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27–984 PDF 2006

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 

(II)

COMMITTEE ON EDUCATION AND THE WORKFORCE 

HOWARD P. ‘‘BUCK’’ McKEON, California, Chairman

Thomas E. Petri, Wisconsin, Vice Chairman 

Michael N. Castle, Delaware 

Sam Johnson, Texas 

Mark E. Souder, Indiana 

Charlie Norwood, Georgia 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Ric Keller, Florida 

Tom Osborne, Nebraska 

Joe Wilson, South Carolina 

Jon C. Porter, Nevada 

John Kline, Minnesota 

Marilyn N. Musgrave, Colorado 

Bob Inglis, South Carolina 

Cathy McMorris, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, Puerto Rico 

Bobby Jindal, Louisiana 

Charles W. Boustany, Jr., Louisiana 

Virginia Foxx, North Carolina 

Thelma D. Drake, Virginia 

John R. ‘‘Randy’’ Kuhl, Jr., New York 

[Vacancy] 

George Miller, California, 

Ranking Minority Member 

Dale E. Kildee, Michigan 

Major R. Owens, New York 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Ron Kind, Wisconsin 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Betty McCollum, Minnesota 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Chris Van Hollen, Maryland 

Tim Ryan, Ohio 

Timothy H. Bishop, 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 Chairman 

Howard P. ‘‘Buck’’ McKeon, California 

Todd Russell Platts, Pennsylvania 

Patrick J. Tiberi, Ohio 

Joe Wilson, South Carolina 

Marilyn N. Musgrave, Colorado 

Kenny Marchant, Texas 

Bobby Jindal, Louisiana 

Charles W. Boustany, Jr., Loiusiana 

Virginia Foxx, North Carolina 

[Vacancy] 

Robert E. Andrews, New Jersey 

Ranking Minority Member 

Dale E. Kildee, Michigan 

Donald M. Payne, New Jersey 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Betty McCollum, Minnesota 

Rau ́l M. Grijalva, Arizona 

George Miller, California, ex officio 

(III)

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

(1)

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. 

2

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. 

3

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. 

4

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 simiVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 C:\5-4-06\HED124.020 EDUWK PsN: DICK
5

lar 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 

6

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 twothirds 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 

7

with their jobs. As a result, many of these employees are forced to 

confront the bitter irony of a bill designed to provide employerbased 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 

8

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 twothirds 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 healthcare 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. 

9

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. 

10

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—coeditor, 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 StateElected 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 

11

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 

12

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 statebased 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 

13

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 outof-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 fullyinsured 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. 

14

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 outof-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 midsize) 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 highrisk 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 

15

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 stateregulated 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. 

16

ENDNOTES

1For 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. 2For 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. 3See 2005 Regular Session, SB 790, Veto Override version, Jan. 12, 2006. 

4See Plaintiff’s Complaint, Retail Industry Leaders Association v. James D. Fielder, U.S. District Court for the District of Maryland (February 7, 2006). 5Massachusetts Reforms (House No. 4850) amends several state statutes including the insurance code. 6Maryland’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). 7See 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. 8Which 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. 9See 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. 14Small businesses that self-insure may not be able to properly reserve for claims. The financial risk they take on is high. 15See 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. 16See Berk, Marc and Alan Monheit, ‘‘The Concentration of Health Care Expenditures, Revisited,’’ Health Afairs, (March/April 2001): 145-149. 17Financing 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. 18Maine 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. 19Kofman, Mila, Issue Brief: Group Purchasing Arrangements: Issues for States, State Coverage Initiatives, April 2003 available at http://www.statecoverage.net/pdf/issuebrief403.pdf. 

17

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. 21For 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 secondwage 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 

18

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 

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of

employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

Alabama ....... Session 

started 

1/10/06

............................ ...................

Alaska .......... HB 449 2,000/8% Representative Croft; 

Representative Guttenberg; 

Representative Kertulla; 

Representative Crawford 

2/13/06

Arizona ......... Session 

started 

1/9/06

............................ ...................

19

PENDING STATE HEALTH CARE MANDATE MATRIX—Continued

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

California ..... SB 1414 10,000/8% Hearing May 8 in Senate Appropriations 

Committee 

Senator Midgen 2/22/06

SB 593 20,000/don’t use 

%

Senator Alarcon 2/18/05

Colorado ....... HB 1316 3,500/11% Hearing Postponed Indefinitely Representative Solano; Senator 

Tochtrop 

2/6/06

Connecticut .. SB 462 5,000 Labor and Public Employees Committee 

Hearing 3/9 at 2PM 

in Room 2A 

Not Listed 3/1/06

Delaware ...... Session 

started 

1/10/

2006

............................ ...................

