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44–252 2008

MAKING HEALTH CARE REFORM WORK 

FOR SMALL BUSINESS 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 18, 2008 

Small Business Committee Document Number 110-113 

Available via the GPO Website: http://www.access.gpo.gov/congress/house 


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

HEATH SHULER, North Carolina 

CHARLES GONZALEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

BRIAN HIGGINS, New York 

MAZIE HIRONO, Hawaii 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

MICHAEL DAY, Majority Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director 

STANDING SUBCOMMITTEES 

Subcommittee on Finance and Tax 

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

VERN BUCHANAN, Florida, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

Subcommittee on Contracting and Technology 

BRUCE BRALEY, IOWA, Chairman 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

(II) 

Subcommittee on Regulations, Health Care and Trade 

CHARLES GONZALEZ, Texas, Chairman 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

Subcommittee on Rural and Urban Entrepreneurship 

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DAVID DAVIS, Tennessee 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, PENNSYLVANIA, Chairman 

CHARLES GONZALEZ, Texas 

RAUL GRIJALVA, Arizona 

MARY FALLIN, Oklahoma, Ranking 

LYNN WESTMORELAND, Georgia 

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1 

Chabot, Hon. Steve .................................................................................................. 2 

WITNESSES 

Blumberg, Dr. Linda J., Principal Research Associate, Health Policy Center, 

The Urban Institute ............................................................................................. 3 

Nichols, Dr. Len M., Director, Health Policy Program, The New America 

Foundation ............................................................................................................ 5 

Butler, Dr. Stuart, Vice President, Domestic and Economic Policy Studies, 

The Heritage Foundation .................................................................................... 7 

Haynes, Mr. Thomas, Executive Director, the Coca-Cola Bottlers’ Association . 9 

Eckstein, Mr. Jim, President, C.A. Eckstein Roofing, Cincinnati, Ohio, on 

behalf of the National Roofing Contractors Association ................................... 12 

APPENDIX 

PREPARED STATEMENTS: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 26 

Chabot, Hon. Steve .................................................................................................. 28 

Blumberg, Dr. Linda J., Principal Research Associate, Health Policy Center, 

The Urban Institute ............................................................................................. 29 

Nichols, Dr. Len M., Director, Health Policy Program, The New America 

Foundation ............................................................................................................ 44 

Butler, Dr. Stuart, Vice President, Domestic and Economic Policy Studies, 

The Heritage Foundation .................................................................................... 53 

Haynes, Mr. Thomas, Executive Director, the Coca-Cola Bottlers’ Association . 63 

Eckstein, Mr. Jim, President, C.A. Eckstein Roofing, Cincinnati, Ohio, on 

behalf of the National Roofing Contractors Association ................................... 72 

STATEMENTS FOR THE RECORD: 

Altmire, Hon. Jason ................................................................................................. 77 

(V) 

(1) 

MAKING HEALTH CARE REFORM WORK 

FOR SMALL BUSINESS 

Thursday, September 18, 2008 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON SMALL BUSINESS, Washington, DC. 

The Committee met, pursuant to call, at 10:37 a.m., inRoom 

1539, Longworth House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Gonzalez, Cuellar, Ellsworth, Chabot, and Fortenberry. 

Chairwoman VELA ́ ZQUEZ. Good morning, I call this hearing of the 

House Small Business Committee to order. Last month, the Census 

Bureau came out with what appeared to be good news for our Nation’s uninsured. In the year between 2006 and 2007, the number 

of people without health care decreased from 47 million to 45.7 million, but while that may have seemed to be an encouraging drop, 

the reality is that is simply not a growing crisis. In fact, the decline 

was the result of expanded government programs like Medicare 

and Medicaid, not increase access to affordable private insurance. 

Despite a modest update in coverage, our country’s health care 

concerns are deepening. Within the entrepreneurial community 

alone, 20 million men and women are uninsured. Since the year 

2000, small business premiums have jumped more than 80 percent. 

As a result, millions of entrepreneurs and their employees have 

been forced out of the market. Clearly health care remains a serious problem for the small business community. Already this committee has held more than a dozen hearings on the issue. 

In July, in helping to introduce bipartisan legislation called the 

CHOICE Act, which included a number of provisions designed to 

make health care affordable for small firms. In this morning’s hearing, we will continue to explore the various coverage challenges facing entrepreneurs and discuss options for reforming the current 

system. By definition small firms have fewer employees and less 

capital than their corporate counterparts. Accordingly, they have 

less clout and bargaining power with big insurance companies. As 

a result providers are not as compelled to offer competitive small 

business rates, leaving entrepreneurs with fewer options. 

In addition to a lack of choices, small businesses are forced to 

foot the bill for insurance companies hide administrative costs. Because of the unique nature, small business coverage tends to be 

more specialized, providers pour a great deal of money and manhours into micro targeting entrepreneurs. These expenses are ultimately reflected in increased premiums. These steep administraVerDate Aug 31 2005 09:53 Oct 16, 2008 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\44252.TXT RUSS
2 

tive costs, unlimited provider options have made health care a 

small business nightmare. 

Universal coverage will be the best way to insure that every entrepreneur and small business employee is covered. That said, any 

overhaul of the current system will have to be carefully orchestrated. At present, there are a number of potential means for doing 

so, they include allowances for personal tax incentives, mixed private public insurance groups and public coverage. But in order for 

any of these approaches to be viable, they must take a number of 

key provisions into account. They must be capable of not only easing administrative burdens and creating more choices, but also of 

eliminating the current systems complexity. 

Any move to repair our broken health care system will have to 

strike a delicate balance. It must be cautious without being wavering, it must be resolute without being reckless, and most importantly it must be universal without being one-size-fits-all. This is 

particularly true for our entrepreneurs whose businesses represent 

50 percent of the workforce in a myriad of diverse industries. While 

small firms may be diverse in their unique interests they are 

united in their need for health care. A need which must be met not 

just for the sake of our 26 million small businesses, but for the 

sake of America’s 45.7 million uninsured and the country as a 

whole. 

[The statement of Chairwoman Vela ́zquez is included in the appendix on page 26.] 

I would like to take this opportunity to thank the distinguished 

members of the panel in advance for their testimony, and I yield 

to Ranking Member Chabot for his opening statement. 

Mr. CHABOT. Thank you, Madam Chair, for yielding. And I want 

to thank you for holding this important hearing this morning and 

welcome the panel. I would like to thank each and every one of the 

witnesses who have taken the time to provide this committee or 

will shortly their testimony this morning. And I want to especially 

welcome a fellow Cincinnatian, Jim Eckstein, who I will introduce 

briefly later. 

The cost of health insurance in general is rising faster than inflation, while the percentage of individuals without health insurance 

unfortunately continues to rise. Today, more than 47 million Americans are without health insurance. For small businesses and their 

employees soaring health costs are a critical issue. The cost of 

health insurance continued its 20-year reign as the number 1 issue 

worrying small business owners according to the FIB. 

Roughly 63 percent of all uninsured workers are either self-employed or work for firms without more than 100 employees, in other 

words, fewer than 100. And that estimate is by the Employee Benefit Research Institute. According to the National Small Business 

Association, in 2007, only 47 percent of businesses with fewer than 

500 employees offered health insurance. That was down from 58 

percent about 10 years ago. 

Our current system of health insurance and health care is financially unsustainable and threatens the health and finance security 

of small businesses and, most importantly, their employees. Large 

employers, unlike small businesses are able to spread risk more 

broadly among their workers and enjoy economies of scale that 

3 

keep administrative costs employer than is true in the small business community. 

When a large employer self insures its health benefits are not 

subject to State insurance laws and regulations because it is not 

defined as insurance. This, along with the broad risk spreading and 

low per-person administrative cost confers a considerable cost advantage over similar benefit plans in a small group or individual 

markets for insurance. 

Health care insurance reform should make the market for health 

insurance more competitive resulting is greater access to quality 

care. Health care policy reforms should balance the competing 

goals of access to quality, affordability, and predictability and consumer choice. 

