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FULL COMMITTEE HEARING ON 

HEALTH CARE REFORM 

IN A STRUGGLING ECONOMY: 

WHAT’S ON THE HORIZON 

FOR SMALL BUSINESS? 

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

February 4, 2009 

Small Business Committee Document Number 111-003 

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


Congress.#13
HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

DENNIS MOORE, Kansas 

HEATH SHULER, North Carolina 

KATHY DAHLKEMPER, Pennsylvania 

KURT SCHRADER, Oregon 

ANN KIRKPATRICK, Arizona 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

DAN LIPINSKI, Illinois 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

PARKER GRIFFITH, Alabama 

DEBORAH HALVORSON, Illinois 

SAM GRAVES, Missouri, Ranking Member 

ROSCOE G. BARTLETT, Maryland 

W. TODD AKIN, Missouri 

STEVE KING, Iowa 

LYNN A. WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

BLAINE LUETKEMEYER, Missouri 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KAREN HAAS, Minority Staff Director 

(II) 

STANDING SUBCOMMITTEES 

Subcommittee on Contracting and Technology 

GLENN NYE, Virginia, Chairman 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

KURT SCHRADER, Oregon 

DEBORAH HALVORSON, Illinois 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

PARKER GRIFFITH, Alabama 

AARON SCHOCK, Illinois, Ranking 

ROSCOE BARTLETT, Maryland 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma 

GLENN THOMPSON, Pennsylvania 

Subcommittee on Finance and Tax 

KURT SCHRADER, Oregon, Chairman 

DENNIS MOORE, Kansas 

ANN KIRKPATRICK, Arizona 

MELISSA BEAN, Illinois 

JOE SESTAK, Pennsylvania 

DEBORAH HALVORSON, Illinois 

GLENN NYE, Virginia 

MICHAEL MICHAUD, Maine 

VERN BUCHANAN, Florida, Ranking 

STEVE KING, Iowa 

TODD AKIN, Missouri 

BLAINE LUETKEMEYER, Missouri 

MIKE COFFMAN, Colorado 

Subcommittee on Investigations and Oversight 

JASON ALTMIRE, Pennsylvania, Chairman 

HEATH SHULER, North Carolina 

BRAD ELLSWORTH, Indiana 

PARKER GRIFFITH, Alabama 

MARY FALLIN, Oklahoma, Ranking 

LOUIE GOHMERT, Texas 

(III) 

Subcommittee on Regulations and Healthcare 

KATHY DAHLKEMPER, Pennsylvania, Chairwoman 

DAN LIPINSKI, Illinois 

PARKER GRIFFITH, Alabama 

MELISSA BEAN, Illinois 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

BOBBY BRIGHT, Alabama 

LYNN WESTMORELAND, Georgia, Ranking 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

GLENN THOMPSON, Pennsylvania 

MIKE COFFMAN, Colorado 

Subcommittee on Rural Development, Entrepreneurship and Trade 

HEATH SHULER, Pennsylvania, Chairman 

MICHAEL MICHAUD, Maine 

BOBBY BRIGHT, Alabama 

KATHY DAHLKEMPER, Pennsylvania 

ANN KIRKPATRICK, Arizona 

YVETTE CLARKE, New York 

BLAINE LUETKEMEYER, Missouri, Ranking 

STEVE KING, Iowa 

AARON SCHOCK, Illinois 

GLENN THOMPSON, Pennsylvania 

(IV) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

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

Graves, Hon. Sam .................................................................................................... 2 

WITNESSES 

Ratner, Mr. Dave, Owner, Dave’s Soda & Pet City, Agawam, Massachusetts, 

On Behalf Of The National Retail Federation ................................................... 4 

Davis, Ms. Janette, CPA, President And CEO Southeast American Financial 

Group, Inc., Pembroke Pines, Florida, On Behalf Of The U.S. Women’s 

Chamber Of Commerce ........................................................................................ 6 

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

Atlanta, Georgia ................................................................................................... 8 

Fox, Ms. Alissa, Senior Vice President, Office Of Policy And Representation, 

Bluecross Blueshield Association ........................................................................ 9 

Beene, Mr. R. Michael, Senior Health Advisor, National Association For The 

Self-Employed ....................................................................................................... 11 

Clark, Mr. Dirck, Chief Business Development Officer, Heartland Regional 

Medical Center, Saint Joseph, Missouri ............................................................. 14 

APPENDIX 

Prepared Statements: 

Ratner, Mr. Dave, Owner, Dave’s Soda & Pet City, Agawam, Massachusetts, 

On Behalf Of The National Retail Federation ................................................... 32 

Davis, Ms. Janette, CPA, President And CEO Southeast American Financial 

Group, Inc., Pembroke Pines, Florida, On Behalf Of The U.S. Women’s 

Chamber Of Commerce ........................................................................................ 44 

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

Atlanta, Georgia ................................................................................................... 48 

Fox, Ms. Alissa, Senior Vice President, Office Of Policy And Representation, 

Bluecross Blueshield Association ........................................................................ 58 

Beene, Mr. R. Michael, Senior Health Advisor, National Association For The 

Self-Employed ....................................................................................................... 74 

Clark, Mr. Dirck, Chief Business Development Officer, Heartland Regional 

Medical Center, Saint Joseph, Missouri ............................................................. 82 

Statements for the Record: 

National Funeral Directors Association ................................................................. 84 

National Federation Of Independent Business ..................................................... 94 

American Optometric Association .......................................................................... 97 

The Small Business Coalition for Affordable Healthcare ..................................... 101 

The Main Street Alliance ........................................................................................ 104 

Small Business United for Health Care Coalition ................................................ 111 

American Society of Association Executives .......................................................... 115 

(V) 

(1) 

FULL COMMITTEE HEARING ON 

HEALTH CARE REFORM 

IN A STRUGGLING ECONOMY: 

WHAT’S ON THE HORIZON 

FOR SMALL BUSINESS? 

Wednesday, February 4, 2009 

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

The Committee met, pursuant to call, at 10:05 a.m., in Room 

2360, Rayburn House Office Building, Hon. Nydia M. Vela ́zquez 

[Chair of the Committee] Presiding. 

Present: Representatives Vela ́zquez, Moore, Dahlkemper, 

Schrader, Altmire, Sestak, Bright, Griffith, Graves, Gohmert, Buchanan, Luetkemeyer, Schock, and Thompson. 

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

House Small Business Committee to order. 

My colleagues, the ′′American Recovery and Reinvestment Act′′ 

will go a long way in helping entrepreneurs weather the storm of 

recession. But even after it is enacted, the new stimulus won’t clear 

every cloud. The rising cost of health care continues to be a major 

stumbling block for small firms, an obstacle that threatens to restrict their ability to create new jobs for American workers. Until 

that roadblock is cleared, these businesses will be unable to grow 

and unable to help lead the path to economic recovery. 

Most of the country’s attention is now fixed on the faltering economy, but that does not make health care reform any less urgent. 

In fact, reining in health care costs is as critical to financial recovery as restoring accountability on Wall Street. As soaring premiums cut deeper and deeper into profit margins, many entrepreneurs are slashing coverage for their employees and families. 

Still others are dropping it altogether. But perhaps worst yet, 

countless businesses have been forced to scale back their workforce. 

With unemployment at a 16-year high, we simply cannot afford to 

lose more small businesses’ jobs, especially considering that entrepreneurs are the country’s greatest job creators. 

Clearly, health care reform for small firms is more than a moral 

obligation; it is an economic imperative. In today’s hearing, we will 

discuss the rising cost of small business health care and the barriers it creates for financial recovery. We will also explore ways to 

break down those barriers and to bring the economy back on track. 

In the last 2 years, health care costs have climbed at twice the 

rate of inflation. For small firms, premiums have jumped 80 perVerDate Aug 31 2005 14:02 Feb 26, 2009 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\46819.TXT DARIEN
2 

cent since the year 2000. As a result, coverage for small-business 

workers has dropped off significantly. In less than a decade, it has 

declined by 16 percent for some of the smaller firms. Today, in the 

face of growing economic challenges, small businesses can no longer 

absorb these outlays. With lending down and credit tightening, few 

entrepreneurs have the resources to meet basic obligations like 

payroll, let alone provide health insurance. 

Clearly, the current health care system is unsustainable for employers, as well as their employees. As Congress discusses health 

care reform, one of the issues before us is that of employer mandates. I understand there is significant concern about whether 

health care reform will include mandates that small firms offer 

coverage. This issue must be addressed in a way that will not unduly burden small businesses. The reality is that reform cannot 

work if it does not meet the needs of our Nation’s entrepreneurs. 

Beyond mandates, this Committee has been working to find consensus on the broader health care reform issues. Last Congress, 

working in a bipartisan manner, members of this Committee introduced the CHOICE Act, legislation that would have gone a long 

way in addressing small employers’ health care needs. Today, along 

with Mr. Graves, I am reintroducing the bill. It is our hope that 

it will make health care more accessible for small businesses. 

As the country continues to consider recovery legislation, it is 

critical that health care reform play a role in the process. Yes, the 

′′American Recovery and Reinvestment Act′′ promises billions of 

dollars in tax relief to entrepreneurs, and, yes, it will help unfreeze 

credit markets. But unless we can find a way to make small business coverage more affordable, the benefits of the stimulus may be 

blunted by health care costs. 

How can we expect entrepreneurs to lead the way out of recession when they cannot afford to insure their employees? The more 

money that small firms are forced to pour into health care, the less 

capital they have for bringing on new workers. And, at the end of 

the day, that is what a stimulus should be about: creating jobs. 

Small businesses can do it, but they are going to need all the 

means necessary, beginning with increased capital through health 

care reform. 

I am pleased our witnesses could join us today, and thank them 

in advance for their testimony. 

With that, I now yield to Ranking Member Graves for his opening statement. 

Mr. GRAVES. Thank you, Madam Chair. 

And I, too, would like to echo the chairwoman’s thoughts on 

thanking you all for coming today. I appreciate it. I appreciate her 

having this hearing to give us some more insight on health care 

and how it is affecting our businesses. 

Forty-seven million Americans are uninsured. By itself, that is a 

staggering number. Unfortunately, given the Nation’s economic crisis, we can expect that that number is going to rise and rise significantly unless we work together to find some reforms that are practical, efficient, and realistic. 

