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80–319 2013

OBAMACARE’S IMPACT ON JOBS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 13, 2013 

Serial No. 113–14 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

(II) 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

RALPH M. HALL, Texas 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

PHIL GINGREY, Georgia 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

CORY GARDNER, Colorado 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Missouri 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

FRANK PALLONE, JR., New Jersey 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

BRUCE L. BRALEY, Iowa 

PETER WELCH, Vermont 

BEN RAY LUJAN, New Mexico 

PAUL TONKO, New York 

(III) 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

RENEE L. ELLMERS, North Carolina 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

JIM MATHESON, Utah 

GENE GREEN, Texas 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

HENRY A. WAXMAN, California (ex officio) 

(V) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 3 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 3 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 5 

Prepared statement .......................................................................................... 6 

Hon. Michael C. Burgess, a Representative in Congress from the State of 

Texas, opening statement .................................................................................... 7 

Hon. Henry A. Waxman, a Representative in Congress from the State of 

California, opening statement ............................................................................. 7 

Hon. Phil Gingrey, a Representative in Congress from the State of Georgia, 

prepared statement .............................................................................................. 97 

WITNESSES

Diana Furchtgott-Roth, Senior Fellow, Manhattan Institute .............................. 9 

Prepared statement .......................................................................................... 11 

Answers to submitted questions ...................................................................... 115 

Linda J. Blumberg, Senior Fellow, The Urban Institute ..................................... 39 

Prepared statement .......................................................................................... 41 

Tom Boucher, Owner and Chief Executive Officer, Great New Hampshire 

Restaurants, Inc., Testifying on Behalf of the National Restaurant Association ........................................................................................................................ 49

Prepared statement .......................................................................................... 51 

SUBMITTED MATERIAL

Statement of Small Business Majority, submitted by Mr. Green ........................ 77 

University of Virginia study, submitted by Mrs. Ellmers .................................... 98 

(1) 

OBAMACARE’S IMPACT ON JOBS 

WEDNESDAY, MARCH 13, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:12 a.m., in room 

2123, Rayburn House Office Building, Hon. Joseph R. Pitts (chairman of the subcommittee) presiding. 

Present: Representatives Pitts, Burgess, Hall, Shimkus, Lance, 

Cassidy, Guthrie, Griffith, Bilirakis, Ellmers, Upton (ex officio), 

Pallone, Dingell, Schakowsky, Green, Butterfield, Barrow, 

Christensen, Sarbanes, and Waxman (ex officio). 

Staff Present: Gary Andres, Staff Director; Sean Bonyun, Communications Director; Matt Bravo, Professional Staff Member; Paul 

Edattel, Professional Staff Member, Health; Steve Ferrara, Health 

Fellow; Julie Goon, Health Policy Advisor; Debbee Hancock, Press 

Secretary; Sydne Harwick, Staff Assistant; Robert Horne, Professional Staff Member, Health; Carly McWilliams, Legislative Clerk; 

Andrew Powaleny, Deputy Press Secretary; Chris Sarley, Policy 

Coordinator, Environment and Economy; Heidi Stirrup, Health Policy Coordinator; Lyn Walker, Coordinator, Admin/Human Resources; Alli Corr, Minority Policy Analyst; Amy Hall, Minority 

Senior Professional Staff Member; Karen Lightfoot, Minority Communications Director and Senior Policy Advisor; Karen Nelson, Minority Deputy Committee Staff Director For Health; and Matt 

Siegler, Minority Counsel. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Mr. PITTS. The subcommittee will come to order. The chair will 

recognize himself for an opening statement. 

In today’s sluggish economy, with depressed wages and millions 

of Americans who simply cannot find work, the Federal Government should be encouraging businesses to grow and expand and 

hire more people. We should be incentivizing good jobs that provide 

the opportunity for advancement and increased wages. As a result 

of Obamacare, however, we are doing exactly the opposite. And 

those who are hurt the most by the law are the most vulnerable: 

Low-wage young Americans in the retail and service industries. 

Obamacare has multiple detrimental effects on American workers. It contains perverse incentives for employers to, one, not hire 

new employees; two, convert full-time employees to part-time status or only hire part-time workers; and, three, drop coverage they 

currently provide to employees. Additionally, the new taxes and 

2 

fees created by the law make it even harder for employers to compete in our current economy. 

First, Obamacare requires that employers with 50 or more fulltime equivalent employees provide Federally-approved health coverage or face a tax penalty of $2,000 for every employee beyond the 

30th. If a business cannot afford to provide government-approved 

health insurance, making the decision to hire that 50thworker triggers the $2,000 penalty on the previous 20 employees as well. In 

many cases, employers have concluded that they simply cannot afford the cost of that 50th employee, effectively capping their growth 

and ensuring that fewer jobs exist for the millions of Americans 

who are unemployed or underemployed. 

This is not theoretical. According to the January 2013 Report on 

Economic Activity published by the Federal Reserve, ‘‘Employers in 

several districts cited the unknown effects of the Affordable Care 

Act as reasons for planned layoffs and reluctance to hire more 

staff.’’ 

Secondly, Obamacare is causing employers to convert full-time 

employees to part-time status and/or to hire only part-time worker 

employees, because the law defines anyone working 30 hours a 

week or more as full time, thus counting against the 50 FTE 

threshold. We are already seeing employers reducing hours of current employees so as not to trigger the employer mandate and resulting fine. And this trend disproportionately affects low-wage 

Americans in the restaurant, hotel, retail and service industries. 

Last month, The Wall Street Journal reported on a phenomenon 

known as part-time job sharing in the fast food industry. Here fast 

food chains such as the McDonald’s, Burger King, or Wendy’s will 

effectively share employees. An employee will work part-time in 

one restaurant, and then go work part-time in another. Both employers benefit—Obamacare does not require them to provide 

health insurance for part-time workers—but the employee suffers. 

He or she now has two part-time jobs, and yet still does not qualify 

for employer-sponsored insurance. 

The Federal Reserve report confirms this trend. The report states 

that in Fed District 7, Chicago, some employers, ‘‘Are also beginning to limit hours for part-time workers to less than 30 hours in 

order to avoid the 30-hour’’—that is the full-time employee status— 

‘‘rule related to the Affordable Care Act.’’ 

Thirdly, those Americans blessed with a full-time job may lose 

their employer benefits. Many large employers have concluded that 

paying the $2,000 fine is still cheaper than providing health coverage. In some cases, large employers have found that they could 

save hundreds of millions of dollars or even billions of dollars by 

dropping coverage and paying the fine. 

These devastating consequences of Obamacare are already being 

seen today. And as the law goes into effect in 2014, we will only 

get worse in future years. I look forward to hearing from our witnesses today exactly what the effects of Obamacare will be on jobs 

and the workforce. 

And my time is up, so at this time, I will conclude and recognize 

the ranking member of the Subcommittee on Health, Mr. Pallone, 

for 5 minutes for an opening statement. 

[The prepared statement of Mr. Pitts follows:] 

3 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

In today’s sluggish economy, with depressed wages, and millions of Americans 

who simply cannot find work, the federal government should be encouraging businesses to grow and expand and hire more people. 

We should be incentivizing good jobs that provide the opportunity for advancement and increased wages. 

As a result of Obamacare, however, we are doing exactly the opposite. And those 

who are hurt the most by the law are the most vulnerable—low-wage, young Americans in the retail and service industries. 

Obamacare has multiple, detrimental effects on American workers. It contains 

perverse incentives for employers to: (1) not hire new employees, (2) convert fulltime employees to part-time status or only hire part-time workers, and (3) drop coverage they currently provide to employees. Additionally, the new taxes and fees created by the law make it even harder for employers to compete in our current economy. 

First, Obamacare requires that employers with 50 or more full-time equivalent 

(FTE) employees provide federally-approved health coverage or face a tax penalty 

of $2,000 for every employee beyond the 30th. 

If a business cannot afford to provide government-approved health insurance, 

making the decision to hire that 50th worker triggers the $2,000 penalty on the previous 20 employees, as well. 

In many cases, employers have concluded that they simply cannot afford the cost 

of that 50th employee, effectively capping their growth and ensuring that fewer jobs 

exist for the millions of Americans who are unemployed or under-employed. 

This is not theoretical. 

According to the January 2013 report on Economic Activity published by the Federal Reserve, ‘‘[E]mployers in several Districts cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff.’’ 

Second, Obamacare is causing employers to convert full-time employees to parttime status and/or to only hire part-time employees, because the law defines anyone 

working 30 hours a week or more as ‘‘full-time,’’ thus counting against the 50 FTE 

threshold. 

We are already seeing employers reducing hours of current employees so as not 

to trigger the employer mandate and resulting fine. And, this trend 

disproportionally affects low-wage Americans in the restaurant, hotel, retail, and 

service industries. 

Last month, the Wall Street Journal reported on a phenomenon known as ‘‘parttime job sharing’’ in the fast food industry. 

Here, fast food chains such as McDonald’s, Burger King, or Wendy’s will effectively ‘‘share’’ employees. An employee will work part-time at one restaurant and 

then go and work part-time at another. 

Both employers benefit—Obamacare does not require them to provide health insurance for part-time workers. 

But the employee suffers—he or she now has two part-time jobs and yet still does 

not qualify for employer-sponsored insurance. 

The Federal Reserve report confirms this trend. The report states that in Fed District VII, Chicago, some employers ‘‘are also beginning to limit hours for part-time 

workers to less than 30 hours in order to avoid the 30-hour (full-time employee status) rule related to the Affordable Care Act.’’ 

Third, those Americans blessed with a full-time job may lose their employer benefits. Many large employers have concluded that paying the $2,000 fine is still cheaper than providing health coverage. 

In some cases, large employers have found that they could save hundreds of millions or even billions of dollars by dropping coverage and paying the fine. 

These devastating consequences of Obamacare are already being seen today, and, 

as the law goes into effect in 2014, will only get worse in future years. 

I look forward to hearing from our witnesses exactly what the effects of 

Obamacare will be on jobs and the workforce. 

OPENING STATEMENT OF HON. FRANK PALLONE JR, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Chairman Pitts. Critics of the Affordable Care Act have frequently claimed that the law would have a 

4 

negative impact on jobs and the overall health of the U.S. economy. 

But these claims have not been borne out by the facts. Simply put, 

health reform is contributing to lower health care costs which benefits families and employers by helping free up capital for saving, 

investing and hiring. Overall, national health spending is growing 

at a lower rate than it has in decades. The latest job numbers released last week showed that over 6 million private sector jobs 

were created since we passed the Affordable Care Act, and 750,000 

of those jobs are in the health care sector. 

Now, today I expect my colleagues to attempt to make the case 

that Congress must eliminate the employer mandate. Of course, 

they advocate that we should repeal the health care reform and, 

you know, their budget, which I understand they are voting on 

right now in the Budget Committee, would once again repeal the 

Affordable Care Act. 

So, you know, they are honing in on the employer mandate as 

just part of their overall effort to kill the Affordable Care Act. But 

I strongly believe that these efforts to repeal not only employer 

mandate, but the whole bill are misguided. Most American workers 

already get their insurance through their employers. In fact, almost 

all, 93 percent of businesses with 50 to 199 employees already offer 

coverage. The Affordable Care Act purposely didn’t change that, despite claims that it is a Federal takeover of health insurance. And 

in a private employer-based system aimed at getting at many 

Americans covered as possible, which is the main goal of health reform, it is important that all but the smallest businesses share the 

costs. And that is why every small business with fewer than 50 employees is completely exempt from the laws and employer responsibility provisions. 

Now, it is no secret that medical care accounts for 18 percent of 

the U.S. Gross domestic product, and it is taking up at least as 

much of the mind share of plenty of American entrepreneurs and 

business owners. So what the Affordable Care Act attempts to do 

is increase access to the millions of uninsured Americans while 

slowing the growth of health care. 

Now, I feel like we have had this discussion so many times, I 

don’t know how, 50, 100. We will have it again on the floor with 

the budget this week. Unfortunately, it is still misunderstood that 

the rate at which health care costs have risen hang on the fact that 

so many have gone without insurance. Those uninsured don’t go 

uncared for if they get sick, but, instead, they use the emergency 

room or simply go to the hospital and don’t pay. And these billions 

in uncompensated care get passed along to the health care consumers, including large and small employers who offer insurance 

in the form of higher premiums. So by covering more people, we 

eliminate the need to cover this uncompensated care. 

Now, I advocated and pushed forward the Affordable Care Act 

because I strongly believed that as health care costs were skyrocketing, American families and businesses simply couldn’t continue to bear that weight. Business owners know that if current 

trends continue, health care spending will double in less than 10 

years. For those American businesses and for the economy, defending the status quo just simply wasn’t an option. And I know a lot 

of businesses are unsure, Mr. Chairman, of the law and some are 

5 

fearful that will cause an inability for the business to grow. But I 

believe that the mandate helps put smaller businesses on a more 

competitive footing with large firms, and it evens the playing field 

for those businesses that already provide health coverage but are 

forced to compete with companies that don’t. 

So, Mr. Chairman, let me just close by saying above all else, I 

believe that most employers want to be part of the solution and 

once they begin to comply, I am confident they will begin to understand the overall advantages to offering health benefits. Republican 

efforts to discredit the law and misinform the public can’t obscure 

the fact that more and more Americans are benefiting from the 

provisions of the Affordable Care Act. I just don’t understand. We 

continue to have hearings about either repealing the bill outright, 

which is what the Republican budget is discussing, you know, the 

Republicans are discussing in the Budget Committee right now, or 

repealing parts of it or cutting back on the funding. 

The fact of the matter is the Affordable Care Act is a good bill. 

And the more their efforts are cut back on funding it, not implementing it, the more Americans will suffer. So I hope this is the 

last hearing we have on why the Affordable Care Act is, in the Republicans’ opinion, not a good idea. But I guess that is wishful 

thinking on my part. I yield back. 

Mr. PITTS. That is wishful thinking. On Friday we have one on 

premium increases that will further discuss the impact of the new 

law on premiums. 

With that, the chair now recognizes the chairman of the full committee, Mr. Upton, for 5 minutes for his opening statement. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Thank you, Mr. Chairman. You know, millions of 

Americans are still struggling to find jobs, and is this committee’s 

main priority to get them back to work. Today we are going to examine the Affordable Care Act’s impact on the economy and jobs. 

And, fortunately, based on testimony that we are going to hear 

today, it is clear that the law is hurting our Nation’s economy, and 

those Americans are trying to find work—particularly with those 

Americans who are trying to find work and make ends meet. Just 

this past week, the Federal Reserve released a report that painted 

a pretty grim picture of how the law is going to affect our economy. 

According to the Fed’s own analysis, the law is leading employers 

to delay and minimize new hires. 

Uncertainty stemming from the health care law is a leading concern for American businesses, large and small. One major provision 

causing much of the uncertainty is, of course, the law’s employer 

mandate. Starting next year, employers with 50 or more full-time 

workers will be forced to provide Washington-approved health care 

coverage or pay a tax penalty. As we are going to hear from our 

expert witnesses today, this requirement is going to hurt part-time 

workers looking for more hours and Americans still looking for a 

job. As a result of the health care law, employers with 49 workers 

must now weigh whether hiring an additional worker is really 

worth the $40,000 tax penalty imposed by the IRS if they are unable to provide Washington-approved health care coverage. 

6 

At a time when our unemployment rate is still much too high, 

the Affordable Care Act is making it harder for our nation’s employers to hire new workers. The new law is, in essence, penalizing 

job creation. For employers who decide that they are still going to 

want to offer health care coverage, the law is going to make it even 

more expensive. Last week our committee released a report highlighting over 30 studies that analyzed the new law’s impact on 

health care premiums. One survey found that small group premiums could increase as much as 200 percent for employers with 

younger workforces. A specific provision causing premium increases 

is the $165 billion in new taxes on plans, medical devices, and 

drugs that are going to go passed onto consumers. 

In addition, the Affordable Care Act includes price controls, regulations, and mandates that are going to lead to huge premium 

spikes. In my home state of Michigan, some folks will see their premiums go up as much as 35 to 65 percent. These statistics are not 

just projections on a sheet of paper, they have significant consequences as millions of American workers will see lower wages 

and less take-home pay because of the new law. Let’s hope that we 

can work together to see what we can do to get these things down. 

I yield the balance of my time to Dr. Burgess. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Millions of Americans are still struggling to find jobs, and it is the committee’s 

main priority to get them back to work. Today, we will examine the Affordable Care 

Act’s impact on the economy and jobs. Unfortunately, based on testimony we will 

hear today, it is clear that the law is hurting our nation’s economy and those Americans trying to find work and make ends meet. 

Just this past week, the Federal Reserve released a report that painted a grim 

picture of how the law will affect our economy. According to the Fed’s own analysis, 

the law is leading employers to delay and minimize new hires. 

Uncertainty stemming from the health care law is a leading concern for American 

businesses large and small. One major provision causing much of this uncertainty 

is the law’s employer mandate. Starting in 2014, employers with 50 or more fulltime workers will be forced to provide Washington-approved health coverage or pay 

a tax penalty. As we will hear from our expert witnesses today, this requirement 

will hurt part-time workers looking for more hours and Americans still looking for 

a job. 

As a result of the health care law, employers with 49 workers must now weigh 

whether hiring an additional worker is worth the $40,000 tax penalty imposed by 

the IRS if they are unable to provide Washington-approved health care coverage. At 

a time when our unemployment rate is still much too high, the Affordable Care Act 

is making it harder for our nation’s employers to hire new workers. The new law 

is essentially penalizing job creation. 

For employers who decide that they still want to offer health insurance coverage, 

the law will make it more expensive. Last week, our committee released a report 

highlighting over 30 studies that analyzed the new law’s impact on health care premiums. One survey found that small group premiums could increase as much as 200 

percent for employers with younger workforces. 

A specific provision causing premium increases is the $165 billion in new taxes 

on plans, medical devices, and drugs that will be passed on to consumers. In addition, the Affordable Care Act includes price controls, regulations, and mandates that 

will also lead to huge premium spikes. In my home state of Michigan, some folks 

will see their premiums go up between 35 to 65 percent. 

These statistics are not just projections on a sheet of paper. They have significant 

consequences as millions of American workers will see lower wages and less take 

home pay because of the law. 

My hope is that the president and Congress can work together to avert the real 

harm the law is having on employers and workers across this nation before it is 

too late. I would like to thank the witnesses for their time and expertise today. 

7 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. I thank the chairman for yielding. I thank the 

chairman of the subcommittee for calling this hearing. 

We have all heard, of course, that provisions of the Affordable 

Care Act are not going to take place until January 2014. But, honestly, employers and companies are already feeling the effects of 

this disastrous law. The affordability—patient protection afford— 

accountability—I can’t even say it; ‘‘affordability’’ doesn’t belong in 

the title. But it has a direct and indirect effect on employers and 

employees. Individuals who will not only be affected directly by 

new taxes, but also indirectly as employers are forced to lower 

wages and decrease hiring in order to compensate for the new 

taxes that employers face. The law includes a tax intended to encourage employers to provide health insurance to their employees. 

Instead of encouraging growth, this tax creates a disincentive for 

employers to grow their workforce. 

Not only does the law tax employers more if they hire additional 

employees, but the law gives employers an outlet, a safety valve, 

to drop coverage for their employees by providing premium subsidies to individuals in the exchanges. 

At a time this country is beginning to find relief from the severe 

recession and its high unemployment, now is not the time to discourage economic growth. Instead of expanding coverage and lowering costs, the President’s health care law has pushed greater 

costs onto the backs of consumers, forcing those who are not responsible to bear the effects of higher costs. 

Mr. Chairman, I just can’t help but observe this past weekend 

when I sat down with my accountant with a shoe box full of receipts to do any income taxes, he pointed out to me on the W-2 

form a new line which has not existed before in which the employer’s contribution to an employee’s health insurance now appears. 

That begs the question, why is that there? At some point, that line 

is going to be taxed. Right now, it is there as sort of an innocent 

bystander. But, trust me, the IRS will not sit still long before that 

is added to the tax burden, which only increases the cost of delivering care in this country. 

Thank the chairman for the recognition. I yield back my time. 

Mr. PITTS. Chair thanks the gentleman. And now recognize the 

ranking member of the full committee, Mr. Waxman, for 5 minutes 

for opening statement. 

OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA 

Mr. WAXMAN. Thank you, Mr. Chairman. Today’s hearing is entitled ‘‘Obamacare and Jobs.’’ It is a topic that has been the focus 

of an endless stream of campaign ads, press releases, and talking 

points ever since the passage of the Affordable Care Act in 2010. 

Given this topic’s prominence in the Republican echo chamber, and 

this subcommittee’s hearings on it in the last Congress, it is understandable if members experience some deja vu during today’s hearing. 

8 

We will hear some dire predictions that we have been hearing for 

3 years about this supposedly nefarious piece of legislation. And 

just as before, these claims will be what every independent fact 

checker has called them: Whoppers, false, and political gamesmanship. Since the passage of the Affordable Care Act, we have added 

6 million private sector jobs. That is 3 years of continuous job 

growth. 

Throughout this period of growth, businesses have known what 

reforms look like. They have had time to plan and to account for 

new rules and consumer protections. And despite the dire warnings 

about this job-killing law and the troubling statements some businesses have made in anonymous surveys, we have seen steady job 

growth and we have seen health costs rise at historically low levels. 

Republicans expect us to believe all of this is happening in spite 

of health reform rather than because of it. And that is their right, 

to say it, but it is not credible. I hope the Republicans will heed 

Speaker Boehner’s advice to accept health reform as the law of the 

land. I hope that they will start looking at the empirical evidence 

rather than the Tea Party rhetoric. 

Democratic witness today, Dr. Linda Blumberg, has looked at the 

empirical evidence. She, like the Congressional Budget Office, or I 

should say the nonpartisan Congressional Budget Office, has 

crunched the numbers and determined that the Affordable Care 

Act does not raise costs on employers, will not cause job losses, and 

will not lead to a decline in employer sponsored health coverage. 

But I fear that the reason we are here today is not to discuss what 

is really in the Affordable Care Act or to have a good-faith discussion about ways to improve upon it in the future, or to make sure 

that it succeeds. 

Rather, the goal is to amplify the voices of a small minority who 

believe that the discriminatory, dysfunctional system we have had 

before was working fine. My Republican friends think that we 

should double down on the same deregulatory approach to health 

insurance that led to ever higher costs, tens of millions of more uninsured, and did nothing to control health care costs. 

I don’t believe that is the way forward. Because of health reform, 

insurers will no longer be able to exclude consumers from coverage 

based on preexisting conditions or gouge them for 40-percent profit 

margins or charge them premiums 10 times as high as their neighbors because of a preexisting condition, their age, their gender, or 

for any other reason. 

Because of health reforms, small businesses are able to get tax 

credits to help pay for coverage, and they will be able to pool their 

purchasing power, like bigger businesses, to keep their costs low 

and decrease the risks that one sick employee will dramatically 

raise their costs. Because of health reform, workers will have the 

security of knowing that they can get quality affordable coverage, 

even if they change jobs, or they employer doesn’t offer it. 

Because of health reform, businesses will have a healthier, more 

productive workforce. These are real steps forward. It is interesting 

to take note of the Republican budget that was just presented to 

the world yesterday. You know what they did? They took all the 

savings in the Affordable Care Act that they complained about and 

kept them. But they took all the benefits of the Affordable Care Act 

9 

and repealed them. That is what they would like to do to this country. I think that we ought to note that as we have this hearing, 

which is just for politics, just as their budget is just for politics. But 

it is the same politics that was rejected by the American people in 

the last election. Accept the Supreme Court decision, accept the 

election results, work together as Americans to make sure that we 

can successfully cover all Americans for health insurers and not see 

them treated so poorly as we have had in the health care system 

over all the time up to the present. Thank you, Mr. Chairman. 

Mr. PITTS. Chair thanks the gentleman. 

We have one panel today. And I will introduce them at this time. 

Three witnesses. Ms. Diana Furchtgott-Roth, Senior Fellow to the 

Manhattan Institute. Dr. Linda Blumberg, Senior Fellow at the 

Urban Institute. And Mr. Tom Boucher, owner and CEO of Great 

New Hampshire Restaurants, Inc. He is testifying on behalf of the 

National Restaurant Association. 

You will each be given 5 minutes to summarize your testimony. 

Your written testimony will be entered into the record. 

Ms. Furchtgott-Roth, you are recognized for 5 minutes for your 

opening statement. 

STATEMENTS OF DIANA FURCHTGOTT-ROTH, SENIOR FELLOW, MANHATTAN INSTITUTE; TOM BOUCHER, OWNER AND 

CHIEF EXECUTIVE OFFICER, GREAT NEW HAMPSHIRE RESTAURANTS, INC., TESTIFYING ON BEHALF OF THE NATIONAL 

RESTAURANT ASSOCIATION; AND LINDA J. BLUMBERG, SENIOR FELLOW, THE URBAN INSTITUTE 

STATEMENT OF DIANA FURCHTGOTT-ROTH 

Ms. FURCHTGOTT-ROTH. Thank you very much. Thank you very 

much for inviting me to testify today. 

As we have heard, the Affordable Care Act is going to raise the 

cost of employment when fully implemented. Companies with 50 or 

more workers will be required to offer a generous health insurance 

package. The penalty raises significantly the cost of employing fulltime workers, especially low-skilled workers, because the penalty is 

a higher proportion of their compensation than for highly paid 

workers. 

So the $2,000 penalty amounts to 10.9 percent of average annual 

earnings in the food and beverage industry and 9.3 percent in retail trade. This is in addition to the employers’ cost of Social Security and Medicare. So whereas economic models might show that 

the cost does not have an effect on the overall amount of hiring, 

it does have effect on specific parts of the employment spectrum, 

namely, low-skilled workers. To look at the effects of the requirements to offer health insurance, I suggest to the honorable members of the committee the following thought experiment. What if 

employers were required to pay the cost of food, clothing, or housing for their employees? These are admittedly far more important 

than health insurance. Well, they would hire with employees with 

more skills, they would reduce the cash wage to compensate. This 

is what we are going to see in the same scale for employees with 

the Affordable Care Act. 

10 

So I heard today from the honorable members that the Affordable Care Act doesn’t raise costs and they don’t see where it raised 

costs. Well, here’s why it does. First of all, it requires an overly 

generous plan, a plan offered in the exchange has to have no copayments for routine care, mandatory drug abuse coverage, mandatory 

mental health coverage. And low-cost plans, catastrophic health 

plans, where you are just insured against routine—where you are 

just insured against large expenditures, such as falling off your bicycle in traffic or catching cancer or having a heart attack, those 

kinds of plans are not allowed. But those kinds of plans are less 

expensive than the other plans. 

Another reason it raises costs is the structure of guaranteed 

issue. Under the Supreme Court decision, you could pay a tax and 

legally not get health insurance. Tax is $95 the first year, 2014; 

about $350 the second year; 690 the third year. That is much 

smaller than the cost of buying health insurance. So anyone who 

is young and healthy is going to just legally pay the tax, not get 

health insurance. So the pool of sick people who are insured is 

going to get sicker and sicker. So we are going to get that more sick 

people in the pool of insured. That is going to raise costs. These 

people who are uninsured who pay the tax are then going to go to 

emergency rooms. So people will still be going to emergency rooms. 

There is also a large loophole in the bill that is again going to require people to go to emergency rooms. If you get affordable care 

under the act, if your employer offers you affordable care, you are 

required to take it. So say you are married, you have a family, your 

employer offers you affordable health care. But he is only required 

to offer you affordable care for a single person, not for a family. 

You are required to take that. So you have a wife and three children, and you are low income. The wife and three children cannot 

get subsidies on the exchanges. They are not required to be insured 

by the employer either. So these people, the families of individuals 

who are insured by the employer are going to be going to the emergency rooms because they won’t qualify for subsidies. 

What we have here in the bill is a bill that gives people an incentive to hire high-skilled workers. Because if you hire a high-skilled 

worker and you pay them, say, average wage above $50,000 a year 

or so, you take the cost of the health care plan out of their wage, 

they get a lower cash wage. So as an employer, you are left basically where you are before. But low-skilled workers, you are 

incentivized to hire part-time, under 30 hours a week. If you are 

a small business, you are incentivized not to grow more than 50 

workers because then you get a penalty. You are incentivized to 

hire capital for labor, as we see these self-scanning machines in 

drug stores, and we see that people who take money when you go 

out of parking lots are no longer there, you just put your credit 

card in the machine. 

So the economy might do fine, as Dr. Blumberg is going to say. 

But low-skilled workers are going to lose out. And the costs of 

health care in the United States are going to rise because of the 

incentives that I just described. Thank you very much for giving 

me the opportunity to testify, and I would be glad to answer any 

questions afterwards. 

[The prepared statement of Ms. Furchtgott-Roth follows:] 

11 


80319.001

\1 

Effects of the Mfordable Care Act on Jobs 

Diana Furchtgott-Roth 

Senior Fellow, Manhattan Institute 

Testimony before the Subcommittee on Health of the House Energy and Commerce 

Committee 

March 13, 2013 
12 


80319.002

Effects of the Affordable Care Act on Jobs 

Chairman Pitts, members of the Committee, I am honored to be invited to testify before 

you today on the effects of the Affordable Care Act on jobs. The Act has employment 

effects on millions of Americans, and I thank you for holding this hearing. 

I am a senior fellow at the Manhattan Institute. From 2003 until April 2005 I was chief 

economist at the U.S. Department of Labor. From 2001 until 2002 I served at the 

Council of Economic Advisers as chief of staff. I have served as Deputy Executive 

Secretary of the Domestic Policy Council under President George H.W. Bush and as an 

economist on the staff of President Reagan's Council of Economic Advisers. I am the 

author of a study entitled The Effects of the Patient Protection and Affordable Care Act on the 

Franchise Industry. 

High unemployment tops of the list of concerns for Americans. In early March, the 

Labor Department announced that the February unemployment rate declined to 7.7 

percent. That was good news, but the Department also announced that the labor force 

participation rate declined to 63.5 percent, equivalent to levels in September 1981. The 

civilian labor force declined by 130,000. Many workers left the labor force because they 

have not been able to find jobs. 

It is normal in a recovery for the labor force participation rate to rise, not decline, as 

people move back into the labor force. This recovery, however, has been accompanied 

2 
13 


80319.003

by a shrinking workforce. Including discouraged and underemployed workers, the 

Labor Department's measure of unemployment is 14.3 percent.1 

The $2,000 per worker penalty in the new health care law, effective 2014 and levied on 

employers who do not provide the right kind of health insurance, is discouraging 

hiring. 

The Affordable Care Act of 2010 will raise the cost of employment when fully 

implemented in 2014. Companies with 50 or more workers will be required to offer a 

generous health insurance package, with no lifetime caps and no copayments for 

routine visits, or pay an annual penalty of $2,000 for each full-time worker. 

This penalty raises significantly the cost of employing full-time workers, especially lowskill workers, because the penalty is a higher proportion of their compensation than for 

high-skill workers, and employers cannot take the penalty out of employee 

compensation packages. 

