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CUTTING THE RED TAPE: SAVING JOBS FROM 

PPACA’S HARMFUL REGULATIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SEPTEMBER 15, 2011 

Serial No. 112–85 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

CLIFF STEARNS, Florida 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO MACK, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

Vice Chairman 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

BRIAN P. BILBRAY, California 

CHARLES F. BASS, New Hampshire 

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 

HENRY A. WAXMAN, California 

Ranking Member 

JOHN D. DINGELL, Michigan 

Chairman Emeritus 

EDWARD J. MARKEY, Massachusetts 

EDOLPHUS TOWNS, New York 

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 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

G.K. BUTTERFIELD, North Carolina 

JOHN BARROW, Georgia 

DORIS O. MATSUI, California 

DONNA M. CHRISTENSEN, Virgin Islands 

KATHY CASTOR, Florida 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

MICHAEL C. BURGESS, Texas 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

MIKE ROGERS, Michigan 

SUE WILKINS MYRICK, North Carolina 

TIM MURPHY, Pennsylvania 

MARSHA BLACKBURN, Tennessee 

PHIL GINGREY, Georgia 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

BILL CASSIDY, Louisiana 

BRETT GUTHRIE, Kentucky 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

JOHN D. DINGELL, Michigan 

EDOLPHUS TOWNS, New York 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

CHARLES A. GONZALEZ, Texas 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

JIM MATHESON, Utah 

HENRY A. WAXMAN, California (ex officio) 

(II) 

(III) 

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 ................................................................................................. 4 

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

New Jersey, opening statement .......................................................................... 8 

Hon. Janice D. Schakowsky, a Representative in Congress from the State 

of Illinois, opening statement .............................................................................. 8 

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

Texas, opening statement .................................................................................... 9 

Hon. John Shimkus, a Representative in Congress from the State of Illinois, 

opening statement ................................................................................................ 10 

Hon. John D. Dingell, a Representative in Congress from the State of Michigan, opening statement ....................................................................................... 11 

Hon. Joe Barton, a Representative in Congress from the State of Texas, 

prepared statement .............................................................................................. 124 

WITNESSES

Steven B. Larsen, Deputy Administrator and Director, Center for Consumer 

Information and Insurance Oversight, Centers for Medicare and Medicaid 

Services, Department of Health and Human Services ...................................... 12 

Prepared statement .......................................................................................... 15 

Answers to submitted questions ...................................................................... 126 

Edmund F. Haislmaier, Senior Research Fellow, Center for Health Policy 

Studies, The Heritage Foundation ...................................................................... 48 

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

Grace–Marie Turner, President, Galen Institute .................................................. 58 

Prepared statement .......................................................................................... 60 

Janet Trautwein, Chief Executive Officer, National Association of Health 

Underwriters ........................................................................................................ 72 

Prepared statement .......................................................................................... 74 

Wendell Blaine Potter, Senior Policy Analyst, The Center for Public Integrity 86 

Prepared statement .......................................................................................... 88 

Lynn Bates Quincy, Senior Policy Analyst, Consumers Union ........................... 100 

Prepared statement .......................................................................................... 102 

SUBMITTED MATERIAL

Letter, dated September 15, 2011, from Health Care for America Now et 

al. to subcommittee leadership, submitted by Mr. Pallone .............................. 35 

Letter, dated September 14, 2011, from HIV Health Care Access Working 

Group to subcommittee leadership, submitted by Mr. Pallone ........................ 38 

Letter, dated September 14, 2011, from Shereen Arent, Executive Vice President, Government Affairs and Advocacy, American Diabetes Association, 

to subcommittee leadership, submitted by Mr. Pallone .................................... 40 

Letter, dated September 14, 2011, from Kelly Conklin and Jim Houser, Main 

Street Alliance Steering Committee, to subcommittee leadership and members, submitted by Mr. Pallone ........................................................................... 41 

Letter, dated September 14, 2011, from Charles M. Loveless, Director of 

Legislation, AFSCME, to subcommittee members, submitted by Mr. Dingell ......................................................................................................................... 83 

Statement, undated, of Hon. Tom Price, a Representative in Congress from 

the State of Georgia, submitted by Mr. Dingell ................................................ 84 

(1) 

CUTTING THE RED TAPE: SAVING JOBS FROM 

PPACA’S HARMFUL REGULATIONS 

THURSDAY, SEPTEMBER 15, 2011 

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

The subcommittee met, pursuant to call, at 11:17 a.m., in room 

2322 of the Rayburn House Office Building, Hon. Joe Pitts (chairman of the subcommittee) presiding. 

Members present: Representatives Pitts, Burgess, Shimkus, Rogers, Murphy, Gingrey, Latta, Lance, Cassidy, Guthrie, Pallone, 

Dingell, and Schakowsky. 

Staff present: Howard Cohen, Chief Counsel, Health; Paul 

Edattel, Professional Staff Member, Health; Julie Goon, Health 

Policy Advisor; Kirby Howard, Legislative Clerk; Debbee Keller, 

Press Secretary; Ryan Long, Chief Counsel; Carly McWilliams, 

Legislative Clerk; Andrew Powaleny, Press Assistant; Heidi Stirrup, Health Policy Coordinator; Phil Barnett, Democratic Staff Director; Alli Corr, Democratic Policy Analyst; Tim Gronniger, Democratic Senior Professional Staff Member; Ruth Katz, Democratic 

Chief Public Health Counsel; and Purvee Kempf, Democratic Senior Counsel. 

Mr. PITTS. The subcommittee will come to order. The chair recognizes himself for 5 minutes for an opening statement. 

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

OF PENNSYLVANIA 

‘‘If you like your current plan, you will be able to keep it.’’ Let 

me repeat that: ‘‘If you like your plan, you will be able to keep it.’’ 

That was a remark by President Obama at the White House on 

July 21, 2009. Another quote: ‘‘If you like your insurance plan, you 

will keep it. No one will be able to take that away from you. It 

hasn’t happened yet. It won’t happen in the future.’’ President 

Obama in April of 2010. Despite these claims, repeated claims, it 

has become abundantly clear that the ‘‘if you like it, you can keep 

it’’ promise to the American people has been broken. 

By the Administration’s own estimates, 49 to 80 percent of the 

small-employer plans, 34 to 64 percent of large-employer plans, and 

40 to 67 percent of individual insurance coverage will not be grandfathered by the end of 2013. 

A May 2011 PricewaterhouseCoopers survey of employers also 

echoes the Administration’s warnings. Of note, 51 percent of the 

2 

employers surveyed did not expect to maintain grandfathered 

health status, meaning their employees would forfeit their current 

coverage and pay higher premiums due to the health care law’s 

mandates on their new coverage. Because grandfathered plans are 

subject to many of PPACA’s requirements, employers today are 

forced to pay more to keep their current grandfathered plans, shop 

for more expensive plans, or drop coverage for their employees altogether. 

The discussion draft before us today simply prevents the Administration from implementing its June 17 interim final rule and it 

prevents the Administration from imposing any standards or requirements as a result of PPACA on grandfathered health plans. 

That way, consumers who really do like the coverage they have, 

really get to keep it. 

As for the medical loss ratio, Section 1001 of PPACA requires 

health plans to spend 80 percent for plans in the individual and 

group market and 85 percent for large group plans of premium revenue on medical care, beginning this year. Plans that fail to meet 

these thresholds are required to rebate the difference to their consumers. 

Supporters of this section claim the medical loss ratio regulation 

was designed to protect consumers from unscrupulous insurance 

companies. However, it actually contains perverse incentives for insurance companies to ignore waste and fraud, which drives up premiums and copayments for consumers. Under the regulation, investments in fraud detection, and even quality improvement and 

care coordination, fall under administrative expenses, which can 

only make up 20 percent of a plan’s spending. Plans struggling to 

make the 80 to 85 percent threshold for medical costs often can’t 

risk these activities, which could save consumers money and provide them with a higher quality of care, for fear of being penalized 

and having to pay rebates. Even worse, if a plan does identify 

fraud, cutting those fraudulent payments and activities actually reduces their amount of spending on medical costs, making it even 

harder for them to reach the 80 or 85 percent threshold. 

Consumers, not HHS and government bureaucrats, should be deciding what health care spending is appropriate and what health 

care spending is not appropriate for their plans. Plans should be 

able to invest in waste, fraud, and abuse detection without worrying if that spending puts them in violation of a government regulation. And consumers should be free to select those plans that 

share their priorities, not the government’s. 

Again, while the medical loss ratio has been billed as a tool to 

protect consumers from insurance companies, many States are 

clamoring for waivers to exempt their citizens from these protections. The Secretary of HHS is empowered to grant MLR waivers 

to States that can prove that meeting the 80 to 85 percent thresholds will destabilize its insurance market. 

Currently, HHS has granted MLR waivers to five states: Maine, 

New Hampshire, Nevada, Kentucky and Iowa. With these waivers, 

consumers in these States are now protected from one of the health 

care law’s key consumer protections. Residents of North Dakota 

and Delaware are not as lucky. HHS rejected their waivers. Nine 

more states—Florida, Georgia, Louisiana, Kansas, Indiana, MichiVerDate Nov 24 2008 10:01 Apr 16, 2012 Jkt 037690 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\112-085 PPACA’S REGS-ADDTL SCAN REQ 4-12\112-85 PPACA’S REGS PENDING W
3 

gan, Texas, Oklahoma and North Carolina—have determined that 

their insurance markets will be destabilized by having to comply 

with the MLR regulation and have applied for waivers. They are 

still waiting to hear back. 

The MLR regulation is also costing jobs at a time when unemployment remains stubbornly above 9 percent. HHS’s interim final 

rule on MLR includes health insurance agent and broker commissions in the administrative costs category. Many plans, desperate 

to meet the 80 to 85 percent threshold, simply cannot afford to use 

brokers and agents as they once did. One estimate from the National Association of Health Underwriters suggests that more than 

20 percent of agents will have to downsize their businesses as a direct result of this calculation. 

I strongly support H.R. 2077, introduced by Dr. Tom Price and 

Rep. Cathy McMorris Rodgers, which repeals the section of the 

Public Health Service Act dealing with MLR requirements, which 

was added by the new health care law, and I would urge my colleagues to support. 

Finally, I would like to thank all of our witnesses for being here 

today and yield back my time. 

[The prepared statement of Mr. Pitts follows:] 

4 

5 

6 

7 

8 

Mr. PITTS. I now recognize the ranking member of the subcommittee, Mr. Pallone, for 5 minutes. 

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

Mr. PALLONE. Thank you, Mr. Chairman. 

I am extremely disappointed in today’s hearing topic because for 

too long, too many hardworking Americans paid the price for policies that handed free rein to insurance companies, and so Democrats did something about it. We passed the health reform law that 

gives hardworking families the security they deserve. But here we 

are once again as Congressional Republicans introduce new piecemeal repeal legislation to take these protections away. The result 

of such legislation is putting insurance companies, not patients, 

back in control. 

The two bills under discussion today support what I have been 

saying all year long. If the Republicans had their way, insurance 

companies would have free rein to drop someone’s coverage unexpectedly when they are in an accident or become sick because of 

a simple mistake on an application. If the Republicans had their 

way, over 1.2 million young adults would lose their insurance coverage through their parents’ health plan as their children worked 

to launch their careers. And if the Republicans had their way, insurance companies would once again be allowed to deny health coverage to a breast cancer patient who was in remission but now 

needs to restart her chemo and to put an annual cap on the 

amount of care she will have access to, or even worse, a lifetime 

limit on her health coverage so in a desperate time of need she has 

to choose between bankruptcy and getting lifesaving care. If the 

Republicans had their way, insurance companies would once again 

have the ability to freely raise patients’ premiums, likely by double 

digits, and have no restraints or accountability on what proportion 

of these premium dollars are spent on health care services. 

Now, I am going to stand silent while the repeal Republicans 

work to rescind the Patient’s Bill of Rights and leave tens of millions of Americans at the mercy of the insurance companies. 

Enough is enough. Let us move on to the real priorities of the 

American people, and that is jobs, jobs, jobs, jobs. 

I thank you, Mr. Chairman. I would like to yield to time that I 

have left to the gentlewoman from Illinois, Ms. Schakowsky. 

OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Ms. SCHAKOWSKY. I thank the ranking member very much for 

yielding to me. 

Well, here we are again, and what we are witnessing once again 

today is an effort by the Republicans to do the bidding of the insurance companies at the expense of ordinary consumers. 

The idea of a medical loss ratio says that we are just not going 

to let the insurance companies charge whatever they want. That 

legislation, that rule, the medical loss ratio, holds insurance companies accountable and ensures that health care consumers receive 

9 

the services for which they are already paying top dollar. By law, 

insurance companies have to spend at least 80 percent of their premium dollars on medical care and health quality improvement as 

opposed to administrative costs, marketing, executive salaries and 

bonuses. 

I am so glad that we are going to hear from somebody who has 

had years of experience in the insurance industry and knows all 

the games that are played in order to extract as much money as 

they can from sickness in the United States of America. 

This hearing is also going to focus on legislation to repeal the 

grandfathered health plan regulation, and doing so basic consumer 

protections like ending lifetime coverage limits and rescission of 

coverage will be undermined and employer-sponsored health insurance plans, plans that cover 160 million people. So now we are not 

just talking about public plans, we are going to reach into those 

private plans and tell these employers what they can do and offer 

to their consumers. 

It is just incredible to me the number of things that the Energy 

and Commerce Committee has to do in order to make life better 

for people out there who are really suffering right now under this 

economy. You know, you lose your job, you lose your health care 

many times, so people are trying to figure out how their kids are 

going to get health care. Our legislation said that preexisting conditions for children will not be a reason to exclude children from 

health care. We said if your child has a terrible life-threatening 

disease that may cost a lot of money, that those lifetime caps are 

going to be removed, and here we sit today saying no, no, no, this 

is not fair to the poor insurance companies, those poor insurance 

companies who have been making record profits. I think this is utterly outrageous that we should be spending our time doing that 

when the American people are looking to us at this moment for 

help. 

Thank you. I yield back. 

Mr. PITTS. The chair thanks the gentlelady and recognizes the 

vice chairman of the subcommittee, Dr. Burgess, for 5 minutes. 

OPENING STATEMENT OF HON. MICHAEL C. BURGESS, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. BURGESS. I thank the chairman for the recognition and I do 

thank our panelists for being here today. Director Larsen, you have 

been kind enough to come talk to me in my office in the time between our last hearing, and I appreciate the information that you 

have provided. As you will find out today, perhaps there are a few 

more things that we would like to know, and I know that you will 

provide them. 

Grace-Marie Turner, it is always good to see you again. 

I have to say, we talked about doing the bidding of insurance 

companies. Exhibit A, the Affordable Care Act, why cannot we get 

the information from the White House from the six groups that met 

down there in May of 2009 that discussed how we were going to 

carve up things in health care, insurance companies to be sure, 

doctors, hospitals, pharma, medical device manufacturers and the 

unions. So what was up with that? The President came out of that 

meeting and said we saved $2 trillion for health care. Two trillion 

10 

dollars for health care, but there are no minutes, there are no 

emails. There is not even an envelope with a scratch on the back 

about what this $2 trillion represented, and we are to believe that? 

Now, yesterday in the Subcommittee on Oversight and Investigations, we had a big hearing on Solyndra and how Solyndra was 

given a loan guarantee from the Department of Energy which had 

all of the appearances of being something that was a rush job and 

done improperly. Well, if you want to talk about something that is 

a rush job and done improperly, see the Affordable Care Act. Insurance companies have prospered since the Affordable Care Act 

passed. Go back and look at the earnings statements from the big 

companies from March of 2010 when this thing was passed. The insurance companies got the individual mandate. They got everything they asked for in this bill. Thank you, Democrats, for that. 

And now we are left to deal with the consequences of this. 

We are concerned about jobs. The President came and talked on 

the House Floor about jobs last week. I am grateful that he came 

with his ideas. The fact remains that unemployment stands at over 

9 percent and doesn’t appear to be budging. 

