff Present: Robert Borden, General Counsel; Byron 
Campbell, Legislative Assistant; Steve Forde, Communications 
Director; Aron Griffin, Professional Staff Member; Jessica 
Gross, Legislative Assistant; Richard Hoar, Professional Staff 
Member; Kimberly Ketchel, Deputy Press Secretary; Jim Paretti, 
Workforce Policy counsel; Steve Perrotta, Professional Staff 
Member; Molly Mclaughlin Salmi, Deputy Director of Workforce 
Policy; Deborah L. Emerson Samantar, Committee Clerk/Intern 
Coordinator; Jody Calemine, Minority Labor Counsel; Michele 
Evermore, Minority Legislative Associate/Labor; Tylease 
Fitzgerald, Minority Legislative Assistant/Labor; Tom Kiley, 
Minority Communications Director; Rachel Racusen, Minority 
Press Assistant; and Michele Varnhagen, Minority Senior Labor 
and Benefits Counsel.
    Chairman Johnson. Good morning, everyone. A quorum being 
present, the Subcommittee on Employer-Employee Relations of the 
Committee on Education and the Workforce will come to order. We 
are holding this hearing today to hear testimony on examining 
the impact of State mandates on employer-provided health 
insurance. Under committee rule 12(b), opening statements are 
limited to the chairman, the ranking minority member of the 
subcommittee. Therefore, if other members have statements, they 
will be included in the hearing record.
    With that, I ask unanimous consent for the hearing record 
to remain open 14 days to allow member statements and other 
extraneous material referenced during the hearing to be 
submitted in the official hearing record. Hearing no objection, 
so ordered.
    Good morning, again. Let me extend a warm welcome to all of 
you, to the ranking member, Mr. Andrews, who isn't here, and my 
other colleagues who are here.
    Most folks know I have a devout respect for democracy. Some 
of the cornerstones of democracy include freedom and free 
enterprise. Another hallmark of democracy is empowering States 
and cities and counties to be the laboratories of ideas, and as 
local areas experiment, the best ideas always seem to rise to 
the top.
    Today I want to hear what local areas are doing to find 
health insurance solutions. Are they increasing the insured? 
Are they protecting patients? Are the costs rising or 
declining? We can use these test cases, if you will, to see 
what works and what doesn't. In Congress, we have a civic 
obligation to make sure that the proposals developing in the 
States don't override Federal law. That is especially true when 
it comes to health insurance because, one, peoples' lives are 
on the line; two, the laws that govern many health insurance 
plans are protected by Federal law called ERISA.
    As you know, the vast majority of Americans with health 
insurance have their coverage through an employer. Let's be 
clear, employer-provided health insurance is a benefit to the 
employee. It is not mandatory. Governments that value freedom 
and free enterprise don't tell businesses how to operate. If 
States are tinkering with ERISA, we must make sure that the 
results are fair and have no unintended consequences, or, 
worse, giant problems in the future.
    Close to Capitol Hill, we all watched the State of Maryland 
chart a new course. In Maryland, some believe that employers 
must be forced not only to provide health coverage to their 
employees but to provide a specific set or level of benefits.
    For example, a much discussed law that recently passed in 
Maryland seeks to penalize companies--well, at this point, only 
a single company--that do not provide what politicians deem 
adequate health insurance for employees. In short, the folks in 
the State Capitol of Maryland are legislating what one company 
must do for its employees. In my mind, mandating certain health 
benefits on one company from a State Capitol, that is not 
freedom and that is not free enterprise. I am very concerned 
about what that would mean in the future for people, for States 
and for companies.
    There is such a thing as good government. Overreaching 
government, it is not. Listen, as a former State legislator in 
Texas, I am happy to see these State legislatures working on 
solutions for the uninsured. However, I am deeply alarmed that 
some of these proposals override the good intentions of ERISA, 
the Federal law that governs employer benefits.
    I am also concerned that these proposals largely ignore the 
problem of skyrocketing insurance costs and instead simply add 
additional burdens on employers and their employees who may end 
up with the short end of the stick.
    As such, today we will hear from large and small business 
owners on how legislation in their States would affect their 
employees' livelihood and their businesses. In addition, we 
will hear from someone who can look at the issue from 30,000 
feet and talk about potential results of enacting such 
mandates.
    I welcome our witnesses and look forward to their testimony 
today. I now yield to the distinguished ranking member, Mr. 
Payne, today for whatever opening statement you wish to make, 
sir.
    [The prepared statement of Chairman Johnson follows:]

   Prepared Statement of Hon. Sam Johnson, Chairman, Subcommittee on 
                      Employer-Employee Relations

    Good morning. Let me extend a warm welcome to all of you, to the 
ranking member, Mr. Andrews, and to my other colleagues.
    Most folks here know I have a devout respect for democracy.
    Some of the cornerstones of democracy include freedom and free 
enterprise.
    Another hallmark of democracy is empowering states--and cities--and 
counties--to be the laboratories of ideas.
    And as local areas experiment, the best ideas always seem to rise 
to the top.
    Today I want to hear what local areas are doing to find health 
insurance solutions.
    Are they increasing the insured? are they protecting patients? are 
the costs rising or declining?
    We can use these test cases, if you will, to see what works--and 
what doesn't.
    In congress, we have a civic obligation to make sure that the 
proposals developing in the states don't override any federal laws.
    That's especially true when it comes to health insurance because:
    One: peoples lives are on the line and,
    Two: the laws that govern many health insurance plans are protected 
by a federal law, called E.R.I.S.A.
    As you know, the vast majority of americans with health insurance 
have their coverage through an employer.
    Let's be clear: employer-provided health insurance is a benefit to 
the employee; it's not mandatory. Governments who value freedom and 
free enterprise do not tell businesses how to operate.
    If states are tinkering with E.R.I.S.A.--we must make sure that the 
results are fair and have no unintended consequences--or worse--giant 
problems in the future.
    Close to capitol hill, we all watched the state of maryland chart a 
new course.
    In Maryland, some believe that employers must be forced, not only 
to provide health coverage to their employees, but to provide a 
specific set or level of benefits.
    For example, the much-discussed law that recently passed in 
maryland seeks to penalize companies, well, at this point only a single 
company, that do not provide what politicians deem ``adequate'' health 
insurance for employees.
    In short--the folks in the state capital of maryland are 
legislating what one company must do for its employees.
    In my mind--mandating certain health benefits on one company from a 
state capital is not freedom and free enterprise * * * and I'm very 
concerned about what that would mean in the future--for people * * * 
for states * * * and for companies.
    Could you imagine if maryland told mcdonalds that they could only 
feed their employees big macs?
    There is such a thing as good government.
    Over-reaching government it is not.
    Listen, as a former state legislator in Texas, I am happy to see 
state legislatures working on solutions for the uninsured.
    However, I am deeply alarmed that some of these proposals over-ride 
the good intentions E.R.I.S.A.-the federal law that governs employer 
benefits.
    I am also concerned that these proposals largely ignore the problem 
of sky-rocketing insurance costs and instead simply add additional 
burdens on employers--and their employees who may end up with the short 
end of the stick.
    As such, today we will hear from large- and small-business owners 
on how legislation in the states would affect their employees' 
livelihood and their businesses.
    In addition, we'll hear from someone who can look at the issue from 
a 30,000 foot level and talk about potential results of enacting such 
mandates.
    I welcome our witnesses and look forward to their testimony today.
                                 ______
                                 
    Mr. Payne. Thank you, very much, Mr. Chairman, and let me 
thank you for calling this very important hearing examining the 
impact of State mandates on employer-provided health insurance. 
I think your background in the State legislature before coming 
here to Congress certainly sits you well on this committee. Let 
me just say, I appreciate the opportunity to talk about what 
States are doing to address the health care crisis facing our 
country covering the uninsured.
    The urgent crisis demands our continued attention and 
debate; 46 million Americans are uninsured, and millions more 
are struggling to pay the skyrocketing cost of health care, and 
many are underinsured. So we really have a crisis, a dilemma in 
health care. I think really it is a crisis that has to be 
shared by all of us. We have to come up with a solution to the 
problem because it is a gigantic problem, and our Nation's 
health is going to be very important to our future development. 
This is a life or death problem, as we know.
    The Institute of Medicine estimates that 18,000 Americans 
die unnecessarily each year because they lack health insurance. 
That is here in the United States of America, not a Third World 
country. People who need health care or medication are risking 
their lives because they just can't afford needed care.
    As we talk about this, I hope that we can keep in mind the 
families that are forced to decide between paying for cancer 
treatments or their weekly groceries. With the skyrocketing 
cost of petrol and home heating fuel coming up this winter, 
serious dilemmas and crises are going to impact even millions 
more Americans.
    I hope that we can think of the families who are trying to 
figure out how to keep a loved one alive and healthy when they 
are hit with a illness they simply can't afford to live for.
    While health care costs are always a major problem for low-
income workers, even people who have health insurance are 
having trouble keeping up with the bills, as we all here know. 
A survey done by USA Today to Kaiser Family Foundation and the 
Harvard School of Public Health found that 62 percent of people 
struggling to pay their bills actually have health insurance.
    The Labor Center at Berkley recently reported that 
Americans who have job-based family coverage paid 50 percent 
more for their health care in 2004 than they did in 2000, an a 
increase of $3,264 in out-of-pocket costs.
    I would like to see this Congress do something to really 
address the rising cost of health care, to find creative ways 
to cover those people who can't afford it. But until that 
happens, we must not stand in the way of States that are 
working hard to come up with ways to provide their citizens 
with quality, affordable health care.
    I have good, honest employers in my district who are 
working hard to provide health care to their employees. Rather 
than being rewarded for prioritizing the health of their 
workers, these employers are at an unfair disadvantage and are 
unable to compete with the larger employer, especially highly 
profitable ones that refuse to provide health care for their 
employees.
    I understand that some of our witnesses today are opposed 
to requiring even those very large employers to provide workers 
with health coverage. I also know that, in my State, Wal-Mart 
tops the list of employers with employees on New Jersey Family 
Care, our State's Medicaid program, with 589 employees in the 
program. Currently, in New Jersey, there is legislation pending 
that is similar to the Maryland legislation which requires 
companies with over 10,000 employees to spend 8 percent of 
their payroll on health care or pay the State the difference. 
There is also a bill that would require companies with at least 
1,000 employees to pay at least $4.17 per hour on health care.
    So, as I conclude, this is a timely and important issue to 
discuss. I know that companies are trying to do better. I know 
Wal-Mart has started some scholarship programs and is 
discussing these issues. We can't have a piecemeal approach, 
and I think that we really have to take this issue head on.
    I yield back the balance of my time, Mr. Chairman.
    Chairman Johnson. The gentleman's time has expired.
    Mr. Payne. I figured I would yield back before you said it.
    Chairman Johnson. You all watch those lights. The green 
light comes on, you have got 5 minutes. When the little yellow 
light comes on, you have 1 minute. And we would appreciate it 
if you would try to close it down when the red light comes on, 
unlike Mr. Payne, who went a half a second over.
    Mr. Payne. I am color blind.
    Chairman Johnson. Thank you, Mr. Payne.
    We have got a distinguished panel of witnesses before us 
today, and I thank you all for coming, and I would like to 
introduce them one at a time. Mr. Greg Garthwaite is a research 
fellow in economics at the Employment Policies Institute where 
he manages research projects with labor economists at major 
universities across the country. Mr. Garthwaite's research 
focuses on issues such as minimum wage, health care mandates 
and the economic benefits of employment. Mr. Garthwaite holds a 
bachelors and a masters degrees from the University of 
Michigan.
    Thank you for being here.
    Ms. Mila Kofman is an associate research professor at the 
Georgetown University Health Policy Institute where she 
conducts studies on the uninsured and underinsured problems. 
Ms. Kofman was a Federal regulator at the U.S. Department of 
Labor from 1997 to 2001 and, prior to joining the Department of 
Labor, was counsel for health policy and regulation at the 
Institute For Health Policy Solutions. Ms. Kofman holds a law 
degree from Georgetown University and a bachelors degree from 
the University of Maryland, College Park.
    Thank you for being here.
    Mr. Larry Drombetta--is that pronounced correctly--is 
president and CEO of H.R. Stores, Inc., an independent retail 
shoe store group based in Maryland. H.R. Stores operates mall-
based shoe stores located in Virginia, Maryland and North 
Carolina. Throughout his career, he has worked as an executive 
officer for several retail businesses. Mr. Drombetta holds a 
degree from the Youngstown State University.
    Thank you for being here, sir.
    Mr. Paul Kelly is senior vice president of Federal and 
State government affairs for the Retail Industry Leaders 
Association where he leads the association's overall government 
affairs and advocacy efforts. A government affairs veteran with 
more than 20 years in Washington, Mr. Kelly has also worked 
with the National Association of Chain Drug Stores, American 
Dietetic Association and the American Chiropractic Association. 
Mr. Kelly holds a masters degree from Johns Hopkins University 
and bachelors degree from Lynchburg College.
    Thank you for being here as well.
    Before the witnesses begin their testimony, I would like to 
remind members we will be asking questions after the entire 
panel has testified. In addition, the committee rule imposes a 
5-minute limit on all questions.
    I have already explained the lights. So I would like to 
recognize the first witness, from my left to my right, for your 
testimony, sir.

  STATEMENT OF CRAIG GARTHWAITE, CHIEF ECONOMIST, EMPLOYMENT 
                       POLICIES INSTITUTE

    Mr. Garthwaite. Thank you, Mr. Chairman, ranking member, 
members of the committee, for inviting me to testify today.
    My name is Greg Garthwaite, and I am a research fellow in 
economics at the Employment Policies Institute. Founded in 
1991, EPI is a nonprofit research organization dedicated to 
studying public policy issues surrounding employment growth. In 
particular, EPI focuses on issues that affect entry-level 
employment.
    The vast majority of employees receive health insurance 
through their employer. Recent escalations in the cost of 
health insurance, however, has put added pressure on the 
continuation of these benefits. Faced with double-digit 
increases in premium costs, many employers are changing their 
health plans by either requiring employees to pay a larger 
share of the cost, increasing copays and deductibles, or 
restricting coverage in general.
    Economists at Dartmouth University found these higher rates 
for employer-provided insurance have already led to significant 
job loss throughout the economy. As a result of these factors, 
a recent Gallup Poll ranked health care as the public's top 
concern. Over two-thirds of Americans said they personally 
worry a great deal about the affordability and availability of 
health care.
    Due to these facts, it is no surprise that States have 
devoted so much energy this year to health care legislation. If 
States were examining policies that attempted to address the 
fundamentals behind the dramatic increases, their efforts would 
go toward expanding coverage. Unfortunately, States are largely 
avoiding this potentially productive discussion, instead, with 
the most blunt policy tool available, simply requiring someone 
to pay for it. Invariably these efforts are focused on forcing 
all employers to provide health benefits to their employees. 
Nominally, they require for increased coverage. Research shows, 
however, that the burden of these mandates will actually fall 
on employees through decreased job opportunities and wages.
    Economic studies on mandated benefits reveal that, where 
possible, employers will pass these new costs onto their 
employees through lower wages. For the least skilled employees 
in the economy, lower wages are often not an option. Government 
data shows approximately 43 percent of all uninsured employees 
are working at or near the minimum wage. Bound by the minimum, 
employers are forced to react to the newly imposed health cost 
through layoffs. The end result is the least skilled employees 
in the economy end up footing the bill for these newly mandated 
benefits, often with their jobs. As a result, many of these 
employees are forced to confront the bitter irony of a bill 
designed to provide employer-based coverage, leaving them with 
neither an employer or coverage.
    The recent history of employer-mandated health care can be 
traced back to California's Proposition 72. This initiative 
would have employers with more than 20 employees provide 
individual health coverage, and those with more than 200 
employees provide family insurance. Economists estimated that 
this legislation would have cost California employers upwards 
of $12.9 billion and up to 150,000 jobs would have been 
destroyed.
    Furthermore, those who lost their jobs would have been 
disproportionately younger, poor, less educated and minority. 
While Proposition 72 narrowly lost at the ballot box in 2004, 
the defeat did nothing to stem the tide of these costly 
mandates. In 2005, legislators in Washington debated the Health 
Care Responsibility Act, a similarly destructive mandate.
    This year, 26 States considered legislation requiring 
employers to provide health benefits to their employees. The 
legislation varied significantly across the States. Some were 
limited to employers of a certain size while others sought to 
require a minimum level of benefit. High cost and fewer jobs 
may be justifiable if these mandates significantly reduce the 
problem of the uninsured. But research shows that employer 
mandates, due to their dependence on the workplace as the 
source of insurance, do little to address the problem of the 
uninsured. Often they leave the vast majority of uninsured 
without new coverage. In California, for example, the $12.9 
billion dollars in new spending would have only decreased the 
uninsured population by 31 percent, a shocking cost of nearly 
$6,600 per newly insured individual.
    Due to poor targeting, only 30 to 35 cents of every dollar 
spent on the legislation would have gone toward the uninsured. 
Similar results should be expected from any mandate that 
attempts to address the problem of the uninsured solely through 
the labor market. Often the very characteristics that have left 
these employees without insurance in the first place deny them 
the benefit of workplace dependent mandates.
    True progress toward addressing the pressing problem of 
rising health cost and the uninsured will not come from simply 
shifting the cost and the responsibility onto the backs of 
employers. Rising health care costs have made it prohibitively 
expensive for many small businesses to either offer or continue 
to offer coverage. These same hire rates already contributed to 
significant job loss throughout the economy.
    It is critical that States and Congress attempt to enact 
meaningful reforms to our health care market that will actually 
decrease the number of uninsured instead of simply trying to 
pass the buck. Thank you. I am happy to answer any questions.
    [The prepared statement of Mr. Garthwaite follows:]

 Prepared Statement of Craig Garthwaite, Research Fellow in Economics, 
                     Employment Policies Institute

    Thank you Mr. Chairman, Ranking Member and members of the 
subcommittee for inviting me to testify today. My name is Craig 
Garthwaite, Research Fellow in Economics at the Employment Policies 
Institute. Founded in 1991, the Employment Policies Institute is a non-
profit research organization dedicated to studying public policy issues 
surrounding employment growth. In particular, EPI focuses on issues 
that affect entry-level employment.
    It is supported by contributions from private citizens and 
businesses and foundations. We also engage a panel of distinguished 
academic advisors, including Dr. James Heckman, winner of the Nobel 
Prize in economics, Dr. June O'Neil the former director of the 
Congressional Budget Office, and Dr. Kevin Murphy, a recipient of the 
2005 MacArthur ``Genius'' Grant.
    A recent Gallup poll ranked health-care as the public's top 
concern. Over two-thirds of Americans said they personally worry ``a 
great deal'' about affordability and availability of health-care. While 
policy issues are often cyclical, it is likely that health-care will 
remain a top concern for the foreseeable future. As our population ages 
there will be increasing demands on our health-care system. At the same 
time, companies in all industries are striving to restrain costs to 
better compete in the global economy. Many are finding it increasingly 
difficult to provide the kind of comprehensive health coverage the 
public has come to expect.
    It is no surprise then that state legislatures are engaged in 
robust deliberations on health-care issues. Their efforts have largely 
been driven by the goal of expanding the number of people with health 
insurance. These efforts try to cement coverage that is already in 
place and reduce the ranks of the uninsured
    With these policy currents, naturally, states have devoted a great 
deal of energy this year to health-care legislation. Unfortunately, 
most of their efforts have been misdirected. Rather then delve into the 
underlying pressures that make health insurance increasingly 
unaffordable, state lawmakers have largely directed their energies at 
determining who should pay for it. Invariably, there efforts have 
focused on forcing employers to provide health benefits to their 
employees.

Employer-Provided Health-Care
    In many respects, employer-provided health benefits are an 
historical anomaly. They arose during World War II, when wage and price 
controls made it difficult for businesses to compete for labor or 
retain valued workers. Offering health insurance as a benefit got 
around these controls, but created a lasting expectation that 
employment and health benefits were inextricably linked.
    Today, around 60% of employees receive health insurance through 
their employer. Recent escalation in the cost of health insurance, 
however, has put added pressure on employers providing these benefits. 
Faced with double-digit increases in premium costs, many employers are 
changing their benefits: requiring employees to pay a larger share of 
the cost, increasing co-pays and deductibles, or restricting coverage 
in general.
    Policies that fail to address the fundamentals behind the increases 
in the cost of health insurance will not make meaningful progress in 
expanding access to health insurance. This is an area where state 
legislative action can have a dramatic and positive impact. State 
policies that mandate the coverage of certain procedures have an 
enormous impact on the cost of health insurance. While any one mandate 
may seem inexpensive, the cumulative effect of 30 or 50 specific 
mandates can make insurance unaffordable. Research shows that across 
the states, the impact of these mandates can increase the cost of 
insurance by 20-50%.
    The other consequence of these state mandates is that today's 
health insurance marketplace is a patchwork quilt of coverage 
requirements. Policies have to be designed to meet the requirements of 
each individual state, lessening the ability to achieve savings through 
economies of scale. Worse, state mandates are continually being 
adapted. Each year, states consider hundreds of pieces of legislation 
that seek to change the minimum benefit package that can be offered in 
the state. This creates enormous uncertainty within the insurance 
market.

Passing the Buck
    Reforming coverage mandates or increasing the availability of 
``basic'' health plans that are exempt from certain mandates would go 
far in increasing the affordability of health insurance. Unfortunately, 
states are largely avoiding this discussion. Instead, they are 
addressing the increase in the lack of health coverage with the most 
blunt policy tool: simply requiring someone to pay for it. Nominally, 
these bills require employers to foot the bill for increased coverage. 
Economic research shows, however, that the burden of these mandates 
will actually fall on employees through decreased job opportunities and 
wages.
    While only one state has successfully implemented an employer-
mandated health-care system, economists have used other mandate 
programs to estimate the economic impact of these policies. In total, 
the research reveals that-where possible-employers will pass the cost 
of mandated benefits onto employees through lower wages.
    For the lowest-skilled employees in the economy, however, this is 
not an option. Government data shows that about 43 percent of all 
uninsured employees are working at or near the minimum wage. Bound by 
this minimum wage, employers are forced to react to the increased costs 
of the mandate through decreased hours and positions. The end result is 
that the least-skilled employees of the economy end up footing the bill 
for these newly mandated benefits.
    Many of these employees are forced to confront the bitter irony 
that legislation designed to provide employer-based health-care leaves 
them with neither an employer nor healthcare.

Estimated Effects of Mandated Health Insurance
    The recent history of employer mandated health-care can be traced 
back to California's defeated Proposition 72. This initiative would 
have required employers with more than 20 employees to provide 
individual health coverage to all employees working more than 100 hours 
a month. Employers with more than 200 employees would have to provide 
family insurance. The legislation would have cost California employers 
upwards of $12.9 billion and destroyed up to 150,000 jobs.
    While Proposition 72 was narrowly defeated at the ballot box in 
2004, the defeat clearly did nothing to stem the tide of these costly 
mandates. In 2005, legislators in Washington debated the Health-care 
Responsibility Act which would have cost employers in that state 
upwards of $1.6 billion and destroyed up to 25,500 jobs.
    This year, 26 states considered legislation to require employers to 
provide health benefits to their employees. The legislation varied 
significantly across the states; many were limited to employers of a 
certain size, while others sought to additionally require a minimum 
level of benefit.
    These costs may be justifiable if these mandates significantly 
reduced the problem of the uninsured. But, research shows that employer 
mandates-due to their dependence on the workplace as the source of 
insurance-do little to address the problem of the uninsured.
    In California, for example, the $12.9 billion in new spending would 
have only decreased California's uninsured population by 31%--a 
shocking cost of nearly $6,600 per newly insurance individual. Due to 
poor targeting, only 30 to 35 cents of every dollar spent under the 
legislation would have gone towards covering the uninsured.
    Similar results should be expected from any mandate that attempts 
to address the problem of the uninsured, particularly the working 
uninsured, through the labor market. Often, the very characteristics 
that have left these employees without insurance in the first place 
deny them the benefits of these mandates.
    Employer mandates often exempt small businesses and require 
employees to work a certain number of hours. Recent research from the 
University of California-Santa Cruz found that employees working in 
small firms were the most likely to lose insurance from year to year. 
In addition, the rates of working uninsured clearly increase in smaller 
firms. These companies may very well want to provide insurance to their 
employees, but find it to costly. Employer mandates will do little to 
address that problem.
    Employer mandate legislation is based on a false premise of the 
labor market and a misunderstanding of the nature of today's uninsured 
population. It is not only ineffective at solving the problem, but it 
results in unintended consequences that are counter-productive.
    By attempting to simply require employer-provided care, rather than 
address the underlying problems plaguing the nation's healthcare 
market, state legislators are doing little to address the problem of 
the uninsured. Even without the mandate, attempting to rely on 
employers as the primary provider of health coverage is already leading 
to significant job losses for American. Economists at UCLA and Harvard 
University found that the rising healthcare rates have potentially 
forced millions of Americans out of the labor force. Even without the 
presence of a mandate, employers have reacted to rising costs by laying 
off employees; mandating coverage would only exacerbate this problem.

