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33–758 PDF 2007

EXAMINING INNOVATIVE APPROACHES TO

COVERING THE UNINSURED THROUGH

EMPLOYER–PROVIDED HEALTH BENEFITS

HEARING

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON 

EDUCATION AND LABOR

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

HEARING HELD IN WASHINGTON, DC, MARCH 15, 2007

Serial No. 110–10

Printed for the use of the Committee on Education and Labor

(

Available on the Internet: 

http://www.gpoaccess.gov/congress/house/education/index.html 

(II)

COMMITTEE ON EDUCATION AND LABOR 

GEORGE MILLER, California, Chairman

Dale E. Kildee, Michigan, Vice Chairman 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Danny K. Davis, Illinois 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

Linda T. Sa ́nchez, California 

John P. Sarbanes, Maryland 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Mazie Hirono, Hawaii 

Jason Altmire, Pennsylvania 

John A. Yarmuth, Kentucky 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

Carol Shea-Porter, New Hampshire 

Howard P. ‘‘Buck’’ McKeon, California, 

Ranking Minority Member 

Thomas E. Petri, Wisconsin 

Peter Hoekstra, Michigan 

Michael N. Castle, Delaware 

Mark E. Souder, Indiana 

Vernon J. Ehlers, Michigan 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Ric Keller, Florida 

Joe Wilson, South Carolina 

John Kline, Minnesota 

Bob Inglis, South Carolina 

Cathy McMorris Rodgers, Washington 

Kenny Marchant, Texas 

Tom Price, Georgia 

Luis G. Fortun ̃ o, Puerto Rico 

Charles W. Boustany, Jr., Louisiana 

Virginia Foxx, North Carolina 

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

Rob Bishop, Utah 

David Davis, Tennessee 

Timothy Walberg, Michigan

Mark Zuckerman, Staff Director 

Vic Klatt, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

ROBERT E. ANDREWS, New Jersey, Chairman

George Miller, California 

Dale E. Kildee, Michigan 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

David Wu, Oregon 

Rush D. Holt, New Jersey 

Linda T. Sa ́nchez, California 

Joe Sestak, Pennsylvania 

David Loebsack, Iowa 

Phil Hare, Illinois 

Yvette D. Clarke, New York 

Joe Courtney, Connecticut 

John Kline, Minnesota, 

Ranking Minority Member 

Howard P. ‘‘Buck’’ McKeon, California 

Kenny Marchant, Texas 

Charles W. Boustany, Jr., Louisiana 

David Davis, Tennessee 

Peter Hoekstra, Michigan 

Cathy McMorris Rodgers, Washington 

Tom Price, Georgia 

Virginia Foxx, North Carolina 

Timothy Walberg, Michigan 

(III)

C O N T E N T S 

Page

Hearing held on March 15, 2007 ............................................................................ 1

Statement of Members: 

Andrews, Hon. Robert E., Chairman, Subcommittee on Health, Employment, Labor and Pensions ............................................................................ 1

The report, ‘‘Health Care That Works for All Americans,’’ Internet 

address .................................................................................................... 7

The President’s response to the Citizens’ Health Care Commission 

report ...................................................................................................... 7

Boustany, Hon. Charles W., Jr., a Representative in Congress from the 

State of Louisiana ......................................................................................... 5

Kline, Hon. John, Senior Republican Member, Subcommittee on Health, 

Employment, Labor and Pensions ............................................................... 3

Prepared statement of ............................................................................... 4

The Employee Benefit Research Institute report, ‘‘Employment-Based 

Health Benefits: Access and Coverage, 1988-2005,’’ Internet address ........................................................................................................ 4

Statement of Witnesses: 

Alker, Joan C., M.Phil, deputy executive director, Georgetown University 

Center for Children and Families ................................................................ 18

Prepared statement of ............................................................................... 20

Blumberg, Linda J., Ph.D., principal research associate, the Urban Institute ................................................................................................................. 34

Prepared statement of ............................................................................... 36

England, Brian, owner, British American Auto Repair ................................ 25

Prepared statement of ............................................................................... 26

Webber, Andrew, President & Chief Executive Officer, National Business 

Coalition on Health ....................................................................................... 27

Prepared statement of ............................................................................... 29

National Business Coalition on Health policy paper, ‘‘Promoting Consumerism Through Responsible Health Care Benefit Design’’ .......... 92

‘‘Value-Driven Health Care: A Purchaser Guide,’’ Internet address ..... 115

Additional Statements and Supplemental Materials: 

‘‘Charting SCHIP III: An Analysis of the Third Comprehensive Survey 

of State Children’s Health Insurance Programs,’’ Internet address ......... 56

Congressional Research Service report for Congress: ‘‘State Children’s 

Health Insurance Program (SCHIP): A Brief Overview,’’ Internet address ............................................................................................................... 57

Congressional Research Service memo prepared for Congress: ‘‘State 

Health Insurance Reforms’’ .......................................................................... 57

Prepared statement of Devon M. Herrick, Ph.D., senior fellow, National 

Center for Policy Analysis ............................................................................ 87

Kaiser Commission issue brief: ‘‘Premium Assistant Programs: How Are 

They Financed and Do States Save Money?’’ Internet addresses ............. 90

New York Times article: ‘‘The President’s Risky Health Plan’’ .................... 90

(1)

EXAMINING INNOVATIVE APPROACHES TO 

COVERING THE UNINSURED THROUGH 

EMPLOYER–PROVIDED HEALTH BENEFITS 

Thursday, March 15, 2007

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and Labor 

Washington, DC

The subcommittee met, pursuant to call, at 10:30 a.m., in room 

2175, Rayburn House Office Building, Hon. Robert Andrews [chairman of the subcommittee] presiding. 

Present: Representatives Andrews, Kildee, Wu, Sestak, Loebsack, 

Hare, Clarke, Courtney, Kline, McKeon, Boustany and Walberg. 

Staff Present: Tylease Alli, Hearing Clerk; Carlos Fenwick, Policy Advisor for Subcommittee on Health, Employment, Labor and 

Pensions; Michael Gaffin, Staff Assistant, Labor; Jeffrey Hancuff, 

Staff Assistant, Labor; Brian Kennedy, General Counsel; Megan 

O’Reilly, Labor Policy Advisor; Rachel Racusen, Deputy Communications Director; Michele Varnhagen, Labor Policy Director; Robert Borden, Minority General Counsel; Steve Forde, Minority Communications Director; Ed Gilroy, Minority Director of Workforce 

Policy; Rob Gregg, Minority Legislative Assistant; Jessica Gross, 

Minority Deputy Press Secretary; Victor Klatt; Minority Staff Director; Jim Paretti, Minority Workforce Policy Counsel; Molly 

McLaughlin Salmi, Minority Deputy Director of Workforce Policy; 

and Linda Stevens, Minority Chief Clerk/Assistant to the General 

Counsel. 

Chairman ANDREWS. Good afternoon. The subcommittee will 

come to order. We would like to thank the witnesses for their participation this morning. We have assembled an excellent panel of 

people, and we are very happy that you are here. 

There are 47 million Americans without health insurance. I believe that it is a foregone conclusion, and it is obvious it is a moral 

imperative that we do something about that. If you awoke this 

morning anxious about the fact that if your son or daughter had 

to go to a pediatrician, and you couldn’t pay the bill, that is a serious and urgent and immediate problem that deserves the attention 

of the Congress and the entire country. 

Beyond the moral imperative, though, it is becoming more and 

more clear to me that the economic burden of having 47 million uninsured is an unsustainable burden for the United States. In global 

competition, be it in autos, airlines, pharmaceuticals, software, we 

2

will not compete successfully if our entrepreneurs are saddled with 

a system where they are cross-subsidizing the healthcare of people 

whom they don’t employ, but are paying for either directly or indirectly through premiums and shifted costs and taxes. 

I believe there is a strong economic imperative to get as many 

Americans fully insured and fairly insured as rapidly and as intelligently as we can. 

Secondly, I believe there is a growing understanding that people 

who are insured are suffering and are burdened by the fact that 

they are cross-subsidizing people who are uninsured; that the problem of uninsurance is not simply an urgent life problem for those 

without insurance, it is also a family budget problem for those fortunate enough to have insurance. 

By no means is reducing the number of uninsured the exclusive 

remedy for controlling health care costs, and I know Mr. Webber 

is going to speak to this later, and I want to tell him at the outset 

that I agree with what he said, that controlling health care costs 

is a global question, and it requires attention, I believe, to insurance market reform, to malpractice reform, to the use of technology 

and innovation that would reduce costs in many, many other areas. 

It is the purview and jurisdiction of this committee to look at the 

employer-based health care system, and we have chosen to begin 

our examination by looking at ways that the employer-based health 

care system could be utilized to reduce the number of uninsured. 

Fifty-nine percent of Americans get their insurance through their 

employer. This is not to denigrate other means of acquiring insurance, but it is to acknowledge that the employer-based system has 

been successful and meaningful in many people’s lives. So our mission, the committee will embark upon a mission to think about 

ways and creatively examine ways that, through the existing employer-based health care system, we can reduce the number of uninsured people in our country. 

In the short run, we are going to examine the possibility of employer-based participation in the children’s health insurance program called SCHIP. The Committee on Energy and Commerce is 

obviously responsible for the reauthorization of that program, and 

in consultation with the Committee on Energy and Commerce, we 

are discussing ways in which employers could become involved in 

extending employer-based health care coverage, building on the 

SCHIP system to decrease the number of uninsured people. 

The committee intends beyond that to look at the interesting experiments that are being done by various State governments across 

the country. Massachusetts has already adopted some very meaningful reforms. California is considering very meaningful reforms, 

as is my State, New Jersey. My friend Mr. Kline’s State, Minnesota, has already adopted a number of meaningful reforms. So 

we will be considering ways that the ERISA statute should or could 

be modified to facilitate those meaningful reforms in a way that we 

could reduce the number of uninsured and in a way that we could 

control costs. 

Let me say one final point. I am acutely aware of the voluntary 

nature of the ERISA statute. I am acutely aware of the fact that 

the 59 percent of Americans who get their insurance through employers, almost all of them did so because the employer decided to, 

3

not because the employer was required to by law. And although I 

would not, for one, rule out the idea of an employer mandate, I 

frankly think there are circumstances under which it is appropriate. 

I come at this question personally from the starting point that 

we should be looking at optimizing incentives that would make an 

employer choose to insure rather than address the question of laws 

which would mandate an employer, require him or her to do so. 

This is a vast question and an important question, and I am certain that the Committee on Ways and Means and the Committee 

on Energy and Commerce, the Committee on Appropriations, many 

others will consider the consequences of this. So will we. 

I look at today being the first in a series of discussions about 

ways that we can exercise our jurisdiction in a way that will control costs for employers and employees, improve the quality of the 

health care system in the country, and, most especially, reduce the 

number of uninsured. 

At this time I am going to ask my friend and colleague, the 

Ranking Member of the committee, Mr. Kline for his opening statement, and I understand that Dr. Boustany would also like to make 

a statement. And at the conclusion of Mr. Kline’s remarks, Dr. 

Boustany is welcome to do that. 

John? 

Mr. KLINE. Thank you, Mr. Chairman, for that concession and 

the opening remarks, and because of that, in the spirit of listening 

to our witnesses and not so much to us, I will add in realtime my 

opening remarks, which as I just told the witnesses, is always dangerous. 

I am delighted that we are having this hearing, and I am pleased 

that the Chairman has decided to have a series of hearings. I think 

the discussion and the debate across the country in so many different venues and forums about trying to better understand how 

Americans pay for their health care, how they are insured for their 

health care, and how we ought to pay for or be insured for our 

health care is probably at the very pinnacle of important issues 

that we are going to be addressing, certainly in this Congress. That 

we are starting with employer-provided health insurance, health 

benefits is an important place to start, because, as the Chairman 

said, I think he used a number over 59 percent. I was looking at 

a report that said over 63 percent of workers who get their insurance through employee-provided insurance and some 15 percent of 

additional family members. So clearly it is at the core of our system. 

I would just like to ask unanimous consent that we include the 

Employee Benefits Research Institute report earlier this month 

that discusses in some depth the employer-provided health insurance. 

Chairman ANDREWS. Without objection. 

[The Employee Benefit Research Institute report, ‘‘EmploymentBased Health Benefits: Access and Coverage, 1988-2005,’’ dated 

March 2007, is available at the following Internet address:]

4

http://www.ebri.org/pdf/briefspdf/EBRIlIBl03-20071.pdf 

Mr. KLINE. And with that, let me thank the witnesses for being 

here and, again, the Chairman for holding this hearing, and I will 

yield back so Dr. Boustany may have a chance to speak. 

[The statement of Mr. Kline follows:]

Prepared Statement of Hon. John Kline, Ranking Republican Member, 

Subcommittee on Health, Employment, Labor, and Pensions 

Good morning. I’d like to thank Chairman Andrews for convening this hearing 

this morning. I expect this will be the first of many in our Subcommittee dedicated 

to exploring the current successes—and failures—of our nation’s health care system. 

The delivery of health care is an issue of great importance to every one of our constituents, and I expect that as we take up this issue today and in the weeks beyond, 

we will find that on both sides of the aisles, we share many of the same concerns 

and issues. We may even agree on some solutions, while I expect we’ll disagree on 

others. That said, this is a matter of indeed national importance, and I am glad to 

see that we are undertaking, as legislators, a thoughtful and complete examination 

of the issue. 

I think it particularly fitting that we start the process today by an examination 

of our employer-based health care system, and the innovations companies are pursuing within that framework. I think sometimes as we look at the problems our 

health care system faces—be it the fact that there are too many uninsured Americans, or that costs are rising at rates which threaten the ability of businesses and 

individuals to purchase health insurance—it is too easy to overlook some fundamental successes. 

Earlier this month, the nonpartisan and highly respected Employee Benefits Research Institute released a report examining trends in the employer-based health 

care system over the last twenty-five years. I would ask unanimous consent that a 

copy of this report be included in the record. 

EBRI’s report underscores some very important facts. First, we should be mindful 

that employment-based health benefits are the most common form of health insurance for individuals and workers in the United States. In 2005, 63.1 percent of 

workers were covered by an employment-based health plan from their own employer, and almost 15 percent had coverage through an employer as a dependent. 

Indeed, only four percent of workers eligible for health coverage through their employer are uninsured. 

As EBRI’s study makes clear, and I quote, ‘‘While claims of the demise of employment-based health benefits have been made, EBRI research has found that this is 

simply not the case. Employment-based health benefits have historically [been]—

and continue to be—the most common source of insurance in the United States.’’

I raise this point today because I think it’s important and appropriate, as we 

move forward to pay heed to one of the fundamental tenets of the practice of medicine itself: First, do no harm. As I said earlier, we absolutely face challenges in our 

current system, ranging from cost to access. But as we explore efforts to expand and 

build on our employer-based system, we must be certain that we do not take action 

that will exacerbate, rather than solve, these problems. I trust our witnesses will 

speak to these issues in greater detail. 

I would also be remiss in not bringing to the Subcommittee’s attention one bipartisan health care solution on which this Committee has long taken the lead. Of 

course I am referring to Association Health Plans, or AHPs. 

Estimates indicate that 60 percent or more of the working uninsured work for or 

depend on small employers who simply lack the ability to provide health benefits 

for their workers. These employers are denied the ability to purchase quality health 

coverage for their workers that compares with the benefits large, multi-state companies have been offering to their workers for decades. 

AHPs address both the access and cost issues at the heart of the health care reform debate, giving uninsured working families new hope for a solution that can 

give them access to quality health care. By giving small businesses the opportunity 

to pool their resources and increase their bargaining power, AHPs would help employers reduce their health insurance costs, and equally important, expand access 

to quality health care for the people for whom it is currently out of reach: uninsured 

working families. 

In the last Congress, the House passed bipartisan legislation authorizing the creation of Association Health Plans with the support of three dozen Democrats. I 

5

would hope that as we take up the health care debate in this Congress, we can look 

to common-sense, bipartisan solutions like AHPs as an issue upon which many of 

us can agree—or at least as a starting point as one part of the solution, if not the 

solution to every problem that our health care system faces. 

With that, I welcome our witnesses. Our panel today is a distinguished one, and 

I look forward to their testimony as to how our current system is working, and how 

it may be improved. 

Chairman ANDREWS. Dr. Boustany, you are recognized for 5 minutes. 

Mr. BOUSTANY. Chairman Andrews, thank you so much for allowing me to make an opening statement, and I appreciate your 

comments and willingness to work on health care reform issues 

that come under the jurisdiction of this committee. And, Ranking 

Member Kline, likewise I appreciate you giving me the time to 

speak here as well. 

As we look at health care reform on a broad front, I believe there 

are three main threadlines that we have to approach it on. One is 

information technology and all the aspects that go along with that 

that help reduce duplication, the privacy issues, and also informing 

the consumer. The second one would be choice, creating a wide 

range of choices which will bring more competition, open competition, into the marketplace that ultimately will drive down the cost 

of premiums regardless of who is paying those premiums. And the 

final piece is control, and I do believe that ultimately decisions 

should be made by the patient, the patient’s family and the physician who treats the patient. And I think if we keep those three 

principles in mind as we go forward, I think we will follow the 

right path in health care reform. 

As a heart and lung surgeon in a State, Louisiana, that has a 

very low insurance coverage level, I can tell you from personal experience I have seen many uninsured patients delay treatment, 

and I believe Congress has a moral and ethical duty to expand affordable coverage. Millions who lack insurance forgo needed care, 

making them sicker, and requiring more costly and invasive treatments down the road. In fact, a recent CBS poll found that 60 percent of uninsured adults said a family member had not sought care 

due to cost. A 2005 health affairs study found that half of all bankruptcies were due to medical debt. 

We must expand coverage because it is fiscally responsible, and 

it is humane. Our coverage problem threatens every American’s access to excellent medical care. Seven out of ten Americans want 

Congress to act this year. The trade-offs of solutions must be explored, but shame on us if we wait until 2008 to do anything to 

protect and expand coverage. 

Americans overwhelmingly demand freedom to make health care 

choices that meet their individual needs, similar to the range of 

choices that Members of Congress enjoy through the Federal Employee Health Benefit Plan. They also want Congress to find ways 

to encourage employers to maintain and improve the health care 

insurance coverage they have agreed to provide to workers. Millions of Americans have worked their entire careers for health care 

benefits they now enjoy. 

