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HEALTHCARE AND SMALL BUSINESS: REAL

OPTIONS FOR COLORADO BUSINESSES

FIELD HEARING

BEFORE THE

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT 

& GOVERNMENT PROGRAMS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC, AUGUST 10, 2006

Serial No. 109–63

Printed for the use of the Committee on Small Business

(

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

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT AND GOVERNMENT 

PROGRAMS 

MARILYN MUSGRAVE, Colorado Chairman 

ROSCOE BARTLETT, Maryland 

BILL SHUSTER, Pennsylvania 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

THADDEUS MCCOTTER, Michigan 

JEB BRADLEY, New Hampshire 

DANIEL LIPINSKI, Illinois 

TOM UDALL, New Mexico 

DANNY DAVIS, Illinois 

RAU ́ L GRIJALVA, Arizona 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin

JOE HARTZ, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Fries, Mr. Matt, President & CEO, Professional Document Management ......... 6

Roberts, Mr. Dale, Chairman, Loveland Chamber of Commerce ........................ 8

Boesch, Ms. Chris, Exodus Moving & Storage ...................................................... 9

Liske, Mr. Fred, General Manager, American Eagle Distributing Company ..... 10

Hillman, Mr. Mark, Former State Senator ........................................................... 12

Cletcher, Dr. Jack .................................................................................................... 14

Tamlin, Ms. Deb, Broker, ZTI Group ..................................................................... 16

Jensen, Mr. R. Allan, National Association of Health Underwriters .................. 18

Snyder, Ms. Gail, Snyder Insurance Agency ......................................................... 20

APPENDIX

Opening statements: 

Musgrave, Hon. Marilyn .................................................................................. 32

Prepared statements: 

Fries, Mr. Matt, President & CEO, Professional Document Management .. 36

Hillman, Mr. Mark, Former State Senator .................................................... 39

Cletcher, Dr. Jack ............................................................................................. 44

Jensen, Mr. R. Allan, National Association of Health Underwriters ........... 47

Snyder, Ms. Gail, Snyder Insurance Agency .................................................. 51

(III) 

(1)

HEALTHCARE AND SMALL BUSINESS: REAL 

OPTIONS FOR COLORADO BUSINESSES 

THURSDAY, AUGUST 10, 2006

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON WORKFORCE, EMPOWERMENT, AND

GOVERNMENT PROGRAMS

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Subcommittee met, pursuant to call, at 1:00 p.m., in 

Loveland City Council Chambers, 500 East 3rd Street, Loveland, 

Colorado, Hon. Marilyn Musgrave [Chairman of the Subcommittee] 

presiding. 

Present: Representative Musgrave. 

Also Present: Representative Shadegg. 

Chairman MUSGRAVE. The hearing on the Subcommittee on 

Workforce, Empowerment, and Government Programs will come to 

order. Thank you all for being here today. We appreciate that so 

very much. We are going to examine healthcare choices for America’s small businesses, their employees, and working families. 

Before I begin, I would like to thank my friend and very respected colleague for joining me here today, John Shadegg. Of all 

days to be flying, John. This has been a most interesting one and 

I am glad it went well. I want to thank you very much for making 

the effort to be here. 

Mr. SHADEGG. My pleasure. 

Chairman MUSGRAVE. John was first elected in 1994 and he 

quickly established a reputation in Congress as a leading advocate 

for reduced government spending, federal tax relief, and the re-establishment of state and individual rights. He has proven to be a 

leader on healthcare issues. 

From 2000 to 2002 he was the Chairman of the Republican 

Study Committee, the largest conservative organization in the 

House of Representatives. Under his leadership there was dramatic 

growth from 40 to more than 70 members and it has become the 

most influential and respected force in the U.S. House shaping conservative policy for the country. 

In 2005 John was elected by his peers to serve as Chairman of 

the House Republican Policy Committee, the fifth ranking position 

in the House leadership from 2005 to 2006. At the time he was the 

only member of the Republican class of 1994 serving in House leadership. Again, I just want to thank you for being here as we address this important topic today. 

2

All Americans want reliable, high-quality, and reasonably-priced 

healthcare that will be there when they need it. One of the most 

stressing statistics we hear each year is the rising number of 

Americans who live without health insurance currently estimated 

at 45 million people. Of those without health insurance about 60 

percent are small business owners, employees of small businesses, 

and their families. 

As healthcare costs continue to rise, fewer employees and working families will be able to afford coverage. In Congress we must 

look at this pressing problem and find solutions that will create an 

environment so that those who need health insurance cannot only 

find the coverage they need but, more importantly, afford it. We 

need to be working towards the healthcare delivery system method 

that works best, not just what we have always done. 

A simple look at the current health landscape shows that the 

system is not working. The thing that we will focus on today will 

be four proposals that this Congress has begun to work on to help 

Americans get the coverage they need at a price they can afford. 

These proposals are the establishment of Association Health 

Plans, as we call them AHPs, increasing the availability, use, and 

ease of Health Savings Accounts, we call those HSAs, reforming 

the medical liability system, and examining Congressman John 

Shadegg’s common sense legislation H.R. 2355. He will tell us all 

about that, the Healthcare Choice Act. 

On July 26, 2005, the House of Representatives passed H.R. 525, 

the Small Business Health Fairness Act of 2005. That was legislation that would establish federally regulated Association Health 

Plans with a strong bipartisan vote. That was the 7th time the 

House had passed such legislation. I am confident, though, that 

real progress on this legislation will be made in the Senate this 

year. 

AHPs would allow small businesses to band together across state 

lines through their membership in an association to purchase more 

affordable health insurance. Unions and large corporations already 

have the ability to do this so it makes sense to me that we should 

allow small businesses to have the same opportunity. 

Health savings accounts are a new way that people can pay for 

a medical expense not covered by insurance or other reimbursements. Eligible individuals can establish and fund those accounts 

when they have a qualifying high-deductible health plan and no 

other health insurance with some exceptions. These accounts have 

significant tax advantages. The contributions are deductible. Withdrawals used for medical expenses are not taxed, and account earnings are tax exempt and unused balances can accumulate without 

any limit. 

President Bush has proposed several improvements to HSAs 

such as allowing Americans who HSA qualified insurance policies 

on their own to have the same tax advantages as people who obtain 

health insurance through their employers and eliminating all the 

taxes on out-of-pocket spending through HSAs. 

An additional area that Congress and the President have worked 

on together is tort reform for the medical community. American patients are losing access to healthcare because of the nation’s outVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
3

of-control legal system enforcing physicians in some areas to retire 

early. 

I was an elected to Congress with three doctors and some of the 

most poignant testimony you will hear are from doctors that come 

from states that have enormous problems with the tort system. 

Right now it is estimated that we have 21 states that are in a 

full-blown medical liability crisis and in 2002 there were 12 so we 

see the growth. In these crisis states patients continue to lose access to care. The rural areas of the 4th District, like many other 

districts around the nation, people have to drive over long distances, especially in the area of OB/Gyn when women have babies 

having to drive 200 miles to see a doctor it gets very burdensome. 

Meanwhile, the high-risk specialists no longer can provide trauma care or perform complicated surgical procedures. This excessive 

litigation and high medical malpractice rates have added to employers’ healthcare costs and have spurred some providers to err on 

the side of caution that comes at the expense of both health plan 

dollars and patients receiving unnecessary service. 

This issue isn’t just about physicians. It cuts across the 

healhcare sector. Hospitals need physicians to admit patients. 

Companies that manufacture medical devices and pharmaceuticals 

need physicians to use and prescribe their products. Similar to the 

AHP legislation, the House passed more healthcare related issues 

in H.R. 5 that help efficient accessible low-cost timely healthcare, 

or Help Act of 2005, and that happened in July of 2005. The Senate 

is continuing to debate this critical legislation. 

Another proposal to help Americans find and afford healthcare is 

legislation introduced by my colleague, John Shadegg, H.R. 2355. 

Again, that is the Healthcare Choice Act of 2005. Under this legislation consumers would no longer be limited to purchasing policies 

dictated by their state’s regulations and mandated benefits. Instead 

they can pick from a variety of insurance policies qualified in one 

state but offered for sale in multiple states. 

When I served in the Senate with Mark Hillman we dealt with 

many mandates in committees and we saw the policies in Colorado 

loaded up. This would be a solution to that problem that drives up 

the cost of the policy. We know, there is not one solution to a problem that is as complicated and as complex as what we are facing 

with 45 million Americans without health insurance. 

Small businesses and their employees are in a critical situation 

with finding new ways to increase health insurance coverage and 

we will look at many proposals today that have been offered. I am 

eager to hear from our witnesses today. I thank you very much for 

being here. 

Our first witness is Mr. Matt Fries. He is President and CEO of 

the Professional Document Management from Fort Collins, Colorado. I think I will just introduce all of you, if I may, Mr. Fries. 

Excuse me. You know what I forgot? My Congressman from Arizona that came to be with us. I’ll introduce the witnesses in a moment. Forgive me, Mr. Shadegg. 

[Chairman Musgrave’s opening statement may be found in the 

appendix.] 

Mr. SHADEGG. The order doesn’t really make much of a difference. 

4

Thank you very much, Madam Chairman. I want to commend 

you and the Full Committee Chairman, Mr. Manzullo, for your 

focus on healthcare. This is a critical issue that faces our entire nation. I have a written opening statement which, with your permission, I will put in the record and just briefly kind of summarize a 

few comments. 

Both you and Chairman Manzullo have been leaders on the issue 

of healthcare reform. I have a passion for healthcare reform because it is affecting so many American businesses and it is damaging our economy. Indeed, as I think you will recall, just before 

we left Washington for the August district work period, the Chairman of the Committee, Mr. Manzullo, made an impassioned plea 

for America to deal with the problems confronting small businesses 

and, in particular, the rising cost of healthcare. He talked about a 

personal story. His brother, who is in the restaurant business, was 

forced out of business by rising healthcare costs. I want to commend you as a leader in this field. 

As you mentioned in your opening statement, there is no one answer to this problem. The four bills that you have picked for this 

hearing, I think, are key parts of the solution to this problem. I 

would like to thank all the witnesses for being here. I would like 

to thank the people in the audience who are paying attention and 

looking at this issue. 