The United States has the best health care system around, but 

a wasteful and inefficient system for delivering that care. According 

to the Institute of Medicine, the United States spends nearly $100 

3 

billion per year to provide the uninsured with health care, often for 

preventable diseases that physicians could treat more efficiently 

with earlier diagnosis. 

Clearly our system of health insurance and health care is financially unstable and threatens the health and financial security of 

small-business owners, their employees, and their families. Several 

consecutive years of double-digit premium increases have hit the 

business community pretty hard, especially small firms. An employee in a firm with fewer than 10 employees pays 18 percent 

more for health insurance than a worker in a firm with 200 or 

more employees. And disturbingly, health care costs are continuing 

to rise for small businesses. As a result, a significant number of the 

uninsured, 60 percent, are workers or dependents of workers in 

small companies. 

Health care reform should make the market for health insurance 

more competitive, resulting in greater access to affordable health 

care. Many Members in Congress, including me, supported associated health plans, or AHPs, which would permit small-business 

owners to pool together to purchase their health insurance at lower 

rates. These arrangements could increase negotiating leverage and 

administrative efficiencies and help to ensure more consistent benefits among the States. 

Another area to explore as we attempt to fix this problem is the 

way health benefits and spending are taxed. Federal tax treatment 

of health insurance is widely understood as a fundamental element 

in achieving affordable health care. It is arguably the most important factor shaping the health insurance markets and, thus, a key 

driver of the incentives that dominate health care financing and 

delivery. 

Beneficial initiatives like health savings accounts need to be expanded and made more affordable through the Tax Code. Additionally, we must eliminate the inherit inequity within the Tax Code 

when it comes to the treatment of self-employed individuals, by allowing them to deduct their health insurance expenses when calculating their payroll tax returns. I also believe that changing the 

Tax Code to allow everyone to deduct non compensated health expenses on their taxes would provide a significant benefit in making 

health care delivery more affordable. 

To this end, as Chairwoman Vela ́zquez pointed out, I have decided to be an original cosponsor on the ′′Small Business CHOICE 

Act,′′ which she will be introducing shortly. The bill tackles two of 

the most significant challenges facing small employers: the high 

cost of providing comprehensive health insurance and the volatility 

of insurance premiums. 

The bill would allow small businesses to form health insurance 

cooperatives, which would function similar to risk pools and provide insurance against high-cost or catastrophic claims. Additionally, the bill offers a key incentive in the form of a refundable tax 

credit to small businesses that choose to join a cooperative. 

This is a good start, Madam Chair, and I look forward to working 

with you on it. 

There are many ways to tackle this problem, however I firmly believe that mandating employers to offer coverage to their employees 

is not a workable option. Just last week, the National Federation 

4 

of Independent Business released a study measuring the economic 

impact of a national employer health care mandate and what it 

would do on small businesses. The study conducted business simulations to measure the effects of a hypothetical national mandate 

requiring employers to offer private health insurance to all employees starting in 2009 and to finance a minimum of 50 percent of the 

cost. Among other findings, the research found that a mandate 

could lead to more than 1.6 million jobs lost between 2009 and 

2013, and small businesses would account for more than 1 million, 

or 66 percent, of those lost jobs. Additionally, small businesses 

would lose roughly $113 billion in real output and account for 56 

percent of all real output that is lost. Labor-intensive industries 

with 20 to 99 employees would experience the most job-loss. 

There is no way to fix a problem as big as this. We must continue working towards a solution because America’s small businesses can’t wait any longer. 

And I look forward to working with you, again, Madam Chair. 

And I appreciate, again, the witnesses for being here and for everybody that has worked on this bill that you are getting ready to introduce. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Graves. 

And it is my pleasure to welcome our first witness this morning, 

Mr. Dave Ratner. He is the owner of Dave’s Soda & Pet City, a 

small chain of four pet stores in Springfield, Amherst, and Northampton, Massachusetts. 

He is here to testify on behalf of the National Retail Federation. 

The NRF protects the interests of the retail industry and represents an industry that has more than 1.6 million U.S. retail companies and more than 25 million employees. 

Welcome, Mr. Ratner. You have 5 minutes to make your presentation. 

STATEMENT OF DAVE RATNER 

Mr. RATNER. Thank you very much. Madam Chairwoman and 

members of the Small Business Committee, my name is Dave 

Ratner. I am pleased and actually pretty honored to appear today 

on behalf of the National Retail Federation. 

And I have got to say this right away. They didn’t know I was 

going to say this. I love the National Retail Federation. They really 

look after little guys like me. It is a great organization. 

I am the owner of Dave’s Soda & Pet City—yes, I sell soda and 

I sell pet food—a four-store business in greater Springfield, Massachusetts. My business has been named the Greater Springfield 

Chamber of Commerce Small Business of the Year. We are the habitual winners of the People’s Choice Award. We sponsor every little league team. We sponsor every church, every cheerleader. Every 

everything that has anything to do civically in western Massachusetts, we are involved with. I am sure that all of you in your communities have a business like Dave’s Soda & Pet City, and I am 

in the 20-to-99-employee group that is really nervous about what 

is going on. 

The retail industry, as you know, is one of the biggest supporters 

of the employer-based health insurance system, despite not having 

an easy workforce to cover. We are strong supporters of health covVerDate Aug 31 2005 14:02 Feb 26, 2009 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\46819.TXT DARIEN
5 

erage in spite of these challenges. It is not that we don’t want 

health care for everybody, we just want to do it right and equitably. 

As an industry that frequently endures wafer-thin profit margins, we are also well-acquainted with the need to manage the collective cost of labor in as an effective manner as possible. And 

maintaining the balance between these two imperatives is not always easy. It is borderline impossible, as you said, even in the best 

of times. And Lord knows, these ain’t the best of times. 

We hope to work with you and other Members of the U.S. House 

and Senate to bring about a meaningful relief from rising health 

care costs. And, to be honest, I am almost elated to just hear you 

two talk about what you think. It is fabulous. 

The key, in our view, to reaching universal health care is getting 

rid of the high costs. The NRF has proposed a comprehensive solution to increase access to more affordable health coverage in our vision of health care reform. And I ask that it be included at the end 

of my written testimony. I would like to touch on just a couple of 

points. 

Retailers who don’t offer consistent value to their customers simply don’t survive. Amazingly, the same is not true in our health 

care system. We need to develop consumer-friendly comparative 

cost and quality information. My customers know more about the 

pet products on my shelves than they do about the doctors or the 

health plans that they do. People should be able to select the best 

quality care just as they choose between me and my competitors on 

a daily basis. 

And you do need competitors in order to have real competition. 

This was the first year in 20 years when my renewal came up that 

my health care costs didn’t go up at least 15 percent. Why? Because there was a new legitimate player that came into western 

Mass, and they came in with a better plan at the same rate. It is 

amazing. Auto insurance in Massachusetts, when they finally let 

that get competitive, auto rates went way down. It is really about 

good competition. 

Reducing the health care costs should be a central goal in all 

health care reform. Employer mandates, as you said, they add 

costs. The NRF particularly looks forward to working with the 

Committee on the Chairwoman’s proposal to create a market for 

high-risk claims. I think it is a fabulous idea. When it comes to increasing access to coverage, we believe we can reach universal coverage without mandating that employers provide coverage. 

The problem with employer mandates either to provide coverage 

or to provide specific coverages is that they directly increase the 

cost of coverage and, hence, the cost of labor. Here is the real-world 

deal: It will kill jobs. Employers simply will not bring on new employees if they get mandated. It is just basic common sense. Employer-mandated health insurance will leave everybody unhappy 

and ton of people unemployed. Who is going to pay the doctor bills 

if these people don’t have jobs? 

Yes, we urge policymakers to be wary about doing what Massachusetts did. I will tell you, it has not worked. Rates have skyrocketed, and many people are still unemployed. It didn’t work. 

6 

And I understand one of the biggest challenges you will face will 

be building a consensus around the reform. And I would venture 

to guess that there isn’t an industry or any American who doesn’t 

have an idea about how it should be done. We hope that the NRF 

vision will help add to the growing consensus around reform. And 

it is time to get it done now with only the right reforms enacted 

into law. 

I thank the Committee. I look forward to your questions. And let 

me just say, I am so elated to hear what you guys are saying. It 

is great. 

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

32.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Ratner. 

Our next witness is Ms. Janette Davis. She is the president and 

CEO of Southeast American Financial Group, Inc. Her firm is a 

residential and commercial real estate lending firm based in Pembroke Pines, Florida. 

Ms. Davis is testifying on behalf of the U.S. Women’s Chamber 

of Commerce. The Women’s Chamber of Commerce was founded in 

2001 to increase economic growth opportunities for women. 

Welcome. 

STATEMENT OF JANETTE DAVIS 

Ms. DAVIS. Chairwoman Vela ́zquez, Ranking Member Graves, 

members of the Committee, thank you for giving me the opportunity to share with you my challenges. 

I am a small-business owner who is a president and CEO of 

Southeast American Financial Group, which is owned and operated 

by my husband and I. Through the years, I have employed as many 

as a dozen employees and subcontractors. However, during this 

economic downturn, we had to reduce our staff to one and a half. 

The expensive cost of health care makes it extremely difficult for 

us to continue to afford, especially during this current economic crisis. Currently, I pay 50 percent of the monthly health insurance 

payment for my employee. To keep costs down, I chose an HSA, but 

this becomes a challenge for an employee who has a pre-existing 

health condition earlier in the year before they are able to see their 

deductible. And for small businesses like mine, it is very important 

that our employees get the health care they need so that they can 

proactively manage their care and be available for our business 

needs. 

Like many husbands and wives who work together, my husband 

and I have to purchase individual policies instead of a family policy. In 2007, the insurance coverage increased for us to $1,400 per 

month. To continue to carry insurance, I switched my company to 

a high-deductible HSA policy. Now we pay $881 monthly for just 

both of us. However, we have to cover the first $3,000 of our expenses, and prescriptions are covered only after we exceeded these 

deductibles. 

While our policies include preventative care, the insurance company almost always excludes something and sticks us with a copay. My doctor recommended a preventative procedure. I verified 

with my insurance company that the procedure would be covered 

100 percent. During the procedure, the doctor discovered a minute 

7 

issue and recommended two additions to my diet. Consequently, 

my health insurance company changed the preventative classification and charged me $562.50. 

