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74–392 PDF 2012

BARRIERS TO LOWER HEALTH CARE 

COSTS FOR WORKERS AND EMPLOYERS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH, 

EMPLOYMENT, LABOR AND PENSIONS 

COMMITTEE ON EDUCATION 

AND THE WORKFORCE 

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD IN WASHINGTON, DC, MAY 31, 2012 

Serial No. 112–62 

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

( 

Available via the World Wide Web: 

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

or 

Committee address: http://edworkforce.house.gov 
(II) 

COMMITTEE ON EDUCATION AND THE WORKFORCE 

JOHN KLINE, Minnesota, Chairman 

Thomas E. Petri, Wisconsin 

Howard P. ‘‘Buck’’ McKeon, California 

Judy Biggert, Illinois 

Todd Russell Platts, Pennsylvania 

Joe Wilson, South Carolina 

Virginia Foxx, North Carolina 

Bob Goodlatte, Virginia 

Duncan Hunter, California 

David P. Roe, Tennessee 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Scott DesJarlais, Tennessee 

Richard L. Hanna, New York 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Trey Gowdy, South Carolina 

Lou Barletta, Pennsylvania 

Kristi L. Noem, South Dakota 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Dennis A. Ross, Florida 

Mike Kelly, Pennsylvania 

George Miller, California, 

Senior Democratic Member 

Dale E. Kildee, Michigan 

Donald M. Payne, New Jersey 

Robert E. Andrews, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Lynn C. Woolsey, California 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Dennis J. Kucinich, Ohio 

Rush D. Holt, New Jersey 

Susan A. Davis, California 

Rau ́l M. Grijalva, Arizona 

Timothy H. Bishop, New York 

David Loebsack, Iowa 

Mazie K. Hirono, Hawaii 

Jason Altmire, Pennsylvania 

Barrett Karr, Staff Director 

Jody Calemine, Minority Staff Director 

SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR AND PENSIONS 

DAVID P. ROE, Tennessee, Chairman 

Joe Wilson, South Carolina 

Glenn Thompson, Pennsylvania 

Tim Walberg, Michigan 

Scott DesJarlais, Tennessee 

Richard L. Hanna, New York 

Todd Rokita, Indiana 

Larry Bucshon, Indiana 

Lou Barletta, Pennsylvania 

Kristi L. Noem, South Dakota 

Martha Roby, Alabama 

Joseph J. Heck, Nevada 

Dennis A. Ross, Florida 

Robert E. Andrews, New Jersey 

Ranking Member 

Dennis J. Kucinich, Ohio 

David Loebsack, Iowa 

Dale E. Kildee, Michigan 

Rube ́n Hinojosa, Texas 

Carolyn McCarthy, New York 

John F. Tierney, Massachusetts 

Rush D. Holt, New Jersey 

Robert C. ‘‘Bobby’’ Scott, Virginia 

Jason Altmire, Pennsylvania 
(III) 

C O N T E N T S 

Page 

Hearing held on May 31, 2012 ............................................................................... 1 

Statement of Members: 

Andrews, Hon. Robert E., ranking member, Subcommittee on Health, 

Employment, Labor and Pensions ............................................................... 4 

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

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

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

Statement of Witnesses: 

Fensholt, Edward, J.D., senior vice president, director, compliance services and health reform advisory practice, Lockton Benefit Group ............ 6 

Prepared statement of ............................................................................... 8 

Hall, Jody, owner, Cupcake Royale & Verite ́ Coffee ..................................... 18 

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

Ramthun, Roy J., president, HSA Consulting Services, LLC ....................... 12 

Prepared statement of ............................................................................... 14 

Streitberger, William, vice president of human resources, Red Robin 

Gourmet Burgers, Inc. .................................................................................. 23 

Prepared statement of ............................................................................... 25 

Additional Submission: 

Chairman Roe: PowerPoint slide, ‘‘Tax Changes’’ ......................................... 52 

(1) 

BARRIERS TO LOWER HEALTH CARE COSTS 

FOR WORKERS AND EMPLOYERS 

Thursday, May 31, 2012 

U.S. House of Representatives 

Subcommittee on Health, Employment, Labor and Pensions 

Committee on Education and the Workforce 

Washington, DC 

The subcommittee met, pursuant to call, at 10:02 a.m., in room 

2175, Rayburn House Office Building, Hon. David P. Roe [chairman 

of the subcommittee] presiding. 

Present: Representatives Roe, Wilson, Thompson, Walberg, 

DesJarlais, Rokita, Bucshon, Noem, Heck, Ross, Andrews, Kildee, 

Hinojosa, Holt, Scott, and Altmire. 

Also present: Representative Miller. 

Staff present: Andrew Banducci, Professional Staff Member; 

Katherine Bathgate, Deputy Press Secretary; Adam Bennot, Press 

Assistant; Casey Buboltz, Coalitions and Member Services Coordinator; Molly Conway, Professional Staff Member; Ed Gilroy, Director of Workforce Policy; Benjamin Hoog, Legislative Assistant; Barrett Karr, Staff Director; Ryan Kearney, Legislative Assistant; 

Krisann Pearce, General Counsel; Molly McLaughlin Salmi, Deputy 

Director of Workforce Policy; Todd Spangler, Senior Health Policy 

Advisor; Linda Stevens, Chief Clerk/Assistant to the General Counsel; Alissa Strawcutter, Deputy Clerk; Aaron Albright, Minority 

Communications Director for Labor; Tylease Alli, Minority Clerk; 

Jody Calemine, Minority Staff Director; John D’Elia, Minority Staff 

Assistant; Richard Miller, Minority Senior Labor Policy Advisor; 

Megan O’Reilly, Minority General Counsel; and Michele 

Varnhagen, Minority Chief Policy Advisor/Labor Policy Director. 

Chairman ROE. Call the meeting to order, and today before we 

get started we have a guest here today that I would like to introduce from my home state. It is William Bell. 

And William, if you would stand up just so people can see you 

here? 

William is—today he drew the short straw. He gets to shadow 

me all day today for the Foster Youth Shadow Day program, and 

he—William entered foster care at age 15 and he represents now 

3,000 young people in Nashville, Tennessee here in Washington. 

Their foster care youth have come from all over the country. 

William is doing great. He is in one of our technology centers 

studying to be an electrician and will finish in 6 months. 

And, William, welcome today to our hearing. [Applause.] 
2 

A quorum being present, the Subcommittee on Health, Employment, Labor, and Pensions will come to order. Good morning, everyone. 

I would like to thank our witnesses for being here and offering 

their thoughts during today’s subcommittee hearing on health care 

costs. 

With 160 million Americans acquiring health insurance through 

an employer-sponsored plan, job creators clearly play a critical role 

in the nation’s health care system. As a result, employers know all 

too well the difficult challenges of expanding access to affordable 

health care. 

To help control the cost of offering insurance employers have traditionally maintained a great deal of flexibility over the design of 

their health benefits plan they provide. This has led to some tough 

decisions, especially during times when a business is struggling to 

make ends meet. However, preserving an employer’s ability to 

navigate a complex health care market even during an uncertain 

economic environment has served us well for decades. 

Many employers have found consumer-directed health care as 

one way to better manage costs on behalf of workers. One particularly popular choice is to pair a high deductible health plan with 

a health savings account. This allows individuals to guard against 

the cost of catastrophic medical treatment while also setting aside 

a portion of their pretax income to pay for future medical expenses. 

Demand for consumer-directed health plans is on the rise. For 

example, America’s Health Insurance Plans report an estimated 

13.5 million individuals had a health savings account last January, 

compared to just 3.2 million in 2006. 

The popularity of health reimbursement accounts and flexible 

spending accounts among workers is also growing, and employers 

have shown their support, as well. According to the Kaiser Family 

Foundation, nearly 70 percent of employees with a workplace-sponsored health savings account received employer contributions. 

Consumer-directed health plans offer common-sense options to 

help millions of individuals secure a benefit plan that meets their 

health care needs at an affordable price. Unfortunately, recent policy changes threaten the success of these important plans. 

President Obama’s 2010 health care law placed an arbitrary cap 

on contributions to flexible spending accounts, severely limiting the 

annual amount workers are allowed to save. The law also prohibited the use of flexible spending accounts and health savings accounts when purchasing over-the-counter medications, forcing individuals to spend more time and money visiting their doctor to obtain prescriptions. 

Additionally, a bulletin released by the administration suggests 

government bureaucrats are crafting an unusual accounting 

scheme that will severely undervalue the contribution workers and 

employers make to a health savings account, which may actually 

discourage employers from offering this benefit in the future. 

I am pleased that the Ways and Means Committee is considering 

legislation today that will help roll back a number of these harmful 

policies, reflecting a commitment by this Congress to dismantle the 

job-destroying health care law. However, even though more than 

12,000 pages of rules and regulations have been written there are 
3 

still many unanswered questions surrounding the law that make it 

virtually impossible for any employer, large or small, to plan for 

the future. 

We still don’t know how the administration will ultimately define 

the ‘‘essential health benefit.’’ Up to now the administration has 

operated in the regulatory shadows and outside the formal rulemaking process, delivering uncertainty instead of the facts on its 

regulatory proposal. We still don’t know why the administration 

chose not to fulfill the intent of the law’s grandfather provision, 

choosing instead to raise regulatory roadblocks that will significantly alter the health care of millions of Americans. 

And we don’t know what small businesses will do now that a 

highly touted tax credit has proven to be a failure. A Government 

Accountability Office study reveals the small business tax credit 

has helped few employers, thanks in part to the costly administrative burden. As the Associated Press reports, the tax credit ‘‘has 

turned out to be a disappointment.’’ 

Forcing the nation into a costly government-run health care 

scheme is perhaps the greatest obstacle to more affordable health 

care. The American people deserve every opportunity to pursue 

new initiatives that will lower health care costs. 

We should empower individuals and employers to create a health 

care plan that best fits the needs of their families and workplaces. 

Unfortunately, the 2010 health care law stands in their way. 

As members of Congress we have a responsibility to examine federal policies and hear directly from those who live with the consequences. I am pleased that we have a number of employers who 

will share their thoughts on health care costs, as well as various 

experts to help inform the subcommittee of the technical aspects of 

the policies we will address today. I look forward to our discussion. 

I will now recognize my distinguished colleague, Rob Andrews, 

the senior Democratic member of the subcommittee, for his opening 

remarks. 

[The statement of Chairman Roe follows:] 

Prepared Statement of Hon. David P. Roe, M.D., Chairman, 

Subcommittee on Health, Employment, Labor and Pensions 

Good morning, everyone. I would like to thank our witnesses for being with us 

and offering their thoughts during today’s subcommittee hearing on health care 

costs. 

With 160 million Americans acquiring health insurance through an employersponsored plan, job creators clearly play a critical role in the nation’s health care 

system. As a result, employers know all too well the difficult challenge of expanding 

access to affordable health care. 

To help control the cost of offering insurance, employers have traditionally maintained a great deal of flexibility over the design of the health care benefits they provide. This has led to some tough decisions, especially during times when a business 

is struggling to make ends meet. However, preserving an employer’s ability to navigate a complex health care market, even during an uncertain economic environment, has served us well for decades. 

Many employers have found consumer-directed health care as one way to better 

manage costs on behalf of workers. One particularly popular choice is to pair a high 

deductible health plan with a health savings account. This allows individuals to 

guard against the cost of catastrophic medical treatment while also setting aside a 

portion of their pretax income to pay for future medical expenses. 

Demand for consumer-directed health plans is on the rise. For example, America’s 

Health Insurance Plans reports an estimated 13.5 million individuals had a health 

savings account last January, compared to just 3.2 million in 2006. The popularity 

of health reimbursement accounts and flexible spending accounts among workers is 
4 

also growing, and employers have shown their support as well. According to the Kaiser Family Foundation, nearly 70 percent of employees with a workplace-sponsored 

health savings account received employer contributions. 

Consumer-directed health plans offer commonsense options to help millions of individuals secure a benefit plan that meets their health care needs at an affordable 

price. Unfortunately, recent policy changes threaten the success of these important 

plans. 

President Obama’s 2010 health care law placed an arbitrary cap on contributions 

to flexible spending accounts, severely limiting the annual amount workers are allowed to save. The law also prohibited the use of flexible spending accounts and 

health savings accounts when purchasing over-the-counter medications, forcing individuals to spend more time and money visiting their doctor to obtain prescriptions. 

Additionally, a bulletin released by the administration suggests government bureaucrats are crafting an unusual accounting scheme that will severely undervalue 

the contribution workers and employers make to a health savings account, which 

may actually discourage employers from offering this benefit in the future. 

I am pleased the Ways and Means Committee is considering legislation today that 

will help roll back a number of these harmful policies, reflecting a commitment by 

this Congress to dismantle the job-destroying health care law. However, even 

though more than 12,000 pages of rules and regulations have been written, there 

are still many unanswered questions surrounding the law that make it virtually impossible for any employer—large or small—to plan for the future. 

We still don’t know how the administration will ultimately define an ‘‘essential 

health benefit.’’ Up to now, the administration has operated in the regulatory shadows and outside the formal rulemaking process, delivering uncertainty instead of 

the facts on its regulatory proposal. 

We still don’t know why the administration chose not to fulfill the intent of the 

law’s grandfather provision, choosing instead to raise regulatory roadblocks that will 

significantly alter the health care of millions of Americans. 

And we don’t know what small businesses will do now that a highly touted tax 

credit has proven to be a failure. A Government Accountability Office study reveals 

the small business tax credit has helped few employers, thanks in part to its costly 

administrative burden. As the Associated Press reports, the tax credit ‘‘has turned 

out to be a disappointment.’’ 

Forcing the nation into a costly, government-run health care scheme is perhaps 

the greatest obstacle to more affordable care. The American people deserve every 

opportunity to pursue new initiatives that will lower health care costs. We should 

empower individuals and employers to create a health care plan that best fits the 

needs of their families and workplaces. Unfortunately, the 2010 health care law 

stands in their way. 

As members of Congress, we have a responsibility to examine federal policies and 

hear directly from those who live with the consequences. I am pleased we have a 

number of employers who will share their thoughts on health care costs, as well as 

various experts to help inform the subcommittee of the technical aspects of the policies we will address today. 

I look forward to our discussion. I will now recognize my distinguished colleague 

Rob Andrews, the senior Democratic member of the subcommittee, for his opening 

remarks. 

Mr. ANDREWS. Thank you, Mr. Chairman. The term ‘‘senior’’ is 

so grave. 

Okay. Thanks for your friendship and thanks for this opportunity. 

William, welcome to Washington. You are shadowing a person 

with a lot of integrity and ability and we are very hopeful that you 

will be able to achieve great things in your life. Welcome. We are 

happy to have you with us. 

I would like to also thank the witnesses for being here and begin 

with a couple of points in which I would part company with the 

chairman’s statement, and then talk about some things we have in 

common that I hope we can work on today to find some solutions 

to our country’s problems. 
5 

I do agree that the—we are disappointed with the number of 

businesses that have taken advantage of the tax credit thus far to 

buy health insurance for their employees. I think the record will 

show the reason for that is the credit isn’t quite generous enough 

and it doesn’t extend to enough employers. And frankly, if we could 

find a way to make it reach more small businesses in a more dramatic way, it might increase the uptake, and that is something we 

should work on together. 

With respect to the proposition that we don’t want to force people 

into a government-run health plan, I agree completely. And that is 

why the 2010 law does not do that at all. What it does is create 

more choices and more attractive options for employers and individuals to find the health care that best suits their families. 

There is no government health plan created by the 2010 law. 

What there is are marketplaces set up around the country called 

exchanges that, if you think about it, they are almost like a Costco 

or a Sam’s Club, where you can go into a marketplace and increase 

and leverage your purchasing power to get more for your business 

or your family. 

And finally, we heard that it is a job-destroying health care law. 

This is part of the narrative of the season. It is the campaign season. 

The fact is, of course, that private sector employers have added 

more than 4 million new private sector jobs since the law went into 

effect in March of 2010. Now, let’s talk about what we agree on. 

We want to do something so that we can control rising health 

care costs for employers and families while improving the quality 

of health care for employers and families and not rationing it or 

limiting it in any way. And I think there are three strategies that 

would help us achieve that objective. 

One is to encourage more people to take personal responsibility 

for their own health care—diet, exercise, wellness checkups—a 

sense where we all are the CEO of our own health care plan, in 

that respect. To the extent that we can educate and encourage people to do that, I think there is essential unanimity on that point. 

Second, we need to change the way hospitals and doctors and 

medical organizations deliver health care. Right now, if you run an 

MRI center and I run an MRI center—I am very glad I don’t run 

one; I wouldn’t be very good at it—if I do more procedures than you 

do I make more money than you do, particularly for Medicare. The 

more procedures you do the more money you make. 

We really ought to have a payment system that measures the 

quality of how well we work. If your MRI system or business has 

an outstanding track record of identifying problems early on and 

helping someone heal and recover from them, you should be rewarded for your success rate and encouraged to do that; and if I 

am not so good at it, there ought to be some economic consequences 

for me. So changing the way hospitals and health care providers 

provide health care is another important thing that we have to do. 

And then finally, I think that we can help achieve this goal of 

more affordable health insurance for employers, and families, and 

individuals by having more competition in the health insurance 

marketplace. Virtually every American lives in a health insurance 

marketplace where only one or two or sometimes three health in-
6 

surance underwriters have 90 or 95 percent of the market. This is 

not true of our cell phones; this is not true of the groceries we buy; 

this is not true of the coffee that we buy; it is not true of the restaurants we eat at; it is not true of the hotels that we stay at; it 

is not true of the banks that we put our money in. 

Competition works in the American economy and there is not 

enough competition among health insurance underwriters. 

I believe the new law facilitates the progress toward each of 

those three points. It can encourage wellness; it can encourage reform of our delivery system; and it can encourage fruitful competition among health insurance plans to provide the best deal for employers and for families. 

These are the issues on which we should focus, and I know we 

have four witnesses this morning who can help us in a very significant way. 

I thank you for traveling to be here and I look forward to your 

testimony. 

Chairman ROE. Thank you. 

It is now my pleasure to introduce—excuse me. Pursuant to rule 

7(c) all members will be permitted to submit written statements to 

be included in the permanent hearing record, and without objection 

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

to be submitted for the official hearing record. 

It is now my pleasure to introduce our distinguished panel. 

First is Mr. Ed Fensholt. He is the senior vice president and director of compliance services at Lockton Companies LLC, Lockton’s 

Benefit Group, in Kansas City, Missouri, and you have—your group 

has testified here before. We welcome you back. 

