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PROVIDING ACCESS TO AFFORDABLE, FLEXIBLE 

HEALTH PLANS THROUGH SELF–INSURANCE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR, AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, FEBRUARY 26, 2014 

Serial No. 113–46 

Printed for the use of the Committee on Education and the Workforce 

( 

Available via the World Wide Web: 

www.gpo.gov/fdsys/browse/committee.action?chamber=house&committee=education 

or 

Committee address: http://edworkforce.house.gov 

CEWDOCROOM with DISTILLER

(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Thomas E. Petri, Wisconsin 

Howard P. ‘‘Buck’’ McKeon, California 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Tom Price, Georgia 

Kenny Marchant, Texas 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Scott DesJarlais, Tennessee 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Susan W. Brooks, Indiana 

Richard Hudson, North Carolina 

Luke Messer, Indiana 

George Miller, California, 

Senior Democratic Member 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Rush Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

David Loebsack, Iowa 

Joe Courtney, Connecticut 

Marcia L. Fudge, Ohio 

Jared Polis, Colorado 

Gregorio Kilili Camacho Sablan, 

Northern Mariana Islands 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

Mark Pocan, Wisconsin 

Juliane Sullivan, Staff Director 

Jody Calemine, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS 

DAVID P. ROE, Tennessee, Chairman 

Joe Wilson, South Carolina 

Tom Price, Georgia 

Kenny Marchant, Texas 

Matt Salmon, Arizona 

Brett Guthrie, Kentucky 

Scott DesJarlais, Tennessee 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Joseph J. Heck, Nevada 

Susan W. Brooks, Indiana 

Luke Messer, Indiana 

David Loebsack, Iowa, 

Ranking Member 

Rush Holt, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Rube ́n Hinojosa, Texas 

John F. Tierney, Massachusetts 

Rau ́l M. Grijalva, Arizona 

Joe Courtney, Connecticut 

Jared Polis, Colorado 

Frederica S. Wilson, Florida 

Suzanne Bonamici, Oregon 

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(III) 

C O N T E N T S 

Page 

Hearing held on February 26, 2014 ....................................................................... 1 

Statement of Members: 

Loebsack, Hon. David, a Representative in Congress from the State of 

Iowa ................................................................................................................ 4 

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

Roe, Hon. David P., Chairman, Subcommittee on Health, Employment, 

Labor, and Pensions ..................................................................................... 1 

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

Statement of Witnesses: 

Calsyn, Maura, D., Director Of Health Policy, Center for American 

Progress, Washington, DC ........................................................................... 24 

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

Ferguson, Michael, W., President and CEO, Self-Insurance Institute of 

America (SIIA), Simpsonville, SC ................................................................ 8 

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

Kelley, Wes, Executive Director, Columbia Power and Water Systems, 

Columbia, TN ................................................................................................ 19 

Prepared statement of ............................................................................... 21 

Melillo, Robert, National Vice President of Risk Financing Solutions, 

USI Insurance, Glastonbury, CT ................................................................. 31 

Prepared statement of ............................................................................... 33 

Additional Submissions: 

Mr. Loebsack: Question Submitted for the Record 63 

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CEWDOCROOM with DISTILLER

(1) 

PROVIDING ACCESS TO AFFORDABLE, 

FLEXIBLE HEALTH PLANS 

THROUGH SELF-INSURANCE 

Wednesday, February 26, 2014 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor, and Pensions 

Committee on Education and the Workforce 

Washington, DC 

The subcommittee met, pursuant to call, at 10:03 a.m., in room 

2175, Rayburn House Office Building, Hon. Phil Roe [chairman of 

the subcommittee] presiding. 

Present: Representatives Roe, DesJarlais, Bucshon, Brooks, 

Messer, Loebsack, Holt, Scott, Hinojosa, Courtney, and Bonamici. 

Also present: Representative Kline. 

Staff present: Andrew Banducci, Professional Staff Member; 

Janelle Belland, Coalitions and Members Services Coordinator; 

Molly Conway, Professional Staff Member; Ed Gilroy, Director of 

Workforce Policy; Benjamin Hoog, Senior Legislative Assistant; 

Nancy Locke, Chief Clerk; Daniel Murner, Press Assistant; Brian 

Newell, Deputy Communications Director; Krisann Pearce, General 

Counsel; Molly McLaughlin Salmi, Deputy Director of Workforce 

Policy; Alissa Strawcutter, Deputy Clerk; Tylease Alli, Minority 

Clerk/Intern and Fellow Coordinator; Jody Calemine, Minority 

Staff Director; Melissa Greenberg, Minority Staff Assistant; Julia 

Krahe, Minority Communications Director; Megan O’Reilly, Minority General Counsel; Michael Zola, Minority Deputy Staff Director; 

and Mark Zuckerman, Minority Senior Economic Advisor. 

Chairman ROE. A quorum being present, the Subcommittee on 

Health, Employment, Labor, and Pensions will come to order, and 

good morning. I would like to welcome our guests and thank our 

witnesses for being here on this snowy day—sort of a surprise this 

morning. 

Rising health care costs remain a significant challenge for workers and job creators nationwide. According to a survey released by 

the National Small Business Association, 91 percent of employers 

reported higher costs at their most recent health insurance renewal; one in four experienced cost increases of 20 percent or more. 

In a report released last Friday, the nonpartisan actuaries at the 

Centers for Medicare and Medicaid Services estimated roughly twothirds of small businesses will face higher insurance premiums as 

a result of the President’s health care law. 

CEWDOCROOM with DISTILLER

2 

Promoting policies that will lead to affordable health care coverage is more urgent than ever. Today we will examine how selfinsured plans help provide quality health care to millions of Americans at a more reasonable cost and discuss why we should reject 

any effort that undermines this important health insurance option. 

Employers who manage a self-insured health plan bear the financial risk of providing health benefits to workers. Employers will 

often work with a third-party administrator to process claims and 

benefit payments. Many self-insured employers also purchase a 

product known as stop-loss insurance, a risk management tool that 

protects employers against catastrophic claims and high costs. 

We have with us today a panel of witnesses who possess a 

wealth of knowledge, expertise, and experience in this area. They 

will explain in greater technical detail how the self-insured marketplace works. 

However, it is worth noting just how vitally important this 

health insurance option has become. Approximately 60 percent of 

all individuals covered by employer-sponsored health insurance are 

in a self-insured plan. Even unions are embracing the benefits of 

this approach. A majority of Taft-Hartley health plans are self-insured. 

Support for self-insurance has grown because it can be tailored 

to the needs of the workforce and offers transparency to ensure the 

plan is managed in an efficient and effective way. Just as important, self-insurance helps control health care costs, which can lead 

to higher wages for workers and more resources for employers to 

invest in job creation. 

Across the country we are witnessing what happens when the 

federal government tries to force millions of individuals into a onesize-fits-all health care plan: costs go up, wages go down, and workers lose the coverage they like and the full-time jobs they need. 

Self-insurance is a legitimate option for workers and employers 

who cannot afford this government-run health care plan. 

Perhaps that explains why some want to clamp down on the use 

of self-insured health care plans. In February of 2013, the New 

York Times reported that Obama administration officials were 

‘‘considering regulations to discourage small and midsize employers’’ from using stop-loss insurance, thereby undermining the ability to self-insure. This press report contradicted an earlier statement by Phyllis Borzi, the Assistant Secretary of Employee Benefits Security at the Department of Labor, who vowed that the administration was, ‘‘not secretly writing a stop-loss regulation.’’ 

For months, the committee has sought clarification, but as usual, 

the administration has been less than forthcoming. The administration must clarify plans to potentially regulate in this area and 

explain the legal basis it has to do so. 

No more Friday news dumps, midnight regulations, or holiday 

surprises. The employers, workers, unions, and families who rely 

on these health care plans deserve to know the truth now. Like 

every American, they were told if they liked their current health 

care plan they could keep it, and they have a right to know whether they too will be on the losing end of the president’s broken promise. 

CEWDOCROOM with DISTILLER

3 

Let’s work together to make health care more affordable instead 

of raising costs of the more heavy-handed rules and bureaucratic 

overreach. 

Before I conclude, I would like to take a moment to acknowledge 

the resignation of my friend and our friend and former colleague, 

Rob Andrews. Over the last few years Rob and I have sat side by 

side on this subcommittee discussing important issues facing our 

families—our nation’s families and workplaces, such as health care, 

labor relations, and retirement security. We had our disagreements 

for sure, but we also shared a desire to advance the best interests 

of workers, employers, and retirees. 

There are a number of challenges that merit our attention and 

the issue before us today is no exception. We have to ensure federal 

labor policies are fair and protect the right of workers to join or not 

join a union. We also have to address the multiemployer pension 

crisis that grows more severe with each passing day. 

Rob and I spent many hours together examining the problems 

facing the multiemployer pension plans and discussing possible solutions to protect workers, employers, retirees, and taxpayers. For 

the sake of those whose jobs and retirement security are at stake, 

I hope this committee can continue that spirit of bipartisan cooperation in the months ahead, and I truly will miss Rob Andrews. 

We are pleased today that our colleague, Dr. Dave Loebsack, is 

serving today as the senior Democratic member of the subcommittee. 

And with that, I will now yield to our distinguished colleague for 

his opening remark? 

[The statement of Chairman Roe follows:] 

Prepared Statement of Hon. Phil Roe, Chairman, Subcommittee on Health, 

Employment, Labor, and Pensions 

Good morning. I’d like to welcome to our guests and thank our witnesses for joining us. 

Rising health care costs remains a significant challenge for workers and job creators nationwide. According to a survey released by the National Small Business Association, 91 percent of employers reported higher costs at their most recent health 

insurance renewal; one in four experienced cost increases of 20 percent or more. In 

a report released last Friday, the nonpartisan actuaries at the Centers for Medicare 

and Medicaid Services estimate roughly two-thirds of small businesses will face 

higher insurance premiums as a result of the president’s health care law. 

Promoting policies that will lead to affordable health coverage is more urgent 

than ever. Today we will examine how self-insured plans help provide quality health 

care to millions of Americans at a more reasonable cost, and discuss why we should 

reject any effort that undermines this important health insurance option. 

Employers who manage a self-insured health plan bear the financial risk of providing health benefits to workers. Employers will often work with a third-party to 

process claims and benefit payments. Many self-insured employers also purchase a 

product known as stop loss insurance, a risk management tool that protects employers against catastrophic claims and high costs. 

We have with us today a panel of witnesses who possess a wealth of knowledge, 

expertise, and experience in this area. They will explain in greater technical detail 

how the self-insured marketplace works. However, it is worth noting just how vitally important this health insurance option has become. 

Approximately 60 percent of all individuals covered by employer-sponsored health 

insurance are in a self-insured plan. Even unions are embracing the benefits of this 

approach; a majority of Taft-Hartley health plans are self-insured. Support for selfinsurance has grown because it can be tailored to the needs of the workforce and 

offers transparency to ensure the plan is managed in an efficient and effective way. 

Just as important, self-insurance helps control health care costs, which can lead to 

higher wages for workers and more resources for employers to invest in job creation. 

CEWDOCROOM with DISTILLER

4 

Across the country, we’re witnessing what happens when the federal government 

tries to force millions of individuals into a one-size-fits-all health care plan: costs 

go up, wages go down, and workers lose the coverage they like and the full-time 

jobs they need. Self-insurance is a legitimate option for workers and employers who 

cannot afford this government-run health care scheme. Perhaps that explains why 

some want to clamp down on the use of self-insured health care plans. 