Now, is there a reason for this? Is partly the reason because since 2008 the government has spent $54 billion on regulatory 

agencies and they are growing at 16 percent—the only true growth 

industry in this country is federal regulation—or that the government regulatory system is the third largest employer in the Nation 

or because complying with federal rules and regulations costs $1.75 

trillion per year? Is it because the Affordable Care Act and the effect that its regulations are having on our Nation’s employers? 

From over-regulation to burdensome requirements to perverse incentives that will drive up health spending, this thing levies unreasonable demands on employers, manufacturers and providers. Discourage hiring? You bet. Encourages employers to drop their insurance apparently, oh, yes, and in the bargain we are going to punish 

physicians and tax the industry out of America. 

Today we are going to look at two of these requirements in some 

depth but honestly, the list is much, much longer, and we are going 

to hear from some of those folks who are on the ground dealing 

with this, but I am afraid we may be too late. This law has proven 

to be unworkable and to stifle economic growth. Every day we have 

got another announcement about another rule going into effect, and 

far too many are coming out as interim final rules, and what does 

that mean? That means we have short-circuited the public input 

part of that process. So if we are serious about getting America 

back to work, the first step should be to loosen our stranglehold imposed by this law. 

Thank you, Mr. Chairman, and—— 

Mr. SHIMKUS. Would you yield? 

Mr. BURGESS. Yes, I would be happy to yield to the gentleman 

from Illinois. 

OPENING STATEMENT OF HON. JOHN SHIMKUS, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS 

Mr. SHIMKUS. Thank you from my colleagues, and I am going to 

take this minute just to do a plug on a bill that we just dropped 

yesterday, which was the Medicare common access card. We all 

11 

know there is Medicare fraud. Part of this debate is, how do you 

stop fraud in billing. In Medicare, we know there is great fraud. 

What the Medicare common access card, which I have a copy of 

one, it is just using an ID card like the military does. It is a double 

identification system with a chip in the card and then a password. 

To date, in the DOD, these cards are out. Twenty million of these 

cards have been out. There has been not a single instance of fraud. 

And so if you really want to make sure that the person who is supposed to receive the service is identified and properly billed for it, 

then I would encourage all my colleagues on both sides to look at 

the bill dropped. 

On the Senate side, Senators Kirk, Wyden and Rubio expect bipartisan support, and I would imagine it would have support across 

the spectrum from both conservatives and liberals if we want to get 

a national way to make sure we have secure billing. 

With that, thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

ranking member emeritus, Mr. Dingell, for 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy and 

I thank you for recognizing me. 

Today’s hearing, Mr. Chairman, is yet another unfortunate attempt by my colleagues on the other side of the aisle to roll back 

the Patient’s Bill of Rights, which is included in the Affordable 

Care Act. There has been continuing opposition to both proposals 

and attempts to destroy it in every possible way including by delay 

and outright repeal in whole or in part. 

The bills before us today would strip historic reforms that protect 

consumers and it is going to leave us in a situation where the 

things that we have done to ensure and protect the rights of the 

American public are stripped away in a most unfortunate way. The 

intent of the medical loss requirement is to ensure that consumers 

know that money coming out of their paychecks each month for 

health care is going to go for quality care, not to line the pockets 

of the insurance companies. This provision is going to benefit 

countless Americans. It is going to, according to HHS estimates, 

see to it that nearly 75 million people are in health plans that will 

be subject to new requirements and up to 9 million Americans will 

be eligible for rebates next year. Costs to the government that we 

pay for health care will go down because of the things under attack 

in this committee today. The requirements that we are making are 

safe, effective and achievable. 

The same is true here also of the grandfathered health plan regulation. Preventing enforcement of this regulation allows abhorrent 

and false claims to be made by the other side for no reason other 

than political rancor. We cannot allow the public to be misled this 

way. Even worse, preventing the grandfathered health plan rule to 

move forward would be to remove a trigger for health plans to lose 

grandfather status if they cut benefits, increase co-payments or 

premiums, or make changes in annual limits. 

12 

These two bills are a direct and unfortunate assault on the sick, 

the elderly and the disabled who deserve protection and assurance 

that they will have the care they need when they are wheeled into 

an emergency room, and sadly, it will let the insurers spend consumers’ hard-earned dollars with no accountability. These things 

are bad from the standpoint of the public, the consuming public. 

They are also bad from the standpoint of the taxpayers because the 

loss of these provisions is going to run up the cost of Medicare, 

Medicaid, government retirement plans, and it is also going to run 

up the cost of plans which are held by private industry for the benefit of their employees, and the situation is going to impact on ordinary citizens who buy their own insurance because they have no 

one to assure their protection against the abuses which the legislation before the committee would strip the consumers of protection 

in their enactment. 

I urge my colleagues to defeat this legislation, to not let it out 

of the committee, and to have an honest exposition of the abuses 

we are attacking. This committee will recall that we have worked 

long and hard to get a national health insurance proposal enacted 

into law. It isn’t what any one of us would want but it is good 

enough to do the job that we have need of. 

It is unfortunate that this legislation is also a part of an ongoing 

attempt by my Republican colleagues to do away with government 

regulation. I am not one who is sitting here to tell you that this 

regulation is all good. That would not be true. But the hard fact 

of the matter is, what we are striking at today is not just health 

care but it is part of a pattern which will destroy regulation to protect people from bad foods, bad drugs, to protect people from fraud 

in the securities industry, to see to it that consumers receive protection through the Consumer Product Safety Commission, and a 

wide array of other programs that are necessary to protect American consumers. 

The idea is not to eliminate regulation but to eliminate bad, unfortunate and wasteful regulation rather than just striking out 

broadcast to destroy regulation and to strip the American public of 

the protections that they need for their safety, for their health, for 

their financial and economic well-being. 

I thank you for the time, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman. 

That concludes the members’ opening statements. We will call 

panel one to the table. Our first panel is Steve Larsen, Director of 

the Center for Consumer Information and Insurance Oversight 

with the Centers for Medicare and Medicaid Services. Welcome, 

Mr. Larsen. If you can summarize, your written testimony will be 

made part of the record, and you have 5 minutes. 

STATEMENT OF STEVEN B. LARSEN, DEPUTY ADMINISTRATOR 

AND DIRECTOR, CENTER FOR CONSUMER INFORMATION 

AND INSURANCE OVERSIGHT, CENTERS FOR MEDICARE 

AND MEDICAID SERVICES, DEPARTMENT OF HEALTH AND 

HUMAN SERVICES 

Mr. LARSEN. Thank you, Chairman Pitts, Ranking Member 

Pallone and members of the subcommittee, and thank you for the 

13 

opportunity to discuss the benefits of the medical loss ratio and 

grandfathering provisions of the Affordable Care Act. 

The ACA expands access to affordable, quality health insurance 

coverage to over 30 million Americans and strengthens consumer 

protections to ensure that individuals have coverage when they 

need it most. The ACA addresses many longstanding problems in 

the private health insurance market for both individuals and for 

small businesses. 

Since enactment of the ACA, HHS with the Departments of 

Labor and Treasury have already implemented many of the private 

insurance market reforms including prohibiting insurance companies from imposing lifetime dollar limits on coverage, rescinding 

coverage absent fraud, and enabling many young people to stay on 

their parents’ health plans up to age 26. 

The MLR provision in the Affordable Care Act reforms the health 

insurance market so that Americans receive value for their premium dollars. This provision requires that spending by health insurance companies on clinical services for members and spending 

on activities that improve quality for their members account for 80 

percent of the premium dollars for the individual and small group 

market and 85 percent for the large group market. This ensures 

that premiums that consumers pay are not used for excessive administrative expenses. Because insurance companies whose coverage does not meet the applicable MLR standard will provide rebates to their customers, insurers are incentivized to operate efficiently, provide value pricing and invest in activities that improve 

the health status of the people they cover. The provision also adds 

transparency to the marketplace by allowing all consumers to see 

how their premium dollars are being spent. 

Consumers will begin receiving rebates in 2012 from plans that 

don’t meet the standard in 2011. However, we are already seeing 

indications that the MLR provision is causing insurance companies 

to more carefully evaluate their need for increases, slowing the rate 

of premium growth. Insurers that have not met these standards 

have announced to Wall Street and in many cases advised State 

regulators that they are now setting prices to meet these new 

standards. One large insurer will reportedly be dropping rates for 

nearly 10,000 customers in Connecticut by between 5 and 20 percent. The GAO also found that issuers were moderate rate increases because of this rule. Repealing this provision will be a step 

backward for consumers. 

Regarding grandfathered health plans, while the ACA requires 

all health plans to provide important new benefits to consumers, 

under the law, plans that were in existence in March of 2010 are 

grandfathered and exempt from some of the new requirements in 

the ACA. For example, grandfathered plans not subject to provisions that require health plans to provide preventive services with 

no cost sharing are not subject to the new appeals provisions, and 

premiums for these plans are not subject to the rate review provisions of the ACA. However, grandfathered plans still must eliminate all lifetime benefit limits, extent dependant coverage to most 

children under age 26, and follow other consumers protections including the MLR provisions. 

14 

The grandfathered plans interim final rule is intended to preserve the ability of Americans to keep the coverage that they had 

when the ACA was passed. However, if the terms of that coverage 

are changed significantly, the plan could end up as a very different 

plan than the one that was in effect in March of 2010, perhaps 

with much higher coinsurance, deductibles or with fewer benefits, 

but if this modified coverage is still considered to be grandfathered 

coverage, it also would not provide some of the key consumer protections that we just talked about. 

The grandfather rule avoids this undesirable result by balancing 

the interests of health care consumers with those of employers. It 

does this by giving employers the feedback the flexibility to modify 

existing benefits to accommodate changing conditions without the 

loss of grandfather status while also guaranteeing Americans access to important consumer protections if the coverage changes significantly. 

Examples of the flexibility that employers have include the ability to make changes to different types of cost-sharing provisions 

such as copays and deductibles, to vary premiums, and to make 

modest changes to the levels of employer contributions. Importantly, health plans and employers have the choice of continuing 

the coverage that was in place on March 23rd or making changes 

beyond the areas outlined in the regulation. 

Also, based on the feedback we have received through out process 

and from formal comments in response to the interim final rule, 

HHS and Departments of Labor and Treasury issued an amendment to the amendment to the grandfathering rule in November of 

2010. The amended final rule allows employers to change carriers 

and keep their grandfathered status, again, providing even more 

flexibility to businesses and insurance companies in the implementation of this provision. 

In conclusion, we are proud of all that we have accomplished 

over the last year and a half and look forward to 2014 when more 

Americans will have access to affordable and comprehensive health 

insurance plans and all of the consumers protections in the ACA 

will apply. 

Thanks for the opportunity to appear before you, and I look forward to answering your questions. 

[The prepared statement of Mr. Larsen follows:] 

15 

16 

17 

18 

19 

20 

21 

22 

Mr. PITTS. The chair thanks the gentleman. We will now begin 

the questioning and recognize myself for 5 minutes for that purpose. 

Mr. Larsen, we have heard testimony from health insurance brokers that the Administration’s MLR regulation is already leading 

to job loss and income reduction for agents. According to a National 

Association of Health Underwriters survey, agents are seeing income losses of 20 to 50 percent. Additionally, 21 percent of agents 

have downsized their business in response to the MLR regulation 

alone. Earlier this summer, with unemployment at a staggering 9.1 

percent, you told us HHS would not rescind or suspend the MLR 

regulation under the President’s Executive Order on Regulatory 

Review. With unemployment still at 9.1 percent, has the Administration reconsidered its decision to continue with the medical loss 

ratio regulation despite massive job loss among the broker community? 

Mr. LARSEN. We have spent a substantial amount of time looking 

at this impact on agents and brokers. We know, for example, that 

the National Association of Insurance Commissioners on other 

issues related to the MLR standard took a pretty close look at the 

impact on agents and brokers of the MLR provision. Ultimately, as 

you may know, the NEIC declined to take further action in terms 

of recommendations or endorsements of changes to the MLR provision whether it is repealing it or other modifications. As I remember, the work that the NEIC did, they found there was really a 

spectrum of activity, that there was certainly some issuers that had 

decided to lower commissions. It wasn’t always clear whether that 

was a direct result. Some issuers in fact had increased. There 

wasn’t a clear trend across all markets in all States regarding responses by issuers on the agent and broker issue. So I think it is 

certainly the case that in some instances insurers have limited 

their commissions to brokers. We are concerned about that and we 

will continue look at it. At this point the NEIC declined to take any 

action on that, and I think we have limited legal ability to do so 

as well. 

Mr. PITTS. Well, you have the ability to review regulations. Are 

you going to review the regs? 

Mr. LARSEN. Well, we have been reviewing them in the context 

of the data that has been available to us, and we have looked at 

and certainly spoken with NAHU and looked at their survey, and 

I think the challenge is balancing the impact of, you know, major 

changes to the MLR standard, which will deprive a lot of consumers and businesses with rebates with some of the impacts that 

agents and broker communities have expressed. 

Mr. PITTS. Recently, the Administration announced that it would 

use brokers and agents to help enroll individuals in PPACA’s highrisk pools. This action was taken in response to the low enrollment 

in the program so far. If the Administration believes it is necessary 

to enlist the help of brokers to enroll Americans in a government 

program created by PPACA, why is HHS punishing the agent community and their customers in the private insurance space through 

the MLR rule? Shouldn’t we be encouraging rather than hurting 

jobs in the private sector? 

23 

Mr. LARSEN. Well, first of all, we certainly support the role of 

agents and brokers in connection with the PESA program. We were 

very pleased to be able to provide payments or commissions to 

them on the PESA program. We certainly don’t view the MLR rule 

as punishing agents and brokers. Frankly, it is many of the insurance companies that are taking this action. There is a very wide 

range in commissions that companies pay, and it is very possible 

that some of the companies are exploiting the MLR provision to 

lower agents’ and brokers’ commissions when they may not need to 

be doing that. I am not sure there is any clear data on that, but 

we support the role of agents and brokers both now and in 2014 

in the exchanges, and we look forward to working with them to see 

if there is a way to get us through that period between now and 

then. 

Mr. PITTS. Now, if a small business uses a broker to assist it in 

finding the best health plan for its particular unique circumstances, then the commission paid to the broker will count towards the administrative cost of the plan and thus could lower the 

plan’s medical loss ratio percentage? Yes or no. 

Mr. LARSEN. If I understand your question, yes, commissions are 

considered part of the administrative expense. 

Mr. PITTS. If a large company has its own human resource department that researches the type of health plan that it will purchase from an insurer for its employees, will the costs of the work 

done by the H.R. department be calculated in the administrative 

costs of the health plan? Yes or no. 

Mr. LARSEN. No. 

Mr. PITTS. It seems these rules are written in a way to disadvantage small employers. It also seems as if these rules will direct people into these new exchange plans. If a small business wants to use 

a broker or an agent because their employees don’t want to be 

dumped into the exchange, they should be able to without federal 

rules that tilt the playing field to government entities. 

My time has expired and I yield now to the ranking member for 

5 minutes for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. 

Mr. Larsen, the Republicans are portraying the discussion draft 

as a means for Americans who like their health coverage to keep 

it, and in fact I think this legislation is much broader. The real intention, I think, is to eliminate the insurance reforms enacted by 

the Affordable Care Act and put insurance companies, not patients, 

back in control, and I just wanted to point out just a few of the 

consequences of this legislation becoming law. One is, over 1.2 million young adults would lose their insurance coverage because 

plans would no longer be required to cover them until age 26. Over 

165 million Americans with private insurance coverage would be 

vulnerable again to having lifetime limits placed on how much insurance companies will spend on their health care. Fifteen point 

nine million people in the United States would be at risk of losing 

their insurance because rescissions would once again be legal, and 

41 million Americans would lose guaranteed coverage for preventive services like mammograms and flu shots without cost sharing. 

Up to 43 million people in small business health plans would lose 

24 

their medical loss ratio and rate review protections, which would 

allow insurers to charge them high prices for low-value plans. 

Now, Mr. Larsen, would it be accurate to say that this legislation 

is yet another attempt and way to repeal health reform? 

