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BETWEEN YOU AND YOUR DOCTOR: THE BUREAUCRACY OF PRIVATE HEALTH INSURANCE—DAY 1

HEARING

BEFORE THE

SUBCOMMITTEE ON DOMESTIC POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

SEPTEMBER 16, 2009

Serial No. 111–127

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

EDOLPHUS TOWNS, New York, Chairman

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERRY E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

MARCY KAPTUR, Ohio

ELEANOR HOLMES NORTON, District of

Columbia

PATRICK J. KENNEDY, Rhode Island

DANNY K. DAVIS, Illinois

CHRIS VAN HOLLEN, Maryland

HENRY CUELLAR, Texas

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

PETER WELCH, Vermont

BILL FOSTER, Illinois

JACKIE SPEIER, California

STEVE DRIEHAUS, Ohio

——— ———

DARRELL E. ISSA, California

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

BRIAN P. BILBRAY, California

JIM JORDAN, Ohio

JEFF FLAKE, Arizona

JEFF FORTENBERRY, Nebraska

JASON CHAFFETZ, Utah

AARON SCHOCK, Illinois

BLAINE LUETKEMEYER, Missouri

RON STROMAN, Staff Director

MICHAEL MCCARTHY, Deputy Staff Director

CARLA HULTBERG, Chief Clerk

LARRY BRADY, Minority Staff Director

SUBCOMMITTEE ON DOMESTIC POLICY

DENNIS J. KUCINICH, Ohio, Chairman

ELIJAH E. CUMMINGS, Maryland

JOHN F. TIERNEY, Massachusetts

DIANE E. WATSON, California

JIM COOPER, Tennessee

PATRICK J. KENNEDY, Rhode Island

PETER WELCH, Vermont

BILL FOSTER, Illinois

MARCY KAPTUR, Ohio

JIM JORDAN, Ohio

MARK E. SOUDER, Indiana

DAN BURTON, Indiana

MICHAEL R. TURNER, Ohio

JEFF FORTENBERRY, Nebraska

AARON SCHOCK, Illinois

JARON R. BOURKE, Staff Director

(III)

C O N T E N T S

Page

Hearing held on September 16, 2009 ..................................................................... 1

Statement of:

Gendernalik, Mark, father of Sidney Gendernalik, Los Angeles, CA; Erinn

Ackley, daughter of William Ackley, Red Lodge, MT; Mel Stern, pediatrician, Highland, MD; Linda Peeno, former review physician for

Humana, Louisville, KY; and Wendell Potter, former head of corporate

communications for Cigna, Philadelphia, PA ............................................. 16

Ackley, Erinn ............................................................................................. 30

Gendernalik, Mark .................................................................................... 16

Peeno, Linda .............................................................................................. 47

Potter, Wendell .......................................................................................... 79

Stern, Mel .................................................................................................. 38

Pollitz, Karen, project director, Health Policy Institute, Georgetown University, Washington, DC; and Michael Cannon, director, Health Policy

Studies, CATO Institute, Washington, DC ................................................. 113

Cannon, Michael ........................................................................................ 124

Pollitz, Karen ............................................................................................. 113

Letters, statements, etc., submitted for the record by:

Ackley, Erinn, daughter of William Ackley, Red Lodge, MT, prepared

statement of ................................................................................................... 32

Cannon, Michael, director, Health Policy Studies, CATO Institute, Washington, DC, prepared statement of .............................................................. 125

Gendernalik, Mark, father of Sidney Gendernalik, Los Angeles, CA, prepared statement of ........................................................................................ 19

Jordon, Hon. Jim, a Representative in Congress from the State of Ohio,

prepared statement of ................................................................................... 11

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 4

Peeno, Linda, former review physician for Humana, Louisville, KY, prepared statement of ........................................................................................ 49

Pollitz, Karen, project director, Health Policy Institute, Georgetown University, Washington, DC, prepared statement of ....................................... 116

Potter, Wendell, former head of corporate communications for Cigna,

Philadelphia, PA, prepared statement of .................................................... 82

Stern, Mel, pediatrician, Highland, MD, prepared statement of .................. 40

Watson, Hon. Diane E., a Representative in Congress from the State

of California, prepared statement of ........................................................... 144

(1)

BETWEEN YOU AND YOUR DOCTOR: THE BUREAUCRACY OF PRIVATE HEALTH INSURANCE—DAY 1

WEDNESDAY, SEPTEMBER 16, 2009

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON DOMESTIC POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m., in room

2154, Rayburn House Office Building, Hon. Dennis J. Kucinich

(chairman of the subcommittee) presiding.

Present: Representatives Kucinich, Cummings, Tierney, Watson,

and Jordan.

Staff present: Jaron R. Bourke, staff director; Yonatan Zamir,

counsel; Jean Gosa, clerk; Charisma Williams, staff assistant;

Leneal Scott, information systems manager, full committee; Adam

Hodge, deputy press secretary, full committee; Dan Blankenburg,

minority director of outreach and senior adviser; Adam Fromm, minority chief clerk and Member liaison; Ashley Callen, minority senior counsel; and Molly Boyl, minority professional staff member.

Mr. KUCINICH. Good morning. The Domestic Policy Subcommittee

of the Oversight and Government Reform Committee will now come

to order.

Today’s hearing will examine how the bureaucracy of the private

health insurance industry influences the relationship between physicians and their patients. This hearing is divided into two parts.

Today the subcommittee will hear testimony from patients and

health care providers with personal experiences. The subcommittee

will also hear from a former health insurance executive who will

testify about internal practices of the industry, and two individuals

whose focus is on health policy. Tomorrow the subcommittee will

hear testimony from top executives of the six largest health insurance companies in the United States.

Now, without objection, the Chair and ranking minority member

will have 5 minutes to make opening statements followed by opening statements not to exceed 3 minutes by any other Member who

seeks recognition.

And without objection, Members and witnesses may have 5 legislative days to submit a written statement or extraneous materials

for the record.

An observer of the public debate on reform of the health insurance industry would draw three conclusions, all of which are false.

The first is that Government does not play a role in insuring

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health care today in America. The truth is that tens of millions of

Americans get their health insurance right now through government-run health insurance: Medicare, Medicaid, VA and TRICARE.

The second myth is that government-run health care is inefficient and wasteful compared to private insurance. The truth is that

government-run health care has lower prices and much lower administrative costs than private insurance. Government-run insurance negotiates harder bargains with pharmaceutical companies to

get lower prices; it has no multimillion-dollar executives, no corporate jets, no dividends to pay, no lobbying expenses, no campaign

contributions, no front groups to pay for, and no television advertising. Private insurers pay for all of these expensive things out of the

premium dollars they collect, and these things have nothing to do

with improving health care outcomes.

The third myth is that bureaucracy is solely a governmental

problem. The truth is that for millions of Americans, there are layers of corporate bureaucrats standing between them and their doctors, often on matters of life and death, and those bureaucrats

work for the private health insurance industry. The hearing we

will hold today and tomorrow will examine the nature, costs, techniques and consequences of the bureaucracy of the private health

insurance industry.

Wall Street considers paying for your cancer treatment as a loss,

and they want to see health insurers keep those losses to a minimum. They have a statistic known as the medical loss ratio [MLR],

that keeps track of how effectively private health insurance bureaucrats achieve that financial objective of keeping losses at a

minimum. To please Wall Street, private health insurers have to

deny medical claims, raise premiums, or both. Even as the rate of

inflation of medical prices has increased, the share of premium dollars spent on medical care has come down to around 83 percent,

from over 90 percent in the early 1990’s.

The State regulatory record and civil litigation dockets are replete with recent findings of wrongful denial and delay of health

care by private insurance bureaucrats. For instance, in 2008,

PacifiCare, a subsidiary of United HealthCare, paid a $31⁄2 million

fine, $25 million in waived premiums and reimbursements of medical expenses, and restoration of health care to nearly 1,000 patients

to resolve violations of California law including wrongful denial of

130,000 claims, incorrect payment of claims, failure to acknowledge

receipt of claims in a timely manner, and for imposing the hassle

of multiple requests for documentation already provided. Similar

regulatory actions exist for nearly every private insurer.

Private health insurance bureaucrats play with the lives of people, our constituents, when they are at their most vulnerable, when

they have a life-threatening injury, when their children develop severe diseases, when their parents are battling cancer. This is when

the pressure that insurance companies can bring is the greatest.

From the insurer’s perspective, people who really need their

health insurance to cover life-saving medical treatment threaten

the company with medical losses, and investors want medical

losses to be minimized in order to maximize profits, pure and simple. The fact is that in America today, you don’t know if your

health insurance will take care of your serious medical bills until

3

you become seriously ill or injured. By then it is too late to shop

around.

You buy health insurance on blind faith that coverage will be afforded to you when you really need it, but you receive no guarantees from private health insurers, especially if you get very sick.

And that contradicts the purpose of health insurance in the first

place, to spread the cost of illness, especially serious illness requiring expensive care.

We will hear today how the private health insurance bureaucrats

have become more sophisticated at denying expensive treatment

and more effective at wearing down doctors and patients, conditioning them to choose to pay for the treatment themselves or to

go without, rather than insist that their insurer pay.

In the business of private health insurance, corporate bureaucrats may put profits before people, thereby becoming as noxious

as disease itself. Such was the conclusion of the Ohio Supreme

Court when it upheld the largest jury award in Ohio’s history

against Anthem for denying life-saving treatment to Esther

Dardinger. From the court decision, ‘‘Then came the bureaucracy.

Anthem had worn’’—talking about the Dardingers—‘‘Anthem had

worn the Dardingers down as surely as the cancer had. Like the

cancer, Anthem relentlessly followed its own course, uncaring, oblivious to what it destroyed, seeking only to have its way,’’ from the

Ohio Supreme Court in the case involving Anthem.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. At this time I recognize the ranking member from

Ohio, the Honorable Mr. Jordan. You may proceed.

Mr. JORDAN. Thank you, Mr. Chairman. I appreciate you having

this hearing, and I want to thank our witnesses for participating.

I look forward to hearing their unique perspectives on this important topic. I know many of them have tragic stories to share with

us, and you certainly have our sympathy.

The ongoing health care debate is extraordinary. Americans who

were not previously engaged in politics are now attending town

halls, rallies, tea parties. During August and September, I had the

opportunity to meet with many of our constituents in Ohio. Each

and every person I talked to expressed grave concern about a government-run health care system, but no one denied that our current system needs reform, and that’s what I hope we can gather

from the next 2 days, the kind of reforms that are actually going

to make sense and help families, help small business owners, help

Americans.

Health care spending is out of control, and we’re not covering

many of the most vulnerable. Medicare alone accounts for 31⁄2 percent of the gross domestic product. The Congressional Budget Office projects that by 2080, without intervention, it will be as high

as 131⁄2 percent. Total health care spending in 2007 exceeded $2.2

trillion, which represents over 16 percent of GDP.

In the debate there are areas of agreement between Republicans

and the President. In fact, last week during the speech to the joint

session of Congress, the President said, ‘‘let me set the record

straight. My guiding principle is, and always has been, that consumers do better when there is choice and competition. That’s how

the market works.’’

Mr. Chairman, on this point I agree with the President. In fact,

we have cosponsored a piece of legislation, H.R. 3400, that I believe

relies on free-market approaches and tax credits to incentivize

Americans to buy their own plans, instead of mandates and

surtaxes which are part of the current House bill that passed out

of committee.

Our bill allows individuals and businesses to purchase insurance

across State lines, increasing their insurance choices from perhaps

a dozen carriers to over 1,300. In contrast, the bill being discussed

decreases competition by installing a government-subsidized public

option into the marketplace to crowd out the private sector. Real

competition in the private market helps reduce prices. A government-run monopoly will cost all of us, especially our children and

grandchildren.

Rather than the Federal Government serving as an intermediary,

my colleagues and Irealize that individuals and families are best

served when there is a strong relationship between them as a patient and their primary and specialty health care providers. Our

plan strengthens that relationship by reducing the practice of defensive medicine brought about by lawsuits. Enacting medical liability reform will help reduce the price of medical malpractice insurance in defensive medicine, both of which are passed on to consumers through increased costs and higher insurance premiums.

By establishing health courts, capping noneconomic, and creating

best practice measures, we will eliminate frivolous lawsuits that

10

harm physicians, while also ensuring that justice is done to true

victims.

Mr. Chairman, I hope that commonsense solutions are not ignored. I believe Americans trust their health care professionals

more than they trust politicians and Federal Government bureaucrats. They want to keep what they like best about their current

plan, while addressing some of the problems with cost, access and

portability.

My trust rests in the ingenuity and compassion of the American

people and with the professionalism and competence of our health

care professionals.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

[The prepared statement of Hon. Jim Jordan follows:]

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Mr. KUCINICH. The Chair recognizes the gentleman from Maryland Mr. Cummings.

Mr. CUMMINGS. I want to thank the chairman for convening this

hearing. It is a very important hearing.

One of the things that I want us to keep in mind is that insurance companies are making life-and-death decisions every single

day. Folks talk about government, worrying about government

coming in and making decisions. Insurance companies are making

life-and-death decisions every day.

There’s a gentleman in my neighborhood who had a swelling on

his leg, I guess, maybe about 2 years ago. I see him almost every

day. I live in Baltimore, 40 miles away from here. And he went in

and he found out that it was cancerous. He had surgery, then he

had radiation, and then he had chemo. And then the cancer apparently spread to other parts of his body.

And he had been a hardworking American, working for the city

of Baltimore, and he had moved into a disability status. And he

used to tell me about his problems in that the copay for the chemo

left him in a position where he had to choose between eating and

paying the copay. And I would see him almost every day, and I just

think our society is better than that.

This is a point in time where we must leave politics at the door

and address the problems of all Americans. We need to keep in

mind, as the President said the other night, over the last 2 years,

one out of every three Americans have had a gap in their insurance

coverage. And what does that say? What that says is if you’ve got

a gap in your insurance coverage, that means you’ve got to get

some more insurance at some point.

Well, this is a bulletin coming over the wire. The older we get,

the more likely it is that we’re going to have a preexisting condition, and if you haven’t gotten there yet, you just keep on living.

And the fact is that we’ve got to deal with these preexisting conditions. We’ve got to deal with this rescission where a person gets

sick, they’ve been doing everything they’re supposed to do, working

hard, paying their premiums, and when it comes time for the insurance company to help them, they suddenly find they have no insurance.

We’ve got to deal with the high cost of insurance going up. The

President said it, and we have said it. We want people to keep

what they have, but guess what? If it is too expensive, you won’t

be able to afford it anyway. That’s a major problem.

And so I am glad that—and I had a town hall meeting, and it

went well, and I have listened to—seen what has happened across

the country with regard to town hall meetings. But I think we need

to hear not only from the people who are opposed, we need to hear

from everyday American citizens who have been placed in a position where they cannot get the coverage they need.

And so, Mr. Chairman, I applaud you for these two hearings, and

I look forward to the testimony.

Mr. KUCINICH. I thank the gentleman.

Mr. KUCINICH. The Chair recognizes the gentleman from Massachusetts, Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman. I thank all the witnesses for being here today.

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You know, this idea of competition is great, and it’s interesting

to hear people say they want these corporations to be able to go

across States. I think many of them see that just as an opportunity

to avoid State regulation, and we have to make sure that if that

happens, and companies are allowed to go across States, that they

do not get to avoid State regulation, just going to the lowest common denominator on this. They’re seeking to avoid competition

with any plan that essentially will do things other than their way.

That’s one of the reasons that they’re so avidly fighting this public

option. They’re happy to compete with any other insurance company that does the things that they do: pay really excessive and exorbitant salaries to executives; pay a lot of money for underwriting

to figure out ways not to cover people with health care; and give

dividends that are just not reasonable, but that are extremely excessive to shareholders, who actually punish them when they spend

too much of the premium dollar on health care delivery.

It’s a little shocking to me as we watch what goes on around the

country throughout these town meetings that so many people who

consider themselves out there fighting for the people wittingly or

unwittingly are out there shilling for insurance and prescription

drug companies, that they’re really for the status quo. And that’s

just a little bit amazing. If they were really populists, they would

be out there saying there is a point in time where government

ought to step between corporations that go to the excess, between

corporations that use their power and their bureaucracy to deprive

us of what we pay our premiums for, and you step in with a little

regulation, and we’re making sure that competition really does

work.