The families of small-business owners bear the brunt of the inequalities in our health care system that is heavily skewed in favor 

of big business. When I worked for a larger business, I had a more 

affordable family policy, which also covered my husband. Because 

I am younger and healthier, our coverage was cheaper because it 

was issued to me as the primary. My husband had an eye emergency that resulted in a bill in excess of $80,000. The insurance 

company paid 25 percent of the street price based on its discounted 

arrangements with the hospital. 

Why is it that the hospital services have to be priced at such exorbitant sums for the cash-paying customer who, in most cases, 

cannot afford to pay these astronomical bills? If we could reduce 

those costs to reasonable amounts, individuals could then afford to 

pay their bills. 

We need affordable solutions now. I ask that you put health care 

back in the hands of the doctors and prevent insurance companies 

from dictating the care we receive. Remove the fine print and provide clarity so that we know what we are getting. 

Health insurance companies shouldn’t be able to wiggle out of 

paying for health care services. The restrictions should be lifted as 

to what doctor or hospital that you may be able to use. 

Allow small businesses to pool together to purchase insurance 

under a national group umbrella policy. Provide tax credits to 

small business that purchase coverage. Remove the 7 1/2-percentof-AGI threshold on income tax for medical expenses. Do not mandate that small business provide coverage. Remove the 75-percent 

threshold for business to cover employees before they can get coverage. 

Divide insurance into medical and catastrophic care. Allow tax 

credits to individuals for direct pay to their doctor; then they can 

purchase insurance coverage for surgery and other catastrophic illnesses. 

In conclusion, it is time to end the stranglehold health insurance 

companies have on American citizens. Small-business owners and 

their employees have been forced into paying exorbitantly high premiums, risking high deductibles, and then being nickel-and-dimed 

by the insurance companies. We need to wrestle the control of our 

health out of their hands and put it back into the hands of individuals and doctors. 

Get rid of the endless administrative overhead, which is often 

aimed at finding ways to reject payment care. Help America’s small 

businesses to pool together to leverage our scale and bring the cost 

of care down. 

Thank you. I am open to any questions after. 

[The statement of Ms. Davis is included in the appendix in page 

44.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Davis. 

Our next witness is Mr. Thomas Haynes. He is the executive director of the Coca-Cola Bottlers’ Association. Mr. Haynes previously 

served as president of the Association Health Care Coalition, which 

8 

helped improve the health care options available to their smallbusiness members. 

Established in 1914, the Coca-Cola Bottlers’ Association assists 

its members in reducing costs and improving efficiency by meeting 

their needs in numerous areas. 

Welcome back. 

STATEMENT OF THOMAS HAYNES 

Mr. HAYNES. Well, thank you, Chairwoman Vela ́zquez, and 

thank you, Ranking Member Graves, for the invitation to address 

this Committee again. As Chairwoman Vela ́zquez referred to, this 

is my third appearance before this Committee. 

I won’t go into quite as much detail about what the Coca-Cola 

Bottlers’ Association does and some of our own history as a result 

of a lot of it is laid out in my statement. What I will say is that 

we are in the business of serving our members in every way we 

can, and a particular focus of that service is on our smaller members. 

Our members range in size from the largest, which has 50,000 

employees, down to a number of bottlers that are much like Mr. 

Ratner’s companies, have 50 or fewer employees. So approximately 

half of our remaining 73 members have less than 150 employees, 

so they qualify as small businesses. 

We serve them in every way that we can, and we are successful 

in almost every arena, in providing the same level of service to 

them and getting their cost to the same level as the largest members, ranging from liability insurance to employee benefits to purchasing to any number of other areas. The one place we cannot provide that service in the way we need to is in the health care arena. 

And I think that speaks volumes about the problems facing small 

business. Because it alone, among all of our challenges, is the one 

that we need help from Washington in solving. 

Our small members were once part of a pool that the Bottlers’ 

Association managed. Yet, in 2000, shortly before I joined the 

Bottlers’ Association, we were forced to abandon that pool because 

of the administrative cost associated with compliance with State 

mandates, State regulations, and a number of other administrative 

issues. And, as a result of that, our members’ costs went up astronomically very quickly. 

What happened to them is reflective, I think, of what is happened in the small-business community in general. And why we 

have such a challenge with the uninsured is that a number of the 

members cut back on their policies. Many of them discontinued 

family coverage and offer only individual coverage. And, frankly, a 

lot of their employees have lost their health insurance, either because they can’t afford the co-pays, they can’t afford the share that 

our members have to charge in order to be economically viable, or 

the benefits have been cut in a way that they choose not to participate because of the remaining costs. 

Now, why is that? Well, as I said, part of the issue is State regulation, but it is not the entire issue. I have attached to my testimony a study that Mercer did for us that looks at the sources of 

the 18 percent disparity that Congressman Graves referred to. And 

what it shows is there are three primary drivers of that. One is 

9 

higher administrative costs. The second is the significant difference 

in the premiums paid for shifting the risk. And the third is what 

I believe is some differences in terms of the effectiveness of chronic 

disease management by the employer. 

The issue is, quite simply, that large employers operate in a selfinsured environment, have efficient plans with scale in their administration, and don’t pay a profit-driving premium to carriers to 

take on risk because they are largely self-insured. If we were in a 

position to create the same kind of pooling, the same kind of scale 

for our smaller members, we could achieve the same savings and 

reduce that disparity to a significant degree, even leaving State 

regulation in place. 

So where does that leave us? Well, what that leaves us with, in 

my view, are three basic needs that small businesses have in order 

to solve the challenge they are facing relative to providing health 

care. One is an uneven playing field, so we need Congress’s help 

in making the playing field even. Second is an opportunity do risk 

pooling and, in the process of doing risk pooling, do risk retention. 

And the third is to create a system where incentives between the 

employer, the employee, the people who are likely to be driving decisions as to health care utilization, are aligned in terms of the economic interest. 

I believe that the bill that the Congresswoman Vela ́zquez and 

Congressman Graves are introducing today, the CHOICE Act, will 

achieve all of those objectives, from our perspective, by creating a 

tax credit to facilitate the formation of the cooperative pools and 

by providing a sufficient tax credit to make the playing field more 

even. 

In our case, our members will be able to offer affordable health 

care once again. It is the only solution, frankly, that our members 

need. If it were enacted by Congress, we would have no reason to 

oppose mandates, because our members would be able to provide 

coverage. 

Now, I am not about to speak for every other small business and 

say that this is all they need. But, in our situation, based upon the 

way we do business, it is all we need to restore coverage and restore affordable health care for our smaller members. 

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

page 48.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Haynes. 

Our next witness is Ms. Alissa Fox. She is the senior vice president of the Office of Policy and Representation for the BlueCross 

BlueShield Association. BCBSA is a national federation of 39 independent and locally operated BlueCross BlueShield companies that 

provide health care coverage for more than 102 million Americans. 

Welcome. 

STATEMENT OF ALISSA FOX 

Ms. FOX. Thank you very much, Madam Chairwoman, Ranking 

Member Graves, and other distinguished members of the Committee. Thanks for being here. I am Alissa Fox, senior vice president of the BlueCross BlueShield Association. 

As you mentioned, the BlueCross BlueShield Association represents 39 BlueCross BlueShield plans across the country, and, colVerDate Aug 31 2005 14:02 Feb 26, 2009 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\46819.TXT DARIEN
10 

lectively, we provide coverage to 102 million people. We are unique 

in that we provide coverage in every ZIP code, in every part of the 

country. And all Blue plans offer coverage to small employers, a 

sign of our strong commitment to the small-employer market. We 

believe that expanding coverage and improving affordability for 

small employers must be a centerpiece of health care reform. 

Today I would like to focus on three areas. First, I would like to 

talk a little bit about how States regulate health insurance sold to 

small employers today; second, highlight what Blue plans are doing 

to increase coverage for small employers; and third, outline our recommendations for Federal legislation. 

Today, State and Federal law require insurers to offer coverage 

to every small business regardless of their employees’ health. It is 

called guaranteed issue. Every insurer has to offer coverage to 

small employers, and the small businesses can’t have their coverage turned town or cancelled if one of their employees becomes 

sick. That is both Federal and State law. 

In addition, State law requires health plans today to pool all 

their small employers together when establishing premiums. And 

they limit the extent to which insurers can vary the premiums 

today based upon the health status of individual employees. These 

reforms spread the medical costs of all small employers more evenly to generate more affordable premiums for employers with less 

healthy members. However, this does result in higher premiums 

for the healthiest employers. 

As you have heard this morning, affordability is a central challenge facing small employers. To help address these challenges, our 

plans across the country have been pursuing two strategies. 

First, we are working on a variety of initiatives to rein in costs 

for everyone. Everyone is facing health care costs that are growing 

at much too high a rate. The initiatives we are pursuing range 

from changing the way we pay providers, to promote better care, 

not just more services; and to focusing on prevention, wellness, and 

managing chronic illnesses. We have a Web site we just put online 

that highlights many of the BlueCross BlueShield initiatives under 

way in each of these areas. 

Second, our plans are developing special programs designed to 

make coverage more affordable for smaller employers. My formal 

statement includes several examples. I would just like to highlight 

one. 

BlueCross BlueShield of Oklahoma worked closely with their 

State legislature to develop Insure Oklahoma, a program that provides subsidies to low-income workers in small businesses to help 

cover the cost of health insurance. This program has been very successful. To date, nearly 4,000 small employers are participating in 

the program and more than 11,000 employees and their families receive subsidized coverage from the program. According to a recent 

survey, 56 percent of new enrollees were previously uninsured and 

37 percent of employers offered coverage for the first time. 

While these types of programs are making a difference, Federal 

action is needed to address the problems facing the small-employer 

health insurance market as part of comprehensive health reform. 

We have three recommendations for your consideration. 

11 

First, we are recommending legislation to encourage States to establish what we are calling State insurance marts, to simplify 

shopping for small employers, increase competition among insurers, 

and help educate small employers on potential subsidy options. 

These marts would make it easier to shop for coverage by, for the 

first time, creating a central point in every State where a small 

employer knows they could go to identify what insurance options 

are in their marketplace and apply for coverage and for subsidies. 