In February 2013 the New York Times reported Obama administration officials 

were ‘‘considering regulations to discourage small and midsize employers’’ from 

using stop-loss insurance, thereby undermining the ability to self-insure. This press 

report contradicted an earlier statement by Phyllis Borzi, Assistant Secretary for 

Employee Benefits Security at the Department of Labor, who vowed the administration was ‘‘not secretly writing a stop-loss regulation.’’ 

For months the committee has sought clarification, but as usual the administration is being less than forthcoming. The administration must clarify its plans to potentially regulate in this area, and explain the legal basis it has to do so. No more 

Friday news dumps, midnight regulations, or holiday surprises. The employers, 

workers, unions, and families who rely on these health plans deserve the truth now. 

Like every American, they were told if they liked their current health care plan they 

could keep it; they have a right to know whether they too will be on the losing end 

of the president’s broken promise. Let’s work together to make health care more affordable, instead of raising costs with more heavy-handed rules and bureaucratic 

overreach. 

Before I conclude, I would like to take a moment to acknowledge the resignation 

of our friend and former colleague Rob Andrews. Over the last few years, Rob and 

I sat side by side on this subcommittee, discussing important issues facing our nation’s families and workplaces, such as health care, labor relations, and retirement 

security. We had our disagreements, but we always shared a desire to advance the 

best interests of workers, employers, and retirees. 

There are a number of challenges that merit our attention, and the issue before 

us today is no exception. We have to ensure federal labor policies are fair and protect the rights of workers to join or not join a union. We also have to address the 

multiemployer pension crisis that grows more severe with each passing day. Rob 

and I spent many hours together examining the problems facing multiemployer pension plans and discussing possible solutions to protect workers, employers, retirees, 

and taxpayers. For the sake of those whose jobs and retirement security are at 

stake, I hope this committee can continue that spirit of bipartisan cooperation in 

the months ahead. 

We are pleased our colleague Representative David Loebsack is serving today as 

the senior Democratic member of the subcommittee. With that, I will now yield to 

our distinguished colleague for his opening remarks. 

Mr. LOEBSACK. Good morning, all. I want to thank in particular 

Chairman Roe—Dr. Roe—for calling today’s hearing, and thank all 

the witnesses for testifying today. 

Dr. Roe and I have had a personal relationship since I have gotten here, and it has been a very good relationship and I do look 

forward to working with him today and hopefully into the future, 

as well. We already discussed our desire to do that on a bipartisan 

basis going forward, and I know that we feel the same way and it 

is a mutually respectful and civil relationship, which often is kind 

of rare in this body now days, so I do look forward to today’s hearing and hopefully working together in the future beyond this hearing. 

Thank you, Dr. Roe. 

The Affordable Care Act can pave the way for all Americans to 

have access to quality, affordable health coverage for the first time. 

While it is unacceptable that technical problems prevented people 

from signing up for the state marketplaces at the outset, there is 

more than a month of open enrollment left and millions of Americans are signing up for coverage. 

CEWDOCROOM with DISTILLER

5 

As of last month, we just heard, approximately 4 million people 

have enrolled on the marketplace plan and millions more have secured coverage through Medicaid. 

The ACA is also helping strengthen employer-sponsored coverage 

for the more than 150 million workers and their families who get 

their health insurance through employment. Of the workers who 

get coverage through their jobs, about three in five work for an employer who self-funds their coverage—three in five—which means 

that they directly assume responsibility for covering the cost of 

their employees’ medical care. 

While the ACA provides employers who self-fund with greater 

flexibility, it also ensures that workers with this coverage have access to many of the law’s important new consumer protections. Because of the Affordable Care Act’s ban on annual lifetime limits, 

workers no longer face financial ruin if they confront a chronic or 

catastrophic illness. 

Children can stay on their parents’ plan until they are 26, including about 5,400 young people in my district alone. This means 

that rather than worrying about whether they can afford adequate 

coverage at the very early stages of their careers, we are giving 

America’s young people a chance to focus on building a strong future right from the start. 

Now workers have the right to appeal a benefit denial through 

an independent third party, and they have the right to a summary 

of their benefits and coverage to help them compare costs and understand their health care plan. 

The Affordable Care Act also provides workers with greater freedom, as they are no longer tied to their employer for their health 

care coverage. This newfound freedom gives workers greater flexibility in the labor market. They are free to make career decisions, 

such as changing jobs or starting their own business, without worrying about how they will continue to get health insurance. 

Employers are also benefitting from the law and saving money 

through such provisions as the small business tax credit and medical loss ratio. In fact, last year, health care costs grew at the slowest rate in 50 years. 

Spending less on health care allows employers to create more 

jobs. Since the law’s enactment, more than 8 million new jobs have 

been added to the economy and nine out of 10 of those jobs were 

full-time positions. 

Recent reports have indicated that employers may be looking to 

self-insure. As part of today’s hearing I expect we will discuss the 

issues unique to the self-insurance market. I think this is an important conversation, and while there are many benefits to employers who self-insure, there also can be significant financial risks. 

The recent story about AOL exemplifies the risks involved with 

self-insuring and reinforces why employers must be adequately prepared if they face higher-than-expected health care costs. The CEO 

of AOL recently blamed the high health care costs incurred by two 

babies for the company’s decision to cut contributions to its retirement plan. 

With 5,000 workers, AOL is not what I would consider—and I 

think most would consider—a small employer, and thus, was ultimately able to absorb the costs. They did not have to shift the costs 

CEWDOCROOM with DISTILLER

6 

onto employees, and after a public outcry they backpedaled their 

plan to cut retirement benefits. 

A small employer, regardless of whether they had stop-loss coverage, may not have as much flexibility to absorb unexpected costs 

in a self-funded plan. 

I hope today’s conversation will be a constructive one and I look 

forward to the testimony. 

And again, I want to thank Dr. Roe, the chairman, for putting 

this hearing together today. 

And I yield back. Thank you, Dr. Roe. 

[The statement of Mr. Loebsack follows:] 

Prepared Statement of Hon. David Loebsack, a Representative in Congress 

from the State of Iowa 

Good morning. I want to thank Chairman Roe for calling today’s hearing and 

thank all of the witnesses for testifying. 

The Affordable Care Act paves the way for all Americans to have access to quality, affordable health care coverage for the first time. 

While it is unacceptable that technical problems prevented people from signing up 

for the marketplaces at the outset, there is more than a month of open enrollment 

left and millions of Americans are signing up for coverage. 

As of last month, approximately 4 million people have enrolled in a marketplace 

plan and millions more have secured coverage through Medicaid. 

The ACA is also helping strengthen employer-sponsored coverage for the more 

than 150 million workers and their families who get their health insurance through 

employment. 

Of the workers who get coverage through their jobs, about three in five work for 

an employer who self-funds their coverage, which means that they directly assume 

responsibility for covering the cost of their employees’ medical care. 

While the ACA provides employers who self-fund with greater flexibility, it also 

ensures that workers with this coverage have access to many of the law’s important 

new consumer protections. 

Because of the Affordable Care Act’s ban on annual and lifetime limits, workers 

no longer face financial ruin if they confront a chronic or catastrophic illness. 

Children can stay on their parent’s plan until they are 26, including 5,400 young 

people in my district alone. This means that rather than worrying about whether 

they can afford adequate coverage at the very early stages of their careers, we are 

giving America’s young people a chance to focus on building a strong future right 

from the start. 

Now workers have the right to appeal a benefit denial to an independent third 

party and they have the right to a summary of their benefits and coverage to help 

them compare costs and understand their health care plan. 

The Affordable Care Act also provides workers with greater freedom as they are 

no longer tied to their employer for their health care coverage. This newfound freedom gives workers greater flexibility in the labor market: they are free to make career decisions, such as changing jobs or starting their own business, without worrying about how they will continue to get health insurance. 

Employers are also benefiting from the law and saving money through such provisions as the small business tax credit and medical loss ratio. In fact, last year 

health care costs grew at the slowest rate in 50 years. 

Spending less on health care allows employers to create more jobs. Since the law’s 

enactment, more than eight million new jobs have been added to the economy—and 

nine out of 10 of those jobs are full-time positions. 

Recent reports have indicated that more employers may be looking to self-insure. 

As part of today’s hearing, I expect we will discuss the issues unique to the selfinsurance market. I think this is an important conversation. 

While there are many benefits to employers who self-insure, there also can be significant financial risk. 

The recent story about AOL exemplifies the risks involved with self-insuring and 

re-enforces why employers must be adequately prepared if they face higher than expected health care costs. 

The CEO of AOL recently blamed the high health care costs incurred by two babies for the company’s decision to cut contributions to its retirement plan. 

CEWDOCROOM with DISTILLER

7 

With 5,000 workers, AOL is not what I would consider a small employer and thus 

was ultimately able to absorb the costs. They did not have to shift the costs onto 

employees, and, after a public outcry, they backpedaled their plan to cut retirement 

benefits. A smaller employer—regardless of whether they had stop-loss coverage— 

may not have as much flexibility to absorb unexpected costs in a self-funded plan. 

I hope today’s conversation will be a constructive one and look forward to the testimony. Thank you very much, Mr. Chairman. I yield back. 

Chairman ROE. I thank you, Dr. Loebsack. And one of the things 

that you hear in Congress all the time, the more times you hear 

somebody say they like each other they usually don’t. Actually, in 

this case we do, so I wanted to let you know that to get started. 

Pursuant to rule 7—committee rule 7—all members will be permitted to submit written statements to be included in the permanent hearing record. And without objection, the hearing record will 

remain open for 14 days to allow such statements and other extraneous material referenced during the hearing to be submitted for 

the official hearing record. 

It is my privilege now to introduce our distinguished panel. 

First, Mr. Michael Ferguson is the president and chief executive 

officer of the Self-Insurance Institute of America in Simpsonville, 

South Carolina. Mr. Ferguson has significant expertise on self-insurance matters related to group health plans and has been with 

the Self-Insurance Institute of America for more than 18 years. 

And welcome, Mr. Ferguson. 

I now would like to yield to my colleague, Dr. DesJarlais, to introduce our next witness? 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

And good morning, and thanks to all of you for traveling here in 

the snow to testify with us today. 

I have the privilege of introducing Mr. Wes Kelley, who comes to 

us from Columbia, Tennessee, which is located in Tennessee’s 

fourth district, and in Maury County. Mr. Kelley is the executive 

director of Columbia Power and Water Systems and has held that 

position since May of 2012. Columbia Power provides reliable and 

reasonably priced utility services to its customers with a personal 

touch and, under Mr. Kelley’s leadership, was able to upgrade 

many of its services during fiscal year 2013. 

Prior to moving to Columbia in 2012, Mr. Kelley was the president and CEO of PES/Energize, a municipal power and fiber-tohome broadband provider in Pulaski, Tennessee. Before this, Mr. 

Kelley worked for the city of Hillsdale, the Hillsdale Board of Utilities, and the Hillsdale College in Hillsdale, Michigan. 

In addition to his professional duties, Mr. Kelley serves on a 

number of industry and community boards, including the Tennessee Valley Authority’s Regional Energy Resource Council, as 

well as serving as the chair for the Maury County Chamber of Economic Alliance. 

Wes Kelley is a graduate of Hillsdale College, where he majored 

in political economy. He is currently married to Sundown Kelley, 

with whom he has two daughters, Haven and Cadence. 

And I yield back. 

Welcome. 

Chairman ROE. Thank you, Dr. DesJarlais. 

CEWDOCROOM with DISTILLER

8 

And one of the things that you all that are not from Tennessee 

don’t know is, if you are running for statewide office it goes 

through Columbia, Tennessee, during Mule Days, so everybody 

that is running—you know if they show up at Columbia for Mule 

Days they are running for something statewide. 