And with that in mind, lawmakers who champion single-payer 

proposals should consider that 70 percent of Americans who would 

6

have to drop their existing coverage and trust Washington not to 

ration medically necessary care when a family member needs it 

most. Consider access problems in Canada’s single-payer system. 

Two years ago that country’s Supreme Court fittingly noted that, 

quote, access to a waiting list is not access to health care. Instead, 

Congress must customize coverage solutions for the diverse groups 

who lack insurance beginning with the low- to moderate-income 

American, older workers who don’t qualify for Medicare, and smaller-business employees. Furthermore, more than half of uninsured 

have incomes below 200 percent of the Federal poverty level. In 

Louisiana, many families at this income level currently qualify, but 

are not enrolled in Medicaid or SCHIP. 

Americans overwhelmingly support expanding SCHIP to cover 

more kids this year, and I am hopeful this will happen. Many families that make too much to qualify for government programs simply 

cannot afford premiums without some form of assistance, and I do 

believe changes to the Tax Code could bear fruit in expanding insurance coverage for these workers. 

More than 6 out of 10 uninsured Americans are small-business 

employees, and I was pleased recently to see that Chairman Baucus in the Senate Finance Committee said he intends to create purchasing pools for individuals in small businesses so that they can 

take advantage of group rates for coverage, and I am hopeful that 

this committee won’t rule this out. I believe we have to look at all 

options. 

We also need to do more to make coverage portable between jobs 

because there really isn’t true portability. Looming health care 

labor shortages and a shrinking pool of working taxpayers will exacerbate the problem. That is another issue I think this committee 

should look at. 

Arbitrary cuts produce false savings. We need to look past government accounting gimmicks and address the real long-term problems that exist. As I mentioned earlier, we must invest in health 

IT to discourage waste, encourage wellness and help patients manage chronic conditions; and we must give timely, useful and valid 

information on cost and quality to providers and consumers. Medical societies must help to develop these quality measures, and 

publicly reported data must be risk-adjusted. I won’t get into personal experiences with that. 

I look forward to working closely with the members of this committee to expand access to affordable coverage and excellent medical care, and I look forward to your testimony. 

Chairman ANDREWS. Thank you, Dr. Boustany. We look forward 

to your sharing of your experiences both as a legislator and as a 

physician in this process. 

Without objection, any Member who wishes to enter an opening 

statement on the record will be able to do so. 

Also the Medicare prescription drug law required the President 

to establish a Citizens’ Health Care Commission to make recommendations about the uninsured. It also required the committees of jurisdiction to consider these recommendations. As part of 

today’s hearing record, we will include the Commission report, a 

very small document, and the President’s response in the hearing 

record as well. 

7

[The report, ‘‘Health Care That Works for All Americans,’’ dated 

September 29, 2006, may be viewed at the following Internet address:]

http://www.citizenshealthcare.gov/recommendations/finalrecommendations—

print.pdf 

[The President’s response follows:]


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Chairman ANDREWS. A vote has just been called on the floor. 

With the indulgences of the witnesses, the members of the committee will go cast their votes. The committee stands in recess. 

[Recess.] 

Chairman ANDREWS. Ladies and gentlemen, we will reconvene. 

We thank the witnesses for their indulgence. 

We are very much looking forward to hearing from the witnesses 

this morning. We are going to hear from them in the following 

order. Our first witness will be Ms. Joan Alker. She is the deputy 

executive director of the Georgetown Center for Children and Families, and a senior researcher at the Health Policy Institute of 


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Georgetown University. For the last 12 years her work has focused 

primarily on public coverage for low-income families through Medicaid and the SCHIP program. Dr. Alker holds a master’s in philosophy and politics from St. Anthony’s College, Oxford University, 

and an A.B. With honors in political science from Bryn Mawr College. Welcome. It is great to have you with us. 

Our second witness will be Mr. Brian England. Mr. England is 

a small-business owner in Columbia, Maryland. He has owned an 

independent auto repair shop called British-American Auto Care in 

Columbia, Maryland, since 1978. His auto shop is made up of 20 

employees, which includes part- and full-time workers. He will be 

giving us some advice on repairing our carburetors as well, I’m 

sure, if we have a problem. He is a member of the Howard County 

Chamber of Commerce, and we welcome him. 

Our third witness is Mr. Andrew Webber, who joined the National Business Coalition on Health, which is NBCH, as president 

and CBO in June 2003. NBCH is a national not-for-profit membership organization of 90 local and regional business coalitions on 

health, dedicated to health system reform through value-based purchasing. Mr. Webber was a vice president for external relations and 

public policy at the National Committee for Quality Assurance. 

Welcome, Mr. Webber. 

And finally, the last witness will be Dr. Linda Blumberg. She is 

an economist and principal research associate at the Urban Institute. Dr. Blumberg has focused her career and research interests 

on issues of health care policy and economics. She has been at the 

Urban Institute since 1992. From August 1993 through October of 

1994, she served as health policy advisor to the Clinton administration during its initial health care reform effort. Some of her works 

include a variety of projects related to private health insurance and 

health care financing, building a roadmap to universal coverage in 

the State of Massachusetts, and effects of the implementation of 

the SCHIP program on the insurance coverage of children. 

We are delighted to have each of you with us. In front of you, 

you will notice a box with three lights. Each witness is given 5 

minutes to summarize his or her written testimony. Your written 

testimony will be included in full in the record of the hearing. We 

would encourage to you summarize your written testimony within 

the 5 minutes that is given. When you are 1 minute away from 

your time expiring, a yellow light will go on, and when your time 

has expired, a red light will go on, and we would ask you to try 

to stay within the guidelines to the extent that that is possible. 

Again, to reiterate, the complete statements of the witnesses will 

be included in the record of the hearing. 

So, Ms. Alker, we would like to start with you. Welcome to the 

committee. 

STATEMENT OF JOAN ALKER, DEPUTY EXECUTIVE DIRECTOR/

SENIOR RESEARCHER, CENTER FOR CHILDREN AND FAMILIES/HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY 

Ms. ALKER. Thank you very much, Chairman Andrews, Representative Kline. Thank you for the invitation to testify at today’s 

hearing. As you mentioned, Congress this year will be reauthorVerDate 0ct 09 2002 19:27 Jul 06, 2007 Jkt 000000 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 G:\DOCS\110TH\HELP\110-10\33758.TXT HBUD1 PsN: DICK
19

izing the State Children’s Health Insurance Program, we call it 

SCHIP, and as Members consider SCHIP, they will naturally start 

thinking about the issue of integrating public and private coverage, 

which is some of what I am going to talk about here today. And 

over the years some States have used their SCHIP and Medicaid 

programs to explore ways to use employers’ contribution to reduce 

public costs. This has been one of the primary motivations to establish what are commonly known as premium assistance programs. 

And premium assistance programs use Medicaid and SCHIP dollars to subsidize the purchase of private coverage, typically employer-based coverage. 

So let me talk briefly about what we have learned from these 

programs so far. With some exceptions, premium assistance programs have not been terribly successful in terms of enrollment. In 

New Jersey, for example, which runs a highly regarded premium 

assistance program, and I am not just saying that because it is 

your committee, they have only had about 700 to 800 family members enrolled in that program over the years. 

There are certain logistical challenges that States face, but the 

primary reason for low enrollment is simply that employer-sponsored coverage is not widely available to low-wage workers. When 

private insurance is available to low-wage workers, it is often very 

expensive. In 2004, for example, the average cost of covering a family through Medicaid was $7,418, whereas the cost of covering that 

same family through employer-sponsored coverage was almost 

$10,000, 34 percent higher, and this annual cost of almost $10,000, 

we have to remember, for private coverage doesn’t include significant additional costs that families themselves will incur, such as 

copayments, deductibles and other coinsurance. 

As a result, there are two principles that I believe should be 

given primary consideration when considering premium assistance 

approaches. First, participating families should not receive fewer 

benefits or face higher cost sharing than they would in Medicaid 

or SCHIP. Some States have received waivers of the so-called 

wraparound rules which ensure this. In particular, as I mentioned, 

cost sharing for private policies can be very high, and a lot of studies have shown that this could inhibit access to needed services for 

low-income families. 

The second important principle is that public subsidization of private coverage should occur only when it is a cost-effective use of 

public funds. Taxpayer dollars should not be wasted by spending 

the same amount or in some cases even more in buying fewer services or imposing higher costs on families. 

So let me turn now to some recommendations, and I know, 

Chairman Andrews, you are in the process of developing a proposal 

that looks at some of these issues. I believe that Federal policies 

should encourage and facilitate the ability of States to follow the 

example of New Jersey and Rhode Island, another State that has 

run a very good premium assistance program. 

Some States have reported that it can be difficult to obtain information from employers on their benefits package in order to assess 

the so-called wraparound services. A change to the ERISA statute 

would help States by allowing them to acquire this information 

from employers, and that would make this easier. 

20

Another needed change is to define the loss of Medicaid and 

SCHIP eligibility as a qualifying event for purposes of eligibility for 

employer-sponsored coverage. This could help to prevent periods of 

uninsurance for children and in some cases parents, when a parent 

receives a raise and the child becomes ineligible for public coverage 

because they are over income. For example, a parent could receive 

a raise in April. The child becomes ineligible for SCHIP, but the 

family has to wait for the employer’s annual open enrollment period in October, and the child is uninsured in the interim. 

And finally, creative State approaches should be encouraged. A 

few States such as Maine, New Mexico and Oklahoma have recently started to offer a public product to small businesses and individuals who are otherwise unable to afford the growing cost of 

purchasing private coverage. These programs are relatively new, so 

it is hard to assess their success, and it is often difficult to induce 

participation without substantial subsidies, but there is little doubt 

that public coverage is less expensive than private coverage. So I 

think creating these kinds of opportunities for families and employers to buy in to public coverage is an intriguing new direction and 

one that should be explored. 

In conclusion, I just want to say it is important to remember that 

covering children and their families is a critical public policy objective and one that enjoys widespread public support. We look forward to working with the members of the committee on this effort. 

Chairman ANDREWS. Ms. Alker, thank you very, very much. 

[The statement of Ms. Alker follows:]

Prepared Statement of Joan C. Alker, M.Phil, Deputy Executive Director, 

Georgetown University Center for Children and Families 

Chairman Andrews, Representative Kline and Members of the Committee: Thank 

you for the invitation to testify at this morning’s hearing on integrating employersponsored coverage with the State Children’s Health Insurance Program (SCHIP) 

and Medicaid. My name is Joan Alker, and I am the Deputy Executive Director of 

the Center for Children and Families, a research and policy center at Georgetown 

University’s Health Policy Institute. I am also a Senior Researcher at the Health 

Policy Institute. Much of my recent work has focused on the intersection of public 

and private coverage—including two reports on premium assistance and public coverage that I authored for the Kaiser Commission on Medicaid and the Uninsured. 

I would like to share some lessons learned from states’ experience with premium 

assistance programs and the best way to integrate public and private coverage for 

low-income families. 

As you know, this year Congress will be reauthorizing the State Children’s Health 

Insurance Program—known as SCHIP. Created in 1997, SCHIP, along with its larger companion program Medicaid, has succeeded in lowering the rate of uninsurance 

among low-income children by one-third between 1997 and 2005. In 2005, more than 

one in four children received their health insurance through Medicaid and SCHIP—

the vast majority through the Medicaid program. Because Medicaid is by far the 

larger program, it is important in any discussion of improving coverage for low-income families to consider both Medicaid and SCHIP. In both programs, the majority 

of children live in families with at least one employed parent. 

For children in low-income families (defined as those with incomes below twice 

the poverty level, or $41,300 for a family of four in 2007) these public programs are 

the largest single source of health coverage—covering half of all children (See Figure 1). Unfortunately public coverage for parents is typically far less generous—the 

median income level at which a working parent is eligible for Medicaid is 65% FPL 

($13,423 for a family of four in 2007), although some states like New Jersey cover 

parents at higher income levels. Rates of uninsurance for adults are higher than for 

children as a result of this less generous public coverage.

21

As the expansion of public programs for children, and in some cases parents, has 

occurred, the question of integration with employer-sponsored coverage has arisen. 

States, especially during challenging budget times, have explored ways to capture 

employers’ contributions as a source of financing for eligible families. This legitimate 

desire to reduce public costs has been one of the primary motivations to establish 

premium assistance programs. Other arguments for premium assistance have been 

offered as well including the need to support the employer-based system of insurance and prevent the substitution of public coverage for private coverage (or ‘‘crowdout ’’); the ability to cover all family members in the same health care plan; and 

the possibility of providing families with better access to providers . 

Premium assistance programs use Medicaid and SCHIP dollars to subsidize the 

purchase of private coverage—typically, but not exclusively, employer-based coverage. Premium assistance is an idea that preceded the SCHIP program. Section 

1906 of the Medicaid statute permits states to pay premiums for group health plans 

on behalf of both Medicaid eligible beneficiaries and other family members if it is 

cost-effective to do so. A few states such as Iowa and Pennsylvania have pursued 

this option aggressively. Under the Medicaid statute, the state must provide a ‘‘benefits wraparound’’ to ensure that families do not lose access to any needed benefits 

that are otherwise available through Medicaid or incur higher cost-sharing as a result of enrolling in private coverage. For example, an employer’s coverage may not 

offer pediatric dental benefits. Other states, including Florida, Illinois, New Jersey, 

Oregon, Rhode Island and Utah have implemented premium assistance programs 

for their Medicaid and SCHIP populations through Section 1115 Medicaid and/or 

SCHIP waivers—in some cases in conjunction with managed care initiatives and 

other changes. Some of these states have sought and received a waiver of the benefits wraparound required by Medicaid and SCHIP. 

What have we learned from state experience so far? With some exceptions, premium assistance programs have not been terribly successful in terms of enrollment. 

In New Jersey, for example, which runs an exemplary premium assistance program 

in many ways, enrollment has hovered around 700-800 family members. While there 

are certain logistical challenges that states face, the primary reason for low enrollment is simply that employer-sponsored coverage is not widely available for low-income families. As shown in Figure 2, only 14-15 percent of low-income working families have an offer of employer-sponsored insurance that they are not picking up.


alker1.eps
22

When private insurance is available it is often very expensive. Public coverage 

tends to be less expensive than private insurance for a number of reasons including 

economies of scale, lower administrative costs and lower reimbursement rates for 

providers.1 In 2004, the average cost of covering a family of four through Medicaid 

nationwide was $7,418 whereas the cost of the average employer-sponsored insurance package for a family of four was $9,950—34% higher (see Figure 3).2 This annual cost of almost $10,000 for private coverage does not include significant additional costs families will incur—such as copayments, deductibles and other coinsurance. Similarly, a recent study conducted by the Urban Institute for the state of Illinois found that predicted medical spending would be 31% higher if children were 

covered by private insurance as opposed to covering them through Medicaid/

SCHIP.3


alker2.eps
23

As premium assistance programs continue to hold a lot of attraction, there are 

two principles that I believe should be given primary consideration when constructing premium assistance approaches. First, participating families should not 

receive fewer benefits or face higher cost-sharing than they would in the public program for which they are eligible (i.e. Medicaid or SCHIP). In particular, cost-sharing 

for private policies can be very high and may inhibit access to needed services for 

low-income families. A recent study found that the average family premium for employer-sponsored insurance in 2006 was $2,973.4 For a family of four at 150% of the 

poverty level ($30,000 for a family of four in 2006), this premium constitutes 9.9% 

of their income. In addition, these families face coinsurance, deductibles and other 

fees. Premium assistance programs generally offer help with premium costs; but 

some states do not provide the ‘‘wraparound’’ protection mentioned above, and participants must pay all applicable copays, deductibles and coinsurance. A recent 

study found that out-of-pocket costs in employer-sponsored plans are, on average, 

almost as high as a family’s premium costs.5

The second important principle is that public subsidization of private coverage 

should occur only when it is a cost-effective use of public funds. This is critically 

important because private insurance is generally more expensive than public coverage, and costs have been rising at a faster rate in the private sector. It is not prudent for state and federal funds to be invested in an expensive product (considering 

the benefits provided and the cost-sharing imposed) that costs the public program 

more, even with an employer contribution. 

Premium assistance programs that take advantage of a robust employer contribution and operate in states that offer public coverage to the whole family (including 

parents) are most likely to save money. Because few employers offer child-only insurance products, a state is far more likely to meet the cost-effectiveness test for 

public dollars if it is offering coverage to the whole family in its Medicaid or SCHIP 

program and can count the cost of covering the parent in the equation.6 Strong participation rates are also essential, as programs with low enrollment are often not 

able to overcome the high administrative start-up costs to recoup any savings. If all 

of these factors are not taken into consideration, taxpayer dollars may be wasted 

by spending the same amount, or in some cases even more money, and buying fewer 

services for families. 

Few data are available to assess whether states are saving money through their 

premium assistance programs. In an effort to promote the use of private insurance, 

the Bush Administration’s Section 1115 Health Insurance and Flexibility and Accountability Waiver Initiative (known as ‘‘HIFA) actually weakened federal cost-effectiveness requirements for the use of Medicaid and SCHIP dollars through waivVerDate 0ct 09 2002 19:27 Jul 06, 2007 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\HELP\110-10\33758.TXT HBUD1 PsN: DICK

alker3.eps
24

ers, and there has been little federal oversight in this regard. The states with proven savings are states such as Rhode Island and New Jersey.7 These states design 

their program in the most optimal way by providing wraparound coverage to families and doing a case-by-case assessment to ensure that state and federal governments are saving money. 

What should Congress do? As Congress considers SCHIP reauthorization, federal 

policy should encourage and facilitate the ability of states to follow the example of 

states like New Jersey and Rhode Island. Some states have reported that it can be 

difficult to obtain information from employers on their benefits packages in order 

to assess what ‘‘wraparound’’ services are needed and whether it is cost-effective to 

subsidize that employer’s coverage. A change to the ERISA statute such as the one 

Rep. Andrews is proposing which allows states to require this information from 

‘‘ERISA’’ employers will make this easier. Another difficulty that states face in implementing premium assistance programs is that a family that becomes eligible for 

a premium subsidy under a Medicaid or SCHIP program may have to wait for the 

employer’s plan to have its open enrollment period. A policy change that establishes 

Medicaid/SCHIP eligibility as a ‘‘qualifying event’’ similar to other events such as 

births, adoptions, etc. for the purposes of triggering eligibility for subsidized employer coverage will facilitate expedited enrollment. 