Mr. LARSEN. The discussion draft that I have seen certainly 

would do more than modify the grandfathering rule but in fact repeals the applicability of all the protections that you just enumerated from any of the plans that were in place at that time. 

Mr. PALLONE. And does the Republican legislation allow patients 

to keep their insurance if they like it as claimed by Republicans or 

are insurers really in charge allowed to cut benefits, you know, increase cost sharing and make other changes? 

Mr. LARSEN. It doesn’t, and that is the whole point of the rule. 

The rule provides employers some flexibility to make changes, but 

in the absence of the rule, employers and health plans could rewrite the entire plan, cut out benefits, remove protections. The 

plan would look very different. It would not look like the same coverage. 

Mr. PALLONE. Now, the Republicans have repeatedly claimed 

that the grandfathering rule issued by HHS will result in tens of 

millions of people losing their health care. Is it accurate to say, as 

some are, that the grandfathering rule will result in people with 

employer-sponsored coverage being denied or losing their health insurance coverage because of HHS or because of the Affordable Care 

Act? 

Mr. LARSEN. Yes, because the provisions that now apply to 

grandfathered plans include options for people to get better coverage, so if you are removing that, you are going to have people 

that don’t have coverage that would have had it if the bill weren’t 

in place. 

Mr. PALLONE. And so where would Republicans get the idea that 

tens of millions of people are losing their health care? Where is this 

coming from? 

Mr. LARSEN. I don’t know exactly where that is coming from. 

Mr. PALLONE. OK. I mean, it just appears to me as another case 

where the Republicans are inventing problems allegedly caused by 

the Affordable Care Act, and even if plans do lose grandfathered 

status, that doesn’t mean a person loses their health insurance. In 

fact, they gain some consumer protections like rights to external 

appears and coverage of preventative services, and in any case, 

these requirements will not be prohibitive for employer plans because they usually already meet the rules. One employer benefits 

consultant notes, and I quote, that ‘‘large companies realize that 

they already comply with many of the requirements of non-grandfathered plans so the changes they will need to make aren’t likely 

to add a significant cost or administrative burden.’’ I mean, I just— 

to me, this is just a lot of nonsense. It is just another way to repeal 

patient protections, and everything that the Republicans are saying 

is going to happen, in fact, it is just the opposite. 

Let me just ask you one more thing. I have got another minute 

here. Under the Republican legislation, grandfathered health plans 

would not have to report or openly justify premium increases. Have 

you seen an impact from rate review on premiums in any States 

in which it has been implemented so far, and is rate review going 

25 

to be an impossibly onerous burden for insurance companies to 

meet? 

Mr. LARSEN. Well, like the MLR provision, we know that the rate 

review provisions are having impacts now. There are beneficial impacts. They are lowering rates. We know that rate review, the process works to lower rates in States, and I think we have cited in 

other hearings and our materials where commissioners have looked 

at rates and concluded that there were improper assumptions or 

excessive requests that have been scaled back and saved people, 

you know, millions of dollars in premiums. So that is a very important provision. 

Mr. PALLONE. I mean, it just seems to me that, you know, the 

patient protections, the regulations on insurance companies that 

are consumer protections, they are all working. They are all having 

a very positive impact. There is absolutely no reason not to let the 

insurance companies continue down that path to protect a consumer. It is not that onerous. And now we are just going to say 

let us throw it all out and let the insurance companies do whatever 

their please, which makes no sense. 

Thank you, Mr. Chairman. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

vice chairman of the committee, Dr. Burgess, for 5 minutes for 

questions. 

Mr. BURGESS. Thank you, Mr. Chairman, and again, Dr. Larsen, 

let me thank you for your willingness to provide our office with information. We have gotten some things answered. There are some 

things that are still outstanding, and I suspect there will be some 

new questions that come up as a result of our interaction today, 

and I would just like to have your commitment to continue to work 

together to get answers to those questions. 

Mr. LARSEN. Yes, sir. I know that we provided an initial response 

to you since our last meeting, and we are working quickly to get 

the rest of those to you. 

Mr. BURGESS. Let me ask you a quick yes or no question. States 

have rate review authority and they had that prior to the passage 

of the Affordable Care Act. Is that correct? 

Mr. LARSEN. Some did, some didn’t. 

Mr. BURGESS. Now, in response to a question that Mr. Pallone 

asked, you said you didn’t know where the figures came from about 

people who would lose their plans under grandfathered status. So 

June 17, 2010, Department of Health and Human Services issued 

an interim final rule imposing additional restrictions that health 

plans must comply with in order to protect their grandfathered status. The Administration issued an amendment to the interim final 

rule 17 November 2010. By the Administration’s own estimates, 49 

to 80 percent of the small employer plans, 34 to 64 percent of large 

employer plans and 40 to 67 percent of individual insurance coverage will not be grandfathered by the end of 2013, so that is from 

which those figures come, and we will be glad to provide you the 

places for those citations so you can familiarize—— 

Mr. LARSEN. Perhaps I misunderstood. I thought that the question was, was there a claim that people were going to lose their 

coverage. The answer is no. Those statistics relate to the projected—— 

26 

Mr. BURGESS. Remember, the big selling point on the Affordable 

Care Act was, if you like what you have, you can keep it. 

Mr. LARSEN. Sure. 

Mr. BURGESS. And if people like what they have, they may not 

able to keep it. I think that is a fair statement. Is that not right? 

Mr. LARSEN. Well—— 

Mr. BURGESS. Yes is the answer to the question. Let us move on. 

Are you familiar with the Texas benefit pool? 

Mr. LARSEN. Say that again. 

Mr. BURGESS. The Texas benefit pool. It is not the high-risk pool, 

but this is a benefit pool for relatively small jurisdictions like small 

towns, and there are a number of small towns in Texas, to be able 

to pool together to purchase health insurance for their municipal 

employees that otherwise—and these are frequently cities that 

have significantly less than 50 employees under their jurisdiction. 

So 40,000 beneficiaries in 750 different political subdivisions and 

90 percent of these numbers have 50 or fewer employees. Under 

the Affordable Care Act as currently written, they will go out of 

business. They cannot be a grandfathered plan. They cannot survive as a health plan in the exchanges because of the tight definitions, so it looks like they have got nowhere to go, and this is the 

solution that the State of Texas created to a problem well over 30 

years ago. It has worked and it is providing lower-cost health care 

today but it is going to end up costing the Federal Government 

more because you will need higher subsidies for low-income workers and higher-priced plans. 

So is there a—how do we say we are promoting State flexibility 

when in my State it will force lower-cost alternative municipal employees to go out of business and drive those employees into a onesize-fits-all exchange structure which will increase federal spending 

even more? 

Mr. LARSEN. Well, I have to confess, I am not familiar with the 

entity that you just referred to. We would be happy to work with 

you to determine, you know, how it fits into the exchange structure 

in 2014. 

Mr. BURGESS. All right. We will get you some more information 

on that, and I have got a number of others, and clearly I am going 

to run out of time. 

As you know, I have been fascinated by your center or office or 

whatever we are calling it since I first learned of it a little over a 

year ago, and what began as the Office of Consumer Information 

and Insurance Oversight last summer is now the Center for Consumer Information and Insurance Oversight and it is now under 

the direction of the Centers for Medicare and Medicaid Services 

and not a standalone agency within the agency. Have I basically 

given a recapitulation of your brief history correctly? 

Mr. LARSEN. Yes. 

Mr. BURGESS. But also nowhere in here is your agency or center 

authorized. It was not mentioned specifically in statute in the Affordable Care Act, so it was a mystery to many of us when we first 

learned about it in August of last year that you were up and running and office space off the Hill and hiring employees, and I remember talking to your predecessor about well, why in the world 

could you—you know, surely these are functions that are already 

27 

being performed at HHS, why not just—you are duplicating abilities, and I was informed that that is not the case because for the 

first time the federal government is going to regulate the entire 

private insurance market in the country, which historically has 

been a function of the States. Is that correct? 

Mr. LARSEN. The original office, OCIO, yes, was set up to implement the new provisions relating to the private health insurance 

market. 

Mr. BURGESS. And we have a new agency or a new office or center—— 

Mr. LARSEN. Center. 

Mr. BURGESS [continuing]. Not authorized under statute. You 

have spent now, according to figures you provided me through the 

end of August, almost $3 billion, $3.2 billion in implementation 

funds, correct? 

Mr. LARSEN. Well, much of that, as you know, as I think you 

know, are the reimbursements under various programs but we 

haven’t—— 

Mr. BURGESS. It is fascinating that this could occur—— 

Mr. LARSEN. But we haven’t spent that money on the operations 

of—— 

Mr. BURGESS [continuing]. Under the statute and Congress not 

be aware of it. I mean, so I welcome your presence here today. I 

think it is good we are finally having this dialog and this oversight, 

but it troubles me that it occurred the way it did. It was seemingly 

something that was under the radar screen. 

Thank you, Mr. Chairman, for your indulgence. I will yield back. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

Ranking Member Emeritus, Mr. Dingell, for 5 minutes for questions. 

Mr. DINGELL. Mr. Chairman, I thank you for your courtesy. 

Director Larsen, yes or no questions. Is it true that prior to the 

Affordable Care Act, MLR standards and/or reporting requirements 

varied widely from State to State? Yes or no. 

Mr. LARSEN. True. 

Mr. DINGELL. Is it also true that 34 States prior to ACA had a 

minimum MLR standard or reporting requirements for certain 

markets? Yes or no. 

Mr. LARSEN. I think that is right, yes. 

Mr. DINGELL. As you know, ACA sets a minimum federal MLR 

standard. As a former State insurance commissioner, do you believe that this will simplify regulatory compliance for insurance 

companies? Yes or no. 

Mr. LARSEN. Yes. 

Mr. DINGELL. Further, do you believe that minimum MLR requirements will encourage greater transparency and understanding 

in insurance spending for consumers? Yes or no. 

Mr. LARSEN. Yes, I do. 

Mr. DINGELL. Under the Affordable Care Act, the National Association of Insurance Commissioners was tasked with coming up 

with definitions and calculation for MLR requirements. Were the 

recommendations from the National Association of Insurance Commissioners taken into consideration prior to the interim final vote? 

Yes or no. 

28 

Mr. LARSEN. Yes. In fact we adopted them all. 

Mr. DINGELL. As a matter of fact, you adopted them all. That is 

right, isn’t it? 

Mr. LARSEN. Yes, sir. 

Mr. DINGELL. Is it correct that the NAIC recommendations were 

unanimously approved by the insurance commissioners from all 50 

States and the District of Columbia? 

Mr. LARSEN. Yes, that is correct. 

Mr. DINGELL. So you had vast unanimity on this matter, did you 

not? 

Mr. LARSEN. Yes. 

Mr. DINGELL. Now, did you separately consult with the States, 

the public and other stakeholders prior to issuing the rule? Yes or 

no. 

Mr. LARSEN. We accepted the public input process that the NAIC 

conducted and then we have since taken comments and plan to 

look at further modifications to the MLR standard. 

Mr. DINGELL. Now, one item that has gotten much attention recently is the ability of the States to apply for an adjustment under 

MLR requirements. The Affordable Care Act allows the Secretary 

to adjust the MLR standard for the individual market in a State 

if it is found that the standard may destabilize the individual market. Is that correct? 

Mr. LARSEN. Yes. 

Mr. DINGELL. And have you had applications for this kind of 

waiver and have you granted such waivers? 

Mr. LARSEN. We have had a number of applications. I think that 

we have granted five of the ones that we have reviewed so far. 

Mr. DINGELL. Now, is this adjustment meant to help to transition 

the State and the insurance plans will have to make to comply 

with the new federal minimum MLR standards? 

Mr. LARSEN. Yes, sir, that is exactly what it does. 

Mr. DINGELL. How many States have requested adjustments so 

far? 

Mr. LARSEN. I think it is about 13. 

Mr. DINGELL. Of this number, how many States have received 

adjustments? 

Mr. LARSEN. Five of the ones, but we haven’t finished reviewing 

many of them. Their applications are not complete yet from the 

States. 

Mr. DINGELL. Has anybody been turned down? 

Mr. LARSEN. Yes, two States. 

Mr. DINGELL. In whole or in part? 

Mr. LARSEN. In whole. 

Mr. DINGELL. This temporary adjustment then maintains the intent of MLR requirements which is to ensure that the majority of 

premium dollars are spent on medical claims and activities to improve health quality. Is that right or wrong? 

Mr. LARSEN. Correct. 

Mr. DINGELL. As a former insurance commissioner, do you believe that the MLR requirement will help the American consumer 

get more value out of their health plans? Yes or no. 

Mr. LARSEN. Yes. 

29 

Mr. DINGELL. Now, under the MLR requirement, we are already 

starting to see insurance companies either slow or decrease the 

growth in premiums. Is that right? 

Mr. LARSEN. Yes. 

Mr. DINGELL. Do you believe that the repealing of the MLR requirements will harm or hamper or impede this progress? 

Mr. LARSEN. It is a step backward, yes. 

Mr. DINGELL. All right. Now, let us take a little look. Some of 

the things which will be adversely affected here that we are concerned with are things like insurance for young adults to 26, prohibition of rescission of insurance, prohibition of annual and lifetime 

limits, prohibition of preexisting-condition discrimination—I want 

to note particularly that one—no cost sharing for preventive benefits, patient’s choice of providers, protecting small businesses, giving them new rights, protecting patients from medical bankruptcy, 

and right to appeal from insurance company denials. All of those 

new rights will be adversely affected by this legislation. Is that correct? 

Mr. LARSEN. Yes. 

Mr. DINGELL. And the rights will be taken away from the consumers. Is that right? 

Mr. LARSEN. Yes. 

Mr. DINGELL. Thank you, Mr. Chairman. Bad piece of legislation. 

I hope everybody is noting it. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from New Jersey, Mr. Lance, for 5 minutes for questions. 

Mr. LANCE. Thank you, Mr. Chairman. 

Good afternoon. Very good to be with you. There obviously remains significant interest in Congress about antifraud efforts in 

Medicare and Medicaid on a bipartisan basis. In fact, you stated 

that fighting fraud in Medicare was a key goal of the Administration when you came before the committee in May, and we all agree 

with you on that. 

As I understand the MLR regulation, there is an exclusion of 

health plan investments and initiatives to prevent fraud from those 

activities that improve health care quality. It seems to me that this 

creates a perverse incentive to tackle fraud on the pay-and-chase 

side rather than the prevention side, and I believe CMS is stepping 

away from the pay-and-chase model. Could you give us your views 

on why we may be choosing to penalize measures to combat fraud 

and abuse in the MLR rule? 

Mr. LARSEN. So the way that the MLR rule treats fraud is, it allows certain fraud recovery expenses to be included but not all of 

them, and that was essentially the middle ground that the NAIC 

reached when they looked at this issue and balanced the desire to, 

you know, encourage companies to invest in fraud prevention recovery versus the statutory language. I will say, though, that I 

don’t think that we agree with the conclusion that this creates a 

disincentive for investment in fraud because to the extent that insurers invest in fraud prevention and fraud recovery and lower 

their underlying expenses, they are going to be in a position to 

lower their premiums and have a competitive advantage compared 

to other companies that don’t make those types of investments. So 

30 

even though it is not fully recoverable in the MLR formula, we 

don’t agree that that creates a disincentive for plans to engage in 

activities that they should do that is helpful for their efficiency as 

well. 

Mr. LANCE. Why not go all the way and permit it and not have 

a middle ground? 

Mr. LARSEN. Well, again, the statutory language that we are 

dealing with talks about two categories, categories related to clinical services like paying doctors and hospitals, and then quality-improving activities, and again, I think the NAIC and we came to 

kind of a middle ground on this issue but thought that it would be 

really stretching the envelope to include a wider range of expenditures relating to fraud prevention. 

Mr. LANCE. Thank you. I obviously respectfully disagree and I 

hope that you might examine that again. 