That doesn’t seem to be the message that’s going around out

there at all, and it’s sort of surprising.

When you look at this medical loss ratio that the chairman mentioned earlier, essentially I think Mr. Potter you discussed this on

interviews as well. Companies get punished when they show their

medical loss ratio too high. In the 1990’s, it was common for medical loss ratios to be 95 percent. Out of every $100 spent, $95 would

go to health care, and $5 would go toward salaries and overhead

and profits, and the companies were doing well; they were doing

extremely well. Well, studies now show that in some instances that

medical loss ratio is 57 percent, 57 percent of your premium dollar

going for care and the rest of it going to them.

I’d be on the streets pounding away saying, why isn’t my Government out there doing something to stop that? That’s what’s ridiculous. You want to go out and yell and scream and take a town hall

meeting, go where the culprit is. They’re the ones that are taking

our premium dollars, and what do they give us in return? Rescission. You’re in the middle of your care, and they go back and scrub

your records to find out, ah, there’s a reason we don’t have to pay

the claim; making sure that you have a preexisting condition where

you don’t get coverage at all, or putting a cap on it, a cap on it.

Sixty percent of the bankruptcies in this country are directly or indirectly related to medical expenses families are experiencing, and

85 percent of those families have health insurance.

That’s what we should be on the streets protesting about, and

that’s why this bill should directly look in there and say, look, we

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need to put in some regulation. No more rescission, no more unreasonable caps, no more incredibly high deductibles and copays, no

more telling people preexisting conditions are going to keep them

off, and no more getting away with spending less than a reasonable

amount of our premium dollars on actual health care services.

You can have a decent profit, you can have a decent salary, but $80,000 a day, as some executives were getting, and millions of dollars plus bonuses plus stock options is not a good way to spend our

premium dollar, and that’s why this health care reform package

ought to be as much about health insurance reform as anything

else.

We have to move in that direction. Yes, there should be an option

out there where people say, I don’t want to go to that private company that gives us that kind of bad coverage; I’ll take another option, a public option, and that maybe will inspire these people to

do the right thing. Maybe when they see that there’s somebody not

playing their game, that we’re not just going to let people into the

game who do it the way they do it, that they will have to behave

a little better. And that’s what this is about, and hopefully that’s

what the American people are going to understand this is about,

and we’ll move in that direction.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

We’re now going to hear testimony from the witnesses, and the

first two witnesses are sharing a personal narrative with us, which

I think that when we in Congress tend to expound on these

weighty matters, we’re always much more informed when we hear

what people have to say about their own experience. And so two

of our witnesses will provide us with information about their personal experience. It is important that we pay careful attention.

Now, there are no additional opening statements, so we will receive testimony from our witnesses. I would like to introduce our

first panel. Mr. Mark Gendernalik. Is that right?

Mr. GENDERNALIK. Gendernalik, hard G.

Mr. KUCINICH. OK. Mr. Gendernalik is a teacher from Los Angeles, CA, where he lives with his wife and three children. His

daughter Sidney suffers from a rare neurological disorder known as

infantile spasms.

Ms. Erinn Ackley is a resident of Montana where she lives with

her husband and their daughter. In 2006, Ms. Ackley assisted her

father William Ackley in his struggle to obtain approval from his

private health insurer for prescribed medical treatment.

Dr. Melvin Stern, M.D., has been in solo practice as a private

care pediatrician in Highland, MD, for the last 28 years. In addition to direct patient care, Dr. Stern has been continuously involved in teaching medical students, pediatric residents and physician extenders, such as physician assistants. Dr. Stern has served

on the medical faculty of the Maryland chapter of the American

Academy of Pediatrics, and has also previously served as the chairman of the Maryland State Medical Society’s legislative committee.

Dr. Linda Peeno, M.D., is a physician and medical ethicist who

consults and educates on issues related to health system operations, managed care and ethics. Dr. Peeno has worked in executive positions in a variety of health care organizations and as a

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physician reviewing hospital requests for admission at the insurance company Humana. Dr. Peeno is now a nationally recognized

expert on various issues related to health system operations and

ethics, particularly managed care and insurance practices.

And finally, Mr. Wendell Potter. Mr. Potter has served since May

2009 as the Center for Media and Democracy’s senior fellow on

health care. Previously Mr. Potter spent 20 years in a variety of

communications positions for private health insurance companies.

Mr. Potter was the chief corporate spokesman for CIGNA insurance

company.

I want to thank each and every one of the witnesses for appearing before the subcommittee today.

It’s the policy of the Committee on Oversight and Government

Reform to swear in all witnesses before they testify. I would ask

that at this time if you could rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you very much. Let the record reflect that

each of the witnesses has answered in the affirmative.

I now want to ask each of the witnesses to give a brief summary

of your testimony. I want you to keep in mind that it’s helpful to

have this summary no more than 5 minutes in duration. Your complete written statement will be included in the hearing record. So

if you’re worried about not getting in a certain word, just know it’s

going to be in the record of the hearing, and all Members will have

access to that.

We’re going to start with Mr. Gendernalik. You’re going to be our

first witness, and we’d like you to proceed at this time. And before

you begin, I would like to recognize and welcome the distinguished

gentlelady from California Congresswoman Watson. Thank you for

being here. You may proceed.

STATEMENTS OF MARK GENDERNALIK, FATHER OF SIDNEY

GENDERNALIK, LOS ANGELES, CA; ERINN ACKLEY, DAUGHTER OF WILLIAM ACKLEY, RED LODGE, MT; MEL STERN, PEDIATRICIAN, HIGHLAND, MD; LINDA PEENO, FORMER REVIEW PHYSICIAN FOR HUMANA, LOUISVILLE, KY; AND WENDELL POTTER, FORMER HEAD OF CORPORATE COMMUNICATIONS FOR CIGNA, PHILADELPHIA, PA

STATEMENT OF MARK GENDERNALIK

Mr. GENDERNALIK. Mr. Chairman, members of the committee, I

want to thank you for inviting me here today to share my daughter’s story with you. I hope it will inform you about the human side

of the business of health care in America.

As an American, it is an honor to be a part of this democratic

process at such an important time, and like many Americans, I’m

unashamedly guilty of the swagger that comes with that heartfelt

feeling that I live in the best country on Earth. Unfortunately, that

swagger wears a little thin when we don’t deliver, when we come

up short, and health care is one such area where we are not the

best in the world. Most will agree we are paying far too much for

health care and getting far less than we are entitled to, far less

than the American people deserve, far less than my daughter SidVerDate 11-MAY-2000 11:21 May 23, 2011 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\64917.TXT KATIE PsN: KATIE
17

ney deserves, and that less has consequences, real consequences,

for people, especially my infant daughter Sidney.

Early one afternoon when Sidney was just 3 months old, as I

walked down the steps of the living room in my home, Sidney’s arm

suddenly struck out at an awkward angle, her head cocked over to

the side. Her eyes looked odd and distant. She was 3 months old.

I was concerned and alarmed at that point. I thought, well, that’s

odd, and then we had a few more and a few more and went and

saw a pediatrician, and we started what was going to be the beginning of what may be Sidney’s lifelong struggle.

We’re here today not only to help my little girl, but the families

who have to fight beyond exhaustion just to receive the care that

their hard-earned dollars were supposed to have provided them

when they bought their insurance.

Since Sidney was sent to a pediatrician—or from the pediatrician

to a neurologist, that neurologist ordered an MRI with contrast dye

and an EEG. He conducted his own EEG in his office, sent out for

the MRI to be done at UCLA Medical Center. The insurance company denied the medical center he wished to send her to, which

was UCLA Children’s Hospital.

She was then sent to an imaging center, which was pretty much

a storefront operation that just does X-rays, MRIs, images. Their

staff were incapable of injecting my small daughter with the dye

necessary to create the contrast to give my neurologist the images

he needed. The end result was my neurologist didn’t get the images

he needed to accurately diagnose my daughter, but the medical

group got to save a little money.

In all of the struggle through, we made the best we could out of

it. We reached a point where he was coming to the point we understood her diagnosis to be infantile spasms. It’s a syndrome. It’s diagnosed by an index of symptoms. We sent out for a second opinion

just to be prudent. We ordered a second opinion. The insurance

company authorized Children’s Hospital L.A. to conduct a second

opinion, and then refused to authorize the neurologist there to do

any of the diagnostics to inform and form the second opinion.

My wife took the day off work. She went to the neurologist at

Children’s Hospital, waited, was seen. That neurologist went to

order the standard panel of diagnostics, was denied. We were then

sent to UCLA, where they didn’t even have a room for us. We were

sent there by the insurance company’s telephone agent saying, hey,

go there, they’re ready for you, your authorization has been faxed.

They weren’t ready for us. My wife and my daughter spent the day,

without food other than the hospital snacks, in the emergency

room.

When I finally got off work, they were able to tell us—I joined

them at the hospital. They were able to tell us that they weren’t

able to service my daughter that day; they had no beds; they didn’t

know we were coming. When they finally were able to admit us 2

days later, they immediately did their panel of diagnostics. Those

diagnostics confirmed the diagnosis of infantile spasms. They set

out the first course of treatment. The universally recommended

course of treatment is a drug called ACTH.

The medical group would not return a phone call to the whole

pediatric neurology department at UCLA, a prestigious medical

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center. They would give them answers like, we’ll call back today by

5, it’s under review. After 6 days of being inpatient at UCLA, my

wife and I were living with my daughter in the hospital room, the

doctors came in and said, we’re going to have to discharge you; we

can’t get any response from your insurance company—from your

medical group.

After crying, I got angry. I tried calling the insurance company

myself. I was hung up on twice for only asking for a supervisor in

the tone of voice like I’m speaking to you today.

Finally, I called the State regulatory agency. They looked into it

on my behalf, and we were able to mysteriously get an authorization over the telephone to UCLA and to my wife. No explanation,

no written documentation, no anything. Clearly their plan was to

exhaust us, to wear us out.

My time is coming to an end here. I have to just conclude with

a final statement, if you will indulge me. Sidney’s mom and I have

spent so much time fighting to ensure her proper care that all too

often I feel like her medical manager instead of her daddy. I need

you people to let me be a daddy.

I understand there’s a lot of talk and a lot of ideas. The Consumers Union is here today with their own ideas on ways we can put

consumers back into this competition scheme I hear about because

we’re disenfranchised right now. All I want to do is go home and

be a dad.

Thank you.

[The prepared statement of Mr. Gendernalik follows:]

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Mr. KUCINICH. The Chair recognizes Ms. Ackley.

Thank you, Mr. Gendernalik.

STATEMENT OF ERINN ACKLEY

Ms. ACKLEY. Mr. Chairman, members of the committee, thank

you for inviting me to participate in today’s hearing on health reform. I am honored to have the opportunity to convey my family’s

struggle with the administrative measures and protocols used by

my father’s private health insurer and the lengths we went

through to obtain his doctor-prescribed treatment in the form of a

bone marrow transplant.

This is an abbreviated version of our emotional journey as my

dad fought for his life when his insurance company set up one bureaucratic roadblock after another.

My father Bill Ackley dedicated 31 years of his life to the children of Montana as a public schoolteacher and administrator. In

2003, he retired to Florida, trusting his group health insurance,

Blue Cross Blue Shield of Montana, would continue to pay, as they

had for 16 years, for the medically necessary treatment of his

chronic lymphocytic leukemia.

In 2005, my dad’s doctor determined that he needed a bone marrow transplant because his chemotherapy regimen was no longer

effectively managing his cancer. My father was accepted into a

transplant program, and on December 11, 2005, an unrelated donor

match was found.

In January 2006, my dad began two rounds of intensive chemo

to suppress the disease in preparation for his transplant; 41⁄2

months after finding a donor, we were euphoric on April 14th when

my dad’s transplant doctor gave him the news that his disease had

responded well to the treatments, and he was ready to proceed

with a mini transplant. However, we marked this as day 1 of our

unexpected and emotional struggle with Blue Cross Blue Shield of

Montana.

Because his insurance had paid for all of the treatments leading

up to the transplant, including the donor search and testing, you

can imagine how shocked and heartbroken we were a week later

when his insurance notified the hospital, not my parents, that it

was denying the mini transplant, claiming the procedure as investigational.

For the next 60 days, we continued to run around in circles with

the insurance company, never actually speaking to a human who

could discuss my dad’s case, to obtain approval for my father’s prescribed treatments while his body was still receptive to a transplant. On the surface this might not seem like a long time, but

when a loved one is going through a life-or-death struggle, you can

hear the clock ticking every minute.

My dad’s doctor submitted a different request for a full transplant, which had been performed for nearly 20 years, but that, too,

was denied on grounds that it was investigational. It is important

to note that both transplant protocols were approved treatments

under Medicare.

Neither of the two time-consuming approval processes my dad

went through in an effort to overturn the denials were completed

in the promised timeframe, and during this agonizing time we

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reached out to the Montana Insurance Commissioner’s Office, who

persisted in keeping the insurance company in compliance. We enlisted the help of countless friends and families to hold the insurance company accountable on my father’s behalf, and we then consulted an attorney who had experience litigating transplant denial

cases.

On day 48, my Dad was readmitted for another round of intensive chemo as his cancer was growing rapidly again because we

were waiting for transplant approval. We were emotionally exhausted, frustrated and devastated that we had to continue focusing our time and energy on holding this insurance company accountable instead of spending quality time with my father and concentrating our efforts on his care.

Due to his persistence and refusal to accept that unreasonable

insurance company denials would be the deciding factor in his lifeand-death struggle with the disease he had lived with for 20 years,

my dad was finally transplanted with the stem cells of a selfless

anonymous donor on August 17th, 126 days after the first transplant request.

What would have happened if the first transplant request had

been approved? We will never know. We do know that he never returned home. We spent Christmas with him in his hospital room,

and he did make it to the new year. My dad passed away on January 3, 2007, at the age of 59, leaving behind a grieving widow and

daughter and missing the chance to share his joy of life with his

only grandchild Eliza, born 17 months later.

My written testimony includes a very detailed timeline of our

struggle with my father’s insurance company, and I sincerely hope

that you will read it and consider the implications of how an agonizing and bureaucratic denial and appeal process changed the

course of my father’s treatment and affected his chance for a successful life-saving transplant.

Thank you.

Mr. KUCINICH. Thank you for your testimony.

[The prepared statement of Ms. Ackley follows:]

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Mr. KUCINICH. The Chair recognizes Dr. Stern.

STATEMENT OF MELVIN S. STERN

Dr. STERN. Thank you, Chairman Kucinich, members of the committee, for this opportunity to appear before you today. I am here

on behalf of the patients and families that I take care of, the American Academy of Pediatrics, the Maryland chapter, and the National Physician Alliance.

As has already been noted, I’ve been in practice in primary care

pediatrics for approximately 30 years in Maryland and have spent

a fair amount of that time advocating for my patients and my families in the public policy arena. And one of the templates that I utilize for reviewing public policy is if it makes sense for children, it

makes sense for the community. If it doesn’t make sense for children, we better go back and reexamine it, and based on that, go

forward with the remainder of my evaluation here.

We’ve discussed the bureaucracy, the bureaucracy of both the

private insurer, the for-profit, as well as the not-for-profit.

In 2003, Steffie Woolhandler observed that 30 percent of our

health care budget, 30 percent of the dollars that we sent in, is now

spent on administration, and that’s in the private sector.

As an example of what goes on and how that impacts and has

resulted in what happens in the private office, when I started private practice over 30 years ago, there were two full-time equivalents that were supporting me. One was a nurse who was fully involved in patient care, did nothing in terms of administration, and

the other was a secretary-receptionist who basically handled the

scheduling and the billing.

Today I’m still the solo practitioner. I have four full-time equivalents in the office. I am the only one who is exclusively involved

in patient care. The other individuals are involved in chasing after

insurance companies; doing things like referrals, prior authorizations; and arguing for benefits for my families, certainly a dramatic

increase in bureaucratic meddling, as it were, in the office procedures.

For the bureaucracy that we see in the private sector, the impact, as you’ve already heard—and I’ll give you a scenario in my

office of a newborn with a tumor. This baby was born with a tumor

at a world-class hospital in Baltimore and was insured by a forprofit insurer. From the time the baby was born, this insurer required referrals.