Madam Chair, I look forward to working with you on this important issue. And I want to commend you for your hard work and the 

attention that you focused on this very important issue over the 

last 2 years. As you have indicated we have had a number of hearings. I know that you appreciate, as I do, the importance of this 

to the small business community, so thank you for holding this important hearing, and I yield back the balance of my time. 

[The statement of [The statement of Ranking Member Chabot is 

included in the appendix on page 28.] 

Chairwoman VELA ́ ZQUEZ. Thank you. Thank you, Ranking Member Chabot. I welcome our first witness, Ms. Linda J. Blumberg, 

she’s a principal research associate of the Health Policy Center in 

the Urban Center. The Center analyzes trends and underlying 

causes of changes in health insurance coverage, access to care and 

the use of health care services. Prior to joining the Urban Institute, 

she served as a health policy advisor at the Office of Management 

and Budget. 

Ms. Blumberg, you have 5 minutes. When you see the green light 

to start and the red one means that your time has expired. 

STATEMENT OF LINDA BLUMBERG, PRINCIPAL RESEARCH 

ASSOCIATE, HEALTH POLICY CENTER; 

Ms. BLUMBERG. Thank you. 

Madam Chairwoman, Ranking Member Chabot and distinguished members of the committee: Thank you for inviting me to 

share my views on health insurance and strategies for health reform that affect small businesses and their workers. While I am an 

employee of the Urban Institute, this testimony reflects my views 

alone and does not necessarily reflect those of the Urban Institute, 

its trustees or its funders. 

In brief, my main points are as follows. Small employers face 

substantial disadvantages relative to large employers when providing health insurance to their workers. These problems can 

largely be summarized as higher administrative costs of insurance, 

limited ability to spread health care risk, and a workforce with 

lower than average wages. All of these problems must be addressed 

if insurance coverage is to increase significantly among workers in 

small firms. 

Fixed administrative costs make it inefficient for insurers to sell 

coverage to small employers. The per person price of buying insurance for a small group of individuals will always be higher than 

4 

buying those same benefits for a large group. Allowing small employers and individuals to purchase coverage through organized 

purchasing pools such as the type developed in Massachusetts with 

their connector, State or Federal employee health benefit plans, 

public programs, or other such group purchasing entities is an approach that could provide small employers and individuals with an 

avenue for more efficient purchasing. Such purchasing entities 

should also be structured to guarantee workers without employer 

offers access to a source of comprehensive insurance coverage and 

they constitute 70 percent of uninsured workers . 

With regard to the second problem facing small employers, the 

limited ability to spread risk, small employers tend to have 

workforces with greater variance in year-to-year health care costs 

than large employers, a shear consequence of small numbers. 

Strategies are available to more broadly spread the risk associated 

with small group and individual purchasing. These include mandating that all individuals have insurance coverage, regulating premiums such that dollars are moved from healthier risk pools to 

sicker ones, or directly subsidizing health care costs of those with 

high medical needs. Such approaches could make coverage more affordable and accessible for workers in small firms. Strategies that 

would tend to further segment the risk of small firm workers, such 

as proposals to federally license association health plans, or to increase coverage in existing non group insurance markets. These 

segmenting strategies might lead to some savings for the healthy, 

but would do so at increased cost to the unhealthy, leading to no 

expected change in insurance coverage. 

The third general problem, that small employers tend to have 

lower wage workforces than large employers, means expansions of 

insurance coverage will require significant income-related subsidies 

to make coverage affordable for many uninsured workers. Because 

employers largely finance insurance by paying lower wages to their 

workers, expecting low-income workers to voluntarily seek out that 

type of trade off is not practical. 

Subsidies should be targeted according to workers’ incomes in 

order to ensure that the bulk of government assistance goes to 

those in greatest financial need. Once one accepts that substantial 

subsidies will be required to expand coverage significantly, a host 

of design issues come into play. These include: defining what families at different income levels can afford to contribute to the cost 

of their medical care, including protecting the unhealthy from excessive out-of-pocket costs; mechanisms for making voluntary participation in insurance coverage as easy as possible; insuring that 

each individual has a guaranteed source for purchasing coverage; 

keeping the administrative costs associated with delivering subsidies as low as possible; and, critically, identifying sufficient 

sources of financing. 

With regard to financing, policymakers have begun to consider 

the possibility of eliminating the current tax exemption for employer sponsored insurance and redirecting that subsidy to finance 

reforms. The level of this tax expenditure is sufficient, in my opinion, to finance comprehensive health care reform and is already 

dedicated to subsidizing health insurance. 

5 

The current exemption is not particularly effective in expanding 

coverage, however, since it subsidizes most those who are most 

likely to purchase coverage even in the absence of any subsidy. 

However, great caution should be taken before eliminating this 

subsidy outright, because any changes to the current tax treatment 

can be highly disruptive to the existing system of employer based 

health insurance. Eliminating this subsidy must be preceded with 

significant reforms to the private individual insurance market to 

insure that access to insurance coverage for those already insured 

not be adversely affected. 

Thank you for your time, and I am happy to answer any questions you might have. 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Blumberg. 

[The statement of Ms. Blumberg is included in the appendix on 

page 29.] 

Chairwoman VELA ́ ZQUEZ. Our next witness is Dr. Len Nichols, 

Dr. Nichols is the director of the health policy program at the New 

American Foundation. This program aims to expand health insurance coverage to all Americans while reigning in costs and improving the efficiency of the health care system. Prior to joining New 

America, Dr. Nichols was the vice president of the Center For 

Studying Health System Change. Welcome. 

STATEMENT OF LEN NICHOLS, DIRECTOR, HEALTH POLICY 

PROGRAM, THE NEW AMERICAN FOUNDATION 

Mr. NICHOLS. Madam Chairwoman Vela ́zquez, Ranking Member 

Chabot, distinguished members of the panel, I want to thank you 

for inviting me to testify here today. My name is Len Nichols and 

I direct the health policy program at the New American Foundation. 

I would like to begin by congratulating, Madam Chairwoman, for 

your work on the CHOICE Act along with your cosponsors first and 

foremost because it is bipartisan. In my opinion, it is impossible for 

us to move our health care system forward unless we do it on a 

bipartisan basis. And I think probably you know better than most 

just how hard that is in this environment. 

So I applaud you from the outset, keep up the good work. And 

I would say I will take this moment to also congratulate those who 

worked on the SHOP Act, another thing in the same direction, because that along with CHOICE adds to a growing course that we 

can indeed do better as a Nation in our health reform conversations than we managed to in 1993, 1994, when I got all this gray 

in my beard. Linda got tired of working the halls of OMB, we can 

do better and I thank you for that. 

In a letter to testify you asked me to think about the question 

how can we structure a system to work better for small businesses. 

And I would say my primary answer is we can help small employers in the same way we can help all Americans, and there really 

are two big steps, some of which you have taken in your bill. The 

first is to create an insurance marketplace that is fair, efficient and 

fundamentally accessible. And the second is to reform the delivery 

system so that we can get more value for all our premium health 

6 

care dollars. If we don’t do that, it doesn’t matter what we do about 

financing. 

Now the first step is to create a new market place that is accessible. This requires, as your bill does, that insurers be required to 

sell to all customers regardless of health status. There is no question that this is a problem in the individual market at the moment. 

And in the individual market, at the moment, of course, we have 

a lot OF entrepreneurs, we have self-employed people, sole proprietors and workers who work for firms who can’t afford to offer right 

now. So I think it is important to think about extending that guarantee beyond the small group market to the individual market. 

But just accessibility is not enough, in my view. We must also 

make it fair and affordable. So you have to have rules about what 

you are going to charge people where you don’t distinguish people’s 

rates by their health status. 

Now I would quibble just a bit with the particulars of the 

CHOICE Act in the following way, it is designed, of course, to subsidize employers. I am not opposed to that, but a lot of analytic 

work has been done, some of which with myself and smarter colleagues to say that we can often get more efficient subsidy schemes 

if we direct them at individuals. And the main reason for that is 

that it is impossible for a firm to know the income of a worker, 

they know the wages. But if you know the income, you can actually 

tailor subsidies more precisely to low income families and you get 

more bang for your buck that way. So I would ask you to consider 

those kind of modifications which we can talk about off-line. 