HHS has issued interim final rules implementing PPACA without first issuing proposed rules and receiving comment. From my 

perspective, HHS is acting on an ad hoc basis with no clear standards. What is your protocol for deciding when HHS will issue a rule 

on an interim final rule without first issuing a proposed rule? 

Mr. LARSEN. Well, in the case of implementing the ACA, there 

were a number of interim final rules, or IFRs, that we issued in 

June right after the bill passed, and those were largely a function 

of the pressing time frame that was facing us to get regulations in 

place so that businesses and individuals had guidance as to how 

the law would be implementing. In areas where we have had a 

longer lead time to implement the law, we have done proposed 

rulemaking. So, for example, on the rate review reg, we did a proposed rule and then we finalized that rule recently, so it has largely in the case of ACA been a function of meeting the statutory 

deadlines, and of course, after we issue the IFR, we always take 

comments and some case like the grandfathering reg we went back 

and have amended them. 

Mr. LANCE. When will you be replacing the interim final rules 

such as final rules such as the grandfathering and MLR rule? 

Mr. LARSEN. So we continue to evaluate the comments that we 

have gotten in. I can’t provide you with a specific timeline for that 

at this point but we continually evaluate the status of the interim 

rules to determine—— 

Mr. LANCE. Do you think it might be by the end of the year, Mr. 

Larsen? 

Mr. LARSEN. If I could get back to you on that? 

Mr. LANCE. Certainly, through the distinguished chairman. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from Louisiana, Dr. Cassidy, for 5 minutes for questions. 

Mr. CASSIDY. Hello, Mr. Larsen. Now, just to be clear, if somebody has a high-deductible health plan with an HSA, the contribution to the HSA is not included, so they pay out $2,000 out of their 

HSA, that is not included in terms of the claims payment history 

of the insurance company, correct? 

Mr. LARSEN. I think that is right. 

31 

Mr. CASSIDY. That is my understanding. Now, it seems like there 

is a clear prejudice here because the insurance company has fixed 

costs. They have rent, they have utilities, they have whatever. So 

that the high-deductible health care plan, 95 percent of people who 

have these have less than $5,000 per annum expenses and their 

deductible may be $5,000. The insurance company has an absolute 

amount less dollars because of the 15 percent MLR, correct? If you 

will, this is a clear prejudice against a plan which encourages the 

person to be most cost-aware and which studies show gives a nice 

balance of the customer, if you will, the patient, looking for value. 

Is that easily acknowledged? 

Mr. LARSEN. I know that is one of the perceived benefits, yes. 

Mr. CASSIDY. That is a perceived benefit of the plan? 

Mr. LARSEN. Yes. 

Mr. CASSIDY. And studies would show that it is true. Now, that 

said, this MLR is clearly prejudiced against such plans. They have 

fewer absolute dollars with which to pay their administrative fixed 

costs relative to a gold star plan which, you know, my gosh, if you 

charge $10,000 for a policy versus $2,000, in absolute dollars there 

is a lot less. Fair statement? 

Mr. LARSEN. Right. 

Mr. CASSIDY. So why would we have a policy which is prejudicing 

against the purchase or the delivery of a plan which studies show 

give you a more cost-effective purchase of health insurance? 

Mr. LARSEN. It is a question we can go back, to be honest with 

you, the issue about the applicability of this to the higher-deductible plans hasn’t come on my radar screen, so I would be happy to 

go back and look at that. 

Mr. CASSIDY. I have to say that surprises me, since we see the 

uptake of HSAs with high-deductible health care plans as increasing dramatically, and again, this is a clear prejudice towards higher-cost plans because a higher-cost plan at a 15 percent MLR has 

more absolute dollars for the insurance company to play with. 

Again, that is not disputable, is it? 

Mr. LARSEN. So we can go back and look at that, as I said. We 

have—you know, there is a number of issues that are kind of front 

and center on MLR and there are some provisions we may have to 

modify before the end of the year, so I would be happy to look at 

that. 

Mr. CASSIDY. Yes. When you say ‘‘look at’’, I just don’t know what 

that means. Does that mean that you can see that there is a problem here or that well, we will look at it? Do you see what I am 

saying? 

Mr. LARSEN. Yes, I think it means that I would like to, you 

know, sit down and get a better understanding of how the MLR 

provision applies. Again, and it may just be me, we haven’t heard 

a lot about this, at least I haven’t. You know, I confess, it doesn’t 

mean that my staff has not. So ‘‘look at it’’ means understand it 

and see if we need to respond to it. 

Mr. CASSIDY. The second thing is, so you are at least open to 

having a different set of rules for high-deductible health care 

plans? 

Mr. LARSEN. Pardon me? 

32 

Mr. CASSIDY. Are you open or is it possible to have a different 

set of rules for catastrophic plans? 

Mr. LARSEN. I don’t know whether the statute would allow that 

or not, so—— 

Mr. CASSIDY. If the statute does not, would you think it would 

be a reasonable thing to correct that, pass another law, perhaps? 

Mr. LARSEN. I hesitate to say without having a better sense of 

what I am talking about. 

Mr. CASSIDY. That is a fair statement. 

The other thing that disturbs is that the pattern of usage by the 

person with the HSA will greatly influence how this applies. If you 

have a group of people, each with $2,000 HSAs, and each uses 

$2,000, you never enter into a claim, but if one person has $10,000 

and everybody else has zero, you have got five people in the group, 

everybody else has zero but one has $10,000, and clearly there are 

going to be claims paid, you are more likely to be able to hit the 

MLR requirement even though the claims history for the group is 

no different. Fair statement? 

Mr. LARSEN. Sounds like it. 

Mr. CASSIDY. Yes. So I have to admit that this kind of bill, which 

everybody is endorsing over there as sacrosanct gives me great 

pause just as I think about it. 

I have a little bit of time left. My insurance company—clearly a 

criticism of our system is that it is a sickness treatment system, 

not a wellness-promoting system. There is an insurance company 

back home, Baton Rouge, Louisiana, which goes into a small employer and institutes wellness programs, and in so doing, they actually decrease utilization. They have outcomes data that shows this. 

But apparently this would be included in the MLR. They say they 

are going to have to eliminate the wellness program because it 

will—granted, claims history is down, which in and of itself decreases their absolute dollars, but a portion of their administrative 

costs is getting the folks over 50 to take an aspirin a day. So again, 

this seems like we are prejudicing against—— 

Mr. LARSEN. Well, I have to confess that I don’t understand because that activity at least that you are describing would sound 

like it would be a quality-improving activity. We lay out the categories in the—the statute actually lays out the categories for improving health care outcomes, lowering hospital readmissions, prevention, wellness. Those are all part of the permissible types of expenses. So I am not clear why in the situation you are describing 

there is a disincentive to do that. It sounds like it would be the opposite. 

Mr. CASSIDY. I am out of time, so let me pursue that and we will 

get back to you. 

Mr. LARSEN. OK. 

Mr. CASSIDY. Thank you. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from Georgia, Dr. Gingrey, for 5 minutes of questions. 

Mr. GINGREY. Mr. Chairman, thank you. 

I am going to shift gears just a little bit. I want to talk about 

the CLASS Act. According to an article that ran in the Atlanta 

Journal Constitution yesterday, ‘‘Even as leading Democrats offered assurances to the contrary, government experts repeatedly 

33 

warned that a new long-term care insurance plan could go belly up, 

saddling taxpayers with another unfunded benefit program, according to emails disclosed by Congressional investigators,’’ and that is 

a quote. Mr. Larsen, that quote was based on a joint report produced in part by Energy and Commerce Committee Republicans 

that sheds a bright light on the suspicious inner workings of Congressional Democrats and the White House as a push for 

Obamacare. The report finds that after repeated warnings from the 

CMS Chief Actuary and others about the insolvency of the CLASS 

program. HHS and Senate Democrats effectively cut the actuary 

out of the process and turned to CBO to give them the numbers 

they needed, only those numbers were wrong. Eighteen months 

after CBO pronounced the CLASS Act solvent, Secretary Sebelius 

finally admitted to the world what we all knew, that the CLASS 

Act was in fact insolvent. As of today, CBO has failed to make public the economic model cited in the report that deemed this program solvent. Even worse, CBO staff now says they do not have 

the capacity to analyze the CLASS Act’s long-term solvency. 

Mr. Larsen, I believe that the economic modeling used to sell 

PPACA, the Patient Protection and Affordable Care Act, to the 

American people needs to be thoroughly reviewed from top to bottom. 

Further, I would once again call on this Congress to pass H.R. 

1173. That is a simple bill that my good friend, Dr. Charles 

Bustani from Louisiana, and I have introduced to repeal the 

CLASS Act. The CLASS Act is just another example of how bad 

policy can threaten the financial health of this great Nation. What 

say you, Director Larsen? 

Mr. LARSEN. Well, I will have to say that I will take your comments back to HHS. The CLASS Act does not fall under the area 

that I have responsibility for, and I have to confess, I have not kept 

up with the current situation with the CLASS act, so I would be 

happy to share your concerns, but I can’t respond—— 

Mr. GINGREY. Fair enough. Fair enough, and I do appreciate the 

fact that you will take that back and continue to discuss because 

clearly it is insolvent and it is a real cost driver. 

Let me follow up on Dr. Burgess’s question for a minute. The 

President promised the American people that if you are among the 

hundreds of millions of Americans who already have health insurance through your job, Medicare, Medicaid or the VA, nothing in 

this plan will require you or your employer to change the coverage 

or the doctor you have. Let me repeat, nothing in our plan requires 

you to change what you have. Now, that is pretty much a direct 

quote from the President. Do you agree with the President that 

nothing in the Patient Protection and Affordable Care Act will 

make the hundreds of millions of Americans who already have 

health insurance through their job to change the insurance that 

they have today? 

Mr. LARSEN. That is the point of the grandfathering provision, 

and I think that is what our regulation permits, which is for people 

to continue to keep the coverage that they have. 

Mr. GINGREY. Well, you know, let me express a concern, Mr. 

Larsen, that I have and maybe turn it into a question, and it is 

not just me as a physician member of the committee and of the 

34 

Congress, having too many, 26 years, 31 years clinical practice of 

medicine. But, you know, it just seems to me that the way this bill 

was set up with expansion of Medicaid up to 133 percent of the federal poverty level, so you force more and more of the uninsured on 

to the States that have to balance their budgets and costs them additional billions of dollars. You at the same time—not, you, but the 

bill—even though you are talking about the grandfathered provision and all that, it really concerns us as you have heard from committee members on this side of the aisle and MLR and why we feel 

like that that was just another reason why so many of these employers that cover American workers are going to drop their health 

coverage unless of course it is provided through a union contract. 

So you basically force a bigger volume of people onto the exchanges 

and you avoid a lot of the premium support because you push the 

nearly poor into Medicaid and therefore you make this program 

work by virtue of volume. Health insurers like that, of course, and 

require individuals to purchase health insurance even if they don’t 

want it is all part of that scheme, and you ultimately end up with 

Medicare from cradle to grave, and that is a legitimate concern. 

I know I have run out of time, but if the chairman will indulge 

me, what say you in regard to those concerns? 

Mr. LARSEN. Well, you covered a lot of ground, but a couple comments. One, the ACA expands coverage through a number of different mechanisms, certainly through a Medicaid expansion, which 

by the way the newly eligibles are covered at 100 percent match 

through, I think—— 

Mr. GINGREY. For 2 years, yes. 

Mr. LARSEN. For I think longer than that. And then, yes, we rely 

on private market solutions in order to expand coverage for those 

that are not eligible for Medicaid. There is a premium subsidy for 

folks between the 100 and 400 percent of poverty but those policies 

are provided in the exchanges through private issuers, and I think 

all the studies show that that is going to resolve in a significant 

expansion of coverage for non-Medicaid individuals as well. 

Mr. GINGREY. Mr. Chairman, thank you, and Mr. Larsen, thank 

you. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

ranking member. 

Mr. PALLONE. Mr. Chairman, I would just ask unanimous consent to enter four letters into the record: a group letter from nearly 

50 organizations, HIV Health Care Access Working Group letter, 

American Diabetes Association letter, and a Main Street Alliance 

letter, and these are in opposition to the draft, and I believe you 

have them. 

Mr. PITTS. We have them. Without objection, so ordered. 

[The information follows:] 

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Mr. PITTS. The chair now recognizes the gentlelady from Illinois, 

Ms. Schakowsky, for 5 minutes for questions. 

Ms. SCHAKOWSKY. Thank you, Mr. Chairman. 

I just wanted to correct one item that I think was mistaken that 

was mentioned in questioning. Between July of 2010 and July of 

2011, a number of insurance agents and brokers actually went up 

by 5,500 people. So we were hearing about the growing unemployment. In fact, that number is actually increased. This is according 

to the Insurance Information Institute, and so we are seeing about 

a .9 percent increase in employment, and given the facts today, not 

bad, not great, but not bad and going in the right direction. 

In 2010, Mr. Larsen, United Health, WellPoint, Humana, Cigna and Aetna made combined profits of $11.7 billion by reducing the 

share of premiums being spent on the shrinking membership in 

private health plans. Through the recession and its aftermath from 

2008 to 2010, their combined profits increased 51 percent. In 2009, 

the total private membership to these five companies was reduced 

by 2.7 million people and another 839,000 in 2010. That was just 

2009. In 2010, another 839,000 at a time when 50.7 million people 

were already uninsured. So profits went up. The number of people 

that they actually served went down. Despite this decrease in 

membership, in 2010 the five insurers collected $7.7 billion more 

in premiums than in 2009. However, the medical loss ratio for four 

of the five companies decreased from 2009 to 2010. 

So clearly, the money generated by rising premiums was not 

being used for medical or patient care, my point. Health insurers 

are making enormous profits at the expense of their customers, and 

this is not an isolated example. Insurers claim that these profits 

are not large relative to the size of their business, but what I see 

is nearly $12 billion in profits while hardworking families have 

been asked to pay more and more in premiums. 

So where does profit fit into the medical loss ratio and does a 

lower medical loss ratio allow insurers to still make a decent profit? 

Mr. LARSEN. The answer is yes, that they do still. These standards still clearly allow issuers and insurance companies to make a 

very fair, reasonable rate of return in profit. The profit is part of 

the broad administrative expense, so everything that isn’t paying 

doctors’ bills or investing in quality is part of the administrative 

expense. So it is profits, salaries, commissions, overhead, you know, 

rent all of that is part of the administrative expense. 

Ms. SCHAKOWSKY. And when insurance companies talk about 

their profits, they have already subtracted those things, have they 

not? 

Mr. LARSEN. Well, I think they are part of the other mix. I guess 

the point I am trying to make is that there is a lot of latitude for 

the insurers, say, in the individual and small group market. They 

still have 20 percent of the premiums to devote to all of the things 

that I just enumerated including profits and so they have the flexibility to modify their business model to lower rates in order to hit 

the MLR standard, and it still leaves a lot of room for them to 

make reasonable profits. 

Ms. SCHAKOWSKY. So what I have taken from this panel is that 

a number of insurance companies actually are meeting this medical 

44 

loss ratio standard that you have set. Some have actually lowered 

premiums, making it easier for consumers, that the number of insurance agents and brokers, which I just learned, has actually gone 

up, and that insurance companies are doing great and that they 

can well afford to meet this sensible and modest standard. That is 

my summary. Am I wrong on any of those points? 

Mr. LARSEN. I agree. 

Ms. SCHAKOWSKY. Thank you. 

I yield back. 

Mr. PITTS. The chair thanks the gentlelady and now recognizes 

the gentleman from Illinois, Mr. Shimkus, for 5 minutes. 

Mr. SHIMKUS. Thank you, Mr. Chairman, and welcome, Mr. 

Larsen. Sorry about being in and out of the hearing room. They 

brought meetings down into the side room so I have kind of been 

in the area but I hope I don’t ask questions that have already been 

asked. I was going to follow up on what the chairman initially 

asked but he stole my great questions, so I will move to a couple 

other things, and some of this is kind of like Dr. Gingrey and just 

maybe messages to send back to HHS and the like. 