Our vision is that you go to the one site; if you want to get—you 

fill out an application, one application, regardless if you are applying for Aetna or BlueCross—you can check boxes that you want 

Aetna, BlueCross, etcetera, price quotes, push a button and get 

quotes pretty instantaneously. And then you could actually find out 

what subsidies might be available, and also enroll online. 

Second, we are recommending four types of targeted subsidies. I 

am including one patterned after the Oklahoma plan that I mentioned earlier that would provide tax credits to small employers for 

their low-wage workers. 

And third, we believe the underlying cost drivers in our current 

health care delivery must be addressed. And we have very specific 

recommendations in our ′′Pathways to Covering America.′′ 

I would like to close by saying reforming how we pay for and deliver care won’t be easy, but it is the only way that affordability 

challenges facing small employers can be solved over the long term. 

We look forward to working with you, this Committee, other Members of Congress, the new administration, and other stakeholders 

to enact health care reform that works for everyone. 

Thank you. 

[The statement of Ms. Fox is included in the appendix in page 

58.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Ms. Fox. 

And now I yield to the ranking member and recognize him for 

the purpose of introducing our next witness. 

Mr. GRAVES. Thank you, Madam Chair. 

Madam Chair, our next witness is Michael Beene. He serves as 

the senior health advisor and general counsel for the National Association for the Self-Employed. 

The National Association for the Self-Employed is a national 

membership association, and they represent 250,000 micro-businesses. Those are businesses with 10 or less employees. As a senior 

health advisor, Mr. Beene works with the NASE’s legislative staff. 

They educate policymakers on the health coverage issues faced by 

the self-employed and health policy options that would assist the 

micro-business community in gaining access to affordable health 

care coverage. 

Thank you, Mr. Beene, for being here and for testifying. 

STATEMENT OF R. MICHAEL BEENE 

Mr. BEENE. Well, thank you. 

Thank you to the Committee for visiting this important issue 

early in the session. And we do support the CHOICE bill, and I am 

pleased to hear that it is going to be introduced again. 

The plight of micro-business owners, those with 10 or less employees, is becoming more challenging as our employee continues to 

12 

decline. The pool of money these entrepreneurs have to draw upon 

for both business and family expenses has been dwindling, forcing 

many self-employed to make tough choices. Most distressing, many 

of the self-employed are scaling back their health coverage, and 

some are dropping coverage completely in order to keep the doors 

of their business open. 

As discussions on health reform progress, the National Association for the Self-Employed would like to emphasize that proposals 

must address two key issues, affordability and choice—those two 

issues being key in order to approve the ability of micro-business 

owners to obtain quality health coverage. 

The common denominator for all small businesses is that they 

must pay taxes. Thus, the Tax Code is an excellent vehicle to provide financial relief to micro-business. A key step forward in addressing the affordability issue faced by the 21 million self-employed would be to tackle the current inequalities in the Tax Code 

that this segment of the business population faces as they purchase 

health coverage. And several of those things have been mentioned; 

I believe Mr. Graves mentioned in his remarks. 

All business entities, except sole proprietors, receive a business 

deduction for health insurance premiums. Employees and owners 

pay for their health insurance premiums pretax, and, therefore, 

they are not subject to FICA taxes. However, a sole proprietor’s 

premiums are not paid with pretax dollars, and they are exposed 

to the 15.3 percent self-employment tax. 

The most recent Kaiser Family Foundation study indicated that the self-employed pay, on average, $12,000 a year annually for family health coverage. Because they cannot deduct these premiums as 

an ordinary business expense, that would require them to pay an 

additional $1,800 in taxes that no other business pays. Removing 

this inequity would be a significant economic stimulus for the selfemployed and just a fair leveling of the playing field. 

Discrimination against the self-employed also persists in health 

reimbursement arrangements, HRAs. HRAs, distinguishing from 

HSAs, HRAs are a flexible benefit option that allow small-business 

owners to reimburse employees for out-of-pocket medical expenses, 

including health insurance premiums. An HRA gives an owner of 

a business predictability when it comes to benefit costs, since the 

owner determines the maximum amount of annual reimbursement 

each employee will receive. It has to be the same across the board 

for the owners and employees. The reimbursements are tax-deductible for the business and tax-free for the employees. 

An important component of HRAs is the nondiscriminatory rules 

that apply to them. If an HRA is set up, the benefits must apply 

equally to all employees. At present, self-employed persons are not 

eligible to participate in an HRA. Expansion of HRAs to allow the 

self-employed business owner to participate in the plan would likely significantly increase the number of businesses that use HRAs. 

And HRA reimbursements would likely be more generous if the 

owner also got to put his or her health coverage in that. So we 

would like to see that inequity removed. 

As we look at our health insurance markets, it is important to 

consider the potential impacts of market reform on micro-business. 

The self-employed micro-business can purchase health insurance in 

13 

two markets: the small-group market, which was referenced, and 

the individual market. We have seen a definitive shift of microbusinesses from the small-group market to the individual market 

in the past 3 years. Thus, for health reform to be beneficial to the 

micro-business sector, proposals must tackle cost issues in the individual market. 

The creation of pooling mechanisms can be utilized to begin addressing the high costs and lack of negotiating power faced by the 

self-employed. In current reform proposals, discussion has centered 

on creating a national pool managed by the Federal Government to 

allow small businesses and individuals to purchase coverage. 

Micro-business owners are evenly split in their opinion on whether 

a government-run health option is the right approach. Chief concerns expressed are the quality of their health care, would it be as 

good or not, would they have as many choices. And there also is 

a worry among micro-businesses that taxes would significantly increase. 

The establishment of mandates, either for individuals or employers, has been a hot topic. The NASE does not support the mandating of health coverage at this time. In particular, an employer 

mandate to purchase and provide health coverage that does not exempt micro-business, 10 employees or less, would put millions of 

owners out of business and would leave millions of workers unemployed. The NASE believes that an individual mandate would be 

harmful in this current climate. This is not the time to do more 

harm to business. 

As you look to reform the system, don’t forget that the needs of 

the 10-or-less-employee micro-business may be very different than 

the 200-employee small business. 

Thank you. 

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

74.] 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Beene. 

And now, again, I recognize the ranking member for the purpose 

of introducing our next witness. 

Mr. GRAVES. Thank you, Madam Chair. 

Our next witness is Dirck Clark, and Dirck serves as the chief 

business development officer for Heartland Health Systems in 

Saint Joe, Missouri. His responsibilities include strategic planning, 

advocacy, regional development, and medical student education. 

Prior to coming to Heartland, Mr. Clark spent 7 years working 

in the United States Senate with Senator Kit Bond. Most of his 

tenure with Senator Bond was spent working on health care and 

rural development issues. 

Originally from Savannah, Missouri, he received his bachelor’s 

degree in business administration and master’s degree in health 

care administration from the University of Missouri. In addition, 

Mr. Clark serves on the Board of Governors of Missouri Western 

State University, the Board of the Missouri Chamber of Commerce, 

and the Executive Council of the Boy Scouts of America there in 

St. Joe. 

So thanks for being here, Dirck. 

14 

STATEMENT OF DIRCK CLARK 

Mr. CLARK. Thank you. 

Madam Chair, members of the Committee, I appreciate the Committee’s interest in the effect of health insurance of small business 

and this opportunity to testify. 

As background, St. Joseph is a town of about 75,000 people, located an hour north of Kansas City. Heartland is comprised of the 

only hospital in St. Joseph. We also have a small rural insurance 

company and a physician group practice of about 110 physicians. 

Heartland is the only tertiary hospital between Kansas City, 

Omaha, and Des Moines. Like many hospitals in rural areas, we 

are the largest employer in town. It is in that role, as an employer, 

that I am here today. Fifty-one percent of our costs, of our expenses, are related to labor, and 10 percent of that goes to health 

care costs. 

As a health care provider, we have an understanding of the effect 

of health status on health care cost and insurance rates. We have 

a team that works with local employers to help them keep their 

health care costs down. 

My main focus today is on the subject of individual responsibility 

and the role an employer can have in improving employee health, 

ultimately impacting health care expenses. With our employees at 

Heartland, we have implemented some ambitious programs to help 

employees with their health status, at the same time giving them 

an incentive as a reward for helping keep their health care costs 

down. 

Some examples would be the following. If you are an employee 

of Heartland and on our insurance program and are injured in an 

automobile accident, we will only pay 60 percent of the health care 

costs associated with that accident. I would note that Missouri is 

a mandatory seat-belt State, and so all employees would have to 

do is comply with the law. 

Like many other businesses, we offer a 10 percent health insurance differential incentive for employees who choose not to use tobacco products, along with reimbursement for smoking cessation 

programs and free nonsmoking classes. 

This year, based on research showing an increased medical cost 

for those whose body mass index, or BMI, is above certain benchmarks, we started a program to offer a premium discount for lower 

BMIs. If you are a Heartland employee and on our insurance plan 

and have a BMI below 35, you receive a premium discount of 10 

percent. In this first year, if an employee has a BMI above 35 and 

wants to improve, we will offer the incentive to the employee if 

they agree to participate in wellness programs. 

In order to help the employees earn this benefit, we have built 

an on-site fitness center that is free to employees and spouses. 

Along with the fitness center, we offer free classes on weight loss, 

nutrition, and exercise, to name a few. Our hope is to break ground 

this spring on a daycare that will allow employees to exercise before work and after work and have their children nearby. 

This first year, the BMI threshold is 35. However, each year the 

BMI threshold will be decreased until it reaches 29. Our goal is to 

work with employees to help them stay below the threshold as it 

decreases. 

15 

The result has been that 92 percent of eligible employees have 

signed up for the benefit; 84 percent of those who signed up have 

earned the discount outright; and an additional 12 percent are 

earning the discount through participation in wellness programs. 

As this is the first year of the BMI incentive, we don’t yet have 

trend data showing its impact. However, the effect of these programs has been a dramatic increase on participation in the selfhelp programs and a fitness center that is nearing capacity 4 

months after it opened. This was the second fitness center; we had 

to expand the first one. 

When the fitness center initially opened, as you would guess, it 

was populated primarily with employees who were already in good 

physical condition and enjoyed exercise. What we are finding now 

is that more employees are showing up to exercise and participate 

who have higher BMIs. Our hope is that we can continue to work 

together with the employees to improve their overall health risks 

and keep their BMI under the insurance threshold as it decreases. 