Now, recognize, I had never seen this baby. I was not medically

in charge of this baby. For me to begin to refer this baby for additional services at an institution that had world authorities in regards to what should be done and how this tumor should be handled was just sheer nonsense and an obstruction for the care. It obstructed it to the point where there were therapies and evaluations

that were remiss, were not obtained in a timely manner. But in the

end, those therapies went forward initially.

The administrative burden was very real. The institution itself

had people working in conjunction with my office to get the referrals, to do the paperwork; not to do the medical care, but to do the

paperwork to get this child the care that she needed.

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Following the inpatient treatment, which required surgery, the

child underwent—began outpatient chemotherapy. It was at that

point that the insurance company became obstructionist and, utilizing the Milliman and Robertson criteria for evaluation of whether

this service should be paid for, denied inpatient chemotherapy

services for this infant.

Now, you need to understand, there are no Milliman and Robertson criteria for infants with tumors, but they refused to recognize

that and proceeded to say, no, they were not going to permit this

baby to have inpatient services.

The only reason that we’re able to move forward with that is I

bluntly told them, look, either provide this infant with what are

clearly standard treatments in the hospital, or we will have to go

public. This is a beautiful baby, it will attract a great deal of attention; you can either deal with this in the media or deal with this

appropriately. And they chose at that point to say, OK, we’ll get

things organized.

That’s not the way we need to run the health care system. That’s

not the way I need to be spending my time. This invasion and obstruction is not very productive.

And finally, I’d like to leave you with a notion or the issue of two

things. One, this is not really an issue of insurance coverage.

Please understand, this is an issue of access to quality health care,

and Mr. Cummings is painfully aware of a youngster in our community, Deamonte Driver, who had coverage but did not have care

and died in this very city as a result of lack of care because providers weren’t available.

The last thing is at the current way—we know the liabilities that

we’re generating in the health care area are being left at the feet

of our children. Let us make sure as we move forward that the assets are in their hands.

Thank you very much.

Mr. KUCINICH. Thank you very much, Doctor.

[The prepared statement of Dr. Stern follows:]

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Mr. KUCINICH. I want to acknowledge what you said about mentioning Deamonte Driver. Mr. Cummings and I have had an ongoing conversation about that young man’s death, and I think that

before the end of the day, we’ll have a chance to recount what happened with him and this system.

Dr. Peeno, you may proceed.

STATEMENT OF LINDA PEENO

Dr. PEENO. Mr. Chairman, members of the committee and staff,

I appreciate the opportunity to be here.

I am a former company doctor who made those kinds of life-anddeath decisions Mr. Cummings referred to. In fact, one of my prior

appearances here was in 1996 to talk about how company doctors

cause harm and death to patients, and the fact that little has happened is evidenced by the fact that a quote of that hearing has resurfaced and is very timely still.

After 1996, I continued to work on health care issues, and I’ve

worked on more than 150 legal cases on behalf of patients and assisted patients in appeals. So I have a wealth of acquired information about the inner workings of the health insurance companies.

The one thing that I think, in summary of my experience which

I’ve detailed in my written comments, is that this has never been

a more deadly time for patients in terms of insurance practices.

They’ve become more sophisticated and more expert in achieving

the cost cutting and saving goals.

The four areas that I would like to talk about specifically, at

least to address and make you aware of, the first has to do with

claims. And I see a lot of insurance rhetoric that says that they’re

kinder and gentler, and they deny fewer claims, but a recent study

in California showed that at least in that study, as much as—as

many as 40 percent were denied.

But the more interesting thing is what we don’t know, because

the evolution of managed care has been to shift the process of limitation, denial and substitution more prospectively. So if you can coopt the treating physician in the office or the bedside, we can create conditions like we have already heard today where you will obstruct and delay and wear people down. Then those are things that

are never recorded. There’s no data or statistics we can go to to

show the amount of care that has been altered through those processes.

The second thing is that the shift in health care has been to

move everything more technical. So the goal over the past decade

has been to eliminate the independent medical judgment of physicians and of the health care professionals, to normalize through criteria and other scientific-based ways, and to eliminate the patient

particulars.

Coinciding with that is the attempt to make other agents the denial factors by, one, co-opting physicians and altering their medical

ethics to achieve the goal of the company, but more disturbing is

making patients themselves the agents of their own denials

through economic changes.

The fourth one, I think, has kind of been touched on already by

several remarks here, and that is the expert use of terms like

‘‘medical necessity,’’ ‘‘investigational,’’ and ‘‘experimental.’’ I actuVerDate 11-MAY-2000 11:21 May 23, 2011 Jkt 000000 PO 00000 Frm 00051 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\64917.TXT KATIE PsN: KATIE
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ally testified in a case that you mentioned, Mr. Kucinich, on the

Dardinger case, which was a very interesting case because the definition of ‘‘experimental’’ changed as it went through layers of review in order to constantly shift—justify the denial. And, in fact,

part of the e-mail communication that came out in that case is that

the health plan employees were deliberately delaying because they

knew Mrs. Dardinger was going to die soon, so they were avoiding

making a decision to avoid even dealing with the issue of paying

for it in hopes that she would die before they would have to address it.

The recent attention on medical criteria and evidence-based medicine, it sounds wonderful to talk about best practices. We should

be focused on that, but there is a layer of rhetoric there that hides

what goes on underneath. Companies—you know, for example, the

criteria for the appropriateness of a hysterectomy should be the

same whether it’s in, you know, Boston or Los Angeles. It should

be the same whether it’s Humana or CIGNA, and yet these tools

are used and wielded. They’re proprietary. A company would never

purchase criteria that would cause it to be more generous and to

spend more money. So these criteria are used deliberately to justify

denials and to limit care and—and these tools are being developed

using public research and should be transparent and should be

publicly available.

There are so many things that I could go into that I have seen

in all the cases. As I said, I went into detail in the written remarks, but I think the last two things I would like to sum up is

that patients are not mere anecdotes, and that’s the way the insurance company would like to dismiss any claims of adverse affects

on patients’ well-being or health.

And the last thing is that they operate in a medical—in an ethical and legal void. There’s no medical ethics when you’re working

on behalf of stockholders, and the legal situation is that most

Americans have no legal recourse because of ERISA and other complications holding these companies accountable.

So I personally believe we will have no health reform unless we

reform the health insurance industry to a system that is ethical

and patient-centered.

Thank you very much.

Mr. KUCINICH. Thank you, Doctor.

[The prepared statement of Dr. Peeno follows:]

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Mr. KUCINICH. Mr. Potter, you may proceed. Thank you.

STATEMENT OF WENDELL POTTER

Mr. POTTER. Thank you, Chairman Kucinich, Ranking Member

Jordan and members of the committee for this opportunity.

The title of today’s hearing serves as an important antidote to

some of the rhetoric about who or what stands between a patient

and his or her doctor. I know there are many who fear the idea of

a government bureaucrat in that space, but the alternative has

proved much more fearsome. The status quo for most Americans is

that health insurance bureaucrats stand between them and their

doctors right now, and maximizing profit is the mandate that has

simply overtaken this industry.

As Members discuss the various compromises that undoubtedly

will be floated in the coming weeks, I encourage you to look very

closely at the role of for-profit insurance companies in particular

and the role that they play in making our health care system both

the most expensive and one of the most dysfunctional in the world.

I know this hearing and others you are holding will help Members of Congress look beyond the misleading and destructive rhetoric making the rounds and the headlines and help provide a real

sense of what life would be like for most of us if the kind of socalled reform the insurers are lobbying for is enacted.

An estimated 25 million Americans are now underinsured for two

principal reasons. This is in addition to 45 million people who are

uninsured. First, the high deductible plans that many of us have

been forced to accept require us to pay more out of our own pockets

for medical care, whether or not we can afford it. Second, the number of underinsured people has increased, and far more have fallen

victim to deceptive marketing practices and bought what essentially is fake insurance.

The industry is insistent on being able to retain the so-called

benefit design flexibility so insurers can continue to market these

kinds of often worthless policies. The big insurers have spent millions of dollars acquiring companies that specialize in what they

call limited benefit plans. An example of such a plan that is marketed by one of the big insurance companies is under the name of

Starbridge Select. Not only are the benefits extremely limited, but

the underwriting criteria established by this insurer essentially

guarantees big profits. Preexisting conditions are not covered under

the first 6 months. The employer must have an annual turnover

rate of at least 70 percent. So most workers don’t even stay on the

payroll long enough to use their benefits, and the average age of

employees must not be higher than 40, and no more than 65 percent of the work force can be female.

I’m sure you’ve all heard insurance executives say over the past

few months that they are bringing solutions to the table this time

to help you address the problems of the uninsured and the underinsured. If they were to be completely honest, however, they would

tell you that the solutions they really have in mind are moving millions more of us into high-deductible and limited-benefit plans. If

Congress goes along with these solutions, the bill it sends to the

President might as well be called the Insurance Industry Profit

Protection and Enhancement Act.

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That said, the executives you will hear from tomorrow rarely use

the term ‘‘insurance’’ to describe their businesses these days. They

refer to their companies now as health benefit companies or health

solutions companies, and for a very good reason. They have been

moving rapidly away from the risk that insurers used to assume

for their customers and toward a business model that enables them

to administer benefits for large self-insured companies, and also to

shift the financial burden of health care to individual workers if

their employers are not big enough to self-insure.

If I were a member of this subcommittee, I would ask the executives tomorrow about this trend. I would ask them what has been

happening to their fully insured books of business in recent years.

If they’re honest, they will tell you that it has been shrinking, and

that they have been taking deliberate actions to make it shrink.

According to a recent story in The Wall Street Journal, the seven

largest for-profit health insurance companies have seen a decline

of 5 million members in their fully insured books of business just

since 2007. I would ask the executives why this has happened, and

if they expect this trend to continue, and I would ask them what

kind of businesses are fully insured these days. Again, if they’re

honest, they will tell you that they are primarily small to midsize

customers that are not large enough to self-insure. And that does

not bode well for the future of this country or our economy as most

of the job growth in the United States is occurring in small to

midsize businesses.

I would ask the executives what kind of health benefits—health

benefit plans they’re marketing now to small businesses and to

businesses with a high rate of turnover among employees. If they’re

honest, they will tell you they’re marketing limited-benefits or

high-deductible plans to these businesses.

I would ask Aetna and CIGNA in particular why they are sponsoring the first annual voluntary benefits and limited medical conference in Los Angeles next month. And I would ask them what

‘‘voluntary’’ really means. If they’re honest, they will tell you that

workers enrolled in voluntary benefit plans pay the full premium

as well as high out-of-pocket expenses. Their employees do not

have to pay a dime—their employers don’t have to pay a dime toward their employees’ health care benefits. Many of these plans actually prohibit employers from subsidizing the premiums.

As the organizer of the Los Angeles conference notes on its Web

site, voluntary benefits and limited medical plans are a multibillion-dollar industry and one of the fastest-growing segments in the

health insurance industry.

Another question you might consider asking is how much money

insurance companies make from investments by delaying payments

to health care providers. As you know, doctors now have staff members dedicated solely to trying to get insurance companies to pay

claims that have been denied. The longer an insurance company

can avoid paying a claim, the more interest it can earn from the

float.

Mr. Chairman and members of the subcommittee, this is the current state of the inadequately regulated free-market system the

health care companies want to preserve. We already have 25 million Americans who are underinsured. If the insurance industry

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gets what it wants out of this forum, that number will grow very,

very fast in the years ahead. People you know, your constituents,

maybe even your sons and daughters and your grandchildren, will

be joining the ranks of the underinsured, and they will be forced

by law to pay private insurance companies for their lousy coverage,

and you and I and other taxpayers will have to subsidize the premiums for those who cannot afford them. I implore you not to let

that happen.

Thank you for considering my views.

Mr. KUCINICH. Thank you very much, Mr. Potter, for your testimony and also your expression of civic consciousness.

[The prepared statement of Mr. Potter follows:]

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Mr. KUCINICH. I want just—before I begin my questions, I just

want to say how deeply moved I was to hear the testimony of Mr.

Gendernalik and Ms. Ackley.

How’s your daughter?

Mr. GENDERNALIK. She’s improving gradually. Her condition is—

it is hard to treat seizures. It’s hard to treat seizure disorders.

We’ve been through many pharmaceuticals, and currently she’s

now on what is called a ketogenic diet. It’s a diet designed to alleviate seizures. We’re having some success, but she’s way off her

benchmarks. If we don’t arrest the seizures, her cognitive development will leave her severely mentally retarded.

Mr. KUCINICH. Well, your family shall remain with our thoughts.

I just also want to say to Ms. Ackley, I had the chance to read

the exhibits, but in particular the obituary of your dad, who was

obviously a wonderful person, and I can imagine what it’s like for

you to testify.

I have to tell you when I was listening to both your testimony,

I’m sure this is true of other Members, I wasn’t just hearing the

words, I could feel it in my heart. And this is the kind of testimony

I think that can move the country, and, you know, I just—you can

feel this. Thank you for being here, and our condolences to your

family. From your experience, perhaps Congress will become better

informed about the actions that we need to take.

I want to thank Dr. Stern for sharing with us his testimony, as

well as Dr. Peeno for her understanding of the inner workings of

the industry.

Now, I want to begin questioning with Mr. Potter, who, as I said

earlier, is the former head of corporate communications for CIGNA

in Philadelphia. First, I want to ask Mr. Potter about the business

profit model of the private insurance industry. What is the business model of the insurance companies? How do they make money?

Mr. POTTER. They make money by avoiding as much risk as possible, and often by dumping people who are sick, and they do this

through a variety of means. One is delaying or denying care. Another is to rescind policies that we’ve read about in the news and

has been the subject of some subcommittee hearings in which people who have been paying their premiums for many years, when

they get sick and have high medical bills, the insurance company

will review their original applications, and if they find any reason

to cancel it, they will; and also purging small businesses.

Mr. KUCINICH. Doing what?

Mr. POTTER. Purging small businesses. They deliberately look to

see if there are small businesses and midsize businesses that are

customers whose medical claims are higher than was otherwise expected, and they will jack those rates up, the premium rates, when

those books—when those customers’ accounts come up for renewal,

and they will jack them up so high that these businesses have no

alternative but to drop their insurance coverage. They can’t afford—that’s why we’ve had such a drop in the number of small

businesses over the years. It’s declined from 67 percent in the

1990’s to just about 38 percent now.

Mr. KUCINICH. And you’ve talked about the denial reduction of

coverage. Would you explain to this subcommittee what is policy

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rescission, and how widespread was that practiced while you were

in the industry?

Mr. POTTER. Policy rescission happens. This is in the individual

market, not so much in the market in which people get their coverage from, through their employer. Many people don’t have the option of getting their coverage through the employer. And you have

to fill out an application if you want to get coverage, of course. And

you have to include in that application whether or not you have

been sick in the past, why you’ve gone to the doctor if you have

been hospitalized; in other words, what preexisting conditions do

you have that we should know about? And if you are—and in many

cases, a preexisting condition will mean you can’t get coverage at

any cost. And also, children who are born with birth defects ultimately will not be able to get coverage in this system we have now.

So it is a means of being able to again cull the sick, to avoid paying claims. And if you fail to disclose something and you get sick

and there are high medical bills that are sent for payment to your

insurance company, they’ll look at your application, and they’ll look

to see if maybe you have inadvertently or even purposefully not

disclosed something.

Mr. KUCINICH. One of the things that we have been hearing in

the past few weeks is how the private insurance industry uses special interest groups to craft market and send a message that the

industry wants to send. Could you explain how this happens, and

can you comment on how the industry wants us to believe that

they are there to help us to get healthier? What do they think they

are doing? And, you know, who are they talking to?

Mr. POTTER. The industry, and I know this from having worked

in a lot of trade association committees over the years and serving

on strategic communications committees; they plan and carry out

duplicitous PR campaigns. One is, I call the charm offensive, in

which they will come here and they will tell you that they are in

favor of reform and will be working with you as good-faith partners

and with the President. And they will say the same thing they said

in 1993 and 1994, that they are in favor of getting rid of the preexisting condition clauses and in favor of avoiding or making—or

of the cherry picking that goes on.

Mr. KUCINICH. So they will say one thing and do another.

Mr. POTTER. Exactly.

Mr. KUCINICH. Do they do that consistently?