Association Health Plans are an idea whose time has come and 

we simply, as you pointed out, need to get the Senate to reflect the 

will of the American people. It is a device by which small employers could get together and buy insurance by pooling together and 

getting the larger purchasing mechanisms thereby bringing down 

the cost of their health insurance and making them more competitive. 

Health Savings Accounts, I think, go to the heart of one part of 

the problem which is we have told the American people that they 

are not personally responsible for their own healthcare and for the 

cost of that healthcare. HSAs put them back in the driver’s seat 

which is a key part of what I hope to do in healthcare reform. 

There are many pieces to this puzzle. Liability reform, as you 

mentioned, is a huge one. Unfortunately, we have tried and tried 

again to address the problem of liability reform in Washington 

again with no success, kind of steadfast opposition from those who 

believe the current tort system is serving the interest of the American people. I am one of those who believes that an injured patient 

should be able to recover, but I also believe that we have an outof-control tort system. I might note you kindly did not mention my 

prior occupation. I call myself a recovering lawyer, though I did not 

practice tort law. 

I will just briefly try to, if I could, mention the Healthcare Choice 

Act. It is an idea that not many people are familiar with. I will 

take a couple of minutes to describe its advantages and strengths. 

I would suspect that it having gotten very little attention in the national media, probably many members of even your panel haven’t 

heard of this notion or the idea behind it. If I could, I will try to 

just briefly summarize how it would work. 

The insurance market, and I think everyone knows, is divided 

into different segments. Most Americans get their insurance 

5

through their employer. In addition, many Americans get their insurance or their healthcare through government programs, either 

Medicaid or Medicare. But there is a segment of our population 

that buys their health insurance in what is called the individual 

market. That means they don’t get it from their employer and they 

have to go out and buy it individually. 

Right now that is the segment of the market that is still regulated by the states. I guess as a states rights person and someone 

who believes that the federal government located as it is far away 

in Washington, D.C. isn’t the best regulator. When looking at the 

healthcare reform issue I decided we ought not move more of 

healthcare reform regulation or healthcare regulation to Washington, D.C. Let’s try to lead it with the states. 

At the same time, as you pointed out, the current system for individual health insurance sales is overburdened by state regulatory 

practices and by mandates. Just a handful of years ago there were 

across America some 50 to 200 mandates, benefit mandates. Things 

like you must cover podiatry or you must cover various types of 

care, emergency room care, cancer screening, those kinds of things. 

As you pointed out, the state legislatures have been inundated 

with demands for more and more mandated benefits. I doubt if 

many people realize that, for example, today podiatry is required 

to be covered by any insurance policy sold in the state of New York. 

Acupuncture must be covered in any policy sold in 11 different 

states, California, Florida, Montana, and on. 

Massage therapy is a mandated benefit in the policies sold in five 

different states. Everyone might say it is a good idea to cover these 

kinds of services but the problem is every time you mandate an additional benefit that must be covered by an insurance policy, you 

raise the cost of that policy. 

The other issue is that because in the current individual market 

an insurance policy must be filed with and qualified for each state’s 

laws, any insurance company that wants to sell a policy in all 50 

states has to write that policy, has to write a policy that meets the 

state laws of any state they want to sell in. If they want to sell 

in my home state of Arizona, they have to write a policy that meets 

Arizona law. If they want to sell in Colorado, they must write a 

policy that meets Colorado law. 

That means a huge regulatory burden of meeting the laws of all 

50 different states. The concept behind the Healthcare Choice Act 

is pretty simple and straightforward. Given that most state’s insurance laws are relatively similar, it says that an insurance company 

can take a policy, bring it to Colorado, for example, qualify it for 

sale under Colorado law, and then take that policy to any one of 

the remaining 49 states, simply file with the insurance commissioner in that state and then offer that policy for sale. 

There is a huge regulatory burden that is lifted. But being interested in having consumers protected by local enforcement or local 

regulatory protection, we then said that if a policy was written to 

comply with Colorado law and then taken and filed in Arizona and 

sold in Arizona, the Arizona insurance commissioner could enforce 

the terms of the policy on behalf of Arizona consumers. 

What this would really mean is that the regulatory burden for 

getting a policy in the market would come down dramatically. The 

6

number of mandates included in a basic policy would go down quite 

dramatically lowering the cost of health insurance and, yet, consumers would remain protected because their own insurance commissioner could protect them. 

In most states, and I believe this is true of Colorado, the number 

of insurance companies selling policies on the individual market is 

a handful, three to five. There is virtually no competition. Were you 

to enact the Healthcare Choice Act, which I hope we will get a vote 

yet this year in Congress, and has passed the Commerce Committee on which I serve, there would be literally dozens more policies for sale here in your congressional district because it would be 

so much easier to bring a policy to the market and, therefore, more 

competition hopefully producing lower cost. 

That gives people a little bit of an idea what the Healthcare 

Choice Act does. It did clear the Energy and Commerce Subcommittee and it is waiting for further action so we are anxious. 

I want to thank you for continuing to support healthcare reform so 

that Americans can get high-quality healthcare at an affordable 

price. 

Chairman MUSGRAVE. Thank you. I remember when you came 

into my office to ask me to co-sponsor that legislation. You got a 

little bit out of your mouth and I said, ‘‘Does it get us out from 

under all the mandates?’’ You said, ‘‘Yes.’’ That is what I wanted 

to hear right away. Thank you for being here. 

I would like to introduce the witnesses and then we will start 

with Matt. Again, the first one is Mr. Matt Fries, President and 

CEO, Professional Document Management from Fort Collins. Then 

we have Chris Boesch, Exodus Moving and Storage from Fort Collins. There you are. Thank you. 

Next up is Mark Hillman. I served with Mark in the state legislature. It is very good to see you and I know that you were very 

knowledgeable and worked very hard on bringing down the cost of 

healthcare. I appreciate those efforts. 

Deb Tamlin. It is good to see you. I thank you for being here 

today, a broker from ZTI Group in Fort Collins. Gail Snyder down 

there on the end, Snyder Insurance Agency, Loveland, Colorado. 

Dale Roberts from the Loveland Chamber, Loveland, Colorado. 

Fred Liske, General Manager, American Eagle Distributing Co. It 

is very good to see you. Dr. Jack Cletcher. We are happy to have 

you here today from Berthoud, Colorado. And Allan Jensen, Colorado Association of Health Underwriters. 

I think we will just actually go in the order that you are seated. 

That will be fine. Matt, we will start with you. We will adhere to 

the clock so Mr. Shadegg can get off to DIA and fight the good fight 

to get back to Arizona. Thank you. 

STATEMENT OF MATT FRIES, PROFESSIONAL DOCUMENT 

MANAGEMENT 

Mr. FRIES. Very good. Good afternoon Chairman Musgrave. It is 

a pleasure to see you. Welcome to Northern Colorado Congressmen 

Shadegg. Thank you for holding this hearing and for your leadership to find ways to make health care coverage affordable to small 

businesses. 

7

My name is Matt Fries, and I am the owner of Professional Document Management located in Fort Collins. My company is in the 

paper and electronic records storage and destruction business, and 

we employ 13 people, 10 full-time and three part-time. 

Like most small, independent business people, I don’t typically 

look to Washington, D.C. to solve my problems. Most of us generally operate from the point of view that less government is the 

best government. And when it comes to affordable healthcare, government provided healthcare known as universal care is absolutely 

not the answer. 

Yet, the current health care coverage system isn’t working all 

that well, especially for small businesses. My company is pretty 

typical. The people employed at PDM work very hard and do a 

great job. They care about our customers and serve them well and 

for their success, they deserve to have access to first rate health 

and medical care when they need it. 

However, due to the high cost of health insurance premiums, 

that is extremely difficult for me, if not financially impossible. Currently, we are unable to provide any level of health care insurance 

for our employees.There is a direct relationship between the increase in health care and the cost of health care coverage. New 

medical technologies and new procedures can lead to increases; 

however, from where I sit there appear to be two major cost-drivers. One is litigation and the other is state mandates. 

Because my business serves the medical community, I know a lot 

of physicians, and they struggle with crushing malpractice insurance rates. Excessive litigation and consequent high medical malpractice insurance rates cost all of us. Caps on non-economic damages and punitive damages would go a long way to stem rising 

costs. This is beyond the scope of H.R. 2355 but deserves your further attention. 

Regarding mandates, they are a major cost factor. For decades 

states have micro-managed the health insurance industry. State 

legislators require insurance companies or health plans to cover 

specific services and by doing so they drive up costs for all of us. 

The worst offender is Minnesota with over 60 mandates. We are 

fortunate in Colorado to ‘‘only’’ have 19. According to the Council 

for Affordable Health Insurance, state mandates add between 20 

and 50 percent to the cost of health insurance. 

This leads to another cost-driver: lack of competition. Price and 

competition are inextricably tied together. A few large insurance 

companies dominate the state markets meaning that there is very 

little real competition in thehealthcare insurance coverage marketplace. Where little competition exists in any industry, there is no 

incentive to keep prices down. I think H.R. 2355 could have the effect of creating a national health insurance market. New competition will drive down costs. 

Another issue is lack of flexibility in the health insurance marketplace. Even in my small company employee needs vary widely. 

The younger employees tend not to care much about health and 

medical insurance, while middle-aged and older workers do. It is 

difficult for us to qualify as a ‘‘group’’ when the young workers 

don’t want to pay to participate in an expensive one-size-fits-all 

plan with features they don’t want. 

8

Also, consumer-driven options like Health Savings Accounts, 

while a huge step in the right direction, need to be detached from 

employer-provided policies. HSA purchasers should be allowed to 

purchase any type of health plan and get a tax credit for doing so. 

The concept in H.R. 2355 concerning ‘‘small business health 

plans’’ is excellent. By allowing small employers to purchase coverage through bona fide associations, small guys like me will have 

the same advantages that unions and big employers have. By banding together, small businesses will realize economies of scale, increased bargaining power, savings from administrative efficiencies 

due to having just one set of rules, flexibility in the design of the 

coverage and increased competition in the health insurance markets. 

Small firms and their employees will see lower insurance premiums as risks are spread across a larger pool of people. Small 

Business Health Plans would give the little guys the same preemption from costly state mandates now enjoyed by the big guys under 

the Employee Retirement Income Security Act (ERISA). 

I am convinced that fostering interstate commerce in the health 

insurance market will increase competition and improve consumer 

choices just like interstate banking has done. 