Roy Ramthun is the president of HSA Consulting Services, in 

Washington, District of Columbia. 

Welcome. 

Jody Hall is the founder and owner of Cupcake Royale, in Seattle, Washington. I have had the privilege of summiting Mt. 

Rainier four times, so I have been out in your great state many 

times. That doesn’t say much about my intelligence, but anyway I 

enjoy it. 

Bill Streitberger is the vice president of human resources at Red 

Robin International, in Greenwood Village, Colorado. 

Welcome. 

Before I recognize you to provide your testimony let me briefly 

explain our lighting system. You have 5 minutes to present your 

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

green; when 1 minute is left the light will turn yellow; and when 

your time is expired the light will turn red at which point I will 

ask you to wrap up your remarks as best you are able to. 

After everyone has testified members will each have 5 minutes 

to ask questions of the panel. 

I will now begin with Mr. Fensholt? 

STATEMENT OF ED FENSHOLT, SENIOR VICE PRESIDENT, 

LOCKTON COMPANIES, LLC 

Mr. FENSHOLT. Chairman Roe, Ranking Member Andrews, and 

members of the committee, my name is Edward Fensholt and I am 
7 

a senior vice president of Lockton Companies, LLC, the world’s 

largest privately-held insurance brokerage and consulting firm. We 

provide employee benefits expertise to 2,500 mostly middle market 

employers. 

We and our clients appreciate the stated goal of the Affordable 

Care Act and very much appreciate the efforts made to date by federal agencies to take employer concerns into account in crafting 

regulations and other guidance. Yet there is no question that the 

act has, to this date, bent the health insurance cost curve north, 

not south, and the forecast in that regard is growing darker. 

The act requires health care plans to cover individuals they did 

not cover in the past, eliminate lifetime and annual dollar maximums, and provide a great many preventive care services, including, beginning several months from now, contraception drugs and 

devices at no out-of-pocket cost to the enrollee. These mandates 

have increased our clients’ health plan costs 2 to 3 percent on average to this point. For some sectors the increase is more. 

In 2014 or shortly thereafter plans must reduce waiting periods 

to 90 days and automatically enroll eligible full-time employees in 

coverage. Reductions in waiting periods will add up to 25 percent 

to the cost of plans that now have a 6-or 12-month waiting period, 

which is not uncommon in the construction and trucking industries. 

Our actuaries expect the automatic enrollment requirement to 

add 4.4 percent to health insurance costs—more than that in the 

retail, restaurant, and hospitality sectors. 

The act levies billions of dollars in excise taxes against health insurance, pharmaceutical and medical device manufacturing industries, and on third party payers of self-insured medical claims. The 

taxes on health insurers and TPAs alone amount to $20 billion in 

2014. Insurers we have talked to and our own actuaries estimate 

that the price of group health insurance in 2014 will rise $10 to 

$15 per employee per month as a result of these excise taxes. 

Of great frustration to our clients are the act’s many additional 

administrative burdens. Under federal law and regulations today a 

simple group health care plan is required to supply up to more 

than 50 separate notices, disclosures, and reports to enrollees or 

the federal government, many of these more than once. The Affordable Care Act added more than a dozen of these. 

Here are some of them: Plans are or will be required to notify 

enrollees regarding the plan’s retention of grandfathered status, 

the plan’s temporary waiver from the annual dollar limit prohibitions, and the availability of health insurance exchanges, just to 

name a few. Employers must report the value of medical plan coverage on Forms W-2, not to reflect a taxable event but simply because Congress wanted to collect the information. 

Plans must supply a four-page, double-sided summary of plan 

coverage in a very hardwired format and at specific times not only 

to enrollees but to individuals who are merely eligible for coverage. 

And plans face fines of up to $1,000 per violation of this requirement. 

The ‘‘play or pay’’ mandate imposed on all but the smallest employers in 2014 and beyond requires significant and frequent reporting by employers regarding the employer’s specific medical cov-
8 

erage offerings, a roster of eligible and enrolled employees, and the 

full-time or part-time status of those employees, the cost of the employer’s coverage offerings, and the employer’s and the employee’s 

respective shares of that cost, the actuarial value gauged against 

benchmarks of the employer’s coverage offerings, and the number 

of months during the year during which an employee and each of 

his enrolled dependents were covered by a plan sponsored by the 

employer. 

In conclusion, our clients are already drowning under the cost of 

providing robust health insurance to employees. Rather than tossing employers a lifeline, the Affordable Care Act is in many ways 

an anchor, albeit a well-intentioned one, by piling on additional 

costs and burdens. 

An Oliver Wyman report out yesterday reveals that two-thirds of 

employers surveyed say health insurance cost trend is 

unsustainable even if the trend is reduced 5 percent. And here the 

ACA is adding cost. 

Our clients simply do not understand, Mr. Chairman, why at a 

time when they struggle to supply this valuable fringe benefit, now 

the most expensive element of compensation next to wages, Congress would make the process more expensive and more complicated rather than less so. 

Thank you. 

[The statement of Mr. Fensholt follows:] 

Prepared Statement of Edward Fensholt, J.D., Senior Vice President, Director, Compliance Services and Health Reform Advisory Practice, Lockton 

Benefit Group 

Chairman Roe, Ranking Member Andrews and members of the Committee, my 

name is Edward Fensholt and I am a Senior Vice President of Lockton Companies, 

LLC. Lockton is the largest privately-held insurance brokerage and consulting firm 

in the world. Domestically, Lockton employs 2,300 associates in 24 offices nationwide who serve the insurance risk needs of approximately 9,000 employer clients 

from coast to coast. Lockton Benefit Group (‘‘LBG’’) is the employee benefits consulting arm of Lockton Companies, LLC, and provides employee benefits consulting 

services to approximately 2,500 of those clients. 

LBG provides consulting expertise related to qualified and nonqualified retirement plans, group life and disability insurance programs, voluntary supplemental 

benefits, dental, vision, and comprehensive group medical benefit packages. The majority of our 2,500 employee benefits clients employ us to assist in the design and 

administration of their group medical insurance programs. 

I am the Director of LBG’s Compliance Services Division, and also lead our 

Health Reform Advisory Practice, a multi-disciplinary team of professionals formed 

to steer our clients through the federal health reform initiative. On behalf of 

Lockton I thank you for the opportunity to appear here today to share our observations and our clients’ views regarding the impact of aspects of last year’s health reform law on the group health plans sponsored by our clients. 

Most LBG clients are ‘‘middle market’’ employers, employing between 500 and 

2,000 employees. Our clients include private and governmental employers, and employers across many industry segments, including construction, healthcare, manufacturing, transportation, retail, professional services firms, and the hospitality/entertainment industry. 

More than half of LBG’s clients maintain self-insured group health plans. The 

others purchase group health insurance from licensed insurance companies. 

The PPACA Imposes Additional Costs on Employment-Based Health Insurance 

The Patient Protection and Affordable Care Act of 2010 (‘‘PPACA’’) is a sweeping 

piece of legislation affecting the health insurance marketplace, the Medicaid program, the Medicare program, and health care providers from doctors to nurses to 

hospitals and community health clinics. It affects health insurers, group insurance 

plans (both insured and self-insured), the employers who offer them, and the em-
9 

1Federal regulators recently deferred the compliance deadline for the automatic enrollment 

rules, concluding guidance regarding how to implement the requirement will not be ready by 

2014. 

ployees and their dependents enrolled in those plans. My comments today are confined to the cost impacts on the latter, that is, the impact of the PPACA on employers who sponsor group health insurance plans, and the employees and dependents 

who receive coverage through those plans. 

Let me say at the outset that neither Lockton nor the vast majority of its clients 

have any quarrel with the stated goal of the PPACA, that is, to provide health insurance protection to millions more Americans who want or need it, but cannot afford it. We and the law’s proponents may disagree on how that should be provided, 

who should bear the administrative burden, who should pay for the new entitlements and how to allocate the nation’s financial resources to provide them. But we 

appreciate the stated goal behind the measure. 

As a firm heavily engaged in analyzing the statutory and regulatory construct of 

the PPACA, and advising and shepherding our clients through that construct, we 

have respect for and appreciate the efforts of the federal administrative agencies 

working hard to implement the law as Congress has mandated they must. In listening to and speaking with officials from the Labor Department, the IRS and the Department of Health and Human Services, and analyzing the guidance they have 

issued thus far, it’s clear that federal regulators are making a strong effort to listen 

to the employer community, to understand the concerns of employers, and to endeavor to balance the needs of employers with the needs of those individuals the 

PPACA was intended to benefit. 

That said, there’s no question the PPACA has, to this date, bent the health insurance cost curve north, not south. As additional taxes, fees and mandates on employer-based health coverage come on line, we fear the health insurance affordability forecast will continue to deteriorate. Let me mention a few examples for the 

Committee. 

2011 Coverage Mandates 

Health plans are already complying with the obligations to cover adult children 

to age 26 (even if married and non-dependent upon the employee), to waiver preexisting condition restrictions on newly enrolled children, and to eliminate lifetime 

and annual dollar maximums on what the PPACA terms ‘‘essential health benefits.’’ 

Most plans in our book of business have lost grandfathered status under the 

PPACA, subjecting them to additional mandates such as the obligation to cover a 

wide-variety of preventive care services—including, beginning several months from 

now, well women care, including contraception drugs and devices—at no out-of-pocket cost to the enrollee. 

The increase in health insurance costs to employers in our book of business, to 

implement these mandates, has been 2-3 percent. For some sectors the increase is 

more, for some it is less. 

There is also a new nondiscrimination rule that applies to fully insured medical 

coverage. Lockton has clients—such as regional and national restaurant chains, retail establishments and other employers in the hospitality industry—who currently 

supply typical medical coverage to corporate staff and select others (such as restaurant, store or hotel managers) but cannot afford to offer the same level of coverage, at the same rate of employer subsidies, to hourly employees. Maintaining the 

status quo, however, might subject these employers to excise taxes of $100 per day 

per hourly employee who does not receive an equivalent offer of coverage. 

It is possible, depending on how federal regulators flesh out the requirements of 

the nondiscrimination rule, that these employers will simply have to terminate their 

existing group coverage. However, the nondiscrimination rule has yet to be interpreted by the regulatory agencies, and therefore our actuaries have not yet estimated the cost impact of this mandate. 

2014 Coverage Mandates 

Additional coverage mandates apply beginning in 2014. For example, health plans 

must reduce waiting periods to 90 days, and auto-enroll eligible full-time employees 

in available employer-based coverage.1 Depending on the employer’s industry segment, these additional expenses can be substantial. For example, our clients in the 

construction and transportation industries—where we find 6-month or even 12- 

month waiting periods—can expect to see significant cost increases. Our actuaries 

tell us these clients with 6-month waiting periods currently should see a cost in-
10 

2 In modeling the effect of the automatic enrollment provision, our actuaries assumed that 

75% of employees who are newly eligible for coverage but have not affirmatively enrolled, and 

who are automatically enrolled by the employer, will opt out of coverage. 

crease of an additional 4% in 2014; those with a 12-month waiting period should 

see a cost increase of nearly 25%. 

Our actuaries tell us that, across all industry segments other than retail and hospitality, our clients can expect to experience a 4.4% cost increase attributable to the 

automatic enrollment requirement.2

Taxes and Fees 

To at least partially offset the cost of the health reform law, Congress (in the 

PPACA) levied excise taxes against the health insurance, pharmaceutical and medical device manufacturing industries, and on third-party administrators (TPAs) of 

medical claims. Of course, health insurers and TPAs will simply pass along these 

additional costs in the price of their products. 

The taxes on health insurers and TPAs amount to $20 billion in 2014. Insurers 

we’ve talked to, and our own actuaries, estimate that the price of group health insurance in 2014 will rise $10-15 per employee, per month (or about 2-3 percent) on 

account of these excise taxes alone. 

Health plans are also subject to a $1 per covered life fee in 2012, increasing to 

$2 per covered life next year and beyond (subject to inflation-based adjustments), 

to pay for ‘‘comparative effectiveness research,’’ or research into medical ‘‘best practices.’’ 

Administrative Burdens 

Of great frustration to our clients are the many additional administrative burdens, and their attendant costs, imposed by the health reform law. The majority of 

our clients want to continue to supply health insurance, but they struggle with the 

cost and the federally-imposed complexity of plan administration. 

For example, under federal law and regulations today, a simple group health plan 

is required to supply up to more than 50 separate notices, disclosures and reports 

to its enrollees and the government (many of those more than once). Virtually every 

aspect of plan administration, from enrollment to benefit summaries to specific eligibility and benefit requirements, to claim processing times and the timing, form and 

cost of post-employment coverage, are now under (primarily federal) statutory or 

regulatory dictates. 

The PPACA has added more than a dozen additional notice and disclosure obligations to health plan administration. This frustrates our clients immensely. They do 

not understand why, at a time when they struggle to supply this valuable fringe 

benefit—which is now the most expensive element of employee compensation, behind wages—Congress would make the process more expensive and more complicated, rather than less so. 

A full 80 percent of our clients said, in responding to a survey we conducted last 

year, that they were ‘‘concerned’’ or ‘‘very concerned’’ about the additional administrative complexity created by the PPACA. They tell us the additional costs, complexity and uncertainty wrought by the PPACA affect their ability to hire additional 

workers, or to retain full-time employees. 

Here are just some of the additional administrative obligations imposed upon 

health plan sponsors by the PPACA: 

• Plans are (or will be) required to notify enrollees regarding the plan’s retention 

of grandfathered status under the PPACA, the plan’s obtaining a waiver from the 

annual dollar limit prohibitions, the right of enrollees to designate certain physicians as a child’s primary care physician, the availability of health insurance exchanges, the plan’s participation in the Early Retiree Reinsurance Program, and the 

retroactive loss of coverage due to misrepresentation or fraud. 

• Employers must report the value (employer- and employee-paid) of medical plan 

coverage on Forms W-2, not to reflect a taxable event, but simply because Congress 

wanted to collect the information. Because many employees change their level of 

health coverage during the taxable year (due to marriage, domestic partnership, divorce, birth or emancipation of a covered child, etc.), employers must track the 

changes in values of the coverage, to ensure accurate reporting. 

• Although the Employee Retirement Income Security Act (ERISA) already required most employers to supply health plan enrollees with a ‘‘summary plan description’’ summarizing their health coverage, the PPACA imposes an additional requirement to supply a four-page (double-sided) summary of plan coverage, in hardwired format and at specific times, to not only enrollees but also to individuals 
11 

3The IRS has also indicated a willingness to allow employers to utilize W-2 wages as a surrogate for ‘‘household income’’ in the affordability calculation. 

merely eligible for coverage. Health plans face fines of up to $1,000 per violation 

of this requirement. 

• The ‘‘shared responsibility’’ obligations imposed on all but the smallest employers in 2014 and beyond will significantly ratchet up the administrative obligations 

on employers subject to those obligations. o Many employers will face substantial 

complexity in determining when their employees are considered ‘‘full-time’’ for 

PPACA purposes, triggering an obligation on the employer to offer them at least 

‘‘minimum essential coverage’’ or risk various penalties. The challenge will be particularly acute for seasonal employers. While the administrative agencies—the IRS 

in particular—have done an admirable job working to strike a balance between 

pragmatism and the PPACA’s literal requirements, we expect the process to remain 

significantly burdensome. 

In order for federal authorities to coordinate employers’ ‘‘shared responsibility’’ obligations with the availability (to the uninsured) of taxpayer subsidies in the new 

health insurance exchange, federal and state authorities will need employers to submit detailed reports on a regular basis, reports reflecting: 

• The employer’s specific medical coverage offerings, 

• A roster of eligible and enrolled employees, and the full-time or part-time status 

of the employees, 

• The cost of the employer’s coverage offerings, and the employer’s and employees’ 

respective shares of that cost, 

• The actuarial value, gauged against designated benchmarks, of the employer’s 

coverage offerings, and 

• The number of months (during the year) for which an employee, and each of 

his enrolled dependents, were covered by a plan sponsored by the employer. 

Last week came word from Washington that the IRS is re-evaluating how to assess the ‘‘affordability’’ of an employer’s coverage offering to a full-time employee. 

Under the PPACA, if the employer’s offer of coverage requires the employee to pay 

more than 9.5 percent of his or her household income for coverage, the coverage is 

considered ‘‘unaffordable’’ and the employee may qualify for taxpayer-supplied subsidies to buy insurance in a health insurance exchange. If that occurs, the employer 

will incur a $3,000 annual nondeductible penalty with respect to that employee. 

The legislative history to the PPACA is scant, but what history exists is clear that 

the ‘‘affordability’’ test was to be applied to employee-only coverage, not family coverage. The IRS has initially said this is how it interpreted the statute.3

Now comes word that the IRS might, in fact, require that family coverage meet 

this affordability test. If federal authorities are going to require employers to heavily subsidize a full-time employee’s family coverage, so that family coverage does not 

cost the employee more than 9.5 percent of his or her household income, the number 

of employers exiting the group insurance market, and dumping their employees into 

the health insurance exchanges, will be far greater than the Congressional Budget 

Office has estimated to date. That has profound implications for the dollars budgeted to supply taxpayer-funded subsidies in the exchanges. 

The flight from the group insurance marketplace will most acute in industries 

where the employees tend to be modestly paid, hourly workers. Employers will opt 

to pay the relatively modest $2,000 per full-time employee penalty for offering no 

insurance, rather than pay larger subsidies for health insurance for the employees 

and their dependents. Congress can also expect to see many employer sectors transition full-time employees to part-time status, to take the employees out of the penalty equation. 

What Employers Appreciate About the PPACA 

This is not to say that employers are concerned about every aspect of the insurance reforms reflected in the PPACA. Some employers who buy group insurance (as 

opposed to self-insuring medical coverage) will receive refunds this August from insurers who failed to reach specific medical loss ratios in the given state. 

And the PPACA supplies greater leverage to employers to encourage employees 

to make lifestyle changes to improve their health. The law allows employers to require unhealthy employees to pay an additional amount—up to 30 percent of the 

total cost the employee’s coverage, up from 20 percent under pre-PPACA rules—for 

their health insurance, to account for the additional risks they pose to the health 

plan. 
12 

Conclusion 

Lockton greatly appreciates the opportunity to appear before you today. In assessing the impact of the health reform legislation, we urge you to place yourselves not 

only in the shoes of those Americans who need access to affordable insurance, but 

in the shoes of the employers who supply valued coverage to 160 million of us. 

Employers are burdened and frustrated by aspects of the health reform law that 

add costs and complexity to their health plans, and may lead some of them to eliminate group coverage and full-time jobs. 