And finally another related ERISA change which Congress should consider to enhance the coordination of public and private coverage, would be to define the loss 

of Medicaid/SCHIP eligibility as a qualifying event for purposes of eligibility for employer-sponsored coverage. This could help to prevent periods of uninsurance for 

children (and in some cases parents) when a parent receives a raise and the child 

becomes ineligible for public coverage, for example, in April, but the family has to 

wait for the annual open enrollment period in October and the child is uninsured 

in the interim. 

Even with improvements, premium assistance is not a panacea. Even if these 

changes are made, state and federal policymakers should have realistic expectations 

for premium assistance programs, particularly as the cost of private insurance continues to increase. Because employer-sponsored insurance is simply not widely 

available to low-wage workers, traditional premium assistance programs will not address the causes of uninsurance for these workers. Premium assistance can be a 

useful tool in some but not all circumstances; it is not a substitute for direct coverage through Medicaid and SCHIP. 

In the absence of a broader public program expansion (or in the case of Maine 

as part of a broader effort), a few states such as Maine, New Mexico and Oklahoma 

have tried a different approach—offering a public product to small businesses and 

individuals who are unable to otherwise afford the growing cost of purchasing insurance in the private market. These programs are relatively new so it is hard to assess their ultimate success. It is often difficult to induce employers to participate. 

In addition, a number of other states offer the opportunity to ‘‘buy-in’’ to SCHIP for 

children whose family income exceeds eligibility thresholds. These programs have 

had mixed success with enrollment, but this coverage is a welcome resource for 

some families who are unable to afford coverage in the private market. Participation 

rates for both approaches will improve to the degree that government subsidies are 

available to reduce the costs of participation to employers and families. There is little doubt that public coverage is less expensive than private coverage, so creating 

these kinds of opportunities for families and employers to purchase public coverage 

is an intriguing new direction and one that should certainly be explored. 

In conclusion, it is important to remember that covering children and their families is an important public policy objective, and one that enjoys widespread public 

support. We look forward to working with members of the committee on this effort. 

ENDNOTES

1 If provider reimbursement rates are too low, this may create access problems for beneficiaries. 2Georgetown Center for Children and Families analysis based on Kaiser/HRET 2004 survey 

and Medicaid MSIS data for 2004. 3 Hadley, J. and Cravens, M. The Cost of Using Private Insurance to Cover Uninsured Children in Illinois. Urban Institute, October 20, 2005. 4Kaiser/HRET, Survey of Employer Health Benefits 2006 (September 26, 2006). 

5Survey of employer health benefits by Hewitt Associates, LLC (October 9, 2006). 

6This is one reason that it has been very difficult for states to meet SCHIP’s cost-effectiveness 

test, because it only includes the cost of covering children. 7 Rhode Island has been more successful than New Jersey with enrollment. 

25

Chairman ANDREWS. Mr. England, welcome to the committee. 

We are happy to have you here. 

STATEMENT OF BRIAN ENGLAND, OWNER, BRITISH AMERICAN 

AUTO REPAIR 

Mr. ENGLAND. Thank you, Mr. Chairman. Thank you very much 

for this opportunity. 

One of the things that we have really had a problem with, especially with insuring our employees, is just the rising cost of health 

care, and we have had to look at different ways to try and cut that 

down. 

Chairman ANDREWS. Sir, if I could ask you to pull the microphone a little bit closer so you can be heard clearly. 

Mr. ENGLAND. One of the things we have done is to look at 

deductibles first, and we have changed the deductibles, and this 

has made it somewhat more affordable to provide it. But one of the 

things that has really made a big difference for us was from the 

apprenticeship plan we have in place in our repair shop. 

About 5 or 6 years ago, I reactivated the apprenticeship plan, 

and what this did, it brought in more young blood, and what this 

did, it brought down the cost of the health care, because in Maryland what they have is an age-weighted plan. So when—every year 

when you go to renew your insurance, you look at the average age 

of your employees, and, of course, when you have 18- and 19-yearolds employed, then that brings down the cost. So I have benefited 

from having an apprenticeship program. 

But this is also an area that brings to light young people are not 

insured as much, and these people are young, and they are 

healthy, and if they are brought into the plan, this is going to help 

a lot in keeping the cost of insurance down. So that is what I have 

for the apprenticeship plan. 

The other challenge we had was employing people like a single 

mother who we had employed. Cheryl. She came to work for us for 

a number of years. So when somebody works for a real long time, 

you give them raises. And one of the things that happened was 

that as we gave her raises, we asked her to do more hours, and 

what this led to was every time she got a raise, then the amount 

of time she could work went down. And I think she was allowed 

up to about $200 a week of income, which is not very much. Then 

she would lose her health care benefits. And at that time we 

weren’t providing health care benefits for part-time employees. So 

when it got to the point where we wanted to employ her for 25 

hours a week, then that led to the fact where she said, well, I can’t 

do a 25-hour week; I can’t risk losing my health care. So in the 

end, she did leave. 

I did call her up on Tuesday and said, well, if we could have provided you coverage for your children and for your family, would you 

have carried on working for us? And she said, yes, that would have 

been great to do that. 

I am also on the Chamber of Commerce, and the Chamber of 

Commerce traditionally had two legislative committees, one for 

State and one for local. And last year I helped develop the white 

paper which establishes exactly what we feel on different topics. 

And in the area of health care, I could see when we came to do this 

26

document, there was a really heavy lead-in towards association 

plans, and that seemed to be the only thing that the Chamber 

seemed to be really concentrating on. But at the time we got input 

from everybody, we then realized that if we were going to move forward, we needed to be a bit more imaginative, and we felt the result of this was that if we were going to have association plans, 

they should not be implemented if it was going to affect our small 

group market. 

Most people that—well, everybody with 50 or less employees in 

Maryland buys into the small group market, and that allows for 

standard coverage that we know we have got. Without going out 

and trying to research lots of different policies, we know what we 

are going to get for the money. 

So that movement towards having a different approach to health 

care changed this year because we added more, and now we have 

got a separate part to the health legislation. And what that does 

for us is to enable us to really look in depth into health care issues 

and who should be involved with that. 

I really think that it is very important that we provide coverage 

for children. You know, having 9 million children not covered with 

health insurance, it seems to me it is a disgrace, it is just terrible. 

So I am really pleased you are doing something to come away from 

this problem. 

And the other week—I expect everybody knew that last week 

they came out with this plan from UNICEF which put us at the 

bottom of the list with the United Kingdom in providing coverage 

for health care and for education. We were right at the bottom of 

the list, and I think that is disgraceful for one of the richest countries in the world. 

Chairman ANDREWS. Mr. England, thank you very much for your 

perspective. 

[The statement of Mr. England follows:]

Prepared Statement of Brian England, Owner, British American Auto 

Repair 

I would like to thank Chairman Andrews, Ranking Member Kline, and members 

of the Subcommittee for the opportunity to present testimony on covering the uninsured and how the federal government can help small businesses obtain affordable 

coverage. My name is Brian England and I am a small business owner. I immigrated to the United States in 1972 and became a citizen in 1984. In my remarks 

I will address the following points: 

• How the rising cost of health care has affected my business 

• The role of the Howard County Chamber of Commerce 

• Opportunities for the federal government 

In 1978, My wife and I opened an independent auto repair shop called British 

American Auto Care in Columbia, Maryland. Our auto shop is fairly small; we employ 20 people. Our staff includes both part- and full-time workers. 

At British American Auto Care one of the greatest challenges we face is affordable 

health care. Like many other small business owners, we want to be able to provide 

comprehensive, affordable health care plans for all of our employees and their family members, but it is difficult to afford to do so. At the moment health care cost 

represents 5% of our labor rate. 

British American Auto Care currently employs three apprentices and one trainee, 

who will continue on to be an apprentice. The program is open to high school or 

trade school students; the students are generally 18-20 years old. Each apprentice 

receives supervised, structured, on-the-job training combined with technical instruction in a specific occupation. They apprentice for three years and attend college and 

graduate with an associate’s degree. My company provides health insurance to these 

student apprentices, except in cases where the student is still covered by parental 

27

coverage. In Maryland, insurance rates are calculated by the average age of employees. Having a young pool of workers helps us keep our overall premiums low. We 

have also tried to keep premiums low by making increasing deductibles and co-payments, which results in employees paying a greater share for their health care. 

The rising cost of health care has become an obstacle for both employers and employees. As an employer I believe providing adequate health care support to my employees and their families is an important piece in helping families transition from 

government support into the workforce. For example, for a number of years I employed a single mother with two children as a part-time office employee. I was 

pleased with her work wanted her to work more hours. She received her health benefits through Medicaid and when I offered her this opportunity she told me that she 

was unable to work more hours without losing health care benefits for herself and 

her children. Unfortunately, she chose to leave our employment last year. In preparing for this hearing I called her Tuesday and asked her if she would have continued working with us if we had been able to provide the necessary health coverage 

for her family and she said yes. 

While I am able to speak as an individual small business owner, I have also had 

the opportunity to see how the rising cost of health insurance has affected other 

businesses. I am on the legislative committee of the Howard County Chamber of 

Commerce and in this role have had a chance to discuss this issue with other business owners. Business owners are increasingly concerned about the rising costs of 

health care. Every year the Chamber goes to Annapolis and discusses policy issues 

with the State Legislature. We had two subcommittees that reflect our policy priorities: one on local legislation and the other on state legislation. This year, we added 

a third subcommittee on health care, which underscores the importance of this 

issue. I was asked to review the health care section of the Chamber’s white paper. 

The business community as a whole has been moving towards accepting solutions 

that include everyone, specifically individuals, government and business. It is important that both Maryland’s state legislature and the federal government come up 

with progressive proposals to address cover all uninsured Americans. 

The E-SCHIP proposal is coming at just the right time. There are many companies considering dropping family health care coverage and only providing coverage 

for their employee. This could lead to more uninsured children and there are already too many. Currently more than 9 million children lack health insurance in 

the United States. Four out of five of these children have parents who work but cannot afford health insurance coverage. Proposals that would offer employers the option of buying into the SCHIP program in order to provide coverage for an employee’s family would greatly ease the burden on working parents. The E-SCHIP proposal would also help apprentices that have families. 

It is critically important that we invest not only in the health of our employees 

but also in the health of our children because children are our future. In a recent 

UNICEF report on child poverty the United States was at the bottom of the list of 

rich countries with regard to providing health care. It is unacceptable that a country 

as prosperous as the United States would fail to care for the health of its citizens. 

I am glad that Congress is working on improving this situation. 

Chairman ANDREWS. Mr. Webber, welcome to the subcommittee. 

STATEMENT OF ANDREW WEBBER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NATIONAL BUSINESS COALITION ON 

HEALTH 

Mr. WEBBER. Good morning, Chairman Andrews, Representative 

Kline and other members of the subcommittee. And let me first acknowledge your excellent opening statement, Chairman Andrews. 

The bipartisan spirit in which you are approaching this coming 

health care reform debate is exactly what we need, and building on 

the employer-based system is a very important part of the reforms 

that come. 

I am Andy Webber, president and CEO of the National Business 

Coalition on Health. NBCH is a national nonprofit membership association of employer-led health coalitions spread throughout the 

country, and we are dedicated to advancing value-based purchasing, a strategy to measure, report and reward performance in 

28

health care. I would like to summarize my statement with the following five points. 

As we enter a new national debate on health care reform leading 

up to the 2008 Presidential elections, I urge that our vision of 

health care reform stretch beyond the issue of access to care and 

the uninsured, and I appreciate, Chairman Andrews, you acknowledging that in the opening comments. 

Two other pressing issues must be recognized and honestly addressed in the coming national debate: health care quality and, as 

Mr. England has already identified, the issue of affordability. To 

quote the Institute of Medicine, between the health care we have 

and the care we could have lies not a gap, it is a quality chasm. 

In addition, rising health care costs put American industry, as you 

recognized, Chairman Andrews, at a competitive disadvantage in a 

global economy, while adding to the economic insecurity of the 

American public that must increasingly contribute its own hardearned dollars to an ever-growing health care industry. Simply 

stated, if we solve the problem of the uninsured tomorrow, the 

issues of health care quality and affordability would still leave us 

with a health care crisis. 

Mr. Chairman, having said that, I am an eternal optimist and 

there are signs of hope, and business leaders are probably in the 

best position to understand from experience in their own industries 

that product redesign, process reengineering, advanced technology, 

a commitment to continuous quality improvement, improved worker productivity can vastly improve product quality while reducing 

operating costs. 

Emerging data on quality and cost in health care dramatically 

demonstrate this point. For example, from the Medicare program, 

the States with the highest quality of care have the lowest per capita health care expenditures for the elderly population. Put in more 

striking terms, if the entire Medicare program practiced health 

care as it is provided in your State, Representative Kline, we could 

save one-third of total Medicare expenditures while enjoying higher 

quality. And imagine for a moment how those savings could be redirected to address the uninsured problem. 

My third point is now turning to the interest of this committee, 

and that is the employer-based health care system. While critics 

from both ends of the political spectrum are quick to attack the employer-based system, NBCH urges, as you are doing, Mr. Andrews, 

to pause, step back and reflect on its many strengths and accomplishments. As we have talked about, it provides medical coverage 

to 71 percent of Americans working in the private sector. For over 

half a century it has spread risk, pooled covered lives through 

group insurance, creating far greater leverage in the marketplace 

than individual consumers could ever generate on its own. It has 

established the employer community as purchasers and change 

agents for health care, and for real advocates for their workforce. 

The employer-based system has been innovators and leaders of 

value-based purchasing, introducing innovations like pay-for-performance, value-based benefit design, health plan and provider report cards. 

And just to demonstrate that, the California pay-for-performance 

program, the Leapfrog Hospital Survey, the Bridges to Excellence 

29

pay-for-performance program are all examples of employer-run programs. Through the work of business and health coalitions, it has 

established group purchasing arrangements among employers, 

while giving employers a collective voice in health care reform initiatives at the community level. 

Having said all that, NBCH recognizes, and we all recognize, 

that the employer-based system is not without its weaknesses. In 

particular, as Mr. England has pointed out, the struggle of small 

employers to access affordable health insurance, without market leverage or the ability to spread risk across a large population of covered lives, is severe and growing more difficult. And I urge that I 

think the environment appears ripe for experimentation and identifying and testing a mix of strategies to address the problem, including legislation and market strategies that would allow small 

business to collectively purchase health insurance to spread risk 

and leverage economies of scale; small employer tax incentives to 

provide health care benefits; reasonable exemptions from State coverage mandates; premium assistance, as Joan as talked about; and 

greater flexibility to allow families to use SCHIP dollars to enroll 

in employer-sponsored programs; and State initiatives, as we will 

hear from Dr. Blumberg, like Massachusetts, which mixes strategies like an individual mandate and employer pay or play with aggregated purchasing arrangements. 

In closing, Mr. Chairman, let me reiterate that genuine health 

care reform must address the health care triad of access, quality 

and affordability issues. We will also need the active engagement, 

participation and leadership of all stakeholders of the health care 

system if we are to be successful in advancing this reform agenda. 

NBCH urges that a principle of shared responsibility guide our 

policies moving forward, understanding that businesses, government, health plans, health professionals and consumers must come 

together in dialogue, action and equal sacrifice for us to realize a 

new vision of improved health and health care for all Americans. 

Thank you, and I appreciate the opportunity to participate. 

Chairman ANDREWS. Mr. Webber, thank you very much. 

[The statement of Mr. Webber follows:]

Prepared Statement of Andrew Webber, President & Chief Executive 

Officer, National Business Coalition on Health 

Executive Summary 

Good morning Chairman Andrews and members of the Subcommittee. I am Andy 

Webber, President and CEO of the National Business Coalition on Health (NBCH). 

NBCH is a national, non-profit, membership organization of employer led health 

coalitions spread throughout the country. Over 10,000 employers, representing 34 

million employees and their dependents, have come together through coalitions to 

advance value based purchasing—a strategy to measure, report and reward performance in health care. I have prepared a written statement that I ask be part of 

the official record. I would like to summarize my statement with the following 5 

points: 

1. As we enter a new national debate on health care reform leading up to the 2008 

Presidential elections, I urge that our vision of health care reform stretch beyond 

the issue of access to care and the uninsured. Two other pressing issues must be 

recognized and honestly addressed in the coming national debate: health care quality and affordability. To quote the Institute of Medicine, ‘‘Between the health care 

we have and the care we could have lies not just a gap, but a chasm.’’ In addition, 

rising health care costs put American industry at a competitive disadvantage in a 

global economy while adding to the economic insecurity of the American public that 

must increasingly contribute its own hard earned dollars to an ever growing health 

30

care industry. Simply stated, if we solved the problem of the uninsured tomorrow, 

the issues of health care quality and affordability would still leave us with a health 

care crisis. 

2. Mr. Chairman, I’m an eternal optimist and there are signs of hope. Business 

leaders are probably in the best position to understand from experience in their own 

industries that product redesign, process reengineering, advanced technology and 

improved worker productivity can vastly improve product quality while reducing operating costs. Emerging data on quality and costs in health care dramatically demonstrate this point. For example, we know from the Medicare program, that states 

with the highest quality of care have the lowest per capita health care expenditures 

for the elderly population. Put in more striking terms, if the entire Medicare program practiced health care as it is provided in Minnesota, we could save one third 

of total Medicare expenditures while enjoying higher quality. And imagine, for a moment, how those savings could be redirected to address the uninsured problem. Adding to my reason for optimism is the Department of Health and Human Services 

Secretary Michael Leavitt’s effort to integrate value-driven purchasing practices into 

both the public and private sector through the ‘‘Value Driven Health Care Initiative.’’ This strategy of only paying for the true value of a product or service works 

in all aspects of American business markets, and so it also should be the foundation 

of health care. 