But even more than target efficiency, one of the reasons I am a 

little nervous about moving toward subsidizing employers is because when I look at the 21st century economy and I see the needs 

of competing around the world, I see a health care system here 

that is more inefficient than others in the world, and we rely more 

on employer financing. 

So to move in a direction of trying to expand employer financing, 

even as we are trying to maintain middle class high value added 

jobs, competing against companies who come from far more efficient health systems and don’t reply on employer financing as 

much, it puts a burden on us that we want to seriously reconsider 

going forward. 

Now as you know quite well, and what impresses me about your 

Act is you clearly recognize this, that in order to make insurance 

markets work better, we have to re-orient incentives, and re-orienting incentives really means changing what we reward insurers 

for doing. At the moment, our insurance markets reward risk selection, that is to say, selling to the healthy, including the sick any 

way you can. 

One important component that can reduce or change those incentives is an individual purchase requirement so that every person is 

required to buy whatever insurance they have access to. You have 

to subsidize them for sure, but if you do that, then you take away 

the incentive to aggressively underwrite and exclude the sick. Then 

you make an insurance market where you can only make money 

by delivering value for dollar and having better health services an 

better insurance bargains. So I think you want to think about adding that as well. 

7 

As I said the CHOICE Act succeeds in creating a marketplace 

that would work better than the market does now. And I applaud 

you for that. I do think we can improve going forward. 

Let me just say a minute about delivery system reform if I could. 

No health reform proposal of any form is going to sustain an improvement in our health care system unless we bend the cost 

curve, unless get serious about delivery system reform. Just because you are a Small Business Committee doesn’t mean you can’t 

take this on. Indeed, you do by this Act by requiring employers to 

offer wellness programs in order to be eligible for the small business tax credit. 

As you clearly know, wellness and disease management programs have had great success and have given value to workers and 

their firms, that is, one type of innovation that can help transform 

the system. Others you might consider include insensitive for having enrollees sign up for help homes or medical homes where they 

have a primary care provider completely oriented toward helping 

them navigate the system. And you also may consider incentives 

for providers who adopt electronic records and decision support 

tools. 

Small employers will always hold a major role in our conversations about health care reform because no single group is more important to our economy and to our society. Small group insurance 

markets have been the focus of repeated policy interventions since 

even before Stuart and I started this a long time ago. And employers have suffered from high administrative loads, lack of competition, and I would say increasingly intense competition from firms 

from overseas. 

Thus it is clear that health reform’s focus on increasing access 

to quality affordable health care for small employers could serve as 

an important and catalytic step toward the changes we need nationwide. As you contemplate this, I encourage you to think about 

building a marketplace that can eventually welcome all Americans, 

not just small employers, so that we can improve value for dollar. 

Thank you very much. 

[The statement of Mr. Nichols is included in the appendix on 

page 44.] 

Chairwoman VELA ́ ZQUEZ. Thank you. Our next witness is Mr. 

Stuart Butler. Dr. Butler is vice president of domestic and economic policy studies at the Heritage Foundation. Dr. Butler has 

been with the Foundation since 1979 and worked on an array of 

policy issues ranging from health care to welfare reform. The Heritage Foundation promotes public policies based on the principle of 

free enterprise, limited government and individual freedom. Welcome. 

STATEMENT OF STUART BUTLER, VICE PRESIDENT, DOMESTIC AND ECONOMIC POLICY STUDIES, HERITAGE FOUNDATION 

Mr. BUTLER. Thank you very much, indeed, Madam Chairwoman. I also want to join with Len and Linda in applauding you 

and the committee for approaching this in a bipartisan way. And 

I think that is reflected outside of the Congress. Len and I don’t 

8 

always agree on things, and so I think there really is a good and 

spirited discussion which is very, very positive in this. 

I also agree with you and with Mr. Chabot that we do see in the 

small business sector structural weaknesses in the ability of small 

firms to do the kinds of things that large firms can do in the insurance area. The nature of the workforce and the change in the workforce exacerbates that issue and the difficulty of grouping is of 

course, also an inherent problem. So there are many inherent problems with small business trying to do this which we all recognize. 

So you have asked us how in this context should we move forward in trying to provide coverage. I would say that I am skeptical, 

and would caution you, about the idea of trying to model steps forward for small firms on what happens in the large business sector. 

That does go to ideas like creating larger groupings of smaller 

firms to try to operate as though they were large firms in the purchase of insurance. 

I think that trying to group small firms in a co-op or some other 

type of device does risk various kinds of perverse incentives in 

terms of how individual companies will view those co-ops, view 

their joining or not joining, how risk is spread, and so on. Trying 

to group firms together also will not fully deal with the portability 

problem that we see generally in our society, and which is particularly noticeable in the small business sector. 

I want to emphasize what Len said about the feature of your legislation that says let’s try to provide a subsidy from the tax system 

through a tax credit directly to firms. We both agree that the evidence is that that is an extremely expensive way and a very imprecise way of providing subsidies when they are needed. You could 

end up with a situation where the costs for a newly insured employee under that arrangement could be more than double what we 

see for individual tax credits or even expanding public programs 

into those areas. So I certainly caution you about that. 

A better approach in my view is to start down the road of thinking a little differently about the role of the small employer in the 

future with regard to insurance. And the key to this is to separate 

the notion of the employers’s role as what I would call a facilitator 

of insurance during the financial transactions from the role of 

sponsoring insurance, or actually trying to organize insurance. 

I would point out that if you look at the recent history of retirement programs and IRAs and so on, we have gone in that direction 

in the retirement area, saying employers have a certain role, but 

they are not there to manage your money in some way. There is 

a strong lesson there with regard to how we think about health insurance. 

I would suggest that approach would indicate maybe a road that 

has three elements, and I think this does echo what you have 

heard already. The first element is to say well, let us set up an infrastructure, often called a health insurance exchange, modeled on 

the FEHBP or the connector in Massachusetts, which actually carries out the function of organizing and sponsoring the coverage 

itself and offering different plans. It would provide a menu of options, enabling people to have full portability if they change employers within that exchange. Plans within such an exchange could 

be offered by discrete organizations or groups such as labor unions, 

9 

consortia of churches, farm bureaus and so on. So there are lots of 

elements to bear in mind. 

In this situation, the States would function as the primary place 

in which issues of pooling and risk would take place. It would be 

within the exchange, not within groups of employers under that 

model. Again, similar to how we look at it in the FEHBP. 

The second element would be to explicitly make employers the 

facilitators rather than the sponsors of coverage. That means, in effect, that what small firms would do in this case is basically, specify that the exchange itself and the plans within it would be their 

plan, and they would not themselves be trying to organize insurance. This is much as you, as a Member of Congress, and other 

Members of Congress, don’t get together as a co-op and try to offer 

insurance to your employees. You say the plan is the FEHBP and 

all those issues are carried out in that area. 

So the employers role would be primarily making deductions 

from payroll deductions, sending premiums, perhaps adding contributions and so on. 

The third element, which, again, reflects what you heard is that 

to make this more effective, and indeed to make the whole system 

more effective for employers, you must address the tax treatment 

of health care. I share Linda’s cautions about the ways of doing 

that, but I think we see a health tax system today which is inherently inequitable, inefficient, and really gets in the way of creative 

solutions for the small business sector or for other sectors. 

So just in conclusion, I applaud very much what you are attempting to do and that you recognize and are focused on the special concerns of small businesses. I think those concerns do force us to 

think creatively about better ways to organize and to reexamine 

the role of employer. And I just want to end by absolutely agreeing 

with Len that this gives us an opportunity to look at creating a 

structure and infrastructure, and a way forward, which will not 

only fix the problem for small employers, but in my view would be 

the model that over time would extend to the working population 

in general. Once you see the small business sector as potentially 

the model and the leader in dealing with this problem rather than 

thinking of it as sort of a step sister, you can deal with their particular problems. 