Conclusion
    True progress towards addressing the pressing problem of rising 
health-care costs and the uninsured will not come from simply shifting 
the cost and responsibility onto the backs of employers. Rising health-
care costs have made it prohibitively expensive for many small 
businesses to either offer or continue to offer coverage. These same 
higher rates have already contributed to significant job loss 
throughout the economy. It is critical that states, and Congress, 
attempt to enact meaningful reforms to our health-care market that will 
actually decrease the number of uninsured instead of trying to simply 
pass the buck to employers.
                                 ______
                                 
    Chairman Johnson. Thank you, sir. I appreciate your 
testimony. How quick we forget World War II price controls. I 
bet there is not a single one of you that remembers it. Are 
there? Anybody in the audience remember World War II price and 
wage controls. Outstanding. I guess you and I are the only 
ones.
    Mr. Payne. I am trying not to admit it.
    Chairman Johnson. There is a guy that remembers it, I know 
that.
    Ms. Kofman, you are recognized for 5 minutes.

    STATEMENT OF MILA KOFMAN, ASSOCIATE RESEARCH PROFESSOR, 
         GEORGETOWN UNIVERSITY HEALTH POLICY INSTITUTE

    Ms. Kofman. Thank you. Thank you very much. My name is Mila 
Kofman and I am an associate research professor at Georgetown 
University. Thank you for having me here today. It is both an 
honor and a privilege to have a chance to chat with you for 5 
minutes.
    As you know, I have studied the insurance markets for over 
a decade, various health care reforms. I am currently co-
chair--co-editor, excuse me, of the Journal of Insurance 
Regulation, and I am also a member of the Consumer Board of 
Trustees of the National Association of Insurance 
Commissioners, and before that, I was a Federal regulator 
working on ERISA-related issues at the Department of Labor.
    I want to thank you for your leadership in holding this 
hearing during Cover the Uninsured week. As the number of 
uninsured people continues to rise, the problem gets greater 
and greater, and as you have heard, 18,000 Americans die each 
year preventable deaths because they don't have any health 
coverage whatsoever. This problem may cost our economy as much 
as $130 billion dollars each year. It is timely to examine the 
interplay between ERISA and State health care reform 
initiatives. As States continue to find ways to address the 
health care crisis in the United States, ERISA continues to 
present a number of challenges to State-based reform, and today 
I will discuss just a few of those challenges.
    Importantly, despite ERISA challenges, Governors and State-
Elected officials are undeterred and continue to develop new 
strategies and successful programs to finance medical care for 
their residents. Federal interventions you look at now and in 
the future should support all of these State-based initiatives 
and efforts.
    First, I would like to talk about why coverage is so 
expensive, then I want to talk about briefly some of these more 
recent State initiatives, as well as some of the older State-
Based programs that seek to address the uninsured problem and 
then I want to make you aware of one ERISA related issue that 
prevents States from doing what they are supposed to in the 
criminal area, if there is time.
    So, first, health coverage is expensive because medical 
care is expensive. And you all know this, this is nothing new. 
We know the cost drivers behind health coverage is higher 
prices for prescription drugs, higher prices for provider 
costs. We also know that we use more health care. We are an 
aging population, and more of us have chronic conditions. 
Millions of Americans suffer from chronic conditions, and so we 
use more health care.
    So as we think about solutions to the uninsured problem and 
the ever-increasing costs, we need to address those factors, 
the cost drivers, as well as come up with a more fair way to 
finance the medical care, more equitable way to finance care.
    Many States have sought to address the Nation's health care 
crisis. State-based initiatives like fair-share health care 
seek a more fair way to finance medical care, and I believe 
will help employers in the long run. Cost shifting for 
uncompensated care costs of privately insured people are over 
$40 billion each year out of your pockets to pay for 
uncompensated care. It is estimated that each family pays more 
than $900 per year just to make up for uncompensated care.
    So State initiatives that seek to achieve cost savings like 
the one in Massachusetts, like the one in Maryland will help 
employers because there will be less cost shifting. Maryland's 
lawmakers as you know passed a fair-share law program in 
response to financial pressure on public programs. One large 
employer, their employees use public programs extensively, and 
so Maryland found a way to pay for that coverage.
    Similar things are happening in Massachusetts. State 
lawmakers are just trying to find a more fair way to finance 
medical care. Many States having enacted programs in the past 
decades that have worked to help people finance medical care 
and access company coverage. Things like high-risk pools and 
purchasing coalitions and reinsurance programs, those are all 
helping. None of them are free, and, in fact, they are very 
difficult to finance in the ERISA environment because self-
funded employer plans don't pay into those programs, don't help 
finance those programs.
    So as you consider new initiatives at the Federal level, 
keep in mind that any ERISA expansion will financially hurt 
those existing State-based programs. And I see that the light 
is on, so I will stop and take any questions. Thank you.
    [The prepared statement of Ms. Kofman follows:]

Prepared Statement of Mila Kofman, J.D., Associate Research Professor, 
                         Georgetown University

    Good morning. My name is Mila Kofman and I am an associate research 
professor at Georgetown University's Health Policy Institute 
(Institute). Thank you for inviting me to testify today. It is both an 
honor and a privilege to be here.
    As a way of background, researchers at the Institute conduct a 
range of studies on the uninsured problem. My specific focus is private 
health insurance. For the past decade I have studied regulation of 
health insurance products and companies, state and federal reform 
initiatives, and market failures like insolvency and fraud. Currently I 
am the co-editor of the Journal of Insurance Regulation and serve on 
the Consumer Board of Trustees of the National Association of Insurance 
Commissioners.
    Before joining the faculty at Georgetown University, I was a 
federal regulator at the U.S. Department of Labor, where I worked on 
issues affecting ERISA health plans. Prior to that, I was Counsel for 
Health Policy and Regulation at the Institute for Health Policy 
Solutions, a non-profit, non-partisan firm, assisting small businesses 
in establishing health insurance purchasing coalitions and studying 
state small group reforms. My knowledge, therefore, is both practical 
and academic.
    I want to thank you for your leadership in holding a hearing on 
state health reform initiatives and employer-sponsored medical benefits 
during ``Cover the Uninsured Week.'' As the number of uninsured 
continues to rise, now at over 45 million people without any health 
coverage, you and other members of Congress, as well as state 
policymakers are trying to address this problem. As you know, 18,000 
Americans die preventable deaths each year because they are uninsured. 
This problem is estimated to cost our economy $60 to $130 billion 
annually.\1\
    It is very timely to examine the interplay between ERISA and state 
health care reform initiatives. As states continue to find ways to 
address the health care crisis in the United States, ERISA continues to 
present a number of challenges to state-based reform. Today, I will 
discuss some of those challenges.
    As you deliberate about state health reform efforts by looking at 
``fair share health care'' and ``pay or play'' proposals, it is 
important to remember that there are practical considerations and legal 
parameters, e.g., ERISA. One such consideration is the cost of medical 
care. Health coverage is expensive because medical care is expensive. 
The double-digit premium increases of the past five years, can be 
explained in part by certain cost drivers including increased 
prescription drug costs and higher provider costs (in part due to 
mergers).\2\ Utilization of services is also increasing--we are using 
more health care services as our population ages and the number of 
people with chronic conditions continues to grow. It is important to 
address the cost drivers of medical care.
    ERISA's limitations on what states can require of employers, 
lawsuits using ERISA to question state authority and challenge state 
reform initiatives, and other ERISA-related issues make it difficult 
for states to address the health care crisis. This makes it difficult 
to adopt successful reforms, to cover millions of Americans who do not 
have health insurance, to address the ever growing cost of health 
coverage for people who are insured, and to assure that in fact health 
insurance is adequate, accessible, and secure for people who are sick 
today and those of us who will become sick in the future. Despite ERISA 
challenges to state initiatives, however, governors and state 
legislators are undeterred and continue to develop new strategies and 
successful programs to finance medical care for their residents.

Newest State Initiatives Background
    In recent years, many states have sought to address the nation's 
health care crisis. State-based initiatives like ``fair share health 
care'' seek a more equitable way to finance medical care and I believe 
will help employers. Cost-shifting (for uncompensated care) costs over 
$40 billion per year and hurts employers that provide comprehensive and 
generous benefits. The cost-savings from eliminating uncompensated care 
that state initiatives like ``fair share'' seek to accomplish will help 
those businesses.
    ERISA has been used to challenge state reforms. For example, the 
Maryland Legislature passed a law, called ``The Fair Share Health Care 
Fund Act'' that requires companies with more than 10,000 employees in 
Maryland to pay for medical care and coverage for their employees in 
the amount equal to or more than 8% of salaries (6% for non-profits). 
The law requires a company that falls below 8% to pay an assessment to 
help fund Maryland's health care programs for moderate and low-wage 
income earners and poor people and families.\3\ Maryland's lawmakers 
passed this law in response to financial pressure on public programs, 
after learning that Maryland's public programs covered many employees 
of at least one large national company, drawing down the programs' 
resources; similar bills have been introduced in 18 other states. 
Scheduled to go into effect in January 2007, Maryland's law was 
immediately challenged using ERISA.\4\
    In April, Massachusetts lawmakers enacted broad health care reforms 
called the ``Health Care Access and Affordability'' (a.k.a. 
Massachusetts Health Care Reform Plan), which include a requirement 
that employers with more than 10 employees provide health coverage or 
pay an annual fee per employee to help finance medical care that their 
employees use (currently care provided for free to patients but 
financed through public funding and other sources) in the state.\5\
    Although both laws were carefully crafted to avoid ERISA preemption 
and many experts (including me) believe that these laws would not be 
preempted, it is difficult to predict (even for ERISA experts) how a 
federal court may interpret the scope of ERISA.\6\ It remains to be 
seen whether Maryland, Massachusetts, and other states seeking to 
implement meaningful reforms to address the nation's health care 
problems will be precluded from achieving their goal of universal, 
affordable, and meaningful coverage for all residents.

Background: ERISA
    In 1974 the Employee Retirement Income Security Act (ERISA) was 
passed to regulate job-based health and pension benefits. Under ERISA, 
state laws that ``relate to'' an ``employee benefit plan'' are 
generally preempted. Not all state laws have been found to ``relate 
to'' an ERISA plan, however. And ERISA explicitly exempts regulation of 
insurance from its broad preemption, thus allowing states to regulate 
health insurance products and companies that sell coverage to ERISA 
plans. Employers that self-insure (also called self-funding) are not 
subject to state insurance laws, however. Self-insurance means that an 
employer is responsible for paying medical claims of workers and their 
dependents. When an employer buys health insurance, it pays a premium 
to an insurance company; this is called ``fully-insured'' and the 
insurance company not the employer is obligated to pay medical bills.

Insurance Reforms
    ERISA presents challenges to meaningful state health reforms. As a 
way of example, take state benefit mandates. These are requirements for 
health insurance policies to cover certain benefits, like specific 
medical conditions and treatments. States have a wide range of such 
standards. For example, in 46 states health insurers are required to 
either cover (or offer to cover) benefits for diabetes supplies and 
education. Twenty-seven states require insurers to cover cervical 
cancer screening. Fifty states require coverage for mammograms and 32 
require coverage for well-baby care (childhood immunizations and visits 
to pediatricians). Mandated benefits also include requirements that 
insurers reimburse certain types of medical providers, such as nurse 
practitioners. And they include state laws requiring coverage for 
special populations, e.g., adult handicapped children who age-off their 
parent's policy and newborns (required to be covered from birth by 
their parent's insurer).\7\
    Benefit mandates are used to spread the cost of a medical condition 
or treatment among a broad population, making it less expensive for the 
group of people who need such coverage. Policymakers also use benefit 
mandates to encourage people to seek certain care (immunizations and 
preventive services) that otherwise may not be obtained if people have 
to pay for it out-of-pocket.\8\
    In the absence of mandates, adding optional benefits to a policy 
can distort the price if only people who need that benefit select 
coverage. For example, in Washington State premiums for policies that 
covered maternity and mental health benefits were anywhere from 30 to 
100 percent more expensive than policies that excluded those two 
benefits. The choice in benefit design led consumers to select those 
specific benefits based on their expectation of using them, with 
adverse selection fueling a steep increase in premiums for those 
products.\9\ Also, absent a requirement, some services and benefits may 
not be available even as an add-on (or ``rider''). For example, in 
states that do not require maternity to be covered, an individual 
policy with a maternity rider is rarely available; and even when 
available, the price for a maternity rider is higher than paying for 
the average pregnancy out-of-pocket.
    With respect to mandated benefits, state policymakers make 
tradeoffs: balancing the cost (added to the premium) with the need to 
help their constituents finance costly illnesses. Here, the impact of 
ERISA is felt. Self-funded ERISA health plans are not subject to 
benefit requirements and thus can avoid helping to finance the cost of 
such coverage. This, however, frustrates the public policy goal of 
broadly spreading the cost of certain medical conditions and achieving 
public health goals (such as immunizing the population against certain 
diseases, stabilizing mental health conditions, encouraging treatment 
for substance abuse, or financing supplies to control diabetes). It is 
important to note that many self-funded large employer plans are 
comprehensive, covering for example diabetes supplies. Absent federal 
mandates, not all self-funded plans provide such coverage. When 
employers choose to self-fund, because the cost of mandates is spread 
across a smaller population (among those in state-regulated products), 
the price is higher than it otherwise would be had the cost been spread 
over the entire population (self-funded and fully-insured plans).
    How mandated benefits add to the cost of health insurance has been 
an issue of longstanding controversy and depends on the extent to which 
mandates spread the cost of a particular health care service over a 
large number of policyholders. Literature on the cost of mandates 
generally does not consider the true cost of the benefit because many 
benefits would have been covered absent the mandate.\10\ Even so, a 
recent industry study, for example, found that mandates add minimally 
to the cost of premium (an estimated 5 percent).\11\ Given the recent 
double-digit premium increases for employers (for some in the range of 
20%-30% annually), the anticipated cost savings from a mandate-free 
environment would be minimal. Importantly, both employers exempt from 
state mandates (self-insured) and fully insured have seen their 
premiums increase. There is a reason why GM, for example, adds $1500 to 
the price of each car to pay for health coverage for workers and 
retirees. It is because the cost of medical care is expensive and thus 
reflected in the price of coverage; it is not because of mandates. So 
eliminating mandates will not address the rising costs of coverage.
    Also, the studies on the cost of mandates generally do not consider 
the cost to the patient. In other words, if a health plan is excused 
from covering a treatment, then it does not mean that your illness 
disappears. It just means that you pay for it out-of-pocket, if you can 
afford it. And if not, then assuming you still receive the care, the 
cost of your treatment is added to the cost of uncompensated care 
(generally paid with public funds and cost-shifting to privately 
insured patients).\12\ The question here is who pays for your illness: 
your health plan because it is required by a mandate, you pay out-of-
pocket if you can afford it, or other people with comprehensive 
coverage pay for it (through cost-shifting). Additionally, studies on 
the cost of mandates generally do not consider system-wide costs, that 
is affordability issues and the increased costs of delayed or foregone 
medical care when patients cannot afford needed medical services.\13\

State Regulated Health Insurance Products: ERISA 's impact
    ERISA influences prices for regulated health insurance products. 
Self-insuring allows employers to avoid having their medical claims 
pooled with other employers; especially for mid-size (500 employees or 
less) and small businesses that employ a relatively healthy workforce, 
this may be an advantage.\14\ Smaller firms that employ workers with 
higher medical needs are less likely to self-insure and are more likely 
to buy state-regulated products. Since guaranteed-issue laws were 
enacted, requiring insurers to sell products to any small business, it 
has in fact become easier to buy insurance. In the past insurers were 
free to sell insurance only to businesses with healthy workers. In 
addition, state small group rate reforms require insurers to pool risk 
and in some states insurers are prohibited (or restricted) from 
charging higher rates to businesses with sicker workers. Through risk 
pooling requirements, firms with sicker workers pay less than they 
otherwise would, which helps them to offer and maintain coverage. If 
employers with self-funded plans (small and mid-size) in fact have more 
favorable risk than other employers, the cost for state regulated 
products may be lowered if all businesses participated and everyone's 
claims experience was pooled.\15\

State Market Reforms and Programs: Background and ERISA Challenges
    State insurance regulation has sought to promote several policy 
objectives, such as assuring the financial solvency of insurance 
companies, promoting risk spreading, protecting consumers against 
fraud, and ensuring that consumers are paid the benefits that they are 
promised. Also as products and markets evolve, e.g., managed care in 
the 1990's, states have responded to some abusive industry practices 
through ``patient protections'' like guaranteed access to emergency 
services and specialists, and external review of denied claims for 
medical care.
    State policy makers have also instituted certain rules for 
insurance companies, establishing who they must sell coverage to, how 
products must be priced, and the types of benefits that must be 
covered. Absent legislative interventions, in a private health 
insurance market, insurers adopt practices to avoid incurring high 
medical claims, including denying coverage to applicants who have 
health conditions or a history of health problems. An estimated 20% of 
people account for about 80% of health care spending.\16\ Avoiding even 
a small number of high-cost individuals can substantially reduce an 
insurer's losses.
    In addition to market reforms, state policymakers have tried a 
variety of ways to help their residents and businesses to access and 
afford health coverage. ERISA presents a number of challenges to states 
in how to finance certain health coverage programs. For instance, 
states require insurers to pay premium taxes and assessments, which 
helps to pay for certain state health programs for residents including 
high-risk pools. Risk pools are state programs for people with high 
medical needs who insurance companies won't cover. Thirty-three states 
have such pools. In 2004, they covered approximately 180,000 people. 
States fund high-risk pools in a variety of ways, but many rely on 
revenue from premium taxes and assessments on health insurance 
companies. For self-insured plans, an exemption from premium taxes is a 
small cost savings, but it cuts the amount of available revenue from 
health insurance companies by approximately 50%--the estimated portion 
of the insured population that is in self-funded plans.\17\
    Another approach to expand access to health insurance has been 
through public/private partnerships called ``HIPCs'' (health insurance 
purchasing cooperatives)--these are also known as purchasing alliances 
and purchasing pools for small businesses. These programs use the 
state's purchasing power to negotiate rates and coverage with private 
insurance companies.\18\ Participating employers have a choice of 
products and typically a choice of insurers. Arizona, California, New 
Mexico, and New York City have such purchasing pools for small 
businesses.\19\ One of the newest operational programs was established 
in 2005 in Montana. The state has used its purchasing power to 
negotiate rates that are better than available in the private market 
and is using tobacco taxes to help pay for the cost of coverage in the 
pool for moderate income wage earners.
    Other states have tried to make coverage more affordable through 
``reinsurance,'' subsidizing the cost of big losses (claims). This 
would limit insurers' losses and thus seeks to keep premiums lower. 
Reinsurance programs have been tried in 21 states. Healthy New York, a 
state-wide program, for example, covers over 100,000 people and uses 
the state's tobacco settlement funds to subsidize a portion of high-
cost claims under the program.\20\
    While these state coverage expansion efforts vary, none are free. 
They all rely on some funding, and ERISA self-insured plans generally 
do not contribute to financing such programs. However, self-funded 
plans benefit when people with medical needs have insurance--there is 
less uncompensated care and therefore less cost-shifting. In other 
words, the cost of uncompensated care is borne by all people with 
insurance as the costs are shifted to all privately insured people--
self-insured and fully insured plans.
    In addition to funding, these state programs rely on insurers 
assuming significant risk. As policymakers provide new incentives for 
employers to withdraw from state-regulated policies (as some bills 
pending before Congress would do), insurers would have greater 
incentive to dump their poor risks.\21\ States may allow insurers to do 
so but pressure on state coverage expansion programs will be great. 
Expansion of ERISA is likely to escalate this pressure and impact 
adversely state coverage programs that rely on insurers taking on 
significant risk and on insurer assessments to spread cost broadly 
across the insured population.

ERISA Abuses
    Operators of unauthorized entities (a.k.a. phony insurance 
companies) have used ERISA as a way to avoid or to delay state 
regulator actions. By way of background, phony insurance entities 
collect premiums but don't pay medical bills, instead using the money 
for personal gain. During the most recent cycle of health insurance 
scams, more than 200,000 policyholders were left with over $252 million 
in unpaid medical bills. The federal government and the states 
identified 144 scams between 2001 and 2003; the federal government shut 
down 3 and the states shut down 41.\22\ Operators of health insurance 
scams claim that they are regulated by the federal government under 
ERISA and therefore exempt from state regulation. Some create complex 
legal documents that, at least on paper, raise questions about their 
legal status under ERISA.
    Although Congress clarified ERISA in 1983, some ambiguities remain 
and operators of phony health plans continue to use ERISA preemption as 
a shield to avoid state enforcement actions, challenging state 
authority by removing cases to federal court. Operators of phony plans 
use this tactic to delay final court action, which gives them an 
opportunity to spend or hide assets. This use of ERISA makes it 
difficult for states to protect their residents against criminal 
behavior.\23\ Expanding ERISA, for example through AHPs or similar 
legislation, is likely to increase ERISA-related scams.\24\

Conclusion
    As the number of people in the United States without health 
insurance continues to rise, governors and state legislators continue 
to look for ways to address the problem, financing medical care through 
private and public insurance despite ERISA challenges. States are 
looking for equitable and effective ways to finance medical care for 
their residents. For this reason, Congress should be cautious when 
looking at proposals that seek to expand ERISA or to deregulate the 
market. Not only will some proposals not accomplish their desired goal, 
but they may actually add to the uninsured problem, make it even more 
difficult for state-based reforms to succeed and drive-up costs for 
people who have insurance. I encourage you to look for measures that 
will encourage and support state initiatives.
    It is also important to remember that many self-funded large 
employer plans provide generous benefits to workers and dependents, 
covering expensive medical conditions and covering people with 
significant medical needs. America's businesses need real help to 
address factors driving cost increases for medical care so they can 
keep their workers healthy and stay competitive in a global economy.
    Thank you for your consideration of this important issue, and I 
look forward to assisting you as you look for ways to address the ever 
growing problem of millions of Americans without health insurance and 
rising costs of coverage for all Americans.