3. Let me now turn to a subject of great interest to this Subcommittee—the employer based health care system. While critics from both ends of the political spectrum are quick to attack the employer based system, NBCH urges the Subcommittee to pause, step back and reflect on its many strengths and accomplishments. It provides medical benefit coverage to 71 percent of Americans working the 

private sector, according to the latest U.S. Department of Labor data. For over half 

a century, it has spread risk and pooled covered lives through group insurance, creating far greater leverage in the marketplace than individual consumers could ever 

generate on their own. It has established the employer community as purchasers 

and change agents for health care and advocates for their workforce. The employer 

based system has been the innovator and leader of value-based purchasing, introducing innovations like pay-for-performance, value-based benefit design, and health 

plan and provider report cards. It has been a leader in health promotion, prevention 

and disease management. Through the work of business and health coalitions, it has 

established group purchasing arrangements among employers while giving employers a collective voice in health care reform initiatives at the community level. Finally, competition for talented labor in many industries ensures that health insurance and other worksite health benefits remain comprehensive. 

4. The employer based system, NBCH recognizes, is not without its weaknesses. 

In particular, the struggle of small employers to access affordable health insurance, 

without market leverage or the ability to spread risks across a large population of 

covered lives, is severe and growing more difficult by the minute. The environment 

appears ripe for experimentation and identifying and testing a mix of strategies to 

address the problem, including: legislation and market strategies that would allow 

small businesses to collectively purchase health insurance to spread risk and leverage economies of scale; small employer tax incentives to provide health care benefits; reasonable exemptions from state coverage mandates for small employers; 

greater flexibility to allow families to use SCHIP dollars to enroll in employer sponsored benefit programs; and state reform initiatives, like Massachusetts, that combine a mix of approaches such as an individual mandate with an employer ‘‘pay or 

play’’ policy to find a comprehensive solution to the uninsured. 

5. In closing, Mr. Chairman, let me reiterate that genuine health care reform 

must address the health care triad of access, quality, and affordability. We will also 

need the active engagement, participation and leadership of all stakeholders of the 

health care system if we are to be successful in advancing this reform agenda. 

NBCH urges that a principle of shared responsibility guide our policies moving forward understanding that businesses, government, health plans, health professionals, provider organizations, and consumers must come together in dialogue, action and equal sacrifice for us to realize a new vision of improved health and health 

care for all Americans. Let the health care reform debate begin! 

Once again, NBCH appreciates the opportunity to participate in this important 

hearing and I would be pleased to answer any questions regarding my comments 

and written statement. 

Written Statement 

Chairman Andrews, Ranking Member Kline, and Members of the Subcommittee, 

I am pleased and honored to have this opportunity to participate in this hearing 

today. Thank you for your kind invitation. 

31

The National Business Coalition on Health ( NBCH) is a national, non-profit, 

membership organization of 64 employer led health coalitions, representing over 

10,000 employers and approximately 34 million employees and their dependents. 

These business coalitions are composed of mostly mid- and large-sized employers in 

both the private and public sectors in a particular city, county, or region. 

NBCH and its members are dedicated to value-based purchasing of health care 

services through the collective action of public and private purchasers in communities and markets of varying sizes and demographics. In developing, identifying 

and disseminating best practices in value-based purchasing strategies, NBCH is 

working to accelerate the nation’s progress towards safe, efficient, high quality 

health care and the improved general health status of our nation’s entire population. 

NBCH’s vision is health system reform, through value-based purchasing, community by community, and our mission is to provide superior membership service and 

to build the capacity of the NBCH membership to advance value-based purchasing 

of health care services. 

There are nearly 50 million uninsured U.S. citizens and millions more that are 

inadequately insured, many of which are employed by small businesses. The solution to providing some or better coverage to all these people is not simple. It will 

require that all stakeholders, federal, state and local lawmakers, consumers, providers, and employers, think broadly and creatively to ensure that there are effective options available. As our nation’s health care system continues increasing in 

cost and complexity, people link into the system in a variety of different ways depending on their employment, insurance eligibility, health status and financial situation. 

There is not just one ‘‘transformational solution’’ to fix this situation, but we can 

put policies in place to help the system fix itself. The foundation for a long-term, 

sustainable health care system that provides accessible, affordable, quality health 

care to all Americans requires a strong commitment, including a major financial 

commitment from all stakeholders. Though a long-term investment is needed, the 

long-term return is even greater. We all benefit from a strong economy and a 

healthy, vigorous workforce. 

Employers are deploying many strategies to improve long-term health and health 

care. In fact, NBCH member business and health coalitions are working with a national network of 10,000 employers to test and implement successful strategies. Enlightened employers are instituting worksite health and productivity programs to 

keep employees well and value-based purchasing programs that demand high quality and continuously improving health care for employees and dependents. However, 

corporate America continuously is faced with intense competition in an increasingly 

global marketplace, and often forgets that it has a critical role to play in influencing 

both health and health care. Employers need to be reminded that their success (or 

failure) in promoting better health and higher quality health care has a direct bearing on bottom line profitability directly and American taxpayers, indirectly. While 

not immediately connected in the minds of most employers or policy-makers, the 

link between an employer’s viability as a commercial or non-profit enterprise and 

good health and health care is irrefutable. First, for most employers, the health and 

productivity of their workforce is a key competitive asset and market differentiator. 

Second, corporate America provides health insurance to over 70 percent of American 

workers in the private sector, and thus it is imperative that the rapidly rising costs 

of health benefits be efficiently managed while still yielding important health status 

and productivity gains for workers. From this perspective, there is no escaping the 

fact that employers have a vested interest in improving employee health and the 

health care that employees and their dependents receive. 

The seemingly uncontrollable escalation of health care costs has led many employers to focus on short term fixes, such as employee cost-shifting or even discontinuation of benefits all together. However, according to recent, studies such cost-containment activities by employers, though understandable given current economic 

conditions, typically compound problems for both the employer and employee over 

the long-term by costing more in direct and indirect medical costs, as well as in decreased productivity. Every day employers are confronted with difficult decisions 

about how to most effectively invest their scarce resources to reap better returns 

for the company. In that same vein, we need to work together to encourage employers to apply this same discipline to a vitally important long-term investment—employee health care benefits. 

Value-based health benefit design, which refers to programs that encompass the 

total cost of providing health benefits to an employee over the course of their entire 

career with an employer, is a perfect example of employer innovation. This benefit 

model has demonstrated that employers who have lowered the total cost of manVerDate 0ct 09 2002 19:27 Jul 06, 2007 Jkt 000000 PO 00000 Frm 00035 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\HELP\110-10\33758.TXT HBUD1 PsN: DICK
32

*The National Business Coalition on Health white paper, ‘‘Promoting Consumerism Through 

Responsible Health Care Benefit Design,’’ dated November 2006, can be viewed at the following 

Internet address: http://www.nbch.org/resources/policypapers/healthlbenefitldesign.pdf. 

aging notoriously expensive employee chronic illnesses, such as diabetes and asthma, are making it more affordable for employees to access the most effective prescription drugs to manage their chronic conditions. While companies pay more up 

front to subsidize the prescriptions, they can quickly recoup these costs through 

fewer emergency room visits and inpatient hospital stays, as well as enhanced productivity from their employees. 

Through value-based health benefit design, employers can achieve a return on 

their investment through an improved bottom line, through enhanced worker productivity and through lower long-term employee health care costs and improved 

health status. Employees benefit too with improved health and typically lower out 

of pocket costs. With this model there are also positive ramifications globally in that 

we all benefit when employers, both public and private sector, provide affordable, 

comprehensive coverage thereby minimizing the strain on the current system, particularly safety net programs such as Medicaid and SCHIP, ultimately lowering the 

total health care bill to which we all pay, directly and indirectly. 

Value-based health benefit design, particularly at the outpatient drug benefit 

level, has become widespread among private sector employers, but the cause needs 

the leadership and extensive implementation that only the federal government can 

provide. Rising health care costs, as well as the lack of transparent quality and cost 

expenditure data is an increasing challenge for both public and private payers. Our 

entire health care system needs to be organized to focus on how health benefit design can increase the probability that individual consumers receive evidence-based 

care leading to improved health outcomes. NBCH believes that a good starting point 

for value-based benefit design should be a set of core principles, recently developed 

by an experienced group of NBCH members and applicable to both public and private payers, to help guide responsible health benefit design that can serve as a 

guidepost for employer decisions moving forward. These NBCH principles are a part 

of a broader white paper ‘‘Promoting Consumerism Through Responsible Health 

Care Benefit Design’’ which will be provided to the Subcommittee as an attachment 

with my written statement.* 

The lack of accessible health insurance is having a detrimental impact on generations of Americans as well as significant drain on our economy. Current estimates 

predict that by 2009, combined national health care spending will absorb nearly $3 

trillion dollars of the gross national product annually, while millions of families remain uninsured. We all gain from accessible, efficient, thoughtful, evidence-based 

health care, but we all lose from perpetuating an opaque system of inefficiency and 

inaccessibility. 

In August of 2006, President Bush released an Executive Order to promote quality, transparency and efficiency in federal government-administered or sponsored 

health care programs. This Executive Order was heralded in the health care coalition world as a validation of our long-standing efforts to make the system’s infrastructure work better for consumers to contain costs and to improve accessibility 

and quality for everyone. The premise of the Executive Order describes four ‘‘cornerstones,’’ all of which are in harmony with NBCH’s mission and goals: 

1. Identify and implement standards to support information systems that quickly 

and securely communicate and exchange data. 

2. Measure and publicly report health care quality at doctor and hospital levels. 

3. Provide consumers with episode of care-based cost information so that they can 

compare treatment, service, and provider options. 

4. Align incentives for both consumers and providers so that high quality, competitively-priced health care will be rewarded at all levels of the system. 

Understanding that the key to a sustainable solution is partnership and collaboration, in November 2006, Department of Health and Human Services Secretary Michael Leavitt took the President’s Executive Order to a more ‘‘aggressive’’ level by 

asking private sector purchasers, as well as state and local governments to integrate 

the four cornerstones within their purchasing practices to move the nation’s health 

care toward a value-based system via the ‘‘Value Driven Health Care Initiative.’’ 

Value-based health care means that physicians, plans, hospitals and other types of 

providers in the health care delivery system are rewarded based on the real value 

they bring to consumers and purchasers, namely by using proven procedures and 

products that reduce costs and improve quality and patient safety. This strategy 

works in all aspects of American business markets, and so it also should be the 

foundation of health care. 

33

*The Partnership for Value Driven Health Care document, ‘‘Value-Driven Health Care: A Purchaser Guide,’’ dated February 2007, can be viewed at the following Internet address: http://

www.leapfroggroup.org/media/file/EmployerlPurchaserlGuidel05l11l07.pdf 

NBCH has worked closely with the Secretary and his staff in the development 

and launch of the Initiative. We have also joined an alliance of leading national employer based associations, called the Partnership for Value Driven Health Care, to 

advance the Initiative among our collective employer members. The Partnership has 

recently produced a ‘‘Purchaser Guide’’ to help identify steps employers can take to 

advance the value driven health care agenda. The Purchaser Guide will be provided 

to the Subcommittee as an attachment to my testimony.* Not only have we endorsed the initiative, NBCH is committed to the cornerstones and encourages all 

NBCH coalition members and their employer members to do so as well. In fact, 

starting in 2007, NBCH included in its eValue8 program—our national standardized 

web-based health plan evaluation tool capturing performance indicators—twelve key 

questions related to implementation of the Value-Driven Health Care Initiative and 

the four cornerstones. NBCH will be reporting initial eValue8 performance results 

in May 2007. eValue8 is used by NBCH coalitions and their purchaser members to 

evaluate approximately 200 national and regional Managed Care Organizations 

(MCOs) and Preferred Provider Organizations (PPOs) annually. 

Though we believe health care reform through value-based purchasing to control 

costs, expand accessibility and improve quality is paramount, NBCH also believes 

government, business, provider and consumer partnerships that utilize a combination of the following policy incentives could be an effective way to help perpetuate 

value-based purchasing, as well as meet the diverse health care coverage needs of 

a diverse population: • Improve accessibility to tools that help consumers obtain better information 

about providers’ quality of care and prices. Transparency results in better choices, 

improved care and ultimately lower costs. • Enhance employer tax incentives to provide employee health care benefits. • Improve state and federal tax incentives for U.S. residents who purchase individual health insurance. • Provide reasonable exemptions from state mandates, particularly for small employer coverage. • Broaden accessibility, application and flexibility of all types of health care 

spending accounts (HSAs) and high-deductible health plans. • Support small business-friendly legislation and reforms that will allow small 

businesses to collectively purchase health insurance to spread risk and leverage 

economies of scale. • Extend eligibility and enrollment opportunities, to the extent possible by the 

states and federal government, for public insurance programs—State Children’s 

Health Insurance Program (SCHIP), Medicaid and Medicare. • Support ‘‘locally grown’’ public-private partnerships (i.e. three-share model or 

multi-share program) which distribute the health care benefit premium cost equally 

between employer, employee and local/state or federal government resources, enabling small and mid-sized businesses to provide a comprehensive mainstream benefit plan. 

Simultaneously, with all of these efforts to reform and fix the system, the employer based health care system must be preserved and allowed to thrive. This system has worked well for over half a century, namely through the ability to pool covered lives through group insurance while creating needed leverage in the marketplace. Individual purchasers could never generate this leverage on their own purchasing insurance in the marketplace. The employer system also has been the hotbed for innovation in employee benefit design, wellness, and prevention. As mentioned above, Secretary Leavitt is looking to large private employers to help advance 

value driven health care. But at the same time we need to recognize that the small 

employer market is fundamentally broken and needs the government to help with 

creating both tax breaks and a mechanism (i.e. an insurance pooling mechanism/

purchasing alliance that the government would establish) that permits both small 

employers and individuals ( self-employed or working uninsured) to participate. 

Leveling the federal tax playing field in terms of a standard deduction for everyone could be an effective strategy to help individuals that purchase coverage on 

their own. The special tax status for the employer based system has been unfair to 

individual purchasers, especially self-employed consumers. However, NBCH is skeptical of efforts to contain escalating costs and to bring equality to the system by 

making the purchase of health insurance over a certain amount of taxable income. 

Essentially, such a strategy could weaken the foundation of the employer based system, particularly since the current system already is shifting significant costs onto 

34

employees through copayments, deductibles and various geographic-based inequities. Nonetheless, the overall issue of a standardized tax deduction for the purchase 

of health care is worthy of open debate in Congress. 

Again, NBCH believes that a combined approach, one with value-driven health 

care as a central strategy along with an array federal, state and local options is the 

right direction to help ensure affordable, quality health care for all Americans. 

This concludes my written testimony. I look forward to discussing my comments 

in more detail during the question and answer portion of the testimony. I also again 

want to thank the Subcommittee for inviting me here today and for its attention 

to finding viable solutions to improve the accessibility, affordability, and quality of 

our nation’s health care system through the employer based system. 

Chairman ANDREWS. And, Dr. Blumberg, welcome. We are delighted you are with us today. 

STATEMENT OF LINDA BLUMBERG, Ph.D., ECONOMIST AND 

PRINCIPAL RESEARCH ASSOCIATE, THE URBAN INSTITUTE 

Ms. BLUMBERG. Mr. Chairman, Mr. Kline and distinguished 

members of the subcommittee, thank you for the opportunity to 

talk with you today about the problems faced by those without 

health insurance, and to share my thoughts on strategies for expanding coverage to them. I appreciate the fact that this committee 

is considering these very important issues. 

The problems associated with being uninsured are now widely 

known. A substantial body of literature shows that the uninsured 

have reduced access to medical care, and many researchers have 

concluded that the uninsured often have inferior medical outcomes 

when an injury or illness occurs. Urban Institute researcher Jack 

Hadley recently reviewed 25 years of research and found strong 

evidence that the uninsured receive fewer preventive and diagnosis 

services, tend to be more severely ill when diagnosed, and received 

less therapeutic care. Studies found that mortality rates for the uninsured were from 4 to 25 percent higher than would have been the 

case had the individuals been insured. 

But while the negative ramifications of being without health insurance are clear, the number of uninsured continues to grow. According to an analysis by John Holahan and Allison Cook, the number of nonelderly people without health insurance climbed by 1.3 

million people between 2004 and 2005, bringing the rate of 

uninsurance in that population to almost 18 percent. The vast majority of this increase was amongst those with low incomes and 

among adults. In recent years, the share of the population with employer-sponsored insurance has fallen, while the share of those 

with public insurance coverage has risen, but by smaller amounts. 

Why is the rate of employer-sponsored insurance falling? First 

and foremost, increasing premiums have outstripped wage and income growth. Second, employment has shifted away from the types 

of firms that have traditionally had high rates of offering employerbased insurance, such as large firms and firms in the manufacturing, government and finance industries. 

The good news is a number of proposals at the State and Federal 

levels are taking shape. Research is providing significant support, 

and the components of successful reforms are becoming clearer. I 

present what I believe are the four key components of an effective 

approach to achieving universal or near universal health insurance 

coverage while maintaining a private insurance-based system. 

35

The first component is a comprehensive subsidized set of insurance benefits for the low- and moderate-income population. Subsidies should be directed to individuals as opposed to employers, 

should increase with increasing need, and should be sufficient to 

ensure that adequate affordable benefits are made available to 

meet health care needs. While a high deductible plan may be perfectly adequate coverage for a high-income person, it is not going 

to be adequate to meet the needs of someone of more modest 

means, and meaningful reform must take that into account. 

The second component is a guaranteed source of insurance coverage for all potential purchasers. The existing private nongroup 

insurance market is simply not adequate. A guaranteed source of 

coverage will most likely need to take the form of an organized purchasing entity, such as newly established health insurance purchasing pools. Or coverage can be guaranteed by using existing organized purchasers, such as government employee benefit plans, 

State high-risk pools or State children’s health insurance programs. 

The third component is a mechanism for spreading broadly the 

costs associated with those who have the greatest need for health 

care services. The premiums charged to individuals and a guaranteed accessible insurance option should not be determined by the 

specific health care risks of those that actually enroll in that plan. 

Instead, the premium should be based on what the premiums 

would be if a broader population enrolled. 

The fourth component is either an individual mandate or an individual mandate combined with a light employer mandate. Absent 

automatic enrollment in a fully government-funded insurance system, an individual mandate is necessary to achieve universal coverage. Many advocate combining an employer mandate of some 

type with an individual mandate to ensure continued employer responsibility in health care. Such employer mandates raise a number of difficult political, distributional and legal issues. But Massachusetts, for example, is able to enact a nonburdensome employer 

mandate that is an impressive model of political compromise. 