My hope, as you look at health insurance challenges for small 

business, that you also look at programs that provide workers incentives to improve their health and help keep health care costs 

down. 

I thank you for the opportunity to testify and look forward to 

your questions. 

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

82.] 

Chairwoman VELA ́ ZQUEZ. Thank you. 

I would like to address my first question, if I may, to Ms. Davis. 

You mentioned that you offer high-deductible coverage for your 

employees. For many here in Congress, these plans were supposed 

to be the answers to all the problems in the small-group market. 

And while these plans may be lower-priced, can you talk to us 

about some of the shortcomings of these plans in controlling health 

care costs? 

Ms. DAVIS. The major shortcoming with the high-deductible policy—Congresswoman Vela ́zquez, the major shortcoming with the 

high-deductible policy is that for the employee who, say, for example, has a pre-existing condition and they have not yet saved that 

deductible, that becomes an issue for them in terms of they may 

have to scale back on their care because they cannot afford to pay 

all the funds up front to pay for themselves. 

That is a major issue that employees face. Face it, not everyone 

can find $3,000 up front right away if they become sick early in the 

year. Maybe, say, after 12 months of saving, that money is there. 

But that is a major issue that they have. 

Chairwoman VELA ́ ZQUEZ. Ms. Fox, this Committee held a series 

of hearings last Congress focusing on consolidation of the health 

care industry. What we have learned is consolidation has left small 

businesses with fewer insurance carriers to choose from and higher 

prices. 

According to your testimony, State-based connectors or exchanges are better for small businesses than national ones. Given 

that consolidation threatens to eliminate competition in the State 

insurance markets, why would the State-based connector be better? 

Ms. FOX. Thank you. 

16 

Well, first of all, we don’t think that consolidation has really reduced the number of insurers in the marketplace in a significant 

way. GAO looked at this back in 2005, and what they estimated 

was that, on average, there are 28 insurers in most States, which 

is a lot of competition. I think when we— 

Chairwoman VELA ́ ZQUEZ. Down from how many? 

Ms. FOX. I am not sure, but I think still 28— 

Chairwoman VELA ́ ZQUEZ. Well, that is the real question. 

Ms. FOX. I don’t know that. I would be happy to look for that. 

But I think 28 insurers in a State is a significant number of competitors. 

I would say that, when you look at the States where there have 

been a lot of competitors leaving the market, the reason has not 

been consolidation; it has been the regulation has been very, very 

tight. You look at places like Maine, Massachusetts, New Jersey. 

That is where you have seen a lot of insurers leave the marketplace. And our perception—and I think it is best to ask them—is 

that they have left because the rules have been very tight. 

Chairwoman VELA ́ ZQUEZ. Well, perception is not fact. 

Ms. FOX. Right. I understand. That is only our perception. 

Mr. HAYNES. If I could interject, in another life I was an antitrust lawyer, and the one thing I would say is you never measure 

competition by counting competitors. You have to measure it by 

share. 

And I think, you know, you have looked at that issue, and there 

are definitely some issues in terms of shares that would suggest 

from an antitrust perspective that there might be market power in 

at least some markets. 

Ms. FOX. Well, I would add to that that the Federal Government 

has looked at this. And they have—where there has been consolidation, and, you know, when insurers get to a certain size, they use 

it to get leverage with hospitals and doctors, and it directly benefits 

the consumers. So this is something that has been examined very 

closely. And, you know, I will just be candid. On our market share, 

we have about a third across the country in market share. 

And State connectors, we think State connectors would be better 

because it would be piggybacked on the existing State infrastructure. There are State regulators who have excellent, long-term expertise in protecting consumers, and we don’t think that it makes 

sense to reinvent that at the Federal level when we have State experts there. 

So what we designed is a program to get the benefits of what we 

have heard of from a national exchange, which is to simplify shopping for small employers. I think when you go and you try to shop 

as a small employer—I used to be a small employer, and it is very 

difficult to shop for insurance. So we designed this to really simplify the process, make it easier. And I think it would also reduce 

the administrative costs for us, as well as small employers. 

Chairwoman VELA ́ ZQUEZ. But don’t you agree that a national exchange will provide more transparency, and that consumers care 

more about what is out there for them to see and to choose from? 

Ms. FOX. We agree 100 percent that we need transparency, but 

we think you can get all that transparency at the State level and 

having State connectors; and require every insurer to be listed on 

17 

that site, so it is not just some, but everybody, so you know everybody in the market. I think it will really increase competition. 

Chairwoman VELA ́ ZQUEZ. So why do you think that—you know, 

the real issue here in terms of cost, bringing down cost, that the 

rising health care costs is a systemic one. So how could you explain 

that the premium cost has not come down, even after you talk 

about putting together a strategy that will have the effect or the 

goal of bringing costs down? 

Ms. FOX. I agree. You know, bringing costs under control is a 

huge problem facing this country, and we all need to work together. 

We have strategies in place, but we can’t do it alone. We need to 

partner with the Federal Government. And we have very specific 

recommendations on how, working with the Federal Government, 

that we need to be looking at changing the incentives, for example, 

for providers. Right now, the way we and the government pay is 

that the more you do, the more money you make. We need to 

change those incentives. 

And I will give you just one example of a program that we have 

under way where we think it is really making a difference. Our 

plan in Pennsylvania is now paying hospitals to reduce their infection rates. And what they have shown is that, through giving them 

coaches to help them in the hospital and giving financial incentives, they were able to bring the infection rates, where people 

were getting sick unnecessarily, way down. We think these are the 

kinds of initiatives that need to be pursued. 

Chairwoman VELA ́ ZQUEZ. Anybody else who would like to comment? 

Let me ask you, Ms. Fox, why do you think that the Massachusetts experience has not been able to bring costs down? 

Ms. FOX. Well, I forgot who—I think it was Mr. Ratner who was 

talking about that. I think that they focused on expanding access 

first, and controlling costs is something that they are now working 

on. And we think you need to do both together. We think everybody 

needs to be covered, but you need to attack the rising costs at the 

same time. And I think they did the expansion first. And I think 

that is—you know, we would do them together. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Haynes, one of the reasons small businesses find it hard to 

maintain coverage is affordability. If pooling risk is part of the solution, what other kinds of reforms should we be discussing that 

will help move us in that direction? 

Mr. HAYNES. Well, going back to, sort of, the core issue and what 

caused the abandonment of our small-group program, it was variability in State regulation. Particularly, mandates created so much 

complexity. That group had probably about 2,500 employees in 40- 

some-odd different States. So we had a lot of States where we 

might have 15, 20, 25 employees, and having to write unique coverages with unique rules in that kind of a program just drove the 

administrative costs up. 

So if we could figure out a way to make State regulation more 

consistent—I mean, one example that I think probably added no 

value was, at one point, we had eight different rules to administer 

as to the age at which and the circumstance at which dependents 

had to come off the coverage. Because there are eight, nine, 10 difVerDate Aug 31 2005 14:02 Feb 26, 2009 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\46819.TXT DARIEN
18 

ferent State rules on something as simple as that: 18, 19, 20, fulltime student, part-time student. And just the complexity of managing that with a relatively small group across multiple States is 

a real problem. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Ratner, we are working here, both in the House and in the 

Senate, on this stimulus package that will have the goal of getting 

the economy back on track. And, to get this economy growing 

again, we need to create jobs. And, of course, we all know that the 

backbone of our economy are small businesses that creates all the 

new jobs, between 70 and 80 percent. 

In yesterday’s New York Times, there was a story about how 

small firms were choosing between laying off workers and providing health insurance. So, with the current economy, how have 

the additional costs of health coverage affected your ability to hire 

or provide additional wages to your workers? 

Mr. RATNER. I think I am probably the luckiest guy in the business world right now that I am in a business, the pet business, 

that has not gotten whacked with the recession. So I have not had 

to lay off people or to deal with that. 

What I will tell you is that every person that we look to hire is 

a a part-time person so that we don’t have to pay the benefits, especially in light with what our State wants to add on on top of 

what they already added on. 

So I will speak for a few friends of mine who have small businesses. They literally have laid off people solely for the reason of 

the health insurance. And they have laid off some people my age 

so the rates are even higher and they just couldn’t do it, or they 

cut their hours to part-time. And it is happening. 

Chairwoman VELA ́ ZQUEZ. Yeah. 

Mr. Clark, to a lot of people in this country, you know, when 

presidential candidates were running, they were discussing health 

care reform as an important issue, especially for small businesses. 

But now we are dealing with the economic crisis that we are facing 

in this country. 

Your firm not only provides medical services, but you also provide insurance to many small firms. Can you talk to us about how 

health insurance coverage can be critical to the economic wellbeing 

of this country? 

Mr. CLARK. I think the answer we just heard a minute ago is the 

most important one: because of layoffs. We are seeing that in our 

communities, layoffs with small business. 

One of the things that we do is we sit down with the small employers and look at their health care costs. We do a health risk assessment on their employees to help them determine what their 

issues are, and then we try to provide programs for them to help 

them keep their employees healthier and then help them keep their 

costs down. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Now I recognize Mr. Graves. 

Mr. GRAVES. My question is to Mr. Clark now, and I might open 

it up to some of you who represent associations or your own business. 

19 

But out of curiosity, health care savings accounts—which we created, I don’t know, what was it, 5 years ago or 6 years ago, something like that—I am hearing mixed feelings. You know, they were 

created as a possible alternative for small businesses to be able to 

create a health care savings account for their employees, rather 

than the expense of full-blown health insurance. But I have heard 

some small business saying it is too expensive or it is too tough to 

get them going. 

Are you seeing any of that as a provider, more health care saving 

accounts, or are you seeing any at all? 

Mr. CLARK. Virtually none in our rural area at all right now. 

Mr. GRAVES. How about anybody—yes? 

Mr. HAYNES. We have had some firsthand experience with that. 

We have encouraged some of our members who are in our health 

care plan to look at health care savings accounts. And the take rate 

is tiny. 

Mr. GRAVES. Really. 

Mr. HAYNES. Virtually zero. 

And I think the reason is, frankly, making financial decisions 

about health care without knowing what is going to happen is very 

difficult for people. I think folks are simply reluctant to set aside 

money or to completely understand the tradeoffs between coverage 

and a health care savings account because of the uncertainty aspect of it. 