In summary, small employers like me want to provide health insurance to our employees without the cost and inflexibility of expensive state mandates. We want to encourage further development of consumer-driven health plans like Health Savings Accounts. We want to see choices for our employees in terms of coverage they want rather than being forced to buy one-sized-fits-all 

coverage. 

Chairman MUSGRAVE. If you could just wrap up. 

Mr. FRIES. You bet. In closing, as a small employer, as stated 

earlier, I don’t look to Washington, D.C. to solve my problems. I 

don’t look to you for handouts. Congress can help, however, by improving the health care market. H.R. 2355 is a big step in the right 

direction. Thank you again for your leadership on this issue and for 

listening to my testimony. 

[Mr. Fries’s testimony may be found in the appendix.] 

Chairman MUSGRAVE. Thank you for your good testimony. 

Now we will hear from Mr. Roberts representing the Chamber of 

Commerce from Loveland. 

STATEMENT OF DALE ROBERTS, LOVELAND CHAMBER OF 

COMMERCE 

Mr. ROBERTS. Yes. Thank you all for taking your time to be with 

us today. My name is Dale Roberts. I am Executive Vice President 

of Front Range Bank. Today my hat being worn is the Chairman 

of the Chamber of Commerce here in Loveland. 

Chairman MUSGRAVE. Could I ask you to pull your microphone 

a little closer if that is possible? 

Mr. ROBERTS. Okay. Is that better? 

Chairman MUSGRAVE. Thank you. 

Mr. ROBERTS. Okay. My speech won’t be five minutes. I just 

wanted to share with you the issues that our Chamber is involved 

with and the things we have been trying to do possibly looking to 

you to give us some other guidance and leadership. 

9

The Loveland Chamber actually has become a bona fide association as spoken to a little bit by Matt. We are currently working 

with local healthcare providers to try to get something going with 

them to provide insurance coverage for small businesses. 

As a matter of fact, it is kind of frightening in some ways. 

Loveland seems to be a big city. However, of our 850 members in 

the Loveland Chamber of Commerce, 85 percent of those are four 

employees or less. We are concerned because we have a lot of those 

companies who are frankly running uninsured We don’t currently 

know any other way than try to make the Chamber, if you will, a 

bona fide association tying our Chamber membership into some 

kind of a healthcare program. Hopefully with state laws and others 

we will be able to solve that problem and use our association to 

help that very small businessman. 

Again, thank you for my testimony and thank you for being here. 

Chairman MUSGRAVE. Thank you. 

Now we will go to Ms. Chris Boesch from Exodus Moving and 

Storage, Fort Collins. Thank you for being here before the Committee today. 

STATEMENT OF CHRIS BOESCH, EXODUS MOVING & STORAGE 

Ms. BOESCH. Thank you. I want to also thank you all for being 

here and having this very important discussion. We have 60 employees. We do not provide health insurance. We do provide dental 

for $11 per month per employee which is fabulous. We give our 

guys a few dollars a month towards preventive maintenance such 

as vitamins, to go to a gym, that sort of thing. 

The profit margin in our industry is four percent. The lowest 

healthcare that is available out there, Anthem recently went from 

$100 to $50 as a minimum that an employer can contribute to an 

employee. You can have a 60 percent amount of employee participation instead of 75 percent. That is supposed to be good news. 

Unfortunately, it is not good news. The reason being that with 60 employees $50 a month you are looking at $3,000 a month and 

that is if it doesn’t go up next year and the year after that. That 

is over one percent of my income and I have a four percent margin. 

Not to mention that it is about $200 a month per employee and 

there is no way that my guys that make between $9 and $16 an 

hour are going to be able to afford $150 a month. It is a very difficult situation. They would like healthcare even though they are 

young for both them and their families. 

I am just going to throw out kind of an ad question that I don’t 

expect you to respond to right now, but how is it that healthcare 

became the responsibility of businesses. 

Chairman MUSGRAVE. That is a good question. 

Ms. BOESCH. Okay. I think if we could go back to that basic and 

talk from that point of view, I think that would be very important. 

Secondly, I am going to offer kind of a pie in the sky resolution. 

I believe in pie in the sky ideas because I think if you don’t reach, 

you can never attain. One of the things we all know that in addition to water, food, shelter, and education everyone should have access to a doctor. We also know that our European counterparts 

have managed to do that for their citizens. We are a richer country 

and we don’t seem to have that which is really, I think, sad. 

10

I think there is no reason why Colorado can’t be a pioneer. One 

of the things that I would suggest is that health insurance companies, like many companies, are there to make money. I don’t think 

they are necessarily there to help patients or help hospitals. The 

local hospital here 60 to 70 percent of their income comes from the 

foundation from Medicare and from Government subsidies. 

Thirty to 40 percent comes from healthcare insurance and 

healthcare insurance and healthcare insurance companies don’t 

tend to pay the full price of the services that the hospitals provide 

so the hospitals get short-cutted when working with health and insurance companies, not mentioning all the different types of people 

that everyone has to go through to make that happen. 

What about the idea of getting rid of the middleman? I am going 

to the concept of a partnership between businesses, residences, and 

the hospital. Perhaps there is a monthly fee that is charged to 

every resident based on their income that is a percentage base. 

Also health tax could be connected to a property tax so that, again, 

you are looking at a fairness factor, if you will. 

But not to be completely ignorant in that if we have a huge train 

wreck or some big horrible catastrophe, somehow the cities or the 

state would have to be covered for something massive so have a 

huge umbrella policy through an insurance company along those 

lines. That is just kind of my pie in the sky idea that I wanted to 

throw out. 

I think that is all I have to share. Thank you very much. 

Chairman MUSGRAVE. Thank you very much. We discussed that 

we might talk about tax rates in those European countries, too, because somebody does pay for it. 

Fred, I am glad to have you here today and we are looking forward to hearing from you. 

STATEMENT OF FRED LISKE, AMERICAN EAGLE 

DISTRIBUTING COMPANY 

Mr. LISKE. Thank you. My name is Fred Liske and I am General 

Manager of American Eagle Distributing. I am honored to be here 

today because this is a very timely topic for our company and everybody on the panel’s company. We just came off of renewing coverage for our employees so we are fresh off the fax. 

I am going to tell you a little bit about our business to start with, 

the industry that we participate in, and then we will just kind of 

move forward from there. 

American Eagle Distributing has been around a long time. It is 

about a 30-plus-year business in the community. We are one of 

1,900 American beer distributors across this country. American 

beer distributors are generally family-owned, independent companies, relatively small business, generally 50 employees, about $14 

million a year revenue. We have a million dollar payroll. 

We are a little bit bigger here than the average wholesaler. We 

have about 120 employees, $50 million a year in annual revenue, 

and about $4.7 million in payroll. Ironically we are a member of 

the National Beer Wholesalers Association and one of the hot topics of discussion right now is healthcare for our employees. It is absolutely crushing us when we take a look at the cost. We just recently, like I said, renewed our policy. 

11

What I want to do is take you through real quickly a little bit 

about us as a company. We haven’t had an issue with getting insurance for our employees. We have been around a long time and 

we have been pretty good at that but we are having an issue as 

far as cost. We have to contain those costs and they have gone up 

substantially year over year. 

As we just renewed our healthcare benefits, some of the things 

that we looked at were the benefits and costs of multiple insurance 

products, the availability of in-network providers, the deductibles 

and the maximum amount for our employees, co-pays, specific stop 

loss maximums, allocation of premiums for commissions, fees, and 

administration expenses. 

I will speak up a little. Anyway, as general manager I got to kind 

of see everything and I think like most small businesses we have 

a handful of staff or executive members that have to do everything. 

That is a lot of things that we have to review. We are not experts 

in all these and a lot of issues that we have to deal with in communicating insurance to the employees. 

Moving on, prior to shopping, bargaining and increasing our insurance we had to increase our stop loss amounts this years. We 

did that also last year. What I specifically mean by that is we are 

partially self-insured. That means as a company we continue to 

take more and more of the risk. 

Now, what we are hedging on is that we don’t have a calamity 

or a series of employees that have serious illnesses or injuries because that will definitely impact our bottom line. The reason we 

chose to do that as a company, it was the only way of keeping our 

insurance costs in line for our employees to afford. 

To give you an example, the increase in the cost of our insurance 

from 2002 to 2006 was basically 9.7 percent. We kept that in the 

6 percent range as a company by again being partially self-insured 

and raising the stop loss protection for our employees. In 2005 our 

healthcare benefits represented 10 percent of our overall payroll 

cost. If you figure about $4.7 million in payroll, $470,000 for 

healthcare costs for the employees. 

We feel that again we work, just as Chris alluded to, on a very 

slim margin. Extremely slim. We continue to see margins going 

down in our industry. As we do that, we look at the $460,000 as 

being obviously an extreme cost of doing business. 

There is something else that we want to bring up that we found 

is very interesting, and that is while we offer insurance we know 

a lot of small employers don’t. Something that we found, especially 

with our younger employees, they don’t understand the benefit of 

the insurance that we offer. As a company and working with other 

beer wholesalers we have to educate. 

We have a lot of young employees, as you can imagine, that are 

putting the beer away doing that type of stuff and they will literally jump ship for 50 cents an hour to another competitor that 

doesn’t offer insurance benefits. Again, when they get a little bit 

older and they actually use the benefits, they see the value but 

that is just something that we thought we would bring up because 

it is something we deal with in the company every single day. 

I thought I would bring up just a couple things also in closing. 

We try to stay pretty active in the community and we got some staVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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tistics which we included in our packet for NCMC, Northern Colorado Medical Center. The interesting thing that we brought up, 

and I want to read this. For 2005 their bad debt was 9.7 percent 

of their total operating revenue. Basically what they are telling us 

is 20 percent of the people that walk in their door to the emergency 

room have insurance. 

If we as a company—and remember we are a $50 million company. If we as a company had bad debt of 9.7 percent of our operating revenue, we would be out of business. Doors would be closed 

and we would be gone. Again, something to bring up also as a 

point. 

Kind of in closing I wanted to bring up that we think that the 

interstate commerce and health plans and the potential larger pooling would be absolutely phenomenal for us because what we look 

at is obviously we think it would reduce the insurance administrative cost. We think it would add more value focused in a network 

of providers. Obviously increases competition. We might be able to 

have more like companies such as beer distributors within a pool. 