Mr. POTTER. They do it consistently. They say what they want

you to hear, and that is the charm offensive that they carry out.

And they will talk about how much they are in favor of bipartisan

reform, for example. Behind the scenes, they will be conducting

these covert PR campaigns, and they work through big Washington-based PR firms or New York-based PR firms that set up front

groups for them. Like in the 1990’s, a group called the Health Benefits Coalition was set up, and it was presumably a business coalition but the funding came largely from health insurance companies, and the soul purpose was to kill the Patients Bill of Rights.

Mr. KUCINICH. When you say front groups, you mean they are

groups that are then mobilized to try to present themselves as representative of public opinion?

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Mr. POTTER. That is right. And they employ a lot of PR tactics,

and they work also with the media and with Members on Capitol

Hill. But with the media, the PR people who have connections with

producers and reporters will feed messages to them, talking points,

and there are a lot of reporters and producers and pundits who are

very sympathetic to them.

Mr. KUCINICH. I am looking forward to having a chance to ask

Mr. Potter some more questions, but my time has expired, and I

want to, before I recognize Mr. Jordan, I want to acknowledge the

presence of the gentlelady from Ohio, Ms. Kaptur, who has joined

us.

And, Mr. Jordan, you may proceed for 5 minutes.

Mr. JORDAN. Thank you, Mr. Chairman.

And I apologize to the committee and to our witnesses. I have to

jump out. I am in another committee next door.

Mr. KUCINICH. Mr. Jordan, we are always in awe of how you can

be in two committees at one time. But we are glad you are here.

Mr. JORDAN. Thank you for this important hearing and for the

witnesses’ testimony.

And to Mr. Gendernalik and Ms. Ackley, your stories—I think

every single American would agree what you went through is

wrong. You pay your premiums. You’re honest when you sign up

for your contract. You should not have to go through the harassment and the things. I mean, this is coming from a conservative

Republican who says what happened there is wrong.

Americans, it seems this whole health care debate as it has unfolded over the last several months, Americans hate being told

what to do. And this idea that somebody is going to get between

them and their family and their doctor, whether it is the insurance

company or, frankly, whether it is the Government, it is just something that just doesn’t sit well with them. So I think there are

things that we have to focus on that empowers the family and

doesn’t have what you described take place.

I liked what I think Dr. Stearns said earlier, and I am old

enough to remember as well when I was a kid going into the family

doc, and there was typically one person out front, and in those

days, it was typically a lady, taking care of things and the reception work, and maybe she was—that individual was a nurse as

well. Today, there are more people out front complying with all the

bureaucracy, whether it is government or insurance; there are

more people out front than there are in the back trying to get you

well. And that’s a problem, and that is what is so frustrating to so

many Americans.

Let me just walk through some of the things I outlined in my

opening statement and just see. And I’ll go to Dr. Stern, if I could.

Do you think we need some liability reform in our current health

care system? Do you think that is appropriate?

Dr. STERN. The short answer is, very definitely, yes.

Mr. JORDAN. Do you think there is the need for more empowerment, say, health savings accounts, association health plans? I can

remember, just 2 weeks ago I was giving a speech. Before I even

talked to the group, had a husband and wife walk up to me, small

business owners. They own the business, and they have two employees.

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And they said, ‘‘Congressman, we would love the ability to pool

together with other similarly situated—other small business owners and use the economies of scale.’’ Do you think that makes sense

in our health savings accounts, association health plans, as part of

a way to empower people and help with our costs and help with

our system?

Dr. STERN. There is a conflict there. The issue of pooling together

and generating much larger insurance pools makes an infinite

amount of sense, and in fact, in Maryland, we do have a small

business pool.

The issue of the health savings account and the notion that the

consumer can be empowered to spend that dollar more wisely just

flies in the face of what the actual market is. Medicine is not a free

market.

Mr. JORDAN. I agree with that.

Dr. STERN. No way. A free market demands the free flow of information both ways.

Mr. JORDAN. And I was going to go there. So how do we get that?

How do we get that transparency? How do we get to where—there’s

a great piece, at least I read on the plane flying in this week, in

The Atlantic about a businessman who talks about the experience

his father went through getting an infection in the hospital. And

he outlines what he thinks needs to happen in health care, and he

talks about the fact that it is not a free market, and it is always

somebody else paying the bill, and that is a fundamental problem.

So tell me what you think needs to happen so we do get the transparency we need to get the right market out there.

Dr. STERN. The transparency has to be within the health care

system itself, to have the broker. The insurance companies are not

in the health care business; they are a broker. I am in the health

care business; I deal directly with the patient. The University of

Maryland is in the health care business; they deal with the patient.

Johns Hopkins is in the health care business; they deal with the

patient.

To have the broker intercede in that interaction is simply not

productive. And you have in my written testimony some very specific actions that we have had to take. One of those is a bill that

I worked on in the Maryland General Assembly and moved, fortunately, moved forward on the national scene, was the issue of the

mandated benefit for maternity care. There is no way to have the

private insurer intercede and make that determination that a child

and a mother should be going home at such and such a time. That

is a medical decision. It should be left to the medical authorities.

Mr. JORDAN. I agree.

Dr. STERN. If there is malfeasance in that, it is the medical profession that should be taking care of it. And we do.

Mr. JORDAN. OK.

Dr. STERN. But to assume that this is a marketplace issue I

think simply isn’t going to fix the problem. That is how we have

been dealing with it. It is not a free market. And we don’t have—

the consumer doesn’t have the information that they need to make

that analysis. Even if they had the information, they don’t have the

understanding. I mean, I went to medical school. I did additional

training just to be able to make that——

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Mr. JORDAN. Well, I don’t know that’s always the case. I’ll use

my—our—we have a health savings account in our family, a high

deductible health savings account. I did what so many of my colleagues do, every couple of years go for the physical that they offer

here with the doc on Capitol Hill. Did the blood work, did everything. He says, ‘‘You know what? We can have you—we can schedule you for a colonoscopy as well.’’ I said, ‘‘I’ll think about it,’’ and

decided I would rather do it at home.

Found out our insurance doesn’t cover it. But I also know I’m 45,

and 50 is kind of the recommended time you do this. So I could

have depleted our account, or I can just wait, and we decided to

wait. So there was a situation where we made the decision as a

family, or I made the decision, that we would just wait. So I do

think it can work and has a place.

But what I am interested in getting at is a more—what we need

to do so that we empower the patient, the consumer, the family as

much as we can and eliminate this bureaucracy, whether it is the

government or the insurance companies that gets between the patient and the caregiver.

And my time went way too fast, Mr. Chairman. So I will I yield

back.

Mr. KUCINICH. I thank my colleague from Ohio.

Before I introduce Mr. Cummings for questions, I want to acknowledge the presence in the audience of some visitors who have

come to Capitol Hill to indicate their concern about the reimbursement policies with respect to prosthetics.

So I want to acknowledge your presence. I see the young man in

the front row. We are glad that you are here. Maybe some day you

will be on the other side of this dais here. So thank you so much

for being here.

At this time, we’d like to recognize Mr. Cummings of Maryland

for 5 minutes of questioning.

Mr. CUMMINGS. Dr. Potter, first of all, thank all of you for your

testimony. It’s been very eye opening and very helpful.

Dr. Potter, one of the things that really bothers me is that when

you talk about insurance companies, the media—health insurance

companies, the media—and you complain about them, the media it

seems to bend in the direction of saying that you are beating up

on them. And that really bothers me, because when I listen to your

testimony—and I can tell you as a lawyer, the things that you

talked about to me are, if not fraudulent, are very, very close and

are criminal.

In other words, when you say that you are going to—when a person or an insurance company has people paying, say, for 16 years,

and when it comes time—they are loyal in paying their payments.

But when it comes time for them to get what they are due—and

that is a simple concept of contract law: You bargain for something,

and you get back something. But when they come to get it, what

they are saying, I mean, listening to the testimony here, when you

hear Dr. Stern, basically what he said is that he has to fight to get

what he needs for his patients. And not everybody is a Dr. Stern.

I know there are 99 million great doctors. But he has to fight, and

he has to double and—to double the number of employees in the

fight.

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So I am trying to figure out, do you think it is an unfair statement when—do you think it’s a fair statement when you say you

are beating up on the insurance companies?

Mr. POTTER. Absolutely not. It is part of the PR campaign of the

industry to protest that they are being demonized. And as someone

who was in PR for the industry for 20 years as part of what I did

when I was there, they want you to see them as, again, good-faith

partners and working with Congress and with the President, and

behind the scenes doing all they can through a lot of ways of essentially laundering money through big PR firms and setting up

groups that they don’t want anyone to know that they have any association with but which they are funding to try to gut reform or

to shape it in ways that will benefit them more than Americans.

One thing that’s happened over the years, and I saw this from

my role initially as a journalist but then later as a PR guy, our

media has changed a lot. The newsrooms are shrinking. There is

very little investigative reporting. And reporters are so stretched

for time that they’d often just take a statement that I would write

and go with it and say, ‘‘Well, I’ve got the insurance company’s

point of view here.’’ The insurance companies and other industries

of the special interests have really benefited from the change in the

way that the media operates and the growth in power of corporate

public relations.

Mr. CUMMINGS. Dr. Peeno, I am wondering, when I listen to testimony here and then I watch some of the town hall meetings

where people were loudly protesting—and that is all well and good.

But I sat there and I wondered how many people, if they really

read the legislation, would understand that this probably would

help them. And I get the impression—I know there are many reasons that have been given for these protests, but I get the impression that part of it must be what I call, ‘‘It won’t happen to me’’

syndrome; in other words, that people assume that, oh, that happened over there in Indiana. That happened over there in Baltimore, but it won’t happen to my family. It won’t happen to my

friends. I won’t have a similar experience as Ms. Ackley.

And so, I mean, so how—so I take it that this, the things that

you are talking about are pretty widespread.

Dr. PEENO. Absolutely. And I think you are right. I mean, people

assume that this isn’t going to happen to me until something tragic

does. But I can tell you, as one of those doctors that sat there and

put the nod on pieces of paper, that it did not make any difference

what somebody’s income level was, whether they were Democrat or

Republican, rich, poor, black, white, yellow, green, or whatever.

The only thing that made a difference was what they were costing

and how quickly we could avoid any cost or claim that was going

to hurt profits. I mean, I was told when I was first hired that I

was to use my MD degree to give economic justification to the company’s decisions.

Mr. CUMMINGS. And were you rewarded for that? In other words,

was that part of your evaluation?

Dr. Peeno. I was significantly rewarded. I mean, I quit one company before I got my bonus because we were put on a bonus system. But when I went to another company, we—my job evaluation

depended upon the number of denials and how much cost savings

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I generated. And, you know, the 150 cases that I worked on as an

expert witness, you know, I have read depositions and seen documents, internal documents, that will never see the light of day because they are sealed that show the reward system and the compensation system for the medical doctors that work for the insurance company.

Mr. CUMMINGS. Just one last question. Is there anything that

you have seen to make you, over—since you left the system—I

think—when did you leave the system, the last insurance company?

Dr. PEENO. 1990, 1991.

Mr. CUMMINGS. Is there anything that you have seen in your

present work that would indicate that things are better in that regard that you just talked about?

Dr. PEENO. Absolutely not. It is far worse. Everything is more

evolved, more sophisticated, more technical. The methods—the difference between the methods I used to deny care and the methods

that are used now is the difference between surgery with a kitchen

knife and a laser gamma knife now. It is just that much more expert.

Mr. CUMMINGS. Thank you very much.

Thank you, Mr. Chairman.

Mr. KUCINICH. The Chair recognizes Mr. Tierney.

You may proceed.

Mr. TIERNEY. Thank you very much.

Mr. Gendernalik and Ms. Ackley, I can’t think of any question

for either of you that would do a better job than what your testimony did in laying out what some of the issues are. I do want to

thank you for being with us here today. I know how difficult it

must be on that.

Mr. Potter, I want to go back to you again, because I—someone

is going to get between the patient and their medical provider one

way or the other the way our system is set up. Not everybody in

my district, certainly not even a majority of the people in my district, can afford to put money into an account of some sort. And,

if they do, they are still going to have an insurance company somewhere involved in that. So clearly that is not the answer that we

are talking about here.

We can regulate, or we can try to regulate prohibiting rescission,

prohibiting a cap on the insurance, and perhaps prohibiting exclusion for preexisting conditions, but we would have to be pretty good

at policing to make sure the companies don’t just do it anyway, or

that they don’t try to pay fewer claims in some other way.

It would seem to me that one way to do it is to just say that a

certain percentage of a premium dollar has to be spent on medical

services, so the medical loss ratio—maybe go back to where it was

in the 1990’s, to 95 percent. That would be one way of going at it.

Do you agree?

Mr. POTTER. I do agree.

Mr. TIERNEY. And the second is competition with somebody or

something that doesn’t play by the rules that they play. Right now,

they are happy with competition. Let’s have competition as long as

we are all in on this game of trying to make sure our medical loss

ratio is low, our salaries are high, our profits are high, and we

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have these different ways of excluding coverage. And I think—

would you agree that’s where the public option comes in? That if

you don’t have something like that, we are never really going to get

at the crux of this?

Mr. POTTER. Absolutely. There is some competition, but it is far

less now than there was back in the 1990’s. That’s one reason why

the medical loss ratio has been able to drop so much. There is such

power concentrated in the hands of now seven very large for-profit

insurance companies that one out of every three of us is enrolled

in some kind of a benefit plan managed by one of those seven big

companies.

They are accountable to Wall Street; they are not accountable,

really, to you and me. And we can become victims of their striving

to meet Wall Street’s relentless profit expectations. There is no

counter to that right now. They are all playing by the rules that

they establish in a marketplace. There is no government benchmark. They set the rules. They determine what kinds of policies

we’ll be able to have, what kinds of policies your employer will offer

to you. They run the show. They have an enormously tight grip on

our health care system, far, far more now than they did in 1993,

1994. And they are richer and stronger and more powerful and

more influential than ever before. A public option is absolutely, absolutely vital.

Mr. TIERNEY. I would think that people on the streets ranting

and raving would be ranting and raving about that kind of practices that we’re talking about engaged in by the insurance companies. I mean, that would really get your blood boiling. Now, that

would be a populous motion. People would be out in the streets

saying, ‘‘Why is our government letting them get away with that?

Why aren’t they stepping in and protecting us?’’

So on the Oversight Committee here, we’re used to following the

money. So we know where the money is going: It is going to Wall

Street. It is going to the people who invest in these companies.

What role do you think those companies are playing in inciting people to go in and, instead of railing against bad insurance bureaucracy practices, trying to tell how bad their government is?

Mr. POTTER. I was speaking at a town hall meeting a few days

ago, and a woman—and I was describing how this works, how the

PR firms work for the industry and feed pundits talking points.

And she came up, and she said, ‘‘No one paid me to come here.’’

And I said—I was thinking, well, no one had to. You don’t get the

money. That is not where the money goes. The money goes into the

big PR firms who have the influence to manipulate public opinion.

That’s how it happens.

And I did ask her, to Congressman Cummings’ point, are you absolutely certain that tomorrow your insurance is going to be there,

that your son or daughter is going to be enrolled in a benefit plan

that provides protection? And she didn’t have a good answer to

that, because there is no guarantee. You do not know if you are

going to have your insurance coverage tomorrow. You do not know

if you are going to be losing it because you lose your job, or if you

are going to be forced into a plan that makes you pay so much out

of your own pocket that you might as well—you will be forced, in

some scenarios, to buy insurance from private insurance compaVerDate 11-MAY-2000 11:21 May 23, 2011 Jkt 000000 PO 00000 Frm 00103 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\64917.TXT KATIE PsN: KATIE
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nies, but your benefits may be so limited that you will be sending

in money every month for almost nothing.

Mr. TIERNEY. Which has been going on.

Just, I’ll tell you one little anecdote from an individual that came

into my office, just ranting and raving about the public option. And

I tried to explain what that would do.

He said, ‘‘Look, I like my company now.’’

I said, ‘‘Fine, then stay with your company.’’

And then he said, ‘‘Well, except if I get really sick or someone

in my family gets really sick, I don’t use the company; I go to the

VA, because if I use the company, they will jack up my premiums.’’

Case in point.

Thank you, Mr. Chairman.