And I just think, as it has been discussed with both our modelers 

and their employees, I think there is an uncertainty and fear factor 

that is a significant impediment, particularly for folks who may not 

be highly educated. 

Mr. GRAVES. Ms. Fox? 

Ms. FOX. I would just add that, according to Kaiser Family Foundation, 13 percent of workers in small firms are now in high-deductible health plans. And many of our plans do sell HSAs with 

high-deductible health plans. And they have found, one plan has 

reported that 20 percent of its enrollment in their products are 

from people that were previously uninsured. 

And what our plans do is we give our customers a range of products, so that they could pick what best meets their needs. So it is 

not that we are favoring one versus another. But we do find that 

some previously uninsured workers, small employers have found 

that very attractive. 

Ms. DAVIS. I would like to add for the HSAs, I have an HSA with 

my company. But as the economic times get tougher and tougher, 

the employee tends to pull back the coverage, the money that they 

will be contributing, to use for something else. 

Mr. GRAVES. Kind of a— 

Ms. DAVIS. It is a Catch-22 situation. 

Mr. GRAVES. We all think we are going to be healthy forever, and 

so we don’t worry about it. 

Mr. RATNER. And with my company, we have a lot of young employees. You couldn’t get them to sign up for that. They want every 

nickel to come home. They are young. ′′Nothing is going to happen 

to me. I don’t need to contribute to it.′′ 

Mr. BEENE. You know, the good side of the HSAs is that they do 

allow more comprehensive coverage for catastrophic events for less 

20 

money. And so, all of this is such a tradeoff between what does it 

cost to get coverage. 

And, you know, we want to avoid this underinsured situation, as 

well. And I understand the people that say, well, the HSA may 

keep you from going to the doctor when they need to. But there are 

ways with the PPO that I think it can be structured well. But, obviously, it needs more education and more examination. 

Chairwoman VELA ́ ZQUEZ. Mr. Schrader? 

He is not here. 

Mr. Moore? 

Mr. MOORE. Thank you, Madam Chair. 

I would like to direct my first question to Ms. Fox and Mr. 

Beene. 

Last summer, President Obama proposed a new tax credit for 

small businesses that offer quality health care to their employees. 

Specifically, under his proposal, small businesses would be offered 

a refundable credit of up to 50 percent on premiums paid on behalf 

of their employees. 

Some have recently expressed questions about whether or not 

such a tax credit would be sufficient, given the dire circumstances 

that most small businesses currently find themselves in and the 

difficulties associated with restraining costs and maintaining cash 

flow. 

Given your policy expertise in this area and your understanding 

of the circumstances that many small businesses currently find 

themselves in, do you think that a tax credit would do enough to 

encourage small businesses to provide health care coverage for 

their employees, or would additional incentives need to be offered? 

Ms. FOX. We are very supportive of the tax credit proposal that 

is in President Obama’s plan. We think that it would go a long 

way. EBRI did a survey on that and surveyed small employers that 

didn’t offer coverage. Seventy-one percent said they would be interested in offering benefits. That was a little while ago before the 

economic downturn. But 71 percent said it would make a big difference. 

We are finding in Insure Oklahoma that that really is being very 

successful, having some assistance to provide benefits. So we do 

think it would be helpful, but we think it needs to be more. We 

need to rein in costs across the board. So it needs to be a multiplicity of approaches. 

Mr. MOORE. Good. 

Mr. Beene? 

Mr. BEENE. Yes, well, we believe tax credits are really probably 

the key help that we can give small business. And we would like 

the tax credits to be refundable, and I think that they need to come 

monthly. They need to come at a time when a business can use 

them. Be refundable, I support and we agree with the concept. 

And, specifically, I think we—most small businesses in our surveys want to provide health coverage for their employees, and they 

think they need to from a competitive standpoint, because often 

they are competing with a big company. You put these things together. If you can just give some financial help so that it is not a 

question of paying the mortgage at home or getting some health 

coverage for the employee, and I think the one way you can really 

21 

get an effect and help small businesses with the refundable tax 

credit issue. 

Mr. MOORE. Anybody else care to comment? 

Mr. HAYNES. Yeah, if I could comment briefly, I think tax credits 

are a good idea. I think it is necessary. But they only achieve one 

of the objectives that I think ought to be the focus, and that is to 

get more people covered. 

I think a targeted tax credit—and I think it needs to be larger 

than 50 percent because, after all, that is not a whole lot more 

than simply making it deductible—I think a targeted tax credit 

that works against market forces is very important. I think we 

need a tax credit that has enough effect on the market to reduce 

overall cost. 

And that is one of the reasons I would, frankly, prefer the 

CHOICE Act solution over a simple 50 percent tax credit. 

Mr. MOORE. Anybody else? 

Okay. More broadly, do any of you have thoughts on various options that are out there that are designed to ensure that a higher 

percentage of small businesses are able to provide their employees 

with health insurance? Should the Federal Government be encouraging the development of purchasing groups, which would increase 

plan choice and lower administrative costs? Subsidize insurance 

coverage for high-cost individuals? Subsidize insurance coverage for 

low-income individuals? 

Any thoughts about any of those proposals? 

Mr. BEENE. I would say yes to all three of those. 

Mr. MOORE. Consensus, huh? 

Mr. BEENE. We think that supported groups for certain individuals is one way to deal with the small business problem of the 

unhealthy individual. We don’t want to see—I know the law is everybody hires equitably and doesn’t base things on health, but you 

wonder out there—we have to give options to businesses, because 

we can’t bankrupt businesses, especially now when things are 

tight. And I think all of those proposals have appeal to the smallbusiness community. 

Mr. MOORE. Any other comments? 

Mr. RATNER. I think that is a huge deal. I think it would help 

immensely, between the tax credits and the pooling. 

You know, no one here has had the problem of if you have four 

or five employees in their 30s and you have one who is in his 50s, 

the rate just goes right through the roof. Or you have someone who 

has a pre-existing condition, forget it, they won’t write the policy. 

So I think that would be a huge deal to get more people signed 

up. And, again, you know, we still have to address the issue of controlling costs. That has to go along with it. 

Mr. CLARK. I would just add from the providers standpoint, anything we can do to see more coverage. We are seeing a dramatic 

increase in our bad debt, as you would imagine. We are at a point 

now where 50 percent of the babies born in our OB unit are born 

into the Medicaid program. So anything you can do would be helpful. 

Mr. MOORE. Thank you all. Thank you, Madam Chairman. 

Chairwoman VELA ́ ZQUEZ. Mr. Thompson. 

22 

Mr. THOMPSON. Thank you, Madam Chairwoman and ranking 

member Graves. I very much appreciate your leadership on these 

issues. I am new here by about 5 weeks. I come from the hospital 

floor to the House floor, where for 26 years, these have been very 

important issues to me. I represent one of the more rural districts 

in the country. So small businesses are our backbone and having 

employers growing those jobs and health concerns are obviously 

very important for our economy and to me in my former profession, 

and now as a Member of Congress. 

Mr. Clark: In terms of rural America, rural residents rely more 

heavily on the individual and small group market and because 

these economies are dominated by small business and self-employed, they are less likely to be offered health insurance through 

an employer. Could you explain how much more difficult this 

makes things for people from rural areas, from rural America? 

Mr. CLARK. We are seeing two things: We are seeing, one, fewer 

people insured obviously; but number two, more and more people 

that are underinsured. So they show up at the emergency room 

with a card that says they have got insurance only to find out it 

doesn’t cover much. So it is causing, as I mentioned earlier, a tremendous increase in our bad debt and we are seeing it more and 

more every month. 

Mr. THOMPSON. Mr. Haynes, you stated that some form of financial support for the small business community is needed to create 

fundamental fairness. How would the Federal Government fairly 

distribute financial assistance to small businesses when given the 

situation with State by State, the small business community faces 

significantly different mandates and regulations? 

Mr. HAYNES. Well, the issue with the mandates is not simply the 

cost of the individual mandates; it is the collective cost of the difference between the mandates. So it is simply a part of our Federal 

regulatory system when you have got a bunch of different regulations, it makes it much more expensive to comply with all of them. 

I was a supporter of the HP legislation but understand that there 

was concern about the federalism principles of it, and I respect and 

support that. 

A tax credit that recognizes the uneven playing field is really 

what I am talking about, and the uneven playing field is basically 

good because big businesses don’t have to comply with these mandates. They simply create a self-funded program that is not treated 

as insurance for purposes of State rules and they don’t comply with 

them. 

So all small businesses face pretty much the same issue. There 

may be differences in magnitude, but because they are not large 

enough to have an individually self-funded plan, they can’t therefore take advantage of the ERISA preemption. They are in a position where economically the only way they can put together a viable plan is by pooling themselves with other businesses. I think the 

reality of a tax credit targeted to small businesses is it simply compensates for the extra costs that they pay because of an uneven 

regulatory system. 

Mr. THOMPSON. Thank you. Would anybody else like to comment 

on that? 

23 

Mr. BEENE. Well, just briefly, the mandates in certain States 

often—I mean there is a lot of good that comes from it. Often it 

is political. Obviously people in different interest groups want to 

have—it’s easy, let’s put it in, it’s paid for. But then you look up 

and you are in a small business situation and you are completing 

with someone who has got ERISA plans. So you are faced with just 

that situation where on the one hand, regulation makes it impossible. On the other hand, some of it is just too expensive because 

there are things you don’t need that you are having to pay for. 

Mr. THOMPSON. Thank you, Madam Chairwoman. I yield back 

the balance of my time. 

Chairwoman VELA ́ ZQUEZ. Mr. Griffith. 

Mr. GRIFFITH. Thank you, Madam Chairman. I appreciate so 

much being here and hearing the comments. I do believe that we 

are trying to figure this out from within the box, and I appreciate 

all the calisthenics that we are going through to exist within a 

structure that, over the last four or five decades, have proven intractable to lowering costs, and although we are figuring out various ways to increase the deductible or a tax credit, it has nothing 

to do with lowering the cost of health care. I think we are not addressing the problem. I think maybe some stakeholders that need 

to be at the table are not at the table. 