We welcome the opportunity to work with you to mitigate these burdens on the 

employer community. 

Chairman ROE. Thank you. 

Mr. Ramthun? 

STATEMENT OF ROY RAMTHUN, PRESIDENT, 

HSA CONSULTING SERVICES 

Mr. RAMTHUN. Chairman Roe, Ranking Member Andrews, and 

other members of the committee, I would like to thank you for this 

opportunity to testify before your subcommittee today. My name is 

Roy Ramthun and I am a private consultant here in the Washington, D.C. area. 

I would like to take this opportunity to discuss one of the bright 

spots in health coverage benefits, that known as account-based 

health plans—health insurance plans paired with an HSA or HRA. 

These are the fastest-growing product in the market for employerbased group health plans. 

It is my opinion that account-based health plans have helped to 

arrest the decline in employer-based health coverage. That said, I 

am uncertain that even account-based health plans can overcome 

the new employer responsibilities and costs of complying with the 

Patience Protection and Affordable Care Act. I will touch on some 

of these issues during my testimony today. 

Account-based health plans now account for about 15 percent of 

all employer-sponsored health coverage. The consulting firm Towers Watson states that nearly 60 percent of employers have implemented account-based health plans and that number will increase 

to 70 percent by 2013. Twelve percent of employers now offer total 

replacement plans, where account-based health plans are the only 

option offered to employees. 

What is fueling this growth? Certainly one of the reasons is the 

dramatic increase in health insurance costs over the past decade. 

Milliman Incorporated recently reported that health care costs for 

the typical family of four are projected to reach over $20,000 

through an employer-sponsored PPO plan this year. 

In contrast, companies with at least half of their workers enrolled in an account-based health plan report that their per-employee costs are over $1,000 lower than companies without an account-based health plan. This is hard evidence for bending the cost 

curve that is so elusive for the rest of our nation’s health care system. 

Several insurance carriers have similarly reported dramatic savings for employers that switch to account-based health plans. This 

potential for reducing health care spending was recently confirmed 

by researchers at the RAND Corporation. 
13 

Their analysis suggests that the health care spending in the U.S. 

could drop by $57 billion per year if account-based health plans 

grow to represent half of all employer-sponsored in the U.S. They 

estimate that the annual savings would be as high as $73.6 billion 

if all these individuals were enrolled in HSA plans. 

But account-based health plans are not just about saving money. 

It is also about how the money is saved—by changing how employees think about their health and taking action to improvement. In 

my written testimony I address some of the common 

misperceptions about account-based health plans, including that 

account-based health plans don’t cover preventive services and generally offer skimpier coverage, that individuals will forego needed 

care just to save money, that individuals will go bankrupt due to 

high out-of-pocket costs, and that patients will be overcharged and 

unable to navigate the complex world of health care. 

Why isn’t every company offering account-based health plans? 

Well, they may have to if the so-called ‘‘Cadillac plan’’ tax goes into 

effect in 2018. 

I believe that companies have few other options as effective as 

account-based health plans to keep their costs below the thresholds 

where the excise tax will affect them. However, other issues are or 

will create challenges much sooner than 2018. 

For example, employees with HSAs, HRAs, and even FSAs must 

now obtain a prescription from their doctor to seek reimbursement 

for over-the-counter medicines. In 2014 the health reform law will 

require employer-based health plans to limit their plan deductibles 

to no more than $2,000 for single persons and $4,000 for family 

persons. Many employers are already offering account-based health 

plans with deductibles above these limits. 

Also in 2014, the law will require employer-based health plans 

to provide a minimum actuarial value of at least 60 percent. While 

this sounds reasonable, recent guidance issued by the Internal Revenue Service and HHS proposed to devalue the typical employer 

contributions to HSAs and HRAs when determining whether a plan 

provides the minimum actuarial value. Thus, some account-based 

health plans might not meet the minimum 60 percent standard. 

In my written testimony I cite statements from the American 

Academy of Actuaries and the Congressional Budget Office suggesting that this policy should be changed. I agree completely and 

I believe that employer and employee contributions to HSAs should 

be valued at the full amount of the contributions, not adjusted. 

Another issue of concern is the new minimum medical loss ratio 

requirements. Unfortunately, the regulations do not adequately 

take into account HSA or HRA contributions, thus making it extremely challenging for account-based health plans to meet the 

MLR requirements, limiting the availability of these plans to 

small-and medium-sized employers in the future. 

In closing, strategies like account-based health plans that reduce 

employer health benefit costs free up money that companies can 

use to stimulate the economy by raising wages, creating jobs, or 

making critical investments for the future. We also need to ensure 

that workers will be permitted to keep the coverage they have, as 

was promised throughout the health reform debate. 
14 

Mr. Chairman and members of the subcommittee, I appreciate 

the opportunity to provide this testimony today. I look forward to 

the opportunity to discuss these issues in greater detail and am 

pleased to answer any questions you may have. 

Thank you. 

[The statement of Mr. Ramthun follows:] 

Prepared Statement of Roy J. Ramthun, President, 

HSA Consulting Services, LLC 

Chairman Roe, Ranking Member Andrews and the other members of this Committee, I would like to thank you for this opportunity to testify before the Subcommittee on Health, Employment, Labor and Pensions about the barriers to lower 

health care costs for workers and employers. My name is Roy Ramthun, and I am 

a private consultant in nearby Silver Spring, MD. My consulting practice focuses 

primarily on helping employers, financial institutions, and consumers to better understand and take advantage of the benefits offered by consumer-driven health care 

programs such as Health Savings Accounts (HSAs), Health Reimbursement Arrangements (HRAs), and their associated health insurance plans. 

I have had the distinct honor to serve our country in positions at the Department 

of Health and Human Services (HHS), the Treasury Department, the White House, 

and the U.S. Senate Committee on Finance. While at the Treasury Department, I 

led the implementation of the Health Savings Account program after its enactment 

in 2003. I started my own consulting practice after leaving the White House in 2006 

to devote my full time and attention to this program and related issues. 

Account-based health plans—health insurance plans paired with HSAs and 

HRAs—are the fastest growing product in the market for employer-based group 

health plans. There is no disputing the fact that the number of employers offering 

group health plan coverage to their employees has declined as the cost of providing 

coverage has increased. It is my opinion that account-based health plans have 

helped arrest this decline. That said, as employers wrestle with the decisions whether or not to continue sponsoring health insurance benefits, I am uncertain that even 

account-based health plans can overcome the new employer responsibilities and 

costs of complying with the Patient Protection and Affordable Care Act. I will touch 

on some of those issues during my testimony today. 

Account-based health plans are approximately 10 years old, but have grown substantially over the past decade. Estimates vary, but account-based health plans now 

account for about 15 percent of all employer-sponsored health coverage. The Employee Benefit Research Institute (EBRI) says approximately 21 million Americans 

were covered by an account-based health plan in 2011, up 40 percent from 2010. 

The number is certainly higher for this year as the number of Americans covered 

by HSA-based plans is approximately 13.5 million, as reported just this week by 

America’s Health Insurance Plans (AHIP). There is no reliable survey of HRA-based 

plans, but my best guess is that another 11-12 million Americans are covered by 

these plans. 

The consulting firm Towers Watson states that nearly 60 percent of employers 

have implemented account-based health plans, and that number will increase to 70 

percent by 2013. Twelve percent of employers now offer ‘‘total replacement’’ plans— 

where account-based health plans are the only option offered to employees—up from 

7.6 percent in 2010. Enrollment by employees in account-based plans has nearly 

doubled in the past two years, from 15 percent in 2010 to 27 percent in 2012. 

What is fueling this growth? Certainly one of the reasons is the dramatic increase 

in health insurance costs over the past decade. According to the 2011 Kaiser Family 

Foundation/Health Research & Educational Trust annual survey of employer benefits, the cost of family coverage more than doubled over the previous 10 years (see 

exhibit below). Other surveys suggest that costs may be even higher. For example, 

Milliman Inc. recently reported that health care costs for the typical family of four 

are projected to reach $20,728 through an employer-sponsored preferred provider organization (PPO) plan this year. The 6.9 percent increase over 2011 is actually the 

lowest rate of increase Milliman has seen in the 10 years of this study. 
15 

Contrast that to the experience of employers who have account-based health 

plans. According to Towers Watson and the National Business Group on Health, 

companies that successfully move their employees into account-based health plans 

can achieve significant savings on their health benefit costs. For example, companies with at least half of their workers enrolled in an account-based health plan report that their per-employee costs are over $1,000 lower than companies without an 

account-based health plan. This is hard evidence for ‘‘bending the cost curve’’ that 

is so elusive for the rest of our nation’s health care system. 

Similarly, Aetna reported late last year that employers who switched to accountbased health plans as their only plan option had saved $21.8 million per 10,000 

members over the past five years. Aetna found that employers who offered an account-based health plan along with other traditional plan options (e.g., PPO, HMO) 

also had realized savings, but not as significant—only $8 million per 10,000 members over five years. 

Finally, Cigna published a study earlier this year concluding that employers can 

save an average of $9,700 per employee over five years by switching to accountbased health plans. Given these results, Cigna believes that if the share of Americans enrolled in account-based health plans rose to 50 percent and achieved the 

same results as this study, the U.S. could save $350 billion over 10 years and the 

level of patient care would improve. 

This potential for reducing health care spending was recently confirmed when researchers at the RAND Corporation published in the journal Health Affairs the results of their analysis of the potential impact of account-based health plans on the 

American health care system. The RAND analysis suggests that if account-based 

health plans grow to represent half of all employer-sponsored insurance in the 

United States, health care spending could drop by $57 billion annually—about 4 

percent of all health care spending among non-elderly Americans. The study acknowledges that HSAs are far more cost-effective, and estimates that if all of these 

people were in HSA plans, the annual savings would be as high as $73.6 billion. 

I believe that is a conservative estimate. 

But account-based health plans are not just about saving money. It’s also about 

how the money is saved—by changing how employees think about their health and 

taking action to improve it. I would like to take a few moments to clear up some 

common misperceptions about account-based health plans. 

First, research is increasingly suggesting that lifestyle behaviors account for approximately three-quarters of health care spending in the U.S. This is likely to only 

get worse as diet, obesity, lack of exercise, and smoking take its toll on our bodies 
16 

and our health care system. Fortunately, account-based health plans cover preventive care services and usually do so without applying a deductible or other out-ofpocket expense. In fact, preventive care was included in the original design of HSAs, 

long before the PPACA made it a requirement of all health plans. Data from Aetna, 

Cigna, EBRI, and others suggests that utilization of preventive care services is higher when individuals are enrolled in account-based health plans. Additional data suggests higher compliance with disease management and treatment regimens for individuals with chronic conditions. While there is always a risk that people will seek 

less care when spending their own money (several studies have raised this concern), 

I am not aware of any evidence to suggest that the health status of individuals enrolled in account-based health plans has declined, and in most cases it appears to 

be improving. Obviously, this is an issue to monitor for the future. 

Second, individuals enrolled in account-based health plans are more engaged in 

their health care. The most recent survey by EBRI suggests that enrollees in account-based health plans are more likely to: (1) check whether their plan would 

cover their care; (2) talk to their doctor about treatment options and costs; (3) talk 

to their doctor about prescription drug options and costs; (4) ask for a generic drug; 

(5) check the price of service before seeking care; (6) use an online cost-tracking tool; 

and (7) develop a budget to manage health care expenses. Similar findings have 

been reported by insurance carriers. 

Third, HSA-qualified account-based health plans provide true catastrophic protection by virtue of their annual limits on out-of-pocket expenses. Under the PPACA, 

these limits will be applied to all plans starting in 2014, but account-based health 

plans already provide this protection and have been doing so since 2004. These limits apply both to medical and pharmacy expenses and therefore provide an extremely important benefit to people with chronic conditions and/or high annual 

health care expenses. Most people don’t understand that their traditional pharmacy 

coverage likely does not have any limit on out-of-pocket prescription expenses. 

Fourth, covered benefits and services are generally identical to traditional plans, 

not ‘‘skimpier’’ as some critics believe. What is different is the amount of covered 

benefits paid by the account-based health plan. So while the exact same benefits 

may be covered by each plan, the account-based health plan may only cover 60 or 

70 percent of the cost of covered benefits, whereas a traditional HMO or PPO plan 

may cover 80 or 90 percent of the cost of covered benefits, on average. However, the 

difference in out-of-pocket costs for covered benefits is typically offset almost dollarfor-dollar by a difference in premiums. For example, a plan with a higher deductible 

(by $2,000) will typically have a premium that is $2,000 lower. Many people understand this concept when applied to their auto and homeowners insurance policies, 

but the concept is relatively new to many people for their health insurance. 

Fifth, even though individuals enrolled in account-based health plans typically 

have higher out-of-pocket expenses, they still receive the benefit of the discounted 

prices for medical services negotiated by their insurance plan. For example, a patient may have an office visit with his or her personal physician. While the physician may charge $150 for each office visit, he usually accepts a discounted fee of 

$70 to $100 depending on the insurance plan. In these cases, the patient would pay 

only $70 to $100, not the full $150 charged by the physician. 

Sixth, there is a growing industry of companies providing complementary information and services to help people manage their medical care and health care finances. 

Companies like Compass, Medibid, BidRx, Direct Labs, Healthcare Blue Book, 

change:healthcare, IF Technologies, INSNET, and others are responding to the 

needs of patients by providing better information about the price and quality of 

health care services. Another industry is responding to the demand for ‘‘wellness’’ 

services to help people maintain and improve their health to avoid disease and 

chronic conditions. These companies would likely not exist without the growing consumer demand for better value for their health care dollar. 

Finally, even though individuals enrolled in account-based health plans are typically subject to higher up-front deductibles, most employers are providing a contribution of funds to the associated HSA or HRA which helps lessen the sting of 

the deductible. Data from the most recent Kaiser Family Foundation/HRET survey 

indicates that workers enrolled in HRA plans receive an annual employer contribution to their HRA of $861 for single coverage and $1,539 for family coverage, on average. Workers enrolled in HSA plans receive an annual employer contribution to 

their HSA of $886 for single coverage and $1,559 for family coverage. With HSAs, 

unspent funds automatically roll over each year. However, approximately 30 percent 

of workers enrolled in HSA plans receive no contributions from their employer. Although I believe these individuals primarily work for smaller companies, we all 

should be mindful of government policies that may discourage employer contribu-
17 

tions in the future, such as changes to tax policy and how health plan actuarial values are calculated. 

Why isn’t every company offering account-based health plans? They may have to 

if the so-called ‘‘Cadillac plan’’ tax in PPACA goes into effect in 2018. I believe that 

companies have few other options as effective as account-based health plans to keep 

their costs below the thresholds where the excise tax will affect them ($10,200 for 

single coverage; $27,500 for family coverage). The recent surveys suggest that private employers are taking action and moving to account-based health plans, but 

public and non-profit employers appear to be lagging. 

The one exception is the State of Indiana. Indiana has been offering account-based 

health plans to state employees since 2006. In 2012, its seventh year for accountbased plans, 90 percent of Indiana state workers with its health insurance coverage 

participate in an account-based health plan. The state says these plans have already 

reduced the state’s overall health benefit costs by more than 10 percent, and only 

2 percent have switched back to a traditional plan. 

In the 22 other states where enrollment in account-based health plans is voluntary, only 2 percent of government employees have signed up. Last year, Arizona, 

Louisiana, Minnesota, Utah and West Virginia joined 18 other states that already 

offer an account-based health plan. If Indiana’s program continues to hold down 

costs while satisfying state employees, more states can be expected to try accountbased health plans. 

Barriers to Future Growth 

For larger employers, cost pressures will continue under the PPACA as the ‘‘Cadillac plan’’ tax looms in 2018. However, other issues are or will create challenges 

much sooner than 2018. For example, employees with HSAs, HRAs, and even Flexible Spending Accounts (FSAs) must obtain a prescription from their doctor to seek 

reimbursement for over-the-counter medicines. The irony is that these medications 

have been approved by the U.S. Food and Drug Administration (FDA) as safe and 

effective for purchase without a prescription. But a provision in the PPACA requires 

individuals to obtain a prescription for these products or they will have to pay income tax plus a 20 percent penalty if they use their HSA, HRA, or FSA funds to 

pay for these medicines. This provision has been in effect since January 1, 2011. 

In 2014, the PPACA will require employer-based health plans to limit their plan 

deductibles to no more than $2,000 for single persons and $4,000 for family policies. 

Many employers are already offering account-based health plans with deductibles 

above these limits, especially employers that have been offering account-based 

health plans for several years. If companies are required to lower their deductibles, 

they will likely see their costs go up and will have to raise their premiums offset 

the lower out-of-pocket costs. This would send account-based health plans in the 

wrong direction! 

Also in 2014, the PPACA will require employer-based health plans to provide a 

minimum actuarial value of at least 60 percent. This means the plan must be designed to pay at least 60 percent of the cost of the benefits covered by the plan, 

and the employee/patient must pay the remaining 40 percent. While this sounds 

reasonable, recent guidance issued by the Internal Revenue Service (IRS) and HHS 

reflects a bias against account-based plans in favor of traditional first-dollar coverage plans. The guidance proposes to devalue the typical employer contributions to 

HSAs and HRAs when determining whether a plan provides the minimum actuarial 

value. Thus, even if an employer is providing the same amount of total contributions, the plan might not meet the minimum 60 percent standard. 

Here is an example of how this could happen. Consider an employer that is providing coverage through a traditional PPO group health plan at a cost of $5,000 per 

employee. The company then chooses to switch to an account-based health plan and 

lowers its per-employee premium costs to $4,000 but contributes the $1,000 savings 

to each employee’s health savings account. From the employer’s perspective, his 

total costs remain $5,000 per employee. But under the IRS/HHS guidance, the employer’s $1,000 contributions to employees’ HSAs will not receive full credit (e.g. 

might be cut in half or more) towards the plan’s actuarial value, putting the employer at risk of not meeting the minimum actuarial value of 60 percent. This again 

sends the wrong message to employers about account-based health plans. 

In its comment letter to HHS dated May 16, 2012, the American Academy of Actuaries said the following: 

‘‘This adjustment * * * could have the effect of discouraging employers from contributing to HSAs/HRAs. For a given amount of employer spending toward health 

insurance, a higher [actuarial value] likely would be achieved by devoting more of 

those dollars directly toward a health insurance program than to an HSA/HRA. To 

the extent that HSAs encourage plan enrollees to seek cost-effective care, discour-
18 

aging this option may run counter to goals of achieving more effective use of health 

care dollars.’’ 