Mr. KUCINICH. I thank the gentleman.

The Chair recognizes the gentlelady from Ohio, Ms. Kaptur.

Ms. KAPTUR. I thank the chairman very much, and compliment

him for his steadfast efforts to try to bring health insurance at affordable prices and quality care to all the American people. I’m

very, very proud to serve with you.

I wanted to say to the panel that I view my job as defending our

citizenry against those who might harm or exploit them or our Republic. And these are very important hearings today.

As I have listened to your testimony, I keep thinking about pharmaceutical companies being the third most profitable sector in our

economy. In the district that I represent, you can’t turn the TV on

without being besieged by all these ads from the pharmaceutical

companies. I don’t know if that is true in every district in the country, but they are sure spending a lot of money on advertising. I

keep asking myself, if you have a doctor, what do you need all

those ads for on the television?

It is very curious what has happened. That wasn’t true 20 years

ago. It is true today. And I can see, with the kind of profits they

are making, where they are putting some of those dollars.

Yet, I have people in my district, I border Canada up in northern

Ohio, and I can’t tell you how many people from my district have

to go to Canada because they cannot afford medicine in the United

States of America. Yet, I see these ads on television, and I am

thinking, what doesn’t fit here? How are these dollars being used

versus what the need is?

The insurance companies are the ninth most profitable industry

in this country, and, Mr. Potter, I think you talked about seven

companies now having a third of the market?

Mr. POTTER. Yes. That’s right.

Ms. KAPTUR. And we heard that yesterday at a hearing by the

former head of CIGNA Corp., who I believe will be before this committee this week.

I remember, back to our beloved Uncle Skip from our family, and

he used to confide in me as he became older and had infirmities.

He said, ‘‘Marcy, here’s all my insurance.’’ Now, this is a man that

was on Medicare. And he emptied out his billfold, and he pulled

out all these policies, Art Linkletter policy and this policy and that.

And I said, ‘‘Uncle Skip, why do you have these policies? You

don’t need these policies. You have a supplemental, and you have

your Medicare.’’

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He says, ‘‘Well, just in case.’’

And I keep thinking to myself, I thought, ‘‘Uncle Skip, why didn’t

you tell me about this before? You don’t need to spend your money

on these.’’ I said, and, ‘‘frankly, with some of the exclusions, this

wouldn’t give you anything.’’

But he really didn’t know. He was not an uninformed person, but

he was afraid. He did not have a college degree. And I asked myself, how many Uncle Skips are out there in our country who are

buying unnecessary policies that are duplicative? And even with

our offices on aging and so forth, we can’t reach every citizen to

help them make wise insurance choices.

So my questions to you really are, the bill that the President has

proposed has language that only encourages for the pharmaceutical

companies price negotiation for the cost of prescription drugs.

Within the VA, within the Department of Defense, we actually negotiate. It is mandatory.

I want to ask you to comment on the language that is in the base

bill that merely encourages negotiation, and what that might mean

down the road. And, No. 2, on the insurance companies and the

fact that seven control so much, can you give us a sense of what

you see happening in the insurance market in our country? Is it

consolidating like we see happening in other segments of our industry, the banking industry, mega banks that just caused this huge

implosion in our economy, these very big private companies that

seem to be terribly irresponsible? Could you give us a sense of what

is happening in the insurance market?

Anyone that wants to respond on the pharmaceutical question or

on that would be much appreciated.

Mr. POTTER. I think that encouraging is not strong enough. You

are exactly right. Another gentleman I heard was talking about he

got his care through the VA, and he needed medication that cost

him a modest amount of money. But he needed it. And in private

insurance, he would have to pay about $300 for this medication. He

was able to pay through the VA a small fraction of that. So it

makes a big difference.

And in the lives of people who are—the median household in this

country is just $50,000. The average price of a premium that you

get through the workplace for a family is $12,500. So you are shifting more of the financial burden for either drugs or care for the

doctor, whatever, there’s not much money left over to pay the rent

or buy the groceries.

To your point about the seven large companies that control the

industry. They have become so big through mergers and acquisitions over the years, and I think a part or a lot of that—or managing communications around them. There are far fewer companies

than there used to be. There is not nearly as much competition as

the industry would like you to believe. They say on their Web site

and they will say in testimony that there are 1,300 insurance companies that compete. There’s nothing like that. If you look closer

on their Web site, you might see, if you can count up, 287. And

then that includes vendors to these companies. So it’s a fabrication.

There’s been so much consolidation in the industry that last year

alone $250 billion flowed through the seven—just these seven companies in revenues. So you have enormous concentration of power.

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It is really a cartel of large companies. And they are so big that

small companies—and there’s been talk about maybe establishing

co-ops—there’s not a chance that a co-op, a fledgling co-op could

ever get the resources or have the clout in the marketplace to compete against these big companies.

Ms. KAPTUR. You are talking about the insurance companies.

Mr. POTTER. I am.

Ms. KAPTUR. Do you see the same concentration in the pharmaceutical industry?

Mr. POTTER. Absolutely. The power of the pharmaceutical companies is—absolutely is great, and they are gigantic companies that

are very, very profitable.

Ms. KAPTUR. Could I ask, sir, if there are any of the witnesses

that have any articles that you could reference that we could incorporate in the hearing record on the nature of that concentration,

I personally would appreciate it very much.

Mr. POTTER. Certainly. We’ll do that.

Ms. KAPTUR. Anyone else want to comment on pharmaceutical

profits and insurance company consolidation?

Mr. GENDERNALIK. Very briefly.

My daughter’s delay in treatment at UCLA, the first significant

delay we received was because the pharmaceutical she required is

a drug called ACTH. There was one manufacturer who produced it,

Questcorps. They have been the subject of Senate hearings due to

what they did with their pricing scheme.

In doing my parental due diligence, I went online to look up

what this drug was that they were going to put in my child, stumbled across investment journals, online investment journals, where

one of the corporate officers from Questcorps was speaking freely

to investors. So he wasn’t speaking—I wasn’t the intended audience.

His remarks were that the drug was an underutilized asset; and

because they were the sole manufacturer, they could change their

pricing strategy and significantly increase the company’s portfolio,

which they would then be able to put into—he tried to cast a noble

light on—other FDA approvals and such.

The drug went in July 2007 from roughly $1,000 a vial to over

$23,000 a vial based on published reports. My insurance company

doesn’t let me see what the actual costs are. So, published reports,

multiple published reports had it at that point, when my daughter

needed it in December 2007, $23,000 a vial. And just to get to how

ludicrous this is, we had to order it from out of State; we had to

inject it ourselves. Two untrained people had to inject our daughter

nightly with this. We had a syringe explode. We thought, how

many thousands of dollars just exploded over dad’s face? They had

a delivery man in a beat-up Nissan probably making $8 an hour

deliver four vials of this stuff to my house. And I thought, wow,

does he know what he has? He can quit this job, drive across to

Mexico and sell this stuff.

Clearly we’ve had our brush with the pharmaceutical industry.

My solid opinion is that they delayed service to my daughter because of the hit they were going to take. Now, that is the HMO

medical group.

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The pharmaceutical company on the other hand knew by the

open drug status they had the leverage. There was no competition

in the marketplace for this drug that serves a minority of people.

Very few children are afflicted with my daughter’s disorder. Their

primary market for that drug are MS patients, and, therefore, they

leveraged it, as the man was candidly speaking in investment journals, up to 23,000.

Other published reporters after my daughter’s required time period on the drug, we were on it for 4 months, I don’t know, estimated cost was $80,000 to $100,000. The drug went up to over

$40,000 a vial. Absolutely exacerbating and unwarranted and immoral. Thank you.

Ms. KAPTUR. Thank you.

Mr. Chairman, may I just say, if there are any witnesses that

have any kind of a study on the advertisements paid for by pharmaceutical companies across this country in order of the most, the

biggest buys, for which drugs, and then in rank order, I would love

to have that for the record.

Mr. KUCINICH. I want to say in response to the gentlelady’s question, I think that as we begin preparing for the continued work of

this committee, that would be a proper subject for a separate hearing. And I want to thank the gentlelady for making that suggestion.

Ms. KAPTUR. Thank you.

Mr. KUCINICH. We are going to go to a second round of questions

of the witnesses before we go to our second panel. And given the

fact that we are going to be holding a hearing tomorrow with top

insurance executives in this same subcommittee and the fact that

we have two distinguished individuals here who have had direct

experience working inside the industry, we are going to hopefully

be able to engage a little bit more in this second round.

I want to start with Dr. Linda Peeno, who is the former review

physician for Humana, Inc., out of Louisville, KY.

Dr. Peeno, the evidence on which evidence-based medicine is supposed to rely is by its nature public, peer-review journals, for example. But the detailed standards of care used by private health insurance companies are proprietary, meaning that it is their business and not ours. If the coverage decisions are based on publicly

available evidence, why doesn’t it follow that the standards these

companies use to determine care should also be public? Why aren’t

they? And what is the reason?

Dr. PEENO. Well, the main reason is that their basic purpose is

to be able to deny or limit care. So what happens—and this has

been a part of the evolution of managed care. Twenty years ago,

one of the real difficulties for an insurance company back when I

was functioning as a medical director was having some sort of objective grounds to deny something. So, for example, if we wanted

to deny a hysterectomy, we needed criteria to do that. And that

was very labor-intensive for a company to develop. So these companies emerged that would actually develop criteria, like we’ve heard

Milliman & Robertson, Dr. Stern referred to them, which is now

Milliman USA, and other companies that have gotten into the business of developing criteria specifically for health care companies to

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have—it is like a filter, you know, and the tighter the threads of

the filter, the more you can limit or deny care.

Mr. KUCINICH. So you’re saying the criteria is set up on denying

care.

Dr. PEENO. Right. I mean, it’s like I said in my testimony here,

you don’t purchase criteria in order to provide more care or more

generous care. You know, the reason these companies spend millions and millions of dollars to buy the criteria, to set up the computer system, is to enable, as requests are made for the more costly

or the more frequent and costly services, is for nurses up front, or

not even nurses sometimes, to be able to say, well, this doesn’t

meet our criteria, and we can’t authorize it.

Mr. KUCINICH. So the standards are proprietary. But are these

standards based on evidence? Or are they just basically accounting

devices to try to whittle away the claims?

Dr. PEENO. Well, they are loosely based on evidence. I mean,

there is material that is available and research that comes out of

academic centers that say you take this information, that is public

and has been developed using public funds, and then you tweak it

as an accounting denial tool.

Mr. KUCINICH. Now, Dr. Stern, you wanted to get in on this?

Dr. STERN. The criteria in one case has a focus that is the standard criteria, the standard practice, that are publicly available has

a sole criteria of cost-effective quality care. That is the criteria.

Milliman & Robertson is focused on cost reduction. That is the

criteria. And everything that is generated in that criteria is to support the cost reduction. It is a highly different mission.

Mr. KUCINICH. So let me ask Dr. Peeno and Dr. Stern, if you

want to join in on this. I understand, Dr. Peeno, that insurers pay

subcontractors to do utilization review as well as handle specific

appeals of denials of coverage. Do insurance companies carve out

any specific disease for internal special reviews or for outside contractors to review?

Dr. PEENO. Oh, yes. And——

Mr. KUCINICH. Why?

Dr. PEENO. They kind of carve out—or, outsourcing is increasing.

Mr. KUCINICH. Why? I mean, under what circumstances?

Dr. Peeno. It began, one of the earliest carve-outs were mental

health management, you know, where you could carve out the

amount of premium that was used for mental health and you subcontract it out to a for-profit mental health management company.

You capitate them, so you fix your costs. I mean, they have to take

care of all the medical conditions within that. And then that has

slowly emerged and grown into now we have disease management

companies that will manage a single disease like congestive heart

failure or asthma or diabetes or other conditions.

Mr. KUCINICH. Say a whole industry that is set up around trying

to figure out how to lessen the amount of claims.

Dr. PEENO. Exactly.

Mr. KUCINICH. I have a limited time here to just ask one final

question. A person signs up with an insurance company. They receive a policyholder’s book that describes all the procedures and

costs that are supposed to be covered. Does this mean an insured

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person will then be covered for all the things listed in the book?

Yes or no?

Dr. PEENO. No.

Mr. KUCINICH. And is it one standard of medical necessity across

the industry?

Dr. PEENO. No. It can even differ within the same company and

the same plan.

Mr. KUCINICH. Is there any one standard of medical necessity

within each company?

Dr. PEENO. No.

Mr. KUCINICH. OK.

My time has expired. I am going to now go to Mr. Jordan.

Mr. JORDAN. Thank you, Mr. Chairman.

Let me ask Mr. Gendernalik and then Ms. Ackley. The harassment that you went through dealing with the insurance companies,

are you in favor of a single-payer system, government-run system,

public option that has received so much discussion of late? Or do

you think that just replaces one—instead of having the insurance

companies give you harassment, you now have the government? We

know from many countries that have this, at least from what I

have read, there are waiting lists. There are difficulties. There is

rationing of care eventually when you go there.

So do you want us to fix what happened in your situation, make

the insurance companies do what they said they were going to do

when you bought your policy, paid your premiums, did everything

right? Or are you in favor of like throwing it all out and going to

a single-payer, government-run system?

And, I mean, you obviously know where I am coming from. I look

at this, the most recent example of government starting a big program. I just talked with a car dealer the other day. He’s still waiting on 75 percent of the dollars that the Cash For Clunker program

was supposed to get to him. And I think there’s lots of examples

where you have bureaucracy that don’t meet the customers’ needs

and demands at least in a timely fashion. So fill me in.

Ms. ACKLEY. Well, I am in support of a public system. But from

our experience, things that would have been beneficial with the private industry would include Federal oversight of that.

You know, the appeals process that we went through, supposedly

once my dad’s appeals went to the reviewing foundation, we were

supposed to get a decision within 48 hours. The first appeals

process——

Mr. JORDAN. Was that a State review? Was that through the

State insurance commissioner?

Ms. ACKLEY. That was coming from the insurance company itself.

Mr. JORDAN. Internal. OK.

Ms. ACKLEY. That we would get a response.

The first appeal process, the hospital received the decision 6 days

later, and then my dad received the decision 9 days later.

On the second appeal process, the insurance commissioner’s office received a decision 10 days later, and then my parents received

it 13 days later. So there was nothing to hold them accountable for

that.

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Some other things we encountered was the foundation who was

reviewing my dad’s case is getting paid directly by the insurance

company. So, I don’t know, that seems a little odd.

Mr. JORDAN. But Ms. Ackley, your short answer is you think a

single-payer, government-run system—you would be for moving

completely to that type of system?

Ms. ACKLEY. I think there are benefits with a public-run system.

But I don’t see the private industry being eliminated.

Mr. JORDAN. OK. I guess my question, you don’t think we substitute one set of hassles for another if we go in that direction?

I’ll go to you, Mr. Gendernalik.

Mr. GENDERNALIK. Thank you for the chance to address the question.

I think to revert to what you were speaking about earlier, health

savings accounts as a sole measure for health care, are woefully inadequate.

Mr. JORDAN. I am not saying they——

Mr. GENDERNALIK. I don’t believe putting things totally in the

hands of government is the solution. I believe that a public option

is a necessity to provide a baseline. I think—as a Member of the

Republican Party myself, I think we talk out of both corners of our

mouth when we express concerns about government inefficiencies

on one hand not being able to get it done, and on the other hand,

we say that if the government provided a public option, we would

undercut, low-ball the price in health care and run the private sector out. Which is it? It’s one way or the other. It isn’t both, unless

we are not dealing direct.

I think there’s a desperate need for regulations so that the consumer, the end consumer, the end user, has recourse. We have

none now. The way it is set up now, our employers largely negotiate with a limited pool of providers to figure out what choices we

have. Then the employee gets to select from that menu. And then

we get to subselect a doctor who is covered under that.

Now, I did it backward. I found good doctors and then went up

the chain of command. I am fortunate. I work at a huge bureaucracy with 80,000 employees, and the employees pick our contracts.

If I worked at a small mom-and-pop who is nice enough to give us

coverage, I wouldn’t have had that luxury, or we would have been

audited repeatedly. And we have some of the most effective policies

in this country, thanks to the employee unions who negotiated it.