                                ENDNOTES

    \1\ For highlights see, Press Release, January 14, 2004, ``IOM 
Report Calls for Universal Health Coverage by 2010; Offers Principles 
to Judge, Compare Proposed Solutions'' available at 
www4.nationalacademies.org/news.nsf/isbn.
    \2\ For example, in 2004, health care spending included: 30.4% for 
hospital care, 21.3% for physician services, 10.0% for prescription 
drugs. Distribution of National Health Expenditures, by Type of 
Service, 1994 and 2004. page 5, Trends and Indicators in the Changing 
Health Care Marketplace, KFF 2006 available at www.kff.org. Spending on 
prescription drugs increased two to five times more than spending on 
hospital care and physician services between 1995 and 2000. Id. at 6.
    \3\ See 2005 Regular Session, SB 790, Veto Override version, Jan. 
12, 2006.
    \4\ See Plaintiff's Complaint, Retail Industry Leaders Association 
v. James D. Fielder, U.S. District Court for the District of Maryland 
(February 7, 2006).
    \5\ Massachusetts Reforms (House No. 4850) amends several state 
statutes including the insurance code.
    \6\ Maryland's Attorney General analyzed the bill and concluded 
that ERISA would not preempt it. See Letter from Joseph Curran, 
Attorney General, Maryland, to Michael Busch, Speaker of the House, 
Maryland General Assembly, January 9, 2006 (copy available from 
author).
    \7\ See Kofman, Mila and Karen Pollitz, ``Health Insurance 
Regulation by the States and the Federal Government: A Review of 
Current Approaches and Proposals for Change,'' Health Policy Institute, 
Georgetown University (April 2006), available at www.allhealth.org.
    \8\ Which benefits are required to be covered is in part a function 
of how successful a particular group advocating for the mandate is in a 
state. Enacting benefit mandates is not done in a vacuum but is a part 
of a legislative process.
    \9\ See Kirk, Adele, ``Riding the Bull: Experience with Individual 
Market Reform in Washington, Kentucky, and Massachusetts,'' Journal of 
Health Policy, Politics and Law Vol. 25, No. 1, 2000.
    \10\ Chollet, Deborah ``Finance Committee Hearing: Health Care 
Coverage for Small Businesses: Challenges and Opportunities. Questions 
Submitted for the Record'' April 13, 2006 (copy available from author). 
11See Bender, Karen and Beth Fritchen, ``Health Insurance Marketplace 
Modernization and Afordability Act of 2006, `` Mercer Report, March 
2006, page 4 (copy available from author).
    \12\ In 2004, uncompensated care totaled $40.7 billion. Jack Hadley 
and John Holahan, The Cost of Care for the Uninsured: What Do We Spend, 
Who Pays, and What Would Full Coverage Add to Medical Spending? Issue 
Update 2004, Kaiser Family Foundation available at www.kff.org. One 
study estimates that cost-shifting adds over $900 annually to the cost 
of family coverage. ``Paying a Premium: The Added Cost of Paying for 
Care for the Uninsured'' Families USA (June 2005) available at 
www.familiesusa.org/assets/pdfs/Paying--a--Premium--rev--July--1 3731 
e.pdf.
    \13\ According to a RAND study, doubling co-payments for long-term 
prescription drug use caused patients to decrease the recommended use, 
which resulted in more and longer incidents in the hospital, including 
increased emergency room visits. Goldman, D. et al, ``Pharmacy Benefits 
and the Use of Drugs by the Chronically Ill,'' JAMA, May 19, 2004, Vol. 
291, No. 19, page 2344. One recent study found that patients delay 
going to the doctor, for example, because of affordability issues. 
Michelle Doty et al ``Seeing Red: Americans Driven Into Debt by Medical 
Bills,'' Commonwealth Fund (August 2005) available at www.cmwf.org/
usr--doc/837--Doty--seeing--red--medical--debt.pdf.
    \14\ Small businesses that self-insure may not be able to properly 
reserve for claims. The financial risk they take on is high.
    \15\ See Attachment A in Kofman, Mila and Karen Pollitz, ``Health 
Insurance Regulation by the States and the Federal Government: A Review 
of Current Approaches and Proposals for Change,'' Health Policy 
Institute, Georgetown University (April 2006), available at 
www.allhealth.org. Additionally, self-insurance allows employers to 
save money by avoiding the cost of paying for reserves and minimum 
capital. Such requirements apply to insurers and are designed to ensure 
solvency. There are no solvency requirements for health plans in ERISA. 
While saving some cost, the trade-off here is that people in ERISA 
self-insured plans have fewer protections than those in fully-insured 
plans, and as such may be stuck with medical bills if their employer 
goes bankrupt. When an insurer becomes insolvent, outstanding medical 
claims are paid for by guaranty funds. There is no similar safety-net 
for people in self-insured arrangements. A problem for state policy 
makers is that ERISA self-funded plans do not contribute to state 
programs like guaranty funds, which are financed through assessments on 
health insurance companies. A broader financing base would make these 
safety-nets less costly; and of course, protect all workers against 
their health plan's insolvency.
    \16\ See Berk, Marc and Alan Monheit, ``The Concentration of Health 
Care Expenditures, Revisited,'' Health Afairs, (March/April 2001): 145-
149.
    \17\ Financing risk pools is also a question of fairness. Arguably 
because former workers of ERISA self-funded plans may enroll in high-
risk pools, it is fair to ask self-funded employers to help finance 
that coverage. For a discussion of funding mechanisms and more 
information about state high-risk pool programs, see ``Comprehensive 
Health Insurance for High-Risk Individuals: A State-by-State Analysis'' 
18th Edition, 2004-2005, Communicating for Agriculture and the Self-
Employed, Inc.
    \18\ Maine also has a program similar to a purchasing pool, called 
Dirigo. Among its many features, is it helps pay for the cost of 
private health insurance for moderate income wage earners insured 
through the program. The coverage is through a private insurer. Funding 
for the program partly comes through Medicaid.
    \19\ Kofman, Mila, Issue Brief: Group Purchasing Arrangements: 
Issues for States, State Coverage Initiatives, April 2003 available at 
http://www.statecoverage.net/pdf/issuebrief403.pdf.
    \20\ Chollet, Deborah, The Role of Reinsurance in State Eforts to 
Expand Coverage, State Coverage Initiatives, October 2004; see also, 
Chollet, Deborah and Carolyn Watts, Pooling and Reinsurance in 
Washington State Insurance Markets, 24 Journal of Insurance Regulation 
81 (Winter 2005); Swartz, Katherine, ``Reinsurance: How States Can Make 
Health Coverage More Affordable For Employers and Workers,'' 
Commonwealth Fund, July 2005.
    \21\ For example, prior to guaranteed-issue requirements in the 
small group market, states allowed commercial insurers to choose to 
whom to sell coverage. In many states, Blue Cross/Blue Shield plans 
were looked to as insurers of ``last resort'' and generally offered 
coverage on a guaranteed issue basis. With a changing marketplace in 
the 1980s, as more large employers began to take themselves out of the 
insurance market (and self-funding their medical benefits), the market 
became more fragmented. Commercial carriers became more selective in 
who they would cover. Financial pressure on many Blues plans as 
insurers of last resort became significant. Taxpayer subsidies and 
whole scale market reforms became necessary requiring commercial 
insurers to bear more risk for sick groups. See Kofman, Mila and Karl 
Polzer, ``What Would Association Health Plan Mean for California: Full 
Report?'' Prepared for the California HealthCare Foundation, January 
2004 available at http://www.chcf.org/documents/insurance/
AHPFullReport.pdf (hereinafter California AHP Report).
    \22\ U.S. General Accounting Office, Private Health Insurance: 
Employers and Individuals are Vulnerable to Unauthorized or Bogus 
Entities Selling Coverage, GAO-04-3 12 (Feb. 2004).
    \23\ Also some entities have developed complex ``ERISA'' schemes 
that they claim allows an exemption from state insurance laws 
protecting small businesses or to avoid state initiatives to increase 
the availability of affordable health insurance coverage. Unlike the 
outright scams these schemes straddle the line between regulatory 
violations and criminal conduct.
    \24\ In the case of American Benefit Plans, although the Texas 
Insurance Department had a letter from the U.S. Department of Labor 
stating that the arrangement was subject to state regulation, one of 
its promoters, nonetheless, removed the state case to a federal court. 
See Kofman, Mila ``Association Health Plans: Loss of State Oversight 
Means Regulatory Vacuum and More Fraud,'' Georgetown University Health 
Policy Institute, July 2005, available at http://hpi.georgetown.edu/
ahp.html.
                                 ______
                                 
    Mr. Kline [presiding]. Thank you very much. I am sure we 
will have an opportunity for increased dialog when we get to 
the question-and-answer session.
    You have the floor, sir.

 STATEMENT OF LARRY DROMBETTA, PRESIDENT AND CEO, H.R. STORES, 
                              INC.

    Mr. Drombetta. Thank you, Mr. Chairman, members of the 
committee. My name is Larry Drombetta, and I am the president 
and CEO of a small Maryland based company, H.R. Stores, 
Incorporated. I am pleased to be here today on behalf of the 
national retail federation. I commend you for holding these 
timely meetings focusing attention on health care mandates as 
they impact employees, employers and particularly on small 
retail businesses like my own.
    The NRF is a large retail trade association, membership 
that comprises all retail format and channels of distribution. 
The NRF also represents more than a hundred State, local and 
national and international retail associations.
    Mr. Chairman, as the employer of more than 23 million 
employees, about 1 in every 5 Americans, the retail industry is 
one of the biggest supporters of employer-based health 
insurance. We also are mainstays of the economy with 2005 sales 
of $4.4 trillion. Ours is not an easy employee population to 
cover with health insurance. Our employees are fairly young; 
they have high turnover rates. We employ half of all the 
teenagers in the workforce, and one-third of all workers under 
the age of 24 years old. More than a third of our retail 
workforce is part-time, and two-thirds of that part-time 
workforce are women. Often retail industry employees are 
second-wage earners and mainstays of family economies.
    I am the president and CEO of a very small company. We 
operate shoe stores in Maryland, Virginia, North Carolina and 
soon in Pennsylvania. We have a staff of 35; 33 are full time, 
and 18 participate in the company health insurance program. My 
health care costs have steadily increased through the years and 
are increasingly unbearable. Coverage costs have increased by 
155 percent in the period 2000 through 2006. My company has not 
grown 155 percent, and we cannot continue to sustain these 
coverage cost increases.
    The cost increases are directly related to the impact of 
not just my business and company but the people who work for me 
and I work with. Let me explain how that relates. The younger 
members of my staff drop insurance out of a belief that they 
really don't need it. Some of us can recall how invincible we 
felt when we were young. This leaves in turn my group aging, 
having an increasing average age that in turn drives up the 
rate. This process repeats itself each year as my group becomes 
older and older.
    My health insurance program is in what insurance industry 
people call a health insurance death spiral. I appreciate the 
Chairman's leadership in sponsoring legislation for association 
health plans. I am hopeful the Senate will soon develop a 
bipartisan counterpart bill and catch up with the House.
    We as retailers offer good benefits but do not support 
mandated provisions of benefits, particularly the entire--the 
current cost environment and given the unique workforce mix we 
contain, State health mandates do nothing to address the cost 
of health care. In fact, they make matters worse. Legislation 
mandating that employers spend arbitrary percentages on 
benefits tends to--excuse me, a little nervous.
    I believe that health care mandates amount to an ill-
advised tax. It will result in a tax on workers, a tax on 
consumers and a tax on the economy in general. The National 
Retail Federation has established a Tax on Jobs Coalition to 
fight State health care mandates.
    With the Chairman's permission, I would like to insert the 
coalition matrix of spending State health care mandates at the 
conclusion of my testimony.
    [The information referred to follows:]

                                    PENDING STATE HEALTH CARE MANDATE MATRIX
----------------------------------------------------------------------------------------------------------------
                              Number of
States targeted    Bill       employees/                                                               Date of
   by AFL-CIO     number       mandate               Status                    Sponsor(s)           introduction
    mandate                   percentage
----------------------------------------------------------------------------------------------------------------
Alabama........  Session   ...............  .......................  .............................  ............
                 started
                 1/10/06
----------------------------------------------------------------------------------------------------------------
Alaska.........   HB 449         2,000/8%   .......................  Representative Croft;             2/13/06
                                                                      Representative Guttenberg;
                                                                      Representative Kertulla;
                                                                      Representative Crawford
----------------------------------------------------------------------------------------------------------------
Arizona........  Session   ...............  .......................  .............................  ............
                 started
                  1/9/06
----------------------------------------------------------------------------------------------------------------
California.....  SB 1414        10,000/8%   Hearing May 8 in Senate  Senator Midgen                    2/22/06
                                             Appropriations
                                             Committee
                ------------------------------------------------------------------------------------------------
                  SB 593     20,000/don't   .......................  Senator Alarcon                   2/18/05
                                    use %
----------------------------------------------------------------------------------------------------------------
Colorado.......  HB 1316        3,500/11%   Hearing Postponed        Representative Solano;             2/6/06
                                             Indefinitely             Senator Tochtrop
----------------------------------------------------------------------------------------------------------------
Connecticut....   SB 462            5,000   Labor and Public         Not Listed                         3/1/06
                                             Employees Committee
                                             Hearing 3/9 at 2PM in
                                             Room 2A
----------------------------------------------------------------------------------------------------------------
Delaware.......  Session   ...............  .......................  .............................  ............
                 started
                   1/10/
                    2006
----------------------------------------------------------------------------------------------------------------
Florida........   HB 813        10,000/9%   Referred to Health Care  Representative Bucher             1/23/06
                                             Regulation Committee
                ------------------------------------------------------------------------------------------------
                 SB 1618        10,000/9%   .......................  Senator Campbell                  1/25/06
----------------------------------------------------------------------------------------------------------------
Georgia........  HB 1339        10,000/8%   Session adjourned        Representative Orock              2/15/06
                ------------------------------------------------------------------------------------------------
                  SB 579       10,000/10%   Session adjourned        Senator Miles                     2/21/06
----------------------------------------------------------------------------------------------------------------
Illinois.......  Session   ...............  .......................  .............................  ............
                 started
                   1/11/
                    2006
----------------------------------------------------------------------------------------------------------------
Indiana........  Session   ...............  .......................  .............................  ............
                 started
                   1/09/
                    2006
----------------------------------------------------------------------------------------------------------------
Iowa...........  HB 2430        10,000/8%   Referred to Human        Representative Taylor T.          2/16/06
                                             Resources
                ------------------------------------------------------------------------------------------------
                 SB 2246         8,000/9%   Referred to Commerce     Senator Bolkcom                   2/21/06
----------------------------------------------------------------------------------------------------------------
Kansas.........  HB 2579        10,000/8%   Session adjourned        Representative Flaharty            1/9/06
                ------------------------------------------------------------------------------------------------
                  SB 557        10,000/8%   Session adjourned        .............................     2/14/06
----------------------------------------------------------------------------------------------------------------
Kentucky.......    HB 98        10,000/8%   Session adjourned        Representative Henley;             1/3/06
                                                                      Representative Gray;
                                                                      Representative Hoffman;
                                                                      Representative Jenkins;
                                                                      Representative Marzian
                ------------------------------------------------------------------------------------------------
                  HB 493       25,000/10%   Session adjourned        Representative Henley;             2/1/06
                                                                      Representative Gray
----------------------------------------------------------------------------------------------------------------
Louisiana......    SB 69   Less than 8,000/ Referred to Senate       Senator Nevers                    3/13/06
                                       8%    Healthand Welfare
                                             Committee
                ------------------------------------------------------------------------------------------------
                  HB 552         5,000/6%   Referred to House Labor  Representative Herbert            3/16/06
                                             & Industrial Relations
----------------------------------------------------------------------------------------------------------------
Maryland.......  HB 1510        Less than   Rejected by the Health   Delegate James Hubbard            2/15/06
                              10,000/4.5%    and Govt Operations
                                             Committee
----------------------------------------------------------------------------------------------------------------
Massachusetts..    MA SB   99/don't use %   Referred to Committee    Senator McGee; Senator Tolman     1/26/05
                     695                     on Health Care
                  (intro                     Financing
                 in 2005)
----------------------------------------------------------------------------------------------------------------
Michigan.......   SB 734         10000/8%   Referred to Committee    Senator Basham; Senator Clark-     9/6/05
                                             on Commerce & Labor      Coleman; Senator Jacobs;
                                                                      Senator Thomas; Senator
                                                                      Scott; Senator Brater;
                                                                      Senator Clarke
----------------------------------------------------------------------------------------------------------------
Minnesota......    HF 74        10,000/6%   .......................  Representative Latz               6/13/05
                ------------------------------------------------------------------------------------------------
                   (2005   ...............  .......................  Representative Peterson        ............
                 Special
                 Session)
                ------------------------------------------------------------------------------------------------
                 HB 2786       10,000/10%   .......................  Representative Rukavina           2/16/06
                ------------------------------------------------------------------------------------------------
                 HF 3025       10,000/10%   Referred to Health       Representative Lesch               3/1/06
                                             Policy & Finance
                                             Committee
                ------------------------------------------------------------------------------------------------
                 HF 2573       10,000/10%   Health Policy & Finance  Representative Mullery            1/19/06
                                             Committee Hearing 3/10
                                             at 8:15 AM, Room 10
                ------------------------------------------------------------------------------------------------
                 SB 2672        10,000/8%   Committee Meeting in     Senator Lourey                     3/2/06
                                             Health & Human
                                             Services Budget
                                             Division 3/23/06 in
                                             Room 123 Capitol
                ------------------------------------------------------------------------------------------------
                 SB 2673        10,000/8%   .......................  Senator Lourey                     3/2/06
                ------------------------------------------------------------------------------------------------
                 SB 2674       10,000/10%   .......................  Senator Lourey                     3/2/06
                ------------------------------------------------------------------------------------------------
                 HF 3143        10,000/8%   Referred to Jobs &       Representative Lesch               3/8/06
                                             Economic Opportunity
                                             Policy & Finance
                                             Committees
                ------------------------------------------------------------------------------------------------
                 SB 2839       10,000/10%   Referred to Jobs,        Senator Tomassoni                  3/8/06
                                             Energy, & Community
                                             Development Committee
----------------------------------------------------------------------------------------------------------------
Mississippi....  SB 2684        10,000/8%   Legislation is dead      Senator Dawkins; Senator       ............
                                                                      Williamson
----------------------------------------------------------------------------------------------------------------
Missouri.......   SB 944       10,000/10%   .......................  Senator Bray; Senator Green;      1/24/06
                                                                      Senator Days
----------------------------------------------------------------------------------------------------------------
New Hampshire..  HB 1704      1,500/10.5%   Legislation is dead      Representative Moody;             1/10/06
                                                                      Representative M.J. Quandt;
                                                                      Representative Waltz
----------------------------------------------------------------------------------------------------------------
New Jersey.....   SB 477   1,000/$4.17 an   .......................  Senator Sweeney; Senator          1/10/06
                                     hour                             Coniglio
                ------------------------------------------------------------------------------------------------
                 SB 1320        10,000/8%   Referred to Senate       Senator Vitale; Senator Buono      2/6/06
                                             Labor Committee
                ------------------------------------------------------------------------------------------------
                 AB 2513        10,000/8%   Referred to Assembly     Assemblyman Cohen                  2/9/06
                                             Financial Institutions
                                             and Insurance
                                             Committee
                ------------------------------------------------------------------------------------------------
                 AB 2891   1,000/$4.17 an   .......................  Assemblyman Burzichelli           3/21/06
                                     hour
----------------------------------------------------------------------------------------------------------------
New Mexico.....  Session   ...............  .......................  .............................  ............
                 started
                   1/17/
                    2006
----------------------------------------------------------------------------------------------------------------
New York.......  SB 6472   500 employees/   Amended and recommitted  Senator Klein                     1/20/06
                            $3 per hr.for    to the Committee on
                              health care    Labor
                ------------------------------------------------------------------------------------------------
                 A 10583   100 employees/   Referred to Health       Assemblyman Gottfried              4/4/06
                               $3 per hr.    Cmte.
                ------------------------------------------------------------------------------------------------
                 SB 7090   100 /$ 3 per hr  Committee on Health      Senator Spano                     3/21/06
                ------------------------------------------------------------------------------------------------
                  A 9534        10,000/8%   Committee on Codes       Assemblyman O'Donnell             1/17/06
                ------------------------------------------------------------------------------------------------
                  A 9776   500 employees/   .......................  Assemblyman Peralta                2/1/06
                           $3 per hr. for
                              health care
----------------------------------------------------------------------------------------------------------------
Ohio...........   HB 471        30,000/8%   Referred to House        Representative Garrison;          1/17/06
                                             Finance &                Representative Healy
                                             Appropriations
                                             Committee
                ------------------------------------------------------------------------------------------------
                  SB 256        10,000/8%   Referred to Senate       Senator Brady                     1/18/06
                                             Commerce & Labor
                                             Committee
                ------------------------------------------------------------------------------------------------
                  SB 258         1,000/8%   Referred to Senate       Senator Brady; Senator            1/19/06
                                             Commerce & Labor         Prentiss; Senator Roberts;
                                             Committee                Senator Hagan
----------------------------------------------------------------------------------------------------------------
Oklahoma.......  HB 2678         3,000/9%   Referred to House        Representative Gilbert            1/18/06
                                             Insurance Committee
----------------------------------------------------------------------------------------------------------------
Pennsylvania...  HB 2495        10,000/9%   Referred to Committee    Representative J. Taylor           4/5/06
                                             on Insurance
----------------------------------------------------------------------------------------------------------------
Rhode Island...  HB 6984         1,000/8%   Referred to House        Representative Naughton;          1/31/06
                                             Finance                  Representative Gallison;
                                                                      Representative Pacheco;
                                                                      Representative Almeida;
                                                                      Representative Slater
                ------------------------------------------------------------------------------------------------
                 HB 6917         1,000/8%   Referred to House        Representative Rice;              1/25/06
                                             Finance                  Representative Handy;
                                                                      Representative Sullivan;
                                                                      Representative Faria;
                                                                      Representative Almeida
                ------------------------------------------------------------------------------------------------
                 SB 2201         1,000/8%   Referred to Senate       Senator Pichardo; Senator         1/26/06
                                             Health and Human         Perrt; Senator Ciccone;
                                             Services                 Senator Issa; Senator Lanzi
----------------------------------------------------------------------------------------------------------------
Tennessee......  SB 3392        10,000/8%   Referred to Senate       Senator Herron                    2/16/06
                                             Interim Committee
                ------------------------------------------------------------------------------------------------
                 HB 3962        10,000/8%   Referred to House        Representative McMillan           2/23/06
                                             Interim Committee
                ------------------------------------------------------------------------------------------------
                 HB 3354       10,000/10%   Referred to House        Representative Turner             2/23/06
                                             Interim Committee
                ------------------------------------------------------------------------------------------------
                 SB 3729       10,000/10%   Referred to Senate       Senator Cohen                     2/23/06
                                             Interim Committee
                ------------------------------------------------------------------------------------------------
                 HB 3686         1,000/8%   Referred to House        Representative Johnson R          2/24/06
                                             Interim Committee
                ------------------------------------------------------------------------------------------------
                 SB 3755         1,000/8%   Referred to Senate       Senator Burchett                  2/24/06
                                             Interim Committee
----------------------------------------------------------------------------------------------------------------
Washington.....  HB 2517         5,000/9%   Legislation is dead      Representative Cody;              1/10/06
                                                                      Representative Conway;
                                                                      Representative Chase;
                                                                      Representative Morrell;
                                                                      Representative Appleton;
                                                                      Representative Green;
                                                                      Representative Wood;
                                                                      Representative Hasegawa;
                                                                      Representative Hudgins;
                                                                      Representative Ormsby;
                                                                      Representative Miloscia;
                                                                      Representative Dickerson;
                                                                      Representative Kenney;
                                                                      Representative Moeller;
                                                                      Representative McDermott;
                                                                      Representative Sells;
                                                                      Representative Hunt;
                                                                      Representative Williams;
                                                                      Representative Simpson;
                                                                      Representative Roberts;
                                                                      Representative Schual-Berke;
                                                                      Representative Lantz;
                                                                      Representative McIntire;
                                                                      Representative Kagi
                ------------------------------------------------------------------------------------------------
                  S 6356         5,000/9%   Legislation is dead      Senator Kohl-Welles; Senator      1/11/06
                                                                      Keiser; Senator McAuliffe;
                                                                      Senator Franklin; Senator
                                                                      Thibaudeau; Senator Fairley;
                                                                      Senator Prentice; Senator
                                                                      Kline
----------------------------------------------------------------------------------------------------------------
West Virginia..   SB 147        10,000/8%   Legislation is dead      Senator Hunter; Senator           1/13/06
                                                                      Kessler; Senator Dempsey;
                                                                      Senator Foster; Senator
                                                                      Lanham; Senator McCabe;
                                                                      Senator Jenkins
                ------------------------------------------------------------------------------------------------
                 HB 4024        10,000/8%   Legislation is dead      Delegate Brown; Delegate          1/16/06
                                                                      Caputo; Delegate Hartman;
                                                                      Delegate Hrutkay
----------------------------------------------------------------------------------------------------------------
Wisconsin......   AB 860     10,000/don't   Legislation is dead      Representative Berceau;           12/8/05
                                    use %                             Representative Nelson;
                                                                      Representative Lehman;
                                                                      Representative Black;
                                                                      Representative Pope-Roberts;
                                                                      Representative Sinicki;
                                                                      Representative Zepnick;
                                                                      Representative Shilling;
                                                                      Representative Molepske
                ------------------------------------------------------------------------------------------------
                  SB 440     10,000/don't   Legislation is dead      Senator Hansen; Senator          11/16/05
                                    use %                             Robson; Senator Taylor
----------------------------------------------------------------------------------------------------------------