Likewise, in its 2008 report analyzing major health insurance proposals, the Congressional Budget Office (CBO) said that: 

‘‘* * * the actuarial value of consumer-directed plans would include the expected 

value of any contributions that an insurer or employer sponsoring the plan would 

make to an enrollee’s account—so that contribution could be set to make the overall 

actuarial value of the consumer-directed plan equal to the value of a conventional 

health plan.’’ 

I agree completely with the Academy and CBO. I believe that employer contributions to HSAs should be valued at the full amount of the contribution, not ‘‘adjusted.’’ In addition, employee contributions made through payroll deduction should 

be counted as well and in full (not ‘‘adjusted’’). Currently, the guidance does not provide any credit for employee contributions. 

Another issue that will impact the availability of account-based health plans to 

some companies is the new minimum medical loss ratio (MLR) requirements under 

the PPACA. This issue impacts plans sold by insurance carriers to small and medium-size companies. Unfortunately, the MLR regulations do not take into account 

HSA or HRA contributions, thus making it extremely challenging for account-based 

health plans to meet requirements they were not designed to meet. I have been 

seeking changes to the regulations to reflect the unique circumstances of accountbased health plans, but no changes have been made so far. 

In closing, we should all keep in mind that premiums paid by employers for workers’ health benefits are another form of compensation in lieu of wages earned by 

employees. Strategies like account-based health plans that reduce employer health 

benefit costs free up money that companies can use to stimulate the economy by 

raising wages, creating jobs, or making critical investments for the future. We also 

need to ensure that workers will be permitted to keep the coverage they have, as 

was promised throughout the health reform debate. 

Mr. Chairman and members of the Subcommittee, I appreciate the opportunity to 

provide this testimony today. I look forward to the opportunity to discuss these 

issues in greater detail with you. I would be pleased to answer any questions you 

have. 

Thank you. 

Chairman ROE. Thank you. 

Ms. Hall? 

STATEMENT OF JODY HALL, FOUNDER AND OWNER, 

CUPCAKE ROYALE 

Ms. HALL. Thank you. 

Chairman Roe, Ranking Member Andrews, and members of the 

subcommittee, I am honored to be here today to testify. My name 

is Jody Hall and I own a business called Cupcake Royale, in Seattle, Washington. It is a cafe and bakery. 

I am also a leader in a group called the Main Street Alliance of 

Washington that represents over 2,000 small business owners because we—our voices weren’t heard in groups like NFIB. And that 

was pulled together about 3 or 4 years ago. 

And I founded my business in 2003. When we opened our first 

shop we took a big risk. We were the first cupcake bakery outside 

of Manhattan to open. 

The risk paid off. Our made-from-scratch cupcakes were an instant hit and we since have expanded to five locations. I am actually here—we started building our sixth location yesterday—and 

am taking time out because I believe in this issue. We employ currently 72 employees, 45 FTE equivalents, and soon we will cross 

that 50-FTE threshold. 

This year I was honored as Business of the Year by the Greater 

Seattle Business Association and just wanted to talk a little bit 
19 

about this. I build my business on the notion that a good business 

supports a strong local economy and gives back to the community. 

The community includes our employees. If I treat my employers 

well they will treat our customers well and our business will do 

well as a result. 

This includes health care coverage. Since 2004 we have offered 

health care coverage to our employees who work 28 hours a week 

or more and we pay 75 percent of the cost. It is an important part 

of our business values but it is also a huge challenge. 

Between 2004 and 2010 we were faced with rate increases that 

exceeded 20 percent—30 percent and up to 40 percent in 2009. In 

2011 our health care costs more than $67,000. 

Before I started my business I worked in corporate America for 

a little coffee company called Starbucks and one of the biggest surprises I faced when I left my Starbucks corporate job was how little 

benefit I got as a small business owner. Basically I paid twice the 

amount for half the coverage as a small business owner, and that 

was a big shock. And even now businesses our size have very little 

bargaining power. 

The ACA’s state insurance exchanges are finally going to change 

that. A state exchange will give me the opportunity to band together with thousands of other small business owners across Washington State to get access to better health care at better rates. 

Joining a group with hundreds of thousands of participants will 

be a big leap in risk pooling, economies of scale, and negotiation 

clout. We finally would be able to tap into the kind of insurance 

that Starbucks and Microsoft have had all along. And by adding 

competition of an exchange this will create efficiency and cost savings in the private sector and hopefully bring costs down, I would 

imagine, if we are a good competitor. 

On top of the state exchanges, other parts of the ACA are already helping small businesses. The 80/20 value for premiums rule 

is one example. Under this rule rebates for this year alone are estimated at $1.3 billion and checks are due out in the mail, which will 

add a nice shot in the arm for the economy. 

There also health care law—there are also the health care law’s 

rate review provisions, which are helping bring much-needed transparency to the proposed rate hikes. These provisions are making a 

difference. My rate increase this year was a lot lower, and I have 

heard this from other small business owners. 

I would like to make a point about employer responsibility. The 

part of this law is sometimes claimed to be a barrier to job creation, and I don’t see it this way at all. As a business owner who 

offers health care coverage, the real barrier for me is when other 

businesses my size—or dare I say bigger—don’t offer health care I 

am forced to subsidize their costs. 

This health care cost shifting actually costs my business hundreds of dollars per employee per year, and this is not fair competition. The only way to fix this free-rider problem is through a system that combines personal responsibility and shared responsibility, a system where all businesses above a certain threshold 

pitch in and nobody takes a free ride. 

On the note of the business tax credit, I think that there is an 

opportunity to make this work for more businesses. For example, 
20 

my business is a restaurant. We are open 7 days a week; we staff 

16 hours a day. It is hard for restaurants to have less than 25 

FTEs. So I think by expanding that to 50 or 75 that would be an 

opportunity to create a tax credit for a lot more businesses. 

So in conclusion, the Affordable Care Act is taking critical steps 

to lower health costs and bring affordable and quality coverage 

within reach for small businesses. And this will allow—this kind of 

work is allowing small businesses like me to focus on not how I am 

going to pay for my health care but how I am going to grow my 

business, hire people, and strengthen our local economies. 

Thanks for your time. 

[The statement of Ms. Hall follows:] 

Prepared Statement of Jody Hall, Owner, 

Cupcake Royale & Verite ́ Coffee 

Chairman Roe, Ranking Member Andrews, and members of the HELP Subcommittee, thank you for the invitation to testify before your subcommittee on the 

topic of barriers to lower health care costs for business owners and workers. I appreciate the opportunity to share my experiences and perspective on these issues as a 

small business owner. 

My name is Jody Hall. I own Cupcake Royale, a cupcake bakery and cafe ́ business 

in Seattle, Washington. I’m also a leader in the Main Street Alliance of Washington, 

a statewide network of local, independent small businesses in Washington State 

that gives small business owners like me a voice on the most pressing public policy 

issues facing our businesses. 

I founded my business in 2003. When we opened our first shop in Seattle’s 

Madrona neighborhood with 10 employees, we were taking a risk. It was the country’s first cupcake bakery to open outside of New York City. The risk paid off. Our 

made-from-scratch-daily cupcakes were an instant hit. Over the years, we’ve expanded to five locations in Seattle and neighboring Bellevue. 

Cupcake Royale is recognized as a local institution. We’re proud to employ 72 people (adding up full-time and part-time workers, we have 45 full-time equivalents). 

This year, I was honored as the Small Business Person of the Year by the Greater 

Seattle Business Association. I’ll be rushing to get home to Seattle tonight to take 

care of the final details for opening a new store in July near Pike Place Market in 

downtown Seattle. That will be our sixth location, and I expect we’ll be hiring another 15 employees for the new store as we continue to grow. 

From day one, I built my business model on the notion that a good business supports a strong local economy and gives back to the community that supports it. We 

partner with Washington farmers and producers as much as possible: our flour 

comes from a handful of wheat farmers in Eastern Washington who mill it specially 

for our needs and our dairy is local along with fresh fruit from nearby farmers. And 

we donate over 40,000 cupcakes a year to help raise funds for local non-profits. 

I also built my business on a commitment to treating my workers like family. 

That includes offering health care coverage. We offer health care to all employees 

who work over 28 hours a week and we pay 75 percent of the cost. It’s an important 

part of our business values to offer health care. The way the costs have risen over 

the last decade, it’s also been a huge challenge. Between 2004 and 2010, we were 

faced with rate increases routinely exceeding 20 percent—reaching as high as 40 

percent in 2009. In 2011, our health care costs were more than $67,000. 

We’ve got to take steps as a country to get these costs under control. Small businesses—and the country as a whole—can’t afford the cost of doing nothing. And 

we’ve got to do it in smart ways that ensure decent quality, promote informed 

choice, and guarantee good value for our health care dollars. That’s why I support 

the Affordable Care Act and the measures it includes to lower health care costs 

while promoting quality, choice, and value for small businesses and our employees. 

Barriers to Lower Health Care Costs: How the Health Care Reform Law Helps 

Some of the biggest barriers we face to getting decent health coverage as a small 

business stem directly from our size. Before I started my business, I worked in corporate America for 13 years, and one of the biggest surprises when I decided to go 

out on my own and start my own enterprise was how little we got in terms of health 

care benefits for almost twice the dollars (and these plans only covered medical— 

not dental and vision, which were included in my corporate packages). When we 
21 

1 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends, 

2010 Medical Expenditure Panel Survey—Insurance Component; Table II.A.1(2010) Number of 

private-sector establishments by firm size and State: United States, 2010, http:// 

www.meps.ahrq.gov/mepsweb/data—stats/summ—tables/insr/state/series—2/2010/tiia1.htm; 

Table II.B.1(2010) Number of private-sector employees by firm size and State: United States, 

2010, http://www.meps.ahrq.gov/mepsweb/data—stats/summ—tables/insr/state/series—2/ 

2010/tiib1.htm 2 ‘‘Health Insurance Premium Grants: Detailed State by State Summary of Proposed Activities,’’ HealthCare.gov, http://www.healthcare.gov/news/factsheets/2010/08/rateschart.html 3 ‘‘Health care reform: good for business,’’ The Baltimore Sun, April 1, 2012, http:// 

www.baltimoresun.com/news/opinion/oped/bs-ed-obamacare-business-20120401,0,6828504.story 

have to brave the health insurance market on our own, whether with the 10 employees we started with or the 72-plus we have now, we’re still too small to have any 

bargaining power, effective risk-pooling, or economies of scale. 

A State Health Insurance Exchange 

The state insurance exchanges made possible by the Affordable Care Act are going 

to change that. A state insurance exchange will give us the opportunity to band together with thousands of other small businesses across Washington State. There are 

more than 120,000 private sector firms in Washington State with fewer than 100 

employees that could be eligible to join the exchange, and these firms employ almost 

900,000 people.1

I can’t wait for Washington’s exchange to open its doors for enrollment. Joining 

a pool with hundreds of thousands of participants will be a huge improvement in 

risk-pooling, efficiencies of scale, and negotiating clout for my business and for small 

businesses across the state. We’ll finally be able to tap into the kind of bargaining 

power that big companies like Starbucks and Microsoft enjoy. 

Other Provisions of Health Care Reform that Put Downward Pressure on Insurance 

Rates 

The health insurance exchange is the biggest thing I’m looking forward to from 

the health care reform law, but there are also other provisions that are taking effect 

already and helping to put the brakes on rising insurance premiums. 

One example is the 80/20 value for premiums rule, or ‘‘minimum medical loss 

ratio’’ requirement, which requires health insurers to spend at least 80 percent of 

our premium dollars on actual health care costs or pay a rebate to consumers. For 

small business owners who know that offering good value to our customers is critical to our survival, the idea that we deserve a basic guarantee of value from our 

health insurance companies is common sense. The first rebate checks are due in the 

mail this summer and independent researchers have estimated that health insurance customers are going to get back in the vicinity of $1.3 billion in premium overpayments. That’s a nice shot in the arm for small businesses and other insurance 

purchasers. And it doesn’t even count downward adjustments in rate hikes taken 

by insurers to comply with the 80/20 rule and avoid owing even more in rebates. 

Another example is the health care law’s support for more careful review of proposed rate increases. In Washington, where we already have strong rate review laws 

on the books, this part of the law is allowing our state to strengthen its systems 

for collection, analysis, and reporting of data, and to increase transparency for consumers.2 For small businesses in the many states across the country that didn’t already have strong laws like Washington’s, the rate review rules are doing even more 

to bring much-needed scrutiny to double digit rate hikes by requiring insurers to 

publicly post the justifications for their proposed increases and ensuring review of 

these proposed increases by insurance experts. 

These early provisions of the health care law are making a difference. My rate 

increase this past year was a lot lower than I’d come to expect from my experience 

over the past five years. And I’ve heard stories of small business owners across the 

country who’ve seen their rates held flat this year. Some have even had their rates 

cut, while keeping the exact same coverage.3

Employer Responsibility and Reducing Health Care Costs 

The employer responsibility provision of the ACA is another way the law will help 

lower insurance costs for businesses like mine. This piece of the law is often presented as a problem for small businesses. I believe the opposite is true. As a business owner who’s doing the right thing and offering health coverage to my workers, 

the real problem for me is that when other businesses my size (and bigger) don’t 

offer health care, I’m forced to subsidize their health care costs. The shifting of uncompensated health care costs to businesses that pay for health insurance costs my 

business hundreds of dollars per employee per year. How is that fair? 
22 

4 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends, 

2010 Medical Expenditure Panel Survey—Insurance Component; Table I.A.2(2010) Percent of 

private-sector establishments that offer health insurance by firm size and selected characteristics: United States, 2010, http://meps.ahrq.gov/mepsweb/data—stats/summ—tables/insr/national/series—1/2010/tia2.htm 5 ‘‘No out-of-state insurers offer plans in Georgia,’’ Atlanta Journal-Constitution, April 30, 

2012, http://www.ajc.com/news/no-out-of-state-1428329.html 

Opponents of the health care law argue that the employer responsibility requirement will hurt job creation. I disagree. More than 9 out of 10 businesses with 50 

or more employees already offer health coverage.4 Think about it this way: for every 

business around the 50 FTE threshold that doesn’t already offer coverage, there are 

multiple others that do. Right now, the barrier to job creation for the businesses 

that do offer health care—like mine—is the fact that we’re subsidizing the ones that 

don’t. The only way to fix this is through a system of shared responsibility where 

all businesses above the threshold pitch in and nobody takes a free ride at the expense of the rest of us. 

Opportunities to Keep Moving Forward on Health Care 

Does more need to be done to fully fix health care for small businesses? Yes. I 

believe we need to build on the new health care law and take further steps to help 

small businesses, not tear it down and throw us back into the broken health insurance marketplace that visited rate hikes of 20, 30, and 40 percent on businesses like 

mine. 

One opportunity to move forward that I would encourage you to support is an expansion of the ACA’s small business health care tax credit. Not enough businesses 

are benefiting from the credit in its current form. While some elected officials are 

using this news as an excuse to criticize the credit and the whole ACA, that’s not 

helpful to small businesses. If you want to help us, it would make more sense to 

ask the question, ‘‘What can we do to make this credit work for more of our small 

businesses?’’ 

For my own business, we’re not eligible for the credit because we have more than 

25 full-time equivalents (FTEs). Why not expand that FTE requirement to 50, 75, 

or even 100 employees? Under a recent proposal to expand the credit, I could be 

eligible for a credit of about 8 percent of my health care costs—around $5,000. If 

you’ve built a bridge and you find out not enough cars can get across, you don’t blow 

it up, you find a way to build it wider. You have an opportunity to do that with 

the small business health care tax credit. I hope you will take it. 

Alternative Proposals: Will They Work for Small Businesses? 

Opponents of the Affordable Care Act say they want to replace it with something 

else. Some of these ideas sound good as talking points, but what will their real impact be on small businesses? 

We hear a lot about the idea of ‘‘letting health insurers sell across state lines.’’ 

This sounds fine, but in reality this is a back-door way to get around basic protections put in place at the state level to make sure when we buy an insurance policy, 

it’s worth more than the paper it’s written on. ‘‘Across state lines’’ is really an invitation to insurance companies to throw quality and value out the window and start 

selling junk health insurance. If you want to give small businesses more bargaining 

power, that’s what the state insurance exchanges in the ACA will do—without compromising the basic standards of quality and value we have in place now. The state 

of Georgia passed a ‘‘cross state lines’’ law last year and it didn’t work: not a single 

out-of-state insurer applied to sell a new product in the state.5

Another ‘‘alternative’’ we hear a lot about is health savings accounts. They’re marketed on the idea that they will make people make more responsible choices about 

health care utilization. But the reality is HSAs are another form of high-deductible, 

low-coverage insurance, which for many people in many years means paying a 

monthly premium to basically be uninsured. This is not a solution, either—it’s just 

shifting more risk and shifting more costs onto small businesses. 

Conclusion 

The Affordable Care Act is taking critical steps forward to address the barriers 

to lower health care costs and bring affordable, good quality health coverage within 

reach for small businesses. Many businesses are already seeing the benefits as early 

provisions of the law take effect. We have even more to look forward to with the 

establishment of the state health insurance exchanges and other provisions that are 

still on their way. 

We need to keep building on the foundation of the ACA, not tear it down. Small 

businesses across Washington State and across the country can’t afford to go back 
23 

to the broken health care marketplace we faced before reform. We need to keep 

moving forward. 

By taking full advantage of the opportunities created by the Affordable Care Act, 

we can break down the barriers to lower health care costs and finally level the playing field for small businesses. Then business owners like me will be able to focus 

our full attention on building our businesses, creating jobs, and strengthening our 

local economies. Thank you. 

Chairman ROE. Thank you, Ms. Hall. 

Mr. Streitberger? 

STATEMENT OF BILL STREITBERGER, VICE PRESIDENT OF 

HUMAN RESOURCES, RED ROBIN 

Mr. STREITBERGER. Chairman Roe, and Ranking Member Andrews, and committee, my name is Bill Streitberger and I am the 

vice president of human resources for Red Robin, and I appreciate 

the opportunity to speak with you today. Red Robin is a casual dining restaurant chain with more than 460 locations across the 

United States. We were founded in 1969 in Seattle by an independent business man, and during more than 4 decades of history 

we have expanded to 42 states and also operate in two provinces 

in Canada. 

We pride ourselves in being, you know, America’s gourmet burger experts with over 24,000 team members across the country. 

Every day we serve, you know, millions of guests. 