To look at the effects of the requirement to offer health insurance, I suggest to the 

honorable Members of the Committee the following thought experiment. What if 

employers were required to provide food, clothing or housing - admittedly far more 

important than health insurance? Firms would hire fewer employees. They would hire 

I Bureau of Labor Statistics, "The Employment Situation - February 2013," March 8, 2013, 

http:((bls.gov (news.release(pdf! empsit.pdf. 

3 
14 


80319.004

employees with more skills. They would reduce the cash wage to compensate for the 

amount they had to spend on food, clothing, and housing. 

The same is happening in a smaller scale with the requirement to provide a certain level 

of health insurance or pay a fine. Employers are not blind. They see these penalties 

coming, and they are adjusting their workforce accordingly. 

The evidence that employers are economizing on workers is all around us. More 

supermarkets and drug stores have self-scanning machines at checkout. Large 

department stores have price-scanning machines scattered around the stores, so that 

shoppers can check prices without asking a clerk. Food trucks line the streets in New 

York and Washington, D.C., enabling restaurants to sell their food without waiters. 

These workforce adjustments are just one reason that employment growth has been 

slower than usual during this economic "recovery." 

Hardest hit are workers with fewer jobs skills. The unemployment rate for adult 

workers with less than a high school diploma is 11.2 percent. Teens face an 

unemployment rate of 25.1 percent. The rate for African American teens is even higher, 

at 43.1 percent.2 

Another group that is disproportionately affected is younger workers. Of the 1.4 million 

adults who found jobs over the past year, over 1 million are over 55 years old, and 

2 Bureau of Labor Statistics, ibid. 

4 
15 


80319.005

336,000 are between ages 25 and 55-even though the 25 to 55 group is over 50 percent 

larger than the 55 and older group. Younger workers have far fewer employment 

opportunities, which affects their lifetime expected earnings. 

Suppose that a firm with 49 employees does not provide health benefits. Hiring one 

more worker will trigger an annual penalty of $2,000 per worker multiplied by the 

entire workforce, after subtracting the statutory exemption for the first 30 workers. In 

this case the penalty would be $40,000, or $2,000 times 20 (50 minus 30). Indeed, a firm 

in this situation might have a strong incentive not to hire a 50th worker, or to pay him 

off the books, thereby violating the law. 

In addition, if an employer offers insurance, but an employee qualifies for subsidies 

under the new health care exchanges because the insurance premium exceeds 9.5 

percent of his income, his employer must pay $3,000 per worker. This combination of 

penalties gives businesses a powerful incentive to downsize, replace full-time 

employees with part-timers, and contract out work to other firms or individuals. For 

example, a restaurant might outsource some of its food preparation versus paying 

employees to make it on-site. 

What has been rarely discussed is that the franchise industry will be particularly hardhit because the new law will make it harder for small businesses with 50 or more 

employees to compete with those with fewer than 50 employees. 
16 


80319.006

Franchisors and franchisees, who often own groups of small businesses, such as stores, 

restaurants, hotels, and service businesses, will be at a comparative disadvantage 

relative to other businesses with fewer locations and fewer employees. This will occur 

when a franchisor or franchisee employs 50 or more persons at several locations and 

finds itself competing against independent establishments with fewer than 50. 

An estimated 828,000 franchise establishments in the u.s. accounted for more than $468 

billion of GDP and more than 9 million jobs, based on PricewaterhouseCoopers' report 

of 2007 Census data.3 When factoring the indirect effects, these franchise businesses 

accounted for more than $1.2 trillion of GDP -or nearly 10 percent of total non-farm 

GDP. Of franchise businesses, an estimated 77 percent were franchisee-owned and 23 

percent were franchisor-owned. 

Franchise businesses can be organized in many ways. In some cases the franchisor, or 

parent company, will own and operate some locations while franchising others. In 

other cases, a franchisee will own a single location or "unit." In a third set of cases, a 

franchisee will own multiple locations, referred to as a "multi-unit franchisee." More 

than half of all franchise establishments are owned by multi-unit franchisees. In the 

3 PricewaterhouseCoopers (PwC), February 2011, TIle Economic Impact ofFranci1ised Businesses: Volume III, 

Results for 2007, February 2011, 

http://www.buildingopportunity.com/download/ National %20Views.pdf. 

6 
17 


80319.007

cases where the franchisor and the franchisee own and operate multiple locations, these 

firrns are treated as one company for penalty and health care purposes. 

The new health care law would put many franchise businesses at a disadvantage 

relative to non-franchise competitors by driving up their operating costs. Many of these 

businesses would be subject to the $2,000 health care penalty if they do not provide 

health insurance. The multi-unit franchisees will have a particularly difficult time 

operating in this uneven business environment. 

Suppose a multi-unit franchisee owns four establishments with 15 full-time employees 

each. Under the new health care law, this multi-unit franchisee will be treated as a 

single firm with 60 full-time employees, and the employer will be required by law to 

prOVide healthcare benefits for all employees or pay a fine of $2,000 per full-time 

employee per year. 

However, if these four establishments were owned and operated separately, they would 

be exempt from the requirement of providing healthcare benefits. Further, if these four 

separately-owned businesses choose to offer health insurance, they would in some cases 

be entitled to a penalty credit. 

When the employer mandates are phased-in in 2014, many franchise businesses will be 

motivated to reduce the number of locations and move workers from full-time to part7 
18 


80319.008

time status. This will reduce employment still further and curtail the country's 

economic growth. More than 3.2 million full-time employees in franchise businesses 

may be affected. 

Industries that have traditionally offered the greatest opportunities to entry-level 

workers-leisure and hospitality, restaurant-will be particularly hard-hit by the new 

law. Many of these employers do not now offer health insurance to all of their 

employees, and employ large percentages of entry-level workers, whose cost of hiring 

will increase significantly. 

The franchise industry has offered an entry point to low-skill workers, who have some 

of the highest unemployment rates in America. Adults without high school diplomas 

face an unemployment rate of 11.2 percent, nearly 3 times as high as rates for college 

graduates, and well above the national average of 7.7 percent. 

Under the new law, for each block of 30 weekly hours of part-time work by one or more 

employees a business is deemed to have one full time equivalent employee. The 

penalty for full-time employees is $2,000 per worker after the first 30 employees. 

Businesses with fewer than 50 employees will have an advantage. If they do not hire too 

many workers-another government-induced disincentive for hiring in this weak labor 

market-and stay within the 49-person limit, these firms will not have to provide health 

8 
19 


80319.009

insurance and will have a cost advantage over the others. Such businesses will be able 

to compete advantageously against businesses with multiple locations and 50 or more 

employees. 

The $2,000 penalty will amount to 10.9 percent of average annual earnings in the food 

and beverage industry and 9.3 percent in retail trade.4 This is a cost in addition to the 

employer's share of Social Security and Medicare taxes (7.65 percent, equal to what the 

employee pays), as well as workers' compensation and unemployment insurance. 

When the government requires firms to offer benefits, employers will generally prefer 

to hire part-time workers, who will not be subject to the penalty. Even though the Act 

counts part-time workers by aggregating their hours to determine the size of a firm, 

part-time workers are not subject to the $2,000 penalty. Hence, there will be fewer 

opportunities open for full-time work. Many workers who prefer to work full-time will 

have an even harder time finding jobs. 

In February over 8 million people were working part-time because they could not find 

full-time jobs. The new health care law would exacerbate this problem. 

In addition to hiring more part-time workers, firms will have an added incentive to 

4 Bureau of Labor Statistics, Current Employment Statistics, March 8, 2013, 

http://www.bIs.gov/web/empsit/ceseeb8b.htm. 

9 
20 


80319.010

become more automated, or machinery-intensive-and employ fewer workers. Fast 

food restaurants could ship in more precooked food and reheat it, rather than cook it on 

the premises. Something analogous is already gaining momentum in industries such as 

DVD rental, where manual labor at retail outlets is being replaced by customeractivated DVD checkout. Supermarkets, drugstores and large-chain hardware stores 

also are introducing do-it-yourself customer checkout. 

Some employers will be allowed to keep existing plans, a term known as 

"grandfathering." However, restrictions on" grandfathering" could force up to 80 

percent of small businesses to drop their current health insurance plans within three 

years and either replace them with more expensive new plans or go without insurance 

altogether and pay the penalty, according to government estimates. 

The restaurant industry, which represents 23 percent of franchise businesses by number 

and 50 percent of franchise business employment, provides an example of how firms 

with seasonal, part-time employees, competitive environments, and low profit margins 

will face new challenges in connection with the provision of health insurance. Some 

restaurant owners are likely to drop existing coverage that no longer meets the 

requirements of the Act. Several restaurants received waivers from the Department of 

Health and Human Services in 2011, but these waivers will not continue into 2014, once 

the Act is fully phased in. Many restaurants will be penalized because their low-wage 

workers will choose to get subsidized coverage on the state exchanges. 

10 
21 


80319.011

The disincentive in the Act to hire additional workers is illustrated in Table 1. If a 

business does not offer health insurance, then, beginning 2014, it will be subject to a 

penalty if it employs more than 49 workers in all its establishments. For 49 workers, the 

penalty is O. For 50 workers, the penalty is $40,000; for 75 workers, it is $90,000; and for 

150 workers, the penalty is $240,000. Each time a business adds another employee, the 

penalty rises. 

On the other hand, as is shown in Table 2, businesses can reduce costs by hiring parttime workers instead of full-time workers. A firm with 85,000 full-time workers and 

7,000 part-time workers that does not offer health insurance would pay a penalty of 

$170 million. By keeping the number of hours worked the same, and gradually 

reducing full-time workers and increasing part-time workers, until the firm reaches 

17,000 full-time workers and 92,000 part-time workers, the penalty is reduced to $34 

million. If the firm abandons full-time workers altogether, admittedly an unlikely 

option, but useful for illustration, the penalty is reduced to zero. 

Some businesses, single-Unit franchisees and others, could minimize cost by increasing 

part-time hourly workers, reducing the number of full-time workers, and dropping 

employer-provided health insurance. Even if businesses choose to offer health 

insurance to their full-time employees, the Act gives them an incentive to employ more 

part-time hourly workers than full-time workers in an effort to maximize penalty 

11 
22 


80319.012

benefits. If Congress leaves these incentives in place, the reduction in full-time 

employment would be costly to the economy. 

Table 3, with data taken from the International Franchise Association Educational 

Foundation, shows the costs of the new health care law to the multi-unit franchise 

business. Multi-unit franchisees would face more than $3.5 billion in penaltiespenalties that could be reduced if firms switched from full-time to part-time workers. 

Costs would be highest in the quick service restaurant industry, with total penalties of 

more than $1.6 billion. More than 1.7 million full-time jobs are at risk in multi-unit 

franchisee businesses, with 820,000 jobs in the quick service industry. 

The $2,000 and $3,000 per worker tax payments are the most visible taxes under the 

new health care law, but they are not the only taxes. The U.s. Government 

Accountability Office has published a list of 47 different tax provisions in the new law. 

This list is reproduced in Table 4. 

Despite the broad new array of taxes, the Act is structured so as to give the Internal 

Revenue Service limited enforcement to collect the tax, so that most individuals will be 

able to avoid paying individual penalties altogether. This will leave the burden of the 

tax to be paid by employers. 

12 
23 


80319.013

In a June 25, 2012 article in Tax Notes, law professors Jordon Barry of the University of 

San Diego School of Law and Bryan Camp of the Texas Tech University School of Law 

describe precisely how the Act limits the collection of the tax penalties by the Internal 

Revenue Service. 

Under Section 5000A, the Act does not allow the IRS to use prosecution or criminal 

penalties to collect the health insurance tax penalty. Further, the IRS is not allowed to 

place a levy on a persons property, or file a notice of lien to collect the tax. This is 

completely at odds with other methods of collecting federal taxes, Barry and Camp 

explain. 

The IRS could collect the tax penalty if taxpayers were entitled to a refund of overpaid 

federal income taxes. The agency could then subtract the health insurance penalty from 

the refund. But if taxpayers underpaid their income taxes, and were not entitled to a 

refund, collection would be most difficult. 

Barry and Camp conclude, "The restrictions placed on the IRS's ability to collect the tax 

penalty make it unlikely the IRS can effectively enforce the individual mandate .... Thus, 

many taxpayers who neglect or refuse to pay the tax penalty could structure their 

13 
24 


80319.014

affairs in such a way as to avoid being subject to legal consequences of any sort for 

years to come, if ever."5 

Although individuals will be able to avoid paying the tax, employers will not. 

Increased hiring costs will cause them to reduce hiring by substituting skilled for 

unskilled employees in some cases, and machines for employees in others. Placing a tax 

on hiring will only further reduce the growth of employment. 

5 Barry, Jordan M. and Bryan Camp, Is the Individual Mandate Really Mandatory? Tax Notes, Vol. 135, p. 

1633, June 25, 2012. 

14 

80319.015

Table 1: Disincentives for Growth 

__ m___m ___ m_n u .... m I Avg. Annual Wage 

Full-time Employees $40,000 

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Sce

Full-Time Employees 49 50 75 100 

2014 Penalty $0 $40,000 $90,000 $140,000 $24

Change in Cost per Employee (2014) $0 $800 $1,200 $1,400 $

Percent Cost Increase Per Employee (2014) 0.0% 2.0% 3.0% 3.5% 4

Source: Author calculations based on new health care law. 

Note: Scenario 1 assumes that there are no part-time employees and therefore the employer mandate does not apply

Table 2: Cost Savings from Moving Workers from Full-time to Part-time 

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 

Full-time Employees 85.000 68.000 51.000 34.000 17.000 Part-time Hourly Employees 7.000 28.250 49.500 70.750 92.000 1

2014 Employer Mandate Penalty $169.940.000 $135.940.000 $101.940.000 $67.940.000 $33.940.000 

Change in Total Cost (2014) $169.940.000 -$113.593.500 -$397.135.500 -$680.653.000 -$964.231.000 - $1.247.6

Percent Change in Cost per Employee 6.64% -8.66% -22.67% -35.55% -47.42% -

Assumed Cost Per Labor Hour (2011) $19.60 $19.60 $19.60 $19.60 $19.60 

Cost Per Labor Hour (2014) $20.91 $18.73 $16.56 $14.39 $12.21 

Source: Author calculations based on new health care law. 

Note: The calculation is full-time employees minus the exempted 30 full-time employees, and then multiplied by the 

$2,000 employer mandate penalty. 

15 

80319.016

Table 3: Estimated Effect of Healthcare Reform on Multi-Unit Franchise Businesses 

Business Category Jobs Establishments Employer Mandate Penalty Full-time Job

Quick service restaurants 1,174,957 62,404 $1,631,664,898 

Table/Full Service restaurant 350,648 12,467 $557,958,133 

Business services 306,658 49,474 $228,654,370 

Lodging 318,159 11,976 $501,453,723 

Personal services 294,945 66,584 $166,025,405 

Retail food 159,901 19,961 $129,928,679 

Real Estate 189,104 48,429 $102,037,036 

Retail products and services 150,626 40,618 $80,171,475 

Commercial and residential services 124,603 35,004 $65,120,442 

Automotive 72,398 13,453 $42,741,404 

All Multi-Unit Franchisees 3,141,999 360,371 $3,505,755,565 1

Source: U.s. Bureau of the Census, 2007 Economic Census; International Franchise Association, member data; and 

calculations. 

16 

80319.017

Table 4: Tax Provisions in the Mfordable Care Act 

Legislation Internal Provision description Internal Revenue Service's (IRS) Effe

section Revenue Code role date 

(IRe) section 

1 1001 Prohibits group health plans from Issued notice inviting public 9/2

discriminating in favor of highly comment on application to group 

compensated individuals. health plans. 

2 1102 Establishes a temporary reinsurance Ensure payments received for 3/2

program to provide reimbursement submission of claims for health Unt

for a portion of the cost of providing coverage to early retirees are not 1/1

health insurance coverage to early included in the gross income of the 

retirees. employment-based plan. 

3 1104 Imposes a penalty on health plans Draft guidance or regulations, 3/2

identified in an annual Department according to IRS. 

of Health and Human Services 

(HHS) penalty fee report, which is to 

be collected by the Financial 

Management Service after notice by 

the Department of the Treasury 

(Treasury). 

4 1311 Requires state exchanges to send to Coordinate with HHS on drafting 3/2

Treasury a list of the individuals guidance or regulations, according to 

exempt from having minimum IRS. 

essential coverage, those eligible for 

the premium assistance tax credit, 

and those who notified the exchange 

of change in employer or who ceased 

coverage of a qualified health plan. 

17 

80319.018

5 1322 501 (c}(29) Provides tax exemption for nonprofit Ensure tax exemption for certain 3/2

health insurance companies nonprofit health insurers receiving receiving federal start-up grants or loans or grants under the Consumer 

loans to provide insurance to Operated and Oriented Plan as 

individuals and small groups. established by HHS to provide 

insurance in the individual and 

small-group market. 

6 1341 Provides tax exemption for entities Ensure tax exemption for entities 3/2

providing reinsurance for individual providing reinsurance for individual 

policies during first 3 years of state health insurance policies during the 

exchanges. first 3 years of state exchanges. 

7 1401 36B Provides premium assistance Prescribe regulations governing the 01/

refundable tax credits for applicable reconciliation of advance payment 

taxpayers who purchase insurance amounts with authorized credits and through a state exchange, paid where taxpayer's filing status differs 

directly to the insurance plans from what was used to determine 

monthly or to individuals who pay credit eligibility. 

out-of-pocket at the end of the 

taxable year. 

S 1402 Provides a cost-sharing subsidy for Prescribe regulations with the 3/2

applicable taxpayers to reduce Secretary of HHS on calculating 

annual out-of-pocket deductibles. family size and household income. 

9 1411 36B Outlines the procedures for Verify household income and family 3/2

determining eligibility for exchange size for purposes of eligibility for the 

participation, premium tax credits tax credit and cost-sharing reduction. 

and reduced cost-sharing, and 

individual responsibility exemptions. 

-

18 

80319.019

10 1412 36B Allows advance determinations and Make advance tax credit payments 3/2

payment of premium tax credits and directly to issuer of a qualified plan 

cost-sharing reductions. on a monthly basis. Collect 

information from exchanges on 

individuals' participation, including 

the plan purchased and amounts 

advanced. 

11 1414 6103 Authorizes IRS to disclose certain Disclose certain taxpayer information 3/2

taxpayer information to HHS for to HHS officers, employees, and 

purposes of determining eligibility contractors on any taxpayer whose 

for premium tax credit, cost-sharing income is relevant to determining 

subsidy, or state programs including their eligibility for the premium tax 

Medicaid, induding (1) taxpayer credit, cost-sharing subsidy, 

identity; (2) the filing status of such Medicaid, state Children's Health 

taxpayer; (3) the modified adjusted Insurance Program, or a basic state 

gross income of taxpayer, spouse, or health program established under 

dependents; and (4) tax year of PPACA. 

information. 

12 1421 45R Provides nonrefundable tax credits Administer tax credit for small 1/1

for qualified small employers (no employers who contribute to health 

more than 25 full-time equivalents insurance premiums for their 

(FTE) with annual wages averaging employees. 

no more than $50,000) for 

contributions made on behalf of its 

employees for premiums for 

qualified health plans. 

19 

80319.020

13 1501 5000A Requires all U.S. citizens and legal Collect penalties incurred by 1/1

residents and their dependents to individuals who do not have maintain minimum essential minimum essential health insurance 

insurance coverage unless exempted coverage, using limited collection 

starting in 2014 and imposes a fine methods including offsetting penalty 

on those failing to maintain such amounts against refunds or credits. 

coverage. 

14 1502 6055,6724(d) ReqUires every person who provides Prescribe the form and manner of the 1/1

minimum essential coverage to file information return required to be 

an information return with the filed by January 31 by all insurers, 

insured individuals and with IRS. including employers that provided 

minimum essential health coverage 

to individuals in the preceding year. 

Apply penalties where an insurer 

does not file the information return. 

Notify individuals filing tax returns 

who do not have minimum essential 

health coverage that they can be 

penalized and provide information 

on the individuaf s state exchange. 

20 

80319.021

15 1513 4980H Imposes a penalty on large Collect penalties assessed annually, 1/1

employers (50+ FTEs) who (1) do not monthly, or periodically and repay 

offer coverage for all of their full- any penalty including interest where 

time employees, offer unaffordable the premium credit or cost sharing is 

minimum essential coverage, or offer subsequently disallowed. 

plans with high out-of-pocket costs 

and (2) have at least one full-time 

employee certified as having 

purchased health insurance through 

a state exchange and was eligible for 

a tax credit or subsidy. 

16 1514 6056,6724(d) Requires information reporting of Prescribe the form of the information 1/1

health insurance coverage return to be filed by large employers 

information by large employers and other employers offering 

(subject to IRC 4980H) and certain minimum essential health coverage 

other employers. certifying that coverage was offered 

and providing information on the 

individuals covered, and impose 

penalties on those failing to submit 

returns. 

17 1515 125(f) (3) Offers tax exclusion for Ensure tax exclusion for employers 1/1

reimbursement of premiums for offering exchange-participating 

small-group exchange-participating health plan in an employee cafeteria 

health plans offered by small plan. 

employers to all full-time employees as part of a cafeteria plan. 

18 1563 9815 Subjects new group health plans to Impose the excise tax for failure to 3/2

certain Public Health Service Act meet Public Health Service Act 

requirements and imposes the excise requirements on new group health 

tax on plans that fail to meet those plans under PP ACA. 

requirements. (conforming 

amendment) 

21 

80319.022

19 3308 6103 Authorizes IRS to disclose certain Disclose certain taxpayer return 3/2

taxpayer information to the Social information to SSA under IRC 6103. 

Security Administration (SSA) 

regarding reduction in the subsidy 

for Medicare Part D for high-income 

beneficiaries. (conforming 

amendment) 

20 5605 Requires the independent institute Enable the independent private 3/2

partnering with the National organization partnering with NAS to 

Academy of Sciences (NAS) to create the key national indicator 

implement a key national indicator system to be a nonprofit entity under 

system to be a nonprofit entity under IRC 501(c)(3). 

section 501(c)(3). 

21 6301 4375,4376, Imposes a fee through 2019 on Administer fee on insured and self- 10/

4377,9511 specified health insurance policies insured health plans equal to $2 per 

and applicable self-insured health individual insured ($1 in plan years 

plans to fund the Patient-Centered ending during fiscal year 2013) to be 

Outcomes Research Trust Fund to be used by Patient-Centered Outcomes 

used for comparative effectiveness Research Trust Fund for comparative 

research. effectiveness research. 

22 9001 49801 Imposes a 40 percent excise tax on Administer excise tax on high-cost 1/1

high cost employer-sponsored health employer-sponsored health 

insurance coverage on the aggregate insurance coverage and impose 

value of certain benefits that exceeds penalties on employers, or the plan 

the threshold amount. sponsor for multiemployer plans, for 

failure to properly calculate amount 

of the excess benefit subject to the 

tax. 

23 9002 6051 Requires employers to disclose the Administer change to W -2 reporting 1/1

value of the employee's health to include the value of employerinsurance coverage sponsored by the sponsored health coverage excluding 

employer on the annual Form W-2. any flexible health spending 

arrangements. 

22 

80319.023

24 9003 105,106,220, Repeals the tax exclusion for over- Administer change to qualified 1/1

223 the-counter medicines under a expenses that can be reimbursed by a 

Health Flexible Spending health FSA or HSA to include only 

Arrangement (FSA), Health prescription drugs and insulin. 

Reimbursement Arrangement 

(HRA), Health Savings Account 

(HSA), or Archer Medical Savings 

Account (MSA), unless the medicine 

is prescribed by a physician. 

25 9004 220,223 Increases tax on distributions from Administer increase to tax on 1/1

HSAs and Archer MSAs not used for distributions from HSAs and Archer 

medical expenses. MSAs that are not used for qualified 

medical expenditures. 

26 9005 125 Limits health FSAs under cafeteria Administer reduction in health FSA 1/1

plans to a maximum of $2,500 amounts to a maximum of $2,500 

adjusted for inflation. adjusted for inflation. 

27 9007 501(c)(29), Imposes additional reporting Ensure compliance with additional 3/2

4959,6033 requirements for charitable hospitals requirements for charitable hospitals 

to qualify as tax-exempt under IRC to qualify as 501(c)(3) organization, Com

501(c)(3) and requires hospitals to review community benefit activities ass

conduct a community health needs at least once every 3 years, impose 03/

assessment at least once every 3 penalties for failing to conduct 

years and to adopt a financial community needs assessment, issue 

assistance policy and policy relating guidance on what constitutes 

to emergency medical care. reasonable efforts to determine 

patient eligibility for financial 

assistance under the hospital's policy, 

and annually report to Congress on 

levels of charity care provided and 

costs of care incurred. 

23 

80319.024

28 9008 Imposes a fee on each covered entity Calculate the fee amount and collect 1/1

engaged in the business of fee on manufacturers of branded 

manufacturing or importing branded prescription drugs sold to Medicare 

prescription drugs. Parts B and D; Medicaid; Department 

of Veterans Affairs (VA); TRICARE; 

or other Department of Defense or 

V A programs. 

29 9010 Imposes an annual fee on any entity Calculate and collect annual fee on 1/1

that provides health insurance for certain health insurance providers 

any U.s. health risk with net and administer penalties for entities 

premiums written during the who fail to report the amount of their 

calendar year that exceed $25 net premiums for the calendar year, 

million. or report inaccurately. 

30 9012 139A Allows the deduction for retiree Ensure amount of deduction for 1/1

prescription drug expenses only after retiree prescription drug expenses 

the deduction amount is reduced by has been reduced by any subsidy 

the amount of the excludable subsidy payments received. 

payments received. 

31 9013 213 Increases the threshold for the Ensure itemized deductions for 1/1

itemized deduction for unreimbursed medical expenses by 

unreimbursed medical expenses taxpayers meet the 10 percent AGI 

from 7.5 percent of Adjusted Gross threshold. 

Income (AGI) to 10 percent of AGI 

(unless taxpayer turns 65 during 

2013-2016 and then threshold 

remains at 7.5 percent). 

24 

80319.025

32 9014 162 Denies the business expenses Ensure deductions for remuneration 01/

deductions for wage payments made exceeding $500,000 are not allowed For 

to individuals for services performed for certain insurance providers. per

for certain health insurance afte

providers if the payment exceeds 12/

$500,000. 

33 9015 1401,3101,3102 Imposes an additional Hospital Collect additional Hospital Insurance 1/1

Insurance (Medicare) Tax of 0.9 Tax to remit to the hospital insurance 

percent on wages over $200,000 for trust fund. 

individuals and over $250,000 for 

couples filing jointly. 

34 9016 833 Limits eligibility for deductions Issue guidance on determining 1/1

under section 833 (treatment of Blue medical loss ratio and ensure that 

Cross and Blue Shield) unless the proper deductions are allowed under 

organizations meet a medical loss IRC833. 

ratio standard of at least 85 percent 

for the taxable year. 

35 9021 139D Allows an exclusion from gross Ensure that the value of specified 3/2

income for the value of specified Indian tribe health care benefits is not 

Indian tribe health care benefits. included in gross income. 

36 9022 125 Allows small businesses to offer Ensure compliance with 1/1

simple cafeteria plans-plans that requirements of "simple cafeteria 

increase employees' health benefit plans" for small businesses. 

options without the 

nondiscrimination requirements of 

regular cafeteria plans. 

25 

80319.026

37 9023 48D Establishes a 50 percent Award certifications with HHS for 1/1

nonrefundable investment tax credit qualified investments and distribute 

for qualified therapeutic discovery the $1 billion provided for 2009 and 

projects. 2010 as tax credits or grants. 

38 10108 139D Requires employers to provide free Ensure that taxpayers receiving 1/1

choice vouchers to certain employees vouchers do not get the premium 

who contribute over 8 percent but assistance tax credit or cost sharing 

less than 9.8 percent of their subsidy and do not include the 

household income to the employer's amount of the free choice voucher in 

insurance plan to be used by calculating gross income, and allow 

employees to purchase health employers to deduct cost of voucher 

insurance though the exchange. as a business expense. 

39 10907 5000B Imposes a tax on any indoor tanning Ensure tax is collected and remitted 7/1

service equal to 10 percent of amount to IRS at time and in manner 

paid for service. specified. 

40 10908 108(£)(4) Excludes from gross income amounts Ensure that student loan repayments 1/1

received by a taxpayer under any or forgiveness for certain health care 

state loan repayment or loan professionals working in certain 

forgiveness program that is intended areas are excluded from gross 

to provide for the increased income. 

availability of health care services in 

underserved or health professional 

shortage areas. 

41 10909 23,137 Increases the maximum adoption tax Facilitate the expansion of the 1/1

credit and the maximum exclusion already established adoption credit 

for employer-provided adoption and exclusion for the adoption 

assistance for 2010 and 2011 to assistance program. 

$13,170 per eligible child. 

26 

80319.027

Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, 124 Stat. 1029 (Mar. 30, 2010) 

42 1004 105,162,401,501 Extends the exclusion Ensure that taxpayers properly 3/3

from gross income for exclude (or deduct, in the case of selfreimbursements for employed taxpayers) amounts paid 

medical expenses under by employers for health insurance for 

an employer-provided employees' older children. 

accident or health plan 

to employees' children 

under 27 years. 

43 1402 1411 Imposes an unearned Ensure collection of unearned income 1/1

income Medicare Medicare contribution tax on net 

contribution tax of 3.8 investment income or modified 

percent on individuals, adjusted income of certain 

estates, and trusts on the individuals, trusts, or estates. 

lesser of net investment 

income or the excess of 

modified adjusted gross 

income (AGI + foreign 

earned income) over a 

threshold of $200,000 

(individual) or $250,000 

(joint). 

44 1405 4191 Imposes a tax of 2.3 Ensure payment by manufacturers, 1/1

percent on the sale price producers, or importers of a 2.3 

of any taxable medical percent sales tax on certain medical 

device on the devices (does not include eyeglasses, 

manufacturer, producer, contact lenses, hearing aids or other 

or importer. devices excluded by IRS). 

27 

80319.028

45 1408 40 Amends the cellulosic Ensure that tax credits for cellulosic 1/1

biofuel producer credit biofuel are not allowed for fuels with 

(nonrefundable tax significant water, sediment, or ash 

credit of about $1.01 for content. 

each gallon of qualified 

fuel production of the 

producer) to exclude 

fuels with significant 

water, sediment, or ash 

content (such as black liquor). 

46 1409 6662, 6662A, 6664, 6676, Clarifies and enhances Impose penalties for underpayments, 3/3

7701 the applications of the nondisclosed transactions, and 

economic substance erroneous claims for refund or credit 

doctrine and imposes relating to non-economic-substance 

penalties for transactions. 

underpayments 

attributable to 

transaction lacking 

economic substance. 

47 1410 6655 Increases the required Ensure payment of estimated taxes 3/3

payment of corporate by certain corporations is increased 

estimated tax due in the for the filing in July, August, or 

third quarter of 2014 by September 2014. 

15.75 percent for 

corporations with more 

than $1 billion in assets, 

and reduces the next 

payment due by the 

same amount. 

Source: GAO summary of PP ACA and Reconciliation Act provisions affecting IRS. 