    Mr. Kline. Without objection, that will be inserted and all 
your written testimony will be inserted.
    Mr. Drombetta. The special interest groups that are at the 
State level make no secret of the ambition to move to expand 
mandates to cover employers of all sizes. Let me be specific 
with two examples. In the aftermath of the Maryland veto 
override, legislation, House Bill 1510, was introduced by the 
original law sponsors that would apply the same Maryland 
payroll tax to all businesses in the State with fewer than 
10,000 employees. These employees would be required to spend at 
least 4.5 percent of their payroll on health expense.
    To the committee, I would tell you my raw dollars spent in 
support of health care exceed that. And if my costs had gone up 
from 2000 through 2006, which you heard me mention, I don't 
know how mandating a percentage changes that.
    In New York, legislation is currently being considered that 
would mandate all employers in the State with more than 100 
employees spending at least $3 per hour on employee hours 
worked to pay for health cost. No distinction is made between 
part-time and seasonal employees. Obviously, the legislation 
would do nothing to address the fact in the State of New York 
the health care costs are the highest in the Nation.
    I see my time has expired, and I haven't done a good job of 
delivering my entire text but you certainly have it, and I 
would welcome any questions the committee may have.
    [The prepared statement of Mr. Drombetta follows:]

 Prepared Statement of Larry Drombetta, President and CEO, HR Stores, 
           Inc., on Behalf of the National Retail Federation

    Mr. Chairman and honored members of the committee, my name Larry 
Drombetta and I am the President and CEO of HR Stores, Inc. I am 
pleased to appear today on behalf of the National Retail Federation 
(NRF). On behalf of my fellow NRF retailers, I commend you for holding 
this hearing to focus attention on the effect of health care mandates 
on employees and employers, particularly on smaller retail businesses 
like my own.
    The NRF is the world's largest retail trade association, with 
membership that comprises all retail formats and channels of 
distribution including department, specialty, discount, catalog, 
Internet, independent stores, chain restaurants, drug and grocery 
stores as well as the industry's key trading partners of retail goods 
and services. The NRF represents an industry with more than 1.4 million 
U.S. retail establishments and 2005 sales of $4.4 trillion. As the 
industry umbrella group, NRF also represents more than 100 state, 
national and international retail associations. www.nrf.com.
    As the employer of more than 23 million employees (about one of 
every five Americans), the retail industry is one of the biggest 
supporters of the employer-based health insurance system. We are also 
mainstays of the economy. Our 1.6 million retail and restaurant 
establishments had sales of $4.4 trillion in 2005, or 8.6% of our 
nation's Gross Domestic Product. According to the Bureau of Labor 
Statistics, our industry will add some 1.65 million new jobs over the 
next decade: an increase of 11%. We added 500,000 new jobs in 2005 
alone.
    Ours is not an easy workforce population to cover with health 
insurance. We have a fairly young workforce (though with a significant 
senior cohort) with a high turnover rate. We employ half of all 
teenagers in the workforce and a third of all workers under 24 years 
old. More than a third (35%) of this workforce is part-time. Two-thirds 
of our part-time employees are women. Often retail industry employees 
are second wage earners, mainstays of family economies. Some qualified 
retail workers opt-out of the coverage we offer because they already 
have alternative coverage through a family member or another job.
HR Stores, Inc.
    Let me tell you a little about my own company. I am the President 
and CEO of a small company that operates 12 shoe stores in Maryland, 
Virginia, North Carolina and Pennsylvania. We have a staff of 35 of 
which 33 are full time and 18 participate in the company health 
insurance program.
    My health care costs have steadily increased through the years and 
are increasingly unbearable. Coverage costs have increased by 155% from 
2000-2006, a level my business cannot sustain with related growth. My 
company has not grown 155% in this same period and cannot continue to 
sustain these cost increases.
    These cost increases directly impact my staff. This results in 
younger members of the staff dropping out in the belief that they are 
not likely to need the coverage at this price. This in turn results in 
the group having an increase in the average age, driving up the rates 
yet again. This process repeats itself year after year with the group 
becoming older and more costly to cover each year. My health insurance 
program is in what insurance industry people call a ``health insurance 
death spiral.'' Under current law, there is nothing that I can do. The 
end result will be no more insurance for my employees.
A Federal Solution Needed
    I believe that what is needed is a federal solution that allows a 
small business the same access to large group insurance rates that is 
now available to larger companies and unions. The mechanics needed to 
do so must be provided at a federal level and soon to avoid more small 
businesses like mine reaching the end of company provided/supported 
health insurance coverage.
    We appreciate the work this committee has done to this end and 
especially appreciate the leadership of Chairman Johnson in sponsoring 
legislation for Association Health Plans (AHPs). I am hopeful that the 
Senate will vote soon on the bipartisan counterpart bill introduced by 
Sens. Enzi and Nelson. Perhaps then the Senate will at last catch up to 
the House in supporting health insurance relief to small businesses 
like my own.
    I realize that there are many complexities involved in the cost of 
health coverage and that my request only impacts a small part of the 
solutions that we need nationally. The National Retail Federation 
stands ready to work with you and your colleagues from both parties to 
find these solutions.
    I do hope that, on the way to seeking these solutions, we don't 
overlook the more immediate needs of companies like mine--small 
businesses caught in the health insurance death spiral. I also urge you 
and your colleagues to avoid adding additional costs to my health 
insurance burden. I refer here to the health insurance mandates and 
mandates to provide coverage that are the focus of today's hearing.
Health Insurance Mandates Exacerbate Cost Pressures
    Retailers provide their workers with good benefits that accommodate 
the unique dynamics of the retail workforce. As I noted previously, our 
workforce is dominated by young people, non-heads of household, 
retirees and part-time and seasonal employees, many of whom have 
coverage through sources other than their retail employer. We offer 
coverage to help attract workers and to maintain a productive 
workforce. Nevertheless, we are greatly concerned by the mandated 
expansion of these benefits, particularly in the current cost 
environment and given our unique workforce challenges.
State Health Care Mandates: Anti-Job, Anti-Business and Anti-Consumer
    State health care mandates do nothing to address the real health 
care challenge: rising health care costs and reduced accessibility. In 
fact, they make matters worse. Legislation mandating that employers 
spend arbitrary percentages of their payroll on health care does not 
solve cost pressures but instead will jeopardize current employment 
levels, stunt future job growth and raise consumer prices.
    We believe state health care mandates amount to an ill-advised tax 
on jobs. This is also a tax on workers, a tax on consumers and a tax on 
the economy. We believe that we are already taxed quite enough, thank 
you. Through my trade association, the National Retail Federation, my 
fellow retailers and I have established the Tax on Jobs Coalition to 
fight these state health care mandates.

Anti-Retail Industry
    Many of these proposed state mandates have unfairly singled out the 
retail industry. Imposing an arbitrary payroll tax on an industry with 
already slim profit margins (averaging between two and three percent) 
will force retailers to make a choice between laying off workers and 
raising prices. Too often there is no choice but to look to both 
options. States that pass mandated health care legislation should not 
be surprised to see job losses, higher prices, fewer new stores, 
limited store hours and services as well as diminished tax revenues.
    The special interest groups pushing these bills at the state level 
make no secret of their ambition to move beyond the retail industry to 
expand their mandates to employers of all sizes. Once they establish 
the precedent of gauging the sufficiency of employer contributions by 
payroll size, they will seek to lower the employee thresholds and raise 
the payroll tax--thus making all businesses susceptible to these 
mandates.
    Let me provide two examples. In the aftermath of the Maryland veto 
override, legislation was introduced (H.B. 1510) by the original law's 
sponsors that would apply the same Maryland payroll tax on all 
businesses in the state with fewer than 10,000 employees. These 
employers would be required to spend at least 4.5% of their payroll on 
health expenses.
    In New York, legislation is currently being considered that would 
mandate that all employers in the state with more than 100 employees 
spend at least $3.00 an hour per employee hour worked to pay for 
employee health expenses. No distinction is made for part-time or 
seasonal employees. Obviously, this legislation would do nothing to 
address the fact that New York State still has the highest health care 
costs in the nation.
    This ``tax on jobs'' legislation is not about health care at all 
but rather a legislative assault under the pretense of benefiting 
working families--throwing more money into a health care black hole. We 
hope that through the NRF Tax on Jobs Coalition we can work with you to 
help turn the tide against mandated health benefits and to help 
encourage policies that promote more affordable health insurance 
coverage. We urge Congress also to look to less expansive and less 
burdensome means to improving health insurance coverage. We stand ready 
to assist your efforts.
    Thank you, Mr. Chairman. I will look forward to any questions you 
may have.
                                 ______
                                 
    Mr. Kline. Thank you very much.
    Mr. Kelly.

STATEMENT OF PAUL KELLY, SENIOR VICE PRESIDENT, RETAIL INDUSTRY 
                      LEADERS ASSOCIATION

    Mr. Kelly. Thank you. I appreciate the opportunity to 
testify today.
    Thank you, Mr. Kline, Chairman Johnson, and other 
distinguished members of the panel.
    By way of introduction, the Retail Leaders Industry 
Association represents the largest and fastest-growing 
companies in the retail industry. Its members operate more than 
100,000 places of business, have facilities in all 50 States 
and provide millions of jobs to American workers.
    RILA is governed by a board of directors that includes the 
top leadership in some of the country's most innovative and 
successful companies, including Best Buy, Target, Ikea, Wal-
Mart, Lowes, Dollar General, Petco and other retail leaders.
    Let me get right to the bottom line. We are adamantly 
opposed to the unlawful State healthcare mandates that are the 
subject of today's hearing. RILA members want to and in fact do 
provide competitive health care benefits to their employees. 
But they do not intend to be dictated to by State governments 
about how those benefits should be structured or how much they 
should spend for those benefits. That is why our board of 
directors unanimously charged RILA to challenge these misguided 
statutes in court. These laws violate the Federal ERISA statute 
and are little more than hollow political gimmicks that do 
nothing to address the real health care challenges facing our 
Nation.
    We strongly oppose healthcare spending mandates enacted in 
Maryland and Suffolk County, New York, and similar bills they 
have spawned across the country. These so-called fair-share 
bills remove a key element of flexibility by forcing businesses 
to spend a specific prescribed amount on health care benefits 
or, failing that, to pay a penalty to the state.
    The exact percentage and the size of the companies captured 
by the mandate vary from jurisdiction, but the basic formula is 
the same: It is our position that these health mandates 
restrict employers' ability to be flexible, to respond to 
market conditions, and to react to the needs of their 
employees. Therefore, they significantly complicate and chill 
employers' efforts to provide health care benefits.
    Just as important, we oppose these laws because they ignore 
the most pressing problems in health care today, namely ever-
growing health care costs and the needs of the uninsured. 
Simply forcing employers to pay a specific amount for health 
care does nothing to reduce health care costs. To the contrary, 
it merely forces them to pay more for coverage that is already 
expensive.
    Furthermore, the law does virtually nothing to address the 
needs of the uninsured and provides no assurance that a single 
person will gain coverage. In fact, Maryland's law affects only 
a tiny fraction of those working in the State partly due to the 
fact that the Maryland legislature excluded the government, the 
State Government from the bill. That is right, the law does 
nothing to provide health care for almost 20,000 uninsured 
employees who work for State and local governments in Maryland.
    RILA recognized early that the Maryland law was a dangerous 
precedent not just for our members for all businesses who would 
likely--and that the bill would likely serve as a model for 
similar or even worse legislation in other States. And that is 
why RILA traveled to Annapolis last spring to testify against 
the Maryland law when it was being considered in the State 
legislature.
    Each time we asked Maryland lawmakers to reject this 
spending mandate, we urge them to instead work with RILA and 
all stakeholders on figuring out ways to combat health care 
costs. Again, costs are the real problem in health care, but 
laws like these do nothing to address costs.
    So once the Maryland bill became law, our industry had 
really only one avenue left to challenge this spending mandate 
and that was the Federal courts. In February, RILA filed two 
lawsuits seeking to overturn the new spending mandates in 
Maryland and Suffolk County. Our cases maintain that both laws 
violate the Federal ERISA statute and arbitrarily single out 
certainly employers for unfair discriminatory mandates.
    We are pleased that four important allies have submitted 
friend of the court briefs in support of our leadership efforts 
to overturn the Maryland law. These groups include the U.S. and 
Maryland Chambers of Commerce, the National Federation of 
Independent Businesses, and the Society of Human Resource 
Management. RILA is confident that its lawsuits will be 
successful and that the recently enacted statutes will be 
overturned.
    In the meantime, we hope other jurisdictions will await the 
results of our two court cases before considering similar 
legislation.
    In closing, Mr. Chairman, RILA believes that ERISA is a key 
linchpin that undergirds our Nation's system of voluntary 
employer-sponsored health care. When Congress enacted ERISA 
more than three decades ago, it created a system that 
encourages employers to offer employee health benefits by 
permitting them to administer health plans uniformly and 
efficiently. This is especially important to employers like 
those who RILA represents who operate in multiple States. 
Without such uniformity, these employers would be faced with a 
hodgepodge of complex, conflicting State regulations that would 
make providing health benefits administratively cumbersome, 
more expensive and much less attractive to provide.
    If we allow ERISA to be eroded by fair-share spending 
mandates or other State or local incursions, then we are headed 
down a dangerous track that could jeopardize employer-sponsored 
health care in this country. ERISA is critical, and it must be 
defended. Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kelly follows:]

 Prepared Statement of Paul T. Kelly, Senior Vice President, Federal & 
     State Government Affairs, Retail Industry Leaders Association

Introduction
    Good morning. I am Paul T. Kelly, Senior Vice President, Federal & 
State Government Affairs for the Retail Industry Leaders Association 
(RILA). Allow me to begin by expressing my appreciation to Chairman 
Johnson, Ranking Member Andrews and the other Members of the 
Subcommittee for the opportunity to appear today, to offer RILA's 
position on state and local health care mandates.
    By way of introduction, RILA represents the largest and fastest-
growing companies in the retail industry. Its members include more than 
400 companies worldwide, including retailers, product manufacturers, 
and service suppliers, which together account for more than $1.4 
trillion in annual sales. RILA members operate more than 100,000 
stores, manufacturing facilities, and distribution centers, have 
facilities in all 50 states, and provide millions of jobs both here and 
abroad. In fact, today, one in five Americans is employed by the retail 
sector making retail one of the most important employers and economic 
drivers in our economy. Finally, RILA is governed by a Board of 
Directors that includes the top leadership of some of the country's 
most innovative and successful companies, including Best Buy, PETCO 
Animal Supplies, Target, Wal-Mart Stores, IKEA, Procter & Gamble, 
Lowe's Home Improvement, Dollar General and other retail leaders.
    For members of RILA, offering competitive salaries and 
comprehensive benefits is not just good for employees; it is also good 
for business. Attracting and retaining a qualified and satisfied team 
of employees is one of the most significant challenges that our members 
face everyday. Throughout the country, competition for employees is 
robust; especially in times of low unemployment such as we are 
experiencing in today's economy. As a result, RILA members on average 
pay their hourly employees nearly twice the federal minimum wage, and 
offer competitive benefit plans that often include health care 
benefits, employee discounts, profit sharing and retirement savings 
plans, stock option plans, disability insurance, training and 
educational opportunities, and other benefits. RILA members want 
employees who are healthy, productive and satisfied with their jobs--
and the competitive nature of their industry demands that they provide 
attractive employee benefits. In short, RILA members have strong 
economic and altruistic incentives for providing competitive employee 
benefits and they oppose state and local government mandates that would 
limit their ability to design benefit plans that meet the needs of 
their workforce.

Leadership in Fighting Spending Mandates
    RILA has a long history of involvement in federal, state and local 
public policy issues that impact our members, their customers and 
employees. RILA has worked closely with state retail associations, 
state and local business groups, and other organizations to take action 
whenever state and local policies threaten to adversely impact our 
members, such as the health plan spending mandates we are discussing 
today.
    RILA has been at the forefront of efforts to resist health plan 
spending mandates imposed by states. Our members believe that lawmakers 
should focus on the root causes of our nation's health care 
challenges--particularly ever-increasing health care costs--rather than 
simplistically forcing employers to pay more for health care benefits 
that they are already struggling to afford.
    In 2004, RILA organized its members and joined a larger business 
coalition to help defeat a California ballot initiative (Proposition 
72) that would have forced most employers to provide expensive employee 
health care coverage. In the spring of 2005, RILA traveled to 
Annapolis, Maryland, to testify against legislation to impose a health 
plan spending mandate on large employers in the state. And, in the 
autumn of 2005, RILA urged legislators to reject the Suffolk County, 
New York, legislation that imposes a health care mandate on large, non-
unionized retailers that sell groceries. RILA was the only national 
organization to testify before the legislature in opposition to 
Maryland's health care mandate, and is proud of its ongoing leadership 
on both the legislative and legal fronts in the battle against these 
mandates.
    Since that time, both bills have been enacted into law, and while 
that is not the outcome we would have favored, RILA is heartened that 
other business organizations have increased their involvement in 
opposing these ill-advised proposals. Today, RILA continues to take a 
leading role in working with state retail associations, small business 
groups, and other organizations to oppose similar bills that have been 
introduced in more than 30 states and localities.
    And, as the committee is aware, RILA has also challenged these 
unwise spending mandates in court on the grounds that they unlawfully 
regulate health benefit plans that Congress intended to be regulated 
under the federal Employee Retirement Income Security Act (ERISA). A 
discussion of these legal challenges follows later in this statement.

RILA's View on Health Care
    Everyone agrees that good health care and good health benefits are 
important. Health care issues are a key concern for retailers, both 
large and small. As such, RILA supports meaningful efforts to improve 
our system of health care for everyone. For the last several years, 
RILA has urged lawmakers to focus on policies that will help reduce 
health care costs. Premiums for employer-sponsored health insurance 
have experienced significant increases for the last several years. 
Health care insurance premiums increased 9.2 percent last year, and are 
projected to increase another 10 percent this year, and health care 
spending now represents 16 percent of the nation's gross domestic 
product--an all time record. Clearly, something needs to be done about 
costs. The retail industry is highly competitive with razor-thin profit 
margins, and ever-increasing health care costs put great pressure on 
our members' businesses. Penalizing low-margin businesses by forcing 
them to pay more for health benefits makes no sense, and does nothing 
to address the real problem in health care. Any additional costs forced 
upon retailers by local, state or federal governments will jeopardize 
their ability to continue to offer benefits that may be more important 
to workers.
    As leaders in providing value to American consumers, RILA members 
see tremendous opportunity for Congress to take action on policies that 
will improve the health care system by stimulating more competition 
within that system. RILA members are not health care experts and we do 
not presume to have all the answers to our nation's complex and 
entrenched health care challenges. However, just as RILA members have 
transformed the retail market through competition and innovation--all 
to the benefit of consumers--we are confident that enhanced competition 
will bring important improvements to the health care system as well. We 
support policies that will:
     Empower individuals by giving them more control over their 
health care choices and spending--what is sometimes broadly called 
consumer-directed care;
     Provide individuals and employers with more and better 
information about prices and the quality of the care they are 
purchasing, including information about health providers and insurance 
plans;
     Help make health benefits portable, so workers can take 
benefits--or the money they would use to pay for benefits--with them 
when they switch jobs;
     Encourage wellness programs, preventative care and disease 
management services; and
     Stimulate innovative technologies to help reduce medical 
errors and shrink administrative costs.
    We readily admit that none of these ideas are new or 
groundbreaking, and other policies surely will need to be explored. 
However, we believe these ideas will help move us toward a more 
competitive health care system where costs will be lowered--and that 
lower costs will help bring affordable health care options within reach 
of more Americans.
    And, importantly, we also strongly support current policies that 
encourage employers to voluntarily provide health care coverage--of 
which ERISA is a key and indispensable component.

The Importance of ERISA
    When Congress enacted ERISA more than three decades ago, it created 
a system that encourages employers to offer employee health benefits by 
permitting them to administer health plans uniformly and efficiently. 
This is especially important to employers that operate in multiple 
states, such as RILA's members. Without such uniformity, these 
employers would be faced with a patchwork of complex and conflicting 
state regulations that would make providing health care benefits much 
less attractive.
    The single, national regulatory framework afforded by ERISA gives 
companies the flexibility they need to meet and respond to the unique 
requirements of their workforce. This is especially important to 
retailers who employ a much younger workforce than most industries. In 
fact, one-third of all retail workers are under 24 years of age, as 
compared with only 14 percent for all industries. Young people often 
decline to participate in employee-sponsored health care for a variety 
of reasons. Retailers also have a high percentage of workers who choose 
to work part time. Given the unique demographics of their workforce, 
retailers need flexibility in devising health plans that meet their 
distinctive characteristics, and ERISA gives them that flexibility.
    Today, however, ERISA's uniformity and efficiency are under attack 
by lawmakers who seek to undermine it with a patchwork system in which 
state and local governments could regulate health plans--each imposing 
a unique set of regulations and costs on the benefit plans offered by 
employers. As RILA member James Myers, CEO of PETCO Animal Supplies, 
Inc., recently observed, ``The health care system cannot be fixed with 
a patchwork of state and local mandates that require individual 
industries to play by different rules. It's a national issue that 
requires a national approach.''
    State and local legislation seeking to mandate arbitrary health 
plan spending levels for businesses is misguided and unwise because it 
does nothing to address the most significant health care challenge that 
needs to be addressed, namely health care costs. And this legislation 
is fundamentally unlawful, because it violates ERISA and, in some 
instances, the constitutional principle that our laws should not 
arbitrarily discriminate. Legislation that singles out any one company 
or industry in this way is unlawful, unwise, and should not be 
supported by policymakers.

State and Local Health Spending Mandates are Unwise, Ineffective and 
        Unlawful
    RILA and its members are strongly opposed to unwise statutory 
health plan spending mandates imposed by government at any level. We 
have been reminding policymakers that health plan spending mandates in 
themselves do nothing to improve the quality of health care or address 
health care costs. Paradoxical as it may seem, more health care 
spending does not equate with increased health care quality. Spending 
alone is not the solution.
    In addition, we oppose these mandates because we believe they have 
the potential to harm both employers and the overall employment 
climate. If state and local health plan spending mandates are 
permitted, businesses may be forced to abandon plans for growth, reduce 
jobs or consider reducing employee compensation and other benefit 
areas.
    We are continuing the efforts to combat health plan spending 
mandates at the state and local levels that target both large and small 
companies that belong to RILA. Based on experience, we believe that 
whenever legislation singles out just one commercial industry or one 
segment of an industry, all businesses should be concerned. Any bill 
that mandates health care spending makes no sense for retail 
businesses, regardless of size. Both large and small businesses oppose 
arbitrary requirements for health care benefits.
    RILA is now coordinating opposition to these mandates through 
public policy, public relations, and networking efforts at the local, 
state, and federal levels. That is why we are here today. We also 
maintain an active liaison with other retail associations and business 
groups that share our concerns. Even groups whose members are not yet 
impacted by these laws stand with us in opposition because they 
recognize the threat that these laws represent. In fact, RILA's legal 
challenge to the Maryland health care mandate has been supported 
through ``friend of the court'' briefs by the National Federation of 
Independent Business, the Society of Human Resource Management and the 
Maryland and U.S. Chambers of Commerce. Clearly, these discriminatory 
mandates--even though narrowly focused on large businesses--are of 
grave concern to the broader business community.
    Spending mandates such as these are bad policy and bad law, and 
should not be enacted elsewhere. In fact, given the well-grounded 
lawsuits that RILA filed in those two jurisdictions in February, which 
I will discuss in a moment, we would hope other jurisdictions would 
await the results in these two cases before considering similar 
legislation.