This is a great committee, especially on our side. We have got 

practitioners, so I like sitting in. I am not one. I am a receiver of 

their benefits but you have got Dr. Cassidy, you have got Dr. Burgess, you have Dr. Gingrey, and no one really debates their compassion and concern for the health care system because that is 

their livelihood, so I do enjoy sitting in and listening to them as 

they try to make sense of how we can best care for our citizens. 

Is there any internal memos going around HHS as to different 

agencies as far as if the Select Joint Committee does not meet their 

goal? You know, the defense budget is number one in discretionary 

budget. Number two and the biggest cost of the national government is HHS. Have you received word as to your office as if there 

is a sequestration, what that might do, and is there some analysis 

going on as to how that may affect the rollout of the Patient Protection and Affordable Care Act? 

Mr. LARSEN. I suspect there are but, you know, I am really focused on the day-to-day implementation of the provisions like the 

things that we are talking about today, so—— 

Mr. SHIMKUS. So they haven’t talked to you about that? 

Mr. LARSEN. They have not come and talked to me about it. 

Mr. SHIMKUS. And obviously, you know, that is my concern. I did 

support the legislation but my really concern was for the committee 

that the savings is on provider payments and the hospital payments, physician payments. As we know, Medicare pays 70 cents 

on the dollar. Medicaid spends 60 cents on the dollar. I have great 

concerns. 

The other direction I would like to go is on the medical loss ratio. 

We are not a good arbiter on fighting waste, fraud and abuse, and 

do you not believe there is any credible support that the ability of 

the insurance companies to fight waste, fraud and abuse should be 

part of the medical loss ratio? Obviously, that is why we passed 

this legislation on the Medicare card. We are terrible. 

Mr. LARSEN. A component of it is, up to—they can include the 

amount of expenditures of recovery based on what they recover, 

and again, that was the balancing that the NAIC achieved when 

45 

they looked at this issue. They spent a lot of time looking at this, 

getting input from different groups. We adopted that balance. So 

there a component there but I previously testified, we don’t agree 

with the idea that not including everything is a disincentive to 

those expenditures. We just don’t—— 

Mr. SHIMKUS. Let me go quickly. I am going to run out of time. 

And to my friend from Illinois, I just had the insurance and financial brokers in yesterday. They weren’t there telling me that times 

are good. They were in the office telling me times are bad, and part 

of it is because of this piece of legislation that is now the land of 

the land. 

And finally, a question on—we did delegate policymaking responsibilities to the National Association of Insurance Commissioners, 

but HHS said the association followed a thorough and transparent 

process in which the views of regulators and stakeholders were discussed, analyzed, addressed and documented in numerous open forums. Were HHS comments documented, posted on the Internet 

with everyone else’s? 

Mr. LARSEN. You mean the comments that we provided to NAIC 

during their process? 

Mr. SHIMKUS. Right. 

Mr. LARSEN. Well, I don’t know that we actually provided kind 

of formal. We monitored their process so we were aware of what 

they were doing. 

Mr. SHIMKUS. Did you attempt to influence their work product in 

any way? 

Mr. LARSEN. I don’t recall providing written comments to them 

on any of their issues, so we would listen in to their phone calls, 

but that was largely a delegation to the NAIC, and we would talk 

to their staff from to time. 

Mr. SHIMKUS. And I will finish with this. In October 2010, at the 

NAIC meeting, over a dozen commissioners proposed that NAIC’s 

official MLR submission to HHS remove agent commissions from 

the MLR calculation. The votes were there to pass an amendment 

but it was never called. I understand you were in that room that 

day. Could you tell us exactly what discussions you and anyone 

else at HHS had with the NAIC members and staff regarding 

agent commissions and MLR at the meeting in October 2010? 

Mr. LARSEN. Yes. We went down as members of our staff have 

been to all the NAIC meetings. They are a close partner of ours in 

the process, so were there to observe the process. We were not 

there to lobby—— 

Mr. SHIMKUS. So your testimony would be, you didn’t influence 

it? 

Mr. LARSEN. No. 

Mr. SHIMKUS. OK. Thank you. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from Kentucky, Mr. Guthrie, for 5 minutes for questions. 

Mr. GUTHRIE. Thank you, Mr. Larsen, for coming. I do appreciate 

it. 

I just want to kind of go a little different path about the rebates. 

Now the rebates are sent back to the employers. And my line of 

questioning with this, the other day I was back in our work period, 

46 

and everywhere we go it seems like we walk in—I know the President says there is a headwind on the economy but I am telling you, 

I went to one of the smallest banks in Kentucky, the smallest in 

my district, for sure. They said let me introduce you to my new employee, that is our new compliance officer, he doesn’t make any 

loans, doesn’t create anything, all he does is make sure we comply 

with the new law that came down. And so in this, we do things 

here in Washington that sound simple. For instance, we are going 

to rebate back to the employer if the MLR is breached. And so then 

I can see myself walking into a company, wanting to talk about 

how we are going to compete with China, Brazil, whatever, and 

they say let me talk to my HR person that just got back from a 

briefing and asking questions like if the breach moves forward and 

an employer-sponsored plan isn’t corrected, the plan can either pay 

the employer or the employee. They can pay either employer or employee, correct? 

Mr. LARSEN. They can do what, sir? 

Mr. GUTHRIE. If the health insurance company, if they breach 

the MLR, can rebate, the rebate can go to the employer or employee? 

Mr. LARSEN. Well, right, but this is a tricky issue. What we said 

in the reg, and we are looking at possibly changing this—— 

Mr. GUTHRIE. But if it goes to the employee, then the employee 

is responsible for writing a check back to the employer for the—— 

Mr. LARSEN. The scenario is, so the employee contributes to the 

health care premium. 

Mr. GUTHRIE. Like 20 percent. Right. 

Mr. LARSEN. So you have got basically two people paying combined the premium to the company, and so if there is rebate, yes, 

we have to figure out, how does the rebate get back to the people 

that paid it, and we understand that concern. In fact, in the proposed rule, we proposed that the insurance company have the obligation to make sure that everyone got the right money and—— 

Mr. GUTHRIE. So the employer is going to have to send it to the 

insurance company? 

Mr. LARSEN. And we said you can enter into an agreement with 

an employer to kind of discharge your obligation. The insurance 

companies have said that is tricky, we are not sure how that is 

going to work. 

Mr. GUTHRIE. Yes, that is a problem. They are out here trying 

to make it work when it sounds simple. 

Mr. LARSEN. So we—— 

Mr. GUTHRIE. But then so the money comes back to the employer 

or the employee, it is now taxable income, correct? 

Mr. LARSEN. That I am not sure about. 

Mr. GUTHRIE. I think it would have to be, because your premium 

dollars are pre-tax income, so they would have to go back and fix 

the payroll taxes, correct? If that is true. I know that is not your 

area of expertise. 

Mr. LARSEN. Assuming that is true. 

Mr. GUTHRIE. Assuming that is true. Assuming that is also true, 

then at the end of the year the employer is going to have to update 

W–2 forms and redistribute them out to all their employees. So, I 

mean, it sounds simple, but we hear it everywhere everything that 

47 

is going on in this town. You go to an employer in Kentucky—I 

haven’t had this one yet because it is not implemented but that is 

what they are saying. It is reminiscent of the 1099, which created 

an uproar. And that is the problem that we are seeing is, we can 

design something that sounds simple on paper, and all of a sudden 

who does the check go to. That is what they will be asking us. Do 

I have to take out payroll taxes, if have to pay payroll taxes, I have 

to update the W–2 forms. Does the income go on this year or does 

it go on next year? 

Mr. LARSEN. Well, we will work with folks as we are in the middle of discussions now to try and figure out how we can make it 

work. We don’t want to lose sight of the purpose, which is, if folks 

are in the position to get a rebate, it means that they overpaid. 

Mr. GUTHRIE. Well, I agree. 

Mr. LARSEN. They are entitled to get money back, so—— 

Mr. GUTHRIE. And then you have to say, do I have to pay—do 

I have to do an amended tax forms. I mean, it just continues. 

Mr. LARSEN. So we want to keep it simple but we don’t want to 

lose sight of the fact that we want them to get the value for their 

premium dollar, and if they overpaid, we want to make sure that 

they get the money back in their pocket. 

Mr. GUTHRIE. We do hope it is simple. It needs to be simple. 

I want to yield to my friend from Louisiana the rest of my time. 

Mr. CASSIDY. Thank you. 

Mr. Larsen, briefly reflecting on your remarks, I am struck that 

you all have not considered HSAs. And so I just pulled some statistics. I think I have heard in the past that all new hires in GM’s 

executive corps have HSAs. I just pulled up something. In Lynchburg, Virginia, all the county all has HSAs. I then just pulled up 

something which from American Health Insurance Plans which 

speaks about how 11.4 million Americans now have HSAs, which 

increased 14 percent in the last year, 26 percent of the growth in 

the large groups but 15 percent in the individual market. I have 

to ask you, why have not you considered HSAs? Because it seems 

that that is the emerging market. 

Mr. LARSEN. Well, when you say ‘‘consider it’’, meaning consider 

it as a problem in the context of the medical loss ratio regulation, 

correct? 

Mr. CASSIDY. Correct. 

Mr. LARSEN. And all I am saying to you is, that that has not 

come on our radar screen, at least mine, maybe other folks in the 

agency, as an issue that we need to address in terms of the imbalance. 

Mr. CASSIDY. Now, to me, that reflects either—and no offense, 

but since to me it just seems so apparent that if you have plan 

which is more parsimonious or at least in terms of how much do 

I have to pay for it, not as much, and this in absolute dollars which 

we are on opposite sides of the issue on this bill but we can both 

agree—— 

Mr. LARSEN. I mean, I am not sure the NAIC flagged this for us 

either, so I am not at all adverse to looking at it. You know, we 

have got a lot to do to implement this law and when issues are 

brought to our attention, we take them seriously and we will look 

at it and, you know, we have looked at other issues. We amended 

48 

the grandfathering rule based on comments we got. We are looking 

at possible other tweaks to the MLR rule that we have announced 

previously—I am not making news here—you know, how we are 

going to deal with the mini meds going forward and things like 

that. So we will certainly put this on the list. 

Mr. CASSIDY. Thank you. 

Mr. PITTS. The chair thanks the gentleman, and that concludes 

the questioning for Mr. Larsen. Thank you very much, Mr. Larsen, 

for your testimony and your willingness to answer questions and 

to work with us. 

Mr. LARSEN. Thank you. 

Mr. PITTS. We will call now panel two, and our second panel consists of five witnesses. Our first witness is Mr. Edmund 

Haislmaier, Senior Research Fellow in Health Policy at the Heritage Foundation. Next is Ms. Grace-Marie Turner, the President of 

the Galen Institute. Our third witness is Ms. Janet Trautwein, who 

is the CEO of the National Association of Health Underwriters. 

Our fourth witness is Mr. Wendell Potter, Senior Analyst at the 

Center for Public Integrity. And finally, Ms. Lynn Quincy, Senior 

Policy Analyst for the Consumers Union. 

So we will begin at my left and go down the line. Mr. Haislmaier, 

you may begin your testimony. We ask you to summarize your 

written testimony in 5 minutes and your written testimony will be 

made a matter of the record. 

STATEMENTS OF EDMUND F. HAISLMAIER, SENIOR RESEARCH 

FELLOW, CENTER FOR HEALTH POLICY STUDIES, THE HERITAGE FOUNDATION; GRACE–MARIE TURNER, PRESIDENT, 

GALEN INSTITUTE; JANET TRAUTWEIN, CHIEF EXECUTIVE 

OFFICER, NATIONAL ASSOCIATION OF HEALTH UNDERWRITERS; WENDELL BLAINE POTTER, SENIOR POLICY ANALYST, THE CENTER FOR PUBLIC INTEGRITY; AND LYNN 

BATES QUINCY, SENIOR POLICY ANALYST, CONSUMERS 

UNION 

STATEMENT OF EDMUND F. HAISLMAIER 

Mr. HAISLMAIER. Thank you, Mr. Chairman and members of the 

committee for inviting me to testify today. A few points that I will 

make out of my written testimony. 

I have pointed out in that testimony that there are a number of 

problems, some of which have already been discussed, with the 

medical loss ratio regulations. The discussion has already addressed in the previous panel what I see as one of the biggest problems, which is the disincentive for insurers to spend money on preventing fraud and abuse. Mr. Larsen pointed out that there are 

some provisions that allow insurers to get some credit for that. 

That is true. I cover that in my testimony. 

The problem that I would point out here is really one of statute. 

It is not the fault or the NAIC or Mr. Larsen’s office. The problem 

is the statute was badly written and this was not accounted for 

when they wrote the statute. It is one of many problems. What Mr. 

Cassidy was pointing about HSAs is another problem, and the 

problem with rebates and how they are paid is another problem. 

These are things that Congress simply did not consider when they 

49 

drafted the statute, and in my reading of the statute, I am afraid 

that NAIC and Mr. Larsen and HHS really have limited ability because of the constraints of the statute to actually fix what are very 

real problems, and that is why, Mr. Chairman, I am encouraged 

that you are having a hearing on this because it really is Congress 

that needs to fix the problems that they have created here. 

Mr. Larsen made the observation, and it is a correct one, in my 

view, and I didn’t touch on it in my testimony so I would like to 

expound on it for a minute, that even though the MLR provisions 

disincentivize insurers to pay attention to fraud and abuse, he 

doesn’t think that that will be a problem because an insurer that 

neglects those activities will result in having higher claims costs 

and higher premiums and thus be competitively disadvantaged, 

and I would say that he is economically correct if you assume—and 

this is the big ‘‘if’’—that you still have a robust competitive insurance market. 

Unfortunately, as I outline in my testimony and have in other 

things that I have written, this provision in combination with a 

number of other provisions such as the rate review and some of the 

benefit mandates will lead to a dramatic reduction in the number 

of carriers and thus when you move toward an oligopolistic market, 

if you have only got two or three big carriers, then everybody has 

an incentive to just say well, we will ignore it and we will just, you 

know, pass through the costs and pad our profits, particularly since 

they will be operating in a market where many of their customers 

will be subsidized by the government under other provisions of 

PPACA. So while in the short term I think Mr. Larsen’s economic 

analysis is correct, in the long term I think this is a very serious 

problem. 

Let me make two other—let me make an observation about the 

effects of the medical loss ratio that has not been brought up this 

morning in my oral remarks, and it is covered in the testimony 

that I submitted for the record. One of the big problems with this 

medical loss ratio or minimum loss ratio standard is it effectively 

constrains the amount of capital that an insurer can accumulate 

from their premium after paying claims and administrative expenses, and that is going to lead, in my view, to a number of insurers simply exiting the market, particularly smaller ones. I discussed that in the testimony. It will very dramatically prevent or 

hinder new insurers from being created because it is not possible 

for an insurer to run a loss and then recoup it in the initial startup 

phase anymore. So the first thing that this does is kill off any new 

insurers entering the market. 

Parenthetically, I would say—I didn’t cover this in my written 

testimony—but on another subject we have another provision of 

PPACA that is trying to create new co-op insurers. This actually 

works against doing that. There are a lot of things that work 

against doing that. 

And then finally, and I think most perversely from the perspective of proponents of this legislation, it severely disadvantages nonprofit insurers relative to for-profit insurers because nonprofit insurers, if you look at a market where you want to consolidate to 

the point that you are too big to fail, which is I think where insurers are going to go in with PPACA, nonprofit insurers don’t have 

50 

the wherewithal to do it. They can’t raise the capital other than 

what they retain from premiums whereas for-profit insurers can go 

into the equity market, issue shares and buy up the nonprofits. 

So when I look down the road and say well, what does the world 

look like in 15 years or 10 years, if you stay on this course, it looks 

like maybe three national insurance companies, all for profit, doing 

everything, and they are really going to function like Medicare fiscal intermediaries where they just pay the claims and don’t care 

and leave it to the government to worry about the legitimacy and 

the cost of it. That I think is very debilitating, and I think is the 

single biggest reason why Congress should repeal this set of provisions. 

Thank you for your time. I will be happy to answer questions. 