We feel that in the long run that may help keep costs within the 

realm. 

Anyway, that is what we had in closing and then in the packet 

we include some backup data. Thank you. 

Chairman MUSGRAVE. We will submit all of that to the record. 

Thank you. 

Mark Hillman, we are very glad to have to have you with us 

today. We look forward to hearing your testimony. 

STATEMENT OF MARK HILLMAN, FORMER STATE SENATOR 

Mr. HILLMAN. Thank you, Madam Chairman, and Congressman 

Shadegg from Colorado. My name is Mark Hillman. I am the owner 

and operator of Hillman Farms at Burlington and former Colorado 

Congressman. 

It has been said that insanity is doing the same thing over and 

over again and expecting different results. That maxim could certainly apply to attempts by lawmakers and regulators to ‘‘fix’’ the 

health insurance market. If I could wave a magic wand and compel 

Congress do absolutely anything to the health insurance market, I 

would simply ask them to undo everything Congress has done to 

the health insurance market. 

In fact, apart from licensing insurers to require financial stability, even most state level regulations simply replace old problems in the marketplace with well-intended but politically-driven 

marketplacedistortions. These distortions replace old problems that 

could be affected and corrected by the choices of millions of consumers and erect political obstacles that are exceedingly difficult to 

correct. 

Colorado’s small group market for health insurance has been 

struggling for many years. In 1994, 84 carriers offered small group 

coverage in Colorado. Today, 10 carriers constitute 96 percent of 

our market. From 2000 to 2005, the number of lives covered in the 

small group market declined from 538,000 to 358,000 and the number of employer groups enrolled in small group plans fell from 

70,000 to 46,000. 

13

Much of this decline finds its roots in so-called ‘‘reforms’’ of the 

past beginning with: Community rating. Prior to enactment of 

‘‘community rating’’ in Colorado premiums were directly related to 

the health of each consumer. Legislators enacted community rating 

in order to protect small business from wildly fluctuating premiums 

and to keep insurance affordable for consumers with pre-existing 

health problems. Unfortunately, this replaced wildly-fluctuating 

costs with rapidly-increasing costs and disproportionately shifted 

costs to healthy consumers, causing many of them to simply leave 

the market. 

Look at it this way. If you and I go to lunch everyday and we both pay $10 and I get an $18 steak and you get a $2 cheese sandwich, how long are you going to like to subsidize my steak and be 

satisfied with your cheese sandwich? That is exactly what the community rating does. 

It gets worse, because when healthy consumers leave the market, 

the high-risk consumers who remain now must bear an even higher 

cost. In 2003, Colorado took a modest step toward restoring market 

based premiums by allowing insurers to offer discounts of up to 25 

percent to employer groups, thereby making premiums more affordable for health groups. As the sponsor of that legislation, however, 

I will tell you that we need to give insurance carriers even greater 

flexibility, perhaps up to 50 percent, in order to allow them or require them to compete for consumers’ business and to attract 

healthy consumers back into the market. 

The second distortion is guaranteed issue. Congress compounded 

the problems associated with state-level community rating by mandating ‘‘guaranteed issue’’ to anyone whose employer provides 

group health insurance. The rationale for this was simple, that no 

one should be denied health insurance coverage because of preexisting conditions. 

The distortion this created is that employees can now decide to 

forego health insurance coverage until they actually need health 

care. For young people it makes perfect sense for them to drop 

their health insurance until they have an outstanding need. 

Lastly, mandated coverage. Everyone who purchases health insurance through the small group market in Colorado is required to 

pay for, by some counts, 17 and by others as much as 24 mandated 

coverages, regardless of whether they want or need them. 

My favorite example is that by law everyone, that is everyone, 

men, women who plan not to have children, and women who are 

beyond child-bearing age have to purchase pregnancy and maternity coverage. Incidentally, pregnancy and maternity coverage for 

an ordinary pregnancy with no complications is now mandated by 

federal case law so consumers cannot choose to pay for this out of 

pocket. 

This illustrates perhaps the biggest problem with mandated coverage. Most mandates require coverage for things like prostate or 

breast examinations. From a preventative standpoint, those precautions are certainly wise. However, the purpose of insurance is 

not to be a compulsory savings plan for medical expenses that can 

be anticipated. The purpose is to share the risk for ‘‘insurable 

events’’ costs that are unanticipated, unavoidable and difficult or 

impossible to budget. Mandating coverage for preventative mainteVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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nance simply requires us to use the middle man which increases 

those costs. 

Lastly, if I were to make a few suggestions, I would suggest that 

we make health insurance premiums fully tax deductible for everyone. Most business owners or managers do not want to be in the 

position of choosing benefits for their employees. The only reason 

they have to do that is because of the uneven treatment by the Internal Revenue Service code. This is manipulative, not to mention 

economically insane because it removes the ability to make choices 

about cost and coverage from the very people to whom the market 

should respond. 

I think a refundable tax credit would be even a better step. Lastly I would suggest that you leave regulation of health insurance to 

the states. Although I am intrigued by the prospect of congressional legislation to allow consumers to purchase health insurance 

from carriers in any state, the one concern I do have is that Congress will then be unable to resist the temptation to meddle in this 

new national market and instead impose costly mandates and burdensome regulations at the national level which then will be virtually impossible to reform. Thank you. 

[Senator Hillman’s testimony may be found in the appendix.] 

Chairman MUSGRAVE. Thank you, Mark. 

Now we will hear from Dr. Jack Cletcher. Thank you for being 

here today. 

STATEMENT OF DR. JACK CLETCHER 

Dr. CLETCHER. Thank you very much. It is a great honor to be 

here, Congressman Musgrave and Congressman Shadegg. It is a 

great pleasure to have the opportunity to talk to you. That is basically what I am going to do. I have written my testimony. It is in 

here. I chose to testify on my own behalf from my own experience. 

I do have, however, a great background in some of these issues 

having been a member of the House of Delegates, the American 

Medical Association for several years. 

I have been integral in the development of the physician and patient advocacy of the Colorado Medical Society. I have served various positions in the State Medical Society and the County Medical 

Society. I am also an representative of the American Academy of 

Orthopedic Surgeons at the AMA and on various other councils 

serving on their ethics committee for a long time. All of these 

things are very familiar to me. Actually, my testimony as written 

is somewhat moot because of Congresswoman Musgrave’s excellent 

summary of the problem covering most of the issues that I think 

are contributory to the cost of healthcare. I will focus my testimony 

again as an individual on the issue that I was asked to do which 

is the contribution of the cost of medical liability to the increase in 

the cost of medical care in the United States. 

Briefly, it is a well-documented fact that the cost of medical liability insurance has risen exponentially in the past 20 years. It affects everybody involved in the healthcare production. Equipment 

manufacturers, doctors, nurses, hospitals, any provider has experience an enormous increased in their cost of liability insurance at 

all levels. People don’t realize the cost to them. 

15

For example, the cost of a total hip charged to the patient is $6,000 or $8,000 for just the piece of iron that they put in there. 

The liability on the manufacturer of that product is undisclosed. 

You can’t get any of the manufacturers to really tell you how much 

it is but I know from private conversations it is probably close to 

40 percent of that cost purely for liability issues. 

Who pays for this? Well, it is YOU, the patient. You pay for it. 

Any care that you get and any service that you get, materials that 

you receive in the healthcare industry through the health insurance that you buy and everything you ultimately pay for whether 

it is out of your pocket or perhaps your employer would have been 

able to pay you a great deal more money had they not had the 

mandate before issuing insurance. 

It is a benefit that is not exactly calculated in cost but it is there. 

How big is the problem? It is enormous. Anyway, in physician 

services the dramatic costs of liability are malpractice insurance, 

speaking of that specifically, on healthcare cost is a matter of crisis. I will just say that. You have already said it. 

Colorado has very good tort reform laws. They have helped keep 

healthcare costs down in comparison to many other states by limiting liability awards with ‘‘caps’’ on ‘‘non-economic’’ damages such 

as pain and suffering and other subjective claims that are difficult 

if not impossible to document. 

This is not the case in many other states whose legislatures have 

refused to pass tort reform laws similar to Colorado and California. 

For example, in Nevada, malpractice premiums rose to levels 

where the Las Vegas Hospitals had to close their Emergency 

Rooms because there were no doctors who could afford the insurance required to staff them. Big time change. 

Obstetricians in many parts of the Country are giving up delivering babies because of the cost of malpractice insurance. In some 

cases the premium was higher than their previous years’ gross income so what choice did they have? Surgeons in some areas are refusing to do high-risk procedures. Doctors are leaving practice or 

moving to other States because of the malpractice climate. 

Neurosurgeons, already in short supply, are leaving areas where 

premiums and claims are notoriously high. 

There was a sign at the north end of Mississippi at one time that 

said, ‘‘Please drive carefully. The next neurosurgeon is 500 miles 

away.’’ 

The result is not only are cost of health care increased by high 

law suit awards and the resultant increased liability insurance premiums, but access to quality health care is dramatically affected. 

I have only scratched the surface. Much needs to be done. There 

are many causes for the alarming increasing costs of healthcare, as 

we have heard by the previous testimony, in the United States and 

in other countries, too. It is very hard to control. The contribution 

of this one can be slowed if not totally controlled by appropriate 

and prompt tort reform laws as has been shown in California and 

Colorado. This is one thing we have a little control over. 

Federal legislation to establish parameters for tort reform has 

been passed in the House of Representatives, I have in my records, 

nine times and the Senate has failed to confirm the wisdom of the 

House in each and every case. States have been slow to face the 

16

problems through legislation or good legislation has been passed 

only to be overturned by the courts. The voters in Texas were so 

frustrated that they passed a Constitutional Amendment to establish caps on non-economic damages with the result of sharp decreases in insurance costs. 

Other measures are necessary to approach this ever-worsening 

problem. Because many regard a malpractice claim as a ‘‘Gold 

Mine’’ many non-meritorious claims are filed in hopes that a settlement will be made to avoid the cost of fighting a claim. In Colorado 

over six million dollars a year is spent by one malpractice insurance carrier to fight non-meritorious claims. A non-meritorious 

claim is one which was either thrown out of court, was dropped by 

the plaintiff, or was agreed in some way to not be worth pursuing. 