That all said, my doctor is handcuffed because they do—they determine through their best judgment what the proper care is, and

it is constantly meddled and interfered with by people who are

looking at one thing: How can they do this less expensively?

I don’t believe that for the United States a single-payer government system is what would be best in this point in history.

I do believe that it is incumbent upon all of you to survey the

world, just like a business would, if you want to continue on the

business model. If I want to know how my competition is beating

me, I am going to go find out what they’re doing; I’m going to take

their best ideas and make it work within my——

Mr. JORDAN. Let me ask you this question, because I think your

statements sort of beg this question; if in fact the government’s

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running it, what is our recourse then if we don’t like what they decide? You get hassled. What is our recourse then?

Mr. GENDERNALIK. I can tell you that the services I do get

through the Government for my daughter, we have had almost no

problem with. And when we do, there is a clearly identified appeal

process with a clearly identified timetable with a clearly identified

resolution. Nobody is going to be happy all the time. That is just

not realistic.

As the proud son of a Dutch mother, I can tell you that the waiting lists that you speak about are not a reality in the Netherlands.

And it hurts me as a father and an American, and my relatives

have offered to take my daughter and I in because we wouldn’t be

facing the delays and denials that we are here.

As the proud husband of a Belizean American, when we travel

to Belize, a third-world Central American country, my daughter got

sick on the flight over. We were hospitalized for 4 days. The bill

was $7; $7 in a country where children don’t have shoes to go to

school. A proud country, a beautiful country. I certainly don’t want

anyone to take out of context and malign any country, but clearly

a poverty-stricken nation, 4 days of hospital care with medication,

$7.

Mr. TIERNEY. Mr. Chairman, let me just—15 seconds by unanimous consent. I think the answer to the gentleman’s question

clearly is, what happens if you don’t like the government doing it?

It’s government. You have a vote, and you change it. That’s where

the people get to have a part in it. We don’t get that vote with the

insurance companies, and that’s the problem. We can rant and we

can rave and we can do it, but all we get to do is go to another

company with the same bad practices if we don’t like the first one.

Mr. JORDAN. I appreciate the gentleman. But we can also change

the law and make it—we do have a say in this as well. We can

make the system work better and do one that doesn’t turn it all

over to the government as well. That’s Congress. I mean, I agree

with you. We can act.

Mr. TIERNEY. If the gentleman’s for strict regulation, we can all

get there pretty soon.

Mr. KUCINICH. I want to thank both of my colleagues for that exchange. A great thing about this committee is that we like to hear

what each other has to say.

Mr. Cummings, you are recognized.

Mr. CUMMINGS. Mr. Gendernalik, I think you are saying what I

am feeling. I just want us to have an effective and efficient system

that also has an element of empathy.

The President used to talk about, and I guess he still does, a society where we have an empathy deficit, because we can put all of

the rules and regulations in place, but if we don’t have people in

those places that see people as more than a number or more than

a statistic or not worrying about a bonus over the life of a person,

it won’t make a lot of difference. So I agree with you.

Mr. Potter, what is the—I mean, let’s put you in the place in

your old position. And somebody walked in to your office and said,

‘‘Potter, we’ve got a problem. Those folks over there on Capitol Hill,

they have come up with this thing called a public option. What do

we do about that?’’

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I mean, in other words, I am trying to figure out, what I hear

the insurance companies on the one hand say that they are worried

about being—not being able to compete, but on the other hand saying that there are certain things that they have to have in order—

well, the first thing they don’t want is a public option. And I am

trying to figure out, what would be the concern? What are those

concerns?

And then I would like to hear from you, Ms. Peeno, also. Go

ahead.

And are they legitimate?

Mr. POTTER. The insurance industry actually has had this concern and has been preparing for opposition to the public plan since

before Barack Obama was elected President. And I was there during a lot of the meetings in which we reviewed every Presidential

candidate’s platform for health care reform. And as you probably

know, President Obama, Senator Clinton, and Senator Edwards all

had the public option as a central component of their campaign

platform. So the industry had a long time to develop a strategy to

try to oppose that, and what we are seeing now is it being carried

out.

And they have been saying the things that we’ve been hearing

that make no sense: that it will put them out of business because

it will be run too efficiently, on the one hand; or, that we should

oppose it because it is a government-run system.

They want to try to make—they want to defame it and make it

seen as if this is a government takeover of a health care system.

Those are the terms that they use. That’s part of the strategy that

was developed a long time ago. It has been an ever-green phrase

that works for them every time there is an attempt to reform the

health care system.

What are they afraid of? They are afraid of having something

that might take a little bit of revenue from them. If there’s no public option and if you have an individual mandate, look what happens, everybody has to buy their product. And if the person can’t

afford that product, then you and I and other taxpayers will have

to pay the subsidies. And those subsidies, the premium dollars that

the people will pay and the tax dollars that subsidize them, will

flow right into those for-profit companies—or all those companies

for that matter—and then a lot of that will be taken away and go

into shareholders’ pockets.

That is what they—they don’t want to have another competitor.

They have been consolidating for many, many years, taking the

small players out, gaining control of markets and market share. So

of course they are going to try to oppose anything that would compete with them, but certainly anything that could operate more efficiently.

Mr. CUMMINGS. What I see and what I see and I hear the insurance companies say, we are ready to come to the table, we will get

rid of the preexisting conditions; we will get rid of the rescissions.

And they go through all of that. It makes it sound as if they are

basically admitting that this stuff is wrong.

Mr. POTTER. Absolutely. And they said exactly the same thing in

testimony before Congress in 1993, and I can point you to it. They

know it is wrong. But after the plan failed, the Clinton plan failed,

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did you see them coming here to Congress and asking them to

change the laws? No. Of course, they didn’t. They have thrived.

They’ve made tons and tons—they made billions of dollars with the

system that we have now. They are not sincere. It’s just rhetoric.

They would agree to it if—they could thrive in a system in which

these things are made illegal, but they know how to make money.

It is kind of like squeezing a balloon. You could make them do certain things, you can regulate them, but what you would have is

pressure from Wall Street to figure out ways, unique ways for them

to deny care or to shift more of the financial burden to consumers.

Mr. CUMMINGS. Without a public option, do you see any way

where we can control costs? In other words, costs of premiums?

Mr. POTTER. In a word, no. In two words, absolutely no.

Mr. CUMMINGS. Can I just hear from Dr. Peeno, just real quick?

Mr. KUCINICH. The gentlelady may respond briefly.

Please go ahead, Dr. Peeno.

Dr. PEENO. Well, a general question about why they would oppose the public option is because I think, you know, Mr. Potter referred to them as a cartel and that it’s a cartel that works with

very secret hidden practices that suddenly would possibly be disclosed if they had to compete with a real competitor. So, all of these

methods, these secret hidden methods for profit maximization

would become more public.

And they could come to the table, and they could say, oh, well,

we will give up preexisting conditions; we’ll give up rescission. But

that is only because they have so refined all of the other methods

behind the scenes. And I see this in case after case after case

where I’ve worked as an expert witness, where after all of the labor

of finally getting documents that have to be compelled by a judge,

and we see the inner practices. You know, these systems are so refined. And they could give up these other things and still have the

methods to maximize profits. That’s why they no longer worry

about possibly having all of these other persons who are uninsured,

because they now can control the cost of the people who are going

to be costly. You know, it’s a process that’s been refined over the

past decade in ways that are just unimaginable and would take

days to explain how all these devious methods work.

Mr. CUMMINGS. Thank you very much.

Mr. KUCINICH. I would say that it would probably be to the great

benefit of Congress to have still another hearing of this subcommittee where we actually would go into great detail about how all

these meetings and ways are used to deny coverage.

The Chair recognizes Ms. Kaptur for 5 minutes.

Ms. KAPTUR. Thank you, Mr. Chairman.

Mr. Potter, do you have the ability to put on the record the profit

margins of the largest insurance companies that you have been referencing?

Mr. POTTER. Sure. I can get that data.

Ms. KAPTUR. How would it compare to the profits that are made,

let’s say, by the supermarket industry, the food industry, or the

clothing industry? I mean, how would you compare, from your

knowledge of the industry?

Mr. POTTER. The profit margin is higher than grocery stores. And

I haven’t compared all the other sectors of the economy. In fact, I

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just heard this week that the insurance industry was putting out

propaganda saying that only 3 percent of the premium dollar goes

to profits or something like that.

It varies widely from company to company and product to product. Some of these products are extraordinarily profitable, and the

ones that they want to move us all in to, these high deductible

plans and similar plans, profit margins will expand greatly. They

can make tons and tons of money on this. So that’s what they want

to do in the future. That’s why the trend is the way it is.

But think of it this way. Let’s assume that it is 3 percent, and

let’s assume—and that’s not an assumption, that’s the truth, that

$250 billion of the money that we spend on health care flowed

through those seven companies last year alone in revenue, 3 percent of that is a ton of money. That is a lot of money in profit. So

they will use sometimes small numbers to make you think that it

is inconsequential, but it is a huge, huge amount of money.

Ms. KAPTUR. Let me go back to my example of Uncle Skip. How

much duplication—how do we get a handle on how much money is

wasted in the system because consumers are innocently or fearfully

buying numerous plans to cover themselves when they’re

unneeded? How do we get at that? What’s the mechanism to get

at that? I know the standard benefit plan; that’s one of the goals

of the reform legislation, to have a benefit plan that people know

they can depend upon. But how does one get at that waste inside

the system?

Mr. POTTER. There’s a lot of waste. McKenzie & Co., which does

a lot of consulting work for big insurance companies and other

large corporations, did a study of health care systems and compared our system with those abroad, and I think the doctor noted

that 30 percent of the money we spend here is on administration

that is not spent in other countries. And that is not just because

you have that much inside the insurance industry, but it’s caused

by the industry. The multipayer system we have now, there’s an

enormous amount of administration that goes on within these companies, but it requires doctors and hospitals to hire big staffs just

to deal with them. So that is 30 percent.

Ms. KAPTUR. I understand the administrative point or about a

third of the money. But I am talking about citizens who—millions

of them out there in our country who are buying policies they don’t

need because they are victims in the marketplace, in essence. They

are fearful of the future. They don’t believe that what they have

is secure. How much money is being wasted on that?

Mr. POTTER. I think that would be a good research project. I

haven’t seen the data myself on that because it is not so easily

found. But you would need to look at the kinds of policies that the

companies are selling, what benefits they have, and whether or not

they are really worth a dime.

And then you can also look at the policies that are being spent

on fake insurance or—that I have talked about. These big companies are now getting into that. It’s not just fly by-nights that are

doing that. And these are plans that people—it’s not just supplemental. It’s what is being sold as the choice that they have available to them that’s affordable.

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Keep this in mind: Don’t be blinded by just this talk about affordable premiums, because they will sell you—they’ll market

something that has the premiums being affordable, but the benefits

will be so lousy you might as well not be insured.

Ms. KAPTUR. If there are senior citizens listening today, if they

have a Medicare policy with a supplemental plan that is recognized

by the Department of Health and Human Services, do they need

extra catastrophic coverage?

Mr. POTTER. I don’t think they would. I mean, the basic Medicare

benefits are pretty good. If you’ve got a reasonably good supplemental plan, then I can’t imagine why you would need to shell out

a lot more of your scarce resources.

Ms. KAPTUR. And where the fault line is, is the public—large

numbers in the public don’t understand that.

Mr. POTTER. Exactly, they don’t.

Ms. KAPTUR. So there are people that play that portion of the

market. There are firms that play that portion of the market, and

they force product on people that is really unnecessary. And I can’t

think of a place—I know we have a State Insurance Commissioner

in the State of Ohio; you can call that number. But this issue of

consumer protection and insurance plan buying is very important,

and money is being wasted all over this country by people who are

so scared that they are buying what is unnecessary. We really need

to look at that arena. It’s huge.

Mr. POTTER. It is. And it brings up a point that I would like to

make in the inadequacy of State regulation. They do review marketing materials, but they don’t have the resources to do an appropriate job. That’s why you have stuff like this going on. The regulators are well intentioned, but they just don’t have the resources.

States are not wealthy enough to provide all the resources that are

needed to regulate this industry that is so bent on taking advantage of consumers.

Ms. KAPTUR. I thank you very much.

I know, Mr. Chair, my time has expired.

Mr. KUCINICH. I want to thank the gentlelady. And as she has

pursued twice in her line of questioning, the issue of people, particularly seniors, buying policies beyond their basic Medicare extra

policies that they may not need and which in fact may represent

kind of a consumer fraud that people are trying to sell to seniors,

I just want the gentlelady to know that I have just talked to staff,

and that is something that we are interested in pursuing to the

level of a hearing to work with the gentlelady.

And perhaps we could get Uncle Skip here to testify.

Ms. KAPTUR. Thank you very much.

Mr. KUCINICH. You are welcome. And I just want to say, this is

the Ohio committee now. We have Mr. Jordan from Ohio, myself

from Ohio, and also Ms. Kaptur. So Ohio is very concerned on this.

Some of our colleagues may be rejoining us momentarily.

I want to thank this panel. Each one of you has made a contribution through your testimony here today, some of it heart-wrenching, and other of the testimony infuriating. We will continue with

our investigation tomorrow. But I will say that the testimony that

came today was very helpful in preparing us for tomorrow as well

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as to remind the American people that I think it’s good to communicate with each other about our experience. It’s not theoretical.

You know, Mr. Gendernalik has real experience with the system.

Ms. Ackley, your family has some real experience with the system.

We need to hear those stories, not anecdotes; what really happens. And, as Dr. Stern told his experience as well. So this is very

important. I think, frankly, whatever kind of system we end up

with, the transformation is going to be driven by the power of the

narratives which we hear from across the country.

So, with that, I want to thank each and every one of you and also

to salute Mr. Potter and Dr. Peeno for your courage in coming forward and giving an insider’s point of view that we rarely get a

chance to hear. And so I just want to thank you personally and on

behalf of the committee for being here, and we look forward to your

continued work and cooperation. This panel is now dismissed.

Mr. KUCINICH. We’re going to ask our second panel to come forward.

As the staff is getting the table ready, I just want to remind everyone that this is the Domestic Policy Subcommittee of Oversight

and Government Reform. The topic of today’s hearing: Between

You and Your Doctor: The Private Health Insurance Bureaucracy.

I’m joined by the ranking member, Mr. Jordan of Ohio. We have

Ms. Kaptur from Ohio and other Members who have been here

throughout the hearing.

We want to thank the first panel. We’re now going to go to the

second panel. We’re fortunate to have an outstanding second panel

of witnesses. I would like to first introduce Ms. Karen Pollitz; is

that correct? Welcome.

Ms. Pollitz is the project director of the Health Policy Institute

at Georgetown University here in Washington. She’s also an adjunct professor of Georgetown’s graduate public policy school. Professor Pollitz directs research on health insurance reform issues as

they affect consumers and patients, focusing on the regulation of

private health insurance plans and markets, managed care consumer protections and access to affordable health insurance.

Ms. Pollitz is a member of the National Academy of Social Insurance. She’s also a member of the advisory board of the California

Health Benefits Review Program and has served on the board of

directors of the Maryland Health Insurance Plan, as well as the

National Committee on Quality Assurance. Previously, Professor

Pollitz served as Deputy Assistant Director for Health Education at

the U.S. Department of Health and Human Services from 1993

through 1997, acting as the Secretary’s legislative liaison on all

Federal health care issues, including national health care reform,

Medicare and Medicaid, and U.S. Public Health Service agencies

and programs.

Mr. Michael Cannon. Welcome, Mr. Cannon. Mr. Cannon is the

CATO Institute’s director of health policy studies. Previously he

served as a domestic policy analyst for the U.S. Senate Republican

Policy Committee under Chairman Larry Craig, where he advised

the Senate leadership on health, education, labor, welfare and the

Second Amendment. He coauthored a book on competition in health

care. Mr. Cannon has had his work published in numerous national

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media publications and has also appeared as a commentator on television and radio.

I want to thank you, Mr. Cannon and Ms. Pollitz, for appearing

before the subcommittee today. It is the policy of the Committee on

Oversight and Government Reform to swear in witnesses before

they testify. I would ask that you rise and raise your right hands.

[Witnesses sworn.]

Mr. KUCINICH. Thank you very much.

Let the record reflect that the witnesses have answered in the

affirmative.