Florida .......... HB 813 10,000/9% Referred to Health Care 

Regulation Committee 

Representative Bucher 1/23/06

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 Resources Representative Taylor T. 2/16/06

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; 

Representative Gray; 

Representative Hoffman; 

Representative Jenkins; 

Representative Marzian 

1/3/06

HB 493 25,000/10% Session adjourned Representative Henley; 

Representative Gray 

2/1/06

Louisiana ...... SB 69 Less than 8,000/

8%

Referred to Senate 

Healthand Welfare 

Committee 

Senator Nevers 3/13/06

20

PENDING STATE HEALTH CARE MANDATE MATRIX—Continued

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

HB 552 5,000/6% Referred to House 

Labor & Industrial 

Relations 

Representative Herbert 3/16/06

Maryland ...... HB 1510 Less than 

10,000/4.5%

Rejected by the Health 

and Govt Operations 

Committee 

Delegate James Hubbard 2/15/06

Massachusetts.MA SB 

695 

(intro in 

2005) 

99/don’t use % Referred to Committee 

on Health Care Financing 

Senator McGee; Senator Tolman 1/26/05

Michigan ...... SB 734 10000/8% Referred to Committee 

on Commerce & 

Labor 

Senator Basham; Senator 

Clark-Coleman; Senator Jacobs; Senator Thomas; Senator Scott; Senator Brater; 

Senator Clarke 

9/6/05

Minnesota ..... HF 74 10,000/6% Representative Latz 6/13/05

(2005 

Special 

Session) 

............................ Representative Peterson ...................

HB 2786 10,000/10% Representative Rukavina 2/16/06

HF 3025 10,000/10% Referred to Health Policy & Finance Committee 

Representative Lesch 3/1/06

HF 2573 10,000/10% Health Policy & Finance 

Committee Hearing 

3/10 at 8:15 AM, 

Room 10

Representative Mullery 1/19/06

SB 2672 10,000/8% Committee Meeting in 

Health & Human 

Services Budget Division 3/23/06 in 

Room 123 Capitol 

Senator Lourey 3/2/06

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 & Economic Opportunity 

Policy & Finance 

Committees 

Representative Lesch 3/8/06

SB 2839 10,000/10% Referred to Jobs, Energy, & Community 

Development Committee 

Senator Tomassoni 3/8/06

Mississippi ... SB 2684 10,000/8% Legislation is dead Senator Dawkins; Senator 

Williamson 

...................

Missouri ........ SB 944 10,000/10% Senator Bray; Senator Green; 

Senator Days 

1/24/06

21

PENDING STATE HEALTH CARE MANDATE MATRIX—Continued

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

New Hampshire.HB 1704 1,500/10.5% Legislation is dead Representative Moody; 

Representative M.J. Quandt; 

Representative Waltz 

1/10/06

New Jersey .... SB 477 1,000/$4.17 an 

hour 

Senator Sweeney; Senator 

Coniglio 

1/10/06

SB 1320 10,000/8% Referred to Senate 

Labor Committee 

Senator Vitale; Senator Buono 2/6/06

AB 2513 10,000/8% Referred to Assembly 

Financial Institutions 

and Insurance Committee 

Assemblyman Cohen 2/9/06

AB 2891 1,000/$4.17 an 

hour 

Assemblyman Burzichelli 3/21/06

New Mexico .. Session 

started 

1/17/

2006

............................ ...................

New York ...... SB 6472 500 employees/

$3 per hr.for 

health care 

Amended and recommitted to the Committee on Labor 

Senator Klein 1/20/06

A 10583 100 employees/

$3 per hr. 

Referred to Health 

Cmte. 

Assemblyman Gottfried 4/4/06

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/

$3 per hr. for 

health care 

Assemblyman Peralta 2/1/06

Ohio .............. HB 471 30,000/8% Referred to House Finance & Appropriations Committee 

Representative Garrison; 

Representative Healy 

1/17/06

SB 256 10,000/8% Referred to Senate 

Commerce & Labor 

Committee 

Senator Brady 1/18/06

SB 258 1,000/8% Referred to Senate 

Commerce & Labor 

Committee 

Senator Brady; Senator 

Prentiss; Senator Roberts; 

Senator Hagan 

1/19/06

Oklahoma ..... HB 2678 3,000/9% Referred to House Insurance Committee Representative Gilbert 1/18/06