Designing such a reform, complex as it may sound at first, is actually the easy part. The most difficult truth is that financial resources are necessary for ensuring accessible, affordable and adequate insurance for all Americans. If the political will strengthens 

sufficiently in that regard, many options for identifying the necessary funding are available. If asked my personal favorite, I would 

suggest we turn to a redistribution of the current tax exemption for 

employer-sponsored insurance, providing those with the greatest 

needs the greatest assistance as opposed to the opposite, which is 

true today. The amount being spent on that exemption is sufficient 

to accomplish meaningful universal coverage, and the President 

himself has already opened the door politically to putting that 

spending to more efficient and effective use. 

Thank you very much for the opportunity to share my thoughts 

on these important issues, and I would be happy to answer any 

questions that you might have. 

[The statement of Ms. Blumberg follows:]

36

Prepared Statement of Linda J. Blumberg, Ph.D., Principal Research 

Associate, the Urban Institute 

Mr. Chairman, Mr. Kline, and distinguished Members of the Subcommittee, thank 

you for the opportunity to talk with you today about the problems faced by those 

without health insurance, and to share my thoughts on strategies for expanding coverage to them. I appreciate the fact that this Committee is considering this important issue. While I am an employee of the Urban Institute, this testimony reflects 

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

funders, or its Board of Trustees. 

The problems associated with being uninsured are now widely known. There is 

a substantial body of literature showing that the uninsured have reduced access to 

medical care, with many researchers concluding that the uninsured often have inferior medical outcomes when an injury or illness occurs. Urban Institute researcher 

Jack Hadley reviewed 25 years of research and found strong evidence that the uninsured receive fewer preventive and diagnostic services, tend to be more severely ill 

when diagnosed, and receive less therapeutic care.1 Studies found that mortality 

rates for the uninsured within given time periods were from 4 to 25 percent higher 

than would have been the case had the individuals been insured. Other research 

also indicated that improving health status from ‘‘fair’’ or ‘‘poor’’ to ‘‘very good’’ or 

‘‘excellent’’ would increase an individual’s work effort and annual earnings by as 

much as 20 percent. 

But while the negative ramifications of being without health insurance are clear, 

the number of uninsured continues to grow. According to an analysis by my colleagues John Holahan and Allison Cook, the number of nonelderly people without 

health insurance climbed by 1.3 million between 2004 and 2005, bringing the rate 

of uninsurance to just under 18 percent of this population.2 The vast majority of this 

increase, 85 percent, was among those with incomes below 200 percent of the federal 

poverty level. About 77 percent of the increase in the uninsured was attributable 

to adults. In recent years, the share of the population with employer-sponsored insurance has fallen, while the share of those with public insurance coverage has 

risen, but by smaller amounts. This pattern has persisted since 2000. 

Why is the rate of employer-sponsored insurance falling, causing the number of 

uninsured to climb in recent years? First and foremost is increasing premium costs 

that have outstripped wage and income growth.3 But additionally, overall employment has been shifting away from firms with traditionally high rates of employerbased insurance coverage, moving workers into the types of firms that are significantly less likely to offer coverage to their workers.4 For example, employment in 

medium size and large firms has fallen, and growth has occurred among the selfemployed and small firms. Employment has shifted from manufacturing, finance, 

and government to services, construction, and agriculture. There also has been a 

population shift toward the South and the West, regions with lower rates of employer-based coverage and higher uninsurance. 

The good news is that policymakers at both the federal and state levels are talking about the need to expand health insurance coverage again, and some states are 

already taking action. While proposals are being developed in a number of states 

and at the federal level as well, I will focus my attention here on two of the most 

notable state designs, that of Massachusetts and California. I chose both states as 

they delineate potential avenues for bipartisan compromise on this issue. In addition, Massachusetts is the only state that has already passed legislation, enacting 

far-reaching health care reform, and California is, of course, the largest state, and 

hence what it can accomplish has significant implications for the country as a 

whole. I treat these two approaches as case studies in policy design and use them 

to highlight the types of features required to achieve significant coverage expansions 

as well as the policy challenges faced by such an undertaking. 

Massachusetts 

There are four main components to the landmark health care reform legislation 

enacted in Massachusetts in April 2006: 5

• A mandate that all adults in the state have health insurance if affordable coverage is available (an individual mandate); 

• A small assessment on employers that do not provide coverage to their workers; 

• A purchasing arrangement—the Commonwealth Health Insurance Connector 

(the Connector)—designed to make affordable insurance available to individuals and 

small businesses and to provide subsidized insurance coverage to qualifying individuals/families; and 

• Premium subsidies to make coverage affordable. 

37

Theoretically, these components of reform could move the state to near-universal 

coverage; however, many practical issues remain to be resolved. 

For example, the individual mandate to purchase health insurance will not be enforced unless affordable products are available. The definition of ‘‘affordability’’ and 

how it will vary with family economic circumstance was not provided in the legislation, and is left up to the board of the Connector. This definitional issue is clearly 

critical to the success of the Massachusetts reform and any other policy approach 

to expanding health insurance coverage. Ideally, each family would be subsidized to 

an extent that would allow them to purchase coverage within the standard set. Setting the affordability standard at a high level (for example, individuals being expected to spend up to 15 percent of income on medical care) would mean that the 

individual mandate would have a broad reach and thus increase coverage a great 

deal. This would be true because individuals and families would be expected to pay 

a considerable amount toward their insurance coverage, more insurance policies 

would be considered ‘‘affordable’’ by this standard, and thus the individual mandate 

would apply to more people. But setting the standard at such a level would also 

place a heavy financial burden on some families and might be considered unreasonable. Setting a low affordability standard (for example, expecting individuals to 

spend only up to 6 percent of their income on health care) would ease the financial 

burden of the mandate on families, but would increase the per capita government 

subsidy required to ensure that individuals could meet such a standard. To the extent the revenues dedicated to the program were not sufficient as a consequence, 

either further revenue sources would be required or enrollment in the subsidized 

plans would have to be capped, and some would have to be excluded from the requirement to purchase coverage. 

Under the Massachusetts plan compromise, each employer of more than 10 workers that does not make a ‘‘fair and reasonable’’ contribution to their workers’ insurance coverage (with ‘‘fair and reasonable’’ yet to be defined) will be required to pay 

a per worker, per year assessment not to exceed $295 (this amount would be prorated for part-time and seasonal workers). This very modest employer payment requirement was the product of a compromise between those concerned about a potential decline in employer involvement in the financing of health care and strong resistance from the business community (especially small businesses) to potentially 

burdensome employer payroll tax assessments. The assessment decided upon had 

widespread support in the business community and was acceptable to consumer advocates as well. This broad-based support was critical for passage of the legislation 

and continues to prove pivotal in garnering continued support through various implementation challenges. 

All employers are also required to set up Section 125 plans for their workers, so 

that workers can pay their health insurance premiums with pretax dollars, even if 

their employers do not contribute toward their coverage. Those employers who do 

not establish Section 125 plans may be required to pay a portion of the care their 

employees receive through the state’s Uncompensated Care Pool, which provides 

hospital care to low-income uninsured persons. 

Ideally, the reform would not cause significant disruption to existing insurance arrangements between employers and their workers. As currently designed, most employers, particularly large employers already offering group coverage, likely will continue to offer coverage. The benefits of risk pooling, control over benefit design, and 

lower administrative costs associated with purchasing through a large employer will 

not change under this reform. The situation for small employers is likely to be somewhat different, however. 

By allowing workers to purchase coverage on a pre-tax basis through Section 125 

plans, the Massachusetts reform reduces the incentive for small employers to offer 

coverage to their workers independently. The current law tax exemption for employer-sponsored insurance is an important motivator for small employers to offer 

insurance coverage today, and the Connector combined with Section 125 plans 

would level the tax playing field between employer provision and individual purchase. This is a more important issue for small firms than for large firms because 

small firms face significantly higher administrative costs, do not receive the risk 

pooling benefits of large firms, and are more frequently on the cusp between offering 

and not offering coverage. Decisions small firms make under the reform will, however, be quite dependent upon the particular plan offerings in the Connector, how 

attractive they are, and whether negotiating power in the Connector will be sufficient to generate true premium savings. 

The attractiveness of the benefits offered in the Connector, and its size as a consequence, will have important implications for its negotiating power—the higher the 

enrollment, the greater the Connector’s ability to be a tough price negotiator and 

to create savings in the system. This economic reality of purchasing pools may be 

38

somewhat at odds with those who would like to see organized public purchasers 

playing a small role in relation to private insurance providers. Thus, there is a tension for those that would like to have plans that are offered in such a purchasing 

pool be low cost/high cost sharing/limited provider network plans, as such plans 

have not proved popular with most purchasers. Therefore, if a purchasing pool limits its offerings to such plans, it may be unable to reach a critical mass for negotiating purposes. 

At this time, the Connector will require each insurer to offer four different benefit 

packages of defined levels of actuarial value. In another context, offering such variety in benefit generosity could lead to adverse selection, with the healthy attracted 

to the high cost sharing/limited benefit plans and premiums in the comprehensive 

plans spiraling upwards. However, in order to protect the viability of more comprehensive plans and thus to better meet the needs of those with serious medical 

care needs, the Connector board has instituted a policy designed to counteract such 

a harmful dynamic. Premiums for each benefit plan will be set as if the enrollees 

in all of the insurer’s plan options were enrolled in that plan. In this way, the premium for a particular plan is not a function of the actual health care risks of those 

people who voluntarily enroll in it. This is clearly an important first step to ensuring broader sharing of high health care risks. It may also be necessary for further 

risk adjustment across insurers, but that remains to be seen, and modifications 

within the Connector can be made if appropriate. 

In addition to selling unsubsidized health insurance to individual and small employer purchasers, the Connector will also operate the Commonwealth Care Health 

Insurance Plan (CCHIP), which will provide subsidized coverage for those with 

household incomes up to 300 percent of the federal poverty level (FPL). CCHIP has 

no deductibles, has cost-sharing requirements that increase with income, and does 

not charge premiums for those individuals with incomes below 100 percent of FPL. 

Premiums on a sliding scale are charged for those between 100 and 300 percent of 

FPL. 

It is widely accepted that those with incomes below 100 percent of FPL have virtually no ability to finance their own health care needs, and that those of modest 

incomes require significant assistance as well. Deductibles and substantial costsharing responsibilities are likely to prevent the low-income population from accessing medical care when necessary; hence, the benefit package offered through CCHIP 

is considerably more comprehensive than that typically offered in the private insurance market. These policies are available only to those who have not had access to 

employer-based insurance in the past six months, with the hope of reducing the displacement of private employer spending by public spending. 

California 

The health care reform proposal Governor Schwarzenegger developed is an ambitious one. Many of its general components are similar to those implemented in Massachusetts, but the details are quite different and illustrate the types of choices that 

policymakers can make, and the very significant implications that these details can 

have. The components of the California proposal are the following: 

• an individual mandate that all Californians have at least a minimum level of 

health insurance coverage; 

• a ‘‘pay or play’’ employer mandate requiring that all firms with 10 or more 

workers pay a 4 percent payroll tax, a liability which can be offset by employers’ 

contributions to health insurance for their workers and their dependents; 

• a purchasing arrangement that would provide a guaranteed source of insurance 

coverage for individuals to purchase the minimum level of benefits required to satisfy the mandate and that also would provide subsidized insurance to eligible individuals; 

• income-related subsidies to make premiums affordable for those with incomes 

up to 250 percent of FPL. 

The minimum health insurance coverage required to satisfy the individual mandate under the California proposal is a $5,000 deductible plan with a maximum outof-pocket limit of $7,500 per person and $10,000 per family. This is a package that 

would require substantially more cost sharing than is typical of private insurance 

today, and thus can be expected to be made available at premium levels significantly below typical employer-sponsored insurance premiums. 

This minimum plan would be made available on a guaranteed issue basis through 

a new purchasing pool that the Managed Risk Medical Insurance Board (MRMIB) 

would run. MRMIB is a government agency and currently runs the Healthy Family’s Program (California’s SCHIP program) and the state’s high-risk pool. In the 

past, the agency also ran a small employer health insurance purchasing pool. It is 

an agency experienced in health insurance purchasing, contracting, enrollment, and 

39

eligibility determination and has a structure for all the administrative tasks necessary for these roles; thus, it is an excellent choice for basing a new purchasing 

pool under a broad reform. 

However, the policy that would be offered is likely to be unattractive to workers 

with modest incomes, in particular to those over 250 percent of FPL who would be 

ineligible for subsidized coverage and often could not afford to pay such a high deductible. Such a family would still be severely limited in their financial access to 

medical services, even with the guaranteed issue policy. Those that do not buy policies in the new pool, do not have employer insurance offers, and are not eligible for 

subsidized coverage would be required to purchase a policy in the existing private 

non-group market, and would face all the shortcomings inherent in that market. 

This would be a particularly difficult option for older workers and workers with significant health care needs, many of whom may not be able to obtain a policy at all 

in that market. Even those lucky enough to be offered a policy would likely be unable to obtain an affordable policy with more comprehensive benefits and effective 

access to needed medical care. 

The ‘‘pay or play’’ mechanism is a tool for financing the new low-income subsidies 

proposed under the plan. This 4 percent payroll tax liability creates a significantly 

higher employer financial responsibility than does Massachusetts’s employer assessment. Employers with fewer than 10 workers are exempt from the tax. Consequently, the reform should not impact the smallest employers at all but will provide new subsidies and a source for buying coverage for their low-income workers.6

And because the vast majority of large firms already provide health insurance coverage to their workers (98 percent of firms with 100 or more workers offered health 

insurance nationally, as of 2004 7 ), the biggest impact of this reform would be on 

the employers and workers in firms of 10 to 100 workers. 

The proposal provides some competing incentives that make it uncertain whether 

workers in currently non-offering small firms (of 10 or more workers) would prefer 

to have their employers begin to offer coverage or would prefer to purchase coverage 

on their own and have their employers pay the payroll tax. First, small firms do 

not tend to be efficient purchasers of health insurance. The administrative loads associated with small group insurance can be quite high and might be significantly 

higher than those in the new purchasing pool. This imbalance, combined with the 

inability of small groups to spread their health care risks broadly, implies a significant incentive for workers to prefer enrolling in pool-based coverage. This incentive 

would be particularly strong for lower-wage workers in small firms, who could enroll 

in a subsidized comprehensive health insurance product through the purchasing 

pool. 

However, the payroll tax assessment works in the reverse direction of these incentives. Economists believe that the burden of employer-paid payroll taxes made on 

behalf of workers are effectively passed back to workers through lower wages paid 

over time. In the case of the California proposal, this would mean that workers 

whose employers opt to pay the tax would experience declines in their incomes relative to what their incomes would have been without the reform, and would then 

be required to purchase health insurance directly. In essence, they would be paying 

twice—once for the payroll tax and once for the insurance policy; they would get no 

credit toward the purchase of health insurance to account for the fact that their employers (and indirectly the employees themselves) were paying the payroll tax. 

While workers eligible for generous subsidies on a comprehensive health insurance package might still be better off this way than having their employer offer insurance, the same is unlikely to be true for unsubsidized workers. The only unsubsidized product available in the new purchasing pool would be the very high deductible policies. As noted, these policies may be very unattractive to modest-income 

workers with incomes over 250 percent of FPL, who would be ineligible for subsidized coverage. Given also the substantial shortcomings of the current nongroup 

market, these issues taken together might create significant incentives for workers 

to ask their employers to begin offering health insurance in exchange for wage reductions commensurate with their employers’ contributions. 

The proposal also would make all children (including undocumented residents) in 

families with incomes up to 300 percent of FPL eligible for state subsidized health 

insurance, all legal adult residents with incomes up to 100 percent of FPL eligible 

for Medicaid at no cost, and those between 100 and 250 percent of FPL eligible for 

subsidized coverage through the new state purchasing pool. These expansions would 

cover quite comprehensive health insurance plans and would, on their own, lead to 

significant expansions of coverage in the state. These policies also would have important implications for employees of small firms in California, since over half of 

California’s uninsured workers are employed by firms with fewer than 25 workers, 

and approximately two-thirds of the uninsured workers employed in these small 

40

firms have incomes that would make them eligible for subsidized insurance.8 The 

lower-income workers in these small firms therefore account for over a third of all 

uninsured workers in California. 

Conclusions 

A number of states are already developing comprehensive health insurance reform 

plans. However, many more states will not be able to accomplish significant reforms 

on their own due to financial and political constraints. Indeed, it is not feasible for 

any state to finance any of the plans and proposals currently on the table without 

accessing at least some federal matching funds. As a consequence, federal legislators 

are now engaged in discussions and policy development of their own. Federal involvement will be necessary to spread further the early successes some states are 

seeing. 

Therefore, I would like to take this opportunity to delineate what I consider to 

be the most critical components for the effective development of universal or near 

universal health insurance coverage within a private insurance-based system. 

The first component is a comprehensive, subsidized set of insurance benefits for 

the low- and modest-income population. Subsidies should be directed to individuals 

(as opposed to employers), should increase with increasing need, and should be sufficient to ensure that adequate benefits are made available to meet health care needs 

at an affordable price. While a high deductible plan may be perfectly adequate coverage for a high-income person, it will not be adequate to meet the needs of someone 

with more modest means, and meaningful reform must take that into account. 

The second component is a guaranteed source of insurance coverage for all potential purchasers. The current nongroup insurance markets are simply inadequate to 

do the job. The guaranteed source of coverage will most likely need to take the form 

of an organized purchasing entity, such as newly established health insurance purchasing pools, or it may also be developed using existing organized purchasers, such 

as government employee benefits plans, state high risk pools, or State Children’s 

Health Insurance Programs. 

The third component is a mechanism for broadly spreading the costs associated 

with those who have the greatest need for health care services. Importantly, the 

health care risks of those that enroll in a guaranteed accessible insurance plan 

should not determine the premiums charged to individuals in that plan. Instead, the 

premiums should be based on what the premiums would be if a broader population 

enrolled. In this way, choice of varied benefit packages can be maintained, and the 

needs of the most vulnerable Americans can be met. 

The fourth component is either an individual mandate or an individual mandate 

combined with a ‘‘light’’ employer mandate. Absent automatic enrollment in a fully 

government-funded insurance system, an individual mandate is necessary to achieve 

universal coverage. Many advocate combining an employer mandate of some type 

with an individual mandate to ensure continued employer responsibility in health 

care. Such employer mandates raise a number of difficult political, distributional, 

and legal issues. But Massachusetts, for example, was able to enact a non-burdensome employer mandate that should be considered a model of political compromise. 