28 
39 

Mr. PITTS. Chair thanks the gentlelady, and now recognizes Dr. 

Blumberg for 5 minutes for opening statement. 

STATEMENT OF LINDA J. BLUMBERG 

Ms. BLUMBERG. Mr. Chairman, Ranking Member Pallone, and 

members of the committee. 

I appreciate the opportunity to testify before you today on the 

impact of the Affordable Care Act on American businesses and 

workers. The views that I express are my own and should not be 

attributed to the Urban Institute or its sponsors. My testimony 

draws on my own and my colleagues’ analyses of the ACA, much 

of it relying on the Urban Institute’s health insurance policy simulation model, a micro-simulation model that incorporates the best 

economic behavioral research to estimate individual and employer 

responses to the specific provisions of the law. 

Our analysis shows that if the Affordable Care Act had been implemented in 2012, employer-sponsored coverage would have increased by over 4 million people. In small, midsized, and large 

firms alike, more workers and families would have had private 

health insurance. The largest relative coverage increase, about 6.3 

percent, would have occurred among workers in small firms with 

100 or fewer employees. The 2.7 percent increase in individuals 

covered by employer plans in total would have cost employers the 

equivalent of .0003 percent of total wages. For businesses in general, employer premium spending for per person insured would not 

be affected by the law, remaining constant at about $3,650. But for 

small employers, premium spending per person would decline by 

about 4 percent. 

For small businesses with 100 or fewer workers, our analysis 

shows that on average, employers choosing to offer coverage would 

find average costs per person insured reduced by 7.3 percent, and 

spending for the group as a whole reduced by 1.4 percent. The reductions reflect efficiencies in the insurance market and tax credits 

that offset premium costs for the smallest employers with the lowest wage workers. 

The law leaves the cost per person insured virtually unchanged 

for large businesses with more than 1,000 employees. These employers already cover the vast majority of their employees, will continue to do so, and will retain the flexibility to define their own 

benefits. Coverage increases, largely due to somewhat higher employee enrollment rates, would increase total spending by large 

businesses by about 4 percent. Only midsize businesses with 101 

to 1,000 employees as a group experience an increase in costs per 

person insured reflecting penalties on as many as 5 percent of 

these employers who are not currently providing coverage to their 

workers. 

Expanded enrollment, however, is the primary factor contributing to an increase in overall spending. Aggregate employer 

spending on health, taking into account the increase in the number 

of covered lives and new assessments, would increase by roughly 

2 percent. 

In short, contrary to concerns that the ACA will increase costs 

and reduce employer-sponsored coverage, the law will have a negligible impact on total employer-sponsored coverage and costs and 

40 

make small businesses, for whom coverage expands the most, financially better off. An increase in employer costs equal to a small 

fraction of a percent of total wages could simply not have large implications for the overall level of employment. Plus the increase in 

health care spending under reform will expand employment in the 

health sectors largely, if not completely offsetting any small employment effects in other sectors. 

In addition, Lisa Dubay and colleagues, consistent with analysis 

by Kolstad and Kowalski, find that there is no evidence that the 

similar comprehensive reforms implemented in Massachusetts in 

2006 had a negative effect on employment in that State. In fact, 

Dubay, et al., finding hold up, even when looking specifically at the 

most vulnerable employers, the smallest firms and those in the retail trade and accommodation and food service industries. 

Most employers potentially facing additional costs do have 

counterbalancing effects that should largely offset these. First, the 

best empirical economic literature finds that most, if not all of the 

contributions that employers make to the cost of their health insurance, are passed back to workers over time in the form of lower 

wages than they would have had in the absence of health benefits. 

This will be the case whether the employers’ costs come as premium contributions or assessments paid as a consequence of not offering coverage. Most workers will value having access to employersponsored insurance, and evidence shows that they are willing to 

trade off a portion of their wages to obtain those benefits. Second, 

employers of low-wage workers can benefit from the expansion of 

Medicaid eligibility, which will provide comprehensive, low, or nocost coverage to the lowest income workers, with no penalty to the 

employers for their participation. 

Third, more comprehensive information and easier price comparisons in the small group market could well lead to increased price 

competition, making employers and their workers more effective 

shoppers and pressuring plans to lower costs. Many State-based exchanges are already exploring defined contribution approaches for 

their small group exchanges in order to provide employees with 

plan choice, largely absent in small group today, while still providing employers the ability to limit their contributions to the costs 

of coverage. The bottom line is this is a very complicated set of 

interactions. But all of our research indicates that the total effects 

of the ACA on employers and employment will be quite small. 

Thank you very much. And I am happy to answer any questions 

you might have. 

[The prepared statement of Ms. Blumberg follows:] 

41 


80319.029

The Implications of the Affordable Care Act 

for Employers 

Statement of 

Linda J. Blumberg, Ph.D. 

Senior Fellow 

The Urban Institute 

Health Policy Center 

United States House of Representatives 

Committee on Energy and Commerce 

Subcommittee on Health 

March 13, 2013 
42 


80319.030

Mr. Chairman, ranking member Pallone, and members of the committee, I appreciate the 

opportunity to testifY before you today on the impact of the Affordable Care Act (ACA) on 

American businesses and workers. The views that I express are my own and should not be 

attributed to the Urban Institute or its sponsors. I am a senior fellow at the Urban Institute with 

more than two decades of experience analyzing the impact of policy on insurance coverage 

and costs. My testimony draws on my own and my colleagues' analyses of the ACA, I much of 

it relying on the Urban Institute's Health Insurance Policy Simulation Model (HIPSM)-a 

microsimulation model that relies on the best economic behavioral research to estimate 

individual and employer responses to the specific provisions of the law. 

Our analysis shows that, if the ACA had been fully implemented in 2012, 

• Employer-sponsored coverage would have increased by over 4 million people. In 

small, mid-sized, and large firms alike, more workers and their families would have 

private health insurance. 

• This 2.7 percent increase in individuals covered by employer plans costs employers the 

equivalent of .0003 percent of total wages. 

• For businesses in general, employer premium spending per person insured would not 

be affected by the law, remaining constant at about $3,650. But for small employers, 

premium spending per person insured would decline by about 4 percent. 

• Aggregate employer spending on health, taking into account the increase in the 

number of covered I ives and new assessments, would increase by roughly 2 percent. 

In short, contrary to concerns that the ACA will increase costs and reduce employersponsored coverage, the law will have a negligible impact on total employer-sponsored 

coverage and costs and makes small businesses-for whom coverage expands the mostfinancially better off. 

What are ACA's requirements for employer-sponsored insurance coverage? 

Few of the ACA's requirements affect all employers, regardless of size. Those that do are 

primarily provisions prohibiting or constraining current limits on health insurance coveragelike dollar limits on annual or lifetime benefits, rescissions of coverage, and waiting periods (or 

delays in the start of coverage) of more than 90 days. Additional provisions have been 

implemented to expand access to group (as well as nongroup) coverage-specifically by 

extending dependent coverage to adult children up to age 26, eliminating pre-existing condition 

exclusions for children, and requiring coverage of specified preventive services without cost 

sharing. Most ofthese have already been implemented without incident and without an impact 

on the share of people covered by employer-sponsored insurance (ESI). 

The ACA does not require any employers to provide their workers coverage, and, for 

employers with more than 100 employees, the law establishes no requirements beyond those 

just mentioned if they choose to offer benefits. But beginning in 2013, employers with 50 or 

1 The results presented here are more fully developed in Linda 1. Blumberg et aI., "Implications for the Affordable 

Care Act for American Business," Urban Institute, October 2012, available at 

http://www.urban.org/publications/412675.html. 

1 
43 


80319.031

more employees will face penalties, whether or not they offer coverage, if at least one of their 

full-time employees receives a subsidy for the purchase of non group coverage in a health 

insurance exchange. In general, individuals are eligible for subsides if their incomes fall 

between 138 percent and 400 percent of the federal poverty level and if the employee's share 

of the lowest cost premium for individual coverage exceeds 9.5 percent of income or if, on 

average, the plan reimburses less than 60 percent of covered expenses--conditions designed to 

protect most employers offering coverage from facing any penalties. 

The ACA exempts employers with fewer than 50 workers from any penalties associated with 

offering insurance coverage and, as of2014, for a period of two years offers employers with 

25 or fewer employees and average pay of$50,000 or less tax credits toward premiums for 

coverage if they choose to provide it. According to the IRS, the ACA offers 4 million 

businesses the opportunity to receive a substantial tax reduction. 

Alongside the tax credits, for those small employers (defined as having 50 or fewer workers in 

2014 and 2015, and 100 or fewer after 2015) who opt to provide coverage, the law will 

• require coverage of "essential health benefits," 

• provide access to new insurance markets through "exchanges," and 

• limit premium variation across firms to geographic area, age, and tobacco use. 

Regulations issued by the Department of Health and Human Services leave it to states to 

define essential health benefits from a set of options, including each state's most enrolled 

small employer plans-therefore making the essential health benefits unlikely to impose new 

costs on small businesses. The impact of rating requirements will vary across states, based on 

each state's current rules and levels of coverage. In general, less healthy groups in the market 

will see premium savings. New markets or exchanges will reduce administrative costs for the 

smallest groups and will promote transparency and competition likely to benefit all small 

groups (as well as individuals in the nongroup market). The law's requirements for state and 

federal premium monitoring or rate review and minimum medical loss ratios will reinforce 

these market effects and help constrain premiums in markets less amenable to competition. 

What impact will the ACA's requirements have on employer health insurance costs and 

coverage? 

The Urban Institute's Health Insurance Policy Simulation Model allows us to simulate the 

impact of these ACA provisions on business costs and employer-sponsored coverage. HIPSM 

simulates the decisions of individuals and businesses in response to policy changes and 

estimates changes in coverage and spending by employers, individuals, and the government 

resulting from specific reforms. To assess the ACA's impact on cost and coverage, we 

simulated the main coverage provisions of the law, including, if applicable, penalties or tax 

credits, as if they had been fully implemented in 2012. 

Our findings are as follows: 

• Employer-sponsored coverage would have increased by 2.7 percent (from 151.5 to 

155.6 million people) and employer spending by 2.2 percent (from $553.4 to $565.8 

2 
44 


80319.032

billion). The largest relative coverage increase (6.3 percent) would have occurred 

among workers in small firms with 100 or fewer employees. 

• For small businesses with fewer than 50 workers, which are exempt from penalties and 

may be eligible for premium tax credits, along with other employers with 100 or fewer 

workers, the law reduces the costs of coverage in aggregate. Our analysis shows that, 

on average, these employers, if they choose to offer coverage, would find average 

costs per person insured reduced by 7.3 percent and spending for the group as a whole 

reduced by 1.4 percent. The reductions reflect efficiencies in the insurance market and 

tax credits that offset premium costs for the smallest employers with low-wage 

workers. 

• The law leaves the cost per person insured virtually unchanged for large businesses 

(with more than 1,000 employees). Our analysis shows these employers already cover 

the vast majority of their employees, will continue to do so, and will retain the 

flexibility to define their own benefits. Coverage increases (largely due to somewhat 

higher employee enrollment rates) would increase total spending by large businesses 

by 4.3 percent. 

• Only mid-sized businesses (with 101 to 1,000 employees), as a group, experience an 

increase in costs per person insured, reflecting penalties on as many as 5 percent of 

these employers who are not currently providing coverage. Expanded enrollment, 

however, is the primary factor contributing to an increase in overall spending of9.5 

percent for these employers. 

The ACA and employer health insurance offer decisions 

Although most analyses (including those by the Congressional Budget Office and the RAND 

Corporation) have-like ours-concluded that the law will leave employer-sponsored health 

insurance largely intact, critics of the ACA, armed with reports from business consultants, 

nevertheless make the argument that CBO and others have seriously misjudged employers' 

incentives and significantly underestimated subsidy costs under the ACA. But the key to the 

ACA's actual impact on ESI will be whether most workers' employers continue to see their 

employees as valuing employer-provided health insurance over the alternative created by the 

ACA. And, under the terms of the ACA and the pressure of a competitive marketplace, our 

analysis shows they overwhelmingly will. Most workers' firms will be dominated by workers 

who will receive better benefits and, through the tax system, better subsidies through 

employer-provided coverage than through newly created insurance exchanges.2 

That some workers now benefiting from ESI would be better off in exchanges is a fact. But a 

leap from that fact to the conclusion that employers have a powerful incentive to drop 

coverage runs counter to standard economic theory. First, over time, a competitive labor 

2 For a complete discussion ofthe issues related to employer decisions to offer health insurance under the ACA, see 

Blumberg, et aI., "Why Employers Will Continue to Provide Health Insurance: The Impact of the Affordable Care 

Act," InquilY 49, no. 2 (2012): 116-26. 

3 
45 


80319.033

market will not allow employers to save money by dropping employer-sponsored coverage. 

Employers pay workers a combination of wages and benefits at a level equal to the 

employee's value to the firm. The market will keep compensation at that level, whether 

employers pay a worker's value only in wages or in some combination of wages and benefits. 

If, in total, an employer compensates workers less than their value, that employer will lose 

those workers to competitors who offer them more. If, alternatively, an employer pays 

workers more than their value, the firm will lose money. That means, plain and simple, that in 

a competitive market, employers cannot "come out ahead" by dropping coverage and at the 

same time reducing compensation. 

An array of additional factors also decrease the likelihood of employers currently offering 

insurance to their workers to change that decision due to the provision of the ACA. In 

general, better-paid workers remain better off with employer-sponsored coverage. 

Regardless of their perspective on dropping, analysts agree that it is only at or below an 

income of250 percent of the federal poverty level that the ACA's combination of premium 

and cost-sharing subsidies make exchange coverage, on average, as good as or better than taxsubsidized employer-sponsored coverage. Nondiscrimination rules impede employers' ability 

to simply decide not to offer coverage to workers who have access to subsidies in the 

exchange while offering it to workers who do not. To deny coverage for those eligible for 

subsidies, they would have to drop it for everybody and therefore face a penalty. In addition to 

paying the penalty, keeping all workers "whole" would require that employers pay additional 

wages both to cover extra unsubsidized premium and benefit costs (for workers eligible and 

ineligible for subsidies) and to offset the fact that any premium payments would now be paid 

by employees out of after-tax, not pre-tax, dollars. Doing so would result in an overall 

increase in the firm's compensation costs, which would make firms worse, not better, off. 

Withinjirms, "losers" from dropping far outnumber "winners," on average. Taking all this 

together, employers would only be likely to drop coverage if most of their workers would 

benefit from the exchange-in which case they could substitute extra wages for benefit 

reductions. But, because offsetting payments would increase their compensation costs, 

employers are not likely to drop coverage if most of their workers would not benefit from the 

exchange. When an employer contemplates a decision to drop coverage, it is the distribution 

of income among the firm's employees that matters. We know that only about one in five 

workers with their own ESI coverage has income below 250 percent ofthe federal poverty 

level. Given this, the share of workers in a particular firm who would benefit from droppingbased on income and subsidy calculations alone-will likely be far smaller than the share of 

workers who will not. If the firm dropped coverage, compensating all workers for lost benefits 

would increase employers' total compensation costs. These employers, therefore, will have a 

disincentive to drop coverage. 

Complexities in assessing "winners" and "losers" increase reluctance to drop. Further 

reducing the likelihood that employers will drop coverage is the difficulty in a mixed-wage firm 

of assessing predominant coverage preferences among employees. Assessing preferences will be 

complicated by workers' particular circumstances-factors not taken into account by those who 

claim that dropping will be widespread. These factors include age, smoking status, alternative 

family coverage options, health status and related preferences, willingness to take risk, and 

4 
46 


80319.034

relative preferences for particular benefits. Given the complexity of employees' preferences, 

which an employer would be hard-pressed to assess or to synthesize, a decision to drop coverage 

exposes an employer to the risk of undermining worker loyalty, increasing worker turnover, and 

disrupting rather than enhancing employees' benefit expectations. Deciding whether and when to 

take that risk is far more complicated-and less likely-than a simple subsidy calculus might 

suggest. 

Pre-ACA trends in employer-sponsored health insurance coverage 

That the ACA leaves the future scope of employer-sponsored health insurance coverage 

largely unchanged does not mean that employer-sponsored insurance will necessarily expand 

to cover a growing proportion of Americans. On the contrary, the share of the population 

covered has been and is likely to continue to drop. The future of employer-sponsored coverage 

is overwhelmingly determined by the state of the economy and by the growth in health care 

costs. As long as health care costs grow faster than inflation, the proportion of the population 

ESI covers will continue to drop. That trend should not be confused with or attributed to the 

impact of the ACA. 

That said, however, the ACA includes cost-containment measures that, if successful, have the 

potential to slow the growth in health expenditures. Health care costs have historically risen 

considerably faster than the economy, but overall spending growth has slowed significantly in 

recent years, partly because of the recession. This slowdown (for both private and public 

payers) actually began as early as 2004-before the recession-and may also reflect changes 

in the structure of insurance (in particular, a shift toward high-deductible plans) and provider 

payment and delivery changes (in particular, the evolution of value-based purchasing aimed at 

reducing unnecessary hospitalizations and promoting clinically integrated care). 

The cost-containment measures in the ACA could sustain and extend the slowdown in health 

care cost growth. The law's provisions to slow growth in rates Medicare pays hospitals have 

already contributed to a substantial slowdown in the projections of Medicare per beneficiary 

cost growth. Arguments that these payment constraints undermine hospitals' economic 

viability or lead hospitals to shift costs to private purchasers are not supported by the 

evidence. Medicare payment constraints produce greater hospital efficiency in hospitals that 

are largely dependent on Medicare revenues and in markets with competition among private 

insurers that have no dominant hospital system. In these markets, employers committed to cost 

containment have the opportunity to adopt effective Medicare payment reform initiatives, 

slowing growth in their own health care spending. 

The ACA's initiatives for payment and delivery reform are equally important in slowing cost 

growth over the long term. These initiatives-including pay-for-performance, accountable 

care organizations, and bundling-aim to move private as well as public insurance away from 

payment per service, which drives up volume, and toward payment for value, or rewards to 

integrated care. In piloting these initiatives, Medicare not only sets an example for employersponsored insurance, it also explicitly offers the opportunity for collaboration across public 

and private payers. If these initiatives are successful, future growth in health care costs will be 

slower than is projected, employer spending growth will slow, and employer-sponsored health 

5 
47 


80319.035

insurance will be more extensive than is now projected. 

Even if that is not the case, the ACA's establishment of a viable non group insurance 

marketplace-with subsidies-not only benefits individuals whose employers do not offer 

coverage. It also benefits small employers oflow-wage workers. These firms are unable to 

offset the costs of health insurance with reduced wages, as large employers employing a mix 

oflow- and higher-wage workers are able to do. In addition, large firms have greater 

economies of scale in purchasing insurance, allowing them to obtain greater value for their 

health care dollar than small employers. Accordingly, the small low-wage employers are very 

unlikely to offer insurance coverage to their workers and often find themselves at a 

disadvantage in competing with large employers for workers. The ACA will create a much 

more level playing field for these small employers, owing to the law's market reforms, 

exchanges, and subsidies that will allow their workers to purchase affordable, adequate 

coverage directly. 

Overall, the evidence simply does not support critics' arguments that the ACA will burden 

employers and undermine employer-sponsored health insurance. On the contrary, except for a 

cost increase to mid-sized employers due largely to enrollment increases, the ACA benefits 

rather than burdens small employers who want to provide health insurance, leaves the overall 

costs of employer-sponsored health insurance largely unchanged, and offers the potential, 

through cost containment, of slowing the growth in health care costs, benefiting private along 

with public purchasers of health insurance. 

Will the ACA decrease employment? 

All of this information taken together indicates that the incremental costs to employers of 

increased employer-sponsored insurance coverage and employer penalties are very small 

relative to current compensation - with the 2.7 percent increase in employer-sponsored 

coverage coming at a costs equal to .0003 percent of total wages. A change that small in 

relative terms could simply not have large implications for the overall level of employment. 

Also, as Holahan and Garrett3 show, new revenues needed to pay for the entire health reform 

over the 2014 and 2019 period would amount to only .4 percent ofGDP, and therefore be 

unlikely to have significant effects on employment. Plus, the increase in health care spending 

under reform will expand employment in the health sectors, largely ifnot completely 

offsetting any small employment effects in other sectors. 

In addition, Dubay and colleagues,4 consistent with analysis by Kolstad and Kowalski,s find 

that there is no evidence that the similar, comprehensive reforms implemented in 

Massachusetts in 2006 had a negative effect on employment in that state. In fact, Dubay et 

a\"s finding of no employment effects holds up even when looking specifically at the most 

3 Holahan J and Garrett B. "How Will the Affordable Care Act Affect Jobs" Washington, DC: Urban Institute, 

2011. 

4 Dubay L, Holahan J, Long S, and Lawton E. "Willihe Affordable Care Act Be a Job Killer?" Washington, DC: 

Urban Institute, 20 II. 

5 Kolstad JT and Kowalski AE. "Mandate-Based Health Reform and the Labor Market: Evidence from the 

Massachusetts Reform." NBER Working Papcr No. w17933. Cambridge, MA: National Bureau of Economic 

Research, March 2012. 

6 
48 


80319.036

vulnerable employers, the smallest firms and those in the retail trade and accommodation and 

food services industries. 

Concerns have also been raised about the ACA's definition of part-time being set at 30 hours 

per week, as opposed to the frequent practice today of considering fewer than 35 hours per 

week as part-time. Often large employers will offer insurance coverage to full-time workers, 

but not to part-time workers (e.g., 96 percent of employers with 50 or more workers offer 

health insurance to at least some of their workers, as does 99.5 percent of employers with 

1000 or more workers, according the 2011 Medical Expenditure Panel Survey-Insurance 

Component). Some employers contend that they would lower the hours worked per week for 

workers in this 30 to 34 hours per week wedge to 29 hours or fewer, in order to avoid the 

possibility of penalties being assessed if some of those workers obtain subsidized coverage in 

the nongroup exchange. However, there are many factors that go into employers deciding the 

number of hours employees will work. These include the administrative costs of employing 

more workers to do the same work, competition for hiring workers that want to be employed 

with more hours and can find more hours elsewhere, potential costs of higher turnover, just to 

name a few. Keeping the potential magnitude ofthis issue in perspective is important as well. 

Only about 4 percent of the national workforce is typically employed 30 to 34 hours per week, 

and of this group, only about 113 or a little over 1 percent of the workforce have incomes that 

would make them potentially eligible for non group subsidies that could trigger employer 

penalties. Thus again, it is safe to assume that any employment effects related to this 

provision in the ACA would have to be quite small. 

Again, the strong, consistent empirical evidence is that employment effects related to the ACA 

will not be large on net. 

7 
49 

Mr. PITTS. Chair thanks the gentlelady. And now recognizes Mr. 

Boucher, 5 minutes for an opening statement. 

STATEMENT OF TOM BOUCHER 

Mr. BOUCHER. Thank you, Chairman Pitts, Ranking Member 

Pallone, and members of the committee. I appreciate this opportunity to testify on behalf of the National Restaurant Association. 

I am Tom Boucher, an independent restaurateur and owner and 

CEO of Great New Hampshire Restaurants, Incorporated. My business partners and I operate eight restaurants, doing business as TBones Great American Eatery, Cactus Jack’s Great West Grill, and 

The Copper Door Restaurant. Like many people in our industry, 

my first job in our company was as a server. 

Over the years, I worked my way up in the organization as a dining room manager, a head kitchen manager, and general manager. 

In 1995, I became a partner, and in 2004 chief executive officer. 

Our core business practice is to make decisions that equally benefit 

our guests, employees, and company. We call it our three-leggedstool approach to success. A high priority is to ensure that we take 

care of our 503 employees to the best of our ability. As a mature 

company, we have many veteran and long-term employees who perpetuate our culture and core values. 

Over the years, it is our employee benefits, including health care, 

that have helped us recruit and retain the best people to contribute 

to our success. The food service industry is extremely diverse. 

Every operator will face a host of difficult decisions based on health 

care laws requirements. My partners and I have spent countless 

hours considering how to comply with the law, with a focus on 

maintaining employees’ health care coverage. We have made 

changes since the law’s enactment that we hope will help us better 

prepare for this transition. 

For example, we offer benefits to our salaried full-time employees 

and hourly employees who work 30 hours a week. Currently, of our 

242 hourly full-time employees eligible to enroll in our plan today, 

only 45 percent accept our coverage. We have found it challenging 

to predict how many of the remaining 55 percent will accept our 

offer of coverage in light of the individual requirement that begins 

January 1, 2014. 

For instance, we can’t determine how many of our young workforce will choose to pay the individual mandate tax penalty instead 

of accepting our offer of coverage in 2014, 2015, and beyond. The 

future coverage take-up rate is hard to predict, given many factors, 

but it could mean a significant increase in the costs employers may 

struggle to absorb when offering coverage. 

This is merely one example of the uncertainty and challenges resulting from the law. Our team’s best estimate is that 75 percent 

of the hourly full-time employees eligible today but are not accepting our offer of coverage today will do so in 2014. Assuming plan 

costs were to remain the same, which they likely will not, such an 

increase in the employee take-up rate of our plan would increase 

our company’s health care costs from $500,000 a year to $700,000 

a year, representing a 40 percent increase. 

50 

An industry that already operates on extremely low profit margins, these types of increased costs cannot be easily absorbed or 

paid for by merely raising menu prices. 

While there are numerous aspects of the law that are complex, 

and my colleagues in our industry will struggle to implement, another that will impact my company is the requirement that businesses with 200 or more full-time employees automatically enroll 

their new and current full-time workers in their lowest cost plan 

unless they affirmatively opt out of coverage. This requirement 

changes the relationship that we have with our employees, especially those that may have health care from a spouse or parent. If 

that employee does not opt out of coverage, I am forced to enroll 

them on their 91st day of employment. This creates several problems for me. I do not like deducting premium contributions from 

my employees’ paychecks without their authorization, especially if 

it leads to duplicative coverage. This reduced paycheck could create 

financial hardship on the employee. Moreover, it will lead to more 

administrative work and cost on my end as I have to remove them 

from the plan. Congress should eliminate this provision. There has 

been a lot of recent attention about the law’s definition of full-time 

employment as 30 hours a week. The restaurant industry is not a 

9:00 to 5:00, 5-day a week operation, we are an industry that requires flexible schedules and work weeks. By redefining full-time 

employment at 30 hours, employers are going to have to make a 

decision about how many hours their employees work and an unintended consequence of the law could be reduced hours, especially 

for employees that are just above the 30-hour threshold. As you can 

probably tell, I made a business decision to not reduce any of my 

employees’ hours. However, this is something that everyone in the 

industry is going to be closely examining as they better understand 

the impact of the law on their business. 

The National Restaurant Association and its members are hopeful that policymakers will remain open to constructive revisions to 

the health care law that will mitigate its effects on our Nation’s job 

creating business. We look forward to working with Congress as we 

address these challenges. Thank you for the opportunity to testify 

today on the health care law impact, on our restaurant and food 

service industry, and the challenging environment it will cause for 

job creation and growth. And I will take questions and thank you 

for the opportunity. 

[The prepared statement of Mr. Boucher follows:] 

51 


80319.037

HEARING: OMABACARE'S IMPACT ON JOBS 

BEFORE: SUBCOMMITTEE ON HEALTH 

ENERGY & COMMERCE COMMITTEE 

U.S. HOUSE OF REPRESENTATIVES 

By: TOM BOUCHER, CEO AND OWNER 

DATE: 

GREAT NEW HAMPSHIRE RESTAURANTS, INC. 

BEDFORD, NEW HAMPSHIRE 

MARCH l3, 2013 
52 


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Statement for the hearing 

"Obamacare's Impact on Jobs" 

Before the 

National Restaurant Association 

"Obamacare's Impact on Jobs" 

Page 2 

Subcommittee on Health, Energy & Commerce Committee, 

U.S. House of Representatives 

By 

Tom Boucher, CEO and Owner 

Great New Hampshire Restaurants, Inc. 

Bedford, New Hampshire 

On behalf of the 

National Restaurant Association 

March 13,2013 

Chairman Pitts, Ranking Member Pallone, and members of the Subcommittee on Health 

of the House Energy & Commerce Committee, thank you for this opportunity to testify before 

you today on behalf of the National Restaurant Association. It is an honor to be able to share 

with you the impact the 2010 health care law is having on businesses like mine, particularly on 

our ability to create and grow jobs. 

My name is Tom Boucher. I am an independent restaurateur and the CEO-Owner of 

Great New Hampshire Restaurants, Inc. My business partners and I operate eight restaurants 

doing business as T-Bones Great American Eatery, Cactus Jack's Great West Grill, and The 

Copper Door Restaurant with locations in Bedford, Derry, Hudson, Laconia, Manchester, and 

Salem, New Hampshire. I have the distinct honor to serve as a member of National Restaurant 

Association's Board of Directors, and have done so since 2004. I am very involved in my own 

communities serving on several other boards and with the New Hampshire Lodging & 

Restaurant Association, where I served as Chairman of the Board in 2004. 

The National Restaurant Association is the leading trade association for the restaurant 

and foodservice industry. Its mission is to help its members, such as myself, establish customer 

loyalty, build rewarding careers, and achieve financial success. The industry is comprised of 

980,000 restaurant and foodservice outlets employing 13.1 million people who serve 130 million 

guests daily. Restaurants are job creators. Despite being an industry of predominately small 

businesses, the restaurant industry is the nation's second-largest private-sector employer, 
53 


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National Restaurant Association 

"Obamacare's Impact on Jobs" 

Page 3 

employing about ten percent of the U.S. workforce. I I like to say, "We teach America how to 

work." 

THE GREAT NEW HAMPSHIRE RESTAURANTS, INC. STORY 

Our company's story begins when T-Bones first opened its doors more than twenty-eight 

years ago. I joined the company, as many get their start in our industry, as a server. I had just 

graduated from college and came to find work before starting graduate school. I left T -Bones to 

begin my graduate work, but after a semester I returned to work at the restaurant during a holiday 

break, and never looked back! I worked my way up in the company as Dining Room Manager, 

Head Kitchen Manager, and General Manager. In 1995, I became a partner and we opened the 

first Cactus Jack's in Manchester. In 2004, I became CEO and continue in that role today 

providing strong leadership, entrepreneurial vision, and maintaining our fiscal health and the 

growth that has contributed to our success. The Copper Door Restaurant is our latest concept, 

opening its doors in late 2011 in Bedford, NH. 

My vision for our company is to become the premier restaurant company in New 

Hampshire. To accomplish this vision we need the help of our 503 staff members whose 

excellent service and great smiles create a warm and inviting atmosphere for our guests. Our 

core values are to serve quality, fresh, appealing products by a staff that feels more like a family 

than employee, and wrapping our arms around the neighborhoods and customers our restaurants 

take pride in serving. 

Our core philosophical approach to our business practice is to make decisions which 

equally benefit our guests, our employees and our company. We call it our three-legged stool 

approach to success. One priority is to ensure that we take care of our employees to the best of 

our ability. As a mature company, we have many veteran and long-term employees who 

perpetuate our culture and core values. Over the years, it is our great employee benefitsincluding health care benefits - that have helped us recruit and retain the best people who have 

contributed to our success. 