Red Robin has been able to grow our business at a fairly steady 

pace, opening new restaurants every year even during the recent 

weak economic conditions. In fact, in the last 2 years, even in a recessionary—with the recessionary environment that saw a number 

of our restaurant concepts—competitors close locations or even go 

out of business all together we were able to open 30 new restaurants and still have another 12 on the books to open this year. 

This is important to us for a number of ways. First, opening new 

restaurants allows us to grow our revenues, which in 2011 surpassed $900 million. Secondly, by expanding to new communities 

we serve even more of our guests, but more importantly, opening 

new restaurants allows us to add to our growing family of team 

members, creating new jobs at each location and in the communities we serve. 

This doesn’t include the job expansion that takes place in our 

home office in Greenwood Village, Colorado, just south of Denver, 

as the growing restaurant base creates the need to grow in the corporate support function and the additional business that we are 

able to give to over 8,700 vendors and other outside entities who 

we count on for all of our food, supplies, services, and oversight 

that we need to develop and run our businesses. We try very hard 

to buy everything American. 

There is another benefit to a healthy, profitable, growing Red 

Robin business, and it is manifested in the way we give back to our 

communities where we do business. One example of this is the 

great work of our Red Robin Foundation, an internal resource. And 

because of this foundation many of our team members receive support when disaster strikes, family emergencies, and even a scholarship fund when there is an opportunity for a college education. 
24 

In addition, we support our corporate giving program, such as 

contributions to National Center of missing and Exploited Children, Special Olympics, and countless other local foundations that 

our team members and the restaurants organize. We are proud to 

say that we like to give back and part of being a good neighbor. 

But running restaurants is not a high-margin business. Red Robin’s net income, as a percentage of revenues, was less than 3 percent in the last—each of the last 3 years. After we have paid our 

team members, our vendors, our landlords, and all other expenses 

including payroll, property, state, and federal taxes, we use the remaining cash to reinvest in our business, including opening new 

restaurants that create more jobs and support the surrounding 

communities. 

When health care and other costs increase we have fewer resources to reinvest and grow the business. We can’t simply pass 

along higher costs to our customers. As you and your constituents 

know too well, very few Americans have been immune to the intense economic pressures in recent years and there is very little appetite during these difficult times for even marginal increase in retail prices. 

In regards to health care specifically, taking care of our team 

members is part of living our values as a company. We have thousands of team members who are eligible to participate in the health 

and welfare plans. In addition to providing these team members 

with these health care benefits we try to create and promote a 

well-being to all of our people, such as our LiveWell program, 

which is—not only encourages healthy choices but also provides 

channels outside the company such as athletic events, volunteerism, to promote a healthy and fulfilling lifestyle. 

But health care coverage remains an essential component of our 

benefit programs. During the last 3 years Red Robin’s health care 

cost per employee increased more than 6 percent every year. This 

is a much greater pace than the growth of our guest sales, same 

store sales, or net income. 

Increasing the burden of health care costs through the 2014 

mandates can negatively impact the ability of companies to grow 

and offer benefits to other employees, forces companies like Red 

Robin to decide on whether to reduce benefits and maintain affordable coverage, or accept the burden of increased company contributions, limiting our ability to continue to grow and create new jobs. 

Either way, we feel it can be a lose-lose for Red Robin and for our 

existing and prospective new team members. 

We hope you will consider the adverse impact of these mandates 

on health care coverage and costs and—that these can have on an 

employer like Red Robin. I know I speak for our folks in our restaurants and office when I say that we are excited about the prospect of opening new and additional restaurants in new communities, creating new jobs, and welcoming even more folks into the 

family. 

As long as we can maintain our financial health, manage our 

business profitably, and overcome any economic and other pressures effectively we will continue to grow, and serve more guests, 

and serve more communities in the years to come. 
25 

I want to thank you for your time and your opportunity, again, 

to speak with you. 

[The statement of Mr. Streitberger follows:] 

Prepared Statement of William Streitberger, Vice President of Human 

Resources, Red Robin Gourmet Burgers, Inc. 

Chairman Roe, my name is Bill Streitberger and I am the Vice President of 

Human Resources for Red Robin. Red Robin is a casual dining restaurant chain 

with more than 460 locations in North America. We were founded in 1969 in Seattle, Washington, and during our more than four decades of history we’ve expanded 

to 42 U.S. states and we also have restaurants in two Canadian provinces. We pride 

ourselves in being ‘‘America’s Gourmet Burger Expert,’’ and our 24,000 Team Members across the country every day treat our guests with what we at Red Robin call 

our ‘‘Unbridled’’ spirit, which includes living our values of Honor, Integrity, Constantly Seeking Knowledge and, most importantly, Having Fun. 

On behalf of all of my fellow Red Robin Team Members, I want to thank you for 

the opportunity to appear here today to share our thoughts on the potential impact 

of health care reform on all of us as employees, our many guests and the communities we serve. 

In the many years since our first restaurant began serving guests on the University of Washington campus, despite the many challenges to maintaining a successful 

and profitable restaurant company, Red Robin has been able to grow our business 

at a fairly steady pace, opening new restaurants every year, even during the recent 

weak economic conditions. In fact, in the last two years, even in a recessionary environment that saw a number of restaurant concepts close locations or even go out 

of business altogether, Red Robin opened more than 30 new company-owned and 

franchised restaurants, and we have another dozen or so new company-owned restaurant openings planned for this year. This is important to us in a number of ways. 

First, opening new restaurants allows us to grow our revenues, which in 2011 surpassed $900 million. Secondly, by expanding into new communities, we can serve 

even more of our guests, who, by the way, continue to thank us whenever we open 

our first Red Robin in any neighborhood. But most importantly, opening a new restaurant allows us to add to our growing family of Red Robin Team Members, creating on average approximately 70 new jobs every time we open a new location. This 

doesn’t include the job expansion that takes place at our home office in Greenwood 

Village, Colorado, as the growing restaurant base creates the need for growth in the 

corporate support function, and the additional business that we give to nearly 8,700 

vendors and other outside entities who we count on for all of the food, supplies, 

services and oversight we need to develop and run our restaurants. 

There’s another benefit to a healthy, profitable and growing Red Robin business, 

and it’s manifested in what we give back the communities where we do business. 

One example of this is the great work of the Red Robin Foundation, an internal resource that was created in the spirit of our ‘‘Unbridled’’ culture. Because of our foundation, many of our Team Members receive support when disaster strikes, help 

when there’s a family emergency and scholarship funds when there’s an opportunity 

to get a college education. In addition, with the support from our corporate giving 

programs such as our past contributions to National Center for Missing & Exploited 

Children and the Special Olympics, to the countless local fundraisers that our Team 

Members organize at our restaurants, we are proud to say that giving back is part 

of being a good neighbor. 

Unfortunately, the rising costs of running our business, including significant and 

escalating health care costs, make the prospects for continued profitability, job creation and contributions to our communities increasingly difficult. Running restaurants is not a high margin business. Red Robin’s net income as a percentage of 

revenues was less than three percent in each of the last three years. After we’ve 

paid our people, our vendors, our landlords, and all of our other expenses including 

payroll, property and state and federal taxes, we use remaining cash to reinvest in 

our business, including building new restaurants that create more jobs and support 

the surrounding communities. When health care and other costs increase, we have 

fewer resources to reinvest and grow our business. And we can’t simply pass along 

higher costs to our consumers. As you and your constituents know too well, very 

few Americans have been immune to the intense economic pressures in recent years, 

and there is little appetite during these difficult times for even marginal increases 

in retail prices. 

In regards to health care specifically, taking care of our Team Members is part 

of living our values as a company. We have thousands of Team Members who are 
26 

eligible to participate in our health and welfare benefit plans. In addition to providing these Team Members with health care benefits, we try to be creative to promote the well-being of our people, such as our LiveWell program that not only encourages healthy choices, but also provides channels outside the company such as 

athletic events and volunteerism to promote a healthy and fulfilling lifestyle. But 

health care coverage remains an essential component of our Team Member benefits. 

During the last three years, Red Robin’s healthcare costs per employee increased 

more than 6% every year—a much greater pace than growth in our guest visits or 

same store sales. Increasing health care costs through mandates that can negatively 

impact the ability of companies to offer attractive benefits to employees forces companies like Red Robin to decide either to reduce benefits and maintain affordable 

coverage or accept the burden of increased company contributions—limiting our 

ability to grow the business, attract talented people to our organization and add to 

our payrolls. Either way, it’s a lose-lose for Red Robin and for our existing, and prospective new Team Members. 

We hope you will consider the adverse impact that mandates on health care coverage and costs that are not thoughtful and balanced will have on employers like 

Red Robin. I know I speak for my many fellow Red Robin Team Members when I 

say that we are excited about the prospect of opening additional restaurants in new 

communities, welcoming even more Team Members into our family and serving our 

communities in the years to come. 

Again, thank you for the opportunity to share our views and work with the Committee. 

Chairman ROE. Well, thank the panel for their testimony. 

And I will now ask Mr. Andrews if he has any questions. 

Mr. ANDREWS. I do, thank you. 

I would also like to thank the panel for their preparation and for 

great testimony today. 

Mr. Streitberger, did I pronounce your name correctly? 

Mr. STREITBERGER. Yes, sir. 

Mr. ANDREWS. Welcome. 

I am very sympathetic with your discussion of trying to find 

ways to reduce the cost growth that you have experienced so you 

can open more stores and hire more people. I think that is something we all have in common. 

I want to ask you some questions about the problem in the 

broader context, though, that—you have 24,000 employees. About 

how many of them are eligible to enroll in your health plan? 

Mr. STREITBERGER. According to the—being at full time about 

8,000. We hire a great deal of students, part-time workers. 

Mr. ANDREWS. Of the 8,000 that are eligible to enroll do you 

know how many choose to enroll? 

Mr. STREITBERGER. Around 6,000. 

Mr. ANDREWS. And if I were making—and tell me if this number 

is off, but if I were making $25,000 or $30,000 a year is that the 

typical wage of someone who is eligible to enroll in your plan? 

Mr. STREITBERGER. Yes. 

Mr. ANDREWS. Okay. If I was trying to enroll my family, not just 

myself but my family, what would my monthly premium be? 

Mr. STREITBERGER. Well, we have several plans, and depending 

on how you chose—— 

Mr. ANDREWS. Let’s say I chose the least expensive one. I know 

you have a high and a low. 

Mr. STREITBERGER. The least expensive would be around $350 a 

month. 

Mr. ANDREWS. Okay. So for a person making $30,000 a year gross it would be $350 a month—their share—to enroll in the plan? 
27 

Mr. STREITBERGER. Yes. 

Mr. ANDREWS. Okay. That is a difficult thing to do, I am sure 

you are aware—— 

Mr. STREITBERGER. Correct. 

Mr. ANDREWS. I want to ask you what—let’s talk about your 

part-timers for a minute, that one of your part-timers—I am sure 

some of your part-timers are older workers, too, that—— 

Mr. STREITBERGER. Some are, correct. 

Mr. ANDREWS. I have gone to restaurants like yours and do see 

people in their late 50s, early 60s, sometimes older. I am sure some 

are there because they like the work experience; others really have 

to work and that is why—— 

Mr. STREITBERGER. Sure. 

Mr. ANDREWS. Let’s take a case of a 61-year-old woman who feels 

a pain in her side, she is one of your part-time employees, so she 

is not eligible to be in your plan, right? 

Mr. STREITBERGER. Well, they need to average the 30 hours or 

more, correct. 

Mr. ANDREWS. Okay. So she is 25 hours a week, let’s say. She 

is not—— 

Mr. STREITBERGER. Sure. 

Mr. ANDREWS [continuing]. Eligible to be in your plan. Or she is 

over 30 and just can’t afford it because of the cost that we just 

talked about. 

She gets a pain in her side, she goes to the emergency room 

today and they find out she has had appendicitis attack. She needs 

to have her appendix removed. 

She has no health insurance. What should we do? As a country, 

what should our policy be about what happens to her and who pays 

for it? 

Mr. STREITBERGER. Well, I believe that the country already has 

a safety net for folks that are in positions like that. 

Mr. ANDREWS. What is the safety net? 

Mr. STREITBERGER. Well, a lot of these folks use Medicaid and 

Medicare. 

Mr. ANDREWS. Let’s assume she is not eligible for Medicaid, 

which is, frankly, typical of a lot of people. Medicaid enrollment, 

before the new law, of course, was usually 100 percent at poverty, 

which in my state meant about $18,000 a year for a family of four. 

Now, we changed that in the new law but she is probably not eligible for Medicaid under present law. So what should we do? 

Mr. STREITBERGER. Again, that is something that we try and 

offer to all of our folks. They can, you know, in a case like this—— 

Mr. ANDREWS. No, I am not saying what you should do. Don’t 

misunderstand me. I am not presupposing you should pay for it. I 

am saying, what should we as a country do to solve that problem? 

As I see it there are really a couple of options. We could say, 

‘‘Well, sorry, you can’t get the appendectomy because you don’t 

have insurance.’’ I don’t think you would want to see that happen, 

would you? 

Mr. STREITBERGER. No. 

Mr. ANDREWS. Okay. The second thing that we could do is expand a public program like Medicaid to include her in it. For in-
28 

stance, we could include families making up to $30,000 or $35,000 

a year under Medicaid. Would you think that is a good idea? 

Mr. STREITBERGER. Well, I think one of the ways to help this, as 

you mentioned in your statement, was to look at ways of driving 

the costs of health care down—— 

Mr. ANDREWS. No, but I understand that and I am all for that, 

but I am talking about this woman in this circumstance who needs 

this appendix taken out today. You think we should enroll her in 

Medicaid and increase the Medicaid eligibility limit? 

Mr. STREITBERGER. If that gets some folks the coverage, sure. 

Mr. ANDREWS. Which is what we did in the Affordable Care Act. 

Do you think that she should be required to have health insurance for herself or not? 

Mr. STREITBERGER. No. 

Mr. ANDREWS. If she is not required, who—and let’s say we don’t 

get the Medicaid increase that we talked about—who should pay 

her hospital bill? 

Mr. STREITBERGER. Well again, I am not a tax person or a politician, but—— 

Mr. ANDREWS. No, but you are a citizen and a taxpayer—— 

Mr. STREITBERGER [continuing]. You know, people need to take 

personal responsibility for their actions and it is a matter of 

choices. 

Mr. ANDREWS. Okay. But if she makes—— 

Mr. STREITBERGER. People spend money on houses—— 

Mr. ANDREWS [continuing]. If she makes the choice not to buy 

the health insurance for whatever reason, she is not covered Medicaid under this example, who should pay the bill? 

Mr. STREITBERGER. Again, that is not something I can help you 

with. 

Mr. ANDREWS. Well, I am not—it is not really an expert question. 

I mean, all of us as citizens, I think, have a stake in that answer. 

There are two choices, right? We could have some publicly taxed 

and funded program that pays for her health care or we should— 

or we could—three choices—we could require her to do it and subsidize her purchase, or we could require you to do it, as her employer. Which of those three would you like to see us do? 

Mr. STREITBERGER. That is something that we are taking a hard 

look at to see what we as a business can afford. 

Mr. ANDREWS. I understand. Thank you very much. 

Mr. STREITBERGER. Thank you. 

Chairman ROE. Thank you, Mr. Andrews. 

Dr. DesJarlais? 

Mr. DESJARLAIS. Thank you, Mr. Chairman. 

And as I sit and listen to that conversation I noticed the ranking 

member when we started out saying that the ObamaCare was not 

a government health care plan—it was not a government takeover 

of health care—but in that dialogue that I just heard it sounds like 

he is saying exactly that, the government needs to take more responsibility and make sure that these people are taken care of. So 

in other words, I think that is exactly what the ranking member 

is insinuating with that last line of questioning is that personal responsibility is not really the answer, it is more government respon-
29 

sibility, if I understood it correctly. And certainly he could chime 

in if he would like. 

Mr. ANDREWS. Would the gentleman yield? 

Mr. DESJARLAIS. Yes, I would. 

Mr. ANDREWS. Yes. I didn’t want to interrupt his time. 

I actually think it is a combination of people with very low incomes being in Medicaid and having some personal responsibility, 

people with somewhat higher incomes being in a private plan, 

which is what the law requires. 

Mr. DESJARLAIS. Okay. And again, we can look at the track 

record right now of our government health care, Medicaid, Medicare, and even the V.A., and I think that there is not anyone sitting up here that can’t agree that it is an abysmal failure in terms 

of economics. The Medicare program, whether you are Democrat, 

Republican, the CBO, AARP, is going broke in 10 years. 

And we are suggesting somehow that the federal government can 

step in, take over our health care services in this country and 

somehow run them efficiently without rising costs and while maintaining a quality of care that is acceptable to patients and their 

doctors. And I just don’t see, personally, how this is going to work, 

considering there has been no model set forth to this point that has 

done that. And I have been a family practice physician for 20 years 

and I can say that in my experience, talking with businesses 

around Tennessee’s poor district that they are very afraid of this 

health care law and what it is going to do to their ability to provide 

the services. 

Ms. Hall, you had stated that, you know, you like to treat your 

employees well and they will treat customers well, and I think that 

is very true. But we have a couple of examples in businesses that 

I visited—Valmont Industries is a large business. They have got 

5,000 or 6,000 employees. They pay up to $12,000 a year per employee, which is a lot of money for a health care plan. 

But under the new ObamaCare they could pay a $3,000 penalty 

and not have to provide that health care, and these employers 

would probably get a lesser plan and be put into the public health 

care exchanges. They don’t want to have to do that and it concerns 

them greatly, but you can do the math. That is $9,000 per employee difference over 6,000 employees. There is going to be some 

bean-counters in that company that are going to do the math and 

see that it just doesn’t make sense to provide those employees with 

health care. 

We have a smaller company that is in the same boat. They have 

got a little less than 500 employees, and they would pay the $2,000 

penalty if they dropped their employees’ health care coverage and 

their company would save a couple of million dollars. It is hard to 

look at that and see where it doesn’t make sense to do that. 

So I do think that this health care law does create a situation 

where employees are going to lose the coverage that they had. And 

we had a little discussion earlier—I think Dr. Roe mentioned 

health savings accounts, and I think Mr. Fensholt was talking 

about—or maybe it was Mr. Ramthun was talking about health 

savings accounts. And really, that is kind of what we need to be 

getting to is personal responsibility, and when people have health 

savings accounts and have skin in the game and they have to help 
30 

make their own decisions then that is the kind of responsibility, I 

think, that we need from the American citizens and not the federal 

government, who is burdening all your companies with increased 

regulation. 