I’m going to, as we did with the first panel, ask each witness to

a give summary of his or her testimony and to keep the summary

under 5 minutes in duration. Keep in mind your complete written

statement will be included in the hearing record.

Professor Pollitz, you will be our first witness for this panel. You

may proceed. We’ll get your testimony in, and maybe we’ll be able

to hear from both of you before we run to votes. Go ahead.

STATEMENTS OF KAREN POLLITZ, PROJECT DIRECTOR,

HEALTH POLICY INSTITUTE, GEORGETOWN UNIVERSITY,

WASHINGTON, DC; AND MICHAEL CANNON, DIRECTOR,

HEALTH POLICY STUDIES, CATO INSTITUTE, WASHINGTON,

DC

STATEMENT OF KAREN POLLITZ

Ms. POLLITZ. Thank you, Mr. Chairman, members of the subcommittee. I just want to open by saying I’m also from Ohio. I grew

up in the Cleveland area when you were mayor, Mr. Chairman, so

it’s very nice to be here today.

Mr. KUCINICH. Thank you.

Ms. POLLITZ. I want to thank you for holding this very important

hearing.

I hope and expect that health care reform when it is enacted will

create rules to prohibit or at least limit a lot of the practices that

you heard about this morning on the first panel, but rules will not

be enough. There will always be a strong incentive in a competitive

insurance market for insurance companies to try to avoid risks,

avoid enrolling, keeping them enrolled, or avoid paying their

claims. And so transparency and accountability in insurance is essential, and it’s very important that health reform try to accomplish that as well.

Transparency in insurance will involve a number of key changes,

and the most important of these will be data reporting. When I was

invited to testify at this hearing, I was asked could I provide data

on how often practices like these happen, and the answer was I

could not, and neither can the regulators or other policymakers,

but the information is knowable.

Regulators need to have ongoing, detailed information about

marketing and enrollment practices and about how coverage is administered so that it will be possible to see when insurers are

avoiding risk that they are supposed to cover. We don’t do that

today. The Federal Government collects no data on health insurance consumer protections, even though Federal law requires cerVerDate 11-MAY-2000 11:21 May 23, 2011 Jkt 000000 PO 00000 Frm 00117 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\64917.TXT KATIE PsN: KATIE
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tain important protections already, including guaranteed renewability of coverage.

For the most part, States don’t collect a lot of data on consumer

protection and health insurance either. Instead, most data collected

on an ongoing basis by State insurance departments relates to financial solvency, and regulators rely largely on consumer complaints as an indicator of problems. However, a body of research

shows that rarely do consumers lodge formal complaints with regulators, even about serious health insurance problems that cost

them a lot of money or that delay their access to care.

A series of hearings about health insurance rescissions that were

initiated in this committee provides a sobering case study of how

little we know about how well health insurance works for consumers and how vulnerable they are to discrimination.

This committee asked all 50 State regulators what data they collect on health insurance rescissions, and in response only 4 States

could provide any data on the number of rescissions that had occurred. Only 10 could provide the number of individual insurance

policies that were enforced in their States, and more than a third

of States could not supply a complete list of companies that sell individual health insurance within their borders.

The NAIC pulled all 50 State insurance departments and provided summary complaints data about health insurance rescissions.

They found a total of 181 complaints about health insurance rescissions had been lodged over a 5-year period. By contrast, when this

committee asked just 3 insurance companies how many policies

they had rescinded over the same period, the answer was almost

20,000.

A new approach to health insurance regulation must require ongoing and detailed reporting by insurers of data that will enable

regulators to evaluate how the market works, especially for the

sickest consumers. That would include data on enrollment, retention, disenrollment, on rating practices at issue, and at renewal.

Regulators must also track measures of coverage effectiveness to

see what medical bills are paid and how many are left for consumers to pay on their own. That means insurers also need to report

data on provider participation fees, insurer reimbursement levels,

health insurance policy lossratios, and data regarding claims payments and utilization review practices. If regulators have access to

this kind of information, patterns of problems that affect the sickest consumers won’t be as easy to hide.

Finally, Mr. Chairman, health insurance must also be held accountable for compliance with market rules and consumer protections. As Ms. Kaptur talked about her uncle buying additional policies, that is illegal. So it’s not enough to have rules. We have to

enforce the rules, and that requires resources for oversight and enforcement.

In addition, it’s time for the Federal Government to take a more

proactive role in health insurance regulation. Current Federal capacity for private health insurance oversight and regulation is

practically nonexistent. Last year a witness from CMS testified

that agency dedicated only four part-time staff to HIPAA private

health insurance matters for the entire Nation.

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Further, despite press reports alleging abuse of rescission practices in violation of Federal law, the agency did not investigate or

even make inquiries as to whether Federal guaranteed renewability protections were being adequately enforced. This outcome is not

surprising.

When you enacted HIPAA in 1996, Congress created important

Federal rights for consumers, but limited Federal enforcement authority. Instead, Congress opted to rely primarily on State enforcement by adopting a so-called Federal fallback enforcement structure. Federal enforcement is triggered only as a last resort once a

finding is made that States have not adopted and substantially enforced Federal minimum standards. Under the structure it’s not

surprising that the Federal Government lacks oversight and enforcement capacity. It doesn’t make sense to build and maintain capacity that you don’t expect to use. So you rely on the States instead, but unfortunately, limited regulatory capacity is a problem

at the State level as well. Insurance department staff have been

cut, and States are overworked.

It’s time for the Federal Government to assume an active and effective role in enforcement of Federal health insurance standards

and to require transparency so that we can see how coverage

works.

Mr. KUCINICH. I thank the gentlelady.

[The prepared statement of Ms. Pollitz follows:]

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Mr. KUCINICH. Mr. Cannon, you may proceed for 5 minutes.

STATEMENT OF MICHAEL CANNON

Mr. CANNON. Thank you, Mr. Chairman, for this opportunity to

present my perspective on providing secure health insurance to

American consumers.

How do we ensure that insurance plans honor their commitments

to care for the sick? It’s a problem whether we’re talking about private insurance plans or government plans. Private plans, whether

through indifference or incompetence, do sometimes shirk on those

commitments. So does government.

In 2007, a 12-year-old Maryland boy named Deamante Driver

died because his mother could not access the care that Deamante

was supposedly guaranteed under a government health plan. As

former Senate Majority Leader Tom Daschle acknowledges, even if

we achieve universal coverage, some percentage of patients will fall

through the cracks. Health care is a human endeavor. That means

perfection is not an option. Our task is to find a set of rules that

least often leaves Americans in the position of Deamante Driver

and his family.

In my written testimony, I cite a growing body of economic literature that finds that rightly regulated insurance markets perform actually much better than critics suggest, providing secure

coverage to millions of Americans with high-cost illnesses. And I

also express my concerns with the four measures that Congress is

considering. For example, legislation before the House would compel tens of millions of Americans to purchase private health insurance and would shower private insurance companies with billions

of dollars in taxpayer subsidies, and not, I would add, because insurance companies are doing a fantastic job.

Another provision of the legislation would impose price controls

on private health insurance premiums. As President Obama’s economic adviser Larry Summers has said, ‘‘price controls inevitably

create harmful economic distortions. An example of one of those

distortions, if you think insurers try to avoid the sick now, wait

until the government price controls force insurers to sell a $50,000

policy for just $10,000.’’

It is worth noting that the insurance lobby supports both the proposal to make health insurance compulsory and the proposed price

controls because they would subsidize and protect private insurance companies from competition. Whether we support a new government health program or oppose it, I think we should all be able

to agree that we don’t need to further subsidize and protect private

insurance companies from competition.

Thank you very much, Mr. Chairman.

[The prepared statement of Mr. Cannon follows:]

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Mr. KUCINICH. I want to thank Mr. Cannon and Ms. Pollitz for

their testimony.

We have votes that are on right now, and I just would like to

invite you to do one of two things, and this is up to you. You can

either respond to written questions from members of this subcommittee, and they will be included in the record, or you can come

back probably in about 45 minutes at the conclusion of the votes,

and then we can go through a second round of questioning of the

panel here. So what would you prefer?

Mr. CANNON. I would be happy to come back in 45 minutes.

Mr. KUCINICH. Can you do that? OK. OK. My colleague suggests

it might be, let’s say, a half hour. So let’s say—let’s come back in

a half hour then, and we’ll go to questions. I thank you for your

patience. We’re going to go vote right now.

The committee is in recess for the vote. We’ll be back in a half

hour.

[Recess.]

Mr. KUCINICH. The committee will come to order. I’d like to

thank the witnesses for remaining, and I’d like to begin by asking

Mr. Cannon, under what circumstances do you see that making private health insurance compulsory represents a bailout to the insurance industry? How would you explain that view? Hold the mic a

little bit closer.

Mr. CANNON. Mr. Chairman, in order to help Americans comply

with what they call the individual mandate in the legislation before

the House and in the legislation before the Senate as well, Congress has decided it would—or the legislation would offer subsidies

to Americans to help them purchase health insurance. Simply mandating that people purchase health insurance doesn’t mean that

they will be able to. A lot of people won’t be able to afford it, and

so Congress would be, in its legislation, offering subsidies to a lot

of people who cannot afford health insurance on their own and to

a lot of people who can afford health insurance on their own, because the subsidies, as I understand them, would go up to 300 or

400 percent of the Federal poverty level, which for a family of four

is somewhere around $60,000 to $80,000 per year.

Those subsidies offered to people who can afford health insurance

already and to people who cannot would—would essentially help

people purchase more health insurance and give the insurance industry really a guaranteed customer base and a guaranteed source

of revenue.

So I think that essentially what that legislation would do is akin

to a bailout of the health insurance industry. I don’t think that

what we should be doing is giving more to this—to this sector or

to this industry. I think we should be demanding more from it, and

I think the way to do that is to preserve the freedom to choose

whether or not to purchase health insurance as well as the freedom

to choose what goes into your health insurance policy. And the way

to do that, in my view, is to let consumers control the money that

government and employers now control to purchase health insurance on their behalf, and they will—they will economize on health

insurance. They will—they will most likely purchase less health insurance than they do right now, and they will hold health insurers

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accountable in a way that they cannot when their employers are

making those decisions for them.

Mr. KUCINICH. So let’s go 4 years down the road. Let’s say that

a health care plan is enacted which requires that people have private insurance. Let’s say there’s no public option—that’s kind of

the way it looks like right now—and people—there will be tens of

millions of Americans who will be faced with a decision to either

purchase private insurance or pay a fine. Would you like to comment on that?

Mr. CANNON. I think that what that really highlights is that this

proposal for—to mandate people purchase health insurance, this

proposal to make health insurance compulsory in the United

States, amounts to a tax on a lot of middle-class families. If they

purchase the health insurance, as President Obama’s economic adviser Larry Summers acknowledges, then the government forces

people to purchase something that they don’t value or pay more

than the market would demand, values in itself are taxed, and if

they don’t purchase the mandatory level of coverage and they have

to pay what we euphemistically call a fine or a penalty, that’s a

tax as well.

In the House legislation, there would be a tax on the individual

equal to 21⁄2 percent of income—of adjusted gross income, and if

the individual’s employer does not offer them coverage, there would

be a tax equal to 8 percent of payroll. Now, Mr. Summers and the

Congressional Budget Office and economists broadly acknowledge

that 8 percent payroll tax would be paid for by the worker because

it reduces their earnings. So what you’re talking there is a 101⁄2

percent tax——

Mr. KUCINICH. Is that axiomatic?

Mr. CANNON. It is.

Mr. KUCINICH. So you’re saying that if workers have a health

care benefit, they’re in effect paying for it?

Mr. CANNON. Absolutely, and I think, in fact, that is why—I

think that’s the great—the biggest drawback or the biggest problem with the tax preference for employer-sponsored insurance.

The, ‘‘employer contribution’’ to the average family plan in this

country amounts to $10,000. That’s $10,000 of the worker’s earnings that the worker doesn’t get to control. The government, by creating this tax preference for employer-sponsored insurance, essentially takes that $10,000 out of the worker’s hands, gives it to the

employer, and lets the employer make the worker’s health insurance decisions for the worker.

So, yes, I think that economists—in fact, there was a survey of

health economists recently, and the broadest area of agreement

was on the question of whether health benefits actually come out

of wages or profits or something else. Ninety percent of economists—health economists acknowledge or agreed with the proposition that, yes, workers pay for those health benefits through reduced wages, and the same is true of any tax penalties that Congress might impose.

Mr. KUCINICH. Thank you, Mr. Cannon.

Professor Pollitz, I want to speak to you about how government

can help the public make better choices about health insurance. In

your testimony, you pointed out something that many people may

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not realize, ‘‘The primary purpose of health insurance data collected by State regulators today is to monitor the solvency of private health insurers, and that, quote, enforcement of consumer protections in health insurance today is largely triggered by complaints.’’

I think the average person is or would be surprised to hear this.

So who does monitor things like accessibility, affordability, or security of private health insurers or how accurately do they pay out

on claims?

Ms. POLLITZ. It is not well monitored or consistently monitored

today. I think State insurance regulators strive mightily to protect

consumers as best they can. Their resources are limited.

Mr. KUCINICH. Would you describe the State regulators as reactive to consumer complaints rather than proactive?

Ms. POLLITZ. A lot of it is reactive. A lot of times in response to

a complaint, as little as one complaint, a State regulator may initiate a broader investigation of a company or of a pattern of practices. So I don’t mean to suggest that State regulators aren’t out

there giving it their best effort, but they are very strapped in terms

of resources. They are very broad in terms of the jurisdiction that

they need to keep an eye on, and with limited resources—I mean,

if I were one, and I had the limited resources, I would probably

start with solvency myself, because if a company goes under, then

no claims will be paid for anybody. So that’s not an illogical place

to start, but there are not enough resources to monitor closely what

needs to be monitored. And with health insurance, that’s a very

transaction-heavy task to accomplish.

Mr. KUCINICH. Do private health insurers themselves keep data

on complaints made against them that can be reviewed?

Ms. POLLITZ. That can be reviewed?

Mr. KUCINICH. Yeah.

Ms. POLLITZ. I don’t actually know what data they would keep.

All insurance companies have a compliance office with a lot of attorneys, and I’m sure they at least have a pretty good idea of what

complaints are being filed, and they have to keep records. I mean,

this is why you get urged to put everything in writing when you’re

communicating with your insurance company so that there will be

a record somewhere.

Mr. KUCINICH. My time is expired. I’m going to go to my colleague for 5 minutes, and then we’ll go to one more—one final

round of questioning.

Mr. JORDAN. Thank you. Thank you, Mr. Chairman.

Mr. Cannon and Ms. Pollitz, thank you for being here.

Mr. Cannon, let me ask you about this idea of interstate insurance broadening the field, increasing the market, increasing competition. In the first panel, I believe Dr. Peeno and Mr. Potter

talked about the cartel that exists in the insurance market right

now. Their solution was to have the Government compete; you

know, to increase competition by having this so-called public option. The approach I prefer is this interstate market.

Mr. JORDAN. Tell me your thoughts on that, what the research

shows us getting. This is now being debated a lot and talked about

as a possible improvement. Let me hear your thoughts there.

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Mr. CANNON. Well, I think the insurance markets in most States

are not unlike a cartel, and I think the reason is that—is because

each State sets up barriers to competition to protect their domestic

insurers.

What those are are essentially State licensing laws. Now, there’s

nothing wrong with a State licensing law per se, but what these

laws do is they say unless your insurance policy is licensed by this

State, say the Commonwealth of Virginia, then you may not sell it

to residents of this State. And so what that means is that residents

of Virginia cannot purchase a health insurance policy that’s available in Maryland or North Carolina.

That’s particularly cruel, I think, to residents of New Jersey, who

face some of the highest health insurance premiums in the country.

They cannot purchase health insurance from across the Delaware

River in Pennsylvania where it’s often less expensive.

So what happens—so I do think there is insufficient competition

in insurance markets. The President and other supporters of a new

government program have said that they—that a new competitor

can keep insurance companies honest. If that’s the case, then I

think that dozens of new competitors would do an even better job,

so that if Congress, using its power under the interstate commerce

clause of the Constitution, were to say, look, you know, States can

license health insurance, but they cannot prohibit their residents

from purchasing health insurance licensed by another State, what

that would do is it would bring new entrants into the markets in

each State, give individuals and employers a lot more choices of

health insurance plans and increased competition.