[The statement of Mr. Butler is included in the appendix on page 

53.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Dr. Butler. Our next witness is Mr. Thomas Haynes, he is executive director to the CocaCola Bottlers Association. Mr. Haynes has served as president of 

the Association Health Care Coalition which aimed to improve 

health care options available to small businesses established in 

1914, the Coca-Cola Bottlers’ Association assists a 73-member company reducing costs by meeting their needs in a number of areas, 

including health insurance. Welcome. 

STATEMENT OF THOMAS HAYNES, EXECUTIVE DIRECTOR, THE 

COCA-COLA BOTTLERS’ ASSOCIATION 

Mr. HAYNES. Thank you, Chairwoman Vela ́zquez, and Ranking 

Member Chabot for this opportunity. I would also particularly like 

to thank Chairwoman Vela ́zquez for the leadership that you have 

10 

shown over the years in trying to find creative solutions to the 

challenges facing the Small Business Committee. And most of all, 

frankly, for your authorship and sponsorship of the CHOICE Act, 

which I believe is a very well thought out and very powerful first 

step and a step that will probably have much more implications 

than people may see currently if Congress chooses to support it 

which I certainly hope they will. And really make a major dent in 

the problem that small businesses face. 

The reason I believe the CHOICE Act is so powerful, and I think 

I find myself in disagreement with Dr. Butler on a number of 

issues, is our own practical experience at serving our members, 

both in the health care and outside the health care environment. 

As I have indicated in my testimony, the Association has been 

sponsoring and providing health care benefits for the members of 

our association for about 30 years. We had a very effective, very 

comprehensive program that included both our large members and 

our small members. Our members range from bottlers with as 

fewer as 12 employees to as many as 50,000, so we have that entire 

spectrum on both sides. And we were providing solutions to almost 

ends of that spectrum, not the highest, but certainly the next layer 

down through 2000 when the program we had built four or smaller 

members was disbanded because we could not find a carrier willing 

to support it. 

Our program has always been based upon a fully insured model, 

although it includes significant elements of risk shifting both to the 

association and to the individual members. And we simply couldn’t 

find any insurance carriers who were willing to support the small 

member part of that pool, even though it was working very effectively at the time and we had to disbanded that. 

I have been with the Association since 2001. The single most important task that I pursued is how to reestablish that program. To 

give you an understanding of how important it would be for those 

members, health care costs represent in the range of 10 percent of 

the cost of a case of Coca-Cola, a 12 pack of Coca-Cola. We believe 

that our smaller members have as much as a 20 percent disadvantage vis-a-vis their competitors, vis-a-vis larger members. 

That represents essentially a 10 cent per case competitive disadvantage between small and large members. And I have members 

with less than 100 employees who compete with businesses with as 

many as 35,000, 40,000 employees. So this is a real world business 

issue for those members. And frankly, it is an issue for the consumers of our products, who are buying those products in those territories, it either affects the profitability or it affects the cost of the 

product or both. 

So this is a very important problem. The reason why I believe 

the CHOICE Act is the right solution is it basically models the solution that the Association has adopted outside the group health 

area. We have had a liability insurance program for 100 years. The 

single most powerful element of that liability insurance program is 

our captive. And we have had a captive that has operated very effectively for nearly 30 years. 

That captive has moved from taking a small part of the risk to 

taking almost the entirety of the liability at risk in our liability insurance program. And we are able to deliver a 25 percent premium 

11 

credit to the participants in that captive while still being competitive with commercial insurers in the real world. So I, contrary to 

Dr. Butler, have real world experience that says this solution will 

work, it will work, I will guarantee for our members. We could 

cover, I believe, the 60 members who are not currently in our group 

health program very rapidly under this program and delivery lower 

costs than they face today. 

Now, I think the issue that personally as an if physical conservative and would be very sympathetic to Dr. Butler and his organization on virtually every issue would look at it and ask is of course 

the Federal tax expenditure to subsidize this coverage. I have no 

trouble with that feature of it and I think it is entirely supportable 

as expendable Federal dollars. 

In my mind what the subsidy will do is correct the uneven playing field that small business and large business currently operate 

on because of the disparate effect of all the state regulations on 

small businesses that are trained to pool. By equalizing that playing field and allowing us to create a cooperative, and, in fact, facilitating the cooperative, but including it as a requirement of the bill, 

it will put us in a position where we can put these smaller members back on an even playing field. 

It is, in my mind, the impact it will have on competition, on allowing the members themselves to manage their risk as opposed to 

paying a carrier, the profit premium that they have to pay to take 

on those risks, the reality that a carrier is going to be worried 

about adverse selection when a small business comes to them is 

going to be worried about the reality that the people who are seeking insurance are going to be the people with the greatest health 

risk. 

The reason why our members pay so much more for insurance 

in part, who are not in our program, is because of the premiums 

they are paying to the carriers for taking on those risks. And by 

simply pulling and retaining those risks, that profit part of the cost 

will come out of their cost and will be a real market-based savings. 

I am also very confident that with the subsidy for the members 

that have under 100 employees we could add double or triple the 

number of participants in our program among members with more 

than 100 employees, but with a lower cost for them. So the reality 

is, I think we would save more money internally than the Federal 

Government would provide us by a significant multiple. I think it 

is a dollar that would deliver tens or hundreds of dollars of benefits 

to the employees and our members. So I think it is an excellent solution. I welcome the opportunity to discuss the pros and cons of 

some of these ideas. 

[The statement of Mr. Haynes is included in the appendix at 

page 63.] 

Chairwoman VELA ́ ZQUEZ. Thank you. The Chair recognizes the 

ranking member for the purposes of introducing our next witness. 

Mr. CHABOT. Thank you, Madam Chair. And I am pleased to introduce James Eckstein, who is the president of C.A. Eckstein 

Roofing, Inc. which is located in Cincinnati, Ohio, Mr. Eckstein has 

been working for the company since 1975 and has served as president since 2002. His business has been providing the greater Cincinnati area with residential and commercial roofing services since 

12 

1945, C.A. Eckstein Roofing is a second generation, family-owned 

company with a third generation actively involved in the day-today operations. The company currently employs 35 people. So the 

epitome of a small business that we are trying to encourage in this 

country. 

Mr. Eckstein also currently serves as Vice President of the National Roofing Contractors Association, one of the Nation’s oldest 

trade associations which is based in Rosemont, Illinois. And I 

would note that he’s come at considerable sacrifice because as some 

may know Hurricane Ike, at least the remnants of it, came roaring 

through our area, Cincinnati, Ohio and knocked down innumerable 

trees. And many, many people, in fact, over 90 percent of the people in the greater Cincinnati area were without power, some are 

still without power. Our home was out for about a day and a half. 

My wife called me and told me that she had it back on, but reading by candlelight and that sort of thing which was unusual, but 

what we went through clearly wasn’t as severe as what many others went through that were seriously impacted. But he came back 

from being out of the country and came to Cincinnati, I understand, to see this and had some challenges coming up here. And 

I also might note there were thousands and thousands of homes 

that had shingles ripped off the roof so I know there is considerable 

work here so we appreciate his coming here to share testimony 

that might be valuable to health care for small businesses. And so 

I will quit talking and start listening. 

STATEMENT OF JAMES ECKSTEIN, PRESIDENT, C.A. ECKSTEIN 

ROOFING, ON BEHALF OF NATIONAL ROOFING CONTRACTORS ASSOCIATION 

Mr. ECKSTEIN. Thank you, Madam Chairwoman, Ranking Member Chabot and members of the committee for the opportunity to 

discuss health care reform for small businesses. My name is Jim 

Eckstein, I am President of C.A. Eckstein Roofing Incorporated in 

Cincinnati. I also serve as a vice president of National Roofing Contractors Association, and I am testifying on behalf of NRCA. 

First, I want to commend Chairwoman Vela ́zquez and Congressman Chabot for your outstanding leadership on health care and 

other issues of importance to small business. Your tireless efforts 

on behalf of working Americans are greatly appreciated by NRCA. 