Am I correct, Mr. Kelley? 

I will now continue our introductions. Ms. Maura Calsyn is the 

director of health policy at the Center for American Progress in 

Washington, DC. Prior to joining the Center for American Progress, 

Ms. Calsyn was an attorney with the Department of Health and 

Human Services Office of General Counsel. 

Welcome. 

Mr. Robert Melillo is the national vice president of risk financing 

solutions at USI Insurance Services in Glastonbury, Connecticut. 

Mr. Melillo has nearly 20 years of experience in group health insurance industry, with more than 15 of these years concentrated on 

the stop-loss market. 

A very distinguished panel, and thank you all for being here. 

Before I recognize you to provide your testimony let me briefly 

explain our lighting system. You have five minutes to present your 

testimony. When you begin the light in front of you will turn green; 

with one minute left the light will turn yellow; and when your time 

is expired the light will turn red. 

At that point I will ask you to wrap up your remarks as—I won’t 

cut you off in the middle of your remark, but try to wrap it up at 

that point. And after everyone has testified, each member will have 

five minutes to ask questions. 

And we will now start with Mr. Ferguson? 

STATEMENT OF MR. MICHAEL FERGUSON, PRESIDENT AND 

CEO, SELF–INSURANCE INSTITUTE OF AMERICA (SIIA), 

SIMPSONVILLE, SC 

Mr. FERGUSON. Good morning, Chairman Roe, members of the 

subcommittee. Certainly my pleasure to be with you today and talk 

with you about what I think I would agree is a very timely topic. 

I thought probably the logical place to start was to briefly describe or talk about what as self-insured plan is and how it differs 

from a fully insured plan. So real basically, if you are an employer 

and you want to provide coverage for your employees you have got 

two options to do so. 

What we call the traditional option is you contact an insurance 

company and you arrange for a group insurance policy through a 

traditional insurance carrier, and you pay a premium to that insurance carrier, and in turn, that insurance carrier basically promises 

to cover the health care risks of your workforce population. So essentially, you are transferring that financial and legal liability risk 

over to the insurance carrier. 

The alternative to that is to decide, ‘‘Well, instead of paying an 

insurance company to do this, what we are going to do as an employer, we are going to self-insure,’’ which essentially means you 

are going to pay the cost of the claims as they are incurred. So by 

doing that, you are retaining the financial liability and the legal liability. 

CEWDOCROOM with DISTILLER

9 

Now, most self-insured plans, particularly in the smaller and 

midsize market range, they will retain what is known as stop-loss 

insurance to guard against catastrophic risk. So again, as a selffunded plan, you are retaining the risk and you are paying the 

claims as they are incurred. So it is a financial management tool, 

if you will, in a way, to help you finance the cost of your health 

benefits for your workers. 

So with that, you know, let’s talk about who self-insures. 

And, Mr. Chairman, you talked a little bit about this, self-insurance is a pretty major portion of the marketplace today. About 61 

percent of workers in private health care plans receive their benefits through a self-insured arrangement. 

But it is not limited to the private employer marketplace. There 

are a lot of union plans that rely on self-insurance. There is estimated about 600 Taft-Hartley union plans that operate on a selfinsured basis. 

And then finally, there are a lot of public sector entities that utilize self-insurance as the financing tool for the health benefits, and 

you are going to hear a story today from one such public organization that utilizes self-insurance. 

So the self-insurance footprint in the marketplace is fairly large. 

It is really a mainstream strategy for businesses and organizations 

these days, and so it is a significant part, so it is good that we are 

talking about it here in this hearing. 

Now, when you are looking at self-insurance it is important to 

point out that self-insurance is not necessarily the right choice for 

every organization. Like any major business decision, there are 

pros and cons. 

There are certainly some disadvantages to being self-insured. 

Clearly you are taking the financial and legal liability risks when 

you are becoming self-insured, whereas if you transfer that off 

under a fully insured arrangement. 

And the other thing that I would point out that is something that 

is maybe not said in bullet-point presentations, but when you are 

self-insured, in order to run a successful self-insured plan you really want to spend the time to sort of roll up your sleeves and take 

the time to plan out and work through your business advisors and 

your business partners to make sure the plan runs effectively. So 

it takes a little extra time to run a successful self-insured plan, so 

you need—from a corporate culture standpoint, you need to be willing to invest the time. 

Now, the upsides are many. There are good cost-saving opportunities, and you can customize the plan to best meet the needs of 

your particular workforce. 

Now, one of the advantages that I particularly did not note is 

that by self-insuring, this is—companies that self-insure, the main 

motivation is not to get out of requirements that are put forth by 

the ACA. In other words, this is not—if you are a self-funded plan, 

particularly a non-grandfathered plan, which by definition are 

plans that become self-insured after the ACA, you are subject to almost all of the ACA requirements and you are also included—you 

are also subject to ERISA, HIPAA, and other consumer protection 

requirements. So by becoming self-insured it is actually the opposite: You are subjecting yourself to more regulation, not less. 

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Finally, you know, as members of Congress what can you do to 

help to make sure that self-insurance continues to be an important 

and growing segment of the marketplace? Well, there is legislation 

now pending before Congress, the Self-Insurance Protection Act, 

which basically would set some guardrails around the self-insurance marketplace to protect from new regulatory action that would 

make it more difficult for employers or—make it more difficult for 

employers to operate self-insured health plans, and I would ask for 

your support for that legislation. 

Mr. Chairman, those are my remarks. Thank you. 

[The statement of Mr. Ferguson follows:] 

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Chairman ROE. Thank you very much, Mr. Ferguson. 

Mr. Kelley, you are recognized for five minutes? 

STATEMENT OF MR. WES KELLEY, EXECUTIVE DIRECTOR, 

COLUMBIA POWER AND WATER SYSTEMS, COLUMBIA, TN 

Mr. KELLEY. Thank you very much, Chairman Roe, Ranking 

Member, members of the subcommittee. I appreciate this opportunity to provide testimony today on the importance of self-insurance to small and midsized organizations. I represent one such organization that utilizes self-insurance to provide health care benefits to our employees while maximizing our cost control opportunities. 

My name is Wes Kelley, and I am proud to serve as executive 

director of Columbia Power and Water System in Columbia, Tennessee. We are the electric and water and broadband provider for 

much of Maury County. Columbia, for those of you that don’t know, 

haven’t had the good fortune to visit Mule Day, is located about 40 

miles south of Nashville, Tennessee. 

We are a small organization. We have an annual budget of about 

$85 million, but our 115 employees, 55 retirees, and 204 family dependents are all proud of the work we do serving our local community. 

In 1993 our Board of Public Utilities decided to move our employee health insurance program from the fully insured marketplace and create a self-funded health plan to better manage costs 

and the benefits provided to our employees and eligible retirees. 

Enough money was saved in the first year of self-funding to establish a solid financial reserve that has continued to build to this 

day. 

Initially established with a $20,000 specific stop-loss retention 

level, this was increased to $30,000 in 2004, where it remains. Last 

year total funded costs were reduced by 1.8 percent and this downward trend has been in place for several years. For example, claims 

were $1.7 million in 2006, but have been reducing gradually to $1.2 

million last year even though coverage was provided to essentially 

the same number of employees and eligible retirees. 

While occasionally costs may rise in response to unusual conditions, we have worked closely with our employees to control the 

cost of our health care and keep the plan affordable. We regularly 

solicit bids from qualified providers for stop-loss coverage along 

with our health care network and third-party administration. 

Since the plan was established we have taken much of our savings and placed those dollars in a reserve account. Today we have 

more than $1 million in reserves. Indeed, in previous years our 

board intentionally stopped funding the plan to keep the reserve 

from growing too large. 

Over the past 22 years our self-funded arrangement has allowed 

the utility to maintain above-average benefits to our employees, dependents, and retirees. In an era of ever rising deductibles we have 

been able to keep our participants’ deductibles at $200 for an individual, $400 for a family, with a $10 drug copay. 

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uting to the cost of health insurance through their paycheck or otherwise. 

Furthermore, eligible early retirees and their dependents enjoy 

the same benefits as active employees. Retirees age 65 and older, 

along with their surviving spouses, maintain Medicare supplemental coverage with CPWS, along with access to drug discounts. 

These health benefits have allowed us to retain the best possible 

workforce, increase productivity, and maintain a high level of satisfaction with the plan. Some of the dollars saved since implementing 

our self-funded plan have been used to fund wellness and disease 

control measures, the cost of which would have otherwise been on 

top of the premiums we pay in a fully insured environment. 

Some of the wellness benefits include annual blood tests, PSA 

screening for men, and mammograms for female employees. Also, 

biannual physicals are provided to the employees at no cost. 

Controlling the cost of health care is critical to our organization 

because we realize that any increase in that cost will ultimately 

impact the ratepayers that use our utility services. In spite of our 

small size, we believe our self-funded health insurance has been 

successful thanks to the good advice we receive from knowledgeable 

consultants; strong, business-minded board of directors; an appreciative workforce; and perhaps most importantly, affordable stoploss insurance that protects the financial solvency of the plan. 

Thank you again for this opportunity to share our experience. 

[The statement of Mr. Kelley follows:] 

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Chairman ROE. Thank you, Mr. Kelley. 

Ms. Calsyn, you are recognized for five minutes? 

STATEMENT OF MS. MAURA CALSYN, DIRECTOR OF HEALTH 

POLICY, CENTER FOR AMERICAN PROGRESS, WASHINGTON, 

DC 

Ms. CALSYN. Thank you, Mr. Chairman, Ranking Member, and 

members of the Subcommittee. Thank you for the opportunity to 

testify today. 

My testimony is going to focus on the following three topics: first, 

how the Affordable Care Act preserves flexibility for self-insured 

employers, while also giving workers greater flexibility and security; second, the risks of self-funding to employers and employees; 

and third, why an increase in smaller businesses’ self-funding creates problems for employers and employees who remain in the fully 

insured market. 

First, the ACA reformed much of the private insurance market 

but had a much smaller impact on self-insured employers because 

the law exempts these plans from many of its key reforms. This approach accounted for the differences between the fully insured and 

self-insured markets. 

For example, the majority of self-funded large employers offer 

fairly comprehensive benefits, in stark contrast to plans in the individual market. The essential health benefits and actuarial value requirements fixed this problem in the individual and small-group 

fully insured markets, but do not apply to self-insured plans. 

This is an example of how the ACA’s treatment of self-insured 

plans is a compromise that largely preserved the flexibility in this 

market while making targeted changes to protect consumers, like 

banning lifetime limits. 

When discussing flexibility, affordability, and health care, we 

should also consider how the ACA helps workers. The law provides 

security for those with job-based insurance in case they lose that 

coverage in the future, and employees are no longer tied to a particular job because that is their sole source of coverage. 

Second, self-funding is not a panacea. My two co-witnesses have 

detailed the benefits of self-insurance as well as the use of stop-loss 

policies and other arrangements to mitigate its risks. But, selffunding still requires significant resources and expertise to understand and manage the legal and financial complexities of these arrangements. 

And when discussing affordability of group health plans we must 

also consider employees’ costs, not just employers’. If businesses do, 

in fact, self-insure to avoid complying with the ACA reforms they 

may offer fewer categories of benefits or pass along those costs to 

their employees. 

Sicker employees in these plans may also face higher costs down 

the road and even employment discrimination because of lasering. 

A laser is a higher attachment point for an enrollee with costly preexisting conditions or other health risks, which shifts liability for 

those costs back to the employer and potentially the employee. 