Designing such a reform, complex as it may sound at first, is actually the easy 

part. The most difficult truth is that financial resources are necessary for ensuring 

accessible, affordable, and adequate insurance for all Americans. If the political and 

public will strengthens sufficiently in this regard, there are many options for identifying the necessary funding. If asked for my personal favorite, I would suggest we 

turn to a redistribution of the existing tax exemption for employer-sponsored insurance, providing those with the greatest needs the greatest assistance, as opposed to 

the opposite, which is true today. The current level of this tax expenditure is sufficient to finance comprehensive health care reform and is already dedicated to subsidizing health care insurance. The current spending is not particularly effective in 

expanding coverage, however, since it subsidizes most those who are most likely to 

purchase coverage even in the absence of any subsidy. And while the notion of restructure the current tax subsidy has been somewhat politically taboo in the past, 

the president himself has recently opened the political conversation regarding how 

best to spend that that money. 

Thank you very much for the opportunity to share my thoughts on these important issues. 

ENDNOTES

1 J. Hadley. 2003. ‘‘Sicker and Poorer—The Consequences of Being Uninsured: A Review of 

the Research on the Relationship between Health Insurance, Medical Care Use, Health, Work, 

and Income,’’ Medical Care Research and Review 60(2): 3S—75S. 

41

2 J. Holahan and A. Cook. 2006. ‘‘Why Did the Number of Uninsured Continue to Increase 

in 2005?’’ Kaiser Commission on Medicaid and the Uninsured Issue Paper. http://www.kff.org. 3M. Chernew, D. Cutler, and P. Kennan. 2005. ‘‘Increasing Health Insurance Costs and the 

Decline in Insurance Coverage,’’ Health Services Research 40(4): 1021—39; T. Gilmer and R. 

Kronick. 2005. ‘‘It’s the Premiums, Stupid: Projections of the Uninsured through 2013,’’ Health 

Affairs Web Exclusive (April 5): w5-143—w5-151; J. Hadley. 2006. ‘‘The Effects of Recent Employment Changes and Premium Increases on Adults’ Insurance Coverage,’’ Medical Care Research and Review 63(4): 447—76. 4 J. Holahan and A. Cook. 2006. ‘‘Why Did the Number of Uninsured Continue to Increase 

in 2005?’’ Kaiser Commission on Medicaid and the Uninsured Issue Paper. http://www.kff.org. 5 J. Holahan and L. Blumberg. 2006. ‘‘Massachusetts Health Care Reform: A Look at the 

Issues,’’ Health Affairs Web Exclusive, September 14: w432—43. 6 It should be noted that this ‘‘carve-out’’ of employers with fewer than 10 workers may provide incentives for the smallest employers to stay small and may also create incentives for somewhat larger employers to break up into smaller pieces. 7 Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey—Insurance 

Component 2004, calculations based on published tables, tables available at http://

www.meps.ahcpr.gov/. 8 Author’s estimates from the 2004/2005 March Current Population Survey. 

Chairman ANDREWS. I would like to thank each of the four witnesses for very provocative and thoughtful testimony. Thank you. 

And I hope that today is the beginning of the end of a very partisan divide over this issue. 

I was fortunate enough to come to Washington in 1990, and people identified the problem in 1990 the way they do now, lots of uninsured, problems of access and quality. And we have been through 

several iterations of political warfare over that question. We 

haven’t gotten it done. So I am really very appreciative of the spirit 

of the comments from the four witnesses as well as the substance 

of the comments. 

Ms. Alker, I would like to start with you and thank you for your 

participation developing our thoughts. You have been an invaluable 

asset, and we are very grateful to you. You talked about the idea 

of a possibility of buy-in by employers, voluntary buy-in by employers, to the SCHIP program. In my State of New Jersey, the estimate is that the SCHIP program for family care, because we at one 

time had a family care program, would be about $8,760 a year. And 

the market cost of a family coverage in my State is over $13,000 

a year. 

Describe to me how a voluntary buy-in for SCHIP might work 

from the point of view of Mr. England, who is an actual employer. 

What kind of options would he be given, and what would the cost 

be? 

Ms. ALKER. Well, I think the idea is to offer employers another 

choice, and the choice would be the public product, and the benefits 

of offering the public product is that you have certain economies, 

and that is why it is cheaper. 

I will say some of those reasons are good reasons. For example, 

there is usually lower administrative cost in public products. Obviously there is no return profit needed to be returned to shareholders that you are looking at with the public product, and there 

is the advantages of a large pool that would help a small employer, 

I think, like Mr. England. 

One of the disadvantages as to why public coverage is cheaper 

is because providers are paid less, so that is sometimes a concern 

if that rate gets too low. 

42

But overall, I think studies have consistently shown that public 

coverage is about a third cheaper than private coverage, and in the 

State of New Jersey, your private insurance rates are quite high. 

Chairman ANDREWS. Just wanted to walk through what some of 

the numbers would like look like. Hypothetically let’s say a State 

did a pilot where the SCHIP payment—let’s take a family with two 

adults and two children, two SCHIP-eligible children. My understanding is the SCHIP allocation for those two children would be 

around $1,200 a year roughly, maybe a little bit more. So it would 

be $2,400, $2,500, $2,600. And presently SCHIP permits an employee contribution of up to 5 percent of gross contribution, although it need not be that high. If it was a maximum contribution 

for a $30,000 family, it would be about $1,500. So you would have 

about $2,600 in SCHIP contribution, $1,500 in employee contribution, which would be $4,100. There would be a $4,600 difference 

then between the cost of the SCHIP family coverage of $8,700 and 

the amount of money that would be available. 

Would it be your understanding under these proposals States 

would be given the option of subsidizing, of kicking in toward that 

cost? 

Ms. ALKER. Yes. I think that is right. 

Chairman ANDREWS. Do you think States would be likely to do 

that if given that option? 

Ms. ALKER. I think that if they really wanted to make it work, 

yes. 

Chairman ANDREWS. What is interesting, if States, say, were to 

pick up half of that difference, it would drop the employer’s contribution maybe $2,400, $2,500 a year. What is interesting about 

that is that many employers are able to insure an employee, and 

I think Mr. England spoke of this—they can insure an employee, 

but not the employee’s family, and I know not because they are 

harsh people, but that is all they can afford. In my State, the cost 

of the insuring the employee only would be about $3,600 a year. 

So at least in theory, if the employer were given this option at a 

cost that would be less than what the employer is paying to insure 

just the employee, the employer could insure the entire family. 

Now, one concern, if I may, I am sure Mr. Webber would have 

about this is I am troubled about the idea of a publicly subsidized 

program competing against the private sector on an unequal playing field. I anticipate that question. I would think, though, Mr. 

Webber, that one way we might address this is who is competing 

in what market? There is something like three-quarters of the uninsured children in the country are eligible for either SCHIP or for 

Medicaid. So they are families with incomes way below $40,000 a 

year. Again, in my State where we have a situation where family 

coverage costs $13,000 a year, it appears to me that most of the 

people who would take advantage of the example we just gave you 

aren’t really in the private insurance market anyway because they 

can’t afford to be in it. 

Do you agree that there is—and you don’t have to adopt my way. 

Do you agree that there is a surgical way that we could do this in 

a way that would not crowd out the private insurance market? 

Mr. WEBBER. I agree with you. And I think in this environment 

that we have got to experiment, as I said, in my State. And I think 

43

the notion of public-private partnerships so we can recognize that, 

you know, it is going to take a joint solution and some equal sacrifice, it is not something that we would be opposed to in theory. 

The devil is in the details, as always, Chairman Andrews, and 

I am not an expert, let me tell you, on the SCHIP program, and 

the premium-sharing notion, but I think in this environment, given 

the issues that Brian England has described here today, that creative solutions need to be found. And we certainly find business 

people around the country increasingly willing to recognize that 

public-private partnerships to address this problem is at the core 

of the solution. 

Chairman ANDREWS. Thank you. My time has expired. We want 

to exorcise those devils if we can and work out details mutually 

agreeable. 

I will turn to my friend Mr. Kline. 

Mr. KLINE. Thank you, Mr. Chairman, and let me thank the witnesses. We had a chance to chat for a minute or two before the 

hearing, and I had expressed my opinion that this was going to be 

one of those informative rather than controversial and partisan 

sorts of hearings, and it is certainly proving to be true. 

I want to thank all the witnesses for your real insight and your 

testimony. And again, thank you, Mr. Chairman. Rob, I think it is 

a good approach. These are excellent witnesses, and I am writing 

notes as fast as I can. And then, of course, he confuses me by doing 

all this math, mental arithmetic. So now I am confused again. 

You know, Mr. Webber, we in Minnesota, we are sort of a destination health care, medical care State. People fly in from all over 

the world, and we tend to brag a little bit that we can’t have anything but the finest medical care, health care quality with the 

Mayo Clinic just south of my district. Nevertheless, there are enormous concerns about the value, and how we know what the value 

is, and how we are going to rate that value as we make decisions 

on what sort of medical services to purchase, and the advent of the 

health savings accounts have increased that pressure to know what 

you are buying if you are going to spend your own money. 

Let me ask you this one question if time allows. I have got several for Dr. Blumberg about the Massachusetts initiative. So if you 

want to sort of read ahead. 

What can you tell us about Secretary Leavitt’s Value-Driven 

Health Care Initiative? I don’t want an explanation of it, but do 

you see areas where they are showing promise or areas where it 

is not? 

Mr. WEBBER. Oh, absolutely. And as I further described in the 

written statement, having someone at a Cabinet-level position put 

squarely on the table that in addition to this issue of the uninsured, the issue of value-based purchasing, the need for consumers 

and employers and government to assure that their investments in 

health care are yielding the highest quality, is, again, an instrumental part of the solution moving forward. And to make that happen, the four cornerstones, since Secretary Leavitt has talked 

about, is, number one, transparency, the need for business people 

and consumers to understand the health care that they are buying 

both in terms of quality and in terms of price; the issue that the 

good doctor talked about in terms of HIT adoption, the need—why 

44

not in health care, like we have in every other industry, do we not 

have information technology to drive some of the solutions to help 

us track patients over time, for example; and finally, the need to 

change the incentives in the system. We pay for bad quality. We 

have a reimbursement system that does not recognize performance. 

And so Secretary Leavitt has brought together public and private-sector leaders. He has gotten State Governors to sign onto 

those four cornerstones, and we are working quite closely with him 

through our business and health coalitions to create a dialogue 

around this issue of Value-Driven Health care. It is part of the solution to the health care reform issue. 

Mr. KLINE. Let me follow up. I hadn’t intended to do this, but 

the health IT, information technology, we are seeing some tremendous examples in Minnesota as different hospital systems are moving to that. And the potential for reducing, if not eliminating, some 

pretty egregious errors seems to be pretty high. 

I am just interested, are you watching that across the board? 

And can you give me some sense of how it is coming? 

Mr. WEBBER. Right. We are watching that throughout the country, and I think increasingly hospitals in particular are investing 

in health information technology. The real lack is at the physician 

level. You know, only 15 percent of physicians have electronic 

health records that allow them to track their patients over time. 

I mean, I hate to say it, but my vet caring for my little cat gives 

me more reminders about, you know, annual checkups than I get 

from my physician. 

So health information technology is coming, but, again, requires 

some joint sacrifice and contribution to get the health care system 

wired. 

Mr. KLINE. Right. We are seeing, of course, the same thing. It is 

the hospital and the systems of hospitals that are moving out and 

the individual physicians. 

My time is about to expire, and rather than get into the Massachusetts example with Dr. Blumberg, perhaps we will get a chance 

later. I yield back. 

Chairman ANDREWS. Thank you very much, Mr. Kline. 

Mr. Kildee is recognized for 5 minutes. 

Mr. KILDEE. Thank you very much, Mr. Chairman. I also want 

to commend you for summonsing such a panel. The quality of the 

panel both collectively and individually is very, very good, and I appreciate it. 

Last fall I was instrumental in bringing the CEOs of the Big 

Three automakers to Washington to meet with both Democratic 

and Republican leaders because I think we have to recognize this 

has to be done in a bipartisan way to get it right. They indicated 

that the single most effective thing that we could do for them, because they have enormous health care costs, would be some type 

of catastrophic reinsurance. And there are various ways you can 

craft that; both Senator Frist and Senator Kerry have indicated 

some inclination that way with various ways of forming it. 

Is there any role that some type of catastrophic reinsurance 

could be helpful to small business? 

Mr. ENGLAND. Well, you know, I don’t think a small business can 

take on the in-between risk. So you could have a policy that really 

45

covered for, you know, major problems like a heart attack or something like this, but I think it should be around the other way. We 

should be really encouraging preventive care. 

You know, we just talked about—you just said about the reminders from the vet. When we repair cars, we send service reminders 

out, and I talk to my doctor the other day, and she had not—she 

didn’t have a facility to remind me when to go for checkups, which 

I think is terrible. Here we are, we care more about cars than we 

do about ourselves. 

Mr. KILDEE. Well, I have in mind a small business in Flint, 

Michigan, a small chain of pretty well locally established restaurants where we had a very socially responsible owner, a good 

friend of mine, who offered health care, and he was able to do that 

until just one of his workers came down with a very long, debilitating disease, and he finally had to drop out of providing health 

care. Mr. Webber, could you comment? 

Mr. WEBBER. Yeah. Representative Kildee, I would certainly 

share that. I ran a small association. We had one bad medical risk. 

We could not find an insurance carrier to provide us care except 

for the local Blue Cross plan that had to do so by State charter. 

To your issue of reinsurance, there is no question that that would 

dramatically bring down the premium cost for employers and get 

more employers in the game. And so I think—again, in the spirit 

of a fresh look at these issues, I think all these proposals need to 

be put on the table. Obviously that issue gets to, okay, who is going 

to finance that reinsurance system that is established? And obviously there are constraints, particularly in this environment, with 

the Federal Government or even State government to provide a 

level of contributions to make that happen. But there is no question in my mind that that would relieve some of the pressure that 

employers are feeling about contributing to this voluntary employer-based system. 

Mr. KILDEE. They could run a big company such as General Motors down to——

Mr. WEBBER. Right. Well, I am glad you are working with the 

large autos. So are we at the National Business Coalition on 

Health. The Greater Detroit Health Area Council, which is a multistakeholder organization with the large autos in a leadership role, 

bringing together all the stakeholders in health care, have put together some exciting initiatives; the one that we have been working 

on as a whole community initiative on save lives and save dollars, 

this notion that if we really were to drive higher quality in health 

care, there is gold at the end of the rainbow. And the autos have 

been taking a leadership role in that effort, and we are thankful 

to be working with them. 

Mr. KILDEE. And I am not advocating the Canadian system, but 

I know I live near the Canadian border. And if one of the Big 

Three, everything else being equal, decides to build a new plant, 

and they can build it in Michigan or in Ontario, everything else 

being equal, they are going to build it in Ontario because their 

health care costs are virtually zero in Ontario. So that does have 

a profound effect not only upon the people who are ill and the employer, but our whole economy. 

46

Mr. WEBBER. Again, I couldn’t agree more. Rising health care 

costs, as I said in my statement, puts American industry at a competitive disadvantage in a global economy. And increasingly it is 

hard to compete. So, you know, we are losing jobs overseas; 

outsourcing is a major dilemma. Of course we want to keep these 

jobs here in America and create a vital economy, but we have to 

address the health care issue. And again, as I said in my statement, it is not just the issue of the uninsured, it is the issue of affordability and driving better and higher quality. 

Mr. KILDEE. Thank you very much. Thank you, Mr. Chairman. 

Chairman ANDREWS. Thank you very much. 

Ranking Member McKeon. 

Mr. MCKEON. Thank you, Mr. Chairman. 

I am sorry that I wasn’t here to hear your testimony, but Mr. 

Kline was, and I would like to yield my time to him, and he may 

ask the question that I would have thought of if I had been smart 

enough. 

Mr. KLINE. This is all pretty scary. Thank you, Mr. McKeon. 

I would like to take advantage of your yielding the time to go 

back to where I was going to go earlier with Dr. Blumberg and the 

Massachusetts law as sort of a model out there that a lot of people 

are looking at. And you mention the President has an initiative out 

there that he has put forward. We have got Massachusetts, we 

have got California, Minnesota, New Jersey. We have a lot of 

things going, and I quite frankly think that is probably a good idea 

because it is letting us look at a lot of possibilities. 

But let’s—I don’t understand the Massachusetts law as well as 

I should, and you apparently do. So I would like to explore it just 

a little bit. Under the Massachusetts law, there is an individual 

mandate, you have to have the coverage. What is the enforcement 

mechanism for that? What if you don’t have it? 

Ms. BLUMBERG. The enforcement mechanism would be through 

the income tax system. Right now the mandate is not in place. 

Theoretically it should be in place and effective as of the end of the 

calendar year. So what happens is when it is time to do State income taxes, they will—every individual will have to have some way 

of verifying on their income taxes with something from their insurer presumably, or from a public program if they are enrolled in 

a public program, that they—as of December 31, 2007, they were 

covered by health insurance. 

There will be penalties assessed that right now their focus is 

really on voluntary compliance and trying to make it as easy as 

possible to comply with the mandate. There will be some financial 

penalties that will be imposed for those who do not comply through 

the income tax systems and that presumably, over time, as the system has been in place and people are more familiar with what their 

options are and what their requirements are, those penalties may 

increase over time, but they will start out relatively modest. 

I think it is important to note, too, the individual mandate in 

Massachusetts applies only to adults, not to children. We have expanded their Medicaid program, Mass Health, eligibility for children, so people should be enrolled. The children are not covered by 

the individual mandate. 

47

And, in addition, the mandate will only be in effect if there is 

what is considered an affordable health insurance policy available 

to that individual and that those details are—those details are still 

being determined right now. 

Mr. KLINE. So there are still a lot of unanswered questions. 

Ms. BLUMBERG. But they really had what I considered to be a 

pretty short implementation plan. And so a lot of things are getting 

done at the same time right now. 

Mr. KLINE. I have heard Governor Romney say this was going to 

save—at the end of the day, this was going to save public resources 

at one point. Do you have any update on what the projections are 

now in terms of State dollars? 