Laws Driven by Special Interest Concerns
    At present there is an aggressive coordinated campaign underway 
across the country by organized labor to introduce health plan spending 
mandates. We understand that labor unions have their own agenda 
designed to advance their own interests, but in this case that agenda 
has harmful consequences for our members, customers and employees.
    Organized labor groups are asking lawmakers in 33 states to enact 
model legislation forcing large employers to spend a percentage of 
their payroll on employee health care benefits or else pay a fine, in 
effect, to a state health care fund. The exact percentages, and the 
size of the companies captured by the mandate, vary from state-to-
state, but the basic formula is the same: employers with a specific 
number of workers would be mandated to pay a specific amount or 
percentage on worker health benefits. To the extent an employer's 
spending falls short of these mandated amounts, the difference would 
have to be paid to a state fund set up by the legislation for the 
supposed purpose of defraying state expenditures on health care.
    So far, the State of Maryland, New York City, and Suffolk County, 
New York have enacted discriminatory health care mandates that 
prescribe arbitrary spending requirements. As we have noted, earlier 
this year, the Maryland State Legislature enacted the so-called ``Fair 
Share Health Care Fund Act,'' requiring employers with more than 10,000 
employees to make expenditures on health benefits equal to 8 percent of 
total compensation paid to their employees. In Suffolk County, New 
York, the law specifically targeted non-unionized food retailers, 
requiring that they make health care payments at a rate of no less than 
$3 per hour worked. Since that time, Suffolk County has amended its 
law, to modify the $3 per hour mandate, in direct response to the 
litigation initiated by RILA. While RILA is still reviewing this 
amended legislation, we believe that the amended law remains an unwise 
and unlawful health benefit mandate.
    Versions proposed in other states include smaller businesses and 
mandate even higher levels of health spending. That is why all of our 
members and the business community at large are so concerned about 
these proposals. Clearly, it is only a matter of time before the 
proponents of this approach target even more businesses for these 
spending mandates. For example, in Oklahoma, a version of this bill 
requires businesses with 3000 workers to pay 9 percent of payroll on 
health care. In New Hampshire, the threshold is 1500 employees with a 
10.5 percent spending requirement. In Rhode Island, the thresholds are 
1,000 employees and 8 percent of payroll. In New Jersey, a spending 
mandate would apply to businesses with 1,000 employees and in New York, 
businesses with 100 workers would be hit. In all, 30 states have 
initiated these types of bills and the legislation remains a viable 
threat in many states. (RILA's detailed legislative matrix on the 
status of all these bills is attached.)
    And while these bills have lately become of concern to the broader 
business community, there is little doubt that they initially were 
designed to discriminate against a specific segment of the retail 
community. Suffolk County Council public hearings reflected this. The 
head of the New York State Food Industry Alliance opposed the original 
version of the bill, saying it was ``far-reaching,'' ``inflationary,'' 
and would cause ``major economic damage.'' He also expressed concern 
that it ``gets into our collective bargaining agreements with our 
unions and supersedes them.'' The legal counsel for a large mini-market 
chain cautioned that ``there are several areas where the bill could be 
challenged legally. * * * First of all, the definition of employee is 
broad * * * and there is an argument that ERISA may preempt this law. * 
* * There is also a potential that the bill could be preempted by the 
NLRA.''
    In response, Suffolk County legislators told concerned witnesses 
that this legislation was aimed only at out of town competitors. And 
that's why in the final bill they exempted unionized companies; the 
legislators had been told that the $3-an-hour spending mandate was more 
than large unionized employers in Suffolk County were paying.
    Since the law was initially enacted, Suffolk County has changed its 
law specifically in response to the legal action initiated by RILA. 
While RILA is still analyzing the revised Suffolk County law, we 
believe that this new law still violates ERISA.

RILA Lawsuits
    More than 30 years ago, Congress wisely created a single law to 
govern employee health benefit plans--ERISA--to prevent a patchwork of 
different state and local laws. The Supreme Court of the United States 
has held repeatedly that state and local laws regulating employee 
health benefit plans are superseded by this federal law. Moreover, the 
U.S. Constitution and some state constitutions specifically prohibit 
laws that arbitrarily discriminate against any one entity or group of 
entities, as these laws do.
    Recognizing the troubling precedent that the Maryland and Suffolk 
County, New York laws represented, in January 2006, RILA's Board of 
Directors unanimously authorized the association to pursue legal 
challenges to the laws. RILA filed two lawsuits in February 2006, one 
seeking to overturn the new benefits mandate law in Maryland, and the 
other addressing the similar statute in Suffolk County, New York. We 
maintain that both laws arbitrarily single out certain employers for 
improper and discriminatory health plan spending mandates. We are 
challenging these laws on a variety of federal and state bases.
    The Maryland law requires significant expenditures by one large 
employer in the state, at present. Supposedly, this was done to improve 
health coverage in the state, but it will do no such thing. Maryland's 
law actually would affect only a very tiny fraction of the state's 
workers. Interestingly enough, more of the uninsured in Maryland work 
for state and local governments, and in sectors other than retailing.
    As originally adopted, Suffolk County's law requiring health care 
payments at a rate of no less than $3 per hour worked. This law also 
was discriminatory in a way that did nothing to address the problem it 
was supposed to solve.
    Again, let me reiterate that while we recognize that the law has 
since been amended, we still believe that the mandate it imposes is 
unlawful.

ERISA
    When the U.S. Congress created a single law to govern employee 
health benefit plans in 1974, as an incentive for employers to offer 
these plans, it correctly recognized that it was in employers' 
interests to have a uniform and consistent law regulating employee 
benefit plans. The protections that ERISA gives for employee benefit 
plans have proven to be good public policy; and over the last three 
decades, the U.S. Supreme Court has repeatedly ruled that ERISA is 
preemptive. It says that states and localities cannot force mandates on 
employee health benefit plans. RILA believes that legislation in 
Maryland, like the Suffolk County law (in its original form, and as 
amended), violates this important and well-established principle.
U.S. Constitution
    We also contend that discriminatory health care mandates are 
inconsistent with other important requirements of federal and state 
law. They violate the Equal Protection Clause of the Constitution, 
which prohibits irrational, discriminatory distinctions in the law. The 
Constitution prohibits anyone from arbitrarily targeting certain 
employers, and unreasonably singling some out for health care 
requirements not expected of others. Yet that is exactly what is done 
by discriminatory health care mandates.
    RILA is confident in its position and optimistic that its lawsuits 
will be successful and that the recently enacted statutes in Maryland 
and Suffolk County, New York, will be overturned.

Conclusion
    Mr. Chairman, we all know that our nation faces serious health care 
challenges today. But a real solution does not involve quick-fix, 
simplistic approaches that ignore the fundamental causes of the health 
care crisis in this country. I want to make clear that RILA supports 
initiatives designed to increase access to health care and to promote 
competition in the health care marketplace through comprehensive 
policies that will help control skyrocketing health care costs. 
Discriminatory health care mandates do nothing to reduce health care 
costs, but actually increase costs for employers who are already 
struggling to provide workers with affordable health coverage.
    RILA urges Congress to work with retailers and other stakeholders 
concerned about this important issue to achieve meaningful reforms to 
the health care system, instead of imposing unwise and ineffective 
health care mandates on businesses.
    Thank you very much.
                                 ______
                                 