[The prepared statement of Mr. Haislmaier follows:] 

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Mr. PITTS. The chair thanks the gentleman. 

We are voting on the floor at this time, so we will try to get 

through another presentation, and if it is all right with the ranking 

member, we will break and come back. Is that OK? 

Mr. PALLONE. Yes. 

Mr. PITTS. We have two votes, unfortunately, so we are going to 

have to go. 

Ms. Turner, you are recognized for 5 minutes. 

STATEMENT OF GRACE–MARIE TURNER 

Ms. TURNER. I will be quick. Thank you, Mr. Chairman. Thank 

you, Mr. Pallone and members of the committee. 

Many employers said that the assurances that their health plans 

would be grandfathered was a key reason that they supported the 

legislation, yet independent surveys and the Administration’s own 

estimates, as we have heard today, indicate that most employers 

will not be able to maintain their grandfathered status and therefore I would argue that the rules that were designed to do that 

therefore are failing and are not achieving their goal. The 

grandfathering rules really boxed employers into a corner. They 

can’t make changes other than minor modifications to their health 

plans to keep costs down without being forced to comply with expensive regulations that increase their health care costs. 

Health costs are directly related to creation of jobs, as we have 

talked about a lot today. Higher health care costs put additional 

pressure on the employer’s bottom line and increase the cost of hiring new workers. This is bad for the economy and bad for unemployed workers. Employers do work very hard to find the balance 

between keeping of cost of health insurance down and also offering 

benefits that employees want and need. Part of the way that they 

are able to do that is by seeking bids from competing insurers and 

adjusting benefits structures on the margin. 

But under the grandfathering rules, employers are now very limited in what they can do to change benefits. That also means they 

are limited in what they can do to keep costs down. Many people 

argue that the ACA’s restrictions are needed to keep employers 

from cutting benefits or imposing higher health costs on their employees, and also providing these additional consumer protections. 

But employers or really employees are really the ones who are ultimately paying the price for these higher health care costs since 

coverage is part of their compensation. 

A recent Rand study found that most of the pay increases that 

employees have received over the last 10 years have been consumed by health costs. The study found that the typical family had 

just $95 a month in real dollars more for non-health spending in 

2009 than it did in 1999. In contrast, the authors say that the 

growth rate of health insurance has simply kept pace with the regular cost increase general inflation. The family would have had an 

additional $5,400 a year to spend. So employees are really the ones 

paying the price for higher health care costs. Therefore, it is in the 

interest of both to keep health care costs down, and the 

grandfathering regulations issued by HHS restrict their ability to 

do that. 

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There are many problems that need to be solved in our health 

sector but it is important to follow the medical dictum to first do 

no harm in making changes. 

The chairman mentioned that legislation is being drafted to reverse the interim final rule, and the Administration itself recognizes that companies need relief from burdensome and expensive 

regulations that impact their competitiveness and their ability to 

generate revenues to create new jobs, and withdrawing the 

grandfathering regulations would be a very good place to start to 

achieve those goals. 

Thank you, Mr. Chairman. I look forward to questions. 

[The prepared statement of Ms. Turner follows:] 

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Mr. PITTS. Ms. Trautwein, you are recognized for 5 minutes. 

STATEMENT OF JANET TRAUTWEIN 

Ms. TRAUTWEIN. Thank you, Chairman and Ranking Member 

Pallone. I appreciate this very much. 

As you know, the leadership of this committee invited me here 

this past June to talk about the desperate economic situation that 

the ACA’s medical loss ratio regulation has created for the half-million health insurance agents and brokers nationwide. Unfortunately, I do not have a positive update for the committee today. 

The economic outlook for many health insurance brokers and 

agents, and I would emphasize health insurance agents, which are 

different from general-purpose agents. The MLR specifically applies 

to those who work in the health insurance arena. The market continues to be bleak. As health insurance companies renew and revise their agent and broker contracts, it is clear that the financial 

situation for many of these people, many of whom are business 

owners themselves, is getting worse. 

Clearly, this problem started when the MLR regulation was 

issued in December of 2010. It is very well documented that that 

is when the problem occurred. That regulation mandated that 

health insurance carriers, as you know, treat independent agent 

and broker compensation as a part of health plan administrative 

costs in spite of the fact that independent agents and brokers are 

not employed by health insurance carriers. They do run their own 

businesses, hire their own employees, pay all of their own office expenses including professional liability insurance. Each agent decides on their own which health insurance carriers he or she will 

represent and then they are retained by individual consumers and 

employers to assist them with their health insurance needs. 

Issuance of the HHS regulation on MLR, which categorized agent 

commissions as an insurer administrative expense, triggered, as I 

said, an immediate response for many health insurance companies 

and immediate reduction in agent compensation. 

In May 2011, a national actuarial study conducted by the NAIC 

taskforce—the professional—not the whole NAIC but the professional health insurers advisors taskforce that was assigned to address this problem regarding producer compensation said that in 

2011, a significant number of companies have reduced commission 

levels, particularly in the individual market, and this was reinforced by the most recent report from the GAO private health insurance early experiences implementing new medical loss ratio requirements which states, ‘‘Almost all of the insurers we interviewed were reducing broker commissions and making adjustments 

to premiums in response to the MLR requirements.’’ These insurers 

said that they decreased or planned to decrease commissions to 

brokers in an effort to increase their MLRs. As a result of these 

cuts, brokers serving individuals and the small business community, as has been said earlier, have seen their overall revenues 

slashed by 20 to 50 percent. This means that fewer of them are 

able to stay in business. It also means that those who are able to 

survive are being forced to make service cuts and are no longer 

able to provide the counseling and level of advocacy support to 

their clients that they have in the past. 

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Now, it may seem to you that what agents and brokers do is simple. You may think that all they do is fill out a form and sign people up for insurance, and some of you may even think it is as easy 

as buying an airline ticket, but there is so much more than that. 

They meet with each client and determine their specific needs covering everything from which doctors they use to their preferences 

for financial risk. They have candid conversations with people who 

are struggling to afford coverage and help them find ways to stay 

insured. With employers, they also discuss issues such as the savings that can be achieved through wellness and disease management programs and the characteristics of a particular company’s 

workforce, discussing options for structuring their coverage. 

This dire situation is why we are looking at all possible solutions, 

whether they are regulatory or legislative, to address the problem. 

This problem needs to be addressed both quickly and in a way that 

is politically viable, and there is a solution that we believe meets 

both of these requirements. We believe that if agent commissions, 

since they are not really an insurer expense, removed from what 

is currently defined as premium for MLR calculation purposes, either through a legislative act or regulatory action, that it would 

significantly improve the situation that exists today. 

I am sure that you all are aware of H.R. 1206, which now has 

120 bipartisan cosponsors, 24 members of this committee. It is authored by Mike Rogers and Congressman Barrow, and we definitely 

appreciate them having done this. We endorse this as well as do 

all other national agent professional associations as well as, I said, 

the NAIC broker taskforce, and I will stop there. 

[The prepared statement of Ms. Trautwein follows:] 

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Mr. PITTS. The chair thanks the gentlelady. 

We are going to recess at this point. We have got about 4 minutes left. I want to thank the witnesses for their patience. We have 

two votes. We will be right back to reconvene after the second vote. 

The subcommittee is now in recess. 

[Recess.] 

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

recognizes Ranking Member Emeritus Mr. Dingell for a unanimous 

consent request. 

Mr. DINGELL. Mr. Chairman, I have a unanimous consent request that a letter signed by Charles M. Loveless, Director of Legislation for AFSCME, be inserted into the record, and also that a 

statement from Representative Tom Price of Georgia be inserted 

into the record at this point. 

Mr. PITTS. Without objection, so ordered. 

Mr. DINGELL. Thank you, Mr. Chairman. 

[The information follows:] 

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Mr. PITTS. Thank you. 

We will go back to the panel. Mr. Potter, you are recognized for 

5 minutes for testimony summarization. 

STATEMENT OF WENDELL BLAINE POTTER 

Mr. POTTER. Mr. Chairman and members of the committee, 

thank you for this opportunity to be here today. My name is Wendell Potter. I am Senior Analyst at the Center for Public Integrity 

and former head of corporate communications at Cigna Corporation. The views that I express today are not necessarily those of either employer. 

For 20 years, I worked as a senior executive at health insurance 

companies. During that time, I saw how these companies confused 

their customers and dumped the sick to satisfy their Wall Street 

investors. The top priority of for-profit companies is to drive up the 

value of their stock. The stock price of the big for-profit insurers 

fluctuates based on their quarterly reports. Investors and Wall 

Street analysts look for two key figures: earnings per share, which 

is common to all companies, and the medical loss ratio, or MLR, 

which is unique to the health insurance industry. As you know, the 

MLR is the ratio between what an insurer actually pays out in 

claims and what it has leftover to cover executive pay, underwriting, lobbying, sales, marketing, public relations, other administrative expenses and of course profits. 

Within the executive offices, there is a single-minded focus on 

being able to show investors and analysts that the insurer made 

more money during the previous quarter than a year earlier and 

that the portion of each policyholder’s premium devoted to covering 

medical expenses was less than it was a year earlier. Insurers almost always see sharp declines in their stock prices when they disclose that they spent more money on medical care than investors 

expected. I remember vividly when Aetna’s stock price fell more 

than 20 percent on the day that it admitted that its first-quarter 

MLR had increased from 77.9 percent to 79.4 percent. 

Studies done by the accounting firm PricewaterhouseCoopers 

have shown how successful insurers have been in meeting Wall 

Street’s MLR expectations. One such study found that the average 

MLR in the insurance industry has fallen from approximately 95 

percent in 1993 to around 80 percent today. That translates into 

a difference of several billion dollars in favor of insurance companies’ shareholders and executives and at the expense of health care 

providers and their patients. 

The provision of the Affordable Care Act that requires insurers 

to spend at least 80 percent of what we pay in premiums on our 

health care is one of the most important provisions of the law and 

one that must be preserved. Some have suggested that if the entire 

MLR provision is not repealed, Congress should at least exempt insurance agent and broker commissions from the calculation, and a 

bill introduced by Representative Rogers would take that a step 

further by excusing all sales commissions including payments to 

salaried sales staff from the formula. To make it even easier for insurers to meet the law’s requirements by exempting broker commissions is precisely the wrong thing to do. 

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It is important to note that even before the passage of the Affordable Care Act, insurers were planning to take steps to reduce 

broker commissions anyway, which they viewed already as too 

high. A recent filing from the State of North Carolina revealed that 

Coventry had reduced its commissions on first-year policies from 27 

percent to 14 percent and that Cigna had cut first-year commissions from 20 percent to 12 percent. My question to brokers is this: 

did you really deserve 27 percent of your client’s premiums? 

Another point: Insurers are not being forced by the MLR provision to reduce commissions. There are other levers on the administrative side or through reducing premiums. Basically, insurance 

companies have been choosing to reduce commissions to protect 

profits. I doubt you have heard of an insurers who have reduced 

the salaries of their CEOs and other top executives to meet the 

MLR requirements. You haven’t, and you won’t. 

Another thing to keep in mind as you consider legislation to exempt commissions from the MLR equation is that even if it were 

to be enacted, it is not likely to be of much help to agents and brokers now or in the future. Insurers will not restore the commission 

reductions they have already made. Exempting commissions would 

only help insurers by making it easier for them to comply with the 

MLR provisions. 

The proposed changes to the grandfathering provision are similarly misguided. By denying the Department of Health and Human 

Services the ability to enforce insurance reforms on current plans, 

the bill would take away important consumer protections including 

the prohibition on lifetime limits and a ban on rescissions, a practice that lets insurers take away your coverage midyear, usually 

after you have gotten sick. It would also prohibit enforcement of 

the rule that allows young people to stay on their parents’ insurance plans until age 26. This week’s census figures show that this 

provision has already helped half a million young people get insurance. Why would Congress take away their coverage? HHS carved 

out reasonable limits on what plans could be grandfathered. A plan 

can maintain its grandfathered status until it changes its benefits 

or raises its costs too much. This proposal would remove those limits so every plan is grandfathered forever. This means that people 

will be locked into the plans that don’t have the protections they 

are entitled to under the ACA like preventive medicines without copayments. 

A final point: If you pass the bill to repeal the grandfathering 

provision, you will be guaranteeing that millions of Americans will 

absolutely be facing the loss of the coverage they have. If my insurer is able to cut my benefits and hike my premiums and 

deductibles, actions that in the industry are referred to as ‘‘benefit 

buy-downs’’, that means that I will not have the same coverage I 

had or was happy with. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Potter follows:] 

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Mr. PITTS. The chair thanks the gentleman and now recognizes 

Ms. Quincy for 5 minutes for her opening statement. 

STATEMENT OF LYNN BATES QUINCY 

Ms. QUINCY. Thank you for having me here today. 

My name is Lynn Quincy, and I am the Senior Health Policy Analyst at Consumers Union, which is the independent nonprofit publisher of Consumer Reports magazine, and our mission is to provide 

consumers with unbiased information about good services, health 

and personal finance. 

I am here to discuss the changes, the proposed changes to the 

grandfathered regulations and medical loss rules called for by the 

Patient Protection and Affordable Care Act, and I am here to ask 

the committee to take a holistic look at the impact of the proposed 

legislation and to holistically look at its impact on consumers. 

The proposed legislation addressing grandfathered plans would 

undermine the Affordable Care Act’s consumer protections in two 

ways. It broadens the definitions of plans that qualify as a grandfathered plan and it calls for a blanket exemption of these plans 

from all Affordable Care Act requirements. If enacted, this proposal 

would leave many consumers worse off. You have heard many examples today already about, for example, the impact on adult children up to age 26 or the current requirement that plans all present 

a uniform health insurance disclosure form to consumers so that 

they can better understand their health plan features. If enacted, 

this proposal would create a bifurcated market. In 2014, consumers 

wouldn’t have the security of knowing that all their health insurance choices provide a minimum level of coverage and have understandable and uniform caps on out-of-pocket spending. Instead, 

anyone with access to a grandfathered plan would have to learn 

two insurance markets: the one featuring the new consumer protections and the one in which none of the Affordable Care Act provisions apply. 

The proposal expands the definition of what constitutes a grandfathered plan, stripping away all requirements for maintaining reasonably similar cost-sharing levels, and let us be clear about what 

we are talking about here when we discuss an employer’s ability 

to lower cost. What we are really referring to is employers’ ability 

to shift costs onto employees, and believe me, that is not what consumers want. The things that are driving health care premium increases, you have to look in other areas besides these new provisions and the MLR, and there is nothing more serious that this 

committee should be doing. I just returned from Wyoming, where 

a broker described a 10-person dental office that just received a 56 

percent premium increase, and he speculated that it was due to the 

fact that someone in that 10-person group had contracted Grave’s 

disease. These are the problems that you need to be addressing. 

We regularly hear from consumers about their health coverage, 

and I would like to assure this subcommittee that we have not 

heard a single consumer clamoring to keep their health plan as 

cost sharing rises over 18 percent a year, the approximate limit at 

which they might have to give up their grandfathering status. 

We also oppose legislation that would repeal the medical loss 

ratio provisions. These provisions are working to improve value for 

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consumers as you have already heard today. Placing a floor under 

health insurers, MLR is not new. Roughly a third of States have 

enacted rules that require plans to spend a certain percentage of 

their premium dollar on medical care, and that provides us with 

significant credible experience about how MLR regulations affect 

consumer and brokers, and as you have already heard, there is 

early evidence that the federal rule is working to improve value to 

consumers to address those rising premiums that are of such great 

concern. 

We note that that the evidence with respect to overall broker 

compensation is mixed. You have already heard about the NAIC 

study and the fact that they declined to support legislation that 

would carve brokers’ commissions out of the MLR. 

Today’s MLR rules provide needed transparency. Steve Larsen 

talked about this. And this is really important. I think this would 

appeal to both sides of the aisle as we move forward. We need to 

understand what goes into those rising premiums so we can better 

understand how to clamp down on them to help consumers. 