Chairman MUSGRAVE. I will ask you to just wrap up now. Thank 

you. 

Dr. CLETCHER. Okay. The Medical Profession feels strongly that 

a patient who has been injured should be compensated fairly. The 

fact is that the actual amount the patient receives is so often much 

less than the actual award because of the legal fees and other costs 

of obtaining a judgment. 

In summary, we are faces with a problem that can be greatly improved. The problem is the significant increase in healthcare costs 

due to large liability judgments and the attendant increase in insurance premiums across the board for healthcare providers and 

industry at all levels. 

It can be improved by enacting fair and effective tort reform laws 

in each state or, in their absence, by the federal government; reducing the number of non-meritorious lawsuits by the use of ‘‘Blue 

Ribbon’’ panels or Healthcare Courts; by placing more healthcare 

decisions in the hands of the patient and their physician; by the 

use of Health Savings Accounts and establishing a good doctor/patient relationship with more comfortable insurance environments; 

and by removing the legal roadblocks that prevent the truly injured 

patient from receiving fair compensation. 

[Dr. Cletcher’s testimony may be found in the appendix.] 

Chairman MUSGRAVE. Thank you very much. 

Deb Tamlin, you are up next. Thank you for being here today. 

STATEMENT OF DEB TAMLIN, ZTI GROUP 

Ms. TAMLIN. Thank you. Chairman Musgrave, Congressman 

Shadegg, I want to personally thank you for your work on this. I 

know both of you have been real committed the last several sessions to pass something and we hope that the Senate will agree one 

day. 

My name is Debbie Tamlin and I am a realtor in Fort Collins 

and I own my own real estate company. I am speaking on behalf 

of more than a million members of the National Association of Realtors. NAR is the largest trade association in the United States. 

We have members that are engaged in every type of real estate 

profession. I do commercial real estate myself personally. We have 

a lot of residential members. 

I appreciate the opportunity to share thoughts on the challenges 

that face small businesses and the smallest of the small business, 

the self-employed in finding affordable health insurance coverage. 

17

Unlike other issues that NAR has testified in the past, NAR’s 

members’ interest in this is personal. It is not one for the consumer 

and a lot of the other issues professionally that we work on. Real 

estate sales is the prototypical small business. I am a small business person. I have five employees and I do offer healthcare coverage for each of them. 

It is tough sometimes to sit down and try to be evenhanded with 

it when you have older people that require higher expensive insurance as opposed to the young people starting. I try real hard to be 

evenhanded with how we give out our benefits. 

Real estate agents are independent contractors. They are not employees of firms of which they are affiliated but, in fact, usually a 

firm of one. Our shareholders are our families. We are not large 

businesses. As a consequence, real estate agents are typically 

forced into the individual insurance market, a market that is basically a take it or leave it proposition. There is no leverage and 

there is no negotiation. 

Today 28 percent of realtors, more than one in four of our nation’s 1.2 million to do have any health insurance. In seven years 

the percentage of uninsured NAR members more than doubled 

going from roughly 13 percent of the members in ’96 to 28 percent 

in 2004. By comparison the percentage of the U.S. population without health insurance coverage was estimated to be 15.7 percent in 

2004. The percentage of uninsured realtors is almost double that 

of the nation. 

Twenty-eight percent of our membership are individual members. If each of these individuals is uninsured, it is likely that the 

other 1.6 persons are spouses and children and an average realtor 

householder also uninsured. Therefore, we could expect that as 

many as 873,000 members and their dependents are uninsured, as 

well as all of our employees. I was uninsured for seven years. It 

is a tough place to be and I thank heaven that I have health insurance. 

When asked why they are uninsured 74 percent site the cost. We 

publicly support and will do what we can wholeheartedly to help 

you pass the Healthcare Choice Act. Thank you Congressman 

Shadegg very much. I think we have been there trying to push 

back in D.C. In fact, the last time I saw Congresswoman Musgrave 

we were working on that very issue. 

Madam Chair, NAR members believe that powers granted to 

trade organizations should be the equivalent granted to large employers or trade unions when it comes to negotiating for quality 

and uniform national health plans for the constituents regardless 

of where they live. As a result, NAR members strongly support the 

small business plan including House Bill 525, Senate Bill 406, and 

more recently Senate Bill 1955. 

Small business health plans are by no means the silver bullet 

that will solve the nation’s health insurance problems. It is important that we all sit down and work together to have a solution. We 

are heartened by the fact that this is exactly the approach that 

Senators Enzi and Nelson have set down and tried to put opponents and proponents together. 

This addresses most of the concerns that traditionally have been 

raised including state regulatory oversight mandates and fiscal inVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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solvency. NAR is committed to working to advance what we believe 

can be very effective insurance delivery systems. If SBHPs are approved, we will be one of the first to be in the discussions with insurers to craft a quality health insurance package for our realtors 

members nationwide. 

Once again, thank you for giving NAR the opportunity and myself a place at the table. Thank you. 

Chairman MUSGRAVE. Happy to have you here today. 

Now we will hear from Allan Jensen from the Health Underwriters. Welcome to this hearing today. 

STATEMENT OF R. ALLAN JENSEN, NATIONAL ASSOCIATION 

OF HEALTH UNDERWRITERS 

Mr. JENSEN. Thank you, ma’am, and Congressman Shadegg. 

Good afternoon. As a sidebar, Congresswoman Musgrave, I would 

like to thank you and your staff for entertaining our group in 

Washington at the end of March. We had a nice chat with your 

staff. Unfortunately, you weren’t there. We were watching you on 

the TV down on the floor. 

Chairman MUSGRAVE. At least I have an excused absence. Thank 

you. 

Mr. JENSEN. Again, my name is Allan Jensen. I am an independent broker of health, life and senior insurance products. In my 

health insurance practice I specialize in individual and small group 

insurance sales. I have been a licensed health insurance agent in 

Colorado for 15 years. 

My colleagues and I deal directly on a daily basis with thousands 

of consumers of health insurance and the carriers that provide 

those products. In fact, we also deal with providers often in their 

roles as consumers of health insurance. All together we get to hear 

and discuss first hand the needs and desires of American consumers probably more than any other organization. We are the integrators and educators within the health insurance industry. 

I will bracket my remarks by noting that healthcare is not expensive because of the cost of health insurance, rather it is health 

insurance that is expensive because of the cost of healthcare, and 

not coincidentally because of the costs of mandates placed upon 

these products. 

The Colorado State Association and the National Association of 

Health Underwriters seek to address these questions of cost while 

also striving to maintain consumer choice and the viability of a vigorous private market of health insurance products. 

I will take a page from Mark Hillman’s testimony because, as 

you will see in the written remarks, everything that he said is 

going to be in there, too, so I will skip down a few pages on the 

market reform issue. 

I will bring up the fact that beginning September 1st as one example of market reform a major national carrier here in Colorado 

is introducing an entirely new set of plan designs for the small 

group market very competitively priced to secure major market 

share. There are a host of other examples. 

New and innovative concepts in the design of health insurance 

products will also help improve competition and buttress the overall strength of the small group marketplace. One such innovation 

19

was proposed in this past Colorado legislative session where a simple two-word modification of existing statute allows carriers to 

alter the participation and contribution requirements. In less than 

four months we have seen the introduction of improved choice options from multiple carriers with lower price points. 

Vigorous competition, new and creative plan design, and consumer choice are working together to improve and stabilize the 

small group market. Our association is always welcoming of greater competition and would like nothing better than to see more carriers enter our market. Without such competition, healthcare costs 

would surely rise more rapidly. 

A key element in promoting healthy markets and competition is 

the availability of easily accessible information regarding price and 

quality. The lack of good information in these areas plagues the 

consumers of healthcare. In the last legislative session in Colorado 

a bill was passed requiring hospitals to post an annual report card. 

This is one good step but more needs to be done to make pricing 

and performance data broadly transparent. Many insurance carriers are voluntarily beginning to post cost data on their websites. 

Some efforts at the federal level in both Medicare and Medicaid 

show promise and other proposals before Congress need to be advanced in this regard. This will all play into the business of consumerism. 

Regarding Association Health Plans, not all health coverage 

ideas are good for the market or useful to consumers. NAHU specifically opposes proposals to create Association Health Plans that 

are exempt from health insurance benefit mandates and state rating laws, or are exempt from fully insured requirements. We are 

concerned because unregulated AHPs would have a pricing advantage over the fully insured small group markets already operating 

in the states, thus creating a distorted playing field. 

One unintended consequence from unregulated AHPs might well 

lead to the reduction of choice for consumers by driving fully insured carriers from the market. Two specific areas of concern with 

AHPs would be the elimination of requirements at the state level 

for capital reserve requirements as well as claim reserve requirements. NAHU does not have a formal position on H.R. 2355 as our 

membership is split nationally on the idea of allowing the sale of 

individual health insurance products across state lines. 

This attempt to provide relief for states primarily in the Northeast where individual markets are hampered by both guarantee 

issue and community ratings doesn’t necessarily help in other 

states. There are a number of significant issues that cannot be 

overlooked, not the least of which is the state oversight of insurance. 

The bill attempts to ensure the integrity of this oversight, but 

the problem of complaint resolution for people in one state appealing to another state’s insurance oversight authorities is highly 

problematic. Though a particular state might be a good place to 

domicile for business purposes, could or would that state be willing 

to oversee consumer complaints from other states in a manner that 

is as consumer-friendly as in the local model. 

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writing and exclusion riders are allowed. In tandem with this we 

have a high-risk insurance pool in the form of CoverColorado to 

provide guaranteed access to individual health insurance coverage 

for people who are ‘‘uninsurable’’ in the private marketplace. 

Recent improvements passed by this year’s legislature allows 

greater rating flexibility in CoverColorado which should lead to 

lower rates promising guaranteed coverage to a much larger pool 

of uninsureds. 

Another positive development in the arena of health insurance 

products has been the advent of Medical Savings Accounts in the 

late 1990s and now with the improved benefits offered with Health 

Savings Account qualified plans. These insurance products— 

Chairman MUSGRAVE. If you could wrap up, please. 

Mr. JENSEN. —are an important product for consumers. I will reiterate what Dr. Cletcher said about medical liability reform. That 

is kind of a word-for-word conclusion here. We would like to thank 

you for this opportunity to talk to you today and I will stand to answer any questions you might have. Thanks. 