Less than 2 percent of all of our medical school classes are going 

into primary care. A third of all of our primary care physicians are 

55 years of age and older. We have a huge, huge deficit of primary 

care providers and that is what we need to preventative care. A 

child born today in America that does not smoke and is reasonably 

well informed about nutrition is going to live to be 100 years old. 

We now have the ability to cure many, many major diseases that 

are or at least allow the patient to live with them. 

My concern from business, and I am hearing the insurance industry, the small business hospital industry, etcetera. We are all 

advocates for our industry, but there are no patient advocates here. 

And I think that America is faced with a huge crisis that unless 

we come to grips with the fact that there are no primary care providers and they are distributed when we do have them so unevenly 

that we are going to have to look for other solutions, and one of 

those solutions is that we need traditional medicine, the American 

Medical Association and State medical associations, to allow our 

nurse practitioners who are certified in multiple specialties to be 

in touch and help us care for America. 

It is an artificial restraint, and I think that would go a long way 

to preventative care when we realize that half of all lives lost in 

the next century will be life-style-related disease, whether it be 

obesity, hypertension, and what have you. We have the solutions 

to affordable health care, but they are not going to be within the 

traditional boxes that we are looking in right now. 

Thank you, Madam Chair for allowing me to make that comment. 

Chairwoman VELA ́ ZQUEZ. Sure. Thank you. Mr. Gohmert. 

Mr. GOHMERT. Thank you, Madam Chair. And I appreciate having the hearing. I appreciate the work in this area because this is 

something affects everybody and during the time I left the bench 

to run for Congress and the time I got elected, I learned some valuVerDate Aug 31 2005 14:02 Feb 26, 2009 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 G:\CLERKS~1\HEARINGS\TRANSC~1\46819.TXT DARIEN
24 

able lessons about health care. I also had learned them as when 

I was in a small business myself as an attorney. But they became 

more pronounced. For one thing, I had a relative who was in a car 

accident, the fault of the another driver; so I agreed to help this 

person with their 2 days of medical expense, make a claim from the 

other guy’s insurance company. And we did so. And the way the 

practice goes, you gather all available medical receipts. We did 

that. Supply those to the car insurance company. And we had a 

settlement. 

And then under Texas law, once that is done, you can’t distribute 

any proceeds until you pay back all of the medical, which I contacted the hospital, ambulance, doctors, MRI, all that procedures, 

and we had about $10,000 in medical bills. They all said we have 

been taken care of pursuant to our contract with the health insurance company. 

So once I had all those agreements in, that they had all not been 

taken care of pursuant to their agreement with the health insurance company, all I had to do was pay the health insurance company, and for the $10,000 in bills their total out of pocket was 

about $800. So it brings me to wondering if there wasn’t some way 

to get total truth about what procedures cost in cash. 

I am told, and I have not allowed to see actual contracts, but I 

am told in some perhaps Blue Cross contracts there are provisions 

that do not allow hospitals or health care providers to charge a 

cash price that is as low as what the insurance company could get. 

I had a daughter that needed a procedure. We got a $200 discount 

for $2,300 or $2,400 procedure, but I am told that the health insurance companies pay a fraction of that but they couldn’t charge us 

that little because of their agreement. 

So it just seems that what we have in this country, everybody 

talks about health insurance, but we most of what we have other 

than the catastrophic care is not health insurance. We have the insurance companies and we have the government running health 

care. And I also think for those who want to be entrepreneurs, 

since health care insurance has taken off so well, you could do the 

same thing with gasoline. The price is up; it is down. Tell America 

you pay us, you know, a big wad of money every month and we will 

give you a copay and a deductible and we will pay your gasoline 

bill every month. 

It is the same type thing. It is not insurance as much as it is 

management. So I would love to see us get back to the place where 

we were when I was younger when you could have catastrophic 

care. Insurance did a phenomenal job of taking their monthly payments, depositing them, making them grow, and then covering catastrophic events instead of managing health care. I would love to 

see us get back to a doctor/patient relationship that we don’t have 

anymore. It is either patient/government/doctor or patient/insurance company/doctor. I want to see the health insurance companies 

do well and take care of us on catastrophes. 

The HSAs seem like an avenue to address that, especially if it 

is pretax money, goes into an account, can’t be spent on anything 

else, can be rolled over and not one of these if you don’t use it you 

lose it. It could even be inherited. We could provide for future generations. I have had seniors say I am to too old and I am too sick 

25 

to ever have an HSA. So we looked at numbers. We looked at 2006 

and were told that the Federal Government spent the average for 

households in America of around $6,100 per household of America 

of tax dollars, that State governments spend around $2,200 or 

$2,300, about $8,400 per household. Heck, for that much money, we 

could tell everybody here is your HSA. If you are too sick and too 

old or out of work, here is your HSA, here is your catastrophic care, 

you are covered. And we would save $3,000 or $4,000 worth of tax 

dollars for everybody in the country and it would be back to a doctor/patient relationship. 

So I am open to any proposals but I am not sure that we are 

back to where we should be where we can have a doctor/patient relationship. I saw socialized medicine in the Soviet Union when I 

was an exchange student there. I don’t want to go there. Socialized 

medicine needs people to die before they get their care so it doesn’t 

cost too much. I don’t want to go there. 

So thank you, Madam Chair. 

Chairwoman VELA ́ ZQUEZ. Thank you. I don’t know who is proposing that because even the President is talking about tax credits 

for small businesses. That is not socialism. But Mr. Ratner I would 

like to—Mr. Nye. I am sorry. 

Mr. NYE. Thank you. Just a quick question. 

Mr. Ratner, I am interested to hear from you if you wouldn’t 

mind commenting from a small business owner. Clearly right now 

we are very focused on trying to create jobs. Small businesses we 

are counting on to create most of those jobs. And I just wanted to 

hear your input on how our treatment of health benefits from a tax 

perspective impacts your ability to hire people and to grow your 

business. 

Mr. RATNER. It is part of the package. Every time—if there is a 

mandate, every time there is an added cost to bringing on a new 

employer, it is one more thing in the liability column when you 

look at should I hire someone or should I not? So it is not 100 percent that I am not going to hire someone but you really have to 

have a real strong desire or need to hire that person. If not, you 

are just not going to hire them. There is no need to. There are too 

many costs. Frankly, what we are going through, and I should have 

said this before, is now instead of hiring new people we will just 

give our regular crew more hours and give them more overtime. It 

is cheaper to pay them overtime than it is to hire new people. So 

it kills job creation. 

Mr. NYE. I want to allow anybody else that had another comment 

if they want to join in. 

Mr. HAYNES. If I could just add a little bit to that too because 

I hear a lot of this from my members, the smaller guys. Most of 

my small members compete with big public companies. It is just 

the way the system is configured. There are large bottlers and 

small bottlers throughout the country. They often can compete with 

each other. What they tell me basically, the smaller members, because they can’t offer the same level of insurance is they keep losing people to big business. They keep losing people who are good 

employees and having to go through this cycle of hiring new employees and training them. So it drives up their costs from multiple 

perspectives. I don’t think it should be lost on this committee that 

26 

the Fortune 500 companies are engaged in a fairly large-scale job 

reduction. It is going to happen. 

When a big public company misses an earnings report, they have 

a—they both have reduced needs for people but they also have unfortunately incentives to take one-time write-offs and have largescale job reductions. And last week, I think the number between 

eight companies was over 100,000 job cuts, eight, nine public companies. And small business does have to scale down its employees 

when the needs change, but I don’t think they have quite the same 

pattern of behavior in terms of eliminating people because there is 

an expectation they do so. And that is something that concerns me 

and I think would concern the members of this committee and Congress. 

Mr. NYE. I yield back the remainder of my time. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. Ratner, I will recognize Mr. Sestak; then I will come back 

to you. 

Mr. SESTAK. Madam Chair, maybe most of these questions have 

been asked. 

Mr. Ratner, if I could follow up with a mandate question. I think 

it was your testimony or, sir, it might have been yours of CocaCola, talking about the direct cost of a mandate. I understand the 

direct cost of a mandate. But the indirect cost of a mandate bodes 

in many studies a real benefit to—not directly to your cost, but to 

the Nation’s cost for health care. So how do we take that on board 

when one-fifth of all uninsured in America earn more than $50,000 

or above? Generally the youth of America that have a great job 

don’t bother to spend the couple of thousand bucks out there for 

health insurance. They are in a car accident, and now we have to 

take care of the TBI with the Nation’s money, which basically taxes 

you anyway. 

How do you measure the days off of your sick person, sir, down 

there that, yeah, you have got 10 employees, you don’t want to 

raise another one, but you’ve got to give them some sick leave, but 

generally—but you lose that and there are a lot of studies that 

show that mandating—let us just say it is the Massachusetts 

health care plan way. You are from Massachusetts; correct? 

Mr. RATNER. Right. 

Mr. SESTAK. That in the social cost, and I don’t mean goodness, 

I just mean as a business, that mandating that everyone is involved drives the risk down for those pools when the healthy are 

in it as well as unhealthy, and by mandating that everybody is in 

it, people actually go in for your preventative care. For example, 

the unemployed—the young woman who testified here on the unemployed and self-employed. I read her testimony. Is she here? 

Was that you? I mean you didn’t go in for some preventative care 

or I guess you went in and they switched it on you— 

Ms. DAVIS. I do have insurance. 

Mr. SESTAK. There was one woman here—I can’t remember who 

it was—that had testimony— 

Ms. DAVIS. But I had preventative care that I went in before and 

I got a bill after the fact. 

Mr. SESTAK. Let me read get back. I probably just misread. My 

question is then why not mandate if we all benefit from it? 

27 

Mr. RATNER. Well, that is the problem. We don’t all benefit from 

it. If I was sitting here and I am from Massachusetts and it is 

mandated and I said to you, you know what, guys? My premium 

has dropped 20 percent. Everyone has got coverage. Everyone is 

healthy. Let us go for it. But that didn’t happen. 

Mr. SESTAK. But the Urban Institute study last June said that 

the Massachusetts health care plan seems to be working. Yes, it is 

costing a bit more, but so is doing nothing. Probably the premiums 

would have gone up even more than what Massachusetts tried to 

do. 

So my question is, overall, when you take direct and indirect 

costs, mandates—when we look at mandating it—and I am not saying single payer at all. I am not a single payer type—appear to say 

that we all benefit as a Nation with greater savings than if we 

don’t mandate. 