Finally, today’s MLR rule is not a blunt instrument as the proposed legislation would be. It provides targeted, evidenced-based 

relief to States. They can apply for an adjustment, as we have all 

discussed, and some of the States that have applied for adjustments like Maine already have an oligopoly that has nothing to 

with the proposed MLR rule. There are structural problems in the 

insurance market, to be sure, but I am not really expecting the 

MLR rule to contribute greatly to those problems. 

My written comments go into greater detail about the benefits of 

our grandfathered rules and MLR rules as they exist today. 

Thank you for the opportunity to speak to you. 

[The prepared statement of Ms. Quincy follows:] 

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Mr. PITTS. The chair thanks the gentlelady. Thanks to all the 

witnesses for their patience. We will now begin the questioning 

from the members, and I will begin by recognizing myself for 5 

minutes for that purpose. 

Ms. Trautwein, some argue that insurance agents add no value 

to the system are simply overhead in the system that can be eliminated at the stroke of a pen or regulation. Can you elaborate on 

the role agents play in our health care system? 

Ms. TRAUTWEIN. Absolutely. Well, first of all, it is true that 

agents do help people secure health insurance coverage. They counsel their clients on the appropriate types of coverage, what is available in the market, what they can afford, both individuals and 

businesses. But where their jobs really kick in is after that coverage has been placed because if there is a claims issue, if there 

is a billing issue, if there is a question about a regulation, and I 

can tell you right now, our members are very busy advising businesses in that area, any of those things go through the broker. In 

fact, I saw a recent study from SHRM, which mainly serves larger 

businesses, that the primary place that they are getting their information about health reform comes from their broker. And so things 

like that, advice on compliance, on regulations, taking care of clients, and I mentioned this during the last hearing, but this issue 

of taking care of claims is significant. When I was a broker some 

20 years ago, I never, ever had any of clients have the need to go 

to the appellate process through their insurer because we were able 

to address it quickly, and that is what our members and other brokers do every day. 

Mr. PITTS. Thank you. 

Ms. Turner, can you explain how the grandfathering rule diverts 

the resources of employers towards more expensive health coverage 

and away from capital investment, wage increases and job creation? 

Ms. TURNER. Well, as I have mentioned in my testimony, if employers are not able to stay within the grandfathering provisions 

and they are required to provide a number of other consumer protection such as no out-of-pocket costs to employees for preventive 

care, for example, this is going to increase the cost of health insurance and so that is why I feel there is really sort of a catch-22 for 

employers, that they find that they need to make changes in order 

to keep their costs down, but if they make those changes, then they 

are subject to another list of rules through PPACA. And these do 

divert capital and I think it really is important, as Ms. Quincy was 

saying, we really do need to take a holistic look, that employers— 

and I have been a small business owner for 30 years or running 

small businesses for 30 years, you don’t look at things in silos. You 

look at the bottom line, and if health care costs are rising, then you 

are going to have to figure out what can you do on the other side, 

and sometimes you don’t hire that extra worker or you don’t buy 

that new piece of equipment. So it really does impede employers’ 

ability to make the right decisions for their business. 

Mr. PITTS. Thank you. 

Mr. Haislmaier, in December of 2009, the Congressional Budget 

Office released a paper stating that a legislative proposal to set an 

MLR of 90 percent would make health insurance an ‘‘essentially 

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governmental program’’ in combination with PPACA’s other provisions. Do you believe that a slightly lower MLR of 85 percent like 

the one included in PPACA will give the federal government functional control of private health insurance in America? 

Mr. HAISLMAIER. I don’t know that the percentage makes as 

much difference as the structure of the regulatory design. As I 

pointed out in this regulation for minimum loss ratios but also coupled with the other regulations, the additional benefit requirements, the rate reviews, etc., do shift the industry to a regulated 

utility model. In fact, it is interesting that President Clinton’s 

health advisor, Sara Rosenbaum, who, you know, is well known in 

this area, wrote a piece in defense of the individual mandate that 

essentially argued that well, yes, the individual mandate—she 

was—I am not, you know, talking about the legal question about 

the individual mandate but she basically made the point in that 

piece, I think it was for the Journal of the American Medical Association or New England Journal, that this design in PPACA turns 

insurers into a regulated public utility, and I agree with her on 

that. What didn’t discuss is the economics of a regulated public 

utility and the economics are in that world, as a competitor, you 

either want to be, you know, too big to fail. You want to be one 

of the last two or three left that yes, you are going to be regulated 

but they can never put you out of business because they need you 

to be in business or otherwise people don’t get the service. That is 

why people scream about, you know, power companies that we had 

this with the storms but they never actually drive them out of business. Well, once you get to that kind of a world, you don’t care 

what the costs are, you just pass them through because your customers have no other choice, and that is the world we are headed 

to with these regulations. So yes, I see that happening. 

Mr. PITTS. Thank you. My time is expired. The chair recognizes 

the Ranking Member Emeritus, Mr. Dingell, for 5 minutes for 

questions. 

Mr. DINGELL. First, I would like to compliment you, Ms. Quincy 

and Mr. Potter, for your very fine statements. Thank you. 

This question is to Mr. Potter. The law requires health insurance 

companies to pay rebates if they spend fewer than 80 to 85 percent 

of their customers’ dollars on health care and quality improvement 

activity. The Department of Health and Human Services estimates 

that the new minimum MLR law will result in consumer rebates 

to as many as 9 million people, up to 1.4 billion in the 2011 plan 

year and up to 1.49 billion in the 2011–2013 plan years. Agents 

and brokers are heavily lobbying for special exemption for being included into the medical loss ratio calculation. The fact is, some 

agents and brokers are really providing valuable and helpful services, and I have to agree with that statement. But they, like other 

costs within the insurance products, they should compete and keep 

costs competitively low as possible for consumers. At a time when 

everybody is being asked to tighten their belts and find and create 

efficiencies, asking for an exemption from these pressures, particularly at the expense of consumer pocketbooks, is not something 

that I think the consumers will take kindly to. 

Mr. Potter, would you please talk to us about the dangers of exempting agent and broker commissions from the medical loss ratio 

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calculations and what types of commissions that they have been 

getting over the past years? 

Mr. POTTER. Thank you, Congressman. Yes, if they are exempted, it will be, as I said in my testimony, really a gift to the insurance industry because it will give them just one more way that 

they can meet regulations that they could already be meeting if 

they were to reduce benefits, reduce premiums, or if they reduced 

spending in many other areas of spending. McKinsey and Company 

did a study a few years ago showing where most of these companies’ administrative costs really are, and they are in underwriting, 

they are in sales and marketing and things of that nature. So my 

own salary, for example, was an administrative expense. In fact, I 

was talking to someone in France not long ago who said my job 

was unknown in the French system, and I can understand that. 

But there are a lot of other places where cuts can be made, and 

yes, I agree with you, I think agents and brokers have indeed provided in many cases good value to the people they serve but they 

do get their income from insurers and they have been paid handsomely, and I think that they should be expected to give up some— 

you know, to sacrifice just as much as everybody else. 

Mr. DINGELL. Thank you. I have a bunch of questions, and I 

apologize. I don’t mean to curtail your testimony. 

Ms. Quincy, Consumers Union expanding the consumer protections indicates that this has had a negligible impact on premiums. 

My colleagues on the Republican side claim that this is an enormous burden to health plans and employers and use that as a rationale for repealing key elements of the Patient’s Bill of Rights for 

many people. First, and these are yes or no, if you can please, do 

you agree that the new consumer protections are imposing a huge 

burden on health plans and employers, or not? 

Ms. QUINCY. I do not. 

Mr. DINGELL. OK. Do you have any estimates or examples of how 

much these provisions would cost? 

Ms. QUINCY. Yes. I would like to refer the committee to my written testimony, if I can find the page. We provided, I think, three 

or four sources that cited some actuarial estimates about what the 

cost of the various consumer protections are, and—I think have to 

go one page further to get there. Here we go. 

So in the written testimony, I talk about the fact that federal 

agencies have estimated that ending annual lifetime limits will increase group premiums by about a half of 1 percent and will increase non-group premiums by less than 1 percent. Prohibiting preexisting exclusions for children is estimated to have a negligible 

impact on premiums. A recent Anthem Blue Cross Blue Shield filing for the individual market in Connecticut shows that the new 

protections from unjust rescissions have had no impact on premiums, and ending lifetime limits has also benefited consumers 

without raising costs, and for the sources for those statements, I 

refer you to the written testimony. 

Mr. DINGELL. Thank you. 

Now, Mr. Potter, very quickly, can you discuss insurance company practices with regard to individuals whose preexisting conditions prior to the passage of the Affordable Care Act and what can 

we expect since the passage of these new protections? In other 

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words, what it is going to do to costs, what is it going to do for consumers, what is it going to do to industry? 

Mr. POTTER. Insurance companies for many years have refused 

to sell coverage to people with preexisting conditions, and it is 

something that continues to go on right now, except for children. 

That already has gone into effect. A Chattanooga newspaper recently disclosed that Blue Cross and Blue Shield Tennessee, a nonprofit, supposedly, refused to sell coverage to about one-third of applicants, largely because of preexisting conditions. It is the leading 

reason why we have now more than 50 million Americans without 

coverage, and it doesn’t matter whether you are rich or poor. 

Mr. DINGELL. You just don’t get insurance if you have a preexisting condition. 

Mr. POTTER. Exactly. If you have a preexisting condition, you are 

just out of luck, even if you were born with that preexisting condition. 

Mr. DINGELL. Now, I guess my time is expired, Mr. Chairman. 

Thank you. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

vice chairman, Dr. Burgess, for 5 minutes for questions. 

Mr. BURGESS. Thank you, Mr. Chairman. 

You know, I have done a lot of thinking this summer about the 

summer of 2009 when we all went home after this committee 

passed H.R. 3200, which was the House version of the health care 

bill. That version has died a natural death and Harry Reid’s 

version is the one that was signed into law by the President. But 

the things I remember being asked at those town halls, and they 

were difficult and they were loud and they were long and they were 

hot, but those town halls, people said first off, don’t do anything 

that is going to mess up the system that exists and works for arguably, 60, 65, 70 percent of us. We didn’t do that. We screwed it up. 

Witness the large number of waivers that are in effect now and 

people concerned about issues like grandfathering. And the other 

thing they asked, and they were really clear on this, was can you 

do something to help us with cost because we are concerned about 

the cost of health insurance. 

And then I looked around the country. The one place where really cost had been addressed in a very effective way was the State 

of Indiana and Governor Mitch Daniels with his Healthy Indiana 

plan, and for the life of me, I don’t know why we did not subpoena 

him and bring him to this committee and chain him to the chair 

until he spilled the beans as to how he was able to hold health care 

costs for his State employees down by 11 percent over the previous 

2 years. 

So Ms. Turner, you are familiar with Governor Daniels’ plan. 

Can you very briefly encapsulate what is embodied in that? 

Ms. TURNER. Well, Governor Daniels and particularly the 

Healthy Indiana plan, but he also has incentivized State employees 

to enroll in consumer-directed plans, and what he has recognized 

is that if you engage consumers as partners and really giving them 

more information so they have the ability to make decisions and to 

use better information to make better decisions, that they really 

will become partners in helping to manage costs, and we have seen 

it across the board. 

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I have a section in my testimony when I talk about a new study 

by the National Business Group on Health and it found that companies that offered account-based health plans, whether health 

savings accounts or health reimbursement arrangements, had costs 

that were $900 lower on average for individuals and $2,885 lower 

for families. So the reason that the number of employees that have 

joined these plans is rising is because they really do help to hold 

down costs and employees become partners. They are more likely 

actually to use preventive services when they have a health savings account than they are in regular insurance because, as one 

said, I realized that if I take better care of myself, I will save 

money in the long run. So they provide the right kind of incentives 

and transparency and give employees an incentive to be partners 

in managing costs. 

Mr. BURGESS. Now, as I understand for Governor Daniels’ plan 

for State employees, he actually funds the health savings account 

that is associated with that high-deductible plan. Is that understanding basically correct? 

Ms. TURNER. Yes, and they put money into the health savings account and with the Medicaid expansion, their Healthy Indiana 

plan, both the State and the individuals share in funding that account so they really do have a stake. 

Mr. BURGESS. And of course, the phrase I have heard associated 

with that is something magic happens when people spend their 

own money for health care, even if it wasn’t their own money in 

the first place. 

But perhaps Mr. Haislmaier and Ms. Turner, you can talk about 

how the MLR regs affect consumer-directed health plans and perhaps the one place we should have gone that we didn’t go in the 

health care law. What is the future ahead for consumer-directed 

health care under the MLR? 

Mr. HAISLMAIER. Well, this is one of the areas where as your colleague, Representative Cassidy, pointed out, there are some problems with the way the statute was drafted because it didn’t take 

into account the fact that if you have a consumer-directed plan 

where of the total spending that the individual is doing, more of 

it is going directly from the individual to the provider and less 

through the insurer, then the insurer for that portion that they are 

handling is going to have, by necessity, higher administrative costs 

and are going to be penalized for that product design. So it is correct that it will favor product designs that are more comprehensive, 

meaning that more of the total spending goes through the insurer’s 

hands. 

There are other places that practitioners in this area have encountered. I remember this from a former colleague who was a 

Democratic insurance commissioner and saying that one of the 

problems that they ran into is they are running into things like 

when you have overseas employees and you provide them medical 

care, if you want to send somebody to be an oil worker in Nigeria 

or something, you know, you are not only going to have to pay 

them well but you are going to have to make sure—they are going 

to be worried about, well, hey, you are sending me off to work on 

an oil platform in some Third World country, what happens if 

something happens to me medically. Well, these are not adminisVerDate Nov 24 2008 10:01 Apr 16, 2012 Jkt 037690 PO 00000 Frm 00120 Fmt 6633 Sfmt 6633 F:\112-085 PPACA’S REGS-ADDTL SCAN REQ 4-12\112-85 PPACA’S REGS PENDING W
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tratively cheap plans to run because you are going to have to airlift 

them out of there, you are going to have to do this all other stuff. 

So under the MLR, those plans are disadvantaged. The other 

thing—I mean, you just keep compounding this. This fellow was 

pointing out to me, he is in insurance law practice no, was another 

client where it was a church that had missionaries who aren’t employees but they are providing them with health benefits, so how 

does that get handled. So you have got a lot of problems in this. 

You know, I could just make one point because I think it is really 

important to understand that disclosing, as I said in the testimony, 

this information is fine, OK. If you want to put this information 

out, States already have the data to do that, and I think States 

should put it out and let the consumer say, you know, this is one 

more piece of comparative information. It is only when you set a 

standard that says well, you have to do this, you have to do this 

minimum, that you create these problems. 

So I would present to you a hypothetical, and let us just think 

about this, if you will indulge me. We have two—let us take two 

insurance plans, two situations. We will call them A and B, OK? 

Under both scenarios, the plans cover the same benefits, OK, so 

there is not a difference in lesser benefits or more benefits. Under 

both scenarios, you are going to pay about a thousand bucks for 

out-of-pocket deductible and copays. Plan A charges $5,000 and has 

an 80 percent medical loss ratio, meaning $1,000 is retained and 

$4,000 goes to paying claims. Plan B charges $4,000 and has a 75 

percent ratio, meaning they keep $1,000 and $3,000 goes to claims. 

Which is the better buy? Do you buy the plan with the higher loss 

ratio but $1,000 lower premium or do you buy the plan with the 

lower loss—I am sorry—the better loss ratio under this scenario 

but is $5,000 more expensive? You see, those are the kinds of decisions a consumer has to make. As a piece of information, that is 

fine, but when you say everybody has to fit into this box, you have 

a problem. 

Mr. BURGESS. Thank you, Mr. Chairman. I will yield back. 

Mr. PITTS. The chair thanks the gentleman and recognizes the 

gentleman from Louisiana, Dr. Cassidy, for 5 minutes of questioning. 

Mr. CASSIDY. Mr. Potter, if I have been smiling at you the whole 

time, it is nothing inappropriate. I am reading Harry Potter to my 

10-year-old right now, so we spent 15 minutes on the phone last 

night. She would be disappointed you don’t have a scar on your 

head. 