[Mr. Jensen’s testimony may be found in the appendix.] 

Chairman MUSGRAVE. Thank you. To all the witnesses, all of 

your testimony will be in the written record if you didn’t get to give 

it all. 

We will hear from Gail Snyder now. Thank you for being here. 

STATEMENT OF GAIL SNYDER, SNYDER INSURANCE AGENCY 

Ms. SNYDER. Thank you so much. Allow me to introduce myself. 

I am Gail Snyder and I have the pleasure and honor of working 

for my husband, Bob Snyder, through his farmer’s agency as a specialist in life and health insurance primarily working with individuals and small business. 

The three areas that I would like to touch on are the Health Savings Accounts, Association Health Plans, and the Healthcare 

Choice Act. Since the introduction of Health Savings Accounts, 

HSA’s, the health insurance industry has undergone several 

changes as has the insured community. The industry is seeing a 

tremendous increase in the number of businesses and individuals 

purchasing these qualifying high deductible health plans and an increase in the opening and funding of these accounts. 

Employers are saving between 20 and 40 percent off their monthly premiums and many are passing some of that savings on to their 

employees by assisting in funding the employees’ accounts. For employers who are already offering health insurance to their employees as a benefit this has become a viable cost containing effort. I 

commend the creativity and foresight that brought these to the industry. Thanks. It is becoming a very useful tool. 

Regarding Association Health Plans, the Association Health 

Plans that I would like to speak directly to are small associations, 

something along the size of our local chamber. At first glance they 

can be appealing. However, once the plan is in place there is a high 

probability of rapidly increasing costs and diminished participants. 

Individuals wanting health insurance are typically better served 

through individual policies where there are fewer mandates in coverage and, therefore, lower premiums. 

21

If these individuals are unable to obtain insurance on their own 

due to pre-existing medical conditions, they seek alternatives such 

as Group Insurance. When evaluating the cost of Group Insurance, 

small business owners oftentimes see the premiums as 

unaffordable and cry out for an Association Health Plan, under the 

misconception that there will be lower premiums. 

These types of plans need to be entered into with tremendous 

caution. The benefit Group Insurance has over an Association 

Health Plan is the risk pool is much larger. There again, I am 

speaking towards the smaller associations. An insurance carrier 

can offer a group plan to a state-wide audience of tens of thousands, whereas an Association Health Plan may be offered to only 

a few hundred. The rates are based upon participation and claims. 

A single catastrophic health condition, such as a premature baby, 

can be tolerated much better at the group level than it can for an 

Association Health Plan. A single shock claim could raise the Association Health Plan premiums to the degree that participation 

would rapidly decrease. This leaves an even smaller risk pool behind to bear the cost of healthcare. It becomes a death spiral for 

this plan. 

Any type of national Association Health Plan could create a guaranteed issue coverage similar to the Business Groups of One here 

in Colorado. It has proven to be disastrous. When Business Groups 

of One came in, as Mr. Hillman stated, we had 84 carriers. Business Groups of One guaranteed issue we now have 10. It has proven disastrous. Other states that have tried guaranteed issue insurance find that part of the problem here is adverse selection and 

fraud. 

Allow Business Groups of One to purchase Association Health 

Plan coverage would prove equally problematic increasing the likelihood of plan failure and resulting in significant cost increases for 

all the state small group market participants. 

A potential alternative would be for professional business associations to be considered a ‘‘group’’ such as the local chamber if we 

use that size as an example if they are considered a group for the 

purpose of purchasing health insurance. I don’t recommend this either, though. The association would then bear the responsibility as 

an employer rather than an association having all of the liabilities 

put upon the association which those liabilities could then cause 

the association itself to default. 

Under that evidence there is no specific evidence that states Association Health Plans would have lower premiums. I would not 

encourage that action. I would also caution, however, that nationwide large corporate insurance plans, such as what you are recommending, could be offered. But what would make them greater as 

an offering than what the unions or our larger retail chains are offering their employees? What specifics will those plans contain that 

make them a viable plan? 

The last point would be healthcare choice, H.R. 2355. It is my 

understanding that this legislation is being considered for the purpose of allowing individuals to purchase health insurance across 

state lines. There are several states that have passed overburdening legislation for the health insurance industry and have 

caused crisis situations for their respective states. 

22

This legislation has been conceived as a mechanism to bail them 

out of their own mire. I do not believe this is the solution. We get 

back to the magic wand. If we could raise that wand and undo the 

things that have created those crisis in those states, they then can 

solve their problems. Each of these states needs to recognize the 

situation they have put themselves into and attempt to reverse 

those misconceived health insurance initiatives. 

Chairman MUSGRAVE. If you could just wrap up, please. 

Ms. SNYDER. To every legislator who believes he or she has a 

new very important mandate to add to the insurance industry, 

mandates come with a cost and that has been said multiple times. 

For the consumer this particular legislation has even greater potential problem. In order for it to be successful each insurance carrier must have access to a nationwide network or go back to a reasonable and customary so that you are not seeing someone out of 

network because your state insurance happens to be through Arkansas while you live in Colorado. 

The other issue with this is insurance licensing. In order for me 

as an insurance agent to sell into a state plan that is not a Colorado state plan, do I then need to be licensed in all 50 states, or 

does there become a national insurance broker producer licensing 

system. Thank you so much. 

[Ms. Snyder’s testimony may be found in the appendix.] 

Chairman MUSGRAVE. Thank you very much. 

As you can tell, the witnesses here have differing opinions and 

I think that is very good that we bring our ideas to the table. 

Congressman Shadegg, I know you have just been ready to question here so go ahead. You go first. 

Mr. SHADEGG. You are going to let me go first. 

Chairman MUSGRAVE. Yes. 

Mr. SHADEGG. Okay. Well, I will simply start by saying I think 

you have an extremely well-informed and knowledgeable panel. I 

appreciate the testimony of all of them. Quite frankly, I am not certain how many questions I have. I may have a series of comments. 

Let me just go through some that occur to me immediately. 

I think Chris Boesch raises a great question. That is, how is it 

that we decided as a nation that it is the employer’s function to 

provide health insurance or provide healthcare. I have been answering the question for a long time, or looking at the answer to 

that question for a long time. 

Before I give the answer, however, of how we got there, let me 

talk about how anomalous it is. I would bet there is not a person 

in this room who is provided by their employer, or if there is there 

is only one, their auto insurance policy. You don’t typically go into 

your job and say, ‘‘I want to apply for a job. Oh, by the way, if I 

get a job here what are you going to provide me in auto insurance?’’ 

Same is true for homeowners insurance. You don’t go to your employer and say, ‘‘Now, if I take a job here, how are you going to 

cover my home?’’ We have decided that the American people can 

buy auto insurance on their own. They can buy homeowners insurance on their own. They can buy disability insurance on their own. 

How is it that we have decided that they cannot buy or should not 

buy health insurance on their own? 

23

I believe there is consensus on this point. There are disagreements on some of the other issues in healthcare reform but there 

is consensus on this point. The reason that most health insurance 

in America is employer based is an historical anomaly. It comes out 

of War World II. At a point during War World II the federal government stepped in and imposed wage and price controls. They 

said to all American businesses, ‘‘You may not give wage increases 

and you may not have price increases on your products without 

going to the federal government and asking for approval.’’ 

American business being ingenious as it is, particularly small 

business, but all American business being entrepreneurial in nature, went to the government and said, ‘‘Well, wait a minute. How 

are we going to attract and retain the best and the brightest in our 

business? What if we decided instead of giving them wage increases we instead gave them a benefits package?’’ 

The federal government mulled this over and came back and 

said, ‘‘Yes, you may give them benefit packages and you may do 

that without government approval.’’ Suddenly American business 

was told, ‘‘If you want to give your employees a thousand dollar a 

month or a thousand dollar a year increase, the government has 

got to sign off on that. If you want to give them a benefit package 

(and at this time if was any kind of benefit, but healthcare rapidly 

became the most attractive benefit in America) you do not have to 

go to the government for approval to give that benefit package.’’ 

The second thing is that employers then immediately went to the 

IRS and there is an IRS ruling which I can provide to you which 

answers this question and said, ‘‘If we do decide to give our employees $1,000 a year healthcare benefit package, are you going to 

tax that?’’ The federal government in an IRS ruling that is still on 

the books today came back and said, ‘‘You know what? We won’t 

tax that. The cost of that benefit package will be an expense to 

your company deductible as any other expense, but it will not be 

income to your employee.’’ 

It didn’t take American business very long to figure out, ‘‘Oh, my 

gosh. If I hand my employee—after World Ward II they could give 

out wage increases. ‘‘If I give them a thousand dollar salary increase, the government is going to tax that and it is going to take 

at least a third of it.’’ In some instances we all know it is twothirds of it. ‘‘But if I give them $1,000 in healthcare benefits, the 

government is going to tax zero of it.’’ 

Not only did American businesses quickly figure out, ‘‘This is a 

great idea. We will hand out benefits,’’ but American employees figured out and American unions figured out, ‘‘If we negotiate for an 

extra $1,000 for our employees, they will get maybe $700. If we negotiate for an extra $1,000 in healthcare benefits, they will get 

$1,000 in healthcare benefits.’’ That is how we got to the situation 

where healthcare in America is the responsibility of employers. 

I strongly believe, and there is not time here to go into it, that 

we need to challenge that concept. We have raised the belief in 

America that the only appropriate pooling mechanism, and we 

have had some discussion here about pooling mechanisms and the 

dangers of having a too small pool or a pool that was created without careful thought of who could get into that pool, and somebody 

used the phrase ‘‘death spiral’’ which is a term used to describe a 

24

pool that becomes too small and is populated only by the sick and 

the healthy leave it, we have created this notion that the only pooling mechanism can be employers. I suggest that is something that 

in this debate we ought to reexamine. 

I guess the next point I want to make is I want to go, Mark, to 

your point about refundable tax credits or about deductibility. It is 

outrageously unfair in America that we treat big business different 

than small business. It simply is unjustifiable. You heard some testimony here about people who say, ‘‘Yes, there are ideas that would 

put small business on the same playing field with big business 

when it comes to health insurance.’’ Association health plans is an 

idea to do that. 