NRCA welcomes the opportunity to testify on the problem of excessive increases and the cost of health insurance for small businesses 

which, has been a major concern for roofing contractors for many 

years. 

NRCA strongly supports the small business CHOICE Act of 

2008, because we believe it will address this critical issue. We commend you, Madam Chairwoman, as well as Congressman Joseph 

Pitts for recently introducing this legislation. NRCA also commends 

Congressman Chabot for introducing the Health Insurance Affordability Act of 2007, which would allow individual taxpayers to take 

a tax deduction for their health insurance costs. 

At C.A. Eckstein Roofing, we believe it is very important to provide our employees with high quality health care benefits and we 

have done so for many years. Moreover, it is necessary that we do 

13 

so in order to remain competitive in attracting high quality employees. However, providing health coverage for our employees is becoming more difficult each year as we continue to be hit with double digit premium increases. 

Our most severe problem now is that insurance companies are 

unwilling to provide us with competitive pricing because of cancer 

and other health conditions among a few of our spouses and the 

families. As a result, we have no choice but to accept the double 

digit premium increases from our current insurer. The excessive 

premium increases charged by our insurance company year after 

year forced us to increase the amount that our employees pay for 

health care benefits which I greatly regret. 

In addition to jeopardizing the health of many workers, lack of 

affordable health insurance also greatly hinders economic growth 

across the Nation. Small entrepreneurs are the primary source of 

job growth in our economy and difficulties in providing affording 

health benefits to employees slow their ability to grow their business and create new jobs. Moreover the current manner in which 

health insurance is regulated puts small business at a disadvantage to large corporations in providing health benefits to our employees. 

It is clear from the situation at our company that some form of 

expanded pooling is necessary in order to spread risk across greater numbers of insured lives. Expanded risk pooling is essential if 

we are ever going to restrain the excessive cost of health insurance 

for small businesses. NRCA strongly supports the Small Business 

CHOICE Act. 

This is one method of expanding pooling opportunities for small 

businesses. The CHOICE Act is a private sector solution that creates new purchasing cooperatives designed it allow small businesses to stabilize health insurance costs by pooling risks. The bill 

also provides a tax credit to small employers who purchase health 

insurance for their employees through a cooperative. 

Finally the bill provides a role for trade associations like NRCA 

to be involved in the development of purchasing cooperatives. We 

believe that the establishment of new pooling options for small 

businesses, such as the cooperatives envisioned by the CHOICE 

Act will inject greater levels of competition into the health insurance market. The need for increased competition in health insurance markets is widely agreed upon as a key ingredient to help restrain the excessive cost of insurance. 

NRCA is committed to working with Congress to obtain enactment of the CHOICE Act, and possibly other bipartisan proposals 

that address the problem small businesses face obtaining access to 

affordable health insurance. NRCA strongly urges Congress to take 

up small business health reform early next year to address this urgent issue. 

Again, thank you for the opportunity to share NRCA’s views and 

I would be pleased to answer any questions you may have. 

[The statement of Mr. Eckstein is included in the appendix at 

page 72.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Eckstein. Dr. Nichols, 

can you please elaborate on how changing our health care delivery 

14 

system will have a positive impact on the small business health insurance market? 

Mr. NICHOLS. Madam Chairwoman, I welcome the opportunity to 

answer that question, because it may seem disconnected, but basically we tend to focus a lot as the distinguished members who actually run businesses or talk to people who do on a daily basis like 

my brothers, I would say, but they tell us they focus on insurance 

costs because that is the price they pay. But as the gentleman from 

Cincinnati mentioned, it’s the health care cost of the people we are 

covering that actually drive everything. And what we know, 

Madam Chairwoman, is that health care costs have been growing 

so much faster in economy-wide productivity more and more, Americans are finding it unaffordable. More and more small businesses 

are having a hard time. We just learned about that record. 

So the core issue is how do we reduce the rate of cost growth. 

And I would even say it is really about how do we get more value 

for dollar as opposed to cost per se. So I want to both encourage 

you to work with everybody to make the insurance market better, 

but the insurance market just reflects what the health care cost 

structure is underneath, so we have to dig underneath and do that. 

Your emphasis on wellness is a great place to start, but we basically have to buy smarter. 

We have tolerated far too much imprecision, not knowing, assuming all hospitals and doctors are the same, assuming they all know 

everything they need to know. You know, I had a dean of a medical 

school tell me a couple of years ago when he started practice 30 

years ago he had to understand 8 drugs, because that is really all 

you needed to do to practice medicine in the United States then. 

There were 200 new ones last year. No one can manage that much 

information. We need to provide information tools, better incentives 

an get way smarter about buying. 

Chairwoman VELA ́ ZQUEZ. Mr. Haynes, a growing number of 

small firms are using consumer driven, high deductible health 

plans as a mean of containing premium costs, are high deductible 

plans addressing the problems being faced by your members or is 

more needed? 

Mr. HAYNES. I think it is a difficult and possibly not that effective solution. I say that believing in theory that if you create the 

right kinds of incentives for consumers markets will work better. 

The practical real world experience that we have is that it is very 

difficult for consumers of health care services to understand all the 

choices that are available to them, to process all the information 

they need to process in order to make the right decisions on how 

much money should go into a pool and how to manage their own 

health care. I think they need help. That is my opinion. 

And I can’t debate the academic merits issue of the employer provided versus individual insurance, but I do believe that individuals 

need help from a trusted source in managing their health care in 

a way that they are comfortable with and that will deliver the best 

results. 

Chairwoman VELA ́ ZQUEZ. Dr. Nichols, let me ask you, do you find 

that these plans tend to shift the responsibility of who is paying 

for health care coverage? 

15 

Mr. NICHOLS. They have, but I would also say the record is 

mixed. I would say it this way, they are sort of what you might call 

consumer driven 101, which was, in some ways, more an attempt 

to just shift the responsibility and the risk, but increasingly there 

is some consumer driven 201. And let me hasten to agree with my 

colleague, Mr. Haynes, people need agents; they need help. It turns 

out if insurers and employers do provide that information, people 

can make better choices. What Stuart and I are thinking about instead of having a marketplace that brings those kind of advantages 

to all would still hinge on individual choice, but informed choice, 

the choice that actually uses the information tools we have. 

We are going to always trust our docs, but our docs need help. 

We need to trust our employers, we do in small employer cases, 

large employers I am not so sure, but in small employers we do, 

but they need help too because purchasing health care efficiently 

is a complicated thing. Web M.D. Is wonderful, it can’t always help 

you decide, you need an agent you trust. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Dr. Butler, critics of individual tax credits to increase coverage 

argue that it has the potential of eroding employer base coverage. 

Is it possible to avoid this outcome while still offering tax credits 

or incentives to individuals? 

Mr. BUTLER. Yes, I think it is. I would agree with Len and Linda 

on the importance of structuring the insurance market in parallel 

to providing individual tax credits. I would certainly agree that if 

you merely gave somebody a tax credit and let them sort of go off 

on their own, then indeed you would get massive adverse selection. 

You would get only certain people leaving an employer’s plan and 

so on, and that would be destabilizing. So I do think it is important 

to combine them. 

In my view, in terms of a health insurance exchange system, I 

do believe that the employer should actually make the basic decision about whether their employees have access to plans and to 

credits through the health insurance exchange. So I recognize that. 

But I think there are steps - prudent steps - that can be taken to 

make sure you are minimizing your risk of unraveling of existing 

coverage. 

And I would point out, of course, that we are all basically saying 

that there has to be some means to make sure that people have 

both adequate resources to obtain coverage and an adequate array 

of reasonable and affordable plans. I think it was Len who emphasized this. Trying to focus that subsidy on the individual is better 

than trying to focus it on the individual’s employer. 

Chairwoman VELA ́ ZQUEZ. Dr. Blumberg, what are the advantages 

of a system where Americans secure health insurance through 

their employer? 