You know, I read your testimony. It is very compelling. But you 

could want to remove power from insurance companies and not 

necessarily be for the ACA. That is a fair statement. And one of 

the reasons why I like consumer-driven health care is because it 

truly moves the locus of power from a bureaucrat, whether it is 

Washington, D.C., or elsewhere, to the consumer. You are the numbers guy. You are the fellow who used to help an insurance company look at things. Looking at your testimony—and your testimony was almost an insurance company as an organic organism 

which is going to move to maximize profits. Let us take Mr. 

Haislmaier’s assertation. This MLR seems to reward companies 

that sell higher-priced policies because your 15 percent of a higherVerDate Nov 24 2008 10:01 Apr 16, 2012 Jkt 037690 PO 00000 Frm 00121 Fmt 6633 Sfmt 6633 F:\112-085 PPACA’S REGS-ADDTL SCAN REQ 4-12\112-85 PPACA’S REGS PENDING W
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priced policy is a greater absolute amount than 15 percent of a 

lower-priced policy, and again, the consumer-driven health care 

plan, you don’t start paying claims until someone is paid their HSA 

and their out of pocket and then you move into it. So just your 

thoughts on that. I mean, again, looking at your testimony, it 

seems that—I would draw from that that they would react in such 

a way as to preserve their profit margin, which means that they 

would be prejudiced towards a higher-priced policy. 

Mr. POTTER. You have to consider the cost of insurance, including the cost of what you have to pay out of pocket. If you just keep 

premiums in isolation, then it skews what is really the obligation 

of the person who has that policy. Another point too is that—— 

Mr. CASSIDY. No, but I don’t follow how that answers my question, and no offense, but I don’t see—again, my assertation is that 

if you artificially restrict MLR and not account for the absolute, as 

Mr. Haislmaier’s example, we have a cheaper policy, $4,000, but if 

it is a thousand bucks for administrative costs, that is 25 percent 

MLR. We are prejudiced against that policy towards one which is 

$5,000 and now meets this artificial MLR requirement. Would you 

disagree with the example he just gave? 

Mr. POTTER. I would. 

Mr. CASSIDY. I don’t follow why. 

Mr. POTTER. Because again, you have to consider the value that 

the person has in the policy. If you are paying a certain premium, 

yes, there is no doubt, the account-based plans typically have a 

lower premium but there is great cost shifting from the employee 

or the insurer to the—— 

Mr. CASSIDY. Now, there is a Kaiser Family Foundation study either there or CRS or GAO, I forget which, which shows that those 

who have consumer-driven health care plans with an HSA have 

$500 extra out of pocket relative to a traditional policy, but because 

their premiums are 25 to 30 percent cheaper, net they are $2,000 

ahead. So they also found that those patients with HSA and a high 

deductible accessed preventive services as frequently as do those 

who have a traditional policy. They also found that 50 percent of 

those in this particular survey—I am remembering, so I may have 

it a little wrong—were previously uninsured, costs lower by 25 to 

30 percent. Previously uninsured people now have the ability to 

purchase insurance and they are accessing preventive services as 

frequently as those who have traditional policies. That sounds like 

a good value to me. 

Mr. POTTER. It is for some people but some of the other studies 

you might have seen too show that many people who are in these 

kinds of accounts don’t have the money to meet that deductible. A 

lot of employers are benevolent and they do provide some money 

to pay that deductible. People who are in the individual market 

like my son don’t have that ability. He had to buy—he was forced 

to buy a high-deductible plan—— 

Mr. CASSIDY. How old is your son? 

Mr. POTTER. He is 28. 

Mr. CASSIDY. Now, reasonably speaking, a 28-year-old without a 

chronic medical condition made a wise financial decision, correct? 

Mr. POTTER. Here is what happened. He was told that he would 

have to be moved out of his plan, which had a $500 deductible, to 

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one that had a $5,000 deductible or his premium would go up 67 

percent, and my son has asthma and so yes, he is going to be paying quite a bit out of his own pocket. He doesn’t have a very—— 

Mr. CASSIDY. But what was his savings on his insurance policy? Because net, if he paying $3,000 less—— 

Mr. POTTER. Two dollars and 12 cents a month was his savings, 

but he is facing a deductible that is 10 times as much. 

Mr. CASSIDY. No, I am sorry. That is $2,000 relative to his pre- vious savings but it is more than $2.20 to what his premium would 

be. I guess that is my point. 

Mr. POTTER. The math is that by moving out of the plan that he 

was in to the one that he moved into, yes, his premiums were 

about the same, actually maybe $2 less, but his deductible, his 

total out-of-pocket expenses over the year is considerably more. 

Mr. CASSIDY. I guess I am a little confused, because if he had 

stayed in his previous policy, his premiums would have been substantially more. 

Mr. POTTER. That was not available to him. He was forced out 

of that plan, just as I was a few years ago, Congressman. I worked 

at Cigna for quite a few years, and I had a plan that I liked. It 

was a PPO. Cigna decided, didn’t ask me, Cigna decided that it 

would move me and every other employee out of the PPO or the 

HMOs into an account-based plan. For me and for the CEO and for 

the executive board of GE, that is perfectly fine, but most of the 

employees of Cigna make far, far less than—— 

Mr. CASSIDY. We are almost out of time and we are about to 

start getting the clunk on us, but let me just respond again. The 

Kaiser Family Foundation study suggested that most people with 

HSAs have modest incomes, $75,000 or less, and that their out-ofpocket, their global costs decrease over the year by a couple thousand dollars, and again, they are accessing preventive services as 

well. I would be interested if you have data which shows—and this 

will have to be an off-the-record answer—that shows there is any 

difference in incomes, because people point to the anecdotes but I 

don’t find that there is any data on difference in outcomes. 

Mr. POTTER. Yes, you are right. We could take a look at that 

more closely, but I think people who are healthier do gravitate toward these plans. 

Mr. CASSIDY. I think the data shows that even people now who 

are not as healthy or doing as well—— 

Mr. POTTER. Because they are being forced into these plans 

against their own—— 

Mr. CASSIDY. No, but I am talking about outcomes and their 

pocketbook. 

Anyway, I think we are out of time. Thank you. 

Mr. BURGESS. [Presiding] The gentleman’s time has expired. The 

chair recognizes the Chairman Emeritus for a follow-up. 

Mr. DINGELL. You are most kind, Mr. Chairman. Thank you. 

This goes to Mr. Potter and Ms. Quincy. Our colleagues on the 

other side of the aisle are portraying the discussion draft as a 

means for Americans who like their health coverage to keep it. In 

fact, the legislation is much broader. The real intention appears to 

be to eliminate the insurance reforms enacted by the Affordable 

Care Act and to put insurance companies, not patients, back into 

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control. Would it be accurate to say that this legislation is another 

way to repeal health reform, and am I correct in my first assumption? Yes or no. 

Mr. POTTER. Yes. 

Mr. DINGELL. Ms. Quincy? 

Ms. QUINCY. It would greatly undermine the various provisions 

of the Affordable Care Act that are expected to work together. 

Mr. DINGELL. Good. Now, does the legislation that we are discussing here allow patients to keep their insurance if they like it, 

as claimed by my Republican colleagues, or are the insurers really 

in charge of being allowed to cut benefits, increase cost sharing and 

make other changes? Which is the case? 

Ms. QUINCY. If the discussion draft were enacted, it would permit 

tremendous latitude with respect to self-insured employer plans 

and insurers to make changes in benefits, some of which would certainly include cost shifting to employees. 

Mr. DINGELL. Mr. Potter? 

Mr. POTTER. Absolutely. As I said in my testimony, if you pass 

the repeal, the grandfathering, you can absolutely guarantee that 

people who have coverage now, their coverage will change significantly in the near future, if not the long term. 

Mr. DINGELL. Now, as I understand this, what we are essentially 

doing is setting up two categories of insurance carriers. The first 

category would be those who are grandfathered. The grandfathered 

plans would be able to do most anything they want and achieve 

strong competitive advantage over the latecomers, who would not 

have that privilege. Am I correct? 

Mr. POTTER. Yes. 

Mr. DINGELL. Is that right, Ms. Quincy? 

Ms. QUINCY. Yes. 

Mr. DINGELL. And that would lead then to very significant advantages to the first category and a strong discouragement to the 

second category going into this business. Is that right? 

Ms. QUINCY. Well, my greatest fear would be the segmentation 

of risks since this hugely different—since two different insurance 

markets exist side by side. I think that is the greatest danger. 

Mr. DINGELL. And you would tend to see all the bad business 

being shoved into the second category that weren’t grandfathered. 

Is that right? 

Ms. QUINCY. Yes. 

Mr. POTTER. Yes. You are correct. 

Mr. DINGELL. Now, if you have got a plan that is grandfathered, 

it would then be able to charge lower prices for its product and give 

less benefits at the same time. Isn’t that right? 

Ms. QUINCY. Yes. 

Mr. POTTER. Yes. 

Mr. DINGELL. Let us raise one of the more problematic issues 

with this legislation. Consumers in grandfathered health plans including those that have raised premiums, cut benefits or increased 

cost sharing would not have any federally guaranteed rights to internal and external appeals. Is that right? 

Ms. QUINCY. Yes. 

Mr. POTTER. That is correct. 

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Mr. DINGELL. So they could kick them all around the block and 

they couldn’t complain. All right. This creates an environment then 

where insurers, not health professionals, will be making treatment 

decisions without opportunity for outside review bottomed only on 

the situation where some green eye-shaded actuary in an insurance 

company would be defining what treatments the guy could get. Is 

that right? 

Ms. QUINCY. Particularly in self-insured plans. 

Mr. DINGELL. OK. Now, my Republicans have said all along that 

the Affordable Care Act is turning the doctor-patient relationship 

into a patient-government relationship. First of all, is that true? 

Yes or no. 

Ms. QUINCY. I am sorry. The question, does that interfere with 

that doctor-patient relationship when you can’t have—— 

Mr. DINGELL. Yes. Does this bill interfere with the doctor-patient 

relationship? I am talking about the Affordable Care Act. Does it 

interfere with the doctor-patient relationship? 

Ms. QUINCY. I think that you could say that, because around 50 

percent of—— 

Mr. DINGELL. All it really does, Ms. Quincy, is to define the 

rights of the patient and within that new definitions the patients 

and the doctors decide what they want to do, and one of the noteworthy things is that the medical profession supported this particular thing after years of having complained about the need to 

protect us against interference in that relationship. Is that right? 

Mr. POTTER. Yes, Congressman. 

Mr. DINGELL. I am going to ask unanimous consent to ask one 

more question, Mr. Chairman. 

Mr. BURGESS. Seeing no objection, the gentleman is given an additional minute, but I caution you about statements about the 

AMA. I am a member. I yield to the gentleman. 

Mr. DINGELL. I am not a member, but I am a good friend of the 

AMA, and all I am doing is defining what it is they had to say and 

do. 

Mr. BURGESS. I appreciate you doing that. We are going to have 

an opportunity to talk about that a great deal more in the future. 

Mr. DINGELL. And I say this with great respect for my friend 

from Texas. 

Now, what I want to know is, is it important that we give guaranteed internal and external appeals rights to the patients who 

would have benefits under the plan and were being treated in a 

way they didn’t like by the insurance company? 

Ms. QUINCY. It is critically important. A GAO report shows that 

roughly 50 percent of coverage decisions that are disputed using 

the appeals process are reversed, so that means a mistake was 

made by the insurance company. So it is a critically important 

right. 

Mr. DINGELL. Mr. Potter? 

Mr. POTTER. It is, and it is an essential benefit of the Patient’s 

Bill of Rights that Congress considered many years ago, and it is 

about time the Congress enacted it. 

Mr. DINGELL. Mr. Chairman, I thank you for your kindness. 

Mr. BURGESS. I thank the chairman emeritus for his walk down 

memory line. I need to remind the chairman emeritus that it was 

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an amendment that he and I put into H.R. 3200 that would enshrine the rights of internal and external review. The Speaker of 

the House stripped that provision out of the bill that went from 

this committee on July 30th to the House Floor to vote on November 9, 2009. The Senate did provide some coverage but it was pretty watered down and nowhere near as expansive as the brilliant 

amendment offered by the chairman emeritus and the vice chair, 

and it was a shame because Texas has led the way on this. 

Mr. DINGELL. If the gentleman would yield? 

Mr. BURGESS. Yes, I would be happy to yield. 

Mr. DINGELL. My good friend is just indicating how well we have 

worked together. 

Mr. BURGESS. There you go. 

Mr. DINGELL. And the fine consequences of that kind of effort. I 

am here to say, I am anxious to work with the gentleman if he will 

stop pushing this kind of nonsense legislation. If we work together, 

we can come up with something much better. 

Mr. BURGESS. It was our opponents on the Senate that prevented 

us carrying the day on that as well as the Speaker’s office and the 

White House probably had some interference, but nevertheless, we 

are where we are. 

Let me just ask you, Mr. Potter. I think you testified or provided 

in your written testimony that Congress has exempted all taxes 

from the MLR calculation. Is that correct? 

Mr. POTTER. I don’t think it is in my written testimony, but there 

is much that has been exempted in the MLR calculation. That is 

correct. 

Mr. BURGESS. But by regulation, working the MLR regulation at 

HHS, they decided to sort of pick and choose which taxes are exempt from the calculation. Do you feel that that is inconsistent 

with the intent of the law? 

Mr. POTTER. I think that the statute was pretty clear that certain taxes are exempt from the equation. I can’t tell you which ones 

in particular would qualify for that. That was the intent of Congress, as I understand it. 

Mr. BURGESS. I don’t have the page number, but in your testimony, the statement is, ‘‘In addition, Congress exempted all taxes 

from the MLR calculation, a huge artificial boost to insurers’ 

MLRs.’’ 

Mr. POTTER. Exempting taxes is a boost to MLRs. 

Mr. BURGESS. Well, again, the impression given that all taxes, 

but HHS did not see it that way. 

Ms. Trautwein, let me just ask you, one of the things that concerns a lot of us, and there are obviously a lot of things that concern us in the Affordable Care Act, but the cost is a big one, and 

we had estimates of costs all over the place but I think no one now 

believes those figures that were originally delivered to us by the 

CBO and even the Chief Actuary for CMS has said the cost is going 

to be some $450 billion over 10 years higher than what was advertised in March of 2010, and in fact, those numbers are probably 

higher still, and the difficulty is, of course, the CBO having to estimate how many people would leave their employer-sponsored insurance or how many employers would drop employer-sponsored insurance and push their employees into the exchange. 

123 

So do you think that the number of people ending up in the exchange will be greater than currently estimated? Has your organization done any looking at this? 

Ms. TRAUTWEIN. Well, thank you very much for this question. I 

am very glad you asked that. This is actually one of our primary 

concerns, not so much whether they end up in the exchange or 

somewhere else. We are very worried about what we are seeing in 

terms of some employer decision-making process. So if we calculated the cost of this legislation being whatever the final number 

was modified three times over by CBO or whomever, if that is all 

based on some assumptions that frankly we are very worried are 

not correct. What we are seeing is many employers saying look, the 

burden is too heavy, and I have talked to them personally. This is 

not anecdotal. Now, if too many of them do this, of course, all the 

estimates that we made relative to the cost of providing subsidies 

for a group of people that did not have employer-sponsored coverage is going to mushroom dramatically. And so what we are 

thinking is that many of them are not going to be providing coverage far more than were estimated to be dropped in the additional 

calculations, and this is based on massive input from our members 

and their clients. 

Mr. BURGESS. I want to thank everyone for attending. That appears to be the conclusion of all the questions, and I want to thank 

the witnesses for participating in today’s hearing. I thank them for 

their indulgence while the floor did votes. 

I remind the members that they have 10 business days to submit 

questions for the record, and I ask the witnesses to respond 

promptly to these questions. Members should submit their questions by the close of business on September 29th. 

The subcommittee hearing stands adjourned. 

[Whereupon, at 2:21 p.m., the subcommittee was adjourned.] 

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