Third, the trend of smaller businesses self-insuring creates problems for the businesses and employees who remain in the fully insured market. Millions of small business employees have historiCEWDOCROOM with DISTILLER

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cally been uninsured, and those with coverage have often paid 

more. 

One reason why is because small businesses may not have 

enough employees to adequately spread risk. To solve this problem 

the ACA not only prohibits practices that priced older and sicker 

groups out of the health care market, but it spreads risks among 

all small employers. 

But if businesses with healthier employees leave the fully insured market en masse these changes are meaningless, and without a stronger regulatory framework for the self-insured market 

and stop-loss insurance this is a significant risk. That is because 

there are few incentives for employers with healthier-than-average 

workforces to join the fully insured risk pool that may include 

older, less healthy individuals. 

But once the group’s health status declines, self-funding becomes 

much riskier. Stop-loss insurers, for example, can raise premiums 

or refuse to renew coverage. Small employers may drop coverage or 

return to the fully insured market, adding their less healthy employees to that risk pool, and for small businesses a single injury 

or unexpected illness can trigger this response. 

One study found that without further regulation of stop-loss policies, up to 60 percent of small businesses could self-fund, leaving 

more costly employees in the fully funded market. This could increase premiums by up to 25 percent, which could, in turn, deter 

other businesses from offering insurance coverage or cause others 

to drop coverage, further increasing costs and disrupting coverage. 

Anecdotal evidence suggests that this shift is beginning. The increase in stop-loss policies marketed to extremely small companies 

is also telling. 

In conclusion, self-funding will likely lower costs for some employers, but it will dramatically increase costs for others that remain in the fully insured market because self-funding is simply not 

a viable alternative. Millions of workers will also see higher costs. 

We must acknowledge these tradeoffs during this discussion. 

Greater oversight and regulation of stop-loss insurance will help 

stabilize the small-group market and protect employers and employees. 

Mr. Chairman, this concludes my testimony. I am happy to answer any questions. 

[The statement of Ms. Calsyn follows:] 

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Chairman ROE. Thank you very much for your testimony. 

Mr. Melillo, you are recognized for five minutes? 

STATEMENT OF MR. ROBERT MELILLO, NATIONAL VICE 

PRESIDENT OF RISK FINANCING SOLUTIONS, USI INSURANCE, GLASTONBURY, CT 

Mr. MELILLO. Thank you. 

Chairman Roe and members of the subcommittee, thank you for 

the opportunity to testify on the issue of self-insurance. Again, my 

name is Robert Melillo, and I am the national vice president of risk 

financing solutions for USI Insurance Services, who happens to be 

one of the largest insurance brokers in the country, specializing in 

employee benefits, representing more than 10,000 employee benefit 

clients. 

My testimony today will include an overview of what is involved 

with migrating a group that is currently fully insured into a selffunded arrangement, and I will also share with you two case studies of groups under our advisement right now that are in a selffunded arrangement. 

So, the role of the insurance broker or consultant is to educate 

their client and inform their client of the options available to them 

in the marketplace to allow them to deliver a competitive and comprehensive health benefits package to their employees and their dependents. Traditionally, the fully insured programs have been the 

easiest option, yet they have been some of the least flexible and 

creative options. 

Self-funding offers plan sponsors a platform that allows them to 

effectively and efficiently manage their health care spending while 

allowing the stakeholders the ability to analyze the data and modify the plan design and swap out the service vendors to improve the 

outcomes and eliminate waste. Before a plan sponsor converts from 

a fully insured program to a self-funded program they first must 

go through an evaluation process, a preparedness process, if you 

will, focusing on five key elements: risk and financial stability, risk 

tolerance in management, innovation, engagement, and ultimately 

education. 

And that is the role of the employee benefits producer or a consultant. Now, by assessing the plan’s preparedness to convert from 

a fully insured plan to a self-funded arrangement the plan sponsor 

themselves and the consultant become better acquainted with their 

risk tolerance level and their preparedness to make that transition. 

Now, two case studies that I have to share today—one is Sheffield Pharmaceuticals, a family-owned, midsized manufacturing 

firm in Connecticut. They have 162 employees of which 75 are 

under the employee benefits plan. 

Prior to converting to a fully insured arrangement they received 

consistent renewal increases of approximately 10 to 15 percent year 

over year. In 2008 they received an increase of 25 percent because 

of a few catastrophic claims within that pool. The following year, 

with no bad claims experienced, they received a 39 percent rate increase from their fully insured carrier. 

Therefore they began to look, you know, more aggressively with 

their consultant at self-funding as an option. They ended up making the switch to a self-funded program using basically the same 

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plan design they had in their fully insured plan, and over a 4-year 

span they saved over $400,000, a 19 percent savings, of which their 

success allowed the company to realize savings that, number one, 

allowed them to maintain a gold standard plan, and they did not 

increase their employee contributions for the entire term. 

The second case study is a firm in Mason, Ohio—SpearUSA. In 

2011, they converted to a self-funded program, and by converting 

to a self-funded program they used the stop-loss insurance to help 

them reduce their spend by $4.4 million over a 3-year span. 

By doing so, they were able to also maintain their same benefit 

plan while adding a wellness program, so they increased their benefits. In addition, they did not increase their employee contributions for the entire term, as well. 

In conclusion, I would like to thank the committee for the opportunity to speak about the true benefits of self-insurance and what 

it can do for the employer. And I believe that plan sponsors’ choice 

to self-insure with the use of quality and customizable stop-loss insurance programs is essential if they are to have a chance to manage their future and current spend instead of getting this set-itand-forget-it mindset that tends to lend itself to a fully insured program. 

Thank you. 

[The statement of Mr. Melillo follows:] 

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Chairman ROE. Thank you very much. 

And I am going to start the questioning, and I usually wait till 

the last but I have to go at 11 o’clock to another committee and 

testify, like you all are doing now, so someone is going to have to 

take my seat. 

I really appreciate your being here today and I think we have 

seen the advantages and basically some of the complexities of 

health coverage. As you know, I spent over three decades as a physician practicing medicine dealing with all of this. 

And I also spent a number of years as a city mayor dealing with 

exactly the same issues Mr. Kelley brought along with the self-insured, where we insured our employees, we insured our city workers and our teachers. And it was about 2,500, as best I recall, the 

total number, and we were able to take this flexibility. 

And the thing that no one brought up, but I did read in your testimony that you had that is so valuable in self-insured plans is the 

transparency and the data that you get. You are able to control 

that data and see what is actually going on and where the claims 

are and what you need to do, what moves you need to make in your 

business to address that. 

And so what we did was we set up a—first with diabetes. We 

screened everyone for diabetes. We found occult diabetes in our 

population, were able to start a cholesterol, hypertension, a smoking cessation program. 

And I have gone through a number of these across the country 

and seen, Mr. Kelley, exactly the same thing. And I think that is 

why rising costs—and the premise of the Affordable Care Act was— 

we are going to increase access for people and lower costs. 

One of the things that I was noticing in Ms. Calsyn’s testimony— 

and she is correct, she says ultimately self-funding will lower costs 

for some employees who choose the self-funding path but raise it 

dramatically for others. What the Affordable Care Act has done is 

done exactly that: It has raised costs for 11 million people and lowered it for 6 million. It is already doing that now. 

And that is why I think businesses are scrambling to look at selfinsurance. And I can assure you that the practice I was in with 450 

employees, Mr. Melillo, is going to be looking at that very model, 

because we have the traditional insurance plan that most people 

have now. 

I think a question—I want to ask a couple of questions—how 

has—any of you who do these self-insurance plans—Mr. Kelley, you 

may want to mention this—how has the ACA affected you all with 

the $63 fee? Because I held a hearing in Concord, North Carolina, 

several months ago—eight or nine months ago—and it was a gold 

standard plan like you have. And, I mean, you have a plan that 

your employees pay nothing into, as I understood it. Am I correct? 

Mr. KELLEY. That is correct. Yes, sir. 

Chairman ROE. And basically they have wellness benefits, all the 

benefits, essentially, of the ACA, and yet you have the flexibility 

to design those plan benefits that best suit you. And I think that 

is the biggest knock I have on the ACA is that the essential health 

benefits telling me exactly what I need to buy—as a consumer and 

you as an employer figure out for your employees what is best for 

them to buy. 

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43 

So if you could—I know there is a $63 fee. I know in Johnson 

City, Tennessee, the city manager told me it costs us $177,000. I 

know in Washington speak that is not a lot of money, but in Tennessee that is still a lot of money. So— 

Mr. KELLEY. Thank you, sir. Yes, we do absorb those fees and we 

comply with the requirements of ACA, both in terms of coverage— 

we are a grandfathered plan, being established 22 years ago, but 

there are certainly some requirements that impact us. And indeed, 

if our plan shifts dramatically then that grandfathered status goes 

away and we comply with all the requirements stipulated in the 

ACA. 

I want to speak more broadly to the point that you raised about 

how we determine our benefits. We determine our benefits by listening to our employees. You know, we are a small organization— 

115 active employees. We have a pool of 55 retirees who are just 

as vocal as the active employees. 

And when they step forward and say, ‘‘Hey, you know, this 

doesn’t seem right. Can we work on this?’’ we sit down with our 

consultants and we say, alright, what do we need to do to make 

this right? And we have been blessed by the fact that overall, 

claims have been reducing as employees realize that we are all in 

this together, and there has been a lot of ownership on the part of 

our employees. 

And I have been very pleased. Our overall costs have been decreasing, and that is what has allowed us not to pass these costs 

onto our employees. 

Chairman ROE. See I think one of the things you could do that 

the ACA didn’t do that it should have done, and a lot of parts of 

it—26-year-olds, lifetime limits, preexisting conditions, I agree with 

all of that. The problem with it is that it prescripts what you must 

buy instead of you sitting down with your employees and finding 

exactly what they need as an employee and what—and how you 

can react to what their needs are. 

I think instead of having us up here tell you what to do, you are 

deciding in Columbia, Tennessee what to do. 

Mr. Melillo, very quickly, who should have a self-funded plan and 

who should not? 

Mr. MELILLO. So, who should have the self-funded plan and who 

shouldn’t actually comes down to the assessment process, and basically it determines a mindset. So if the employer or the plan sponsor is comfortable and understands all the facets that are involved 

with a self-funded program, has the financial capital to sustain 

itself on a program, those are the elements that they have to take 

into consideration. 

Those five bullets I mentioned—you know, stability, population, 

you know, risk tolerance and management capability, et cetera— 

those elements are the things that you really have to sit down with 

a qualified, licensed broker or consultant to help you make that assessment. There are a number of things they need to take into account. 

Chairman ROE. I thank you. 

My time is expired. 

Dr. Loebsack? 

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Mr. LOEBSACK. Thank you, Dr. Roe. Thanks again for having this 

hearing. It has been very informative. Looking forward to hearing 

some more Q&A. 

First thing I want to ask, actually, is of Mr. Melillo, and then I 

am going to go to Ms. Calsyn. 

Even before I ask my question, you know, it seems to me what 

we are talking about here are a number of issues. You know, when 

we talk about self-funding, a lot of it is from the employer perspective and I want to make sure we don’t lose sight of the employees, 

as well, and the benefit structure and making sure that those folks 

have what they need. I understand all these things have to be 

taken into account when someone is being consulted—an employer 

is being consulted as whether they ought to self-fund or not. 

But, Mr. Melillo, you mentioned that in those two cases over the 

course of a 3- or 4- or 5-year period that the premiums didn’t increase— 

Mr. MELILLO. Right. 

Mr. LOEBSACK.—over those years. What was the comparison of 

the premium at the outset compared to when they were fully insured when they made that transition? How did the premium—how 

do the premiums compare to one another? 