Ms. BLUMBERG. Well, the advantage of this system as it is now, 

while it is highly imperfect, and I think there is a lot of room for 

improvement, is that when individuals are going to look for a job, 

they are not necessarily coming together as a group for the purpose 

of buying health insurance. They are coming for other reasons. 

Once individuals are in and employment group, particularly in 

large employers, the employer acts as a natural risk pooling mechanism for buying health insurance. So that in a very large firm, the 

16 

average healthcare cost in that pool is going to usually be about 

the average that you see in the population at large. And so it 

makes sense from a risk pooling standpoint for those individuals to 

come together and purchase health insurance. 

The advantage, also particularly for larger groups, is that there 

are some administrative economies of scale of buying in a big pool 

like that. And so the cost of buying health insurance for them is 

going to be lower per unit of benefit than an individual or a smaller 

group. 

Chairwoman VELA ́ ZQUEZ. Thank you. Mr. Eckstein, you testified 

that the tax credit element of the CHOICE Act is justified because 

large employers have significant benefits under ERISA. Can you 

talk about some of the advantages that larger firms currently have 

over small businesses when it comes to purchasing health insurance. 

Mr. ECKSTEIN. Well, they have a larger pool of people that makes 

it a little more of an advantage for the insurance company to deal 

with that large group. For a small group, all we need is one or two 

catastrophic illnesses and we become very unattractive to the insurance companies. As I stated, we have been stuck with the same 

insurance carrier for 4 or 5 years now because no one else wants 

to quote us because we have had one spouse with cancer, one of 

our employees had cancer and they just, we are stuck with them, 

nobody else will quote us. 

Chairwoman VELA ́ ZQUEZ. Let me go to Mr. Chabot. 

Mr. CHABOT. Thank you. Dr. Blumberg, I will begin with you if 

I can. Can you discuss again a little bit how small businesses can, 

since they have a disadvantage to larger corporations, larger companies with respect to scale, et cetera, how can the little guy compete against these larger companies if they are trying to provide 

health care for their employees? 

Ms. BLUMBERG. Truthfully, I don’t believe that they can. And 

that is why I think that placing emphasis on trying to get more 

small employers to be direct providers, their own purchasers of 

health insurance coverage, is probably not going to be an effective 

way for significantly expanding health insurance coverage, because 

they will always suffer from being smaller scale and having the 

risk pooling issues and the administrative cost problem. They also 

have higher turnover than larger firms, which increases the administrative costs of the firm providing health insurance. They have 

got the problem of having lower wage workers than larger firms 

and medium size firms, on average. So the affordability issue is 

also a very prominent one. 

So from my perspective, the way to get more workers in small 

firms into health insurance coverage is through a broader based reform mechanism that will address the needs of really all uninsured 

individuals and particularly with these modest income and high 

health care needs. 

Mr. CHABOT. Thank you. Dr. Nichols, I notice you are a big proponent of the CHOICE plan. Could you tell us again what are a 

couple of the major things that you think are so beneficial of the 

plan and why those of us who may not be co sponsors yet should 

consider co sponsoring the legislation? 

17 

Mr. NICHOLS. Well, first of all, it is bipartisan. And in my opinion 

we need to show the country that we can work together. And I 

think that just the fact of cosponsorship and leadership that has 

already been shown reassures the country frankly those of us who 

live in Washington are trying to solve problems and not just posture about them. 

Secondly, it sets up a mechanism whereby people could buy 

health insurance that would be cheaper than it is for them today, 

and it targets that incentive directly at the group that is probably 

in most need of relief, and that is the small business sector. There 

is no question. 

I think Mr. Eckstein’s story is the most ringing in my ears. Here 

is a family-owned company, two generations, I believe you told us, 

that is having a hard time maintaining, offering what they want 

to do because of one or two people in their health care family getting sick. It is that kind of, I will just say outrage, that we ought 

to fix. I don’t blame the insurer. The insurers are in the world 

where they are following the rules they have that we have set up. 

The point of the CHOICE Act is to change the rules and to change 

incentives and to change the ways to make it available to more 

people. So all of that is good. 

My quibbles are that I think we could actually have our subsidy 

dollars go farther to cover more people if we are able to target 

them to low income workers as opposed to higher income workers 

who just happen to be in smaller firms. The classic example, not 

at the table today, would be a law firm or a consulting firm of a 

bunch of egghead economists, doing very well, thank you very 

much, why should you subsidize them? They don’t need it. 

The second thing is I would agree with Linda in the long run you 

want to think about how are we going to help more workers in general. And more firms concentrate on what they do best, what they 

do best, as you all know, is create jobs. I want to remove the worry 

of health insurance from the plate of the CEO so he can focus on 

fixing roofs and making Coca-Cola even cheaper. I am in favor of 

that, I am a big Coke fan. So what I want to do is remove the 

health insurance, if you will, nightmare, from their plate by creating a marketplace where all workers can go. They can contribute 

to those workers purchases if they want to. It is America, it is part 

of the labor contract, but let’s not build that as the only way to do 

it. And that is where I would quibble. 

Mr. CHABOT. Thank you. Dr. Butler, the Heritage Foundation, 

and of course, Brookings are a couple of top think tanks that we 

often read your reports and listen when you all talk about important issues like we have here today. And obviously, we are way 

down the road on health care for the most part being provided 

through one’s employer. It really didn’t have to be this way from 

the beginning. I am just curious as to what your thinking is, because I have heard you speak at a number of different forums in 

the past. Is there a way that would have made better sense so that 

we wouldn’t be here at this point in time? And how realistic is that 

at some point, maybe get back to what would make more sense? 

Mr. BUTLER. Well, I am a historian so don’t get me started on 

that. I think we are facing a number of problems these days, if we 

had done things a little differently in the past, we may not be 

18 

where we are today. But anyway, when I look at this, and actually 

when I look at it as somebody who is an immigrant to the United 

States, albeit having been here for 30 years, you are right. 

When you start looking at the American system, and as Len said, 

you have employers here that are trying to make something, yet 

having to worry about how sick might their employees be. That 

doesn’t typically happen in other countries. You have employees 

shopping around for employers, wondering whether their benefits 

package is going to cover their problem. That is a problem too. And 

part of the root here, I think, is the tax treatment, which many 

people have pointed to that skews us to go down a certain road. 

We have all said that that needs to be addressed, and we need to 

make some steady changes in that to move the subsidy more to the 

person and away from another institution. 

However, I would say that given where we are and how we need 

to think about the future, I do want to just reemphasize the distinction I tried to make in the role of the employer between the role 

of the place of employment as a very useful convenient place to do 

a number of transactions to enroll people. Most Americans pay 

their tax via their employer. They are very good reasons for this, 

very sound reasons for doing this. To distinguish between that and 

who actually organizes coverage and who is at risk. 

I think the discussion we have been having to some extent is do 

we envision a future in America where the employer, particularly 

the small employer, continues to be a key part of organizing that 

coverage, and is in fact, holding the risk in some way, or should 

we try to move away from that system? That is what I would argue 

for. 

I think the analog with the way with you as Members of Congress provide insurance to your employees is a good analogy to look 

at. And you don’t come together. You don’t have to worry about the 

medical condition of any employee of yours because; it doesn’t affect 

your ability to function as a Member of Congress; it doesn’t affect 

the bottom line of your office in that sense. But you are a very important individual in terms of giving people who come to work for 

you access to a system based on an exchange where the risk is handled separately, and I think that is the way forward. 

So given the choice you can make, I would advise you, when you 

look at the CHOICE Act, to examine the opportunity for seeing a 

somewhat different role for the employer in the future than you are 

currently looking at, and to move in a slightly different direction 

than is implied by what you are doing. As you go down your current route, you still have the inherent problem of the medical risk 

of the employees of any individual company, and should they be in 

the co-op or should they not. The decision they make is going to 

still be one of who is going to carry the risk and what is the cost. 

I think that is inherent. 

I would just say finally and maybe this is a point of clarification 

for Mr. Haynes, my understanding from your testimony from the 

Bottlers’ Association is that you still really don’t provide the same 

kind of system of benefits to your smaller members and to your 

larger members, maybe I misheard that. But I thought that was 

the case, so you are still facing that situation of having a particular 

problem for the smaller members. 