Pennsylvania HB 2495 10,000/9% Referred to Committee 

on Insurance 

Representative J. Taylor 4/5/06

Rhode Island HB 6984 1,000/8% Referred to House Finance Representative Naughton; 

Representative Gallison; 

Representative Pacheco; 

Representative Almeida; 

Representative Slater 

1/31/06

22

PENDING STATE HEALTH CARE MANDATE MATRIX—Continued

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of

employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

HB 6917 1,000/8% Referred to House Finance Representative Rice; 

Representative Handy; 

Representative Sullivan; 

Representative Faria; 

Representative Almeida 

1/25/06

SB 2201 1,000/8% Referred to Senate 

Health and Human 

Services 

Senator Pichardo; Senator Perrt; 

Senator Ciccone; Senator 

Issa; Senator Lanzi 

1/26/06

Tennessee ..... SB 3392 10,000/8% Referred to Senate Interim Committee Senator Herron 2/16/06

HB 3962 10,000/8% Referred to House Interim Committee Representative McMillan 2/23/06

HB 3354 10,000/10% Referred to House Interim Committee Representative Turner 2/23/06

SB 3729 10,000/10% Referred to Senate Interim Committee Senator Cohen 2/23/06

HB 3686 1,000/8% Referred to House Interim Committee Representative Johnson R 2/24/06

SB 3755 1,000/8% Referred to Senate Interim Committee Senator Burchett 2/24/06

Washington .. HB 2517 5,000/9% Legislation is dead Representative Cody; 

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 

1/10/06

23

PENDING STATE HEALTH CARE MANDATE MATRIX—Continued

States targeted 

by AFL-CIO

mandate 

Bill

number 

Number of

employees/mandate

percentage 

Status Sponsor(s) Date of

introduction 

S 6356 5,000/9% Legislation is dead Senator Kohl-Welles; Senator 

Keiser; Senator McAuliffe; 

Senator Franklin; Senator 

Thibaudeau; Senator Fairley; 

Senator Prentice; Senator 

Kline 

1/11/06

West Virginia SB 147 10,000/8% Legislation is dead Senator Hunter; Senator 

Kessler; Senator Dempsey; 

Senator Foster; Senator 

Lanham; Senator McCabe; 

Senator Jenkins 

1/13/06

HB 4024 10,000/8% Legislation is dead Delegate Brown; Delegate 

Caputo; Delegate Hartman; 

Delegate Hrutkay 

1/16/06

Wisconsin ..... AB 860 10,000/don’t use 

%

Legislation is dead Representative Berceau; 

Representative Nelson; 

Representative Lehman; 

Representative Black; 

Representative Pope-Roberts; 

Representative Sinicki; 

Representative Zepnick; 

Representative Shilling; 

Representative Molepske 

12/8/05

SB 440 10,000/don’t use 

%

Legislation is dead Senator Hansen; Senator 

Robson; Senator Taylor 

11/16/05

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:]

24

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. Twothirds 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 inVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 C:\5-4-06\HED124.020 EDUWK PsN: DICK
25

surance 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. 

26

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. 

27

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 worldVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6621 C:\5-4-06\HED124.020 EDUWK PsN: DICK
28

wide, 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 insurVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00032 Fmt 6633 Sfmt 6621 C:\5-4-06\HED124.020 EDUWK PsN: DICK
29

ance 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 

30

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 

31

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 

32

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 

33

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 uninVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6602 C:\5-4-06\HED124.020 EDUWK PsN: DICK
34

sured 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 bottomline 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, 

35

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 

36

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? 

37

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 

38

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. 

39

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 

40

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 

41

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 

42

$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. 

43

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 difVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6602 C:\5-4-06\HED124.020 EDUWK PsN: DICK
44

ficult 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, 

45

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 

46

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. 

47

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. 

48

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-yearold, 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 ulVerDate 0ct 09 2002 15:10 Sep 07, 2006 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6602 C:\5-4-06\HED124.020 EDUWK PsN: DICK
49

timately 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? 

50

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. 

51

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 

52

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 threefourths 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. 

53

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 WalMart’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. 

54

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 mostadmired 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 WalMart’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. 

55

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 healthcare 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 statebased 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 compareddoes 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.’’

56

Looked at from another angle, the most damning statistic deployed against WalMart-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 meanspirited 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 selfinterest are matters of corporate culture that extend to most big businesses. First, 

corporations typically don’t think in broad public policy terms-particularly not WalMart, 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 

57

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:]

58

[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 WalMart 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 * * *

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• 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 WalMart 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. 

60

• 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 

61

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.

Æ