Mr. MELILLO. So the premium equivalent is based on what you 

would fund the account at, so what you project. You know, in one 

instance it was significantly lower. In my written testimony there 

is a chart and a graph for both with detail, okay? 

As a matter of fact, the case in number one, which was Sheffield 

Pharmaceuticals, their number was approximately—in 2014 their 

premiums were—fully insured premiums would have been 

$967,000 and their self-funded funding level is projected to be 

$912,000. The prior year, which are the real numbers as opposed 

to projected, in 2013 Sheffield funded—their fully insured premiums would have been $774,000, and the self-funded—what they 

actually funded and paid for fees was $612,000. 

Mr. LOEBSACK. Right. That is from the company—that is the 

total company perspective. 

Mr. MELILLO. Right. 

Mr. LOEBSACK. That is the aggregate. Right. 

What about on an individual basis? When they moved from fully 

insured to self-funding did the premiums for the individuals go 

down? Did they change at all? 

Mr. MELILLO. So again, it goes back to the employee contribution 

strategy, so some employers will use a percentage of what the premiums should be and the employee will pay a certain dollar 

amount. In this case the employee was set with a specific dollar 

amount— 

Mr. LOEBSACK. Right. 

Mr. MELILLO.—and what they did—from 2008 to present what 

the employee funds for their portion of the benefits has not increased. 

Mr. LOEBSACK. I understand that, but I think to be fully accurate 

we need to compare what they are paying at the outset versus 

what they would have paid with a fully insured plan. That is my 

point. I don’t know if you can get that— 

Mr. MELILLO. Okay, so— 

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Mr. LOEBSACK.—data or not. It would be interesting to see that. 

Because it is great to talk about over time how their—and it is 

wonderful that their contribution doesn’t increase, but it would be 

nice to see what it was at the outset because if it had gone up dramatically—and I am not saying it did; I don’t know the answer to 

that and that would make some difference, obviously, too, in making a comparison between these two approaches— 

Mr. MELILLO. Right. 

Mr. LOEBSACK.—so if we could get that data, I don’t know if that 

is possible, it is— 

Mr. MELILLO. Oh, absolutely. 

Mr. LOEBSACK. Okay. 

Mr. MELILLO. But for what it is worth, the $612,000, what was 

actually funded, versus $774,000, one could argue that it would be 

relational. So if they are currently paying $50 per paycheck for 

their portion of benefits it would go up relational. 

Mr. LOEBSACK. And I am not disregarding those numbers. Thank 

you. 

Ms. Calsyn, in your testimony you state that workers could face 

coverage gaps if they get their coverage from a self-funded health 

plan because self-funded employers are not required to cover the 

Affordable Care Act’s essential health benefits. Go back to that 

issue, the essential health benefits. 

Am I correct that a worker in a self-funded plan could lack access to mental health and substance use disorder benefits, for example? Mental health is a very important issue, as you know, and 

mental health parity is a very important issue. 

Ms. CALSYN. Well, this could come up in a variety of ways I 

think. First, because a self-funded plan is not subject to the EHB 

requirements they might decide not to have that category of benefits. You know, the witnesses here today have described plans that 

are very robust but there could be examples of smaller employers 

especially who are being marketed to exit—you know, to exit the 

fully insured market to move to self-insured markets. One of the 

ways they could save money by doing so is to structure their benefits in a way that don’t include some of those categories. 

Because the EHB requirement doesn’t apply to these self-funded 

firms, you also have a kind of interesting, complicated interaction 

with the mental health parity law, too. So even though in theory 

the mental health parity law applies to firms of this size, if they 

decide not to include mental health coverage then they don’t have 

to really worry about that. 

The other situation, I think, where this might happen is there is 

a little bit of a downstream effect that could happen, too. You 

know, if somebody, said—take another essential health benefit that 

a lot of people say is going to raise a lot of cost. If you look at maternity care, for example, a plan might decide not to have that or 

limit that in some way. For very small firms if they decide to do 

that there also wouldn’t be any protections under the Pregnancy 

Discrimination Act. 

So, you know, in many cases you are not going to see this, but 

there could be places where the different overlapping laws that protect workers just simply—a few people can fall through the cracks. 

Mr. LOEBSACK. Thank you. 

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Thank you, Dr. Roe, and I yield back. 

Chairman ROE. Thank you. 

Dr. DesJarlais, you are recognized. 

Mr. DESJARLAIS. Mr. Ferguson, can you please elaborate on the 

impact federal regulation of stop-loss insurance may have on selfinsured employers, especially smaller self-insured employers? 

Mr. FERGUSON. Sure. I would be happy to. 

As we talked about earlier, in a self-funded arrangement stoploss insurance is a critical risk management tool to protect the solvency of the plan. And so most small and midsized employers will 

retain that coverage for that particular reason. 

Now, the terms of those stop-loss policies will vary by the type 

of organization. It is sort of like any—if you think of any sort of 

insurance type of product that an employer might buy, they have 

to determine how much risk they want to take and how much risk 

that they want to insure, right? And that is the same with stoploss insurance. And so depending on the particular employer, they 

may have different risk appetites for stop-loss insurance. 

And just as a point of clarification, too, because sometimes this 

gets lost in the mix, when a self-insured employer retains stop-loss 

insurance the stop-loss insurance is basically an indemnity type insurance between the insurance carrier and the employer. The stoploss insurer is not paying claims; it doesn’t cover individuals; it 

doesn’t pay providers. 

It is a reimbursement mechanism between the employer and the 

insurer. And the employer has to first pay out those eligible claims 

and then they can seek reimbursement from the carrier. 

So, sometimes there is a misperception that the employer transfers all the risk. Well, it is not exactly true. If you are a self-funded 

plan, any eligible claim that comes in, you have to pay it, then you 

have—after the fact you have a reimbursement mechanism with 

the carrier. 

So, with that being said is stop-loss insurance is essential for employers—many employers to self-insure. And what we are hearing, 

or at least understood to be true, is that the administration has at 

least an interest—and we can’t confirm this, but certainly an interest—in making it more difficult for employers to obtain stop-loss 

insurance as a way to sort of control a migration towards self-insurance. 

So, to the extent that stop-loss insurance is made more difficult 

through a regulatory process, it will dissuade more employers from 

being able—or make it difficult for those employers to operate selfinsured plans. 

Mr. DESJARLAIS. Thank you. 

Mr. Kelley, self-insured plans allow them far more flexibility to 

design a plan that is best for the employer and his or her workforce, as you have talked with Dr. Roe about. Could you share some 

specific examples of how Columbia Power has designed a plan that 

works best for its specific workforce? 

Mr. KELLEY. Certainly. As I said, my organization got into this 

in 1992; I think we started covering employees in 1993. And of 

course, health insurance was a different animal back then, and 

what we have been able to do is to respond as sort of the requirements of our workforce dictates. 

CEWDOCROOM with DISTILLER

47 

So there are certain coverages—mental health coverages were 

talked about, dental coverages, we are talking now about vision 

coverage, we are talking about early retiree coverage. These are all 

things that we are in discussions about because I think our employees and our workforce understand that there are costs associated 

with these things. Those costs impact the overall organization and 

they want to measure the benefits that they would receive versus 

the overall cost to the organization. 

And so, we have had a very positive dialogue on that, and I think 

that a healthy employer does that. They engage their workforce 

and allows them in to sort of peer behind the curtain and understand how those costs are impacting the overall organization and 

making the employees a team member in that process. 

Mr. DESJARLAIS. So you would agree that a company your size 

can better manage its 115 people than the federal government trying to manage 330 million people and try to do a one-size-fits-all? 

Mr. KELLEY. You know, I think that there are—if there are minimum acceptable standards—we will certainly need minimal acceptable standards, but I think as you have seen in our organization, we go above and beyond that. 

Now, we don’t go above and beyond just simply to lavish excessive benefits on our employees, but we do try to be responsive and 

be a good community member and a good employer. 

And it is always a balancing act and I think that is something 

that every employer has to balance. I think that there is a responsibility to be good to, in our case our ratepayers and private businesses, their shareholders or whatever their financial arrangements are, but you have to make sure that your workforce is protected and that you are being a strong community citizen. And part 

of that strong community citizen is to make sure that your employees are not disadvantaged when it comes to receiving health care 

or any other benefit. 

Mr. DESJARLAIS. All right. Thank you. 

I yield back. 

Chairman ROE. Thank you. 

Mr. Scott, you are recognized for five minutes. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Ms. Calsyn, you indicated we have a zero sum game. If we allow 

healthier people to get out of the insurance pool that leaves those 

in the insurance pool with higher costs. Did you estimate that cost 

that it could—did you say it could get up to 25 percent higher for 

those left behind? 

Ms. CALSYN. That was an analysis done by the Urban Institute, 

I believe in late 2012. 

Mr. SCOTT. But the idea that healthier people can join a separate 

pool leaves those behind with much higher costs. 

Ms. CALSYN. Right. I mean, there has been a lot of talk right 

now—so far in this hearing about the essential health benefits, but 

one of the key provisions that really helps small businesses in the 

Affordable Care Act is the risk pooling, and by taking out—if there 

is a mass shift and too many fully—I am sorry, too many fully 

funded, fully insured employers leave to go into the self-insured 

market you are going to create that problem. 

When you talk— 

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48 

Mr. SCOTT. Well, the lower cost for the self-insured doesn’t happen by magic. It is arithmetic. I mean, you said it is lower because 

you have a healthier pool. How much of it is because of the lower 

benefits? 

Ms. CALSYN. I am not really sure. 

Mr. SCOTT. Mr. Melillo, do self-insured policies have a lower administrative cost? I know the significant portion of your policy payment goes to administration—it is estimated 10, 15, up to 20 percent or more in regular policies; Medicare can do it at about 2 percent. 

Are the administrative costs in self-insured lower than regular 

insurance? 

Mr. MELILLO. The answer is yes more often than not, and the 

reason being is when you unbundle the fully insured packaging 

what you are essentially doing is you are building your own all-star 

team, if you will, of a health insurance plan specific to the needs 

and desires of both the plan sponsor and the membership they are 

writing for, right? So now you have the opportunity to identify and 

administrator that serves specifically your need, can administer the 

plan that you want to administer. And you can market one carrier 

or administrator against another to leverage a better price. 

Mr. SCOTT. Okay. 

The annual reports, Mr. Kelley, indicated there are cost savings. 

One of the costs in a small—that is not reported on an annual 

basis for a small plan is the risk of a rare but catastrophic loss. 

You have got thousands of policies out there; only a couple are 

going to get hit with this catastrophic loss. Most of them will report 

nice savings and one or two unlucky ones will get busted. 

How do you calculate the catastrophic loss? 

Mr. KELLEY. Yes, sir. Well that gets into our stop-loss protection. 

So— 

Mr. SCOTT. Is your stop-loss per individual or for the entire plan? 

Mr. KELLEY. In our case, being a small organization, we have 

both. We have specific stop-loss at $30,000 per individual, so we 

are going to absorb the first $30,000. And then as Mr. Ferguson 

pointed out, we will be reimbursed over $30,000 by our stop-loss insurer. 

And then we also have an aggregate cap over the whole of the 

organization that if our total health care claims exceed a certain 

amount, which is in our case, you know, well over $1 million, then 

there is insurance that kicks in at that point as well. So we are 

in a box. We are in a box in terms of an individual’s exposure that 

we absorb and we are in a box in terms of the overall organization. 

Mr. SCOTT. When you talk about those savings, how much of the 

savings are eroded by the fact that you had to get catastrophic insurance? 