Mr. Fensholt, you talked about what—you know, they are piling 

on regulations—what you have to do just to provide your health 

care—for your employees with the new regulations, and it is these 

increased regulations that are driving up health care costs. And 

frankly, the health care in this country is driving our national debt, 

so the solutions that we need moving forward do not come from 

ObamaCare; it is going to come from repealing ObamaCare and 

taking stepwise fashions and personal responsibility. 

And, Ms. Hall, you said that you provide 75 percent of the health 

care coverage to your employees but the cost was only $67,000? 

Ms. HALL. We have 45 FTEs and they are all, you know—our average age is probably 23, and some of them are obviously covered 

under other plans or opt out even though we highly encourage 

them to be involved. 

Mr. DESJARLAIS. Okay. Well—— 

Ms. HALL. And obviously our costs are lower because we have a 

younger workforce. 

Mr. DESJARLAIS. Okay. So your example doesn’t fit with some of 

the other companies’ examples, but I am out of time already and 

I think we might get to two rounds so I will ask more questions 

next time. 

Chairman ROE. Thank you. 

Mr. Kildee? 

Mr. KILDEE. Thank you, Mr. Chairman. 

Ms. Hall, I agree with you that instead of repealing the health 

care reform law we should instead work together to make it better. 

Specifically, you mentioned the small business tax credit. How 

would you change this tax credit to make it more accessible for 

small businesses like your own? Are there other aspects of the law 

that you would like to see changed that might make it easier for 

businesses like you by providing—— 

Ms. HALL. Yes. I mean, I think that there is—the 25 FTE requirement has a salary cap of—is it $50,000 per employee, and 25 

is—like for us folks, I mean, to run one Red Robin needs more than 

25 employees, yet we might have—let’s say your revenues are $5 

million and your profits are 3 percent of that. That is a lot of burden to ask for—and to look at expanding that, especially for restaurant and hospitality, where we employ 7 days a week, you 

know, 16, sometimes 24 hours a day. I think a lot more businesses 

will participate. 

And over 360,000 businesses did participate. That is more than 

all the members in NFIB combined. So it is still a decent level of 

participation, but we could expand that and really look at solutions. 

We are problem solvers up here. I started my own business, and 

we are all thinkers around how to make things better. Let’s figure 

out a way to address that and make it a more powerful incentive 

and opportunity to give a little—get a little money back for doing 

the right thing by providing health care. 
31 

Mr. KILDEE. Do you belong to any small business association 

back in Seattle, or—— 

Ms. HALL. Right. 

Mr. KILDEE. In that group do you find some small businesses 

who do feel that this bill, which passed by this Congress, can be 

helpful both to themselves, to their employees, and to the public in 

general? Some people picture this as something that small business 

looks upon as not in any way with redeeming factors. What do you 

find amongst the small business people you associate with? 

Ms. HALL. Right. The Main Street Alliance was formed after 

health care policy was being written and we were finding—and it 

spans across several states. I think it might be 15 to 20 states. I 

am not quite sure. But in Washington there are over 2,000-plus 

small business owners, and the reason that this alliance was started was because we were misrepresented as small business owners. 

And what I said earlier around health care costs, I was at 

Starbucks. I can’t remember exactly what I paid. It was a similar 

situation. The company paid 75 percent and I paid 25, and I got 

dental, vision, and amazing health care. 

And when I went to start my own business, obviously I paid almost twice that just for the health care coverage. So it is astonishing that the engine of our economy, which is small business, has 

to have this—we have to pretty much throw our health care out the 

window. We have to walk away from affordable, quality health care 

to be able to start our own business. 

And that is why this—the Main Street Alliance was formed, because we were being completely misrepresented. We want quality, 

affordable health care for all, and we don’t have access to that. So 

the public option, I thought, was a great—and something I fought 

hard for. 

But the exchanges, I think, will also provide a great opportunity 

for bargaining power. And we are very excited in Washington State 

to participate in that and actually shop and say no to the one, two, 

or three insurance providers that get to just kind of set rates at 

will and increase rates without any accountability. So we finally 

will have some clout, and that is exciting. 

And I would say that I speak for every business in the Main 

Street Alliance. We are all aligned around this issue. It is one of 

the galvanizing forces of creating this alliance. 

Mr. KILDEE. You mentioned also that this past year your rate increase was less than in previous years. Can you expand on this? 

Do you attribute this in any way to the health care reform law? 

Ms. HALL. I think part of that has to do with the 80/20 rule. And 

our health insurance went up only 6.8 percent, which is phenomenal. I mean, I think the lowest it has gone up is 15 percent, 

and it usually is more like 20 to 30 percent. So it is amazing. Like, 

I was actually relieved at only 6.8 percent. 

And yes, I do think some accountability around spending 80 percent of that money on actual health care, versus marketing, and 

admin, and things like that, is helping to keep those rates at the— 

at an appropriate level, and also accountability and where those 

rate increases are coming from. 

Mr. KILDEE. Thank you very much. 

Ms. HALL. That the ACA brought. Thanks. 
32 

Mr. KILDEE. Thank you. 

Chairman ROE. Thank you. 

Dr. Heck? 

Mr. HECK. Thank you, Mr. Chairman. 

And likewise, I thank all the committee members and the panel 

members for being here today. You know, we heard Dr. DesJarlais 

talk about the impact on large employers and potentially not providing insurance because it would become more cost effective for 

them to actually pay the fine than to provide the insurance. 

And I also have a small—I have a small employer in my district, 

iMAGiNE Communications, that has 11 employees who historically 

has paid 100 percent of their employees’ health care, and recently 

they have had to bring it down to 50 percent because of increasing 

costs, and they are uncertain as to how much longer they might 

even be able to do that. And I would agree with the opening comments of the ranking member and some of the other folks that 

have talked about the small business tax credit, that the requirements to qualify for the credit are too stringent and that they 

phase out too quickly for a lot of small companies to benefit. 

But regardless, at full implementation the Affordable Care Act is 

going to require increased coverages from businesses, whether it is 

the mandated services, whether it is the number and types of people who must be covered, or how much the employer must contribute to that coverage. And what I find even more shocking is 

that even if you do all that as an employer, if one of your employees opts out and gets insurance on and exchange and receives a 

subsidy you can still be fined even for doing all the right things. 

So I would ask, you know, Mr. Streitberger—which, by the way, 

didn’t know you were going to be here today, but I actually ate 

Sunday at one of your restaurants—— 

Mr. STREITBERGER. Thank you very much. 

Mr. HECK [continuing]. In my district. The burger was delicious. 

Love the bottomless fries, although my cholesterol doesn’t. 

What would you say is the biggest impediment in providing lowcost health coverage for your employees? And in a perfect world, 

which laws or regulations would you change to make coverage 

more affordable for you and your employees? 

Mr. STREITBERGER. Well, I think what would be a big help—and 

it was mentioned by Mr. Andrews—is that if we had more competition in the marketplace—we, as a public company, we have a great 

deal of competition every day. We are used to it; we deal with it 

and it puts us in a place to do a better job and offer better services. 

I think that would be a great help. 

I also manage the other side of our insurance business on workers comp, and in dealing with those two sides of the business one 

thing that hasn’t been mentioned and has—and in business we are 

very concerned about, and that would be tort reform. I mean, everything that we deal with usually has a lawyer attached to it, 

which does drive up costs. I am sure physicians do more testing to 

make sure that they are making the best decision possible, and we 

see that it really can ratchet up the business. 

So I think, again, the competition helping to drive the cost down 

so that we can offer more care, more affordable care to our team 
33 

members. And then also, you know, the outside impact of any business, and that would be on that side, the tort reform. 

Mr. HECK. Thank you. 

Thank you, Mr. Chair. I yield back. 

Ms. HALL. If I could add to that, actually, I think one of the biggest impediments to health care costs is the fact that not everybody 

has to have health care. And I think that if we were all involved 

with some kind of level of personal responsibility as well as shared 

responsibility from the employer side we are going to get preventative care and we are not going to go to the E.R. when we need help. 

And if there is a safety net for those that need it I think that would 

actually, from what I understand, bring health care costs in check 

and down. 

Chairman ROE. Would the gentleman yield some of your time? 

Just to clear the record up, there were 309,000 small businesses 

that the Treasury Department said that is incorrect; the number 

counted individual partners at firms, not actually employees. The 

real number that GAO found was 100 and—I have got it here 

somewhere—70-something-thousand. So it was 170,300. 

Ms. HALL. Oh, I have from the White House fact sheet that it 

was, in 2011, 360,000. 

Chairman ROE. Dr. Holt? 

Mr. HOLT. Thank you. Thank you, Mr. Chairman. 

I am not sure whom to ask this question of, but let me start with 

Mr. Fensholt. What evidence to do you have that the Affordable 

Care Act is responsible for the increase in premiums that employers are—and employees are finding? 

Mr. FENSHOLT. Well, part of the business of insurance is you 

have very smart people—actuaries and underwriters—who look at 

various laws like the Affordable Care Act and the coverage mandates and they ask themselves, ‘‘If we have got to begin to cover, 

for example, adult children to age 26 even if living apart from the 

employee, even if married, even if gainfully employed themselves, 

what additional cost is that going to impose on our plans?’’ They 

do the same thing for the abolition of lifetime and annual dollar 

limits on essential benefits. And they come up with an estimate. 

What we have seen, in talking to health insurance underwriters 

and our own actuaries, is that—and about half of our bulk of business are self-insured plans, so there we are dealing with our own 

actuaries and their claims history. And now we have a little track 

record under these provisions, as well. So now you are actually 

tracking claims incurred by the additional enrollees, claims incurred that are required to be paid where they wouldn’t have been 

paid before. And you can assess a cost to that, and that is where 

those numbers come from. 

Mr. HOLT. Yes. And there is a cost, but there is additional revenue because you will have more people brought into the coverage. 

Isn’t that true? 

Mr. FENSHOLT. Well, the way this tends to work is that—let’s 

take, for example, the case of the adult children who gain coverage. 

The adult children who get enrolled under this provision tend to be 

the ones who need the coverage. That is why their parents enroll 

them. 
34 

The adult children of—who are healthy, the parents tend not to 

do that. So that mandate tends to attract some of the worst risks 

in that age category. 

Mr. HOLT. Yes, and isn’t that the point, that expanding coverage, 

bringing more people into the pool, will address that very concern? 

Mr. FENSHOLT. If you get significantly more healthy people into 

the pool than sick people into the pool. That is the goal. That is 

not happening in this context. 

Mr. HOLT. Oh, that is very much what is under this law. That 

is very much—— 

Mr. FENSHOLT. Oh, that is the intent of the law. 

Mr. HOLT [continuing]. What is under consideration right now. 

I would yield to the ranking member. 

Mr. ANDREWS. Thanks for yielding 1 second. 

Mr. Fensholt, do you favor the individual mandate, then? 

Mr. FENSHOLT. I can’t speak for my company. 

Mr. ANDREWS. Understood. What is your personal opinion about 

it? 

Mr. FENSHOLT. My personal feeling is that the individual mandate makes some sense. 

Mr. ANDREWS. Thank you. 

Mr. FENSHOLT. Thank you. 

Mr. HOLT. Mr. Streitberger—— 

Mr. STREITBERGER. Yes, sir? 

Mr. HOLT [continuing]. I would like to pursue Mr. Andrews’ example of your employee earning $25,000 a year and ask you what 

you mean by ‘‘personal responsibility.’’ You said you would like to 

bring personal responsibility into this. 

Mr. STREITBERGER. Sure. 

Mr. HOLT. Let me pursue this for a moment. Let’s look at the executives in your country—in your company. Are there any of the 

executives in the company who don’t carry health care insurance? 

Mr. STREITBERGER. There are some that don’t carry it through 

Red Robin. 

Mr. HOLT. But do you know any that don’t carry health care—— 

Mr. STREITBERGER. No. 

Mr. HOLT [continuing]. Insurance? 

No. 

Is there any reason to think that this $25,000-a-year employee 

would be less interested in having health care coverage than the 

executives? 

Mr. STREITBERGER. First, many of those $25,000 to $30,000 income team members do carry the insurance, and that is where I 

was going with—— 

Mr. HOLT. But my question is, is there any reason why they 

would be less interested in carrying—— 

Mr. STREITBERGER. Sure. Many of them make personal 

choices—— 

Mr. HOLT. Not to be insured? 

Mr. STREITBERGER [continuing]. Not to be insured because the 

money is spent on brand new cars, trips, tattoos. I mean, they have 

other choices. And having raised three children of my own I know 

at that age—the average age of our team members they feel they 
35 

are a little invincible and they make other decisions with their 

money. 

Mr. HOLT. So the personal responsibility that you are talking 

about, does that apply to this woman getting appendicitis? Is 

that—— 

Mr. STREITBERGER. Again, we are in a hypothetical situation—— 

Mr. HOLT. Did she fail to take responsibility for her appendix? 

Mr. STREITBERGER. With our team members they have the ability 

to request schedules that could get them to that. In his situation 

why someone would request to be part time all the time and then 

have a health situation, again, we offer choices to our team members, full time and part time. And if she chose, for reasons I can’t 

explain, to stay part time then that is, again, a personal choice. 

Mr. HOLT. And it is your choice not to make it more affordable 

to her than you already do so that you can hire more employees 

who will not have this coverage. 

Mr. STREITBERGER. No, sir. We pay between 60 and 70 percent 

of the premiums currently, and as the gentleman from Lockton 

mentioned, we are one of those self-insured companies, but we—— 

Mr. HOLT. Yes, but you want to grow. 

Mr. STREITBERGER. We want to grow and create more jobs, yes, 

sir. 

Mr. HOLT. More jobs that have that inadequate coverage. 

Mr. STREITBERGER. More jobs that have the opportunity to take 

out health care, yes, sir. 

Chairman ROE. Mr. Wilson? 

Mr. WILSON. Thank you, Mr. Chairman. Mr. Chairman, I have 

been joined, too, by a foster person. Very proud Jasmine Thompson 

is here as part of the shadowing program. [Applause.] 

And we are looking forward to a big day, spending the day with 

you. 

Additionally, Mr. Streitberger, I have a high regard for Dr. 

Heck’s judgment regarding burgers, and so I just want to invite 

you that the Southeast—— 

Mr. ANDREWS. Would the gentleman yield? 

I am just wondering how this bottomless fry thing fits into the 

wellness discussion, as someone who is addicted to the french fries 

and would love the bottomless fries? 

Mr. WILSON. The ranking member is actually correct on this. 

This is good. [Laughter.] 

But you are welcome to the Southeast, so please expand. 

Mr. STREITBERGER. Yes. 

Mr. WILSON. In fact, with 460 locations we welcome you. 

What are some of the programs that your company has been promoting to keep health care costs low for your employees? 

Mr. STREITBERGER. Every year we look at plan design, based on 

the wants and needs of our team members, what are their usage. 

This past year we went to what we call a high-low plan—high premium, low deductible, and vice-versa, which the low plan offering 

lower premiums, again, to our team members and giving them that 

choice on how to manage their health care. 

And as I mentioned previously, we are self-insured, so we, as a 

company, take the risk. Our stop-loss is at $250,000, meaning for 

each covered individual we write a check for the first $250,000 
36 

every year, and then in a plan if it should go catastrophic. And that 

helps us, by taking that risk, to keep our premiums low. 

And what has helped that also is last year when we did this, 

knock on wood, we had very good—we didn’t have a lot of high-risk 

claims come our way. As Ms. Hall, we have a younger workforce, 

in general, and don’t see a lot of issues that way. So that helps. 

But these are all the things that we do. 

Also, our wellness program. We try and promote better living, 

health care in the sense of wellness programs, exercising, diet, 

other activities, you know, for mental wellness—anything that we 

can think of to try and help them live a healthier, better life, which 

would drive down our costs. 

Mr. WILSON. Thank you very much. 

Mr. STREITBERGER. Yes, sir. 

Mr. WILSON. Mr. Ramthun, why do you believe more employees 

are now selecting the consumer-directed health care plans? And 

how do you feel that we should be encouraging health savings accounts? 

Mr. RAMTHUN. I think more and more employees are choosing 

them one, for the premium cost. It is much lower than a traditional 

plan. 

Secondly, they get to keep some of the money. Some of the money 

that used to go to the insurance now goes into their own pocket. 

If they don’t spend it they get to keep it; that money accumulates 

from 1 year to the next. 

So we need to make sure that those plans continue to be available for workers going forward, and there are ways to make that 

opportunity even better. Several bills have been introduced in Congress to do that that would actually expand HSAs. 

Mr. WILSON. And you are explaining this fully to employees so 

they know how to participate in the program and have a deduction 

on their pay stub? 

Mr. RAMTHUN. When my clients ask me to come in I absolutely 

explain all of these things to them. They tend to not understand 

that it is their money in the first place. This would otherwise be 

wages that they would be getting and, you know, they could go out 

and buy insurance on their own. 

To Mr. Andrews’ question earlier about what could we do to help 

people with that responsibility, well, number one is the tax treatment of insurance that is not acquired through the employer. People who buy insurance on their own get absolutely no tax benefit 

except when they deduct their medical expenses, and the Affordable Care Act has made that harder. 

The threshold for deducting any medical expenses is going up to 

10 percent of income where it has been at 7.5 percent. And there 

you can only deduct the amount that is above that threshold. 

So there is a huge incentive to get their coverage through the 

employer; many of them still don’t take it. One way we could help 

them if they chose not to purchase that coverage through their employer is to give them the equal tax benefit if they buy the insurance on their own. 

Mr. WILSON. And that really leads to Mr. Fensholt, In regard to 

companies dropping health insurance, what do you see as, with the 

health care takeover, what the consequence will be? 
37 

Mr. FENSHOLT. Well, we are going to see, we think, a substantial 

erosion over time in the employer group market, and that will start 

primarily on the smaller end of the spectrum. We have many clients tell us substantially this: They say, ‘‘I am not going to be the 

first to go but I am not going to be third.’’ 

And so if you look at how easy it is for employers to drop coverage and reap substantial savings—out of our bulk of business on 

average a client would save about 44 percent off their current 

health insurance spend by dropping coverage. The only thing keeping them in the game is that they feel they need to attract and retain employees. The moment one of their strong competitors goes 

out of this market they are not going to hang around and incur 

that expense. 

So we think that when the Budget Office in Congress estimated 

that by decade’s end maybe 4 million or 5 million Americans net 

will lose their coverage, we think they have grossly underestimated 

that. 

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

Chairman ROE. I thank the gentleman for yielding. 

Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Chairman Roe. 

I have a statement and some questions I want to ask but I want 

to yield 1 minute to our Ranking Member Andrews. 