19 

Mr. HAYNES. Well, if I can clarify, that is because of regulation, 

there is not a choice on our part, the system has State regulation. 

So we are going to come up with a solution for our small members. 

I am committed to doing that. And it is going to be based upon a 

captive. 

Mr. HAYNES. One way or the other we are going to do it. We are 

going to struggle to be effective if we don’t have some help financially in overcoming the competitive handicap that we already face 

because of the cost gap. But we are going to do it. 

And if I could just comment briefly, I think that the workplace 

is a very natural place for employees to get their health care insurance now. You can argue whether we might be better off if they 

didn’t, but if you consider the fact that retirement is primarily coming through workplace-based 401K plans, that we provide a whole 

range of benefits, programs that we administer. I think it is both 

current reality and, frankly, fairly natural for employees to look to 

the workplace for help on their health care. After all, I think small 

business is concerned about the health and welfare of their employees separate and apart from the cost component. 

Mr. CHABOT. Let me just ask one last quick question , and I will 

address this to both Mr. Haynes and Mr. Eckstein. 

In the scheme of challenges that those of you on the small business community have to deal with, where does health care in coming up with additional costs—I know it has been going up double 

digit in recent years. Where does that fall in the challenges that 

you face? And just a pretty quick answer, not a long one, Mr. 

Haynes and Mr. Eckstein. 

Mr. HAYNES. It is very high and it is probably number one and 

I could even extend that beyond my organization because I have 

been working closely with the National Beer Wholesalers vis-a-vis 

health care and they did a member survey of the largest challenge 

that their members face and health care was number one in that 

survey; so our experience is typical. 

Mr. CHABOT. Thank you. 

Mr. Eckstein. 

Mr. ECKSTEIN. Health care has become just absolutely huge for 

us. Running a business myself, I didn’t have the time to spend on 

health care every year, to shop it and try to find someone. I actually brought my wife to work, and now basically her job is she monitors our health insurance on a yearly basis. And we actually last 

year went to a health reimbursement account to absorb some of the 

increase and not pass it along to our employees and it actually 

worked out fairly well last year. 

Mr. CHABOT. Thank you. And that’s consistent with what I have 

been hearing. I go to small business folks in my districts a lot and 

I will tour their plant and meet with their folks, and I hear that 

if it is not the number one issue, it is very close to the top with 

just about every small business and I would venture to say that is 

probably true nationally as well. 

Thank you very much, Madam Chair. I yield back my time. 

Chairwoman VELA ́ ZQUEZ. Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Madam Chair. 

Maybe not so much a question, but I would like to thank you and 

the ranking member so much for keeping the spotlight on this 

20 

issue. I know we have had several hearings about this. We have 

had governors in talking about State health insurance individuals 

and small business. So thank you very much. 

Obviously this is something that we look forward to getting 

something done about and I know you are committed to that, and 

I look forward to next year too. Like Dr. Nichols said, regardless 

of who is in the White House, this is going to be a pressing issue 

for the new administration as well as us. 

Sitting over here listening to the panel, I had a flashback to 

when I was interviewing—in my former life interviewing potential 

employees. And being a former law enforcement officer, you always 

ask the question why do you want to become a deputy sheriff? And 

you would think it would be to protect and serve and things like 

that. And as time went on, I had people saying, well, I hear the 

county has really good health benefits as their reason for wanting 

to become a deputy sheriff. 

Now, I didn’t hire those people, but they were pretty honest. But 

I thought that was a telling thing that they were willing to come 

in and want that job just to get the health insurance benefits. I 

hope they are listening today and if they are reapplying they will 

think of a better answer than that. 

But as Mr. Chabot said, I spent yesterday on the phone anticipating this hearing talking to small business owners in my district 

with my roundtable, and just the stories that came from them. One 

gentleman who owns a trucking company and fuel prices are his 

number one, but health insurance and health care for him and his 

employees were all of their number one issue. And just listening to 

some of the stories that they had, gaming that deductible system. 

I know one of the gentlemen talked about that he selected a plan 

with a $2,500 and had asked the employees to pay the first $750. 

He would take the gamble on paying above the $750 anything that 

they didn’t spend. He was just gambling. 

Other issues that they talked about were the insurance companies that are demanding that 50 or 60 percent of the employees get 

on the program, and that is not always possible. In a five-person 

job, if the spouse of somebody works and it’s a better insurance 

plan, they are not there. So they are hampered. But again, I don’t 

have a lot of questions because I think we all know where this has 

to go. It is letting the rubber meet the road and getting these 

things done, and I look forward to you and the rest of us keep 

pushing until this actually happens. 

With that, I yield back, but thank you all very much for your 

input. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Fortenberry. 

Mr. FORTENBERRY. Thank you, Madam Chair. 

Thank you all for joining us today. 

Dr. Blumberg, if I could summarize your testimony because unfortunately, it was the only one I was able to read through since 

being here fully, I think your suggestions can be summarized as 

follows: better pooling for small firms; high-risk pools, which is a 

government subsidy for persons who have chronic health conditions; and some form of premium assistance for individuals of lower 

income; is that correct? 

21 

Ms. BLUMBERG. Not necessarily. The issue of the high cost is a 

really critical one from my perspective. But whether you are going 

to address that problem by taking the people and separating them 

out into high-risk pools versus changing the way insurance is 

priced and risk is pooled in private insurance in general is a very 

big decision. 

So I think we need to be very cautious about how we go about 

that in order to make sure that coverage remains adequate and affordable for people regardless of their health status. For example, 

if you take the route of going with high risk pools for those who 

are high cost, they are separated out from the people that are 

lower cost. So if you are going to subsidize their coverage explicitly 

in order to make it affordable, the cost to the Government is going 

to be considerably higher than if their costs are averaged throughout the population. The total healthcare costs are the same. You 

have to pay for the costs eventually one way or the other. But it 

is a matter of how much is going to come directly from Government 

revenue versus how much is going to be spread through premiums. 

So those are big policy decisions and I wouldn’t say that high-risk 

pools are necessarily the right way to go. 

Mr. FORTENBERRY. Then that would beg the question as to 

whether a form of premium assistance is the most efficient way 

and perhaps the most societally beneficial way, to continue to have 

proper access to health insurance coverage in the event that a person who falls out of normal risk categories and can not then be absorbed into smaller pools like you have. 

Ms. BLUMBERG. I think that buying coverage through employers, 

particularly large employers, is more efficient at this point than 

buying person by person because of administrative costs, but I 

think a lot of us have been talking about the notion of creating 

structures or building on existing structures that would allow coverage to be purchased outside of the employment context as efficiently as many employers do. 

Mr. FORTENBERRY. What would that look like? 

Ms. BLUMBERG. What that would look like is a purchasing entity, 

maybe something structured similarly to the Federal Employees 

Health Benefits Plan, which is what Stuart was speaking about, 

based on State purchasing pools, or State employee plans. You 

could do it through public programs, you could open up Medicaid 

and SCHIP for purchasing coverage for individuals of varying income levels. Most people in those plans are already enrolled in private health insurance plans, they are just being contracted by the 

State. You could set up a connector-like entity as they have done 

in Massachusetts. Where the State creates an entity through which 

they decide what the array of health benefits are going to look like 

and they contract with the insurers in order to provide that for individuals and/or small businesses that want to buy into it. 

But the key is that we have to be really careful about how we 

slice up the covered individuals in insurance coverage. The more 

choices that they have, the more options that they have available 

to them, the more we segment risk. So we have to be very careful 

about how many choices people face and how they are priced in 

order to make sure that we spread the cost as broadly as possibly. 

22 

Mr. FORTENBERRY. Let us talk about two aspects of that, and 

others of you can chime in. 