Mr. RATNER. You know, I guess the devil is in the details, which 

is what everyone is struggling with here . If it came out in Massachusetts and you know, again, if the rates had dropped and if her 

business with two employees was paying—the playing field was 

level and she was paying the same as the guy with 200 people and 

everything was level and all premiums were level, I don’t know 

how much of an argument you would get from me, but the problem 

is getting all that stuff to work with you. 

And here is the other problem: We keep hearing that the small 

business, the entrepreneurs, are the backbone of the country. It is 

so out of whack that every time you add one of these costs to these 

micro businesses, you just literally cripple them. So if you came to 

me and said, listen, we are going to have this mandate but there 

is going to be a tax credit for the micro businesses and we are 

going to level that out so the cost doesn’t cripple them, that is what 

I am afraid of. 

Mr. SESTAK. I have to agree with you, how we do this. It just 

seems that so many people’s testimony—and I am sorry, I had another hearing on Pakistan. It just seemed to me, as you said, how 

the mandate is done because there seems much good in getting 

those people who are healthy and uninsured into the risk premium 

pools. 

My second question, if I could ask one more, is I am very attracted to the idea of pooling and Massachusetts kind of goes head 

off, and the chairwoman has the CHOICE Act, but that is kind 

more of risk retention, as I believe her Act does. And one of you 

testified on that, or has it in written testimony, how do you compare risk retention to an assoc cooperative versus—what I found 

also attractive, at least as it was supposed to have been done, was 

this quasi government connector that actually, with a mandate, 

then puts them in these same 20 insurance plans theoretically that 

Congress has access to, the Federal Government. Is one better than 

the other of that pooling? 

Mr. HAYNES. I can speak—I am not sure I can speak to superiority. I have an opinion on superiority. I can speak to what you can 

do with pooling because, as I indicated in my testimony—that may 

be my testimony you are referring to. We have a pooled captivebased program with our liability insurance. It works beautifully. 

We have got large members, we have got small members, and we 

28 

take 100 percent of the risk or nearly 100 percent of the risk even 

though there is an admitted insurer that writes the paper, but we 

do the reinsurance. We take the money that goes into the lost fund 

and invest it. We have active claims management people. We have 

active loss control programs to reduce the cost. We are totally motivated to reduce the total cost. 

And we work very hard on that, sharing best practices. And that 

program delivers—we have been at it for 5 years. We deliver about 

a 25 percent reduction to our members that participate in that. So 

it works beautifully in the liability area, and I don’t know why it 

wouldn’t work just as well in the health insurance. 

Mr. SESTAK. Can I make one last statement, Madam Chair? 

My prejudice, so you know, is I was in the military up to about 

3 years ago, and only about 23 percent of high school graduates 

every year can qualify to go in the U.S. Military because physically 

and healthwise they don’t qualify. So to some degree we get 

healthy kids. But once you are in it, there is this mandate that everybody and their families are covered. Now, it is a different health 

care plan. All that said, we don’t deploy overseas; so everybody has 

99 percent dental readiness. It sounds funny, but in a real sense, 

we are a real healthy force out there with this. Then I was quite 

struck when my daughter had a brain tumor and I needed to get 

out to take care of that by the failure to have transparency first 

off and who is the right doctor to go to, which is why fee for service 

has to change in Medicare and all. I mean, I love Medicare. 

Number two, that I could go to an 11-month war and my mind 

was strictly on the mission because I knew my family was there 

and I wasn’t away from work, for this Nation’s work at the time. 

So to my mind that model, and I understand TRICARE is different 

and all, bodes to me that if cost for the economy overall is to be 

something having healthy preventative care with everybody involved, the healthy as well as the unhealthy, and how you do that 

it seems to me is one of the most critical pieces that we can have, 

to have the most proficient economy we have because you do have 

people who wouldn’t get sick if they had the preventive care. 

I am sorry to go on, but I think this is one of the most important 

hearings we can have. Thank you, and I am sorry I was late. 

Chairwoman VELA ́ ZQUEZ. Thank you, Mr. Sestak. Mr. Graves, do 

you have any questions? Mr. Moore? 

So let me thank all of you for your insight on this issue. 

Mr. GRAVES. I have one. Mr. Ratner, what came first? The soda 

pop or the pet food? 

Mr. RATNER. I was wondering if I should put that in the testimony and decided not to. I started selling all different brands of 

soda in an empty gas station in 1975 and about a year later I 

bought a dog. And I walked into a grocery store to buy dog food 

for Bentley, and I looked down the aisle and I said, holy smokes, 

there is more pet food in here than there is soda. So I bought dog 

food for Bentley and went back to my store and called 9Lives and 

Purina and went into the pet food business. 

Mr. HAYNES. If I could just comment, as the owner of seven dogs 

and a representative of the soft drink industry, I think it is a marriage made in heaven. 

29 

Mr. RATNER. Except soda is now 2 percent of my business. We 

can’t compete with Costco, Wal-Mart, and these guys. 

Chairwoman VELA ́ ZQUEZ. I have just one. 

Mr. Beene, the issue of national mandates requiring employers 

to offer private health insurance, everybody has an opinion about 

that. But let me ask you to what extent do you think that the small 

employer will support such mandates? 

Mr. BEENE. I think at this point, there is a lot of hesitancy from 

the small employer because of the fear of the unknown, especially 

in this economic time. We are talking at a time that people are— 

I think generally across the board things are pretty tight, and 

while I think as time goes, people will—perhaps the ideas will 

come around because I do think there are some benefits to it. It 

is certainly one way to look at things. But I think that right now 

the reaction is from what will this do to me? How much is this 

going to cost? Will it ruin my business? So I think right now we 

have got issues with support of that from small business. 

Chairwoman VELA ́ ZQUEZ. Do any of you have an opinion as to 

being able to structure a mandate that could address concerns over 

costs? 

Mr. BEENE. I think bringing the tax credit into it at the same 

time would be probably the place to start. 

Chairwoman VELA ́ ZQUEZ. Mr. Ratner. 

Mr. RATNER. I think the mandate, unless there are very good tax 

credits in it, would cripple the micro business. The guys with two 

and three folks like her, it would be a disaster. 

Chairwoman VELA ́ ZQUEZ. Ms. Fox? 

Ms. FOX. I would just add that we are supportive and I think 

there is becoming more broad support for an individual mandate. 

I know there is a lot of concern in the business community about— 

especially small employers and large employers have lots of concerns about the mandate but I am hearing a growing consensus 

that an individual mandate might make sense especially if we can 

address the affordability and provide reining in costs and provide 

appropriate subsidies because I think the issue we have heard 

about young people not purchasing coverage is a real serious issue. 

I know I have a 23-year-old son, and he would rather buy fancy 

phones than his insurance. So they tend to feel invincible and we 

need to get them in the system to make sure that everything works 

best for everyone. 

Ms. DAVIS. I think the mandate has to be on the individual as 

opposed to the small business owners because putting the burden 

just on the small business owners and not on the individuals to 

take care of themselves is not going to work. 

Chairwoman VELA ́ ZQUEZ. Mr. Haynes. 

Mr. HAYNES. I have got a concern about individual mandates, 

and the question is how do you price it? The reality is that young 

person—the pricing on that insurance to be fair to that person is 

going to have to be very, very small, and so you can’t have any 

kind of, you know, what typically happens in insurance markets, 

which is ratings and community ratings and all that kind of stuff. 

Otherwise, we are going to impose costs on our young people who 

are already paying a lot of costs associated with the aging of the 

population, that just isn’t fair. So if there was a pricing mechanism 

30 

that was fair to me and made that cost containable I could see it. 

But I think a lot of young people are making individually rational 

decisions not to be insured. 

Chairwoman VELA ́ ZQUEZ. Thank you. 

Mr. SESTAK. Madam Chair, would you yield? 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. SESTAK. If I could, though, don’t we end up paying anyway, 

you businesses, for that youth who decides not to be insured, and 

even on the tax credits; don’t you pay anyway because you are 

going to pay it out of your income tax the Federal Government to 

give it? So anything great that is done is hopefully done in a bipartisan, shared responsibility between individual business and society. Can we really, in something like this that is so dramatic to our 

future, exclude one of those three? 

Mr. HAYNES. The way I would put it is it should be an objective 

to have as many people insured as possible because it is correct 

that we all pay the cost for the uninsured. It is the reason why 

there is such a difference between the quoted price and what might 

be negotiated as part of a network. 

On the other hand, what I see as what should be your objective 

is to find a way to adopt policies that both provide coverage and 

affect the marketplace. And if your focusing is entirely on getting 

coverage you’re not going to decrease the total costs that our society pays for health care, and that has to be at least as important 

an objective as obtaining universal coverage. So focus on things 

that will change the marketplace. 

Chairwoman VELA ́ ZQUEZ. Mr. Ratner, in terms of the Massachusetts experience, how much of an economic burden is imposing 

upon the State government? 

Mr. RATNER. At this level—imposing on the government? 

Chairwoman VELA ́ ZQUEZ. Yes. 

Mr. RATNER. That I don’t know. I can tell you that at this level, 

it is tolerable by the employers, but there is a new wrinkle that 

they are trying to put in, which is insane. Now they want to take 

all your part-time employers and use them as full-time equivalents. 

So if you are not paying 33 percent of your full- time equivalents’ 

insurance premiums, they are going to whack you another mandate, another fine of $275—this is the nuts part—even if that employee is covered somewhere else. And these are the costs that you 

don’t think about. It is the other costs to the businesses and they 

want you to pay it four times a year. So now we have to hire—because we can’t figure it out-- we have to hire someone else to figure 

that out. So the cost goes up and that will have a real detrimental 

effect to everyone who has a seasonal business because this is not 

just for guys like me who are year round. Now you are talking seasonal businesses who just hire kids who may have coverage elsewhere. So I don’t know what it is doing with the government but... 

Chairwoman VELA ́ ZQUEZ. Well, we will continue to have a discussion on this issue. It is a very important issue that has such a direct impact on our economy and particularly small businesses. So 

I want to thank all of you for coming here this morning. 

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

Without objection, so ordered. 

31 

This hearing is now adjourned. 

[Whereupon, at 11:45 a.m., the committee was adjourned.] 

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