    Chairman Johnson [presiding]. Thank, you sir. I appreciate 
your testimony. I thank you all for testifying today.
    Mr. Garthwaite, your testimony made sense to me. I sat 
through a couple of hours of testimony on the new Medicare 
prescription drug plan yesterday, part D. You all are aware, I 
am sure. And there was compelling evidence that choice and 
competition work so it makes perfect sense that a one-size-fit-
all approach wouldn't succeed in bringing down costs for 
employers or employees.
    One thing I would like to focus on is how the blunt 
instrument of a mandate affects options for employees. There 
are all kinds of insurance products out there, and it seems 
like people should be able to choose the option they want. For 
example, a younger person who doesn't smoke might not want the 
same kind of insurance a 55-year old smoker might want. Can you 
explain to me how a mandate might limit their options?
    Mr. Garthwaite. Certainly. If you take, for example, 
California, which was the linchpin that started most of the 
State-mandated reforms in the recent years, they required a 
minimum level of benefit that was extremely rich. It required 
full HMO coverage, full prescription drug coverage, very gold 
standard coverage, which is good, as you said, for older 
Americans, someone who may smoke, may need that kind of day-to-
day care.
    For someone who is younger, it may make more sense for them 
to look for some sort of catastrophic plan where they are 
insured for some sort of horrible event but takes care of their 
regular routine maintenance out of pocket. Maybe they can come 
out with some sort of health care savings accounts. Any sort of 
mandate that requires a minimum level of benefit would exclude 
the ability for companies to enact these kind of choices for 
their employees.
    Chairman Johnson. So really what you are saying is that if 
the employer was forced to offer insurance, there is nothing 
that says a younger guy has to participate, unless the State 
requires it, and if they do, then he may not be getting the 
lowest cost insurance for himself. Is that true?
    Mr. Garthwaite. In California, there was a mandate both on 
the employer to provide coverage and on the employee to accept 
it. So the employee was responsible for paying for 20 percent 
of the cost of this very expensive coverage and didn't have the 
option to seek out other insurance options.
    Chairman Johnson. I think that I will pass to my friend Mr. 
Payne for questions.
    You are recognized for 5 minutes, if you desire.
    Mr. Payne. Thank you very much. Let me thank all of you for 
your testimony. I think the first speaker Mr. Garthwaite 
mentioned in your opinion it seems unfair that the cost of 
health care should be shifted to the backs of the employee. 
Since a person works for a company, how do you characterize 
that as shifting the burden back? Do you feel that in your--
therefore, I would conclude that in your opinion that health 
care is simply the responsibility of the individual, period. Is 
that what you conclude by that statement you made?
    Mr. Garthwaite. What I was referring to is what the 
research shows is, when you mandate an employer provides health 
coverage, they react in the way, I am sure Mr. Drombetta can 
speak better, they will look for ways to save money on that. 
They lower the wages of the employee. So it ends up that the 
employee ends up paying for the insurance even if they are not 
nominally footing the bill.
    Furthermore, in cases where they can't actually lower the 
wages, they look to treat it like an increase in the minimum 
wage, for example, where they will lay off employees in order 
to maintain their profitability.
    Mr. Payne. Mr. Drombetta, you were mentioning the names of 
the organizations, State chamber, et cetera, small business, 
whatever, that oppose this. How do they characterize, and 
maybe, Mr. Kelly, you have strong feelings too, maybe you can 
also chime in, how do you characterize the businesses that 
provide health care? I mean, you are all sitting around the 
table--a good example, UPS does provide health care for part-
time employees. They compete against FedEx and even the new 
guys in from Germany, DL-something, subsidized by their 
government and creating problems in that industry.
    You all sit around the table with the chamber guys, and the 
chamber comes out and says, we should not put the 
responsibility on the company that doesn't want to do it, and 
the guy next to him is doing it. How do you--how does that 
work?
    Mr. Drombetta. I can't speak for UPS or FedEx.
    Mr. Payne. Maybe Mr. Kelly.
    Mr. Drombetta. But I would like an opportunity to respond 
because as part of it I want to bring to light, I believe the 
number I hear, if my recollection is correct, is that 65 
percent of the uninsured nationally are in small businesses. 
They don't work for FedEx or UPS. They are small business 
owners, managers; they participate in small organizations. And 
I don't know that my organization is necessarily a good measure 
nationally of what is going on, but this I can tell the 
committee with confidence, the bottom-line earnings in my 
company cannot keep up with the increase in health care costs. 
I have a small company, much the same as many small businesses, 
and the rates are different for me than UPS.
    Mr. Payne. I agree with you. As a matter of fact, the 
majority of people work for small businesses, 80 to 85 percent 
of Americans, believe it or not, work for small businesses, so 
it is a real dilemma for small businesses. Maybe Mr. Kelly 
might want to chime in on, how do you reconcile those who do 
it? Because therefore it is a disincentive for the companies 
who do provide it, and, second, when in our State, as we 
mentioned, 50 percent of the people that work for a particular 
company, I mentioned, have no coverage, and they, therefore, 
when they are hospitalized, they end up with charity care, 
which the taxpayers, someone who is paying health insurance 
themselves, really have to pay for that employee because the 
hospital is going to bill someone, and the State is usually the 
provider of last resort.
    Mr. Kelly. Well, just to be clear, as we said in our 
written statement and I said in my oral statement, all of our 
members provide health care benefits. None of them provide 
exactly the same type of health care benefits, and that is why 
we are emphasizing the importance of ERISA, because ERISA 
provides them the opportunities to be flexible, to avoid State 
mandates, local mandates which tie their hands in how they 
provide care to employees.
    I mentioned the U.S. Chamber of Commerce, the Maryland 
Chamber of Commerce, and the National Federation of Independent 
Businesses really to make the point that, while RILA represents 
large employers, this is a concern across the business 
community. Mr. Drombetta is evidence of that fact. These health 
care mandates that are being introduced across the country will 
eventually, people realize in the business community, get down 
to impacting businesses of all size. That was really played out 
in the State of Maryland. Shortly after we sued in Federal 
courts to overturn the Maryland law, a bill was introduced in 
Annapolis that would impact all employers with a similar 
mandate.
    So our point is, it is a very bad precedent, and it 
concerns the entire business community.
    Mr. Payne. My time has expired. But years ago, there was 
H.R. 1200 that President Clinton was attempting to get national 
health insurance. That would have been some way where everybody 
could participate, totally opposed by everybody in business, 
General Motors. That would have been some way the Federal 
Government could participate.
    I don't understand, what are we going to finally do to help 
offset the cost? They don't want the Federal Government to be 
involved in national health insurance; it was killed; don't 
feel it is fair that a company should have the responsibility 
to provide it.
    This problem is not going to go away unless there is some 
reconciliation of what way we are going to go as it relates to 
health insurance. Believe me, as I end before my time totally 
expires, there are more and more serious problems in the world 
with climate change. You are going do have malaria into 
moderate zone countries. It used to only be in tropical. 
Because of the change of the weather, you are going to have 
countries that never had a malaria problem, have it. Wait until 
that, with the avian flu and all these other kinds of diseases, 
comes forward. We have got a serious problem in front of us.
    I will stop, Mr. Chairman. Thank you. You have been kind.
    Chairman Johnson. The gentleman's time has expired, twice. 
Thank you.
    You know, part of the reason that companies provide 
insurance coverage in the first place is competition, and that 
happened some years ago when the companies were trying to get 
employees to come work for them so they provided insurance, and 
others didn't, so the guy has his choice. Nowadays, if you try 
to Federalize health care, I think it is a mistake because 
costs will go up, and that is why the most recent Medicare 
change that you see that we passed here I think is working. It 
has got an element of free enterprise involved in it. People 
pick and choose. I think it makes a difference.
    Mr. Kline, you are recognized for 5 minutes.
    Mr. Kline. Thank you, Mr. Chairman. I would like to thank 
the witnesses. This is indeed a very, very important subject as 
we are looking at the cost of health insurance and how 
employers are struggling to provide that health insurance for 
their employees.
    Mr. Drombetta, you mentioned the association of health 
plans. Many of us on this committee and this House have been 
trying for a very long time to get those enacted so that small 
employers would have some of the same advantages that larger 
employers have provided by ERISA. Now we are seeing that 
perhaps some of those advantages are being eroded and hence the 
subject of today's hearing.
    Staff provided for us a piece of paper that looks like RILA 
had put forward, and it is interesting to look at what is going 
on in the States. I see that, in this year alone, it looks like 
Rhode Island has three different bills proposed mandating 
health care; Tennessee has about six. And I look at my own 
State of Minnesota, and there are eight different proposals in 
the legislature this year. It looks like to me we are building 
a very large, confusing and unmanageable situation. We have in 
Minnesota, we are the home of several very large companies, 
many of them that you have mentioned, big companies like 
General Mills and 3M and Best Buy and so forth. I can't imagine 
how they deal with providing health care if there are now--if 
the protections of ERISA go away, and they now have to comply 
with these many mandates. A perplexing problem.
    It looked like we are very much aware of what was going on 
in Maryland because it is right next door here, but it looks 
like now that sort of thing is spreading. Mr. Kelly, you talked 
about this earlier. And you provided this.
    What are you seeing in terms of success rates? This shows 
bills introduced. What is happening in other States as far as 
actually changing the law, getting it signed, Governors 
signing?
    Mr. Kelly. Well, we are seeing, as you indicate, these have 
been introduced across the country. It is close to 30, if it is 
not 30 States where it has been introduced. Many States have 
really not acted on them, but I will say there are other States 
where these remain legislative proposals subject to hearing and 
debate, large States like California, New York, New Jersey, 
smaller States like Rhode Island. It continues to be something 
that percolates and is something that has the entire business 
community, has their interest, and they are very concerned 
about, and we are doing everything we can to work with other 
trade groups, other business groups to again not just oppose 
this but to oppose it and help lawmakers figure out ways to 
reduce costs and to address the real problems in health care 
that could help make health insurance and health care 
affordable and within reach for more folks.
    Mr. Kline. I thank you. I think it is an issue that has 
been in front of us, and we have been grappling with it in many 
ways. I am a big proponent of the health savings accounts 
enacted into law with the Medicare modernization bill. I have 
talked to a number of employers, large and small and employees, 
who are finding this is working to their benefit. We have 
already mentioned the association health plans.
    The point here is, we are looking for ways for more people 
to be insured and for companies to be able to provide that 
insurance in affordable ways, so I appreciate all of your 
testimony here today.
    In the interest of keeping this moving along, I am going to 
do the unthinkable and yield back my time before the red light 
comes up.
    Ms. Kofman. I am sorry, can I just add something to the 
discussion about States and what they are trying to do?
    The impetus behind many of these State proposals is the 
problem that many employers that provide coverage to their 
employees don't provide adequate coverage, and the coverage 
doesn't cover all of their employees, so what happens is these 
workers rely on State programs, on government programs, and it 
becomes unsustainable to keep on funding these government 
safety net programs without income streams.
    And so this is one way to help finance the programs that 
serve all of the States' residents, by asking employers to pay 
into those programs that their employees use. It is also a 
question of fairness. For example, you have companies that 
provide very generous, very comprehensive benefits to all their 
workers, and their workers never use State-funded programs. And 
of course, it is an issue on their bottom line because they pay 
for that comprehensive coverage, the company that is. It is 
very unfair for other employers to send their workers to 
government programs and not pay for that. They are making 
bigger profits, and it is really unfair, and I think it is not 
competitive. That is not the kind of competition we want to 
encourage. Thank you.
    Chairman Johnson. Competition is what drives America. If 
somebody wants to make a little extra money by doing a better 
business plan, they ought to be allowed to do it, in my view.
    Mr. Kildee, who remembers World War II price controls.
    Mr. Kildee. OPA.
    Mr. Drombetta, if the four states in which your company 
does business were to replicate the Massachusetts plan recently 
passed by a Democratic legislature, signed by a Republican 
Governor, would that not give you and your competitors the same 
level which to compete?
    Mr. Drombetta. I am not an expert on the Massachusetts 
plan. But from what I have heard of it, it wouldn't address a 
couple issues that need to be thought about at the committee. 
One is small businesses like mine won't buy health coverage in 
an vacuum. There are three providers that meet the standards 
set by the State, primarily, and those are my three choices. In 
the last 7 years, we have explored costs with each of those 
three providers on exactly the same coverage, and that is where 
the increases come from.
    If I could find a way--well, let me restate that, I can bid 
my freight to move product into my stores, but I can't find as 
much competition to buy health care.
    I am not the expert in the field, but something seems 
strange to me that I can go through and--let me explain a 
little bit better.
    I belong to the National Shoe Retailers Association. I can 
tell you why I belong to that association, because they 
competitively talk to freight companies across the country and 
come out with the best rate they can get, which I, in turn as a 
member, elect to use. Each year I take health savings and 
freight, compare that to costs and benefits from that 
association.
    I can't do that with health care. I don't know the 
intricacies of it. I don't understand the Massachusetts law. I 
would welcome an opportunity to add more people to the list of 
options I have.
    Mr. Kildee. But of all the retailers, particularly the shoe 
retailers, were required to provide insurance that would at 
least put you on the same level with your competitors.
    Mr. Drombetta. I can tell you I did go out and take my 
employee base, 33 people, about 18 in health care, and 
considered moving them to their companies. I forget the term 
for them; but you take your employees to--I think it is a 
contractual relationship where my employees would really 
become----
    Mr. Kildee. Contract employees?
    Mr. Drombetta. Contract employees. The health care cost of 
such an arrangement would have dropped by almost 40 percent. 
That is huge when you think about the cost of my health care 
going from X to 155percent higher. To be able to say that that 
cost can be driven down by 40percent is a lot of money, and to 
the people who work in my stores who run them, who turn the 
keys, this is a big impact.
    I cannot do that. It is not permitted by law in the State I 
happen to live in, my company exists in, and I am sure there 
are good reasons for those laws, that they have a place, that 
they are needed. I am not debating their necessity, but the 
reality is that the committee, it puts restrictions on a small 
business choice.
    Mr. Kildee. Mr. Garthwaite, if employers shouldn't cover 
health costs for workers, the government also shouldn't bear 
the cost, and the minimum wage shouldn't be raised so the 
people can pay for their own premiums, where is it people will 
find the money to pay for it, their health insurance?
    Mr. Garthwaite. With all due respect, I don't think I ever 
said employers shouldn't provide health care. I certainly 
didn't say the government shouldn't provide any money for 
health care. I think what I am talking about, employers 
shouldn't be required to provide health care to all their 
employees, because in the event that happens, the economic 
realities that must be confronted, you can't ignore the 
economic reality that employers will look to save costs 
wherever possible, and they'll do that in many ways at the 
expense of the employee.
    Mr. Kildee. And the employer is not providing the health 
care cost, and they don't qualify for government health care 
costs or Medicaid, for example, or Medicare if they are older, 
then where would they find the money if you also take a strong 
position on not raising the minimum wage? Where will they 
provide for their own health care?
    Mr. Garthwaite. I think the important thing we should be 
looking at, how we will decrease the cost of health care to 
make it affordable. Clearly as health care keeps getting more 
and more expensive, it will be almost impossible for anyone to 
buy health care in the private market, but we need to look for 
ways to lower the cost so that employers can.
    There are a number of ways that have been discussed. Health 
savings accounts can be seen to lower the cost of health 
coverage. There have been proposals for tax credits. All of 
these will be ways that you can make coverage more affordable 
to people.
    Mr. Kildee. Thank you very much.
    Ms. Kofman. May I add something to that?
    Mr. Kildee. Please do.
    Ms. Kofman. When we think about people's needs, medical 
needs, we need to think about the question of who pays. Just 
because the employer doesn't pay doesn't mean the medical need 
go away. If the person is lucky enough to be able to pay for it 
out of pocket, that is fantastic, but many people can't. And so 
what happens is that person ends up waiting to too long to get 
the care that they need, end up paying more; and actually, all 
of us pay more for it because the cost of that care gets 
shifted to the rest of us.
    So the question here we should all be thinking about is who 
pays, and how do we pay for it efficiently so it doesn't cost 
us more in the long run?
    I know that some folks have raised the issue of HSAs and 
some of these other new products that are out there. The cost 
savings from those are on the employer side of it. Premiums are 
lower, but someone still has to pay for the medical care, for 
the cost of going to the doctor, and the cost of that is 
shifted to the patient. So when you need care, you pay for it 
out of pocket.
    It used to be that your health plan or your employer paid 
for it. Now you pay for it with some of these proposals. So I 
would submit to you that some of these proposals will actually 
not help address any of the cost drivers and actually will 
shift costs to patients and will make it harder for us to 
address this ever-growing problem.
    Chairman Johnson. Well, you made one misstatement, in my 
view. Employers did not used to pay for it. I mean, it is a 
competitive thing. Employers may or may not choose to provide 
health care coverage, and it is a competitive thing.
    In the case of the gentleman sitting next to you, his 
company may not provide it because they don't have the profit 
margin to do it. So I think he is right. If you start mandating 
it, employee wages are going to decrease, it is a given, 
because they have to make a profit to make the business run.
    Mr. Payne. Mr, Chairman, do you mind if I may have a 
second? Actually during World War II and actually following 
World War II, it was almost a rule that employers did provide 
health care. I mean, the whole new thrust of employers dropping 
health care is a new phenomenon in the last 20, 25 years; but 
it was almost--if you took those companies that were around at 
that time after World War II, it was more the rule than the 
exception that health care was provided. That is a fact.
    Chairman Johnson. That is true. And the reason it was is 
because there were price and wage controls, which made them 
offer health care as an incentive to get more workers, more 
money.
    Mr. Payne. However, following the war it remained, and even 
defined pension contributions were there. So we have seen 
something happen within the last 20 or 30 or 40 years that have 
taken away those benefits that American workers were privileged 
to have following the world war. And now we move into various 
401(k)s, Roth IRAs and all that, which I am not saying it is 
necessarily bad, but I am just saying there has really been a 
big sea change in that. Thank you.
    Chairman Johnson. Sure. Sixty years ago. I hope things are 
changing.
    Mr. Wilson, you are recognized.
    Mr. Wilson. Thank you, Mr. Chairman, and thank all of you 
for being here today. I particularly appreciate, Mr. Drombetta, 
your concern about small businesses. Those are the people I 
represent in the district that I represent. Around 99percent of 
the businesses that I represent are small businesses with about 
85percent of the employment. So I really appreciate.
    And, indeed, I want to join with my colleague from 
Minnesota to point out that with the Association of Health 
Plans, hopefully that will make a difference. And then with the 
health savings accounts, I really believe that has great 
potential and finally is being recognized, and it was pointed 
they may be limited. I disagree. I think they provide options. 
I think they provide for preventative health care, and so I am 
very, very hopeful.
    In addition, looking at different States, I am happy to see 
that my home State, South Carolina, has zero planned mandates. 
I served 17 years in the State senate, and I remember well by 
providing for mandates, it really limited the competition. So 
South Carolina is wide open for business, wide open for jobs.
    I am happy to see Mr. Kelly here with the Retail Industry 
Leaders Association, 100,000 stores. I want you to know I am 
doing my part because--innovative and successful, as I look at 
your testimony. Best Buy, I just bought a camera. Wal-Mart, I 
got a good deal on socks; on Monday some shoes. On Monday, you 
had a great deal at Lowe's on geraniums. I want you to know 
that the best deal on cough drops in the world is the Dollar 
General Store right here. And finally, in my home community, 
the biggest news in our home community--you would think it 
would be a brand new school or whatever. No, it is the new 
Target superstore in Lexington, South Carolina. That has caused 
quite a stir. So we appreciate the retail industry.
    And that is why I am concerned about the Maryland law and 
would like to know how this law affects your members. Would it 
force large employers to pay more for health care? Does this 
improve the quality of health care? And does it remove an 
incentive for employers to negotiate the best coverage for the 
money?
    Mr. Kelly. I think our viewpoint on the Maryland law and 
those that--the legislation it has spawned across the country 
is that it doesn't do anything to reduce health care costs. It 
simply says a specific--an employer of a particular size 
provide health care benefits at a particular spending level. 
That doesn't do anything to impact reduction in costs of care. 
It doesn't even do anything to help provide coverage to people 
who don't have coverage. It simply says, you have to pay more 
for coverage than you are already providing.
    That, to us, seems to really miss the point and, you know, 
gives State legislators a convenient way to say they are doing 
something on health care without actually addressing the issues 
of costs and coverage. With that being said, we continue to 
reach out to lawmakers across the country to try to figure out 
ways to help reduce costs.
    Mr. Wilson. And what would happen to your members' health 
care costs if they did not operate ERISA plans?
    Mr. Kelly. Well, if ERISA eroded in any way, we believe 
that would increase health care costs, making a much less 
attractive option to provide health care. Again, ERISA was 
designed originally to provide multistate employers an 
opportunity to offer benefits in a uniform way, to avoid sort 
of the patchwork or hodgepodge of State and local mandates on 
health care.
    You know, our members are in competition with each other 
for good employees. They want to provide healthy and good 
benefits. They do provide good benefits packages. It is 
becoming increasingly difficult, given that health care costs 
continue to skyrocket every year. Again, I think the latest 
figures show that health care spending represents 16percent of 
our gross domestic product in this country. That is an all-time 
record. Let us address that so health care is more within reach 
for everybody.
    Mr. Wilson. And in your testimony you indicated that your 
industry employees say a high percentage are young and part-
time workers. And this really applies to all four of you. What 
can be done to educate younger employees about the need for 
health insurance?
    Mr. Kelly. Mr. Drombetta did a great job talking about sort 
of the unique characteristics of the retail workforce. It does 
tend to be younger. About a third of all retail workers are 24 
years of age or younger. You know, these are folks who, if 
offered health insurance, frequently don't want it. They may 
feel they would rather use the money they would otherwise use 
on insurance premiums for savings on a down payment for a car, 
or home, or for any other use.
    It is important to educate folks about health care 
insurance. Our members do that. Our members provide broad 
packages of benefits; but there's not always a high rate of 
take-up on the benefits, and frankly, I am not sure we really 
know what the answer is to that. But more education certainly 
would help, and more options would certainly help as well.
    Mr. Wilson. Anyone else want to comment?
    Mr. Drombetta. My experience is limited, but I would tell 
you the younger members of my staff are at a point in their 
lives where they have different priorities. They hope to come 
out of an apartment into a condo or out of a condo into a house 
or to have their first child, and it is hard--certainly hard 
for me to think back to those--that time of my life, to those 
years. But that is the choices they make, and in the small 
business environment, you are deciding what do you need to do. 
Our typical store has two people in it. Two people. One of them 
may be 24 or 26 and feel they don't need the coverage.
    Mr. Wilson. Do you have a comment, too? Pardon me.
    Ms. Kofman. I actually agree. There is a segment of the 
young population who believe they can fall out of an airplane 
and not get hurt without a parachute. So you can give coverage 
away, but they may not sign up. It is a very difficult segment 
of the population to reach and educate about insurance and 
financial security and why you need health insurance that would 
give you financial security.
    If I could just go back to some points earlier that were 
made about Maryland's law. I think it is important to remember 
that Maryland legislators passed the law not in a vacuum, but 
they have a certain regulatory environment. They have done a 
number of different things in Maryland that all work together 
to help address the rising costs of medical care and the rising 
premiums.
    For instance, Maryland has a high-risk pool which is now 
growing to be one of the biggest in the Nation, and it covers 
the people in Maryland with the highest medical needs so they 
don't go to the hospitals, and we all experience cost shifting 
as a result.
    Maryland also has a hospital rate-setting commission so the 
hospital rates are all set. There is no negotiation. It is a 
more level playing field, for example, for insurance companies. 
They all know what they are going to pay the hospital for 
services and for employers in Maryland. Maryland has a variety 
of programs of a different nature that all work together to 
help provide medical care and coverage, a way to finance that 
medical care. So this new Maryland law is designed to work 
together with existing programs and help existing programs, 
especially the public programs, continue to exist.
    Mr. Wilson. Thank you very much, Mr. Chairman.
    Chairman Johnson. Yes. Thank you, ma'am. I appreciate some 
of the comments you made.
    Mr. Tierney, you are recognized.
    Mr. Tierney. Thank you, Mr. Chairman. Mr. Chairman, I am 
sure--maybe she appreciates some of the comments you have made, 
but I am not sure. We will have to check with that.
    First of all, you know, Mr. Drombetta, I want to tell you 
that I sympathize with you because I was a small businessman--
smaller than you; but I was the president of the Chamber of 
Commerce, and these were issues that we dealt with. Right off 
the top, I will tell you the United States Chamber of Commerce, 
from my experience, doesn't represent the chambers of commerce 
district to district in this country. It is not their interests 
they are looking out for, and I hope local retailers and other 
businesses appreciate and understand that.
    The fact of the matter is, the cost is an issue. If you 
were in Massachusetts, Mr. Drombetta, you would have an option. 
Now you pay $295 per employee to cover your employees, and I 
think you might find some value in that or some assistance in 
that.
    But the fact of the matter is while cost is an issue, 
coverage is an issue, too. Some States feel one way to do that 
is to either have the employees--employers cover their 
employees, if they choose, or to opt to be a partner with 
individuals and with the States to find a way to pay for 
whatever the cost is and move forward on that. And that is some 
of the rationale I understand from my State legislators they 
were thinking about that.
    I would be curious to know from a show of the panelists who 
among you thinks health care is a right? And who among you 
thinks it is only a privilege? And some don't have an opinion 
either way. Interesting on that.
    If cost is an issue--I have heard that repeatedly down the 
line here--I think the evidence is pretty clear that at least 
20percent of every dollar we spend on health care is going to 
administration and profits for insurance companies and things 
of that nature. Do any of you object to the fact--Medicare is 
about a 3percent, or less than 3percent, administrative fact on 
that. Do any of you object to expanding Medicare to cover 
health care so that the employer won't be unburdened with this 
and individuals in society will cover it in some sort of an 
equitable fashion?
    Mr. Drombetta. I certainly can't speak for the rest of the 
group, but to address that, of course not. I have 33 employees. 
I know them by name.
    Mr. Tierney. Good.
    Mr. Drombetta. Are we entitled to or do we have some given 
right to health care? As an employer who wants those 33 people 
to continue to work for me, I would be foolish from a 
competitive point of view to not want to have a reasonable, 
reasonably competitive product. That is not my issue.
    Mr. Tierney. Let me interrupt you. I am not saying it is a 
right for you to pay for it. I am asking is it a right for them 
to have it; not necessarily that you have to pay for it as an 
employer, but do people generally have a right to have health 
insurance as opposed to it is only a privilege, and some will 
have it and some won't?
    Mr. Drombetta. I don't know why I would want anyone on my 
staff not to have health benefits.
    Mr. Tierney. Exactly. So my follow-up question on that is 
if cost is the overriding factor that I hear each of you talk 
about, and 20percent of every dollar at least is going to 
either insurance profits or administrative costs, whereas 
Medicare pays less than 3percent, is there objection amongst 
the individual panelists to have Medicare expanded to cover 
health care so you and your employees will have it?
    Mr. Drombetta. I could only address that problem from the 
practical point. I don't know what is out there. I don't know. 
Besides association health plans, what else is there?
    Mr. Tierney. Association health plans either give you their 
conflicting evidence on that or not a stitch of evidence. They 
will do nothing but increase the number of uninsured on that 
basis.
    Mr. Drombetta. This I know. I bid my health care costs 
every year. If I were in a different pool, if legally I could 
take my 18 people to a pool of 70,000, exactly the same 
coverage costs less.
    Mr. Tierney. You can do that within your State, right?
    Mr. Drombetta. No, I cannot, sir.
    Mr. Tierney. Not within your State?
    Mr. Drombetta. No, sir.
    Mr. Tierney. Well your State has an issue with that. In 
Massachusetts and most States and most other chambers of 
commerce----
    Mr. Drombetta. Doesn't that draw back to the fact that we 
have a national crisis; that we don't need Massachusetts to 
solve problems for Massachusetts, we need the Federal 
Government to solve a Federal problem?
    Mr. Tierney. Well, I agree with you, sir. You check my 
colleagues on the other side, they will probably have a stroke 
if they think that is the way we will approach providing health 
care for all. Ma'am, do you have any comments you would like to 
make?
    Mr. Drombetta. Would you please tell me what the costs are, 
and I can compare it to what I am doing and give you a 
response.
    Mr. Kelly. On the issue whether we should expand Medicare 
or not, our association hasn't developed a position on that. We 
would have to talk about it among our membership. The fact, as 
you point out. 20percent of the health care dollar goes to 
administrative costs, that seems pretty high. I think my 
members generally would support proposals that bring more 
competition to the health care system. I don't know what they 
would specifically be, but it ought to be explored to find new 
ways to help, you know, drive that kind of cost out of the 
system. If there are ways to do it, it ought to be explored.
    Mr. Tierney. One of the problems you see with competition, 
you can have all sorts of competition if you want inferior 
plans and better plans, etc. One of the reasons it is 
difficult, shoes ain't health insurance, and health insurance 
aren't shoes. You can change shoes in a lot of different ways, 
and nobody's life will be at stake; but health insurance is a 
whole different item on the market than that.
    Do you want to make a comment?
    Ms. Kofman. Yes.
    Chairman Johnson. The time for the gentleman has expired.
    Mr. Tierney. Yes. And I appreciate the Chairman allowing my 
witness to respond, or at least ask for unanimous consent for 
the courtesy of that.
    Chairman Johnson. Fine.
    Ms. Kofman. Thank you.
    When you think about competition in the insurance market, 
you know, most insurance companies are for profit, and their 
goal to their shareholders is to make profits, and the way to 
do that is to avoid risk, to avoid competing over sick people. 
You are not going to have insurance companies, no matter what 
the rules are, ever competing for sick people. So you just have 
to remember that when you think about competition in the 
insurance market.
    In terms of expanding Medicare, it is a terrific option. It 
certainly would be cost-effective, and I believe it would make 
U.S. Companies more competitive globally. We are the only 
country in the world that is industrialized that is this 
wealthy that doesn't pay for medical care for our citizens, and 
that makes it more difficult for our U.S.-based companies to 
compete against Great Britain companies, against French 
companies, where they do have the government taking on most of 
the costs for providing medical care, for keeping workers 
healthy so companies could compete.
    Chairman Johnson. Could I ask you if you would go to France 
to get your medical care?
    Ms. Kofman. I am actually lucky enough to be married to 
someone who works for the Federal Government, so I have the 
best health care in the world.
    Chairman Johnson. I didn't ask you that question.
    Ms. Kofman. I might.
    Chairman Johnson. Would you go to England for it? I have 
been in England when I was in the Air Force, and I am here to 
tell you their socialized medicine stinks. I also would like 
to----
    Mr. Tierney. Mr. Chairman, if you would yield, I think you 
ought to go back because it is a whole different world over 
there, if that was the last time you were there.
    Chairman Johnson. The fact that you stated a while ago that 
many companies provide health care for their employees, but the 
young ones don't take advantage of it. Exxon, I happen to know 
about, it is in our area, and they offered to match whatever 
the employee puts in for health care. And there is a large 
number that do not accept that health care because they think, 
as you said, they are bulletproof. You know, and it is that age 
bracket of 21 to 35. Once they get over that age bracket, they 
feel like maybe they need insurance.
    And I don't know if insurance is a right or not. I think it 
may be an option, not a right. There is--you know, America has 
the best health care in the world. That is why people come over 
here for operations of various sorts and medical attention from 
other countries. Why do we have good health care? It is because 
we don't mandate it.
    Mr. Tierney. Mr. Chairman, we love it when you riff like 
that, but it is hard not to respond. We may have great health 
care, but we have a terrible insurance system, and that is part 
of the problem. When I talk about people having a right, it is 
not a right to insurance, it is a right to health care, and 
there is a significant difference in that. And I thank you for 
the chance to make that point.
    Chairman Johnson. You are welcome.
    Mr. Tiberi.
    Mr. Tiberi. Dr. Kofman.
    Ms. Kofman. I think you just promoted me.
    Mr. Tiberi. A professor?
    Ms. Kofman. A lawyer.
    Mr. Tiberi. Sorry. I was going to ask you a question, but 
the dialog we just had I find enlightening since I have more 
family in Europe and Canada, which I think you would agree the 
Canadians and the Europeans, for the most part, have a single-
payer system that gives you the right to health care. But the 
thing that we don't hear about that my relatives tell me 
about--in fact, I have a cousin, or my mom's cousin, who just 
had a serious surgery operation in New York, and he is 
Canadian, by the way, and I have family in Italy who have had 
rationed care for years. And while we can talk about the right 
and how wonderful the single-payer system is, there are also 
problems with the single-payer system that I hope you would 
acknowledge.
    Ms. Kofman. Um, yes. I agree. No system out there is 
perfect, but the fact that we let 18,000 people, Americans, die 
each year, preventable deaths, because they don't have coverage 
is, I think, un-American and unacceptable.
    Mr. Tiberi. Well, there are two sides to the story 
certainly. Mr. Drombetta--and my point is that there are, just 
so we are clear--we have in a single-payer system in Canada and 
a single-payer system in Europe. Thousands of people die, too, 
under rationed care. There is no question about it. And I have 
heard personal horror stories, family members who have had 
rationed care and have begged to come to the United States as 
well. So there is certainly another side to this debate.
    Mr. Drombetta, you are a small business owner. I see you 
are educated in the great State of Ohio and appreciate----
    Mr. Drombetta. I did take note of the fact that I have the 
lesser of the degrees at the table.
    Mr. Tiberi. You operate, obviously, a small business, and I 
worked for a small retailer both in high school and college. 
And what, in your mind, would happen--I have heard from small 
employers in my district, friends of mine, who do everything in 
their power to try to offer as much benefits as they can to 
their employees because--particularly small employees, small 
employers. It is like a family business, and the people who 
work for them are family. And you are an employer with under 50 
people, from what I remember reading your testimony. What would 
happen to the typical employer--don't even talk about 
retailer--typical employer that is mandated to apply a certain 
type of insurance to all their employees?
    Mr. Drombetta. I can only really respond to what my 
reaction would be. I run a small business. I would look at that 
mandate and its costs and take it inside the organization and 
make the determination, and it is pretty black and white.
    Mr. Tiberi. Do you believe, though, there are small 
organizations or small businesses that might not be able to 
survive the mandate?
    Mr. Drombetta. Let me drive the point home. If a family 
plan inside--and with an HMO costs $17,000 a year. That is a 
lot of money. That is an awful lot of money. And if we want the 
small business owner to pay it completely, his operation either 
will have the ability to do that, or it won't.
    You can't deficit-spend a small business. It is called 
bankruptcy. You don't have that option. If you look at what 
your costs are, you look at what your margins are, and you say, 
I can or I can't. I don't think it is any small fact--there is 
a mistake or a court of economics that 65percent of the 
uninsured are involved in small businesses.
    I have personal friends who run shoe stores with family 
dominating that don't have health care. Why is that? They don't 
want their son to have it or their wife? That is not the case.
    Mr. Tiberi. It is the cost.
    Mr. Drombetta. It is a cost issue. And I am willing to 
listen to anything, but I have difficulty understanding how 
mandated coverage is going to drive down costs, because when 
the gavel hits and this is over, and we all leave, I still have 
those costs to deal with, along with millions of small 
businesses.
    What would bring my rates down next year and the year 
after? And who's going to face my employee in 5 years when my 
insurance costs have gone up another 100 percent? It isn't 
going to be anybody on this committee.
    Mr. Tiberi. Mr. Chairman, can I just ask one brief 
question?
    Chairman Johnson. One brief one.
    Mr. Tiberi. Mr. Kelly, do you know who the largest employer 
in the State of Maryland is that has the largest number of 
uninsured individuals? Do you know?
    Mr. Kelly. I am sorry. Can you ask again?
    Mr. Tiberi. Do you know who the largest employer in the 
State of Maryland is that has the largest number of uninsured 
individuals? I know it is not Mr. Drombetta. I had read 
somewhere that it was the State of Maryland itself. Do you 
know?
    Mr. Kelly. That is right. I thought you were asking 
private. I don't know if they are the largest, but State and 
local employees in Maryland, there are 20,000 State and local 
employees in the State of Maryland who don't have health 
insurance.
    Mr. Tiberi. Are they exempt by the Maryland bill?
    Mr. Kelly. The Maryland bill does, in fact, have a specific 
exclusion for government employees.
    Mr. Tiberi. Thank you.
    Thank you, Mr. Chairman.
    Mr. Payne. Mr. Chairman, if you could just yield on your 
question on the costs going down. If people had health 
coverage, there is a philosophy that it is preventative care, 
and that if people--oh, I am sorry. If people would--and no one 
mentioned it up to now. If people had precare to prevent these 
catastrophic, radical--for example, if you detect, say, breast 
cancer before you have to go in for a radical operation which 
costs tens of thousands of dollars--of course, what it does to 
the person is even worse--that is where this coverage can 
indirect----
    Everyone is saying that by having people covered, it is not 
going to bring down the costs. I believe that if there was 
preventative health, it would. And I am sorry, Ms. McCarthy, I 
stole your--and I am not asking for an answer, but just an 
opinion. In my district where people make the minimum wage, 
they have no health coverage, they are very impoverished in the 
city of Newark. They go to the hospital; they are put in some 
intensive care for 5 or 6, 7 days. It is thousands of dollars a 
day because they haven't had any preventative care; and the 
cost is through the roof, which is eventually paid for by the 
State because it is uncompensated care. But I think that the 
overall health of people would get better, and it would over--I 
believe--therefore would have a driving-down effect on the 
prices. Thank you.
    Chairman Johnson. Mr. Kelly, would HSAs provide 
preventative care in this instance that less expense----
    Mr. Kelly. Well, as I understand health savings accounts, 
individuals are able to spend their money as they see fit on 
health care. So it certainly could cover preventative services 
and may, in fact--people may see that in their self-interest to 
have checkups, medical care, preventative care.
    Chairman Johnson. Thank you.
    Ms. McCarthy. I am enjoying the debate because I am the 
only one on the panel that has a nursing profession behind 
them. So I am kind of looking at this debate a little 
differently. When HMOs started, the whole idea of HMO was 
preventative care. Part of that conversation has come into play 
here.
    With that, Mr. Chairman, I am hoping that I might be able 
to offer this article from the Chicago Tribune that talks about 
part of the debate that we are hearing today. Mind the Gap: 
England Found to Be Healthier Than America even though America 
spends twice the amount of money.
    Which brings me to my point. Health care today is basically 
geared to illness instead of prevention, and that is one of the 
big problems that we are facing in this nation. And until we 
start actually recognizing that fact, you talk about a lot of 
your employees are older, and yet we know as you get older, 
obviously your health care costs are going to go up, whether 
it's diabetes, whether it's heart condition.
    At the age of 50, all of a sudden I came down here, you 
know, one of the doctors examined me, OK you are on this 
medication, this medication, all preventative because of my age 
and probably because of the stress of the job, but all 
preventative.
    So what I am saying is we are not the healthiest people in 
the world; and as far as Canada goes, they keep their costs 
down and their care because they only have, I believe, two 
MRs--two MRI in the country. So that kind of cuts back on the 
kind of care they are going to get.
    But with that being said, I keep looking at the health care 
system that we, as Federal employees, have. I pick out which 
health care I want. I pick out what I am going to be paying, 
and that certainly is up to me. For the small businesses, I 
happen to agree that small businesses should be able to band 
together so that they have more of a pool to be able to pick 
from.
    One of the things that I did not agree with the bill that 
came through this committee, we stripped out completely any 
preventative care, taking out mammographies.
    My other statement would be the States are probably as 
frustrated as we are here in Congress because the people in the 
States are not getting the health care that they need, and it 
is ending up costing our health care system more money because 
you are going in the hospital at a later time, you are sicker, 
and a lot of times you are being released from the hospital 
when you really technically are not ready to be released, 
especially if you have no one home to take care of you.
    So it is a problem all the way around. So the debate will 
go around in a circle. None of us have the full answers, but we 
need to address it. And it is going to take a unified--
businesses working together with politicians on both sides of 
the aisle on how we are going to actually do this.
    We, as Democrats, looked at--we want to give health care to 
everybody. I do, because I happen to think it saves money and 
especially to the children. We deny health care to children. I 
mean, that is unthinkable in my part mainly because it ends up 
costing us more money in the long run.
    Diabetes. We fought in this government on giving basic 
allowances to some people that could control their diabetes. If 
we don't, we end up paying--we, the Federal Government, ends up 
paying millions and millions and millions of dollars more 
because someone should go--hopefully more Members of Congress 
would go to a dialysis center and look at those people that are 
on dialysis centers and all because they weren't treated at an 
early stage. So there are ways to cut, and administration costs 
are too high.
    I offered legislation years ago to expand Medicare to a 
younger age; not for everybody, but to a younger age, to open 
up that pool. I think those are important things we need to 
look at.
    We will never find one answer. I never thought that I would 
ever say I would look at a one-pay system; but when I have 
doctors coming to me saying, I take it because of the paperwork 
that they have to fill out; or in the nursing homes and the 
paperwork they have to fill out; or the home care nurses, the 
paperwork they have to fill out. We have to look at the health 
care system, certainly provide--and one other thing as far as, 
you know, we talk about--on pensions right now, 401(k)s, one of 
the things the businesses told us, if we are going to go to the 
401(k), and I hope we don't, not for everybody, it should be 
mandatory. Anyone that goes into that employer, mandatory that 
employee has to join. Well, it should be the same for health 
care, even for a child, a young person, an 18-year-old, because 
they all think they are--you know, they are not going to get 
sick, or they are not going to get hurt. Even if it is basic 
care, they should have to join some sort of--I certainly had 
to.
    As a young nurse I had to be in the health care system. I 
had no choice. It came out of my paycheck every single week. I 
think we should look at that again, too.
    I thank you for your testimony. I don't actually have a 
question because it goes back and forth, and we all don't have 
the true answers, but it is a debate that needs to come to a 
head and a discussion that needs to be done. Thank you, Mr. 
Chairman.
    Chairman Johnson. Thank you. The gentlelady's time has 
expired.
    Ms. McCollum, you are recognized.
    Ms. McCollum of Minnesota. Thank you, Mr. Chair.
    Unfortunately the gentleman from Minnesota has left; but he 
referred to some bills that are pending in our statehouse.
    In Minnesota we could only put five authors on a bill, so 
we clone bills, and that is why there are as many bills as 
there are. And they all are dealing with something that is very 
near and dear to the taxpayers' and providers' hearts in 
Minnesota, and that is the fact that we are trying to 
understand why Wal-Mart feels that the taxpayers in Minnesota 
and the providers who pay a provider tax in Minnesota, health 
care's available in Minnesota, go sign up for the State-
Sponsored health care plan, which is called the Minnesota Care. 
So doctors are paying for it, hospitals are paying for it. We 
were just trying to get a handle on the costs.
    Those are the bills that the gentleman from Minnesota was 
referring to. And on the handout that is passed out by the 
Retail Industry Leaders Association that says, States targeted 
by the AFL-CIO, yes, I am proud that labor is trying to help us 
collect this information on behalf of working families because 
we are the ones who ultimately pay for the emergency room 
visits and pay for people who don't have health insurance when 
they come into the emergency room sicker or were paying for it 
with States that do put plans together to--Mr.--nobody has said 
your name again, and I want to--Larry, if I say it wrong----
    Mr. Drombetta. Drombetta.
    Ms. McCollum of Minnesota. I worked retail for 27 years, 
and I would love to work for you in a heartbeat. We would.
    Mr. Drombetta. We would welcome you in joining us.
    Ms. McCollum of Minnesota. Because we do need--you are 
addressing--you are speaking for America's families here in 
small business, and I thank you for coming.
    But the problem that we are facing here in Congress, it is 
either associated health plans or nothing, and we need to have 
a full, enriched debate on this issue.
    Mr. Drombetta. Can I address that? I don't want to impose 
on your time, but I think it was 1993, if my recollection is 
correct, about 25 million uninsured existed in the country. We 
need to stop looking.
    Ms. McCollum of Minnesota. Right.
    Mr. Drombetta. And we would have 46 million uninsured, most 
of them out of small businesses, my kind of business. I hate to 
say this, but your constituents aren't adding any risk really 
in what you are looking at. They want to know what brings down 
cost. That is really what----
    Ms. McCollum of Minnesota. Excuse me, Mr. Drombetta. I have 
to reclaim my time here. I am going to speak as a woman. You 
look at me, it is obvious I am one.
    The associated health plans offer no protection for women. 
Contraceptive protection, mammography, breast cancer, maternity 
coverage, all those things, when we just try to say by gender, 
can associated health plans not discriminate against women--and 
that is how a lot of these mandates came into play was just 
basic health care coverage for women--we were told no. And so 
associated health plans that discriminate against women for 
their coverage, in the United States of America, I just don't 
see as acceptable.
    I would like to ask Mr. Garthwaite--am I saying your name 
right, sir? A couple of things you have said intrigued me, as 
being the mother of 20-somethings.
    First off, my children want to drive. They have to have car 
insurance, they have to have health insurance, and they have no 
choice. They pay it. Health care insurance, if we tell people 
they have to have it, they have to have it. And so do you see 
that there is something wrong with saying that young adults 
have to have health insurance versus car insurance? And then 
how do you figure into the whole pension debate? Because part 
of what we were talking about was, you know, Social Security 
doesn't work, we should abolish it, and that young adults were 
going to automatically save for themselves.
    So as a young, bright man, can you speak for your entire 
generation and why car insurance is OK, health insurance is bad 
to be mandated, and everybody will save and set aside for their 
pensions in this young age group?
    Mr. Garthwaite. We can start with the car insurance versus 
health insurance first. I think the important thing to realize, 
you set a minimum level of car insurance people have to have, 
and people then choose to buy more than that, buy collision 
coverage, buy other things.
    I don't see that the needs in terms of health insurance for 
a 55-year-old person are the same as for a 20-year-old young 
man or a woman. So I think mandating the same level of health 
insurance, which a lot of these bills are trying to do 
regardless of age group, is not a very good way to tackle the 
problem.
    I mean, Social Security is a little outside the pivot we 
are talking about, but the way I understand a lot of what was 
proposed, there was a certain amount that had to be invested in 
terms of your contribution to the Social Security plan, and it 
wouldn't be a voluntary system.
    Chairman Johnson. Time of the gentlelady has expired. Thank 
you for your questions. I guess we are drawing to a close.
    Mr. Kelly, I would just like to ask you, if the State 
mandated 8percent of your pay or of the company to be awarded 
the health care, as a mandate, would there be any negotiation 
room; they would go up instead of down, wouldn't they? 
Insurance companies wouldn't--if they knew there was an 
8percent requirement or whatever?
    Mr. Kelly. It would seem to tie the hands of companies who 
were forced with the mandate to accept the mandate, yeah, and 
might take away some negotiating leverage that they might 
otherwise have. I agree with that.
    Chairman Johnson. OK. Thank you.
    I want to enter in the record Ms. McCarthy asked if we 
would allow an article from the Chicago Tribune to be entered 
in the record. Is there any objection?
    Hearing none, so ordered.
    [The information referred to follows:]