One is the Health Savings Account initiative that tries to drive 

the consumer back into the equation when rationing limited dollars 

in ordinary costs while there is an extraordinary or catastrophic 

condition. Mr. Ellsworth is right, and it is an amusing story, but 

I think it is very true. And this also is a question of portability, 

that the dampening effect on economic productivity created by having a person seek employment merely for the benefit of health insurance, versus using their skill sets to find the right place to exercise their gifts, is a very real drain on productivity. 

So we talk about an employer-based system and you all are generous people, those of you who have a business. I think most small 

business people are trying to help their employees. But because you 

get a tax benefit, in effect, for doing this (plus the fact that it is 

about retaining employees) we used to call it in the corporate world 

′′golden handcuffs.′′ If these benefits get big enough, you are going 

to think twice before leaving or you are going to seek a position for 

the benefit alone versus the opportunity to again find the right fit 

for your own skill set. This happens a lot in rural communities 

where a spouse will leave a farm or another entity simply to go to 

some level of governmental—a level of governmental entity for the 

health insurance benefits. 

So while I agree with many of the points you are making in regards to the efficiency of delivering health care through the business platform, I think we have to think also about this issue of 

portability and this drain on productivity when a person ends up 

being basically chained to the desk that they are at because of 

their need for health insurance. 

Ms. BLUMBERG. That is actually one of the advantages of these 

purchasing entities, that an individual regardless of where they are 

working, can maintain their health insurance coverage when they 

move from job to job and whatever employer they are working with 

at the time, if they have decided to make contributions, can pay 

those contributions into the purchasing pool or the individual could 

hopefully go there and get income-related support in order to be 

able to afford coverage there. So I think most of us are realizing 

that, particularly for small businesses and some medium-sized 

businesses as well, it is inefficient for them to be the location of 

purchasing coverage. But these purchasing entities are basically 

the solution to the issues that I think you are raising. 

Mr. BUTLER. I might add that in addition to issue of so-called job 

lock, with people making decisions as to who they work for, there 

is of course the other issue which I am sure you are very familiar, 

which is how people’s decision to go into business for themselves 

is affected by the insurance issue. There has not been so much research done on that but we certainly know anecdotally very much 

how that is affected. We have done a summary of the research that 

is out there and I would be more than happy to— 

Mr. FORTENBERRY. Madam Chair, I think that Dr. Butler is making an extraordinary point, one that should be impacted further by 

this committee because this drain on entrepreneurial productivity 

is very real because of this issue. 

23 

Mr. BUTLER. We would like to be helpful. We see it all the time 

- people who just cannot go into business for themselves unless 

they have coverage through a spouse, for example. You see these 

patterns very, very clearly. People maybe get divorced and then 

suddenly, because they are in business, they cannot afford to continue because of the immediate effects of running out of— 

Mr. NICHOLS. If I could, Stuart mentioned, and I welcome to see 

it, it has been hard developing empirical models to do this, but I 

think he probably knows and I certainly know there are surveys of 

people thinking of business formation. And I know Todd 

Stottlemyer, the president of NFIB, has made very clear, and I 

think he has got a hard survey to back this up, it is the number 

one problem, the number one impediment to business formation is 

worrying about how you’re going to cover your family and your 

would-be employees; so I certainly agree it is very important. 

Chairwoman VELA ́ ZQUEZ. We are having some votes the floor, but 

I have two more questions and then, Mr. Chabot, if you have any 

other questions. 

Dr. Nichols, despite some of the successes of the Massachusetts 

Commonwealth connector plan, it hasn’t delivered on the promise 

of low-cost small business plans. Small businesses appear to be disproportionately funding the State’s health care system in comparison to big business and government payers. Do you believe that 

there was a way that this could have been avoided? 

Mr. NICHOLS. Well, Madam Chairman, I think the fundamental 

cost structure in Massachusetts is driven by the unfortunate fact 

that health care costs a lot in Massachusetts, and unfortunately 

there is no magic wand you can wave when the providers up there 

get paid what they get paid, and that is the fundamental thing. 

Now, Linda actually probably knows more about Massachusetts 

specifically than I do so I will defer to her, but I will say when you 

structure a new marketplace, I think all of us would agree you 

have to have transitions that are smooth. You don’t want to have 

a big jump. 

Massachusetts had a fair number of benefit mandates that were 

already in place that in some sense the market had adjusted to. 

You could get money back although not nearly as much as the advocates would tell you. You can get money back by taking mandates away, but if you do that precipitously, you end up uncovering 

cancer and so forth. So you have to be careful about that. What 

they did do, which I was very much in favor of, was they allowed 

there to be products sold to young workers, to young people, between, I think, 21 and 29 that had fewer mandates so that they 

could offer those people a little bit lower premium. 

But Linda, you may want to speak to— 

Ms. BLUMBERG. I think the underlying cost structure of the State 

is the major issue and they are focusing their attention now on 

strategies to contain costs. It was a very difficult political calculus 

to try to expand coverage substantially while at the same time containing costs, lower provider payment rates, et cetera. It would 

have been a very difficult piece of legislation to pass without support of the providers; so now I think the focus is on cost containment. 

24 

But I would mention a survey that was done by the Urban Institute prior to the reform implementation and the survey was done 

again more recently. It was demonstrated that employer-sponsored 

insurance coverage in Massachusetts has increased since the implementation of the reforms. So more employers seem to be offering 

and more workers taking up. 

Chairwoman VELA ́ ZQUEZ. Dr. Butler, you suggest giving tax credits to individuals as opposed to employers because it is a more effective means of expanding traditional coverage. Can you envision 

any circumstances in which tax credits for small businesses could 

be effectively used to expand coverage? 

Mr. BUTLER. Well, I do think that there is a case to be made for 

credits in the transition especially, if you are asking employers to 

set up systems. And we see this, incidentally, in the area of pensions as well, that legislation has been put forward to address the 

fact that there is a direct cost to a small business person, that 

might discourage them from setting up an alternative system. I 

think covering that with a credit can make sense, to cover those 

transition costs. What I was referring to is the idea of trying to 

subsidize with a tax subsidy directly to the employer in order to 

bring down the cost of coverage per se. So I would draw that distinction between the role of any kind of subsidy to the small employer. 

Chairwoman VELA ́ ZQUEZ. Yes. I am sure Mr. Haynes would want 

to comment— 

Mr. HAYNES. Yes. I would say looking specifically at the Choice 

Act, there is probably dramatic evidence to the contrary because I 

think in our situation the tax subsidies would allow us to bring a 

lot more people into our existing pool. Frankly, I think more money 

would be saved by the people who wouldn’t get—by the employers 

who wouldn’t get the subsidies than the people who would get the 

subsidies and there would be more benefit to the participants in 

the pool that we could create outside of the group being subsidized 

than inside the group. 

Mr. BUTLER. Well, with respect, I mean, the actual econometric 

data that has been done—there has been a number of econometric 

studies looking at this in terms of the cost, the revenue loss associated with providing a subsidy to an employer who is already providing coverage to their employee and to try to level the playing 

field. There is a huge revenue loss associated with that. And I 

mean Econometricians do look at these things, and the data I think 

is pretty clear that it really is almost pushing on a string in terms 

of cost. It costs an enormous amount for those who are already covered if you go through the employer, and it is a much higher cost 

method of trying to cover those people. I just think the data shows 

that very clearly. 

Mr. HAYNES. I think the difference is between a targeted subsidy 

and a general subsidy. This is a targeted subsidy that works specific on the marketplace. 

Chairwoman VELA ́ ZQUEZ. Mr. Chabot. 

Thank you. 

Mr. CHABOT. Thank you, Madam Chair. I know we have votes; 

so I won’t ask any more questions. But I just want to thank you 

for holding the hearing and I want to commend the panel. I think 

25 

they have done an excellent job and have really shed a lot of light 

on this. I think this is an excellent panel, especially the panel 

member from Cincinnati. 

Chairwoman VELA ́ ZQUEZ. Thank you all. 

I ask unanimous consent that members will have 5 days to submit a statement and supporting materials for the record. 

Without objection, so ordered. 

This hearing is now adjourned. 

[Whereupon, at 12:00 p.m., the committee was adjourned.] 

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