As a result of the changes required by the law, we now offer our hourly full-time 

employees who average 30 hours per week over 52 weeks enrollment in one of our medical 

benefit plans after one year of service. We also offer the plans to our salaried full-time 

employees. Only 45 percent of our 242 hourly full-time employees eligible to enroll in our plans 

today accept our offer of coverage. Of the remaining 55 percent of hourly full-time employees 

eligible to enroll today, how many of them will accept our offer of coverage given the individual 

requirement that begins January 1,2014 as well? 

Business owners crave certainty and one of the most difficult things to predict about the 

impact of this law is the choice employees will make. Will they accept our offer of minimum 

essential coverage? Will exchange coverage be less expensive than what we can afford to offer 

1 2013 Restaurant 1ndustly Forecast. 
54 


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National Restaurant Association 

'~Obamacare's Impact on Jobs" 

Page 4 

under the law? Will our young workforce choose to pay the individual mandate tax penalty 

instead of accepting our offer of coverage in 2014, 2015 and beyond? Future take-up rate of 

coverage is very hard to predict given many new factors, but could mean a significant increase in 

the costs employers must take on when offering coverage. 

Based on our own experience and research, our team's best estimate is that 75 percent of 

the hourly full-time employees eligible today, but not taking our offer of coverage, will likely 

accept it in 2014. Assuming plan costs were to remain the same - which they likely will notsuch an increase in the employee take up rate of our plan would mean an increase in our 

company's health insurance costs from $500,000 to $700,000. This represents a 40 percent 

increase over today. With such a large potential increase, you can understand why knowing the 

impact to the business and our employees is so important. 

COMPLYING WITH THE HEALTH CARE LAW IS CHALLENGING FOR RESTAURANT AND 

FOODSERVICE OPERATORS GIVEN THE UNIQUE CHARACTERISTICS OF THE INDUSTRY 

Since the law was enacted in 2010, we have been taking steps to educate ourselves about 

the requirements of the law, the details of the Federal agencies' guidance and regulations, and to 

understand how to implement the necessary changes within our relatively small organization. 

Understanding our compliance requirements has been time consuming and burdensome for both 

our Executive team. Fortunately, we are large enough that the restaurant does employ a human 

resources professional. Both she and I have spent a significant amount of time trying to 

understand the impact so that educated business decisions can be made. We have spent so much 

time focused on this that sometimes I think we may need to hire an additional human resources 

professional just to handle health care benefits going forward. Other restaurateurs in our state 

and around the country are not as fortunate to have such internal resources, and many in the 

industry are running their day-to-day operations of their business while trying to understand what 

they must do to comply. 

Until the January 2, 2013 Federal Register publication of the Treasury Department's 