Ms. BLUMBERG. I am not sure what the estimates are at the moment in terms of comparing what their projected spending is on the 

program compared to what spending would have been in the absence of the program. My personal sense of health care reform and 

coverage expansion is that one shouldn’t expect, at least in the 

near term, to be spending less in a system-wide way under a universal coverage system than you would with having individuals uninsured. But I don’t know what the State’s own projections are. 

Mr. KLINE. And this is like Mr. Andrews doing math in his head. 

I have got a piece of paper here, and I am not sure I am getting 

it exactly right. What happens, under the Massachusetts law, if the 

employer contribution levels prove insufficient? What happens? 

Ms. BLUMBERG. Well, under the law, employers in Massachusetts 

that have workers, at least 10 workers or more, are required to 

make a fair and reasonable contribution to health insurance for 

their workers. Now fair and reasonable is another one of those details that is being determined at the moment. However, if an employer does not comply with the fair and reasonable requirement 

once it is determined, then the—if they are an employer of over 10 

workers, they can be assessed an assessment for every worker per 

year that they are not making that contribution for. And that contribution, the assessment, can be up to $295 per worker per year. 

So it is considerably less than providing health insurance. 

So that is why I referred to it as a light employer mandate, unlike California, where the requirement on the employers who do 

not provide health insurance is that they pay a 4 percent payroll 

tax on every worker. 

So they do have an employer requirement if they don’t participate. But it is not a tremendously onerous one. 

Chairman ANDREWS. Thank you, Mr. Kline. 

I will mention, again, that the subcommittee would like to explore these State plans in the forthcoming weeks and work with 

the minority to bring in some of the proponents of the plan from 

around the country so we can learn more about it, and we appreciate you helping us out that way. 

Mr. Loebsack is recognized. 

Mr. LOEBSACK. Thanks for having this hearing today. And thank 

you to all of the witnesses. Unfortunately, I have been here sort of 

sporadically not only because of votes but for other reasons. 

I am going to say a couple of things, and I am not going to have 

any questions at this point. 

48

I am a new Member, and I am learning about how to deal with 

the media the hard way. The Sunday after the election, my photo 

was above the fold on the front page of the New York Times, and 

under my photo was my position on health care during the campaign and the position that I have now, which is that I favor a single-payer system, whether it is Canadian or whatever the case may 

be. But at the same time, I am pragmatic enough to realize that 

is unlikely to happen at any time soon, if at all, in America. So I 

am open to options, and I am happy to be here today. 

With that, I am going to pass because I have been here, as I said, 

only sporadically this morning, and like my colleague from California, who just left, I don’t feel as though I have a particularly intelligent question to ask at this point. But I promise I will in the 

future. 

Thank you, Mr. Chair. 

Chairman ANDREWS. I thank my friends. I actually think it is a 

huge improvement in the level of quality work around here when 

Members say that. We have had a lot of questions over the years 

asked that—we also do more listening than talking, myself included, and we appreciate that. 

Mr. LOEBSACK. I forgot to yield back, but your comments are 

okay. 

Now I yield the rest of my time. 

Chairman ANDREWS. Mr. Courtney, who has had extensive experience with Connecticut legislature in health care, is recognized. 

Mr. COURTNEY. Thank you, Mr. Chairman. 

As someone who has chaired the public health committee at the 

State level, this is sort of dj vu all over again, listening to the ways 

you squeeze the balloon on the system, and actually up until about 

a hundred days ago, I was also a small employer, had been for over 

20 years, and the dilemmas you described in trying to balance the 

need to retain quality workers with their own family needs and in 

terms of wages and benefits, I could probably get over on the other 

side of the table here and share some of the stories there because 

that really is a reality that you described that small businesses experience over and over again out there. 

And listening to Mr. Webber talk about the value-based consumer-driven path as sort of a way out of the situation they are 

in right now, I have to tell you, again, as somebody who was a 

small employer, I am a skeptic because, at some point, small employers want to basically repair cars or practice law or practice 

medicine. I mean, they really don’t want to be in a position of having to sort through data as far as making choices on health care 

plans. It is too much. We are already dealing with that with our 

retirement plans, the 401(k) options that people have to—it is 

drudgery for staff to go through those meetings with their financial 

planners. And at the end of the day, we are really looking for—I 

say ‘‘we.’’ I mean, they are looking, my former compatriots, for better choices to buy into plans like the ones that Ms. Alker described. 

And I want you to one more time, because I, like Mr. Kline, wasn’t 

able to retain those numbers quite as quickly. 

If we were to sort of adopt the approach that Mr. Andrews suggested, which is to give employers that opportunity to buy into 

49

SCHIP, again, if—we will use New Jersey as an example. You said 

the cost of a family in SCHIP would be about $8,000 today, $8,000. 

Ms. ALKER. That is what you said. I had a cost of—a national cost which was about $7,400 as the national average. And the private was a little bit under $10,000. 

Mr. COURTNEY. And the very attractive scenario that you went 

on to describe indicated that there was a way to sort of reducing 

that to bring it down in half. But you described it as it would be 

an optional choice for States in terms of whether or not to subsidize 

a portion of that premium. 

Ms. ALKER. I think the attractive feature of the proposal that the 

chairman is considering is that we have—we are talking about lowincome families, low-wage workers earning twice below the poverty 

line, and the children are, by and large, eligible for coverage, Medicaid and CHIP. And as Congressman Andrews indicated, we have 

a long way to go on getting to the finish line with covering all uninsured kids. But it looks very positive that Congress will make a lot 

of steps forward in the CHIP program. But where we have a real 

chasm is the growing number of uninsured low-income adults, the 

parents and also childless adults because typically, they are not eligible for public coverage. Parent coverage is very low. Nationwide, 

it is about 65 percent of poverty, about $13,000. Your state of Connecticut is high or low. As you remember, there were some issues 

about rolling that back as well as New Jersey. But that is where 

this proposal, which combines the commitment we have already to 

cover those kids through Medicaid and CHIP with some kind of 

contribution from the family, and then we can use the employer 

contribution and any additional subsidies State and Federal Government can kick in to address the needs of the parents. 

And I would say childless adults should be included as well, but 

that is a detail that is still remaining. But that is what is attractive about this. Looking at that group, and I am sure Dr. Blumberg 

will speak to this more where we really have problems of low-wage 

workers not having access to coverage. And this would offer an opportunity for those employers who would like to help out those 

workers, and the kids may be CHIP or Medicaid eligible. 

Mr. COURTNEY. So, again, for the auto repair shop who has a 

worker who qualifies or whose family income is within SCHIP, if 

this system existed and they wanted to cover or buy into the 

SCHIP program, the reduction in costs would be somewhat contingent on whether or not the State sort of opted to subsidize a portion of the premium. 

Ms. ALKER. I think the idea is that for his family—and he indicated he had an employee who was working part time and she had 

been eligible, I believe, for Medicaid, but then when she earned 

more money, she was no longer eligible 

for Medicaid even though her kids were. So the idea would be the 

States would still be paying the cost of the kids and whereas now 

he would have to buy a whole family policy in the private market, 

he could purchase coverage through the CHIP pool for his worker 

who is not eligible for public coverage. But the State would be paying the costs for the kids. So that would be a lot less expensive 

than if he had to buy for the whole family policy on the private 

market. 

50

Mr. COURTNEY. That is where you would arrive at that point 

where the total cost of the employer would be about $3,000 or 

$4,000. 

Ms. ALKER. Yeah. We would have to figure out the numbers in 

different places. 

Chairman ANDREWS. If the gentleman will yield. What we find 

intriguing about this idea is that, if there were no State match and 

you could get down to that kind of number, this is using Federal 

dollars we are spending anyway, you understand. The real reduction here for the employers, as Ms. Alker just said, being able to 

participate in that SCHIP pool, giving him or her the economies of 

scale and the purchasing power. 

Next, Mr. Hare is recognized for 5 minutes. 

Mr. HARE. Thank you, Mr. Chairman. Thanks very much for 

chairing a hearing on a subject that I think is probably one of the 

most important issues that we have facing us today. 

I toured several hospitals in my district. I am from west central 

Illinois, and I spoke to hospital administrators and asked them in 

your emergency room, what percent of uninsured people come 

through the emergency room, which, you know, is the most expensive? We are averaging now at four hospitals about 30 to 35 percent of people that are going through the ER are people who are 

uninsured. So, clearly, we have a significant problem here, people 

using that, using health care—using the emergency rooms for 

health care and we have to do better. We have to do a lot better 

than we are doing. 

I just want to ask a couple of questions if I could. 

First of all, Ms. Alker, you said that New Jersey’s premium assistant program, you called it exemplary. What lessons can other 

States learn that New Jersey has been doing as a model? 

Ms. ALKER. The reason I like the New Jersey program, and I 

should mention that Illinois has one as well, which I think they 

have—it is an alternative model. Their heart is really in the right 

place. I have some concerns about it, but what I like about New 

Jersey’s program is, they have made sure that families still retain 

the same benefits package as they would in Medicaid and CHIP so 

they provide a wrap-around. And these families face very high private costs. So the State will come in and pay those so the family 

is not exposed to higher costs because, for low-income families, that 

is challenging and causes them to lose services. 

And the other thing they do, and this has been a troubling feature of the Bush administration’s waiver policy in the past 6 years, 

the Bush administration has actually weakened Federal standards 

regarding cost-effectiveness for premium assistance programs in an 

effort to really encourage the use of private insurance. And they 

haven’t really required States to be very aggressive about assessing 

whether they are saving money under these programs, and because, as I indicated, private coverage is much more expensive 

than public coverage. And when enrollment is low, you have high 

start-up costs. Some of these programs haven’t been cost-effective. 

New Jersey’s also does a good job—they do an actual assessment 

looking at the cost of the employer plan and the cost for the wraparound services, and they make sure that they are saving money 

51

or they don’t enroll the family. They enroll them in the direct coverage. That has been the strong feature. Those two aspects of it. 

Mr. HARE. Dr. Blumberg, most people that I talk to, including 

my friend Mr. Loebsack, is a supporter of a national health care 

system where everyone has a right to go to the hospital. This debate always seems to be of the question of, how are we going to 

pay for a system like that? In your experience as an economist and 

researcher, can you speak to the question about national health 

care? 

Ms. BLUMBERG. I think of it as a redistributional issue. If there 

is—when you go to a government—fully government funded system 

as opposed to doing something that more closely approximates 

what we have today with extra subsidies for people who are in 

greater need, when you are going to that fully government system, 

there is a lot more redistribution of spending. And when I say redistribution, I am talking about moving dollars that are currently 

paid by the private system and moving those dollars through new 

revenue-raising mechanisms into the public sector. And so it really 

can be set up to not cost tremendously a lot different, but a lot of 

it is what your taste for redistribution is. 

So you can set up a system on what is more closely based on 

what we have now, as I mentioned, with other assistance for people 

who are at a higher need, but without redistributing quite as many 

dollars from private payers into the government system. So some 

people are going to politically feel that they either can’t or don’t 

want to shift those private dollars into the government system and 

then redistribute them out that way. And some people are going to 

be very happy to redistribute those dollars to the government system because they feel like they can make those payments then 

more closely based on people’s ability to pay. 

So in terms of what we have seen and with States trying to do 

reform and from previous efforts at the Federal level, I think that 

the country has a way to go in terms of getting to the mindset of 

feeling comfortable with the really substantial degree of redistribution that would be required under a single-payer system. So we already see they have difficulty even talking about new revenue-raising mechanisms to pay for a system that wouldn’t be quite as huge 

a shift in terms of where the dollars are coming from. 

So that is my assessment. Obviously, you all have a better sense 

of politics than I do. 

Mr. HARE. I doubt that. 

Ms. BLUMBERG. There really is a redistributional issue, and what 

your taste is for redistribution is going to drive you to one corner 

or the other on this. 

Mr. HARE. Thank you. 

Chairman ANDREWS. Thank you, Mr. Hare. 

The gentlelady from New York, Ms. Clarke, is recognized for 5 

minutes. 

Mr. CLARKE. Thank you very much. 

It is one of those days where I have so many meetings and hearings that I am at simultaneously, but this is an important issue, 

and I want to thank you for your leadership in this regard. And 

just to say that, you know, this issue has resonance throughout 

52

this body. This week, I was in a hearing in small business where 

this issue is being vetted as we speak. 

Mr. Chairman, approximately 47 million Americans are currently 

uninsured, and I believe that health care is a right for every 

woman, man and child in America. Traditionally, health care coverage has been a component of the social contract between employers and employees. However, that social contract is dissolving more 

and more each day, particularly for small businesses and, in many 

instances, for good reason. 

As a result, the Federal Government must create innovative solutions to bridge the gap between the uninsured and the insured and 

make sure quality health care is affordable and available to all. It 

is not a luxury. Specifically, I believe that every American should 

have a guaranteed adequate level of health care, and health care 

should be managing the cost of premiums, co-payments and 

deductibles. Moreover, every American should have the ability to 

pick his or her own doctor, and it should be the patient and doctor, 

not the insurance company bureaucrats, who make the critical 

medical decisions. And, finally, preventative care and access to preventative medication must be an integral component of any health 

care plan. So having that as a backdrop of my philosophy, let me 

say and ask a couple of questions with regard to SCHIP. 

Does the SCHIP program give assistance to everyone regardless 

of residency and immigration status? And I put that out there—I 

want to ask a couple of questions in a row. 

With respect to uninsured children, and this is something I am 

really concerned about, if a child is no longer financially eligible for 

Medicaid and SCHIP, could there be a period of time where the 

child is uninsured because the parent is waiting for the employer’s 

annual open enrollment period? And has there been any study as 

to this and to determine what, on average, is the waiting period before a parent gets that coverage? 

I just want to open up those questions to all of you. 

Ms. ALKER. I think I can respond to those. 

On your question regarding immigrant children, SCHIP, Federal 

SCHIP money currently does not pay for most immigrant children. 

There is an effort this year to restore some Federal funding for 

children of illegal immigrants. Right now, there is a 5-year bar 

when they enter the country. And that is something that Congress 

will be considering this year. There are a few States that do, 

through their own funds, pay for all children, including undocumented immigrant children, not very many, and then there are 

some that pay for those 5-year-bar kids, which the Federal Government used to pay for but did not allow States to use SCHIP to fund 

for that. 

And your second question, can you restate it, Ms. Clarke? 

Mr. CLARKE. I wanted to get a sense of that period of time where 

a child is uninsured because they may be waiting for the employer’s annual enrollment period. And whether we have done any 

studies to determine what the average waiting period could be. And 

if that child is no longer financially eligible for SCHIP, you know, 

what is the impact of that? 

Ms. ALKER. I haven’t seen any studies of that. I don’t know if you 

have, Linda. I think the issue you are raising is children who 

53

would be over-income for SCHIP eligibility but waiting for the open 

enrollment period. I haven’t seen any numbers for that. I think 

that would be a problem, and that would be something that would 

be relatively easy to address. 

Chairman ANDREWS. I think the committee would have some interest in asking HHS or the States the answers to that very profound question. If Ms. Alker and Dr. Blumberg don’t know the answer, I don’t think anybody does. But we, perhaps, could look at 

the appropriate government agency and do a joint letter, and we 

could ask them. It is a very good question. 

Mr. CLARKE. Just in closing, you know, we think about oftentimes health care sort of in a very sterile way. I hope that we begin 

to address the issue of visitors, folks who may be immigrants here 

out of status. Because oftentimes, the issues that we are talking 

about are public health issues as well. And so, to the extent that 

we leave anyone out of a health care infrastructure to address either preventative health care or containment, we are all at risk for 

the dimunition of our health. 

And I yield back, and I thank you all for your testimony here 

today. 

Chairman ANDREWS. Thank you for your contribution. 

Mr. Sestak is recognized for 5 minutes. 

Mr. SESTAK. Dr. Blumberg, I would like to ask a couple of questions, and they may have already been asked—and I regret that I 

just showed up—about the Massachusetts plan. I am intrigued by 

it because it was a Republican governor and a Democratic legislator that came together, and I honestly think if you are ever going 

to affect something that is eventually going to cover everyone, it is 

going to take a bipartisan approach. 

The outlines of it I found—and it was an education for me—I 

found this of some interest. It is, if you do think that transparency 

of standards and competition might ultimately discipline costs and 

that it is a shared responsibility between society and individual, 

that here you have a mandate. And if I am not wrong, about a fifth 

of the uninsured and the top one-fifth of the wage earners of America, those young youth that think they don’t need to be insured, 

and they are in motorcycle accidents or some other problem, it is 

my limited understanding that a benefit may be that premiums 

could go down if there are more healthy individuals in the pool. 

Premiums might go down if you do this pooling because, again, my 

stats might be wrong, but like small businesses, depending on how 

you define ‘‘small business,’’ may cover upwards of 60 percent of 

workers in America presently. And that if you are able to pool 

them together through a quasi-government connector to negotiate 

among plans that may not be dissimilar to what the Federal Government has, premiums may ultimately go down. 

I understand Massachusetts is a unique State in terms of how 

many are uninsured and all of that. But if it is mandated and most 

of them go to the emergency room for care, ultimately, potentially, 

taxes aren’t needed as much to subsidize that, but they can then 

cover those who truly are insured because they are not employed 

but meanwhile they need coverage until they do. That simplifies 

the Massachusetts plan a lot, I understand. 

54

But I thought those were the principles that made it somewhat 

attractive for the broad support that it did have as a step towards 

a bipartisan approach on affordable and accessible andadequate 

coverage. 

I am intrigued by it. What is it I should be looking at to really 

say whether this is some model that we should think seriously 

about? 

Ms. BLUMBERG. You covered a lot of ground in your comments. 

I will try to talk about what I think the most important points are 

in the plan and how they fit into the issues that you are raising. 

It is true that some of the uninsured are young and healthy. 

Many of them are not. And when you bring in, just for purposes 

of the discussion, hypothetically, when you bring in the whole population into a system, you are going to bring in both people who 

are low-cost and high-cost. When you have more low-cost people in 

there in a particular health insurance risk pool, a particular pool 

in which premiums are determined, that is going to bring the average health care costs in that pool down. But it is important to remember that that doesn’t mean we are bringing total health spending down. It means we are bringing the average for that pool down. 

So there are also a number of people who are uninsured today 

who, as a consequence of being uninsured, are not receiving as 

much medical care as they would had they been covered. And so 

when those people are brought in and given a comprehensive 

health insurance policy, then those individuals are going to end up 

spending more in the system than they would have spent without 

insurance. And many for good reason because they need more medical care for particular types of conditions, and they weren’t receiving sufficient care. 