What it would also do is it would give individuals and employers

the power to avoid unwanted costly State regulations. A lot of State

regulations are, in fact, consumer protections. Solvency standards

that Ms. Pollitz was talking about, I think, are a prime example.

But when you start looking at how the States require consumers

to purchase 30 different types of mandated benefits that they may

not want or need, or try to impose hidden taxes on the healthy in

order to subsidize the sick, those are increase—those are regulations that increase the cost of insurance and make it unaffordable

for some people.

So you can’t really call them consumer protections if they’re

keeping people from purchasing health insurance, and I think that

letting people purchase insurance across State lines would allow

people to——

Mr. JORDAN. Thank you. Thank you.

Ms. Pollitz.

Ms. POLLITZ. The proposals to allow sale across State lines that

have been in the Congress to date are really a prescription for insurance fraud. There would be little practical ability of the licensing State to regulate insurance sold across the 50 States. Imagine

if the Ohio commissioner had to keep track of policies that were

sold in California and Texas and New York. They’re not set up for

that.

The notion of escaping mandated benefits is a total red herring.

The reason that health insurance costs more in New Jersey compared to Maryland, where I live, which has been cited as the champion of mandated benefits—supposedly we have more in Maryland

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than anywhere—is that in New Jersey everybody has to be offered

health insurance. You can’t be turned down because you have cancer, and in Maryland you can. So it’s cheaper and insurance——

Mr. JORDAN. I think the chairman talked about that in his previous question.

Ms. POLLITZ. I think we have to come back to what is the basis

of competition in health insurance right now, and it is competition

to avoid sick people and their costs. And the more you dilute oversight and regulation, the more easy that will be and the more——

Mr. JORDAN. Let me get a response from Mr. Cannon.

Mr. CANNON. Karen raises a couple of important issues. One of

them is how do you enforce these rules that are written by an outof-State legislature or insurance commissioner, and I think there’s

a fairly straightforward way of doing that. You have those regulations, whatever they may be, incorporated in the insurance contract, which could then be enforced in the purchaser’s home State

and in their courts, and then the domestic—the purchaser’s insurance commissioner could even play a role there.

What’s important is that the individual consumer or the employer be able to choose the rules, and they could be enforced at

home without having to rely on an out-of-State insurance commissioner.

As for the cost of mandated benefits, the cost estimates vary, but

the Commonwealth of Massachusetts recently estimated that the

benefits that are mandated in that State add 12 percent to the cost

of premiums. So that’s a substantial chunk of money.

Mr. JORDAN. Sure.

Mr. Chairman, looks like just you and me. I yield back to you.

Mr. KUCINICH. Just you and me. This town is big enough for both

of us.

I’d like to go back to Ms. Pollitz. I’d like to talk to you about

standards of care and a possible scenario. Are you aware of any

data on the inconsistent application of standards of care by private

insurers? Is it possible that within two—taking two different people

with the same illness, who are insured by the same private health

insurer, that they will be treated differently by the insurance company; is that possible?

Ms. POLLITZ. I believe it’s possible, yes.

Mr. KUCINICH. And so is there any guarantee that if a person

buys coverage, it will guarantee coverage?

Ms. POLLITZ. Not an ironclad guarantee, no.

Mr. KUCINICH. Pardon?

Ms. POLLITZ. Not an ironclad guarantee, no. There is a contract,

but it——

Mr. KUCINICH. But there are no guarantees.

Ms. POLLITZ. That’s correct.

Mr. KUCINICH. I’d like to ask about lack of transparency in private health insurance as compared to Medicare.

Congress and the general public are able to examine and debate

the reasoning behind how Medicare pays for medical care, but the

private health insurers keep their decisionmaking process and

guidelines hidden behind books of confusing terminology. In other

words, Medicare’s actions are transparent, but private insurers are

not, but they provide the same service ostensibly to cover medical

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expenses. Now, is there any justification to keeping insurance company definitions of medical necessity proprietary?

Ms. POLLITZ. I don’t think so, no.

Mr. KUCINICH. And why would the insurance company want to

keep that information proprietary?

Ms. POLLITZ. I believe they will argue so that doctors and other

providers don’t try to game the system and sort of code their billing

so that it matches up what the—you know, what the guidelines

would be. But I think you heard testimony on the earlier panel

that there is also an effort to just, you know, kind of try to hide

the ball and try to, you know, create options for the insurance company to deny claims if they feel like they want to do that.

Mr. KUCINICH. Are there any data nationally about either the

frequency of wrongful denials of claims or of unjustified reviews or

appeals?

Ms. POLLITZ. There are not good, consistent data. I tried a couple

of years ago to study the results of even external appeals programs,

and the data was very sparse.

What you can find is—suggests that we need to be doing a better

job and looking much more carefully and not relying on the sort of

end result of a patient having to go through all of the steps and

appeals before they can get to a system where records will be kept.

Mr. KUCINICH. Anything else you want to add about that you

haven’t told this committee about the data collection?

Ms. POLLITZ. I really do think, Mr. Chairman, that we need to

think carefully about the ways that insurance companies compete

now to avoid paying claims. Certainly there are reasons why we

don’t want to pay for care that’s not medically necessary. We don’t

want to pay for fraud. I mean, there are reasons for vigilance for

sure, but I think we need to think from the patient’s perspective

about what we need to track so that we can make sure that decisions are justified, that they’re backed up, that they’re consistent,

and that they’re in the patient’s best interests, and then build our

data-reporting requirements from that exercise.

I think we need a much more proactive and propatient approach

to data gathering from health insurance companies, and I hope

that will be a central part of any health reform legislation that gets

enacted.

Mr. KUCINICH. I’d like to ask a question of Mr. Cannon. You’re

here representing the CATO Institute, and I’ve always found very

handy this Constitution of the United States which comes from the

CATO Institute, including its introduction.

Under our Constitution, you know, the general welfare clause,

which there’s been a lot of discussion about, there are some of us

who believe that both the Preamble to the Constitution and Article

I, section 8, in describing the general welfare, that as we evolve as

a Nation and have specified health care, retirement security as

part of the general welfare, that a logical extension of that would

be to have health care for all, guided by the principle enunciated

in the Constitution, both in Article I, section 8 and the Preamble.

You know, tell me what—how you see that.

Mr. CANNON. The question is about the general welfare clause of

the Constitution? There is a difference of opinion among legal

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scholars about what that means. I’m not a constitutional scholar,

but let me give you my best take on what that disagreement is.

There’s some that believe that is an expansive grant of power

that would, say, give Congress the power, the constitutional authority to enact, say, a single-payer system or make health insurance compulsory for all Americans. I think that the perspective of

CATO’s constitutional scholars is that if that were true, if the—if

the Framers of the Constitution meant for the general welfare

clause to be such a sweeping, broad, comprehensive grant of power

from the States to the Federal Government, then the rest of the

Constitution would be superfluous. They wouldn’t have had to enumerate all the other powers in the Constitution, because the general welfare clause would have taken care of everything. So the

very structure of the Constitution itself, I think, argues against a

broad or the sort of expansive interpretation of the general welfare

clause that you suggest.

Mr. KUCINICH. One of the things that I’ve always been impressed

with is the Preamble which CATO provides to the declaration and

the Constitution. And one of the things they say in there, my colleague, is that it’s not—it’s not political will, but moral reasoning

which is the foundation of the political system.

And some of the issues that are being brought to us about conditions relating to health care in America are laden with moral consequences and moral overtones, and it’s like an underlying reality

of whether health care—if health care’s a privilege based on ability

to pay, or is health care a fundamental right in a democratic society.

There’s like this arc where you go from—from economics, which

can be amoral, to the imperatives of a democracy that relate directly to morality. And I just—you know, that’s—in a way, that’s

part of the backdrop of this national discussion we’re having right

now, is it a right or is it a privilege, you know, and this is part

of our unfolding democracy here, trying to decipher what the meaning of this document is, and also doing it within the context of

what our present-day needs are and what—the various human conditions we find ourselves in and the underlying morality—you

know, is it immoral for somebody to be denied care when they’re

paying for it?

These are questions that we are to deal with here. I appreciate

having the chance to share that with you.

Mr. Jordan, you can conclude this hearing.

Mr. JORDAN. All right. Thank you, Mr. Chairman.

Let me just go to the premise. Many of the witnesses in the first

panel, the premise was that the government can do it better. We

know that there’s been problems with the way insurance companies

deal with patients and sometimes some of the things that take

place, but to say that government can do it better, I’d like your

thoughts on that in light of the Congressional Research Service

said of over the 1 billion claims submitted each year to Medicare,

10 percent of those claims are denied.

Attorney General Holder said, ‘‘by all accounts every year we lose

tens of billions of dollars in Medicare and Medicaid funds to fraud.’’

So, your thoughts on—you know, we met with health care professionals. We did health care roundtables in our district over the reVerDate 11-MAY-2000 11:21 May 23, 2011 Jkt 000000 PO 00000 Frm 00144 Fmt 6633 Sfmt 6633 C:\KATIES\DOCS\64917.TXT KATIE PsN: KATIE
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cess, and, you know, we had so many people tell us that government’s already 50 percent of the health care market right now, and

that providers don’t get compensated fully for the care they provide

when they treat folks under the Medicare and Medicaid system,

and therefore the folks who are in the private insurance have to

pay more because that’s just the way the system is set up right

now.

So I’d like both your thoughts. I’d start with Mr. Cannon on this

premise that has been so—kind of underlies the entire hearing

today on how somehow the government can do it better, because,

as you can gather, I have real reservations about that.

Mr. CANNON. Well, I think, Congressman, that the state of America’s health care sector right now is pretty good evidence that the

government does not do a very good job of managing health care.

And I’ll give you a couple of examples.

You brought up the Medicare program. That program, it has

been estimated that one-third of Medicare spending does absolutely

nothing to improve the health or—improve the health of patients

or improve patient satisfaction, provides no value to them whatsoever. It’s often cited that we have—so that’s an enormous amount

of waste, much—even larger than the estimates of fraud in the

Medicare program.

It has been estimated that as many as 100,000 Americans die

every year due to medical errors in hospitals. I submit that probably Medicare is the biggest reason for that because Medicare’s

payment system actually penalizes doctors and hospitals when they

succeed in reducing medical errors. It makes it a losing business

proposition. Rather than have competition between different payment systems that bring out different dimensions that would improve all dimensions of quality, Medicare gives us good marks on

some dimensions of quality, but absolutely horrible marks on other

dimensions.

One of the biggest problems that the President talks about is the

problem of preexisting conditions, people with high-cost illnesses

who lose their coverage and then cannot afford the premiums that

they’re charged on the individual market. That is a problem that

has been fueled by government for 60 years, and the reason is that

60 years ago the government created a tax preference for employersponsored insurance coverage that has given us the employer-based

system that we have right now that is so cruel and, to use the

chairman’s words, immoral that it takes insurance away from people the moment they need it most. And they lose their jobs, they

lose their incomes, and if those people are sick, then they’ve got a

preexisting condition. They are not going to be able to get coverage.

And if I may finish, one of the studies that I cite in my written

testimony finds—looks at the empirical—looks at the data and

finds that people who purchase insurance directly from an insurance company, people with high-cost illnesses who do so, are half

as likely to end up uninsured as people who purchase—high-cost

patients who purchase health insurance from a small employer.

Mr. JORDAN. One of the things we should deal with in the legislation I have cosponsored is for the families who have to go out and

buy it on their own in the market, they should get the same tax

advantages that we give to employers to provide to employees.

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Mr. CANNON. That problem has been in place for 60 years

now——

Mr. JORDAN. That is one of the key things we have to—Ms.

Pollitz, I’m sorry, go ahead.

Ms. POLLITZ. No problem. I think the real—two real differences.

One is about accountability, and there is a different level of accountability for government than there is for the private sector.

There just is. I think we should try to enhance and strengthen accountability in the private sector with much stronger oversight and

regulation and enforcement. Regardless of how you end up structuring health reform, I think that’s essential.

But government programs will always be accountable in a different way to—directly to the voters. They will always be open in

a different way compared to commercial plans. That’s the way

we’ve set up our government——

Mr. JORDAN [continuing]. These and others and Mr. Cannon and

many of us that a real marketplace, you’re accountable directly to

the consumer.

Ms. POLLITZ. Well, but that’s my second point.

Mr. JORDAN. That’s where we needed to be headed is to a true

marketplace.

Ms. POLLITZ. That’s my second point. A marketplace of competing

insurance companies will always, always in health insurance compete to avoid sick people. That is the overpowering incentive. It

beats everything, and it always will. Even in a more regulated

marketplace, even in a more transparent place, you’re always going

to be trying to catch up with that.

Introducing a public component to that, it’s kind of a funny notion. It’s not like the government is going to compete to make more

profits than Blue Cross or WellPoint. It’s that the government will

be there offering a choice that is the——

Mr. JORDAN. If there is a public option, eventually the public option will dominate. Even Congressman Frank has said that a public option will lead to a single-payer system. This idea that somehow it’s not going to do that, I just—I don’t think flies. I think most

Americans have already figured that out, and that’s why they’re

concerned about this plan.

Ms. POLLITZ. Mr. Jordan, I was on the board for several years

of a public program in my State where I ran our State high-risk

pool, and it was administered by a private insurance company, and

so, you know, they know how to administer claims, and that is definitely its own art and its own skill.

And as the consumer rep on the board, I would ask questions:

Why do we have so many denials of preauthorization, for example,

for mental health services? That turned out to be one of the biggest

services that any of our patients used. Even though that wasn’t the

major diagnosis, it’s very stressful to be sick; people need help. And

one of our leading sources of complaints had to do with denials for

mental health service.

And so I said, why is that? Why are we denying all this care?

Well, it turned out it was paperwork. People were supposed to

jump through all these hoops and get preauthorization. They had

to do it within a certain number of days, and it was just a load of

hoops that they had to jump through.

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And I said, well, OK, once they go through all these hoops, how

many of them are actually denied—and there were thousands of

denials—and they said, seven. And I said really? Then why are you

doing this? Why are you making them jump through all these

hoops? Oh, they said, this is saving you a lot of money. I said, I

don’t want you to save us a lot of money. We’re here to pay for

care. We’re a high-risk pool. They’re sick. No one else will take care

of them. This is our job. This is what the taxpayers have given us

tax dollars to do. Let’s stop doing that. We did that.

I can’t imagine that would happen in the company that Ms.

Peeno—Dr. Peeno used to work for. It’s just a different incentive.

It competes in a different way, and I think we need to create a different standard for covering health care. And if private insurance

companies can’t compete against that and survive, well, so what?

I mean, we took care of the patients who were sick, and isn’t that

what this has to be about primarily? It seems to me that has to

be where we start the discussion.

Mr. KUCINICH. We thank the gentlelady.

I want to thank Mr. Jordan for his participation in this hearing,

and thank both the witnesses from the second panel for their participation.

As my friend is leaving the room, I just wanted to comment—and

staff can relate this to him—that some—there are some cases, I

suppose, where a public option may lead to a single-payer system

at some point. I mean, I actually am the coauthor of a bill to create

a single-payer system, and I’d like to see a single-payer system. We

have 85 Members of the House who have signed on to a bill, H.R.

676, the bill I drafted with Mr. Conyers. That bill, in its fullness,

is not likely to have hearings, and whether there might be a vote

on it, it needs a movement behind it. That needs a little more

strength.

So while some public options may lead to single payer, I would

just like to offer the opinion that it’s unlikely that the current status of the public option that is suggested in H.R. 3200 would lead

to single payer.

The CBO has said in one of its studies that 9 million people at

most would be covered by—by any kind of a public option; that the

first iteration of that plan was to have 129 million people covered

by it. So you have 9 million people, that particular plan may not

pose much of a risk or, frankly, a competitive position vis-a-vis the

private insurers. I just wanted to mention that since we were talking about public options.

You’re much appreciated for the time that you have spent, for

your patience, and this committee stands adjourned. I want to remind people that tomorrow we will hear from executives from six

of the major health insurance companies so that we can followup

and ask them some of the questions that were raised in today’s

hearing. We’re all very appreciative of your presence. The committee stands adjourned.

[Whereupon, at 1:30 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Diane E. Watson and additional

information submitted for the hearing record follow:]

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