Proposed Rule regarding the Shared Responsibility for Employers provision, employers did not 

~~~~oo~~~~~~~~~~~~~~ 

proposals and guidance had been issued with numerous opportunities for public comment, but 

nothing had the weight of regulation. This proposed rule, while not finalized, does provide 

employers assurances that the rules proposed can be relied upon until further rules are issued. 

Our Association has been educating the industry since enactment and is spreading the word that 

now is the time to take action to comply. While many rules and guidance have been proposed, 

which we must implement, questions still remain regarding exact implementation of most ofthe 

employer requirements. 

The unique characteristic of our workforce creates compliance challenges for restaurant 

and foodservice operators. As a result, many of the determinations employers must make to 

figure out how the law impacts them - for example the applicable large employer calculation 

are much more complicated for restaurants than for other businesses who have more stable 

workforces with less turnover. 
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National Restaurant Association 

"Obamacarc's Impact on Jobs" 

Page 5 

Restaurants are employers of choice for many looking for flexible work hours and so we 

employ a high proportion of part-time and seasonal employees. We are also an industry of small 

businesses with more than seven out often eating and drinking establishments being single-unit 

operators. Much of our workforce could be considered "young invincibles," as 43 percent of 

employees are under age 26 in the industry.2 In addition, the business model of the restaurant 

industry produces relatively low profit margins of only four to six percent before taxes, with 

labor costs being one of the most significant line items for a restaurant.3 

All of these factors combine to complicate what a restaurant and foodservice operator 

must consider when implementing the necessary changes in their business to comply with the 

law. My company is a great example as we have spent an enormous amount oftime trying to 

understand the law and what we must do to comply, but still do not know the answers to many 

questions. 

ApPLICABLE LARGE EMPLOYER DETERMINATION 

The statute lays out a very specific calculation that must be used by employers to 

determine if they are an applicable large employer and hence subject to the Shared 

Responsibility for Employers and Employer Reporting provisions. Because of the structure of 

many restaurant companies, determining who the employer is may not be as easy as it would 

seem. 

Aggregation rules in the law require employers to apply the long standing Common 

Control Clause4 in the Tax Code to determine if they are considered one or multiple employers 

for the purposes of the health care law. While these rules have been part of the Code for many 

years, this is the first time many restaurateurs, especially smaller operators, have had to 

understand how these complicated regulations apply to their businesses. The Treasury 

Department has not issued, nor to our knowledge, plans to issue, guidance to help smaller 

operators understand how these rules apply to them. Restaurant and food service operators must 

hire a tax advisor to determine how the complicated rules and regulations associated with this 

section of the Code apply to their particular situation. It is common that business partners of one 

restaurant company own mUltiple restaurant companies with other partners. These restaurateurs 

consider themselves to be separate businesses, but because there is common ownership, under 

the rules many are discovering that all the businesses can be considered as one employer for 

purposes of the health care law. 

Once a restaurant or foodservice operator determines what entities are considered one 

employer, they must determine their applicable large employer status annually. For a restaurant 

company such as mine, it is clear that we have more than 50 full-time equivalent employees 

2 Bureau of Labor Statistics, U.S. Department of Labor. 

32013 Restaurant 1ndustry Forecast. 

4 Internal Revenue Code, §414 (b),(c),(m),(o). 
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National Restaurant Association 

"Obamacarc's Impact on lobs" 

Page 6 

employed on business days in a calendar year, as we employ many more than 50 people injust 

full-time positions alone. However. given we are an industry of small businesses and that 

restaurants are labor intensive and require many employees to operate successfully, many small 

businesses will have to complete this calculation annually to detenninc their responsibilities 

under the law. 

As you might imagine, operators on the bubble of 50 full-time equivalent employees are 

trying to understand what they must do to complete this complicated calculation each year. 

Generally, an employer must consider the hours of service of each of their employees in all 12 

calendar months each year. However, the Treasury Department has allowed for transition relief 

in 2013 for businesses to use as short as 6 months to do this calculation. The Treasury 

Department recognized the fact that small businesses, who may not currently offer health 

coverage, will need time to determine their status and then negotiate a plan with an insurance 

carrier. However, there remain questions about the process in later years when January through 

December must be considered for status beginning the following January I st. Will small 

employers just reaching the applicable large employer threshold find that they determine they are 

large on December 31, 2014, for example, and must offer coverage a day later on January I, 

20 IS? Rules are needed to clarify when such employers must offer coverage in future years. 

The applicable large employer determination is complicated. Unlike the eligibility 

determination I use today to determine ifmy hourly full-time employees are eligible for health 

benefits (based on 1560 hours of service), for compliance beginning in 2014, employers must 

determine all employees' hours of service each calendar month, calculate the number ofFTEs 

per month, and finally average each month over a full calendar year to determine the employer's 

status for the following year. The calculation is as follows: 

1. An employer must first look at the number offull-time employees employed each 

calendar month, defined as 30 hours a week on average or 130 hours of service per 

calendar month. 

2. The employer must then consider the hours of service for all other employees, 

including part-time and seasonal, counting no more than 120 hours of service per 

person. The hours of service for all others are aggregated for that calendar month and 

divided by 120. 

3. This second step is added to the number offull-time employeesjor a total full-time 

equivalent employee calculation for one calendar month. 
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National Restaurant Association 

"Obamacare's Impact on Jobs" 

Page 7 

4. An employer must complete the same calculation for the remaining 11 calendar 

months and average the number over 12 calendar months to determine their status for 

the following calendar year. 

This annual determination is administratively burdensome and costly, especially for those just 

above or below the 50 FTE threshold who must most closely monitor their status - most likely 

small businesses. Many restaurant operators rely on third-party vendors to develop technology 

or solutions to help them comply with these types of requirements but vendors are backlogged 

and a solution is not widely available today. 

OFFERING COVERAGE TO FULL-TIME EMPLOYEES 

The 2010 health care law requires employers subject to the Shared Responsibility for 

Employers provision to offer a certain level of coverage to their full-time employees and their 

dependents, or face potential penalties. The statute arbitrarily defines full-time as an average of 

30 hours a week in any given month. This 30-hour threshold is not based on existing laws or 

traditional business practices. In fact, the Fair Labor Standards Act does not even define fulltime employment. It simply requires employers to pay overtime when nonexempt employees 

work more than a 40-hour workweek. As a result, 40 hours a week is generally considered fulltime in many U.S. industries. Certainly in the restaurant and foodservice industry, operators 

have traditionally used a 40-hour definition of full-time. Adopting such a definition in this law 

would also provide employers the flexibility to comply with the law in a way that best fits their 

workforce and business models. 

Before this law, our company defined full-time employment differently for those 

employees working in positions in the Front of the House and the Back of the House. As a result 

of the definition in the law, we have changed our threshold and now use 30 hours per week. 

Such a definition is not typical in the restaurant in the restaurant industry. While it might seem 

that our definition aligns with the law, further adjustments to our current practice are needed due 

to the interplay of several provisions of the law. Beginning in 2014, group health plans cannot 

apply a waiting period (or eligibility period) of longer than 90 days. This maximum waiting 

period applies whether you are an applicable large employer or a small employer offering 

coverage. As of2014, if we hire a new employee into a full-time position where they are 

expected to work at least 30 hours per week, we have only 90 days to offer them coverage and 

enroll them in the plan, if they accept our offer. Up until this point, we have used 52 weeks to 

determine if an employee is eligible for an offer of coverage but that must be changed under the 

law. 

This is complicated by the fact that sometimes it is difficult to know who the full-time 

employees will be in a restaurant. For restaurant and foodservice operators who are applicable 

large employers, it is not easy to predict which hourly staff might work 30 hours a week on 

average and which will not. I think back to my first days working in our restaurant as a server as 

an example of how an employee's hours could be unpredictable week to week. During the 

summer and holidays I was scheduled for more hours as customer traffic was at its peak, but then 
58 


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National Restaurant Association 

"Obamacare's Impact on Jobs" 

Page 8 

my hours were reduced as business slowed. Some weeks I might pick up extra shifts to earn a 

little extra in my paycheck that month, and others I'd prefer a few less hours because of 

commitments outside the restaurant. This is one of the attractive benefits of our industry - the 

flexibility to change your hours to suit your own personal needs. However, for the first time 

under this law, the federal government has drawn a bright line as to who is full-time and who is 

part-time. As a result, employers with variable workforces and flexible scheduling must be 

deliberate about scheduling hours because there is now potential liability for employer penalties 

if employees who work full-time hours are not offered coverage. 

The industry appreciates that the Treasury Department has recognized that it may be 

difficult for applicable large employers to determine employee's status as full-time or part-time 

on a monthly basis, causing chum between employer coverage and the exchange or other 

programs. Such coverage instability is not in the employee's best interest and so the restaurant 

and foodservice industry is pleased that the Lookback Measurement Method is an option that 

applicable large employers may use. Our restaurant is still in the process of considering whether 

this is an option we will use. 

The Lookback Measurement Method's implementing rules are complex but I believe that 

it could be helpful for both employers and employees. Employers will be better able to predict 

costs and offer coverage to employees they are required to offer to, and employees whose hours 

fluctuate have the peace of mind of knowing that if their hours do drop, coverage will not be cut 

short before the end of their stability period. Should we choose to utilize the Lookback 

Measurement Method, it can only be applied to variable hour or seasonal employees. Employers 

cannot consider the length of time of service of these employees, only that their hours are 

unpredictable and that they fluctuate. 

Our restaurant's health plan begins on October 1 each year - a change we made several 

years ago when it became clear how difficult for the employees it was to conduct open 

enrollment during our busy holiday season. If we were to choose a 12-month measurement 

period and hence a 12-month stability period, the measurement period would begin Tuesday, 

July 2,2013 and end Wednesday, July 2, 2014. The hours of service for our current variable 

hour and seasonal employees would be measured during this time period on a calendar month 

basis and averaged over the length of the measurement period. We could then utilize up to a 90-

day period for administrative activity, including eligibility determinations and conducting our 

open enrollment process with employees. This could be as long as Thursday, July 3,2014-

September 30, 2014. For those variable hour and seasonal employees determined to be full-time 

during the measurement period, they will be offered coverage during the October 1, 2014-

September 30, 2015 stability period, which coincides with our 2014 plan year. Regardless of 

whether their hours are maintained at full-time status or not, they will maintain enrollment in our 

coverage for the full 12-month stability. If a variable hour or seasonal employee is determined to 

be part-time during the measurement period, they will not be offered coverage and considered a 

part-time employee for the duration of the stability period. The dates for these periods oftime 

will change each year depending on the calendar. There is a similar but slightly different process 

for new hires variable hour and seasonal employees, and also a process for transitioning new 

hires into the normal open enrollment process each year. Also, there are other rules guiding how 

these processes must be administered. 
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National Restaurant Association 

"Obamacare's Impact on Jobs~' 

Page 9 

Applicable large employers who employ 200 or more full-time employees, as Great New 

Hampshire Restaurants does, are also subject to the Automatic Enrollment provision of the law. 

This duplicative mandate requires us to enroll our new and current full-time employees in our 

lowest cost plan if they have not opted-out of the coverage. This provision also interacts with the 

prohibition on waiting periods longer than days and effectively means that on 91 day, we must 

enroll a new full-time hire in our lowest cost plan if they do not tell us that they do not want to be 

enrolled. Employee premium contributions will begin to be collected and the industry is 

concerned that it could cause financial hardship and greater confusion about the law, especially 

amongst our young employees. Automatically enrolling an employee and then shortly thereafter 

removing them from the plan when the employee opts-out only increases costs unnecessarily 

without increasing our employee's access to coverage as the law intended. Under the law 

employers can ask employees to contribute up to 9.5 percent of their household income towards 

of the cost of the premium. We will educate our employees about how this provision impacts 

them, but if an employee misses the 90-day opt-out deadline, a premium contribution is a 

significant amount of money, which can be a financial burden. Since the same full-time 

employees must be offered coverage by the same employers subject to the Automatic Enrollment 

provision and the Shared Responsibility for Employer provisions, we believe the automatic 

provision is unnecessary and should be eliminated. 

CHALLENGES FOR APPLICABLE LARGE EMPLOYERS OFFERING COVERAGE TO THEIR FULLTIME EMPLOYEES AND THEIR DEPENDENTS 

Once an applicable large employer has determined to whom coverage must be offered, he 

must make sure that the coverage is of 60 percent minimum value and considered affordable to 

the employee, or he may face potential employer penalties. 

Minimum value is generally understood to be a 60 percent actuarial test; a measure of the 

richness of the plan's offered benefits. This is a critical test for employers especially as it relates 

to what an employer's group health plan covers and hence what the premium cost will be in 

2014. I've mentioned that business owners like certainty and that means the ability to plan for 

their future costs. Employers are eager to know what their premium costs will be under the new 

law. Minimum value is key to determining that information. 

On February 25,2013 the Health and Human Services Department did include the 

Minimum Value Calculator, one of the acceptable methods to determine a plan's value, in its 

Final Rule, Standards Related to Essential Health Benefits, Actuarial Value, and Accreditation. 

Minimum value can now be detennined using this calculator but still it is always difficult to 

know premium costs so far in advance. For our October 1 plan year start date, we generally are 

able to get data from our broker in August but it is always a fight to get the information from the 

insurance carriers. From there, budget decisions can then be made for the coming year. We do 

not anticipate that we will have premium information for the 2014 plan year until August of that 

same year. With a potential large increase in costs, this gives us a short timeframe within which 

to make business decisions in advance of the new plan year. 
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National Restaurant Association 

"Obamacare's Impact on Jobs" 

Page !O 

Employers must also ensure at least one of their plans is affordable to their full-time 

employees or face potential penalties. A full-time employee's contribution toward the cost of the 

premium for single-only coverage cannot be more than 9.5 percent of their household income, or 

else the coverage is considered unaffordable. Employers do not know household income, nor do 

they want to know this information for privacy reasons. However, employers needed a way to be 

able to estimate before a plan is offered if it will be affordable to employees. What employers do 

know are the wages they pay their employees. Almost always, employees' wages will be a 

stricter test than household income. Employers are willing to accept a stricter test in the form of 

wages so that they know they are complying with the law and are provided protection from 

penalty under a safe harbor. The Treasury Department will allow employers to use one of three 

Affordability Safe Harbors based on Form W-2 wages, Rate of Pay or Federal Poverty Line. We 

believe that the option of utilizing these methods will be helpful to employers as they determine 

at what level to set contribution rates and their ability to continue to offer coverage to their 

employees. Our company has begun to look at this test but is still in the process of determining 

how we will best implement this section of the law. 

The law speaks to affordability for employees but is silent regarding whether the 

coverage required to comply with the Shared Responsibility for Employers section of the law is 

affordable to employers. We anticipate added costs as a result of this law, either through 

required changes impacting plan design or additional fees - such as the PCORI Funding Fee, the 

Exchange Reinsurance Program Fee, the Health Insurance Provider Fee - that will continue to 

drive up premiums for employers and employees as others pass along these increased costs. In 

addition, new taxes such as the "Cadillac" tax on certain employer-sponsored coverage, will also 

squeeze restaurateurs when it begins in 2018. 

As restaurant and foodservice operators implement this law, considering all of the 

interlocking provisions that impact employers, some will be faced with difficult business 

decisions between offering coverage which they cannot afford and paying a penalty for not 

offering coverage that they equally cannot afford nor want to do. We encourage all 

policymakers to address the cost of coverage so that the employer-sponsored system of health 

care coverage will be maintained. 

NEW NONDISCRIMINA nON RULES ApPLIED TO FULLy-INSURED PLANS 

The health care law applies the nondiscrimination rule that self-funded plans cannot offer 

benefits in favor oftheir highly-compensated individuals now to fully-insured plans. This rule is 

not in effect as the Treasury Department has put implementation on hold until further guidance 

has been issued in this complex area. Under the law, these rules apply to all insured plans, 

regardless of where they are offered by an applicable large employer or a small business. The 

restaurant and foodservice industry is watching this rule closely as it may impact what plans may 

continue to be offered to employees. 

Current group health plan participation often forces operators to carve out the group of 

employees who will participate in the plan. In our members' experience, these are almost always 

a group that would be considered in the top 25 percent based on compensation. 
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"Obamacare's Impact on Jobs" 

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However, management carve-outs are not just for upper level executives who may 

receive richer benefit plans than the rest of the employees, In the restaurant and foodservice 

industry, management-only plans are sometimes the only option that operators have to provide 

health care coverage to those employees who want to buy it and pass participation requirements 

at the same time. As a result, these plans are quite common in the industry, 

The rules the Treasury Department writes to apply non-discrimination testing to fullyinsured plans will have an impact on our industry. Regardless of how they are written, restaurant 

and foodservice operators will need sufficient transition time to apply these rules as it could 

create upheaval for plans and employers alike. 

ApPLICABLE LARGE EMPLOYER REPORTING REQUIREMENTS 

A key area of implementation that employers have received little or no guidance on are 

the employer notice and reporting requirements: the Fair Labor Standards Act Notice to 

Employees from the Department of Labor, the notices and appeals processes with Exchanges 

from the Department of Health and Human Services, and the required information reporting 

under Code §6055 and §6056 from the Treasury Department. These employer notice and 

reporting requirements are a key link in the chain of the law's implementation. They represent a 

significant employer administrative burden as well as rules that will help employers ensure that 

their employees are well informed about their options under the law. 

Of particular concern is the flow of information and the timing of reporting employers 

must make to multiple levels and layers of government. Streamlining employer reporting will 

help ease employer administrative burden and simplifY the process, The information provided 

by employers under Code §6055 and §6056 is critical in this process and can be used by the 

Treasury Department to verify if an individual had an offer of affordable minimum essential 

coverage of minimum value from an applicable large employer. The information provided by 

employers must be compared by the Internal Revenue Service to verify eligibility determinations 

made by the Exchanges for premium tax credits or cost-sharing reductions. The information can 

also be used to determine employer penalty liability. The restaurant and foodservice industry, 

along with other employer groups, have advocated for a single, annual reporting process by 

employers to the Treasury Department each January 31 51 that would provide prospective general 

plan information and wage information for the affordability safe harbors, as well as retrospective 

reporting as required by §6056 on individual full-time employees and their dependents. 

We are anxious for guidance to be issued, especially by the Treasury Department on 

implementing §6056, as employers cannot just flip a switch and produce the detailed information 

reports required by the law. It will take time for employers to set up systems, or contract with 

vendors, to track and maintain the date needed to comply with the law. When I think of our own 

company and the detailed information we will have to track and report on all full-time employees 

and dependents, it is a large amount of data. The reporting will include not only the employees 

who remain with the restaurant for the entire year, but even our seasonal staff and others who 
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National Restaurant Association 

"Obamacare's Impact on Jobs" 

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may only stay for a couple of months. Health plan benefit information as well as individualized 

payroll-sourced information must be merged to produce the report needed under the law. 

TRANSITION RELIEF 

Within the Proposed Rule for Shared Responsibility for Employers, the Treasury 

Department provided targeted transition relief. While appreciated, we believe that further 

transition relief is critical. The timeITame for compliance is short and getting shorter and safe 

harbor protections for good-faith compliance by employers in the law's early phases is 

necessary. Employers are stilI missing essential pieces of guidance and regulation necessary to 

construct their systems, make plan design changes and communicate with their employees. 

Under the threat of heavy penalties for not getting this exactly right the first time, some 

employers may opt-out of offering coverage to their employees and choose to pay the penalties 

instead. This is not what the restaurant and foodservice industry wants, but it may be a likely 

result of employers having to make difficult decisions under extremely uncertain conditions. 

The process should not discourage employers and employees ITom participating in the new 

system and so a good-faith compliance standard is appropriate. As with implementation of any 

law this size, it will take some time for the hiccups in the processes to be worked out and 

employers should be allowed adequate time to come into compliance. 

CONCLUSION 

Since enactment of the law, the National Restaurant Association has worked to 

constructively shape the implementing regulations of the health care law. Nevertheless, there are 

limits to what can be achieved through the regulatory process alone. Ultimately, the law cannot 

stand as it is today given the challenges employers such as restaurant and foodservice operators 

face in implementing it. 

Broader transition relief is needed for employers attempting to comply with the law in 

good-faith as time is short to make the significant changes required by the law. The duplicative 

automatic enrollment provision should be eliminated as it could unnecessarily confuse and 

financially harm employees. Key definitions in the law must be changed: The law should more 

accurately reflect the general business practice of 40 hours a week as full-time employment. The 

applicable large employer determination over-reaches to include more small businesses than it 

should. 

The National Restaurant Association looks forward to working with this Committee and 

all of Congress on these and other important issues to improve health care for our employees 

without sacrificing their jobs in the process. We also continue to actively participate in the 

regulatory process to ensure the implementing rules consider our industry's perspective. 

Thank you again for this opportunity to testify today regarding the impact of the health 

care on the restaurant and foodservice industry, and the challenging environment it will cause for 

job creation and growth. 
63 

Mr. PITTS. Chair thanks the witnesses for their opening statements. And now we will begin questioning by the members. And 

I will begin questioning, recognize myself for 5 minutes for that 

question—for that purpose. 

Ms. Furchtgott-Roth, when PPACA was enacted, the then-Speaker of the House, Nancy Pelosi, claimed that the health care law 

would create 4 million jobs and almost 400,000 jobs immediately. 

However, your testimony underscores that PPACA will do the exact 

opposite and hurt job creation. Job creators face major incentives 

to reduce hiring and shift employees to part-time work to reduce 

the damage of the law’s employer tax penalty. Given your expertise 

and your experience as the former chief economist at the U.S. Department of Labor, does Former Speaker Nancy Pelosi’s claim bear 

any resemblance to reality? 

Ms. FURCHTGOTT-ROTH. I don’t think that the Health Care Act 

is going to create 4 million jobs on net. It might—it is obviously 

going to create jobs in insurance and hospital administration. Apparently, it is going to create many, many jobs in the IRS. Because 

the IRS is going to have to evaluate whether individuals have paid 

the right taxes and penalties and how much subsidy they are entitled to, because anyone under 400 percent of the poverty line gets 

a subsidy. But it is also going to cost low-wage jobs. As Dr. 

Blumberg says, with high-wage jobs, employers are just going to 

subtract the costs of the insurance from the wage. But this means 

less cash wages. 

So people are going to do—be able to, say, go out to eat at Mr. 

Boucher’s restaurants less often. That is going to cost jobs. So it 

is primarily going to have a decrease in low-skilled jobs in the 

economy and probably other kinds too. 

Mr. PITTS. Now, this claim seems particularly specious since 

PPACA included over 20 new taxes which amount to over $1 trillion over 10 years. One of the most economically damaging taxes 

is the 2.3 percent excise tax on medical devices. Studies have 

shown that the device taxes cost thousands of people their jobs, 

and cost the economy billions of dollars in lost economic impact. 

Now, you personally studied and coauthored a paper on this 

issue. Could you elaborate on your findings on this one tax alone, 

how it will affect jobs? 

Ms. FURCHTGOTT-ROTH. Yes. We are the only country putting the 

2.3 percent excise tax on medical devices. And many medical device 

manufacturers export overseas. Many of them also have other 

plans overseas. So the incentive is when the tax is imposed here, 

what they would do is move production offshore to deal, certainly, 

this their offshore clients. Because they wouldn’t move it offshore 

to import it in here because they would still face the tax. 

So I calculate that if 10 percent of production moved offshore, 

which I think is reasonable, the lost jobs would be in the range of 

43,000 to 64,000; if 20 percent of manufacturing moved offshore, 

there would be a loss of 84,000 jobs to 105,000 jobs; if 30 percent 

moved offshore, there would be a lost employment range of 125,000 

to 146,000. 

Mr. PITTS. All right. Thank you. Mr. Boucher, your testimony indicated that the President’s health care law will add major costs 

for your budget. Three parts to this question: Can you explain how 

64 

this cost increase affects your ability to invest capital and new investments—new restaurants, create new jobs? Explain how the 

law’s regulations and uncertainty have forced you to spend more 

money on human resources to comply with the law? And your ability to run your business and create jobs? 

Mr. BOUCHER. Sure. You know, I have spent at a minimum 100 

hours this year with my human resource person just trying to figure out the details of this law. And even most recently, we constructed a survey to send out to our staff to understand what their 

intentions might be, based on what they know of this law right 

now. That was a task that took some time itself. The response level 

was very low because they don’t understand what’s happening. So 

we had to resurvey them individually, person by person, with our 

general managers actually spending time with them to do that survey. So these are all times that are not normally spent by our staff 

or by myself. So that, in and of itself, has been an enormous task. 

As far as the future growth of our company, that added $200,000 

is a real number that will not allow me to spend on capital improvements, build new restaurants. And as a matter of fact, we 

opted not to open another restaurant this year because we knew 

that this was coming and we wanted to see how it was going to 

play out truly before we made a commitment that we didn’t have 

the cash to do it. 

Mr. PITTS. Gentlemen, my time is up. Recognize the ranking 

member, 5 minutes for questioning. 

Mr. PALLONE. Thank you, Mr. Chairman. I wanted to ask Dr. 

Blumberg, obviously our Republican opponents of the Affordable 

Care Act make these claims that the law kills jobs. They argue 

that requiring employers to offer health insurance and to improve 

employee benefits will increase the costs of labor. And I know this 

is simply not true. In fact, the ACA is helping to create millions 

of jobs. Since the President signed the bill into law, the U.S. Has 

added 6 million private sector jobs, this includes 750,000 jobs in 

the health care industry, which so many opponents of the law 

would be crushed—they say it is going to be crushed with job-killing regulations. 

The restaurant industry, which we hear from today, has added 

more than 800,000 jobs in that same time period. And independent 

fact checkers have examined the claim that the ACA kills jobs and 

call it false and a whopper and have rated it with three Pinocchios. 

So, Dr. Blumberg, can you explain whether the ACA is a job killer? And can you give us some perspective on the other factors that 

we should consider when looking at the law’s impact on job growth? 

Ms. BLUMBERG. Sure. The empirical evidence is quite consistent 

that the Affordable Care Act is not a job killer. That what we have 

looked at over time repeatedly with doing comprehensive health 

care reform, all of the macroeconomic models indicate that when 

you invest additional funds in health care that some of—yes, some 

dollars are shifted from other products into the consumption of 

health care. But because health care is, by its nature, a locally-produced good, and when others are buying things that are coming 

from other countries, that what happens is that some of that 

money that shifted to health care from other sectors actually can 

65 

create a positive impact on jobs locally as a consequence of how 

health care is, by its nature, purchased. 

So while health care reform is not expected to have enormous 

positive job impacts, it is expected to have small net positive impacts. 

And, in fact, when you look at the impacts on small employers, 

who are most disadvantaged by the health care system today, there 

is very significant positive implications for them in terms of cost 

reductions and assistance in their ability to be competitive in purchasing labor with larger firms. So all of this on net, in addition 

to the fact that the change in costs in total to employers is very 

small. As I noted earlier, relative to total compensation, we can’t 

have big effects when the change in compensation is that tiny. 

Mr. PALLONE. All right. Now, prior to the ACA, only half of the 

States had the legal authority to reject a proposed insurance premium increase that was deemed excessive or unwarranted. But the 

ACA provides States with 250 million in health insurance premium 

review grants over 5 years to help States improve their rate review 

process and hold insurers responsible. 

The ACA also establishes a new medical loss ratio requirement 

to require insurers to spend 80 to 85 percent of premium dollars 

on benefits. Consumers have already received over $1 billion in rebates from insurance companies that failed to meet this important 

new standard. 

Together, these provisions have already saved consumers over $2 

billion, and the number of double-digit premium increases has fallen dramatically. In March 2012, CBO projected that premiums are 

estimated to be 8 percent lower by 2021 than originally estimated. 

And this is an especially important finding because of all the ACA 

does to make sure consumers have, you know, overall, more valuable quality insurance. 

So, Doctor, just talk a little about how policies like rate review 

and limiting excessive insurance company administrative costs benefit businesses and consumers. 

Ms. BLUMBERG. The medical loss ratio changes that you talked 

about moving to across the board minimums of 80 percent in a 

small group and the non-group markets in particular are very significant changes. The medical loss ratios in large group coverage 

were already reasonably high. So the law doesn’t have nearly as 

much impact on them. But we have looked very carefully at medical loss ratios prior to the implementation in reform by State. And 

found that, first of all, there is dramatic variation across States, 

with some States having the vast majority of enrollment in the 

small group and non-group market in plans that have lower medical loss ratios than the law required. And so the impact on them 

is going to be very substantial in terms of lowering premiums. 

Those plans are—those carriers are going to have to restructure 

and are already in the process of restructuring their cost structure 

in order to be more efficient in terms of their administrative costs 

and the way that they market their plans. And, in addition, the exchanges will help with that in terms of doing more centralized marketing for coverage and lowering those costs. 

In addition, we have had a great deal of experience going to a 

number of States to talk to them about their experiences in impleVerDate Nov 24 2008 12:10 Jan 15, 2014 Jkt 037690 PO 00000 Frm 00071 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-14 CHRIS
66 

menting the Affordable Care Act so far. And one thing stands out 

on this topic that we—conversations we had with State regulators, 

insurance regulators across the country who noted to us that what 

was amazing was as soon as the medical loss ratio—or the medical 

loss ratios and the rate review rules came in, and the rate review 

rule indicates that there has to be clear evidence of a reason for 

increasing rates more than 10 percent; otherwise, they are prohibited. And what these regulators told us, as soon as the law went 

into effect, suddenly all the carriers were clustering, instead of having much higher increases that they were requesting, they were all 

requesting them at 9.9 percent. 

Mr. PITTS. Time has expired. 

Ms. BLUMBERG. And so this was evidence from the regulators’ 

perspective that the law was already having a significant effect, 

even in the early years of implementation. 

Mr. PALLONE. Thank you. 

Mr. PITTS. Chair thanks the gentleman. Now recognize the ranking member, Dr. Burgess, 5 minutes for questions. 

Mr. BURGESS. Thank you, Mr. Chairman. 

Mr. Boucher, I am so glad you are here on this panel. I know 

it must be tough for you. I know that because every Friday night 

I go to my pizza restaurant, a Domino’s on Southwest Parkway in 

Lewisville, Texas. And I get an earful from the owner who just, like 

you, doesn’t understand how in the world they are going to comply 

with all of the things that are coming their way and coming pretty 

fast. 

Staff printed off for me the 21-page application that an employee 

will have to fill out in order to go into the exchange. I mean, it is 

no wonder that when you polled your employees about what they 

think about this, they take one look at something like this and say, 

‘‘I’m going fishing, I’m not going to think about it right now.’’ 

But let me ask you, you heard Dr. Blumberg’s responses to some 

questions. Let me just ask you, do you think the Affordable Care 

Act is a job killer? 

Mr. BOUCHER. It absolutely can be. 

Mr. BURGESS. It hasn’t been in your case, hasn’t it? 

Mr. BOUCHER. In this particular year, it was, because we didn’t 

actively pursue opening a restaurant. We did open one in 2011. 

However, that was before the elections. And, quite honestly, we 

waited to see what was going what was going to happen with the 

elections for this year. So in this case, we opted not to. 

Mr. BURGESS. You are not alone in that election stuff. 

Does the Affordable Care Act reduce your insurance costs? 

Mr. BOUCHER. Well, as it stands right now, it is going to increase 

it because of the amount of people that are going to come on our 

plan. It is not going to reduce the existing plan, because every year 

our insurance rates have gone up. What is going to happen next 

year, I can only assume they are going to go up, based on historical 

data. But certainly from what I testified earlier that the projected 

amount, and this is a real number, we did surveys, individually, 

that 75 percent of our uninsured right now will come on. Our plan, 

it is going to increase. It is going to increase our health insurance 

costs. $200,000 is a big, big number for us to try and find a way 

how we are going to pay for that. 

67 

Mr. BURGESS. Let me ask you this. I mean, you are a representative of the Restaurant Association; is that correct? 

Mr. BOUCHER. Yes. I am on the board. 

Mr. BURGESS. Do you have any experience dealing with cost and 

coverage for the State of Massachusetts after the implementation 

of their health reform? 

Mr. BOUCHER. No, I don’t. I just—even though we are States 

right next door to each other, I just don’t have enough information 

about what exactly their plan is. 

Mr. BURGESS. Fair enough. We might work on trying to find that 

out. 

Ms. Furchtgott-Roth, let me ask you a question. 

You talked about the, really, I think what I would refer to as 

entry-level jobs, people who are just starting in the workforce. 

Ms. FURCHTGOTT-ROTH. Right. 

Mr. BURGESS. They might find those jobs to be diminished as a 

result of the Affordable Care Act. Is that not correct? Did I infer 

correctly from your testimony? 

Ms. FURCHTGOTT-ROTH. They will find that. And they are already finding that. We hear that 6 million jobs have been created 

since the Affordable Health Care Act was passed. It is about 4 percent of total payroll jobs. Our unemployment rate is 7.7 percent. 

Our labor force participation rate is at 63.5, which is the same as 

September 1981, the beginning of the decade, when millions of 

women moved into the market, before the Reagan revolution. 

Our employment is shrinking. In normal recovery, as economic 

growth expands, then employment also expands, labor force participation rate goes up. Our labor force participation rates have been 

going down and shrinking. Unemployment rates for teens are about 

25 percent, unemployment rates for African-American teens are 43 

percent. Unemployment rates for low-skilled workers are about 11 

or 12 percent. These are the people who are hurt by putting a mandate on employers. The other people are, as Dr. Blumberg says, 

they take it out of their wage. Well, there’s also effects to having 

less cash wages. If people are paying more for their health insurance, they have less cash wages to spend, and they can’t go Mr. 

Boucher’s restaurant. 

Mr. BURGESS. Have you had a chance to look at this application 

for employees to apply for health insurance in the exchanges? 

Ms. FURCHTGOTT-ROTH. I have not. But even a 2- or 3-page application would be daunting to me; I can’t imagine what a 20-page 

application would be. 

Mr. BURGESS. Correct. To someone who is just starting in the 

workforce who has had no experience with this type of thing in the 

past. 

I think someone brought up about constructive revisions to the 

Affordable Care Act. Do you have any thoughts on constructive revisions? I mean, in other words, we are sitting here now less than, 

what, 6 months away or 6 months away now from the implementation where people are supposed to be able to go online, live, and 

register for health insurance in the exchange, starting October 1st. 

Do you have a sense that this can all be accomplished in that time? 

Or should we be looking at something that would perhaps postpone 

by a little bit this exchange activity? 

68 

Ms. FURCHTGOTT-ROTH. I think we should definitely postpone it. 

HHS is behind in issuing regulations in helping set up exchanges. 