                [From the Chicago Tribune, May 3, 2006]

        Mind the Gap: England Found to Be Healthier Than America

         By Carla K. Johnson and Mike Stobbe, Associated Press

    White, middle-age Americans--even those who are rich--are far less 
healthy than their peers in England, according to new research that has 
experts scratching their heads.
    Americans had higher rates of diabetes, heart disease, strokes, 
lung disease and cancer--findings that held true no matter what income 
or education level.
    U.S. health-care spending is double what England spends on each of 
its citizens.
    ``Everybody should be discussing it: Why isn't the richest country 
in the world the healthiest country in the world?'' asks study co-
author Dr. Michael Marmot, an epidemiologist at University College 
London.
    The study, based on government statistics in both countries, adds 
context to the fact that the United States spends more on health care 
than any other industrialized nation yet trails in rankings of life 
expectancy.
    The U.S. spends about $5,200 per person on health care. England 
spends about half that in adjusted dollars.
    Even experts familiar with the weaknesses in the U.S. health system 
seemed surprised by the study's conclusions.
    ``I knew we were less healthy, but I didn't know the magnitude of 
the disparities,'' said Gerard Anderson, an expert in chronic disease 
and international health at Johns Hopkins University who had no role in 
the research.
    Just why the United States fared so miserably wasn't clear. Answers 
ranging from too little exercise to too little money and too much 
stress were offered.
    Even the U.S. obesity epidemic couldn't solve the mystery. The 
researchers crunched numbers to create a hypothetical statistical world 
in which the English had American lifestyle risk factors, including 
being as fat as Americans. In that model, Americans still were sicker.
    Smoking rates are about the same on both sides of the pond. The 
English have a higher rate of heavy drinking.
    Only non-Hispanic whites were included in the study, to eliminate 
the influence of racial disparities.
    The researchers looked only at people age 55 through 64, and the 
average age of the samples was the same.
    The upper crust in both countries was healthier than middle-class 
and low-income people in the same country.
    But richer Americans' health status resembled the health of the 
low-income English.
    ``It's something of a mystery,'' said Richard Suzman of the U.S. 
National Institutes of Health, which helped fund the study.
    Health experts have known the U.S. population is less healthy than 
that of other industrialized nations, according to several important 
measurements, including life expectancy. The U.S. ranks behind about 
two dozen other countries, according to the World Health Organization.
    The study, supported by grants from government agencies in both 
countries, is published in Wednesday's Journal of the American Medical 
Association.
    This is the first to focus on prevalence of chronic conditions, 
said Anderson, the Johns Hopkins professor.
    Differences in exercise might partly explain the gap, he suggested. 
One of the study's authors, Jim Smith, said the English exercise 
somewhat more than Americans. But physical activity differences won't 
fully explain the study's results, he added.
    Marmot offered a different explanation for the gap: Americans' 
financial insecurity. Improvements in household income have eluded all 
but the top fifth of Americans since the mid-1970s. Meanwhile, the 
English saw their incomes improve, he said.
    Robert Blendon, a professor of health policy at the Harvard School 
of Public Health who was not involved in the study, said the stress of 
striving for the American dream may account for Americans' lousy 
health.
    Americans don't have a reliable government safety net like the 
English enjoy, Blendon said.
    However, Britain's universal health-care system shouldn't get 
credit for better health, Marmot and Blendon agreed.
    Both said it might explain better health for low-income citizens, 
but it can't account for better health of Britain's more affluent 
residents.
    ``It's not just how we treat people when they get ill, but why they 
get ill in the first place,'' Marmot said.

                         SELF-REPORTED ILLNESSES
             [In non-Hispanic whites age 55-64, percentage]
------------------------------------------------------------------------
             Health disorder               United States      England
------------------------------------------------------------------------
Hypertension............................           42.4%           33.8%
Heart disease...........................           15.1%            9.6%
Diabetes................................           12.5%            6.1%
Cancer..................................            9.5%            5.5%
Lung disease............................            8.1%            6.3%
Heart attack............................            5.4%            4.0%
Stroke..................................            3.8%            2.3%
------------------------------------------------------------------------
Note: Based on unweighted samples of the 2002 Health and Retirement
  Survey in the U.S. and the 2002 English Longitudinal Survey of Aging
  in England.

Source: Journal of the American Medical Association.

                                 ______
                                 
    Ms. McCollum of Minnesota. Mr. Chair, Mr. Chair, I have two 
items, if this is a proper time, to submit for the record as 
well.
    Chairman Johnson. Sure.
    Ms. McCollum of Minnesota. I have an article from Minnesota 
Public Radio, the number of uninsured children in Minnesota. 
Minnesota, in order to balance its budget decided to remove 
children from health insurance, and these are children under 
the age of 1 and 2.
    And I have from the Atlantic Monthly an article, The New 
War Over Wal-Mart, dealing with the way Wal-Mart is not 
insuring its employees and is putting it on the public for 
taxpayers to cover their employees.
    Chairman Johnson. Without objection, so ordered.
    [The information referred to follows:]

             [From Minnesota Public Radio, April 19, 2006]

              Number of Uninsured Kids Grows in Minnesota

                            By Lorna Benson

    The number of Minnesota children without health insurance has grown 
by at least 8,000 in the past few years. The figures, collected by the 
Minnesota Department of Health, are included in a new report by the 
Children's Defense Fund Minnesota.
    The Children's Defense Fund says the trend is troubling because 
access to health care coverage is a key indicator of child well-being. 
The group says without insurance, kids are more likely to develop long-
term health problems.
    St. Paul, Minn.--Sixty-eight thousand Minnesota children were 
without health insurance in 2004. That compares to 60,000 uninsured 
kids in 2001, the last time the Department of Health collected the 
data.
    Jim Koppel, the executive director of the Children's Defense Fund 
Minnesota, says the spike in uninsured kids is most noticeable in the 
youngest age group. ``There has been an increase of 11,000 children 
under the age of 5. The very youngest children in Minnesota have seen 
the most dramatic rise of all children,'' Koppel said.
    Koppel attributes some of the growth in this group to changes in 
state eligibility rules.
    Before 2003, he says newborns were automatically enrolled in 
Medical Assistance until age 2, if their mothers qualified for the 
program when they were pregnant. Medical Assistance is Minnesota's 
version of the federal Medicaid program.
    Koppel says lawmakers decided to cut off automatic enrollment at 
age 1, as a way to help balance the state budget in 2003. As a result, 
3,800 kids were kicked off the program.
    Koppel says many of those kids still qualified for the state's 
other subsidized health insurance program, MinnesotaCare, but he says 
many didn't realize it--in part because lawmakers cut the budget to 
promote MinnesotaCare. The number of enrollment forms to be filled out 
has tripled, and families now have to re-enroll every six months, 
rather than every year.
    ``That's how you get rid of kids in coverage. That's how you cut 
participation. Just make it complicated,'' Koppel said.
    Of the 68,000 uninsured kids in Minnesota, it's believed that more 
than three-fourths are eligible for public health insurance programs.
    Department of Human Services Commissioner Kevin Goodno says many of 
the eligibility changes were prompted by a desire to make the program 
more accountable.
    ``What we want to do is make sure we're covering the kids that are 
uninsured, and not covering kids that already have good insurance in 
the private sector, by taking away some of those elements that were 
preventing the erosion from the private sector,'' Goodno said.
    Goodno is referring to parents who decline their employer-sponsored 
health insurance to buy cheaper state-subsidized insurance. The state 
has a rule that if a family has access to employer-based insurance 
where the employer pays at least 50 percent of the premium, the family 
cannot use MinnesotaCare.
    On the complexity issue, Goodno agrees that enrollment paperwork 
can be daunting. He says the state is working on a project right now 
that would streamline the eligibility process by helping parents get 
connected with the right programs. But he says there's only so much the 
state can do.
    ``Parents do have to take responsibility for * * * coming into the 
counties or coming into our agency, and asking how they can cover their 
kids for health insurance. So there is some personal responsibility 
involved in all this as well,'' he said.
    Goodno says while he does think it's a serious problem that so many 
children are uninsured in the state, he points out that Minnesota is 
doing well compared to other states. He says the state has one of the 
lowest overall uninsured rates in the country. He says it's also one of 
the healthiest states.
    But that doesn't satisfy the Children's Defense Fund's Jim Koppel. 
He says other states are showing more progress when it comes to kids.
    ``Forty states in this same time period we're talking about, 40 
states, decreased the number of uninsured children in their state,'' he 
said.
    Koppel says three other states--Massachusetts, Illinois and Maine--
have recently passed legislation that makes sure that all of their 
children have health insurance. Legislative proposals to do the same 
thing in Minnesota have not gone anywhere.
                                 ______
                                 

                 [From the Atlantic Monthly, June 2006]

                       The New War Over Wal-Mart

    The mounting attacks on the world's largest company could change 
American business-and transform the health-care system
    Wal-Mart has made its slogan (``Always Low Prices. Always.'') into 
a blood oath. The company has grown to prominence through legendary 
cost-saving acumen and a relentless adherence to low prices, which it 
maintains by rigid cost control. Today, Wal-Mart employs more people-
1.7 million-than any other private employer, and by this measure is not 
just the largest company in the world but the largest company in the 
history of the world.
    With size comes power. Several years ago, economists coined the 
term ``Wal-Mart effect'' to describe the consequences, large and small, 
that flow from the company's unending war on prices. The Wal-Mart 
effect drives down consumer prices so powerfully that it helps check 
U.S. inflation. But it has hastened the outsourcing of U.S. 
manufacturing jobs to cheaper countries, and, some argue, it also 
drives down wages and benefits.
    Big business in America is both admired and instinctively 
suspected, and the biggest business of all is a natural magnet for 
criticism. The overwhelming focus lately has been its health-care 
policy, which covers fewer than half its workers and leaves the 
government to care for tens of thousands of its employees and their 
children through programs, like Medicaid, that were created to help 
poor people. Some states have begun to retaliate. Maryland passed a 
bill in January forcing any company with more than 10,000 workers to 
spend at least 8 percent of its payroll on employee health care-a law 
aimed squarely at Wal-Mart, the only company that qualifies. Similar 
``fair share'' bills are pending or planned in thirty states. 
Especially in the nation's capital, there's a growing sense that after 
years of frustration the Lilliputians are finally tying down their man.
    One of the major forces opposing Wal-Mart is organized labor. The 
United Food and Commercial Workers International Union has long wanted 
to organize Wal-Mart's stores. Last year, it succeeded at a Canadian 
Wal-Mart, which the company immediately shut down. ``If Wal-Mart 
doesn't change its ways, we'll turn it into Big Tobacco,'' Chris 
Kofinis, communications director for the UFCW-funded Wake Up Wal-Mart, 
told me recently.
    The company's other main antagonist, Wal-Mart Watch, is also backed 
by labor, though at first glance its motivations are opaque. Wal-Mart 
Watch is heavily financed by the Service Employees International Union, 
whose president, Andy Stern, says he has no intention of organizing 
Wal-Mart. Not long after the Maryland law passed, I asked Stern, who 
helped push it, what he was up to. He smiled. A social service worker 
turned union organizer, Stern at fifty-five already has a full head of 
white hair. But he hardly resembles the stereotypical, cigar-chomping 
union boss. Fit and energetic, he speaks with the assuredness and big-
picture worldview of a motivational speaker, an effect amplified by his 
bright purple shirt (purple is SEIU's official color). The sleek purple 
chairs and frosted glass in the union's Washington offices lend an air 
of Scandinavian minimalism and further the sense of calculated 
nonconformity. ``Why go after Wal-Mart?'' Stern replied. ``Because Wal-
Mart is the GM of our era. Whatever business practices they adopt have 
huge influence across other American businesses.''
    Stern has something much grander in mind even than unionizing Wal-
Mart. ``Ford wasn't created to be a health-care provider; it was 
created to produce cars,'' Stern says. ``My goal is to get Wal-Mart's 
leadership out there in traffic and holler, 'We can no longer compete 
in the global economy when health care is factored into the cost of our 
products' If Wal-Mart's CEO, Lee Scott, were to come out and say, 'We 
need a national health-care system that works for everyone,' then it's 
a whole new ball game.''
    Stern says that he first contemplated trying to get Wal-Mart to 
change its practices in 2003, after the company announced plans to open 
forty Supercenters in California. Local grocery chains reacted by 
proposing to cut wages and health benefits in a preemptive bid to 
remain competitive, some even locking out their employees. The result 
was a massive strike. ``When you saw that, you realized what an 
incredible effect this one company has on a market,'' Stern said. It 
was a classic example of the Wal-Mart effect-and it didn't stop there. 
When the supermarkets did in fact cut their health-care plans, the 
janitorial companies whose workers SEIU represents complained that 
they, too, could no longer remain competitive. ``They came to us and 
said, 'We're not as big as the supermarket chains, and if they can't 
afford to pay for health care, how can we be expected to?''' Stern 
said.
    After the 2004 election, SEIU joined with environmentalists, 
women's groups, and community activists to form Wal-Mart Watch, hiring 
seasoned Democratic operatives and jumping into the public debate. The 
new group focused much of its efforts on the company's healthcare 
programs, with considerable success. Wal-Mart, despite investing 
heavily in public relations and making slight improvements in its 
plans, was unable to stop the Maryland law or quiet the growing chorus 
of critics.
    The company appears to have no clear idea of how to stop the 
fallout. Some Wall Street analysts believe the ``headline risk'' 
associated with the negative publicity is one reason for Wal-Mart's 
sagging stock price. The company topped Fortunes most-admired list in 
2003 and 2004-but slipped to twelfth place this year.
    Stern seemed to take a Bart Simpson-like delight at the spectacle 
of a flummoxed symbol of authority whose current chaos he'd helped 
devise. Spending around $5 million annually, Wal-Mart Watch has pushed 
anti-Wal-Mart laws in dozens of states, leaked damaging internal 
documents, and helped make the company known as much for its 
exploitation of government health plans as for its business acumen. 
Over the last year, and very much against its will, Wal-Mart has been 
moved to the center of the national debate over health care, and Stern 
has drawn one step closer to what he's really after.
    In Stern's thinking, if the world's largest company could be coaxed 
or bullied into publicly favoring a national health-care policy, here's 
how things might play out: a rush of other companies already beset by 
health-care costs and accustomed to mimicking Wal-Mart would fall in 
line, putting business on the same side as labor. Governors burdened 
with soaring Medicaid costs might also join in. The pressure on the 
federal government would be overwhelming. Stern, in other words, is 
seeking to turn the Wal-Mart effect to his own ends, harnessing it to 
transform health-care policy just as it routinely transforms business 
policy. It's an audacious plan.
    In late February, Wal-Mart CEO Lee Scott gave a speech to the 
National Governors Association in Washington, D.C. The group's chairman 
this year, Arkansas Governor Mike Huckabee, chose health care as the 
focus of the annual meeting. (Huckabee is an able governor and possible 
Republican presidential nominee, but he's most famous for losing a 
hundred pounds and writing a diet book, Quit Digging Your Grave With a 
Knife and Fork, and he extols the virtues of healthy living just about 
any time he can.) hi one sense Huckabee's invitation to Scott was 
natural: Wal-Mart is based in Bentonville, Arkansas. But it promised a 
certain drama, too, because fewer than half of Wal-Mart's American 
workers are covered through the company's health plan.
    Scott's audience was also significant. Governors are caught in the 
middle of Wal-Mart's health-care crisis. The company is believed to be 
the largest employer in at least two dozen states, so its well-being is 
important to them. But in many of those states, Wal-Mart workers 
correspondingly top the list of Medicaid recipients. The program itself 
has exploded, adding 8 million Americans between 2000 and 2004 and 
putting enormous strain on state budgets, which fund about 40 percent 
of Medicaid. What's especially troubling is that so many new recipients 
aren't jobless-their employers simply don't offer health care, or not 
cheaply enough to keep them off public assistance. Many of these people 
work for Wal-Mart.
    Scott got right to the point. ``America is facing some pretty tough 
challenges these days,'' he stated. ``We know our benefits are not 
perfect.'' His goal before the governors was to slow the onrushing 
storm directed at Wal-Mart's healthcare coverage. For maximum effect 
the press had been notified ahead of time that he had come bearing a 
peace offering of sorts-his speech would announce improvements in the 
company's benefits.
    These turned out to be relatively minor concessions: reducing the 
waiting period for part-time employees to qualify for benefits, 
broadening availability of Wal-Mart's cheapest plan, and allowing 
children of part-timers to become eligible with their parents. Though 
constructive, such increments won't solve the larger problem, as Scott 
seemed to understand. Wal-Mart's CEO is fifty-seven and slightly 
doughy, with the bland, unassuming aspect of a middle manager. But when 
he finished his pitch, he became soberly defiant: ``We cannot do it 
alone. No business can. No business should have to. The fact is the 
soaring cost of health care in America cannot be sustained over the 
long term by any business that offers health benefits to its 
employees.'' This is exactly Andy Stern's position.
    Scott made clear that he had not come to surrender, to unions or 
state governments. ``I believe we're seeing a little too much 
politics,'' he said. Bills like Maryland's ``may score short-term 
political points, but they won't solve America's health-care 
challenges.'' He angrily denounced them as ``horrible public policy.'' 
Clearly, Stern and his fellow critics have Wal-Mart seeing purple.
    For all Wal-Mart's size, its business model leaves it more 
vulnerable than most companies to the rising cost of health care. Its 
key to consistently outcompeting everyone else on price is low margins 
and high volume. Wal-Mart doesn't make a lot of money on any individual 
sale; it makes huge multiples of small profits on a torrent of sales.
    In 2005, Wal-Mart earned profits of $11.2 billion on sales of 
$312.4 billion-a hefty sum, to be sure, but a startlingly thin margin 
of less than four cents per sales dollar-about $6,000 in profit per 
employee. (Exxon Mobile, by comparison, earned around $300,000.) That's 
fine if you can keep holding down costs, as Wal-Mart goes to incredible 
lengths to do. (Among the exquisite revelations in Charles Fishman's 
recent book, The Wal-Mart Effect, is the company's policy of 
reimbursing meal tips only up to 10 percent-there goes its image with 
one big sector of the American workforce!) But one cost that is well 
outside its formidable power to control is health care. At Wal-Mart 
that outlay has risen 19 percent over each of the last three years.
    Just how big a problem this poses was brought to light last 
October, when someone leaked an internal memo written by the company's 
executive vice president for benefits, Susan Chambers, to Wal-Mart 
Watch. The Chambers memo reported that the company's cost of benefits 
was outpacing its profits. ``Growth in benefits is unsustainable,'' it 
warned, going on to recommend fourteen measures of containment: nine 
``limited-risk initiatives'' and five ``bold steps.'' These ranged from 
such benign ideas as giving employees discounts on healthy foods to 
highly controversial ones like thinning the number of unhealthy (and 
thus more expensive) workers by adding physical tasks, like collecting 
carts, to jobs that currently don't require them.
    The uproar that ensued focused on the practice of discriminating 
against unhealthy workers-a potential violation of federal law. But the 
truly startling thing is the memo's estimate of how little even the 
most extreme ``steps'' could accomplish. Enact every proposal, and Wal-
Mart will still merely maintain its current ratio of benefit costs to 
profits for five more years. That's it.
    The significance of the Chambers memo isn't that a major company is 
plotting to scale back health-care coverage; it's that employer health-
care costs are growing so sharply that the apotheosis of American 
capitalism is frantically digging in its heels merely to slow their 
rate of growth. The alarming implication for a company whose greatness 
rests upon squeezing a few pennies out of every dollar in sales is a 
microcosm of the health-care issues beating against American business. 
As employers are hit with spiraling benefits bills, economic 
rationality leads them to want to dump their most costly employees. 
This pushes those most in need of care into the ranks of the uninsured 
or onto the dole.
    Wal-Mart has little cushion to absorb increased costs, which is why 
laws like Maryland's, which force it to spend more on health care, are 
such a threat. Stern's gamble is that Wal-Mart won't be able to 
maintain its profit margin in the face of sustained political and 
economic pressure, and that sooner or later this reality will force the 
company in the direction he wants it to go.
    There's something shrewd, and at the same time deeply cynical, 
about the critics' moves against Wal-Mart. Stern shows no qualms about 
supporting ``fair share'' laws like Maryland's, even if they slow the 
arrival of a national plan, operating as they do through the current 
employer-based system he says is broken-and do so by singling out one 
company and punishing it for shortcomings that exist across the entire 
retail sector. ``Fair share is not the ultimate answer to this 
problem,'' Stern concedes. ``But it's the difference between tactical 
and strategic. There will be state-based efforts like Maryland's to 
shore up the present health-care system or there's going to be a 
national effort to convert from it.''
    What the war against Wal-Mart tends to gloss over is that it's not 
at all clear that the company behaves any worse than its competitors. 
When it comes to payroll and benefits, Wal-Mart's median hourly wage 
pretty much tracks the national median wage for general merchandise 
retail jobs. And its health-care benefits are a good deal more 
accessible, if still not entirely affordable, than those of many of its 
competitors. Target, for instance-unlike Wal-Mart, to which it is often 
compared-does not offer benefits to part-timers. A recent report on the 
company by Jason Furman, a visiting scholar at New York University and 
a former Clinton health-care official, dubbed Wal-Mart a ``progressive 
success story,'' noting that ``more Wal-Mart employees are eligible for 
health insurance than in the retail sector as a whole and even slightly 
more than the nationwide total.''
    Looked at from another angle, the most damning statistic deployed 
against Wal-Mart-that its workers and their families form the largest 
company group on the Medicaid rolls in so many states-is a function of 
Wal-Mart's size more than mean-spirited company policy. In percentage 
terms, rather than raw numbers, the company's workers and their 
children are less likely to draw Medicaid coverage than their 
counterparts elsewhere in the retail sector. Among retailers, Wal-Mart 
is actually one of the better providers of health care-which shows how 
terrible the problem has become.
    There is every technical reason why Wal-Mart should support 
universal health care and shift the burden onto the only entity in the 
country bigger than itself: the federal government. Lee Scott's speech 
to the governors very nearly went this far. What lies at the bottom of 
Wal-Mart's angry resistance to what is in its own self-interest are 
matters of corporate culture that extend to most big businesses. First, 
corporations typically don't think in broad public policy terms-
particularly not Wal-Mart, which until recently was a regional company 
so reverent of its small-town heritage that most of its executives 
started as hourly workers. Second, business in general, and Wal-Mart in 
particular, reflexively distrusts anything that resembles 
``Democratic'' policy or is favored by labor unions, like universal 
care. This is not an unreasonable reaction when the chief advocate is a 
union president busily promoting laws aimed at boosting your company's 
health-care spending. Third, businesses are inherently suspicious of 
government-in this case fearful that bargaining over a national system 
could leave them worse off than they are now, by saddling them with new 
spending mandates. This concern is reinforced by their Republican 
allies, who are ideologically opposed to government-run health care.
    Wal-Mart's health-care problem, and the nation's, is partly the 
result of historical accident. During World War II, a labor shortage 
forced U.S. employers to compete for workers. Wage controls at the time 
prevented them from offering higher salaries. So health and pension 
benefits, which were unregulated, became a means of competing for 
employees. This turned out to be popular with workers and businesses 
alike, because employer-provided health benefits, while unquestionably 
valuable, are not part of a worker's taxable income; and they gave 
employers a justification for paying more moderate wages.
    For a long time, health benefits were not a major expense. But as 
health-care costs have spiraled upward, they've become a significant 
part of the payroll-more and more, the most significant pan. Stern's 
real reason for pursuing national health care is that he's every bit as 
hurt by soaring costs as business is: ``As a union we are steadily 
trading wages for health care.''
    During the last presidential campaign, a couple of hard-hit 
automakers indicated privately that they liked John Kerry's health-care 
plan, recognizing how significantly it would reduce their burden. Under 
Kerry's plan, the government would have helped pay catastrophic medical 
expenses-greatly relieving businesses of the fastest growing benefit 
cost, the one driving Wal-Mart and others to try to dump unhealthy 
workers. ``But none of [the automakers] would say that publicly,'' says 
Furman, who worked on the Kerry campaign. ``None of them wanted to get 
involved in the political debate.''
    That won't be true forever. The sheer economics of the health-care 
crisis for business is forcing Wal-Mart and other large companies to 
balance reflexive opposition to government with enlightened self-
interest. ``What makes Stern's idea so intriguing is that this is no 
typical union shakedown: it is in Wal-Mart's own financial interest, as 
well as Stern's. As much as Lee Scott must dislike his critics, it's 
hard to dispute much of what they're arguing-indeed, Scott sounded the 
same themes in his speech to the governors.
    And what Scott is saying lately is changing the debate. ``The 
controversy over Wal-Mart is framing the failure of the health-care 
system in a very public way,'' says Chris Jennings, a former senior 
adviser to Bill Clinton and a health-care-policy consultant. ``And not 
just failing workers but businesses, too.''
    Barring a major terrorist attack, health care could be the biggest 
domestic issue in 2008, and a vehicle for any number of presidential 
hopefuls. It would be a natural for a Republican governor and economic 
moderate like Mike Huckabee, a dark horse who must distinguish himself. 
In Massachusetts, Republican Governor Mitt Romney just agreed to a bill 
creating the first mandatory statewide health plan. The most 
politically astute Democrat has already taken a provocative step: 
Hillary Clinton recently brought in as her legislative director Laurie 
Rubiner, who helped write the late Republican Senator John Chafee's 
plan for universal coverage.
    A national health-care plan need not be a ``single-payer'' system 
in which government covers all costs-most likely it won't. Stern 
suggests something modeled after the health benefits plan for federal 
employees. Most of the Democrats who sought the nomination in 2004 
offered plans based on expanding existing programs like Medicaid. 
Rubiner has proposed a system modeled after auto insurance: everyone 
would be required by law to have health insurance, but government would 
subsidize the poor. (The Massachusetts plan works like this.) None of 
these approaches would be the dreaded ``socialized'' medicine-they 
would be organized by government but operate through private doctors 
and health plans. Employers would still contribute something toward 
health care, but their contribution would go through the government, 
and in exchange they would at last receive a measure of cost 
predictability.
    Still, Washington's hypercautious culture seems unlikely to produce 
a solution anytime soon. The United States currently spends 16 percent 
of its gross domestic product on health care-far more than any other 
country. Who better to initiate the mother of all cost-saving 
efficiencies than Wal-Mart?
                                 ______
                                 