Mr. ANDREWS. Thank you, my friend. I just want to ask Mr. 

Ramthun to follow up on something he said about tax deductibility 

for uninsured people. 

Do you know what the median income is for an uninsured person 

in the country? 

Mr. RAMTHUN. I do not. 

Mr. ANDREWS. Median family income is in the 30s. It is somewhere between $32,000 and $38,000 a year. Let’s say you take a 

person with $35,000-a-year income and they go out to—in my district family health insurance would cost them $12,000 to $15,000 

to buy a family policy. If that were fully deductible the in-pocket 

benefit of that for them would be at a maximum about 15 to 20 

percent of that. In other words, if it was fully deductible, given 

what their tax liability is. 

So how do you buy a—how do we help a family with a $35,000 

income by giving them a $5,000 or $6,000—it wouldn’t be that 

much, excuse me. It would be 20 percent—it would be $2,500 off 

of that. It would still cost them $10,000. How does that help them? 

Mr. RAMTHUN. Well, you could also get them a tax credit. 

Mr. ANDREWS. Well, that is what the Affordable Care Act does. 

Thank you. 

Mr. HINOJOSA. Thank you. 

I am very pleased that the chairman and Ranking Member Andrews called this hearing. I was part of a family business and I 

was president of the company and always the one to negotiate the 

insurance policies for our employees, and there were 300. 

So I came here before this health care reform took place and I 

saw how we had to stop paying 100 percent of the insurance for 

our employees and went to 50 percent by the employees and 50 

percent by the company because the premiums had been escalating. And I saw that some of the things that are being said by 
38 

the other side are predictions about the negative impact of the Affordable Care Act, and what I see is that the health care sector has 

led the way with more than 579,000 new jobs because of the increase in people getting insured. 

The premiums for employer-sponsored coverage increased by only 

9 percent in 2011, but if we look at the previous decade we saw 

that the premiums increased by 113 percent between the period of 

2001 and 2011. The health care came in in 2010. So that means 

that during the 8 or 9 years without the reform on health care we 

already had close to 100 percent increase. So let’s not blame this 

health care reform bill on what happened previously and continued 

to happen, because I was the one that negotiated those insurance 

policy premiums with the insurance companies and I know that it 

wasn’t working. 

So I am going to address my first question to Ms. Hall. 

In your testimony, you stated that your business insurance was 

twice as expensive and included no dental or vision. In your testimony, I saw that you stated Republicans have offered an alternative to offer insurance across the state lines. The problem is— 

or with that, in my opinion, is that any time an insured has a problem with a claim they would need to go to the insurance commissioner of that state in which it is issued. Companies would simply 

all set up shop in the state where the consumer protection laws are 

the weakest, and so that wouldn’t allow this program to work. 

So my question to you is, if you were offered a cheap plan from 

an insurance company based on the Mariana Islands how pleased 

would your employees be when they have a problem with their 

claim? 

Ms. HALL. I don’t think they would be pleased at all. I think that 

you don’t know what you are buying if you are going across state 

lines and you don’t have an insurance commissioner you could go 

to to—— 

Mr. HINOJOSA. Being a businessman, I have a lot of friends who 

had their self-insurance but they were always offshore and there 

were lots of things about their insurance policies that were not 

good for the employees. So that is why I am concerned as to our 

not letting this health care go ahead and be implemented over— 

until 2014 and that we can see a bigger pool, as was said by Congressman Holt and others. Once we get the pool much bigger and 

sharing in the cost it is going to be much better. 

And I will say this, that in my own experience in my congressional district where we have a very high national poverty level of 

folks who are uninsured—40 percent, one of the highest in the 

whole country, compared to 16 percent for our nation’s uninsured, 

it is beginning to work. A lot more people are insured. 

So I thank you all for coming and giving us an opportunity to listen to your point of view. 

I yield back. 

Chairman ROE. Thank the gentleman for yielding. 

Dr. Bucshon? 

Mr. BUCSHON. Thank you, Mr. Chairman. I was a practicing 

cardiothoracic surgeon for 15 years prior to coming here, just for 

background, so everyone on the panel knows where I am coming 

from. 
39 

I want to clear up a couple of assumptions that are always made, 

one recently made by Mr. Holt that someone with appendicitis, if 

they didn’t have insurance, wouldn’t get surgery. And I just want 

to let everybody know, including everybody in the country, that is 

absolutely, totally false, that people that have severe medical problems come to the emergency room and get taken care of regardless 

of their ability to pay. Hospitals are required to do that. Physicians 

ethically, because of our oath to our patients, do that. 

Myself, personally, have operated on many, many patients that 

had no insurance or had the best insurance money can provide, and 

physicians treat all of those patients the same. So I wanted to clear 

that up. 

The other thing is this assumption that because you have health 

insurance coverage all of a sudden you have miraculously developed personal responsibility for your actions. I have had patients 

with the best insurance that money can buy and they take no care 

of themselves at all. They don’t take their medicine, they smoke, 

and they don’t follow advice of physicians. 

I have had people that have no health insurance that are diligent 

about taking care of themselves. They get their medications because there are ways for people who don’t have insurance to do 

that and they do the best job they possibly can to take care of 

themselves. 

That is not a direct connection, that if we suddenly provide people with health insurance we will change people’s moral character 

or their behavior. That is not true, in my view. 

The other question is I—first question, just briefly, for Ms. Hall, 

do you think the uninsured or the Medicaid population overutilize 

the E.R. the most? Which group? 

Ms. HALL. The underinsured or—— 

Mr. BUCSHON. Uninsured. 

Ms. HALL. Uninsured or—— 

Mr. BUCSHON. Or Medicaid? 

Ms. HALL. I wouldn’t know. 

Mr. BUCSHON. It is the Medicaid population. And the reason is 

because the uninsured come to the emergency room when they 

truly have an emergency, and if you provide services for free with 

no skin in the game people take it willy-nilly, they just show up 

whenever they want because guess what, it is free. That data has 

been proven out many, many times. 

So this assumption that providing—expanding the Medicaid system is suddenly going to save us money in the health care system 

is actually, in my view, going to have the complete opposite effect. 

You are going to see a flood of patients coming to the emergency 

room because it is free. So I wanted to clear that up. 

So, Ms. Hall, has your business discussed dropping their private 

health insurance plan? 

Ms. HALL. Have we discussed that? 

Mr. BUCSHON. Yes. Have you looked at the options of financially 

what will happen if you drop you plan or versus you don’t if 

PPACA is fully implemented? 

Ms. HALL. We haven’t looked at the options of dropping our 

health care coverage, but we have had to make adjustments with 

these rate increases to—usually—— 
40 

Mr. BUCSHON. You have never even discussed—you never even 

had on one piece of paper the cost without covering it and the cost 

if you do? Because I would say as a business person that would be 

something that is on everybody—everybody that I talk to, that is 

on their list. They look at that. You have never done that? 

Ms. HALL. Absolutely not. I think the most important thing that 

we can do—and this is something I learned from Howard Schultz, 

CEO of Starbucks, directly, is if we take care of our people they 

take care of our customers—— 

Mr. BUCSHON. Fair enough. 

Ms. HALL [continuing]. They take care of your shareholders. 

Mr. BUCSHON. Fair enough. 

Mr. Streitberger, first of all, my son loves your hamburgers. I 

know people have said that, but it is true. 

Mr. STREITBERGER. Thank you. 

Mr. BUCSHON. Evansville, Indiana, he wants to go there every 

time. 

Mr. STREITBERGER. Thank you. 

Mr. BUCSHON. And you may or may not be willing to step out on 

a limb on this—has your company, that you are aware of, looked 

at your options under PPACA as far as what type of health insurance coverage versus none that your company provides? 

Mr. STREITBERGER. All options we are currently investigating, 

yes, sir—— 

Mr. BUCSHON. So the answer is, which is consistent with every 

business person I have talked to, is that an astute business person 

that runs a business has looked at all of these options and will 

make their decision partially based on their competition, as was 

pointed out by Mr. Fensholt, and based on a number of factors. But 

if the financial advantage is so massive that they can’t compete 

they will have no choice. 

The other thing is, finally, just to finish up, I would—as a physician I would recommend that anyone, including members of Congress, that can avail themselves to a city emergency room to visit 

and to get in—really get in the trenches on health care and see exactly what actually is happening and—because a lot of people want 

to talk about this issue in the abstract. I have been there. A lot 

of other members have been there. And you really can’t get a good 

assessment for some of these things without being there. If you can 

avail yourself to that opportunity it would be a good thing. 

I yield back. 

Chairman ROE. Thank the gentleman for yielding. 

Mr. Ross? 

Mr. ROSS. Thank you, Mr. Chairman. 

Mr. STREITBERGER—— 

Mr. STREITBERGER. Yes, sir. 

Mr. ROSS [continuing]. We don’t have any of your restaurants in 

Florida, and I am apparently missing out, but—— 

Mr. STREITBERGER. We are coming there. We are coming there. 

Mr. ROSS. I obviously haven’t missed too many hamburgers, so 

I am pretty good there. 

Profit per employee—are you familiar with that concept? 

Mr. STREITBERGER. Yes, sir. 
41 

Mr. ROSS. And that essentially would be an alternative to 50 or 

more employees in order for the Patient Protection and Affordable 

Care Act to apply. And I came in late—has anybody asked you 

about that? 

Mr. STREITBERGER. No, sir. 

Mr. ROSS. Would you explain why that is a good idea? 

Mr. STREITBERGER. Well, if I understand the question, we have— 

as a public company, and probably a lot of private companies, we 

look at our profitability in many different ways, and profit for employee, or in the case of health insurance, the cost per employee, 

and we try and keep that within a manageable rate for the organization as well as an affordable one for our team members, as well. 

And to Mr. Andrews’ point, some, you know, may find it difficult 

to pay the premiums based on their annual salary—— 

Mr. ROSS. Well, that affects your margins. I mean, if you are on 

a—— 

Mr. STREITBERGER. Well, at 3 percent—— 

Mr. ROSS [continuing]. If you are a tech company and your profit 

per employee is, you know, several hundred thousand dollars, and 

in the food industry, you know, it is—— 

Mr. STREITBERGER. Yes. Our business isn’t in the clouds. I mean, 

it is in our restaurants and we can’t take our work, if you will, offshore. I mean, it stays here in the United States. 

Mr. ROSS. Would you support a profit per employee, as opposed 

to a threshold of 50 or more employees? 

Mr. STREITBERGER. Yes, sir. 

Mr. ROSS. Mr. Fensholt, you talked about the grandfather provision and being able to keep your doctor. Is there anything in this 

act that would allow or require a doctor to keep a patient? 

Mr. FENSHOLT. Not to my knowledge, sir. 

Mr. ROSS. So it is somewhat unilateral, I guess. In other words, 

if the doctor is not going to get the reimbursement, if the doctor 

is not going to get the equitable fee for his services then he may 

not keep the patient regardless of how much the patient wants to 

keep the doctor. 

Mr. FENSHOLT. I think that is a fair statement. 

Mr. ROSS. And, Mr. Ramthun, I want to talk to you a little bit 

about the HSAs, and wellness, and portability. And I think there 

are a lot of factors that come into play because I think we as a 

country missed something when we decided to continue employeeprovided health benefits, because we don’t provide employer-provided auto insurance, property insurance, and most other insurances. 

For some reason, since the end of World War II we have provided 

this as a benefit, and done so to the detriment of the employee and 

to the employer, and to the doctors. And it seems to me that a 

change in health policy would be to allow for wellness, as Ms. Hall 

spoke about being very important, and wellness being managed 

with HSAs that allow the employees to have some sense of responsibility 

In other words, when I buy property insurance I get a discount 

if I have a smoke alarm, a fire alarm. I have some risk in it. I am 

paying the premium but I also have the discount because of my 

risk management. 
42 

It would seem to me that a policy in place that would allow for 

the interstate sale of health insurance programs—because we have 

interstate sale of a lot of investment products out there that are 

done, I think, very effectively through consumer advocacy enforcement, as well. But across state lines, health savings accounts, tax 

policy that incentivizes somebody to buy it, and incentives for 

wellness, and I think that we have got not only somebody who will 

manage their care better and bring down costs but also allow for 

portability so that the employer doesn’t have to burden that cost 

and that the employee can take the advantage of not only the deduction but also the choice of policy they want. Would you agree 

with that? 

Mr. FENSHOLT. That would be a winning combination. And as far 

as not being able to reach across state lines to talk to an insurance 

commissioner, it works in the driver’s license system. If I am 

speeding in California and my license is back in Maryland they can 

pull up all the tickets that I have ever had in a matter of a few 

instances, so—— 

Mr. ROSS. Thank you—— 

Mr. FENSHOLT [continuing]. I think those insurance commissioners could work together to—— 

Mr. ROSS. Oh, no question about it. 

Ms. Hall, you know, you talk about junk insurance companies 

selling across state lines. You know, I have got some concern. You 

mentioned that you would prefer a public option but a public option 

is essentially putting the federal government in the business of insurance competing against private industry. 

Ms. HALL. Yes. 

Mr. ROSS. And you think that is a good idea. And as I understand it, insurance is basically an actuarial assessment of risks— 

of lifetime risk that is backed by capital—capital in the form of 

cash, securities, or reinsurance. And yet, if you put the government 

into the business there is no cash, there is no securities, there is 

no capital. All there is is the obligation of the taxpayers, and you 

could have a subsidized market. 

It would seem to me that a public option would be one of the 

worst things we could ever do for this country, and if that is the 

course you want to take then if the price of milk is too high why 

not put the federal government in the milk business? 

Ms. HALL. I mean, the public option is off the table so that is no 

longer an issue. And I guess I disagree, that I think the government actually could create a really amazing insurance—— 

Mr. ROSS. A central government function, then? 

Ms. HALL. I mean, I think that you take 50-plus years of learning of where we have come and create a system, I think, that can 

be more powerful across all states. 

Mr. ROSS. I see my time is up, but I tend to disagree with you. 

I yield back. Thank you. 

Chairman ROE. Thank the gentleman for yielding. 

Mr. Rokita? 

Mr. ROKITA. Thank you, Mr. Chairman. I thank the chair, and 

the members, and the witnesses for your time today. It is very educational. Not only do I learn about health care but I learn about 
43 

milk prices in a centralized economy. And by the way, I completely 

associate with Mr. Ross. 

I had some follow-up questions based on earlier testimony and I 

want to focus first on Mr. Fensholt. 

Sir, did you recall the discussion—excuse me—do you recall the 

discussion about the consumer protection all moving to one state— 

maybe the one state that has the lease, quote-unquote, consumer 

protection if we went to selling insurance across state lines? Do you 

recall that discussion just a little while ago? 

Mr. FENSHOLT. Yes, sir. 

Mr. ROKITA. Okay. I used to be in the consumer protection business. I was a state securities regulator, so I am very interested in 

that line of thinking from Ms. Hall’s testimony. Do you agree with 

that? 

Mr. FENSHOLT. I don’t think so, sir. And certainly in our—in my 

business, what Lockton does, the bulk of our clients provide selfinsurance. They are not subject to state regulation in any event. 

So we look at health reform from the standpoint of these midsize 

to large employers that provide their own insurance, and they are 

subject only to the whims of the federal authorities. And our view 

and the view of our clients is those regulations are simply becoming too burdensome and too expensive. 

Mr. ROKITA. Right. 

Mr. Ramthun, do you have anything to add to that? 

Mr. RAMTHUN. No, I don’t. Sorry. 

Mr. ROKITA. All right. Thank you. 

And, Mr. Streitberger, do you have anything to add to that? 

Mr. STREITBERGER. No, sir. 

Mr. ROKITA. Okay. 

Ms. Hall, do you have anything? 

Ms. HALL. I think that letting insurance companies throw quality 

and value out of the window it seems like—the across state lines 

is just kind of a code for insurance companies to not comply with 

quality, affordable health care coverage. 

Mr. ROKITA. So you don’t believe that competition would occur inside the state? 

Ms. HALL. It just seems like if I live in Washington I can go to 

my insurance commissioner to talk about what is going now. You 

know, insurance is a lot different than a driver’s license. How 

many times do you call the Department of Licensing about your license? Once every 4 years. 

Mr. ROKITA. Well, it is very different. I know that—— 

Ms. HALL. And you go to the doctor six times a year—— 

Mr. ROKITA [continuing]. But that is not my question, so I just 

wanted to see if you had anything to add to your testimony in light 

of what was said. 

Again, to Mr. Fensholt, to offset the health reform law the Democrats included a host of new taxes and fees in the medical device 

industry and in the insurance industry. 

Mr. FENSHOLT. Yes, sir. 

Mr. ROKITA. I am a cosponsor of the Medical Device Repeal Act, 

for example. Many others in Congress are, as well. It is going to 

be heard next week for an up or down vote, so I am interested to 

know you and your members’ opinions on the effect of these taxes 
44 

and fees. We have heard from the Congressional Budget Office that 

these new taxes will be passed through to consumers in the form 

of higher premiums. 

Mr. FENSHOLT. No question about it. 

Mr. ROKITA. And so consumers are going to be paying for these 

higher taxes, or we are going to have less devices, I would imagine. 

Mr. FENSHOLT. Sir, with all due respect, I think this is one of the 

most disingenuous aspects of the Affordable Care Act. You can’t 

levy billions of dollars in excise taxes—penalty taxes—against entire industry segments and expect those business people not to pass 

that cost on through in the price of their products. 

In the case of the taxes and fees on insurance companies and 

third party claim payers, the insurance companies we deal with 

and our own actuaries, as I said in my testimony, expect both taxes 

and fees alone to amount to $10 to $15 per employee per month 

increase beginning in 2014. 

Mr. ROKITA. Thank you, sir. 

And then to Mr. Ramthun: Researchers from RAND recently 

wrote in Health Affairs that an increase in consumer-directed 

health plans could reduce annual health spending by about $57 billion. Are you concerned that the implementation approach by this 

administration—the approach they are taking with respect to consumer-directed health plans may actually discourage employers 

from offering these plans? 

Mr. RAMTHUN. Absolutely. I am very concerned and outlined in 

my testimony several areas where the regulatory issues could 

cause those effects. 

Mr. ROKITA. Okay. Thank you. 

I yield back, Chairman. 

Chairman ROE. Thank the gentleman for yielding. 

Mr. Scott? 

Mr. SCOTT. Thank you, Mr. Chairman. Could any of the panelists 

respond to the effect on individuals and small businesses of getting 

what is essentially the large group rate under exchanges rather 

than what they have to go through now? 

Mr. FENSHOLT. I couldn’t hear the question. I am sorry. 