I would say that there are a number of things you could do. First 

of all, allow any plan to be listed on the exchange. Right now, only 

a qualified benefit plan can be listed on the exchange. Those are 

very large, generous expensive plans, no copayments, all these different mandates like mental health coverage, drug abuse coverage, 

contraceptive coverage, et cetera. Why not allow catastrophic 

health plans to be listed for everybody? Right now, it is just for 30 

and under. What if everybody could buy a catastrophic health plan? 

I mean, that would make health insurance much less expensive 

right then. 

Then also, the grandfathering provisions for employers. Mr. 

Pallone said that employers would continue to offer their coverage 

and that they continue offering coverage. Well, it is grandfathered 

only under certain circumstances. You make any little change in 

the plan, it is not grandfathered anymore. So why not extend 

grandfathering and just say employers can continue to offer whatever plans they want. 

And, third, I don’t think that employers should have to pay for 

employees’ health coverage, just as they don’t have to pay for their 

food, they don’t have to pay for their housing, they don’t have to 

pay for their clothing. If we want to do this, let’s have a more general tax on everyone so we don’t disadvantage hiring. 

Mr. BURGESS. Thank you, Mr. Chairman. 

Mr. PITTS. Chair thanks the gentleman. Now recognize the ranking member emeritus, Mr. Dingell, for 5 minutes for questions. 

Mr. DINGELL. Thank you for your courtesy, and I commend you 

for the hearing. I hope this hearing will be successful in establishing ways to improve and see to it that the Obamacare legislation becomes an effective support for our society and for employment. I want to commend our panel for being with us today. And 

I want to observe that it is very important action for this Congress 

to recognize that the people have spoken, the Congress has voted, 

the decision of the Supreme Court, and the voice of the voters in 

the last campaign have all been heard in support of the legislation 

we discussed today. My questions are to Dr. Blumberg, and they 

will require only a yes-or-no answer. 

Doctor, the intent of the Affordable Care Act is improving the 

quality of health care delivered in our health care system as well 

as expanding the access to affordable health coverage for individuals and small businesses. This is done, in part, by offering subsidies for individuals to purchase health coverage and tax credits 

to small employers who opt to provide such coverage. 

In 2014 and 2015, small employers with 50 or fewer employers 

will be eligible for the tax credits, and after 2015, those with 100 

or fewer employees will be eligible for the tax credit. Is this correct? Yes or no. 

Ms. BLUMBERG. Not quite. 

Mr. DINGELL. Now, next question. The IRS has notified more 

than 4 million businesses that they will be eligible for this tax 

credit. Is that correct? 

Ms. BLUMBERG. I believe that is correct, yes. 

69 

Mr. DINGELL. Now, Doctor, would you agree that these tax credits make it more affordable for small business to offer health coverage to their employees? Yes or no? 

Ms. BLUMBERG. Yes. 

Mr. DINGELL. Is that a consensus? 

Ms. BLUMBERG. It is. 

Mr. DINGELL. Now, Doctor, some of this hearing today will be directed at proving that ACA will increase costs and result in lost 

coverage for employees. But you have found differently in your research. In your coverage simulation, which included penalties and 

tax credits in ACA, you found that employer-sponsored coverage 

did increase, and the largest coverage increase occurred among employees from businesses with 100 or fewer employees. Is this correct? 

Ms. BLUMBERG. Yes, it is. 

Mr. DINGELL. Doctor, with the increase in employer-sponsored 

coverage, 2 percent, what was the cost in terms of wages to employers? Can you give me some comment on that? I believe the answer 

is that this is going to only constitute about .003 percent of total 

wages. Is that correct? 

Ms. BLUMBERG. It was .0003 percent. 

Mr. DINGELL. Now, this seems to be a relatively small cost to an 

employer. Would you agree? 

Ms. BLUMBERG. Yes, I would. 

Mr. DINGELL. Do you think that such relative small costs would 

have significant or negative impact on employment? 

Ms. BLUMBERG. No. 

Mr. DINGELL. A pollster, I think, would find this to be within the 

margin of error. Is that right? 

Ms. BLUMBERG. Yes, it would. 

Mr. DINGELL. And most scientific or credentialed research would 

also find this to be within the margin of error. Is that correct? 

Ms. BLUMBERG. I agree. 

Mr. DINGELL. Now, if then millions of small businesses will be 

receiving tax credits to help them purchase affordable coverage and 

the cost of an increase in employer-sponsored coverage is relatively 

small, do you believe that small businesses will be financially better off under the Affordable Care Act? Yes or no? 

Ms. BLUMBERG. Yes. 

Mr. DINGELL. They don’t have a nod button; you have got to say 

yes or no. 

Ms. BLUMBERG. Yes. 

Mr. DINGELL. Dr. Blumberg, I thank you for your assistance to 

the committee. 

Mr. Chairman, I just want to make this observation: The Congress has fallen to a place that I think all of us find to be very distressing. We are known for gridlock, for inaction, and for ineffectiveness. And the public generally has an attitude towards the Congress that is somewhere below bill collectors and just slightly above 

child molesters. I think that working together to resolve the questions that we have, to solve the budget concerns, to make Affordable Care Act is a laudable goal. 

I know my colleagues want to do it. I hope that this hearing will 

have as its purpose the idea that we are going to do that, and that 

70 

we are going to work together on this committee to see to it that 

we don’t just have carping and criticism but, in fact, that we do 

have steps taken by this committee that will make this a program 

which will be good for this country. We are the only nation in the 

world which doesn’t have—the only major industrialized nation 

which doesn’t have a program of this kind. So I look forward to 

working with you in a spirit of remarkable goodwill to accomplish 

that purpose. Thank you. 

Mr. PITTS. Chair thanks the gentleman and now recognizes the 

gentleman from Texas, Mr. Hall, 5 minutes for questions. 

Mr. HALL. Well, thank you, Mr. Chairman. 

Mr. Boucher, you told us of your growth and the steps you took 

to reach, I guess, the top or reach where you are, and I admire you 

for that, and understand your hesitation to gamble on an additional facility after the election. I think I know what you were saying there, and I agree with you on that. 

And the chair covered some of the complexity of the Act on your 

business now, but I want to ask you about your business as you 

started it and go back in the restaurant business and lay out some 

strategic goals for the success and growth that you had then. How 

do you think this obstacle would have affected your business when 

you were getting started as opposed to now that you are well established, or now that we are in what the chair called a sluggish economy? 

Mr. BOUCHER. I mean, we likely would not be where we are 

today. Being where I have been in this position as the CEO since 

2004, it has become more and more and more difficult to operate 

business because of legislation such as this that it is creating hardship that we hadn’t seen in the past. And I know for a fact that 

we would not have opened the number of restaurants that we have 

opened had this been in place say, you know, 6 years ago. 

Mr. HALL. And do you think that the law’s definition of full-time 

employee comports with how most businesses operate today? 

Mr. BOUCHER. Well, no, and—— 

Mr. HALL. Prior to the Health Care Act was, I think, 30 hours 

was the typical cutoff point for the part-time employees versus fulltime employees. 

Mr. BOUCHER. I think it is—the definition of full-time is not really clear because the definition of full-time, when you calculate overtime, is 40 hours a week. So the definition of 30 hours a week really doesn’t make a lot of sense when you compare to that type of 

thought process. 

Different restaurants will categorize it differently, and I think, 

you know, I am an exception where I categorize it, but just like the 

restaurant industry, it is a very diverse industry and business owners in this industry will categorize it differently. 

Mr. HALL. Ms. Furchtgott-Roth and Dr. Blumberg, do you have 

a different opinion of the answers that Mr. Boucher gave us or any 

comment you want to make on it? I have about 2 minutes left. 

Ms. FURCHTGOTT-ROTH. I think it is important to look at the difference between the cost of health care as an average cost of the 

average wage, as a fraction of the average wage which is very well 

a small fraction of the average wage, and the cost of a health policy 

to an employer as a percent of a particular wage. So the fraction 

71 

of a percent is a fraction of a percent overall, but it is 9 to 11 percent of the wage in low-cost occupations such as retail and food. 

And so whereas to an average employee it might not make so 

much difference, it is very important to low-skilled workers, it is 

very important that they be able to get their foot on the first wrung 

of the career ladder. Health insurance policies are going to be very 

expensive. In March 2012, CBO estimated that for a family of four, 

a health insurance policy was going to cost $20,000 a year in 2016. 

Ms. BLUMBERG. I do have a different perspective. The situation 

that we need to keep in mind is comparing to where we are today, 

and one of the things that has been clear to large employers for a 

long time is that health care costs of employ-—of their employees 

have absorbed the costs associated with covering dependents who 

were employed by medium-sized and smaller firms for many years. 

And so what we are—the situation here when the requirements, 

the employer requirements become more consistent across employer sizes over 50 is that it basically levels the playing field 

across employers. 

The other thing to keep in mind is that there are demonstrated 

savings from our analysis for small employers, and there are about 

twice as many workers in the labor force work for small employers 

than do for the medium-sized firms, and so there are some distributional issues that occur when playing fields are leveled and individuals and firms that have been disadvantaged in the past are 

put on more equal footing with their other counterparts, but overall 

it should have positive implications for the—— 

Mr. HALL. And I thank you. And I yield back. 

Mr. PITTS. The chair thanks the gentleman. The chair now recognizes the gentleman from North Carolina, Mr. Butterfield 5 minutes for questions. 

Mr. BUTTERFIELD. Thank you very much, Mr. Chairman, and 

thank the witnesses for their testimony today. 

You know, Mr. Chairman, when I received the notice of this subcommittee hearing a few days ago, I saw that the title of the hearing was ‘‘Obamacare’s Impact on Jobs,’’ and quite frankly, I 

thought we were going to be talking about a positive impact on jobs 

because the evidence seems to me to be indisputable. There have 

been 6 million private sector jobs added since the signing of the Affordable Care Act. 750,000 of those jobs have been right in the 

health care sector, and 800,000 of those jobs have been in the restaurant industry, and so, quite frankly, I thought we were going to 

be talking about the positive impact on jobs. 

I am just having difficulty, Mr. Chairman, understanding how 

one can, with a straight face, suggest that the Affordable Care Act 

is in fact killing jobs. That is absolutely not the case. It just seems 

to me that having a healthy and happy workforce must be a net 

positive for businesses, and so I want to continue this conversation 

and learn more, but I don’t see how the Affordable Care Act is killing jobs. In my estimation, we are creating jobs. 

Let me direct my attention to Ms. Roth. Thank you for your testimony. A few minutes ago, Dr. Blumberg, when she began her testimony, she—and I wrote it down, she said that her words should 

not be attributed to the Urban Institute. Is that what you said, Dr. 

Blumberg? Those were your individual words? 

72 

Ms. BLUMBERG. Yes. 

Mr. BUTTERFIELD. So let me ask you, Ms. Roth, should your 

words be attributed to the Urban Institute or are these your 

words? 

Ms. FURCHTGOTT-ROTH. I work for the Manhattan Institute. 

Mr. BUTTERFIELD. I am sorry, the Manhattan Institute. 

Ms. FURCHTGOTT-ROTH. And these are my words. 

Mr. BUTTERFIELD. So we should not attribute these words at all 

to the Manhattan Institute? 

Ms. FURCHTGOTT-ROTH. Right. All the individual scholars speak 

on their own behalf. The Manhattan Institute has not even seen 

my testimony. 

Mr. BUTTERFIELD. But you are on the payroll of the Manhattan 

Institute? 

Ms. FURCHTGOTT-ROTH. That is correct. 

Mr. BUTTERFIELD. All right. I am interested to know where the 

funding for the Manhattan Institute comes from. Can you tell us 

the source of your funding? 

Ms. FURCHTGOTT-ROTH. I have no idea of the source of my funding. 

Mr. BUTTERFIELD. You don’t know how the Manhattan Institute 

is funded? 

Ms. FURCHTGOTT-ROTH. No. I mean, I don’t have to go out and 

get grants. They pay me a salary. I don’t have anything to do with 

funding. 

Mr. BUTTERFIELD. What is the budget of the Manhattan Institute; do you know that? 

Ms. FURCHTGOTT-ROTH. I do not have that number, but I can get 

that for you. I am sorry. 

Mr. BUTTERFIELD. All right. Do you know if by any chance any 

political organizations or any political operatives contribute to the 

Manhattan Institute? 

Ms. FURCHTGOTT-ROTH. I don’t know the answer to that question. 

Mr. BUTTERFIELD. All right. Let me now direct the next question 

to Dr. Boucher. Thank you so much for your testimony. I am a little confused, Mr. Boucher. You mention in one part of your testimony that this could really increase your company expenses by 5- 

to $700,000 if you were to add hourly employees? 

Mr. BOUCHER. No, it would increase it from 500- to 700,000. 

Mr. BUTTERFIELD. Oh, so, I was going to try to ask about the 

200,000. I see what you are saying. 

Mr. BOUCHER. Right. 

Mr. BUTTERFIELD. So it will increase from 500,000 to 700,000. 

Mr. BOUCHER. Right. 

Mr. BUTTERFIELD. Now, this is not the Restaurant Association. 

This is your company? 

Mr. BOUCHER. That is right. 

Mr. BUTTERFIELD. And your company, I believe, is the Great New 

Hampshire Restaurants, Incorporated. 

Mr. BOUCHER. Right. 

Mr. BUTTERFIELD. What percentage? I heard the .0003 figure a 

moment ago. What percentage of your gross sales would that represent? 

73 

Mr. BOUCHER. I believe it was on not gross sales. 

Mr. BUTTERFIELD. But if you had to spend an extra $200,000 to 

provide coverage to your hourly employees, you are saying that 

would—— 

Mr. BOUCHER. I would have to do the calculation in my head. 

Mr. BUTTERFIELD. But it would be less than one-tenth of 1 percent, I suppose. 

Mr. BOUCHER. No. 

Mr. BUTTERFIELD. Yes. Give me—what are your gross sales? 

Mr. BOUCHER. We are doing somewhere around 28 million, so if 

you do the math. 

Mr. BUTTERFIELD. And of course that is gross sales. I mean, you 

have a lot of overhead, and so we figure maybe a 15 percent bottom 

line, and so—— 

Mr. BOUCHER. How much? 

Mr. BUTTERFIELD. Maybe a 15 percent bottom line? 

Mr. BOUCHER. No. 

Mr. BUTTERFIELD. It is not that much. You wish. You wish it 

was. 

Mr. BOUCHER. You are not even close, sir. 

Mr. BUTTERFIELD. All right. But notwithstanding, a $200,000 increase in contribution to help your employees would not be a significant amount of money in comparison to your overall operation? 

Mr. BOUCHER. Sir, our bottom line is 9 percent. 

Mr. BUTTERFIELD. All right. 

Mr. BOUCHER. Then we still have to pay taxes, then we still have 

to do our capital improvements, which is depreciation, and then we 

have to pay our business loans. At the end of that, I am left with 

about 4 cents of every dollar that I take in. So that 200,000 represents another penny off that 4 cents. Now, that is significant. 

Mr. BUTTERFIELD. You have hourly employees and then you have 

the higher executive employees within the company. Do you now 

provide insurance to any of your hourly employees? 

Mr. BOUCHER. Yes. 

Mr. BUTTERFIELD. All right. But not all of them? 

Mr. BOUCHER. We offer it to every single hourly employee, and 

as I testified, about 45 percent—55 percent choose not to take the 

coverage. 

Mr. BUTTERFIELD. So that would be 30 hours or more? 

Mr. BOUCHER. Correct. 

Mr. BUTTERFIELD. All right. Mr. Chairman, I am out of time. 

Thank you. I yield back. 

Mr. PITTS. The chair thanks the gentleman and now recognizes 

the gentleman from Illinois, Mr. Shimkus, 5 minutes for questions. 

Mr. SHIMKUS. Thank you, Mr. Chairman. I think my colleague, 

who just spoke, it brings to the point, and we had it in my subcommittee, when we invite people to testify, we shouldn’t impugn 

their comments based upon who they are employed by. And I only 

say this because this was raised in my subcommittee. We want to 

thank you all for being here and appreciate your testimony. 

Having said that, the—you are from the Manhattan Institute, 

and Dr. Blumberg, you work for the Urban Institute, so you are not 

employers. You get a check. You sign the back of the check, correct? 

74 

Ms. FURCHTGOTT-ROTH. Right. 

Mr. SHIMKUS. You get a check for your work? 

Ms. BLUMBERG. Correct. 

Mr. SHIMKUS. So there is only one employer here on our panel, 

and that is you, Mr. Boucher; is that correct? 

Mr. BOUCHER. Yes. 

Mr. SHIMKUS. So you sign the front of the check. 

Mr. BOUCHER. That is correct. 

Mr. SHIMKUS. So you are the expert on how rules, regulations, 

and taxes affect your business and the people you would like to 

hire, and the people you hire are the people you would like to keep 

under employ, and is that correct? 

Mr. BOUCHER. Yes. 

Mr. SHIMKUS. So you are the expert. 

Mr. BOUCHER. I am the expert in my business for sure. 

Mr. SHIMKUS. Thank you. And I guess the other thing that kind 

of rankled me was this debate about gross and net. That is a big 

difference, and in this Bill the medical device tax is a tax on gross, 

not counting the net, not taking out the expenses of producing a 

good. It is a gross tax across the board; is that correct? 

Ms. FURCHTGOTT-ROTH. Yes, that is correct. That is a definition 

of—— 

Mr. SHIMKUS. And that is why it is so damaging for our jobs? 

Ms. FURCHTGOTT-ROTH. Right. 

Mr. SHIMKUS. Is that correct? 

Ms. FURCHTGOTT-ROTH. That is right, yes. 

Mr. SHIMKUS. No one else has a tax in this sector in the world 

on gross. 

Ms. FURCHTGOTT-ROTH. No other country has singled out the 

medical device industry for a special tax, correct. 

Mr. SHIMKUS. And Dr. Blumberg, don’t you think a gross tax on 

a good that only this country has that other countries may produce 

might be a disincentive in the competitive market? 

Ms. BLUMBERG. I would say that there is already a disconnect in 

the medical industries in terms of what is being charged and—— 

Mr. SHIMKUS. Let’s stay on the point on the gross versus the net 

tax. Does that not raise the cost of a good? 

Ms. BLUMBERG. Well, the costs are already higher in the U.S. 

plus the firms charge us more than—— 

Mr. SHIMKUS. Will the gross calculation raise the cost of a good 

versus a competitor, everything else being equal? 

Ms. BLUMBERG. True. 

Mr. SHIMKUS. Of course. Of course it would. 

So, Doctor—Ms. Furchtgott-Roth, you mentioned job possible 

losses in the medical device industry, did you not? 

Ms. FURCHTGOTT-ROTH. Yes. 

Mr. SHIMKUS. In your testimony. And they are and they could 

and they already are going to be large; is that correct? 

Ms. FURCHTGOTT-ROTH. Right. 

Mr. SHIMKUS. So that is why part of this hearing is important, 

and if we want to fix parts of the bill, the medical device tax would 

be one way that we could fix it to create jobs. 

Ms. FURCHTGOTT-ROTH. I would definitely recommend repealing 

that tax, yes, absolutely. 

75 

Mr. SHIMKUS. Thank you. 

Ms. FURCHTGOTT-ROTH. And I also question the fact that you-all 

seem to think that the labor market is healthy and 6 million jobs 

are being created. Well, the unemployment rate is still 7.7 percent, 

including discouraged workers, it is 14.3 percent. The youth unemployment rate is 13 percent, and these are people who have student 

loans and they can’t get jobs. The teen unemployment rate is 25 

percent. This is not a healthy labor market. 

Mr. SHIMKUS. Yes. I mean that brings—— 

Ms. FURCHTGOTT-ROTH. And saying that 6 million jobs are being 

created as though that proves that our labor market is healthy, 

well, we might have created many, many more without the Affordable Care Act and our employment rate might be lower. 

Mr. SHIMKUS. And that is part of the debate about even youth 

employment, entry-level jobs, where can they get part-time employment to bus tables, or we even have a debate about raising the 

minimum wage. Isn’t that a disincentive, Mr. Boucher, on hiring 

high school kids? 

Mr. BOUCHER. What particularly? 

Mr. SHIMKUS. Either/or? You could talk about increasing the 

minimum wage. You could talk about these rules and regulations, 

these forms in respect to job creation. 

Mr. BOUCHER. Any regulation that mandates that I operate my 

business in a particular manner without me having the choice to 

do what I think is best for my business is damaging because I am 

not going to be able to give wage increases to, say, cooks because 

I have to give it somewhere else, and that is because of a mandate, 

so—— 

Mr. SHIMKUS. And I will end on this. My time is up, and I do 

think that there is—as we raise the cost of employment through 

health care coverage, there is a result, and I think, Dr. Blumberg, 

in your opening statement, you said there could be a reduction or 

a slower increase in that wage for that individual consumer. So 

there are effects, and we just need to have this debate and I appreciate you all being here. Yield back my time. 

Mr. PITTS. Thank you, gentlemen. And I now recognize the gentleman from Texas, Mr. Green, 5 minutes for questions. 

Mr. GREEN. Thank you, Mr. Chairman. One of the key design 

features of the Affordable Care Act is the way it builds on our existing health insurance system to fill in gaps and make improvements rather than making more radical and disruptive change. 

This is especially true in the employer-based insurance market. 

Both prior to and after the Affordable Care Act, the majority of the 

Americans receive health care through their employers, but we also 

know in the last three decades, the percentage of employers covering their employees for lots of reasons has gone down. 

And so, but the Affordable Care Act builds on it. People are going 

to be protected from the worst insurance abuses. They will have access to quality insurance through a fair, individual marketplace 

and if they change jobs or do not want their employer coverage, but 

the overall employer-based system is still going to be strong. There 

have been a host of scare tactics used suggesting employers will 

fire thousands of workers or drop coverage en masse in response 

to health reform. And I know particularly the restaurant industry, 

76 

minimum wage is a big issue, and over the years, so—and I know 

every time we increase minimum wage, there is concern about losing employees or that you can’t afford it, similar with health care. 

Two of the most heavily cited examples are the Westgate Resorts 

and Darden Restaurant Group which completely reversed their 

course. Darden employed thousands of people across the country, 

and it indicated they were planning to limit employee hours to 

avoid providing health coverage, but Darden reversed course and 

said it would not limit the hours or drop coverage following an outcry from both its employees an its customers. 

The same with Westgate Resorts. The CEO warned its employees 

of mass layoff if President Obama won re-election. Instead he gave 

them a 5 percent pay increase. 

I have talked with restaurant owners in my area in Houston, and 

one of them is a long-time friend, actually a Republican, told me 

he costed it out and he owns a number of restaurant locations, so 

he is pretty large, and he said it is not what he was concerned 

about. In fact, he said it is going to give him some options to offer 

to his employees. 

In fact, Mr. Chairman, let me say that we have heard a lot today 

from supposed burdens of health reform on businesses and I want 

to talk for a moment about the benefits and new opportunities that 

health care provides small business. 

Mike Brey is the owner of a Hobby Works, a hobby and toy store 

he owned for more than 20 years. Mike has always offered health 

insurance to employees because it is a great way to attract and retain good employees, but before the Affordable Care Act, Mike’s 

health premiums had tripled, and my experience in the private sector, small business, 13 employees, every year we had to negotiate 

out our rates because we would sign a 3-year contract, and they 

would raise our rates after the first year and second year thinking 

we wouldn’t go out, but we negotiated every year. 

Before the Affordable Care Act, his premiums tripled. He began 

to see his employees putting off necessary preventative care for 

themselves and children. In 2014, when Mike and his employees 

will have more choice of their quality health insurance and competition and cost containment and health reform will begin to drive 

down cost. Mike says because of the ACA, he finally has hope, and 

I quote, Spiraling escalating cost and depreciating the quality of 

coverage might end. 

And I would like to submit, Mr. Chairman, ask unanimous consent to submit Mr. Brey’s full statement for the record from the 

small business majority. 

Mr. PITTS. Without objection, so ordered. 

[The prepared statement of Mr. Brey follows:] 

77 


80319.049

STATEMENT FOR THE RECORD 

BEFORE THE HOUSE ENERGY AND COMMERCE COMMITTEE 

ON 

HEARING ON OBAMACARE'S IMPACT ON JOBS 

MARCH 13, 2013 

MICHAEL BREY 

O'WNER 

HOBBY WORKS 

This testimony is submitted in support of the small business perspective on the Patient Protection and 

Affordable Care Act and its impact specifically on my small retail business. 

My name is Mike Brey, I'm the O\'~ler of Hohby Works, a hobby and toy store I opened in 1992, which 

rYe since grov.Tl to five stores in Maryland and Virginia. I'm also a member of Small Business 

Majority's Netv.ork Council. Small Bnsiness Majority is a national small business advocacy 

organization that works to find solutions to the biggest problems facing small businesses today. As a 

network council member, I volunteer my time and entrepreneurial expertise to help Small Business 

Majority find pragmatic solutions to many of those problems-one of which is the rising cost of health 

insurance. That's what I'd like to talk to you about today. 

Almost from the start, I offered health insurance coverage to keep and retain good employees. One of 

the first questions people ask when you're hiring is if you pro~ide health insurance I've always taken 

great pride in being able to say, "Yes, you get good coverage-it's the same coverage the President of 

the company uses." 

While my business has been successful and we've been able to grow, the ability to keep my workers 

happy and secure by providing health insurance coverage has eroded. Our health plan once cost $100 

per person, most of which was covered by the company. Over the years our premium has tripled. My 

employees have seen their costs increase five times as they pay more of the premium and face a higher 

deductible. My workers are burdened by high deductibles and are putting off preventive care for 

themselves and their children and avoiding the doctor. The passing ()fthe Affordable Care Act was the 

first thing in years that gave me hope that this spiral of escalating costs and depreciating quality of 

coverage might finally end. 

I'm very much looking forward to full implementation of the Affordable Care Act nexi year when our 

state exchange opens and additional cost containment provisions go into effect. I may finally start to 

have the certainty and stability I need when it comes to health insurance premiums and choices of 

plans. 

1101 14th Street, NW, Suite 1001 Washington, DC 20005 (202) 828-8357 www.smallbusinessmajority.org 
78 


80319.050

Benefits of the ACA for my small business 

The high cost of health insurance has been one of my top business concerns for the past decade. As I 

mentioned, costs have continued to skyrocket while quality of coverage has decreased. The status quo 

was completely unacceptable. Doing nothing would have wreaked havoc on my and other small 

business owners' bottom lines and our ability to create jobs. Small Business Majority commissioned 

MIT economist Jonathan Gruber to conduct an analysis on the consequences of doing nothing. 

Gruber's analysis found that, without reform, small employers would pay $2-4 trillion in healthcare 

costs by 2018, costing 178,000 jobs, $834 billion in small business wages and $52.1 billion in profits. 

Those numbers show why passage of the ACA was so important. 

There have been objections from small business owners about this law, but I believe that discontent is 

largely based on misinformation and myths. As an employer in Maryland with fewer than 50 full-timeequivalent employees (I'll add here that 96% of all businesses in this country have fewer than 50 

employees), I'll be able to use our state small business health insurance exchange next year to purchase 

coverage. This is huge. In Maryland, we don't have a lot of choice in insurance providers. In fact, we 

only have three. The Small Business Health Options (SHOP) exchange will allow business to pool their 

buying power when purchasing insurance. With a larger pool of businesses, ideally we will have more 

insurers offering coverage, and therefore more options to choose from. Presumably, this will make the 

market more competitive and I expect prices to come down as a result. Simply knowing I'll be able to 

shop for other plans as insurers change and costs fluctuate makes me feel more secure. 

Another way the law will help me personally and rein in costs across the system is that up until now, a 

huge and largely unknown cost associated with private health insurance has been a hidden cost passed 

onto the insured when the uninsured receive medical care. When an uninsured individual receives care 

they can't fully pay for, health providers recoup a portion of unpaid-for care by passing the costs on to 

the insured with higher rates and premium costs. When everyone is required to have insurance, there 

won't be the need to pass those costs on. 

Many provisions of the ACA are key to making health insurance more accessible and affordable for 

small businesses like mine. In addition to the exchanges, a multitude of cost containment provisions 

will go into effect next year that will help lower costs throughout the system. And as a businessman, it's 

important to me the country balance its books. The ACA helps lower costs while reducing the federal 

deficit by more than $200 million by 2020 and more than $1 trillion over the 10 years after that. 

The ACA isn't perfect and it won't solve all of our health insurance problems overnight. However, it is 

the first meaningful law in decades that meets many of small businesses' core needs in regards to 

rising healthcare costs. In this fragile economy, policies that allow us to spend less on health premiums 

so we can keep more of our profits to reinvest in our companies and create jobs are what we need the 

most. 

Conclusion 

Implementing and strengthening the Affordable Care Act is the only path forward to lowering the 

overall cost of health care, providing more options for coverage for small business owners like myself 

and enabling small businesses to resume our traditional role as primary job generators. 

110114th Street, NW, Suite 1001 • Washington, DC 20005 ' (202) 828-8357 ' www.smallbusinessmajority.org 
79 

Mr. GREEN. Dr. Blumberg, you have gone in depth of empirical 

research on employer, health insurance and labor market. Do you 

think that threats or frightening projections are justified, or do you 

think most employers around the country should continue to offer 

coverage and support to their workforce just as Darden, Westgate 

and Mr. Brey did at Hobby Works? 

Ms. BLUMBERG. We do not expect there to be a significant change 

in the rate of offer, although we expect to see an increase among 

small employers in offering as a consequence of the exchanges. And 

the truth is, is that there is a great deal of misinformation out 

there, and when you talk to employers, give them the facts about 

the Affordable Care Act, they are often relieved relative to what 

they have heard, but ultimately, employers, as we have seen in 

many different circumstances, ultimately have to respond to market forces trying to attract labor and stay competitive with others 

who are hiring, and that is really what drives their decisions, not 

the fear and the anxiety that comes before something is actually 

in place. 

Mr. GREEN. I have one of the highest districts in the country of 

people who work that don’t get insurance through their employers. 

Before the Act, employers are dropping coverage, and again, I have 

an example of that. But after the Act, if employers make that decision to drop coverage, won’t workers have better options in the individual market than they had before the reform? 

Ms. BLUMBERG. That is absolutely true. The nongroup market is 

highly dysfunctional in virtually every State, except one in the 

country, and the improvements in the nongroup—operation of a 

nongroup market for consumers will be a big boom for those without offers. 

Mr. GREEN. Well, even in Texas, even though our State won’t 

have a State exchange, the law requires HHS to set up an exchange. For those employers who decide to drop it, their employees 

will have that option, whereas, before the Affordable Care Act, they 

didn’t have anything. 

Ms. BLUMBERG. That is correct. 

Mr. GREEN. Thank you. 

Mr. PITTS. The chair thanks the gentleman. Now recognizes the 

gentleman from Louisiana, Dr. Cassidy, 5 minutes for questions. 

Mr. CASSIDY. Thank you. 

Dr. Blumberg, I got to tell you, when I speak to small employers, 

I mean, it is just so interesting because you walk in, they are not 

making a big deal about it, they just say we are going to stay at 

49 employees. And they don’t make a big deal about it, and you 

just say, well, why, and then they, oh, now that you ask, it is so 

because once we get to 50, we are hit with a penalty. 

If you will, if we have 49 employees and whatever we do for insurance we do, but once we go to 50, we have to pay $40,000 in 

penalties for that 50th employee so that person’s worth has to be 

their salary plus $40,000. And I am struck that you don’t think 

this will have a negative impact upon small businesses hiring. 

Ms. BLUMBERG. Well, I will explain why. Number 1, it shouldn’t 

be a $40,000 penalty because they pay on—the only time an employer pays a penalty at all is if at least one of their workers goes 

80 

into the nongroup exchange and qualifies for a subsidy because of 

not having affordable coverage. So it is not automatic that—— 

Mr. CASSIDY. But at that point, if they do, then they get credit 

for 30 employees and it is the 20 that are left that they are 2K per 

person penalty, correct? 

Ms. BLUMBERG. That is correct, if that is the way that—— 

Mr. CASSIDY. But that wouldn’t inhibit somebody from going to 

49, because they tell me it does. So, are their irrational or—— 

Ms. BLUMBERG. I am happy to respond. I think that you are correct that if an employer is looking to move from 49 to only 50 employees in the long term, that they are unlikely to make the decision to add that next worker unless the value that that worker 

brings to the firm is going to compensate for any additional cost. 

Mr. CASSIDY. So that will be their salary plus 40K? 

Ms. BLUMBERG. Let me finish, please. However, that is not the 

way that employers generally make decisions about hiring. When 

they are growing, they are growing because they see a long-term 

expansion in profit that would swamp the—— 

Mr. CASSIDY. I know you are saying that, but can I go on because 

we have a limited time, and I tell you the employers I talk to, they 

are actually factoring it in. 

Secondly, I am struck, when I speak to employers, they are decreasing the number of employees who are full-time down to parttime, and I am struck that Mr. Butterfield says we created more 

jobs. According to the Bureau of Labor Statistics, we created a lot 

of part-time jobs, but we actually have 200,000 fewer full-time. 

There is, I think, 212,000 fewer full-time jobs in the last statistics, 

and there is 372,000 more part-time jobs, which to me is consistent 

with what I am reading and hearing that people are converting 

full-time employees to 30 hours or less. 

Now, I grant you we have more employment, but it is more employment with fewer benefits. How would you respond to that? 

Ms. BLUMBERG. Well, in any recovery, there is going to be an expansion of part-time jobs, and I haven’t seen the specifics on how 

many of these jobs are full-time versus part-time, but you would 

expect there to be an increase in both part-time and full-time. 

Mr. CASSIDY. But there is actually a decrease in full-time. There 

is decrease by 212,000 in full-time jobs in the last Bureau of Labor 

Statis-—Labor whatever. 

Ms. BLUMBERG. From the prior period? 

Mr. CASSIDY. From the prior period. 

Ms. BLUMBERG. First of all, the full reforms that would—if anything was going to have an impact on part-time status, those reforms are not in place at the present time. And the complexity of 

the economy and the dynamics that have been going on with regard to the recession and the recovery from the recession are so 

large and complex compared to the costs associated with the Affordable Care Act that it would be impossible to attribute those 

changes—— 

Mr. CASSIDY. So even though Mr. Green gave some high profile 

cases of people converting to part-time, they are embarrassed, 

whatever, intimidated not to do so, but we know that is the tip of 

the iceberg and far more have actually gone ahead and done so. We 

are not going to attribute it to what we are being told is the attriVerDate Nov 24 2008 12:10 Jan 15, 2014 Jkt 037690 PO 00000 Frm 00086 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-14 CHRIS
81 

bution, but rather, we are to assume that the answers are too complex for us to understand? 

Ms. BLUMBERG. No. I am saying that complexity of what has 

been going on with the economy because of the issues related to the 

financial services district and decisions that were made there with 

regard to deregulation and other concerns are much more overriding in terms of what has been going on in the economy than the 

terms of the Affordable Care Act. 

Mr. CASSIDY. The Federal Reserve recently had a report from all 

their districts, employers in several districts citing the unknown effects of the Affordable Care Act is reasons for planned layoffs and 

reluctance to hire more staff. There, they seem to put a point on 

it. 

Ms. BLUMBERG. I think that those were very isolated reports on 

anecdotal evidence and we don’t see any implications of the Affordable Care Act for significant changes in employment over time. So, 

anecdotal evidence can be frightening, and I appreciate that, but 

they also—— 

Mr. CASSIDY. This is Federal Reserve. They are not Drudge Reports—— 

Ms. BLUMBERG [continuing]. Market prices. 

Mr. CASSIDY [continuing]. They are Federal Reserve, so presumably, they would vet a little bit and try and put it in context. 

Ms. BLUMBERG. At this point I looked at that report. There was 

no data behind that. I do believe that they were conversations with 

particular employers, and I do understand that there is misinformation and anxiety that is being provoked in employers at this 

point prior to implementation of the full reforms. 

But as I noted earlier, employers are interested in making profit, 

they are interested in pursuing labor and hiring the right types of 

workers. In order to get the kinds of workers they want, they have 

got to compete with other employers and so they have to provide 

them with the benefits and compensation—— 

Mr. CASSIDY. So just because we are out of time, we have to yield 

back. I will point out that also there is a CBO report that shows 

those who are most vulnerable are low-wage workers. Their elasticity of employment is the greatest. I grant you the CEO or the 

solar engineer is going to have a job. It is going to be the low wage 

earner who is going to be most vulnerable, and that is per CBO, 

but I yield back. I am out of time. 

Mr. PITTS. The chair thanks the gentleman. And now recognize 

the gentlelady from the Virgin Islands, Dr. Christensen 5 minutes 

for questions. 

Mrs. CHRISTENSEN. Thank you, Mr. Chairman. 

Ms. Roth, your testimony—you make a number of assertions that 

really seem to run counterto the facts supported by independent 

sources like the Bureau of Labor Statistics as well as CBO about 

the impact of the ACA job creation. 

For example, the restaurant industry which you claim and Mr. 

Boucher suggests would likely drop coverage and downsize their 

employees as a result of health care reform, of the law, actually has 

added more than 800,000 jobs since the passage of the Affordable 

Care Act. And as we heard from Dr. Blumberg, you would expect 

some to be part-time, some to be full-time, but 800,000 new jobs. 

82 

But my question relates to one particular threat posed by—that 

you pose to health care reform in your testimony that I found particularly interesting. You wrote that because of health care reform, 

businesses have an incentive to become more automated or machinery intensive, and your examples are the fast food restaurants 

might serve precooked rather than freshly cooked food or that DVD 

rental stores might close in favor of automated DVD rental machines, or the convenience stores might start allowing for selfcheckout. These dangers that you cite as a part of Obamacare are 

particularly interesting because they have really been occurring for 

a very long time. 

Automation and increasing use of technology are enormous seismic shift in our global economy. Is it really your contention that 

these trends would not be occurring if health care reform were repealed? 

Ms. FURCHTGOTT-ROTH. Well, thanks for that excellent question. 

My contention is that more employers will choose to substitute capital for labor as labor becomes more expensive, and of course, our 

economy has been continually getting more mechanized. What I 

was saying is that these trends would be faster. 

Also, with the 800,000 jobs added to the fast food and restaurant 

industry, there might be even more of them added without the 

Health Care Act. But I think more importantly, the incentives to 

choose part-time workers over full-time workers will mean that actually there will be more employees in the restaurant and retail 

and other low wage sectors, because employers will have an incentive to keep them to fewer than 30 hours a week because if it is 

fewer than 30, they won’t have to pay a penalty, so it makes sense 

for companies to share. 

Mrs. CHRISTENSEN. Yes. But my question is really about tying it 

to the increasing use of technology, which is happening at a really 

fast speed, not only here, but across the country, and so, you know, 

there are a lot of wild predictions of the impacts of health care reform, but I think examples that were used in your testimony are 

really beyond explanation. 

We have a global economy in which every other advanced country has some form of universal health care, and they are experiencing the same dramatic technological advances that are happening every day, and to blame Obamacare because Netflix is popular and Blockbusters closing just defies belief. 

As other people have pointed out, some of the assertions that are 

made about job losses from Obamacare are really over the top, but 

I wanted to use the rest of my time for Dr. Blumberg, if I might. 

Marcellus Owens—— 

Ms. FURCHTGOTT-ROTH. Am I allowed to respond? 

Mrs. CHRISTENSEN. No, I need to use my time. 

He was 11 years old when he stood next to President Obama 

when he signed the Affordable Care Act into law, and his mother’s 