Two witnesses criticized Association Health Plans because they 

think that might be a mechanism to try to place small businesses 

on the same playing field as big businesses and those criticisms 

could be valid. I, for example, agree that moving more regulation 

of the healthcare market to the federal government, which Association Health Plans does, is a bad idea. 

It is an aspect of AHPs I don’t happen to like. But it is really 

unfair to say if you are General Motors or you are Honeywell or 

you are Intel, you can offer a fantastic plan to your employees no 

matter where they are in all 50 states. You heard a couple of people say when we do that, we are taking them out from under state 

regulation. I have a flash. Every big employer who offers 

healthcare benefits to their employees in Colorado is regulated by 

the State of Colorado Insurance Commissioner to the extent of 

zero. 

If you work for General Motors in Colorado or Delco or General 

Electric or you pick any other large national employer and you 

have a problem with your healthcare plan, don’t waste your time 

driving down to the Colorado Sate Health Commissioner because 

he will tell you, ‘‘It is not my problem.’’ Federal government took 

this one away a long time ago under a law that I believe you mentioned, or somebody mentioned, ERISA. 

But it is simply outrageously unfair to say the big guys get a 

break, little guys don’t. Think about this one. We say as a nation 

to every American, ‘‘You really should be insured.’’ There was a discussion here about, I think it was your comment, Mark, the Northern Colorado Medical Center has a—no, I am sorry. This was the 

gentleman from the beer industry—has a bad debt ratio of 9.7 percent. You know what? It is not that they are bad at collecting bills. 

It is that the United States Congress has said to them, ‘‘Anybody 

that shows up in your emergency room gets free healthcare period.’’ 

Now, let me see if we understand this. We don’t want people to 

go to the emergency room for free care. We want them to buy 

health insurance but for everyone in this room who can’t pay their 

employees’ health insurance, can’t provide healthcare coverage, we 

say to them, ‘‘Here is what a good deal the federal government is 

going to do for you.’’ 

The guy next door, this woman that has just five employees and 

she gives her employees healthcare, that is paid for with pre-tax 

dollars. That is, the cost of the healthcare that she gives to her employees is paid out before she pays taxes so you don’t pay tax on 

25

that. But anybody here whose employees don’t get employer based 

healthcare, they have to pay it after tax dollars. 

That means it is at least a third more expensive. It is outrageously unfair. I personally have a bill called the Patient’s 

Healthcare Choice Act which would go at many of the comments 

that were made here today. 

It is different than the Healthcare Choice Act which goes at an 

interstate market for healthcare but this instead talks about giving 

a refundable tax credit to every American to purchase healthcare 

so we would no longer have the anomalous situation where if you 

are lucky enough to work for a big employer, your healthcare is 

paid for with pre-tax dollars. 

If you are unlucky enough not to work for an employer who provides you healthcare, you have to use post-tax dollars which need 

to cost at least a third more. I guess in a way I am just kind of 

going left to right following through my notes. 

Dr. Cletcher, you mentioned a number of things that can deal 

with the extreme cost of litigation on the system. You talked about 

the point of non meritorious claims. You did mention that Colorado 

has passed some good tort reform. One of the reforms I advocate 

looks at the issue of non meritorious claims. The vast majority, for 

example, of medical malpractice cases are dismissed outright. Either they are dismissed before they go to jury or the jury finds for 

the defense making the point that they were non meritorious 

claims. 

Arizona, unfortunately, has not enacted healthcare reform, litigation reform in the healthcare arena, or any other arena because our 

constitution complicates that and would require a constitutional 

amendment for us to enact caps or any other reform that would go 

at litigation cost. Do you know if the State of Colorado looked at 

the issue of loser pays? 

Dr. CLETCHER. Yes, they have. One of the best ways to avoid non 

meritorious claims is to have a firm doctor/patient relationship. If 

I have a doctor for 20 years and something adverse happens, usually the doctor says, ‘‘Look, this happened. Let’s talk about it.’’ The 

patient will probably not elect to initiate a claim. I think that is 

what has happened to the system is we don’t have that relationship 

anymore when managed cares organizations and other entities will 

dictate the choice of physician to a patient. 

Corporate insurance is more or less what you would call a captive insurance company for malpractice claims in the State of Colorado. They have looked at loser claims but they have a better program, I think, right now in that anytime an adverse occurrence occurs the physician will notify the insurance company and the insurance company with that physician will contact the patient and try 

to work out the most comfortable solution for that patient. 

In other words, if they are missing work rather than take that 

penalty which is a non litigated penalty, they will assist them with 

living expenses and other assistance to work it through. They will 

readily make a settlement in a claim where there is clear malpractice so it does not enter into that. Even in spite of that we still 

have $6 million worth of litigation expense to handle non meritorious claims. 

26

This isn’t exactly an answer to your question about loser pays. 

It has been suggested and, I think, Mark, you might know more 

about that. There have been, I think, bills that have been introduced into legislature that to my knowledge has never gone anywhere. It is kind of considered not fair game. The Lawyers Association don’t like that too well. That is basically it. We can go on and 

on with it but that is it essentially. 

California was the one that introduced the first microlaw which 

is the one that limited the caps on noneconomic damages and 

things like that and was so successful there that other states have 

tried to emulate it. Fortunately, Colorado is probably pretty close 

to next in line on the whole thing. 

The tragedy is that a lot of states have enacted some really good 

laws, or at least in part, trying to solve this problem and then the 

State Supreme Court will come along and set it aside as being not 

constitutional in that state. That battle goes on. Well, I won’t reiterate it. I have a lot more information on this. 

Mr. SHADEGG. Actually, for anybody on the panel, it sounds to 

me like at least if Colorado has that kind of structure where the 

insurance company and the doctor then contact the patient who 

has alleged an injury, it sounds to me like there must be something 

like an ‘‘I’m sorry’’ provision. Arizona does not have an ‘‘I’m sorry’’ 

provision. Anybody here have knowledge of what you have on that 

issue? 

Mr. HILLMAN. Colorado in the same year that we closed a couple 

of loopholes created by our Supreme Court actually passed an ‘‘I’m 

sorry’’ provision to allow a doctor to have that conversation with 

the patient and it not be used against him later in a proceeding. 

Mr. SHADEGG. I think it makes a lot of sense. I have supported 

it in Washington. It is kind of anomalous, it seems to me. 

I do agree, doctor, that the destruction of the physician/patient 

relationship, which you have spoken about already, I think does encourage lawsuits as the first mechanism to address a grievance. I 

think the absence of an ‘‘I’m sorry’’ provision does that as well. Lots 

of times people if they simply understood that the doctor felt badly 

about something that may have gone wrong, humans are humans 

and they are going to make errors, you can go a long way towards 

solving this problem. 

Yet, the tort system, for example, in my state where we have no 

‘‘I’m sorry’’ provision makes that near impossible. A doctor can’t 

even think about stepping forward directly or through his lawyer 

and saying, ‘‘We regret that this happened and we are sorry that 

you are suffering,’’ because that immediately would come into 

court. 

Dr. CLETCHER. As regards to doctor/patient relationship, it is 

pretty hard to sue somebody that you have known for 10 years and 

trust. When you don’t even know that person, when a patient really has been treated by a doctor that maybe saw him once or twice, 

never saw him again and can’t even remember his name, it is 

amazing how many people don’t remember the name of the doctor 

that took care of them. It is pretty easy to see somebody like that 

because they don’t really exist. They are just an abstract figure. 

Mr. SHADEGG. I don’t know what my time limit is but just a 

quick comment on that point. As you and I have privately disVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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cussed, I personally believe that employer-based healthcare, at 

least where it is not an indemnity plan, your employer picks the 

plan and assigns you to the plan, the plan picks the doctor and assigns the doctor to the plan and the doctor you get is not as a result of your choice and on any given day you can be told, ‘‘I’m sorry. 

The doctor you have been going to for the last three years you may 

no longer go to,’’ I think has done immense damage to the physician/patient relationship and encouraged this kind of litigation. 

Dr. CLETCHER. I will be honest with you. That is the key. That 

is the secret. That is the touchstone that has destroyed the 

healthcare system in the United States right there. 

Mr. SHADEGG. The legislation I have tried to introduce tries to 

go toward consumer choice and patient choice and put people back 

in the position where they can pick their own doctor. One of the 

bills that I introduced that might be of interest to a number of you, 

somebody on the panel said workers don’t appreciate the value of 

the insurance. 

The broader legislation that I introduced called the Patient 

Healthcare Choice Act would say to all employers in America once 

a year when you are renewing your insurance policy, or at some 

point in the calendar year, you would go to your employees and you 

would say to them, ‘‘We are spending this amount on your health 

insurance,’’ and you base that calculation on their age, their sex, 

and their geographical location because those are the major factors 

in the cost of health insurance policy. 

You would be obligated to say to the employee, ‘‘This is the 

amount we are spending on your health insurance. You have 90 

days to go look for a policy. If you choose, you can take that 

amount of money and you can go buy your own policy with it and 

not take our insurance plan out of the company. If you decide after 

that 90 day expiration period that you can’t find a better insurance 

policy, of course, then you will remain when we renew it in our 

plan. 

One of the advantages I see in that is that lots of employees have 

no appreciation for how much health insurance cost, how much you 

are spending on health insurance. A lot of people say to me, ‘‘Look, 

Congressman, in today’s health insurance market nobody is going 

to be able to go out and get a better policy than they can get 

through their employer.’’ 

I don’t personally believe that is true. I believe that if we gave 

them that possibility many of them would find more attractive policies. Let us assume it is true. Can you imagine if all your employees came back to you at the end of that period and said, ‘‘My gosh, 

you are giving me the greatest deal in the world. I couldn’t get anything close to it.’’ 

I don’t know how we are doing on time and I don’t want to abuse 

my privileges. Let me just conclude with a couple of quick comments. I would be happy to discuss in detail some of the issues 

raised here about the Healthcare Choice Act. A lot of people do call 

it interstate health insurance purchase and it really is not. That 

is a mischaracterization of the policy. The policy would be filed in 

the state where it is to be sold. 

It does under the bill have to be governed by a great deal of the 

provisions of that state’s law. For example, the consumer fraud proVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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tections of the Colorado policy would apply in whole exactly as they 

are. The Colorado law would apply to the policy no matter where 

the policy had been originally qualified. The notion that those consumer protection laws wouldn’t apply is incorrect. 