Mr. KELLEY. Well, it certainly helps because things can happen, 

right? I mean, people can get hit with a catastrophic incident. And 

so what we are absorbing in our sort of daily cash flow is the routine medical, and then that stop-loss is there to, as I said, hem us 

in. 

Mr. SCOTT. You indicated you had a $1 million reserve. 

Mr. KELLEY. Yes, sir. 

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Mr. SCOTT. Who helps calculate the reserve necessary to absorb 

those unusual losses? 

Mr. KELLEY. That is a great question. We use a consultant that 

has helped us over the years manage this plan. 

And before recent health care changes the decision was made, you know, we have claims that average between $1 million to $1.5 

million a year. Therefore, once the reserve got to $1 million we 

would just sort of stop funding it once it exceeded $1 million. 

With the current changes in the health care industry—and of 

course, many of the changes brought on—coming from Washington, 

D.C.—we have decided to remove that cap and we are just going 

to continue to fund that reserve once we exceed the $1 million 

mark because we just don’t know what the future holds. 

Mr. SCOTT.—Another question to Ms. Calsyn: You talked about 

discrimination. Is there any evidence that people in self-insured 

plans are being discriminated against in employment? 

Ms. CALSYN. No. I think that what—the scenario that I laid out 

is, in the new concern— 

Mr. SCOTT. Well, I mean, if an employer on a self-insured plan 

knows that a family policy would include a very sick child, is there 

any evidence that would count against an employee in terms of prospective employment? 

Ms. CALSYN. It certainly could, and for—if there is a very sick 

child that—in most situations it would be a—if there was discrimination you would be able to—there are protections under the ADA 

for that. There are associational claims under the ADA. But for 

smaller employers who choose this path, they can be exempt from 

the ADA requirements so there is that risk. 

Mr. MESSER. [Presiding.] Gentleman’s time has expired. 

Would next like to recognize my good friend and colleague from 

the great state of Indiana, Dr. Bucshon, for five minutes. 

Mr. BUCSHON. Thank you very much. 

I was a practicing cardiovascular and thoracic surgeon for 15 

years so I have spent my career in health care and, you know, the 

ACA I think has a few good things in there that we have talked 

about—preexisting conditions, children are 26, Medicare donut 

hole, lifetime caps, all of which I have had experience with in my 

medical career, seeing patients all across those categories, and one 

employee in meeting their lifetime cap—actually their spouse. But 

the thing that the ACA does not do is change the trajectory of 

health care inflation and the cost of health care overall. 

Some of the things that Dr. Roe discussed about making sure 

that we identify people early that have diabetes, people that have 

obesity problems, hypertension, and other things that affect their 

lives maybe 30 years down the line are extremely important, and 

I have always been a believer in preventive health care measures. 

And in fairness, that is one thing our medical system probably has 

not done as well as we should have historically. 

But if we are going to ever get control of this we have to address 

the cost of health care. Providing coverage, either through Medicaid 

or through exchanges or through private policies or through selfinsurance, is something that is a noble goal. 

I want everybody to have access to quality, affordable health 

care, but unless we get the cost down we are not going to be able 

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to sustain it. It doesn’t matter what we discuss, how to cover people. We just are not going to fix that. 

So with that, Ms. Calsyn, I wanted to ask you, do you think citizens in our country should pay anything for our health care? I 

mean individually, like should they have to pay anything to get 

health care? 

Ms. CALSYN. I think that it—are you asking me if everybody 

should receive every single health care service for free? 

Mr. BUCSHON. Yes, essentially. 

Ms. CALSYN. I don’t think that would necessarily be appropriate. 

Mr. BUCSHON. Okay. Because you are here arguing today about, 

you know, discussing about an avenue that employers are taking 

on self-insurance and how that is something essentially, from what 

your testimony says, I think it seems like you don’t believe that 

should be an option. So do you believe that employers should be 

able to self-insure? 

Ms. CALSYN. I believe employers should be able to self-insure. I 

do believe that there should be appropriate oversight of the self-insured market. I think that marketing stop-loss policies that have 

extraordinarily low attachment points, for example, probably puts 

the employer in the exact same position as they would be if they 

were purchasing fully insured products. 

Mr. BUCSHON. I know you are an attorney. Do you have a background in health insurance in the industry? 

Ms. CALSYN. Before I went to the Department of Health and 

Human Services I was in private practice. I represented managed 

care organizations, other health insurers, fully insured employers— 

Mr. BUCSHON. So you must understand, then, that people that 

are less healthy, so to speak, from an actuarial standpoint will affect the health insurance market. Because one of the things that 

the ACA is trying to do to control costs is to cap health care premiums for people that are unhealthy compared to people that are 

totally healthy, and, you know, it is basically disrupting the actuarial balance in trying to cover people. 

I have always agreed that we should have—you know, we should 

have variance in price for what you have to pay as an individual 

for health insurance based on whether you smoke or whether you 

have diabetes that you haven’t treated for 30 years. I was a heart 

surgeon and I can tell you if you have ever been in health care that 

personal responsibility is a big part of this. 

I don’t believe the government can legislate whether or not people will take care of themselves or not, and that is what we are 

trying to do here. So do you believe in the single-payer system? Yes 

or no? Like the federal government paying for having a singlepayer health care system. Do you believe that would be the best 

way to go? 

Ms. CALSYN. I believe that the best approach for this country 

right now is to implement the Affordable Care Act and work constructively across the aisle— 

Mr. BUCSHON. So can you— 

Ms. CALSYN.—between Democrats and Republicans, more progressive people such as myself, and conservatives to make the law 

better. 

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Mr. BUCSHON. Have you voiced that opinion to the administration, since they have delayed it over 22—I don’t know, 29 times the 

law has been delayed? Have you voiced that opinion to supporters 

of the law in the administration or on the other side of the aisle? 

Because I agree with you. 

I mean, President Lincoln said years ago the best way to repeal 

a bad law is to implement it strictly. And so, if this is a good law 

why do supporters like yourself continue to support delaying different aspects of the law when you think it is the best thing to do? 

I mean, and with that, I yield back my time. 

Mr. MESSER. The gentleman yields back. 

Would next like to recognize the congresswoman from Oregon, 

Ms. Bonamici, for five minutes? 

Ms. BONAMICI. Thank you very much, Mr. Chairman. 

I want to thank all of you for testifying before the subcommittee 

today and sharing your expertise. 

As you know, close to 4 million Americans have now signed up 

for health care since the insurance marketplaces opened. Additionally, many Americans are for the first time able to receive coverage 

and others are able to consider opening businesses or pursuing new 

careers without the fear of losing their insurance. 

Even in my home state of Oregon, where the technology has been 

problematic, a couple hundred thousand Oregonians have now received coverage. We have reduced the number of uninsured by up 

to 20 percent. 

So I am glad we are having this hearing today because it is important to make sure that we are building on the progress that we 

have made. It is important that we work to make sure that the 

goal is fulfilled, which is having access to high-quality health coverage. 

Certainly self-insurance is important to discuss as part of that 

conversation and I am glad we are having this hearing today. 

I wanted to ask you, Ms. Calsyn, you coauthored a report last 

year that warns of the consequences of businesses with young, 

healthy employees choosing to self-insure while businesses with 

comparatively fewer healthy employees join the fully insured market. This may concentrate risk in fully insured marketplaces and 

drive up costs. 

But aside from that, I am really interested in how—your assessment of how self-funded plans affect the people receiving coverage. 

We have heard some success stories today, but what would be the 

concerns for employees receiving coverage through self-funded 

plans? Would there be a reason why an employee of a small business might prefer self-funded or fully insured? 

Ms. CALSYN. I think that for many employees self-funded arrangements are fantastic. I think that those are usually larger employers. 

I think that there are two groups of employees we need to worry 

about here. The first are employees who are in self-funded arrangements where their employers may not have as fully assessed the 

risk, may not be sophisticated enough to deal with it, and may 

have not, you know, dotted all the i’s, crossed the t’s in their contracts with stop-loss carriers and other third parties. 

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In those cases, the employer could potentially be at risk for unforeseen costs. They might not be protected, and obviously when a 

small business is in economic distress its employees are, too. 

You also have a situation in which a self-funded—a very small 

business might decide to—that they—because they have very 

young, very healthy employees they want to leave the fully insured 

market and self-fund. In that case the benefit structure might be 

a little different. It might not cover certain categories of benefits 

that the employee would like to see. 

I think where we are losing a lot—where some of the focus needs 

to turn back to is the balancing act—you know, these arrangements might be great for a lot of people in these plans, but there 

are also the people who—and the small business owners who are 

stuck in the fully insured market. And if too many of the healthy 

employees—I am sorry, employers with healthy employees moved 

into the self-funding route you can leave a lot of people in the fully 

insured market who are older and sicker and they could see their 

premiums go up, and it is obviously not just bad for them but it 

is also bad for the employers who are there. 

Ms. BONAMICI. Thank you. 

I have a couple more questions. And as I said, we have heard 

some success stories today. 

Mr. Kelley, yours was a positive example, and congratulations to 

your company for your success. Clearly it has worked for your organization. 

Are there circumstances that would keep a company away from 

that kind of success? What I want to ask is, is there a business 

that is too small to self-insure? I would like to hear from each of 

you briefly. 

Mr.—is it Melio? 

Mr. MELILLO. It is Melillo. 

Ms. BONAMICI. Melillo. 

Mr. MELILLO. So the, you know, the question is, is a group too 

small? I think that is like seven or eight on the list of things you 

need to assess when considering self-funding. 

You know, for example, if you are a small or a large company 

that is chasing a balance sheet, right, that is chasing receivables 

and your revenue stream isn’t as strong and your capital situation 

doesn’t preclude you—doesn’t set you up for success—you don’t 

have anything to fall back on, that is a group that a wise consultant would not, you know, suggest self-funding to. 

Ms. BONAMICI. Thank you. And I do want to hear real briefly 

from the others. 

Is there a group that—business that would be too small to selfinsure? 

Mr. KELLEY. I would say, speaking as a public employer, you 

need to make sure that the policymakers are going to adequately 

continue to fund the plan. You may have years of savings and you 

may take your hands off and lower your budget expectations and 

the next year there is a swing. You have to be consistent in your 

application of funding and not let it jump around and not let local 

politics sort of absorb those savings and then be surprised when 

there is an increase. 

Ms. BONAMICI. Right. 

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What do you think, Mr. Ferguson? 

Mr. FERGUSON. I would quickly echo Rob’s comment. It is largely 

a balance sheet decision, and secondarily it is a corporate culture 

decision in the sense that I mentioned earlier, is if you are not willing—you meaning the management of the company—to take the 

time to properly structure the plan then you are probably not a 

good candidate for self-insurance. 

Ms. BONAMICI. Thank you. 

And I see my time is expired. Thank you, Mr. Chairman. I yield 

back. 

Mr. MESSER. The gentlelady yields back. 

Would next like to recognize the gentleman from Texas, Mr. 

Hinojosa? 

Mr. HINOJOSA. Thank you, Mr. Chairman. 

Before I ask some questions I want to thank the panelists for 

coming before us and sharing your thoughts and recommendations. 

I wish to identify myself with—or my remarks with Congresswoman Bonamici because I heard my colleague on the other side 

of the aisle talk about why he doesn’t like ACA, and he reminds 

me of the 30 percent who didn’t like Social Security, reminds me 

of the 30 percent who didn’t like Medicare and Medicaid. And it 

took years to make them work as they do today, to where most 

Americans fight to make sure that those programs stay in place. 

So I, too, support ACA and am pleased to hear about what the 

options are for small businesses. 