But I want to be clear that some people are going to increase 

their use once they have insurance, and some people are going to 

come in and not cost too much. 

Mr. SESTAK. But the whole system, they may decrease their use 

in terms of cost because now they are not waiting until it is an 

acute illness and going into the emergency room; correct? There 

will be that initial—theoretically, the cost will ultimately be less if 

they are getting the coverage, correct? 

Ms. BLUMBERG. There will be some efficiencies that are created 

by people having the usual sources of care outside of settings such 

as emergency rooms. Some people will get more preventative care. 

But there is not a great deal of research evidence to support that 

the preventative care is going to end up decreasing costs over time. 

It may increase quality to have preventative care that is more accessible for individuals, but we don’t necessarily know that that is 

going to end up leading to system-wide savings, the more preventative care that people get. It may be that people end up getting conditions identified and have better quality of care and better health 

outcomes and get better services as a consequence of that. But the 

research isn’t there——

Mr. SESTAK. I thought Medicaid had done two pilot programs 

that did show the savings that could accrue from preventive care 

and managed care. That would show you do save—of course, these 

are more chronically ill individuals—that you do have some ultimate savings, but that is wrong then? 

55

Ms. BLUMBERG. I am saying there is not a great deal of research 

evidence to show that you are going to get significant system-wide 

savings as a consequence of the preventive care, but you may increase quality, and that is also obviously a value to society. 

In terms of the savings from the connector, there are clearly 

some efficiencies from bringing individual purchasers and small 

group purchasers into an entity that will be negotiating for premiums as a larger group. There are also some administration costs 

that go into administering that pool so it is not costless. But it is 

certainly better than what individuals in the smallest groups experience today. 

We should be very mindful when we are thinking about these 

purchasing pools, in terms of how much negotiating power we are 

going to allow them to have. Sometimes politically it is very difficult to get all of the stakeholders together to support legislation 

where the insurers are concerned because the purchasing entity is 

going to have too much negotiating power. And so that is a real difficult balance because, on the one hand, for system-wide efficiencies 

in savings, we would like to have a very strong purchasing entity. 

And politically, sometimes that is difficult to achieve. So I think 

that is an important point to keep in mind that these purchasing 

entities won’t necessarily have a great deal of cost-saving potential 

unless we give them the power to really be a serious negotiator. 

Chairman ANDREWS. Mr. Webber, if you would like to respond. 

Mr. WEBBER. Thank you for raising those very good issues. 

On the issue of investments and prevention and chronic care 

management yielding savings over time, sort of my response to Dr. 

Blumberg is, if the research isn’t there, let us do the research because I think there is intuitive logic there, and I think if we go outside of the big academic studies and we look at some observational 

studies, that we can actually begin to prove the point. And one example of that: Pitney Bowes, a large company, put together a very 

interesting what we call value-based benefit design where they 

looked at their population and saw that their diabetic patients 

were not getting the services that they needed. And they had actually set up a pharmacy benefit mechanism where individuals, 

again, could not get access because of high out-of-pocket expenditures. So they said, we have got to rethink this. We need to make 

sure that the people that are chronically ill are getting appropriate 

access to medications that they need, and we are convinced that it 

is going to pay off over time. So they put all branded and generic 

drugs into a preferred tier. They reduced barriers to access. They 

actually drove up the front-end cost for pharmacy benefits, but 

then they looked at emergency rooms, they looked at hospitalizations over time, and total costs were saved. 

Chairman ANDREWS. Last year, the full committee had a hearing 

which talked about this topic, and there was a witness who talked 

about an effort on diabetes where, in addition to what you are talking about pharmaceutical products, they actually increased the 

physician reimbursement for physicians who had gone through the 

Good Housekeeping Seal of Approval in the endocrinological field. 

And they did have some results which, at least in the short-term, 

showed much better outcomes for diabetic patients. 

56

And I concur with you and Dr. Blumberg, we would like a more 

robust body of knowledge on this topic. 

Mr. WEBBER. And, Chairman Andrews, thank you for raising 

that. That is the Bridges To Excellence Program that I referred to 

in my oral statement where, again, physicians who are designated 

as driving better quality in the field of diabetes, driving better outcomes, controlling their patients with greater blood-sugar control, 

they get paid more. But if you look at, again, total health expenditures over time, the entire picture, we are actually improving quality and reducing costs at the same time. 

Chairman ANDREWS. Certainly. 

Mr. Kline, did you have any closing comments? 

Mr. KLINE. Only this. Again, thank you to the witnesses. This 

has been a fabulous panel. As I guessed in the very beginning, this 

was going to be very, very informative. It turned out to be just 

that. Your testimony has been excellent. 

Chairman ANDREWS. Let me join in thanking each of the four of 

you for provocative, very well-thought-out comments. We are delighted you were able to give us your time today. 

Here is where we intend to go from here. In subsequent weeks, 

the committee is attempting to put together a hearing. We can 

have witnesses from the more innovative State programs like Massachusetts, like California, so we can learn more about their approaches. 

With respect to the SCHIP idea, which Ms. Alker has been instrumental in educating us about, we invite the comments of all of 

the Members of the committee, Republicans and Democrats, as to 

their views in helping to put together legislation. And in the longer 

term, I would acknowledge that many of the more creative State 

experiment ideas do run into issues about the ERISA Statute, and 

we are interested in exploring the idea of appropriate modifications 

to the ERISA Statute that would facilitate intelligent and wise 

State experiments that could reduce the number of uninsured and 

increase quality and reduce costs. 

All members will have 14 days to supplement the record with 

any other comments they would like to make. We, again, thank the 

witnesses for an extraordinary performance. 

The committee stands adjourned. 

[Additional submissions for the record follow:] 

[‘‘Charting SCHIP III: An Analysis of the Third Comprehensive 

Survey of State Children’s Health Insurance Programs,’’ dated September 2006, Internet address follows:]

http://www.chipcentral.org/Files/Charting—CHIP—III—9-21-6.pdf 

[Congressional Research Service report for Congress: ‘‘State Children’s Health Insurance Program (SCHIP): A Brief Overview,’’ updated January 30, 2007, Internet address follows:]

57

http://www.congress.gov/erp/rl/pdf/RL30473.pdf 

[Congressional Research Service memo prepared for Congress: 

‘‘State Health Insurance Reforms,’’ dated February 2, 2007, follows:]


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[Prepared statement of Dr. Herrick follows:]

Prepared Statement of Devon M. Herrick, Ph.D., Senior Fellow, National 

Center for Policy Analysis 

Mr. Chairman and members of the Subcommittee, please accept my comments for 

the record regarding the March 15, 2007, hearing about providing health insurance 

for the uninsured. My comments focus specifically on the issue of health care prices. 

As was pointed out by many of the witnesses during the hearing, the price of health 

care is a significant issue to consider as the Subcommittee discusses health care reform. 

Prices for medical services have been rising faster than prices of other goods and 

services for as long as anyone can remember. But the Subcommittee should consider 

that not all health care prices are rising. Although health care inflation is robust 

for those services paid by third-party insurance, prices are rising only moderately 


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for services patients buy directly. For example, the real (inflation-adjusted) price of 

cosmetic surgery fell over the past decade—despite a huge increase in demand and 

considerable innovation. 

Health Care Costs Rise When Others Pay. A primary reason why health care costs 

are soaring is that most of the time when people enter the medical marketplace, 

they are spending someone else’s money. When patients pay their own medical bills, 

they are conservative consumers. Economic studies and common sense confirm that 

people are less likely to be prudent, careful shoppers if someone else is picking up 

the tab. Thus, the increase in spending has occurred because third parties—employers, insurance companies or government—pay almost all the bills. 

The Extent of Third-Party Payment of Medical Bills. Although polls show that 

many people fear they will not be able to pay their medical bills from their own resources, the reality is that most people pay for only a small portion of their medical 

care: 

• For every $1 worth of hospital care consumed, the patient pays only about three 

cents out of pocket, on the average; 97 cents is paid by a third party. 

• For every $1 worth of physician services consumed, the patient pays less than 

10 cents out of pocket, on the average. 

• For the health care system as a whole, every time patients consume $1 in services, they pay only 14 cents out of pocket. 

Thus, from an economic point of view, the incentive for patients is to consume 

hospital services until they are worth only three cents on the dollar, on the average. 

The incentive is to consume physicians’ services until they are worth only 10 cents 

on the dollar. And for the health care system as a whole, patients have an incentive 

to utilize everything modern medicine offers until the value to them is only 14 cents 

out of the last dollar spent. 

Medical Inflation. Health care costs over the past 40 years have risen as the proportion of health care paid for by third parties has increased. Prior to the advent 

of Medicare and Medicaid in 1965, health care spending never exceeded 6 percent 

of gross domestic product. Today it is 16 percent. These two government programs 

unleashed a torrent of new spending and led to rising health care prices. For instance, a recent study by Amy Finkelstein of the Massachusetts Institute of Technology found that half the growth in health care expenditures was due to Medicare. 

There has also been an increase in tax-subsidized employer spending on health care. 

These two factors, rather than the cost of new technology and drugs, explain why 

health care costs outpace inflation. 

Cosmetic Surgery Prices. Cosmetic surgery is one of the few types of medical care 

for which consumers pay almost exclusively out of pocket. Even so, the demand for 

cosmetic surgery exploded in recent years. Of the 10.2 million cosmetic procedures 

performed in 2005 that were tracked by the American Society of Plastic Surgeons, 

1.8 million were surgical procedures. By comparison, in 1992 the American Society 

of Plastic Surgeons only tracked 413,208 cosmetic procedures—a fraction of those 

performed in 2005. 

Despite this huge increase, cosmetic surgeons’ fees remained relatively stable. The 

average increase in prices for medical services from 1992 through 2005 was 77 percent. [See the figure.] The increase in the price of all goods, as measured by the 

consumer price index (CPI), was 39 percent. Cosmetic surgery prices only went up 

about 22 percent. Thus, while the price of medical services generally rose almost 

twice as fast as the CPI, the price of cosmetic surgery went up slightly more than 

half as much. Put another way, while the real price of health care paid for by third 

parties rose, the real price of self-pay medicine fell.

89

Another example of price competition is the market for corrective eye surgery. In 

1999, only a few years after LASIK was approved, the price was about $2,100 per 

eye, according to the ophthalmic market research firm MarketScope. Within a short 

time, competition drove the price down to a slightly more than $1,600. The cost per 

eye of the standard LASIK is now about 20 percent lower than six years earlier. 

Competition held prices in check until a new innovation arrived for which patients 

were willing to pay more. By 2003 surgeons began to perform a newer, more-advanced custom wavefront-guided LASIK procedure. 

Keeping Costs Down. What explains this price stability? One reason is patient behavior. When patients pay with their own money, they have an incentive to be 

savvy consumers. A second reason is supply. For instance, as more people demanded 

cosmetic surgery procedures, more surgeons began to provide them. A third reason 

is efficiency. Many providers are increasing their efficiency by locating operating 

rooms in their clinics, a less-expensive alternative to outpatient hospital surgery. 

And providers often adjust their fees to stay competitive and usually quote patients 

a package price. Absent are the gatekeepers, prior authorization and large medical 

office billing staffs needed when third-party insurance pays the fees. A fourth reason 

is innovation and the emergence of substitute products. 

Fostering Competition. When providers compete for business, the market fosters 

competition. In competitive markets, producers seek to reduce costs and to offer 

products that meet customer demands. However, instead of a competitive national 

market for health insurance, we operate under a patchwork of 50 different sets of 

state regulations. Since each state insurance market is protected from interstate 

competition, legislators often require insurers to cover services that drive up premiums. For example, about one-fourth of states mandate benefit packages that cover 

acupuncture and marriage counseling. More than half require coverage for social 

workers and 60 percent for contraceptives. Seven states require coverage for 

hairpieces and nine, hearing aids. Needless to say, these mandates drive up the cost 

of providing health insurance, often making it prohibitively expensive for an insurer 

licensed in one state to do business in another state. As a result, consumers have 

little choice among plans. In many localities, only one insurance product is availVerDate 0ct 09 2002 19:27 Jul 06, 2007 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6621 G:\DOCS\110TH\HELP\110-10\33758.TXT HBUD1 PsN: DICK

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able, so the consumer is forced to buy an overpriced product, or forgo insurance altogether. 

Fostering Innovation. When patients directly control their health care dollars, not 

only do prices go down, medical providers begin to offer innovative services to meet 

the demand of empowered patients. Telephone consultations, walk-in retail clinics, 

electronic medical records, and personalized care are among the innovative services 

provided by doctors. These new physician services tend to have two characteristics: 

(a) they offer patients greater convenience and (b) they step outside normal reimbursement channels. Furthermore, many of these innovations (such as electronic 

medical records) dramatically improve the delivery of quality health care. 

Conclusion. As the Subcommittee deliberates health care issues, I hope you will 

consider the relationship between the competitive healthcare marketplace and stable prices. Thank you for the opportunity to comment. 

[Kaiser Commission issue brief: ‘‘Premium Assistant Programs: 

How Are They Financed and Do States Save Money?,’’ dated October 2005, Internet addresses to executive summary and issue brief 

follow:

http://www.kff.org/medicaid/upload/Premium-Assistance-Programs-How-are-theyFinanced-and-do-States-Save-Money-Executive-Summary.pdf 

http://www.kff.org/medicaid/upload/Premium-Assistance-Programs-How-are-theyFinanced-and-do-States-Save-Money-Issue-Brief.pdf 

[New York Times article: ‘‘The President’s Risky Health Plan,’’ 

follows:]

[The New York Times, January 26, 2007]

The President’s Risky Health Plan 

The new health care proposals announced by President Bush this week purport 

to tackle the two toughest problems confronting the American health care system: 

the rising number of uninsured Americans and the escalating costs of medical care. 

But on both counts, they fall miles short of what is needed to fix a system 

where—scandalously—47 million Americans go without health insurance. 

The financial sinkhole in Iraq and huge tax cuts for wealthy Americans have left 

the administration with no money to really address the problem. To keep the program ‘‘revenue neutral,’’ Mr. Bush would instead use tax subsidies to encourage 

more people to buy their own health insurance, while imposing additional taxes on 

people who have what Mr. Bush deems ‘‘gold plated’’ insurance. 

It is a formula that would do little to reduce the number of uninsured Americans 

and would have a high risk of producing pernicious results. Even White House officials acknowledged earlier this week that they expected the number of uninsured 

to drop by only three million to five million people as a result of Mr. Bush’s proposals. They expect the states to take on most of the burden. 

One enlightened element is that the plan would provide equal tax treatment to 

those who bought their insurance policies on the individual market and those who 

got coverage through group policies at work, thus ending a longstanding inequity 

that favors employer-based policies. To level the playing field, the administration 

proposes to grant everyone who gets qualifying health insurance a standard deduction—$15,000 for family coverage or $7,500 for single coverage—off their income 

subject to taxation. Those with family policies exceeding $15,000 in value would 

have to pay taxes on the excess amount. 

After the proposed starting date in 2009, the administration estimates, about 80 

percent of workers with employer-provided policies would pay lower taxes and 20 

percent would pay higher taxes, unless they reduced the value of their health coverage to fit within the standard deduction. 

The new standard deduction would almost certainly entice some people to buy 

health insurance who had previously elected not to. But a tax deduction is of little 

value to people so poor that they pay little or no income tax. And unfortunately, 

it is those people who account for the vast majority of the nation’s uninsured. 

Instead of trying to fix that fundamental flaw, the administration has decided instead to buck it to the states. The White House has offered few details. But its idea 

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is to allow states to redirect federal money that now helps to finance hospitals that 

provide charity care and use it instead to subsidize health insurance for the poor. 

In an ideal world, it would make good sense to insure people in advance rather 

than wait for them to show up in a high-cost emergency room. But this plan could 

quickly cripple the safety-net hospitals. Fortunately, no governor would have to accept the offer to redirect funds. The scheme is mostly a reflection of how the administration is unwilling to accept true responsibility for the uninsured. 

If the administration really wanted to help low-income people, it would have proposed a refundable tax credit that would have the same dollar value for everyone—

instead of a tax deduction, which primarily helps people in high tax brackets. Even 

those who do not pay taxes would get a check for the dollar value of the credit, providing them at least some money to help pay for health insurance. Congress ought 

to recognize that credits are the better approach for even such a limited plan. 

As for the tax increases on those ‘‘gold plated’’ health policies, the White House 

is hoping to discourage people from using high-priced comprehensive health policies 

that cover everything from routine office visits to costly diagnostic procedures that 

are not always necessary. 

The administration’s goal is to instead encourage people to take out policies that 

might reduce the use of medical services, like policies with high deductibles or copayments, or managed care plans. But even ‘‘copper plated’’ policies can exceed 

$15,000 in cost if they are issued in areas where medical prices are high or to 

groups with high numbers of older or chronically ill workers. 

The whole approach rests on the premise that comprehensive prepaid health policies are a major factor in driving up costs; the theory is that people will tend to 

use services if they are covered. There is probably some truth in that. 

But the main drivers in rising health costs are the costly services, high-priced 

drugs and hospitalizations for people who are seriously ill with catastrophic diseases 

or multiple chronic illnesses. Making their health coverage less generous would simply make it harder for them to get the care they need. 

The greatest risk in the president’s proposal is that it would seem likely to lead 

many small- and medium-size employers to stop offering health benefits altogether 

on the theory that their workers could buy affordable insurance on their own. That 

would leave many more Americans at the mercy of the dysfunctional individual policy market, where administrative costs are high and insurers strive to avoid covering people who are apt to become sick and need costly care. 

For all its fanfare, Mr. Bush’s plan would be unlikely to reduce the ranks of the 

uninsured very much. And if things went badly, it could actually increase their 

numbers. That’s not the answer Americans are waiting for and not what they deserve. 

[Additional materials submitted by Mr. Webber follow:] 

[National Business Coalition on Health policy paper, ‘‘Promoting 

Consumerism Through Responsible Health Care Benefit Design,’’ 

dated November 2006, follows:]

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[‘‘Value-Driven Health Care: A Purchaser Guide,’’ dated February 2007, Internet address follows:]

http://www.leapfroggroup.org/media/file/Employer—Purchaser—Guide—05—11—

07.pdf 

[Whereupon, at 12:30 p.m., the subcommittee was adjourned.]

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