Ms. HALL. Yes. I missed—— 

Mr. SCOTT. The effect of the exchanges on the rates that would 

be paid by individuals and small businesses. Right now the large 

businesses get the smaller rates. By going under the exchanges 

wouldn’t the individuals and small businesses be—have access to 

lower rates? 

Ms. HALL. I mean, I am a small business owner, and yes, we 

would have access to lower rates, which is why we support this. 

Mr. SCOTT. If we have an exchange, what is the expectation of 

the number of companies—insurance companies that would actually sign up with a reasonable panel of doctors? Does anybody—— 

Mr. STREITBERGER. I don’t know. 

Mr. SCOTT. If the insurance companies have access to the exchange, what would that do to their expenses? Would their expenses be lower, having access to an exchange, everybody going to 

an exchange rather than having the higher sales force to go out 

and try to sell insurance? 

Ms. HALL. I imagine it would be much lower. 
45 

Mr. SCOTT. Thank you, Mr. Chairman. I yield back. 

Chairman ROE. I thank the gentleman for yielding. 

I will now take my 5 minutes. First of all, I just want to start 

by saying the problem has been clearly laid out. The number one 

problem of the American health care system is it is too expensive. 

That is number one. 

Number two, it has been brought out we have a group of people 

who work who don’t have access to affordable health care. And 

number three, we have a liability crisis. Those are the three big 

problems. 

Let me just give you some down-to-earth examples of what is 

going on out in the real world. Our local hospital system has 9,000 

employees. We have a medical school in our community. They just 

laid off 168 people and did not fill 90 jobs—250 good jobs went 

away. 

A small, rural hospital, in anticipation of this, had to go borrow 

$800,000 from the county commission to pay operating expenses— 

not to buy a new CT scanner but to keep their hospital doors open. 

Why is this happening? 

Well, the payer mix is changing in hospitals. You have the government-run plans, Medicare and Medicaid, which don’t pay the 

cost of the care. And there are less private insurers not because of 

everything getting better, because the economy has been bad. That 

is why. People have lost their insurance and people are not going 

to the—so the payer mix is changed. 

And I think it is great. I have supported the 26-year-olds on 

health insurance. That was one of the things I support to begin 

with. They don’t use hospitals. They figured it out. They are not 

the ones that go. You provide the benefit but they don’t spend the 

money in the hospital. 

So I talked to our CEO at the local hospital, and that is going 

on all over the country, and you are going to see more and more 

of that. That is from the real world. 

Secondly, the expansion of Medicaid in our state, the hospitals 

now tax themselves 2.5 percent of their gross revenue to make up 

the state part of the Medicaid plan because the state doesn’t have 

the revenue to make its match. Well, if you expand that I don’t 

know how we are going to pay for it in the state of Tennessee, so 

that expansion is causing great grief among our governors who 

have looked at this, and the expansion is 16-to 20-something million. 

I agree, it is not government-controlled health care; it is government-regulated health care—incredibly regulated because I put up 

with it for over 30 years trying to jump through those hoops that 

they put out there. I think this—what we ought to be looking at 

is cost, and Mr. Ramthun had a great—his testimony showed that 

the one thing that has been bringing cost down for people are consumer-driven plans. 

This is mine; I have a health savings account. That is a wonderful way to provide health care for my family because if I need 

something I don’t have to call up the insurance company and say, 

‘‘Can I get this done?’’ And if I take care of myself in wellness and 

so forth I keep the money, the insurance money doesn’t keep the 

money. 
46 

Where have we seen this done in public policy? And I want—I 

know Mr. Rokita is gone, but the state of Indiana has done this. 

We have done this for about 400 employees in our practice, and 

they don’t go back to conventional insurance. People like this. 

And I would like to have Mr. Ramthun speak to that. When you 

look at the data it is overwhelming—at the money. It is a different 

concept. You have to think about, ‘‘Now I am in charge of this debit 

card. I don’t have to call anybody or do anything.’’ 

Could you comment on that? 

Mr. RAMTHUN. Well, it is very easy to blame the insurance for 

the rising costs of health care in this country, but the fact is that 

most of the employees get their coverage through self-funded employers, where the employer is the insurance company. So they are 

not layering on all these other costs that everybody thinks are excessive for insurance. 

What they have seen is that the utilization of the health care 

services is what is driving this total spending growth. And so it is 

strategies of personal responsibility, wellness, prevention that are 

making a difference and why the consumer-driven plans are so successful. There is a financial reward at the end of the day for doing 

so because you get to keep some of the money that used to go to 

pay for your insurance. 

I think we have lost the notion of what real insurance is, and so 

we insure ourselves for all kinds of routine, very low-cost things 

where there is absolutely no risk involved. That has got to change. 

Consumer-driven health care is doing that and why it is so promising as a strategy to bend the cost curve. 

Chairman ROE. Yes. When the rule-makers looked at this, why 

would they treat HSAs differently when it has been shown that 

that is the one thing out there that is lower cost for people? Why 

would that be treated differently? 

Mr. RAMTHUN. I don’t think they fully understand exactly how 

these policies work, and they are used to dealing with traditional 

insurance, which I understand what they are trying to achieve 

through their regulations. These policies are different because they 

don’t pay from the very first dollar and so there have to be some 

special considerations made, which I have yet to see in the regulations. 

Chairman ROE. And the state employees in Indiana saved—the 

state of Indiana saved 10 percent, which is a huge amount of 

money. 

Mr. RAMTHUN. Yes. And that has been documented by Mercer. 

Chairman ROE. Yes. Huge amount. And only 2 percent of the employees chose to go back to traditional insurance. They stayed. 

When they found out and learned how to use it it is very, very 

good. 

I see my time is expired. 

Mr. Walberg? 

Mr. WALBERG. Thank you, Mr. Chairman. 

Appreciate reading the testimonies. Sorry I wasn’t here to hear 

them. 

But let me ask Mr. Fensholt, first, at this time 2 years ago in 

our state of Michigan, which led the nation into high unemployment and is still working its way out of it. Thankfully, in the last 
47 

2 years we have had new leadership in Lansing—new governor, 

new legislature—that have been doing, I think, things the right direction in reducing the heavy burden upon businesses—small businesses, especially, in the state. 

So we have gone from a statewide average 2 years ago of 13 percent, last year 10.6 percent. My district was at almost 15 percent 

and has now dropped to a state average. We are at 8.3 percent 

now. Things are starting to turn. 

But in your testimony you discuss how the additional complexities of the president’s health care law will undermine the private 

sector’s attempt to grow. Could you be somewhat specific in how 

many of your clients are concerned with how this health care law 

will affect their businesses? And secondly, have they discussed the 

option of laying off employees or dropping health care coverage all 

together? 

Mr. FENSHOLT. Yes, sir. We surveyed our clients about this time 

last year regarding the—their concern about the bill, its additional 

costs, its additional administrative burdens, and the cost attendant 

to that. A full 80 percent of our clients responded, and about half 

of our clients responded to the survey, which was remarkable—said 

they were either concerned or very concerned about the additional 

costs, administrative burdens imposed upon them by the health 

care reform law. 

The bottom line is this: There is a tension created by the law between the finance offices in these companies who are looking at 

what they are currently spending on health insurance—$6,000, 

$8,000, $10,000, $11,000 per employee per year—and the human 

resource managers who feel they need to offer benefits to attract 

and retain talent. Ultimately, in challenging economic times the 

CFO wins that argument and if the business’ survival depends on 

jettisoning health insurance they will do it. 

And what this construct does, by offering extraordinarily generous federal subsidies to individuals to buy insurance in these insurance exchanges if they cannot get it from an employer, and it 

invites employers, in these challenging times, to exit that marketplace and allow their employees to migrate into the health insurance exchanges. Our fear—and I think our clients, many of them 

view—is that that will simply have to happen. They simply cannot 

continue to sustain these costs and without relief in that regard— 

they would love to do it, but without relief in that regard ultimately they will send their employees into the health insurance exchanges where they will draw federal money to buy coverage. 

Mr. WALBERG. Yes, okay. Thank you. 

Mr. Streitberger, maybe I am drawn to ask you questions because it is getting near lunch time and Red Robin is an interest 

at this point. But you mentioned that over the last 3 years, in your 

testimony, health care costs per employee have risen over 6 percent. 

Mr. STREITBERGER. Yes, sir. 

Mr. WALBERG. And that it is—that is before the full implementation of PPAC. If the president’s health care mandate continues to 

force your prices to rise rapidly how will you limit the number of 

jobs Red Robin can create, and might you be forced to shift to a 
48 

model where some of your workers’ hours would be reduced, minimized, your company’s exposure to the employer penalties? 

Mr. STREITBERGER. Well, those are all things that we are going 

to—that we are currently considering in how to deal with 2014. 

And yes, we would have to look at limiting hours that team members work, you know, to keep them below that because the cost is 

a—will spiral upwards when this kicks in. 

We do the best that we can, as I mentioned earlier. We are selfinsured. We pay the bills for our team members, which helps keep 

all our premiums as well as their premiums down. And with the 

lack of competition out there this is going to continue. 

Now, ours increased 6 percent over the last 3 years, and a lot of 

that was in plan design and a lot of it with the fortune of having 

low claims history of our current population. So that 6 percent includes last year, which we were at zero. We kept our premiums 

flat. 

Mr. WALBERG. So it could have been worse. 

Mr. STREITBERGER. This was not health care legislation; this was 

just plan design and a little luck with low claims. But we can’t 

count on that every year. Again, we want to keep affordable and 

robust health insurance, health coverage for our team members so 

that we can continue to grow and—but with these small margins 

the more we invest in things such as this, the slower we would be 

forced to grow, and then having to also entertain looking at limited 

hours. 

Mr. WALBERG. Thank you. 

And, Mr. Chairman, I think the old saw that said the best way 

to have health insurance is to have a job. This is going directly opposite in promoting health care at the expense of jobs, which ultimately does away with health care, as well. 

Thank you. 

Chairman ROE. I thank the gentleman for yielding. 

I would now like to take this opportunity to thank our witnesses 

for taking your valuable time, and preparing your testimony, and 

coming to Washington and testifying. It has been very enlightening. 

I will now recognize the ranking member for closing comments. 

Mr. ANDREWS. Thank you. 

I also would like to thank each of you for the time and preparation, and the inconvenience you suffered. I know one of our witnesses is going to go open another store in the state of Washington. 

I wish her well. 

And I hope—Mr. Streitberger, you are opening a lot of stores. 

New Jersey is open to you. 

I do want to express to the chairman my extreme disappointment 

that in scheduling this hearing and having a premier hamburger 

restaurant, premier cupcake vendor, that neither were asked to 

bring samples, evidently, for the members of the committee, and I 

want to express and register my extreme disappointment in that— 

that disappointment. 

Mr. FENSHOLT. I will second that, Mr—— 

[Laughter.] 

Mr. ANDREWS. The premise of much of the argument against the 

Affordable Care Act is that it is a job-killing health care law. Since 
49 

the president signed the law private sector employers in this country have added over 4 million new jobs. 

I think that there is a political dispute about the law; I think it 

is one we ought to have in the election. But I think the facts are 

clear that the argument that this is a job-destroying health care 

law is not borne out by the evidence. Matter of fact, the opposite 

is borne out by the evidence. 

But I look at this through the prism of personal experiences that 

some of you help us to edify this morning—all of you really have. 

On Tuesday morning—you want to talk about controlling cost—a 

woman went to a doctor to see how her diabetes was being managed. She had a stroke in 2005, mildly has been managing her 

blood sugar through exercise and diet, and as just great news about 

her blood sugar, and about her blood pressure, and about her blood 

tests, which all came back looking like she is doing very well. 

She is a Medicare recipient, and I will tell you, I am especially 

glad that the prospect she will have another stroke or heart attack 

are lower because she is my wife’s mom. And she swims every day, 

and she counts every carb that she eats, and she takes care of herself. 

And we didn’t pass a law that said she had to do that. Believe 

me, I can’t pass any laws in my household that would affect anyone, as far as I can tell. But she made a really good personal 

choice, and she has got a higher quality of life, and she is costing 

the federal Treasury less. We have got to figure out a way to increase that behavior in any way we can. 

On Sunday I encountered a constituent. She and her husband 

were music directors for a local Catholic church and the church has 

suffered a downturn in the collection plate because a lot of the parishioners are out of work, so the church had to cut back and make 

the two music directors part time instead of full time. 

They both lost their health insurance because they were part 

time; the diocese couldn’t afford to cover them anymore. And the 

husband, who is six-five and 250 pounds, his pulse was down to, 

like, 41, and my physician friends would understand that there 

was something going on there. So he goes to a local emergency 

room, they look at him, and they say, ‘‘You have got a serious problem. You probably need some heart surgery.’’ And they were uninsured. 

Now, happily, there is an institution in our area called the Deborah Heart and Lung Center that is like the Shriners concept, that 

they will see anyone and take care of them whether or not they can 

pay their bill. And they were lucky enough to live near a facility 

like that. 

The man had a pacemaker put in a few months ago and he is 

alive today. I don’t think he would be alive today were it not for 

the fortuitous event that that hospital was accessible to him. 

That should not happen. These are hardworking, taxpaying, 

mortgage-paying citizens who, through no fault of their own, found 

themselves in a position where they were facing financial ruin, and 

worse than that, loss of life because of lack of health insurance. 

That should not happen in this country. And I think that this 

law should stay in effect because it will prevent that from happening in this country. 
50 

And then the final thing that I saw this weekend that is a very 

good thing is that on Monday morning I was at Memorial Day 

breakfast at one of my American Legion posts and a friend of mine 

there is an electrical contractor. And last year when I saw him he 

was worried because he had one job left after the one he was working on. 

He now has a 4-month backlog of electrical contracting jobs waiting for him throughout the rest of the summer and into the fall. 

Now, he is not indicative of every employer in America. He is certainly not, you know, a statistically significant sample. It is one 

guy. 

But we have talked about the health insurance bill. He has about 

four or five employees. You know what he has to do under the bill? 

Nothing. Nothing. Because for the truly small businesses in the 

country there are no obligations imposed on them because of the 

understanding of what that costs. 

I would like Mr. Streitberger’s company to open 5,000 more 

stores. And I understand we have got to do something to control 

health care costs to make that a realistic and affordable goal. And 

for everyone here I would like to see them grow and be more successful and more prosperous. 

I understand the intensity of the political argument about this. 

Boy, do I understand it. We all lived through it the last couple 

years. 

But these are not issues that should be decided by ideological 

jihad; they should be decided by careful reasoning of people that 

want to solve these problems. I think we can do that together. I 

think we should build on this law—fix its deficiencies, build on its 

successes, and put our country in a different and better place. And 

I am confident that we can work together and do that. 

I thank you for participating in a meaningful discussion that 

helps us do that, each of you. Thank you. 

Chairman ROE. I thank the gentleman for yielding. 

And I will finish by saying after 31 years of the practice of medicine I never saw a Republican or a Democrat heart attack in my 

life. I never delivered a Republican or a Democrat baby in my life, 

and I have delivered lots of them. And I never operated on a Republican or Democrat cancer. It is a people problem, and unfortunately, this health care law was passed on a partisan basis. 

And I agree with the ranking member that we should work together in a bipartisan way to solve this, because if not it will never 

be accepted by the American people. Cost is a big issue because if 

you can’t afford to buy it then you can’t have it. I mean, it is that 

simple. 

The only way I see that you can do this is to either go to a consumer-driven system or to a single-payer system where care is rationed. I mean, otherwise we are not—nobody is going to be able 

to afford health insurance, even the wealthiest is not, among us. 

And the second thing that the ranking member brought up—Mr. 

Andrews brought up—which is coverage. There is no question there 

is a gap in coverage. I saw it every day in my practice, where there 

were people who worked hard every day and couldn’t get affordable 

health care coverage. We have to address that in this country. 
51 

To clear the record up, there is a law called EMTALA that was 

passed, I think, in 1986, where if you show up in an emergency 

room, whether you are legally here in this country, illegally, whether you can pay or not pay, we give you care in this country. And 

I am not saying that is the best way to do it but it is done. 

And I feel an obligation when someone—I am required and would 

do it. When a patient shows up without a doctor if I am on call I 

am going to take care of that patient in the emergency room. 

Physicians, and nurses, and health care people do it every single 

day across this country and don’t ask anything for it. The problem 

is it leaves the burden on the hospital to figure out how to pay for 

the bills—how to pay the bills, I should say. 

I held a hearing in Evansville, Indiana about a year ago—a subcommittee hearing, and a small business person who was an IHOP 

owner was there—something you would, Mr. Streitberger, you 

would be familiar with. He had 800 employees in his 12 stores and 

he made about $3,000 per employee—netted about that per employee, which he said was, in that business, pretty good, and he 

thought was very good. 

Since he had over 50 employees, if he provided what the government said he had to provide, the essential benefits package, which 

we don’t know what it is yet and how much it is going to cost, then 

it would cost him—he would be upside-down about $7,000 per employee. He calculated—his H.R. people did. If he paid the penalty 

he made no profit, made no money at all. So what is he supposed 

to do? 

Can he raise prices, as you pointed up? He can’t do that. We 

have to work through this. 

Another issue that we did hear—a small issue, but very much a 

big issue for me as a practitioner—is having someone with a flexible spending account, which should be getting you out of the most 

expensive part of health care, away from the doctor, away from the 

system, lets you make those health care decisions yourself and then 

purchase it with your own money, now you are requiring someone 

to see me to get a prescription for Nyquil. I mean, it is crazy when 

you see that. It makes no sense whatsoever. 

You are forcing that person into a higher cost or you are forcing 

that person to make a phone call that day to the doctor, wait until 

it is called in, and add more bureaucracy and mandates to me with 

no payment for it at all, just more work to do. 

There is a much simpler way to do it. One of the simplest transactions on this planet is a patient coming to see me as a physician, 

me providing a service, and them going out with whatever I do that 

day. And that is where consumer-driven care gets the insurance 

companies out of it, and you insure yourself for catastrophic problems—not for a headache or not for a cold but for catastrophic 

things. And it is the only way I can see we can actually get the 

health care costs under control. 

And I think you can do it for our Medicaid population. I think 

they respond exactly—there are folks and some of the best shoppers in the world are people who are at lower income. They have 

to be. So they make, probably, better decisions than people that 

have more disposable income. 
52 

I think this has been a great hearing. I certainly appreciate all 

of your testimony, appreciate your being here. 

With no further comments, this meeting is adjourned. 

[Additional submission of Chairman Roe follows:] 

[Whereupon, at 11:51 am., the subcommittee was adjourned.] 

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