Ms. Calsyn, one of the aspects of your testimony I found most 

troubling was the practice of lasering. This is the process where a 

stop-loss insurance plan can set its attachment point, which is the 

specified limit when they will start to pay for an individual or a 

claim, at a relatively low amount for most employees but target a 

specific employee who has cancer or some other serious medical 

condition and set their attachment point at an exorbitantly high 

amount, placing the small business into much more financial risk. 

This, to me, is—or rather, this, to me, undermines the very notion 

of insurance, which is why some states have moved to ban the 

practice outright. 

How do you believe this practice would impact truly small businesses that decide to go the route of self-funded insurance? 

Ms. CALSYN. I just want to clarify one point with the lasering. 

A laser is a modification in the agreement between the employer 

and the stop-loss carrier. So an employee probably will not know 

that they are—that they have a laser on them. You know, they go 

ahead and keep paying and on the surface it will look the same 

way. 

However, it does set up a source of concern for especially a much 

smaller employer. It sets up another reason why a small employer 

may not, say, for example, wish to hire somebody, or may set up 

a way that there could be a motivation for some sort of employment 

discrimination. 

If you, say, have, you know, a very small pool you are—if you 

have a small number of employees you are going to know exactly 

who the costliest employees are. You know, there can be some 

other downstream effects, I think, of the laser, but I just wanted 

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to make it clear that it is not that person is going to pay more, but 

there could be adverse downstream effects. 

Mr. HINOJOSA. Thank you for your explanation. 

Mr. Melillo, I want to thank you for your testimony today. In 

that statement that I read about your statement you stated that 

‘‘most fully insured programs offer a canned plan design, loaded 

with state mandated benefits packaged by the insurance carrier 

and often do not address your financial goals and unique needs.’’ 

Isn’t that just another way of saying that businesses can switch to 

this self-funded plan as a way of avoiding covering the categories 

of benefits that workers deserve? 

Mr. MELILLO. I tend to be an optimist, and I actually take that 

as to say you can enrich your benefits, for example, you know, even 

richer than what is offered in the state. So for example, Sheffield 

Pharmaceuticals offers a gold standard plan at the premium equivalent rates of a silver. So, you know, it is not a matter of dodging 

or avoiding benefits; it is a matter of addressing the specific needs 

of the population and then financing those needs. 

Mr. HINOJOSA. Thank you. 

Ms. Calsyn, in recent years the administration expressed concerns that some of the smaller employers may start to self-insure 

while also including stop-loss insurance with extremely low attachment points in order to avoid some of the new requirements of 

ACA. In your testimony you said tactics ‘‘start to blur the line between self-insured plans and self-funded plants.’’ What are the 

remedies that you think we should put in place to discourage that 

kind of activity? 

Ms. CALSYN. There are different approaches you could take. 

There are some states who have been a little bit more active in this 

area, so one way for—if an individual state saw a problem they 

could raise minimum attachment levels. Or, for example, in some 

states they limit the group size who can take this approach. 

In the federal level there is probably two different ways. There 

is language in the Affordable Care Act that could probably be defined to take a closer look at, you know, if somebody is self-insured 

are they really, in fact, self-insured? Are they actually taking on 

any financial risk in exchange for this flexibility and these benefits? 

Mr. HINOJOSA. Thank you. 

Mr. MESSER. The gentleman’s time is expired. 

Would next recognize congressman from Connecticut, Mr. Courtney, for five minutes? 

Mr. COURTNEY. Thank you, Mr. Chairman, and thank you for 

holding this hearing today, and particularly, having the wisdom of 

inviting Mr. Melillo, who is my neighbor in Glastonbury, Connecticut. 

And we are a state where, you know, actually it was in the New 

York Times yesterday that when the exchange was set up last summer HHS set a target of 100,000 enrollment through the exchange; 

we are now over 130,000 with another 6 weeks to go before the end 

of the March deadline. We had a governor who embraced the ACA 

and actually had some good people set up a Web site who—you 

know, they built a Ford Focus, they didn’t try to build a Maserati, 

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and as a result they had a website which actually functions and 

works. 

And what is really exciting is that we are at 238 percent of the 

target for qualified health plans—in other words, the private side 

of the exchange—and we know we are going to have at least another three or four insurers who are knocking on the door for next 

year’s enrollment, so, you know, but I would say this, I mean, selfinsurance is also, in my opinion, not incompatible with the ACA. 

I was at Town Fair Tire on Monday, which I know Mr. Melillo 

is familiar with down in East Haven, Connecticut. They have 1,800 

employees. You know, the employer is actually a pro-ACA guy but, 

you know, he said, ‘‘We are just going to continue with our self-insured plan, which provides good, solid benefits.’’ 

By the way, I have been to Sheffield Pharmaceutical. New London is in my district, and it is a great company and they care about 

their employees and they are doing a great job, as your testimony 

points out, in terms of, you know, using the self-insured mechanism as a way of, you know, making their business work and keeping, you know, retention high with their workforce. 

I guess the question I would just want to sort of explore for a 

second here—and, Mr. Kelley, you might be the right person to 

ask—is that we actually had a community in my district which a 

number of years ago, pre-ACA, self-insured, you know, its education and townside employees. Apparently the finance office forgot 

to pay for the reinsurance premium for a given year and, I mean, 

it was a—just, you know, the worst timing ever because they had 

some catastrophic claims that came in that just completely capsized, you know, what they had in their reserve account. 

And frankly, the town’s retirees are paying through the nose in 

the wake of that. They are hopefully at a point where they are 

going to be able to kind of, you know, restabilize. But I will tell 

you, it was a real hit on retirees who, as, again, Rob—you know, 

the state of Connecticut teacher pension plan is actually pretty 

meager for some folks of a different generation, so this was—you 

know, and again, they were helpless in terms of, you know, where 

they could turn in terms of what was clearly, you know, a 

misadministration of the plan. 

And I guess I would just sort of wonder whether you sort of have 

thoughts of this. I mean, again, obviously you have got to have 

some kind of reinsurance mechanism, whether it is small or large 

or private sector or public sector, to make sure that you are not 

going to have, you know, really disruptive increase in out-of-pocket 

for employees or retirees. 

So should there be a mandate? I mean, you know, really, because 

it was a pretty big problem, you know, because—again, it wasn’t 

malicious. It was just, you know, somebody messed up. 

Mr. KELLEY. There is no doubt that being self-insured places additional administrative burdens on an organization, but there are 

benefits and savings to be had— 

Mr. COURTNEY. No question. That is not the debate. The question 

is how do you ensure that you are not going to have those kinds 

of horror shows? 

Mr. KELLEY. When I think about the horror story you just talked 

about, it is not dissimilar to what can happen to a pension plan 

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that is not properly funded, and then that pension plan ends up 

getting upside down and then the retirees are bearing the burden 

of that, or future ratepayers or other public entities are paying for 

that support. 

So, I think that it calls for effective management across the 

board, but I would want to look at that from a regulatory standpoint in the same overall umbrella of all employee benefits. You 

know, there are a lot of benefits that employers provide employees, 

and that is good, standard business practices, and when something 

falls apart there needs to be an account—people need to be held accountable and then you move on. 

But I don’t necessarily know that it is appropriate to single out 

health care with a particular focus when we are not providing that 

same level of scrutiny and belt and suspenders approach to all employee benefits. 

Mr. COURTNEY. Okay. 

Mr. Melillo? 

Mr. MELILLO. You know, I would like to add that if it was a fully 

insured plan and premiums had lapsed coverage would have 

lapsed, but in this case, because the burden fell back on the employer and they are the ones who actually made the mistake, the 

employee still received their benefits, they just didn’t get a reimbursement from their reinsurance or their stop-loss carrier because 

of their administrative mistake. So in this case it turned out to be 

a positive for the employee because they still had their coverage. 

Mr. COURTNEY. Well, you know, again, I would love to have those 

teachers come in and sit down with you because it was—you know, 

it was again, they wanted me to call the Secretary Sebelius to try 

and intervene with the town, which obviously, you know, wasn’t 

going anywhere. And it was a—you know, it was not pretty. 

So with that, anyway, I yield back, Mr. Chairman. 

Chairman ROE. [Presiding.] I thank the gentleman for yielding. 

Mr. Messer, you are recognized for five minutes? 

Mr. MESSER. Thank you, Mr. Chairman. Thank you for this important hearing. Obviously the challenges with the ACA are many 

and well documented, my opposition well documented as well, so I 

would rather focus today on the subject matter before us. 

The employer-sponsored health insurance is the predominant 

source of coverage for individuals and families. In a near-term 

world that will remain true under the ACA, self-insurance is an 

important option and tool for employers, and stop-loss insurance an 

important tool in those self-insurance efforts. 

I would like to focus first on Mr. Melillo, and your testimony discusses the financial stability of self-insured plans, and I want to 

ask a couple questions together that maybe you can respond to. 

Is the financial stability of these self-insured plans due solely to 

a reliance on stop-loss insurance? Maybe said a different way, 

how—could you talk a little bit more detail about how stop-loss insurance is used by a self-employed insurer? And for example, do 

employers ever change their stop-loss insurance coverage levels? 

Mr. MELILLO. The answer is all of the above. The stop-loss is 

used as a financial risk lever to help the plan manage what they 

believe their exposure to be. The lower the stop-loss deductible that 

they choose to buy, the greater the premiums. 

CEWDOCROOM with DISTILLER

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And so by ceding the risk back to an insurance company, their 

favorable experience below that deductible starts to erode. It goes 

back to the reinsurance or the stop-loss carrier. 

That being said, one of the benefits to self-funding is to benefit 

from the increased cash flow and positive results. It is common to 

see a group or a plan move their stop-loss deductible based on their 

balance sheet, based on their risk tolerance level, and a number of 

other key factors. 

But the stop-loss, it is important to note that more often than 

not, the percentage of stop-loss premiums that make up the entire 

annual spend is typically between 5 and 15 percent of the total 

spend, so it tends to be a small piece. 

Mr. MESSER. Okay. And your testimony provides great examples 

of how self-insurance—self-insured plans allow the employer more 

flexibility, as you just described, to design a plan that is best for 

the employer and his or her workforce. Could you please share additional examples of a unique workforce and how an employer 

might design a plan that was best suited for that workforce? 

Mr. MELILLO. So I could go through—I have an example of a 

group that used the data that came from their utilization experience where they identified that there was a great deal of emergency room visits occurring—greater than the national average, 

greater than the regional average, greater than their SIC code. 

That being said, they realized that it was a communication issue 

and they realized that they weren’t being steered, informed, or 

incentivized to use clinics or walk-in centers for things like a runny 

nose or minor issues. We identified that data, made modifications 

to the plan design, and the E.R. costs went down dramatically. 

Mr. MESSER. Great. 

For Mr. Ferguson, in a recent final rule issued by the Department of Treasury, the administration reiterated its concern regarding stop-loss insurance, stating stop-loss plans with low attachment 

points are a, quote—‘‘functionally equivalent alternative,’’ end 

quote, to a fully insured group health plan. Mr. Ferguson, are stoploss plans the functional equivalent of a fully insured health plan? 

And what data exists to—what, if any, data exists to support the 

administration’s concern that self-insured plans are utilizing stoploss insurance with low attachment points? 

Mr. FERGUSON. Thanks for the question. First, a bit of terminology correction: There is no really such thing as a stop-loss plan. 

There is the plan—the employer-sponsored plan—and then there is 

stop-loss insurance or a stop-loss product. So it is important to sort 

of separate the plan from the actual—the insurance arrangement 

that is—serves as the backstop for that plan. 