poor health has cost her a job, her health insurance. She is a person with a pre-existing condition and she eventually died, and that 

is an example of what happens every day in our country, especially 

to minorities and people living in rural communities, and it not 

only costs lives, maybe as many as 100,000 are what is reported 

83 

and it costs the country an excess of over $80 billion a year by 

some reports. 

So, it is an example of just why health care reform is so important. Uncompensated care costs to providers such as hospitals and 

community health centers will flourish if the numbers of uninsured 

rise, and more people will use emergency rooms, they will become 

more overcrowded, hospitals will be bearing more of unpaid care. 

Could you please just elaborate for us, Dr. Blumberg, on how detrimental uninsurance is for individual families and for our country 

overall? 

Ms. BLUMBERG. Sure. The uninsured—or the research evidence 

is very clear on this, that the uninsured receive less medical care 

and they receive less timely care and they have worse health outcomes, and in fact, the risk of death with a given medical condition 

controlling for health status appears to be about 25 percent higher 

for the uninsured than for those who are insured. 

We have seen, from the experience with comprehensive health 

care reform similar to that of the Affordable Care Act in Massachusetts, that since its implementation, individuals have had greater 

access to care, they have had lower rates of not being able to afford 

care, and that that has stayed consistently increasing even 

throughout the recession period. 

In addition, the lack of insurance, as you know, provides a very 

substantial financial burden on many families, and this also decreases their use of care and causes many bankruptcies. 

Mrs. CHRISTENSEN. Thank you. Thank you, Mr. Chairman. 

Mr. PITTS. Thank you. And the chair recognizes the gentleman 

from Kentucky, Mr. Guthrie, for 5 minutes for questions at this 

time. 

Mr. GUTHRIE. Thank you, Mr. Chairman. 

Ms. Furchtgott-Roth, you were going to respond to Dr. 

Christensen. I was interested in what you had to say. If you would 

just take a couple of seconds or half a minute what you were going 

to respond back, I would like to. 

Ms. FURCHTGOTT-ROTH. OK. Well, thank you very much. 

Well, as the cost of labor gets higher and we had the minimum wage start to go up from $5.15 an hour in 2007 and gradually rise, 

as the cost of labor steadily gets more expensive, employers have 

an incentive to substitute machines for labor. This MIT professor 

called Alberto Alesina who has written in great detail about that, 

I would be happy to provide any of you with any of the papers, 

show—he compared Europe and the United States, showing how 

high cost of labor in Europe resulted in more capital intensity there 

in the production. 

Mr. GUTHRIE. Thank you. 

And Mr. Boucher, somebody said earlier that you couldn’t say 

with a straight face that jobs had been either on hold or some way 

because of the President’s health care bill, but you—I think your 

face was straight, and I am not sure if I know what a straight face 

is or not, when I looked, but I looked. But you did make a decision 

not to open a restaurant because of the uncertainty affiliated with 

the health care; is that true? 

Mr. BOUCHER. That is correct, and the key word being ‘‘uncertainty.’’ That was—and it still exists right now with regard to a fair 

84 

amount of the rules that are not real clear right now. There is still 

a slot of uncertainty. 

Mr. GUTHRIE. And that is what you hear. I mean, I hear that 

quite a bit. I know it is anecdotal, and I appreciate research and 

appreciate that, but on Friday, we were in our districts and I was 

working at a call to go see a gentleman who just went to a business 

owner, that just had gone to a seminar. He had got his group together with their insurance agents and the anxiety was not settled 

with him, and he was really concerned about decisions he was 

going to make in his business, the part-time work and so forth. 

Those are the real issues. 

I know we are talking about 6 million new jobs in the labor force, 

and we are grateful to have 6 million new jobs, but you look at 

labor force participation, you look at the underlying part of it, and 

even last month, when the new jobs—I think it was 170,000 new 

jobs or something, but they say, we need to make 250,000 to keep 

up, so I don’t think any—even though we are glad we are not going 

the other direction like we were, I don’t think anybody is saying 

that we have a robust economy moving forward, and I don’t think 

you can just point out one thing, and say it is this health care bill, 

and I think it is a conglomeration of a lot of things that are going 

on to create uncertainty. But I certainly think, and I do know and 

it is anecdotal, but it is everybody I see that is in business are just 

concerned about—even people who offer good plans of what is going 

to be an essential benefits plan, what are the rules going to be and 

how they are going to have to treat those, and so it is a real concern that businesses have, and this just isn’t a us get together and 

try to point out different things. 

This is what we hear when we go home. You hear concerns about 

we are not even thinking about—I mean, I walked, somebody says, 

well, if the rebate comes back from the health insurance company 

to my employee because of the medical loss ratio, do I get that? 

Does it come to me? Does it come to the employee? I paid 80 percent of the premium. Do I get that back? Well, we got to sort that 

out. 

Then the question, next question was, well, is it going to be 

chargeable to this year’s wages or next year wages, do I have to 

go do another W–2? So there are just all these things that are out 

there that really that maybe in the future will be, obviously, will 

be settled and people will get—if it is the law of the land, then we 

will figure out how to make it work, but you can’t say it is not affecting people’s business decisions today, I don’t think. And I can 

say that with a straight face. 

Mr. BOUCHER. And if I may, you know, I am considered someone 

who is knowledgeable on this topic, and I still don’t know nearly 

what I need to know, and I have fellow restaurateurs calling me 

asking me, so, what are you going to do? And my answer to them 

is I am not sure yet, and they are relying on me to help them kind 

of walk through this, and truly, I am not exactly sure what we are 

going to do yet. 

Mr. GUTHRIE. Because the other concern being in the restaurant 

business, you have three restaurants and each restaurant has 20 

employees. Then you got to decide, do I keep the third restaurant? 

Or if you have two restaurant, do you open a third? If you have 

85 

three, do you close one. I mean, those are real concerns out there, 

and it is not, as some people have said that we are sitting here just 

trying to do political points. 

My family is in business, we offer health insurance and pretty 

good health insurance actually, and we are in that midsize employer category, and I guess, Dr. Blumberg, you talked about the 

change in compensation would be tiny. I think I wrote that in a 

quote. Doesn’t it really depend on the level of skill of your employee? The people were trying to—there is a book called ‘‘Chutes 

and Ladders,’’ it was interesting about getting people into—it was 

a fast food restaurant study, the ones who showed up for work, 

came to work every day, they studied him over a course of time, 

and they are all managers. I think that is how you said you started, managers in restaurants. 

And so the question is, if you are low skilled, and those are the 

people I work with and deal with, how do you get them into the 

workforce if you make them too expensive to bring to the workforce? Do you think that will have an effect? 

Ms. BLUMBERG. I do take that into account. One of things that 

is important to remember is that for very low wage workers, the 

Medicaid expansion provides very comprehensive no-cost coverage 

to those individuals for the states that are choosing to participate, 

and those individuals, those workers, when they participate in 

Medicaid, they incur no penalties on the employers as a consequence. 

In addition, while the midsize employers are obviously a concern, 

we know that most of—there is about twice as many workers in the 

small employer group than in the midsized employer group, and 

they are significantly more likely to have lower wage, those workers, and as a consequence of the small employers being consistently 

low, they will continue to be less likely to offer them their larger 

counterparts for a number of reasons. But the nongroup market 

and its financial assistance for the modest income who are above 

Medicaid eligibility is going to be a huge boon for low-income workers and small firms as a consequence of reform. 

Mr. GUTHRIE. Thank you. Yield back. 

Mr. PITTS. Gentleman ’s time has expired. Chair recognizes the 

gentleman from Maryland, Mr. Sarbanes, for 5 minutes for questions. 

Mr. SARBANES. Thank you, Mr. Chairman. 

Before I turn to the panel, I just wanted to caution. I had heard 

this discussion a moment ago about repealing the medical device 

tax, and I do want to point out that Congressman Ryan’s budget 

plan includes the revenue from that tax in his proposal, so it is a 

little bit like that game ‘‘Pick-up Sticks’’ where you throw them 

down, they are all tangled and you start pulling sticks out of the 

thing, the whole thing will collapse, and we need to make sure that 

that and other things related to the budget proposal are in the 

record. 

Now, Mr. Boucher, just real quick, you said in response to a 

question, you made a decision not to open another restaurant. 

When was that decision made? 

Mr. BOUCHER. In July of last year as we were heading towards 

the elections. 

86 

Mr. SARBANES. Right. I want to follow up on something that Dr. 

Blumberg said. I think it is a terrific point, and that is, the ultimate fate of the ACA was in question really until this election was 

over. It was kind of a three-part drama. We had the passage of the 

bill, which was highly contested, then we had a judicial challenge 

to it. The Supreme Court removed that piece of uncertainty, and 

then we had a referendum in effect on whether it should go into 

effect, and that was the election, and it is now the law of the land, 

as Speaker Boehner has indicated. 

There are a lot of people, and I would imagine you were among 

them and many of your colleagues, who were sort of saying to 

themselves, until I know whether this is actually going to be the 

law and implemented, why am I going to spend a lot of time trying 

to figure it out? And so there was good reason why many, many 

people remained uninformed about the details of implementing 

this. 

Now, I think, you have got people that are very eager to know 

how it is going to be implemented. You indicated, Dr. Blumberg, 

that as you talked to small business people, they are exhibiting a 

tremendous amount of relief in many instances when they understand what is, in fact, required as against a lot of the misinformation that was put out, which gets further distorted in the midst of 

a highly charged political campaign, of course. We end up with 

sloganeering instead of real attention to what the regulations 

would require. 

So I think that is going to be a make a difference now as small 

business people and others, frankly, come to the table and try to 

understand better what we were trying to achieve. 

Now, a lot of what we are trying to achieve was to address the 

situation as small business people in this country who are dealing 

with stratospheric health care costs, having to make these tough 

decisions affecting their work force, and much of what we designed 

was meant to address that anxiety, specific anxiety of small businesses. And I say that because if we determine over time that there 

are certain things that we need to go in and tweak and fix and address to make sure that the concerns of small businesses are met, 

we are going to do that because that was largely the original motivation behind many of our investing so heavily and putting a lot 

of the political capital behind the ACA. 

I remember a statistic that small businesses, on average, are 

paying somewhere between 18 and 22 percent more in premiums 

for the same exact benefit packages than large employers because 

they didn’t have the benefit of pooling. I imagine that is going to 

be addressed, and you see that playing out in your models; is that 

correct? 

Ms. BLUMBERG. That is correct. It is both the lack of pooling that 

has been in place for small employers so that the health status of 

even one of their workers or dependents can have a very dramatic 

effect on their average premium, plus the fact that they were 

charged considerably higher administrative costs for purchasing 

coverage than were their larger counterparts, plus the fact that 

they tend to employ lower wage workers, and as a consequence, 

there is less flexibility in terms of adjusting wages versus benefits. 

87 

Mr. SARBANES. Right. So we have good expectation that that can 

be addressed over time. 

The other thing is, I recall another statistic that the cost shifting 

that went on, because you have people showing up in an emergency 

room, that cost had to be borne some place and it was going to be 

borne by those who did have health insurance to the tune potentially, in some instances, of $1,000 per person in terms of increased 

premium. 

Now, I don’t know if it was a thousand in certain instances and 

not others, but there was an extra premium being put in there because of the cost shifting; isn’t that correct? 

Ms. BLUMBERG. Depending upon the market power of the hospitals, yes. There is some potential for cost shifting. There are a 

lot of those uncompensated care costs are paid through State and 

local governments that will have some relief and should lead to 

lower taxes. 

Mr. SARBANES. So I guess I am going to run out of time here, 

but if there is an uptake of 75 percent of the 45 percent that currently have not uptake your offer, if 75 percent will do, and I recognize it represents a cost for your business, but that is less people 

that are going to show up in an emergency room and result in cost 

shifting, it is a burden on your business and others, and the point 

is, over the long term, the trajectory where we were headed for 

small businesses and their costs was going like this. I think with 

ACA, it is going to still be going up for awhile like this but it is 

going to start going like this eventually, and we are going to get 

the benefit of this reform, and that is going to be a significant benefit for small businesses in this country. I yield back. 

Mr. PITTS. Gentleman’s time has expired. The chair now recognizes the gentlelady from North Carolina, Mrs. Ellmers for 5 minutes for questions. 

Mrs. ELLMERS. Ms. Roth, I have a—going back to the medical device tax, I have a question for you. You know, the administration 

and other supporters argue that there will be a ‘‘windfall’’ from the 

increase from newly insured patients as a result of ACA and the 

tax will be offset. 

Based on your analysis, do you believe that there will be a windfall for medical device companies or will the tax hurt device 

startups, capital investment and job creation? 

Ms. FURCHTGOTT-ROTH. So, I think that it will hurt medical device companies because quite a lot of their products are exploited 

overseas, and they also have foreign plants, so they will probably 

shift the production of the export into their foreign plants. 

First, and also, I don’t really see as much of a decline in the uninsured as Dr. Blumberg and others seem to think, because with 

the Supreme Court’s decision, it was legal to pay a tax of $95 in 

2014, about 315 in 2015, about 690 in 2016, and then you don’t 

have to buy insurance. Well, CBO says the cost of a premium for 

a family of four is 20,000; for a single person, it is about 12,000. 

A lot of people are just going to pay the tax, which is legal, according to the Supreme Court. 

Mrs. ELLMERS. Right. 

Ms. FURCHTGOTT-ROTH. And then go uninsured. They will then 

continue to get their care from community health centers or emerVerDate Nov 24 2008 12:10 Jan 15, 2014 Jkt 037690 PO 00000 Frm 00093 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-14 CHRIS
88 

gency rooms, and then when they get sick, then they can sign up 

for insurance because right now, if you are sick, you can’t write— 

you can’t sign up for insurance. You have to be—because of the 

pre-existing condition. 

Mrs. ELLMERS. Right. 

Ms. FURCHTGOTT-ROTH. You are insured already, but under the 

new law, anyone can sign up at any time. 

Mrs. ELLMERS. At any time. 

Ms. FURCHTGOTT-ROTH. It is completely rational to stay uninsured until you are sick. 

Mrs. ELLMERS. Sure. 

Ms. FURCHTGOTT-ROTH. And then the pool of insured is going to 

get sicker and sicker. The price is going to go up. Every time the 

price goes up, it will be more worthwhile for someone to pay the 

tax instead of getting the insurance. 

Mrs. ELLMERS. Versus the insurance. Thank you so much for 

your testimony. Thank you to the entire panel. This is very helpful. 

Dr. Blumberg, I do have some questions for you. You know, you 

had just mentioned that the study shows that, you know, putting 

patients on Medicaid, that that is actually a much better situation, 

and I actually have a study that is completely the opposite. 

In 2010, the University of Virginia released a landmark study on 

patients who have had surgery, and it is in stark contrast to what 

you—the testimony you just gave, and I would ask the chairman 

if we would be able to submit that study for the purposes of this 

subcommittee. 

Mr. PITTS. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mrs. ELLMERS. Great. Thank you. And I won’t get into the details 

of it, but basically, it is startling to know that if you are on Medicaid, you actually have a 13 percent higher chance of dying than 

if you are uninsured, according to this study, and actually double 

the amount if—versus someone who is insured. So it is an interesting thing. And also the cost of health care actually increases because you are—if you are on Medicaid, your health care stay in the 

hospital would actually be 42 percent longer than if you had insurance. 

So, that being said, you had given your testimony about your 

study, and I am—I would like to submit mine. But I also, you 

know, to this point about anecdotal discussions that are being had 

by employers, you know, I have these discussions with my constituents every day, and they are so concerned about the cost of doing 

business and the ability to provide jobs in the future as a result 

of the Affordable Care Act. 

I have one particular constituent, Mr. Gerald Kivit who, you 

know, he produces church furniture, the old-fashioned way, and his 

business, it has been a family-owned business for over 55 years. 

Five years ago he had 150 to 200 employees. He is now down to 

46 employees and that is as a result of the economy. That obviously 

is not a result of Obamacare, but let’s look at the facts. 

You know, the issue of, you know, adding employees, the economy is going to turn around at some point and he is going to want 

to hire employees. How can he go beyond that 49th employee? And 

that is his question. If he were here today, he would ask you diVerDate Nov 24 2008 12:10 Jan 15, 2014 Jkt 037690 PO 00000 Frm 00094 Fmt 6633 Sfmt 6633 F:\MY DOCS\HEARINGS 113\113-14 CHRIS
89 

rectly, you know, he said—he has asked me how can I, you know, 

afford this when my bottom line already is in the negative? So if 

Mr. Kivit were here today, how would you describe to him what 

you have been saying, which is that the Affordable Care Act is actually going to help small businesses? 

Ms. BLUMBERG. I would like to respond to that, and I would also 

like to mention that it is not true that an individual can buy insurance coverage at any time regardless of their health status because 

there are open enrollment periods in the Affordable Care Act, so 

people can only buy at certain times of the year; otherwise, they 

will not be able to enroll. 

In addition, with regard to the Virginia study, there has been a 

great deal of experimental research done by rather—with economists at Harvard University who have looked specifically at experimental data from the implementation of public coverage in Oregon 

and shown that in a very short period of time, there was actually 

very positive health status effects for those that were randomly enrolled in the expansion of public coverage there relative to those 

who are remaining uninsured. 

So I just want to say that the analysis that you are referring to, 

I haven’t seen specifically, but it is inconsistent with all of the 

other economic research and health that I have seen on that topic. 

Mrs. ELLMERS. We will make sure that you get that study as 

well. 

Ms. BLUMBERG. That will be great. 

Mrs. ELLMERS. Thank you. And to, you know, again, if I were 

Mr. Kivit, what would you say as far as, you know, how is this 

going to help him to be able to provide health care for his—continue to provide health care for his employees? 

Ms. BLUMBERG. Well, right now it is going to save him a considerable amount of money potentially and help his workers obtain 

health insurance coverage even if he doesn’t offer coverage today. 

If he does offer, he is going to have new opportunities to offer coverage in the insurance exchange if he wants to; otherwise, he can 

continue to offer coverage outside the exchange as he may or may 

not do today, depending upon his situation. 

If he doesn’t offer and his workers need—would like to obtain 

coverage, don’t get it through a spouse, they can then go into the 

nongroup exchange. There is no penalty assessed on him. They can 

get financial support if they need it to buy coverage, so those 

are—— 

Mr. PITTS. The lady’s time has expired. The chair recognizes the 

gentleman from Florida, Mr. Bilirakis, 5 minutes for questions. 

Mr. BILIRAKIS. Thank you, Mr. Chairman. Appreciate it very 

much. 

Ms. Roth, recently a major Florida employer announced that they 

were dropping health care coverage for part-time workers because 

the health care law effectively outlawed the low premium limited 

coverage plans that were offered to their employees. 

I am concerned that this law is making coverage more expensive 

for Florida and causing premiums to increase an average of 61 percent according to actuarial studies. Could you elaborate on the provisions of the ACA that will raise the cost of coverage for small employers and other individuals that might stay in? 

90 

Ms. FURCHTGOTT-ROTH. So one element that is going to raise the 

cost of coverage is requiring a very large generous plan rather than 

the plans that the employer you mentioned had before, so those are 

not going to be permitted, so that is one thing that raised the cost 

of coverage. 

Another thing that raised the cost of coverage is being able to 

sign up at—I shouldn’t have said any time—at any open enrollment period because that means that you can go without insurance, you can pay the tax legally, and then you can sign up at the 

next open enrollment period, and in the meantime, go to hospital 

emergency rooms. 

A third thing is just the big—a new administrative cost of providing health insurance with a mandatory electronic record, all the 

administrators, all the new IRS officials who are going to have to 

calculate what kind of penalties people are going to pay; also, the 

subsidies which reach up to 400 percent of the poverty line. When 

you go to exchange the amount you pay, it is going to depend on 

how much you earn. Again, this is a very big administrative burden. 

The tax credits for small business, those phase out. That is not 

for all small business. It phases out between 10 and 25 workers, 

so you get the most tax credit if you have 10 workers, declining to 

25. You employ 26 workers, you don’t get a tax credit. It also declines if your average wage is between 25,000 and 50,000, so it will 

steadily decline from 25- to 50,000. If you pay an average wage of 

50,000, you don’t get the tax credit, even if you have over 10 workers. 

So, all these different things increase the cost of health care. I 

would say the Number 1 is mandating a large generous plan and 

completely disallowing the smaller plans where people shop around 

and so they pay more attention to their health expenditures. 

Mr. BILIRAKIS. Thank you. Mr. Boucher, do you feel HHS has 

been forthcoming with the guidance on how to implement the 

health care law, the provisions of the health care law? If not, has 

this made it very difficult, of course, for you and others in the industry to manage? 

Mr. BOUCHER. Well, I think they have in some cases, but there 

is still a lot of uncertainty with regard to many of the rules. You 

know, there is a laundry list of items that I am still not clear on 

how it is going to affect our business, or even our employees, and 

we are anxious to hear how it is going to be defined so that we can 

plan and strategize for our future because right now the Association is trying to work and find solutions that work for both parties, 

but we need some answers that work. 

Mr. BILIRAKIS. Thank you. Again, last question for Mr. Boucher. 

Has navigating the ACA regulations forced you to incur any additional costs? 

Mr. BOUCHER. Well, as I stated earlier, I personally have spent 

and my human resource person has spent in upwards of 100 hours 

just filtering through all of this, and I anticipate it to continue not 

at that pace because we are up to speed pretty good now, but there 

is still a fair amount of work to do once these rules continue to 

work out. 

91 

And then ongoing, the administrative efforts that we are going 

to need to track and enroll employees if the auto enrollment stays 

as it is at 90 days, which, you know, we are opposed to, that, that 

is going to be an extremely difficult process for us. And even right 

now, looking back to try and determine the look-back period, we 

are having to deal with two different sets of data because we 

switched payroll companies at the end of the year. So we are trying 

to meld one payroll company’s data with this year’s payroll company data, they don’t really talk to each other that great, and neither one of them has a great system in place right now for helping 

us to track that looking forward. 

So, I feel like we are behind schedule here, and I personally 

would appreciate some relief in some fashion so that we are not 

subject to some kind of penalty because either the payroll companies aren’t up to speed or the rules haven’t been defined yet, and 

that is really the crux of the uncertainty that we are facing. 

Mr. BILIRAKIS. Thank you, Mr. Chairman, I yield back. 

Mr. PITTS. Chair thanks the gentleman. And now recognize the 

gentleman from Virginia, Mr. Griffith, for 5 minutes for questions. 

Mr. GRIFFITH. Thank you, Mr. Chairman. I have heard numerous 

people here today say that this probably shouldn’t have a big impact on jobs. I have even heard some folks say they thought when 

they heard the title of the hearing was ‘‘Health Care Act and Jobs,’’ 

they thought it was going to be, you know, something positive. I 

am here to tell you that is just not the case. I am proud to represent the Commonwealth of Virginia. Served in the General Assembly there for 17 years. Virginia, which would be closer to a big 

business than a smaller business, has made the decision, both the 

House and the Senate at the request of the Governor, have limited 

part-time hours for State employees. 

Now, it still sits on Governor’s desk and has not yet been signed 

into law. But since he requested it, I doubt he is going to amend 

it out. And so we are facing a situation where 7,000 workers in Virginia are going to find that their hours are being cut. A trend of 

a friend, it has been reported to me that a friend of a friend is now 

looking for new work. She had been working for the Department 

of Health. But with the cutback in the hours, she has got to find 

something else in order to take care of her family. 

These are the real impacts. This is the real impact on jobs. And 

it is just not the Commonwealth of Virginia alone. And I don’t 

know about other States. But in my district, the town of 

Wytheville—now, it is not a big town, and I am sure it is not nearly the 7,000 people who are affected Statewide, but the town of 

Wytheville is also considering cutting back on their part-time 

hours. And in an editorial, and I think they said it very, very well, 

in an editorial that ran on the Tricities.com site, which usually 

means it is either the Wythe paper, or more likely, the Bristol Herald Courier, they said that, ‘‘Consider these cuts in referencing the 

fact that the town of Wytheville.’’ And Councilman Hunley said, ‘‘It 

would be cost prohibitive to provide all the town’s part-time employees with health insurance. So they are cutting their hours 

back.’’ And then they reference the Commonwealth of Virginia and 

they said, ‘‘Consider that these cuts are coming from entities with 

no profit motive, no corporate board demanding rightsizing, no 

92 

shareholders screaming for costs to be held down, and no customers who can take their business elsewhere. Then ask yourself 

what the average business, which does not face those extra demands, is going to do.’’ 

Well, I will tell you that what I hear from numerous small- and 

medium-sized businesses, what they are going to do is that they 

are also going to cut the hours of their part-time workers. And in 

some cases, and I will ask you this, Mr. Boucher, I know you 

haven’t done it, but if you are not hearing from lots of your colleagues that they are, in fact, shutting down stores in advance, 

knowing that if they have a store—now, it is not all the PPACA 

or Obamacare, but as one of the restaurant chains in my area’s 

CEO told me, he said, we are not going to shut all our stores down. 

It is going to make life harder. But in those stores that are marginal stores, we are going to shut down. And I don’t know if that 

was the only factor, but I did notice about 6 months ago, an announcement that one of his stores in area that is probably a marginal area had, in fact, shut down. 

Are you already seeing in the industry—I know you didn’t do it— 

but are you seeing in the industry that folks are eliminating those 

stores that may be in the black but are just barely in the black, 

and the cost of this additional cost to them with their part-time 

employees will hurt and, therefore, they are just going ahead and 

making the decision to shutter the doors. 

Mr. BOUCHER. You know I can’t speculate on what other restaurateurs are doing. But I will tell you that there are different 

business models for different levels of dining. You know, fine dining 

has different business model than fast food than casual. And as I 

stated earlier to the gentleman that our end of the day is $0.04 of 

every dollar. If there are restaurants that are $0.01 on every dollar 

this—— 

Mr. GRIFFITH. You can see under certain business models—because I have limited time—you can see under certain business 

models that this might very well affect those entry-level workers 

and folks working in the restaurant industry. Am I correct? 

Mr. BOUCHER. There are restaurants that are right on that tipping edge that could be pushed over. 

Mr. GRIFFITH. And let me say this, in Virginia, the vast majority, 

although I referenced somebody at the Department of Health, the 

vast majority of these employees actually work in our 23, 2-year 

community college systems. And one of those community colleges 

spokesmen was quoted as saying that one of the big detriments 

that they have from the State taking this action as a result of the 

PPACA, that they are going to lose an asset. And I quote, Josh 

Meyer, spokesman for Virginia Western Community College, ‘‘One 

of the great advantages of community colleges, like Virginia Western, is that we can agilely adapt the training and educational 

needs of the region. Our adjunct faculty gives us the flexibility to 

create new courses as the need arises. This new policy will limit 

the hours that such faculty can teach.’’ He wrote that in an email 

to the newspaper. And, obviously, if you need to gear up for some 

new area, and you don’t have the personnel to do it, you are actually going to impact the ability to retrain folks who need jobs. Am 

I correct? 

93 

Mr. BOUCHER. That is correct. 

Mr. GRIFFITH. I thank you and yield back my time, Mr. Chairman. 

Mr. PITTS. Chair thanks the gentleman. That concludes our first 

round of questions. We will go to one follow-up per side. And chair 

recognizes Mr. Pallone for 5 minutes for follow-up. 

Mr. PALLONE. Thank you, Mr. Chairman. 

As we hold this hearing today, I have mentioned that our colleagues on the Budget Committee are debating the House Republicans’ latest budget. The Republican budget repeals coverage provisions of the ACA and will leave 27 million additional Americans 

uninsured. It will roll back all of the consumer protections the law 

has put in place, allowing insurers to discriminate on the basis of 

preexisting conditions, charge women more than men for the same 

insurance, et cetera. And it turns Medicaid into a block grant. 

So I just wanted to ask Dr. Blumberg, much of the discussion 

today has been around the changes the ACA represents for our Nation’s businesses. But I wonder if you can help give us some perspective here. If the ACA were repealed and Medicaid faced significant cuts that Chairman Ryan envisions, are the millions of Americans who lost health coverage likely to have affordable coverage options in the private market? And then secondly, what would the 

loss of benefits associated with these cuts do to the economic and 

physical well-being of these Americans. 

Ms. BLUMBERG. There would be very dramatic, negative effects 

of repeal and block granting Medicaid. Not only on middle-income 

Americans who are looking forward to the relief that the Affordable 

Care Act could provide them, but most especially on low-income 

Americans who really don’t have other options. Very relatively 

small percentage of people even in profit, adults in poverty today 

are eligible for public insurance coverage. They don’t have the financial wherewithal to be able to purchase coverage. In addition, 

a signet to the financial implications for the low-income and modest-income population, repealing would also have very negative implications for those that have poor health status, who are highly 

disadvantaged and being able to obtain health insurance coverage 

today if they don’t have access to an employer-base offer of coverage. 

So they would have—they would basically set us back to all of 

the problems that we have experienced in the past. The block 

granting is another issue. Because the way that that block grant 

is designed is that to give a particular amount of money to each 

State to diagnose their Medicaid costs. But the Federal dollars 

would not grow over time at the same rate at which medical expenses increase. So not only are you losing all the potential cost 

containment implications of the Affordable Care Act, but you are 

also then putting State budgets at a serious disadvantage relative 

to where they are today in order to provide coverage for the lowincome population that they do currently have eligible. 

And so over time, they either have to cut substantially back on 

the benefits, cut substantially back on eligibility for the benefits 

that they have been providing. And this can have very damaging— 

or to spend a significant amount more money of their own budgets 

in order to keep coverage where it is today, which it is often not 

94 

feasible at the State level. So there would be a lot of negative ramifications, both for individuals and for State government as a consequence of doing—taking those steps. 

With regard to the implications for the economy in general of repeal, as we talked about, there is often at least small net employment gains as a consequence of investing more in health care, 

which is a locally produced and purchased good, and so those would 

be eradicated as well. 

Mr. PALLONE. Now, I know the ACA includes an employer responsibility requirement that encourages employers with more 

than 50 employees to offer affordable coverage. And then there is 

a penalty if an employer chooses not to offer coverage. However, 96 

percent of small businesses in the U.S. have fewer than 50 employees and are therefore exempt from the requirement, and the firms 

that will be subject to the requirement, more than 95 percent already provide health insurance. 

So just talk a little bit—there is not much time here—about some 

of the economic benefits of the ACA for small businesses. 

Ms. BLUMBERG. Well, particularly for small businesses, they are 

hugely disadvantaged today by not being able to buy, as you referred earlier, to not being able to buy employer-based coverage for 

their workers at the same price as do their larger counterparts. 

This is because the administrative costs that carriers charge the 

smaller groups are much higher because they are selling small 

group by small group and they are doing medical underwriting, 

they had been doing medical underwriting of those policies, will 

continue to do that until January 1st, 2014. 

All of those considerations increase administrative costs significantly for those small employers, which would be decreased substantially under the Affordable Care Act. So lowering administrative costs would be a very significant change because that is a big 

burden on small employers today, one of the reasons they are less 

likely to offer. In addition, they tend to employ a lot of low-wage 

workers compared to their larger firm counterparts. And that 

means that under the Affordable Care Act those that don’t offer 

their workers will be able to have access, guaranteed access to affordable coverage through the non-group exchanges, which they 

don’t have today. And that makes it easier for them to hire workers 

in the small group market. In addition, right now, the small employers are disadvantaged because by their nature of being small 

they—the average risk for them that they are bearing in terms of 

looking at a price for health insurance can be extremely variable. 

So—— 

Mr. PITTS. Gentleman’s time has expired. 

Chair recognizes the vice chairman of the subcommittee, Dr. Burgess, 5 minutes for follow-up question. 

Mr. BURGESS. Thank you, Mr. Chairman. I do appreciate the 

panel being here today. I know it has been a long morning. Just 

a couple of things I would like to kind of close the loop on. Mr. Sarbanes mentioned the issue of cost shifting and why it was so important to get the Affordable Care Act done because all this cost shifting that is going on by the free riders of the system, people show 

up in emergency rooms who don’t have insurance. But, in fact, really look at the cost shifting that is going on, it is happening in the 

95 

Federal programs. Right now, we have real difficulty in the State 

of Texas because a lot of providers are not opening their doors to 

Medicare or Medicaid patients. Why is that? Because the Federal 

reimbursement is lower than what that it is on the private side. 

What happens then is the private side, private insurance or selfpaid patients end up making up the difference. 

I have got to tell you one of the most frustrating mornings I have 

spent in the last 2 years was the morning, the second morning of 

oral arguments over at the Supreme Court. I was fortunate enough 

to be there. And listening to the Solicitor General base his entire 

case on the fact that, well, you got people who are showing up at 

the emergency rooms without health care coverage, and this cost 

shifting is costing all of us a bundle. Wait a minute. The patient 

who is covered by Medicaid—we are going to expand that by a 

bunch; I don’t know how much, but 16, 20 million people with full 

implementation of the Affordable Care Act in a year’s time. If they 

can’t get a doctor’s appointment, then they are not going to a clinic, 

what are they going to do? They are going to show up in the emergency room, because that is what they have always done. And that 

cost shifting will still occur. Because the government’s reimbursement for Medicare and Medicaid is less than the cost of delivering 

the care, the cost shifting continues, and if anything, we are doubling down on that. 

This is not to disparage the person who is covered under Medicaid, but to disparage the agency that is responsible for the oversight of this. And for heaven sakes, this committee, the best we 

could do if we want to extend coverage to more Americans, we sit 

here in this committee, the best we can do is to expand a program 

that is 45 years old that was intended to be a safety net program 

back in 1965. Ranking member was chairman at that time. I just 

submit that there were better ways, but we never bothered, we 

never bothered to even ask. 

So I had to get that off my chest. Mr. Sarbanes said it was cost 

shifting that was costing the program. Well, cost shifting may be 

costing the program. It is not free rider, it is not the 27-year old 

who would rather buy a basketball than an insurance policy. The 

problem is the expansion, the vast expansion of Medicaid is going 

to make this problem a great deal worse. 

Let me just ask you a question, Dr. Blumberg. And it is a relatively simple question. I think Ms. Furchtgott-Roth touched on the 

subject that some dependent coverage is going to go away as a consequence of the requirements under the Affordable Care Act. Is 

that a fact? 

Ms. BLUMBERG. There should not be a decrease in dependent coverage. It is—— 

Mr. BURGESS. Let me stop you there. Ms. Furchtgott-Roth, you 

suggested that there would be. Will there be a decrease in dependent coverage under the Affordable Care Act? 

Ms. FURCHTGOTT-ROTH. Employers are required to offer an affordable policy, affordable for a single person. So say you have 

somebody who earns more, is ineligible for Medicaid. Say, someone 

who earns $30,000 a year or $40,000 a year who has a wife and 

three children. His employer offers him affordable single coverage. 

96 

Under the law, he is required to take that affordable single coverage. Also under—— 

Mr. BURGESS. Now, that is an important point. So he is required, 

he or she is require to take that coverage. 

Ms. FURCHTGOTT-ROTH. Cannot turn it down. Right. Exactly. 

And his wife and children then are not allowed to get subsidized 

coverage on the exchange. Because he is getting affordable single 

coverage from his employer. 

Mr. BURGESS. I have got to tell you—— 

Ms. FURCHTGOTT-ROTH. They can buy coverage on the exchange, 

but it has to be at full price. They don’t qualify for the subsidies 

for people making 400,000—under 400 percent of the poverty line. 

This is a very serious problem—— 

Mr. BURGESS. Serious. 

Ms. FURCHTGOTT-ROTH [continuing]. Dealt with in the discussions. Because, originally, employers were required to provide affordable coverage for families, not just for singles. 

Mr. BURGESS. Here is the deal. The Fort Worth Star Telegram, 

in the middle of January, headline of ‘‘500,000 Children to Lose 

Health Care Under the Affordable Care Act.’’ I mean, that is a big 

deal. Can you imagine if a Republican president pushed through a 

law that kicked 500,000 children off their health insurance? I 

mean, we would be hearing screaming from the mountaintops if 

that had occurred under a Republican administration. I don’t know 

why it barely rated a news story. Now, the good news for those uninsured children, I think the Internal Revenue Service, under the 

Department of Treasury has promulgated rules where those children will not be fined for not having health insurance that they 

then lost because of the Affordable Care Act. Is that your understanding as well? 

Ms. FURCHTGOTT-ROTH. I just don’t know the answer to that 

question. There was a headline about it, an editorial in The New 

York Times last August, the editorial was entitled ‘‘A Glitch in the 

Health Care System.’’ 

Mr. BURGESS. Mr. Chairman, there are a lot of glitches in the 

health care system as we have heard this morning. I hope this 

committee continues its due diligence to, not just to expose these 

problems, but we need to work on solutions. I mean, after all, we 