    Mr. Payne. Mr. Chair, are you going to conclude and end the 
program right now? I just want to say, just let me thank you 
once again for having this hearing. Let me thank the panel. I 
think it is--when we can have sound discussions without a whole 
lot of acrimony, it makes a lot of sense to try to come up with 
solutions. I would hope that our colleagues would have this 
quorum.
    And let me just commend you for having a civil kind of a 
conversation where we could have give and take. If we have more 
of that, perhaps we could not be the do-nothing Congress, which 
we happen to be this year, and get something done.
    Chairman Johnson. Wait a minute. It is a----
    Mr. Payne. So I think that we really want to work on health 
care to see whether we can provide it for our people in this 
country. Maybe look at the Europeans, and we are a little 
wealthier than they are, so maybe we can throw a little more 
cash to make what they are doing better.
    I do believe it is something we will have to come up with a 
solution to, or we are going to be in serious problems in the 
future. And it can't be all born by your little shoe people; I 
won't be able to afford the shoes. But we need to take a look 
at some sound solutions.
    And your question about, you know, these health savings 
accounts, all of those things are great. Even tax credits are 
great. The only problem when you don't have any savings, you 
can't do the savings account. And if we had minimum wage 
people, they are not going to be able to provide health savings 
account for themselves because they have got nothing to save. 
They don't even have enough to live on. So these--we have to 
think of the totality, but once again, Mr. Chairman, let me 
commend you for having a very good hearing.
    Chairman Johnson. Thank you. I think that if you look at 
the HSAs in a lot of cases, the employers would provide some 
savings buildup for the individual. It seems like Congress 
ought not to get lazy and just put the burden on employers. I 
think there are other ways to reduce costs, and HSAs and AAPs 
and whatever the Senate wants to call them reduces the tax 
burden on individuals who do not get their insurance from their 
employer, making cost and quality information available. I 
think the list goes on and on. We can be more creative and more 
effective than a mandate on employers, I believe, as you do.
    I want to thank the witnesses for their valuable time and 
testimony, and both the witnesses and members for their 
participation. If there is no further business, committee 
stands adjourned.
    [Whereupon, at 12:18 p.m., the subcommittee was adjourned.]
    [Additional submission from Chairman Johnson follows:]

                [Fact sheet provided by Wal-Mart, Inc.]

  Wal-Mart's Health Care Benefits Are Competitive in the Retail Sector

    When compared to other retailers with similar business models--such 
as Target and The Home Depot--Wal-Mart's health benefits are 
competitive in the retail sector. In many areas we, along with Target 
and The Home Depot, are setting the standard.
    Eligibility: Wal-Mart offers health coverage to both full- and 
part-time associates--only 23% of all employers offer coverage to their 
part-time employees.
    On average in 2005, 73% of all associates were eligible for Wal-
Mart plans and 43% of all associates chose to enroll. In January 2006, 
the number of associates covered by Wal-Mart health care insurance 
increased to 46%.
    According to a 2005 survey by the Kaiser Family Foundation, the 
proportion of Wal-Mart associates eligible for company health care 
benefits (73%) is comparable to other large employers (79%) and 
significantly higher than the retail industry average (61%).
    Coverage: We estimate that more than three-fourths of Wal-Mart 
associates have some health insurance, through either a company plan, a 
spouse's plan, or Medicare.
    According to a survey conducted by The Segmentation Company, 5% of 
Wal-Mart associates are on Medicaid. This is lower than the retail 
sector average of 6% and only slightly higher than the national average 
of 4%. 27% of the children of Wal-Mart associates are on Medicaid or S-
CHIP programs, a proportion lower than the retail sector average of 
36%.
    Affordability: Wal-Mart's deductible for individual coverage starts 
at $350, which is comparable to our competitors.
    We have plans available for as little as $11 per month for 
associates and 30 cents more per day for children. These innovative 
plans include some first-dollar coverage for doctor visits and drugs.
    Preventive dental coverage with no deductible is available to 
individuals for as little as $6.52 per month, to associates and their 
children or spouses for $13.58 per month, and to families for $20.64 
per month.
    Company Contribution: Historically, Wal-Mart's contribution to both 
individual and family health care coverage has been approximately two-
thirds of the total cost.
    The total benefits package for a Wal-Mart associate includes, in 
addition to health care, programs such as company contributions to 
401(K)/profit-sharing plans, associate discount cards, paid time off 
and life insurance. In FY 2006, Wal-Mart is projected to spend roughly 
$4.7 billion on associate benefits.
The Current State of Health Care in America
    Providing access to quality, affordable health care is a challenge 
facing businesses large and small across the country. Health care costs 
are soaring, some of the most vulnerable Americans are not receiving 
care, and the current health care system is inefficient and wasteful. 
Simply put, our health care system is unhealthy, and its deficiencies 
are profoundly impacting millions of Americans and businesses.
    All Americans are affected:
     There are about 46 million uninsured Americans.
     Disproportionately represented among the uninsured are 
young adults ages 19 to 34 who make up a quarter of the total U.S. 
population, but represent 40% of the nation's uninsured population.
     Of the 53 million Americans relying on Medicaid or other 
public assistance programs, 32% are adults who work full or part time.
    Working families are affected:
     In 2005, the average annual premium for family coverage 
was $10,880. Health premiums in 2005 increased 9.2% on average over the 
year before. Since 2000, premiums have risen 73%.
     Retail prescription drug prices increased an average of 
8.3% per year from 1994 to 2004 (from $28.67 to $63.59), more than 
triple the average annual inflation rate.
     All this despite wages rising only 2.7% in 2005.
    Businesses, large and small, are affected:
     Health care costs represent a significant portion of 
payroll costs for all American businesses, and in particular, for low-
margin, labor-intensive businesses like retail. In 2005, 60% of 
employers offered medical coverage to their employees, down from 69% 
five years ago.
     The cost of providing health benefits has been increasing 
faster than the growth in sales and earnings of a typical business. 
Furthermore, higher spending is often not translated into greater value 
to employees.
    Wal-Mart is affected * * *
     In FY 2006, Wal-Mart is projected to spend roughly $4.7 
billion on associate benefits including, for example, contributions to 
health and dental plans, 401(K)/profit-sharing plans and associate 
discount cards. For perspective, Wal-Mart's net income for FY 2005 was 
$10.3 billion.
     Benefits spending at Wal-Mart has grown 15% per year over 
the last three years, increasing from 1.5% to 1.9% of sales between FY 
2002 and FY 2005.
     Health care spending alone has grown 19% per year during 
the same period * * * and Wal-Mart is responding with solutions:
     We are providing access to private insurance: Wal-Mart 
provides health insurance to full- and part-time associates after a 
waiting period considered standard in the retail industry. For many 
associates, a job at Wal-Mart means new access to health coverage. 
Surveys of hourly associates showed that 30% had no health coverage 
before coming to work for Wal-Mart. After joining Wal-Mart, the 
percentage of associates who are uninsured drops. By our estimates, we 
have helped over 160,000 associates get off the rolls of the uninsured.
     We are taking people off public assistance programs: 
According to a survey by The Segmentation Company, 7% of associates 
join Wal-Mart on Medicaid. Only 3% of associates remain on Medicaid 
after working for Wal-Mart for two years.
    Wal-Mart is exploring ideas and working hard to find solutions to 
America's health care challenges. We believe that America's health care 
challenges are larger than any individual corporation--even one of the 
largest. We want and need partners--leaders in government and industry, 
our loyal associates and customers, and thoughtful associations and 
academics--to work with us toward these solutions. Together, we are 
working on some exciting new initiatives, and we're confident these 
will lead to many more.
Current Wal-Mart Health Care Overview
    Every business in America is dealing with the rising cost of health 
care and shares a concern about the number of Americans who are 
uninsured or relying on government-sponsored health programs. Millions 
of working Americans put their trust in us, and we take that trust very 
seriously. That's why we continue to work hard to find affordable, 
accessible health benefit solutions for our associates and our 
customers.
    The health care demands placed on Wal-Mart are unique. 
Understanding the size and diversity of our workforce puts into 
perspective the range of choices and plans that we offer our 
associates.
     As the largest private employer in America, Wal-Mart 
employs approximately 1.3 million people.
     The majority of Wal-Mart's hourly associates are full-
time. (Fulltime at Wal-Mart is 34+ hours per week.) That's well above 
the 20% to 40% typically found in the retail industry.
     Many associates--such as students looking for work 
experience, seniors supplementing their retirement income and 
individuals working a second job--join Wal-Mart with existing health 
care benefits.
    Wal-Mart's offerings are tailored to the needs of our diverse 
workforce, and associates are provided a great deal of choice.
     In some markets, associates can choose from as many as 18 
medical coverage options. This gives them the opportunity to tailor 
their benefits to their individual needs and the needs of their 
families.
     Wal-Mart offers Health Savings Accounts (HSAs) to our 
associates, which provide yet another option for families to gain 
access to health insurance and save for future health care needs. Wal-
Mart matches associates' contributions to their HSAs dollar-for-dollar 
up to certain amounts, and associates own the accounts. (The match 
ranges from $250 to $1,000, depending on coverage level selected.)
     Based on input from associates, in 2006 Wal-Mart 
introduced a new Value Plan--specifically designed to provide more 
affordable access to health care coverage with some first dollar 
coverage for doctor visits and prescriptions--all before associates 
have to meet their deductibles.
    Our plans have some very attractive features.
     Unlike the employees of many of our retail competitors, 
both full- and part-time Wal-Mart associates can become eligible for 
health coverage.
     After one year, there's no lifetime maximum on health care 
expenses-protecting employees and their families from catastrophic 
loss. Wal-Mart is one of few retailers to offer this benefit.
     After an annual deductible is met, Wal-Mart's medical plan 
typically covers 80% of charges for all services included in the plan. 
After an associate reaches an annual out-of-pocket maximum, the plan 
pays 100% of all eligible charges.
    New offerings are making health care even more affordable for our 
associates.
     In some markets, premiums for the new Value Plans are as 
low as $11 per month and 30 cents more per day for children, no matter 
how many children an associate insures. Nationwide, every eligible 
associate--both full- and part-time--has access to individual coverage 
for no more than $23 per month and 50 cents more per day for children. 
Family coverage starts at $65 per month.
     Prescription drugs for some common conditions are 
available for as little as a $3 co-pay.
     Wal-Mart continues to set up ``high-performance 
networks,'' which establish a competitive environment among health care 
providers and continue to lower the costs of health care services and 
monthly premiums for associates.
    Our initiatives are working.
     During our recent open enrollment, about 70,000 associates 
who had previously waived coverage signed up for Wal-Mart plans.
     Of these associates, 78% of those surveyed said they were 
previously uninsured.
     Over one-third of those associates, previously uninsured 
and recently electing coverage, selected the Wal-Mart Value Plan.
     Considering factors that include associates who left Wal-
Mart, those that elected to drop coverage as well as those who recently 
became eligible, this growth in enrollment leaves Wal-Mart in January 
2006 with over 615,000 associates, (or over 1 million Americans, 
including spouses and dependants) on Wal-Mart health plans.
    Wal-Mart is also working on behalf of our customers.
     Currently, Wal-Mart is conducting a pilot project that 
puts health clinics in our stores. With an emphasis on affordability 
and convenience, these clinics will give the communities we serve 
access to quality care while providing an alternative to expensive 
emergency room visits.
     Wal-Mart is committed to sharing our expertise in supply 
chain management and technology to reduce costs and increase efficiency 
within the health care system.
    These are bold, innovative, outside-the-box solutions that reflect 
our care for our associates and a desire to be a leader in our 
industry. They're just a start and much more is to come. We welcome 
partners in this effort to further these goals. Additional details on 
all Wal-Mart health plans can be found at www.walmartfacts.com.
                                 ______
                                 
    [Statement from the United Food and Commercial Workers 
International Union follows:]

     Prepared Statement of the United Food and Commercial Workers 
                      International Union, (UFCW)

    Thank you for the opportunity to submit written testimony to the 
Subcommittee on the important issue of state law innovations in 
covering the uninsured. As the Subcommittee is aware, the nation is 
facing a crisis in the number of Americans who lack health insurance 
coverage and, as a result, do not have access to critical health care 
services. There are approximately 45 million uninsured Americans in 
this country today and 8.5 million of these are children. As health 
care numbers and costs rise and publicly funded federal health care 
programs are cut, states have been left with no choice but to develop 
approaches to address with this issue.
    The Subcommittee has learned through Congressional testimony about 
innovative ways states are acting to deal with this crisis. For 
example, Massachusetts and Maryland both passed laws earlier this year 
to help their own uninsured citizens. These two states took very 
different approaches--with Massachusetts, among other things, requiring 
state residents to obtain health insurance, and Maryland enacting a 
fair share law. Fair share laws assess a state tax on employers that is 
offset, in whole or in part, by the amount of money the employer spends 
on employee health expenditures. States must be free to try these 
different and innovative approaches that best fit the needs of their 
residents. Congress should not impede their progress.
    Some opponents have wrongly argued that Maryland-type fair share 
laws are preempted by the federal Employee Retirement Income Security 
Act (ERISA). ERISA preempts states laws that relate to employee benefit 
plans, including health benefit plans. Opponents, including some who 
have testified before this Subcommittee, point out that ERISA preempts 
state laws that mandate health benefits, except for state laws that 
mandate benefits in insurance policies. As the Subcommittee has heard, 
large employers usually do not buy insurance policies for their 
employee benefits and employers that do not buy insurance policies are 
not subject to state law mandates for their health plans. Some large 
employers view state mandates as good guidance for appropriate benefit 
offerings.
    The Subcommittee has heard about the advantages and disadvantages 
of state law mandated benefits, including mandates for coverage of 
diabetes supplies, cancer screening, well-baby care, and childhood 
immunizations. However, fair share laws (those that impose a tax on 
employers with a credit against the tax based on money spent on 
employee health expenditures) are not preempted because such laws do 
not mandate particular benefits as do the other mandated benefit laws. 
Instead, fair share laws offer employers three choices--to pay the full 
amount of the tax to the state and paying no health care expenses in 
order to obtain the credit, to pay no tax by obtaining the full credit 
against the tax and paying the specified amount (or more) on employee 
health expenses, or an employer may also choose to pay some amount 
toward employee health expenses and some tax. States need the revenue 
to help support the public financing of medical treatment for those 
workers availing themselves of the state-based safety-net. This is 
because employees not receiving payment of health expenses through 
their employer must use the public system and therefore costs are 
shifted onto the safety-net.
    States have traditionally regulated areas related to medical care 
received by state residents and raising state revenue, and have done so 
both before and after Congress passed ERISA in 1974. Certainly in 
passing ERISA, Congress did not intend to undermine these traditional 
areas of state regulation. ERISA was not intended to, and does not, 
restrict the states' ability to raise revenue through taxes or 
assessments or the states' ability to provide offsets, deductions, or 
credits against state taxes or assessments. This is what the fair share 
laws do and therefore, they are not mandating benefits and are not 
preempted by ERISA.
    The states are merely taking action to protect their citizens and 
their state treasuries since Congress has not dealt with the growing 
problem of Americans without health coverage on a national scale. 
Clearly Congress could--and in our view, should--enact a sweeping 
overhaul of our health care system. Until Congress acts, states should 
be free to innovate and experiment, thereby providing models of success 
that can be emulated in other states and, in time, at the national 
level. Existing federal law under ERISA does not preclude this and fair 
share laws such as the Maryland law must be considered in other states.
    Congress must recognize the important contributions of both the 
private and public sector in working to make quality, affordable health 
care available to all of our citizens. Whether there are collectively-
bargained efforts that improve and expand health care coverage for 
working families, innovative public policy proposals that ensure 
public-private partnerships or private sector initiatives that improve 
health care quality, these small steps should be acknowledged as 
positive. While comprehensive health care reform at the national level 
is clearly preferable, it is also obvious that it is not on the agenda 
of the 109th Congress or the current administration. In the meantime, 
more than two dozen states have introduced ``fair share'' legislation 
in 2006. These are states from all over the nation; Georgia, West 
Virginia, New Hampshire, Washington, Kentucky, Tennessee, Minnesota and 
others. In addition, the state of Vermont recently enacted sweeping 
health care legislation. We applaud the actions of these states and 
urge the Congress to act as well. The need for thorough health care 
reform is an approaching national crisis, and a national solution 
provides the most consistent and far reaching answer. In the absence of 
national leadership, however, we applaud the legally appropriate and 
thoughtful approach of state governments.
    Thank you again for the opportunity shares our views on this 
vitally important issue with the Subcommittee.

                                 
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