In addition, the remedy, just to answer another question that 

was raised, the remedy is with the insurance commissioner of the 

state where the consumer lives. Let us say the Goodwill Insurance 

Company filed a policy in, we will say, Illinois and qualified it 

under Illinois law, they then bring it to Colorado and they have to 

file it with the Colorado insurance commissioner. 

The Colorado insurance commissioner gets to look at it and make 

sure that it satisfies those pieces of Colorado law it has to satisfy 

and it satisfies the Illinois law. Then a consumer buys that policy. 

They buy it here in Colorado. The answer to the last question, they 

can only buy it from a licensed Colorado insurance salesman so 

there would be no national licensing of insurance salesmen. 

You would sell that policy in the state under Colorado licensing 

practices and continue to be governed by Colorado licensing practices. Then the regulation if there were a problem with the policy 

would be by the Colorado insurance commissioner. It is, in fact, a 

completely new idea. It is a way to try to bridge that point that 

was brought up a little bit earlier about, ‘‘Do you want federal regulation of health insurance or do you want state regulation of 

health insurance?’’ 

In every respect where we could we tried to leave state regulation in place, in part because of the point that both of you make 

about association health plans. ERISA took all this large employer 

health insurance out from under. People say, ‘‘Oh, my gosh, Congressman. If Colorado had a benefit mandate for acupuncture and 

an Illinois qualified policy were brought here and sold and it didn’t 

offer acupuncture, then you would be saying to people in Colorado 

that they could buy a policy that didn’t cover acupuncture and they 

would be getting out from under a Colorado state mandate.’’ 

I have a flash for them. Everybody that gets their health insurance from a large employer, General Electric, General Motors, governed by ERISA, no Colorado benefit mandate is covered under 

those policies. I guess I will conclude, Madam Chairman, by saying 

that I actually share Mark’s biggest concern about the concept of 

allowing an insurance policy to be brought here and sold here and 

that is once you let the federal government into like you let the federal government into ERISA, there is the danger that sudden 

wheels start mucking around and saying, ‘‘We didn’t cover as a 

mandated benefit X when we first passed it back in 2006 but now 

we think we really should have a federal benefit mandate for whatever that is. 

Chairman MUSGRAVE. Thank you very much. I would just like to 

say to Debbie Tamlin, you kind of put a face on realtors that most 

people don’t think about. I don’t want to show anything preferential here but, quite frankly, they see a Remax sign or Century 

21 and I don’t think—I believe you said you had five employees. 

They don’t think about a small business owner facing the obstacle 

of trying to come up with enough money to provide health insurance for your employees. Could you elaborate on that a little how 

it affects you when you are out there as a small business owner? 

29

Ms. TAMLIN. I compete for my employees with HP and Bush and 

these guys at Fort Collins so the larger companies can provide benefits as a package. To get the quality employees that I want to 

work with me, I want to be on a level playing field with the larger 

employers so I work real hard to do that. Most all of us are commission based. I took six weeks off from my company when I had 

my neck fused and that meant there was six weeks nobody was 

producing income from my company. 

I had put the surgery off for 11 years, a long time until I couldn’t 

do it any longer because you are shutting down the income producing function for your company. It is a huge thing because my 

company is commission based. The income is not regular and, yet, 

I have payroll to meet and I have benefit packages that I want to 

compete with so I have the quality real estate company that I do 

have. It is important. 

Chairman MUSGRAVE. Thank you. 

Dr. Cletcher, I recently talked to other orthopedic surgeons and, 

you know, now you hear a lot about hip replacements and knee replacements. When we talk about these prosthetic devices whether 

you have anchors in a shoulder when you have rotator cup surgery 

or knee replacement, I don’t think a lot of people think about the 

liability associated just even with the prothesis much less your actions as a surgeon. Could you speak about that a little bit? 

Dr. CLETCHER. Let me put it very simply. Suppose I come up 

with a new design for a hip replacement and it works pretty good. 

Then somewhere down the line after having put in about 4,000 or 

5,000 of them, they find that there is a design defect which after 

five years has caused several of these to fail, maybe as many as 

20 percent or 25 percent. Now, these devices are scrutinized to the 

ultimate. They are x-rayed. 

They are put under stress. They are put in testing machines. 

There is an enormous amount of effort that goes into developing 

these devices to try to prevent this very thing from happening. Say 

if you put in 6,000 of them and 30 percent of them have failure 

rates of some degree may not be entirely due to the prothesis itself. 

It may be to some other problem that has arisen that has shown 

up in this number of cases. 

Not only is the physician sued, the hospital is sued, but the manufacturer is sued with settlements from the manufacturer maybe 

in terms of let’s say many, many thousands of dollars. I am not 

going to say a million dollars because in some states that is exactly 

what happens, $1, $2, $5, $10 million and that sort of thing. Add 

that times 2,000, what have you got in claims that can rise just 

from this one thing? 

This is what I say about medical devices. Pacemakers, another 

very, very precarious market where there has to be a lot of insurance against the unforeseen happenings. Remember in malpractice 

and in device failure it may not be through anybody’s fault other 

than the fact that there is a statistical rate of failure in almost any 

medical procedure or intervention. 

If those are classified due to negligence or to some manufacturing defect, that is one thing, but many times awards are given 

in these cases because the jury feels sorry for the person who has 

been unfortunate enough to have one of these unforeseen unavoidVerDate 0ct 09 2002 00:59 Nov 22, 2006 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\HEARINGS\30356.TXT MIKE
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able events. This is just another bunch of beans that are poured 

in the pot and have to be mixed up, you know, before you can get 

it all done. 

Chairman MUSGRAVE. Well, Mr. Shadegg, do you have any closing remarks that you would like to make? 

Mr. SHADEGG. Just, again, I think this is an extremely knowledgeable panel. You could wish that everyone’s comments were covered because I think it was a very good debate. All Americans need 

to learn these issues. I think it was a very informed debate and a 

good discussion of how we address these concerns. I am very impressed with the panel and with your work to try to address this 

problem which confronts every American and every American small 

business. 

Chairman MUSGRAVE. Yes. We know the small business is where 

most job creation takes place. Having been a small business owner 

myself, I can identify with many of these issues. I believe that Congress can come up with solutions to these problems. My main concern is that we better come up with them quickly with the input 

of people around the nation before we move to a nationalized 

healthcare system. 

Many of the problems that we talk about, patient choice, and I 

really believe, Dr. Cletcher, it is a call on your life when you go 

into medicine. We were even talking about your father earlier 

today. I said did your father burn out and you said no, you really 

don’t get burned out but you do get tired. I want doctors to be able 

to practice medicine and I want patients to have choices. All the 

problems that we have now in that area I believe would only be 

magnified many times over if we went to a national system. 

Go ahead. 

Mr. SHADEGG. I did think of one last thought, a point I meant 

to make earlier. The media would have you believe and the trial 

lawyers would have you believe that the rule in America where 

each side bears its own cost regardless of the outcome of the lawsuit so you can bring a lawsuit, you can sue somebody. 

The lawsuit can prove to have been meritless, yet the defendant, 

who has spent a lot of money, maybe the producer of one of those 

manufacturing devices or a doctor defending themselves against 

the meritless claim have to pay their own cost and, therefore, there 

is the ability to extort a settlement. The Trial Lawyers Association 

would have you believe that the American rule is the rule in most 

of the world. 

The English have this notion of loser pay. I think most American 

consumers don’t know that is wrong. The reality is almost the entire world has the concept of lower pay and the provision that each 

side must bear its own cost is the exception around the world. 

The other point I want to make is a lot of us are looking at losing 

lawyer pays. We all know lawyers share the recovery. The point 

was paid earlier lots of time there is a large recovery but the injured patient doesn’t get near compensated because so much went 

away in attorney’s fees. I think we should be looking at and a number of us are talking about it in Washington. Not just loser pays 

but more importantly a losing lawyer pays. 

Nobody wants to punish the genuinely injured for bringing a 

claim. If you have a lawyer who consistently brings meritless 

31

claims to extort settlements, there has to be a remedy to that. I 

have talked to some very, very good tort lawyers who say, ‘‘Those 

of us that are good at this won’t take a meritless case and we have 

no problem with that kind of remedy.’’ 

Chairman MUSGRAVE. Good. That would be kind of a relief, I believe, when we bash lawyers all the time to hear that some would 

even go for that. I thank you for your testimony today. I appreciate 

the diverse opinions that we have heard from our panel but all 

very well founded. I wish we had more time. I wish we could talk 

to orthopedic surgeons and talk about how when they—I don’t 

know, would $18,000 be right for a knee replacement or something? 

Dr. CLETCHER. Are you talking about my knee replacement? 

Chairman MUSGRAVE. I didn’t know you had a knee replacement. 

Dr. CLETCHER. Oh, I do, yes. $40,000 is probably right at the actual cost factors. Managed care will bargain it down to probably 

half that. Of course, the hospital is working on a very thin margin. 

Medicare works on a different scale and so their reimbursement 

would be much less than the actual cost if you went out and bought 

one yourself. 

Chairman MUSGRAVE. It is amazing when you think about probably what the cost of the prothesis and all of the other factors figured in, I guess, what the doctor would actually earn performing 

one of those. Some on the panel have mentioned, you know, why 

health insurance is so high. It is because our healthcare is expensive. Also we would be remiss today if we didn’t say that it is expensive because it is the best healthcare in the world. 

I can see the doctor just has to say something. Go ahead. 

Dr. CLETCHER. I do because you talk about what the doctor gets 

out of it. I can tell you it is about a third of about what the prothesis cost. 

Chairman MUSGRAVE. See, those kinds of things would be important for the American public to know. We need to know what our 

healthcare cost and have that broken down so people can have an 

understanding of why premiums are what they are. Of course, we 

in Congress will do what we can to address these issues. Thank 

you for being here with us today. I appreciate each and every one 

of you. 

Again, thank you Congressman Shadegg. 

Mr. SHADEGG. Thank you. 

Chairman MUSGRAVE. I would also like to thank the staff that 

worked on this, Joe Hartz, Small Business Committee, and Kristen 

Glenn from my staff. We appreciate you. We couldn’t do it without 

you. Thank you. The meeting is adjourned. 

[At 2:50 p.m. the Subcommittee was adjourned.]

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