And again, as I mentioned earlier, the stop-loss is really the financial tool, which I think should be distinguished from the delivery of health benefits that is done through the plan. 

Mr. MESSER. So comment on the Department of Treasury’s— 

Mr. FERGUSON. Well, the comment there is they are—you know, 

for some time we have been hearing concerns that the stop-loss insurance has facilitated, you know, a growth in the self-insurance 

marketplace and that is—potentially would have negative consequences, as one of the fellow witnesses has articulated. We don’t 

agree with that. 

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We believe that the self—this is one of the tenets of the ACA, 

right, was to build on the employment-based health care system, 

and we agree. Size and organization, we have no comments to offer 

as to the overall merits of the ACA. We will leave that to other parties. 

What we see our role here is to try to protect this segment of the 

marketplace that is working well. And to the extent that you have 

a regulatory process that has a result of making it more difficult 

for smaller and midsized employers to self-insure, well, not only do 

we not think that is good for our members and folks that are in 

the marketplace but again, going back to the origins of the ACA, 

if that compromises the employment-based health care system from 

a larger standpoint, we don’t think that is positive. 

Mr. MESSER. Thank you. 

Chairman ROE. Thank you, Mr. Messer, and thank you for sitting in the chair. 

Dr. Holt, you are recognized for five minutes? 

Mr. HOLT. I thank the chair and thank the witnesses. 

Ms. Calsyn, there has been reference to the CMS actuarial report 

that says 11 million workers in small-group plans will see premiums rise. That has been used as an argument that the Affordable Care Act is a failure. Wasn’t that report responding really to 

a fairly narrow inquiry? Can you put it in perspective, please? 

Ms. CALSYN. The report was analyzing the effect of three discrete 

provisions in the law. It was looking at guaranteed issue, renewability, and community rating, I believe— 

Mr. HOLT. Yes, you are right— 

Ms. CALSYN.—So there are plenty of other provisions of the law 

that are going to have an effect throughout the economy. And CMS 

stated that in the report and they are—I believe that they are looking into that and planning on issuing another report that is a little 

bit more comprehensive. 

The thing that I think that is also important to remember about 

the—you know, the 11 million, six million is it is really a snapshot 

in time. It is the 11 million small businesses that right now are 

healthier than average, have lower cost than average. 

But especially for a lot of smaller businesses, you know, that can 

change overnight. You know, there was reference to the AOL situation with the high-cost babies, and if that happens to a smaller employer, you know, that person is automatically going to—that group 

is going to go from the 11 million losers to the six million winners. 

And I think that what is really important about the ACA is this 

risk— 

Mr. HOLT. By six million winners you mean the premiums go 

down. 

Ms. CALSYN. Premiums go down, yes. 

Mr. HOLT. Okay. 

Ms. CALSYN. And like any health care reform, any changes to our 

health care system, there are going to be people who benefit and 

people who, at a particular time, might see themselves as worse off. 

And I think that stepping back and looking at the benefits for people even who might be healthier now is always an important thing 

to keep in mind. 

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Mr. HOLT. Okay. Again, to make sure that the details and the 

complications here aren’t misused as an indictment of the entire attempt to reform health care in America and go back to something 

that a lot of people thought was working fine but anybody who 

knew about it realized was unsustainable, unfair, inequitable, and 

provided worse health care coverage than we would want for our 

people. 

Let me ask you about job lock. How has the Affordable Care Act 

reduced job lock and how important is that? 

Ms. CALSYN. Well, I think that has always been a concern, I 

think, for members on both sides of the aisle, and the Affordable 

Care Act, by making the individual market an actual viable alternative for people they are able to not just see their current job as 

their only option for health care. As a result there are going to be 

productivity gains, there—lower health care costs, increased wages. 

So there are a large number of economic benefits to the law that 

CBO has pointed out. 

Mr. HOLT. You spoke a little bit about churn, people moving in 

and out of self-funded, fully insured markets. What has been the— 

could you describe that a little bit better in terms that an ordinary 

person would understand? And how would one guard against any 

negative effects of that churn? 

Ms. CALSYN. Well, the churn would result if there—if we start 

with the assumption—and this is completely oversimplifying it—if 

you start with the assumption that there are X number of fully insured plans right now and they do an assessment and they decide 

that they have lower risk than average and that group decides to 

go into a self-funded arrangement, and then say three to five years 

down the line they realize: Oh, wow. My group that was, say, all 

in their 20s and 30s, now they are getting a little bit older, you 

know, as we all age—a little more risk of health issues, you know, 

and they might then do another assessment and then put their 

group back into the fully insured market. 

Now, this isn’t something that they can do overnight. There is 

obviously a large—you know, there are a lot of business decisions 

that need to be made into this, but it is so much easier for—I 

should say it is so much financially more feasible for younger or 

healthier-than-average groups to self-fund, and by drawing out 

those people, the people who remain in your fully funded market 

are probably going to see increased premiums. 

Mr. HOLT. And so, that could be a nasty surprise for people who 

are unaware that they are involved in this churn. 

Ms. CALSYN. Right. Exactly. And again, I just—I think that it is 

so important to remember that, you know, even if you are healthy 

today, you are not going to be healthy—you might not be healthy 

tomorrow. And looking back at what the issues were and the horror 

stories we heard before the ACA is always kind of—is always very 

important to keep in the back of your mind when discussing these 

issues. 

Mr. HOLT. Thank you. 

Thank you, Mr. Chairman. 

Chairman ROE. I thank you very much. 

And I thank the panel. Terrific job. 

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And I am sorry I had to step out, but I am going to ask my colleagues here to support the bill I was over testifying, which is a 

bill of mine to build a memorial for Desert Storm/Desert Shield veterans, so that is why I stepped out for just a minute. 

And I appreciate this. This was a very, very good panel and everyone did a good job of staying in time. 

I will now yield to Dr. Loebsack for his closing comments? 

Mr. LOEBSACK. Thank you, Dr. Roe. I do want to thank you again 

for convening this hearing. 

And I do want to thank all the witnesses today. It has been very 

informative, I think, for all of us here. It has been a great discussion about the self-insurance market and about the risks and the 

benefits, really, of self-funding health care. 

Do look forward to a couple of answers in terms of sort of what 

those premiums would have been had they stayed in the fully insured market, if that is possible. I don’t know that it is possible, 

but it would be great to get those numbers so we can compare apples and apples on that. I appreciate that, Mr. Melillo. 

And as work continues going forward I think it is really critical 

that we think very carefully about how to balance the needs of both 

small and large businesses, but also what the Affordable Care Act’s 

goal of increasing access to affordable, quality health care for all 

employees. This is a balancing act, there is no question about it. 

We have to take into account, clearly, what businesses’ calculations are and all the rest, but we have to be thinking about the 

health care benefits that are there and available to folks, because 

the idea is to do what we can to make sure that everyone is covered and has access to quality, affordable health care. 

So, I look forward to working with my colleagues on both sides 

of the aisle as we go forward, hopefully fixing the ACA and doing 

everything we can to ensure that folks have that access. Thank you 

very much. 

And thank you, Dr. Roe. 

Chairman ROE. I thank the gentleman for yielding. 

And I will once again thank the panel for being here. 

And I am going to just think out loud for a minute as we close. 

When businesses are out there, as I was in for 30-something years, 

and we grew our medical practice from four doctors and 12 employees, we now have 100 providers and 450 employees, all primary 

care, all still independently operating in Johnson City, Tennessee. 

And when I became more aware of the self-insurance market— 

we just use traditional insurance and, Mr. Kelley, I think you 

pointed it out extremely well—what I do every year is look at our 

budget and see how much money we are going to spend on health 

insurance coverage for our employees. And every year it changed 

a little bit. There would be some changes in the plan. 

But as you begin to look at whether you self-insure or not, I 

guess it is like—Mr. Melillo, you maybe brought this up about how 

much stop-loss insurance you will buy. It isn’t cheap, by the way. 

I know when you buy it isn’t inexpensive. It is a significant cost— 

5 percent or 10 percent of $900,000 is still a lot of money. 

And so the way I looked at it is, how much loss can I stand? The 

way I do it is like going into a casino and you write a check, and 

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how much can I stand and walk out of here if I throw it in the garbage can, which if you walk into a casino you are going to do. 

So you just say, how much risk can I take in this business? And 

you look at it and then you calculate, can I work that into my business plan? 

And it is a very simple decision that you make and you are absolutely right, you have to have the right consultant. That consultant 

has to advise you to have deep enough pockets to sustain—I wish 

I could have heard Mr. Courtney—all of his testimony because, Mr. 

Kelley, you pointed out it is not just health insurance that can be 

mismanaged. We are dealing right now with multiemployer pension plans on this subcommittee—this very thing that we have to 

get right this year, so it is mainly employee benefits we are talking 

about. 

So you look at that, and this is a plan right now that is working 

very well in many places. And sure, there are places where it has 

been mismanaged. I am sure any plan can say that. 

But if you look at our community, the money we have saved, you 

are able to go in and initiate wellness programs that we did in diabetes, hypertension, smoking, weight loss, and so on that have really affected the lives and made the employees’ lives better and made 

your insurance cheaper. And that is certainly what the scenario 

that you point out and Mr. Ferguson and all of you pointed out. 

And I think, Ms. Calsyn, that is the same thing you would want, 

too. 

As far as job loss is concerned—and I will have to respectfully 

disagree. I was at a—and hopefully when this works out five or 10 

years from now if the ACA is still in effect it will do what you say, 

but I am in a hospital system that had a referral center with a 

medical school, of which I was on the clinical faculty for over 25 

years. We have lost 1,000 employees. There are registered nurses 

now that are worried to death that they are going to lose their jobs. 

There is a major medical center in my state that has laid off 

1,000 people. These are great jobs. And you take a town my size 

of 65,000 people and we have lost 1,000 jobs. And it has caused 

great disruption. 

And I think right now what the federal government needs to do 

is stay out of the part—there is so much uncertainty out there 

about how businesses deal with the ACA—is before we do anything 

else to any part of the insurance market, let’s just leave it alone. 

Let’s do what I used to say in medicine and provide skillful neglect. 

That is also a thing you can do that is a good thing to do is just 

don’t do anything right now and let this sort of settle out so we can 

see where the dust falls. 

And I would also like to ask, Ms. Calsyn, if you could supply any 

data that—on the last statement you made to Dr. Holt about job 

creation and so forth, and also about the churning of people getting 

in and healthy populations. I know in 30 years we never did that. 

We simply looked at how much our budget was, what we could afford, and we wanted to provide, as Mr. Kelley did, the absolute best 

benefits we could to our employees because we think—and I still 

think so today—you get a better employee by doing that. And I 

think that is what most employers want to do if they can afford it. 

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So we had a very, very good hearing today and I certainly 

learned a lot. And I appreciate my colleagues on both sides of the 

aisle. 

Mr. Holt— 

Mr. HOLT. Would the gentleman yield? 

Chairman ROE. I will. 

Mr. HOLT. I will just in 15 seconds say that if the chairman is 

looking for a jobs program I think you can do better than setting 

up a health care system that neglects tens of millions of people and 

excludes them. 

Chairman ROE. Reclaiming my time, I totally agree with you. I 

think we should—I think we absolutely should look at a program, 

and I agree with the idea of increasing access, increasing quality, 

lowering costs, and trying to cover all Americans. I could not agree 

more with you on that. 

I want to thank, again, our witnesses. 

With no further comments, the hearing is adjourned. 

[Questions submitted for the record:] 

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[Whereupon, at 11:37 a.m., the subcommittee was adjourned.] 

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