can argue about the political stuff. But Mr. Boucher has got to deal 

with it on a very real, personal basis. He is not a think tank, he 

is not a public employee like we are. He is out there grinding it 

out every day, trying to battle the forces and to make it all work 

and to provide for his employees. We shouldn’t make the landscape 

harder for him, we should try to empower him. 

Thank you, Mr. Chairman. I will yield back my time. 

Mr. PITTS. Chair thanks the gentleman. 

That concludes our questions for the panel. I would like to thank 

the witnesses for their testimony, for their answers. I remind members that they have 10 business days to submit questions for the 

record, and I ask the witnesses to respond to the questions promptly. 

Members should submit their questions by the close of business 

on Wednesday, March 27th. 

97 

Excellent testimony, excellent hearing. Thank you very much. 

Without objection, the subcommittee is adjourned. 

[Whereupon, at 11:31 a.m., the subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

PREPARED STATEMENT OF HON. PHIL GINGREY

I believe today’s hearing couldn’t be more timely. The coming wave of regulations 

that businesses will be forced to confront due to Obamacare provisions is already 

influencing the decision for businesses to hire new employees. As our country continues to show lackluster job growth, it is essential to focus on how this law forces 

companies to delay hiring workers and reduce employee compensation. 

This week, I spoke with a coalition of small business owners from the 11th Congressional District to learn how President Obama’s health care law has affected the 

day-to-day operations of their companies. Across the board, they expressed frustration with its new rules and ‘‘moving target’’ regulations, the increase in health care 

costs, and the uncertainty the law has created. ‘‘We’re afraid to grow,’’ said one business owner. ‘‘The lack of information is creating fear, and it’s not good for the economy.’’ 

You see Mr. Chairman; this law is already having a direct impact on hiring decisions in my district. Even though most of these provisions will not take effect until 

2014, job creators and employees in Georgia and nationwide are already feeling the 

pain. If we really want to put America back to work, we need to lift these onerous 

provisions on our small businesses. 

98 


80319.051

£~t NIH Public Access ~ FJJ Author Manuscript 

0,,-HEf\o<' 

Published in final edited fonn as: 

Ann Surg. 2010 September; 252(3): 544-551. doi:lO.l 097/SLA.Ob013e318Ie8fd75. 

Primary Payer Status Affects Mortality for Major Surgical 

Operations 

Damian J. LaPar, MD', Castigliano M. Bhamidipati, DO', Carlos M. Mary, MO, MPH', George 

J. Stukenborg, PhOt , David R. Jones, MO', Bruce O. Schirmer, MO', Irving L. Kron, MO', 

and Gorav Ailawadi, MO' 

• Department of Surgery, University of Virginia Health System, Charlottesville, VA 

t Department of Public Health Sciences, University of Virginia Health System, Charlottesville, VA 

Abstract 

Objectives-Medicaid and Uninsured populations are a significant focus of current healthcare 

reform. We hypothesized that outcomes fol10\ving major surgical operations in the United States is 

dependent on primal)' payer status. 

Methods-From 2003 to 2007, 893,658 major surgical operations were e\'aluated using the 

Natiofl\vide Inpatient Sample (NIS) database: lung resection, esophagectomy, colectomy, 

pancreatectomy, gastrectomy, abdominal aortic aneurysm repair, hip replacement, and coronary 

artery bypass, Patients were stratified by primary payer status: Medicare (n 491,829), Medicaid 

(n ~ 40,259), Private Insurance (n 337,535), and Uninsured (n 24,035). Multivariate regression 

models were applied to assess outcomes. 

Results-Unadjusted mortality for Medicare (4.4%: odds ratio [OR], 3.51), Medicaid (3.7%; 

OR, 2.86), and Uninsured (3.2%; OR, 2.51) patient groups were higher compared to Private 

Insurance groups (1.3%, P < 0.001). Mortality was lowest for Private Insurance patients 

independent of operation. After controlling for age, gender, income, geographic region, operation~ 

and 30 comorbid conditions. Medicaid payer status was associated with the longest length of stay 

and highest total costs (P < 0.001), Medicaid (P < 0,00l) and Uninsured (P < 0.001) payer status 

independently conferred the highest adjusted risks of mortality. 

Conclusions-Medicaid and Uninsured payer status confers increased risk-adjusted mortality. 

Medicaid was further associated with the greatest adjusted length of stay and total costs despite 

risk factors or operation. These differences serve as an important proxy for larger socioeconomic 

and health system-related issues that could be targeted to improve surgical outcomes for US 

Patients. 

The influence of socioeconomic factors and insurance status among United States patients 

has been a primary focus of many public health initiatives and current health care reform 

investigations. According to the US Census Bureau, from 2007 to 2008, the number of 

uninsured Americans increased from 45.7 to 46.3 million, the number ofpeopJe covered by 

private insurance decreased from 202 to 201 million, and the number ofpeopJe covered by 

government insurance increased from 83.0 to 87.4 million.} The Medicaid and Uninsured 

patient populations have been shown to have worse medical outcomes compared with 

Copyflght ~ 2010 by Llppmcott Williams & Wilkins 

Presented at the 130th Annual Meetmg of the American Surgical Association, Chicago. IL, April 8-10, 2010 
99 


80319.052

LaParet al 

METHODS 

Data Source 

Patients 

Page :2 

Privately Insured patients as a result of socioeconomic and patient-related factors.:2,3 Further, 

disparities in disease treatment and resource utilization may occur as a function of insurance 

and primary payer status, With a rising elderly population and increased initiatives for 

government-sponsored health care, such trends provide an important pJatfonn from which to 

examine contemporary surgical outcomes as a function of primary payer status, 

Recent efforts to examine the impact of primary payer and insurance status within surgical 

populations have focused on specific patient populations and surgical subspecialties. A 

recent study examining insurance status among vascular surgery patients collected from 2 

statewide (New York and Florida) data registries, demonstrated that type of insurance 

predicts disease se\"erity at the time oftreatment.4 Other studies have focused on disparate 

differences in type of surgical treatment as a result of payer status.5,6 Moreover, recent data 

suggest that important differences exist in trauma care outcomes and resource utilization 

with respect to Medicaid and uninsured payer status.7-9 Fe\\' studies, hO\vcvcr. have 

comprehensiyely examined the overall influence of primary payer status on outcomes 

among a broad population of patients undergoing major surgical operations, 

The objective of this study \vas to examine the effect of primary payer status on outcomes 

and resource utilization within a diverse surgical population. We used a large, national 

administrative database to more completely examine this important question and 

hypothesized that outcomes following major surgical operations in the United States are 

independently influenced by primary payer status, 

Data for this study were obtained from the Nationwide Inpatient Sample (NIS) databases for 

the years 2003 to 2007. NIS is the largest, publicly available all-payer, inpatient care 

database in the United States. and is maintained by the Agency for Healthcare Research and 

Quality as part of the Healthcare Cost and Utilil.ation Project,lO Each year, it contains data 

from 5 to 8 million hospital admissions from about 1000 hospitals, representing an 

approximate 20% stratified random sample of all hospital discharges in the United States. 

NIS includes hospitals designated as "community hospitals" ("all non-Federal, short-term, 

general, and other specialty hospitals, excluding hospital units of institutions"') in the 

American Hospital Association Annual Survey. Sampling strata used by the NIS is based on 

5 hospital characteristics (geographic region, urban or rural location, ownership/control, 

teaching status, and hospital bed size) contained in American Hospital Association hospital 

files, Data include in-patient hospital discharge records collected for patients of all ages and 

sources of insurance. A discharge weight is included for each patient record, which 

represents the relative proportion of the total US in-patient hospital population represented 

by each record.1! Consequently, the surgical population included in this dataset is broadly 

representative of individuals undergoing major surgical operations in the United States 

during the study period. Due to the absence of patient identifiers in collected data and the 

fact that the data are collected for purposes other than research. the University of Virginia 

Institutional Reviev,,: Board did not perform a fonnal review ofthi5 study as it was 

dctem1ined that this study does not meet the regulatory definition of human subjects 

research. 

Using International Classification of Diseases, Ninth Revision, Clinical Modifications 

(ICD-9-CM) procedure codes.!2 we identified all patients in the NIS dataset undergoing at 

least I of 8 major surgical operations: lung resection (ICD-9-CM codes 323, 3230, 3239, 

Ann Surg. Author manuscnpt available in PMC 201 J April 6, 
100 


80319.053

LaParet al Page 3 

324.3241. 3249. 325. 3250. 3259), esophagectomy (lCD-9-CM codes 424. 4240, 4241. 

4242). colectomy (lCD·9-CM codes 457. 4571, 4572. 4573. 4574. 4575. 4576. 4579. 458, 

4581. 4582. 4583). pancreatectomy (ICD-9-CM codes 526. 527, 525. 5251, 5252. 5253. 

5259). gastrectomy (ICD-9-CM codes 435. 436. 437. 439, 4391. 4399). abdominal aortic 

aneurysm (AAA) repair (ICD-9-CM code 3844). total hip replacement (ICD-9-CM code 

815!), and isolated coronary artery bypass grafting (CABG) (lCD-9-CM codes 3610. 361 L 

3612,3613.3614.3615.3616). We chose these operations to include a group of commonly 

performed complex procedures, representing a broad range of surgical subspecialties, 

associated \vith significant risk of morbidity and mortality. Patients undergoing lung 

resection. csophagectomy, colectomy, gastrectomy, or pancreatectomy were not limited to 

those undergoing cancer-specific operations. For CABG operations, only isolated operations 

were included~ concomitant valve or other cardiac operations were excluded. Patients were 

stratified by primary payer status into 4 comparison groups: Medicare, Medicaid, Uninsured, 

and Private Insurance. The Uninsured payer group included patients with reported no-charge 

and self~pay status. 

Patient comorbid disease was assessed using 30 different Agency for Healthcare Research 

and Quality comorbidity measures and categories developed by Elixhauser et aJ. 13 The 

Elixhauser method has been demonstrated to provide effective adjustments for mortality risk 

among surgical populations and has been shown to be superior to the Charlson/Deyo 

method. 14.

15 

Outcomes Measured 

The primary outcomes of interest in this study \vere adjusted in~hospital mortality, in~ 

hospital complications, hospital length of stay, and total costs, In~hospital complications 

were categorized into 8 classifications (wound, infections, urinary, pulmonary, 

gastrointestinal, cardiovascular, systemic, and procedural) according to the ICD-9-CM based 

coding scheme developed by Guller et al (Table 1 ).16 Death occurring during the in-patient 

stay was identified from the patients' discharge status. Unadjusted mean length of stay and 

total costs were determined from discharge records. 

Statistical Analysis 

All group comparisons were unpaired. Incidence of preoperative and hospital variables as 

\\'ell as unadjusted outcomes were compared using analysis of variance for continuous 

variables, and either Pearson X'2 analysis or Fisher exact test tor all categorical variables as 

appropriate. 

Multivariable logistic regression was performed to calculate the adjusted odds ofin~hospital 

death and in-hospital complications among patients undergoing major surgical operations. 

All preoperative variables entered as covariates (patient age, gender, elective operative 

status, mean income, hospital geographic region, teaching hospital status, type of operation, 

primary payer status, and categories for comorbid disease) were selected a priori based upon 

established clinical risk or were considered potential confounders for the effect of payer 

status among patients. All covariates contributing cases to each estimated outcome, 

including nonsignificant variables, were retained in the final models. The estimated odds of 

in-hospital death and in-hospital complications were adjusted for all covariates. All logistic 

regression models included appropriate adjustments for variance components estimated from 

the weighted study population. 17 The statistical significance of the association bet\veen 

primary payer status and in-hospital death or complications was assessed using the Wald'; 

test. Confidence intervals for all adjusted odds ratios (OR) were calculated using an alpha of 

0.05. The discrimination achieved by these models was assessed using the area under the 

receiver operating characteristics curve (AUe). AVC values of 1.0 indicate perfect 

Ann Surg. Author manuscript; available in PMC 1011 Apri16 
101 


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LaParet al 

RESULTS 

Page 4 

discrimination between outcome groups, while values of 0.5 indicate results equal to chance. 

The Hosmer~Lemeshow test vvas used to assess the statistical significance of differences in 

each model's calibration across deciles of observed and predicted risk. 

Multivariable linear regression models were created to estimate adjusted length of stay and 

total costs for each payer group. In each model, the same covariates entered into logistic 

regression models were used. Each linear regression model generated an unstandardized 

coefficient for each payer group, reflecting the slope of each linear regression trend. These 

coefficients \vere used to calculate adjusted means for hospital length of stay and total costs 

for each payer group. 

Sensitivity analyses for each multivariable logistic regression model were performed, For 

each model, sensitivity was assessed to evaluate the possibility that the estimated effect of 

primary payer status on outcomes could be a spurious result, reflecting the influence of a 

closely related but unmeasured confounder. Accordingly, each model was re-estimated after 

removing the most statistically significant covariate as measured by the Wald statistic. The 

potential for spurious results is reduced if the originally observed effect is not substantially 

attenuated and remains statistically significant after re-estimation, 18 For each multivariablc 

logistic regression model. operative category was the most highly significant covariate. 

After removing this covariate from each logistic regression model, the effect of primary 

the estimated odds of each outcome were not significantly attenuated 

validating the sensitivity of each original model. 

Frequencies of categorical variables are expressed as a percentage of the group of origin, 

Continuous variables are reported as means ± standard deviation. ORs v'lith a 95% 

confidence interval are used to report the results of logistic regression models while adjusted 

means are reported for the results of linear regression models. Reported P values are 2· 

tailed. Statistical significance \\'as identified by P < 0.05. Data manipulation and analysis 

were performed using SPSS software, version 17 (SPSS, Chicago, IL). 

Patient and Hospital Characteristics 

During the 6-year study period, a total of 893,658 patients underwent I of'8 major surgical 

operations, representing a weighted estimate of 4,351.163 patients nationwide. Frequencies 

of all patient characteristics stratified by primary payer group are listed in Table 2, Patients 

with Medicare (55.0%) or Private Insurance (37.8%) represented the largest payer groups, 

Mean age was highest in the Medicare (73.5 ± 8.6 years) group. Female gender \vas more 

common in the Medicare (49.6%) and Medicaid (48.8%) payer groups, and elective 

operations occurred more commonly among Medicare (62.8%) and Private Insurance 

(68.4%) patients. Isolated CABO was the most common operation among all payer groups 

followed by colectomy and hip replacement, respectiv·ely. Medicaid (41.3%) and Uninsured 

(33.6%) patients had the highest incidence of the lowest quartile for median household 

income, 

Few important clinical differences in preoperative comorbid disease existed across payer 

groups, Chronic pulmonal)' disease and diabetes \~'ere more common within Medicare 

(22.2% and 22.1%, respectively) and Medicaid (19.5% and 19.9%. respectively) patients 

while alcohol abuse was more common among Medicaid (5.0%) and Uninsured (5.8%) 

patients. Medicare patients had the highest incidence of preoperative congestive heart failure 

(6.5%), hypertension (61.1%), hypothyroidism (10.0%). peripheral vascular disease (8.5%), 

renal failure (6.5%). and cardiac valve disease (4.3%). 

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The frequencies of hospital characteristics among all payer groups are listed in Table 3. The 

large majority of surgical operations occurred in an urban setting for all payer groups and 

within large hospital bed size hospitals. Medicaid (60.4%) patients had the highest 

proportion of operations performed at teaching hospitals. The Southern geographic region 

performed the highest proportion of major surgical operations for all payer groups, 

Unadjusted Outcomes 

Unadjusted outcomes by primary payer group appear in Table 4. Private Insurance patients 

incurred the lowest incidence of all in-hospita! complications except for systemic 

complications (Appendix B). Medicaid patients incurred the highest incidence of 

no,;tor1cr<,ti,'e wound complications (1.7%), infections (3.4%), gastrointestinal complications 

and systemic complications (1.8%), Medicaid payer status conferred the highest 

unadjusted mean hospital length of stay (12.7 ± 18.5 days) and total costs ($93,567 ± 

111.039) among all payer groups followed by Uninsured payer status. Unadjusted mortality 

for Medicare (4.4%; OR. 3.51), Medicaid (3.7%: OR, 2.86), and Uninsured (3.2%; OR, 

2.51) patient groups were higher compared with Private Insurance groups (1.3%. P < 0.001). 

Moreover, Private Insurance patients also had the lowest unadjusted in-hospital mortality 

despite the operation (Table 5). O'erall, in-hospital mortality was highest among patients 

undergoing AAA repair (11.3%) and lowest for those undergoing hip replacement (0.2%) 

independent of payer status. Importantly. in-hospital mortality following AAA repair was 

highest for Uninsured (14.8%) and Medicaid (14.5%) patients. 

Adjusted Outcomes for the Effect of Primary Payer Status 

Results of multivariable logistic regression models used to estimate the effect of primary 

payer status on postoperative outcomes appear in Table 6. After adjustment for the 

concurrent effects of patient, hospital, and operative factors. Medicaid and Uninsured 

patients incurred a 97% and 74% increase in the odd." of in-hospital death~ respectively, 

compared to those \1t,l

ith Private Insurance, The independent effect of primary payer status on 

in-hospital death was highly significant (P < 0.0001. AUC ~ 0.86). 

Multivariable logistic regression models constructed for inhospital complications further 

implicated Medicaid payer status as an independent predictor of morbidity, Among payer 

groups, Medicaid payer status conferred the highest adjusted odds of wound complications 

(OR, 1.23), infectious complications (OR, 1.24), pulmonary complications (OR. 1.13). and 

systemic complications (OR;:::; 1.12) compared \vith Private Insurance. Adequate 

discrimination of each multivariable logistic regression model for in-hospital complications 

was achieved (Table 5). 

Multivariable linear regression models similarly demonstrated that Medicaid payer status 

was associated with the longest adjusted length of stay (P < 0.0001) compared with the 

Private Insurance group as \vell as the highest adjusted total costs (P < 0.0001, Table 6). 

DISCUSSION 

To our knowledge, this study represents the largest and most comprehensive review of 

contemporary outcomes for major operations as a function of primary payer status, In this 

study. Vie have demonstrated disparate differences in short-tenn surgical outcomes among 

payer groups. The inclusion ofa broad surgical population. comprising several different 

surgical subspecialties, allows us to more confidently comment upon trends that have been 

previously reported among smaller, more specific, surgical patient groups. Our results 

indicate that Medicaid and Uninsured payer status confers worse unadjusted and adjusted 

outcomes compared \\'ith that of Private Insurance. \Ve have shov,:n that Medicaid and 

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Uninsured status also independently increases the risk of adjusted in-hospital mortality, and 

that Medicaid status further increases the risk of adjusted in-hospital complications 

compared \\"ith those with Private Insurance. Moreoyer, our results demonstrate significant 

differences in resource utilization among payer groups as Medicaid patients accrued the 

longest adjusted hospital length of stay and highest adjusted total costs. These findings 

bolster those of other smaller series that have been perfonncd in select surgical populations. 

and it extends the examination of payer status to include a large, natiomvide. diverse 

surgical population. 

The effect of insurance status on treatment allocation and surgical outcomes has been a 

recent focus of many investigators, In a study by Giacovelli et al (2008). insurance status 

was demonstrated to predict disease severity among a vascular surgery population of over 

225.000 patients4 Alternatively. Kelz et al (2004) reported that Medicaid and uninsured 

patients encountered worse outcomes following colorectal cancer resections, ! 9 In their 

review of IJA 15 patient records, Medicaid patients were found to incur a 22% increased 

risk of complications during hospital admission and a 57% increased risk of in~hospital 

death compared with those with private insurance, These findings are consistent with the 

results of our study. After adjusting for the potential confounding influence of several 

patient and hospital related factors, we found that Medicaid payer status conferred 97% 

increase in the odds of postoperative death compared with Private Insurance patients while 

Uninsured status independently increased the risk of in-hospital mortality by 74%. 

Interestingly, the adjusted odds of in-hospital death for both Medicaid and Uninsured 

patients were higher than that for Medicare patients after controlling for comorbid disease, 

We further demonstrated similar trends among the estimated odds of postoperative 

complications for Medicaid patients. Importantly, even after adjusting for socioeconomic 

status through mean income, primary payer status served as a significant independent 

predictor of risk-adjusted surgical outcomes, 

The demonstrated effect of primary payer status on outcomes in this study is likely 

multifactorial in origin, First, among all payer groups, elective operations \\fere more 

commonly pcrfonned in patients with Medicare or Private Insurance while Medicaid and 

Uninsured patients more commonly undcf\\'cnt nonelective (urgent and/or emergent) 

operations. The higher incidence of emergent operations among Medicaid and Uninsured 

popUlations and the presumed negative effect on outcomes is in agreement \vith previously 

published surgicalliterature,4.20,11 However. in our analyses operative status was accounted 

for in the estimates of adjusted outcomes and the difference~ in payer groups \vere still 

significant. It is also likely that the confounding influence of inadequate preoperative 

resuscitation and planning that occurs in the emergent operative situation may have 

contributed to compromised outcomes for these populations. Second, it is plausible that the 

influence of health care provider and system bias may impact surgical outcomes for 

Medicaid and Uninsured payer groups. For many surgical patients. private insurance status 

often al!mvs for referral to expert surgeons for their disease, Alternatively, Medicaid and 

Uninsured patients may have been referred to less skilled and less specialized surgeons. In 

this study, the most frequent operations perfonned were CABO, colectomy. and hip 

replacement. For these operations, the impact of surgeon volume on outcomes has been well 

established, and expert surgeons have been shown to significantly impact outcomcs.22 Third~ 

differences in comorbid disease may serve as a proxy for larger social and lifestyle 

influences between payer groups. Both Medicaid and Uninsured payer groups had the 

highest incidence of drug and alcohol abuse. In addition. Medicaid patients had the highest 

incidence of acquired immunodeficiency syndrome, depression, liver disease, neurologic 

disorders, and psychoses. Furthermore. Medicaid patients had the highest incidence of 

metastatic cancer, ·which likely reflects the combined influence of deficits in access to care. 

poor health maintenance, and delayed diagnosis reSUlting in the presentation of advanced 

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disease stage within this population, Another possible explanation for the differences we 

observed among payer groups is the possibility of incomplete risk adjustment due to the 

presence of comorbidities that are either partially or unaccounted for in our analyses, 

Nevertheless, multivariable logistic regression identified Medicaid and Uninsured payer 

status as the highest significant independent predictors of in-hospital mortality after 

controlling for all patients. hospital- and operation~related variables. 

Several explanations for inherent differences in payer populations have been suggested. 

Factors including decreased access to health care, language barriers. level of education, poor 

nutrition. and compromised health maintenance have all been suggested,J,13 Hmvever. there 

is no question that payer status has significant implications on mUltiple processes of health 

care delivery. Differences exist in not only access but also in the type of primary care that 

Medicaid and Uninsured populations receive compared with Private Insurance patients. For 

exampler studies have sho\\'"o that Medicaid and Uninsured populations often receive the 

majority of primary care within Emergency Departments,24.25 In a recent study by White et 

al (2007), Uninsured patients visiting the emergency department were shown to have 

"g"wca,,,,y lower number of radiographic studies and were less likely to be admitted to the 

following consultation as compared with private insurance patients.J6 In addition. 

the Medicaid and Uninsured populations often present with more advanced stages of 

disease, a reflection of cost prohibitive health maintenance~ delayed diagnosis, and the 

higher incidence of comorbid disease. [n fact~ type of insurance has been shown to impact 

access to cancer screening. treatment, and outcomes.27.

J8 Other social and lifestyle factors, 

including drug and alcohol abuse, psychiatric illness. obesity, and high~risk behavior. may 

further contribute to differences in payer group populations, The impact of the economic 

burden of poverty also influence patients~ ability to seek medical care and to be 

discharged from the in a timely manner due to lack of support and resources to be 

cared for properly at home. 

There are several noteworthy limitations to this study. First, inherent selection bias is 

associated vdth any retrospective study; hm;vever) the strict methodology and randomization 

of the NIS database reduces the likelihood of this bias. Second, NIS is a large, 

administrative database, and the potential for unrecognized miscoding among diagnostic and 

procedure codes as well as variations in the nature of coded complications must be 

considered, Further. \\'e are only able to comment on short-tenn outcomes a<:; data collected 

for NIS reflects a patient's inpatient admission. Consequently~ the results reported herein 

may underestimate true peri operative mortality and morbidity rates that may have occurred 

following the patient's discharge. Assumptions regarding payer groups and status may also 

impact data analyses. Among payer groups the potential for cross over exists, and the 

possibility for miscoded payer status must be considered. For example, the proportion of 

Medicaid patients may be artificially inflated due to the fact that normally Uninsured 

patients may garner Medicaid coverage during a given hospital admission. In addition, it is 

possible that a small proportion of Privately Insured patients may actually have inadequate 

insurance coverage and may functionally represent an Uninsured patient with respect to the 

effects of poor health maintenance and presentation with advanced disease. However. as the 

NIS dataset is validated both internally and externally for each year, we believe it is 

reasonable to assume that payer status is accurately represented in our data analyses. With 

respect to cornorbid disease. we are unable to comment on disease stages or severity, 

Finally, in our data analyses and statistical adjustments there exists a potential for an 

unmeasured confounder. Due to the constraints ofNIS data points, we are unable to include 

adjustments for other well-established surgical risk factors such as low preoperative albumin 

levels or poor nutrition status. However. upon sensitivity analyses our statistical models 

proved resilient to the presence of a potentially unmeasured confounder. 

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CONCLUSION 

In this study, we conclude that Medicaid and Uninsured payer status confers increased risk 

adjusted in-hospital mortality compared with Private Insurance for major surgical operations 

in the United States. Medicaid is further associated with higher postoperative in-hospital 

complications as well as the greatest adjusted length of stay and total costs despite risk 

factors or the specific major operation. These differences serve as an important proxy for 

larger socioeconomic and health systemwrelated issues that could be targeted to improve 

surgical outcomes for US patients. 

Acknowledgments 

References 

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2008. Available at: http://\\<'vvw.census.gov!prod!2009pubs/p60~236.pdf 

2. Lantz PM, House JS, Lepko'\vski JM. et a1. Socioeconomic factors. health behaviors, and mortality: 

results from a nationally representative prospective study of US adults . .lAMA. 1998: 279: 1703-

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3. Committee on the Consequences of Un insurance 1. Care Without Coverage: Too Little. Too Late. 

Washington. DC: National Academy Press: 2002. 

4. Giacovelli .lK. Egorova N. No\\-');grod R, et a1. Insurance status predicts access to care and outcomes 

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5. Vogel TR. Cantor JC, Dombrovskiy VY, et a1. AAA repair: sociodemographic disparities in 

management and outcomes. Vasc Endovascular Surg. 2008: 42:555-560. [PubMed: 18697755j 

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7. Haider AH. Chang DC, Efron DT, et a1. Race and insurance status as risk factors for trauma 

mortality. Arch Surg. 2008: 143:945-949. [PubMed: 18936372] 

8. Rosen H, Saleh F, Lipsitz SR. et a1. Lack of insurance negatively affects trauma mortality in US 

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9. Salim A Ottochian M, DuBose J, et a1. Does insurance status matter at a public. level I trauma 

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15. Stukenborg GJ, Wagner DP, Connors AF Jr. Comparison of the performance oft\yo comorbidity 

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17. Rao IN. Shao 1 Modified balanced repeated replication for complex survey data. Biometrika, 

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19. Kelz RR, Gimotty PA. Polsky D, et a1. Morbidity and mortality of colorectal carcinoma surgery 

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20. Boxer LK. Dimick JB, Wainess RM. ct a1. Payer status is related to differences in access and 

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21. Shen Jl Washington EL Disparities in outcomes among patients \vith stroke associated with 

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22. Balm EA, Lee C, Chassin MR Is volume related to outcome in health care? A systematic rc\"ie\v 

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23. Wallace LS. Cassada DC. Rogers ES, et a1. Can screening items identify surgery patients at risk of 

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TABLE 1 

International Classification of Diseases. Ninth Revision. Clinical Modifications (ICD~9-CM) Diagnostic 

Codes for In-Hospital Complications 

Mechanical wOlmd compJlcatlOos 

Delayed wound healmg: 989 83 

Postoperative hematoma' 998,12 

Postopemtive seroma (noninfetted): 998.13 

Disruption of operative \vound: 998.3 

Persistent postoperative fistula, 998 6 

Infettions 

Postoperative infection: 998 5 

Postoperative skin abscess' 998.59 

Postoperative septic wound complications' 998.59 

Postoperative skin infectIOn: 998 59 

Postoperative intra-abdomina! abscess: 998 59 

Postoperati\'e subdiaphla!:,'1l18tic abscess: 998.59 

Postoperative infected semma: 998.51 

Unnary complications 

Postoperative unnary retention: 997.5 

Postoperative udnary tract mfection: 997.5 

Pulmonary complications 

Postoperative atelectasis: 997 3 

PostoperatIve pneumonia, 997.3 

Mendelson syndrome secondary to procedure: 997.3 

Pos1operatlve acute respIratory insufficiency 518.5 

Postoperative acute pneumothorax: 5 J 2.1 

Adult respiratory d!stress syndrome: 518.5 

Postoperative pulmonary edema: 518 4 

Gastromtestmal complicatwns 

Postoperative small bowel obstruction: 997.4 

Postoperative ileus 997 4 

Postoperatiye ileus requinng nasogastric tube: 997.4 

Postoperative nausea' 997 4 

PostoperatIve vomiting: 997.4 

Postoperative pancreatItis. 997.4 

Complication of anastomosis of gastrointestinal tract 9974 

Cardwvascular complications 

Postoperative deep venous thrombOSIS' 997.79 

Postoperatrve pulmonary embohsm. 415 11 

Postoperative stroke: 997.02 

Phlebitis or thrombophJebltis from procedure: 997.2 

Cardiac arrestimsufficiency during or resulting from a procedure: 997 1 

System1C complications 

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PostoperatIve shock (septic, hypovolemIc) 998.0 

PostoperatIve fever: 998.89 

Complications dunng procedure 

Accidental puncture or laceration, complicating surgery: 998.2 

Foreign body accidentally left during procedure. 998.4 

Bleeding complicatmg procedure: 998 11 

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TABLE 2 

Patient Characteristics for All Patients Undergoing Major Surgical Operations by Primary Payer Group 

Variable Medicare Medicaid lininsured Private Insurance 

No. cases (unweighted) 491,829 40,259 24,035 337.535 

National estimate of cases (weighted) 2.394.698 196,95] 116,070 1.643,444 

Age (yr) 73,5± 86 49.8+ 164 5\.8± 12.8 555:bll.4 

Female 49.6% 48.8~/~ 35.8% 39.7%, 

Elective operation 62.8"'" 47.7% 369% 68.4% 

Operation 

Lung resection 5.0>;''0 6.1'%. 4.6% 4,9% 

Esophagectomy 04% 0.7% 05~" 0.6% 

Colectomy 291% 36.0% 37,6% 32.0% 

Pancreatectomy 11% 2.1% 2.2% 1,6% 

Gastrectomy 1.6% 3.3% 2.9~'" 1.7% 

AAA 2.8% 1.1% 1.3% 13% 

Hip replacement 265% 17.6% 9.3% 27 

CABG 33.6% 33,}% 41.7% 31.0% 

AHRQ comorbidity 

AIDS 0.1% 0.4%, 0.1% o !% 

Alcohol abuse 14% 5,0% 5.8% 2.0% 

Deficiency anemia 15.2% 13.6% 11.6% 11.0% 

Arthritis/collagen vascular disorder 25% 2.0% 09% 1.7% 

Chronic blood loss anemia 3.3"/() 2.6% 24% 1.8% 

Congestive heart failure 6.5%. 3.1% 15% 1.5% 

Chronk pulmonary dIsease 22.2% 22.1% 16.7% 14.6% 

CoaguJ opathy 6.0% 5.3% 4.3% 3.4% 

Depression 49% 7.\% 38% 55",'0 

Diabetes mellitus (uncomplicated) 19.5% 19.9% 15.5% 

Diabetes mellItus (comphcated) 2_8%. 3.6'3'" 20% 1.9% 

Drug abuse 0.3% 3.4% 32% 0.5 Q

,·o 

Hypertension 611% 43.8%, 42.8'% 47.1% 

Hypothyroidism 10.0% 4.2% 35% 62% 

LIver disease 0_9% 28% 1.5%. 1.1% 

Lymphoma 0_6% 0.3% 0.2% 0.3% 

Fluid and electrolyte disorder 19,2% 18,3% 16.5% 12.1% 

Metastatic cancer 70% 7.8% 7.0%. 62% 

Neurologic disorder (not eVA) 36% 3.8% LS'.l{, 1.6%, 

Obesity 6.2Q{-, 9.1%. 8.3% 10.2\% 

Paralysis 1.0%. 1.6"/(1 0.5% 0.4%. 

PenpheraJ vascular disea<;e 85'% 55% 45'V" 4_!"10 

Psychoses 1.5% 3.4% 1.3% 0.8% 

Pulmonary circulation disorder 0.7% 04~% 0.3% 02\)'') 

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Variable !\Icdicare Medicaid {'ninsured Private Insurance 

Renal failure 65°/0 46% 2.3 % 

Sohd tumor (\\1thoUl metastasis) 21% 14%, 1.2% 1,l% 

Peptic ulcer disease (non-bleeding) 01% 01% 0_1% 01'% 

Valvular disease 4.3% 1.4% O.9°i, 1,9% 

We!ghtloss 37% 44% 31% 1,9% 

Median household income national quartile for patient ZIP code 

1($1-24,999) 24,2% 41.3% 336% 17,3% 

n (525,000-34,999) 270'% 27,6% 238% 296% 

III ($35,000--44,999) 25,5% 196% 278%. 21.5% 

IV (>$45,000) 23.3% 114% 311% 153% 

AAA indicates abdominal aortIc aneurysm. CABG, coronary artery bypass grafting: AHRQ. Agency tor Hea!thcare Research and Quality; AIDS, 

acqUlred immunodeficiency syndrome: eVA, cerebrovascular accident 

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TABLE 3 

Hospital Characteristics for all Patients Undergoing Major Surgical Operations by Primary Payer Group 

z 

:t Variable ::'Iledicare Medicaid 'Cninsured Private Insurance 

1:1 Rural location 10 J%, 85% 9.8% 6.6»'0 » 

~ Teachmg hospital 49.1% 604% 552% 542% 

Hosp!tal bed size 

.., 

0 Small 10.0% 8.6% 10.5% 10.2%, 

s:: Medium 228%. 2]9% 20.8% 22.5'N. 

III 

::1 Large 6721l/» 69.5% 687% 673% 

c: 

II> Hospital region 0 

::l. Northeast ]98»;0 22.2% 15.5Q

/o 20.0% "g. Midwest 252"/0 198% 183% 25.1%, 

South 37.8% 37.2% 35.2% 

West !7.3% 208% 105""0 19.7% 

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TABLE 4 

Unadjusted Outcomes for all Patients Undergoing Major Surgical Operations by Primary Payer Group 

z 

s: Outcome :\ledicare Medicaid Vninsured Private Insurance P 

~ In-hospital mOrlahty 4 4~,*, 3.7%1 32%1 13% <0001 

» Wound comphcation 14°*, 17% 1.4% 11% <0001 

C Infec!1Otlscomplicatlons ::'0% 3.4% 28% 20% <0.001 s: 

Q Urinary complications ]8% 1.0% 0,8% l.O~'o <0001 

s: Pulmonary complications 9.7% 9.3'% 8.3% 67% <onc] 

Q) 

::::l GastrointestInal complIcations 4,5% 47% 4.6~'Q 43% <000] 

C 

(J> CardlOvascular compheations 6.7°/;' 4.1%, 4.3% 4.0% <0001 

g, Systemic eompheations I.5 Q ;' 1.8'% 1,4%i. 15% <0001 ::l. Procedure-related complIcations 3.9% 38% 3.51% 31'% <000] 

Length of stay (d) 95±0.l 12.7± 0.4 101 ±0.3 7.4±0.1 <OOOI 

Total cost (S) 76,374± 531 93.567± 25L4 78,279± 231 0 63.057.:t: 53.0 <0001 

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TABLE 5 

In~Hospital Mortality for all Patients Undergoing Major Surgical Operations by Primary Payer Group 

:z 

:c Outcome ;\1edicare Medicaid rninsured Private Insurance P 

-b Lung resection 4,3% 4.3~o 62% 20% <0001 » 

~ Esophagectomy 87% 7.5% 65°.'0 30% <000] 

Colectomy 75% 5.-1% 39% 1.8% <0001 

0 

..., Pancreatectom~ 6.1% 58% 84% 2 7~;' <0.001 

s:: Gastrectom) 10.8% 54% 5.0o,u 3.5% <0.001 

III 

::J AAA 12.4°-'0 145% 14.8% 7.0% <0.001 

c: 

'" Hip replacement (') 04% 02% 0.1'% 0.1% <0001 

:::l, CABG 4.0% 2.8% 2.3% l.4~"o <0001 "'$l. CABG indicates coronary artery bypass grafting: AAA, abdominal aortic aneurysm 

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TABLE 6 

Adjusted Outcomes for the Effect of Primary Payer Status Among Patients tJndergoing Major Surgical 

Z Operations 

J: 

~ 

~ g 

:s:: 

III 

::l 

<:: 

§, '" 

~ 

Outcome Medicare Medicaid rninsured Private Insurance Al'C 

In-hospItal mQrtality 1.54(1.48-16l)* 1.97 {I 84-2.10)* 174{l.60-J.90)* LO 0.86 

Wound cornphcatlOn Ll6{1.13--118)* 1.23 (\.l8""1 28)* 106(1.01-11:n* 10 0.68 

Infecti(lus complications 1.11 (l.09-1 14)* 124020-1.27)* 1.02 (0 98-] 06) 10 0.79 

Urinary complications L15(U2-l.!fQ* 102 (0.97-1.08)* 094(088-099)" 10 072 

Pulmonary complications 1.06(1.05--107)* 113(111-.1.15)* 096(094-0.99)" 10 0.77 

Gastrointesl1nal complications 108 (1 0~1.09/' 099(0.97-1.02) 0.88 (O.86--0.9J)* 10 0.81 

Cardiovascular compllcations 112(1.10-1.13)* 1.04(] 01-1.07)* 1 00 (0.97-1.03) 10 078 

Systemic complications 099(097-101) 1.12(1 08-116)* 094(090-1)99)" LO 061 

Procedure related complications 11O(l08-Ll2)* 1.l0(1.0i-113)* 0.97(0.94-1.01) LO 0.69 

Length of stay (dt 877':'00.01 1049%004 701 %003 7,38%001 

Total costs ($) * $69A08 %, 53.1 $79.140%2514 $65,667 % 2310 563,057%530 

. 

P < 0 05 In-hospital mortality and postoperative compilcations reported as adjusted odds ratios (95% confidence interval). Len&rth of stay and 

status, and categories for comorbid disease 

AUC indicates area under recelver operator cU!\'e 

Ann Stlrg. Author manuscript; a\'ailable in PMC 2011 April 6 
115 


80319.068

~1s. Diana Furdngott-Roth 

Senior Fellow 

Manhattan Institute "for Polic,' Research 

52 Vanderbilt i\ venue ~ 

New York. KY. 10017 

Dear Ms. FurehtgoU-Roth: 

April 5,2013 

rhank you for appearing before the Subcommittee on Health on Wednesday, March 13~ 2013. to 

tcsti{y at the hearing entitled "Obamacare's Impact on Jobs," 

Pursuant to the Rules. of the Committee on Energy and Commerce, the hearing record remains 

open for ten business days to permit Members to submit additional questions for the record. \vhich are 

auached. The fom,.t of your responses to these should be as follo,,~: (I) the name of the 

\'1ernber whose question you are addressing. complete text of the question you are addressing in 

bold~ and (3) your ans\ver to that question in text. 

To facilitate the printing of the hearing record. please respond to these questions by the close of 

busincs:; on Wednesday. April 17,2013. Your responses: should be e~mailcd to the Legislative Clt:rk in 

Word format at Sydne,Han..ick@maiLhollse,gQV and mailed to Sydnc Harwick, Legislative Clerk. 

Committee on Energy and Commerce. 2125 Rayburn Hou::;.c Office Building, \\iashington, D.C. 20515. 

Thank you again for your time and effort preparing and delivering testimony before the 

Subcommittee. 

eo: The Honorable Frank Palione, Jr. Ranking 1I1cmber. Subcommittee on Health 

Attachment 
116 

Æ 


80319.069

Dear Chairman Pitts, 

In response to your question for the record "During the hearing you responded to a 

question regarding the relationship between healthcare reform and the use of 

technology. Would you please elaborate on the trend of automation and how the 

increasing use of technology is impacting our workforce and global economy?" I submit 

the following statement for the record. 

As the cost of labor rises, technology replaces labor. The Affordable Care Act will raise 

the cost of labor for low-skill and minimum wage individuals, because employers 

cannot take the $2,000 annual penalty out of their wage. A few examples. First, food 

trucks are part of a trend towards labor-saving arrangements in the restaurant industry. 

Second, customers are scanning purchases at supermarkets and drugstores. Third, 

retailers are selling more online. Fourth, companies are turning to automated systems 

for airline reservations and banking. 

The enclosed article, which shows how tablets are replacing employees in the restaurant 

industry, describes one practical example of technology replacing labor as the cost of 

labor rises. I would like to include the article for the record. 

Increases in the cost of labor, such as the penalties in the ACA, hurt the lowest-skill 

workers in the economy. That's why the teen unemployment rate is 24.2% and the 

African American teen unemployment is 33.8%. Employers will manage fine, but these 

low skill workers will not get their foot on the first rung of the career ladder. That is an 

enormous tragedy. 

Diana Furchtgott-Roth 

Senior Fellow 

Manhattan Institute for Policy Research 

Article: 

Needleman, Sarah and Angus Loten, "Can the Tablet Please Take Your Order Now?" 

Wall Street Journal, March 27, 2013, 

http://online.wsj .coml article / S810001424127887323501004578386321 069156006.html.